Traffic Calming Australia Pty Ltd v CTS Creative Traffic Solutions

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S CI 2013 06417

TRAFFIC CALMING AUSTRALIA PTY LTD (ACN 160 258 471)	Plaintiff
v
CTS CREATIVE TRAFFIC SOLUTIONS PTY LTD (ACN 160 120 810) & ORS	Defendants

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JUDGE:	ALMOND J
WHERE HELD:	Melbourne
DATES OF HEARING:	21-23, 27-30 July, 3 August, 6 August 2015.
DATE OF JUDGMENT:	17 December 2015
CASE MAY BE CITED AS:	Traffic Calming Australia Pty Ltd v CTS Creative Traffic Solutions & ors
MEDIUM NEUTRAL CITATION:	[2015] VSC 741

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TORT – Inducement of breach of contract – Existence of contracts between the plaintiff and overseas suppliers – Defendants had a ‘fairly good idea’ of the existence of the contracts – Defendants intended to induce overseas suppliers to breach contracts with plaintiff – Breach of contract by overseas suppliers – Tortious conduct found – Assessment of quantum of damage.

EVIDENCE – Admissibility – Authenticity of documents - Whether documents business records – Evidence Act 2008 (Vic) ss 48(1)(e), 58, 69, 183.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	S Parmenter D Snyder	Russo Pellicano Carlei Lawyers
For the Defendants	P Bingham	Falcone & Adams Lawyers

HIS HONOUR:

At its foundation this case concerns a falling out between former business partners.

Until about 31 August 2012, David and Josie Goedheer and Richard McKie together operated TCA Traffic Calming Australia Pty Ltd (‘Old TCA’) which supplied products such as roundabouts, speed cushions and kerbing fabricated from moulds kept at factories in China. The products were shipped to Australia. Mr McKie was a director and the general manager. Mr Goedheer was the other director. Ms Goedheer was the administration and finance manager.

In about mid-2012, the Goedheers and Mr McKie agreed to go their separate ways.

To facilitate the commercial separation, a voluntary liquidator was appointed to Old TCA. Among other things the liquidator conducted an auction of Old TCA’s assets based on an agreed and signed list of items. These items included ‘moulds held overseas’. It was not disputed that this description was a reference to moulds kept at the factories in China for Old TCA.

The only bidders at the auction were the Goedheers and Mr McKie. The Goedheers successfully bid $530,000 for Old TCA’s assets. This was subsequently documented in an asset sale agreement (‘Asset Sale Agreement’) between Old TCA and the plaintiff, Traffic Calming Australia Pty Ltd (‘TCA’).

TCA alleges that after the sale to TCA the first and second defendants, Creative Traffic Solutions Pty Ltd (‘CTS’) and Mr McKie knowingly procured the unauthorised use of TCA’s moulds by ordering the manufacture of products from the factories knowing that the supply of such products would be inconsistent with the contractual obligation of the respective factories to hold the moulds for TCA’s exclusive use.

Alternatively, TCA claims that by signing the list of assets Mr McKie represented that the ‘moulds held overseas’ (which were part of Old TCA’s assets to be sold at the auction) were to be for the exclusive use of the successful bidder at the auction and that it was inconsistent with that representation for CTS and Mr McKie to arrange and accept supply of product at the relevant time.

TCA claims to have suffered loss and damage as a result of the breaches of the mould agreements; alternatively, TCA claims to be entitled to equitable compensation as a consequence of the conduct of CTS and Mr McKie.

The defendants deny that they knowingly procured the unauthorised use of TCA’s moulds or that they acted unconscionably.[1]

Relevant background[2]

[1]For present purposes the defendants are the first and second defendants only. The claim against the third defendant was resolved and discontinued prior to trial.

[2]Summary compiled substantially by reference to the summary in the plaintiff’s final submissions dated 6 August 2015.

In 2008, Mr Goedheer and Mr McKie agreed to establish a business to design, supply and install rubber ‘traffic calming’ products such as roundabouts, speed cushions and kerbing. At this time Map Developments Pty Ltd (‘Map’), a company associated with Mr Goedheer, engaged a designer to produce designs for rubber speed cushions and rubber roundabout moulds.

On 29 September 2008, Old TCA was incorporated under its former name, TCA Traffic Calming Australia. Initially Mr Goedheer was the sole director, Ms Goedheer was the finance and administration manager and Mr McKie was the general manager.[3] During 2008, Mr Goedheer and Mr McKie visited factories in China and selected two Chinese manufacturers, ZheJiang SanMen Eastsea Rubber Factory (‘Eastsea’) and ZheJiang Hengxing Xuhua Import & Sea Export Co Ltd (‘Hengxing’) to produce rubber traffic calming products. Eastsea was selected to produce speed cushion and roundabout products. Hengxing was selected to produce kerbing products.
[3]CB 1269.

During November 2008, Map and Eastsea entered into a contract for the purchase of a rubber speed cushion mould and a rubber linker and cover mould.[4] Moulds were made in accordance with this contract.
[4]CB 283, 1168.

In March 2009, Map and Hengxing entered into a contract for the purchase of a rubber kerbing mould.[5] The mould was made in accordance with this contract. Each contract provided that the suppliers, Eastsea or Hengxing, were strictly prohibited to lend or impower (sic) anybody else the use of the moulds or its design partly or all without the permission of the buyer, Map.[6] There was evidence from Ms Goedheer, which I accept, that when Old TCA commenced trading (April 2009), Map transferred ownership of these moulds to Old TCA, although this occurred orally and was not formally documented. All conduct is consistent with that having occurred. All products made by Eastsea and Hengxing using the moulds were supplied to, and were paid for by, Old TCA.
[5]CB 297, 1170.
[6]CB 1169 (Eastsea), CB 1171 (Hengxing).

Subsequently Old TCA engaged Eastsea and Hengxing to make additional moulds. The parties did not enter into formal written contracts for each new mould, rather they proceeded on the footing that the same terms of exclusivity in the formal mould contracts would apply to later contracts.[7] At trial, there was no dispute that all of the Old TCA moulds were for the exclusive use of Old TCA.
[7]See eg email dated 17 January 2012 from Richard McKie to James Ren (Nyord) stating that the moulds would ‘have to be an exclusive product for TCA and be treated with the same confidential agreement as [its] other products’, CB 346.

On each occasion where either Map or Old TCA ordered moulds, designs were prepared and approved. The factories then sent a quote or price details for the cost of the mould.[8] According to Ms Goedheer, the usual procedure was for payment to be made ‘up front’ after the drawings were completed and before the mould was manufactured. Mr McKie agreed that initially that was the case but said that over time as a relationship developed with the factories, the factories became more relaxed with payment terms.
[8]See eg CB 305, 347.

The moulds were made by a third party manufacturer. Typically Mr McKie would attend the first production run at the factory to ensure that the mould had been manufactured in accordance with the drawings and that the moulded product was satisfactory.

In 2010 and 2011, Mr Goedheer and Mr McKie together visited the Eastsea and Hengxing factories. On both trips Mr Goedheer saw production runs for Old TCA products. On the 2011 trip Mr Goedheer saw (amongst other moulds) roundabout moulds belonging to Old TCA.

In May 2011, Mr McKie became a director and 50% shareholder of Old TCA.

Principles
Inducing breach of contract

The development of a separate tort of inducement of breach of contract can be traced to the case of Lumley v Gye (1853) 118 ER 749. In that case, a famous singer, Johanna Wagner, was contracted to perform exclusively at the Queen’s Theatre. The defendant, a rival promoter, knew of the contract and induced the singer to break it by singing at his theatre instead. The Court held that these facts could constitute an actionable tort.

There appears to be no dispute between the parties as to the applicable principles in relation to inducement of breach of contract. Nevertheless, as observed by Moore J in Qantas Airways Ltd v Transport Workers’ Union of Australia,[9] the authorities, while generally pointing in the same direction, have ‘differences of emphasis or in degree’ about the elements that need to be established to make out the tort. Additionally, there appears to be no judgment of the High Court which unites the differences.
[9](2011) 280 ALR 503 (‘Qantas v TWU’) [437], [438].

Recent Federal Court cases have distilled the tort into the following elements: [10]
[10]Daebo Shipping Company Ltd v The Ship Go Star (2012) 207 FCR 220 (‘Daebo’) [88] (Keane CJ and Rares and Besanko JJ); Donaldson v Natural Springs Australia Limited [2015] FCA 498 (‘Donaldson’) [206] (Beach J).

(a) there must be a contract between the plaintiff and a third party;

(b) the defendant must know that such a contract exists;

(c) the defendant must know that if the third party does (or fails to do) a particular act, that conduct of the third party would be a breach of the contract;

(d) the defendant must intend to induce or procure the third party to breach the contract by doing or failing to do that particular act; and

(e) the breach must cause loss or damage to the plaintiff.

It is implicit from these elements that the relevant contract was in fact breached by the third party.

There is no doubt that intention is a necessary element of the tort.[11] Indeed, it is said that the ‘gravamen’ of the tort is intention. The requirement of knowledge is said to be an aspect of intention.[12] Lindgren J in Allstate Life Insurance Company v Australian and New Zealand Banking Group Ltd[13] held:

In my opinion, the authorities establish conclusively that the gravamen of the tort is intention. Although the requirement of knowledge of the contract is sometimes discussed as if it was a separate ingredient of the tort, it is in fact an aspect of intention. The requirement that the alleged tortfeasor have “sufficient knowledge of the contract” is a requirement he have sufficient knowledge to ground an intention to interfere with contractual rights.
Both this intention to interfere with contractual rights and the necessary supporting knowledge of the contract refer to the “actual” or “subjective” state of mind of the alleged tortfeasor.

[11]Qantas v TWU (2011) 280 ALR 503 [440].

[12](1995) 58 FCR 26 (‘Allstate’), 43; Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157 [127].

[13](1995) 58 FCR 26, 43.

There appears to be a minor divergence in authority on this point. Although Lindgren J in Allstate held that knowledge is an aspect of intention rather than a ‘separate ingredient of the tort’, the recent formulations in Daebo and Donaldson appear to treat knowledge of the contract as a separate limb that needs to be proven in order to establish the tort. In this case at least, it makes no practical difference. Knowledge, which may ground intention to interfere with contractual rights, must be considered, whether separately or as a subset of intention.

The principles relating to knowledge and intention in the context of inducement of breach of contract are considered in further detail in the relevant sections below. For present purposes, however, it is sufficient to note that:

(a) It is not necessary to prove that the defendant knew the precise terms of the agreement;[14]

(b) Actual knowledge is not required; reckless indifference or wilful blindness is sufficient to satisfy the requirement of intention (though negligence, even when gross, will not suffice);[15] and

(c) Simply because a breach of contract is a foreseeable consequence of conduct, this will not of itself constitute intention.[16]

[14]Qantas v TWU (2011) 280 ALR 503 [441] and the cases cited.

[15]LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204 [50], [54] (Besanko J, with whom Mansfield and Flick JJ agreed); Daebo Shipping Company Ltd v The Ship Go Star (2012) 207 FCR 220 [89] (Keane CJ and Rares and Besanko JJ); Donaldson v Natural Springs Australia Ltd [2015] FCA 498 [207] (Beach J).

[16]OBG Ltd v Allan [2008] 1 AC 1 [42]-[43] (Hoffman LJ) cited in LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204 [52] (Besanko J, with whom Mansfield and Flick JJ agreed).

In addition to proving intention, it is necessary for a plaintiff to establish that the defendant’s actions actually procured or induced the breach of contract. In Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Corke Instrument Engineering Australia Pty Ltd,[17] Finkelstein J said:

It is, however, necessary to show that the breach of the contract has been “procured” or “induced”. Sometimes the cases have noticed a distinction between “procuring” or “inducing” which is said to be unlawful, and “advice” which is said not to be unlawful. The prevailing view is that to induce a breach of contract means to create a reason for breaking it; to advise a breach of contract is to point out the reasons that already exist. The former is actionable while the latter is not. See generally South Wales Miners’ Federation v Glamorgan Coal Co Ltd [1905] AC 239; D C Thomson & Co Ltd v Deakin [1952] Ch 646 at 686; [1952] 2 All ER 361 at 373.
[17](2005) 223 ALR 480 [19].

Questions for determination

The following questions arise for determination.

On the contractual claims:

1.Were there contracts between TCA and Eastsea and Hengxing respectively to the effect alleged?
2.Did the defendants know that if Eastsea and Hengxing used TCA’s moulds to supply products to CTS that conduct would be in breach of those contracts?
3.Did the defendants intend to induce or procure Eastsea and Hengxing to breach the relevant contracts?
4.Did Eastsea and Hengxing relevantly breach their contracts with TCA?
5.If yes to question 4, did the breach cause loss or damage to TCA?
6.If yes to question 5, what is the proper measure of TCA’s loss or damage?

If necessary, on the claim in the alternative based on the alleged representation:

6.Did Mr McKie represent that the ‘moulds held overseas’ were for the exclusive use of the successful bidder?
7.If yes to question 6, did Mr McKie act inconsistently with the representation by arranging and accepting unauthorised supplies?
8.If yes to question 7, did Mr McKie act unconscionably such that TCA is entitled to equitable compensation?
9.If yes to question 8, what is the proper measure of the equitable compensation?
Q1.Were there contracts between TCA and Eastsea and Hengxing respectively to the effect alleged?

TCA contends that Old TCA’s rights under the old mould agreements with Eastsea and Hengxing respectively (namely the agreements by which those Chinese suppliers held the moulds on behalf of Old TCA for the purposes of manufacture of traffic calming products)[18] were assigned to TCA under the Asset Sale Agreement.[19] Further or alternatively, TCA contends that in or around September or October 2012 the old mould agreements were novated from Old TCA and Eastsea and Hengxing respectively to TCA and Eastsea and Hengxing.[20] As a further alternative, TCA contends that in or around September or October 2012 each of Eastsea and Hengxing entered into new mould agreements with TCA under which each of Eastsea and Hengxing held moulds on behalf of TCA for the purpose of manufacture of traffic calming products.[21]
[18]Second Further Amended Statement of Claim dated 26 June 2015, [10]-[18].
[19]Second Further Amended Statement of Claim, [19].
[20]Second Further Amended Statement of Claim, [19A].
[21]Second Further Amended Statement of Claim, [20], [21].

Contractual rights by agreement

As to the first basis, TCA contends that for each of the moulds owned by Old TCA (including those assigned by Map to Old TCA),[22] Old TCA and Eastsea and Hengxing had agreed that the moulds were to be held exclusively for Old TCA. TCA relies on the conduct of the parties, including Mr McKie’s evidence that he understood that the moulds were to be held exclusively for Old TCA, which TCA submits must necessarily have been pursuant to contracts between Old TCA and the relevant supplier.
[22]Being a rubber speed cushion mould and rubber linker and cover mould and a speed kerbing mould, Second Further Amended Statement of Claim, [10], [11].

Under the Asset Sale Agreement, TCA purchased the assets (‘the Assets’) which were defined to include, among other things, ‘the benefits of “the Contracts (subject to third party consents)”’. Contracts was relevantly defined as ‘all contracts or agreements of the Seller [old TCA] with … suppliers of the Business as at Completion’.[23] TCA submits that such contracts included Old TCA’s mould agreements with Eastsea and Hengxing respectively.
[23]Asset Sale Agreement, clause 2.1, CB 528-529.

The defendants do not deny the existence of the agreements or that the agreements under which the moulds owned by Old TCA were held by Eastsea and Hengxing respectively included terms that the moulds were to be held exclusively for Old TCA.

Assessed objectively, I am satisfied that there were contracts between Old TCA and Eastsea and Hengxing respectively, which included terms that the moulds were to be held exclusively for Old TCA. This is consistent with Mr McKie’s subjective evidence that he understood that the moulds were to be held exclusively for Old TCA. I also find that Old TCA’s rights under those agreements were assigned to TCA on or about 14 September 2012 pursuant to the Asset Sale Agreement.

Contractual rights by novation

As to the second basis, TCA alleges that the Old TCA mould agreements were novated to TCA in about September or October 2012. The plaintiff alleges that the novation is to be implied from: the fact that from about September or October 2012, TCA ordered the manufacture of goods using the moulds, which orders were fulfilled; conversations between David Goedheer and representatives of Eastsea and Hengxing in late October 2012; and email communications between the Goedheers and Eastsea in October 2012.

Relevant principles – novation

The principles of novation are well settled and are helpfully summarised in the New South Wales Court of Appeal decision of Fightvision Pty Ltd v Onisforou & ors[24] in the following passage:

78.Novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made: Olsson v Dyson (1969) 120 CLR 365 at 388, per Windeyer J, which Bainton J referred to. Novation involves the extinguishment of one obligation and the creation of a substituted obligation in its place. Intention is crucial to show a novation: see, eg, Vickery v Woods (1952) 85 CLR 336 at 345, per Dixon J as his Honour then was. A novation may be express or implied from the circumstances.
…
86.In Upper Hunter County District Council v Australian Chilling and Freezing Co Pty Ltd (1968) 118 CLR 429 at 437, Barwick CJ said that in searching for the contractual intention, “no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements”. This equally applies, in our view, when searching for an intention that there be a novation.[25]

[24](1999) 47 NSWLR 473,491-493.

[25]Ibid, [78], [86].

In the present case, all relevant parties conducted themselves on the basis that the former rights and obligations of Old TCA had been replaced by equivalent rights and obligations of (new) TCA following Old TCA’s voluntary liquidation. This was demonstrated by the seamless transition of dealings to TCA after the liquidation. TCA continued to deal with Eastsea and Hengxing in substitution for Old TCA. Eastsea and Hengxing agreed to supply TCA with goods previously ordered by Old TCA.[26] These goods were supplied to and paid for by (new) TCA. I infer that these goods must have been manufactured by using the moulds which the factories had previously held on behalf of Old TCA.
[26]Supplementary Court Book (‘SCB’)135.

Following the auction of the Assets on 6 September 2012, Josie Goedheer notified Old TCA’s agent in China, Nyord, that she and Mr Goedheer were the sole directors and owners of TCA and asked the agent to advise their suppliers (meaning Eastsea and Hengxing) that moulds were to be used for TCA and were not to be used by Mr McKie or any third party.[27] Mr Ren of Nyord replied:

… I’ll inform our suppliers the situation and let them guarantee all moulds belongs to TCA (NOT RICK) and can only be used by TCA …[28]

[27]Email from Josie Goedheer to Ligia Holanda cc James Ren dated 6 September 2012, CB 436.

[28]Email from James Ren to Josie Goedheer dated 7 September 2012, CB 436.

On 11 September 2012, a representative of the liquidator of Old TCA sent an email to Nyord with the text of a letter from Mr Marchesi (the liquidator) to be sent to Eastsea and Hengxing stating relevantly that the moulds had been sold to TCA and that Mr McKie had no authority to act on behalf of the company and no entitlement to the moulds.[29] On 13 September 2012, Mr Ren sent an email to Ms Goedheer attaching what appeared to be confirmations from Eastsea and Hengxing that they had received the letter from Mr Marchesi.[30] However, it is unclear whether this letter was brought to the attention of management at the factories or whether the letter (written in English) was relevantly understood, notwithstanding the appearance of a factory stamp on the face of copies of the Marchesi letter.[31]
[29]Email from Terry Finn to Ligia Holanda dated 11 September 2012, CB 455.
[30]Email from James Ren to Josie Goedheer dated 13 September 2012, CB 461-463.
[31]CB 462-463. In subsequent discussions with management at the factories, knowledge of the Marchesi letter was denied.

Independently of the letter, Mr Goedheer gave evidence that in late October 2012, management at Eastsea (Jan Wu) and Hengxing (Nicole Xu) each acknowledged that Old TCA’s moulds were to be used exclusively for TCA.

I am satisfied that by late October 2012, there was an express acknowledgment by each of Eastsea and Hengxing that the moulds (previously held for the exclusive use of Old TCA) were to be held for the exclusive use of TCA. It is evident from the course of their continued dealings that the parties intended that (new) TCA would be substituted for Old TCA with equivalent rights and obligations with respect to the use of the moulds.

Contractual rights by new agreement

As to the third basis, TCA contends that the relevant contracts comprised new agreements entered into between TCA and each of Eastsea and Hengxing in about September or October 2012. TCA submits this is to be implied from the fact that TCA ordered goods from about that time from Eastsea and Hengxing to be manufactured using the moulds, and such orders were fulfilled. TCA also relies on the conversations between Mr Goedheer and representatives of Eastsea and Hengxing in late October 2012 referred to above.

Of the second and third alternative bases, in my view the preferable analysis is the second, namely, that the mould agreements between Old TCA and Eastsea and Hengxing were novated to TCA in or around September or October 2012 and that the discussions in late October 2012 resulted in acknowledgement of an existing contractual position. If this is wrong, I am satisfied that, by such acknowledgement, new mould agreements were entered into between TCA and each of Eastsea and Hengxing in about September or October 2012. In my view, at the relevant time there were contracts (as a result of either the assignment of rights or direct agreement) between TCA and Eastsea and Hengxing respectively to hold the moulds on behalf of TCA for TCA’s exclusive use. Accordingly, the answer to question one is yes.

Q2.Did the defendants know that if Eastsea and Hengxing used TCA’s moulds to supply products to CTS that conduct would be in breach of those contracts?

Knowledge, for present purposes, does not mean knowledge of the precise terms of the contract(s) between TCA and Eastsea and Hengxing with respect to the use of moulds. In Daebo, the Court considered the elements of the tort of interference with contractual relations. When dealing with the issue of knowledge, the Court (Keane CJ, Rares and Besanko JJ) cited Allstate:[32]

As Lindgren J explained, the defendant must have “a fairly good idea” that the contract benefits another person in the relevant respect.

[32](2012) 207 FCR 220 [89].

It is necessary for TCA to show at least that Mr McKie had a ‘fairly good idea’ of the existence of contracts between TCA and Eastsea and Hengxing respectively to the effect that the moulds were held for TCA’s exclusive use.

The answer to this question is straightforward.

First, Mr McKie gave evidence to the effect that he knew that:

(i)the successful bidder at the auction of Old TCA’s assets would be purchasing the moulds held overseas at the Eastsea and Hengxing factories;
(ii)the moulds were for the exclusive use of Old TCA prior to it going into voluntary liquidation; and
(iii)the successful bidder (whether it be Mr McKie’s interests or the Goedheers’ interests) would have the exclusive right to use the moulds.

Further, I infer that Mr McKie knew or at least expected that the successful bidder for Old TCA’s assets would have the same or relevantly similar contractual arrangements for exclusivity with respect to the use of the moulds that Old TCA had previously with the Eastsea and Hengxing factories.

This is reflected in the content of an affidavit sworn by Mr McKie on 19 March 2014 and relied upon for this purpose by the plaintiff at trial. Among other things, Mr McKie deposed that: ‘the successful bidder [David Goedheer] owned and could use the moulds’[33]; ‘If the Chinese factories, instead of making new moulds, have used [TCA’s] moulds, then I agree that this is wrong’;[34] ‘I do not contend that I have the right to use the TCA moulds’.[35]
[33]Affidavit of Richard Paul McKie sworn 19 March 2014, [35].
[34]Affidavit of Richard Paul McKie sworn 19 March 2014, [58].
[35]Affidavit of Richard Paul McKie sworn 19 March 2014, [63].

Mr McKie’s acknowledgment that it would be wrong for the Chinese factories to use TCA’s moulds (instead of making new moulds to produce CTS product) is premised on an understanding by Mr McKie that such use would conflict with the underlying basis upon which the Chinese factories held the moulds for TCA, namely, for TCA’s exclusive use. To use them otherwise (without permission) would therefore be wrong.

The plaintiff contends, and I accept, that in light of Mr McKie’s admissions, he must be taken to accept that the arrangement as to exclusivity arises from a contractual relationship which existed between TCA and the Chinese factories.

In support of the contention that Mr McKie was on notice of the exclusive arrangements between TCA and the Chinese suppliers, the plaintiff relies on letters sent by TCA to Mr McKie on or about 22 September 2012 and 1 October 2012[36] formally advising that all moulds were for the exclusive use of TCA.
[36]CB 584; CB 593.

There is no evidence that Mr McKie knew of the precise terms of the contractual arrangements between TCA and the Chinese suppliers. However, he knew that they continued to hold the moulds on behalf of the successful bidder, and had direct knowledge of the terms under which the moulds had previously been held for Old TCA, and must have known of the importance to any new owner of maintaining the contractual status quo as to exclusivity, particularly in light of the fact that the successful bidder had (as Mr McKie knew) paid a significant sum to acquire the Assets (including the moulds). In my view, Mr McKie must at least have had ‘a fairly good idea’ that the agreement pursuant to which the Chinese suppliers continued to hold the moulds included a term that the moulds were held exclusively for TCA (in lieu of Old TCA).

Accordingly, the answer to question two is yes.

Q3.Did the defendants intend to induce or procure Eastsea and Hengxing to breach the relevant contracts?

It is convenient to reiterate that actual knowledge of the interference with contractual relations (in this case, involving an alleged breach of contract) is not essential. Wilful blindness or reckless indifference can ground the necessary intention to interfere.[37]
[37]Daebo (2012) 207 FCR 220 [89] and the authorities cited therein.

The defendants deny having knowledge of any breach or having any intention to induce Eastsea or Hengxing to breach their respective mould agreements with TCA by arranging and accepting any alleged ‘unauthorised’ supplies.[38] In essence, the defendants claim to have ordered moulds from Eastsea and Hengxing shortly after the auction on 6 September 2012 and to have believed that all of the product that CTS subsequently received from the suppliers was made using CTS’s new moulds (save for some limited but explicable exceptions).
[38]Second Further Amended Statement of Claim, [28]-[32], CB 13; Defence to Second Further Amended Statement of Claim dated 22 July 2015, [32]-[36].

Orders for moulds

A critical part of the defence is therefore whether the defendants can establish that new moulds were ordered for CTS at the relevant time. If they can, the defendants have a strong foundation for their defence of the plaintiff’s claims. If they cannot, the plaintiff has a strong foundation for its claim that the defendants were, at the very least, recklessly indifferent as to whether TCA’s moulds were used to produce products for CTS.

For this reason, the defendants’ account of having ordered new moulds for CTS bears close examination.

Oral evidence

On this issue, in evidence-in-chief, Mr McKie gave evidence that ‘[that] evening after the sale’, he rang Mr James Ren in China and asked him to put the factories on notice that ‘I need new moulds produced and we need to get some productions in running for those moulds’.[39] He said he told Mr Ren that he needed him to contact the factories immediately to get this under way. By way of explanation, Mr McKie said that he needed this to be expedited, there was no time to spare and he needed to be in the market as soon as possible, and that production of moulds, goods and freight could take up to a couple of months. Mr McKie said that in his conversation with Mr Ren, he did not mention Eastsea or Hengxing or specific moulds – that he generically requested that Mr Ren contact the factories and get the moulds into production.
[39]Transcript 608.23-24.

Mr McKie gave evidence that he flew to China the following week, met with Mr Ren at the factories and had discussions ‘with the factories’; that he told them he had formed a new company and needed to have a relationship that would supply him products as he had done in the past with Old TCA. Mr McKie said ‘there was discussions between [Mr Ren] and the factories and moulds were produced and product was produced and sent’; then after meeting with Eastsea and Hengxing, he travelled back to Australia.[40]
[40]Transcript 609.4-13.

Mr McKie gave evidence that there was no discussion about payment for these moulds and that:

… [p]aying for the moulds wasn’t an issue. I had an indication in my mind roughly what the cost of the moulds were and I knew the factory wouldn’t overcharge me so I didn’t need to know how much the moulds were. I didn’t need confirmation on the cost of the moulds…[41]

He gave evidence that he understood that the factory (Hengxing) would make a set of moulds as requested by Mr Ren and that Mr Ren contacted the factories and asked them to create moulds.

[41]Transcript 610.6-11.

Asked whether he obtained any documents in relation to that contact or the creation of moulds, Mr McKie said ‘I never received anything back to say that was the case or not the case. I had no reason to think any different’.[42]
[42]Transcript 613.29-614.2.

Under cross-examination, Mr McKie gave evidence that the telephone call with Mr Ren occurred on either 6 September 2012 or the following evening. He was less certain about the content of the conversation, stating initially that it

… would have been along the lines of, ‘Goedheers purchased TCA. I need new moulds made’.[43]
I said, ‘Please just let the factories know we need to get these moulds under way’.[44]

And later
‘James, I need to get new moulds under way, get new moulds made, please contact the factories’. It would have had that content somewhere in the conversation.[45]
I just would’ve said ‘James I need to get some new moulds made’.[46]
It was really just to get him to put the factories on notice that I’m ordering new moulds and I’ll be ordering new product. The detail would come later.[47]

[43]Transcript 683.14-16.

[44]Transcript 683.23-25.

[45]Transcript 684.9-12.

[46]Transcript 684.30-31.

[47]Transcript 685.29-31.

On the following day, Mr McKie was again asked about the content of the conversation on the evening of 6 September 2012. Despite having given evidence the previous day to the effect that the discussion with Mr Ren about the creation of moulds was in general terms with the detail to come later, Mr McKie said

I wouldn’t have been specific. I would have told him to order kerbing moulds, roundabout moulds, speed cushion moulds, to alert the factories to get this, you know, in the production schedule … I would have just said to him ‘Order speed cushion, roundabout and kerbing moulds’.[48]

[48]Transcript 707.6-9, 29-31.

Mr Ren said he could not remember clearly what was said, that ‘he just told me that he left the old TCA, had gone and started his own business’.[49] Mr Ren said that was all Mr McKie said and that he did not respond.
[49]Transcript 800.2-6.

Mr Ren was asked what happened next, to which he replied

He told me, through phone calls, that he going to open his own moulds and letting me inform the factory to prepare for this … A few days later, I think, he fly to China, talk to the factory himself … I informed the factory immediately and the factories put in their system to prepare to produce the moulds.[50]

[50]Transcript 800.8-16.

Mr Ren gave evidence that Mr McKie came to China some days later, that they met and

… went to factory together … In the factory, he told the factory that – which moulds he will open – were opened – and ordering the production for the moulds.[51]

[51]Transcript 800.25-29.

Mr Ren was unable to recall whether anything else was said during those visits and whether there were any documents or papers produced in relation to the moulds.

Under cross-examination about whether Mr McKie told him to order new moulds, Mr Ren said

He did told me, call me, give me phone call, letting me to inform the factory to prepare the moulds and I think that later Mr Richard fly to China factory for the moulds production.[52]

[52]Transcript 817.4-7.

Mr Ren could not recall the time or the date that Mr McKie flew to China. When challenged that Mr McKie never gave Mr Ren any information about the new moulds that CTS required, including specifically which moulds, Mr Ren said

WITNESS:When people tell me, I mean you try tell me, give me phone call, he told me to prepare the cushions, kerbings and the roundabouts. I write down all the moulds, the name I inform the factory to prepare.
COUNSEL:So he never talked about which specific types of kerbing moulds, for example, did he?

WITNESS: He told me.
…
COUNSEL: You don’t remember these events in 2012 very well, do you?
WITNESS:I cannot recall exactly what we talked, so the phone calls, but I do remember Mr Richard telling me to let the factory know that the moulds going to be open – going to be produced.[53]

[53]Transcript 817.13-19, 26-30.

The defendants’ evidence concerning the ordering of moulds is problematic.

I am not satisfied that Mr McKie ordered moulds or procured Eastsea and Hengxing factories to order moulds in or about early September 2012.

Even allowing for the passage of time and the difficulty of remembering conversations with precision Mr McKie’s evidence, both in-chief and under cross-examination, was inconsistent and unconvincing.

Mr McKie initially gave evidence that on 6 September 2012 or 7 September 2012 he made a generic request to Mr Ren to contact the factories and get the moulds into production without mentioning any specific moulds. Yet under cross-examination Mr McKie said he would have told Mr Ren to order kerbing moulds, roundabout moulds and speed cushion moulds. Mr McKie was emphatic that he placed the orders for the kerbing moulds on 7 September 2012 with Mr Ren.

It soon became obvious that Mr McKie did not have a direct recall of the relevant events. He frequently said he was unable to recall. He frequently spoke of what he would have said rather than what he actually said. I formed the view that his evidence on this key issue was largely reconstruction.

Further, Mr McKie’s evidence lacked satisfactory corroboration:

(a) There was no sketch or design drawing for the new moulds despite evidence that the procedure for making moulds involved the sending of drawings and finalising their designs.

(b) There was no evidence of any approval process to ensure that the CTS logo and telephone number which were to be incorporated in the moulded products had been correctly incorporated in the new moulds despite evidence that the usual procedure for making moulds included attending the factory to check the first production run of the new moulds.

(c) There was no evidence that drawings which had previously been used by Old TCA were deployed to make new moulds for CTS.

(d) There was no evidence of any contract documents or other record between the factories and the mould manufacturers with respect to the manufacture of the moulds.

(e) There was no evidence of delivery dates of the new moulds.

(f) There were no telephone records to corroborate the evidence that Mr McKie had made a telephone call to Mr Ren on either 6 or 7 September 2012.

(g) There were no photographs of the CTS moulds.

The only documentary evidence relating to the new moulds passing between CTS and Eastsea or Hengxing were purported invoices of 7 September 2012 from Hengxing and one purported invoice of 10 September 2012 from Eastsea.

Furthermore, and significantly, Mr McKie was unable to reconcile an email dated 23 October 2012 which he sent to Mr Ren seeking information about orders and shipping dates which included the following

Finally, how are the moulds progressing we really need to stay on top of everything as I can see we will start to get busy very soon.[54]

Mr McKie said he was not sure about this comment and that he ‘can’t recall what this comment would be in respect to’.[55]

[54]Email from Richard McKie to James Ren dated 23 October 2012, CB 624.

[55]Transcript 745.6-7.

It is convenient here to note that Mr Ren said he could not recall the email. Asked specifically whether the reference to moulds in the email was a reference to moulds with a new tread pattern, Mr Ren was unable to recall. Mr Ren accepted that the CTS tread pattern changed, but could not recall the exact time that occurred.

In my view, this email is consistent with the plaintiff’s case that as at 23 October 2012 CTS did not have its own moulds. Neither Mr McKie or Mr Ren offered any explanation as to its context.

Mr McKie denied that the reason he enquired how the moulds were progressing in the email was because he wanted to find out from Mr Ren how the designs for the speed cushion moulds with a new tread pattern were progressing. He said that ‘I didn’t design the new tread pattern until I visited [China] in March 2013. 2013 was when I designed the new tread pattern’.[56] This evidence seems to be at odds with other evidence which he gave suggesting he did not in fact design the new tread pattern but merely that that he ‘saw the new design (in the factory) and asked if he could get that surface on his speed cushions’ and that he did not do a drawing of the new design. I find this explanation implausible. Mr McKie gave evidence that when he had designed all his other moulds, he would draw the shape, the design, the height and the basic fundamental parts of the item and it would be for the mould manufacturer to make a set of fabrication drawings.
[56]Transcript 746.13-14.

In this case, there was no documentary evidence of the ordering of the mould for a newly designed speed cushion with a new tread pattern, no drawing of the shape, design, height or of the fundamental parts of the item, no approval of drawings, no evidence of attendance at a first production run, and no evidence of any documentary trail between the Eastsea factory and the mould maker or any email communications between CTS and Eastsea to verify when the new tread pattern was designed. The absence of any such evidence to corroborate the timing of the manufacture of moulds with the new tread pattern is significant. In my view, it is highly improbable that there would be no documentation of any kind, formal or otherwise, which would bear on the question. The defendants’ case substantially relies on Mr McKie’s bald assertions about dates and timing. This is an unsatisfactory basis for making findings to the requisite standard given the demonstrated unreliability of Mr McKie’s memory on these issues.

Whilst on the subject of timing of the manufacture of the new moulds with the new tread pattern, I reject the defendants’ submission that the evidence shows that CTS’s new speed cushion pattern mould came into existence in March or April 2013 and no earlier. For the avoidance of doubt, I do not accept Mr McKie’s evidence as to the date of the changes to the new tread pattern.

Another improbable explanation arose in the context of the cost of the moulds. When asked in chief, ‘When did you find out about the cost of the moulds?’, Mr McKie responded ‘When I saw this document [pro forma invoice from Eastsea for $41,270.40[57]] and made arrangements for payment, I guess’.[58]
[57]Pro forma invoice dated 10 September 2012 of Eastsea, Exhibit D11.
[58]Transcript 610.12-14.

I do not accept this evidence. I am not satisfied that Mr McKie would engage Eastsea to manufacture moulds without first discussing the price or getting an estimate. Mr McKie impressed me as too astute to enter into a commercial transaction for a not insignificant amount ($41,270.40) without first agreeing upon a price or at least obtaining an estimate.

Furthermore if Mr McKie’s self-serving evidence is to be believed, the Eastsea factory later changed the mould pattern to the new design without charge. In my view, this is a preposterous notion.

Documentation regarding invoicing and payment for moulds

At trial, Mr McKie sought to rely upon four documents, each described as a ‘pro forma invoice’, to establish that he had purchased moulds:

(a) Three documents addressed to CTS, apparently on the letterhead of the Hengxing factory, each dated 7 September 2012.[59] Mr McKie gave evidence that these documents were not provided to him at the time of his 2012 visit, but ‘came from the factory on a later visit’;[60] and

(b) One document addressed to CTS, on Eastsea letterhead, dated 10 September 2012 purporting to show four moulds were purchased for speed cushions and roundabouts, totalling $41,270.40.[61]

[59]Three pro forma invoice documents from Hengxing to CTS dated 7 September 2012, Exhibit D12.

[60]Transcript 614.14-15.

[61]Pro forma invoice dated 10 September 2012 from Eastsea to CTS, Exhibit D11.

In relation to proof of payment for the three pro forma invoices from Hengxing for kerbing moulds, Mr McKie produced and relied upon Commonwealth Bank of Australia Settlement Instruction Confirmation documents showing payments were made by CTS in favour of Hengxing (on 17 September 2013 and on 24 September 2014).[62] Mr McKie gave evidence that each payment represented payment for either a semi-mountable straight radius kerb mould or bullnose island mould. It is to be noted that the payments were made more than a year after the order was purportedly placed (early September 2012) and each payment was approximately a year apart.
[62]CB 978A-980.

By way of explanation, Mr McKie said he was able to negotiate payment terms with the Hengxing factory for the kerbing moulds (through James Ren) on two year structured payment terms, the first payment being one year from that date, and the second payment one year after that; that the factory had no difficulty in agreeing to it because they knew CTS was a start-up business that Mr McKie was trying to get on its feet and the factory was happy to work with him on those terms.

Both payments purportedly for the kerbing moulds were made after the issue of the unauthorised use of moulds had been raised in correspondence by the Goedheers. The first payment, made on 17 September 2013, was made one week after the plaintiff’s solicitor had sent a letter to CTS and Mr McKie regarding the alleged use of moulds at the factories. The second payment was made on 24 September 2014 after litigation had commenced.

The Settlement Instruction Confirmation details of payment are provided by the payer, in this case CTS or Mr McKie. Accordingly, the payment descriptions are not corroborative of either the alleged creation of moulds in 2012 or the purported arrangement for payment by two annual instalments spaced over two years. Neither the mould manufacturing arrangements nor the payment deferral terms are documented. In my view, these documents reflect an attempt to construct a documentary trail after the fact.[63]
[63]CB 978A, 979 and 980.

In relation to the payment for the speed cushion and roundabout moulds, Mr McKie produced and relied upon an International Money Transfer from CBA dated 1 November 2012 for US$41,270.40.[64]
[64]Commonwealth Bank international money transfer dated 1 November 2012, Exhibit D10.

The plaintiff objects to the defendants’ reliance upon the pro forma invoice documents as evidence of the truth of their contents. The contents of these documents are prima facie hearsay. The defendants submit that the pro forma invoice documents are business records and, accordingly, they are entitled to rely on the business records exception to the hearsay rule and the documents should therefore be admitted into evidence without qualification.

Hearsay is not admissible unless it falls within an exception to the hearsay rule. Section 59(1) of the Evidence Act 2008 (Vic) (‘Evidence Act’) provides:

The hearsay rule—exclusion of hearsay evidence
(1)Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation.

There is an exception to the hearsay rule for business records.

Section 69 of the Evidence Act relevantly provides:

(1)This section applies to a document that –
(a)either –
(i)is or forms part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business; or
(ii)at any time was or formed part of such a record; and

(b)contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business.

(2)The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made –
(a)by a person who had or might reasonably be supposed to have had personal knowledge of the asserted facts; or
(b)on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.

Section 48 of the Evidence Act deals with the proof of the contents of documents. Relevantly, s 48(1)(e) provides:

(1)A party may adduce evidence of the contents of a document in question by tendering the document in question or by any one or more of the following methods—

…

(e) tendering a document that—
(i)forms part of the records of or kept by a business (whether or not the business is still in existence); and

..
(ii)is or purports to be a copy of, or an extract from or a summary of, the document in question, or is or purports to be a copy of such an extract or summary;

Section 183 of the Evidence Act relevantly provides:

If a question arises about the application of a provision of this Act in relation to a document or thing, the court may –
(a) examine the document or thing; and
(b)draw any reasonable inferences from it as well as from other matters from which inferences may properly be drawn.

In their Defence to the Second Further Amended Statement of Claim, the defendants state that they believed that all the relevant products purchased had been manufactured using moulds purchased by the first defendant from the Chinese factories pursuant to orders of the first defendant made on or around 7 September 2012 and 10 September 2012.[65]
[65]Defence to Second Further Amended Statement of Claim dated 22 July 2015, [32] and [33].

In order to make good this element of their defence it was necessary for the defendants to adduce evidence proving purchase of the moulds. To this end the pro forma invoices were sought to be tendered as business records. In my view, the defendants bear the onus of demonstrating that the pro forma invoices are authentic business records and therefore fall within an exception to the hearsay rule.

Before the business records exception to hearsay may be engaged, the threshold question of whether the pro forma invoices are in fact authentic documents must be considered. There has been judicial debate as to what is necessary to establish the authenticity of a document, and whether inferences as to the authenticity of a document can be drawn from the face of the document itself.

In some cases, it has been held sufficient to infer from the content of the document on its face whether it is authentic and relevant. As J Forrest J concluded in Matthews v SPI Electricity Pty Ltd & ors (Ruling 35) (following Australian Competition and Consumer Commissioner v Air New Zealand (No 1)), [66] a combination of s 55 and s 58[67] of the Evidence Act ‘enables a court to examine the document itself and then determine whether it is authentic – absent other evidence’.[68]
[66][2012] FCA 1355 (‘Air New Zealand’)).
[67]Section 58 provides that: (1) If a question arises as to the relevance of a document or thing, the court may examine it and may draw any reasonable inference from it, including an inference as to its authenticity or identity; (2) Subsection (1) does not limit the matters from which inferences may properly be drawn.
[68][2014] VSC 59 [32] (‘Matthews’).

In particular, his Honour held that it was appropriate to examine the document and the surrounding circumstances of its production and draw appropriate inferences where applicable as to:

(a) How the document came to be adduced in evidence;

(b) Whether it was a document prepared by a company;

(c) Whether it was a document prepared by one of the companies for the purpose of its business;

(d) Whether the contents of the document forms part of the records of the business;

(e) Whether the documents contain statements relevant to the proceeding made in the course of or for the purpose of the business;

(f) Whether the representation contained in the document is made by a person who had or might reasonably be supposed to have had personal knowledge of the asserted facts relied upon; and

(g) Whether the representation was made on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.[69]

[69]Ibid.

On the other hand, in ASIC v Rich,[70] Austin J (following National Australia Bank Ltd v Rusu & ors)[71] said:

Although a simple way of authenticating a document is by evidence from its creator, or someone who superintends the maintenance of business records that include it, Rusu does not lay down that authentication by such means is necessary. On the other hand, Rusu establishes that there must be something more than the mere tender of the document itself, where the tender is contested. [72]

[70](2005) 216 ALR 320 (‘Rich’).

[71][1999] 47 NSWLR 309 (‘Rusu’).

[72](2005) 216 ALR 320, [119].

I prefer the view taken by J Forrest J in Matthews following Perram J in Air New Zealand. Section 58 does not mandate any additional requirement and s 58(2) makes clear that the Court is not limited in the matters from which inferences may properly be drawn. The focus in this case is not solely on the pro forma invoices but includes other matters arising in the evidence from which inferences may properly be drawn. These matters raise many questions about the authenticity of the things which are printed on the face of the documents.

The first of these is the date. The pro forma invoices from Hengxing are dated 7 September 2012. In my view it is highly improbable that these documents came into existence on 7 September 2012. Mr McKie does not claim to have ordered any moulds on 7 September 2012. He claims that he asked Mr Ren to put the factories on notice that he wanted new moulds made without specifying the type of mould. The invoice contains a specific description of two types of kerbing moulds. This information was not known to Hengxing on 7 September 2012 on Mr McKie’s evidence.

The pro forma invoices contain a telephone number for CTS. That was not recorded as the telephone number for CTS as at 7 September 2012. The telephone number was not allocated until 13 September 2012 subject to administrative checks by the provider Telcoworx.[73]
[73]CB 468.

The pro forma invoices also contain a PO Box address for CTS that was not in CTS’s name on 7 September 2012. The application for a post office box on behalf of CTS is dated 24 September 2012.[74] The date of commencement is 12 September 2012.
[74]CB 458-460.

The terms of payment in the invoices from Hengxing are recorded either as ‘100 per cent of invoice value T/T in advance’[75] or ’10 per cent of invoice value T/T in advance, 90 per cent of invoice value’ to be payable against a bill of lading.[76] Mr McKie gave evidence that payment for the Hengxing moulds was on deferred payment terms with the first payment due in September 2013 and the second due one year later. The payment terms recorded in the invoice are inconsistent with this alleged arrangement.
[75]CB 434.
[76]Exhibit D12 (Three pro forma invoice documents from Hengxing to CTS dated 7 September 2012).

Likewise, the pro forma invoice from Eastsea refers to payment terms ‘100 per cent T/T in advance as deposit’.[77] Mr McKie could not explain how he received the Eastsea invoice and could not recall when he received it and did not offer an explanation as to why payment was made on 1 November 2012 when the invoice was dated 10 September 2012 and on its face required payment to be made in advance.[78] The invoice states a free on board unit price and a shipping route from Ningbo, China, to Australia by sea. Both the Goedheers’ and Mr McKie’s evidence is to the effect that the moulds have remained in China at the factories at all times. The reference to shipping by sea is anomalous. There is no evidence given by Mr McKie to suggest that any moulds were to be shipped to Australia by sea.
[77]Exhibit D11 (Pro forma invoice dated 10 September 2012 from Eastsea to CTS).
[78]Exhibit D10 (Commonwealth Bank international money transfer dated 1 November 2012).

Unaccountably, the Eastsea invoice refers in the quantity section to four ‘1PC’ in one part of the invoice suggesting the invoice is for four items and in the Total package section ‘750 PKS’ suggesting the invoice is for 750 items. This apparent disparity was not explained.[79]
[79]Exhibit D11 (Pro forma invoice dated 10 September 2012 from Eastsea to CTS).

I have come to the conclusion that the invoices are not authentic business records. The date which they bear is plainly erroneous; the terms of payment for the Hengxing invoices are plainly erroneous on Mr McKie’s evidence; the delivery details are plainly erroneous; the relevant telephone number had not been allocated to CTS until after 10 September 2012; and the post office box number allocated to CTS was not apparently allocated until the end of September 2012, although the stated commencement date is 12 September 2012.

It is significant that the defendants have not discovered any covering emails or other documents relating to the creation or receipt of these invoices, or the alleged production of moulds for CTS. While working for Old TCA, Mr McKie was closely involved in the design and creation of moulds. By way of example, in an email chain generated in August 2012 between Mr McKie and Mr Ren,[80] it is clear that Mr McKie is aware of mould design nuances, has examined the mould drawings, is interested in the price to be charged and expresses a willingness to pay a premium to ensure the mould makers would give the work priority. In the circumstances, I find it surprising, to say the least, that a documentary trail does not exist in relation to the creation of moulds for CTS.
[80]CB 418-419.

As noted earlier, the invoices which are sought to be relied upon cannot have been prepared in the form they are in on the date which they bear.

Mr Ren, Mr McKie’s agent in China, essayed an explanation along the lines that the invoice might have been created on the dates which they bear with details to be filled in at a later date. He suggested that the many anomalous references may be the result of extraneous and inaccurate references being incorporated as part of the pro forma that they have: a ‘fixed form’.[81]
[81]Transcript 803.24-25.

I find Mr Ren’s evidence unsatisfactory. As a general observation he appeared to have a very limited recall of what was said and when it was said. He produced no documents which could have shed light on the critical issues in the case on whether any moulds were ordered and when they were ordered. The full account of the purported conversation between Mr McKie and the factories is conspicuous for its minimal content:

COUNSEL:     What happened when Rick came to China?
WITNESS:      I met him. We went to factory together.
COUNSEL:     What happened at the factories?
WITNESS:In the factory, he told the factory that – which moulds he will open – were opened – and ordering the production for the moulds.

COUNSEL: Was anything else said in those visits?
WITNESS: I cannot recall.
COUNSEL:Were there any other documents or papers produced in relation to the moulds?
WITNESS:I cannot recall the documents of moulds. You know, we the kind of people, we don’t like papers, we like phone calls.[82]

Later, he was asked a further question by the defendants’ counsel:
COUNSEL: …. And what moulds did Rick talk about at the factory?
WITNESS: In Hengxing, is kerbings.[83]

[82]Transcript 800.25-801.3.

[83]Transcript 804.21-22.

There was no evidence to identify who (other than Mr McKie and Mr Ren) attended the meetings at the factories and Mr Ren could not recall whether anything else was said during these factory visits.

Mr Ren gave evidence that the invoices were made in 2012 but when he gave this evidence he was reading one of the Hengxing invoices, which had the invoice date recorded on it. In my view, it is likely that his answer was prompted by reading the invoice. I am not satisfied that Mr Ren had any direct knowledge or actual recall of which year the invoices came into existence.

Indeed, he gave evidence that he could not recall the time or the date that Mr McKie flew to China to then meet at the factory to arrange for the production of moulds. He could not recall when he first saw the invoices. He said he believed he saw them in 2012 but could not recall when because it was a long time ago. Despite giving evidence that he believed he saw them in 2012, in my view Mr Ren gave so many ‘cannot recall’ responses (including with respect to emails sent to him in 2012)[84] that I consider it is very unlikely that his belief as to when he first saw the relevant invoices is reliable.
[84]For example, the email from Richard McKie to James Ren dated 23 October 2012, CB 624.

Mr Ren was not an employee of the factories or the creator of any of the documents yet he proffered the following explanation in an endeavour to explain the invoice date of 7 September 2012 on the Hengxing invoices:

COUNSEL: Did you receive them from the factory on 7 September 2012?
WITNESS:On this date – sorry, let me to explain how the invoice was issued. It’s like this. All the factory (indistinct) they had a system. When first time they got the phone call from that client, they will put the information in their system but that doesn’t mean the put date, put information, what the client need. But maybe at the same time, the information is not completed enough but just put there in the system. So this date, issued on September 7^th doesn’t mean this invoice is issued on this date.

COUNSEL: Thank you for that explanation. When did you see it?
WITNESS: I cannot recall.[85]

[85]Transcript 818.12-23.

This explanation was unsolicited. I formed a strong impression that Mr Ren volunteered the explanation in an effort to assist Mr McKie explain the anomalies. It was clearly a speculative explanation and is of little or no probative value. Overall I do not accept any evidence given by Mr Ren without independent corroboration.

If, contrary to my view, the invoices are business records and are in fact admissible for truth of their contents as an exception to the rule against hearsay I would give the evidence very little weight. The invoices are replete with unexplained errors, which are so extensive and fundamental that it is not possible to conclude with confidence that any other part of the information contained in the document is accurate. They are manifestly unreliable.

Declarations

The defendants sought to rely on a series of documents described as declarations from Eastsea and Hengxing.[86] Relevantly, the Eastsea declarations (dated 17 or 18 April 2014) certify (among other things) that:
[86]CB 938-944 (excluding CB 939A-B, which the defendants do not press).

(a) ‘CTS has its own moulds, no products supplied to CTS were made with TCA’s moulds. Eastsea’s warehouse keeps each client’s moulds separately for confidential … CTS has it’s own exclusive design’;[87]
[87]CB 943.

(b) ‘CTS’s 200 mm Spacer was produced from the 9 m roundabout master mould’;[88]

(c) ‘CTS has it’s own moulds and Logo parts … CTS has it’s own moulds and logos in our factory … Xiaofang never said Rick told her he had second company which could use TCA’s moulds’;[89] and

(d) ‘[At] first beginning we use the same name for the same kind of products, which not showing the ownership of the products’.[90]

[88]CB 942.

[89]CB 941.

[90]CB 940.

The Hengxing declarations (dated 17 April 2014) certify (among other things) that Hengxing:

(a) ‘doesn’t have and will not have any exclusive agreement showing supply or manufacture products for one sole client’;[91] and

(b) ‘has many warehouses and keeps each client’s moulds separately for confidential’.[92]

[91]CB 938.

[92]CB 939.

The starting position is that the declarations are inadmissible as hearsay. The defendants submit that the declarations are authentic business records and fall within the business records exception to the hearsay rule.

I disagree. The business records exception is not applicable in the present circumstances. Section 69(3) of the Evidence Act provides, in relation to the business records exception, that:

[The exception] does not apply if the representation—
(a) was prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding
…

The declarations are all dated after the commencement of this proceeding (December 2013) and appear to have been created for the purpose of this litigation. In cross examination, Mr McKie gave evidence that ‘[other] than that, if we weren’t in litigation, I wouldn’t have had to get any declarations from the factory. There’s no need for them’.[93]
[93]Transcript 700.26-29.

In my view, it is apparent both from the content of the declarations themselves and Mr McKie’s evidence that the declarations fall squarely within the terms of s 69(3). In other words, the defendants cannot avail themselves of the business records exception to the hearsay rule in relation to the declarations, as they are documents that have been obtained for the purpose of, in contemplation of, or in connection with this proceeding.

Even if I am wrong and the declarations can be admitted in to evidence, in my view, they are of no probative value. It is likely that the factories would have been highly motivated to make exculpatory declarations that would deflect any criticism or potential liability for their own breach of contract. The documents have clearly been produced for the purpose of this litigation in circumstances which are far from clear. The Eastsea declarations bear a stamped signature of an unidentified person. The Hengxing declarations merely bear a stamp with no signature. I have no confidence that the representations are made by a person who might reasonably be supposed to have had personal knowledge of the asserted facts.

Confidentiality Agreements

The defendants also rely on confidentiality agreements between CTS and Eastsea and Hengxing as proof that moulds were ordered. These agreements were created by CTS. Mr McKie gave evidence that he wanted to protect his intellectual property and, in particular, ‘… the mould surfaces and our moulds’.[94] Mr McKie was unsure whether the confidentiality agreement with Eastsea was signed personally at the factory, or via email. He said the confidentiality agreement was not made until some months after CTS had started. The Eastsea confidentiality agreement states it was ‘made and entered into as of the day of’ 2 December 2012.[95]
[94]Transcript 618.2-9.
[95]CB 907.

The confidentiality agreement made with the Hengxing factory was in like terms. Mr McKie said the agreement was made for similar reasons. Mr McKie gave evidence that the reference in the confidentiality agreement with Hengxing to ‘current moulds’ referred to all of CTS’s kerbing moulds (semi-mountable 300R, semi-mountable 500R, semi-mountable straight and 460mm bullnose island).

I have serious reservations about the timing of the creation of these confidentiality agreements. I reject Mr McKie’s evidence on this point. It emerged in cross-examination that the confidentiality agreements did not in fact come into existence ‘some months after CTS started’, as suggested by the date on the document, but more than a year later. The confidentially agreement was first sent in draft to Mr Ren on 4 December 2013 and was attached to an email from Mr Ren to Mr McKie on 20 December 2013,[96] well after the defendants were on notice of the dispute with the plaintiff.[97]
[96]CB 907-910.
[97]The proceedings were commenced in December 2013, though Mr McKie gave evidence that he received the documentation relating to the proceeding on 1 January 2014.

Mr McKie denied that the document was dated 2 December 2012 so that anyone who read it would think it had been entered into in December 2012. He said ‘We probably produced that to cover ourselves for our moulds. The 2012 date could be an error’.[98] This is also inconsistent with his evidence that the confidentiality agreements were entered into ‘some months after CTS had started’. I do not accept that the date is likely to be erroneous. The carefully worded statement in the confidentiality agreements that they were ‘made and entered into as of the day of 2 December 2012’ tends to suggest that the parties paid careful attention to the date of commencement.
[98]Transcript 764.5-7.

I do not accept Mr McKie’s evidence. I am of the view that the ambiguous and non-specific reference to ‘Current Moulds’ in each confidentiality agreement is a self-serving reference and cannot be used to corroborate the existence of any CTS moulds in 2012, although the defendants seek to rely on the documents for this purpose.

Orders for products

In determining whether the defendants intended to induce or procure Eastsea or Hengxing to breach the relevant contracts it is highly material to consider when Mr McKie first placed orders for products on behalf of CTS.

Mr McKie was keen to commence his own traffic calming product business. He had raised the issue with the liquidator to clarify that there was no impediment on him starting his own business immediately after the auction. Within a week or so of the auction he visited the factories in China.

Mr McKie was asked by his counsel whether, in September 2012, he placed orders for products. Mr McKie said ‘Difficult to say that I did but we would have discussed some quantities, I’m sure, that we would need to get into production but I can’t say that I placed orders exactly at that time’.[99]
[99]Transcript 626.11-15.

Mr McKie gave evidence that Mr Ren placed the orders with the factory and that he conveyed the order to James Ren much earlier than 21 September 2012.

From this evidence I infer that the orders from Eastsea were placed in mid-September 2012.

Mr McKie was shown documents on CTS letterhead, described as purchase agreements from CTS to Hengxing dated 21 September 2012.[100]
[100]CB 662, 663, 664, 665, 666 and 668.

Mr McKie was shown an invoice from Eastsea dated 17 September 2012 for the supply of speed cushion parts among other things. The invoices described the various speed cushion parts as ‘TCA’ parts. Mr McKie accepted that he saw the invoice around 17 September 2012 or within the next few weeks.[101] The speed cushion parts also had the same product number references applicable at the time that Old TCA was trading. Another invoice, CTS004-12, dated 24 September 2012, also referred to speed cushion parts as ‘TCA’ parts and used the same product numbers applicable at the time Old TCA was trading.[102]
[101]CB 638.
[102]CB 638-639.

Another Eastsea invoice, CT001-12, for the supply of, among other things, four metre roundabout parts, specified a delivery time of 30 September 2012. Mr McKie agreed that it would not be possible to deliver that product by 30 September 2012 if new moulds had to be made for CTS. Mr McKie said the delivery date was wrong.[103]
[103]CB 573.

Mr McKie was shown an invoice from Eastsea dated 24 September 2012, CTS003-12, which included reference to TCA rubber roundabout parts and speed cushion parts[104] with product numbers applicable at the time Old TCA was trading.
[104]CB 585.

Mr McKie was also shown an invoice from Eastsea dated 9 October 2012, CT001-12, and 003-12, for roundabout and speed cushion parts. At least in relation to the speed cushion parts the description used the same product number that was applicable at the time Old TCA was trading.[105]
[105]CB 607.

In another version of this invoice that was discovered products described as ‘TCA rubber roundabout SC17 and TCA speed cushion left, LSCCNR-1’ were overwritten over the letters TCA with the letters CTS.[106]
[106]CB 608.

On 19 October 2012, Eastsea issued commercial invoice CTS002-12 and 004-12 to CTS. Two versions of this invoice were produced on discovery. In one version the rubber roundabout and speed cushion products are described as ‘TCA’ products.[107] In the other version the details are the same (including references to the same product number that was applicable at the time Old TCA was trading). However the references to TCA have been removed. Mr McKie accepted that the documents were the same except for the removal of the reference to TCA. Mr McKie denied altering the invoice or asking someone to alter the invoice.
[107]CB 636; CB 617.

However, Mr McKie also said he did not believe that he made the changes but that it was possible. It was suggested that he was concerned by the reference to TCA and wanted it to be changed to CTS. Mr McKie said he was not sure he was concerned about the reference but was just trying to get them to get it right.

All of these invoices from Eastsea came into existence before CTS (on its own case) made any payment to Eastsea for moulds, without any documented process for ordering the new mould to produce the products ordered, or for checking the new mould once created either by attending a first production run or arranging for someone to attend a first production run to ensure the moulded product was satisfactory.

With Old TCA, payment for moulds was made up front. The only reference to payment terms in the pro forma invoice dated 10 September 2012[108] requires a ‘100 per cent T/T in advance as deposit’. Mr McKie did not suggest that any special payment terms were negotiated between CTS and Eastsea.
[108]Exhibit D11.

Both Eastsea and Hengxing shipped products to CTS in the latter part of October 2012. In the case of Eastsea, Eastsea made a packing declaration dated 18 October 2012 in respect of the vessel ZHEN HE. On 19 October 2012, Eastsea issued commercial invoice CTS002-12 and 004-12 to CTS and on the same day a packing list for those invoices. The packing list has numerous references to TCA.[109]
[109]CB 637.

In the case of Hengxing, Hengxing issued commercial invoice D12XH194, which included kerbing products expressed to be ‘without logo’ and ‘with logo CTS1800211212’.[110] Also on 19 October 2012, Hengxing issued a packing declaration for the vessel YM ANTWERP.
[110]CB 616.

On 15 October 2012, CEVA Freight (Aust) Pty Ltd issued a tax invoice to CTS with respect to purchase orders CTS001-12 and 003-12 indicating that the vessel ZHEN HE had departed Ningbo, in China, on 21 October 2012, and had arrived in Melbourne on 12 November 2012. Mr McKie was shown the CEVA Freight tax invoice and it was suggested that he knew that the goods, the subject of the two purchase orders, were shipped on the ZHEN HE on 21 October 2012. He agreed he knew, probably not to that exact detail, but that he would have had an idea. When it was suggested that he knew goods were being shipped in the latter part of October 2012 he replied, ‘Yes, I guess. Yes, I would have had an idea they were being shipped in the latter part of October, yes’.[111]
[111]Transcript 742.28-31.

I gained a strong impression that when giving this evidence Mr McKie sought to underplay his involvement or interest in receiving these products. In my view, he is highly likely to have been eager to check the first invoices for CTS from Eastsea and Hengxing to ensure that the products CTS had ordered were correct; that he would have been very interested in and keenly aware of the arrival date of the first shipments as a newly independently operating entity reflecting his keenness to commence business immediately after the liquidation of Old TCA. I do not accept his explanation that the numerous references to Old TCA and the use of identical Old TCA component references ought to be dismissed as errors on the part of the factory. Mr McKie gave evidence that he understood that the products ordered from Eastsea had been made from his (CTS) moulds. I do not accept this evidence. It must have been obvious to Mr McKie (and therefore CTS) that the relevant products were likely to have been manufactured using TCA moulds (acquired from Old TCA) given the timing, the fact that the usual procedure for the creation of new moulds was not followed and CTS not having made any payment for new moulds.

Conclusion on intention

In my view, the defendants (at the very least) were wilfully blind or recklessly indifferent to the contractual relationship between TCA and the Chinese factories, which they knew held TCA’s moulds exclusively for TCA. Taking into account my findings regarding the ordering of moulds and products, I am satisfied the defendants had sufficient knowledge of the contractual relationship for the purpose of grounding the necessary intention to induce or procure Eastsea and Hengxing to breach those contracts and that they did induce and procure the relevant breaches.

4. Did Eastsea and Hengxing relevantly breach their contracts with TCA?
Eastsea

Eastsea manufactured products for CTS after receiving orders in mid-September 2012. It had manufactured the products and despatched them to Australia by mid-October 2012.

There is no satisfactory evidence from which I could infer that moulds had been manufactured for CTS and that the products manufactured for CTS were manufactured from such moulds. In my view, the time frame is too narrow. I do not accept Mr McKie’s evidence to the effect that moulds were ordered and manufactured promptly and in time for the production of the relevant product. Had the manufacture of moulds been expedited to facilitate rapid manufacture of CTS products it is almost inconceivable that this would not have been reflected in contemporaneous communications about the design (including the need to incorporate the CTS logo and telephone number), the need for expedition, pricing (probably with a loading to reflect the requirement for expeditious production of the mould), invoicing and payment. In the absence of such evidence I can more readily infer, and I do infer, that Eastsea used TCA’s moulds in breach of the exclusivity terms.

Apart from the question of timing, there are other factors consistent with breach by the Eastsea factory of the exclusivity term.

First, the 23 October 2012 email reply by Mr McKie to Mr Ren’s email of 19 October 2012 contains the enquiry, ‘How are the moulds progressing…’.[112] This suggests that the moulds had not been manufactured at that time, yet the Eastsea[113] factory had already manufactured products for CTS by that date.
[112]Email from Richard McKie to James Ren dated 23 October 2012, CB 624.
[113]And Hengxing.

Secondly, on 1 November 2012, CTS paid US$41,270.40 to Eastsea.[114] There is no record of any earlier payment. There is no basis to suppose that Eastsea would provide finance for the creation of moulds on behalf of CTS. In the circumstances it is likely that the production of traffic calming products for CTS which were identical to TCA’s traffic calming products (but for the logo and telephone number) were manufactured using TCA’s moulds.
[114]Exhibit D10.

Thirdly, in July 2013, Mr Divagoras de Holanda Jr, an employee of Nyord, TCA’s agent in China, visited Eastsea’s factory. He was accompanied by Mr Ren and another employee of Nyord known only as John. Mr de Holanda catalogued the moulds at Eastsea belonging to TCA. This process involved Mr de Holanda looking inside the moulds to check that they were TCA moulds, identifying the moulds as belonging to TCA by checking there was a TCA logo in the mould and that the surface pattern on the mould corresponded to the TCA product design. After inspection of the mould and confirmation that it belonged to TCA, Mr de Holanda painted a registration marking on the mould.[115]
[115]See eg CB 1180 (top right hand corner).

[136]CB 1456, CB 1459, CB 790.
[137]CB 1551, CB 1554, CB 917.
[138]CB 1496, CB 1497, CB 808.

Ms Goedheer gave evidence that TCA uses the same formulas that Old TCA used to break down the cost of each project and arrive at a figure to which a profit margin could be added. The costings were based on formulas which Mr McKie had prepared for Old TCA.

Essentially the costing formula is based on the unit price charged by the Chinese suppliers with a mark-up for packaging, shipping and transport costs. Ms Goedheer gave evidence that she prepared each quote in the same manner.

In the case of the Alice Springs project, which involved the construction of a 16-metre diameter roundabout and six semi-mountable traffic islands, Old TCA quoted a price of $48,420, based on quote calculation prepared in June 2012 for Old TCA.[139] The roundabout project did not go ahead immediately and became part of a broader road construction project undertaken by Probuild Northern Territory Pty Ltd, a contractor engaged by Alice Springs Council. The council outsourced the construction of the relevant traffic calming products. TCA then bid for the work by providing a quote to Probuild in April 2013 for $38,844.
[139]CB 398.

Ms Goedheer calculated loss based on the quoted price of $38,844 (less the estimated costs of $24,216) resulting in a lost profit of $14,428. Ms Goedheer also calculated loss based on the historical pricing at $23,904. The historical pricing loss figure was calculated on the basis that if CTS had not bid for the contract TCA would have bid at the price earlier quoted by Old TCA (namely $48,420). Ms Goedheer said that TCA quoted at the lower price because by then CTS was a competitor in the market so TCA had to reduce its price.

Ms Goedheer gave evidence with respect to the Auburn City Council project that TCA submitted a quote for $15,370 and that she estimated $7,570 for costs for that project with the figure of $7,800 being the difference and the profit which would have been made if it had won at the price that it had quoted.

Ms Goedheer conducted the same profit analysis with respect to the other listed projects, in each case based on the final quoted price.[140]
[140]The calculations for Bankstown and Camden projects initially contained some errors and differences which were clarified during the trial. However, they were calculated on the same principles.

In the case of the Geelong project, a final quoted price was not submitted. The price submitted was only an indicative price so this claim is based on internal pricing of $42,580 (allowing $14,880 for costs), producing a lost profit figure of $27,770.

With respect to these projects, Mr McKie was asked whether there were any special factors involved in him or CTS obtaining the relevant projects.

Mr McKie responded:

What probably helped in all of these – in the first one I had a terrific relationship with Probuild.
…
the engineer that I dealt with on that particular project actually came to me at one stage and said, “Rick, if you do this for this price, the job’s yours.” I looked at my figures and took up the option. The second item, Auburn City Council, there was a strained relationship with the engineer and myself, due to Mr Goedheer’s ability to discredit me with this council, and I was able to provide a very, very cheap price to try and get business with that council, which he took up that offer. He had no choice because it was a tender and I met all the requirements but from that date he never purchased another item from me. He always avoided that. Bankstown tender, I’ve been working with Bankstown for many years through Saferoads days, TCA days but again that tender was always influenced by pricing. Camden, again, it’s a similar situation with that engineer. He said if I matched her price, could I do the job and I did. Cranbourne, Endeavour Drive, I’m not quite sure about that particular one because Greg Inifer maintained relationships with Victorian customers and he perhaps would have had a relationship with those, Cranbourne, Endeavour Drive, Cranbourne North, Geelong, Hedgeley Road and Melton, Black Dog Drive, all fit into that category with Greg Inifer, all Victorian projects and Greg could have negotiated with the contractor in some cases, or the engineer. Liverpool, I’ve known that engineer for quite some time and we just would have basically quoted that price and won that job. Maribyrnong, I’ve known that engineer from back at Saferoads days and he is highly influenced by price only and it just means we were cheaper on that job on the day. Ocean Gardens, I had no relationship at all with this client, it was a new client to us. We knew we had to be competitive so we set a competitive price in this case.[141]

[141]Transcript 661.18-662.29.

I give little credence to this evidence. As with so much of Mr McKie’s evidence in this case, it consists of unsupported assertions. None of the engineers mentioned by Mr McKie are identified let alone called to give evidence. Mr Greg Inifer, to whom Mr McKie refers, was not called to give evidence about the relationship CTS may have had with Victorian customers. Furthermore and fundamentally, the defendants have been unable to satisfactorily explain how CTS could have competitively tendered for and carried out these projects without using product manufactured in TCA’s moulds.

I am satisfied that TCA suffered lost profits in respect of each of the projects listed in Table A. In respect of the Alice Springs project, I accept that the only reason the pricing was reduced was to allow for the fact that CTS was also competing for the work. Accordingly, the measure of loss with respect to that project is calculated on the basis of historical pricing.

In relation to the Geelong project, I accept the plaintiff’s figure based on internal pricing rather than the final quoted price. There was no particular challenge to the pricing on the Geelong project.

Nevertheless, there was a submission put generally that the plaintiff’s claim for lost profits is excessive because it fails to take into account the cost of making the necessary tenders, administering the projects in head office, the costs of finding and engaging sub-contractors, the costs of sourcing and purchasing the necessary supplies (apart from the costs of the product), the costs of dealing with queries and problems that arise on the job, extra billing and accountancy debt collection management costs, motor vehicle expenses, telephone, printing, stationery, repairs, maintenance and the like.

Ms Goedheer was asked whether such expenses increased if TCA took on additional projects. Ms Goedheer gave evidence that these are fixed expenses. As a general proposition, I accept this evidence. The addition of a further project is hardly going to make a significant difference to the cost of administration at head office. In this case there are 11 projects. Theoretically there might be an incremental cost for extra billing and accountancy, debt collection, costs of management, motor vehicle expenses, telephone, printing, stationery, repairs and maintenance. Considering the scale of this case, I expect that such incremental costs would be insignificant.

Nevertheless, some allowance must be made for the contingency that TCA may not have won all 11 projects had CTS not quoted on them and for other contingencies (such as the risk of reduction of quoted prices by negotiation). I fix the allowance for contingencies at 15 per cent. It follows that the total damages with respect to lost profits for the 11 projects referred to in Table A is $ 138,834, less 15 per cent or $118,008.90.

Traffic Systems West

This claim concerns lost profits in respect of products supplied by CTS to Traffic Systems West, a distributor based in Western Australia. CTS sold relevant products to Traffic Systems West, which were the subject of invoices issued by Hengxing and Eastsea to CTS dated 28 November 2012, 1 December 2012 and 6 December 2013.[142]
[142]Eastsea invoice CTS-007-12 CB 660, Hengxing invoice DI2XH213 CB 673 and Eastsea invoice CTS-010-12 CB 912.

The invoices or related documents disclosed that the products were shipped to the Port of Fremantle for delivery to Traffic Systems West.[143] TCA’s claim for lost profits has been calculated on the basis that had CTS not supplied Traffic Systems West with the relevant product Traffic Systems West would have bought such products from TCA. Traffic Systems West had previously dealt with Old TCA and had expressed interest in continuing to supply TCA. Traffic Systems West is party to a distribution agreement with TCA.[144]
[143]See Import Declaration CB 698, CB 911.
[144]CB 1471.

The calculation of lost profit based on relevant products supplied is set out in Table B below.

Table B

Part

Total units supplied

Cost per unit to CTS

Unit resale price by TCA to TSW

Lost profit per unit

Total lost profit

Table B (cont) Kerbing supplied by Hengxing

SM 1000 Straight	500	$58.82	$114.75	$55.93	$27,963.00
SM 300 Radius	100	$36.25[145]	$114.75	$78.50	$7,849.80
SB Straight	50	$56.69	$114.75	$58.06	$2,902.89
Bullnose 1m	40	$90.46	$212.50	$122.04	$4,881.64

[145]This cost is incorrectly overstated – the correct figure is $31.80: T 347.3-28. This has the effect of understating the profits in relation to this product. The plaintiff does not press this correction.

Speed cushion parts supplied by Eastsea

TCA left	150	$92.03	$223.13	$131.10	$19,664.67
TCA right	150	$92.03	$223.13	$131.10	$19,664.67
TCA SM-M20	200	$24.53	$110.50	$85.97	$17,193.44
TCA SM-M30	20	$37.02	$165.75	$128.73	$2,574.68
TCA SC M500	40	$64.39	$276.25	$211.86	$8,474.51
Total	$111,169.31

The unit resale prices by TCA to Traffic Systems West are based on TCA’s price list for sales to Traffic Systems West.[146] The price for TCA left and TCA right speed cushion parts is based on the price of a 1.6 metre speed cushion charged to Traffic Systems West (a 1.6 metre speed cushion is made up of four left and right parts). The price for the M20, M30 and M500 speed cushion parts is based on the wholesale price set out in the price list less a 15 per cent discount.[147] Ms Goedheer gave evidence that TCA charges Traffic Systems West a special distributor rate, which is the wholesale rate less a 15 per cent discount. I am satisfied with the lost profit calculation with respect to products sold by CTS to Traffic Systems West.
[146]CB 1481.
[147]The cost per unit figure represent landed costs and include a 14 per cent mark up for packaging, overseas freight, port and local transport and other costs): Plaintiff’s Amended Further and Better Particulars dated 20 July 2015.

This claim for lost profit is made on the basis that had CTS not supplied Traffic Systems West with the relevant products Traffic Systems West would have bought such products from TCA as Traffic Systems West was party to a distribution agreement with TCA. In response, the defendants submitted that the distribution agreement commenced in February 2013 and was not in place at the relevant time (two supplies were made in December 2012).[148] Whilst it is correct to say that the written distribution agreement is dated 1 February 2013,[149] Ms Goedheer gave evidence that prior to the written agreement TCA had a verbal distribution agreement with Traffic Systems West. I accept this evidence.
[148]CB 673, CB698.
[149]CB 1471.

First, it was suggested that the cost per unit for particular speed cushion parts (M30, M20 and M500) was incorrect and was approximately double what it should be. Ms Goedheer disagreed. She gave evidence that the claim with respect to those components was based on the price list for Western Australia. I accept her evidence. The Western Australian price list applicable as at January 2013 sets out a wholesale price for each of these items. When adjusted for the 15 per cent discount allowed to the distributor, it accords precisely with the unit resale price claimed for the speed cushion parts.

Further, it was submitted that the only evidence as to the likelihood that TCA would have sold the product to Traffic Systems West was that TCA would have been able to supply them, that is indicating a capacity to supply rather than a probability of supply. This is an over literal analysis of the evidence. It fails to take into account the fact that there was an existing marketing relationship between Traffic Systems West and TCA based on maintaining continuity after the demise of Old TCA with an oral distributor agreement with TCA, which was later reduced to writing in the written agreement signed in February 2013.

In my view it is reasonable to infer that TCA would have made the sales of these products to Traffic Systems West had CTS not done so. As Traffic Systems West was TCA’s distributor in Western Australia I do not propose to discount this element of the claim for contingencies. Accordingly, I accept the total lost profit claimed of $111,169.31.

Lost profits in respect of the projects undertaken for Hobsons Bay City Council by CTS

The plaintiff submits that it has lost the opportunity to earn profits in respect of projects undertaken for Hobsons Bay City Council using relevant products.

Details of this claim for lost profit is set out in Table C below.

Table C

CTS invoice number Date Type of product Invoiced amount (excl. GST) Lost profit

207[150] 17/12/2012 CUSHION $450.00 $210.60

208[151] 17/12/2012 CUSHION $11,586.00 $5,422.25

209[152] 20/12/2012 CUSHION $4,695.00 $2,197.26

213[153] 23/01/2013 CUSHION $3,764.20 $1,761.65

215[154] 12/02/2013 CUSHION $12,880.00 $6,027.84

216[155] 12/02/2013 KERB $5,020.00 $2,349.36

229[156] 26/03/2013 KERB $12,152.75 $5,687.49

232[157] 22/04/2013 CUSHION $4,815.00 $2,253.42

233[158] 24/04/2013 KERB $480.00 $224.64

235[159] 29/04/2013 KERB $2,035.00 $952.38

239[160] 6/05/2013 CUSHION $6,510.00 $3,046.68

248[161] 20/06/2013 CUSHION/KERB $20,000.00 $9,360.00

249[162] 20/06/2013 CUSHION/KERB $13,029.00 $6,097.57

250[163] 21/06/2013 KERB $1,800.00 $842.40

251[164] 26/06/2013 CUSHION $37,778.00 $17,680.10

253[165] 26/06/2013 CUSHION $4,055.00 $1,897.74

271[166] 25/09/2013 KERB $13,584 $6,357.31

273[167] 30/09/2013 KERB $4,106.00 $1,921.61

287[168] 17/12/2013 KERB $470.00 $219.96

299[169] 3/03/2014 KERB $5,317.00 $2,488.36

Total $164,526.95 $76,998.62
[150]CB 685.
[151]CB 686.
[152]CB 700.
[153]CB 730.
[154]CB 740.
[155]CB 741.
[156]CB 764.
[157]CB 784.
[158]CB 785.
[159]CB 791.
[160]CB 799.
[161]CB 817.
[162]CB 818.
[163]CB 819.
[164]CB 822.
[165]CB 857.
[166]CB 873.
[167]CB 885.
[168]CB 902.
[169]CB 918.

Ms Goedheer gave evidence that Old TCA had dealt with the Hobsons Bay City Council in the past and there was no reason why TCA, offering the same products at the same price, would not have carried out these projects. The claim for lost profits in Table C is based on the invoices issued by CTS to Hobsons Bay City Council.

The lost profits claim is based on the assumption that TCA would have made a margin of 46.8 per cent of the invoiced amount. This margin was derived by Ms Goedheer after reviewing calculations prepared by Old TCA for Hobsons Bay City Council. Ms Goedheer found that the margin earned by Old TCA with respect to this customer ranged from 46.8 per cent to approximately 62 per cent. In the circumstances, Ms Goedheer adopted the lowest margin within this range as the basis for calculating lost profits for this claim of $76,998.62.[170]
[170]CB 338-442.

In response to this claim, the defendants submitted that the likelihood that new TCA would have obtained these projects was slim.

Ms Goedheer gave evidence that Old TCA had many projects with Hobsons Bay City Council and that after Mr Inifer came to work with TCA he also brought projects across. Ms Goedheer gave evidence that Mr Inifer had a special relationship with the engineer of Hobsons Bay City Council. Due to that relationship, while Mr Inifer worked at CTS, TCA would not get any substantial work from Hobsons Bay City Council. It was also apparent from a letter from Mr Goedheer to Hobsons Bay City Council councillors that Mr Goedheer understood that Mr Inifer had an ongoing relationship with the engineering department at Hobsons Bay City Council whilst he was working for Old TCA, and also Saferoads prior to that time.[171]
[171]CB 733.

In this letter, Mr Goedheer complains that TCA had not been asked to quote on works completed since September 2012, seeks an explanation and queries whether the requirements of the Hobsons Bay City Council procurement policies had been adhered to.
The photographic evidence shows many instances of projects at Hobsons Bay with apparently identical speed cushion products to the TCA product.[172] There are some instances where CTS kerbing is identical to TCA kerbing, indicating that TCA’s mould has been used at Hobsons Bay City Council.[173] There are some instances where the TCA logo has been ground off kerbing which has been plainly made using the TCA mould. This is explicable from evidence that CTS was offered and purchased some kerbing that Old TCA apparently did not want and, accordingly, it was supplied with the TCA logo ground off.[174] It is not possible to calculate with any accuracy the components used by CTS for the Hobsons Bay City Council which were legitimately obtained and those which were obtained from unauthorised use of moulds. Given the level of uncertainty with respect to this claim and the particular issues TCA had with respect to its relationship with Hobsons Bay Council after the departure of Mr Inifer, a very substantial discount should be made for contingencies. Accordingly, I propose to discount this claim by 80% and allow only 20%, or $15,400.
[172]See eg CB 1219, CB 1220, CB 1221.
[173]See eg CB 1223.
[174]See eg CB 1224.
Damages for replacement of damaged moulds
Ms Goedheer gave evidence that TCA’s moulds were made of solid steel and there was no reason to put an interchangeable plate into the moulds and that TCA’s moulds had been damaged by being cut to have steel plates inserted.
The plaintiff submits that where TCA’s moulds have been damaged, they need to be replaced; that TCA cannot continue with its current and cumbersome process of flying agents to the factories to unlock the moulds and supervise production runs; that even if TCA’s plates could be welded back onto the mould, this would be unsatisfactory because TCA would not know how well it had been welded back and that moulds can deteriorate because they work under very high temperature and pressure. Ms Goedheer also gave evidence that if the moulds can be fixed, they would have to be sent to the mould making factory for the mould maker to repair the mould, which is not commercially feasible because TCA would not be able to place orders during that time. Further, replacement of the moulds would make it easier to detect if anyone has tampered with the moulds in the future. The total claim for replacement of moulds is $58,753.90, based on the cost of moulds taken from listed prices paid by Old TCA for moulds from Eastsea and Hengxing.
I do not accept this component of the plaintiff’s claim. Ms Goedheer was not an expert in relation to the manufacture and use of moulds. Whilst I accept her view is genuine that the moulds could deteriorate because they work under very high temperature and pressure, there is no evidence that the moulds do not function perfectly adequately with the removable plate or that the removable plate could not be welded in place securely and in such a way that any further tampering could not occur. Further, there is no evidence that the moulds would have to go back to a mould maker to be ‘repaired’. There seems to be no reason why the plates could not be welded into place at the Eastsea and Hengxing factories. In my view, the claim for total replacement of moulds is excessive and unjustifiable.
Damages for costs of Nyord investigation

TCA’s agent, Nyord, performed various services for TCA in respect of the misuse of TCA’s moulds. In June 2013, TCA asked Nyord to investigate potential misuse of TCA’s moulds, amongst other things. The services involved Mr de Holanda, Mr Ren and John (each then working for Nyord) attending the Eastsea and Hengxing factories in July 2013. After this time, the Nyord employees supervised production runs by flying to the factories (from Qingdao to Ninbo) to lock and unlock the moulds for production runs. Nyord invoiced TCA US$24,000, which included the cost of internal airfares in China for the Goedheers and Nyord employees when visiting the Chinese factories in September 2013.
The defendants complain that the descriptions of the services provided were not itemised and therefore raises suspicions, and the fact that it was rendered on 30 December 2014 suggests that the invoice was not genuine and was created for the purpose of increasing the damages claim, and there is doubt as to whether it was paid.
In the latter regard, I accept Ms Goedheer’s evidence that the invoice was paid.
Nevertheless, the defendants justifiably complain that the services provided are not itemised. I am not satisfied that the invoiced amount is wholly referable to the issues with the unauthorised use of moulds. Ms Goedheer was unable to estimate the proportion of Nyord’s work that related to the unauthorised use of moulds issue and quality control issues. Mr de Holanda gave evidence that his sister Ligia of Nyord asked him to visit the supplier in China to do three things: first, to see whether there were any problems with quality and to do some quality control; secondly, to inspect the final product and make sure it was ready to be packaged and shipped; and thirdly, to see whether there was any unauthorised use of the moulds. These three purposes were relevant with respect to Eastsea, but in relation to Hengxing, there was just a quality issue (initially). Mr Ren accepted that the $24,000 covered all payments in respect of his work, not only for the three purposes at Eastsea, but also for the purpose at Hengxing.
Ms Goedheer gave evidence that the quality issue at Eastsea ‘wasn’t a problem anymore because they saw firm evidence that CTS was using our moulds’.[175] I accept that the focus of the trip changed from quality control concerns to concerns regarding the unauthorised use of moulds. Nevertheless, some work was done with respect to quality control issues. Accordingly, some allowance needs to be made for that component. Furthermore, a substantial element of the damages claimed is for costs of unlocking the moulds before production runs, supervising production and relocking the moulds after production runs. Doubtless, this involved time and travel and related expenses. The difficulty from an assessment point of view arises from the failure of the Nyord debit note to break down the $24,000 claim to enable a precise calculation to be made. However, that not being possible, I will do the best I can to make an allowance.
[175]Transcript 354.16-18.
I will allow 60% of this claim, accepting that there would have been considerable expenses of the kind claimed. However, I am not satisfied that TCA took any adequate steps to mitigate its loss. In my view, there is no evidence to suggest that the plates could not have been welded into place in such a way as to reveal any further tampering with TCA’s moulds and avoiding some or all of the expense associated with unlocking and relocking moulds. Accordingly, the allowance for this item is US$14,400.
Estoppel claim
TCA submits in the alternative that the facts support an alternative claim founded upon promissory estoppel. Given my findings on liability, it is not necessary to elaborate on this alternative claim, other than briefly. TCA submits that by signing the list of assets at the auction on 6 September 2012, Mr McKie made a representation that the ‘moulds held overseas’ which were listed as part of Old TCA’s assets to be sold at auction were to be for the exclusive use of the successful bidder, and that that representation was made by Mr McKie on his own behalf and on behalf of CTS, and was a continuing representation.[176]
[176]Second Further Amended Statement of Claim [35B] and [35C].
It is submitted that the making of the representation induced the Goedheers to bid for Old TCA’s assets; that Mr McKie understood that by signing the list, the successful bidder would have exclusive rights to use the moulds held overseas and he knew that the Goedheers shared that understanding; that the Goedheers acted to their detriment by paying $530,000 for the Assets when they would not have otherwise bid, that McKie has acted contrary to the representation and that as Mr McKie has acted contrary to the representation, his conduct amounts to an unconscionable resiling from the represented position. In the circumstances, it follows that there is no reason which would preclude the Court from granting the relief of enforcing the reasonable expectation adduced by the making of the representation.
In the current circumstances, in my view, it would be open to the Court to enforce the reasonable expectation which Mr McKie encouraged by signing the list of assets in the circumstances in which that occurred. It is not necessary to decide the case on this basis, given my findings on the tortious claims.
Conclusion
In this matter I have found that there were contracts between TCA and Eastsea and Hengxing respectively to hold moulds on behalf of TCA for TCA’s exclusive use; that the defendants knew that if Eastsea and Hengxing used TCA’s moulds to supply products to CTS, that conduct would be in breach of those contracts; that the defendants intended to (and did) induce or procure Eastsea and Hengxing respectively to breach the contracts; and that Eastsea and Hengxing breached the terms of their respective contracts with TCA to hold TCA’s moulds on behalf of TCA for TCA’s exclusive use.
I am satisfied that the plaintiff suffered loss and damage in the nature of lost profits of $244,578.21 and damages for the costs of investigating the breaches of $14,040, totalling $258,618.21.
Accordingly, I find that the plaintiff succeeds in its claim.

CTS invoice number	Date	Type of product	Invoiced amount (excl. GST)	Lost profit
207[150]	17/12/2012	CUSHION	$450.00	$210.60
208[151]	17/12/2012	CUSHION	$11,586.00	$5,422.25
209[152]	20/12/2012	CUSHION	$4,695.00	$2,197.26
213[153]	23/01/2013	CUSHION	$3,764.20	$1,761.65
215[154]	12/02/2013	CUSHION	$12,880.00	$6,027.84
216[155]	12/02/2013	KERB	$5,020.00	$2,349.36
229[156]	26/03/2013	KERB	$12,152.75	$5,687.49
232[157]	22/04/2013	CUSHION	$4,815.00	$2,253.42
233[158]	24/04/2013	KERB	$480.00	$224.64
235[159]	29/04/2013	KERB	$2,035.00	$952.38
239[160]	6/05/2013	CUSHION	$6,510.00	$3,046.68
248[161]	20/06/2013	CUSHION/KERB	$20,000.00	$9,360.00
249[162]	20/06/2013	CUSHION/KERB	$13,029.00	$6,097.57
250[163]	21/06/2013	KERB	$1,800.00	$842.40
251[164]	26/06/2013	CUSHION	$37,778.00	$17,680.10
253[165]	26/06/2013	CUSHION	$4,055.00	$1,897.74
271[166]	25/09/2013	KERB	$13,584	$6,357.31
273[167]	30/09/2013	KERB	$4,106.00	$1,921.61
287[168]	17/12/2013	KERB	$470.00	$219.96
299[169]	3/03/2014	KERB	$5,317.00	$2,488.36
Total	$164,526.95	$76,998.62

[2015] VSC 741

17 December 2015