O'Doherty v T G Eakin Ltd & Anor [2004] NSWCA 38 (3 March 2004)

Last Updated: 8 March 2004

NEW SOUTH WALES COURT OF APPEAL

CITATION: O'Doherty v T G Eakin Ltd & Anor [2004] NSWCA 38

FILE NUMBER(S):

40147/03

HEARING DATE(S): 15/12/03

JUDGMENT DATE: 03/03/2004

PARTIES:

APPELLANT

Kevin Patrick O'Doherty

RESPONDENTS

T G Eakin Ltd and Tom Eakin

JUDGMENT OF: Mason P McColl JA Cripps AJA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): 9737/97

LOWER COURT JUDICIAL OFFICER: Certoma DCJ

COUNSEL:

Appellant: G J McVay

Respondent: J C Kelly SC

SOLICITORS:

Appellant: Steingold Abel Lawyers

Respondent: Gadens Lawyers

CATCHWORDS:

Contract - "Entire contract" - Construction - Damages - Whether settlement with third party should be taken into account (ND)

LEGISLATION CITED:

DECISION:

Appeal and cross appeal dismissed.; Order of Certoma DCJ affirmed.; Appellant to pay respondent's costs of appeal.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COURT OF APPEAL

CA 40147/03

MASON P

McCOLL JA

CRIPPS AJA

Wednesday 3 March 2004

O'DOHERTY v T G EAKIN LTD & ANOR

Judgment

1 MASON P: I agree with Cripps AJA.

2 McCOLL JA: I agree with Cripps AJA.

3 CRIPPS AJA: This is an appeal from a decision of his Honour Judge Certoma DCJ published on 10 February 2003 in proceedings between the appellant Kevin Patrick O'Doherty and the respondent T G Eakin Ltd.

4 The litigation is concerned with an agency agreement entered into in 1991 between the appellant in Australia and the respondent in Northern Ireland for the promotion and sale of surgical products manufactured in Northern Ireland and sold in Australia and, as well, with an agreement terminating the agency.

5 As will be seen, the appellant in breach of his obligations under the agency agreement, misappropriated money belonging to the respondent by paying cheques made payable to the respondent (or which should have been made payable to it) into his own personal account.

6 The agency was terminated in early February in 1997 and on 9 February 1997 the parties entered into a termination agreement the details of which will be referred to later.

7 In 1997 the appellant commenced proceedings against the respondent for what were claimed to be breaches by the respondent of its obligations under the agency agreement and the termination agreement.

8 The respondent denied the appellant's entitlement to any damages arising under the agreements and, by a cross-claim, sought damages for alleged breaches of the agency agreement and termination agreement.

9 The learned trial judge dismissed the appellant's claim and found for the respondent in the sum of $144,340.81 being the amount the appellant agreed he owed the respondent by operation of the agency agreement and the termination agreement.

10 The respondent also cross-claimed against the National Bank of Australia Limited alleging that in breach of its duty to the respondent it credited to the plaintiff's account the proceeds of cheques drawn in favour of the respondent. The Bank, in turn, cross-claimed against the appellant claiming that if it were liable to the respondent any liability so found should be met by the appellant whose conduct caused the Bank to credit the proceeds of cheques made payable to the respondent into the appellant's account.

11 After the hearing had commenced but prior to judgment being delivered the cross-claim of the respondent against the Bank and the cross-claim of the Bank against the appellant were discontinued upon the Bank paying to the respondent the sum on $100,000. The learned trial judge was aware that the cross-claims had been discontinued but he did not know that the Bank had agreed to pay the respondent $100,000.

12 At the hearing of the appeal, the appellant sought to invoke the "slip rule" to be allowed to raise in the appeal, a claim that the respondent's case against him for monies owing under the agency agreement should be reduced by the sum of $100,000. The explanation for the claim not being raised before the learned trial judge is less than satisfactory. I am not persuaded that the failure by the learned judge to consider what is now claimed by the appellant was relevantly a "slip" amenable to the rule. However, if it is the fact that, in law, the $100,000 paid by the Bank should have been recognised by the trial judge as part satisfaction of the claim brought by the respondent against the appellant there would seem to be no reason why the matter should not be allowed to be raised at the present time bearing in mind that Mr Kelly on behalf of the respondent could point to no prejudice to his client beyond asserting that if the $100,000 is to be taken into account the respondent should be entitled to have deducted from it an amount referable to the costs the respondent incurred prior to the settlement with the Bank. That some costs were incurred by the respondent in its claim against the Bank is evident from the terms of settlement which was signed by the Bank, the appellant and the respondent.

History

13 The agency began in 1991. The agreement provided for delivery to the appellant in Australia of surgical products in anticipation of orders. The goods remained the property of the respondent until sold to customers in Australia and on receipt of orders the appellant was to issue invoices and send copies to the respondents at regular intervals. When the appellant received payments he was to forward the payments with a copy of the relevant invoices to the respondent at the end of each month. Upon receipt of the cheques the respondent paid the appellant commission at a rate (at least after 1994) of 25 per cent of the amount forwarded to it.

14 The learned trial judge found that some cheques that should have been made payable to the respondent were made payable to the appellant. Tom Eakin on behalf of the respondent sought an explanation from the appellant as to why cheques that should have been made payable to the respondent were made payable to the appellant. He was told, and he believed, that the cheques were made payable to the appellant because the customers were under the mistaken belief that monies were owed to the appellant. The appellant was then instructed to write on the back of cheques made payable to the appellant the words "payable only to the account of T G Eakin Ltd" under his signature and the cheques were then forwarded to the respondent. However this arrangement was not satisfactory to the respondent's Bank and the appellant was told this.

15 It is unnecessary for me to repeat the commendably detailed examination of the facts and circumstances that are set out in the judgment of the learned trial judge. What is clear is that at least from 1994 the appellant was not accounting to the respondent for monies received in respect of sales. Sometimes monies were not sent at the end of each month. Sometimes the appellant actually misappropriated monies by paying cheques made payable to him into his own account in circumstances where he knew the money belonged to the respondent. Sometimes he paid cheques made payable to the respondent into his own personal account. These were findings made by the learned trial judge and there is no appeal against them. It was clear that the appellant had behaved dishonestly and gave deceitfully misleading information to the respondent. He was in breach of the agency agreement by not remitting monies to the respondent and, as I have said, he banked customer cheques drawn in favour of T G Eakin into his own personal account.

16 As I have said initially the respondent accepted the appellant's statement that some cheques were made payable in favour of the appellant because customers in Australia believed payment should be made to the appellant. However the respondent was aware that the appellant was not performing his obligations under the agreement. Matters came to a head in January 1997 when cheques to the value of $66,533.76 were received by the respondent in an envelope postmarked with a date in October 1996. Tom Eakin on behalf of the respondent came to Australia to confront the appellant.

17 On the day Tom Eakin left for Australia the respondent received a cheque for the sum of $75,701.92 drawn by the appellant and made payable to the respondent which, as will be seen, was not met on presentation. There was a dispute before his Honour concerning what information was given to the respondent in early February 1997. The issue was resolved in favour of the respondent and there has been no appeal against the finding. That finding was that although the respondent knew the appellant was banking cheques made payable to the appellant himself it did not know the appellant was in fact banking cheques to his personal account that had been drawn in favour of the respondent. The trial judge also found that prior to entering into the termination agreement the appellant assured the respondent that he owed him in all an amount of $141,103.10 being the $75,701.92 referred to above together with a further amount of $65,401.18 and that that was the only amount owing. As events turned out that was not correct. There were other monies owing which the appellant did not tell the respondent about although there is no finding as to whether that was the result of dishonesty or incompetence.

18 Of significance in the appeal is the circumstance that Tom Eakin was aware that the appellant was putting money into his own personal account and not accounting for it to the respondent when he knew the money belonged to the respondent and not him. He mentioned criminal proceedings. He terminated the agency agreement. He drew up a document which was signed by himself as managing director of the respondent and the appellant.

19 The terms of the agreement are as follows:

1. "This agreement between Kevin O' Doherty (KODIMEX) herein after KEVIN and Tom Eakin (T G EAKIN LTD) herein after TOM, is to pursue the smooth transfer of the current marketing arrangements for the distribution of products of TOM in Australia and supplies to New Zealand as manufactured and delivered by TOM.

2. KEVIN will assist the smooth transfer to ONE OTHER not yet defined by immediately passing on all orders and messages, giving physical and moral support during this transfer.

3. KEVIN will assist by immediately passing on contact details to any existing or potential customers of the newly appointed agent without detrimental comment or innuendo relating to either the PRODUCTS of TOM or TOM.

4. KEVIN will provide a copy of his agency and note paper as defined on Exhibit A attached.

5. KEVIN will assist by immediately passing on contact details of any existing or potential customers of the newly appointed agent without detrimental comment or innuendo relating to either the products of TOM, TOM or the appointed agent of TOM.

6. KEVIN will forward by secure delivery and will FAX details of such delivery within one hour of despatch of all cheques, monies, credits, or information relating to those owing to TOM within one week of receipt by KEVIN.

7. KEVIN will not disclose or use for any purpose any information or knowledge relating to the marketing of the products of TOM before the date of this agreement.

8. KEVIN will pursue all debts outstanding and will be responsible for the value of, less commission, any not received after twelve weeks from the date of this agreement.

9. TOM upon receipt of all sales monies or other benefits will, return to KEVIN commission equal to 25% (twenty five %) of the value of such receipts in Australian Dollars.

10. TOM will, as a gesture of good will, forward after a period of twelve weeks from the date of this agreement a sum of $150,000.00 (One hundred and fifty thousand Australian Dollars)

Signed this 9th day of February 1997

KEVIN (Signed) Witness (Signed)

(Numbering of paragraphs mine.)

20 In the twelve weeks referred to in par 8 of the termination agreement the appellant paid most, but not all, of the money he received during that period on behalf of the respondent to the respondent. There were two cheques which, in breach of the agreement, he banked into his own personal account. These cheques amounted as to one in a sum a little over $2,900 and in the other a little over $300. The appellant alleged that he paid these cheques into his own account because the drawers of the cheques were entitled to credits. The learned trial judge did not make a specific finding of dishonesty with respect to these cheques. He found, however, that even if the appellant's version of events were correct he was in breach of the agreement by paying the cheques into his own personal account. (During the appeal a further allegation made on behalf of the respondent that a cheque in an amount of $29,000 was also misapplied but that submission was withdrawn by the respondent.) Moreover, as I have mentioned, his Honour found that the appellant did not accurately disclose information to the respondent prior to the agreement entered into as to the true state of customer accounts.

21 The appellant's claim against the respondent was:

1. That he was owed $150,000 by operation of cl 10 of the termination agreement.

2. That the respondent was in breach of the termination agreement in failing to pay him the sum of $54,461.51 being 25 per cent of the monies paid to the respondent by the appellant in the twelve week period.

3. "Expenses $5,500".

22 The respondent cross-claimed for monies due to it under the agency agreement and the termination agreement. There is some confusion about the amounts said to be agreed as owing by the appellant to the respondent. In February 1997 the appellant said he owed the respondent $141,000 being the sum of $75,701.92 (the dishonoured cheque) and a further $65,401.18 which the appellant represented to the respondent was the only amount outstanding.

23 At the hearing before the trial judge and on appeal the appellant did not deny he owed the respondent the sum of $144,340.81 made up of the sum of $6,132.68 (payable, as will be seen, by operation of par 8 of the termination agreement) and $138,208.13 all but $3,200 of which was referable to sums collected prior to the termination agreement being entered into but not paid.

24 It follows that the appellant's claim against the respondent was in an amount of $209,961.51 being the sum of the three nominated items referred to above.

25 The parties agreed at the hearing and in the appeal that that the respondent (and leaving to one side any allowance required to be made by it on account of the receipt of $100,000 referred to above) was owed $144,340.81 being made up as follows:

(a) $138,208.13 being monies collected by the appellant and not forwarded to the respondent and which included the two cheques ($2,900 and $300) collected during the twelve week period and deposited to the appellant's account.

(b) $6,132.68 being the appellant's obligation pursuant to par 8 of the termination agreement in respect of monies not collected by the appellant.

26 Before turning to the appellant's submission it is appropriate to deal with two submissions made by the respondent. The first is that the appellant was in breach of the termination agreement because he made a comment about the defendant to one Mr Bayliss a customer of the respondent. Mr Eakin claimed that Bayliss said to him "he said you sacked him after doing a good job for you for no good reason." The appellant in evidence said he told Mr Bayliss that he had lost the agency and "in my view there was fault on both sides." The learned trial judge rejected the submission that the appellant's conduct amounted to breach of par 3 of the termination agreement holding that he preferred the evidence of the appellant to the hearsay evidence of Mr Eakin and that his conduct did not amount to detrimental comment or innuendo within the meaning of par 3. I agree.

27 It was also submitted on behalf of the respondent that it was entitled to rescind the termination agreement by reason of the appellant's misrepresentations concerning the amount owing prior to the termination agreement being entered into. There was some debate concerning whether it was open to the respondent to rescind the contract but these arguments need not be pursued because, on any view of the matter, the respondent did not purport to rescind the termination agreement.

28 There remain four questions for determination. The first is whether the appellant was entitled to the sum of $5,500 for expenses. The second is whether the appellant was entitled to the sum of $54,461.51 being 25 percent of the monies paid to the respondent by the appellant during the twelve week period. The third is whether in the events which have happened the appellant was entitled to receive the sum of $150,000 pursuant to par 10 of the termination agreement. The fourth is whether the amount owing by the appellant to the respondent should be reduced by $100,000 or any part of that sum by reason of what has been referred to as the "rule against double compensation" (see Franklins Self Service Pty Ltd v Wyber 48 NSWLR 249 at 254.).

Expenses - $5,500

29 The evidence does not disclose what it was the appellant was entitled to expenses for in what was said to be an agreed amount of $5,500. Apparently the parties agreed on this amount but I can find no reference in the appeal book as to what it relates to. The respondent did not admit liability for it. The learned trial judge found that the sum was not owing. He posed the question as follows:

Is the first defendant (Eakin) liable to the plaintiff (O'Doherty) for any outstanding expenses incurred by the plaintiff (O'Doherty) in relation to the agency, such expenses being in the nature ordinarily paid under the agency agreement? If so the amount is agreed mathematically at $5,500. Answer: No.

The learned trial judge found that the dishonest conduct of the plaintiff disentitled him to the expenses as claimed. I am not persuaded this finding should be disturbed.

Commission - $54,461.51

30 In my opinion the appellant's entitlement to commission on monies remitted pursuant to par 9 of the termination agreement depended upon the respondent receiving "all sales monies ...." (underlining mine). On any view of the matter the appellant has not accounted for $138,203.13. I reject the argument that par 9 is concerned only with sales monies received during the twelve week period (but even then $3,200 was not forwarded). In my opinion par 9 is directed to all sales monies owing by the appellant to the respondent. In my opinion the appellant was not entitled to commission in the amount claimed.

Goodwill - $150,000

31 With respect to this claim the learned trial judge said:

"Construing the contract as a whole, it is apparent that its purpose was to wind up the agency relationship and to come to a final account with the plaintiff on agency affairs after twelve weeks of the date of the agreement, at which time the lump sum was made payable to the plaintiff. The intent to finalise the agency affairs is manifest in the provision that the plaintiff (appellant) would be responsible for the value of outstanding customer debts (less commission) after twelve weeks of the date of the agreement. Though the plaintiff (appellant) argued that the lump sum payment was not the only obligation of the defendant under the agreement the other apparent obligation on the part of the defendant (respondent) to pay commission on sales in accordance with past or existing practice should not be construed to detract from the purpose and entire nature of the contract. That provision merely went to the mechanics of achieving the finalisation of the agency relationship and was incidental to the purpose of the agreement."

32 In my opinion the appellant was entitled to $150,000 if he established that he had substantially discharged his obligations to the respondent under the agency agreement and the termination agreement. Accordingly had the appellant forwarded all monies owing to the respondent other than the $2,900 and $300 referred to above he would have been entitled to receive $150,000 from the respondent because he would have substantially complied with his obligations under the agreements. However, as is agreed, he did not account to the respondent for the sum of $138,208 almost all of which he had collected prior to the termination agreement but had not forwarded to the respondent. Bearing in mind the background referred to above I would infer that it was the intention of the parties that provided the appellant substantially complied with the obligations owing to the respondent (under the agency agreement and the termination agreement) he would receive the sum of $150,000. It is to be recalled that at the time of entering into the agreement the respondent was told that overall the amount owing was $141,103.10 and the agreement made provision for what would happen if the appellant was unable to collect amounts owing. (see par 8). In my opinion the appellant has not established an entitlement to $150,000.

Cross Claim Settlement - $100,000

33 In my opinion to allow the respondent to recover $144,340.81 would be to award double compensation. On behalf of the respondent Mr Kelly could point to no prejudice to his client if the claim is allowed to be pursued beyond, as I have mentioned, asserting that if his claim is to be reduced by reason of the settlement the respondent should be entitled to have deducted from it an amount referable to the costs the respondent incurred prior to the settlement with the Bank. In the interest of terminating this litigation I would make an arbitrary allowance for costs at $5,000 and reduce the sum owing by the respondent by $95,000.

34 I would propose the following orders:

1. The appellant's appeal is dismissed.

2. The respondent's cross appeal is dismissed.

3. Otherwise than with respect to the order for costs the order of the learned trial judge be set aside and in lieu thereof judgment be entered for the respondent in an amount of $49,340.81.

4. The appellant is to pay the respondent interest on an amount $144,340.80 from 31 May 1997 to 31 December 2001 and thereafter on the sum of $49,340.81.

5. Parties to bring in short minutes to give effect to the order in par 4 within 14 days from publication of the judgment.

6. The appellant to pay the respondents' costs of the appeal.

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LAST UPDATED: 05/03/2004