|
|
[Home]
[Databases]
[WorldLII]
[Search]
[Feedback]
Federal Court of Australia |
Last Updated: 5 February 2002
Best & Less Pty Limited v Divergent Technologies Pty Limited [2002] FCA 43
CONTRACT - whether commercial instrument document operated only as a master contract to regulate future transactions as and when activated - extent to which such instrument subsequently novated in any contractual sense - contractual relevance of subsequent conduct of parties - effect of appellate view of the contractual arrangements upon findings of trial judge as to misleading and deceptive conduct.
Fair Trading Act (1987) NSW ss 41 and 42
Trade Practices Act 1974 (Cth) ss 51A, 52 and 82
Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; (1999) 47 NSWLR 473 referred to
Henville v Walker [2001] HCA 52; (2001) 182 ALR 37 referred to
Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] Aust Contract Reports 90-129 followed
Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 referred to
Chitty on Contracts (28th ed, 1999) p 1067
Cheshire and Fifoot's Law of Contract (7th Aust ed, 1997) p 313
BEST & LESS PTY LIMITED & ORS v DIVERGENT TECHNOLOGIES
PTY LIMITED & ORS
N 375 OF 2001
HILL, WHITLAM & CONTI JJ
5 FEBRUARY 2002
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
1. The proceedings on appeal be stood over until 13 March 2002 at 10:15am for the purpose of this Full Court making final orders in disposal of the appeal proceedings.
2. The appellants lodge with the respective associates of the members of this Full Court by 20 February 2002 at 4:00pm draft orders giving effect to the reasons for judgment, and some copies contemporaneously upon the respondents.
3. The parties provide submissions in writing by 6 March 2002 at 4:00pm as to the text of the final orders to be made in giving effect to the reasons for judgment.
4. There be liberty for any party to the appeal proceedings to apply to this Full Court on two days notice in writing given to the associates to the members of this Full Court and to the other parties to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
N 375 OF 2001 |
BETWEEN: |
BEST & LESS PTY LIMITED (ACN 003 724 696) FIRST APPELLANT PEPKOR LIMITED (RN 65/077/6506) SECOND APPELLANT CAREL STASSEN THIRD APPELLANT IAIN DAVID MacDONALD FOURTH APPELLANT |
AND: |
DIVERGENT TECHNOLOGIES PTY LIMITED (ACN 003 908 325) FIRST RESPONDENT GINGER MAX (AUSTRALIA) PTY LIMITED (ACN 005 035 955) SECOND RESPONDENT GINGES HOLDINGS PTY LIMITED (ACN 000 621 563) THIRD RESPONDENT |
JUDGES: |
HILL, WHITLAM & CONTI JJ |
DATE: |
5 FEBRUARY 2002 |
PLACE: |
SYDNEY |
HILL J
1 I have had the advantage of reading in draft form the reasons for judgment of Conti J and am grateful to him for setting out in detail the complex factual matrix which underlies the appeal, as well as for his discussion of the legal principles relevant to the issues in the appeal.
2 I agree with his Honour and for the reasons he gives that the function or operation of at least the critical third limb of the Store Roll Out provisions of the Installation Contract cannot be characterised as having imposed any legally binding contractual obligation upon Ginger Max to accept the roll out of any one or more of the seventy Best and Less stores not activated. Accordingly, I too am of the view that the finding of the Primary Judge that the Divergent Contract was legally binding cannot stand.
3 It follows from this conclusion that the question of whether that provision was the subject of a novation, as the learned Primary Judge held, simply cannot arise.
4 Had it been necessary to consider the question of novation I think there is much to be said for the conclusion that the circumstances were such that there was an implied novation. This is not to say that I disagree with the principles relating to novation which Conti J has discussed, it is rather that I think that it was open to the learned Primary Judge to find that in the circumstances there was an implied novation assuming that there was an obligation which was able to be novated. Accordingly I do not join in that part of the reasons for decision of Conti J as relates to the novation issues.
5 Finally, I agree with Conti J, and for the reasons his Honour has given that leave should be given to Divergent to address the Court on its claim against Best & Less based upon s 52 of the Trade Practices Act 1974 (Cth) or s 42 of the Fair Trading Act 1987 (NSW) in the light of the reasons for decision and on the question whether that claim should be remitted for retrial. Otherwise I agree with Conti J in respect to the other matters dealt with by his Honour and the order proposed by his Honour in paragraph 70 of his Honour's reasons.
I certify that the preceding five (5) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill. |
Associate:
Dated: 5 February 2002
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
N 375 OF 2001 |
BETWEEN: |
BEST & LESS PTY LIMITED (ACN 003 724 696) FIRST APPELLANT PEPKOR LIMITED (RN 65/077/6506) SECOND APPELLANT CAREL STASSEN THIRD APPELLANT IAIN DAVID MacDONALD FOURTH APPELLANT |
AND: |
DIVERGENT TECHNOLOGIES PTY LIMITED (ACN 003 908 325) FIRST RESPONDENT GINGER MAX (AUSTRALIA) PTY LIMITED (ACN 055 035 955) SECOND RESPONDENT GINGES HOLDINGS PTY LIMITED (ACN 000 621 563) THIRD RESPONDENT |
JUDGES: |
HILL, WHITLAM & CONTI JJ |
DATE: |
5 FEBRUARY 2002 |
PLACE: |
SYDNEY |
WHITLAM J
6 I am also most grateful to Conti J for his exposition of the background to this appeal and of the issues arising in it. For the reasons he gives I agree that there was no contractual basis to sustain Divergent's case for breach of the Store Roll Out provisions of the Installation Contract. I think, therefore, it is unnecessary in the circumstances of this case to express a view on the question of novation. Otherwise, I agree with Conti J and with the order he proposes.
I certify that the preceding paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam. |
Associate:
Dated: 5 February 2002
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
JUDGES: |
HILL, WHITLAM & CONTI JJ |
DATE: |
5 FEBRUARY 2002 |
PLACE: |
SYDNEY |
CONTI J
Identification of parties to the proceedings and their respective functions
7 The chief protagonists involved in this complex litigation are as follows:
(i) Divergent Technologies Pty Limited ("Divergent"), a provider of computer systems and services;
(ii) Pepkor Limited ("Pepkor"), a South African multinational company, with whom Carel Stassen ("Mr Stassen") and Iain David MacDonald ("Mr MacDonald") have been at all material times associated as executive directors;
(iii) Ginger Max (Australia) Pty Limited ("Ginger Max"), formerly known as Best & Less (Australia) Pty Limited, a company privately controlled by the Ginges family, being a subsidiary of Best & Less (Holdings) Pty Limited;
(iv) Best & Less Pty Limited ("Best & Less"), a company formerly known as Best & Less (Leasing) Pty Limited and previously privately controlled by the Ginges Family through Ginges Holdings Pty Limited ("Ginges Holdings").
8 Until the takeover events described below, Ginger Max owned a large number of retail stores located in Australia, located mainly in the States of New South Wales and Victoria, and such stores were leased to Best & Less.
9 Pursuant to complex corporate takeover documentation bearing date 4 February 1998, to which I shall hereafter refer as the "Takeover Agreement", Pepkor acquired the tangible and intangible assets of the Best & Less stores pursuant to the following contemporaneous transactions:
(i) The sale by Ginger Max to Best & Less of most of the assets of the Best & Less retail operations generally;
(ii) The contemporaneous sale by Ginges Holdings to Pepkor of the whole of the issued capital of Best & Less.
Documentary arrangements relating to the supply of computer hardware and software equipment and services prior to the Best & Less takeover
10 From early August 1996, negotiations took place between Shaun Rosen on behalf of Divergent with Berel Ginges and Barry McCann on behalf of Ginger Max for the supply of computer hardware and software and computer services to 82 Best & Less stores in Australia. Such negotiations were said to have been "brokered" by NCR Australia Pty Limited ("NCR"), an Australian subsidiary of the well known AT&T multinational company, from whom at least the majority of the equipment was to be supplied. There was assembled over the ensuing two months or so a bundle of documentation comprising many pages, broken down into a number of segments appearing under headings made in block letters. The ultimate coversheet to the documentation bore the date 21 October 1996 and the description "Proposal Prepared for Best & Less", together with the respective trade marks of Divergent and NCR. Whilst much of the content of the documentation may have been originally prepared by lawyers in a standard form, the assembly of the various segments with amendments thereto, and the additional detail geared to the particular circumstances of the parties, took place in the absence of lawyers. I shall hereafter refer to such documentation as the "Installation Contract" as a matter of convenience, notwithstanding that the first major issue in the case was whether such documentation was wholly, or at least only partially, contractual in legal character.
11 Set out below in the sequence in which the same appeared are extracts from material segments of the Installation Contract interspersed with some explanatory comments. The headings in block letters signify discrete segments thereof, within which segments there are in some cases sub-divisions appearing under sub-headings, I will later be referring specifically to most of what is so set out below:
"EXECUTIVE SUMMARYBackground
...
The Divergent/NCR proposal is to replace over time, your existing in-store systems with arguably the retail industry's best integrated retail solution from the retail industry's leading solutions' providers: Divergent/NCR
Proposed Solution
...
* The store solution from Divergent/NCR will be the same across all stores...
[reference thereafter followed to Appendix L, which identified all 82 stores]
...
* The operating environment we will implement in each store will allow one or more registers to operate, even if the Server PC or if one or more of the remaining registers are `down'...
* Our recommendation is to implement a pilot at Head Office the week ending 22/11/96 to incorporate both Head Office functionality and store functionality. This will be followed by putting in a store pilot in a `live' store at the Bondi Junction store...
* ...Assuming Divergent/NCR meet these expectations during the pilot, it is agreed by Best & Less to use their best endeavours to commence the store roll out in February 1997
...
* If the Acceptance Test Criteria and defined Pilot Objectives are not met, then the store roll out will not proceed.
* The Pilot will be for a period of 4 weeks at Head Office and 4 weeks at the Bondi Junction store...
HARDWARE OVERVIEW
...
Hardware Maintenance
Divergent and NCR are partnering together to offer Best & Less a totally integrated solution.
Our proposed solution includes...
* To uplift the standard hardware warranty coverage for Best & Less as described above, to provide retail trading hours warranty/support with a four hour response time [from which] the extra cost is $78,045 for all 82 stores in year one or $951.77 per store in year one.
...
[Next follows the most critical aspect of the documentation for present purposes, namely the so-called "Store Roll Out" provisions of this present segment "Hardware Overview"].
Store Roll Out
A 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 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.
* Best & Less and Divergent/NCR to use their best endeavours to roll out a further 35 stores by October 1998 and the balance of stores by October 1999, but Best & Less are not bound by any guarantee to do so.
...
IN-STORE SOFTWARE
Price
Software License Fee Per Store: $8,750
Number of Stores: 82
Modifications
...
Divergent are prepared to waive the development cost in the event that the pilot is successful. In the event that Best & Less do not proceed with the pilot, Divergent would require that this development is paid for.
...
We feel that this proposal enables Best & Less to make a commitment to move forward on the development required, thus minimising the risk in the unlikely event that the project does not proceed past the pilot phase.
Holding of Costs
Divergent will hold the cost of dolFIN/dPOSIT for the first (100) stores on the basis that an order for the entire system will be placed. From the 101st store onwards, the software price will only increase by provable increases in Divergent's purchase price of the required third party software and hardware.
All third party software and hardware price will also be held constant with the exception of provable increases in the software or hardware price to Divergent. Should the third party price of software or hardware to Divergent decrease, this decrease will be passed on to Best & Less.
Maintenance
Software maintenance cost is 15% of the total value of the proposed software ie, $9,352 per month based on Head Office plus (82) stores, pro-rated based on a draw down of store installations.
A minimum maintenance charge of $1,477... will apply and will cover the first (10) stores and Head Office, then will be increased proportionately as stores are added at a rate of $109 per store per month.
...
* Divergent agrees to a minimum monthly payment to commence, ie., $1477, with increases on an ad-hoc basis as stores [are] added.
...
INSTALLATION PROCEDURE
Acceptance Testing Criteria
...
Divergent will install a Head Office and store environment pilot at Leichhardt by the week ending 22-11-96...
[The reference to Leichhardt store may have been intended to be to Bondi Junction].
OTHER ISSUES TO CONSIDER
Technology Refresh
Divergent will ensure that technology refresh is provided to Best & Less. This means that should technology become available which supersedes the technology provided for in this proposal the newer technology (both hardware and software) will be provided to Best & Less. This ensures that Best & Less stay abreast with the latest technological advances.
SALES QUOTATION
[This segment detailed the so-called "Total Investment" of $4,731,745, breaking down to "Store Hardware Pilot Environment at Leichhardt" of $42,350, "Head Office Hardware Pilot at Leichhardt" of $12,489, "Head Office Software (5-user)" of $30,645, "In-Store Hardware" for 81 stores aggregating $3,412.611, "In-Store Software" for 82 stores aggregating $717,500, "In-store Cabling" for 82 stores aggregating $319,800 and "Services" of $196,350. Further break-downs of such costs were thereafter provided by this documentation under the heading "Detailed Hardware/Software Requirements", including the above figure of $3,412,611 into the stated sum of $42,131 per store. Such quotations were stipulated to be valid for 30 days from 30 September 1996. Reference was thereafter made to "Appendix A: Payment Schedule", which in turn made reference to the amounts variously payable upon a "per store" basis, and for the "1st 12 stores", and in one instance "(per store) based on 81 x stores" (see [14] below). The terms and conditions set out below were thereafter incorporated into the "Sales Quotation" segment containing inter alia the following:]
"Sales Quotation Terms and Conditions
To accept this Sales Quotation, either sign and return or issue a purchase order referencing the above Quote number. Acceptance of this quotation incorporates full acceptance of the Sales Agreement hereinafter contained. The terms of [a] Customer's purchase order or other document shall not apply. Any variations of the quotation and/or Sales Agreement are binding on Divergent only if signed by an authorised officer of Divergent.
Divergent Sales Agreement
Quotations are valid for 30 days. Orders are subject to acceptance by Divergent and product availability. Payment is due within 7 days of Divergent's invoice or Divergent approved credit terms. Divergent may suspend or cancel supply if Customer commits a default or breach of the agreed terms. Title remains with Divergent until payment is received in full. All taxes are payable by Customer. Products are customer installed and deemed accepted within 7 days of shipment. Risk passes on delivery to Customer or carrier..."
[The above second sentence under the heading "Divergent Sales Agreement", namely "Orders are subject to acceptance by Divergent and product availability", attracted particular attention in the course of argument, and will later be referred to].
12 The Installation Contract thereafter embodied a number of Appendices, commencing with Appendix E headed "Dolfin Software Licence", hereafter referred to as "the Software Licence", which bore the handwritten date of 22 October 1996, that being the day following that date appearing on the front page of the Proposal document. This document was expressed to be made between Divergent as Licensor and Ginger Max as Licensee (Ginger Max then being of course named Best & Less (Australia) Pty Limited), and related to the right to use the so-called "System" on any single computer or any single local area network. Such system related to the whole or any part of the computer programme, software manuals, written materials and documentation therein described, and any additional programmes etc subsequently installed in the system. The Software Licence was expressed to be terminable by Ginger Max at any time by written notice of termination to Divergent, but was only expressed to be terminable by Divergent by reason of breach thereof on the part of Ginger Max. Thereafter followed Appendix J, comprising a form of Software Maintenance Contract, the subject matter whereof being the so-called "support services relating to the software program known as dolFIN". The initial term of such Software Maintenance Contract was expressed to be for one year, and automatic renewal was stipulated to take place on each anniversary date thereof, unless the same was terminated by either party first giving to the other six months' notice in writing; the Schedule thereto set out software monthly fees payable on a "per store" basis.
13 After the conclusion of Appendix J, but seemingly placed separately or independently therefrom, was the following culminating clause of the Installation Contract, which assumed critical importance in the argument on appeal, reading as follows:
"All terms and conditions of Sales Quotation, Sundry Pricing and Terms, Product Maintenance Services Agreement and dolFIN Software License accepted by the parties hereto..."
Immediately below such culminating clause to the documentation (other than some attachments thereto) extracted or otherwise referred to in [11-12] above were forms of documentary attestation containing the respective signatures and occupational descriptions of Berel Ginges appended on behalf of Ginger Max and Shaun Rosen on behalf of Divergent.
14 Attachments to the Installation Contract, apparently added after the initial submission thereof by Divergent to Ginger Max and prior to the signing thereof, were certain annexures, including a pro forma AT&T Global Information Solutions (Australia) Pty Ltd Hardware Maintenance Agreement, which Divergent asserted to have been implemented (see in that regard the letter of Divergent to Ginger Max, dated 14 October 1996), and the form headed "Appendix A - Payment Schedule", already mentioned in [11] above in the context of the "Sales Quotation" segment, which stipulated various amounts to be paid for hardware and software for the pilot store and the ensuing 12 stores referred to under the sub-heading "Store Roll Out" (see [11] above), and for stores thereafter to be the subject of roll out, and for other amounts to be paid for "Network Integration", `EFT Integration", "Training", "Project Management", "Cabling" and "Initial Software Maintenance", and finally a form headed Appendix L, already foreshadowed in the "Executive Summary" set out at the commencement of [11] above, which scheduled 82 stores and approximate freight costs relating thereto. Such number of 82 stores comprised the pilot store at Bondi Junction, the next ensuing 12 stores abovementioned, the "further 35 stores" appearing under the said sub-heading "Store Roll Out" and "the balance of stores", also comprising 35 in number, referred to under the same sub-heading. The present litigation concerns stores within such two groups of 35 stores. There may have been other attachments to the Installation Contact, such as the so-called Teaming Agreement dated 2 August 1996 entered into between NCR and Divergent relating to "... a store system including point of sale instore processors which will be sourced through NCR... and the supply of products and services which Teaming Agreement may be sourced through Divergent...". The abovementioned signatories to the Installation Contract did not adopt the traditional practice of initialling all pages thereof at the time of signing, but certain material alterations were initialled by them, including the dates inserted by hand in the abovementioned Store Roll Out provisions.
15 After the signing of the Installation Contract by Mr Ginges and Mr Rosen as above stated on 22 October 1996, Divergent ordered equipment from NCR for the Best & Less Head Office fit-out, and thereafter for the pilot retail store's so-called "roll out" at the Bondi Junction Best & Less store. A spreadsheet was provided by NCR to Divergent, which consisted of an equipment schedule for the pilot Bondi Junction store and the remaining 81 Best & Less stores. According to Mr Rosen, the "pilot at Bondi Junction proved to be successful and was completed by the end of January 1997", and thereafter he received from NCR details of "Proposed Installation of Divergent Equipment for Period from July '97 to December '97 as at 17 June 1997" relating to what appears to have been the next 12 Best & Less stores nominated for such so-called "roll out", pursuant to the "Store Roll Out" programme extracted in [11] above within the segment "Hardware Overview". Mr Rosen's evidence in the foregoing context was as follows:
"The Contract with [Ginger Max] operated smoothly and without difficulty. I am not aware of having received any complaints concerning the [Divergent] technology."
Indeed it would appear that up to about the time of completion of the Takeover Agreement, 38 Best & Less stores had been the subject of roll out under the auspices of the Installation Contract.
16 It would further appear that between the time of completion of the Takeover Agreement and the time when the dispute the subject of the proceedings arose, the roll out of the new software and hardware the subject of the Installation Contract extended at the instance of Best & Less to a further 6 stores. Part of the catalyst for the dispute appears to have been the submission of "roll out" invoices by Divergent for three Best & Less Victorian stores, a letter dated 4 September 1998 from Best & Less to Divergent in that regard stating inter alia as follows:
"... According to the contract all third party software and hardware prices were to be held constant with the exception of provable increases in the software and hardware prices. The contract also provided that should the third party price of software and hardware to Divergent decrease, this decrease was to have been passed onto [sic] us..."
The Best & Less takeover by Pepkor
17 As already indicated, the takeover by Best & Less of the Best & Less stores, by virtue of the acquisition by Pepkor of the issued capital of Best & Less from the Ginges family, was effected by and pursuant to the abovementioned Takeover Agreement of 4 February 1998, by the means summarised in [9] above. It is now expedient to refer to the structure of the Takeover Agreement, so far as the same may be material to the issues raised on appeal.
18 The Takeover Agreement provided by Clause 2.2 thereof for Pepkor to assume, per medium of its said acquisition of the shareholding of Best & Less, the liabilities of Ginger Max as disclosed in the financial statements of Ginger Max to be prepared as at the time of completion of the Takeover Agreement, other than certain liabilities not here relevant. By clause 1.1 of the Takeover Agreement, "Liabilities" for such purpose were defined to mean "the liabilities and provisions of [Ginger Max] in respect of the Business as at the Completion Date as shown in the Completion Date Balance Sheet". The "Completion Date Balance Sheet" was required by the Clause 1.1 definition to be prepared in accordance with the accounting policies and principles set out in Attachment D to the Takeover Agreement for the purpose of enabling post completion adjustments to be made. "Business" was defined as "the business of establishing, maintaining and operating a chain of retail stores selling general merchandise operated, as at Completion, by [Ginger Max] and activities incidental to that business". There was also included a definition of "Excluded Liabilities" which included the bank overdraft, tax and rating liabilities of Ginger Max.
19 By Clauses 10.1, 10.2 and 10.3 of the Takeover Agreement, more detailed provisions were made for Pepkor to assume responsibility for the "Liabilities" as above defined, save as to the "Excluded Liabilities" also as above defined, in the following terms:
"10. TREATMENT OF LIABILITIES OF THE BUSINESS10.1 Liabilities of [Ginger Max] owing in respect of the Business
On and from Completion, [Pepkor] must assume responsibility for the payment of all the Liabilities (other than the Excluded Liabilities) or it must procure that [Best & Less] does so and [Pepkor], or [Best & Less] (as the case may be), will be solely responsible for the payment, satisfaction and discharge of those liabilities. [Pepkor], or [Best & Less] (as the case may be), must pay and discharge all such liabilities in the ordinary course of business.
10.2 Indemnity in respect of Liabilities
[Pepkor], the Nominee (if any), the B&L [Best & Less] Trademark Purchaser (if any) and [Best & Less] jointly and severally indemnify the Indemnified Parties and they agree to keep each of the Indemnified Parties indemnified from and against all Loss which may be suffered or incurred by any of them in respect of all or any of the Liabilities (other than the Excluded Liabilities).
10.3 Indemnity in respect of subsequent liabilities
[Best & Less], the Nominee (if any), the Best & Less Trademark Purchaser (if any) and [Pepkor] will be liable for all liabilities incurred in connection with the Business after Completion and they jointly and severally indemnify [Ginger Max], [Ginges Holdings Pty Limited], [Best & Less (Holdings) Pty Limited], [Berel Ginges], [Agnes Ginges] and any Associated entity and agree to keep each of the Indemnified Parties indemnified [in] respect of any such liability."
20 By Clause 12.1 of the Takeover Agreement, it was provided as follows:
"Effective from or as soon as is reasonably practicable after Completion, [Ginger Max] shall assign or novate to [Best & Less] the rights of [Ginger Max] under each of the Contracts set out in Schedule 4. [Ginger Max] will use its best endeavours (excluding paying money or providing other valuable consideration) with the co-operation of [Pepkor] and [Best & Less] to obtain any necessary agreement of the other party to those Contracts being novated or assigned to [Best & Less] by and with effect from the Completion Date."
Included in the abovementioned Schedule 4 was the following:
" CONTRACTS...
Sales Quotation, Sundry Pricing and Terms, Product Maintenance Services Agreement and DolFIN Software License dated 21 October 1996 between [Divergent] and [Ginger Max]."
21 By Clause 13.1 of the Takeover Agreement, it was provided as follows:
"Except as disclosed in Schedule 3 or otherwise provided in this Agreement, as at the date of this Agreement and as at Completion, each of [Ginger Max] and [Ginges Holdings Pty Limited] warrants, represents and undertakes to and agrees with [Pepkor] and [Best & Less] as to the matters set out in Schedule 2 and, subject to the following provisions of this clause 13, they jointly and severally agree to indemnify [Pepkor] and [Best & Less] against any Loss which either of them may suffer or incur as a result of any of the Warranties being incorrect."
"Loss" in the foregoing context was defined by Clause 1.1 to mean "all claims, demands, actions, proceedings, costs, expenses, damages, losses and other liabilities (including legal costs on a full indemnity basis)." Included in the abovementioned Schedule 3 to the Takeover Agreement were the following references to the Installation Contract and to aspects thereof:
"6. [Ginger Max] is party to a contract with [Divergent] in relation to the introduction and implementation of the new point of sale system - a copy of which is provided in the Due Diligence Information....
8. Estimated major capital expenditure for the period 1/7/97 - 30/6/98 as follows:
ESTIMATED CAPITAL EXPENDITURE For Period 1 July 1997 to 30 June 1998
Fixed Assets
...
Point of Sale/Data Processing Equipment 1,900,000."
22 The reference to "Warranties" in the Takeover Agreement was to the warranties and representations set out in Schedule 2 to the Takeover Agreement, which included the following:
"2.1 (a) the Accounts are complete and accurate in all material respects and give a true and fair view of the assets and liabilities of the Entities [referring thereby to Ginger Max and Best & Less] at the Last Accounts Date [referring thereby to 30 June 1997] and their profits and losses for the financial period ended on that date....
(h) other than the Excluded Liabilities, there are no material liabilities which are outstanding on the part of either Entity other than those liabilities disclosed in the Accounts or incurred in the ordinary course of trading since the Last Accounts Date..."
The "Accounts" is a reference to the audited accounts of Ginger Max and Best & Less for the year ended 30 June 1997.
23 Completion of the Takeover Agreement appears to have taken place on 31 March 1998 or 1 April 1998.
24 Pursuant to clause 12.1 of the Takeover Agreement set out in [20] above, a Deed of Novation was entered into on 31 March 1998 in relation to the Software License dated 21 October 1996 between Ginger Max of the first part, Best & Less of the second part and Divergent of the third part (being one of the four documentary descriptions referred to in Schedule 4 of the Takeover Agreement as set out in [20] above), whereby as from the date of completion of the sale of business assets from Ginger Max to Best & Less, Best & Less became substituted for Ginger Max as party to the Software License. Clauses 1, 2, 3 and 4 of such Deed of Novation provided as follows:
"1. Subject to clause 3, as from [31 March 1998], [Best & Less] is substituted for [Ginger Max] as a party to the [Software License] and(a) [Best & Less] will perform all of [Ginger Max's] obligations pursuant to the [Software License] arising as and from [31 March 1998] which, but for the operation of this Deed, [Ginger Max] would have owed to [Divergent], and
(b) [Best & Less] will be entitled to all rights pursuant to the [Software License] arising as and from [31 March 1998], to which, but for the operation of this Deed, [Ginger Max] would have been entitled.
2. [Best & Less] agrees with [Ginger Max] to indemnify and keep [Ginger Max] indemnified from and against any liability incurred by [Ginger Max] as a result of any action, demand, claim or proceeding against [Ginger Max] by [Divergent] or any other person under or in respect of the [Software License] on or after [31 March 1998].
3. [Divergent] undertakes to perform all of [Divergent's] obligations pursuant to the [Software License] arising as and from [31 March 1998] that but for the operation of this Deed [Divergent] would have owed to [Ginger Max] as if [Best & Less] were a party to the [Software License] instead of [Ginger Max].
4. With effect on and from [31 March 1998] [Divergent] releases [Ginger Max] from all its obligations under the [Software License] and all actions, claims or proceedings that it may have against [Ginger Max] under or in respect of the [Software License]."
I interpolate here to emphasise that the Deed of Novation did not purport to relate to any other instruments or transactions to which Ginger Max (formerly named Best & Less (Australia) Pty Limited) was already a party, including the instruments or transactions described in Schedule 4 referred to in [20] above, save only of course the Software License.
The Primary Judge's resolution of the construction issues arising in relation to the Installation Contract entered into between Divergent and Ginger Max (formerly named Best & Less (Australia) Pty Limited)
25 The statement of claim brought by Divergent against Best & Less (ie formerly Best & Less (Leasing) Pty Limited), Ginger Max, Mr Stassen and Mr MacDonald did not join Pepkor as an additional respondent, and Pepkor became involved as a party to the proceedings by virtue of the third and fourth cross claims referred to immediately below, and it was by reason of such involvement that Pepkor for its part thereafter brought the first cross claim also referred to below. The Primary Judge's summary of the claims and cross claims, set out at [5-9] in the reasons for judgment, is reproduced below:
"THE PROCEEDINGSThe 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.
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.
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.
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.
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."
The Primary Judge thereafter described the liability issues arising before him, as distinct from the assessment of damages issues, being the so-called "only two real liability issues in the case", as follows:
"...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 [Trade Practices Act] and [the Fair Trading Act]."
His Honour's foregoing reference to the "Divergent contract" was of course to what I have been referring to as the "Installation Contract", and his further reference to "the contract for the sale of Best & Less" was to what I have been referring to above as the "Takeover Agreement".
26 In so finding in favour of Divergent on the first of what the Primary Judge so described as the "only two real liability issues", his Honour expressed at [114-117] the following conclusions, after previously setting out his findings upon disputed conversations and applicable or potentially applicable case authorities:
"I find that the Divergent contract was legally binding. Ginger Max agreed to purchase and Divergent agreed to supply certain goods for 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.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... 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...
By the time of the sale contract, [referring thereby to the Takeover Agreement], 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'.
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."
I need not consider any implications arising from the absence of NCR as a party to the proceedings. No submission was based thereon in the course of argument. Thus it became unnecessary to consider the implications of any individual joint contractual entitlements or joint obligations of Divergent and NCR expressed in, the absence of NCR as a signatory to, the Installation Contract.
27 Thereafter the Primary Judge at [118] found in favour of Divergent on the second of the above liability issues so framed by him, and described by him as the novation issue, for the following reasons:
"On the novation issue, it is important to consider not only the intentions 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."
His Honour's reference to "the Divergent contract" is to the Installation Contract (see [11-13] above), his reference to "the novation document" is to the Deed of Novation extracted in [24] above, and his reference to the "sale contract" and to the "sale agreement" is to the Takeover Agreement. The reference to "Schedule 4 of the "sale agreement" is to what relevantly appears in [20] above.
The respective contentions of the parties on the construction issues arising in relation to the Installation Contract and my resolution thereof
28 His Honour's findings extracted in [26-27] above, strongly supported by the Respondents to the Appeal, thus characterised the whole of the Installation Contract, and the "Store Roll Out" provisions of the Hardware Overview segment thereof in particular, as a binding executory agreement on the part of Ginger Max to accept the roll-out in relation to all 81 retail stores, that is to say, the original 82 stores, less the Bondi Junction store the subject of the "pilot" scheme obligation, and to so accept the same within the time regimes specified in such Store Roll Out provisions, though his Honour did not suggest that time was of the essence in that regard. Such provisions, extracted in [11] above under the sub-heading "Store Roll Out", are accordingly of critical importance, and in particular the third limb thereof, since the first and second limbs were in any event duly implemented without controversy prior to the takeover. Conversely, the contentions of Pepkor and its acquired subsidiary Best & Less in relation to the Store Roll Out provisions, indeed in relation to all segments of the Installation Contract inclusive of such Store Roll Out provisions, save and except for the segments thereof headed "Sales Quotation" and "Sundry Pricing and Terms", together with Appendix E comprising the "Dolfin Software License" (to which I have been referring as the Software License), and the "Product Maintenance Service Agreement" comprised within Appendix J, were that the same never had contractual force or effect and thus were never promissory, or alternatively had contractual force or effect only by way of a form of master contract governing the extent to which Ginger Max might from time to time submit by electing to roll out stores within the time framework contemplated by such Store Roll Out provisions. As already pointed out in [13] above, only such segments of the Installation Contract headed "Sales Quotation" and "Sundry Pricing & Terms", together with Appendix E comprising the "Dolfin Software License", and Appendix J comprising the "Product Maintenance Service Agreement", were purportedly adopted and attested by the signatories for Divergent and Ginger Max. Significantly, as I should foreshadow, and in any event as indicated already in [20] above, only those two segments and those two appendices were later picked up by the relevant part of Schedule 4 to the Takeover Agreement, and only one of such appendices, namely the Software License, was made the subject of the tripartite Deed of Novation set out in [24] above, which was entered into pursuant to the Takeover Agreement.
29 The Primary Judge appears to have implicitly recognised the force of the factors referred to in the last two sentences of [28] above, but he nevertheless imputed contractual operation, to the whole of the Installation Contract, and in particular to the whole of such Store Roll Out provisions of the "Hardware Overview" segment of the Installation Contract. His Honour found additional support for that conclusion from the conduct of Best & Less undertaken subsequently to the Installation Contract; I refer to his Honour's finding cited in [26] above to the effect that Divergent and Best & Less "... subsequently acted on the written document in a substantial way". It is to be remembered however that for a contract to be proved to have been concluded through conduct, the task is a formidable one. To adopt the observation of Giles JA (with which Priestley and Meagher JJA agreed) in Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] Aust Contract Reports 90-129 at 91,574 [138] and 91,575 [142]:
"It is necessary, if one party is to be held to have bound itself in contract by its conduct, to be able to identify within the conduct of both parties the terms of the contract, and to be objectively satisfied that both parties agreed to be bound by those terms..."
In the result, the conclusion of Giles JA as to the character of the conduct there in question was as follows:
"... It was neutral as to the terms of any contract between them..."
30 I do not think that there is any material or relevant difference, for the purpose of resolving the critical contractual issues here arising, between a non-binding document in the nature of a framework prepared for the purpose of governing the legal relationship of two parties engaged or to be engaged in a course of mutual dealing, and a form of master contract intended to regulate any such mutual dealing, as and when activated by one of such parties for instance requesting the supply of goods or of services from the other. In either situation, such supply becomes contractually governed by the document in question, to the extent that it is susceptible of so doing, once supply takes place in the circumstances contemplated. It may well be said, why then would the parties bother to have a comprehensive document brought into existence to regulate any such future ad hoc dealings? The answer must have been, so I would infer from the large amount of material in the Appeal Books, the likelihood of comprehensive performance by Ginger Max as acquirer of the goods and services, subject only to its financial capacity to fund the acquisition thereof, and the continuing viability of products and services to be supplied by Divergent for the purposes required. For brevity of expression, I will treat the Pepkor submission as one of categorising the residual provisions of the Installation Contract, which remain after separation of the four documentary segments and appendices isolated by the signatories to the Installation Contract, as constituting a form of master contract which could be activated by Ginger Max in relation to the store numbers and within the time frames therein specified, once the minimum roll out stipulations of the first and second limbs of the Store Roll Out provisions relating to the Head Office, pilot store and minimum number of 12 stores had taken place.
31 In the context of the foregoing submissions of Pepkor relating to the characterisation of the Installation Contract predominantly as a form of master contract, Pepkor submitted, additionally or alternatively to its master contract thesis, that Ginger Max was never subjected to any legally binding obligation in favour of Divergent in relation to the roll out of the seventy stores, the subject of the third limb of the Store Roll Out provisions, for the following further reasons:
(i) the expression contained in the third limb or component of such Store Roll Out provisions, namely "but Best & Less are not bound by any guarantee to do so", here controlled and governed the preceding words of such third limb, being at least "to use their best endeavours", or in any event the wider terms of the third limb, namely "to use their best endeavours to roll out a further 35 stores by October 1998 and the balance of stores by October 1999", but not merely, as Divergent contended, the respective time specifications of October 1998 and October 1999. That was said by Pepkor to be because such concluding words of the third limb, namely "to do so", must relate back to an earlier verb, and such earlier verb was to be found in the word "use"; and
(ii) the discretion conferred conversely upon Divergent as to the acceptance of orders as to software, by reason of the qualification "Orders are subject to acceptance by Divergent and product availability" contained under the sub-heading "Divergent Sales Agreement", appearing within the segment "Sales Quotation" lastly extracted in [11] above, being one of the four components of the Installation Contract adopted by the signatories thereto, as indicated in [13] and [28] above, in this regard, the Store Roll Out provisions appear under the hearing "Hardware Overview" (see again [11] above), though in terms literally broad enough to embrace the totality of what was involved in a store roll out as such, whatever that might entail.
32 In relation to its submission outlined in [31(i)] above, Pepkor additionally pointed to the expression to "use our best endeavours to commence a rollout to other stores" appearing in the second paragraph of the letter dated 17 October 1996 of Ginger Max to Divergent, which letter almost immediately preceded, in point of time, the Installation Contract (the same having been entered into on 22 October 1996), and read as follows (omitting formal parts):
"We are in receipt of your proposal dated 10 October 1996 and are interested in the offer subject to the successful completion of testing at Head Office and successful implementation into a pilot store.Should this be successful, it would be our intention to use our best endeavours to commence a rollout to other stores.
We are however not prepared to accept any costs or invoices associated with the project until after successful completion of the pilot store and arrangements for the rollout.
Should the pilot store prove unsuccessful and the rollout is cancelled, then the only cost we would be prepared to accept is for $41,200 being the software modification costs that we have requested.
The future software site licence fee of $8,750.00 per store will be paid after installation into each store and no initial lump sum can now be considered."
However such expression of intention on the part of Ginger Max contained in the above preceding letter as to using best endeavours was related only to the commencement, and not to the continuance or completion, of the roll out, following upon successful trials in the Head Office and pilot store (ie the first limb only of the Store Roll Out provisions). What appeared in such earlier letter in relation to the use of best endeavours was also replicated in isolation in the "Executive Summary" segment of the Installation Contract, as to which segment, see again [11] above under that heading.
33 Addressing specifically the submission made in [31(i)] above, certain differences may be readily identified between each of the three limbs of the Store Roll Out provisions of the Installation Contract, cited as already mentioned in [11] above under the segment heading "Hardware Overview":
(i) in contrast to the second and third limbs, the obligation the subject of the first limb, relating as it did to the installations to be effected in the "Head Office" and "pilot store" of Ginger Max, was not prefaced by the words "use their best endeavours";
(ii) the second limb stipulated for the use of "best endeavours", explicitly on the part of Ginger Max alone, in relation to the rolling out of "a minimum of (12) stores by December 1997";
(iii) the third limb also stipulated for the use of best endeavours, explicitly on the part of Ginger Max, and also on the part of "Divergent/NCR", to roll out the next further 35 stores by October 1998, and the remaining stores (which though not specified would also be 35 in number) by October 1999, but further contained what may be described as the critically controversial qualification "... but Best & Less (ie Ginger Max) are not bound by any guarantee to do so".
Such contrasting limbs of the Store Roll Out provisions lend weight to Pepkor's contention that the same provide significantly differing specifications of obligation, quite apart from bearing relevantly upon the issue as to the "master contract" operation of the Installation Contract discussed in [28-30] above.
34 Divergent responded by first citing the following well known judicial dicta on the meaning of a contractual undertaking "to use best endeavours", namely "to do all he reasonably can in the circumstances to achieve the contractual object, but no more" (see Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 64 per Gibbs CJ), or to do "all that could reasonably be expected of (the promisor) having regard to the circumstances of its business operation" (see Transfield Pty Ltd v Arlo International Ltd [1980] HCA 15; (1980) 144 CLR 83 at 107 per Wilson J). A key to the first of those authoritative citations is the determination of "the contractual object". Moreover both citations embody a concept of reasonableness in the light of prevailing circumstances. In any event, with the assistance of such undoubted authority, Divergent contended that Ginger Max became contractually obliged by the terms of the Store Roll Out stipulations to accept the roll out of the further 35 unspecified stores by October 1998, and thereafter of the remaining 35 stores by October 1999, notwithstanding the concluding words of the third limb, namely "... but Best & Less are not bound by any guarantee to do so". Divergent thus contended that the third limb operated essentially with the same force as the second limb, save that the third limb contained the mutual undertaking of "Divergent/NCR" and of "Best & Less" (ie then being Ginger Max). As I have earlier pointed out, the circumstance that NCR, though not a signatory to the Installation Contract, was purportedly combined with Divergent as joint obligor with Divergent in relation to such third limb, did not seemingly enter the respective contentions of the parties, and need not therefore be the subject of further consideration in the context of the issues argued on appeal. Pepkor's preliminary or introductory response to Divergent's contentions was to the effect that the Store Roll Out provisions, particularly in the case of the third limb thereof, tended to ambiguity, by reason of the concluding words of the third limb "to do so", with the consequence that the contra proferentem rule of statutory interpretation should be applied in favour of Pepkor to the extent of ambiguity within such third limb. That rule may be implied as one of general construction to an ambiguous contractual clause, whether exclusionary in purported operation or otherwise: Darlington Futures Ltd v Delco Australia Pty Limited [1986] HCA 82; (1986) 161 CLR 500 at 510. I agree that the concluding phase of the third limb, namely "but Best & Less are not bound by any guarantee to do so", tends to ambiguity, particularly by reason of the concluding words "to do so", but I prefer not to undertake recourse to that somewhat controversial rule of construction in the present context, particularly since I have gained the impression that the form and content of the Installation Contract has its origins more in NCR than in Divergent.
35 Pepkor's first contention therefore, as already foreshadowed in [28-30] above, was that by reason of the structure of the Installation Contract viewed as a whole, that is to say, the division implicitly made by the signatories thereto between the segments Sales Quotation and Sundry Pricing and Terms and the appendices the Software License and Product Maintenance Service Agreement, on the one hand, and the remaining segments and appendices of the Installation Contract on the other hand, such remaining segments and appendices, including of course the Hardware Overview segment containing the Store Roll Out provisions, are to be characterised as no more than a charter in the nature of a master contract governing such stores as might become the subject of roll out initiated at the instance of Ginger Max within the time frames envisaged by such Store Roll Out provisions. Pepkor's second contention was that irrespective of the validity of its said first contention, by reason of the concluding words of the third limb of the Store Roll Out provisions, namely the critical abovementioned qualification "... but Best & Less is not bound by any guarantee to do so", a similar operation of the Installation Contract must follow, to the extent of the 70 stores the subject of such third limb, irrespective of whether the master contract was confirmed by the signatories to the Installation Contract to the extent of the Sales Quotation and Sundry Pricing and Terms segments and the Software License and Product Maintenance Service Agreement appendices, or otherwise. Pepkor thus contended that Ginger Max for its part had always been entitled at any stage to have put an end unilaterally to the future roll out of such of the seventy stores as were not for the time being the subject of a roll out for the time being initiated by Ginger Max, though to adopt the elliptical expression of Pepkor, Divergent/NCR conversely "could not do the same".
36 Divergent's response to Pepkor's first submission was that the framework of the Store Roll Out provisions was such as to import notions of legal obligation, as implicit from the initials of the signatories appearing in the margin thereof opposite the handwritten dates, and, as I further understood such first submission to be, the whole of the Installation Contract must have been intended in any event to have contractual operation and effect from the outset, not only because of the lack of utility otherwise of the insertion of such Store Roll Out provisions, but also because the signatories similarly placed their initials in the margins of the Executive Summary and of the In Store Software segments of the Installation Contract. In any event, Divergent's submissions focused on the Store Roll Out provisions as being inherently contractual in form and effect, and it contended that the same would have been differently framed if the controversial third limb, in particular, had been intended to have the kind of ad hoc or master contract operation the subject of Pepkor's contention, and further again that the roll out would have been differently costed. In so focusing upon the Store Roll Out provisions, Divergent submitted, as earlier indicated, that the critical concluding words of the third limb thereof, "... but Best & Less is not bound by any guarantee to do so", merely emphasised the mutual intention of the parties that at least in relation to the obligation of Ginger Max to accept the roll out of the residual 70 stores, time was not to be of the essence.
37 In my opinion, there are two principal factors, identifiable within the text of the Installation Contract read as a whole, which together require the resolution of the first issue, formulated by the Primary Judge in [25] above as one of the "only two real liability issues in the case", in favour of Pepkor. Those factors, already foreshadowed, are as follows:
(i) the concluding words to the third limb of the "Store Roll Out" provisions of the Hardware Overview segment, namely "but Best & Less are not bound by any guarantee to do so", which, according to their most natural and unstrained meaning, qualify the preceding text of such limb, reading "Best & Less... to use their best endeavours to roll out a further 35 stores by October 1998 and the balance of the stores by October 1999..."; such concluding words thus may be seen to modify the nature of the stipulation as to Ginger Max rolling out the remaining 70 stores, such as to withhold from the "Store Roll Out" provisions any contractual obligation not merely as to time limits for roll out, but also as to the use by Ginger Max of best endeavours to roll out the same; and
(ii) the confinement of the Installation Contract, as I think was implicitly acknowledged by the signatories thereto, to the terms and conditions of the Sales Quotation and Sundry Pricing and Terms segments thereof, and of the Appendices comprising the Product Maintenance Services Agreement and the Software License.
Such principal factors are supported, directly or indirectly, by two contextual matters within the Installation Contract, as follows:
(ia) the "Technology Refresh" provisions of the "Other Issues To Consider" segment (for the text of which see again [11] above), which serve to demonstrate the mutual recognition of the parties to the Installation Contract that the then contemplated technology the subject of the proposed roll out may be overtaken by subsequent "technological advances" at some undefined future time, and thus require replacement prior to completion of the projected role out. While his Honour drew attention to such provisions in the course of his reasoning (see the concluding sentence of the judgment extracted in [26] above), he did not identify the entire significance thereof in terms of interpretation of the Installation Contract;
(ib) the limitation of a radical nature, placed upon any converse obligations of Divergent to supply product to Ginger Max, stipulated by the terms of the pro forma "Divergent Sales Agreement", identified in [11] above as incorporated within the "Sales Quotation" segment of the Installation Contract, which, although not directly bearing upon the content of any alleged obligations of Ginger Max to accept future roll out beyond the initial 12 stores the subject of the second limb thereof, nevertheless does so indirectly by way of demonstrating an absence of reciprocity of binding obligation concerning the store roll out, as well as the supply of future services in relation thereto.
38 It follows that I do not accept that the function or operation of at least the critical third limb of the Store Roll Out provisions of the Installation Contract can be characterised as having imposed any legally binding contractual obligation upon Ginger Max to accept the roll out of any one or more of the seventy Best & Less stores for the time being not already activated. The fact of certain initialling by the parties of some of the contents of the Installation Contract, otherwise than those implicitly adopted by the signatories thereto as earlier identified above, is consistent with the notion of a master contract. Nor do I think that it can be demonstrated from the contents of the Installation Contract that the roll out cost per store would necessarily have been differently assessed upwards by Divergent; in that regard it is not without significance that Divergent did not seek relief by way of rectification of the Installation Contract. Perhaps the explanation for such limited form of commitment lies in the circumstance, not mentioned in the judgment, of Mr Rosen's conversation on behalf of Divergent with Mr McCann of Ginger Max in early August 1996, to the effect that the roll out was to be funded out of cash flow profitability of Ginger Max, and not out of borrowings, being a factor which prevented Ginger Max from making commitments to "specific dates". Such contractual reservation on the part of Ginger Max was specifically pleaded by Divergent in the statement of claim. A similar conversation had taken place earlier in July 1996 between Mr Thomas on behalf of Divergent with Mr McCann. The Primary Judge rationalised the Store Roll Out provisions as contractually binding from the outset on the basis of what he saw as pre-contractual communications of legal significance, which he summarised, in terms not inconsistent with such pleaded contractual reservation, as follows:
"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 installation from cash flow. To that end, the Divergent contract contained on page 5 what the parties referred to as the `best endeavours' clause."
One difficulty with that finding is the rule that statements made in the course of negotiations of contracts are not in principle permissible aids to construction thereof (Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352), though different consequences may follow where such statements have the status of oral collateral warranties. Moreover, the insistence of Ginger Max, communicated in the course of pre-contractual negotiations as above mentioned, to the effect that it would only pay for store roll outs out of profits derived and available, added to Divergent's difficulty in ascribing binding contractual force to the critical store roll out provisions of the Installation Contract. In any event, the dicta of the Primary Judge extracted raise an imponderable difficulty to the effect of what is to follow from the hypothesis that at some future material time, there may be no cash flow available to Ginger Max either at all or for any definite period of time.
39 It follows that I am unable to agree with the finding of the Primary Judge cited in [26] above that "... the Divergent contract was legally binding. Ginger Max agreed to purchase and Divergent agreed to supply certain goods for due payment", at least in so far as concerned the subject matter of roll out of any one or more of the seventy stores. For what it may matter, such finding did not reflect the qualified nature of an obligation to use best endeavours, in the sense explained in Hospital Products and Transfield cited in [34] above, quite apart from the additional concluding words of the third limb of Store Roll Out provisions "... but Best & Less are not bound by any guarantee to do so". In any event, it cannot rightly be accepted, that the parties "... clearly intended to create legal relations by reducing what they saw as the essential terms of their agreement to writing", as further found by his Honour in the passage extracted in [26] above, otherwise than in relation to the extract of the "Sales Quotation, Sundry Pricing and Terms, Product Maintenance Services Agreement and the Software License accepted by the parties hereto", to cite again from the explicitly limited signatory provisions of the Installation Contract set out in [13] above. I therefore cannot accept the conclusion of the Primary Judge that "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". In relation to the seventy stores the subject of the third limb of the Store Roll Out provisions of the Installation Contract, it was only by reason of the acceptance by individual store roll outs, initially by Ginger Max, and subsequently following the Takeover Agreement and Deed of Novation, by Best & Less as Pepkor's newly acquired subsidiary, that the parties "acted on the written document in a substantial way", in the sense of implementing individual store roll outs ad hoc under the auspices of what constituted nothing more than a form of master contract.
40 The Primary Judge supported his conclusions cited above by the further circumstance that "There would have been no point in changing systems at great expense and trouble to finish up with different systems in different stores". I do not find support in the evidentiary material before me for that view of the economic dynamics of what was to be a store roll out proposed to take place over a relatively long period of time. It is commonplace that technology relating to computerised hardware and software has been for many years susceptible to constant change in terms of price as well as capacity for efficiency, being circumstances implicitly recognised by "Technology Refresh" provisions of the "Other Issues To Consider" segment of the Installation Contract addressed in [37(ia)] above, which purportedly imposed ongoing burdens upon Divergent.
41 The Primary Judge pointed additionally to the circumstances that "In fact, Ginger Max did more than all that could reasonably be expected of [it] having regard to the circumstances of its business operations", and further that "[b]y 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". His Honour also found that "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", and further that "[t]heir conduct made clear that their contract was not a `master contract'". Such conduct to which his Honour referred was however equally consistent with and referrable to the parties having defined by the provisions of the Installation Contract, (leaving aside the four parts thereof adopted by the signatories to the Installation Contract), a form of master contract, with a view to the same being activated from time to time by the placement of orders by Best & Less pursuant to the third limb of the Store Roll Out provisions, notwithstanding that the first 35 stores addressed by such third limb of the Store Roll Out provisions were stipulated for roll out by October 1998, and the remaining 35 stores were stipulated for roll out by October 1999 (it was common ground that time was not of the essence in any event). Doubtless Divergent had the reasonable expectation that once the roll out was underway, following upon satisfactory installations of the system in the Best & Less Head Office and in the pilot store at Bondi Junction, and also following upon satisfactory installations in the first round of 12 stores the subject of the second limb of the Store Roll Out provisions, then without the occurrence of extraordinary circumstances such as absence of cash flow profitability of Ginger Max sufficient to fund the requisite roll out or roll outs (see again [38] above), then in the normal course the remainder of the roll out would be carried through to completion. The same could be said as to the expectations of Ginger Max, though nothing contained in the Installation Contract precluded the possibility of disposal by Ginger Max in the meantime of the substratum of its business operations, or of radical change to the cost structure or performance capacities of relevant computer systems (as to which see again [37(ia)] above).
42 In any event, any expectation of Divergent of entire implementation of the roll out to which his Honour referred cannot determine the meaning of the Installation Contract, much less whether the Installation Contract constituted a binding contractual arrangement in the first place, or, to what extent: see Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 at 115, where Bryson J conveniently analysed authorities relating to contractual issues of such kinds. The placement of the orders by Ginger Max (and subsequently by Best & Less as Pepkor's newly acquired subsidiary) did not resolve the significance of the distinction between the four segments/appendices isolated by the signatories thereto and the remaining segments/appendices, or the correct construction of the third limb of the Store Roll Out provisions to be found within what was one of such remaining segments, namely that of Hardware Overview. To adopt the observation cited from Industrial Rollformers (see [29] above), such conduct on the part of Ginger Max, and subsequently of Best & Less, was neutral as to the true meaning and contractual import of the Installation Contract, and, for that matter, of the subsequent Takeover Agreement and Deed of Novation.
43 I am therefore of the opinion that the novation issue aside, which will next be addressed, there was no contractual basis to sustain Divergent's case for breach of the Store Roll Out provisions of the Installation Contract, in so far as the same related to the non-acceptance by Pepkor of ongoing performance of the residue of the incompleted roll out existing as at the time of communication of such non-acceptance by Pepkor to Divergent, and for that matter of ongoing performance of the Software License, in relation to which Ginger Max had the right to terminate at any time forthwith (see [12] above). As to the entitlement of Ginger Max to terminate the Software Maintenance Contract, also called the Product Maintenance Services Agreement (see [13] above), I will address that subject later in another context.
The respective contentions of Pepkor and Divergent on the contractual issues arising in relation to the subsequent Takeover Agreement and Deed of Novation effected pursuant thereto and the resolution of the issues thus arising
44 The findings of the Primary Judge upon the issues arising in relation to the subsequent Takeover Agreement and Deed of Novation are extracted in [27] above. The principal provisions of the Deed of Novation bearing date 31 March 1998, which was entered into between Ginger Max of the first part, Best & Less of the second part, and Divergent of the third part, are extracted in [24] above, such Deed having been so entered into pursuant to Clause 12.1 of the Takeover Agreement and Schedule 4 thereto extracted in [20] above. Completion of the Takeover Agreement had not apparently occurred at the time of execution of the Deed of Novation, Mr Ginges and his wife having attested the affixation thereto of the common seals of both Ginger Max and Best & Less. As indicated thereby, the Deed of Novation was explicitly confined in scope of operation to the Software License dated 21 October 1996, to which I have been referring already as "the Software License" the terms and effect whereof are summarised in [12] above. As mentioned in [11] above, the Software License was one of only four segments and appendices of the Installation Contract which appeared above the attesting signatories thereto, the others being the segments "Sales Quotation" and "Sundry Pricing and Terms", and the segment "Product Maintenance Services Agreement". No reference in such critical context was thus made to the preceding Installation Contract segments of inter alia "Hardware Overview", "In-Store Software" and "Other Issues To Consider", which I have earlier partly extracted in [11] above. Unlike the Installation Contract, the Deed of Novation carries the hallmarks of having been settled by legal representatives for the parties thereto, and understandably so since the form thereof was settled contemporaneously with the complex Takeover Agreement, which was undoubtedly settled by the legal representatives of Pepkor and Ginger Max. As in the case of the Installation Contract, it is not without significance that no proceedings for relief by way of rectification were ever apparently brought by Ginger Max in relation to the Takeover Agreement, or by Ginger Max and/or Divergent in relation to the Deed of Novation made pursuant thereto, by reference to the confined scope of Clause 12.4 and Schedule 4, and the even more confined scope of the Deed of Novation.
45 As appears from the abovementioned passage in the judgment below already extracted in [27] above, the Primary Judge made the following findings relating to what may be described as the documentary novation effected by the Deed of Novation:
"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."
As further appears from [20] above, Clause 12.1 of the Takeover Agreement, the only aspect thereof which related to novation of contracts was confined in scope, so far as concerned any of the provisions of the Installation Contract, to what was extracted in [20] above, namely "Sales Quotation, Sundry Pricing and Terms, Product Maintenance Services Agreement and Dolfin Software License dated 21 October 1996 between [Divergent] and [Ginger Max]", and thus did not refer to the critical segment "Hardware Overview", and the Store Roll Out provisions thereof in particular. None of the other documents or documentary segments referred to in Schedule 4 of the Takeover Agreement related to any other parts of the Installation Contract. Significantly, such four segments and appendices of the Installation Contract were the only ones which, as has already been pointed out in [13] and [28] above, appear immediately above the signatories to the Installation Contract. The findings of the Primary Judge extracted immediately above are therefore not correct, in so far as they refer implicitly to the whole of the Installation Contract, and not merely such four aspects identified above. Moreover, such Deed of Novation was confined to the Software License alone, and did not extend, for reasons apparently unexplained in the evidence of the officers of Ginger Max and Divergent, to at least the Sales Quotation and Sundry Pricing and Terms segments, or to the Product Maintenance Services Agreement, notwithstanding the wider content of Clause 12.1 of the Takeover Agreement and of Schedule 4 thereto (see [20] above). The circumstance of such latter omissions from the Deed of Novation is in any event less important for present purposes. What critically matters is the absence of reference to the Installation Contract, as a whole or generally, in such Schedule 4, and instead the confinement of Schedule 4 to the abovenamed four limited segments and appendices. The circumstance that the Deed of Novation was so made in relation to the Software License did not of course alter the otherwise master contract character of the Installation Contract.
46 The Primary Judge further found in relation to the novation issue that "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... 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". In that regard, as indicated in the first sentence of the passage of the judgment extracted in [27] above, the Primary Judge placed reliance upon "not only the intentions of the parties, but also their conduct". Consequently it is appropriate to give consideration to circumstances of potential relevance beyond the explicit confinement of the scope of the Deed of Novation, and Clause 12.1 of, and Schedule 4 to the Takeover Agreement, and thus to the conduct of the parties which his Honour found to have reflected their respective contractual intentions.
47 The only conduct of Pepkor, or more precisely of Best & Less as Pepkor's newly acquired subsidiary, which occurred as and from the time of completion of the Takeover Agreement and the Deed of Novation, and to which the Primary Judge referred in that part of his judgment extracted in [27] above, was Pepkor's request for roll out in respect of the further six Best & Less stores which took place following upon such completion. Was such conduct unequivocally referrable to a Best & Less contractual undertaking in favour of Divergent to accept and implement the roll-out of what remained of the 70 stores the subject of the third limb of the Store Roll Out provisions of the Hardware Overview segment of the Installation Contract, irrespective of the limited express terms of the Deed of Novation, and of the Takeover Agreement pursuant to which the Deed of Novation was executed, or was such conduct merely referable to the existence of a master contract taking the form of the Installation Contract generally which Best & Less, as Pepkor's newly acquired subsidiary, and Divergent, may be said to have mutually determined to implement in relation to such six stores?
48 It may be readily inferred that in respect of each request, presumably made by Best & Less in relation to the six stores the subject of the store roll outs which did so occur subsequent to completion of the Takeover Agreement, Divergent duly accepted the performance of such contractual provisions as were expressed in or implied by the Installation Contract in relation to each such store roll out, or put the way in which Pepkor/Best & Less would frame the issue relevantly involved, Divergent duly accepted the performance by Best & Less to such extent of the master contract (which I have found to have been originally constituted in relation to the prospective seventy stores) as having crystallised in relation to each of such six stores: see in that regard the terminology of the doctrine of novation by conduct discussed in Chitty on Contracts (28th ed, 1999) p 1067 and in Cheshire and Fifoot's Law of Contract (7th Aust ed, 1997) p 313. The task however which Divergent was required to confront in order to make good its case of novation by conduct of the totality of the Installation Contract yet to be performed or put in place was more onerous, namely whether the commitment of Best & Less to the roll out in respect of such six stores, subsequent to completion of the Takeover Agreement, constituted implicit acceptance on its part of a totally new obligation to submit to the roll out of the totality of the remainder of the seventy stores the subject of the third limb of the Store Roll Out provisions, notwithstanding that no contractual obligation was explicitly expressed in the Takeover Agreement or the Deed of Novation to any such effect or extent. I do not think that any such conclusion of "inevitable inference", the further notion postulated for instance in the Rollformers judgment at [138], could rightly be drawn in Divergent's favour. The very circumstance of the confinement of the Takeover Agreement to the terms expressed by Clause 12.1 and Schedule 4 thereto, and of the tripartite Deed of Novation entered into in even more confined terms than those of Clause 12.1 and Schedule 4, that is to say, by way of confinement to the Software License alone, inherently operated to put any such conclusion in favour of Divergent beyond reach. As was stated by the New South Wales Court of Appeal in Fightvision Pty Ltd v Onisforou And Others [1999] NSWCA 323; (1999) 47 NSWLR 473 at 492, although "A novation may be express or implied from the circumstances", nevertheless "[i]ntention is crucial to show a novation", and in the present circumstances, what could be more evident of the intention of the parties to the Takeover Agreement and the tripartite Deed of Novation than the respective limited provisions the subject thereof. Merely to continue the roll out piecemeal was at best equivocal. Senior Counsel for Ginger Max submitted twelve instances of conduct on the part of Best & Less said to amount to novation, such as the bringing into existence of equipment lists required for the opening of new stores, payment of accounts for equipment based on the original contract prices, correspondence referring to "the contract", and so on, but all such instances were equally referrable to the constitution of the relevant provisions of the Installation Contract as a form of master contract to govern the circumstances of such stores as might become the subject of submission to roll out by Best & Less, and could not be said to satisfy the unequivocally referrable test above referred to.
49 The final consideration conceivably material to his Honour's conclusion upon the novation by conduct issue are the implications relevantly of Clauses 10.1 to 10.3 of the Takeover Agreement, extracted in [19] above, and also of Clause 13.1 thereof and of Schedule 3 thereto to the extent extracted in [21] above. To those contractual references may be added the note to the financial statements of Ginger Max as at 30 June 1997, bearing in mind the definition of "Liabilities" contained in Clause 1.1 of the Takeover Agreement extracted in [18] above, such note reading as follows:
"BEST & LESS (AUSTRALIA) PTY LIMITED ACN 055 035 955
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
AS AT 30TH JUNE 1997
21. CAPITAL EXPENDITURE COMMITMENTS
Estimates of material amounts of capital
expenditure, not provided for in the accounts,
arising from:
(a) Store fitouts for 6 (six) new stores
planned to be opened in future years 2,700,000
________ ______
(b) Amounts payable under contract on
implementation of the Head Office Polling
System and Point of Service in Head Office
and stores which consists of:
- Hardware
- Software Site Licences
- Network Integration
- EFT Integration
- Training
- Project Management
- Staging of Store Hardware
- Cabling
Payable
- not longer than 1 year 1,506,762 -
- longer than 1 year, but not longer
than 2 years 2,009,016 -
- longer than 2 years 613,866 -
________ ______
4,129,644
________ ______."
Issues arise as to whether any of such material might conceivably assist to establish the findings of the Trial Judge in relation to novation by conduct of the Installation Contract, being conduct taking the form of the commitment of Pepkor to the Takeover Agreement, and notwithstanding the explicitly confined provisions of the Takeover Agreement and the Deed of Novation as already mentioned, and the fact that Divergent was not a party to the former instrument.
50 The structure of the Takeover Agreement adopted the usual kinds of provisions inserted in agreements for the takeover of a company indirectly by the purchase of its issued capital, such as the assumption of liability and responsibility for the liabilities of the acquired company, whether crystallised or yet to crystallise, and whether quantified or not yet quantified, or certain or uncertain or inchoate. It is also customary for warranties to be provided as to the accuracy of financial statements both existing and to be brought into existence as at the date of completion of the takeover, and in so far as provision is made thereby in relation to commitments, the same may be characterised as such to satisfy an accounting standard, but not necessarily a liability according to law. I do not think that it is justifiable to read and construe an instrument such as the Takeover Agreement, prepared in such considerable detail, and settled by the legal representatives of the parties privy thereto, as constituting additionally a novation by conduct of legal obligations and liabilities beyond the parameters explicitly set by the instrument. Put another way, Best & Less cannot achieve by the sidewind of notes to the financial statements of Ginger Max (which was of course formerly Best & Less (Australia) Pty Ltd) the novation by Pepkor of what it withheld from undertaking under and pursuant to the Takeover Agreement.
51 In the result, I would uphold the grounds of appeal of Best & Less, as Pepkor's wholly owned subsidiary, in so far as the same related to causes in action arising out of what the Primary Judge described as novation issues.
The causes of action for misleading and deceptive conduct brought by Divergent against Best & Less (formerly Best & Less (Leasing) Pty Limited) and Ginger Max
52 The Primary Judge's findings in relation to those causes of action, based as they were in relation to both Best & Less and Ginger Max upon ss 51A and 52 of the Trade Practices Act 1974 (Cth) and ss 41 and 42 of the Fair Trading Act 1987 (NSW), were as follows:
"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 claim against Pepkor in any detail. I have no doubt that Pepkor did mislead Divergent about its intentions for the Divergent contract. Clearly Divergent 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."
53 In so far as Divergent brought proceedings by statement of claim against Ginger Max for misleading and deceptive conduct, the same were dismissed by the Primary Judge. However in so far as similar based proceedings were brought by Divergent against Best & Less in relation to post takeover conduct of Best & Less, that is to say, as a subsidiary of Pepkor, his Honour found, as indicated in the above passage, in favour of Divergent. The particulars furnished by such statement of claim in relation to misleading and deceptive conduct on the part of Best & Less as First Respondent, which his Honour described in the above segment of his judgment as representations "... about their intentions regarding completion of the installation of the POS system", were to the following effect:
(i) notwithstanding the proposed sale of Best & Less stores to a South African controlled corporation, Best & Less would abide by the Installation Contract, and would require Divergent to roll out all of the 82 Best & Less stores;
(ii) that Best & Less would so roll out as fast as possible under the Installation Contract, and would offer Divergent other business opportunities;
(iii) that the representative (post takeover) of Best & Less was most impressed with the dealings which had taken place between Best & Less and Ginger Max, and that rapid further deployment of the Installation Contract was imminent, and further that the Best & Less "product" was good enough to install throughout the worldwide operations of Pepkor, and further again that he was hopeful that Divergent would reduce its prices under the Installation Contract;
(iv) subsequently again, namely in the week commencing 11 June 1998, and thereafter on 1 July 1998, in the course of further meetings attended by Mr Stassen and Mr MacDonald of Best & Less, and in the course of Best & Less making requests for price reductions below the contract price the subject of the Installation Contract, that Best & Less would complete the roll out of Best & Less Stores by December 1998, if such reductions were made; and
(v) subsequently again at a further meeting on 30 July 1998 attended by Mr Stasson, Mr MacDonald and Mr Lester Aderum on behalf of Best & Less, that Divergent should make all necessary arrangements for store roll out in relation to the balance of the 82 stores.
54 Thereafter Divergent pleaded by its statement of claim, in so far as the same was referable to the misleading and deceptive conduct cause of action against Best & Less, that on the basis of the continuing representations of Best & Less to the above effect, and induced thereby, Divergent continued to place orders for hardware and software, and otherwise to incur expenditure and to implement the pricing structure of the Installation Contact, upon the hypothesis that the roll out would continue to occur within the contemplated time limits in respect of all of the remaining 70 stores. His Honour did not find it necessary to address specifically each of such representations separately, but made his finding in the terms set out above, namely by reference to "... their intentions regarding installation of the POS system".
55 The Primary Judge did not, in the course of his findings and calculations as to damages, distinguish between what consequences as to damages arose out of Divergent's cause of action for breach of contract, and what damages were caused by the contraventions of the Trade Practices Act and the Fair Trading Act. Instead his Honour calculated damages upon the basis of what he described as "Divergent's basic claim for loss of profits caused by Pepkor's breach of contract", in relation to which calculations of loss he identified three components, being first, loss of installations, secondly lost provision of maintenance of installations, and thirdly, loss of additional services to installations, in each case to be provided under the Installation Contract. His Honour did not separately calculate any amount of damages conceivably flowing from any detrimental reliance of Divergent upon the false and misleading conduct of Best & Less. Divergent could not have rightly claimed damage flowing from the representations of Pepkor as to the Installation Contract continuing on foot, once Pepkor made it clear that the Installation Contract was not considered to be contractually binding at all, and it is difficult to conceive what misleading or deceptive conduct of Pepkor prior to that time could have occasioned loss or damage to Divergent, since it was fully paid for all prior store roll-outs. I have adopted the Appellants' expression "detrimental reliance" for convenience, whilst conscious of the nature of the causal connection stipulated by s 82 of the Trade Practices Act 1974 (Cth) for breach of s 52 of that Act postulated by the majority of the High Court recently in Henville v Walker [2001] HCA 52; (2001) 182 ALR 37.
56 Moreover, once Best & Less repudiated any contractual obligation to continue with store roll outs, Divergent could no longer have been misled and deceived as to the future intentions of Best & Less in relation to the matters the subject of Divergent's other heads of damage for breach of contract, namely those related to the ongoing provision of maintenance services, and to so-called additional services, which had been calculated by his Honour upon the basis of a supposed contractual entitlement of Divergent in relation to the full complement of 82 stores until 31 October 2006. Incidentally, no recognition appears to have been extended, by his Honour's calculation of damages for breach of contract, to the termination provisions of the Software Licence (ie forthwith at the instance of the Licensee) and the Product Maintenance Services Agreement (ie upon six months' notice) in making such calculations of damages for breach of contract.
57 It follows that whilst it is not possible to rule upon the primary judge's findings in favour of Divergent upon its causes of action for contravention of s 52 of the Trade Practices Act and of s 42 of the Fair Trading Act, I would be unwilling to return for re-trial at first instance such causes of action, in the absence of demonstration on the part of Divergent of a prima facie case for damage sustained pursuant to the same, which I have been unable to distil.
58 I am therefore of the opinion that the causes of action of Divergent, against Best & Less as First Respondent to Divergent's statement of claim, based upon s 52 of the Trade Practices Act and s 42 of the Fair Trading Act, should not be remitted for re-trial, in the absence of Divergent being able to identify a viable head or heads of damage flowing therefrom. I would grant leave to Divergent to address this Court on this matter before the making of final orders on this appeal in relation to such causes of action.
Remaining issues arising on appeal
(i) Pepkor's so-called "third cross claim" against Ginger Max
59 Pepkor asserted by its third cross claim that Ginger Max represented to Pepkor that Ginger Max was not under any obligation to Divergent to submit to the roll out in respect of any of the remaining stores for the time being not already made the subject of roll out.
60 Pepkor has contended that the Primary Judge gave no reasons for rejecting the evidence of Mr Stassen as to what he claims to have been said to him by Mr Ginges on the occasion of their meeting on 7 July 1997 at the offices of RMB Australia in Pitt Street Sydney, namely "Don't worry about the roll out. It will be your decision. We are not bound to any roll out. It is for you to decide whether you continue the roll out or not" (para 8 of Mr Stassen's affidavit of 18 July 2000). Mr Ginges denied making such statement (para 23 of Mr Ginges' affidavit of 9 August 2000).
61 It is correct to say that the Primary Judge did not specifically rule on the foregoing conflict of testimony between Messrs Stassen and Ginges, but he did so implicitly. Under the heading "The oral evidence" set out in [119 to 121] of the judgment below, his Honour made findings adversely to Mr Stassen's credibility.
62 Given the correctness of my conclusions upon the contractual issues, the further pursuit of this cross claim becomes academic, since no loss could be said to have been sustained by Pepkor. No further ruling is therefore required in relation thereto upon this appeal, and the circumstance that the Primary Judge preferred Mr Ginges' testimony to that of Mr Stassen relevantly to the subject matter of this cross-claim is not a matter requiring further consideration by this Court.
(ii) Pepkor's fourth cross-claim against Divergent and its directors Shaun Rosen and Malcolm Thomas
63 By Pepkor's so-called "fourth cross claim", Pepkor claimed indemnity from Divergent and Messrs Rosen and Thomas upon the basis that during the course of Pepkor's due diligence enquiries, representations were made to the following effect:
"(i) an arrangement existed between Divergent and Ginger Max whereby Ginger Max could acquire Divergent's point of sale system for its stores at a fixed cost;(ii) the arrangement did not bind Ginger Max to `roll out' the point of sale system to any additional stores;
(iii) in the event that Pepkor purchased the business of Ginger Max, Divergent would not regard Pepkor as bound to a further `roll out' or purchase of its point of sale computer software and hardware;
(iv) Divergent did not hold any hardware on behalf of Best & Less and its procedure was to order such when Best & Less instructed it that a further `roll out' was sought;
(v) in the event that Pepkor acquired the business of Ginger Max and wished to proceed with a full `roll out' of the point of sale system, the pricing schedule previously agreed with Best & Less under the arrangement could be reduced by approximately 10%."
64 The findings of the Primary Judge were adverse to Pepkor's lay witnesses upon the issues the subject of this fourth cross claim. His Honour's findings conversely in relation to the credibility of the testimonies of the relevant Divergent officers at [123] were as follows:
"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."
65 Although therefore the Primary Judge does not appear to have made a specific ruling in relation to this fourth cross claim, it is obvious that the same could not have succeeded in the face of his foregoing findings on credibility, being findings unaffected by my conclusion upon the Divergent cause of action in contract. His Honour's decision on the fourth cross claim must therefore be allowed to stand.
(iii) Pepkor's first cross claim against Ginger Max and Ginges Holdings
66 Pepkor's so-called first cross claim against Ginger Max and Ginges Holdings for full indemnity for any liability of Best & Less to Divergent, involved a claim against Ginger Max and Ginges Holdings for damages for beach of contract, in the event that Pepkor was found to be in breach of the Installation Contract. Since I have found in favour of Best & Less in relation to such Divergent claim for breach of contract, this first cross claim no longer arises. In any event, the same was lacking in merit, in the light of the substance of the legal advice obtained by Pepkor before it gave notice of intention to the effect that it would not proceed further with the store roll out. There is no good reason for revisiting the outcome ordered by the primary Judge in relation to this cross claim.
(iii) The position of Ginger Max and Ginges Holdings
67 As indicated in [25] above, the statement of claim brought by Divergent, which of course initiated the subject proceedings at first instance, joined Ginger Max as Second Respondent, and averred against Ginger Max repudiation of the Installation Contract, and made a similar allegation against Best & Less. Such cause of action against Ginger Max at first instance was dismissed by the Primary Judge, and no appeal has been brought against that outcome. The only reason why Ginger Max and Ginges Holdings became parties to the present appeal was because the third cross claim referred to in [25] above brought by Pepkor and Best & Less asserted an entitlement to the benefit of certain indemnities from Ginger Max and Ginges Holdings under the Takeover Agreement in respect of any liability of Pepkor and Best & Less to Divergent. As has been mentioned in [62] above, such third cross claim was dismissed; however, Best & Less and Messrs Stassen and MacDonald, but not Pepkor, were mistakenly ordered to pay the costs of such cross claim. Consequently, appropriate orders will need to be made by consent to give effect to what the Primary Judge doubtless intended. Nevertheless Ginger Max and Ginges Holdings submitted twenty four pages of written submissions in purported response to the written submissions of Pepkor/Best & Less, and in addition addressed the Court at some length in relation thereto. Such written and oral submissions were strongly supportive of the position of Divergent on the appeal, being directed mainly to the contract issues upon which Pepkor/Best & Less have succeeded.
68 In the written submissions provided to the Court by Ginger Max and Ginges Holdings, it was indicated that the order as to costs made by the Primary Judge in relation to the third cross claim, in so far as the same was made against Mr Stassen and Mr MacDonald, was a slip and could not stand, and that the order for costs, which was made should have included Pepkor, in addition to Best & Less, as the parties subjected thereto. Pepkor readily accepted that situation to be correct, and in the upshot, the short minutes of order referred to below became the subject of agreement by the parties affected, subsequent to the hearing of the appeal. I will address the present implications of those short minutes below.
(iv) The position of Mr Stassen and Mr MacDonald as third and fourth appellants
69 The short minutes of orders signed by the Solicitors for Best & Less, Pepkor, Mr Stassen and Mr MacDonald (the Appellants), and by the Solicitors for Divergent, read as follows:
"SHORT MINUTES OF ORDER By consent of the Appellants and the First Respondent,
THE COURT ORDERS that
1. The appeal by the Third and Fourth Appellants from the judgment and orders of Justice Einfeld dated 20 March 2001 be allowed.
2. Orders 2, 3 and 5 of Justice Einfeld dated 20 March 2001 be varied by deletion therefrom of the references to the Third and Fourth Appellants.
3. The Statement of Claim of the First Respondent in so far as it relates to the Third and Fourth Appellants be dismissed.
4. The Cross Appeal by the First Respondent in so far as it relates to the Third and Fourth Appellants be dismissed.
5. The First Respondent and the Third and Fourth Appellants each pay their own costs in relation to the claims by the First Respondent against the Third and Fourth Appellants, including the costs in the Court below and on the appeal and cross appeal.
6. The order for security for costs made by His Honour Justice Einfeld on 26 September 2000 be vacated.
THE COURT NOTES that
7. The Appellants and First Respondent agree:
8. that the costs of the Third and Fourth Appellants and the First Respondent in relation to the claim made against the Third and Fourth Appellants in the court below (proceedings 342 of 1999) and of appeal (proceedings 375 of 2001) comprise 7.5 per cent of the total costs of the Appellants and the First Respondent as may be ordered respectively in both sets of proceedings;
9. that the costs of the Appellants and First Respondent of the proceedings as may be ordered shall be taxed, assessed or agreed without any exclusion of the costs attributable to the First Respondents [sic] claim against the Third and Fourth Appellants;
10. any Certificate of Taxation or agreement as to the costs of the First and Second Appellants or of the First Respondent in the court below and of the appeal will be enforceable up to a maximum 92.5 per cent of the amount so certified or agreed subject to any other order or direction of the court."
However the short minutes have not been signed by or on behalf of the Second Respondents Ginger Max and Ginges Holdings. Moreover it is appropriate that the parties give consideration to the making of any appropriate drafting corrections, in light of the Reasons for Judgment.
Generally
70 Because of the complexity of the proceedings, the issues raised on appeal, and my resolution of such issues, I would propose that the appeal be listed for mention at 10:15am on an appropriate day for the purpose of finalising the orders to be made in order to give expression to these reasons, as well as to the costs of the appeal. I direct that written submissions as to orders consequential upon the foregoing reasons for judgment be provided to the Court by 6 March 2002, after which an adjourned hearing will be convened for consideration of such submissions.
I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti. |
Associate:
Dated: 5 February 2002
Counsel for the appellants: |
Mr RBS MacFarlan QC with Mr TJ Hancock |
|
|
|
Solicitor for the appellants: |
Abbott Tout |
|
|
|
Counsel for the first respondent: |
Mr R Margo SC with Mr R Kaye and Mr T McAvoy |
|
|
|
Solicitor for the first respondent: |
Derrick Zabow & Co |
|
|
|
Counsel for the second & third respondents |
Mr DE Horton QC with Mr VRW Gray |
|
|
|
Solicitor for the second & third respondents |
Denes Ebner |
|
|
|
Dates of hearing: |
13-15 August 2001 |
|
|
|
Date of judgment: |
5 February 2002 |
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/cth/FCA/2002/43.html