Cabanda Pty Ltd v National Formal Wear Group Pty Ltd [2001] QSC 290

SUPREME COURT OF QUEENSLAND CITATION: Cabanda P/L v National Formal Wear Group P/L [2001] QSC 290 PARTIES: CABANDA PTY LTD (applicant/plaintiff) v NATIONAL FORMAL WEAR GROUP PTY LTD (respondent/defendant) FILE NO: S 985/1995 DIVISION: Trial Division PROCEEDING: Application to amend statement of claim DELIVERED ON: 10 August 2001 DELIVERED AT: Brisbane HEARING DATE: 3 August 2001 JUDGE: Wilson J ORDER: 1. That the plaintiff have leave to amend the following paragraphs of the Statement of Claim in accordance with the draft pleading which is exhibited SAS-6 to the affidavit of Sebastian Anthony Sapuppo filed on 25 July 2001 – paragraphs 1(a)(ii), 1(a)(v), 1A(a)(v), 2, 7(c)(iii), 13B, 14, 14A, 15, 16B, 16C, 16G, 18B, 19, 20(b)(ii), 21, 21B, 22A and 24A(a); 2. That the plaintiff have leave on or before 24 August 2001 to replead paragraphs 13A and 24A(b) of the said draft amended Statement of Claim; 3. That the application to amend paragraph 23 of the Statement of Claim be adjourned pending repleading of paragraph 24A(b). CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – where plaintiff orally agreed to provide exclusive dry cleaning services to defendant – -- 1 of 8 -- 2 where plaintiff incurred expenses in anticipation of performing its obligations under the agreement – where defendant chose not to enter contract with plaintiff – where plaintiff claimed damages for loss of profits - whether plaintiff could claim damages on the basis that if the contract had been performed it would have been renewed PROCEDURE – SUPREME COURT PROCEDURE – application to amend statement of claim – whether plaintiff should be given leave to replead Commonwealth v Amman Aviation Pty Ltd (1991) 174 CLR 64, applied. Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145, applied. COUNSEL: DR Laws for the applicant plaintiff MK Conrick for the respondent defendant SOLICITORS: Sunnybank Solicitors for the applicant plaintiff Bowdens Lawyers for the respondent defendant [1] WILSON J: This is a supervised case in which the plaintiff wishes to amend its statement of claim. [2] At all material times the plaintiff has been a company carrying on business as a dry cleaner, while the defendant has been a company carrying on business as a hirer of formal wear (jackets, trousers, shirts, ties, etc). [3] The plaintiff alleges that in or about May 1994 (apparently before the incorporation of the plaintiff) an oral agreement was made between Garry Maurice Beecroft (who subsequently became a director of the plaintiff) and Frank Park on behalf of the defendant for the exclusive provision of dry cleaning services to the defendant over the ensuing 5 years. The services were to be provided by the business G & C Dry Cleaners, which was operated by Mr Beecroft and his wife. The parties were to relocate to a single premises. [4] They were unsuccessful in finding suitable premises to share. G & C Dry Cleaners found new, separate premises and the agreement was varied to allow them to so operate for 2 years. [5] It is alleged, in effect, that the business of G & C Dry Cleaners was taken over by the plaintiff, and that on or about 17 January 1995 there was a novation of the agreement for the exclusive provision of dry cleaning services to the defendant. The plaintiff incurred liabilities in leasing and outfitting premises for use in the performance of its obligations to the defendant. -- 2 of 8 -- 3 [6] It is alleged that on or about 5 February 1995 the defendant repudiated the agreement by entering into an exclusive agreement with another dry cleaner Shalyn Pty Ltd and refusing to be bound by its contract with the plaintiff. [7] The plaintiff seeks to amend its statement of claim in accordance with a draft pleading which is exhibit SAS - 6 to the affidavit of Sebastian Anthony Sapuppo filed on 25 July 2001. At the commencement of the hearing of the application, no objection was taken to the amendment of the following paragraphs, which I accordingly allowed - paragraphs 1(a)(ii), 1(a)(v), 1A(a)(v), 2, 7(c)(iii), 13B, 14, 14A, 15, 16B, 16C, 16G, 18B, 19, 20(b)(ii), 21, 21B and 22A . I also allowed the plaintiff to replead paragraph 13A. [8] That left for determination the proposed amendments to paragraphs 23 and 24. The amendments to part A(a) of paragraph 24 were not opposed, and I allow them. [9] The plaintiff substituted for the draft amendment of Part A(b) of paragraph 24, which is contained in exhibit SAS – 6, another draft which is contained in document marked as exhibit 1 on the application. [10] Thus the amendments in dispute are as follows – 23. On or about 5th of February 2000, the Defendant renewed its contract with its exclusive drycleaner, Shalyn Pty Ltd, for a further term of years upon the same or similar terms, including as to Shalyn’s remuneration, to those prevailing at expiry of the first five (5) year period, namely, in about February 2000. At the Trial of this action the plaintiff shall rely upon – (a) The fact of the renewal of this said contract; and (b) the terms of such renewed contract. 24. By reason of the Defendant’s negligence and/or breaches alleged the Plaintiff has suffered heavy and substantial loss and damage- A. The Plaintiff has lost the benefit of its bargain (as alleged) with the defendant and/or the chance and/or opportunity … … … … … … … … … … … … … .. (b) the loss of value of the business at the conclusion of the contract period -- 3 of 8 -- 4 (i) The plaintiff relies on the said course of dealing and the facts pleaded in support of the contract alleged; (ii) In the premises, the parties had embarked, or the Plaintiff was induced to believe the parties had embarked upon a commercial relationship with a view to the longer term, but the plaintiff does not allege any further term or provision to the contract alleged by or under which a firm agreement (such as an Option exercisable by either party) was entered into to extend the initial contractual period as herein pleaded; (iii) The plaintiff repeats and relies on the facts pleaded at paragraph 23; (iv) In the premises, a renewal of the contract alleged by the plaintiff for a further period and upon the same or similar terms to those alleged, or as may be found to have been prevailing in or about February 2000, was not merely illusory but a reasonable possibility, amounting to or approaching a likelihood; (v) At the conclusion of the initial contract period, in or about early February 2000, the plaintiff’s business would have had a proven profit; (vi) In the event the defendant offered the plaintiff would have accepted renewal of an exclusive, (and “in- house”) dry cleaning contract upon the same or similar terms to those herein alleged; (vii) In the premises, the Plaintiff’s business would have had • Continuing income (including profit) and value as a going concern accordingly as a profitable business; and • subject to the defendant having reserved its right to consent to an assignment of the said putative renewed contract, a saleable value (viii) In the premises a Valuation struck on the basis of capitalisation of future maintainable earnings is appropriate as measure of the lost chance or opportunity suffered by the plaintiff (ix) A valuation struck on the basis pleaded at paragraph (v) hereof produces a loss (subject to which of the three (3) alternative bases of assumption specified at subparagraph (a) is employed) of between, at the lower end of the range under the first of the three said bases of assumption, TWO HUNDRED AND FIFTY THOUSAND DOLLARS ($250,000) and, at the higher end of the range represented by the third of the said bases of assumption, THREE HUNDRED THOUSAND DOLLARS ($300,000): The Plaintiff -- 4 of 8 -- 5 repeats and relies on the facts pleaded at paragraph 23 hereof AND the plaintiff claims, in the alternative • $250,000; or • $260,000; or • $300,000; or • $200,000, being $250,000 less a twenty percent (20%) discounting factor on a lost chance and/or opportunity assessment basis; or • $208,000, being $260,000 less a twenty percent (20%) discounting factor on a lost chance and/or opportunity assessment basis; or • $240,000, being $300,000 less a twenty percent (20%) discounting factor on a lost chance and/or opportunity assessment basis; or • such other sum as to this Honourable Court may seem just after allowance is made for relevant contingencies upon a lost opportunity/chance assessment basis. [11] The plaintiff wishes to claim damages being the value of its business at the end of the 5 year term (had the contract been performed) on the basis that it would have had the opportunity to renew or to negotiate a renewal of the contract (transcript page 22). It relies on the principle in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. The defendant’s position is that the draft pleading is deficient in that it does not contain facts from which it might be inferred that it was in the contemplation of the parties that at the expiration of the contract there would be a commercial benefit conferred upon the plaintiff in obtaining a further contract (transcript page 30). Even if the pleading is sufficient to raise the issue, it is so inadequate that the defendant ought to be required to replead (transcript page 40). [12] The classic formulation of an innocent party’s right to recover damages for breach of contract by Alderson B in Hadley v Baxendale (1854) 9 Ex 341 at 354; 156 ER 145 at 151 remains unassailed: the innocent party is entitled to such damages as arise naturally from the breach or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach. The application of the second limb involves an assessment of what the parties should have deduced from the facts known to them, judged by an objective standard. In Amann Aviation a company entered into a contract with the Commonwealth to provide aerial surveillance for three years. To enable it to perform the contract it spent a substantial amount in acquiring specially equipped aircraft. Soon after inception the Commonwealth repudiated the contract by serving an invalid notice of termination. The company accepted the repudiation and terminated the contract; it then sued for damages for breach. In the special circumstances of that case the company recovered damages (in the form of wasted expenditure) under the second limb in Hadley v Baxendale on the footing that there was a strong prospect that it would have secured a renewal of the contract when it expired. Although the Commonwealth would not have been contractually bound to -- 5 of 8 -- 6 renew the contract, the contract conferred a valuable benefit on Amann Aviation in the nature of a contractual advantage. Brennan J explained at pages 111 - 112 – “Was Amann contractually entitled to more than remuneration? A contract for coastal surveillance had been let by the Commonwealth from time to time and there was nothing to suggest that the Commonwealth had any intention of undertaking itself the task of coastal surveillance. It was a specialised service calling for costly capital equipment, notably aircraft, with little remainder value for any other use. Amann had tendered in competition with Skywest Airlines Pty Ltd (“Skywest”) and Skywest had threatened to dispose of its aircraft if Amann were permitted to continue the surveillance service after 12 September 1987. Skywest would probably have carried out its threat if the Commonwealth had not given Amann notice of termination on 12 September 1987. The commercial position was such that any successful tenderer who performed the contract for the stipulated period (three years) would be in a strong, if not unassailable, position to become the successful tenderer for a surveillance contract for the following period. Indeed the pressure which Skywest was able to bring to bear to secure engagement despite having failed in its tender demonstrates the commercial advantage possessed by a contractor who is equipped to provide and has been providing the service. The Commonwealth must have appreciated the nature of the advantage which the contract conferred on Amann when it entered into the contract with Amann. The Commonwealth’s promise to engage Amann to provide the service for three years carried with it the promise that Amann, by performing the contract, could work itself into a secure position as an equipped and established provider of the service and could thereby acquire a most substantial advantage in tendering for any succeeding contract. This was not an incidental benefit flowing merely from a trader’s reputation as a successful contractor; it was a benefit which was implicit in Amann’s right to perform the particular contract, having regard to the nature of the work, the capital and equipment required to perform it, the Commonwealth’s practice of letting tenders for the work and the limited competition among tenderers to do it. By repudiating the contract, the Commonwealth caused Amann to lose the commercial advantage it would have gained had the contract been performed. The loss of that advantage is compensable. The case is in this respect indistinguishable in principle from T.C Industrial Plant, Manubens v Leon and Herbert Clayton and Jack Waller Ltd v Oliver. The commercial advantage which Amann lost is not to be mistaken for a right to renewal of its contract. Had there been a right to renewal, the loss of that right would have to be taken into account1. But the Commonwealth cannot be held liable for the loss of a benefit which it had not expressly or impliedly promised Amann. It had not 1 As in Richardson v Mellish (1824), 2 Bing. 229, at p. 239 [130 E.R. 294, at p. 298]. -- 6 of 8 -- 7 promised renewal; it had promised that Amann should be the provided of the service for three years. It is the commercial advantage inherent in being the provided of the service for three years that is the benefit to be valued.” [13] I accept the basic submission of counsel for the defendant that it is incumbent on the plaintiff to set up a factual matrix from which it could be inferred that it was in the contemplation of the parties that a further contract would be let. [14] The draft paragraph 24A(b) (exhibit 1) seeks to incorporate allegations made earlier without repeating them. It does this in such a general, non-specific way as to be embarrassing. The particular allegations relied on in support of this head of damages should be identified – indeed, it may be preferable to set them out afresh. I have had difficulty in gleaning what it is that the plaintiff alleges was sufficiently special about its contract with the defendant or the circumstances surrounding its making to have reasonably brought the prospect of renewal within the contemplation of the parties at the time the contract was made. [15] I shall deal briefly with the principal points taken by counsel for the defendant. Sub para (i) that it is so lacking in particularity as to be meaningless. I accept this submission. Sub-para (ii) that particulars are required of the state of mind alleged – I agree; that the expression “in the longer term” is vague and uncertain – I agree; that the basis for the expectation that the commercial relationship would extend beyond the initial five year term should be particularised - I agree; indeed this is the core of the objection to the whole of para 24 A(b); that it is verbose – I agree. Sub-para (iii) that it could not be inferred from the renewal of the Shalyn contract 5 years later that at the time the contract between the plaintiff and the defendant was made the prospect of its renewal was reasonably within the parties’ contemplation. Subsequent events may throw light on what was objectively likely at an earlier time, but I cannot see how the fact of renewal of a contract with someone else goes to whether this contract was sufficiently special for the principle in Amann Aviation to be applicable. The renewal may be -- 7 of 8 -- 8 explicable simply on the basis of quality of work and price. Sub-para (vi) that there is a non-sequitur between the plaintiff’s earlier pleading that it had taken separate premises and renewal of an in-house dry cleaning contract. While there is some force in the submission of counsel for the plaintiff that it does not necessarily follow from the taking of a lease of separate premises that the plaintiff would have been locked into that lease and so unable to take up an in-house contract, I cannot see how the fact that the plaintiff would have accepted a renewal had it been offered goes to the question of whether this contract was sufficiently special for the principle in Amann Aviation to apply. Subpara (vii) Objection was taken to the use of the word “putative”. This merely a semantic point. Subpara (ix) Objection was taken to the expression “on a lost chance and/or opportunity assessment”. This is not a term of art, but the point is a semantic one. [16] In its present form paragraph 24 A(b) should be struck out, but the plaintiff should be given the opportunity to replead. The present relevance of paragraph 23 is not clear, but I will not disallow that amendment pending the repleading of paragraph 24A(b). Orders: 1. That the plaintiff have leave to amend the following paragraphs of the Statement of Claim in accordance with the draft pleading which is exhibited SAS-6 to the affidavit of Sebastian Anthony Sapuppo filed on 25 July 2001 – paragraphs 1(a)(ii), 1(a)(v), 1A(a)(v), 2, 7(c)(iii), 13B, 14, 14A, 15, 16B, 16C, 16G, 18B, 19, 20(b)(ii), 21, 21B, 22A and 24A(a); 2. That the plaintiff have leave on or before 24 August 2001 to replead paragraphs 13A and 24A(b) of the said draft amended Statement of Claim; 3. That the application to amend paragraph 23 of the Statement of Claim be adjourned pending repleading of paragraph 24A(b). -- 8 of 8 --