Torc Solutions Pty Ltd v Unex Corporation doing business as Hytorc
[2025] FCA 1124
•12 September 2025
FEDERAL COURT OF AUSTRALIA
Torc Solutions Pty Ltd v Unex Corporation doing business as Hytorc [2025] FCA 1124
File number: SAD 190 of 2022 Judgment of: NESKOVCIN J Date of judgment: 12 September 2025 Catchwords: CONTRACTS – formation – where applicant and second respondent were parties to a Distributor Agreement – where closure of the second respondent announced – where applicant and first respondent executed a Branded Product Distribution Agreement – where applicant alleged that applicant and first respondent made an alternative agreement or that such agreement could be inferred from conduct – alternative agreement not established
CONTRACTS – whether the Branded Product Distribution Agreement was entered into by reason of economic duress – economic duress not established
CONTRACTS – interpretation – whether the Distributor Agreement was a perpetual agreement
CONSUMER LAW – whether the respondents engaged in misleading or deceptive conduct or made misrepresentations – whether the respondents engaged in unconscionable conduct – whether the applicant is entitled to loss and damage – application dismissed
Legislation: Competition and Consumer Act 2010 (Cth) Sch 2 (Australian Consumer Law) ss 18, 21, 22
Misrepresentation Act 1972 (SA) s 7
Cases cited: AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd (2023) 303 FCR 479; [2023] FCA 1022
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2020) 278 FCR 450; [2020] FCAFC 130
Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18
Australian Securities and Investments Commission v Wilson (No 3) (2023) 171 ACSR 1; [2023] FCA 1009
Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438
Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40
David v The Lord Provost, Magistrates and Councillors of the City of Edinburgh (1953) SC 34
Hendricks v McGeoch (2008) 14 BPR 26,415; [2008] NSWCA 53
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110
J. Kitchen & Sons Pty Ltd v Stewart’s Cash and Carry Stores (1942) 66 CLR 116; [1942] HCA 18
Lang v The Queen (2023) 278 CLR 323; [2023] HCA 29
Llanelly Railway and Dock Co v London and Northwestern-Railway Co (1875) LR 7 HL 550
Makita v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305
Martin-Baker Aircraft Co. Ltd. [1955] 2 Q.B. 556
Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31
Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37
Nadinic v Drinkwater [2020] NSWCA 2
National Justice Compania Naviera SA v Prudential Assurance Co Ltd (The Ikarian Reefer) [1993] 2 Lloyd's Rep 68
P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42
Pownall v Conlan Management Pty Ltd (as trustee for the Kalbarri Trust) (1995) 12 WAR 370
Productivity Partners Pty Ltd (t/as Captain Cook College) v Australian Competition and Consumer Commission (2024) 419 ALR 30; [2024] HCA 27
Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd (2023) 277 CLR 186; [2023] HCA 8
Stubbings v Jams 2 Pty Ltd (2022) 276 CLR 1; [2022] HCA 6
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Division: General Division Registry: South Australia National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 293 Date of hearing: 18–22 March, 9–12 December 2024
4, 6 March 2025Counsel for the Applicant: R Ross-Smith and C Haebich Solicitor for the Applicant: Precision Legal Counsel for the Respondents: K E Robertson-Clark SC and M Hamlyn Solicitor for the Respondents: Dentons ORDERS
SAD 190 of 2022 BETWEEN: TORC SOLUTIONS PTY LTD
Applicant
AND: UNEX CORPORATION DOING BUSINESS AS HYTORC
First Respondent
TORC LLC
Second Respondent
ORDER MADE BY:
NESKOVCIN J
DATE OF ORDER:
12 SEPTEMBER 2025
THE COURT ORDERS THAT:
1.The application is dismissed.
2.By 4:00pm on 19 September 2025, the parties are to submit a proposed form of order in relation to written submissions on costs to the Associate to Justice Neskovcin.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
BACKGROUND
[15]
Torc Solutions
[15]
Hytorc and Torc LLC
[17]
Distributor Agreement
[23]
Closure of Torc LLC
[36]
Teleconference on 29 January 2020
[39]
Negotiation of the Branded Product Distribution Agreement
[55]
Torc Solutions
[75]
Hytorc’s Threat
[77]
Branded Product Distribution Agreement
[83]
Supplies after the Teleconference
[85]
Further negotiations in relation to the insurance clause
[87]
Termination of the BPDA
[90]
THE WITNESSES
[93]
ISSUES FOR DETERMINATION
[102]
WHETHER BINDING AGREEMENTS WERE MADE IN THE TELECONFERENCE?
[103]
Legal principles
[106]
Consideration
[110]
ECONOMIC DURESS
[124]
Legal principles
[126]
Consideration
[129]
WHETHER TORC LLC AND/OR HYTORC ENGAGED IN MISLEADING AND DECEPTIVE CONDUCT?
[133]
Legal principles
[139]
Consideration
[145]
Whether Hytorc or Torc LLC represented that there would be a private label arrangement and there would be the Transition Arrangements?
[146]
Whether Hytorc or Torc LLC represented that Torc Solutions would be one of a number of distributors with whom Hytorc would enter into private label arrangements?
[149]
Whether Hytorc represented that it intended to create and supply home branded tools to Torc Solutions?
[160]
Conduct of the parties in relation to orders for Torc Solutions branded products and the steps taken by Hytorc towards creating Torc Solutions branded products
[164]
Conclusion on whether Hytorc intended to supply Torc Solutions branded tools and whether such supply was subject to Hytorc’s Conditions
[205]
Whether Hytorc had the Termination Strategy?
[226]
Were the Hytorc or Distributor Agreements ‘forever’ agreements?
[228]
Legal principles
[232]
Consideration
[239]
Did Hytorc engage in the Termination Strategy?
[241]
MISREPRESENTATIONS
[248]
WHETHER HYTORC AND/OR TORC LLC ENGAGED IN UNCONSCIONABLE CONDUCT?
[250]
Legal principles
[252]
Consideration
[254]
LOSS AND DAMAGE
[263]
Mr Ganly’s Expert Reports
[267]
Mr Irving’s Expert Reports
[272]
Mr Morton’s Expert Reports
[276]
CONCLUSION
[293]
REASONS FOR JUDGMENT
NESKOVCIN J:
The applicant, Torc Solutions Pty Ltd, was the Australasian distributor of torque wrenches and other associated industrial tools manufactured by the first respondent, Unex Corporation trading under the name Hytorc, and the second respondent, Torc LLC. Hytorc and Torc LLC are related entities, based in the United States of America.
Hytorc is a manufacturer and global supplier of torque wrenches and other tools which have been sold under the ‘Hytorc’ brand since the 1960’s. Torc LLC was established in or about 2012 to sell modified versions of Hytorc’s tools at a lower price point than the premium products of Hytorc.
Torc Solutions and Torc LLC were parties to a Distributor Agreement, under which Torc Solutions had been the distributor of Torc LLC products in Australasia since March 2016.
In mid-January 2020, Torc Solutions was told that Torc LLC’s brand and business was closing globally.
On 6 May 2021, Torc Solutions and Hytorc entered into a Branded Product Distribution Agreement under which Hytorc agreed to supply Torc Solutions with Torc Solutions branded products (also referred to as home branded or private label products).
On 1 March 2022, Hytorc sought to terminate the Branded Product Distribution Agreement for non-compliance with certain insurance obligations under cl 4.5 of the Branded Product Distribution Agreement. Torc Solutions disputed Hytorc’s right to terminate, but did not seek damages or any other relief in the proceeding in relation to the termination of the Branded Product Distribution Agreement. Nor did Torc Solutions seek damages or any other relief in the proceeding for breach of the Distributor Agreement as a consequence of the closure of Torc LLC.
Torc Solutions alleged that, at a teleconference held on 29 January 2020 (Teleconference), a binding supply agreement was reached between Torc Solutions, Hytorc and Torc LLC, whereby:
(a)during a transition period, Torc LLC would continue to supply Torc LLC products to Torc Solutions until the current inventory of Torc LLC product was exhausted or the Torc LLC business was wound down, on fundamentally the same terms and conditions as the Distributor Agreement, whereupon Hytorc would supply Torc Solutions with Torc LLC branded products, on fundamentally the same terms and conditions as the Distributor Agreement (which Torc Solutions called the “Variation Agreement”); and
(b)at the end of the transition period, Hytorc would supply Torc Solutions with Torc Solutions branded products, on fundamentally the same terms and conditions as the Distributor Agreement (which Torc Solutions called the “Hytorc Agreement”).
Torc Solutions further alleged that at the Teleconference, Torc LLC and Hytorc represented that Hytorc would supply Torc Solutions branded products after the transition period on fundamentally the same terms and conditions as the Distributor Agreement. Torc Solutions alleged that the representations were false in that Hytorc and Torc LLC never intended to make Torc Solutions branded tools. Alternatively, Torc Solutions alleged that Hytorc devised and implemented a strategy to end the trading relationship and avoid its obligations under the Hytorc Agreement, which Torc Solutions said was a ‘forever’ agreement, to enable Hytorc to sell the remaining Torc LLC branded products to Torc Solutions and, once they were sold, thereafter terminate the Hytorc Agreement (Termination Strategy).
Torc Solutions alleged that Hytorc’s purported termination of the Branded Product Distribution Agreement was ineffective because the Branded Product Distribution Agreement was unenforceable and/or void or voidable because Torc Solutions was induced to enter into the Branded Product Distribution Agreement as a result of economic duress, alternatively, Torc LLC and Hytorc’s misleading and deceptive conduct and/or unconscionable conduct and/or misrepresentations. Torc Solutions contended that the Hytorc Agreement remained operative, under which Hytorc was obliged to supply Torc Solutions branded products. Torc Solutions contended that Hytorc refused to supply Torc LLC products and Torc Solutions branded products, and thereby repudiated the Hytorc Agreement, which repudiation Torc Solutions accepted, and the Hytorc Agreement has been rescinded.
Torc Solutions sought damages by way of loss of business due to Torc Solutions’ repudiation of the Hytorc Agreement, alternatively, Torc LLC and Hytorc’s misleading or deceptive conduct, unconscionable conduct and/or misrepresentations at common law or under the Misrepresentation Act 1972 (SA). Torc Solutions abandoned its claim for exemplary damages.
Torc Solutions’ claim in relation to frustration of the Branded Product Distribution Agreement was abandoned. Further, Torc Solutions’ claim against Torc LLC in relation to breach of the exclusivity obligations under the Distributor Agreement, and Torc LLC’s set-off claim against Torc Solutions, were resolved.
Torc LLC and Hytorc denied that an agreement in relation to the ongoing supply of Torc LLC products or home branded products was formed at the Teleconference or by the parties’ subsequent conduct. They contended that, after the Teleconference, the only binding contractual obligation to supply Torc LLC products arose where Torc LLC or Hytorc accepted a purchase order submitted by Torc Solutions and that Hytorc’s obligations in relation to the supply of home branded products arose under the Branded Product Distribution Agreement. They denied any representations to the effect pleaded by Torc Solutions and denied the allegations of economic duress, misleading or deceptive conduct, unconscionable conduct and misrepresentation. Torc LLC and Hytorc said that at the time the parties entered into the Branded Product Distribution Agreement, Hytorc was committed to supplying home branded tools to Torc Solutions. However, the home branded arrangement was not working out as intended and was not viable for Hytorc. Accordingly, on 1 March 2022, Hytorc terminated the Branded Product Distribution Agreement. As already mentioned, Torc Solutions does not contend that the termination was wrongful.
The proceeding was commenced in December 2022. In May 2023, the proceeding was listed for trial in March 2024, on an estimate of 10 days. The statement of claim was amended six times, including once shortly before the first part of the trial, which necessitated an adjournment of the trial. The trial was scheduled to resume in July 2024 but, due to unfortunate circumstances, was unable to proceed at that time and alternative dates were required to accommodate the availability of Counsel, who have been involved in the proceeding for some time. The trial resumed and was concluded in March 2025. However, before the trial resumed, the statement of claim was amended for the sixth time. Despite the number of amendments to the statement of claim, the pleading was prolix and difficult to follow, to put it neutrally.
For the reasons that follow, I was not satisfied that Torc Solutions had established any of its claims against Torc LLC or Hytorc. Accordingly, the application should be dismissed.
BACKGROUND
Torc Solutions
Torc Solutions was established in 2016 to enter into the Distributor Agreement with Torc LLC. The shareholders of Torc Solutions are entities controlled by Adrian Case and his nephew, Andrew Case, who is also the sole director of Torc Solutions.
From November 1999, Adrian Case, through his own company, was engaged as an independent sales representative of Hytorc South Pacific Pty Ltd, a related entity of Hytorc. He was a successful and highly regarded sales representative, assigned to the territory of South Australia, Northern Territory and Indonesia.
Hytorc and Torc LLC
Hytorc is an industrial bolting tool manufacturer and distributor which was established by John Junkers in the 1960’s.
Hytorc has corporate offices and distributors around the world, and sells its products globally through exclusive and non-exclusive sales representatives and distribution arrangements.
Torc LLC was established in or about 2012 for the purpose of selling tools similar to Hytorc tools but at a lower price point to address the growing competition to Hytorc due to second tier tools, including imitation products, infiltrating and undercutting the premium tool market. Torc LLC’s business was conducted under a distributorship model, where it manufactured the tools and sold the tools to distributors to on-sell to resellers or direct customers.
Torque wrenches are hydraulic tools that apply a selected force to a fastener to tighten or loosen bolts, with significantly greater force and accuracy than manual tools. Torque wrenches are used in numerous industries, such as mining, agriculture and power generation, to name a few.
Torc LLC’s tools were structurally identical in material respects to models within Hytorc’s range of tools. Most were identical in all ways except branding. An exception was Torc LLC’s ‘TTZ’ tool which had a different profile than the functional equivalent Hytorc ‘Versa’ tool. As the tools were structurally identical in material respects, the individual parts of the tools could be interchanged, one exception being for the ‘TTZ’ and ‘Versa’ tools, for which some parts thereof were interchangeable, and some were not.
Relevantly, the Torc LLC tools and functionally equivalent Hytorc tools were as follows:
Torc LLC tool
Description
Hytorc equivalent
TTS
Hydraulic square drive tool
MXT
TTX
Hydraulic square drive tool
Edge
TTL
Hydraulic limited clearance tool
XLCT
TTZ
Hydraulic limited clearance tool
Versa
TTP
Pneumatic torque gun
JGun
TTB
Electronic portable battery gun
LION Gun
Distributor Agreement
The strategy of establishing Torc LLC to counter second tier tooling infiltrating the premium torc market was devised by John Junkers. According to Adrian Case, sales representatives of Hytorc did not embrace the strategy because they were concerned about the impact that competition from second tier tooling, sold at lower prices, would have on their commission.
In 2014, John Junkers died unexpectedly. After John’s death, his son Mr Eric Junkers, President of Hytorc since 2009, continued to push John’s strategy to develop Torc LLC.
In late 2015, Adrian Case put a proposal to Mr Junkers that Hytorc South Pacific become a distributorship and that he (Adrian) take over Hytorc South Pacific. Mr Junkers rejected the proposal. However, a short while later, Mr Junkers counter-offered that Adrian become the master distributor for Torc LLC tools throughout Australia.
Adrian discussed the idea with his nephew, Andrew Case, and a former colleague, Rachel Duff.
In February 2016, Adrian and Andrew Case flew to Hytorc’s Head Office in New Jersey, USA, to put forward a business proposal to Mr Brian Gershenoff, the General Manager of Torc LLC. They presented a proposed distributor agreement to Mr Gershenoff, which Andrew had drafted.
On 22 March 2016, Torc Solutions and Torc LLC entered into the Distributor Agreement, under which Torc Solutions was granted sole rights to sell and distribute Torc LLC’s products in Australia, New Zealand, parts of Asia and the South Pacific region.
The Distributor Agreement provided that Torc LLC had two business days to accept (or reject for a legitimate business reason) any order made with Torc LLC by Torc Solutions. If Torc LLC failed to accept or reject an order in a timely fashion, the order was deemed to be accepted and was binding on Torc LLC. The Distributor Agreement contained terms that Hytorc and Torc LLC said they did not have with any other distributors, such as 180 day credit terms. Torc LLC also arranged for Torc Solutions to have an order of Torc LLC tools on consignment, which was not something it had to do for other distributors.
From about April 2016, Torc Solutions commenced placing orders for Torc LLC tools, through the provision of purchase orders, and Torc LLC issued invoices to Torc Solutions for tools or other products once they were shipped to Torc Solutions.
After the Distributor Agreement was executed, Adrian Case continued as a Hytorc South Pacific sales representative. As a sales representative for Hytorc South Pacific, he could not be involved in the Torc Solutions business, because Torc LLC’s products were similar and sold in competition with Hytorc.
Andrew Case was responsible for the day-to-day operations of the Torc Solutions business, with the assistance of Ms Rachael Duff, as the Administration Manager. Ms Duff was responsible for day-to-day administration, issuing purchase orders on behalf of Torc Solutions and paying invoices, among other things.
Most of Torc Solutions’ customers were resellers, who on-sold the tools with their own mark up to end customers.
During the Distributor Agreement, Mr Gershenoff was the primary point of contact on behalf of Torc LLC. Following Torc LLC’s closure, Mr Gershenoff became Hytorc’s Director of Global Business Development, although he had general oversight of the transition of Torc LLC distributors. Mr Gershenoff was the representative of Torc LLC and Hytorc who had the primary relationship and communications with Torc Solutions.
In July 2019, Adrian resigned as a sales representative for Hytorc South Pacific to work at Torc Solutions on a full-time basis.
Closure of Torc LLC
In mid-2019, Torc Solutions was told, by one of its customers, that Torc LLC was being shut down.
After hearing this rumour, Andrew Case contacted Mr Gershenoff. Mr Gershenoff advised Andrew that Torc LLC was no longer going to market Torc LLC’s tools in the North America region. After the telephone call, Mr Gershenoff sent Andrew Case an email, on 17 July 2019, advising that Torc LLC did not have any intention to discontinue Torc LLC’s TTS or TTL tools, which were the core Torc LLC tools in Torc Solutions’ region.
However, on 20 January 2020, Mr Gershenoff called Andrew and Adrian Case and informed them that the Torc LLC brand and business was closing globally. Mr Gershenoff suggested that home branding may be a possible option given that Torc LLC was being shut down. Adrian said he asked Mr Gershenoff some questions about the home branding option, however, Mr Gershenoff’s responses were vague. Andrew said that he felt Mr Gershenoff seemed uncertain about what was being proposed. In any event, Andrew and Adrian Case asked to speak to Mr Junkers, and a teleconference was arranged for 29 January 2020.
Teleconference on 29 January 2020
On 29 January 2020, Adrian and Andrew Case attended the Teleconference, which was held by Skype with Eric Junkers, Brian Gershenoff and David Ricca also in attendance.
Before the Teleconference, Adrian and Andrew had had dealings with Mr Gershenoff and Mr Junkers, to a lesser extent. Mr David Ricca was the General Manager of Hytorc and had not had any dealings with Torc Solutions prior to the Teleconference, although he knew Adrian Case from the time he was a sales representative for Hytorc South Pacific. Mr Ricca said he was asked to attend the Teleconference because of his involvement in the Hytorc business and he was asked to be prepared to address how customer service was managed at Hytorc and what Hytorc could do for Torc Solutions if they were interested in becoming a private label customer.
According to Adrian and Andrew Case, at the outset of the Teleconference, Mr Junkers said they were going to start manufacturing home branded tools for Torc Solutions. At this point, Adrian and Andrew decided to record the Teleconference, which Adrian did on his mobile phone. There was no dispute in relation to the accuracy of the transcript of the recording, and the following summary of the matters discussed during the Teleconference is based on the transcript.
At the commencement of the recording of the Teleconference, reference was made to the fact that home branding (or private label / own branding) had been presented to Torc Solutions by Mr Gershenoff prior to the Teleconference, but not the detail of what was said by Mr Gershenoff. There was some criticism as to how the closure of Torc LLC had been raised with Torc Solutions, which Mr Junkers accepted and said he wanted to address.
After a brief discussion about how to communicate the decision to close down the Torc LLC business, the discussion turned to a timeframe to phase out Torc LLC products and convert customers to Torc Solutions’ own brand. Mr Junkers said “this is the year we’re phasing out Torc, but it doesn’t mean that we’re phasing out Torc Solutions”, to which Adrian Case said a strategy had to be worked through, of phasing out Torc LLC while phasing in a home branded line.
Mr Gershenoff replied:
I think a good option is that like Eric said we have stock and you can sort … continue to promote the brand that you are currently promoting which is Torc [LLC], while starting to you know, hey, we’re going to [be] making our own, or you know what … however it’s mentioned. You know whatever form that you want to take, oh we’ve sold the partnership or we’ll be making our own but it will be made in the US and at the same time working in, so it’s going to be compatible with what you previously purchased from us with Torc. You know the goal is not to leave you or your customers, or anybody high and dry and just, you know shut it down and scrap it.
Andrew and Adrian Case raised some concerns about filling orders of “unusual sized tools” and with warehouse and supply chain issues. Mr Gershenoff, Mr Ricca and Mr Junkers suggested that the service issues that Torc Solutions had experienced would not continue, because Torc Solutions would now be dealing with Hytorc.
After Adrian Case raised an issue about pricing, Mr Ricca said:
… I thin[k] guys you got off the point here. I mean we’re talking about a private label agreement with locked in prices and now we’re getting granular … Those things I can certainly work with Brian on, can figure out. I do all the pricing for Hytorc so you’ll have me at your disposal. Adrian knows me well. He knows how I operate. I, you know, I’ve always supported him when he was a Hytorc rep and I always will and I’ll support you guys when you’re a [Hytorc] customer that just get private label tools hopefully in the very near future. This is not something that we’re pulling the plug on this week. This is something that is being phased out. This is something that we would love to see you to work closely with Brian, who’s your friend, to come up with an agreement that can be put in front [sic] Eric. I’ll be happy to work with Brian on the backend to ensure the agreement is fair, its consistent, what we’re offering other people. We’ll lock in the pricing. We’ll try to improve on the operation, I think that’s going to happen naturally by cutting out all these middlemen and then you guys being treated as a Hytorc customer rather than a Torc distributor or sales agent and I think we should focus on building a positive relationship here rather than you know, going back and looking at what happened under the Torc helm or under the Hytorc/Torc relationship. I haven’t really been involved with the Torc sort of operations, I’m not involved in any of that so I’m not privy to any of this … but I can assure you that when you become a Hytorc customer, under the private label agreement, you will have my support and I will work to make sure that you guys are satisfied. I mean listen, it’s in my best interests if you guys sell the … out of the product, wherever in South East Asia, in Australia, in Indonesia and you Papua New Guinea, in New Zealand. I don’t give a … where. I mean it’s in my best interests to see you guys sell 500 tools a year so, I’m going to work to make sure that Adrian and yourself are in a position to do that.
After a brief comment from Mr Gershenoff about locking in prices, Andrew Case said:
Well that’s all the, [they’re] all the details we need to see in an agreement Brian so that we can say look, we think we can make this work or not.
Mr Junkers responded:
… let’s get the terms down, put the terms better that need to be put down in the agreement and we’ll certainly take it from there
A short while later, Andrew Case went back to his concern about who already knew about the closure of Torc LLC, stating that it was going to make it look like Torc Solutions was winding up. His concern was that Hytorc sales representatives had an incentive to create that perception, and Mr Ricca assured him that would not happen.
The discussion continued:
Eric:Let’s get it down in writing, and we’ll put something forward to you and then we can take it from there and these concerns about what the other guys are going to do, I hear you, but I think we can address it … put something in writing, I’ll put it on the website, I’ll do whatever needs to be done in order to be able to squash that and coupled with a transition plan and I think in the end, I really do think that this is a new beginning and something that you guys can really run with and I think it’s something that, you know I guess my frustration a little bit comes from like I thought, I thought this was a good thing and obviously you guys clearly don’t and so I’m you know whatever.
David:Well maybe your perception change slightly after this call cause it seems like maybe you didn’t have the full picture.
Andrew:Well we clearly didn’t.
Adrian:We didn’t. We’re not irrational people. We, you know, if we’ve got all the information in hand then we, you know, we’re savvy enough to work through it and understand it so right now you guys put something together, we get an agreement in place at the moment that just well I guess will just continue on until such time as the next you know the next agreement comes along
Towards the end of the discussion, there was a reference to getting “Justin” to put something together, which I infer was a reference to Mr Justin Bender, General Counsel at Hytorc. Mr Ricca said he thought Mr Bender would need a couple of weeks, however, it turned out to be longer.
Pending the written agreement, Andrew Case agreed to “look at what our brand may look like to simplify”, so that wholesale changes were not necessary as part of the home branding.
Then, Andrew Case raised a question about lead times:
Andrew: Like I don’t expect that it’s going to be a week turnaround now but it’ll be, I’d be really keen to know how you’re going to be able to home brand without us having to carry a million dollars’ worth of stock.
Eric:Yeah I mean we’ve addressed that with others where you know we had to carry some minimums and we agreed to that in writing that they would get a certain quantity on the shelf at all times to expedite delivery so this isn’t, we’re in completely like virgin territory of course.
…
David:… typically the top sellers, the 1s, the 3s, the 5s, the 10s, those to be on the shelf, in stock ready to go at a moment’s notice. Some of the larger sizes, maybe we’ll have 1 or 2 on the shelf rather than 10 but we do put a minimum quantity in stock in place so that we can deliver it. 45XLs, these things of that nature, 60XLs […] even for Hytorc those have got about a 6 to 8 [week lead] time. Those are a bit of a pain in the … but I don’t think any of the competition really is loading up on stock on those…
Adrian: No no.
Andrew: No it’s the bread and better stuff. It’s the bread and butter stuff I’m talking about.
David:Yeah the bread and butter stuff, we’ll put a minimum stock level, they’ll be in place, we’ll look at your, we’ll talk with you about a purchase history, how many units you move probably every quarter and then we’ll put something in place to ensure that you know we have a least a quarter’s worth of stock in place and if things, if sales grow, you know we’ll grow the stock quantity
The discussion came to an end, with Mr Ricca noting that he was pleased that matters had calmed down and that he looked forward to working with Torc Solutions.
Negotiation of the Branded Product Distribution Agreement
Mr Gershenoff said that transitioning or phasing out the approximately 76 Torc LLC distributors was a big task. Arrangements began in March 2020 to coordinate the phase out or transition of Torc LLC distributors to Hytorc or private label arrangements. Mr Bender commenced work on drafting a template private label agreement, however, it took longer than expected.
Andrew Case negotiated the Branded Product Distribution Agreement on behalf of Torc Solutions, although he received legal advice in relation to the draft agreement in the earlier stages of the negotiations.
Following the Teleconference, between 28 May 2020 and 6 May 2021, Torc Solutions and Hytorc exchanged several drafts of the Branded Product Distribution Agreement. The following emails and drafts were exchanged, although the dates of emails may vary depending on the time zone in which the email was sent or received.
On 28 May 2020, Mr Gershenoff sent Andrew Case an email which attached a draft Branded Product Distribution Agreement. The draft agreement included a clause that permitted either party to terminate “at will” by giving written notice.
On 13 July 2020, Andrew Case sent Mr Gershenoff an email which stated: “[t]his Agreement appears to be a Frankensteined collation of shelf documents to create an agreement that needs considerable work”. Mr Case said that Torc Solutions’ lawyer was seeking further details on five points, which were listed in the email and included a price list, colour options and a manual, and said that there was likely to be a further request for information in the foreseeable future.
On 27 August 2020, Mr Gershenoff sent Andrew Case, via email, a revised copy of the Branded Product Distribution Agreement.
On 2 October 2020, Andrew Case sent Mr Gershenoff an email (copied to Adrian Case) which noted that they had had someone take a look at the draft agreement, and he made comments on the draft agreement, seeking Hytorc’s response.
On 21 October 2020, Mr Gershenoff sent Andrew Case a revised agreement for review.
On 4 November 2020, Andrew Case sent Mr Gershenoff an email with a number of comments on the draft agreement and a revised version of the Branded Product Distribution Agreement.
On 17 November 2020, Mr Gershenoff responded to the email with comments (it is not clear from whom) indicating whether Hytorc agreed to Torc Solutions’ requested changes or Hytorc’s position on the changes requested, some of which were more favourable to Torc Solutions than Hytorc’s previous position.
On 24 February 2021, Andrew Case sent Mr Gershenoff an email which stated “[p]lease see attached mark up with some minor amendments. It looks like we are just about there now.” Torc Solutions’ proposed amendments included changes to amend the termination clause to provide that the Branded Product Distribution Agreement could be terminated by either party by giving six months’ written notice.
Also on 24 February 2021, Andrew Case sent Mr Gershenoff a separate email advising that Torc Solutions’ insurance broker, Gallagher, was opposed to Hytorc’s request to be noted as an “Additional Insured” under Torc Solutions’ general liability, workers’ compensation and employer liability insurance policies, and that their insurer, QBE, might not agree to the indemnification clause, which was a ‘hold harmless’ clause.
On 17 March 2021, Mr Gershenoff sent Andrew Case a further revised version of the Branded Product Distribution Agreement, which accepted Torc Solutions’ changes to the termination clause and included further amendments to the insurance clause, to require Hytorc to be noted as an “Interested Party” on Torc Solutions’ insurance policies.
On 22 March 2021, Andrew Case sent Mr Gershenoff an email advising that Torc Solutions’ insurer would not agree to the indemnification clause or to waive its right of subrogation.
On 28 March 2021, Andrew Case sent Mr Gershenoff a further email advising that the insurer would not agree to the ‘hold harmless’ clause, but if that could be removed, Hytorc could be added as an “Interested Party”.
On 30 March 2021, Mr Bender sent an email to Andrew and Adrian Case (copied to Mr Gershenoff) noting that Hytorc also wished to resolve “this last issue”, which was the ‘hold harmless’ clause.
On 6 April 2021, Andrew Case sent an email to Mr Bender (copied to Adrian Case and Mr Gershenoff) with an endorsement to be added to Torc Solutions’ insurance policy, which endorsement was to amend the definition of “Principal”. It appears that this was intended to address Hytorc’s request to be named as an “Interested Party” under Torc Solutions’ insurance policy.
On 9 April 2021, Mr Bender replied:
Mr. Case - I’m fine with this. And it does not appear that any additional amendments are necessary. Do I have that right? If so, feel free to sign and return a clean copy. Thanks, Justin.
On 12 April 2021, Andrew Case sent Mr Bender and Mr Gershenoff an email (copied to Adrian Case) which stated that Torc Solutions had a couple of points that it needed to be clarified, which related to Appendix A of the Branded Product Distribution Agreement. Appendix A was entitled “Discount from List Price” and set out the discounts which Torc Solutions was to receive off the regular price of Hytorc’s tools and accessories. The email raised four issues in relation to the discounts off the List Price and said “[o]nce the above is satisfied we are happy to finalise the agreement”.
On 14 April 2021, Mr Gershenoff sent an email to Andrew Case (copied to Mr Bender and Adrian Case) which stated, “[a]ll questions are answered in the amended document”, although Andrew Case disagreed that the amendments or issues that he had raised on 12 April 2021 had been addressed.
Torc Solutions’ naming convention and request for manuals
On 14 April 2021, Andrew Case sent an email to Mr Gershenoff (copied to Adrian Case and Ms Duff) which stated:
As we are getting very close to bedding down the new Agreement can you please advise as to how you see the process of us accessing the new tooling (Edge/Versa) happening and the new branding of existing models of tooling and a reliable timeframe?
We have discussed on several occasions the need for the transition to be as smooth as possible. This week we had to decline and [sic] order as the TTZ4 head was unavailable (and subsequently the corresponding link) so want to reduce the impact of the transition.
FYI:
•We propose to retain the current black coloured tooling wherever possible. Both housing and swivels
•Where possible/required we will use a brushed aluminium shrouds to reduce the vast colour variance experienced in anodising
•We will adopt a new naming convention of:
•TTS = TSS
•TTL = TSL
•TTP = TSP
•TTB = TSB
•Edge (Style) TSX
•Versa (style) TSZ
•Hyflow 230 = Hiflow230
•Hyflow Air = Hiflow Air
•Dynamic 230 = Action 230
•Dymamic [sic] Air = Action Air
•If this naming convention is agreed, can we please have a copy of the new User Manual templates so we can start to “home brand” them.
Do you have an example of what the “home branding” labels/stickers will look [like: sic]? We are thinking either the aluminium “badge” in a recess attached with a quality adhesive on the housing OR a high quality PVC (almost 3D) like those on the current TTB (also recessed to protect the badge). Example of PVC attached for reference.
Torc Solutions was proposing to retain the existing black colour on its home branded tools and asked Hytorc to provide manuals and sample stickers or labels.
Hytorc’s Threat
Andrew Case said that in a telephone call with Mr Gershenoff in late April 2021, he asked when Torc Solutions could expect to receive home branded tools, and Mr Gershenoff replied with words to the effect, “Andrew, they’re not going to start producing tools until you’ve signed the agreement” (which Torc Solutions defined as “Hytorc’s Threat”).
Mr Gershenoff said he recalled asking Andrew Case where he was up to with the agreement and that he then said that Hytorc would need a signed agreement before they would be prepared to start producing the home branded tools. Mr Gershenoff said that Mr Case replied that Torc Solutions was “working on it”.
It is not clear who made the telephone call, however, it was not in dispute that Mr Gershenoff told Torc Solutions that Hytorc would not start producing home branded tools until the Branded Product Distribution Agreement was signed.
Andrew Case said that he told Adrian Case about the telephone call with Mr Gershenoff, and that he told Adrian that Torc Solutions had to sign the agreement because they were running out of tools and would soon not be able to supply customers or resellers.
Andrew Case said that he knew that the insurance issue had not gone away. Torc Solutions’ insurance broker had made it clear that, even if the Branded Product Distribution Agreement had been amended as they had suggested, the insurer would cover Torc Solutions to the end of their current insurance policy, and then Torc Solutions would need a ‘standalone’ policy and the premiums would increase dramatically. Mr Case said that this meant they would have to deal with the insurance issue straight away.
Andrew Case said that he and Adrian Case agreed that they had no option other than to sign the Branded Product Distribution Agreement, in the hope that the manufacturing of the Torc Solutions branded products would commence quickly and they could maintain their current operations.
Branded Product Distribution Agreement
On 6 May 2021, Andrew Case sent an email to Mr Gershenoff which attached a countersigned copy of the Branded Product Distribution Agreement, executed on behalf of Torc Solutions.
On 23 May 2021, Mr Gershenoff sent an email to Andrew Case attaching a countersigned copy of the Branded Product Distribution Agreement, executed on behalf of Hytorc.
Supplies after the Teleconference
After the Teleconference, Torc LLC continued to ship tools and send invoices to Torc Solutions until 24 March 2020. After that date, Hytorc issued invoices for tools shipped to Torc Solutions.
On 16 June 2020, Hytorc confirmed the details of the Hytorc bank account into which payments were to be made for Hytorc invoices.
Further negotiations in relation to the insurance clause
When the Branded Product Distribution Agreement was executed, Torc Solutions held an insurance policy with QBE. QBE has agreed to naming Hytorc as an “Interested Party” on the policy and, according to Andrew Case, had also agreed to the terms of the Branded Product Distribution Agreement. However, the policy with QBE was due to expire on 7 July 2021 and Torc Solutions was aware that the premium was going to increase significantly.
Torc Solutions obtained a policy with AIG Australia Limited through a new broker, Perryman’s Insurance. Andrew and Adrian Case held the view that it was not possible to obtain workers’ compensation insurance through a private insurer, as required under the Branded Product Distribution Agreement, which Hytorc disputed.
Nevertheless, after the Branded Product Distribution Agreement was entered into, Torc Solutions sought to re-negotiate the insurance clauses with Hytorc. It is sufficient for the present to observe that the parties ultimately were unable to reach agreement on amendments to insurance clauses 4.5 and 4.6 of the Branded Product Distribution Agreement which were acceptable to both parties.
Termination of the BPDA
On 1 March 2022, Mr Bender sent an email to Andrew Case which attached a letter dated 28 February 2022 to Torc Solutions, by way of Notice of Termination. The letter stated:
Effective immediately, this letter serves as formal written notice of termination of the attached Branded Product Distribution Agreement dated 6 May 2021…
Per Section 4.5, your inability to obtain agreed upon Insurance Coverage constitutes a material breach of the Agreement. Per Section 9.2, HYTORC is exercising its right to terminate the Agreement for material breach upon written notice.
Mr Bender accepted that the reference to “Section 9.2” was an error. He also explained that, while the grounds of termination relied upon was the alleged failure to hold insurance as required under the Branded Product Distribution Agreement, the primary reason for Hytorc’s decision to terminate was that the home branding arrangement was not working out as initially intended and was not viable for Hytorc going forward.
At the time of the Notice of Termination, Hytorc had understood that Torc Solutions was uninsured, which Torc Solutions disputed. However, Torc Solutions did not contend that the termination of the Branded Product Distribution Agreement was a wrongful termination. Rather, Torc Solutions contended that the Branded Product Distribution Agreement did not exist or was voidable and the Notice of Termination was a repudiation of Hytorc’s obligations under the Hytorc Agreement.
THE WITNESSES
Torc Solutions called three lay witnesses, Andrew Case, Adrian Case and Ms Duff. Further, Torc Solutions called and relied on the evidence of two experts in relation to loss and damage: Mr Justin Ganly, the Managing Director of Deep End Services, an economic research and property consulting firm, and Mr John Irving, with professional experience in accounting and finance.
Torc LLC and Hytorc called four lay witnesses, Mr Gershenoff, Mr Ricca, Mr Junkers and Mr Bender. In addition, Torc LLC and Hytorc called Mr Clifford Francis, formerly the Growth Manager of Hytorc South Pacific and currently a commission-based sales agent for Hytorc South Pacific based in Victoria and Tasmania. Finally, Torc LLC and Hytorc relied on an expert report of Mr Euan Morton, an Economist, in relation to Torc Solutions’ loss and damage.
All of the witnesses were required for cross-examination.
Torc Solutions submitted that its lay witnesses were forthright witnesses, whose evidence was congruous with contemporaneous records, and who were responsive to questions in cross examination. On the other hand, Torc Solutions submitted, the evidence of the witnesses called by Hytorc and Torc LLC should be treated with caution.
More specifically, Torc Solutions submitted that Mr Gershenoff was dishonest in his dealings with Torc Solutions, that his evidence was carefully constructed and self-serving and, at times, obfuscatory or untrue. Torc Solutions was critical of Mr Gershenoff’s involvement in the provision of some late discovery, being documents which were discovered after the first part of the trial was adjourned, and submitted that the Court should be sceptical of Mr Gershenoff’s explanation for the late discovery.
In relation to Mr Junkers, Torc Solutions submitted that his evidence shed little light on material matters and was, in many instances, self-serving. On the other hand, Torc Solutions submitted that Mr Ricca presented as a more reliable witness, whose evidence resembled “the truth of things”. No specific issues were raised in relation to Mr Bender’s evidence. Torc Solutions’ objections to the evidence of Mr Francis and Mr Morton are dealt with below, in the section on Loss and Damage.
Torc LLC and Hytorc conceded that Andrew Case was an honest witness who gave frank evidence and made numerous appropriate concessions. They submitted, however, that Andrew Case was not a disinterested witness and his evidence sought to convey the narrative that he considered best advanced Torc Solutions’ case. Similarly, Torc LLC and Hytorc accepted that Adrian Case was an honest witness, but he was reliant on Andrew Case to a large degree in relation to Torc Solutions’ dealings with Torc LLC and Hytorc. Finally, Torc LLC and Hytorc acknowledged that Ms Duff presented as an honest, direct and helpful witness, with strong attention to detail.
In my assessment, each of the witnesses who gave evidence did so the best of their recollection. Having listened to and observed the witnesses, I consider that each of the witnesses was truthful and honest. Some of the witnesses were forthright in their evidence, but I reject that any of the witnesses were dishonest or deliberately obfuscatory. The key issues that fall for determination concern the proper construction of the Distributor Agreement, which is in writing, and whether the matters that were discussed at the Teleconference, which was recorded and transcribed, gave rise to a binding agreement or conveyed misleading or deceptive statements. The resolution of those matters do not require me to accept the evidence of one witness over another. However, Torc Solutions also submitted that the evidence of Torc LLC and Hytorc’s witnesses in relation to certain matters, such as the Termination Strategy and “Hytorc’s Conditions” (as defined in paragraph 133 below), should not be accepted.
Senior counsel for Torc LLC and Hytorc frankly conceded that the respondents were guilty of two matters, first, closing Torc LLC and, secondly, being slow to implement the Branded Product Distribution Agreement after it was executed. It is fair to say that Torc Solutions was disappointed on hearing the news about Torc LLC’s closure and because of the way in which they discovered the news. Before the closure of Torc LLC, Torc Solutions had been one of several distributors of Torc LLC products and Torc LLC manufactured enough product to ensure it could meet demand across the globe. Torc Solutions was no doubt frustrated by the manner in which Hytorc went about implementing the Branded Product Distribution Agreement. However, Torc Solutions behaved with a sense of entitlement, having had a favourable experience with Torc LLC under the Distributor Agreement, and was a “high maintenance account”, to use Mr Junker’s description. For the reasons set out below, I accept that Hytorc was committed to the Branded Product Distribution Agreement and to supplying home branded tools to Torc Solutions, and I accept the evidence of Hytorc’s witnesses on those matters. However, matters ultimately did not progress as Hytorc had hoped or intended, and it eventually decided to terminate the Branded Product Distribution Agreement.
ISSUES FOR DETERMINATION
The following issues arise in this proceeding and will be addressed in turn:
(a)Whether the Variation Agreement, or the Hytorc Agreement, was made at the Teleconference?
(b)Whether Torc Solutions entered into the Branded Product Distribution Agreement by reason of economic duress?
(c)Whether Hytorc and/or Torc LLC engaged in misleading and deceptive conduct?
(d)Whether Hytorc and/or Torc LLC made the alleged misrepresentations?
(e)Whether Hytorc and/or Torc LLC engaged in unconscionable conduct?
(f)Whether Torc Solutions is entitled to loss and damage?
WHETHER BINDING AGREEMENTS WERE MADE IN THE TELECONFERENCE?
Torc Solutions’ pleaded case was that, at the Teleconference, Torc Solutions, Hytorc and Torc LLC agreed that:
(a)during a transition period, Torc LLC would continue to supply Torc LLC products to Torc Solutions until current inventory of Torc LLC product was exhausted or the Torc LLC business was wound down, on fundamentally the same terms and conditions as the Distributor Agreement, whereupon Hytorc would supply Torc Solutions with Torc LLC branded products, on fundamentally the same terms and conditions as the Distributor Agreement (which Torc Solutions called the “Variation Agreement”);
(b)at the end of the transition period, Hytorc would supply Torc Solutions with Torc Solutions branded products, on fundamentally the same terms and conditions as the Distributor Agreement (which Torc Solutions called the “Hytorc Agreement”).
Hytorc and Torc LLC admitted that, at the Teleconference, it was conveyed to Torc Solutions that following the closure of Torc LLC a private label arrangement could be an option for Torc Solutions. Further, that a private label arrangement was something that Torc LLC and Hytorc had done in the past. Hytorc and Torc LLC also admitted that a transition from Torc LLC branded products to a home branded distributorship was discussed at the Teleconference. However, they denied that any binding agreement was reached at the Teleconference, and they denied that it was ever discussed, let alone agreed, that any future supply arrangement would be on the same terms of the Distributor Agreement.
Hytorc and Torc LLC contended that, after the Teleconference, the only binding contractual obligation to supply that arose was where Torc LLC or Hytorc accepted a purchase order submitted by Torc Solutions, with the terms and conditions of each purchase order evolving over time, with respect to matters such as pricing, applicable discounts, payment terms and the like (which Hytorc called the “Transition Arrangement” and I will call “the Hytorc Transition Arrangement”, to distinguish it from a similar term used by Torc Solutions). Alternatively, if the Hytorc Transition Arrangement established an ongoing obligation to supply, there was an implied term that the Hytorc Transition Arrangement was terminable by either party upon reasonable notice.
Legal principles
The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction: Toll (FGCT) Pty Ltd vAlphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
The formation of a contract can be inferred from the conduct of the parties. In Hendricks v McGeoch (2008) 14 BPR 26,415; [2008] NSWCA 53, Giles JA at [10] (Spigelman CJ agreeing at [6]) said:
A contract need not be made by formal offer and acceptance, or by an overt course of negotiation. Entry into a contract can be found in the conduct of the parties, in what they said and did towards each other. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 97326 McHugh JA, with whom Hope and Mahoney JJA agreed, said at 11,117:
“It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of ‘offer’, ‘acceptance’, ‘consideration’ and ‘intention to create a legal relationship’ which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship. cf Atiyah, ‘Contracts, Promises and the Law of Obligations’ 94 Law Quarterly Review at 194. A bilateral contract of this type exists independently of and indeed precedes what the parties do. Consequently, it is an error ‘to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed’: Howard, ‘Contract, Reliance and Business Transactions’ [1987] Journal of Business Law at 127. Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (Court of Appeal) (11/11/88). The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement.”
In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110, McHugh JA (as his Honour then was) at 11,117–11,118 (Hope and Mahoney JJA agreeing at 11,111) discussed the approach to the inference of a contract from conduct as follows:
… [A] contract may be inferred from the acts and conduct of parties as well as or in the absence of their words … The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement … The conduct of the parties, however, must be capable of proving all the essential elements of an express contract … Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances … Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.
The approach to identifying an inferred agreement was explained by Whelan JA in P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42 at [10]–[13] (Ferguson and Kaye JJA agreeing at [105]–[106] and [107]–[108], [121] respectively), in the following terms:
[10]… it is now accepted that the existence of a contract can be established or inferred where a manifestation of mutual assent must be implied from the circumstances.
[11]It is important to emphasise that the circumstances in which a contract will be inferred, otherwise than by the traditional analysis of offer and acceptance, will be rare. It seems to me that the position was well summarised by Sundberg J in Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd when he said:
A contract may in certain circumstances be inferred from conduct, even where no offer and acceptance can be identified … However the existence or otherwise of an enforceable agreement depends ultimately on the manifest intention of the parties, objectively ascertained … Where mutual promises are sought to be inferred, the conduct relied upon must, on an objective assessment, evince a tacit agreement with sufficiently clear terms. It is not enough that the conduct is consistent with what are alleged to be the terms of a binding agreement. The evidence must positively indicate that both parties considered themselves bound by that agreement …
[12]In determining if an agreement has been made in this way regard must be had to the entirety of the relevant conduct. The precise point in time at which the agreement comes into existence may not be clear, and the relationship between the parties themselves may be dynamic in such a way that the terms of the agreement might be added to or superseded over time.
[13]In this context the absence of non-essential terms, or a lack of agreement on non-essential terms, will not invalidate the existence or effective operation of a binding contract.
[Emphasis in original]
[Footnotes omitted]
Consideration
In its written closing submissions, Torc Solutions conceded that the Hytorc Agreement was not formed at the Teleconference, but submitted that it was where the agreement germinated. Torc Solutions submitted that, at the Teleconference, it was proposed that, as Torc LLC was being shut down, a new arrangement for a home branded tools distributorship would be put in place, if agreed. Further, that an interim arrangement was proposed whereby Torc Solutions would be supplied with tools until the home branded tools were available, with the supplier under the interim and proposed home branded arrangement being Hytorc.
In relation to the formation of the Hytorc Agreement, Torc Solutions relied on statements made at the Teleconference, in addition to subsequent conduct of the parties and admissions made by Torc LLC and Hytorc in their Defence.
During the Teleconference, statements were made, such as:
(a)by Andrew Case, on behalf of Torc Solutions:
…the[y’]re all the details we need to see in an agreement Brian so that we can say look, we think we can make this work or not …
…we would be really keen to see something in writing as a starting point as to what this arrangement could look like before we made a decision
(b)by Mr Junkers, on behalf of Hytorc:
Let’s get it down in writing, and we’ll put something forward to you and then we can take it from there …
…let us get together, put something in writing, get it back to you and then try and firm this up
Torc Solutions rightly conceded that the Hytorc Agreement was not formed at the Teleconference. As the respondents submitted, the discussion that occurred at the Teleconference in relation to home branded tools fell within the third class of case identified in Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72 at 360–361 (Dixon CJ, McTiernan and Kitto JJ). That is, the parties did not intend to make a binding arrangement in relation to Torc Solutions branded tools until a formed agreement was executed.
As to the parties subsequent conduct, Torc Solutions relied on the fact that, after the Teleconference, Torc Solutions sent purchase orders, initially to Torc LLC and later to Hytorc, which stated “Terms and conditions as per Distribution Agreement dated 22nd March 2016.” Prior to the Teleconference, Ms Duff had set up a template purchase order with the words, “Terms and conditions as per the Distribution Agreement dated 22nd March 2016.” Ms Duff said that, after the Teleconference, she continued to issue purchase orders to Torc LLC and every purchase order included those words, until the Branded Product Distribution Agreement came into effect. However, Torc Solutions did not lead any evidence to suggest that Ms Duff was directed to do so for a particular reason. Rather, she merely continued on as she had before the Teleconference.
In addition, Torc Solutions relied on a series of facts, which were admitted by Torc LLC and Hytorc in their Defence, regarding the supply of tools to Torc Solutions. The admissions included that Torc Solutions placed purchase orders to Torc LLC until March 2020 and thereafter placed purchase orders with Hytorc. Further, that Torc LLC issued tax invoices to Torc Solutions until March 2020 and Hytorc issued tax invoices to Torc Solutions thereafter. Finally, that Torc Solutions liaised with Hytorc representatives in relation to pricing and account-related issues and that Torc Solutions made payments (at Hytorc’s request and direction) to Hytorc. Torc Solutions submitted that there necessarily, and logically, had to have been an ongoing contractual relationship between Torc Solutions and Hytorc.
In my assessment, the conduct of the parties after the Teleconference does not evidence an agreement between the parties in relation to the supply of Torc Solutions branded tools. The overall facts do not evidence a tacit understanding between the parties capable of proving all the essential elements of an agreement, such as pricing and applicable discounts. The conduct relied upon reflected the reality of the situation, that Torc LLC was closing down and everything had to transition to Hytorc, until the parties executed the Branded Product Distribution Agreement. After the Teleconference, Torc Solutions submitted purchase orders for Torc LLC stock to Torc LLC and then to Hytorc, which orders were filled by Torc LLC or Hytorc. Hytorc took over issuing invoices to Torc Solutions and directed Torc Solutions to make payment to a Hytorc bank account.
Furthermore, I do not accept that the Variation Agreement, as pleaded by Torc Solutions, was formed at the Teleconference. At the Teleconference, Torc Solutions was told about the closure of Torc LLC globally and Torc LLC and Hytorc said that they did not want to leave Torc Solutions high and dry. Apart from the discussion about the private label arrangement, a great deal of the Teleconference involved Torc Solutions venting their frustrations about Torc LLC, and Hytorc’s representatives trying to placate them. The discussion about phasing out Torc LLC was limited and there was no detail about what it would involve. There was no discussion at the Teleconference regarding the terms and conditions of any arrangement going forward, and certainly none capable of giving rise to a binding agreement between the parties.
After the Teleconference, Torc Solutions submitted purchase orders for Torc LLC stock to Torc LLC and then to Hytorc. Hytorc took over issuing invoices to Torc Solutions and directed that Torc Solutions make payment to a Hytorc bank account. Orders were filled by Torc LLC or Hytorc. I accept the respondents’ submission that a binding contractual arrangement arose when Torc Solutions submitted a purchase order and Torc LLC or Hytorc accepted the order by issuing a sales invoice. However, there was no ongoing contractual obligation to supply.
Contrary to Torc Solutions’ submissions, the conduct of the parties cannot be construed as the parties adopting or agreeing that the terms of the Distributor Agreement would continue to apply to the arrangements between the parties. Torc Solutions submitted that the operation of the Distributor Agreement continued exactly as before, because Torc Solutions continued to order tools as it had under the Distributor Agreement and the parties continued their relationship and behaviour entirely as before the Teleconference. The Distributor Agreement was between Torc Solutions and Torc LLC. Torc Solutions did not explain how the terms of an agreement could be incorporated simply by a unilateral reference to them on purchase orders (see paragraph 113 above). Torc Solutions did not identify any particular conduct of Hytorc by which it said that Hytorc adopted the Distributor Agreement, save for an email from Mr Gershenoff on 6 April 2020, which I come to next. Torc Solutions merely submitted that the only available terms of contract were that of the Distributor Agreement and, it followed that the terms of the Distributor Agreement were incorporated into the new agreements.
On 6 April 2020, Ms Duff sent an email to Mr Gershenoff in relation to pricing, which stated:
Andrew has instructed me at this point to continue using all pricing structures that we have in place with Torc LLC.
We have a large quote that needs to be submitted today, please confirm these will be honoured.
If you see any potential issues arising from this, please let me know urgently!
Mr Gershenoff replied the same day:
Rach, please continue to use the pricing you have. The errors were due to importing into the Hytorc system. The price levels were interrupted.
Mr Gershenoff’s email of 6 April 2020 merely confirmed that the existing pricing structures were to apply for the sale of Torc LLC tools, which reinforces the point that an agreement had not been reached at the Teleconference. Mr Gershenoff’s email did not mention Torc Solutions branded tools. The price list was just one aspect of the supply relationship. Another aspect that was important to Torc Solutions, was the applicable discount off the price list. The email is not capable of evidencing an agreement for supply of Torc LLC tools on the same terms as the Distributor Agreement having regard to the totality of the facts.
For those reasons, I do not accept Torc Solutions’ allegations regarding the Hytorc Agreement or the Variation Agreement. Hytorc submitted that the Distributor Agreement came to an end when Torc LLC ceased trading. When the Branded Product Distribution Agreement was executed, it included a clause that stated that Torc LLC had terminated its “Independent Industrial Distributor (‘IID’) Agreement” and that neither party would be liable to the other by reason of the termination of that agreement. Torc Solutions submitted that there was no “Independent Industrial Distributor (‘IID’) Agreement” and the clause was ineffectual. There was no issue raised in the proceeding as to whether the reference to the “Independent Industrial Distributor (‘IID’) Agreement” was a common mistake. As Torc Solutions does not allege breach of the Distributor Agreement, or claim damages for breach of the Distributor Agreement, it is unnecessary to make any finding on those matters.
ECONOMIC DURESS
Torc Solutions’ pleaded case was that, in April 2021, Hytorc made Hytorc’s Threat (as defined in paragraph 76), which was not withdrawn or modified prior to the execution of the Branded Product Distribution Agreement. Torc Solutions contended that it was induced to execute the Branded Product Distribution Agreement because of the pressure exercised upon it by Hytorc. It contended that the pressure applied by Hytorc amounted to compulsion of Torc Solutions’ will and the practical effect of that pressure was the absence of choice by Torc Solutions to do other than to execute the Branded Product Distribution Agreement. Torc Solutions contended that the illegitimate pressure from Hytorc, being the threat to not supply products, which continued until the signing of the Branded Product Distribution Agreement, was unlawful and, accordingly, the Branded Product Distribution Agreement was unenforceable and voidable.
By way of context for the duress claim, Torc Solutions relied upon the fact that Torc Solutions’ business was constituted exclusively by the sale of Torc LLC branded products. Torc Solutions had conveyed to resellers that Torc LLC branded products would be replaced with Torc Solutions branded products and that the transition to Torc Solutions branded products was imminent. Torc Solutions pleaded that, if Hytorc refused to supply home branded products, Torc Solutions would have had no products to sell, and no ongoing orders from Torc Solutions’ customers or resellers, and as a result Torc Solutions would not be able to maintain its distribution network or its business. As a consequence, it submitted that the pressure exercised upon it by Hytorc’s Threat amounted to compulsion of Torc Solutions’ will and it had no choice other than to execute the Branded Product Distribution Agreement.
Legal principles
Economic duress focuses upon the effect of pressure. The proper approach is to ask whether any applied pressure was illegitimate, and whether such pressure induced the victim to enter into the relevant contract: AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd (2023) 303 FCR 479; [2023] FCA 1022 at [3366] (Beach J).
In AHG WA, after surveying the authorities, at [3367]–[3368], Beach J accepted the test for illegitimacy expressed by McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40, with some refinements. McHugh JA explained that test in the following way, at 45–46:
… The rationale of the doctrine of economic duress is that the law will not give effect to an apparent consent which was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate …
… The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.
…
It is unnecessary, however, for the victim to prove that the illegitimate pressure was the sole reason for him entering into the contract. It is sufficient that the illegitimate pressure was one of the reasons for the person entering into the agreement.
Commercial pressure, even to the point where the party the subject of the pressure is left with little choice but to act as they did, is not of itself sufficient. There needs to be either an illegitimate threat or illegitimate pressure: AHG WA at [3369]–[3371].
Consideration
When Torc Solutions was told about the closure of Torc LLC globally, a Hytorc distributorship was not on the table. Hytorc already had a presence in Australia – Hytorc South Pacific. A private label agreement was the only option on the table for an ongoing distributor relationship with Hytorc.
By late April 2021, the negotiations in relation to the Branded Product Distribution Agreement had been ongoing for nearly 12 months. Hytorc took longer than expected to circulate the first draft of the Branded Product Distribution Agreement (four months, instead of two weeks). The progress of the negotiations of the agreement was slow on both sides, with drafts going back and forth and weeks passing in between. However, by mid-April 2021, as Torc Solutions acknowledged, the process was nearly complete, and the parties were close to reaching an agreement.
As Andrew Case acknowledged, at the time of Hytorc’s Threat, Torc Solutions was managing to fulfil most orders with Torc LLC stock or by Hytorc reworking Torc LLC stock. However, Torc Solutions had been waiting to communicate with resellers in relation to the closure of Torc LLC and it said the resellers were getting anxious, and Torc LLC was starting to run out of stock.
As Beach J observed in AHG WA, at 3365, “people often lack some freedom of choice in commercial situations. But economic duress requires a different assessment”. The tactic used by Mr Gershenoff in the negotiations with Torc Solutions was legitimate commercial pressure. There was nothing untoward in Mr Gershenoff saying that Hytorc would not commence supply of home branded products until the agreement was signed. He did not say that Torc Solutions had to sign a particular draft, or an agreement with a particular clause, but that the agreement had to be signed. By that time, the negotiations had been dragging on and no agreement had been signed. Andrew and Adrian Case said that they felt they had no alternative but to execute the Branded Product Distribution Agreement. In my assessment, they did so out of commercial necessity. Torc Solutions failed to establish their claim of economic duress.
WHETHER TORC LLC AND/OR HYTORC ENGAGED IN MISLEADING AND DECEPTIVE CONDUCT?
Torc Solutions’ pleaded case was that, at the Teleconference and by their subsequent conduct of changing bank account details, issuing invoices and so on, Torc LLC and Hytorc represented to Torc Solutions that:
(a)following the intended closure of Torc LLC there would be a private label arrangement between Hytorc and Torc Solutions, in which Hytorc would supply Torc Solutions tools to be sold under Torc Solutions’ own brand;
(b)there would be the “Transition Arrangements” whereby Hytorc would continue to supply Torc Solutions with Torc LLC branded products as the parties transitioned across to home branded tooling;
(c)after the Transition Arrangements, the supplier to Torc Solutions of torque tools would be Hytorc, the tools and replacement parts would not be Torc LLC branded products and the branding of the products would be Torc Solutions;
(d)Torc Solutions would be one of a number of distributors with whom Hytorc would enter into private label arrangements;
(e)the Transition Arrangements would continue for the “Transition Period”, being the period during which Torc LLC would continue to supply Torc LLC tools until the current inventory of Torc LLC was exhausted or the Torc LLC was wound down, whichever occurred first.
Torc Solutions further pleaded that by the representations made at the Teleconference and Hytorc’s and Torc LLC’s subsequent conduct, including changing the bank account payment destination to Hytorc, issuing invoices and presenting the Branded Product Distribution Agreement for execution, Hytorc represented to Torc Solutions that it intended to create and supply home branded tools to Torc Solutions. Torc Solutions pleaded that the representations were false in that, before the execution of the Branded Product Distribution Agreement, Hytorc had “resolved”, by Mr Gershenoff, Mr Ricca and Mr Junkers, that it would not commence to make home branded tools for Torc Solutions until the following conditions (Hytorc’s Conditions) were met:
(a)Torc Solutions submitted a large quantity order based on its own assessment of projected sales for 6–12 months;
(b)Torc Solutions accepted financial responsibility for that order by paying for the order and the products would be inventory of Torc Solutions (that is to say, that there would be no consignment arrangement and the products would be stored at Torc Solutions’ premises);
(c)the making of home branded tools for all home branded tool distributors, not only for Torc Solutions, was financially viable for Hytorc.
Alternatively, Torc Solutions pleaded that to the extent that there was a representation with respect to a future mater, Hytorc did not have reasonable grounds to make the representation. In these reasons, the Representations means the representations referred to in paragraphs 132 and 133.
Torc Solutions pleaded that Hytorc did not inform Torc Solutions of Hytorc’s Conditions. Further, it was induced to enter into the Branded Products Distribution Agreement by reason of the Representations, which it would not have done if Hytorc’s Conditions had been disclosed.
Torc Solutions contended that Torc LLC and Hytorc engaged in misleading and deceptive conduct, contrary to s 18 of the Australian Consumer Law (ACL), being Sch 2 to the Competition and Consumer Act 2010 (Cth), by making the Representations and failing to inform Torc Solutions of Hytorc’s Conditions. Further or alternatively, the omissions, representations, statements and conduct constitute misrepresentations at common law and pursuant to the Misrepresentation Act.
Hytorc and Torc LLC denied the alleged Representations. They asserted that the concept of a transition arrangement was merely raised as an option in the Teleconference, but the detail was not discussed or agreed. They admitted that it was conveyed that Hytorc would be offering similar private label arrangements to other distributors of Torc LLC, but denied that any representation was made at the Teleconference to the effect that Torc Solutions would be one of a number of distributors with whom Hytorc would enter into private label arrangements. They further denied any resolution or precondition to the effect of the alleged Hytorc Conditions.
Legal principles
Section 18(1) of the ACL provides:
A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
The principles relating to misleading and deceptive conduct under s 18 of the ACL, and determining whether a person has contravened s 18, were summarised by Kiefel CJ, Gageler, Gordon, Edelman and Gleeson JJ in Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd (2023) 277 CLR 186; [2023] HCA 8 at [80]–[81] in the following terms:
(a)the first step is to identify with precision the “conduct” said to contravene the provisions – that is, the relevant representation that was made;
(b)the second step is to consider whether the identified conduct or representation was engaged in or made in “trade or commerce”;
(c)the third step is to consider what meaning that conduct or representation conveyed to its intended audience; and
(d)the fourth step is to determine, in light of that meaning, whether the conduct or representation was misleading or deceptive in the requisite sense for the purposes of s 18 of the ACL.
The third and fourth steps require an objective characterisation of the conduct or representation viewed as a whole and its notional effects, judged by reference to its context, on the state of mind of the relevant person or class of persons. That context includes the immediate context and the broader context of the relevant surrounding facts and circumstances: Self Care at [82].
As the Full Court explained in Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2020) 278 FCR 450; [2020] FCAFC 130 at [22] (Wigney, O’Bryan and Jackson JJ), the question is whether the impugned conduct, viewed as a whole, has a sufficient tendency to lead a person exposed to the conduct into error (that is, to form an erroneous assumption or conclusion about some fact or matter).
The role of silence and misleading and deceptive conduct more generally were considered in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31 at [14]–[20], where French CJ and Kiefel J (as her Honour then was) stated:
[14]In determining whether there has been a contravention of s 52 of the Trade Practices Act, it is necessary to determine “whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive”. The term “conduct” is to be understood according to its definition in s 4(2)(a) and (b) of the Trade Practices Act, which includes a reference to “refusing to do any act”. That, in turn, includes a reference to “refraining (otherwise than inadvertently) from doing that act”.
[15]For conduct to be misleading or deceptive it is not necessary that it convey express or implied representations. It suffices that it leads or is likely to lead into error. …
[16]The circumstances in which silence or non-disclosure of information can be misleading or deceptive are various. The understanding of the place of silence or non-disclosure in the characterisation of conduct as misleading or deceptive was affected, in early decisions on s 52, by the view that the section was concerned with misrepresentations that would have been actionable under the general law. That view was linked to the proposition, expressed in Taco Co of Australia Inc v Taco Bell Pty Ltd, that conduct could not be misleading or deceptive for the purposes of s 52 unless it conveyed a misrepresentation. It was also linked to the proposition that at general law “mere silence, with regard to a material fact, which there is no legal obligation to divulge, will not avoid a contract, although it operate as an injury to the party from whom it is concealed”. In the early development of the law about misleading or deceptive conduct, there were rather cautiously expressed views about the role of silence, albeit the importance of the statutory words was acknowledged.
[17]The 1992 decision of the Full Court of the Federal Court in Demagogue Pty Ltd v Ramensky represented what has been described accurately as “an emphatic acknowledgement … of the unique nature of the statutory prohibition”. The Full Court upheld the decision of the primary judge that a vendor of land had created a clear but erroneous impression in the purchasers that there was nothing unusual concerning access to the land and, in particular, had been silent as to the necessity of a grant of a licence by a statutory authority to enable such access.
[18]Gummow J, who wrote the leading judgment and with whom Black CJ and Cooper J agreed, said:
“it should be no inhibition to giving effect to what, on its proper construction, is provided for in the legislation, that the result may be to achieve consequences and administer remedies which differ from those otherwise obtaining under the general law.”
Silence, as Black CJ said in his concurring judgment, was to be assessed as a circumstance like any other:
“the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive.”
Gummow J referred to the limitation that “unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist”.
[19]The language of reasonable expectation is not statutory. It indicates an approach which can be taken to the characterisation, for the purposes of s 52, of conduct consisting of, or including, non-disclosure of information. That approach may differ in its application according to whether the conduct is said to be misleading or deceptive to members of the public, or whether it arises between entities in commercial negotiations. An example in the former category is non-disclosure of material facts in a prospectus.
[20]In commercial dealings between individuals or individual entities, characterisation of conduct will be undertaken by reference to its circumstances and context. Silence may be a circumstance to be considered. The knowledge of the person to whom the conduct is directed may be relevant. Also relevant, as in the present case, may be the existence of common assumptions and practices established between the parties or prevailing in the particular profession, trade or industry in which they carry on business. The judgment which looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure as misleading or deceptive is objective. It is a practical approach to the application of the prohibition in s 52.
[Footnotes omitted]
Accordingly, the context relevant to the unconscionable conduct claim was that Hytorc was in a dominant bargaining position because it was the only viable supplier of tools that were essential to the continuation of Torc Solutions’ business. However, I do not accept that it used its superior bargaining position to procure an outcome or position that was unfair to Torc Solutions. That circumstance and the legitimate commercial pressure that was exerted on Torc Solutions to execute the Branded Product Distribution Agreement, was not unfair or uncommercial conduct that offended societal norms of commercial dealing and constituted unconscionable conduct within the meaning of s 21 of the ACL. For those reasons, the unconscionable conduct claim fails.
LOSS AND DAMAGE
This section deals with the quantum of Torc Solutions’ compensable loss, assuming liability were established.
Both parties filed expert evidence on loss and damage. Torc Solutions filed and relied on expert reports of Mr Justin Ganly and Mr John Irving. Hytorc and Torc LLC relied on expert reports of Mr Euan Morton.
Hytorc and Torc LLC made various objections to the admissibility of Mr Ganly’s reports, but ultimately they agreed that the reports could be tendered into evidence subject to their objections as to admissibility, which could be ruled upon in the final reasons. The admissibility of Mr Irving’s reports, which were reliant upon the sales forecasts prepared by Mr Ganly, was dependent on the admissibility of Mr Ganly’s reports.
For the reasons set out below, I accept the submissions made on behalf of Hytorc and Torc LLC regarding Mr Ganly’s reports. Mr Ganly’s opinions were heavily reliant on assumptions which were unproven or unreliable, and his reports should be excluded. The same result applies to Mr Irving’s reports. Mr Morton’s approach to the calculation of Torc Solutions’ compensable loss is entirely orthodox and is the only evidence on loss that remains. On the assumption that Torc Solutions established liability, I would accept Mr Morton’s assessment of Torc Solutions’ loss of future sales in the amounts set out below.
Mr Ganly’s Expert Reports
Mr Ganly is the Managing Director of Deep End Services, an economic research and property consulting firm. Mr Ganly holds a Bachelor of Engineering (Chemical) and a Graduate Diploma of Applied Finance and Investment and has worked as a consultant in market economics in property and retail for over 20 years.
Mr Ganly prepared four expert reports. Mr Ganly’s primary reports contained his initial and updated sales projections for Torc Solutions from 2023–2033 (on a financial year basis) on the assumption that the Hytorc Agreement was not terminated by the respondents. Mr Ganly was asked to express his opinion as to how Torc Solutions would have marketed and sold their products in the 10-year period after the Variation Agreement was terminated by the respondents. Although Mr Ganly’s instructions referred to the Variation Agreement, it appears to be a reference to the Hytorc Agreement. In any event, Mr Ganly produced forecasts from 2023–2033 on the basis that Torc Solutions’ ongoing distributorship arrangement(s) with Hytorc/Torc LLC had not been terminated. Mr Ganly also prepared two further reports which responded to Mr Morton’s expert reports, in which Mr Morton considered Mr Ganly’s ‘model spreadsheet’ and methodology, and Mr Morton’s calculations and assessment of loss, among other matters.
Mr Ganly was asked to prepare sales forecasts for Torc Solutions over the 10-year period from 2023–2033, although the forecasts he prepared commenced from April 2020. Mr Ganly’s sales forecasts were based on Torc Solutions’ annual sales over a five year period from 2016/17–2022/23. Mr Ganly was also provided with sales data for Torc Solutions’ sales to direct customers. Torc Solutions did not have, and Mr Ganly was not provided with, sales data for Torc Solutions’ reseller customers that would have shown the industries in which the resellers’ end customers operated.
Mr Ganly prepared his sales forecasts using the following methodology:
(a)Mr Ganly classified Torc Solutions’ historic customers as direct customers or resellers.
(b)Mr Ganly classified Torc Solutions’ historic sales to direct customers and reseller customers according to the customer’s main industry of operation using Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and their main State of operation. ANZSIC, which is produced jointly between the Australian Bureau of Statistics and Stats New Zealand, is a hierarchical classification under which individual businesses are assigned to an industry based on its predominant activity. A business can only have one ANZSIC code.
(c)Mr Ganly prepared a table identifying Torc Solutions’ historic sales to direct customers and reseller customers by ANZSIC code and his own “DES [Deep End Services] Industry” classification.
(d)Mr Ganly classified Torc Solutions’ historic sales to direct customers and reseller customers into his own four “DES [Deep End Services] Industry” categories, being “Other”, “Other Machinery and Equipment Repair and Maintenance”, “Hardware and Building Supplies Retailing” and “Electricity Generation”, in order of the number of customers in each category.
(e)Mr Ganly made specified adjustments and reconciliations to Torc Solutions’ annual sales to direct customers from 2016/17–2022/23.
(f)Mr Ganly assumed the dollar value of reseller sales to individual customers within each industry group (including the “Other” group) bore a consistent ratio to the average dollar value of direct sales Torc Solutions made to customers within the same industry group (including the “Other” group) and assigned sales dollar values per customer per year to reseller customer lists, for which such data was not available.
(g)Mr Ganly used sales data for three years from 2017/18–2019/20, which years were chosen “as the business was starting to mature”, and aggregated sales by his own four DES Industry groups, two of which he described as “Major Industry” groups, with an additional row provided for “International” sales, and assigned a ratio to compare the other industry groups (“Electricity Generation” and “Other”) to the “Major Industry” groups.
(h)Mr Ganly aggregated sales to Australian customers in the “Major Industry” groups between 2017/18–2019/20 by State and used data from the Australian Bureau of Statistics to identify the number of businesses per state in the “Major Industry” groups to calculate “average Major Industry sales per business by state” values.
(i)Mr Ganly took Western Australia, being the state in which Torc Solutions had reached the highest historical “sales rate per business” within the “Major Industry” groups, and assumed that that “rate per business” in those groups in Western Australia represented a “mature sales level” which Torc Solutions would be able to achieve across other states and territories, had it continued to trade. Mr Ganly also considered how far behind Torc Solutions was in other States, compared to the “mature sales level” in Western Australia, to make an assumption as to the number of years in would take to reach the “mature sales level” in the other States.
(j)Mr Ganly forecast linear growth in “sales rates per business” to “Major Industry” businesses in each State and Territory until the assumed “mature sales level” was reached, and ongoing growth in line with CPI forecasts thereafter until 2033.
(k)Mr Ganly then took the forecast sales rates per “Major Industry” business and multiplied this by the forecast number of “Major Industry” businesses to arrive at Torc Solutions “Major Industry” forecast sales by State from 2020/21–2032/33.
(l)The final step in the process was to “gross up” the “Major Industry” sales forecasts to take into account sales to Australian customers not operating in the “Major Industry” groups and allow for sales to international customers, either direct or via resellers, by adopting the ratio of sales to “Non-Major Industry” and international customers relative to sales to “Major Industry” customers from 2017/18–2019/20.
Torc LLC and Hytorc submitted that Mr Ganly’s opinion in relation to Torc Solutions’ sales forecasts for 2023–2033 was based on unverifiable assumptions, lacked probative value and should be excluded. I agree and consider that Mr Ganly’s reports should be excluded for the following reasons:
(a)The process Mr Ganly used to assign direct customers to industry groups according to ANZSIC industry codes was based on Torc Solutions’ direct customer lists and undisclosed internet research undertaken by Mr Ganly’s associate. It is trite that, when providing an expert opinion to the Court, the expert must set out the facts and assumptions on which their opinion is based and the reasoning process deployed in arriving at their opinion: Makita v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [79] (Heydon JA, as his Honour then was, Priestley and Powell JJA agreeing at [1], [7] and [8], [22] respectively), referring to National Justice Compania Naviera SA v Prudential Assurance Co Ltd (The Ikarian Reefer) [1993] 2 Lloyd's Rep 68 at 81–82 (Creswell J). In Makita, at [59], Heydon JA cited with apparent approval Lord President Cooper’s statement in David v The Lord Provost, Magistrates and Councillors of the City of Edinburgh (1953) SC 34 at 39–40 that the expert’s duty is to furnish the Judge or jury with the necessary criteria for testing the accuracy of their conclusions, so as to enable the Judge or jury to form their own independent judgment by the application of these criteria to the facts proved in evidence: referred to with approval in Lang v The Queen (2023) 278 CLR 323; [2023] HCA 29 at [7] (Kiefel CJ and Gageler J). The failure to disclose the internet research and process by which customers were allocated an ANZSIC code prevented that evidence from being tested, enabling a proper evaluation of the validity Mr Ganly’s conclusions. As mentioned, under the ANZSIC classification individual businesses are assigned to an industry code based on their predominant activity and can only be classified with one ANZSIC code. In the result, the failure to disclose the internet research and the process by which ANZSIC codes were assigned to Torc Solutions’ customers and resellers prevented any analysis or testing of the subjective classification of the predominant activity of those customers, particularly larger customers with a number of business units.
(b)The process by which Mr Ganly classified Torc Solutions’ historic, direct customers and resellers into his own four DES Industry categories was based on actual sales per direct customer for less than 25% of Torc Solutions’ total historical sales by number of clients, and around 30% by sales volume, after 2016/2017. There was no sound basis for the assumption that data for direct customers could be used to profile and classify resellers. Mr Ganly did not explain why it was reasonable for him to use data for direct customers and apply it to profile and classify resellers (for which there was no data as to the resellers’ end customers) according to his four DES Industry groups.
(c)Mr Ganly’s subjective approach to classifying Torc Solutions’ customers by category was at odds with Andrew Case’s evidence in relation to the volume of direct customers he identified as participants in the mining industry. According to the ANZSIC classification process used by Mr Ganly, 16.1% of Torc Solutions’ direct customers had a connection to the mining industry (e.g., mining and construction machinery manufacturing (6.6%), coal mining (4.3%), iron ore mining (3.3%), gold ore mining (1.9%)). However, Mr Ganly classified these customers under “Other”, using Mr Ganly’s “DES Industry” classification, and he assigned them to the “Non-Major Industry” group.
(d)Mr Ganly’s adoption of the “Major Industry” groupings appeared to be a means by which to use the Australian Bureau of Statistics data regarding the size of identified “markets” for modelling purposes. As the respondents submitted, this modelling approach, applied at such a high level of abstraction, had a tendency to overinflate and generalise Torc Solutions’ market or customer base and lacked any real or meaningful justification.
(e)Mr Ganly’s approach resulted in forecast growth rates of 76.4% in the first year of Mr Ganly’s analysis (2020/21), and 43.9% in the second year (2021/22), which seemed illogical and unrealistic, compared to Torc Solutions’ actual sales figures for 2020/21 to 2021/22. Although that actual data was available to Mr Ganly, it was not used by Mr Ganly to cross-check his sales forecasts or at all.
(f)Mr Ganly was asked to prepare his sales forecasts for 2020/21–2032/33 on the assumption that Torc Solutions’ sales performance was adversely impacted by supply issues from April 2020 until termination in June 2022. Although Torc Solutions was unable to access Torc Solutions branded products in that period, I am not persuaded that Torc Solutions established that its sales were materially affected, for example, by shortfalls of Torc LLC products. Below is a table showing Torc Solutions sales results, including for 2020/21 and 2021/22, as set out in Mr Ganly’s report:
(g)I am not persuaded that there was a sound basis for the assumptions Mr Ganly was required to make regarding Torc Solutions’ historical customer base and associated capacity for future growth, which made his forecasting process speculative and lacking in cogent explanation.
(h)I am not persuaded that there was a sound basis for Mr Ganly’s assumptions regarding “mature sales levels” and when mature sales levels would be achieved in the various States. I am not persuaded that there was a sound basis for Mr Ganly’s assumptions that “sales rate per business” in the “Major Industry” groups in Western Australia represented a “mature sales level” for Torc Solutions or that that same “mature sales level” could be extrapolated out to all other States and Territories, had it continued to trade. As the respondents submitted, Mr Ganly failed to make any allowance for the fact that the “mature sales levels” in Western Australia may have been unique to that State, which is well known for its large and profitable mining and resources sectors. There was no justification or explanation behind the assumption that the “matures sales level” in Western Australia was appropriate or achievable in other States and Territories.
Mr Irving’s Expert Reports
Mr Irving holds a Bachelor of Economics and has extensive professional experience in accounting and finance. Mr Irving prepared six reports, including reports that were responsive to Mr Morton’s reports. The primary reports prepared by Mr Irving concerned the calculation of Torc Solutions’ compensable loss.
Mr Irving was asked to prepare an expert report on Torc Solutions’ loss as a result of Torc LLC’s breaches and termination of the Hytorc Agreement. In particular, Mr Irving was instructed to calculate the Net Present Value (NPV) of the loss sustained by Torc Solutions, from the alleged breaches of and failure to supply products under the Hytorc Agreement, resulting in the failure and loss of Torc Solutions’ business. Mr Irving was instructed to base his opinion on Mr Ganly’s opinion as to Torc Solutions’ projected sales and profits for the period 2020/21–2032/33.
Mr Irving’s methodology involved calculating loss of profits suffered by Torc Solutions by reference to:
(a)loss of profits suffered by Torc Solutions for the financial years 2020/21 and 2021/22;
(b)the net present value of the projected sales and profits from 1 July 2023 to 30 June 2032; and
(c)adding to that sum, the NPV of the estimated value of the business on 30 June 2032.
Mr Irving’s methodology was entirely orthodox. However, a critical input to Mr Irving’s report was the projected sales and profits from 1 July 2023–30 June 2032, based on Mr Ganly’s expert report. As stated in Makita, in order for the opinion of an expert to be admissible in evidence, it is necessary that the assumptions on which it is based be satisfactorily proved by admissible evidence: [80] (Heydon JA) citing Pownall v Conlan Management Pty Ltd (as trustee for the Kalbarri Trust) (1995) 12 WAR 370 at 389–90 (Anderson J); Lang at [7] (Kiefel CJ and Gageler J); Australian Securities and Investments Commission v Wilson (No 3) (2023) 171 ACSR 1; [2023] FCA 1009 at [460] (Jackson J). Having concluded that Mr Ganly’s expert opinion should be excluded, it follows that Mr Irving’s expert report similarly should be excluded because an assumption on which it is based has not been satisfactorily proved.
Mr Morton’s Expert Reports
Mr Morton is an Economist with expertise in cost benefit assessments, forecasting and forecasting approaches, among other things. He holds a Bachelor of Commerce, Bachelor of Law and Bachelor of Economics.
Mr Morton prepared four expert reports. Insofar as Mr Morton’s reports respond to and critique the opinions expressed in Mr Ganly’s and Mr Irving’s reports, which have been excluded, it is unnecessary to say anything further about Mr Morton’s reports. In addition, Mr Morton was instructed to make an assessment of reasonable predicted gross sales projections for Torc Solutions and the loss suffered by Torc Solutions as a result of the termination of the distribution arrangements. To that end, Mr Morton relevantly made an assessment of the total size of the relevant market.
For the purpose of providing his opinion, Mr Morton was provided with three affidavits of Mr Francis, who is a commission-based sales agent for Hytorc South Pacific in Victoria and Tasmania. Between 2017–2020, Mr Francis was the Growth Manager of Hytorc South Pacific covering Australia, New Zealand, Indonesia and Papua New Guinea. From 2014–2017, Mr Francis was the business development manager at Atlas Copco, a competitor of Hytorc’s based in Sweden, that specialises in industrial torque wrench tools. Relevantly, Mr Francis’ evidence primarily concerned identifying the size and share of the torque wrench tooling market as between different competitors (e.g., Hytorc, Enerpac, RAD, Norbar, Atlas Copco and other entry level suppliers). Mr Morton relied upon Mr Francis’ initial and revised estimates and a memorandum authored by Mr Junkers dated 5 February 2024 to calculate his own estimation of the total market size, as contained in his expert reports.
Torc Solutions objected to aspects of Mr Francis’ evidence on the basis that it was inadmissible opinion evidence, hearsay and/or speculation. The parties agreed that the objections would be dealt with in the final reasons. The torque wrench tooling market is a niche market. Mr Morton could not identify any publications or published market research about the relevant market. Although Mr Francis’ evidence is quasi-opinion based on his observations of having worked in sales in the industry for over 25 years, I am satisfied that his first-hand experience in the torque wrench tooling market enables him to provide an opinion on the size and relative share of the market as between the different competitors. Among other things, Mr Francis had an interest in such matters given his roles as a commission-based sales agent and Growth Manager for Hytorc South Pacific. Furthermore, Mr Francis’ interactions with customers would put him in a position to assess the market leaders and main competitors and aligned with Mr Junkers’ evidence, which is mentioned below.
Torc Solutions, through Adrian Case, disputed matters of detail in Mr Francis’ evidence. Relevantly for the purposes of Mr Morton’s assessment, the main area of disagreement related to market share and opportunities for growth in the market. I have taken this into account when considering Mr Morton’s alternative scenarios and in adopting the scenario most favourable to Torc Solutions.
For the purpose of providing his opinion, Mr Morton was also provided with a memorandum authored by Mr Junkers dated 5 February 2024 that including the following passage:
Regarding market share, especially in Australia, expectations often exceed reality. With tools like those available to Torc Solutions, HYTORC has averaged 228 units sold annually since 2016, generating about AUD$1,500,000 per year. This may represent an estimated peak market share of 35%, achieved over 30 years.
Torc Solutions objected to Mr Morton relying on the memorandum on the basis that it contained inadmissible opinion evidence of Mr Junkers. Similarly to Mr Francis, while Mr Junkers’ evidence is quasi-opinion evidence, I am satisfied that his first-hand experience of the torque wrench tooling market enables him to provide an opinion on Hytorc’s size and relative share of the market as between its different competitors. Mr Junkers had an interest in such matters given his role as President of Hytorc since 2009, which put him in a position to assess the market leaders and main competitors.
Torc Solutions also objected to aspects of Mr Morton’s reports on other grounds. Having considered those objections in light of the totality of Mr Morton’s report, which is the only expert opinion available, I am satisfied that Mr Morton’s reports and opinion in relation to Torc Solutions’ loss of sales should be allowed.
For the assessment of reasonable predicted gross sales projections for Torc Solutions for the period 1 July 2020–30 June 2025, Mr Morton used the following methodology:
(a)he established a base level for the sales projections using the actual value of Torc Solutions’ sales for the financial year 2021/22 or, alternatively, the average value of Torc Solutions sales for the period of financial years 2020–2022;
(b)he identified a “central”, “pessimistic” and “optimistic” scenario regarding the base level for sales projections; and
(c)he inflated the forecasts each year in anticipation of expected increase in average prices over that year.
Torc Solutions actual sales data for 2019/2020–2021/2022 are shown below in the tables that appear in Mr Ganly’s and Mr Morton’s reports respectively:
Paragraph 23 of Mr Ganly’s report dated 19 June 2024
Paragraph 3.6.8 of Mr Morton’s report dated 25 November 2024
Mr Morton adjusted the sales data provided to him to exclude certain products and sales, which explains the lower sales data results used by Mr Morton.
I accept Mr Morton’s opinion that it is reasonable to apply a three-year averaging period to determine the base sales level, being the alternative base sales level. Mr Morton’s “central” scenario applied a predicted sales growth of 1.5% per annum in line with the views of Mr Francis regarding the relevant market. Mr Morton acknowledged that Torc Solutions may have had prospective sales prospects that were more favourable than the above scenarios.
In assessing Torc Solutions’ loss, Mr Morton used sales forecasts he prepared and a methodology that he said broadly aligned with Mr Irving’s methodology to determine a NPV of future cash flows that were foregone.
Mr Morton’s assessment of NPV, before and after tax, was as follows:
The lower and upper bounds of Mr Irving’s discount rates were 20% and 33%. Mr Morton did not suggest that a discount rate of 20% was unreasonable. The parties disagreed on whether the assessment of loss should be before or after tax. It is unnecessary for me to resolve that question.
On the assumption that Torc Solutions was successful in establishing liability, in my assessment, Mr Morton’s evidence of loss should be accepted, there being no other evidence on the issue. Further, a reasonable assessment of Torc Solutions’ loss would be the sum of $169,523 before tax or $202,080 after tax.
During the trial, the experts were directed to prepare assessments of Torc Solutions’ loss of net profits if notice of termination of the distribution arrangements had been provided on alternative dates (being 29 January 2020, 5 May 2021 or 1 March 2022). Those dates correlated with the decision to close Torc LLC globally, the execution of the Branded Product Distribution Agreement and the termination of the Branded Product Distribution Agreement. Torc Solutions did not allege any breach for failure to give reasonable notice of termination of the distribution arrangements. Torc Solutions’ actual sales data suggests that sales were not adversely impacted after the closure of Torc LLC. Furthermore, sales to Torc Solutions continued after Hytorc sought to terminate the Branded Product Distribution Agreement, until June 2022. As a result, it is unnecessary to consider whether Torc Solutions might have suffered loss during any notice periods.
CONCLUSION
For those reasons, the claims against the respondents should be dismissed.
I certify that the preceding two hundred and ninety-three (293) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Neskovcin. Associate:
Dated: 12 September 2025
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