WA Trolleys Pty Ltd v Johnson - [2002] WASC 26

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WA TROLLEYS PTY LTD -v- JOHNSON [2002] WASC 26

CORAM: MASTER SANDERSON

HEARD: 29 NOVEMBER 2001

DELIVERED : 21 FEBRUARY 2002

FILE NO/S: CIV 1983 of 2000

BETWEEN: WA TROLLEYS PTY LTD
Plaintiff
AND
LESLIE JOHNSON
Defendant

Catchwords:

Damage assessment - Turns on own facts

Legislation:

Nil

Result:

Damage assessed at $260,000

Category: B

Representation:

Counsel:

Plaintiff: Ms A J Crichton-Browne
Defendant: MrJ P Thomson

Solicitors:

Plaintiff: Ilberys
Defendant: McAuliffe Williams & Partners

Case(s) referred to in judgment(s):

Nil

Case(s) also cited:

Alexander v Cambridge Credit Corporation Pty Ltd (1987) 9 NSWLR 310
Ash v Hutchinson & Co (Publishers) Ltd [1936] Ch 489
Attorney-General (Hong Kong) v Reid [1994] 1 AC 324
Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653
Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25
Colour Control Centre Pty Ltd v Ty [1996] AILR 4316
Daily Cleaning Service Pty Ltd v Pavlovic (1992) 34 AILR 413
Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101
Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397
Faccenda Chicken Ltd v Fowler [1987] Ch 117
Goodchild Fuel Distributors Pty Ltd v Holman (1992) 59 SASR 454
Granosite Pty Ltd v Wieland (1982) 9 IR 218
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Hospitality Group Pty Ltd v Australian Rugby Union Ltd [2001] FCA 1060
Koufos v Czarnikow Ltd [1969] 1 AC 350
Leplastrier & Co Ltd v Armstrong-Holland Ltd (1926) 26 SR (NSW) 585
March v Stramare Pty Ltd (1991) 171 CLR 506
McPherson's Ltd v Tate (1993) 35 AILR 285
Midland Montagu Australia Ltd v Harkness (1994) 35 NSWLR 150
My Kinda Town Ltd v Soll [1982] FSR 147
Re Registered Trade Marks "Certina" (1970) 44 ALJR 191
Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516
Robb v Green [1895] 2 QB 315 (CA)
Robinson v Harman (1848) 1 Exch 850
Sanders v Parry [1967] 1 WLR 753
Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275
SSC & B Lintas New Zealand Ltd v Murphy (1986) Aust Torts Rep 80-008
Teller Control Centre Pty Ltd v R Ty & Ors, Supreme Court of NSW; (1689 of 893); 24/74
The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488
United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 76
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 193 CLR 603
Warman International Ltd v Dwyer (1992) 46 IR 250
Warman International Ltd v Dwyer (1995) 182 CLR 544
Wenham v Ella (1972) 127 CLR 454

MASTER SANDERSON: This is an assessment of damages. It follows from a judgment on admissions made by the defendant in his defence. The facts of the case can be summarised in this way.
The plaintiff is and was at all material times a company which provides for the collection and maintenance of shopping trolleys used by supermarkets throughout Western Australia. As part of its operations the plaintiff had, as from March 1999, four separate contracts for trolley collection services in Kalgoorlie. These contracts were with Coles Supermarkets Australia Pty Ltd for ("the Coles contract") and a supermarket known as "Hannans" ("the Hannans contract"), Kmart Australia Ltd ("the Kmart contract") and Woolworths (WA) Pty Ltd ("the Woolworths contract"). I will have more to say about these contracts and, in particular, the rate of remuneration payable thereunder later in these reasons.
In order to run its Kalgoorlie operation the plaintiff employed the defendant as its supervisor. The defendant commenced his employment with the plaintiff on or about 29 June 1999. By its statement of claim the plaintiff pleads that the defendant was engaged pursuant to an oral contract (par 5) into which were implied terms that effectively meant the defendant would not compete against the plaintiff (par 7). In fact, that is what the defendant did. In May 2000 the plaintiff was invited by Coles to tender for the shopping trolley collection and maintenance services for a two‑year period from 1 July 2000. The tender was for Coles and Hannans. On or about 9 June 2000 the defendant who had registered a business name "Goldfields Trolleys" tendered for the same contracts. He tendered at a lower price, having by virtue of his position learned the price at which the plaintiff was tendering. Not surprisingly, the defendant was awarded the contract. A short time later, in circumstances I will detail below, he also obtained a contract from Woolworths for their trolley collection and maintenance services. Without the critical mass necessary to maintain its business in Kalgoorlie, the plaintiff was not in a position to continue its services with Kmart. It requested that the Kmart contract be terminated and this was done. That contract was picked up by the defendant.
In its statement of claim the plaintiff alleges that the defendant owed it fiduciary duties consequent upon the contract of employment and that in acting as he did, the defendant breached those fiduciary duties. That aspect of the claim was not admitted. What the defendant admitted was a breach of his contract of employment. Damages are then to be assessed for that breach of contract. This was not a case where the plaintiff was entitled to the equitable remedy of an account consequent upon a breach of trust.
In support of its case the plaintiff filed an affidavit of Eric Peter Cicanese ("Cicanese") sworn 28 May 2001. Cicanese was at all relevant times the State Services Manager for Coles and was responsible for contracts for the collection and repair of shopping trolleys throughout Western Australia, including in Kalgoorlie. Cicanese confirms that on 10 March 1999 the plaintiff and Coles entered into the Coles contract. The contract ran from 15 March 1999 to 30 June 2000. Pursuant to the contract Coles paid the plaintiff $1265 per week for its services. Cicanese also confirms that Coles entered into the Hannans contract. That contract, which was entered into on 15 April 1999, ran from 29 March 1999 to 30 June 2000. Initially the plaintiff was to be paid $250 per week for its services. The Hannans contract was varied on 7 March 2000 with the effect that the plaintiff was thereafter paid $385 per week.
Cicanese says that in May 2000 Coles sent to the plaintiff an invitation to tender for the trolley collection services for both the Coles and Hannans stores in Kalgoorlie. He says that on or about 2 June 2000 he became aware that there was someone else in the Kalgoorlie area interested in tendering for the trolley collection services for both stores. He subsequently sent an invitation to tender to the defendant. The invitations to tender, which were sent to the plaintiff and the defendant, were in identical terms. They were for the period 1 July 2000 to 30 June 2002, with an option for Coles to extend the contracts for an additional year.
On 9 June 2000 Coles received tenders from the plaintiff. The tenders anticipated Coles paying $1265 a week for the trolley collection services at the Coles store and $385 per week for the trolley collection services at the Hannans store. In other words the price on the tenders was precisely the same as it had been for the period between March 1999 and June 2000. On the very same day that Coles received the plaintiff's tenders they also received the defendant's tenders. The tenders were identical, save that the defendant's prices, both with respect to the Coles store and the Hannans store were slightly lower. Coles accepted the defendant's tenders for both stores.
During the course of the hearing Cicanese was cross‑examined on his affidavit. He impressed me as a witness of truth, competent and definite in his approach. He clearly regarded the letting of the trolley contracts as something of a sideline in the burdensome task of running a supermarket chain. He says in his affidavit (par 20) that if the defendant had not submitted his tenders the plaintiff's tenders would have been accepted. He did not resile from that position under cross‑examination. Moreover, he says in his affidavit that if the plaintiff's tender had been accepted, Coles would have exercised its option and extended the contract for a period of 12 months from 1 July 2002. Once again he did not resile from that position under cross‑examination. This is a point of some significance and it does, I think, justify further elaboration.
Cicanese indicated that the contracts for trolley collection services let by Coles were standard throughout Western Australia. They were for a two‑year period with an option for Coles to extend the contracts by a further 12 months. This practice was adopted, according to Cicanese, because Coles did not want to chop and change trolley service providers. Thus, when a contract was let, it was let for a two‑year period and unless the contractor failed to perform, it was automatically extended by a further 12 months. Cicanese said that this meant that he was not continually fielding requests from contractors anxious to obtain Coles business. Rather, the contracts had to be reviewed only once in every three years and he regarded that as a satisfactory arrangement. Counsel for the defendant made some attempt to elicit an admission that after the expiration of the two‑year period of the contract, there was at least a prospect that the option would not be exercised and fresh tenders would have been called. Cicanese emphatically rejected that as a possibility and on this point I accept his evidence.
The conclusion then must be first, that if the defendant had not tendered for the Coles contract and the Hannans contract, both contracts would have been awarded to the plaintiff for a two‑year period commencing 1 July 2000. The remuneration for these contracts would have been $1265 per week for the Coles contract and $385 per week for the Hannans contract. Furthermore, each of these contracts would have been renewed for a further period of 12 months from 1 July 2002.
In further support of its case the plaintiff relied on an affidavit of John Keith Graham ("Graham") sworn 25 May 2001. At all relevant times Graham was the Store Manager of Woolworths Kalgoorlie. He says that on 22 March 1999, on behalf of Woolworths, he entered into the Woolworths contract with the plaintiff. The remuneration was $2100 per week. The Woolworths contract differed from the Coles contract and the Hannans contract. It was for a period of two years but pursuant to cl 9.1 of the contract, it could be terminated at any time by Woolworths giving to the contractor one month's written notice. Graham says that in early June 2000 he was advised by the defendant that the defendant had obtained contracts with Coles and Kmart. He asked Graham if he could have the Woolworths contract and undertook to provide the services at the reduced price of $1600 per week. Graham said during cross‑examination that he did not believe an operator could provide trolley collection services in Kalgoorlie unless they held the Coles and Kmart contracts as well as the Woolworths contract. He therefore exercised the termination provisions under the contract with the plaintiff and terminated the plaintiff's services. He then awarded the contract to the defendant. Graham made it plain that had the plaintiff retained the Coles and Hannans contracts he would have continued to use the plaintiff's services.
In the course of cross‑examination it was suggested to Graham that the plaintiff could have retained the Woolworths contract even if the defendant had the Coles and Hannans contracts. Graham rejected that proposition and I accept his evidence. I also accept Graham's evidence that were it not for the fact that the defendant had the Coles and Hannans contracts, the plaintiff would have retained the Woolworths contract. Graham gave evidence that he had found it extremely difficult to adequately deal with the issue of trolley collection. Having the work done by Woolworths' employees had proved unsatisfactory. He was most anxious not to jeopardise the capacity of an independent contractor to provide appropriate services. As with Cicanese, Graham was an impressive witness and I accept his evidence in its entirety.
In relation to the Kmart contract, the plaintiff relied upon an affidavit of Douglas Callegari ("Callegari"), sworn 28 May 2001. Callegari is the Asset and Building Services Manager for Kmart Australia Ltd. He says that on or about 20 July 1999 he entered into a contract with the plaintiff for trolley collection services. The weekly fee for services was $795. In addition, on 29 February 2000, Callegari, on behalf of Kmart Australia Ltd, entered into a further contract for the cleaning of the carpark and the pavement in front of the Kmart Kalgoorlie store. The weekly consideration for these services was $210.
On 23 June 2000 Callegari says he was contacted by Mr Steve Ray Tymms ("Tymms") of the plaintiff who advised that the plaintiff had lost the Coles contract and the Woolworths contract. Tymms said he was terminating the Kmart contract because without the two major contracts his company could not operate profitably in Kalgoorlie. Callegari says that he accepted the termination of the contract and thereafter engaged the defendant to do the same work. The defendant was engaged by Kmart on the same terms and conditions and at the same remuneration as the former contract with the plaintiff.
I accept the evidence given on behalf of the plaintiff by Tymms in his affidavit of 25 May 2001 (par 34 and 35) that without the Coles and the Woolworths contracts, the plaintiff could not adequately provide a service to Kmart. I also accept that had it not been for the loss of the Coles and Woolworths contracts, the plaintiff would not have lost the Kmart contract.
Apart from the trolley collection services provided by the plaintiff, it also undertook from time to time, as requested, repair and maintenance of the trolleys. Tymms says in his affidavit of 25 May 2001 (par 33) that between 30 June 1999 and 30 June 2000 the plaintiff earned $2900 in trolley repairs from Coles, $2680 from Kmart and $4820 from Woolworths. That is an amount of $10,400. There is no reason to believe that the plaintiff would not have continued to provide these maintenance and repair services to each of its clients. Quite what the amount might be on an annualised basis is uncertain. However, I am prepared to accept that the plaintiff would have earned an amount of $10,000 per annum for trolley repair services.
Based upon the above I have concluded that for the three years from 1 July 2000, the plaintiff would have earned the following:
Coles contract -   $197,340
Hannans contract -   $ 60,060
Woolworths contract -   $327,600
Kmart contract -   $124,020
Kmart (cleaning carpark & pavement
contract)$ 32,760
Trolley repair & maintenance  $30,000
Total income -   $771,780
In his closing submission counsel for the defendant made the point that the defendant could, at any time, have resigned from his position with the plaintiff and after a reasonable period, have set up in opposition to the plaintiff. That is quite correct but it misses the point. At the time when the defendant tendered for the Coles contract and the Hannans contract he was in the employ of the plaintiff. The fact of the tender was the breach of contract complained of and for which damages are now being assessed. If after the Coles contract and the Hannans contract had been let to the plaintiff, there being no tender by the defendant, there is, on the evidence, no prospect that either the Coles or the Hannans contract would have moved for the next three years. Furthermore, if those two contracts did not move the Woolworths contract would not have moved and nor would the Kmart contract. In my view, there is no doubt on the evidence that were it not for the defendant's breach of contract, the plaintiff would have earned the amounts set out above from all of the contracts.
It is then a question of determining what expenses must be set off against the income. In support of its application the plaintiff filed two affidavits of Ian Edmund Appleton ("Appleton"), the first sworn 25 May 2001 and the second sworn 24 September 2001. Appleton is a Public Accountant who has for some time provided accounting services to the plaintiff. In his affidavits he has attempted to break down the total income received by the plaintiff into what was received from each of the four Kalgoorlie contracts and then estimate the expenses to be offset in relation to each of those contracts. The position can be illustrated by reference to annexure "A1" to Appleton's affidavit of 24 September 2001. This annexure shows that the income from the Coles contract, including trolley repair, was $68,900. The expenses as estimated by Appleton, are put at $29,530 leading to a net profit of $39,370. This exercise was repeated across all four contracts. Under cross‑examination it became clear that Appleton had no real basis for estimating the expenses set off against each of the Kalgoorlie contracts. Counsel for the defendant produced a document titled "Defendant's Summary of Damages Calculation and Related Information". Table 1 in that summary shows that in relation to the Coles contract the ratio of non‑wages expenses to income was 8 per cent. The income was shown as $68,900 and the non‑wages expenses were $5360. The ratio of wages expenses to income was 35 per cent ($24,170 of wages out of an income of $68,900). These ratios were maintained throughout all four of the Kalgoorlie contracts. However, an analysis of the income received from other sources as against the expenses shows that the ratio of non‑wages expenses to income was 40 per cent and the ratio of wages expenses to income was 86 per cent. That meant that on Appleton's figures, all of the plaintiff's operations, bar the Kalgoorlie contracts, ran at a loss - the costs were 126 per cent of the income.
In the course of cross‑examination Appleton was not able to adequately explain why there was a such a marked discrepancy between the expenses relating to the Kalgoorlie contracts and the plaintiff's other contracts. Nor, based upon his affidavit evidence, and his evidence in cross‑examination am I satisfied that there was any proper basis for the allocation of expenses made by him. It might have been expected that the books and records of the plaintiff would have shown what costs were incurred in relation to the Kalgoorlie contracts. For instance, the records may have shown how much was paid in wages to individuals resident in Kalgoorlie. If the records do show that, Appleton clearly did not make use of them in preparing his reports. If the records are not that specific then I am not satisfied that the plaintiff established a sufficient evidentiary basis for Appleton's evidence to be accepted. On that basis I reject Appleton's evidence in its entirety.
In opposition to the application the defendant filed two affidavits of Carlie Brooke Taylor ("Ms Taylor"), the first sworn 1 June 2001, the second sworn 29 October 2001. Ms Taylor is a member of the Australian Society of Certified Practising Accountants and she has undertaken accounting work for the defendant. Annexed to her affidavit of 29 October 2001 are a series of profit and loss statements for the defendant for the year ended 30 June 2001. Annexure "CBT5" to that affidavit sets out the income and expenses for the defendant for operating his business for the financial year ended 30 June 2001. The expenses show an amount to $140,990. Those expenses include a sum of $26,702 for legal fees. The defendant acknowledged that this expense related to his legal fees for this action and in the calculation of expenses the plaintiff would have incurred in running its business in Kalgoorlie if it had all four contracts. This amount can be put to one side. Furthermore, the expenses do not include any costs of a Kalgoorlie manager. This is a matter which I will return to below.

Otherwise the expenses seem to me to be the costs anyone operating a trolley collection business in Kalgoorlie would incur - be it the plaintiff, the defendant or some other party. There are, of course, some costs which are no doubt particular to the defendant. For instance, hire purchase charges of $2101 are shown. It may be that such charges would not have been incurred by the plaintiff. Equally, the telephone charges are put at $4025. As the defendant is resident in Kalgoorlie and presumably makes the bulk of his calls locally, it is reasonable to expect that amount is somewhat lower than the costs that would have been incurred by the plaintiff who would have been calling from Perth to Kalgoorlie on a regular basis. Equally, there is an amount for travel, accommodation and conference of $1191. Had the plaintiff been running this business from Perth there is a real prospect of occasional travel by one of the plaintiff's directors from Perth to Kalgoorlie. In other words, the plaintiff may have spent more on travel and accommodation than the defendant. There are also two depreciation items included in the list of expenses - one for general depreciation and the other for depreciation of a motor vehicle. While it might be argued that these two figures represent a taxation expense rather than an expense actually incurred, in the absence of any other evidence, both entries can be taken to represent an approximation of wear and tear on the defendant's equipment.
By far the largest expense is staff wages which amounts to $81,557. It may be that if the contracts were run by the plaintiff the staff costs may have been higher or lower, depending on the relative efficiency of the plaintiff and the defendant. However, the defendant was the manager of the plaintiff's operations in Kalgoorlie. It is reasonable to suppose that the method of operating the business would not have changed significantly under the management of the defendant as against the management of the plaintiff.
On the basis of the figures provided in annexure "CBT5" I think it can be said that the expenses of running the business in Kalgoorlie for a 12‑month period, excluding management costs, were $114,288 ($140,990 total expenses less $26,702 legal fees). To these expenses must be added the cost associated with a manager of the operations in Kalgoorlie. In his affidavit of 25 May 2001, Tymms says that the wage of the defendant as an employee of the plaintiff was $32,000 per year. Given the relative success of the Kalgoorlie operation it is reasonable, in my view, to assume that this amount may have increased during the course of the three years from 1 July 2000. I think on that basis it is appropriate to allow an amount of $35,000 per annum for a Manager. In addition, some amount must be allowed for the time spent by officers of the defendant in supervising the Kalgoorlie contract. During the course of his evidence Appleton said that during the financial year ended 30 June 2000, an amount of $60,615 was paid to the two directors of the plaintiff as wages. There is no doubt that this was done because it was a tax effective method of distributing the profits from the plaintiff's business. This approach is entirely proper and correct and in referring to the tax effective nature of the approach I am not expressing or implying any criticism of the plaintiff, its directors or Appleton. To an extent then, the figure for wages for the management services of the plaintiff's directors is artificial and bears no real relationship to their overall commitment to the business. Furthermore, the business in Kalgoorlie had a separate supervisor who was charged with the day to day responsibility for running the operation, whereas the plaintiff's operations in the Perth metropolitan area were run without a separate manager and by the plaintiff's directors. In my view it is not then appropriate simply to apportion the wages for management equally across all of the contracts.
Examining all the evidence, there is clearly no method by which an amount representing the cost of input from the directors can be calculated with precision. I have determined, as best I can on the material available, that an amount of $20,000 would be a reasonable approximation. In reaching that conclusion, I note that Ms Taylor in a profit and loss statement which appears as "CBT4" to her affidavit of 29 October 2001, and which includes managers' wages inserts a figure of $64,220. How that amount is calculated does not emerge from her evidence. It may well be as with the plaintiff this is a tax effective way of dealing with the profits made by the business. Either way, it is not disproportionate to the amount of $55,000 (ie $35,000 for Manager plus $20,000 for director's costs) which I have allowed for management in calculating the expenses the plaintiff would have incurred in running the business in Kalgoorlie.
Based upon the above I am satisfied that a reasonable allowance for the expenses that the plaintiff would have incurred in running this business is $169,288 per annum. For the purposes of calculating the damages I have rounded that amount out to $170,000. Over a three‑year period that results in expenses of $510,000.
Based upon income of $770,000 (rounded down from $771,780) and expenses for a three‑year period and expenses for the same period of $510,000, I am satisfied that the plaintiff has lost an amount of $260,000. That is the amount of the damages I award.
I will hear the parties as to the precise form of order and as to costs.