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Federal Court of Australia |
Last Updated: 1 July 2003
SVI SYSTEMS PTY LIMITED v BEST & LESS PTY LIMITED
CORRIGENDUM
SVI SYSTEMS PTY LIMITED v BEST & LESS PTY LIMITED & ORS
N342 of 1999
EINFELD J
20 MARCH 2001
SYDNEY (CORRIGENDUM 1 JULY 2003)
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
N342 OF 1999 |
BETWEEN: |
SVI SYSTEMS PTY LIMITED (ACN 003 908 325) (formerly Divergent Technologies Pty Limited ACN 003 908 325) APPLICANT |
AND: |
BEST & LESS PTY LIMITED (ACN 003 724 696) FIRST RESPONDENT GINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955) SECOND RESPONDENT CAREL STASSEN THIRD RESPONDENT IAIN DAVID MacDONALD FOURTH RESPONDENT BEST & LESS PTY LIMITED (ACN 003 724 696) FIRST CROSS-CLAIMANT GINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955) CROSS-RESPONDENT TO FIRST CROSS-CLAIM GINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955) SECOND CROSS-CLAIMANT BEST & LESS PTY LIMITED (ACN 003 724 696) FIRST CROSS-RESPONDENT TO SECOND CROSS-CLAIM PEPKOR LTD (RN 65/077/6506) SECOND CROSS-RESPONDENT TO SECOND CROSS-CLAIM PEPKOR LTD (RN 65/077/6506) THIRD CROSS-CLAIMANT GINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 036 955) FIRST CROSS-RESPONDENT TO THIRD CROSS-CLAIM GINGES HOLDINGS PTY LIMITED SECOND CROSS-RESPONDENT TO THIRD CROSS-CLAIM PEPKOR LTD (RN 65/077/6506) FOURTH CROSS-CLAIMANT SVI SYSTEMS PTY LIMITED (ACN 003 908 325) FIRST CROSS-RESPONDENT TO FOURTH CROSS-CLAIM SHAUN ROSEN SECOND CROSS-RESPONDENT TO FOURTH CROSS-CLAIM MALCOLM THOMAS THIRD CROSS-RESPONDENT TO FOURTH CROSS-CLAIM |
JUDGE: |
EINFELD J |
DATE OF ORDER: |
20 MARCH 2001 |
WHERE MADE: |
SYDNEY |
In the Reasons for Judgment of the Honourable Justice Einfeld on 20 March 2001:
1 Following the citation of the cases judicially considered, insert the following citation:
"Halsbury's Laws of Australia (vol 6), Sydney, 1992".
2 Following paragraph 106, insert the following paragraph:
"As to the foregoing discussion on the applicable legal principles, from which the text has been drawn, see Professor John Carter's chapter on the law of contract in Halsbury's Laws of Australia (vol 6), Sydney 1992. In relation to the principles of uncertainty and incompleteness ([60] - [77]), see Halsbury's Laws of Australia, at [110-455] - [110-525]. In relation to the principles by which a contract can be inferred from the conduct of the parties ([80]-[82]), see Halsbury's Laws of Australia, at [110-225] - [110-230], [110-2090]. As to the relevance of post-contractual conduct ([83]-[86]), see Halsbury's Laws of Australia, at [110-2115]. In relation to the implication of terms for business efficacy ([89]-[91]), see Halsbury's Laws of Australia, at [110-2135]. As to the principles of law relating to co-operation ([92]-[93]), see Halsbury's Laws of Australia, at [110-2135]). As to the principles of law relating to obviousness ([94]), see Halsbury's Laws of Australia, at [110-2140]. In respect of the law relating to consistency ([95]), see Halsbury's Laws of Australia, at [110-2150]. As to the principles of law relating to "subject to" clauses ([97-101], see Halsbury's Laws of Australia, at [110-540]. As to the principles of law relating to novation ([102]-[106]), see Halsbury's Laws of Australia, at [110-3048].
3 Following paragraph 113, insert the following paragraph:
"A very valuable summary of the principles of law relating to collateral contracts, from which the preceding sections have been drawn, can be found in Professor John Carter's chapter on contract law in Halsbury's Laws of Australia (vol 6) at [110-2050] - [110-2060]."
I certify that this is a true copy of the corrigendum made to the Reasons for Judgment in this matter of the Honourable Justice Einfeld. |
Associate:
Dated: 1 July 2003
SVI SYSTEMS PTY LIMITED v BEST & LESS PTY LIMITED
CONTRACT - construction - written signed document - whether concluded agreement - whether void for uncertainty or incompleteness - implication of terms not contained in written signed document to avoid uncertainty or incompleteness - "subject to" clauses - whether contract binding - when contract binding - intention and conduct of the parties as to whether and when contract binding - tests to be applied to determine intention of parties
CONTRACT - commerciality - ambiguity - "master agreement" - collateral contract - "best endeavours" clause - novation - whether contract novated
CONTRACT - EVIDENCE - admissibility of extrinsic evidence - evidence of surrounding circumstances admissible to determine whether concluded agreement - admissibility of post contractual conduct
TRADE PRACTICES - consumer protection - misleading and deceptive conduct - representations
DAMAGES - breach of contract - causation of loss or damage - remoteness of loss or damage - measure of loss or damage - assessment of loss or damage by experts - conflicting assessments of loss or damage by experts - resolving conflict between experts
DAMAGES - misleading and deceptive conduct - causation - remoteness - measure and assessment of loss or damage
Trade Practices Act 1974 (Cth), ss 52, 82, 87
Federal Court of Australia Act 1976 (Cth), s 43
Fair Trading Act 1987 (NSW)
Cutts v Buckley [1933] HCA 21; (1933) 49 CLR 189 referred to
Vickery v Woods [1952] HCA 7; (1952) 85 CLR 336 referred to
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 cited
Whitlock v Brew [1968] HCA 71; (1968) 118 CLR 445 referred to
Olsson v Dyson [1969] HCA 3; (1969) 120 CLR 365 applied
J J Savage & Sons Pty Ltd v Blakney [1970] HCA 6; (1970) 119 CLR 435 cited
Godecke v Kirwan [1973] HCA 38; (1973) 129 CLR 629 referred to
Transfield Pty Ltd v Arlo International Limited [1980] HCA 15; (1980) 144 CLR 83 considered
Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571 followed
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 applied
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600 applied
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 considered
Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1 discussed, referred to
Darlington Futures Limited v Delco Australia Proprietary Limited [1986] HCA 82; (1986) 161 CLR 500 considered
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 applied
Re Wakim; Ex parte McNally (Spinks v Prentice) [1999] HCA 27; (1999) 198 CLR 511 referred to
Ross v Allis-Chalmers Australia Pty Ltd (1980) 55 ALJR 8 cited
Federal Commissioner of Taxation v Suttons Motors (Chullora) Wholesale Pty Ltd (1983) 47 ALR 449 referred to
Cook v Chas E Blanks Pty Ltd [1968] 3 NSWR 356 referred to
TJ Precision Engineering Pty Ltd v Crane Copper & Aluminium Pty Ltd [1968] 3 NSWR 360 referred to
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 applied
Mutual Export Corporation & Ors v Asia Australian Express Ltd & Ors (The "Lakatoi Express") (1990) 19 NSWLR 285 referred to
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 referred to
Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290 referred to
Australian Co-Operative Foods Ltd v Norco Co-Operative Ltd [1999] NSWSC 274; (1999) 46 NSWLR 267 considered
JLW (Victoria) Pty Ltd v Tsiloglou & Ors [1994] 1 VR 237 applied
Toyota Motor Corp Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 referred to
Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 referred to
Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 IPR 315 approved
Terrex Resources NL v Magnet Petroleum Pty Ltd [1988] 1 WAR 144 cited
Gregory & Bradshaw v MAB Pty Ltd [1989] 1 WAR 1 followed
Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494 cited
May and Butcher Ltd v R [1934] 2 KB 17n referred to
Foley v Classique Coaches Ltd [1934] 2 KB 1 referred to
G Scammell & Nephew Ltd v Ouston [1941] AC 251 considered
SVI SYSTEMS PTY LIMITED v BEST & LESS PTY LIMITED & ORS
N342 of 2000
EINFELD J
20 MARCH 2001
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
|
1. the applicant's application against the second respondent be dismissed with costs
2. the applicant's application against the first, third and fourth respondents be allowed
3. the first, third and fourth respondents pay to the applicant damages in the sum of $1,120,281.90
4. the cross-claims be dismissed
5. the first, third and fourth respondents pay the applicant's costs including the costs payable by the applicant to the second respondent
6. there be no order as to costs in respect of the cross-claims, except as to the third cross-claim in which the first, third and fourth respondents will pay the second respondent's costs
Note: Settlement and entry of orders are dealt with in Order 36 of the Federal Court Rules.
Page
INTRODUCTION 2
THE PROCEEDINGS 3
FACTUAL BACKGROUND 4
THE DISPUTE 6
THE CLAIMS
Divergent's position 7
Pepkor's position 8
Ginger Max's position 9
THE EVIDENCE 9
THE CONVERSATIONS
Divergent's account 10
Pepkor's account 15
Ginger Max's account 18
THE APPLICABLE LEGAL PRINCIPLES
A contract 18
Uncertainty and incompleteness 20
Uncertainty 21
Incompleteness 23
Ambiguity 25
Conduct and intention 26
Post contractual conduct 27
Commerciality 32
Co-operation 33
Obviousness 34
Consistency 34
Master agreement 34
"Best endeavours" clause 35
Novation 36
Collateral contract 39
FINDINGS AND CONCLUSIONS 41
The oral evidence 42
Misleading and deceptive conduct 44
DAMAGES
The principles 45
The components 47
Installation 48
Maintenance 49
Additional services 54
Total damages 57
COSTS 57
ORDERS 58
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
|
JUDGE: |
EINFELD J |
DATE: |
20 MARCH 2001 |
PLACE: |
SYDNEY |
INTRODUCTION
4 Divergent Technologies Pty Limited (Divergent) was an Australian company which developed computer software and integrated computer systems for use in retail operations. In late 1996 or early 1997, Divergent sold its interests to the applicant, SVI Systems Pty Limited (SVI) of the United States, and early in 1998 SVI acquired Triple S Computers Pty Limited, a South African company operating in the same field[1]. Because it was the company which commenced these proceedings, the parties referred to the applicant as Divergent. For convenience, I continue that practice.
5 Although its name was only adopted after the sale, the second respondent (Ginger Max) owned the "Best & Less" chain of retail stores between 1965 and 31 March 1998[2] when it was sold to a South African based group of companies headed by Pepkor Ltd[3]. Until then the company operating the chain was Best & Less (Leasing) Pty Limited, a name changed by the new owners to Best & Less Pty Limited (the first respondent). To avoid confusion, I shall refer to the chain of stores as "Best & Less", to the original owners as "Ginger Max", and to the new owners as "Pepkor".
6 Between 1995 and early 1996, Ginger Max (as the then owner of Best & Less) was looking around for a new computerised point of sale (POS) system to install in its stores[4]. A POS system is the computer hardware and software needed at retail store checkouts to process the goods that customers are purchasing and to deal with payment for the goods. It is distinct from a computerised merchandising system which Ginger Max had in the "back office" of each Best and Less store and which was linked to the "management office" so that management could receive the daily transactions for accounting, financial and other trading and commercial purposes.
7 In 1996 Divergent and Ginger Max entered into a contract for the installation of a computerised POS system into Best & Less stores (the Divergent contract) and in the ensuing years, including after Pepkor purchased the chain, the system was installed in a number of stores. Then, five months after the sale, on 31 August 1998, Pepkor stopped the installations and Divergent launched this action 8 months later on 21 April 1999.
THE PROCEEDINGS
8 The proceedings have been taken against Ginger Max, Pepkor and two of its directors - Carel Stassen (the third respondent) and Iain MacDonald (the fourth respondent) - seeking relief under section 87 and damages under section 82 of the Trade Practices Act 1974 (Cth) (TPA) or the equivalent provisions of the Fair Trading Act 1987 (NSW) (FTA), (there is no relevant difference between them), and for breach of contract.
9 Four cross claims were filed. Under the first cross claim, Pepkor sought from Ginger Max a full indemnity for any liability of Pepkor to Divergent and damages for breach of contract.
10 Under the second cross claim, Ginger Max sought an order that Pepkor take an assignment or novation of the Divergent contract and full indemnity for any liability of Ginger Max to Divergent.
11 Under the third cross claim which substantially duplicated the first, Pepkor sought from Ginger Max (and an associated company Ginges Holdings Pty Ltd) an indemnity or compensation for any liability of Pepkor to Divergent or to Ginger Max proved in the second cross claim.
12 Under the fourth cross claim, Pepkor sued the applicant and two of the then Divergent directors (Shaun Rosen and Malcolm Thomas) for an indemnity or compensation for any liability of Pepkor to Ginger Max, or damages for breach of contract and under the TPA.
13 The application and all four cross claims seek interest and costs and all were defended. Some of the issues raised by the pleadings potentially involved questions concerning the jurisdiction of this Court as discussed by the High Court in Re Wakim; ex parte McNally (Spinks v Prentice) [1999] HCA 27; (1999) 198 CLR 511[5]. Despite the volume of the pleadings, there were only two real liability issues in the case. The first was whether the Divergent contract obliged Ginger Max to receive installation of the system in all 82 Best & Less stores. If so, the second question was whether the contract for the sale of Best & Less obliged Pepkor to carry out the Divergent contract. The parties in fact conducted a breach of contract case and largely ignored the causes of action under the TPA and FTA. However, as a clear jurisdictional base was provided by the TPA claims, there seemed little point in hearing argument about whether a Judge of the New South Wales Supreme Court had nothing better to do with his/her time than to take up this case just as it was about to start in this Court, particularly as it involved a "paper mountain" and a veritable miasma of fine detail.
FACTUAL BACKGROUND
14 Prior to 1996, Divergent had been involved in the development of POS software mounted on hardware supplied by National Cash Registers (NCR) with which it had had a long relationship[6]. Ginger Max was already using NCR equipment for its point of sale system. However, by 1996, NCR was no longer willing to service this equipment because of its age, except at ever increasing cost, and in July of that year, it introduced Divergent to Ginger Max[7] to discuss the possibility of Divergent installing an integrated POS computer system in Best & Less stores. After lengthy negotiations, the Divergent contract was finally signed on 22 October 1996 for the installation in Best & Less stores of Divergent's POS system in conjunction with a head office polling system[8]. The cover of the Divergent contract read: "Head Office Polling System and Point of Service Proposal Prepared for Best & Less 21st October 1996".
15 The Divergent software was written on a platform already in operation in many large not dissimilar operations where POS systems were in use. Although customised to Best & Less' needs, little if any modification of the Divergent software was needed to make it applicable and appropriate to the Best & Less situation. Parts of the software that Ginger Max did not want were written out of the system or left for use some time in the future mainly because, as I understood the evidence, it was strictly a POS system alone and did not contain a merchandising system. The only connection between the POS software in the shops and head office was the so-called polling system for transmission of each store's daily sales data to the central processing area. Divergent held the relevant software licences. Under the Divergent contract, Ginger Max required the system to pass a pilot test and then a live store test before it would confirm that Divergent was to commence installing the system generally. Once the system passed all the tests, Ginger Max would then give Divergent confirmation to commence the installation.
16 Originally, Divergent wanted to commit Ginger Max to installing the system in all 82 stores by October 1999 if the pilot was successful but Ginger Max did not wish to guarantee a date for the full installation. Whilst it was seeking installation in all the stores, Ginger Max made clear during negotiations that it did not want to be absolutely bound to a certain end date largely because it was Ginger Max policy not to borrow but to fund the installation from cash-flow[9]. To that end, the Divergent contract contained on page 5 what the parties referred to as the "best endeavours" clause:
Store Roll OutA Test store system has already been delivered to Leichhardt and Ethel Webb has been trained on this system since returning from overseas.
* Best & Less and Divergent/NCR aim to commence Head Office and store pilot by week ending 22-11-96 [date handwritten and initialled in the margin] and agree to complete pilot by end of January 1997.
* Best & Less will use their best endeavours to roll out a minimum of (12) stores by December `97 [date handwritten and initialled in the margin].
* Best & Less will use their best endeavours to roll out a further 35 stores by October 1998 and the balance of the stores by October 1999, but Best & Less are not bound by any guarantee to do so.
17 In about mid 1997, Ginger Max was introduced to Pepkor as a possible purchaser of the Best & Less chain and a number of Pepkor officials visited Australia to discuss the matter[10]. Divergent was asked to talk to them during negotiations in September and October 1997 and it did so. The sale negotiations collapsed but were resurrected, and a sale to Pepkor was eventually concluded[11] by a contract dated 4 February 1998 entitled "Agreement for sale of assets and shares"[12] (the sale contract). By this time the pilot had been successfully completed and installation of the Divergent system was occurring in batches of varying numbers of stores.
18 Clause 12 of the sale contract provided for the assignment or novation to Pepkor of Ginger Max's obligations under certain contracts and agreements set out in Schedule 4 including[13]:
2. Sales Quotation, Sundry Pricing and Terms, Product Maintenance Services Agreement and dolFIN Software Licence dated 21 October 1996 between Divergent Technologies Pty Limited and B&L Australia (Ginger Max)
To give effect to this provision, Ginger Max arranged for Divergent to sign and return a Deed of Novation of the Divergent contract to Pepkor.[14]
19 When Pepkor took over Best & Less, the Divergent POS system had been installed in about half the stores. It then asked Divergent to install the system in a further six stores and there was discussion about a possible rapid installation at a reduced cost by which the system would go into the stores more quickly and cheaply. Divergent would then get paid less but more quickly. There was no agreement on these matters but while the installations were proceeding, Pepkor started to look for a new fully integrated merchandising hardware and software system to include POS. Among others, Divergent was asked to put forward a proposal[15] but at the end of August 1998, Pepkor went into negotiations with a firm called JDA Software Group Inc (JDA) whose system was apparently available at very low cost[16]. Divergent was then told that it would not be continuing to install its POS system and that JDA would be installing a different system[17]. At that moment, the Best & Less POS system was a mixture of what Divergent had installed into approximately 40 stores[18] and the old technology in the remainder.
THE DISPUTE
20 Despite the multiplicity of parties, pleadings and allegations, the dispute is simply stated. Divergent alleges and Pepkor denies that Pepkor was bound to install the Divergent POS system in all the Best & Less stores. The words relied on by Pepkor to escape this obligation are those in the "best endeavours" clause:
"but Best & Less are not bound by any guarantee to do so."
Divergent's position
21 In its statement of claim and subsequently, Divergent claimed that Pepkor was bound to the installation of its system in all Best & Less stores for the following reasons:
(a) The Divergent contract commenced on 22 October 1996.
(b) That contract was partially completed by Ginger Max from 22 October 1996 up to the sale of Best & Less.
(c) Ginger Max represented to Divergent that it would install Divergent's POS system in all the Best & Less stores in accordance with the "best endeavours" clause which was entirely related to and dependent upon sufficient cash-flow.
(d) The Divergent contract was novated to Pepkor on the sale of Best & Less on 31 March 1998.
(e) Pepkor accepted and confirmed the novation by continuing to order or allow installation of Divergent's system in the Best & Less stores up to 31 August 1998.
(f) Pepkor represented to Divergent that it would continue to install its system by attempting to renegotiate the terms of the Divergent contract in Pepkor's favour.
(g) Pepkor represented to Divergent, and warranted by its actions and its representations, that it would continue to install its system, either in accordance with the "best endeavours" clause or on the basis of a rapid installation for a lower price than agreed in the novated Divergent contract.
(h) Pepkor breached the sale contract by refusing to allow installation of Divergent's system after 31 August 1998.
(i) Pepkor misled or deceived Divergent by continuing to install its system when it had no intention of proceeding with the installation.
(j) Pepkor is estopped from denying that the Divergent contract is binding by virtue of its own conduct.
(k) Divergent suffered loss and damage as a result of these events and actions.
22 Divergent also alleged that Ginger Max breached the "best endeavours" clause by not in fact using its best endeavours to continue to install Divergent's system in all its stores. Divergent submitted, and Ginger Max agreed, that the Divergent contract bound both parties to the installation of its POS system in 82 Best & Less stores and required Ginger Max to use its "best endeavours" to have the installation completed within a certain time frame. The "best endeavours" clause was said to be, or to be subject to, a collateral oral agreement between Divergent and Ginger Max that the speed and progress of the installation was and would be connected to cash-flow. The Divergent contract and this collateral agreement was also novated to Pepkor on the sale.
Pepkor's position
(a) The Divergent contract was not legally binding on Pepkor.
(b) If it was a binding contract, it was void for uncertainty and incompleteness.
(c) Any contract had not been novated.
(d) If there was a contract and it had been novated, Pepkor was not in breach.
(e) Pepkor did not make any representations that it would continue with the contract.
(f) If it had made representations, those representations were not misleading or deceptive.
(g) Pepkor was not estopped from denying the existence of the contract.
23 Pepkor claimed that in one of its meetings with Ginger Max, Ginger Max had asserted that it was not bound to install the Divergent system in all the stores and neither was Pepkor. Pepkor also claimed that representatives of Divergent made a similar statement. Simply put, Pepkor's position was that there was no binding contract to install the Divergent POS system and that the concluding words of the "best endeavours" clause mean no more than "maybe we will or maybe we won't".
24 Pepkor's argument that the Divergent contract was either not binding or void for uncertainty was based on the assertions that it did not contain all essential terms, such as the "Acceptance Test Criteria" for the pilot, some prices, and some non-completed parts, and that the meaning of the "best endeavours" clause was uncertain. Oddly, this argument would mean that the contract also did not bind Divergent and Ginger Max, a viewpoint neither of them advanced and which confronts some of Pepkor's own actions. Alternatively, Pepkor contended that the Divergent contract was a "master agreement", providing that as Ginger Max ordered the POS system to be installed in each store, the contract would be "activated". Again, neither Divergent nor Ginger Max agreed with this view.
Ginger Max's position
25 Ginger Max said that there was never any question that the Divergent system would be installed in all 82 Best & Less stores. Once Ginger Max had committed itself to installing the system after the pilot, the only qualification to full installation was cash-flow, so that the only "uncertainty" about the Divergent contract was the date of completion.
26 Ginger Max denied any obligation to complete the contract after the sale to Pepkor and any liability for Pepkor's failure to complete it. Ginger Max's position was that it was no longer liable under the contract because of:
(a) its compliance with all its obligations under the contract and with any representations that it may have made in respect of its content during its ownership of Best & Less;
(b) the sale of Best & Less to Pepkor;
(c) the novation of the Divergent contract to Pepkor;
(d) Pepkor's acceptance, assumption and indemnification of Ginger Max's liabilities under the Divergent contract; and
(e) the subsequent negotiations between Divergent and Pepkor directly for possible variations to the Divergent contract without reference to Ginger Max.
27 Ginger Max also denied misleading or deceiving Divergent and said that Divergent relied, not on any representations that it may have made, but solely on the terms of the contract.
THE EVIDENCE
28 In all, 12 witnesses were called during the hearing. Divergent called its two directors at the time, Messrs Rosen (who founded the company) and Thomas, an expert accountant Goodwin Cullimore Allen Gower, and an information technology expert Peter Geoffrey Summers.
29 Ginger Max called Berel Ginges and Barry Claude McCann. Mr Ginges was Managing Director of Best & Less until it was sold and is a Director of Ginger Max. He was contracted to remain as a consultant for one year after the sale, ostensibly to assist the new owners in finding new store locations[19], but his services were terminated in September or October 1998[20]. Mr McCann was Financial Controller of Best & Less from 26 September 1986 until the sale[21]. He is a director of Ginges Holdings Pty Ltd, which is the major shareholder of Ginger Max.
30 For the other respondents, who were jointly represented, the third and fourth respondents themselves gave evidence along with Ethel Louise Webb, Hein Marais, Lester Robin Aderem, and an expert accountant, Mark Brinley Bryant. Mrs Webb started at Best & Less in March 1970 and was its computer systems officer from the mid-1980s. She was still in that position at the time of trial.[22] Mr Marais was a director of a Pepkor subsidiary in 1997 and 1998 and performed part of the due diligence of Best & Less[23]. In June 1998 Mr Aderem joined, and in February 1999 he became a director of, Universal Computer Services Pty Limited, a South African company that supplies software and related services to the retail industry and looks after the information technology needs of large corporate retailers. From 1988 to early 1998[24], Mr Aderem was a director of Triple S Computers Pty Limited, the South African software company acquired by SVI after it acquired Divergent. On Mr Rosen's recommendation, SVI did not retain him after the acquisition and he was retrenched. Pepkor then engaged him as a consultant to evaluate the computer systems after Pepkor took over Best & Less[25].
THE CONVERSATIONS
31 Conversations between the lay witnesses in the period 1996 and 1998 sit at the heart of this dispute. There are major conflicts between many of the witnesses about what was actually said and some disputes about whether certain discussions took place at all. There are also internal inconsistencies in the various accounts of some witnesses. This situation requires a comparison of the accounts given, and findings and assessments of the credibility of the principal witnesses.
Divergent's account
32 Mr Rosen said that he had numerous dealings with Mr Ginges and Mr McCann between July and October 1996 in negotiating the final version of the Divergent contract. During these negotiations, he was told on several occasions that Ginger Max would require the Divergent POS system to be installed in 82 Best & Less stores over a period of time subject to cash-flow[26]. Mr Thomas agreed with[27], and Mr McCann either agreed with or did not dispute, this evidence[28]. In his affidavit Mr Ginges did not recall the conversation but conceded that it may have been said[29]. His oral evidence made clear his agreement with Mr Rosen's recollection.
33 Mr Rosen stated that Mr Ginges told him in mid-September 1997[30] that Best & Less was being sold to South African interests and that Mr Marais attended at Divergent's offices either in late September or early October 1997 as part of Pepkor's due diligence operations[31]. They discussed the arrangements between Ginger Max and Divergent and Mr Marais had said that the hardware prices were expensive[32]. According to Mr Rosen and Mr Thomas, they and Mr Marais again discussed the arrangements for the installation of the Divergent system in the Best & Less stores on 10 October 1997[33]. (Mr Thomas thought that this conversation occurred on 9 October[34].) Mr Marais had said that if Pepkor was to buy Best & Less, it would want the Divergent system installed more rapidly than was occurring and would require the price to be discounted. Mr Thomas also stated that between 23 September and 10 October 1997, Mr Marais told him on a number of occasions that if the sale of Best & Less proceeded, Pepkor would "take over" the Divergent contract, would want the installation to proceed more rapidly and with some discounting, and would consider using the Divergent system in South Africa[35]. Mr Marais denied all these conversations[36].
34 According to Mr Rosen, Mr Ginges told him in early November 1997 that the sale of Best & Less to Pepkor was not proceeding and that the installation of the Divergent POS system would continue in accordance with the contract[37]. Mr Thomas stated that he learned from Mr Marais on 10 October 1997 that the sale was not proceeding[38]. Mr Rosen said that on 8 December 1997, Mrs Webb faxed him a "proposed installation schedule" for the period January to June 1998[39]. Mr McCann said that Mrs Webb would always discuss the progress of the installation of the Divergent POS system before arranging for installation in further stores[40]. When he told Mr Rosen that the sale to Pepkor would be proceeding, Mr McCann had said that he would arrange for a Deed of Novation of the Divergent contract to be sent to Divergent for execution and return to Ginger Max's solicitors[41]. Mr McCann did not specifically recall this conversation but said that it is likely to have occurred as it accurately reflects the position at the time[42].
35 Mr Rosen and Mr Thomas said that following the sale, they had a conversation with Mr MacDonald and Mrs Webb on 12 May 1998. Mr MacDonald said that Pepkor would continue installation of the Divergent POS system and asked for cost savings. Mr Rosen told Mr MacDonald that he would try to find savings but if he could not, the prices set out in the contract would continue to apply[43].
36 Mr Rosen said that the Divergent contract was again discussed with Pepkor representatives at a meeting on 27 May 1998. At that meeting, Mr Stassen had affirmed that Pepkor wanted the POS installation to be "fast-tracked" and asked about Divergent's (SVI's) proposed purchase of Triple S on the basis that Pepkor would consider using Divergent's system (through Triple S) in South Africa. Mr Stassen had also again asked for price reductions on the cost of the Divergent software[44]. Mr Stassen denied this conversation on the apparently somewhat disingenuous basis that he had no authority to conduct negotiations on Pepkor's behalf and did not control Pepkor[45].
37 Mr Rosen stated, and Mr Thomas confirmed, that on 3 June 1998 Mr Stassen again requested a "fast-tracking" of the installation of the system and asked for price reductions. He also again mentioned the possibility of changing hardware suppliers. Mr Rosen replied that if the "fast-tracking" did not occur and no other savings could be found, Divergent would continue to charge Pepkor in accordance with the contract[46]. Mr Stassen denied or did not recall this conversation[47].
38 Mr Rosen travelled to South Africa in the week of 11 June 1998 and had a meeting with Mr Stassen and Mr Aderem among others. He asked them what was to happen with the installation of the POS system and confirmed to them Divergent's view that there was a binding contract. Mr Stassen had stated that Pepkor was happy with the POS software but had suggested that there were possible cost savings by changing from NCR hardware to IBM hardware and by purchasing Divergent's own merchandising system software. Mr Rosen said that he subsequently relayed this conversation to Mr Thomas in Australia[48]. Mr Stassen denied that this conversation occurred[49].
39 Mr Thomas said that he had conversations with Mr MacDonald and Mrs Webb on 22 June 1998 and that both had confirmed that Pepkor would be proceeding with the installation of the Divergent system but that Pepkor wanted to change hardware supplier to reduce the cost of the system[50]. Mr MacDonald did not specifically deny this conversation but said that he had several conversations with Mr Thomas leading up to that date in which he requested breakdowns of costs, which he did not receive. Mr MacDonald also said that Mr Thomas was pressing for a decision as to whether Pepkor would be changing from NCR to IBM hardware. He stated that at a meeting with Divergent and IBM representatives on 23 June 1998, he asked IBM for a breakdown of costs for hardware and maintenance if Pepkor was to commence using its hardware. The IBM representatives questioned why costing for maintenance was required when NCR was required to provide maintenance on its equipment. Mr MacDonald replied that Pepkor did not want to "wear the risk" that NCR would not provide maintenance on its hardware[51].
40 Mr Rosen stated, and Mr MacDonald agreed except as to date, that in a conversation with Mr MacDonald on 30 June 1998, Mr MacDonald had said that Pepkor was not liable for the fees that NCR was charging for hardware maintenance because he had read "the contract" and it provided a 3 year on-site parts and labour warranty[52]. Mr MacDonald said that this meeting was on 26 June[53]. Mr Rosen said, and Mr Thomas confirmed, that at a meeting with Pepkor and NCR representatives on 1 July 1998, he told the NCR representatives that NCR should not be charging for hardware maintenance under the Divergent/NCR agreement. Mr MacDonald had replied that Pepkor would not pay NCR's charges as they were not covered by Pepkor's "contract" with Divergent[54]. Mr MacDonald denied that this conversation occurred in the terms alleged and said that he told Mr Rosen that he was disappointed that the warranty issue had not been resolved, that Pepkor had bought Best & Less on the assumption that NCR would provide the warranties described in the Divergent contract, and that it was an issue to be resolved between Divergent and NCR without the involvement of Pepkor[55].
41 Mr Thomas said that on 21 July 1998, he asked Mr MacDonald to confirm the timing of the installation of the POS system and to advise him whether Pepkor would require NCR or IBM hardware. Mr MacDonald had confirmed that Pepkor would continue the installation of the Divergent system and had faxed Pepkor's hardware requirements for the installation in a further six stores[56]. Mr MacDonald denied this conversation and said that he had not made a decision on the hardware as he did not have sufficient information because he had not been given the hardware prices.
42 Mr Rosen stated, and Mr Thomas again confirmed, that at a meeting on 31 July 1998, Messrs Stassen, MacDonald and Aderem again raised the cost of the Divergent system. They believed that Divergent was overcharging for the products it was supplying and wanted cost savings under the contract. Mr Aderem said that he had contacted Divergent's suppliers and that he could obtain cheaper prices for the hardware. Mr Rosen disputed that Divergent was overcharging and said that the prices were in accordance with the contract. Mr Rosen stated that Divergent's system was a complete package and had to be viewed as a whole, not simply as a matter of changing components[57]. At the conclusion of the meeting, Mr Stassen had confirmed that Pepkor would be proceeding with the installation of Divergent's POS system and requested that Divergent provide Pepkor with a proposal for a merchandising system[58].
43 Mr MacDonald denied or did not recall this conversation. He said that he told Mr Rosen that Pepkor wanted the savings on the hardware supplied by NCR passed on and that until a decision regarding change of hardware suppliers was made, the installation of the POS system was to continue on a store-by-store basis as had occurred previously[59]. Mr Stassen also denied the conversation asserted by Mr Rosen. He stated that he and Mr Aderem told Mr Rosen that Pepkor was considering other merchandising systems and invited a proposal from Divergent. They told Mr Rosen that their decision would be based on price as well as quality. Mr Stassen also told Mr Rosen that Pepkor wanted further cost savings on the POS system and that Divergent would have some advantage when Pepkor was considering proposals because it was currently providing the system[60]. Mr Aderem also denied Mr Rosen's account and asserted that Messrs Rosen and Thomas told him that changing from NCR to IBM hardware would result in the cost savings that Pepkor wanted[61].
44 Mr Thomas stated that on 3 August 1998, he told Mr Stassen that he was concerned that Pepkor had not made a decision regarding the possible change of hardware suppliers. Mr Stassen told Mr Thomas "not to worry" and that Pepkor would continue with the installation of the Divergent system[62]. This assurance had been repeated by Mr Stassen on 21 August 1998 at a meeting in South Africa[63]. Mr Stassen denied making these statements[64].
45 Mr Rosen said that Mr MacDonald told him on 7 August 1998 that all correspondence to Pepkor was to be addressed to him and not Mr Stassen[65] so that communication would be through one person rather than many, as had previously occurred[66].
46 Mr Rosen said that he contacted Mr Stassen in South Africa on 24 September 1998 and that Mr Stassen had told him that Pepkor would not be continuing the installation of the Divergent POS system because of the cost, that JDA would be supplying a new system, and that Pepkor had been advised that the Divergent contract was not binding[67]. Mr Stassen agreed that he used words to this effect[68]. Following that conversation, Mr Rosen contacted Mr Ginges by telephone and Mr Ginges confirmed to him that it had always been Ginger Max's intention to complete the installation of the Divergent system[69]. In his affidavit Mr Ginges recalled this conversation without admitting the precise account of Mr Rosen but in his oral evidence he made clear that it had always been Ginger Max's intention to install the system in 82 Best & Less stores after the first 12 had been completed. Mr Ginges said that when Mr Rosen told him that Pepkor was not continuing with the installation of the Divergent system and intended using JDA as a supplier, he had expressed surprise as it was the first time that he had heard that Pepkor was contemplating installing a completely new and different system[70].
47 Mr Rosen said that he and Mr Thomas had a telephone conversation with Mr MacDonald on 15 October 1998 regarding whether Pepkor would be continuing with the installation of Divergent's POS system. Mr Rosen told Mr MacDonald that full installation of the system had not been an issue with Ginger Max and that he, Mr MacDonald, had made similar "representations". Yet Pepkor was not using its best endeavours to complete the installation. Divergent would prefer to continue its installation but if Pepkor took on another supplier, Divergent would consider removing its software from the stores where its system was already installed and take legal action against Pepkor. Mr MacDonald had replied that Pepkor would be proceeding with another supplier and that it was a business decision not to continue installing the Divergent system. He had also said that it was a business decision for Divergent as to whether legal proceedings were commenced[71]. Mr MacDonald recalled Mr Rosen's reference to Ginger Max but denied the rest of the conversation. Mr MacDonald said that Mr Rosen's comment regarding removal of Divergent's software was more in terms of a threat, and that Mr Rosen had said that NCR and IBM would not supply hardware to Pepkor except through Divergent[72].
Pepkor's account
48 Mr Stassen stated that he attended a meeting in Australia on 7 July 1997 between representatives of Pepkor and Ginger Max as a part of the negotiations for the sale of Best & Less. At that meeting, Mr Ginges told him that Ginger Max (as the then owner of Best & Less) was not bound to continue with the whole installation of the Divergent system[73]. Mr Ginges denied any such statement and said that Mr Stassen asked him whether Ginger Max would install the Divergent system faster if sufficient funds were available and he told Mr Stassen that there were concerns whether the staff could handle a faster installation[74].
49 Mr Marais gave evidence of a conversation with Messrs Rosen and Thomas on 23 September 1997 at the Divergent offices. He discussed with them the purpose of his visit, the involvement of Mr Stassen in the sale of Best & Less, and some technical issues with the Divergent system. He said that he would not be involved in Best & Less if Pepkor eventually purchased it[75]. He was shown a copy of the Divergent contract and discussed with Messrs Rosen and Thomas possible cost savings and whether it was "binding". Remarkably, Mr Marais alleged that Mr Rosen effectively told him that Ginger Max could terminate the installation of the system at any time[76]. Unremarkably, this statement was denied by Mr Rosen but he said that Ginger Max wanted to slow down the installation of the system to allow for sufficient cash flow.
50 Mr Marais agreed that on 10 October 1997 he told Mr Thomas that the sale of Best & Less would not be proceeding, that he was returning to South Africa, and that he would consider the proposal for the use of Divergent technology in Pepkor's South African stores[77].
51 Mr MacDonald described a meeting with Messrs Rosen and Thomas at the Best & Less Head Office on 12 May 1998 attended also by Mrs Webb. The meeting revolved around potential problems with the NCR hardware and the NCR warranties, and with the proposition that the Divergent system was "too expensive". Mr MacDonald said that Mr Rosen tried to convince him that Pepkor should switch from NCR to IBM as hardware supplier. When he raised the question of merchandising software, Messrs Rosen and Thomas offered to put together a proposal for Pepkor[78]. Mr Rosen said he again told Mr MacDonald that he would try to find cost savings under the contract, but it would be unlikely unless Pepkor decided to change hardware suppliers. In the meantime, installation of the Divergent system would continue as before[79].
52 Mr Stassen[80] and Mr MacDonald[81] said that on 27 May 1998 (after the purchase of Best & Less), they discussed with Divergent a proposal for it to supply Best & Less with a merchandising system. At the meeting, they complained that Divergent's POS system was "too expensive" and stated that Pepkor was considering buying a combined merchandising and POS system which was cheaper[82]. This complaint was again raised at two separate meetings with Mr Rosen, one on 3 June 1998 in Australia and one on 11 June 1998 in South Africa[83]. Mr Rosen denied all these conversations and said that the merchandising system software proposal was never connected to the POS system or its installation[84].
53 Mr Stassen and Mr MacDonald described, and Mr Rosen denied, a "Special Offer" by Divergent on or about 1 July 1998 for conditional price reductions on the POS system. Mr MacDonald asked for further information about the "Special Offer", which he never received, and the "offer" was not taken up[85]. Mr Rosen's account of the conversation included that he told the Pepkor representatives that Divergent's charges were based on prices charged to Divergent by third parties. He did provide the Pepkor representatives with a proposal for price reductions, but it was related to the provision of a merchandising system not the POS system. Mr MacDonald said that the installation of the POS system would continue as before until Pepkor made a decision regarding the merchandising system[86].
54 Mr MacDonald told Mr Thomas on 16 July 1998 that Pepkor was approaching other suppliers for proposals for a combined merchandising and a POS system[87]. Mr Stassen testified that further "complaints" were made about the cost of the POS system at a meeting with Divergent on 31 July 1998 also attended by Mr Aderem where he also stated that Pepkor was considering three other combined merchandising and POS systems[88]. On 31 July 1998, Mr MacDonald and Mr Stassen again discussed with Messrs Rosen and Thomas the cost of the POS system and the possibility of obtaining a new merchandising system[89]. Mr Rosen said that Mr MacDonald never informed anyone at Divergent at that time that Pepkor was approaching other suppliers for a totally new POS system and that Divergent had only been asked for proposals relating to new merchandising system software[90].
55 Mr Aderem who was at that meeting informed Messrs Rosen and Thomas that he was evaluating merchandising system proposals and asked them whether or not they intended to present one. He also complained about the cost of the POS system[91], as he did again later that day. Mr Rosen had told him that although he would try to reduce the cost of the system, the contents and prices contained in the contract were not negotiable, that Pepkor had to look at the overall system being provided, and that components could not be changed on a "whim"[92].
56 Mr Stassen also described a conversation with Mr Ginges in or about September 1998 during a visit to the Liverpool Best & Less store. Following a phone call, Mr Ginges had asked Mr Stassen whether Pepkor was continuing with the Divergent POS system. Mr Stassen had replied that Pepkor was still in the decision-making process[93]. Mr Ginges denied the conversation and said that Mr Stassen told him that South African reporters would be in attendance and he was to extol to the reporters the virtues of Best & Less. In the presence of the reporters, Mr Stassen praised the software system used in the back office of the store and commented that no such system was available in South Africa[94].
57 Mr Stassen related yet another conversation with Messrs Rosen and Thomas in late September 1998 regarding the cost of the Divergent POS system and the new merchandising software proposals they had received from Divergent and others. Mr Stassen told Mr Rosen that Pepkor was still unhappy with the cost of the POS system and that they were still assessing the merchandising software proposals[95]. Mr Rosen denied this conversation but the parties agreed that shortly after this time, after Mr Stassen had returned to South Africa, they had a telephone conversation in which Mr Stassen told Mr Rosen that Pepkor would be dealing with JDA and not continuing with the Divergent POS system. When Mr Rosen raised the contract, Mr Stassen had told him that they did not have a contract[96]. Mr Rosen said that this was the first time he had been told that Pepkor was considering changing suppliers for the POS system[97].
Ginger Max's account
58 Mr Ginges strongly denied that he or any of his staff told Pepkor that the Divergent contract was not binding.
THE APPLICABLE LEGAL PRINCIPLES
A contract
59 It is trite law that a contract may be expressly oral, written, partly written and partly oral, or implied, including by conduct. If it is written, it must generally contain all terms agreed to by the parties: Sinclair, Scott & Co Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310; Ryrie v Cruickshank (1896) 17 LR (NSW) 195. A written document is capable of being interpreted as a legally enforceable contract if it contains the essential terms: Harvey v Edward Dunlop & Co Ltd [1927] HCA 13; (1927) 39 CLR 302; Baxton v Kara [1982] 1 NSWLR 604, or all terms that form a material or substantial part of the bargain: Dinan v Harper [1922] VLR 49; Rhodes Pty Ltd v Galati [1961] WAR 180.
60 The written document must also evidence an intention to contract: Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia (1976) 50 ALR 363; Martyn v Glennan [1979] 2 NSWLR 234; Mogg v Raglan and St Arnaud Gold Mining Co NL (1878) 4 VLR (E) 138, and must also sufficiently describe the subject matter of the contract: Corcoran v O'Rourke (1888) 14 VLR 889; Parker v Barnett (1889) 16 VLR 214; Watson v Issell (1890) 16 VLR 607; Pirie v Saunders [1961] HCA 4; (1961) 104 CLR 149; Australia and New Zealand Banking Group Ltd v Widin (1990) 26 FCR 21.
61 A contract will not exist where one party has a discretion as to whether or not to perform, because the apparent consideration provided by that party is illusory. However, the fact that a party is given a wide latitude of choice as to how to perform it does not render the agreement void, if nothing is left for future agreement and as long as the area within which that latitude is to be had is clearly laid down: Allcars Pty Ltd v Tweedle [1937] VLR 35; Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597; Gregory & Bradshaw v MAB Pty Ltd [1989] 1 WAR 1; Kennard v Bazzan [1962] NSWR 1383; Lewandowski v Mead Carney-BCA Pty Ltd [1973] 2 NSWLR 640; Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130; Yaroomba Beach Development Co Pty Ltd v Coeur de Lion Investments Pty Ltd (1989) 18 NSWLR 398.
62 However, terms can be implied into written contracts. In Australian Co-Operative Foods Ltd v Norco Co-Operative Ltd [1999] NSWSC 274; (1999) 46 NSWLR 267, Bryson J said (at paragraph 61):
Judicial consideration of limits in the nature of requirements of good faith or reasonable conduct on the exercise of contractual powers has been very extensive. Although it cannot be said that a general obligation of good faith in the execution of contracts has been established, opinion in the Court of Appeal of New South Wales has shown openness to the implication of a duty of good faith both in performing obligations and in exercising rights: see the judgment of Sheller JA in Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 and his Honour's review of "implied terms". The nature of a contractual power and the circumstances in which it is to be exercised can support such an implication, particularly when such a power if unlimited could operate to enable a party to defeat the contract altogether or impose unreasonable burdens on the other. The implication is appropriate if the contract and the power do not represent what it could reasonably be supposed that the parties intended unless there is some implied limitation requiring reasonableness, honesty or good faith in its exercise. These will often require the implication of some limitation, even if no more than a requirement of honesty, if they are to represent anything which it could reasonably be supposed that the parties intended. Powers, options and elections which are conferred on a party so as to enable it to decide whether to take an advantage for itself must be recognised and distinguished from powers conferred on a party as means of establishing or deciding, so as to affect the interests of all parties, some matter which must be decided if the contract is to be executed effectively.
Uncertainty and incompleteness
63 Two considerations must be taken into account before concluding that no agreement capable of being enforced has been reached notwithstanding an apparent offer and acceptance. Firstly, the agreement may be uncertain because the language used by the parties is not sufficiently precise and clear in its meaning to identify the scope of the rights and obligations agreed to. Secondly, the agreement may be incomplete because, even though the language used is perfectly clear in its meaning, part of the transaction may still remain to be agreed upon so that there is no completed agreement. In any given case there may in fact be elements both of uncertainty and incompleteness: G Scammell & Nephew Ltd v Ouston [1941] AC 251; Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd (1995) 36 NSWLR 709; Toyota Motor Corp Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106.
64 When there has been a choice between enforcing an uncertain or incomplete agreement that, when enforced, is something that the parties did not in fact agree to, and on the other hand upholding the reasonable expectations of parties who believed they had a contract, the alleged contract has usually been enforced, especially when it is executed and commercial: Prints for Pleasure Ltd v Oswald-Sealy (Overseas) Ltd [1968] 3 NSWR 761; Amalgamated Television Services Pty Ltd v Television Corporation Ltd [1970] 3 NSWR 85; Cudgen Rutile (No 2) Pty Ltd v Chalk [1975] AC 520; Rowella Pty Ltd v Hoult [1987] 1 QdR 386; Hawthorn Football Club Ltd v Harding [1988] VR 49; Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd (No 2) [1990] 2 Lloyd's Rep 526; Toyota Motor Corp; In Re Roberts, Repington v Roberts Gawen (1881) 19 Ch D 520; Nea Agrax SA v Baltic Shipping Co Ltd [1976] QB 933. However, the nature of the agreement contemplated must always be considered so that where for example the transaction is a large one and terms usually found in an agreement are missing, elements of uncertainty and incompleteness should not be ignored: Toyota Motor Corp.
Uncertainty
65 Where a contract is said to be uncertain, but the parties have shown by their conduct that they understand and can apply its terms without difficulty, such conduct should not be ignored by holding that the terms of the contract are unintelligible by reason of uncertainty: York Air Conditioning and Refrigeration (Australasia) Pty Ltd v Commonwealth [1949] HCA 23; (1949) 80 CLR 11; Hempel v Robinson [1924] SASR 288; Sinclair v Schildt (1914) 16 WALR 100. In such situations the agreement may be upheld as a contract on the basis that by their actions in performance the parties have made certain the elements which were previously uncertain: Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110.
66 The same result may also be reached on the basis of an implied contract having come into existence and incorporating as many as possible of the terms of the original agreement: Way v Latilla [1937] 3 All ER 759; British Bank for Foreign Trade Ltd v Novinex Ltd [1949] 1 KB 623.
67 Whether uncertain conditions can be severed without destroying the entire agreement must also be considered. When a contract contains a number of conditions one of which is void for uncertainty, the question whether the whole contract is void depends on the intention of the parties to be gathered from the agreement as a whole: Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60; Whitlock v Brew [1968] HCA 71; (1968) 118 CLR 445; Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251. Where a provision relating to some inessential or incidental matter is vague, uncertain or meaningless, it may simply be ignored: Life Insurance Co of Australia Ltd; Whitlock v Brew; Update Constructions Pty Ltd, and the rest of the contract enforced: Nicolene Ltd v Simmonds [1953] 1 QB 543; Bosaid v Andry [1963] VR 465, Caltex Oil (Aust) Pty Ltd v Alderton [1964-65] NSWR 456; Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486; Cohen v Mason [1961] QdR 518.
68 It is a question of construction whether the parties intended that if the clause in question could not for any reason take effect the whole contract must fail. Even a clause relating to an important matter may be severable: Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420; David Jones Ltd v Lunn (1969) 91 WN (NSW) 468; South Coast Oils (Qld and NSW) Pty Ltd v Look Enterprises Pty Ltd [1988] 1 QdR 680; Spectra Pty Ltd v Pindari Pty Ltd [1974] 2 NSWLR 617.
69 The test to be applied is whether the parties must be taken to have intended that an offending provision is severable or intended that, if the clause in question could not for any reason take effect, the whole contract must fail: Fitzgerald v Masters; Whitlock v Brew; David Jones Ltd v Lunn; Terrex Resources NL v Magnet Petroleum Pty Ltd [1988] 1 WAR 144. In determining an intention in respect of a written contract, extrinsic evidence may not be resorted to except where such evidence may be called in aid of interpretation: Whitlock v Brew. Where severance is not possible, because it would radically alter the agreement intended by the parties, the whole agreement will fail: Duggan v Barnes [1923] VLR 27; Whitlock v Brew; G Scammell & Nephew Ltd.
70 A clause which has more than one possible meaning or which may produce more than one result when interpreted is not void for uncertainty: Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429; Head v Kelk [1962] NSWR 1363; McDermott v Black [1940] HCA 4; (1940) 63 CLR 161; Waldron v Tsimiklis (1975) 12 SASR 481; Meehan v Jones; Australian Energy Ltd v Lennard Oil NL [1986] 2 QdR 216; Yaroomba Beach Development Co Pty Ltd v Coeur de Lion Investments Pty Ltd (1989) 18 NSWLR 398; Youell v Bland Welch & Co Ltd (The Superhulls Cover Case) (No 2) [1990] 2 Lloyd's Rep 431; Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (t/as Uncle Bens of Australia) (1992) 27 NSWLR 326; Star Shipping AS v China National Foreign Trade Transportation Corp (The Star Texas) [1993] 2 Lloyd's Rep 445.
71 As long as the clause is capable of a meaning, it should be given the meaning consistent with the intention of the parties: Upper Hunter County District Council; Fitzgerald v Masters; Gregory & Bradshaw; Anangel Atlas Compania Naviera SA (No 2); S & E Promotions Pty Ltd v Tobin Bros Pty Ltd (1994) 122 ALR 637; Head v Kelk; Waldron v Tsimiklis; Biotechnology Australia Pty Ltd; BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources (1994) 49 FCR 155.
72 The question is one of construction: Meehan v Jones, and the language used should be interpreted broadly and fairly: Hillas v Arcos; Cohen v Mason; The Star Texas; Woodside Offshore Petroleum Pty Ltd v Atwood Oceanics Inc [1986] WAR 253; Terrex Resources NL; and not narrowly or pedantically: Upper Hunter County District Council; Head v Kelk; Waldron v Tsimiklis; Biotechnology Australia Pty Ltd. So long as it is not utterly impossible to place a reasonable meaning on the language used and to discern the parties' intention, the agreement will be enforced: Brown v Gould [1972] Ch 53; Hammond v Vam Ltd [1972] 2 NSWLR 16; Head v Kelk; Meehan v Jones; Gregory & Bradshaw; The Star Texas.
73 Agreements which are apparently vague or uncertain may be made certain by considering a standard of reasonableness by which the content of the agreement can be more precisely defined: Hillas v Arcos; King v Ivanhoe Gold Corporation Ltd [1908] HCA 75; (1908) 7 CLR 617. Alternatively, certainty may be achieved by an appeal to the understanding or practices of business people: R W Cameron & Co v L Slutzkin Pty Ltd [1923] HCA 20; (1923) 32 CLR 81; Bowes (carrying on business as British Tie Co) v Chaleyer (carrying on business as J Chaleyer & Co) [1923] HCA 15; (1923) 32 CLR 159.
74 Where a phrase is uncertain only in the sense that the precise implications of the phrase are still to be ascertained, there is no contractual uncertainty provided that when the facts arise for application of the phrase, it is capable of being applied with reasonable certainty: Bowes v Chaleyer; Upper Hunter County District Council; Tonelli v Komirra Pty Ltd [1972] VR 737. However, if the words used, although clear in their meaning, are incapable of being applied to the facts, the agreement will fail for uncertainty: Mercantile Credits Ltd v Harry [1969] 2 NSWR 248; Re Nudgee Bakery Pty Ltd's Agreement [1971] QdR 24; Custom Credit Corp Ltd v Gray [1992] 1 VR 540.
Incompleteness
75 A binding contract will not exist if the parties are still in the process of refining essential aspects of the bargain: Australian Broadcasting Corp v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Lubo Medich Holdings Pty Ltd v D and A Lu Pty Ltd (unreported, CA(NSW), Gleeson CJ, Mahoney P & Beazley JA, 8 May 1996). An intention to contract, whether expressed in terms of intention to make or accept an offer or in terms of an intention to create legal relations, is therefore essential. Accordingly, if the parties' intention to be bound is conditional on agreement being reached in relation to essential terms, there is no contract unless those terms are agreed: Toyota Motor Corp; Metal Scrap Trade Corp v Kate Shipping Co Ltd (The Gladys) (No 2) [1994] 2 Lloyd's Rep 402.
76 In other words, for an implication to be made, the parties must have finally agreed on a bargain and the law does not permit a court to imply terms for the purpose of making incomplete negotiations an enforceable contract: Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695; May and Butcher Ltd v R [1934] 2 KB 17n; Toyota Motor Corp; Vroon BV v Foster's Brewing Group Ltd [1994] 2 VR 32; Hawkins v Clayton (1988) 164 CLR 53; Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410; Ashmore v Corporation of Lloyd's (No 2) [1992] 2 Lloyd's Rep 620.
77 On the other hand, an incomplete agreement may be enforced if terms relating to essential matters, which the parties themselves have not expressly dealt with, can be implied into the contract. For example, terms relating to a reasonable time for performance and a reasonable price for the subject matter of the contract can be implied: Parker v Manessis [1974] WAR 54; W & J Investments Ltd v Commissioner of Taxation (1987) 16 FCR 314; Foley v Classique Coaches Ltd [1934] 2 KB 1; Whitehouse Properties Pty Ltd v Bond Brewing (NSW) Ltd (1992) 28 NSWLR 17; Couronne Investments Pty Ltd v Bardot Pty Ltd (unreported, SC (Qld), White J, 10 April 1996); Hall v Busst [1960] HCA 84; (1960) 104 CLR 206; Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582. In other words, where a contract which is prima facie incomplete has been largely performed by one or both parties, the agreement may be upheld by the implication of terms in order to avoid the injustice to a party who had performed but was unable to enforce the contract: Shire of Yea v Roberts (1879) 5 VLR (E) 222; Hall v Busst.
78 An arrangement whereby the parties agree to negotiate in the future on some essential matter will not be enforced on the basis that the agreement is incomplete, uncertain or is supported by consideration which is illusory: Carr v Brisbane City Council [1956] St R Qd 402; Courtney and Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 WLR 297; Mallozzi v Carapelli SpA [1976] 1 Lloyd's Rep 407; Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600; Itex Shipping Pte Ltd v China Ocean Shipping Co (The Jing Hong Hai) [1989] 2 Lloyd's Rep 522; Coal Cliff Collieries v Sijehama Pty Ltd (1991) 24 NSWLR 1; Walford v Miles [1992] 2 AC 128. Accordingly, the law does not recognise as an enforceable contract an agreement to agree or negotiate a contract: Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353; Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch 284; Bosaid v Andry [1963] VR 465; Godecke v Kirwan [1973] HCA 38; (1973) 129 CLR 629; Courtney and Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 WLR 297; Booker Industries; Woodside Offshore Petroleum; Biotechnology Australia Pty Ltd; Coal Cliff Collieries; Walford v Miles; Vroon BV.
79 An incomplete agreement, being no more than an agreement of the parties to agree at some time in the future which is not effective as a contract, will not be enforced: Booker Industries; Coal Cliff Collieries. Accordingly, a contract will fail for incompleteness where, even though the language used may be quite clear in its meaning, some essential, material or important part of the bargain is yet to be agreed: see, for example, Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601; Vroon BV; Hempel v Robinson; May and Butcher Ltd v R; Foley v Classique Coaches Ltd; Willesden v Webb [1937] QWN 8; G Scammell & Nephew Ltd. However, the agreement may be upheld where there is a machinery provision that can be applied to supply the omitted term, where a term can be implied to deal with the omission, or where severance is possible.
80 Where the parties have reached agreement on certain terms, but have indicated that further terms are to be negotiated, the agreement is not necessarily void for uncertainty or incompleteness, since the terms in question may not be essential terms of the agreement: Ravinder Rohini Pty Ltd v Krizaic (1991) 30 FCR 300; Granit SA v Benship International Inc [1994] 1 Lloyd's Rep 526. Moreover, although an agreement to negotiate further terms which are essential to the completion of the contract is no different from an agreement to agree, it would appear that an express agreement to negotiate further essential terms in good faith may be binding if the parties have also agreed on the criteria against which the negotiations may be judged, objectively, in the event of a dispute: Coal Cliff Collieries; Hillas v Arcos, Trawl Industries of Australia.
Ambiguity
81 If a written contract contains an ambiguous term, a court can receive extrinsic evidence to resolve the ambiguity: Cameron v Avery (1873) 4 AJR 141, Parker v Barnett (1889) 16 VLR 214; Egan v Ross (1928) 29 SR (NSW) 382; Clarke v Lonergan (1960) 78 WN (NSW) 367. However, in Darlington Futures Limited v Delco Australia Proprietary Limited [1986] HCA 82; (1986) 161 CLR 500, the High Court held at 510 that where there is an ambiguity:
... it is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.
82 Generally, the later conduct and statements of parties to a contract are not admissible even to resolve an ambiguity in the meaning of the contract, although they are admissible to identify the things with which the contract deals: Sportsvision Australia Pty Ltd v Tallglen Pty Ltd And Another (1998) 44 NSWLR 103.
Conduct and intention
83 However, a contract or its terms may be inferred from the conduct of the parties in certain factual circumstances, such as where:
(a) they indicated by their conduct that they did in fact intend to contract even if they did not expressly discuss the formation of a contract: Haynes v McNeil (1906) 8 WALR 186; Glass v Pioneer Rubber Works of Australia Ltd [1906] VLR 754; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110; Vroon BV;
(b) their conduct is consistent only with the hypothesis that an agreement was in fact made although no direct evidence is available of what was said: W A Dewhurst and Co Pty Ltd v Cawrse [1960] VR 278;
(c) an express offer is never expressly accepted or rejected, but the subsequent conduct of the offeree in performing the acts contemplated in the offer indicates, to a reasonable person in the position of the offeror, an intention to accept the offer: Goldsbrough Mort & Co Ltd v Quinn [1910] HCA 20; (1910) 10 CLR 674; Dover Fisheries Pty Ltd v Bottrill Research Pty Ltd (1994) 63 SASR 557; Brown v Brown (1905) 5 SR (NSW) 146; White Trucks Pty Ltd v Riley (1948) 66 WN (NSW) 101; Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523; Valentine Films Pty Ltd v Trimex Pty Ltd (unreported, Federal Court of Australia, Merkel J, 7 March 1996); Malthouse v Adelaide Milk Supply Co-operative Ltd [1922] SASR 572; Gjergja & Atco Controls Pty Ltd v Cooper [1987] VR 167; and
(d) the purported acceptance of an offer takes effect as a counter-offer, that counter-offer may be accepted by the conduct of the offeree, that is, the original offeror: Precision Pools Pty Ltd v Commissioner of Taxation (1992) 37 FCR 554; Custom Credit Corp Ltd v Gray [1992] 1 VR 540; Re Production Sheet Metals Pty Ltd [1971] QWN 16.
84 Usually a person's apparent intention will represent that person's real intention. However, the law is more concerned with the interpretation to be placed upon the words and actions of the parties by a reasonable person in the position of the person to whom the words or actions are addressed, rather than subjective intention: R v Clarke [1927] HCA 47; (1927) 40 CLR 227; Toyota Motor Corp; Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571; Ebbage v McMahon's (Transport) Pty Ltd (unreported, CA (Qld), Dowsett J, Pincus and Davies JJA, 6 September 1996).
85 To decide whether terms have been included by a course of conduct, the steps taken by the party alleging that terms have been incorporated and the extent of the conduct between the parties must be considered: D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251. The course of conduct must be consistent: McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125, and sufficiently long: Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (rec apptd) (in liq) (1992) 28 NSWLR 338; Teys Bros (Beenleigh) Pty Ltd v ANL Cargo Operations Pty Ltd [1990] QdR 288; D J Hill & Co; Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71; Pondcil Pty Ltd v Tropical Reef Shipyard Pty Ltd (1994) ATPR Digest 46-134. In order to rely on a course of dealing as incorporating terms into a contract, a party need not show that the other party actually knew of the terms: McCutcheon; D J Hill & Co; but some knowledge is required: Hollier.
Post contractual conduct
86 Only the parol evidence rule specifically excludes consideration of evidence of the conduct of the parties to the contract subsequent to the time the contract was made: White v Australian and New Zealand Theatres Ltd [1943] HCA 6; (1943) 67 CLR 266; Whitworth Street Estates (Manchester) Ltd v James Miller & Partners Ltd [1970] AC 583; L Schuler AG v Wickman Machine Tool Sales Ltd [1973] UKHL 2; [1974] AC 235; Administration of the Territory of Papua and New Guinea v Guba [1973] HCA 59; (1973) 130 CLR 353; Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337; Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310; Spunwill Pty Ltd v Bab Pty Ltd (1994) 36 NSWLR 290. However, this general rule that extrinsic evidence of subsequent conduct cannot be employed as an aid to construction of a contract is not absolute. Evidence of circumstances surrounding the contract is admissible as an aid to the construction of an ambiguous term where it is probative of the apparent intention of the parties to the contract at the time of contracting: Codelfa Construction; Spunwill.
87 Evidence of the mutual subjective intention of the parties to a contract may be part of the objective framework of facts within which the contract came into existence and thus be admissible as part of the factual circumstances surrounding the contract. Evidence of conduct of the parties to a contract subsequent to the time the contract was made may be used as an aid to the construction of the contract where it is probative of a clear and mutual subjective intention as to what the contact meant at the time it was made: Spunwill.
88 The weight to be given to extrinsic evidence of post-contractual conduct as part of the surrounding circumstances will depend on the extent to which the conduct is referable to, and probative of, a mutual subjective intention at the time the contract was made: Re Canadian National Railways and Canadian Pacific Ltd (1978) 95 DLR (3d) 242; Spunwill.
89 Where implication of a term is sought, the court is not limited to a consideration of the contract itself: Criss v Alexander (1928) 28 SR (NSW) 297. Although the main consideration with respect to implied terms is the construction of the contract, the circumstances surrounding the contract may also be considered in order to establish the factual matrix against which the parties contracted: Codelfa Construction. However, where the term is said to be implied from construction of a document, evidence of the parties' negotiations is not admissible for the purpose of implying a term: Codelfa Construction. This may be qualified if it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position: NZI Capital Corp Pty Ltd v Child (1991) 23 NSWLR 481; Codelfa Construction; IBM Australia Ltd v Lend Lease Development Pty Ltd (unreported, SC (NSW), Giles J, 21 December 1994).
90 The important principle established in Codelfa Construction - that the circumstances surrounding the contract may also be considered in order to establish the factual matrix against which the parties contracted - was considered in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309. The facts concerning the document in that case is almost identical to the present case. At 326 to 331 Mahoney JA raised and answered three questions (authorities omitted):
[326] The only question considered ... was whether there was a binding contract between the parties. In considering this question, in a context such as the present, it is of assistance to distinguish between three questions: did the parties arrive at a consensus?; (if they did) was it such a consensus as was capable of forming a binding contract?; and (if it was) did the parties intend that the consensus at which they arrived should constitute a binding contract?...The first question looks to the existence of a common intention. No such intention exists if, for example, A's intention is to sell for $1,000 and B's to buy for $2,000...
The second question looks to what the parties have agreed and to whether what they have agreed is capable of forming a binding contract. There are some forms of agreement which, because of (as it is conventionally described) uncertainty, are not capable of constituting such a contract. There are various forms or categories of uncertainty in this sense. Thus, some of the terms of the consensus arrived at may be, as to the meaning of them, too vague to be given legal effect...
Alternatively, some of the terms of the consensus may be clear as to their meaning but ineffective in the circumstances. Thus, a transaction on "the usual terms" may be incapable of constituting a binding agreement where, in fact, there are no terms which answer the description of "usual terms".
And the parties may have agreed upon some terms as binding upon them but intend that those terms, or other terms, shall be subject of subsequent agreement between them. In so far as the consensus involves "an agreement to agree", it may be held not to be capable of constituting a legally binding contract...
...
[328] Assuming, without deciding, that the conversation may be referred to in this way, I do not think that the result is that the consensus could not constitute a binding contract. The fact that, in a situation such as the present, a choice is left to a party does not have that effect. There can, in my opinion, be an agreement that A shall give a legal mortgage to B, the security to be nominated by A, and that agreement can, in particular circumstances, be a binding contract. If, as in this case, the implication is that which A must nominate must be a security appropriate for a legal mortgage then two things are involved in the parties' agreement: that A shall nominate the security and that it shall be appropriate in this sense. The fact that the choice of the terms of a lease may be "reasonably" made by a party has been held not to prevent a binding contract arising... At least where the choice to be made is not unrestricted but is to be made by reference to "reasonableness" or "appropriateness", then the agreement may constitute a binding agreement in particular circumstances... If A refuses or fails to nominate such a security, the court may do so, in the context of the specific performance of the contract. If the court is able to do this in the context of specific performance, and to treat the agreement as a binding contract accordingly, I do not think that it should be seen as less binding where the court is concerned with damages for the breach of it.
[329] ... The provision for incorporation of "appropriate conditions" from the annexed form of contract causes no relevant difficulty... However, it was submitted that the provision for the "application" in the agreement of "any additional terms and conditions recommended by the parties' legal advisers" rendered the agreement not capable of constituting a legally binding contract.
I do not think that this is so. In general, parties may not provide for the incorporation into an agreement of further terms which they themselves shall agree: such an agreement will not constitute a legally binding contract. But they may provide that the terms, or additional terms, of their agreement are to be settled by a third party...
The third question looks to whether, the parties' intention being congruent as to the terms of their agreement, they intend that agreement to be a binding contract in the sense of being legally enforceable as such. It is, of course, open to them to agree that it shall not... In those cases, the agreement between the parties itself provided that it should not be legally enforceable. But, in the present case, there was no such simple stipulation. The submission was that, either from the terms which the parties did agree upon or from extrinsic evidence, it should be concluded that the parties did not intend that the document executed by them should constitute a legally binding contract...
...
[330] It is generally accepted that, in determining whether what the parties have done results in a binding contract, their intention is significant. And there is reference in the cases and the textbooks to the question whether, for there to be a binding contract, it is necessary that the parties have an actual or subjective intention to contract... But questions in that form are, I think, apt to mislead: it is, in my opinion, of more assistance to ask whether actual or subjective intention to contract plays a part in determining whether there is a binding contract, and (if it does) what part it plays. The proper view is, in my opinion, that the existence of a contract is a consequence which the law imposes upon, or sees as a result of, what the parties have said and done. Actual subjective intention to contract is a factor which the law takes into account in determining whether a contract exists but it is not, or not always, the determining factor.
The matter may be tested by an example: A says, "I promise to sell Black Acre to B for $100"; and B says, "I promise to buy Black Acre from A for that price", the promises being made orally. In such a case, a binding contract will be held to exist. And this will be so even though neither A nor B subjectively adverted to (and therefore had no actual subjective intention as to) whether, by the exchange of those promises, a binding contract would be made. The law will hold a binding contract to have been made even though neither had any actual subjective intention that there be a contract, in the sense that neither party gave any thought to the matter.
The law looks, in this regard, to what the parties have done, viz, to their exchange of promises to buy and sell; and it treats the fact of that exchange as prima facie sufficient for imposing on them the legal relationship of contract. It will determine whether, according to what they said and did, they exchanged congruent promises: if they did, a contract will prima facie result.
[331] But this does not mean that actual subjective intention qua contract may not be relevant. Thus, if A, notwithstanding what he said, had the actual subjective intention that no contract should result, a binding contract may not be held to exist. If the terms of A's promise were such that B, as a reasonable man, would take it to involve a legal commitment and B did not know that A did not intend that there be a binding contract, then a binding contract would result. A would not be permitted to set up, against such a meaning of what he had said, a contrary subjective intention.
But the result would not, I think, be the same if B knew of A's actual subjective intention. The law would not, I think, impose the relationship of contract where, eg, A thought he was play-acting and B knew of that fact. A's actual subjective intention would be effective to prevent the contract arising. A fortiori, if both A and B had the intention that no contract should result, and each knew of it, then none would be imposed. And, I think, this notwithstanding that a reasonable bystander would take from what they said and did that there was an exchange of congruent promises and a mutual purpose to contract. I put aside for this purpose special cases, of estoppel, third party rights, and the like.
The result is therefore that intention to contract, in the subjective sense, is relevant to but not determinative of the existence of a binding contract. It acts, in a sense, as a limiting factor, that is, as a reason for not giving to what on the face of it is an exchange of congruent promises, the legal consequences which would otherwise be given to it. And on this basis, it is, in principle, relevant to know what was the actual subjective intention of each party, in the example that I have given, in order to determine whether the legal relationship of contract is to be held to exist. More correctly, it is relevant to know the intention of the one party where it is the intention of or known to the other.
If it be relevant, in this sense, to know the intention of the party or parties that no contract result, is it relevant to know that it was the intention that a contract should result? I think it is. The significance of intention, in the example I have taken, is that the law sees it as relevant to the determination of whether the legal relationship of contract should flow from what the parties have said and done. It is, similarly, relevant to know that they both, or that one with the knowledge of the other, intended that a binding contract should ensue.
It does not follow from this that intention to contract will always result in the relationship of contract. There is a difference between the effect of an intention that there be no contract and one that there be a contract. What the parties do with the intention to contract may, because of defects in what they have done, eg, the uncertainty of it, not produce a contract. But, notwithstanding, eg, the exchange of congruent promises, what they do will not produce a contract if there be no mutual intention, known between them as I have indicated.
91 Thus where a contract is alleged to be found in a written signed document, notwithstanding that the document contemplates further agreement including additional terms, for example, to be recommended by the parties' legal advisers, the court may have regard to extrinsic evidence of surrounding circumstances for the purpose of determining objectively whether a concluded contract was intended.
Commerciality
92 Terms may also be implied where there is a need to give business effectiveness to the contract: Milne v Municipal Council of Sydney [1912] HCA 25; (1912) 14 CLR 54; Shepherd v Felt and Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359; Shell Co of Australia Ltd v Esso Australia Ltd [1987] VR 317; McRae v Commonwealth Disposals Commission [1950] HCA 12; (1951) 84 CLR 377; Gullett v Gardner (1948) 22 ALJR 151; Maritime Services Board of New South Wales v Australian Shipping Commission (1991) 27 NSWLR 258; Breen v Williams (1994) 35 NSWLR 522. A term will only be implied if it is necessary to make the contract effective in a business sense: Butts v O'Dwyer [1952] HCA 74; (1952) 87 CLR 267; Australian Meat Industry Employees' Union v Frugalis Pty Ltd [1990] 2 QdR 201; Bond v HongkongBank of Australia Ltd (1991) 25 NSWLR 286; Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (rec apptd) (in liq); Canham v Australian Guarantee Corp Ltd (1993) 31 NSWLR 246; Smith v Welden [1922] HCA 35; (1922) 30 CLR 585; Heimann v Commonwealth (1938) 38 SR (NSW) 691; Bragg v Alam [1981] 1 NSWLR 668; Codelfa Construction; Meehan v Jones; Booker Industries; Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41. The fact that it appears reasonable to imply a term is not sufficient: John Holland Construction & Engineering Pty Ltd v World Services and Construction Pty Ltd (unreported, SC (Vic) Byrne J, 27 August 1994).
93 Consequently, if the contract is commercially effective without the term, the term should not be implied: Heimann; Blacktown Municipal Council v Doneo [1971] 1 NSWLR 157; Wasson v Commercial and General Acceptance Ltd (1985) 2 NSWLR 206; Australian Meat Industry Employees' Union v Frugalis Pty Ltd; David Leahey (Aust) Pty Ltd v McPherson's Ltd [1991] 2 VR 367; Ian Delbridge Pty Ltd v Warrandyte High School Council [1991] 2 VR 545. However, a term should be implied if the contract is unworkable or ineffectual without it: Hospital Products; Ling v Commonwealth (1994) 51 FCR 88; Gallagher v Pioneer Concrete (NSW) Pty Ltd (1993) 113 ALR 159; Forsayth NL v Australasian Gold Mines NL (No 1) (1992) 7 WAR 549; Ausdoc Office Pty Ltd v Complete Office Supplies Pty Ltd (1996) 136 ALR 659.
94 A commercial agreement should be read by reference to the relevant words in the written document. Subject to giving the words in a written agreement the natural meaning that they bear, the words of an agreement between commercial parties should not be given a meaning which makes commercial nonsense or would be commercially inconvenient: Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd. Moreover, the further the parties have gone with a commercial agreement, the more likely will any reasonable term be implied to give effect to the parties' intentions: F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd's Rep 53; Foley v Classique Coaches Ltd; Hempel v Robinson; Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444). The further the parties have gone with a commercial agreement, the more likely will any reasonable term be implied to give effect to the parties' intentions: F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd's Rep 53; Foley v Classique Coaches Ltd; Hempel v Robinson; Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444.
Co-operation
95 Where co-operation in performance between the parties is required by a contract, a term may be implied to create a duty to co-operate: Butt v McDonald (1896) 7 QLJ 68; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596; United Motels Ltd v Cooper [1964] NSWR 1252; Bragg v Alam [1981] 1 NSWLR 668; Beaton v McDivitt (1987) 13 NSWLR 162; CSS Investments Pty Ltd v Lopiron Pty Ltd (1987) 16 FCR 15; Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board [1989] 1 QdR 499; John Holland Construction & Engineering, or a duty not to do anything which will frustrate the operation of the contract: Butts v O'Dwyer; Trade Practices Commission v CC (NSW) Pty Ltd (1994) 125 ALR 94.
96 The need for business efficacy may give rise to an implication which imposes such obligations on both parties: United Motels Ltd v Cooper [1964] NSWR 1252; Strati v JAG Investments Pty Ltd (1980) 1 BPR 9600; Booker Industries; Gollin & Co Ltd v Karenlee Nominees Pty Ltd [1983] HCA 38; (1983) 153 CLR 455; Gregory & Bradshaw; Hospital Products; Gallagher v Pioneer Concrete (NSW) Pty Ltd (1993) 113 ALR 159; South Launceston Football Club Inc v Tasmanian Football League Ltd (1995) 4 Tas R 342.
Obviousness
97 The term to be implied must also be obvious. The principle for obviousness is whether, in the event of some "officious bystander" suggesting the term alleged to be implied into the contract, the parties would have regarded the term as too obvious to require express provision: Bonney v Hartmann [1924] St R Qd 232, Breen v Williams. The term must have been obvious to both parties: Goldsbrough Mort & Co Ltd v Carter [1914] HCA 80; (1914) 19 CLR 429; Peters American Delicacy Co Ltd v Champion [1928] HCA 27; (1928) 41 CLR 316; Gullett v Gardner (1948) 22 ALJ 151, at the time of entry: Gough Bay Holdings Pty Ltd v Tyrwhitt-Drake (1975) 34 LGRA 22, into the contract: Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190; L J Hooker Ltd v W J Adams Estates Pty Ltd [1977] HCA 13; (1977) 138 CLR 52; Ross McCartin Realty v Chard Holdings Pty Ltd (No 2) [1991] 1 QdR 182; Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] 2 VR 732. The test for implication of an obvious term is an objective one: Heimann.
Consistency
98 The term sought to be implied must be consistent with the other terms of the contract: Himbleton Pty Ltd v Kumagai (NSW) Pty Ltd (1991) 29 NSWLR 44; Farrow Mortgage Services Pty Ltd (in liq) v Edgar (1993) 114 ALR 1; Heimann; Ansett Transport Industries (Operations) Pty Ltd v Commonwealth [1977] HCA 71; (1977) 139 CLR 54; Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd [1991] 2 VR 417; Honeyman v Nhill Hospital [1994] 1 VR 138; Peters American Delicacy; Farrow Mortgage Services Pty Ltd (in liq) v Edgar, and not deal with a matter already sufficiently dealt with by the contract: Bonney v Hartmann; Shepherd v Felt and Textiles; Di Dio Nominees; Ling v Commonwealth; Gallagher v Pioneer Concrete; Maybury v Atlantic Union Oil Co Ltd [1953] HCA 89; (1953) 89 CLR 507; Casson v Mirror Motors Pty Ltd (1961) 78 WN (NSW) 762; Ansett Transport Industries; Hospital Products; Nullagine Investments Pty Ltd v Western Australian Club Inc [1993] HCA 45; (1993) 177 CLR 635; Transfield Properties (Kent Street) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321; Gemmell Power Farming Co Ltd v Nies (1935) 35 SR (NSW) 469; Hope v RCA Photophone of Australia Pty Ltd [1937] HCA 84; (1937) 59 CLR 348; Thors v Weekes (1989) 92 ALR 131; Trade Practices Commission v CC.
Master agreement
99 In Federal Commissioner Of Taxation v Suttons Motors (Chullora) Wholesale Pty Ltd (1983) 47 ALR 449, a "master agreement" was described as an agreement, whether oral or written, governing all the particular transactions between the parties. Typically it contains terms and conditions which govern each transaction such as the method of exercising an option, events of default, conditions precedent, representations and warranties. Such an agreement would be used in circumstances where the parties expect to enter into a series of similar transactions and wish to incorporate similar terms into each transaction when the transaction occurred, but with the flexibility to choose which terms were used in respect of particular transactions. As each "exercise of an option" under a master agreement is in effect a "new contract", the same principles of construction and interpretation must apply to each.
"Best endeavours" clause
100 Where the question arises whether the parties are not bound unless and until an event occurs or condition is fulfilled, the effect of the clause will depend on the intention of the parties to be ascertained from the agreement and other admissible evidence: Gregory & Bradshaw. The effect of the clause may be to postpone the existence of a binding contract until fulfilment: Roach v Bickle [1915] HCA 80; (1915) 20 CLR 663; IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 49 ALJR 176, or the performance of a binding contract formed immediately: Gange v Sullivan [1966] HCA 55; (1966) 116 CLR 418; Smallman v Smallman [1972] Fam 25; Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537; Booker Industries; Gregory & Bradshaw. In the former case, either party may withdraw from the transaction until the condition has been fulfilled. However, in the latter, neither party may withdraw until the time for fulfilment has passed: Gregory & Bradshaw; Perri v Coolangatta Investments Pty Ltd. In the absence of a contrary intention or the existence of circumstances precluding the inference, it will be inferred that the parties intend to be immediately bound by the contract but that the obligation to perform has been postponed: Gange v Sullivan; Perri v Coolangatta Investments; Gregory & Bradshaw; Commonwealth Homes and Investment Co Ltd v MacKellar [1939] HCA 34; (1939) 63 CLR 351; Progress and Properties (Strathfield) Pty Ltd v Crumblin (1984) 3 BPR 9496; Newmont Pty Ltd v Laverton Nickel NL [1983] 1 NSWLR 181; Sandra Investments Pty Ltd v Booth [1983] HCA 46; (1983) 153 CLR 153.
101 Where satisfaction of the contingency present in a "subject to" clause depends on one or more parties taking steps, or not taking steps, to procure its satisfaction, it will generally be implied, where the contingency postpones performance of the contract, that the parties will take reasonable steps to ensure the fulfilment of the contingency, or at least not take steps to prevent its fulfilment: Booker Industries; IOC Australia; Butts v O'Dwyer; Kennedy v Vercoe [1960] HCA 64; (1960) 105 CLR 521, Strati v JAG Investments Pty Ltd (1980) 1 BPR 9600; Progress and Properties (Strathfield); Gregory & Bradshaw.
102 In cases where the contingency requires the satisfaction or approval of one of the parties, the mere fact that there is an element of discretion on the part of the party does not indicate that the agreement is illusory or uncertain: Meehan v Jones; Progress and Properties (Strathfield); Magnacrete Ltd v Douglas-Hill (1988) 48 SASR 565.
103 It is a question of construction whether an objective or subjective test applies, and whether the contingency is satisfied by a bona fide and honest dissatisfaction: Meehan v Jones; Woodside Offshore Petroleum, or must pass an objective test of reasonableness: Meehan v Jones; Zieme v Gregory [1963] VR 214; Progress and Properties (Strathfield); Parland Pty Ltd v Mariposa Pty Ltd (1995) 5 Tas R 121.
104 A term requiring "best endeavours" implies an obligation "to do all one reasonably can in the circumstances to achieve the contractual object but no more": Hospital Products, and to do "all that could reasonably be expected of (the promisor) having regard to the circumstances of its business operation": Transfield Pty Ltd v Arlo International Limited [1980] HCA 15; (1980) 144 CLR 83.
Novation
105 It is not possible to assign contractual obligations: Century 21 (South Pacific) Pty Ltd (in liq) v Century 21 Real Estate Corp (1996) 136 ALR 687. However, the original parties to a contract may by novation agree to substitute one contract or contracting party for another, thereby transferring the burden of a prior contract: Konstas v Southern Cross Pumps and Irrigation Pty Ltd (unreported, Federal Court of Australia, Tamberlin J, 3 July 1996), the consideration usually being the discharge of the old contract: Scarf v Jardine (1882) 7 App Cas 345; Olsson v Dyson [1969] HCA 3; (1969) 120 CLR 365.
106 In Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 IPR 315 at 320, Powell J concisely described the essential nature of a novation:
Reduced to its simplest form, a novation is merely a contract between three parties, the obligee, the original obligor and the substituted obligor, the effect of which contract is that in consideration of the obligee releasing the original obligor from his obligation, the substituted obligor promises the obligee that he will assume responsibility for the performance of the obligation. Being, in essence, but a contract - albeit, perhaps, a special kind of contract - a novation, to be effective in law, must exhibit the usual phenomena of contract, that is, offer and acceptance, the fact of acceptance being communicated to the offeror unless communication has been expressly or impliedly dispensed with.
This dictum was followed by Carruthers J in Mutual Export Corporation & Ors v Asia Australian Express Ltd & Ors (The "Lakatoi Express") (1990) 19 NSWLR 285.
107 In Olsson v Dyson at 388, Windeyer J (in dissent) described the difference between an assignment and a novation as follows:
... Novation can still be used as it was in earlier times. It can still be the means to the end which the law now allows to be reached by other means. The ultimate distinction, in juristic analysis, between a transfer of a debt by assignment and by novation is simple enough. Novation is the making of a new contract between a creditor and his debtor in consideration of the extinguishment of the obligations of the old contract: if the new contract is to be fully effective to give enforceable rights or obligations to a third person he, the third person, must be a party to the novated contract. The assignment of a debt, on the other hand, is not a transaction between the creditor and the debtor. It is a transaction between the creditor and the assignee to which the assent of the debtor is not needed. The debtor is given notice of it; for notice is necessary to complete an assignment pursuant to the statute or in the case of an equitable assignment to preserve priorities. But the debtor's assent is not required. He is not a party to the transaction.In Scarf v Jardine (1882) 7 App Cas 345, at 351 Lord Selborne said novation "means this - the term being derived from the civil law - that there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties; the consideration mutually being the discharge of the old contract". In that sense "novation" means simply a new contract standing in the place of the old. It may be a new contract between the parties to the old contract, A ... and B ...; or it may be a contract between them and a new party, or parties, e.g., between A, B and C... It is in the latter sense that the word is most often used in common law countries in connexion with the transfer of debts from one creditor to another.
108 In Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 15 NSWLR 641, the New South Wales Court of Appeal accepted Windeyer J's view and said at 646:
The essence of a novation and the element which distinguishes it from an assignment is that the consent of the debtor is required - the ordinary situation is one which arises where one debtor or creditor is substituted for another - whereas for an assignment the co-operation of the debtor is unnecessary although he must be given notice by statute or to preserve priorities in equity.
This requirement that all parties consent when novating a contract is in fact well established: Parker v Wise (1817) 6 M & S 239; Wilson v Coupland (1821) 5 B & Ald 228; Wharton v Walker (1825) 6 Dow & Ry KB 288; Robinson v Podosky [1905] St R Qd 118; Abbott v Hessen (1913) 15 WALR 80.
109 Whether there is a novation depends on the intention of the parties: Vickery v Woods [1952] HCA 7; (1952) 85 CLR 336; Cook v Chas E Blanks Pty Ltd [1968] 3 NSWR 356; TJ Precision Engineering Pty Ltd v Crane Copper & Aluminium Pty Ltd [1968] 3 NSWR 360; Valentine Films Pty Ltd v Trimex Pty Ltd (unreported, Federal Court of Australia, Merkel J, 7 March 1996). Contracts may be novated either expressly or impliedly: George v Roach [1942] HCA 22; (1942) 67 CLR 253, and can be inferred from the conduct of the parties. In Olsson v Dyson at 390, Windeyer J described when novation can be implied or inferred as follows:
Quite apart from the question whether the extinguishment of a prior obligation by B to A can provide consideration for a promise by B to C, is the question whether there can be an implied as distinct from an express extinction of the prior obligation. This was a problem for early Roman law too - and it is of some significance that much of the learning concerning novation, as well as the word itself, has an origin in Roman law: see e.g. Wilson v Lloyd (1873) LR 16 Eq 60 at p 74. Justinian met the difficulty by providing that a stipulation should not operate as a novation unless the parties expressly declared that their object in making the new contract was to extinguish the prior obligation: Institutes, Bk. III, 29, 3. However, the requirements of our law are satisfied by a tacit agreement to extinguish the former obligation, and this is inferred when an inconsistent obligation is by agreement substituted.
Consent can also be inferred from conduct without express words: Re European Assurance Society Arbitration Acts and Wellington Reversionary Annuity and Life Assurance Society (Conquest's Case) (1875) 1 Ch D 334; Re Head; Head v Head (No 2) [1894] 2 Ch 236; Re the Estate of Philip Levi & Co; Ex parte Levi (1874) 8 SALR 144; Chatsworth Investments v Cussins (Contractors) Ltd [1969] 1 All ER 143.
Collateral contract
110 Generally, a collateral contract involves as consideration the making of some other contract (the principal contract) so that a statement made before or at the time of entry into the principal contract is enforceable as based on an executed consideration: Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133. A collateral contract may be either antecedent or contemporaneous: Angell v Duke (1875) LR 10 QB 174. There are two forms of such contracts:
(a) A person (the promisee) enters into a principal contract with another person (the promisor), after a statement which takes effect as a term in a second contract between the promisee and the promisor collateral to the main contract: Heilbut, Symons & Co v Buckleton [1913] AC 30;
(b) A person (the promisee) enters into a contract with a third person following a statement by another person (the promisor), and the statement takes effect as a term in a contract between the promisor and promisee collateral to the main contract between the promisee and the third person.
111 Collateral contracts exist independently of the principal contract to which they relate, and the same rules of contractual construction apply: Heilbut, Symons; Hoyt's v Spencer. Thus:
(a) where the principal contract is illegal and unenforceable, the collateral contract may be the subject of an action;
(b) where a contract is required to be evidenced by writing, the collateral contract may be the subject of an action if it is not required to be in writing; and
(c) where a collateral contract of the second type exists, the privity of contract rule is avoided.
112 In order to establish a collateral contract in respect of a statement of fact, three circumstances are usually present:
(a) an intention by the maker of the statement that the statement be relied on;
(b) reliance by the party alleging the existence of the contract. There is a presumption of reliance where the maker of the statement intended the statement to be relied on and a contract was entered into: De Lassalle v Guildford [1901] 2 KB 215; Heilbut, Symons; Bulloch v Glasson (1915) 15 SR (NSW) 91; J J Savage & Sons Pty Ltd v Blakney [1970] HCA 6; (1970) 119 CLR 435; and
(c) an intention on the part of the maker of the statement to guarantee its truth or falsity: Heilbut, Symons; Major v Bretherton [1928] HCA 11; (1928) 41 CLR 62; Gardiner v Grigg (1938) 38 SR (NSW) 524; Cutts v Buckley [1933] HCA 21; (1933) 49 CLR 189; Wells (Merstham) Ltd v Buckland Sand and Silica Ltd [1965] 2 QB 170; J J Savage.
113 The third circumstance is essential and must be proved or inferred: Routledge v McKay [1954] 1 WLR 615; J J Savage; Something Better Pty Ltd v Pyramid Building Society (in liq) [1996] 2 VR 352.
114 A collateral contract may also arise where the statement relied upon is directly promissory in character or effect rather than representational: De Lassalle; Lawrence v Cassel [1930] 2 KB 83; Shepperd v Council of the Municipality of Ryde [1952] HCA 9; (1952) 85 CLR 1; Cutts v Buckley; J J Savage; Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445. Statements which are, in essence, merely expressions of opinion are rarely found to be collateral contracts, even if relied upon: J J Savage; Ross v Allis-Chalmers Australia Pty Ltd (1980) 55 ALJR 8.
115 It is not possible to infer a collateral contract for which the consideration is the entry into the principal contract, if it is agreed prior to the making of the statement subsequently relied upon as a collateral contract, since the consideration in such a case would be past consideration: Hercules Motors Pty Ltd v Schubert (1953) 53 SR (NSW) 301.
116 A statement will not take effect as a collateral contract between the parties to the main contract if it is inconsistent with the principal contract: Hoyt's v Spencer; Maybury v Atlantic Union Oil; De Lassalle; Cairns Festival Faire Pty Ltd v AEFC Ltd (unreported, Federal Court of Australia, Heerey J, 3 September 1993). The basis is a principle which must govern the bargain of a contractual promise made in consideration of entering into the main contract, namely, that the parties shall have and be subject to all of the respective benefits and burdens of the principal contract. To hold otherwise would make the collateral contract the dominant contract: Hoyt's v Spencer; Leipner v McLean [1909] HCA 17; (1909) 8 CLR 306; Cutts v Buckley; Gardiner v Grigg; Maybury v Atlantic Union Oil; Esanda Ltd v Burgess [1984] 2 NSWLR 139; Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1.
FINDINGS AND CONCLUSIONS
117 I find that the Divergent contract was legally binding. Ginger Max agreed to purchase and Divergent agreed to supply certain goods for due payment. They clearly intended to create legal relations by reducing what they saw as the essential terms of their agreement to writing and subsequently acted on the written document in a substantial way. The parties did not believe, and I cannot see any basis for holding, that the price or any other essential term was uncertain.
118 It is obvious that Ginger Max intended the Divergent system to be installed in all its stores. There would have been no point in changing systems at great expense and trouble to finish with different systems in different stores. In respect of the "best endeavours" clause, I find that Ginger Max did "all [it] reasonably [could] in the circumstances to achieve the contractual object". In fact, Ginger Max did more than "all that could reasonably be expected of [it] having regard to the circumstances of its business operation". By the time Ginger Max transferred ownership of Best & Less to Pepkor, it had performed a major part of the contract, even better than its own expectations.
119 Pepkor's submission that the contract was incomplete because things such as the "Acceptance Test Criteria" and the "pilot" phases should have been expressed must be rejected. Certainty may be achieved by an appeal to the understanding or practices of business people. In commercial reality, the development of software for a particular application can be fluid. System requirements can change as the software is being developed and a particular solution or program is found to be unsatisfactory. In fact, Divergent and Ginger Max passed through the "Acceptance Test Criteria" and the "pilot" stages without difficulty and showed by their conduct that they understood and could apply the terms of the contract without difficulty. By the time of the sale contract, the Divergent contract had been significantly performed by both Divergent and Ginger Max towards the goal of installations in all the Best & Less stores. Their conduct made clear that their contract was not a "master agreement".
120 The contract did not fail because NCR, as a party which was to perform part of the obligations, did not sign it. It was not essential to the installation of the Divergent system that the hardware be supplied by NCR. In computer terms, the life of hardware is also short and the contract specifically provided for hardware upgrades once better technology became available.
121 On the novation issue, it is important to consider not only the intention of the parties, but also their conduct. Ginger Max and Pepkor expressed their respective intentions to novate the Divergent contract in the sale contract. Divergent expressed its consent and intention to novate its contract by signing and returning the novation document provided to it by Ginger Max. Although the words used in the two contracts to describe the Divergent contract are not identical, it is obvious that the parties intended to novate its substance. There was and could have been no confusion about what was being novated. It is inconceivable that Pepkor could have believed that the novation clause and Schedule 4 of the sale agreement did not have the effect the parties clearly intended and the meaning their words clearly convey. Furthermore, in my opinion, Pepkor's conduct in requesting the installation of the system in six further stores following its takeover is, if not decisive, very persuasive of its intent and of its understanding of the contractual position.
The oral evidence
122 The evidence of Pepkor's lay witnesses can be construed in different ways. Looked at from their point of view, Messrs Stassen, MacDonald, Marais and Aderem at best misunderstood the contract and what the Divergent and Ginger Max interests told them. However, this possible explanation does not ring true. All four men have a great deal of commercial experience and business acumen. It defies commonsense that all of them could have made such an error. At the other end of the scale of probabilities, they manufactured their recollections. Given the combined commercial experience between them and their potential liability to Divergent, this conclusion is in my view the more likely. At the very least they manicured their recollections to escape a clear liability of their company.
123 Chief among my reasons for this finding is what struck me as the manifestly arrogant attitudes of these men whom, as witnesses, I found significantly unimpressive. In my opinion, their evidence was in many respects quite untruthful. They denied one statement after another when it did not suit their case or point of view only to lead, as I have earlier described, to inconsistency and conflict with logic and commonsense. The same result did not flow from Divergent's witnesses whose evidence, as I have shown, was uncomplicated, consistent and sensible. The principal Pepkor witnesses, especially Messrs Stassen, MacDonald and Marais, are all highly intelligent, well educated men with commercial commonsense. These obviously admirable features were at once the cause of their downfall. My conclusion from their evidence is that they used their cleverness to cover, first, a deliberate commercial decision to ignore their clear assumption of Ginger Max's obligations to Divergent. Their secondary goal was to challenge Divergent to take court proceedings in the probable belief that Pepkor's hefty determined resistance and apparently superior financial strength would win the day by wearing Divergent down and, hopefully, exhaust its capacity to fund litigation. This ploy was wholly unsuccessful precisely because it was too "clever".
124 I accept that Messrs Stassen and MacDonald wanted to eliminate Pepkor's obligations under the Divergent contract but I do not accept their evidence about the matter. In particular I do not believe that they did not understand its commercial requirements. Apart from the novation issue, the Divergent contract would, if unenforceable against Pepkor on the principal grounds relied on, also have been unenforceable against Ginger Max. They must have recognised how illogical it was for Divergent and Ginger Max to leave themselves open to the loss of such a commercially viable and important contract, including Ginger Max's need to continue to operate a business vulnerable to commercial competition and loss by a failure to replace outdated but essential equipment. Yet if they are to be believed, not a word passed about this phenomenon. On the contrary, they at all times acted as if the Divergent contract was clear, secure and binding.
125 Mr Aderem had a particular interest in manufacturing his evidence. Mr Rosen's role in his retrenchment by SVI would have made him contemptuous of Mr Rosen and this case presented a perfect opportunity for the settling of old scores. However, as Mr Aderem was not cross-examined to this effect, it would not be appropriate to reject his evidence on this basis. As it happens, his evidence was unpersuasive but peripheral.
126 Both Mr Rosen and Mr Thomas were convincing and credible witnesses. I accept their evidence that they were several times told by the Pepkor representatives that Pepkor would proceed and was proceeding with the installation of the Divergent POS system, even when and after Pepkor had determined to go elsewhere for a POS system. Pepkor deliberately concealed this intention from Divergent. This conduct breached and brought to an end the novated Divergent contract and caused Divergent to suffer loss. Ginger Max cannot be held liable for Pepkor's breach of contract as Pepkor in large measure conceded. Divergent's claim must succeed against Pepkor, but must fail against Ginger Max.
Misleading and deceptive conduct
127 Divergent claimed that it was misled or deceived by both Ginger Max and Pepkor about their intentions regarding completion of the installation of the POS system in accordance with the Divergent contract. Pepkor claimed that it was misled or deceived by both Ginger Max and Divergent about the binding nature of that contract. In view of my findings on the contract, it is not necessary to consider Divergent's claims against Pepkor in any detail. I have no doubt that Pepkor did mislead divergent about its intentions for the Divergent contract. Clearly Divervent did not mislead Pepkor. Likewise, I am quite convinced that Ginger Max did not mislead or deceive Divergent. It did what it said it would do and performed even better than it thought it could. Neither did Ginger Max deceive Pepkor, which in any event made its own decisions about the Divergent contract and was not influenced by anything said or done by Ginger Max. I accept the evidence of Mr Ginges that he did not make or authorise anyone else to make any representations to Pepkor suggesting that the Divergent contract was not binding.
128 For these reasons, I find that:
(a) the Divergent contract was legally enforceable against Ginger Max for the installation of the Divergent POS system in at least 82 Best & Less stores;
(b) the contract was novated by Ginger Max to Pepkor on the sale of Best & Less, Pepkor thereby assuming the obligations of Ginger Max under it;
(c) Pepkor failed to complete the contract and caused loss to Divergent;
(d) Ginger Max did not mislead or deceive Divergent or Pepkor;
(e) Pepkor misled Divergent but Divergent did not mislead Pepkor;
(f) Pepkor is not entitled to indemnity from Ginger Max for any liability to Divergent.
The principles
129 Damages in contract are awarded to place the applicant in the position in which it would have been had the respondent performed the obligation that was breached: Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351; Parramatta City Council v Lutz (1988) 12 NSWLR 293; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64; Manser v Spry [1994] HCA 50; (1994) 181 CLR 428; Nominal Defendant v Gardikiotis [1995] HCA 56; (1996) 186 CLR 49. Another expression of the principle has been that where the respondent contracts to do something and fails to do it, the respondent must, so far as money can do so, put the applicant in the same position as if the thing had been done: Holmes v Jones [1907] HCA 35; (1907) 4 CLR 1692. In assessing damages for breach of contract, the loss must be identified by reference to the position of the applicant after the respondent's breach, and the applicant must establish what has been lost: Ravinder Rohini Pty Ltd; Amann Aviation Pty Ltd.
130 Both Mr Gower for Divergent and Mr Bryant for Pepkor provided reports and gave oral evidence on Divergent's loss. There was a gigantic difference between their assessments. Mr Gower estimated the loss at between $1.1million and $1.5million[98] while Mr Bryant put the loss at $35,000[99]. Their oral evidence disclosed that each had made their calculations on the basis of different assumptions, and that if each had based their calculations on the other's assumptions, they would in all likelihood have reached the same or a similar result. Despite my efforts to have them try to close the gap and reach an accord, at least on some of the appropriate assumptions having regard to the evidence, their unwillingness or failure to do so, presumably because they lacked instructions to make the attempt, has left me with the task of examining to what extent the evidence supports the major assumptions of one expert over the other. The parties' attitude in this regard subjects them to the application of certain well accepted principles of law which may not operate to their benefit.
131 In Amann Aviation, Mason CJ and Dawson J said at 83:
The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can (Fink v Fink [1946] HCA 54; (1946) 74 CLR 127, at p 143; McRae v Commonwealth Disposals Commission [1950] HCA 12; (1951) 84 CLR 377, at pp 411-412; Chaplin v Hicks [1911] 2 KB 786, at p 792). Indeed, in Jones v Schiffmann ((1971) [1971] HCA 52; 124 CLR 303, at p 308) Menzies J went so far as to say that the "assessment of damages ... does sometimes, of necessity involve what is guess work rather than estimation". Where precise evidence is not available the court must do the best it can (Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422, at p 438, per Devlin J). And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages (See McGregor on Damages, 15th ed (1988), pars 357-359).
132 In JLW (Victoria) Pty Ltd v Tsiloglou & Ors [1994] 1 VR 237 at 241-6, Brooking J, (with whom Tadgell and JD Phillips JJ agreed in substance) said (authorities omitted):
A plaintiff cannot recover substantial as opposed to nominal damages unless he proves both the fact and the amount of damage... If he proves the fact of the loss but does not call the necessary evidence as to its amount he cannot be awarded substantial damages... he must put the tribunal in the position of being able to quantify in money the damage he has suffered... So juries in personal injuries cases are often directed that the plaintiff must prove to their satisfaction what he has suffered and will suffer and what is fair and reasonable compensation in respect of that. It is often said that the amount of the damage must be proved with certainty, but this only means as much "certainty" as is reasonable in the circumstances... Where precise evidence is obtainable, the court naturally expects to have it; where it is not, the court must do the best it can... The nature of the damage may be such that the assessment of damages will really be a matter of guesswork......
[243] ... Of course in cases where the court is entitled to expect evidence which will enable an estimate of the plaintiff's loss to be made, the plaintiff can recover substantial damages which do not reflect the whole of his actual loss if he at least proves facts which enable some part of his loss to be quantified.
There is no rigid dividing line between cases in which guesswork is permissible in assessing damages and cases in which it is not. The borderline between guesswork and rational assessment is itself indistinct, as is the line between evidence that is "precise" (the Permanite Case dictum) and evidence that is not. In Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167, at 182-3, (to which Tadgell J. has drawn my attention) the Full Federal Court thought the case to be one in which precise evidence of the loss was not obtainable, so that if the trial judge found that the plaintiffs had suffered some loss he must do his best to quantify the loss even if "a degree of speculation and guesswork" was involved.
...
[245] ... But even in such a case the plaintiff must put the court in the position of being able to quantify in money the damage he has suffered... So, if in a running down case the plaintiff alleged no economic loss and merely alleged physical injuries, no particulars of injury being supplied, and the defendant admitted that the plaintiff had as a result of his negligence suffered injury which was not insignificant, and the action proceeded to trial as an assessment of damages, the plaintiff would fail if he did not lead some evidence of the nature of his injuries, since the assessment of damages would be impossible. The case would be one in which damage was admitted but the plaintiff had failed to prove facts from which damages could be assessed, there being nothing upon which the opinion and judgment of the court could operate. I entertain no doubt that the general proposition that if damage is proved the court must regardless of the circumstances make some assessment of the damages cannot be sustained. I doubt very much whether the Full Federal Court intended to lay down any such general proposition in Enzed Holdings ... at 183, where the court said: "The principle is clear. If the court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guess work is involved. Furthermore, if actual damage is suffered, the award must be for more than nominal damages."... I think that the passage is to be read down by reference to the facts of the case with which the Full Court was concerned, one in which, in the opinion of the court, "precise evidence" was not obtainable...
133 Thus the Court is required to "do its best to quantify the loss even if a degree of speculation and guesswork is involved". There has been a substantial amount of evidence about what loss Divergent may have suffered which enables me to quantify a part but not necessarily the whole of the loss. The rest requires the application of the criteria and principles derived from the case law referred to.
The components
134 Divergent's basic claim is for loss of profits caused by Pepkor's breach of contract. There are three distinct components of this loss all of which were provided for in the Divergent contract: the loss of installations, the lost provision for maintenance of the installations, and the loss on additional services to be provided under the contract.
135 After the calculation of these elements of the loss, three other factors must be taken into account. First is interest. When calculating interest on various components of loss, Mr Gower originally adopted a constant rate of 9.5%, the rate set for the Supreme Court of New South Wales as at 29 February 2000. Mr Bryant noted two changes in the Supreme Court interest rate since 29 February 2000: on 1 March 2000 (to 10%) and again on 1 September 2000 (to 11%). I accept Mr Bryant's approach. The second is the effect of inflation. Mr Gower adopted a constant rate of 3% for the Consumer Price Index (CPI) whereas Mr Bryant applied the CPI rates published by the Australian Bureau of Statistics. Again, I have accepted Mr Bryant's position. Third is taxation. Both experts agreed that as Divergent will be required to pay tax on the sum awarded, a sum to take into account tax on the award should be added, accommodating the changes to the corporate tax rate on the introduction of the "New Tax System" (36% to 30 June 2000, 34% from 1 July 2000 to 30 June 2003, and 30% from 1 July 2003). Mr Gower said that tax should be calculated on both the principal sum and the interest. Mr Bryant argued that tax should be calculated only on the principal sum. I accept Mr Bryant's position.
Installation
136 Although its statement of claim stated that the system was installed in 44 stores at the termination of the contract, Divergent's evidence was that only 42 installations were in place at that time. The Divergent contract provided that the 47 installations were to have been completed by no later than 31 October 1998 and in all stores by 31 October 1999. Although the actual happenings on the ground make this rate of progress seem a little conservative, I have proceeded on the basis of that rate of installation (basic installation rate).
137 The contract also provided for the price of the system to remain constant if it was installed in 100 stores. There was also evidence of some negotiations between Divergent and Pepkor about the possibility of installing the system in 100 stores, but those negotiations came to nothing. I ignore them.
138 On the other hand, Mrs Webb's evidence and a document produced by Ginger Max dated 21 October 2000 and called "Details of Stores Rolled Out On Or After 1/4/98 With Details of Correspondence" (Exhibit 2R6) were both consistent with 44 installations when the contract was terminated. Therefore, any loss suffered can only be calculated in respect of Pepkor's failure to install the system in 38 stores.
139 It seems that the revenue calculations per store installation are consistent as between the experts but there is a difference between them on the expenses per store, particularly the cost to Divergent of the software. Mr Gower assumed that the cost of the software to Divergent was largely in accordance with what was referred to as "Mr Triesman's facsimile", a document produced to him by Divergent, which worked out to be around $2,636 per store. Mr Bryant assumed that the cost to Divergent of the software was in the order of $12,000 because of "transfer pricing" between Divergent and SVI.
140 I have formed the view that Mr Gower's calculations are to be preferred as supported by the evidence. I see transfer pricing between Divergent and SVI as essentially an irrelevant internal cost between related corporate entities.
141 Apart from these matters, there was virtually no evidence to enable this calculation to be performed with any certainty. However, based on my findings and taking into account changing interest, tax and inflation rates, I have calculated the loss in respect of installations as follows:
Revenue |
|
|
In-store hardware per store |
$42,350.00 |
|
In-store software per store |
8,750.00 |
|
Services per store |
2,395.00 |
$53,495.00 |
|
|
|
|
Expenditure |
|
|
In-store hardware per store |
$33,826.00 |
|
In-store software per store |
2,646.00 |
|
Services per store |
1,000.00 |
37,472.00 |
Revenue less expenditure (per store) |
|
$16,023.00 |
|
|
|
|
Gross for 38 stores |
|
608,874.00 |
Less tax (at 36%) |
|
219,194.64 |
Nett for 38 stores |
|
389,679.36 |
Less discount factor (15%) |
|
58,451.90 |
Present Value |
|
331,227.46 |
Add tax on current value (at 34%) |
|
112,617.34 |
Present Value plus tax on award |
|
$443,844.79 |
|
|
|
|
Interest on present value |
|
|
To 29/2/00 (547 days at 9.5%) |
$47,156.81 |
|
1/3/00 to 31/8/00 (184 days at 10%) |
16,697.49 |
|
1/9/00 to 20/03/01 (201 days at 11%) |
20,064.22 |
83,918.52 |
|
|
|
$527,763.31 |
Maintenance
142 Again the expert positions on revenue per store were consistent but their assessment of the length of the maintenance contract and the cost of the maintenance to Divergent differed. Mr Summers' undisputed evidence was that a POS system would be retained for between 5 and 10 years, say 7 years. He also testified that normally maintenance would not have started until a year after installation.
143 The accountants have calculated the loss on the maintenance of the installation in 40 "lost" stores (ie 40 stores not installed with the Divergent system) whereas the Divergent contract provided in substance for maintenance on 82 stores. I think that the contractual provision should prevail.
144 The calculation of maintenance depends on the total cost of software and revenue. I have formed the view that the evidence supported Mr Gower's calculation of maintenance revenue at 15% of the total cost of software and expenses at 35% of revenue. I have therefore calculated the total cost of the software and revenue as follows:
|
|
In-store software |
Head Office software |
Total cost of software (82 stores) |
$717,500.00 |
$30,645.00 |
Revenue per annum (at 15%) all stores |
$107,625.00 |
|
Revenue per annum (at 15%) per store |
$1,312.50 |
$4,596.75 |
Revenue per month (at 15%) per store |
$109.38 |
$383.06 |
145 On the other hand, Mr Gower based his calculations on the assumption that maintenance would commence on the date of installation whereas Mr Bryant proceeded in accordance with Mr Summers' choice of one year after the date of installation. I accept Mr Bryant's position. There was no evidence as to when each installation commenced operation and what moneys were paid for any maintenance actually carried out so no even generally supported calculation can be made. Doing the best I can, and erring on the side of conservatism by adopting the basic installation rate, I have allowed Divergent compensation for lost maintenance on 44 stores and Head Office for the period from 1 September 1998 to 31 October 1999, on 47 stores and Head Office for the period from 1 November 1999 to 31 October 2000, and on 82 stores and Head Office for the period from 1 November 2000 to 31 October 2006.
146 Again taking into account changing interest, tax and inflation rates, I have calculated damages in respect of maintenance as follows:
44 stores + Head Office 1/9/98-31/10/98 |
|
|
2 months - 44 stores |
9,625.00 |
|
plus 2 months - Head Office |
766.13 |
|
|
|
10,391.13 |
|
Less expenses @ 35% |
3,636.89 |
|
|
|
6,754.23 |
|
Less tax @ 36% |
2,431.52 |
|
|
|
4,322.71 |
|
Less 15% discount |
648.41 |
|
|
|
3,674.30 |
|
Interest (61 days at 9.5%) |
58.34 |
|
|
|
3,732.64 |
|
|
|
|
|
44 stores + Head Office 1/11/98-31/10/99 |
|
|
1 year maintenance 44 stores |
57,750.00 |
|
plus 1 year maintenance Head Office |
4,596.75 |
|
- |
62,346.75 |
|
Less expenses @ 35% |
21,821.36 |
|
|
|
40,525.39 |
|
Less tax @ 36% |
14,589.14 |
|
|
|
25,936.25 |
|
Less 15% discount |
3,890.44 |
|
|
|
22,045.81 |
|
Interest (1 year at 9.5%) |
2,094.35 |
|
|
|
24,140.16 |
|
|
|
|
|
47 stores + Head Office 1/11/99-29/2/00 |
|
|
4 months - 47 stores |
20,562.50 |
|
plus 4 months - Head Office |
1,532.25 |
|
|
|
22,094.75 |
|
Plus CPI @ 5% |
366.23 |
22,460.98 |
Less expenses @ 35% |
7,733.16 |
|
Plus CPI @ 5% |
128.18 |
7,861.34 |
|
|
|
14,599.64 |
Less tax @ 36% |
|
5,255.87 |
|
|
|
9,343.77 |
Less 15% discount |
|
1,401.57 |
|
|
|
7,942.20 |
Interest (121 days at 9.5%) |
|
250.12 |
|
|
|
8,192.33 |
|
|
|
|
47 stores + Head Office 1/3/00-30/6/00 |
|
|
4 months - 47 stores |
20,562.50 |
|
plus 4 months - Head Office |
1,532.25 |
|
|
|
22,094.75 |
|
Plus CPI @ 5% |
369.25 |
22,464.00 |
Less expenses @ 35% |
7,733.16 |
|
Plus CPI @ 5% |
129.24 |
7,862.40 |
|
|
|
14,601.60 |
Less tax @ 36% |
|
5,256.58 |
|
|
|
9,345.03 |
Less 15% discount |
|
1,401.75 |
|
|
|
7,943.27 |
Interest (122 days at 10%) |
|
265.50 |
|
|
|
8,208.77 |
|
|
|
|
47 stores + Head Office 1/7/00-31/8/00 |
|
|
2 months - 47 stores |
10,281.25 |
|
plus 2 months - Head Office |
766.13 |
|
|
|
11,047.38 |
|
Plus CPI @ 5% |
186.14 |
11,233.52 |
Less expenses @ 35% |
3,866.58 |
|
Plus CPI @ 5% |
65.15 |
3,931.73 |
|
|
|
7,301.79 |
Less tax @ 34% |
|
2,482.61 |
|
|
|
4,819.18 |
Less 15% discount |
|
722.88 |
|
|
|
4,096.30 |
Interest (62 days at 10%) |
|
69.58 |
|
|
|
4,165.88 |
|
|
|
|
47 stores + Head Office 1/9/00-31/10/00 |
|
|
2 months - 47 stores |
10,281.25 |
|
plus 2 months - Head Office |
766.13 |
|
|
|
11,047.38 |
|
Plus CPI @ 5% |
186.14 |
11,233.52 |
Less expenses @ 35% |
3,866.58 |
|
Plus CPI @ 5% |
65.15 |
3,931.73 |
|
|
|
7,301.79 |
Less tax @ 34% |
|
2,482.61 |
|
|
|
4,819.18 |
Less 15% discount |
|
722.88 |
|
|
|
4,096.30 |
Interest (61 days at 11%) |
|
75.30 |
|
|
|
4,171.61 |
|
|
|
|
82 stores + Head Office 1/11/00-31/10/01 |
|
|
1 years - on 82 stores |
107,625.00 |
|
plus 1 years - Head Office |
4,596.75 |
|
|
|
112,221.75 |
|
Plus CPI @ 5.1% |
5,723.31 |
117,945.06 |
Less expenses @ 35% |
39,277.61 |
|
Plus CPI @ 5.1% |
2,003.16 |
41,280.77 |
|
|
|
76,664.29 |
Less tax @ 34% |
|
26,065.86 |
|
|
|
50,598.43 |
Less 15% discount |
|
7,589.76 |
|
|
|
43,008.67 |
Interest (to 28/02/01 - 120 days at 11%) |
|
1,555.38 |
|
|
|
44,564.05 |
|
|
|
|
82 stores + Head Office 1/11/01-31/10/02 |
|
|
1 years - on 82 stores |
107,625.00 |
|
plus 1 years - Head Office |
4,596.75 |
|
|
|
112,221.75 |
|
Plus CPI @ 2.3% |
2,581.10 |
114,802.85 |
Less expenses @ 35% |
39,277.61 |
|
Plus CPI @ 2.3% |
903.39 |
40,181.00 |
|
|
|
74,621.85 |
Less tax @ 34% |
|
25,371.43 |
|
|
|
49,250.42 |
Less 15% discount |
|
7,387.56 |
|
|
|
41,862.86 |
|
|
|
|
82 stores + Head Office 1/11/02-30/6/03 |
|
|
8 months - 82 stores |
71,750.00 |
|
plus 8 months - Head Office |
3,064.50 |
|
|
|
74,814.50 |
|
Plus CPI @ 2.4% |
1,795.55 |
76,610.05 |
Less expenses @ 35% |
26,185.08 |
|
Plus CPI @ 2.4% |
628.44 |
26,813.52 |
|
|
|
49,796.53 |
Less tax @ 34% |
|
16,930.82 |
|
|
|
32,865.71 |
Less 15% discount |
|
4,929.86 |
|
|
|
27,935.85 |
|
|
|
|
82 stores + Head Office 1/7/03-30/10/03 |
|
|
4 months - 82 stores |
35,875.00 |
|
plus 4 months - Head Office |
1,532.25 |
|
|
|
37,407.25 |
|
Plus CPI @ 2.4% |
897.77 |
38,305.02 |
Less expenses @ 35% |
13,092.54 |
|
Plus CPI @ 2.4% |
314.22 |
13,406.76 |
|
|
|
24,898.27 |
Less tax @ 30% |
|
7,469.48 |
|
|
|
17,428.79 |
Less 15% discount |
|
2,614.32 |
|
|
|
14,814.47 |
|
|
|
|
82 stores + Head Office 1/11/03-30/10/06 |
|
|
3 years - 82 stores |
322,875.00 |
|
plus 3 years - Head Office |
13,790.25 |
|
|
|
336,665.25 |
|
Plus CPI @ 2.5% |
8,416.63 |
345,081.88 |
Less expenses @ 35% |
117,832.84 |
|
Plus CPI @ 2.5% |
2,945.82 |
120,778.66 |
|
|
|
224,303.22 |
Less tax @ 30% |
|
67,290.97 |
|
|
|
157,012.26 |
Less 15% discount |
|
23,551.84 |
|
|
|
133,460.42 |
|
|
|
|
Total Award - present value |
|
$310,880.45 |
Plus tax 34% |
|
105,699.35 |
|
|
|
416,579.80 |
Plus interest |
|
4,627.80 |
|
|
|
$421,207.60 |
Additional services
147 Again this calculation depends on the total cost of software and revenue. The revenue per store was again consistent as between Mr Gower and Mr Bryant but the length of time to be allowed for these services and the cost of the maintenance to the services differed. Mr Summers' undisputed 7 years as the expected life of the system must also be taken into account.
148 Again the evidence provided little assistance. Again the accountants have in my view wrongly calculated this loss on the basis of the 40 "lost" stores instead of 82 stores. I have formed the view that the evidence supported Mr Gower's calculations of ongoing additional services revenue at 20% of the total cost of maintenance and expenses at 35% of maintenance revenue. I have therefore calculated the total cost of the software and revenue as follows:
|
|
In-store software |
Head Office software |
Total cost of software (82 stores) |
$717,500.00 |
$30,645.00 |
Revenue per annum (at 20%) all stores |
$143,500.00 |
|
Revenue per annum (at 20%) per store |
$1,750.00 |
$6,129.00 |
Revenue per month (at 20%) per store |
$145.83 |
$510.75 |
149 Mr Gower based his calculations on the assumption that these services would commence on the date of installation and would last for seven years whereas Mr Bryant assumed that the services would commence one year after the date of installation and would be provided for three years. I accept Mr Bryant's assumptions. Again in the absence of evidence but again erring on the downside, I have allowed damages for lost ongoing additional services on the basic rate of installation, viz. 44 stores and Head Office for the period from 1 September 1998 to 31 October 1999, on 47 stores and Head Office for the period from 1 November 1999 to 31 October 2000, and on 82 stores and Head Office for the period from 1 November 2000 to 31 October 2001.
150 On this basis, and again taking into account changing interest rates, tax rates and CPI rates, I calculate damages in respect of additional services as follows:
44 stores + Head Office 1/9/98-31/10/98 |
|
|
2 months - 44 stores |
12,833.33 |
|
plus 2 months - Head Office |
1,021.50 |
|
|
|
13,854.83 |
|
Less expenses @ 35% |
4,849.19 |
|
|
|
9,005.64 |
|
Less tax @ 36% |
3,242.03 |
|
|
|
5,763.61 |
|
Less 15% discount |
864.54 |
|
|
|
4,899.07 |
|
Interest (61 days at 9.5%) |
77.78 |
|
|
|
4,976.85 |
|
|
|
|
|
44 stores + Head Office 1/11/98-31/10/99 |
|
|
1 year - 44 stores |
77,000.00 |
|
plus 1 year - Head Office |
6,129.00 |
|
|
|
83,129.00 |
|
Less expenses @ 35% |
29,095.15 |
|
|
|
54,033.85 |
|
Less tax @ 36% |
19,452.19 |
|
|
|
34,581.66 |
|
Less 15% discount |
5,187.25 |
|
|
|
29,394.41 |
|
Interest (1 year at 9.5%) |
2,792.47 |
|
|
|
32,186.88 |
|
|
|
|
|
47 stores + Head Office 1/11/99-29/2/00 |
|
|
4 months - 47 stores |
27,416.67 |
|
plus 4 months - Head Office |
2,043.00 |
|
|
|
29,459.67 |
|
Plus CPI @ 5% |
1,472.98 |
30,932.65 |
Less expenses @ 35% |
10,310.88 |
|
Plus CPI @ 5% |
515.54 |
10,826.43 |
|
|
|
20,106.22 |
Less tax @ 36% |
|
7,238.24 |
|
|
|
12,867.98 |
Less 15% discount |
|
1,930.20 |
|
|
|
10,937.79 |
Interest (121 days at 9.5%) |
|
344.47 |
|
|
|
11,282.25 |
|
|
|
|
47 stores + Head Office 1/3/00-30/6/00 |
|
|
4 months - 47 stores |
27,416.67 |
|
plus 4 months - Head Office |
2,043.00 |
|
|
|
29,459.67 |
|
Plus CPI @ 5% |
1,472.98 |
30,932.65 |
Less expenses @ 35% |
10,310.88 |
|
Plus CPI @ 5% |
515.54 |
10,826.43 |
|
|
|
20,106.22 |
Less tax @ 36% |
|
7,238.24 |
|
|
|
12,867.98 |
Less 15% discount |
|
1,930.20 |
|
|
|
10,937.79 |
Interest (122 days at 10%) |
|
365.59 |
|
|
|
11,303.38 |
|
|
|
|
47 stores + Head Office 1/7/00-31/8/00 |
|
|
2 months - 47 stores |
13,708.33 |
|
plus 2 months - Head Office |
1,021.50 |
|
|
|
14,729.83 |
|
Plus CPI @ 5% |
736.49 |
15,466.33 |
Less expenses @ 35% |
5,155.44 |
|
Plus CPI @ 5% |
257.77 |
5,413.21 |
|
|
|
10,053.11 |
Less tax @ 34% |
|
3,418.06 |
|
|
|
6,635.05 |
Less 15% discount |
|
995.26 |
|
|
|
5,639.80 |
Interest (62 days at 10%) |
|
95.80 |
|
|
|
5,735.59 |
|
|
|
|
47 stores + Head Office 1/9/00-31/10/00 |
|
|
2 months - 47 stores |
13,708.33 |
|
plus 2 months - Head Office |
1,021.50 |
|
|
|
14,729.83 |
|
Plus CPI @ 5% |
736.49 |
15,466.33 |
Less expenses @ 35% |
5,155.44 |
|
Plus CPI @ 5% |
257.77 |
5,413.21 |
|
|
|
10,053.11 |
Less tax @ 34% |
|
3,418.06 |
|
|
|
6,635.05 |
Less 15% discount |
|
995.26 |
|
|
|
5,639.80 |
Interest (61 days at 11%) |
|
103.68 |
|
|
|
5,743.47 |
|
|
|
|
82 stores + Head Office 1/11/00-31/10/01 |
|
|
1 years - on 82 stores |
143,500.00 |
|
Plus 1 years - Head Office |
6,129.00 |
|
|
|
149,629.00 |
|
Plus CPI @ 2.3% |
3,441.47 |
153,070.47 |
Less expenses @ 35% |
52,370.15 |
|
Plus CPI @ 2.3% |
1,204.51 |
53,574.66 |
|
|
|
99,495.80 |
Less tax @ 34% |
|
33,828.57 |
|
|
|
65,667.23 |
Less 15% discount |
|
9,850.08 |
|
|
|
55,817.15 |
Interest (to 20/03/01 - 140 days at 11%) |
|
2,355.03 |
|
|
|
58,172.18 |
|
|
|
|
Total award - present value |
|
$123,265.81 |
Plus tax 34% |
|
41,910.38 |
|
|
|
165,176.19 |
Plus interest |
|
6,134.80 |
|
|
|
$171,310.99 |
Total damages
151 These calculations lead to total damages as follows:
Installation |
$527,763.31 |
Maintenance |
$421,207.60 |
Additional Services |
$171,310.99 |
|
|
$1,120,281.90 |
COSTS
152 Section 43 of the Federal Court of Australia Act 1976 (Cth) provides:
(1) The Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded.(1A) ......
(2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.
153 I have said in various decisions: eg Librizzi v Flower Power Pty Ltd [2000] FCA 1500, Re Sanchez; Ex parte Smits & Anor (1994) 49 FCR 326, that this section does not provide a "usual rule" or "normal order" but that the issue of costs is within the unfettered discretion of the Court to be exercised judicially in light of all the circumstances of the particular case. In other words, successful parties are only entitled to, or for that matter to be refused, an order for costs if the relevant circumstances of the case warrant the making, or refusal, of such an order.
154 It is my opinion that the circumstances of this case dictate a conclusion that:
(a) the first, third and fourth respondents pay the applicant's costs including the costs payable by the applicant to the second respondent;
(b) the applicant pay the second respondent's costs;
(c) there be no order as to the costs of the cross-claims.
ORDERS
155 The orders will be as follows:
1. The applicant's application against the second respondent is dismissed with costs.
2. The applicant's application against the first, third and fourth respondents is allowed.
3. The first, third and fourth respondents are to pay to the Applicant damages in the sum of $1,120,281.90.
4. The cross-claims are dismissed.
5. The first, third and fourth respondents will pay the applicant's costs including the costs payable by the applicant to the second respondent.
6. There is no order as to costs in respect of the cross-claims, except as to the third cross-claim in which the first, third and fourth respondents will pay the second respondent's costs.
I certify that the preceding one hundred and fifty-two (152) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marcus Einfeld AO. |
Associate:
Dated: 20 March 2001
Counsel for the Applicant: Mr C Gee QC with Mr R Kaye
Solicitor for the Applicant: Derrick Zabow & Co
Counsel for the 1st, 3rd and 4th Respondents: Mr JC Campbell QC with Mr TJ Hancock
Solicitor for the 1st, 3rd and 4th Respondents: Abbott Tout
Counsel for the 2nd Respondent: Mr DE Horton QC with Mr VRW Gray
Solicitor for the 2nd Respondent: Denes Ebner
Date of Hearing: 16 - 26 October 2000; 9, 10 November 2000
Written submissions completed: 17 November 2000
Date of Judgment: 20 March 2001
ENDNOTES:
[1] Affidavit of Shaun Rosen 4 April 2000 paragraph 51, affidavit of Shaun Rosen 18 August 2000 paragraph 29, affidavit of Lester Robin Aderem 11 August 2000 paragraph 2
[2] Affidavit of Berel Ginges 14 August 2000 paragraphs 2, 3 & 18
[3] Affidavit of Barry Claude McCann 18 August 2000 paragraph 4, affidavit of Iain David McDonald 26 July 2000 paragraph 10, affidavit of Carel Stassen 20 July 2000 paragraph 15
[4] Affidavit of Berel Ginges 14 August 2000 paragraph 6, affidavit of Barry Claude McCann 18 August 2000 paragraph 5, affidavit of Ethel Louise Webb 14 July 2000 paragraph 4
[5] Amended Defence of the Second Respondent to the Application and Statement of Claim paragraph 17 (8 September 2000)
[6] Affidavit of Shaun Rosen 4 April 2000 paragraph 2
[7] Affidavit of Barry Claude McCann 18 August 2000 paragraph 3, affidavit of Malcolm Thomas 4 April 2000 paragraph 2, affidavit of Ethel Louise Webb 14 July 2000 paragraph 6
[8] Affidavit of Shaun Rosen 4 April 2000 paragraphs 3 to 17, 22 to 24, affidavit of Malcolm Thomas 4 April 2000 paragraph 3
[9] Affidavit of Barry Claude McCann 18 August 2000 paragraph 4
[10] Affidavit of Berel Ginges 14 August 2000 paragraph 15, affidavit of Iain David McDonald 26 July 2000 paragraphs 4, 5 & 6
[11] Affidavit of Berel Ginges 14 August 2000 paragraphs 7 & 18
[12] Affidavit of Iain David McDonald 26 July 2000 paragraph 10, affidavit of Carel Stassen 20 July 2000 and 20 July 2000 paragraph 15
[13] Applicant's Tender Bundle Part C (spiral bound volume) pp 1310, 1313, 1348, 1349 and 1382
[14] Affidavit of Shaun Rosen 4 April 2000 paragraphs 37 and 38
[15] Affidavit of Shaun Rosen 4 April 2000 paragraph 46, affidavit of Iain David McDonald 26 July 2000 paragraphs 73, 88 & 91
[16] Affidavit of Iain David McDonald 26 July 2000 paragraphs 73, 88 & 91
[17] Affidavit of Carel Stassen 20 July 2000 paragraphs 45 & 46
[18] Annexure "A" to Statement of Claim
[19] Affidavit of Berel Ginges 14 August 2000 Paragraph 20, affidavit of Berel Ginges 16 October 2000 paragraph 1
[20] Affidavit of Berel Ginges 14 August 2000 paragraphs 18 & 20, affidavit of Barry Claude McCann 18 August 2000 paragraphs 16 & 17
[21] Affidavit of Berel Ginges 14 August 2000 paragraph 7, affidavit of Barry Claude McCann 18 August 2000 paragraphs 1 & 4
[22] Affidavit of Berel Ginges 14 August 2000 paragraph 28, affidavit of Ethel Louise Webb 14 July 2000 paragraphs 1 & 3
[23] Affidavit of Hein Marais 14 July 2000 paragraphs 3, 5, 6, 7 & 9,
[24] Affidavit of Lester Robin Aderem 11 August 2000 paragraph 2
[25] Affidavit of Lester Robin Aderem 11 August 2000 paragraphs 8, 9 & 10,
[26] Affidavit of Shaun Rosen 4 April 2000 paragraphs 15, 17, 22, 24
[27] Affidavit of Malcolm Thomas 4 April 2000 paragraphs 2 & 3
[28] Affidavit of Barry Claude McCann 18 August 2000 paragraphs 10,11, 12 & 13
[29] Affidavit of Berel Ginges 14 August 2000 paragraphs 8 & 12
[30] Affidavit of Shaun Rosen 4 April 2000 paragraph 31
[31] Affidavit of Berel Ginges 14 August 2000 paragraph 14
[32] Affidavit of Shaun Rosen 4 April 2000 paragraph 32
[33] Affidavit of Malcolm Thomas 4 April 2000 paragraphs 7 & 8
[34] Affidavit of Malcolm Thomas 4 April 2000 paragraph 9
[35] Affidavit of Malcolm Thomas 4 April 2000 paragraph 13
[36] Affidavit of Hein Marais 14 July 2000 paragraph 33
[37] Affidavit of Shaun Rosen 4 April 2000 paragraph 34
[38] Affidavit of Malcolm Thomas 4 April 2000 paragraph 12
[39] Affidavit of Shaun Rosen 4 April 2000 paragraph 35 and annexure M
[40] Affidavit of Barry Claude McCann 18 August 2000 paragraph 15
[41] Affidavit of Shaun Rosen 4 April 2000 paragraphs 36 & 37
[42] Affidavit of Barry Claude McCann 18 August 2000 paragraph 16
[43] Affidavit of Shaun Rosen 4 April 2000 paragraph 43
[44] Affidavit of Shaun Rosen 4 April 2000 paragraph 45
[45] Affidavit of Carel Stassen 20 July 2000 paragraphs 19, 20 & 21
[46] Affidavit of Shaun Rosen 4 April 2000 paragraph 48
[47] Affidavit of Carel Stassen 20 July 2000 paragraph 24
[48] Affidavit of Shaun Rosen 4 April 2000 paragraphs 50, 51 & 52, affidavit of Malcolm Thomas 4 April 2000 paragraph 33
[49] Affidavit of Carel Stassen 20 July 2000 paragraph 39
[50] Affidavit of Malcolm Thomas 4 April 2000 paragraphs 35 & 36
[51] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 39 to 42
[52] Affidavit of Shaun Rosen 4 April 2000 paragraph 56
[53] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 50 & 51 and annexures P & Q
[54] Affidavit of Shaun Rosen 4 April 2000 paragraph 58
[55] Affidavit of Iain David MacDonald 26 July 2000 paragraph 57
[56] Affidavit of Malcolm Thomas 4 April 2000 paragraph 49 and annexure X
[57] Affidavit of Shaun Rosen 18 August 2000 paragraphs 22A & 31
[58] Affidavit of Shaun Rosen 4 April 2000 paragraph 59
[59] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 81 & 82 and annexure P
[60] Affidavit of Carel Stassen 20 July 2000 paragraphs 26, 27, 35 & 37
[61] Affidavit of Lester Robin Aderem 11 August 2000 paragraphs 23, 24, 26 & 27
[62] Affidavit of Malcolm Thomas 4 April 2000 paragraph 53
[63] Affidavit of Malcolm Thomas 4 April 2000 paragraph 54
[64] Affidavit of Carel Stassen 20 July 2000 paragraphs 38 & 39
[65] Affidavit of Shaun Rosen 4 April 2000 paragraph 62
[66] Affidavit of Iain David MacDonald 26 July 2000 paragraph 87
[67] Affidavit of Shaun Rosen 4 April 2000 paragraph 64
[68] Affidavit of Carel Stassen 20 July 2000 paragraphs 46 & 47
[69] Affidavit of Shaun Rosen 4 April 2000 paragraph 66
[70] Affidavit of Berel Ginges 14 April 2000 paragraph 22
[71] Affidavit of Shaun Rosen 4 April 2000 paragraph 69
[72] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 97 & 98
[73] Affidavit of Carel Stassen 20 July 2000 paragraphs 7 & 8
[74] Affidavit of Berel Ginges 14 April 2000paragraphs 23 & 24
[75] Affidavit of Shaun Rosen 18 August 2000 paragraphs 2 & 3
[76] Affidavit of Hein Marais 14 July 2000 paragraphs 9 & 10
[77] Affidavit of Hein Marais 14 July 2000 paragraphs 31 & 35
[78] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 12 - 25
[79] Affidavit of Shaun Rosen 18 August 2000 paragraphs 11, 11A & 11B
[80] Affidavit of Carel Stassen 20 July 2000 paragraphs 23, 25, 26, 27 & 28
[81] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 27 to 32
[82] Affidavit of Carel Stassen 20 July 2000 paragraphs 17 & 18, affidavit of Iain David MacDonald 25 June 2000 paragraphs 29 to 31
[83] Affidavit of Carel Stassen 20 July 2000 paragraphs 23, 25, 26, 27 & 28
[84] Affidavit of Shaun Rosen 18 August 2000 paragraphs 12, 18, 18A, 19, 20
[85] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 54 - 66
[86] Affidavit of Shaun Rosen 18 August 2000 paragraphs 12B, 12C, 13 & 14
[87] Affidavit of Iain David MacDonald 26 July 2000 paragraph 73.4
[88] Affidavit of Carel Stassen 20 July 2000 paragraph 34
[89] Affidavit of Iain David MacDonald 26 July 2000 paragraphs 77 - 79
[90] Affidavit of Shaun Rosen 18 August 2000 paragraphs 15, 15A, 15 B & 15C
[91] Affidavit of Lester Robin Aderem 11 August 2000 paragraphs 16 & 17
[92] Affidavit of Shaun Rosen 18 August 2000 paragraph 31
[93] Affidavit of Carel Stassen 20 July 2000 paragraph 40
[94] Affidavit of Berel Ginges 14 August 2000 paragraphs 25, 26 & 27
[95] Affidavit of Carel Stassen 20 July 2000 paragraph 45
[96] Affidavit of Carel Stassen 20 July 2000 paragraph 46
[97] Affidavit of Shaun Rosen 18 August 2000 paragraph 25
[98] Reports of Goodwin Cullimore Allen Gower 28 August 2000 paragraph 45 (page 10) and 25 October 2000 page 2.
[99] Report of Mark Brinley Bryant 18 October 2000 Appendix 10.
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