Décor Blinds Gold Coast Pty Ltd v Décor Blinds Australia Pty Ltd [2004] QSC 55

SUPREME COURT OF QUEENSLAND CITATION: Décor Blinds Gold Coast Pty Ltd v Décor Blinds Australia Pty Ltd [2004] QSC 055 PARTIES: DÉCOR BLINDS GOLD COAST PTY LTD ACN 010 826 758 (plaintiff) v DÉCOR BLINDS AUSTRALIA PTY LTD ACN 068 569 844 (defendant) FILE NO/S: S 10083 of 2000 S 450 of 2002 DIVISION: Trial PROCEEDING: Claim ORIGINATING COURT: Supreme Court DELIVERED ON: 24 March 2004 DELIVERED AT: Brisbane HEARING DATES: 4, 5, 6, 7, 8, 11, 12, 14 August 2003 JUDGE: Atkinson J ORDER: Judgment for the Plaintiff CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – use of extrinsic evidence to ascertain meaning where term in contract ambiguous – rules applicable to construction of commercial contracts – meaning of term ‘profit’ CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – REPUDIATION AND NON- PERFORMANCE – ANTICIPATORY BREACH – where one party is not ready, willing and able to perform the contract – where plaintiff had also breached contract – whether breaches by plaintiff gave rise to right to terminate in the defendant – whether wrongful termination constituted repudiation – where repudiation accepted by plaintiff -- 1 of 34 -- 2 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, applied Arbuthnott v Fagan (unreported) 30 July 1993 Court of Appeal (UK), applied Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, applied Bacchus Marsh Concentrated Milk Co Ltd (in Liquidation) v Joseph Nathan & Co Ltd (1919) 26 CLR 410, applied Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, cited Charter Reinsurance Co Ltd v Fagan [1997] AC 313, applied Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, applied CSR Ltd v Tanco Kimpex Export Corp Pty Ltd [2003] QCA 568, cited Dart Industries Inc v The Décor Corporation Pty Ltd (1994) 179 CLR 101, cited DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, cited Foran v Wight (1989) 168 CLR 385, cited Geroff & Ors v CAPD Enterprises Pty Ltd & Ors [2003] QCA 187, applied Goldtaper Pty Ltd v Berela Limited [2001] QCA 564, applied Groves v BMW Finance Ltd [2001] QCA 16, applied Hilas & Co Ltd v Arcos Ltd (1932) 147 LT 503, cited Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98, applied Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, applied Manufacturers Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cases 60-853, applied NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740, cited Pukallus v Cameron (1982) 180 CLR 447, applied Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289, applied Sattel v The Proprietors Be Bee’s Tropical Apartments Building [2001] QCA 56, applied Scammell (G) & Nephew Ltd v Ouston [1941] AC 251, cited Segacious Pty Ltd v Fabrellas [1991] 1 QdR 471, cited Slee v Warke (1949) 86 CLR 271, applied Taylor v Johnson (1982 – 1983) 151 CLR 422, applied Trawl Industries v Effem Foods Pty Ltd (1992) 27 NSWLR 326, applied Upper Hunter County District Council v Australian Chilling v Freezing Co Ltd (1968) 118 CLR 429, applied L Schuler AG v Wickham Machine Tool Sales Ltd [1974] AC 235, applied -- 2 of 34 -- 3 COUNSEL: H B Fraser QC with M Gynther for the plaintiff C J Carrigan for the defendant SOLICITORS: Eric Muir for the plaintiff Nicholsons for the defendant [1] The plaintiff company, Décor Blinds Gold Coast Pty Ltd (“Décor Gold Coast”), has claimed an account of profits for the period 1 July 1997 to 23 December 1999 under a contract entered into between the plaintiff and the defendant; and damages for the future profit the plaintiff would have earned under that contract. The defendant is Décor Blinds Australia Pty Ltd (“Décor Australia”). The issues raised on the pleadings include the formation of the contract; the meaning of its terms; whether or not there was a breach of contract; if so, by whom; when the contract was terminated; and whether or not the plaintiff suffered loss or damage. The parties were able to agree on the quantum of loss from 1 July 1997 to 23 December 1999 depending on the interpretation of the contract and other findings as to liability by the court. The precise quantum of future loss or damage was not traversed at this stage of the litigation although the court was asked to decide the principles for its determination. Contract between the parties [2] What was not in dispute between the parties was that they entered into two written contracts, one dated 1 July 1997 (the “1 July contract”) which was superseded by a second written contract dated 16 October 1997 (“the final contract”). Although there were some differences between the two contracts which will be referred to in these reasons, nothing turns on the changes so far as liability under the contract is concerned. [3] The final contract was a sales and supply agreement between Décor Australia and Décor Gold Coast. It recited that Décor Australia was the manufacturer of blinds and shutters (“the goods”) which it had agreed to supply to Décor Gold Coast. The recitals also provided that the contract was to record the terms of the supply of and payment for the goods. [4] The final contract provided that it would last for a period of five years commencing on the date of the agreement. Décor Gold Coast had the right to renew the agreement on an annual basis by written notice to Décor Australia and the payment of $100 per annum (Clause 1). The final contract provided that upon receipt of a written order from Décor Gold Coast, Décor Australia would manufacture such goods giving them priority over goods being manufactured for the general public. Décor Australia would notify Décor Gold Coast of the goods being available for collection. Décor Gold Coast was obliged to collect the goods from the premises of Décor Australia or the goods would be dispatched by courier to Décor Gold Coast at the expense of Décor Australia. The number of days within which Décor Gold Coast was obliged to collect the goods after notification by Décor Australia was left blank in the final contract (Clauses 2 and 3). -- 3 of 34 -- 4 [5] Clause 4 obliged Décor Gold Coast to make payment to Décor Australia within 14 days of Décor Gold Coast being notified that the goods were available for collection or from the delivery of the goods by Décor Australia. Clause 11 of the contract set out the prices which Décor Gold Coast would pay to Décor Australia for the goods expressed as a discount off the retail price or, in the case of aluminium blinds, which were not manufactured by the defendant, the wholesale price. The prices were: (a) Clear Danish oiled timber Venetian blinds 40 per cent off retail price (b) Other timber Venetian blinds, plantation shutters, and Cedarcraft Roman Blinds 35 per cent off retail price (c) Aluminium blinds 5 per cent off wholesale price (d) Vertical louvre drapes 55 per cent off retail price [6] If payments were made within the time stipulated in cl 4 then the prices referred to in cl 11(a) and cl 11(b) were reduced by a further 5 per cent to 45 per cent and 40 per cent off respectively. Clause 12 provided that Décor Australia was not required to supply any further goods if at any time there was a sum in excess of $20,000 owing by Décor Gold Coast to Décor Australia. [7] Various clauses were inserted which obliged Décor Gold Coast to act so as to promote and not damage the commercial reputation of Décor Australia, breach of which would give rise to a right in Décor Australia to terminate the agreement. Under cl 19, Décor Gold Coast agreed that it should at all times “promote the sale and distribution of the goods to the best of its ability”. If it should fail to do so, Décor Australia could terminate the contract. Clause 15 provided that Décor Gold Coast would be in fundamental breach of the contract if either it or its servants, agents or representatives should be in breach of any clause of the contract or do or omit to do anything likely in any way to damage the reputation of Décor Australia or any of the products which it manufactured or offered for sale. [8] Various reciprocal responsibilities were agreed to give effect to what might loosely, and somewhat inaccurately, be described as a sole or exclusive agency agreement. Clause 13 of the contract provided that Décor Gold Coast would not sell or act as agent for the sale of any products which were similar to or in competition with the products manufactured or sold by Décor Australia without the prior express written consent of Décor Australia. Under cl 6, Décor Gold Coast agreed to keep the trading terms confidential as a trade secret. [9] Clauses 10 and 18 set out what might be regarded as the reciprocal obligations of Décor Australia. Clause 18 provided that: “In the event that any of the goods were sold by [Décor] Australia or any agent or representative authorised by it for installation in any premises in the area bounded by Coomera in the north to Tamborine Mountain in the west to Tweed Heads in the south and east to the sea [(“Gold Coast area”)] by then [Décor] Australia shall account to [Décor Gold Coast] for the profits of any such sale.” -- 4 of 34 -- 5 [10] Clause 10 provided: “If any sales leads relating to potential customers in the area in which [Décor Gold Coast] shall conduct its’ [sic] business shall come to the knowledge of [Décor] Australia, it shall as soon as possible provide details of those to [Décor Gold Coast] and [Décor] Australia shall not sell or supply goods to such people without accounting to [Décor Gold Coast] for any profit on the sale of such goods”. [11] Clause 10 dealt with Décor Australia’s duty to account for any “profit” on the sale of goods to any customers in the Gold Coast area; and cl 18 dealt with Décor Australia’s duty to account for the “profits” made on the sale of goods for installation in the Gold Coast area. [12] Central to the dispute between the parties, was the meaning of cl 10 and cl 18. The first question to be determined is whether or not cl 10 and cl 18 are so uncertain that they are void. The parties in this case strongly argued for different meanings of those clauses in the contract which tended to suggest that it was likely that the clauses were ambiguous. If they were ambiguous, it did not necessarily follow that their meaning was so uncertain that the contract was void. Resolution of Ambiguity [13] It is the role of the court to resolve the ambiguity and determine the true meaning of such a contract. In this approach, I respectfully agree with Barwick CJ in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd: 1 “… a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin’s words in this connexion in Hilas & Co Ltd v Arcos Ltd (1932) 147 LT 503, at 512 ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright’s words in Scammell (G) & Nephew Ltd v Ouston [1941] AC 251 is not ‘so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention’, the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.” 1 (1968) 118 CLR 429 at 436-437. -- 5 of 34 -- 6 [14] In this case, the clauses in question are ambiguous but not in my view devoid of meaning. It falls to the court to determine the meaning of cl 10 and of cl 18. In this case, the particular ambiguity in the clauses is found in the use of the term “profit” or “profits”. What does that term mean in the context of this contract? The term “profit” may have a number of different meanings: the Oxford English Dictionary lists many of them. [15] The term “profit” may have one of the four alternative meanings pleaded in para 11 of the statement of claim. It may mean, as the plaintiff alleged in para 11(a) of the statement of claim, the difference between the published retail price for the goods to which the clause applies which were sold by the defendant (or by its agent or representative) and the price for which the defendant was obliged by cl 11 of the contract to supply goods of the same description to the plaintiff. [16] It may mean, as alleged in para 11(b) of the statement of claim, the difference between the price for which the goods to which the clause applies were sold by the defendant (or by its agent or representative) and the price for which the defendant was obliged by cl 11 of the contract to supply goods of the same description to the plaintiff. [17] In para 11(c), the plaintiff alleged that it was agreed by, or it is to be implied from, recital (a) and cl 2, cl 5 and cl 13, and cl 10, cl 11 and cl 18 of the contract that, when calculating “profit” for the purposes of cl 10 or cl 18: i) the cost to the defendant of manufacturing the goods sold by it (or by its agent or representative) is not more than the price for which the defendant was obliged by cl 11 of the contract to supply goods of the same description to the plaintiff; and/or ii) the sale price of sales by the defendant (or by its agent or representative) to which cl 10 or cl 18 applies is the greater of the published Retail Price and the actual sale price. [18] Alternatively, it was pleaded in para 11(d) that profit means the net amount of money received by the defendant from that sale of the goods to which cl 10 or cl 18 applies, less the sum of: i) the defendant’s direct cost of manufacturing the goods; and ii) the defendant’s direct cost of selling the goods; and iii) the amount by which the defendant’s overhead costs attributable to its manufacture and sale of the goods of the kind described in cl 11 of the contract were increased by that sale of the goods to which cl 10 or cl 18 of the contract apply; or iv) (in the alternative to (iii.)), the amount of the defendant’s overhead costs attributable to that sale of goods to which cl 10 or cl 18 applies. -- 6 of 34 -- 7 [19] It may mean, as the plaintiff argued at trial, the amount which is the price at which the defendant sold goods to customers or for installation in the Gold Coast area less the amount by which the defendant’s costs of its sales business increased by the particular sales the subject of the account. These costs would comprise for a particular sale: the amount paid by the defendant to the manufacturer, Cedarcraft Pty Ltd (“Cedarcraft”), to acquire the goods the subject of the sale, to the extent that such costs did not exceed the actual costs of the manufacture of those goods; other direct costs attributable to that particular sale, such as the cost of an outgoing phone call, the cost of a courier to deliver only the goods the subject of the sale, the cost of sending the invoice etc; and any identifiable increase in the defendant’s overhead in fact attributable to the particular sale. (None of the manufacturing overheads – staff, building, factory telephone, rates, ownership costs etc – would be included, they being absorbed in the price paid to Cedarcraft.) [20] It may mean, as the defendant argued, the profit which Décor Australia made as a result of selling goods to other purchasers in the Gold Coast area, or for installation in the Gold Coast area, rather than to the plaintiff. This is the difference in price between what Décor Gold Coast would have paid for the goods and the higher price paid by other wholesale customers. This was profit made by Décor Australia that would otherwise have gone to Décor Gold Coast. This amount would ordinarily be 5 per cent of the retail price of the goods. [21] This is a case in which extrinsic evidence is admissible to resolve the ambiguity and determine objectively the meaning of the contract.2 The extrinsic evidence concerns the context, being the factual background known to the parties and the circumstances in which the contract was made and their presumed intention in that setting, rather than the subjective intention of the parties.3 [22] Post-contractual behaviour is not relevant in determining the objective meaning of the contractual terms.4 It has some relevance to rectification of the contract where it is alleged that the contract does not express the true agreement between the parties.5 However, the concurrent intention of the parties must exist at the date of execution of the contract sought to be rectified.6 Evidence of post-contractual conduct is relevant only to the question of what the concurrent intention at the time of the execution of the contract was. [23] The defendant argued in the alternative that if, objectively, the contract had the meaning other than that for which it argued, then it should be rectified to reflect the true intention of the parties. The remedy of rectification is designed, as Mason J 2 Bacchus Marsh Concentrated Milk Co Ltd (In Liquidation) v Joseph Nathan & Co Ltd (1919) 26 CLR 410 at 427; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352, 401; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 292-293; Trawl Industries v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 358; CSR Ltd v Tanco Kimpex Export Corp Pty Ltd [2003] QCA 568 at [28]; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163-164. 3 Goldtaper Pty Ltd v Berela Limited [2001] QCA 564. 4 Brambles Holdings Ltd v Bathurst City Council (supra). 5 NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 at 751-752. 6 Slee v Warke (1949) 86 CLR 271 at 280; Pukallus v Cameron (1982) 180 CLR 447 at 456. -- 7 of 34 -- 8 observed in Maralinga Pty Ltd v Major Enterprises Pty Ltd7 to relieve against the mistaken expression of the true agreement between the parties. The question of rectification can safely be left until after the determination of the true meaning of the contract. The resolution of ambiguity may mean that it becomes unnecessary to consider rectification of the contract. Construction of the Contract [24] This contract is to be construed according to the usual rules for the construction of contracts. They follow the principles set out in Norton on Deeds (1906) at 43: 8 “…the question to be answered always is, ‘What is the meaning of what the parties have said?’ not, ‘What did the parties mean to say?’ … it being a presumption juris et de jure … that the parties intended to say what they have said.” It is only if the parties have failed to express their common intention that the question, “What did the parties mean to say?” arises to determine whether the contract should be rectified. [25] The usual rules for the construction of a contract were set out by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd. 9 These rules do not ignore the fact that a contract such as this regulates the rights, responsibilities and liabilities of the parties in a commercial context. Such parties require not only certainty but also a realistic or common sense assessment of what the contract between them means. In Geroff & Ors v CAPD Enterprises Pty Ltd & Ors,10 Muir J conveniently gathered together various judicial statements about how these rules of construction are applied in a commercial context. These principles were also recently restated by the High Court in Royal Botanic Gardens and Domain Trust v South Sydney City Council11 with reference to a lease between two public authorities. [26] The following principles apply to the construction of a contract in a commercial context: (1) the court’s primary task is to construe the words used by the parties in the contract;12 (2) the common intention of the parties is to be found in the words used in the contract;13 (3) the court will give effect to the plain meaning of words which are unambiguous no matter how capricious, unreasonable, inconvenient or unjust the result; 14 7 (1973) 128 CLR 336 at 349. 8 Quoted by Lord Simon of Glaisdale in L Schuler AG v Wickham Machine Tool Sales Ltd [1974] AC 235 at 263. 9 (1973) 129 CLR 99 at 109-110. 10 [2003] QCA 187. 11 (2002) 186 ALR 289. 12 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra) at 109. 13 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra); Taylor v Johnson (1983) 151 CLR 422 at 428-430. -- 8 of 34 -- 9 (4) the more unreasonable the result, the more unlikely that the construction which gives rise to that result is correct unless an intention to achieve that result is abundantly clear;15 (5) few words have a plain meaning and are unambiguous or not susceptible of more than one meaning. Until a word, phrase or sentence is understood in the light of the surrounding circumstances, it is rarely possible to know what it means;16 (6) if the words have more than one possible meaning, then the construction will be preferred which is not capricious, unreasonable, inconvenient or unjust;17 (7) the contract should be looked at as a whole to elucidate the meaning of each clause: the contract must, if possible, be construed so that each clause is consistent in meaning with the whole of the contract;18 (8) commercial contracts should be construed so as to make commercial sense of them – a conclusion that reflects business common sense is to be preferred to one that flouts it;19 (9) it is necessary to construe a document against the background in which it was made to determine what the words in the document mean – the meaning of words cannot be divorced from their context;20 (10) the meaning given may not necessarily be the most obvious or grammatically correct;21 (11) the purpose of a provision is part of the context in which the meaning of words is to be ascertained. A construction is preferred which gives effect to the commercial purpose of the contract;22 (12) a commercial contract should be construed fairly and broadly whether or not the contract was drawn with assistance of lawyers.23 14 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra); Bacchus Marsh Concentrated Milk Co Ltd (In Liquidation) v Joseph Nathan & Co Ltd (supra) at 444. 15 L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 251. 16 Manufacturers Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cases 60-853 at 75,343. 17 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra) at 109. 18 ibid. 19 Geroff & Ors v CAPD Enterprises Pty Ltd & Ors (supra) at [36]; Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201; Groves v BMW Finance Ltd [2001] QCA 16 at [19], [54]. 20 Arbuthnott v Fagan (unreported) 30 July 1993 Court of Appeal as quoted in Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 326; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114-115; Royal Botanic Gardens and Domain Trust v South Sydney City Council (supra) at [10]. 21 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra) at 109. 22 Arbuthnott v Fagan (supra); Royal Botanic Gardens and Domain Trust v South Sydney City Council (supra) at [10]. 23 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (supra) at 109-110. -- 9 of 34 -- 10 Those are the principles which will be applied to the construction of this contract. Background facts [27] Décor Australia is a company which has been selling blinds in Queensland since 1985. The blinds are manufactured by a related company, Cedarcraft. The principal of Décor Australia is Frank Cairns. [28] In 1996 Karl Pajo, who subsequently became a director of Décor Gold Coast, was a resident of New Zealand who had been a commercial fisherman. He travelled to the Gold Coast in July, August and October 1996 looking for a residential unit to purchase. During the course of those visits, Mr Pajo met Michael Hughes socially. Mr Pajo’s last visit to Australia in 1996 was from 15 October to 13 November. [29] Mr Hughes had a retail business called “Best Western” which sold blinds, shutters and window dressings in general at Chevron Island on the Gold Coast. Mr Hughes told Mr Pajo that he was thinking of selling Best Western and returning to the United Kingdom. Mr Pajo expressed an interest in that sort of business saying it might suit him when he came to live in Australia, as he intended to do, to own and operate a business like that. This led to more discussions between Mr Hughes and Mr Pajo about various aspects of the business. [30] In November 1996, Mr Pajo engaged Mr Hughes to install blinds and shutters in his newly purchased Gold Coast apartment. While the building was not ready to be lived in until early 1997, it was sufficiently complete for the blinds and shutters to be installed. On 30 November 1996, Mr Hughes sold his interest in Best Western to Mr Bill Force. [31] Mr Pajo returned to Queensland from New Zealand on 16 March 1997 to attend to the settlement of the unit he had purchased. Mr Hughes told him about the sale of Best Western and Mr Pajo expressed some regret that he had not purchased it. [32] The precise sequence of events and dates on which various conversations and negotiations took place and who was present for those negotiations and precisely what was discussed in each meeting leading up to the execution of the final contract is now very difficult to determine. All of the people involved, Mr Pajo, Mr Hughes and Mr Cairns, have memories which have been clouded by their involvement in this dispute, which had led to their having coloured their memories to suit their side of the case and then being adamant about the truth of their recollection as opposed to that of the opposing party. None of them was a particularly reliable witness and I have not accepted the whole of the evidence given by any one of them. However, it has been possible to piece together the likely course of events. [33] Mr Cairns and Mr Hughes met to finalise any outstanding matters arising from his sale of Best Western. Mr Cairns and Mr Hughes also discussed the prospect of either Mr Hughes, or a colleague of his, taking over from Décor Blinds Australia the sale of -- 10 of 34 -- 11 its goods in the Gold Coast area. These discussions occurred on two occasions in early 1997. Mr Hughes informed Mr Pajo of the content of those discussions which formed part of the negotiations leading to the execution of the contract. Subsequent to those meetings, Mr Cairns met with Mr Hughes and Mr Pajo prior to signing the contract to give effect to what had been negotiated. More discussions took place during the meeting between the three of them as to the details of the arrangements between them. [34] The effect of the negotiations conducted before the meeting between Mr Pajo, Mr Hughes and Mr Cairns can be summarised as follows: • Mr Hughes and Mr Pajo discussed a proposal for Mr Pajo to purchase from Décor Australia the right to use its name and sell its products on the Gold Coast; • Décor Australia had a number of wholesale customers on the Gold Coast and a few retail customers. The wholesale customers were often referred to as “agents” and included resellers of blinds and shutters such as interior decorators, builders and architects; • Mr Cairns told Mr Hughes that he was prepared to offer an “exclusive area” to an agent but not a franchise; • At some time after 20 March 1997, when he received it by facsimile transmission, Mr Hughes showed Mr Pajo a memo dated 6 January 1997 from Décor Australia to its accountant, Mr Gil Wright, about the benefits which Décor Australia was prepared to offer to a proposed agency of Décor Australia in Cairns; • Mr Hughes encouraged Mr Pajo by saying he would work with him and train him for a period and by extolling the benefits of the arrangement which he had discussed with Mr Cairns. These included: i. as a “sole” agent, he would be entitled to an additional 5 per cent discount off the retail price from that offered to other agents for the sale of the products. Mr Hughes had persuaded Mr Cairns to offer this extra discount; ii. until Mr Pajo became established and started servicing the other agents, Décor Australia would pay him the 5 per cent profit it made by selling to those agents rather than to him; iii. Mr Pajo would have the sole right to use the name Décor on the Gold Coast which would give him the advantage of Décor Australia’s established business reputation; iv. Décor Australia would pass on to Décor Gold Coast any inquiries that came from the Gold Coast area; v. Mr Pajo would be entitled to an extra 5 per cent discount for early payment; vi. Décor Australia manufactured both blinds and shutters and so was able to offer colour matching to customers; vii. Mr Pajo would have priority delivery; viii. brochures would be provided to him free of charge for an initial period; -- 11 of 34 -- 12 ix. he would have sole right to retail sales on the Gold Coast; x. the salesperson employed by Décor Australia to deal with customers, wholesale and retail, would no longer be sent to service the Gold Coast; xi. The Gold Coast area would cover from Coomera in the north, to Tweed Heads in the south, west to Mount Tamborine and east to the sea. xii. the purchase price would be only $25,000 which represented what Mr Cairns calculated the extra 5 per cent discount offered to Mr Pajo would earn in a year. [35] Mr Pajo was pleased with these proposed terms. Mr Hughes told Mr Cairns and Mr Pajo paid a deposit of $2,000 in cash. All three now believed that there was an “agreement in principle” but there was no precision as to the terms of that agreement. Much was made of Mr Hughes’ role in the creation of the contractual relationship between the parties. In my view he acted as a go-between rather than as anyone’s agent. Both parties accepted that he negotiated between them. After the final contract was entered into, Mr Cairns paid Mr Hughes a commission on the sale of the business by forgiving debt of $2,000 - $3,000. [36] Mr Pajo and Mr Hughes started looking at what sort of premises would suit a showroom for this type of business which was envisaged by them as primarily a retail business. They also had conversations about the likely capital that would be needed to establish the business. Mr Pajo thought it could be anything from $30,000 to $50,000 and expected monthly lease expenditure to be somewhere between $1,000 and $2,000. They also discussed a possible turnover for the business of half a million dollars. [37] Mr Pajo then chose premises at Grice Street, Southport from which to conduct the business. On 3 April 1997, he signed an intent to lease and on 10 April 1997, he signed an agreement to lease in respect of premises to be used as a showroom for the proposed business. Mr Pajo organised an advertisement in the Yellow Pages and set up a bank account with Mr Hughes as a signatory. [38] On 11 April 1997, Mr Pajo returned to New Zealand and stayed there until 5 June 1997. Mr Pajo asked Mr Hughes to set up the showroom in his absence. Mr Pajo agreed to pay Mr Hughes $500 a week as a retainer and to pay his telephone and vehicle running expenses. Mr Hughes would also be paid 10 per cent of the invoice price of all sales. [39] Mr Hughes attended to the design and fit out of the showroom as well as the design of a logo for Décor Gold Coast. He advertised the business and started making sales of goods from the showroom. The shop was operating from mid-May 1997. [40] In the meantime, Mr Cairns attended to preparation of a written contract. The contract was drafted by Geoffrey Butts, a solicitor who was at that time the principal of the firm Butts & Barkley at Sunnybank. Mr Butts took instructions from Mr Cairns and typed -- 12 of 34 -- 13 the draft contract directly onto his computer. He cannot recall the date on which he did so. Mr Cairns brought in two documents, one entitled “Agreement” and the other “8 April 1997. List of Benefits Décor Blinds Australia Pty Ltd, is prepared to offer”. It lists those as: “ • Show room stock at cost 50% off wholesale • Display samples at cost 50% off wholesale” • Use of our quality assurance system • Swatches and samples are free for the first four (4) • First 100 brochures are free • Use of the name and logo • Availability of our stationary [sic] • Exclusive area – North to Coomera, South to Tweed Heads, West to Tamborine Mountains and East to the sea • Leads supplied • Training • Back up training • Priority delivery Special price – Retail Price 45% off Clear Danish Oiled Timber Venetian Blinds; 40% of all other Timber Venetian Blinds, Plantation Shutters and CedarCraft Roman Blinds. Aluminium Blinds 5% off Wholesale price Payment 14 Days Credit Limit $20,000.00 If payment is not received before 14 Days, the discount will revert to 40% off Clear Danish Oiled Timber Venetian Blinds and 35% on all other Timber Venetian Blinds, Plantation Shutters and CedarCraft Roman Blinds. PAYMENT WILL BE MADE THOUGH, BY 30 DAYS!! Existing Clients These customers must be serviced at all times to protect existing business. Existing Clients, trading terms will apply, but this will not affect the Agent.” [41] A draft Sales and Supply Agreement (“the draft contract”) was produced in a similar format to that used in the final contract between the parties. The draft contract differed from the final contract in a number of ways. There was no right to renew after the term of five years; Décor Australia in cl 2 agreed to “supply” the goods rather than “manufacture” upon receipt of an order as referred to in the final contract; and cl 18 referred to goods being sold by Décor Australia “to any person in the area bounded by Coomera…”. Mr Butts sent the draft contract to Mr Cairns. -- 13 of 34 -- 14 [42] Certain handwritten changes were made to that document by Mr Cairns and those and further changes were made by Mr Butts.24 As a result of the changes suggested by Mr Cairns, a number of alterations were made to the draft contract. “Supply” in cl 2, for example, was changed to “manufacture”. Other changes were made by Mr Butts. In cl 18, for example, the phrase “to any person” was changed to “for installation in any premises”. [43] Mr Pajo received a copy of the draft contract while he was in New Zealand, between 11 April and 5 June 1997. He took it to his solicitor who gave him brief advice about it. Mr Pajo noticed that there was no right to renew after a five year period. He said he also thought cl 10 and cl 18 did not express a sole agency in those terms but rather described what would happen if the defendant made sales within the area. Mr Pajo said he was satisfied with that. However, he wanted a right to renew included in the contract. He passed this information on to Mr Hughes who, in turn, informed Mr Cairns. [44] On 5 June 1997, Mr Pajo returned to the Gold Coast from New Zealand. Until that time, Mr Hughes had been running the showroom. The showroom had been set up. There were signs showing the Décor Blinds Gold Coast logo and a sign on the window showing the Cedarcraft emblem. The formal grand opening was on Friday 27 June 1997. By that time Mr Pajo had spent about $40,000 on the premises. The recurring monthly rent was about $1,500 - $1,600. [45] After the earlier negotiations between Mr Cairns and Mr Hughes on the one hand, and Mr Hughes and Mr Pajo on the other, there was a meeting between Mr Cairns, Mr Hughes and Mr Pajo at Décor Australia’s factory at Acacia Ridge (“the factory”). Mr Pajo said a meeting occurred on 24 or 25 March 1997 and that he returned to the factory several months later. Mr Cairns and Mr Hughes said it occurred after Mr Pajo’s return from New Zealand in June 1997. Mr Hughes said that about a week after Mr Pajo’s return from New Zealand in June, Mr Hughes arranged for Mr Pajo to meet Mr Cairns in Brisbane at the factory which was Mr Pajo’s first meeting with Mr Cairns. [46] Mr Cairns was fiercely proud of his business name and reputation but he knew and trusted Mr Hughes from their previous business dealings and was therefore prepared to act on his recommendation of Mr Pajo without first meeting him. Mr Cairns was not however prepared to hand over the company seal and memorandum and articles of Décor Gold Coast without meeting Mr Pajo and concluding the agreement between them. The precise date of this meeting, which was the subject of much conflicting evidence at the trial, is unimportant. On balance, for the reasons just articulated, I accept that it occurred in June 1997. What is more important, however, is what took place at that meeting: 1. Mr Pajo said he was happy with what had been arranged by Mr Hughes with Mr Cairns; 2. Mr Pajo was given a retail price list for the products; 24 See Exhibit 17. -- 14 of 34 -- 15 3. the discount off the retail price which was used to calculate the price at which Mr Pajo bought products from Décor Australia was explained to him; 4. it was agreed Décor Gold Coast would receive a further 5 per cent discount off the retail price than that available to any other agent in the Gold Coast area. Mr Cairns told Mr Pajo that this would ensure income for Décor Gold Coast. It was said that Décor Australia had sales of over half a million dollars on the Gold Coast and by earning 5 per cent on these sales, Décor Gold Coast would make $25,000 to $30,000 per year; 5. it was agreed that Décor Gold Coast would receive a further 5 per cent early payment discount if payment was made within 14 days; 6. Mr Cairns told Mr Pajo that if there were agents who wished to continue to deal or to deal only with Mr Cairns, he would continue to deal with them but would pass on the 5 per cent profit, being the difference in the price paid by those agents and the price which would have been payable by Décor Gold Coast, to Décor Gold Coast. Mr Pajo was very pleased with that arrangement; 7. Mr Cairns told Mr Pajo that Décor Gold Coast was the company through which Mr Pajo would operate. Mr Cairns was the sole shareholder and agreed to transfer the company to Mr Pajo; 8. the contractual arrangement was referred to as a “sole agency”; 9. the boundary lines of the agency, north to Coomera, west to Tamborine Mountain, south to Tweed Heads and east to the sea, were delineated; 10. Mr Pajo was to sell goods only from Décor Australia; 11. the goods would almost always be delivered to Décor Gold Coast by Décor Australia with delivery being included in the price; 12. Décor Gold Coast would have priority delivery; 13. the cost of the agency was confirmed as being $25,000; Mr Pajo had paid $2,000 cash and agreed to pay the balance of $23,000; 14. Mr Pajo told Mr Cairns that Mr Hughes would be managing the business of Décor Gold Coast until the end of 1997; 15. it was agreed that the date of commencement of the contract would be deemed to be 1 July 1997, the beginning of the financial year; 16. Mr Cairns gave Mr Pajo a tour of the Décor Australia factory at Acacia Ridge. [47] The written contract was discussed at that meeting. The draft contract had by then been retyped, on this occasion adding a right to renew in cl 1 (“the 1 July contract”). It can be seen by the differences in typescript and spelling that this contract was not retyped by Mr Butts. I conclude that it was retyped in Mr Cairns’s office adding a general right to renew. Mr Cairns and Mr Hughes gave evidence that they saw Mr Cairns sign the contract and give it to Mr Pajo at the meeting between the three of them. This version of the contract had a general right to renew. Mr Pajo subsequently signed the contract which was dated by agreement, 1 July 1997. Mr Pajo expressed some minor dissatisfaction with the terms in which the right to renew was expressed so it was taken by Mr Cairns back to Mr Butts for finalisation. -- 15 of 34 -- 16 [48] Mr Pajo paid Mr Cairns the $23,000 outstanding under the contract. The payment was made in cash and there is no sufficiently reliable evidence as to the precise date on which it was paid. It was paid by 16 October 1997, the date of the final contract. [49] Mr Cairns asked Mr Butts to draft the final contract giving the right to renew to Décor Gold Coast only. He waited at Mr Butts’ office and took the final contract away with him. [50] Mr Butts gave evidence as to his understanding of the contract. He said that the area referred to in cl 18 was intended to give effect to the exclusive area referred to in the instructions he was given as to the benefits Décor Australia was prepared to bestow on Décor Gold Coast. Mr Butts thought that profit in cl 10 referred to the profit foregone by the plaintiff if the defendant sold to resellers in the Gold Coast area. It was to ensure that Décor Gold Coast got its profit on a sale in the Gold Coast whether it or Décor Australia made the sale. [51] Mr Butts’ evidence was, however, unsatisfactory in many respects and is not of much assistance in the resolution of the dispute as to the proper construction of the contract. His memory of the events was poor and he had no records to refer to. He denied seeing the 1 June contract which he said was typed by someone else but could not explain how changes made in that contract found their way into the final contract which he settled. He did not draw up the contract carefully and as a result, the contract is poorly expressed and is ambiguous in its meaning. [52] Both Mr Cairns, on behalf of Décor Australia, and Mr Pajo, on behalf of Décor Gold Coast, signed the final contract which was dated 16 October 1997. Each gave a different explanation of how and when that occurred. Mr Pajo said that he received the final contract from Mr Bray, a salesperson employed by Decor Australia, with the company seals attached. Mr Pajo read this document and noticed the right to renew attached to Décor Gold Coast. He was satisfied with that. He also noticed cl 10 and cl 18 were the same. Again, he was satisfied with those clauses. He noticed a new clause, 14(b), had been added but that he was satisfied with it. Mr Pajo had no specific recollection of signing the final contract. Mr Pajo gave evidence that when he signed this document he thought that it would govern his rights. [53] Mr Cairns’ evidence as to the final contract was that after Mr Butts made the requested amendments, Mr Cairns signed and sealed it and then took it to the opening party of Décor Gold Coast for Mr Pajo to consider and sign. He said Mr Pajo signed it and then returned it to him a couple of weeks later. Given that the contract was dated 16 October 1997, this seems unlikely. I accept that Mr Pajo’s version of the circumstances in which the final contract between the parties was executed by him is more likely to be correct. [54] Mr Pajo said the business had been operating since before 1 July 1997 and from then goods had been supplied by the defendant of the general nature described by the final contract. Mr Pajo had made attempts, with Mr Hughes’ help, to resell the product. Accounting and installation systems had begun to be put in place. -- 16 of 34 -- 17 [55] Mr Pajo gave evidence that he intended to operate the business for up to 10 years and considered that a thriving business with good profitability would give him something to on-sell to somebody else. Resolution of ambiguity [56] It would appear that when one takes into account all of the surrounding circumstances, the ambiguity of cl 10 and cl 18 can be resolved only by attributing the meaning to the term “profit” or “profits” which has been proposed by the plaintiff in para 11(b) of the statement of claim. This is similar to the meaning proposed by the defendant. [57] The meaning set out in para 11(a) of the statement of claim does not represent profit made by any party to the contract; there is no mechanism proposed in the contract or otherwise readily available for working out the calculations required by the meanings set out in paras 11(c) or 11(d) of the statement of claim. It defies common sense to suggest that the defendant be required to specify its direct and indirect costs of selling, or manufacturing and selling each set of blinds or shutters when there was no mechanism for doing so and that amount is irrelevant to any profit foregone by the plaintiff. Many of the job sheets do specify the amount paid to Cedarcraft for the goods by Décor Australia but do not, of course, quantify other overheads such as administration costs, telephone, rent, electricity, motor vehicle expenses or wages for office staff, sales people, delivery drivers or fitters. Even the absorption cost accounting mechanism suggested by the plaintiff in its submissions appears inappropriate for this contractual liability. The costs can not readily be calculated. [58] The amount which has to be accounted to the plaintiff in the meaning espoused by the defendant is easily ascertainable within the terms of the contract and the retail price list which was known to the plaintiff and the defendant (and all other wholesale customers) and is directly relevant to any profit foregone by the plaintiff when the defendant sold to wholesale customers. The suggested retail price list showed the discount usually allowed to other wholesale customers. Unlike any of the other interpretations, it makes commercial sense. It is convenient and not unreasonable or capricious. It serves the purpose of avoiding the unjust enrichment 25 of the defendant where the commercial purpose of the agreement appears to have been to create a quasi sole agency where the plaintiff would be compensated for the profit it lost if the defendant made, as was envisaged, sales to other agents in the area of the agency. [59] The contractual compensation consisted of the 5 per cent difference in the discount off the retail price available to the plaintiff from that available to other agents. This represented the profit gained by the defendant and the profit lost by the plaintiff if the defendant sold to wholesale customers in the Gold Coast area or for installation in the Gold Coast other than the plaintiff. The plaintiff submitted that there was nothing to restrict him to this profit margin when on-selling to other wholesalers but there was no evidence that he intended raising the price to other wholesalers. To suggest that he might have made a larger profit is purely speculation and probably commercially unrealistic. 25 cf Dart Industries Inc v The Décor Corporation Pty Ltd (1994) 179 CLR 101. -- 17 of 34 -- 18 [60] As to the small number of retail sales (only 3) made by Décor Australia in the Gold Coast area, the meaning in para 11(b) best fits what the parties intended by the terms of their contract, which created a more or less exclusive agency, where, if Décor Australia itself made sales to other customers, it would pay Décor Gold Coast the profit foregone by Décor Gold Coast. In the case of wholesale sales, this was 5 per cent of the retail price. In the case of retail sales, it was the difference between the price at which the goods would have been offered to Décor Gold Coast and the price at which they were sold to retail customers. According to Mr Cairns’ evidence, the goods were not normally sold even to retail customers for the full price listed on the retail price list. The 3 retail sales made by the defendant in the relevant period show discounts off the retail price of 35 percent, 15 per cent and nil. [61] It is not necessary in the circumstances to consider rectification of the contract. When the contract is properly construed, it does not embody any common mistake. The parties’ rights and obligations were covered by the contract dated 16 October 1997. Décor Australia is obliged to pay to Décor Gold Coast 5 per cent of the retail price on any sales made by Décor Australia to Décor Gold Coast from 1 July 1997 to 23 December 1999. It was agreed that that amount is $37,685.28. It is entitled to set off the amount of $4,233.14 for early payment discounts wrongly claimed by Décor Gold Coast. The net amount payable by Décor Australia to Décor Gold Coast is $33,452.14. [62] If it were necessary to consider the matter, it would appear that the pre and post contractual behaviour of the parties showed that they actually intended the interpretation of the contract which it has been given. There would therefore be sufficient grounds to rectify it if the ambiguity had not been able to be resolved. Termination of the contract [63] The question of whether or not the contract was lawfully terminated by one of the parties and, if so, when, depends on their behaviour after the contract was entered into. [64] Mr Pajo gave evidence that in June 1997 he asked Mr Cairns on the phone on several occasions for the list of all other resellers who were current agents on the Gold Coast. Mr Pajo said Mr Cairns’ response was very vague. Mr Pajo said he never received from the defendant or from Mr Hughes a complete list of Mr Cairns’ Gold Coast contacts including interior designers and developers during the course of the contract. He subsequently saw such a list in the course of litigation. Mr Cairns gave evidence, which I do not accept, that he gave a list to Mr Pajo when he met with Mr Hughes and Mr Pajo in June 1997. He was unable to produce such a list and Mr Hughes did not give evidence on this matter. [65] Mr Pajo advertised the business in magazines and in the Gold Coast Bulletin newspaper from late May 1997 up to December 1999. He also advertised for a short time with Mr Cairns in the Sunday Mail newspaper. Mr Pajo also promoted the business at a Gold Coast home show in 1998 and 1999 and at a shopping centre in 1999. Mr Hughes’ evidence, which I accept, was that Mr Pajo did not visit many wholesale customers of Décor Australia. Mr Pajo’s interest was primarily in the retail customers but he was hampered by a lack of assistance from Décor Australia. -- 18 of 34 -- 19 [66] Mr Pajo gave evidence that during the time the contract ran he received a maximum of 25 leads for customers from the defendant. He said that probably 18 of those came from 12 weeks of advertising in the Sunday Mail. They were from people on the edges of the area. Mr Pajo only made one or two sales from those 18 leads. The remaining seven leads were referred by the defendant but Mr Pajo has records for only three or four of them. [67] Mr Pajo denied in cross-examination that his agency did not obtain any sales from wholesale agents on the Gold Coast during the period 1 July 1997 to December 1998. Mr Cairns continued with much of his old wholesale business in the Gold Coast area and did not pass on leads as he was obliged to under cl 10 of the final contract. An allegation that the plaintiff was in breach of contract because it failed to promote the sale and distribution of products to the best of its ability is difficult to sustain in the face of the behaviour of the defendant which made a significant contribution to Mr Pajo’s capacity to adequately promote the business. In any event, the obligation was only to “promote … to the best of its ability.” Mr Pajo had no experience in this business having previously worked in commercial fishing. [68] Mr Hughes went to the United Kingdom for holidays in July/August 1997 and returned to Australia in August 1997. He decided in about November/December 1997 that he would not move back the United Kingdom. Except for the period in July/August, Mr Hughes assisted in the business until late February/early March 1998 when he left the employ of Décor Blinds Gold Coast. [69] From 1 July 1997 to the end of 1999 Mr Pajo was at the showroom or involved in the business apart from a six or eight day trip to New Zealand. In early times, he was in the office most of the time and occasionally did a small measure. As he learnt more, he gradually did more measuring while also working in the office. Mr Pajo said he worked eight or nine hour days. He sometimes assisted the fitters with installation of blinds, and less frequently, of shutters. He said his skills developed over time. [70] Mr Pajo said in this period he also dropped off pamphlets regularly. If he made a sale or was visiting, he often dropped pamphlets off to houses next door. He said he got those pamphlets from Mr Cairns. He estimated he personally handed out up to 2,000 pamphlets. When the business first started, Mr Pajo sent a few letters to architects, interior designers, developers and builders based on the Yellow Pages advertising. Once the computer was set up in 1998 more extensive mail outs were done. As well as the Yellow Pages, a list generated by a company specialising in building approvals was used. Between 500 and 1,000 items were mailed in a period of several months. [71] Mr Pajo said during the whole period of operation he “was intently wanting to make a success of the business” and conducted it to the best of his ability. I accept that he did that to the best of his ability, limited as that was by his complete lack of experience in the industry. [72] Mr Pajo gave evidence that for six to eight months in the early period of the business in 1997 and into 1998 the defendant’s computer system seemed not to take into account the plaintiff’s larger discount in generating billing amounts. Mr Pajo also said it was -- 19 of 34 -- 20 common throughout the period of the contract for there to be discrepancies between the invoice date and the delivery date. He said the invoice was always dated before the date of delivery. He said he thought the invoice was generated at the time of leaving production. He said when the amount was understated it was corrected and the higher amount was paid. He said when the amount was overstated the correct amount was calculated and the lower amount paid. [73] From July 1997, Mr Pajo noticed over a few occasions that the delivery trucks delivering product to them at the Gold Coast from Brisbane contained other Décor products which were not deliveries to Décor Golf Coast. Because it occurred only occasionally it did not cause Mr Pajo great enough concern to confront Mr Cairns. Mr Pajo did not think he could stop Mr Cairns selling in the area because the contract did not say Mr Cairns could not make sales. It said only that if he did, he would account to Mr Pajo. [74] In about September/October 1997, Mr Pajo became aware that Steven Frith was purchasing goods from Décor Blinds Australia. Mr Pajo also said that when Mr Hughes left his business in early 1998, he told Mr Pajo that he might still sell the odd blind or two before he returned to the United Kingdom. Mr Pajo thought Mr Cairns’ supplying to Mr Hughes went against the spirit of the contract but because Mr Hughes was his friend, he did not know what to do about it. Mr Hughes said in evidence that any product he ordered from Décor Australia during 1998 was delivered to Décor Gold Coast for Mr Hughes to collect. Mr Pajo agreed in cross-examination that he spoke with Mr Hughes about the sale of product on the Gold Coast direct by Décor Blinds Australia. He agreed that he told Mr Hughes there had to be some sort of accounting for it but denied that he referred to that being for five per cent off the retail price. He said he did not recall ever using the words that he was entitled to five per cent. Mr Hughes, on the other hand, said that from about April 1998, Mr Pajo often referred to “the 5 per cent that Frank [Cairns] wouldn’t pay him”. He said that Mr Pajo told him that he had seen other shutters on board when deliveries were made to him from Décor Australia. I accept that the shorthand that was used to refer to the accounting required by cl 10 and cl 18 was “the five per cent”. This evidence of subjective understanding of the contract is relevant only to question of rectification. What this evidence also shows, however, is Mr Pajo’s growing impatience with Mr Cairns’ refusal to account to him as required under the final contract. [75] During the first half of 1998, Mr Pajo told his accountant Mr Lovell that he was entitled to 5 per cent commission or special bonus on the sales Mr Cairns made on the Gold Coast through architects and other wholesale customers. Mr Lovell has a practice as an accountant but resigned from the Institute of Chartered Accountants when he turned 60. He took the extremely unusual step of “borrowing” money from Mr Pajo with no intention of repaying it because he thought he might not otherwise be paid for his work given what he knew of the poor financial state of Décor Gold Coast. In breach of his duty to his client, Mr Lovell handed over the accounts of Décor Gold Coast to the defendant’s solicitors at the defendant’s request. Even if it were relevant, Mr Lovell’s evidence must be regarded as worthless given the dubious ethics of his behaviour towards his client. -- 20 of 34 -- 21 [76] On 14 December 1998, Mr Pajo wrote a letter addressed to the “Manager, Décor Australia”. The letter was not on letterhead and was unsigned. The letter requested an accounting of profits in respect of sales made in the area. The letter referred to cl 10 and cl 18 of the final contract. Mr Pajo said by that time the company, Décor Gold Coast, had been transferred to him. Décor Australia had not set up any accounting system to ensure that the amounts owing under cl 10 and cl 18 were paid or credited to the account of Décor Gold Coast. Mr Cairns and Mr Pajo spoke about these matters by telephone but, because there had been a fire at the factory and because of the proximity of Christmas, the matter was left in abeyance until the following year. [77] Mr Pajo and Mr Cairns met at the Décor Gold Coast showroom on 4 March 1999. Mr Pajo asked Mr Cairns when he was going to account to him for the 5 per cent commission he was entitled to on the sales made by Décor Australia to agents on the Gold Coast. Mr Pajo said that Mr Cairns told him that there would be some form of accounting but that there were a very limited number of sales, not worth bothering about. Mr Cairns told Mr Pajo that Mr Pajo had not done enough work with the architects and developers (in breach of cl 19). Mr Pajo pointed out that since the computer system was set up he had started sending out letters and had done quotes but that he was unable to compete with the prices Mr Cairns was offering them. Mr Cairns offered to increase the discount offered to Décor Gold Coast by a further 5 per cent so that Décor Gold Coast would pay 10 per cent less than other wholesale customers for the goods from Décor Australia. [78] On 8 March 1999 Mr Pajo again wrote to Mr Cairns seeking an accounting of profits. The letter referred to the earlier meeting and to the difficulty Mr Pajo had in competing with wholesale prices. Mr Pajo rejected Mr Cairns’ suggestion that he would sell Décor Gold Coast the goods at a further 5 per cent discount. Mr Pajo instead requested a further 10 per cent discount in return for Décor Australia’s not having to account for profits on its sales in the Gold Coast area. Mr Pajo asked for the relevant records of sales to allow his “professionals to calculate the share of profit” under cl 10. Only Décor Australia had records of the sales it had made and without them, Décor Gold Coast could not know how much they were owed pursuant to cl 10 and cl 18. If they had the sales records, it would have been a simple matter to calculate the amount owing, that is, 5 per cent of the retail price of the goods sold by Décor Australia. That did not happen. [79] However, it should be noted that it was not incumbent upon Décor Gold Coast to ask for payment or to calculate how much was owing. Under cl 10 and cl 18 of the contract, Décor Australia had undertaken an obligation to account for this amount either by making the payments or, at the very least, crediting Décor Gold Coast’s account for these amounts. As there is no time specified in the contract, the obligation was to do it within a reasonable time. That did not happen at all and is part of the explanation for the deteriorating relationship between the parties. The relationship also deteriorated because Mr Cairns perceived that Mr Pajo was not doing enough to encourage wholesale customers to deal with him. Mr Pajo had concentrated on dealings from the showroom with retail customers and was hampered in his dealings with wholesale customers by Mr Cairns’ behaviour. Décor Australia continued to deal with its wholesale customers and contrary to the obligations in cl 10, Décor Australia did not pass on all of the sales leads in the Gold Coast area to Décor Gold Coast. -- 21 of 34 -- 22 Décor Australia was also in breach of its obligations under cl 10 and cl 18 by failing to account to Décor Gold Coast for its profits on sales made to customers in the Gold Coast area or for installation in the Gold Coast area. That breach has continued to the date of this judgment. [80] On 10 March 1999, Mr Pajo had another meeting with Mr Cairns about the accounting issue. At this meeting Mr Pajo asked Mr Cairns what he was going to do about the 5 per cent commission Mr Pajo was entitled to on the sales by Décor Australia to other agents on the Gold Coast. He asked Mr Cairns to account as he understood was required under cl 10 or possibly under cl 18 of the contract. Mr Pajo said Mr Cairns again said he would account but “that there was very little in it”. Mr Cairns said he would account by 22 March 1999. Mr Pajo said that he offered Mr Cairns an alternative option of providing him an extra 10 per cent discount in the meantime to avoid having to account but that Mr Cairns rejected that suggestion. Mr Cairns again drew Mr Pajo’s attention to how few agents he had serviced since entering into the contract. [81] On 15 March 1999 Mr Pajo again wrote to Mr Cairns. Mr Pajo said he reminded Mr Cairns in that letter that the accounting should be from the beginning of the contract as Mr Cairns had not been specific in their meeting about the date at which he considered the contract started. The correct analysis is that the parties were bound by the 1 July 1997 contract until it was replaced by the final contract whereupon they were bound by that contract. The obligations under cl 10 and cl 18 of each contract were unchanged and so the obligation to account commenced on 1 July 1997. Mr Pajo also suggested that the accounting should be audited. He said that until the accounting was finalised, he would return invoices sent to Décor Gold Coast by Décor Australia. [82] Mr Cairns said that at this time Décor Gold Coast owed Décor Australia somewhere between $50,000 and $80,000. However, the defendant’s records show that as at 1 April 1999, $34,248.84 was the total amount due with $6,648.19 being outstanding for more than 30 days. Although cl 4 of the contract required payment within 14 days, the records of Décor Australia did not record as a discrete amount how much was outstanding for more than 14 days. This was consistent with the invoices sent by Décor Australia which, in accordance with their standard terms, gave 30 days for payment and apparently offered 2 ½ per cent discount for early payment. As more than $20,000.00 was owing Décor Australia had the right under cl 12 of the final contract to refuse to supply any further goods to Décor Gold Coast. Nevertheless it waived that right and continued to supply goods. [83] On 18 March 1999, Mr Cairns wrote to Mr Pajo. That letter was received by facsimile transmission on the same date. The letter stated that no sales had been made to “any clients down the Gold Coast since July 1997”. It was argued that this response was true as far as it went if “clients”, as Mr Cairns asserted, referred only to retail customers. It was at least misleading. The obligation in cl 10 extended beyond retail customers and no mention was made of the defendant’s obligations under cl 18. Décor Australia had by that time made about 270 sales which were covered by cl 10 or cl 18 of the contract. The letter also offered to Mr Pajo that he could check the records of Décor Australia. Against his own interests, Mr Pajo failed to take up the offer to inspect the records of -- 22 of 34 -- 23 Décor Australia. Both parties by this stage clearly distrusted each other and had begun to take up entrenched positions. [84] The next day, on 19 March, Mr Pajo sent a handwritten facsimile message to Mr Cairns. The last paragraph stated “I do not understand you saying no sales have been made since July 97”. By March 1999 Mr Pajo had seen several lots of Décor product on the back of trucks not being delivered to them but “obviously .. going somewhere else”. Mr Cairns said that he didn’t try to hide from Mr Pajo that this was happening. Mr Pajo said that by that time Mr Hughes was also in business on his own account although he assured Mr Pajo he only ever bought one or two lots of product from Mr Cairns. [85] On 22 March 1999, Mr Pajo received a facsimile letter from Mr Cairns in which Mr Cairns again denied he had made any sales or authorised any agents to install any goods in the area since July 1997. That information was untrue. Mr Cairns could not offer any explanation for that statement when questioned about it at trial. He knew that it was untrue when he sent the letter on 22 March. His evidence as to his knowledge of his obligations was, “I had to pay Mr Pajo 5 per cent of any sales I made to people on the Gold Coast, agents, customers, interior designers, whatever”. This evidence contradicted submissions made by the defendant at the end of the trial that the obligation in cl 10 was a reference only to retail sales. I do not accept that it contained any such restriction. [86] On 29 March 1999, Mr Pajo responded with another letter to Mr Cairns stating that he was “extremely distressed by the current position of ‘no sales made’ and would like this matter resolved as soon as possible”. In this letter “Gold” refers to Décor Gold Coast and “Australia” refers to Décor Australia. He set out a number of possible scenarios and asked if Mr Cairns considered they fell within the contract: “For example would you consider the situation covered by the contract, with a sale made, with profits payable to ‘Gold’ if: a) Previous private buyers in Gold’s territory ordered from you direct to fit themselves. b) An order was received by an ‘Australia’ staff member placed by an interior designer resident in Gold for installation in Gold’s territory by an ‘Australia’ fitter. c) An architect outside Gold’s territory contacts ‘Australia’ and either orders himself on behalf of his Gold Coast client. d) Or asks ‘Australia’ to measure and accept the order with commissions payable to the architect. e) Resellers in Gold’s territory are ordering without informing ‘Australia’ as to the final destination. f) Or alternatively, informing ‘Australia’ of the final destination e.g. Liberty Blinds etc.” [87] Mr Cairns’ responded by making handwritten comments on the letter and faxing it back to Mr Pajo. On the second page, beside each of the subparagraphs from (b) to (f) Mr Cairns had written the word “No”. Yet it would appear that all of the situations set -- 23 of 34 -- 24 out in Mr Pajo’s facsimile of 29 March 1999 were covered by cl 10 or cl 18 of the contract. At the bottom of that page Mr Cairns wrote, “Karl, I think you might be a bit confused. It may be time to have a meeting. Regards, Frank”. [88] Ms Karen Cawley worked first as a receptionist and later as an office administrator and bookkeeper for Décor Blinds Gold Coast from October 1997 to December 1999. On 6 April 1999, Ms Rigby, an accounts clerk for Décor Australia sent a facsimile to Ms Cawley at Décor Gold Coast stating that “your account is only a 14-day account” and asking that it be brought back up to date. Mr Cairns instructed her to write that letter after he had made oral requests for payment of moneys owed by Décor Gold Coast to Décor Australia. It listed a number of outstanding accounts totalling just over $50,000 in value. [89] In a facsimile letter dated 8 April 1999, Ms Cawley replied to Ms Rigby stating in part that “I have never been under the impression that our account was strictly 14 days”. Ms Cawley drew attention to some supplies with which there had been problems and enclosed a cheque for $8,076.60. [90] The contract provided that payments should be made within 14 days and that there was a 5 per cent discount for doing so. However, every invoice sent to Décor Gold Coast before 6 April 1999 said that the time for payment was 30 days and most said that 2 ½ per cent discount would apply to such a payment. What did this confusing situation mean? Décor Australia had waived its right to insist on payment of those accounts within 14 days. Given what the invoices said, Décor Australia could only insist on payment within 28 days. Décor Australia could not, however, unilaterally reduce the discount for early payment to 2 ½ per cent rather than 5 per cent. After 6 April 1999, the waiver of the right to be paid within 14 days ceased. [91] On 13 April 1999, Mr Pajo met with Mr Cairns at the factory. Mr Pajo said Mr Cairns told him he realised he should account for its sales in the Gold Coast area but said, “There’s just a couple here. It’s not worth worrying about”. Mr Pajo said he still needed to have an account. Mr Pajo said they discussed delivery dates. Mr Pajo pointed out that an invoice was not paid until all components for a full order were delivered. Mr Pajo said they received different parts of an order at different times. Invoices were delivered with each partial delivery but they were not paid until receipt of all the component parts for an order. The 14 day period did not start until the receipt of the last component part for an order. When payment was made all the invoices for the whole order were put together, Ms Cawley would write on it the date the final part was received and that would all be sent with the cheque to show why the 5 per cent discount for early payment was being claimed. Mr Pajo said in evidence this was the system that operated from the beginning. The same system operated in respect of repair jobs where a product did not meet the specifications in the order and had to be re-done. He said Mr Cairns raised no objection to that in the meeting. In my view it must be implied that, absent any specific arrangement to the contrary, the obligation to pay arose when the whole of the order was filled as that is when the whole of the order would have been able to be supplied to the customer and an account rendered by Décor Gold Coast. -- 24 of 34 -- 25 [92] On 15 April 1999, Mr Pajo sent a fax message to Mr Cairns saying he had been asked to quote on a large job. He suggested that Décor Australia take over quoting with Mr Pajo acting as go between. In contra-distinction to his usual entitlement, Mr Pajo said, “My payment should be 5 per cent of all up price (not retail price!!”) [93] On 15 April 1999, Mr Pajo wrote to Mr Cairns confirming that they had agreed “that all sales by ‘Australia’ made into the Gold Coast, whether directly to a private person, or to a reseller based on the Gold Coast or selling into the coast, is covered by our agreement”. He asked for a list of the sales made. On 16 April, Mr Cairns responded by facsimile. That letter stated: “With reference to your letter dated the 15th April, we have not agreed to anything, except that your account is overdue and therefore you are in breach of the contract (section 4).” [94] This was not true as Mr Cairns had agreed to account for the extra 5 per cent discount as required by cl 10 and cl 18 of the contract although it appears from Mr Pajo’s response of 23 April 1999, that there had been no discussion between them as to the date from which this would occur. [95] There is then a gap in the correspondence until a further letter from Mr Pajo to Mr Cairns on 7 July 1999. In it Mr Pajo expressed doubt about there having been no sales made by Décor Australia which would be covered by cl 10 or cl 18 of the contract. He asked if Mr Cairns’ records could be checked by a professional and offered to pay for this if it revealed no sales had been made. [96] Mr Cairns responded by faxing the letter back to Mr Pajo with handwritten comments on it. Beside Mr Pajo’s request for records to be checked, Mr Cairns wrote “No”. Beside Mr Pajo’s request to use a professional to check the records, Mr Cairns wrote “No”. At the bottom of the page Mr Cairns wrote, “I don’t think your [sic] happy and I think the best thing is to buy Gold Coast back off you, what do you think”. [97] Mr Pajo said in evidence that it was at about this time that he instructed his solicitor, Mr Muir. This is confirmed by a letter dated 16 July 1999 from Mr Muir to the defendant requiring copies of the records of Décor Australia relating to sales effected “in the area the subject of clauses 10 and 18 of the agreement”. Mr Cairns responded to Mr Muir on 21 July 1999 claiming that Décor Gold Coast was in breach of contract in the following ways: ″1. They have failed to pay the annual nominated sum of $100.00, as agreed in section (1) of the contract for the past two years. 2. They are in default, regarding section (4). As they have failed to pay their account in the time stipulated. Some accounts are three months overdue. 3. They are in breach of section (12) as their account is over $20,000. In fact the amount is $30,425.16. We demand that this be brought back in line with the contract forth with. 4. They are in breach of the above clauses of this agreement, and we feel we have grounds to terminate this agreement. -- 25 of 34 -- 26 This will be acted upon without further notice if your client does not bring themselves back in line with the terms stated in the contract, and stay within the lines of the agreement”. In fact there was no sum owing under cl 1 as the right to renew had not been exercised. Clause 12 did not give rise to a breach but a right in Décor Australia not to supply further goods and whether or not there had been a breach of cl 4 depended on whether payment was being demanded for goods which were faulty or where the orders were incomplete and whether or not the time stipulated for payment was 14 days or 28 days. [98] On 23 July 1999, the plaintiff commenced proceedings against the defendant in the District Court at Southport for an account of profits under the contract and right to inspect the defendant’s records. The defendant by its defence filed on 23 September 1999 admitted only that there was $350.50 owing to the plaintiff. [99] Mr Pajo agreed in cross-examination that at some time in mid-1999 he spoke with Mr Hughes who told him Mr Cairns was going to pay him some moneys for the sales. Mr Pajo could not recall if Mr Hughes referred to five per cent. He agreed that he may have said in response “not five per cent, I want the profit”. Mr Pajo denied that was the first time in conversations with Mr Hughes that he used the term “profit” instead of five per cent. In my view, once Mr Pajo instructed a solicitor, his views of what he might be entitled to under cl 10 and cl 18 of the final contract changed. [100] Mr Pajo denied having a meeting with Mr Cairns at about this time in which he said he did not want the five per cent but all of the profit. He agreed, however, that Mr Cairns may have said “you know that’s not what we agreed on”. He said their discussions revolved around the word “profit”. [101] On 4 November 1999, Décor Gold Coast wrote to Décor Australia listing invoices with incorrect dates and invoices awaiting shutters for completion of the orders. A dispute then arose between the parties as to whether or not the 14 days for invoice calculation arose from the delivery of the whole or part of an order. As I have said, the 14 days must be calculated from the date of delivery of the whole of any particular order. [102] On 5 November 1999 the plaintiff received a cheque for $350.50 from the defendant dated 18 October 1999. Mr Pajo said in evidence that that figure corresponded with an amount that had been said by the defendant in one of its pleadings to be the amount due on the account. That cheque was then cancelled. At trial, however, the defendant admitted to owing money to the plaintiff pursuant to cl 10 and cl 18. [103] Schedule “A” to the plaintiff’s second further amended reply and answer sets out a list of invoices for which it was claimed by the defendant that payment was not made within 14 days of delivery of the invoice. In respect of each of those invoices, the schedule sets out an explanation by the plaintiff as to why payment was not made within 14 days of delivery of a particular invoice. Mr Pajo gave evidence that the schedule reflected his earlier evidence about payment being made upon receipt of the complete order. That schedule is exhibit 6. -- 26 of 34 -- 27 [104] Ms Cawley gave evidence about the system used for ordering goods from Décor Blinds Australia. Orders would be placed with Décor Blinds Australia by faxing a job sheet. Sometimes a confirmation would be sent back with a number and a date when the goods should arrive. The job sheet contained all the information as to the type of blind, the width, the fittings and the colourings. Ms Cawley said tab 1 of exhibit 10 is a job sheet. After the job sheet was faxed, it was filed at the Gold Coast premises. If there were difficulties with an order so that it was not complete, Ms Cawley would make a note on their copy of the job sheet. [105] Ms Cawley said typically components of an order would arrive at different times. Décor Blinds Australia would split up the order and generate separate invoices for different components of an order. In cross-examination Ms Cawley said that there tended to be one invoice for shutters and one invoice for blinds in respect of the one order. She agreed it was her experience that it generally took longer for shutters to be manufactured than blinds. Generally, the invoice from Décor Blinds Australia would arrive by post within a couple of days of receiving the order. [106] Ms Cawley said she was responsible for calculating the early payment (settlement) discount on invoices. If the order was received without damage and with no faults the date of delivery was noted on the invoice and the invoice was filed. The payment would be worked out and sent with a copy of the invoice with Ms Cawley’s calculations marked on it. If the timing of payment was outside the 14 day period, Ms Cawley would pay the full amount. Ms Cawley said that when an invoice was received the early payment discount had not yet been deducted. If they were paying within the 14 days, Ms Cawley would have to calculate the correct amount. [107] Ms Cawley gave evidence that when an invoice had an incorrect amount on it she would calculate the proper amount whether higher or lower, correct it and pay the corrected amount. An example was found in invoice number A9117T in the name Stirling where the invoice from Décor Blinds Australia was for less than the proper amount owing. Ms Cawley said that the proper amount was calculated and paid by Décor Blinds Gold Coast.26 [108] Ms Cawley said that until invoice no B7111P received on 15 November 1999 she had never had a complaint about Gold Coast’s claiming of the early payment discount. A monthly statement of account was sent from Décor Blinds Australia to Décor Blinds Gold Coast. Ms Cawley said the statements they received showed all the amounts were cleared. [109] On 4 November 1999, Ms Cawley sent a facsimile to the defendant setting out a number of orders yet to be completed. [110] On 9 November 1999, the defendant sent a facsimile to the attention of Ms Cawley. The letter listed a number of invoices for timber venetians and stated: “The following invoices are for Timber Venetians only and even though there are shutters for the same client they are on a different 26 Tab 63 in Exhibit 10; Page 1 of Exhibit 11. -- 27 of 34 -- 28 invoice and therefore these invoices for the timber venetian blinds that have been dispatched from here are DUE 14 DAYS FROM THE DATE OF THESE INVOICE DATES, or no settlement discount will be allowed.” [111] Mr Pajo gave evidence that that was not how the contract had been administered in the past and that statement represented a total change. Mr Pajo replied by facsimile to Mr Cairns which stated in part: “This has not been the practice to date. We have accepted part delivery as an assistance to the Factory in making room and simplifying transport, but the fourteen days for invoice calculation has always started from delivery of the completed order to us, assuming satisfaction. We are happy to carry on with this system as everyone benefits, however, if you want to change this as of today then we must insist that in future only completed orders be delivered and that all items are on the one invoice.” [112] Mr Cairns placed a handwritten note on that facsimile saying, “I agree to this.” In cross-examination Ms Cawley said that when part components for an order were received, delivery was accepted as a convenience to the factory. “It was a well-known fact that … to complete an order you needed the blinds and the shutters”. [113] It is not necessary to traverse the evidence as to this matter in greater detail because, at the end of the trial, the parties agreed that there was an amount of $4,233.14 for early payment discounts wrongly claimed by Décor Gold Coast. [114] By letter dated 10 November 1999, the solicitors for the defendant wrote to the plaintiff’s solicitors stating that their client would continue to meet its obligations under the agreement. [115] Mr Pajo gave evidence that in November/December 1999 there were regular delays in delivery of orders. Mr Pajo said customers complained to Mr Cairns and talked about cancelling their orders. Mr Pajo said the delays were longer than usual even for a Christmas period. He said customers phoned the defendant’s factory directly. He said confirmations of orders were usually received three or four days after the order was placed but that at this time they were not received for weeks afterwards. He fielded calls from dissatisfied customers. [116] On 15 November 1999, Mr Pajo sent a facsimile to Mr Cairns in respect of a particular order. Mr Cairns responded by return facsimile stating that “ALL JOBS WILL BE DISPACHED [sic] ASAP. STOP WORRYING ALL JOBS WILL GET DONE. P.S. STOP CALLING ME DEAR I AM NO FRIEND OF YOURS.” [117] Also on 15 November, Mr Cairns sent a facsimile to Mr Pajo asking for immediate payment of amounts claimed to be outstanding with respect to early settlement discount taken by Décor Gold Coast to which they were not entitled. A 13 page -- 28 of 34 -- 29 schedule was attached purporting to set out all transactions between the plaintiff and the defendant from 16 July 1997 to 8 November 1999 setting out, inter alia, the amount of early payment discounts which had been improperly taken. As a result, $16,275.14 was said to be owing to Décor Australia by Décor Gold Coast. Invoice no B7111P was raised for this amount. Mr Cairns and Ms Cawley had a conversation where each accused the other of engaging in activity which wasted the time of the other. [118] Mr Pajo gave evidence that he had asked Ms Cawley to check all of those references to determine why they may not have been paid. Mr Pajo said Ms Cawley had instructed him that their handwritten comments on each invoice sent back to the defendants had not been taken into account in Mr Cairns’ facsimile. [119] Ms Cawley gave evidence that she went through the invoices referred to in the schedule to Mr Cairns’ facsimile. She located the relevant invoices and job information though not for all the invoices in the schedule. All of the documentation Ms Cawley collected in that process is in exhibit 10. Ms Cawley subsequently produced a new schedule. It is exhibit 12. Ms Cawley later added to that schedule to produce a further document. That document shows the Décor Gold Coast customer or client, the number given to the client by Décor Gold Coast, the invoice number generated by Décor Australia, the invoice amount, the date of Décor Gold Coast cheque payments, the credit date, the discount amount owing to Décor Gold Coast and comments. That schedule is exhibit 11. [120] On 17 November, Mr Pajo sent a facsimile to Mr Cairns saying he could not, if it was correct, pay the $16,000 and asking for it to be left for the time being. He also said he had not been encouraging clients to phone the factory. Mr Cairns responded by facsimile to Mr Pajo stating that the $16,000 figure was correct and demanding payment by close of business Friday 19 November 1999. Ms Cawley spoke to Leonie or Katrina at Décor Blinds Australia about the invoice. She said there were repair jobs on them and that they should pay within the 14 days of receiving the repairs. [121] On 19 November 1999 Mr Pajo sent a facsimile to Mr Cairns reminding him of his earlier facsimile of 9 November and again stating that he had never been asked to pay for part deliveries of orders. Mr Cairns responded by faxing Mr Pajo’s letter of 9 November back to Mr Pajo with handwritten comments. Mr Cairns wrote: “I agree to this”. [122] On 29 November, Mr Pajo faxed Mr Cairns about the invoice (No B7111P) for $16,000. Mr Pajo said he could not pay that amount and suggested he finalise it before Christmas. He also complained about late delivery times. Mr Cairns replied by facsimile on the same day saying that invoice no B7111P was in the hands of his solicitor. [123] On 1 December 1999, Mr Cairns sent a facsimile to Mr Pajo demanding payment of all orders prior to their dispatch. Correspondence between the solicitors for the plaintiff and the defendant followed. -- 29 of 34 -- 30 [124] On 10 December, Mr Pajo sent a facsimile to Mr Cairns informing him that a customer, Colleen Grieves, had cancelled her order. Mr Pajo gave evidence that the order was cancelled because “it was incredibly late”. The shutters had not been received. A copy of that facsimile with handwritten comments on it appears at tab 39 of the plaintiff’s bundle (Exhibit 2). At the bottom of the page Mr Cairns’ wrote, “If you let your customers cancel we will sue you for this money”. On the same day, Mr Pajo received a facsimile from Mr Cairns saying that despite the orders being cancelled they must still be paid for. [125] There was then an exchange of correspondence where accusations were made by both parties. Mr Pajo gave evidence that during that period, however, goods were still purchased and delivered. [126] On 15 December 1999, Mr Cairns wrote to Mr Pajo saying that by 24 December, Décor Blinds Gold Coast would owe a total of $73,317.45 on their account. In cross- examination Ms Cawley said she did not agree with that figure. There was nothing to show how Mr Cairns arrived at that figure. On the same day, Décor Australia sent two further facsimile transmissions to Décor Gold Coast saying that the amount owing was $81,113.79, in the first facsimile, and $83,322.74 in the second. On the second, Mr Cairns hand wrote a post script saying “P.S. YOUR FAX IS BULLSHIT READ THE CONTRACT FULLY”. [127] On 16 December 1999, Mr Cairns wrote to Mr Pajo stating that he had been prepared to accept orders on COD basis. Mr Pajo gave evidence that he had asked in respect of a few orders if they would be accepted on that basis. He said Mr Cairns had agreed. He said he did not think those orders were ever confirmed and no goods were received in respect of them. Mr Cairns asserted that as at 8 December 1999, Décor Gold Coast owed Décor Australia $26,226.18 and that they have manufactured goods for Décor Gold Coast to be delivered on a COD basis which were valued at $47,091.27. However, the $26,226.18 referred to by Décor Australia did not account for the moneys owing by Décor Australia to Décor Gold Coast. [128] On 20 December 1999, Décor Australia sent a notice of termination signed by Mr Cairns to Décor Gold Coast. It provided: “DÉCOR BLINDS AUSTRALIA Pty Ltd A.C.N. 068 569 844 (“Australia”) hereby gives you notice that it terminates the Sales and Supply Agreement (“the agreement”) made with you and dated the 16 th day of October 1997 on the following grounds: 1. You are and have repeatedly been in breach of Clause 4 of the agreement in that you have not made payment for goods within 14 days of being notified that the goods have been available for collection or from delivery of the goods to you. 2. You are in breach of Clause 6 of the agreement in that you have divulged the trading terms referred to in the agreement to parties other than parties to the agreement. 3. You are in breach of Clause of 13 of the agreement in that you have sold and or acted as agent for the sale of products -- 30 of 34 -- 31 which are similar to or are in competition with the products manufactured or sold it by Australia. 4. You are in breach of Clause 4 of the agreement in that you have made payments to Australia which are less than the amount owing to Australia by claiming discounts pursuant to clause 11 of the agreement to which you were not entitled as you had not made the payments within the time stipulated in Clause 4 of the agreement. 5. You are in breach of Clause 19 of the agreement as you have not at all times promoted the sale and distribution of the goods to the best of your ability. 6. You are in breach of Clause 15 of the agreement in that you have, through your servant or agent, Karl Norman Pajo damaged the reputation of Australia. 7. You are in fundamental breach of the agreement pursuant to Clause 15 of the agreement as you have breach of Clauses of the agreement.” [129] On 23 December 1999, the plaintiff’s solicitors wrote to the defendant’s solicitors denying that the defendant had lawfully terminated the contract. The letter does not explicitly evince an intention to terminate the contract. However, the plaintiff moved to close down its business upon receipt of the letter of 20 December 1999. The plaintiff ceased trading by January 2000. It was left with no other option after receiving the defendant’s letter of 20 December 1999 as Décor Australia was its supplier of goods for sale. Décor Australia was aware that Décor Gold Coast was obliged to cease trading then as it requested information about jobs that were incomplete. By its behaviour, the plaintiff evinced and communicated its intention to accept the defendant’s repudiation of the contract. [130] It is not necessary to consider whether all of the allegations made by the defendant about breaches of contract by the plaintiff have been made out since the plaintiff has accepted that it was in breach of cl 4 by failing to make payments within the period of 14 days (or of 28 days to the extent the defendant waived compliance with the 14 day requirement). However, I shall briefly cover some of those matters put in contention. Essanda Blinds [131] The Notice of Termination of Agreement dated 20 December 1999 alleged Mr Pajo was in breach of cl 13 of the agreement by selling or acting as an agent for the sale of products similar to or in competition with products manufactured or sold by the defendant. The defendant’s particulars of 10 August 2001 at paragraph 2 stipulate that Mr Pajo acted as agent for Essanda Blinds of Nerang. Mr Pajo gave evidence that in mid to late 1999 he acquired aluminium blinds from Essanda Blinds. (In cross- examination Mr Pajo agreed he acquired aluminium venetian blinds from Essanda Blinds in about December 1998. When questioned by Mr Carrigan, Ms Cawley said she did not recall any orders for any blinds for clients. She did recall that sample pleated blinds were purchased from Essanda). He said that at that time the defendant -- 31 of 34 -- 32 was not manufacturing such blinds. He said he understood that at some time prior to the contract the defendant had manufactured such blinds. [132] Mr Pajo said he had acquired aluminium blinds from the defendant but that they had not been manufactured by the defendant but by another company he thought might have been Franklins. He said there were “constant muck-ups” and delays with those orders which prompted him to ask Mr Cairns if he could order them direct. He said Mr Cairns told him “No, go ahead because it’s a nuisance for us having to re-order”. Mr Pajo said he subsequently sent a facsimile to Mr Cairns about this on 13 November 1998 to confirm Mr Cairns’ agreement. Mr Pajo said Mr Cairns phoned him about the facsimile about an hour later. He said he wrote Mr Cairns’ response on the bottom of the facsimile. That document is exhibit 8. At the bottom of that document is written “Frank phoned with ok 13/11/98”. [133] Mr Pajo said that he subsequently made 6 to 8 orders for aluminium blinds direct to Franklins. He said on one occasion probably in August/September 1999 he attempted to order from Franklins but they were unable to supply him. He said he then went to Essanda Blinds for the order worth about $230. This breach, if indeed it was one, was extremely trivial. Simon Matthews and alleged breach of Clause 6 [134] In part, the Notice of Termination of Agreement also alleged that Mr Pajo was in breach of cl 6 of the agreement by divulging the trading terms in the agreement to other parties. The defendant claims the plaintiff breached cl 6 of the contract by divulging the trading terms of the agreement to Simon Matthews. Mr Pajo gave evidence that he met Simon Matthews on three or four occasions. He said Mr Hughes introduced him to Mr Matthews in late 1998 after Mr Hughes sold Liberty Blinds to Mr Matthews. Mr Pajo could not recall the last occasion he had seen Mr Matthews. Mr Matthews did not give evidence of the contents of any conversation with Mr Pajo prior to the termination of the contract. This alleged breach of contract was not supported by the evidence. [135] In early 2000, Mr Pajo spoke to Simon Matthews. Mr Matthews was a competitor of Mr Pajo’s and so his evidence must be approached with some care but I accept that Mr Pajo told Mr Matthews that he believed he was owed a 5 per cent commission on anything that was sold by Décor Australia into the Gold Coast. This evidence was relevant only to rectification. Breach by the defendant [136] What is much more significant is that the defendant was itself clearly in breach of contract by refusing to account as required under cl 10 and cl 18 of the final contract and falsely denying that any or any significant liability had arisen. The defendant was not ready, willing and able to perform the contract and its behaviour was repudiatory. -- 32 of 34 -- 33 As such, the defendant lost its entitlement to terminate for breach by the plaintiff. As de Jersey CJ held in Sattel v The Proprietors Be Bee’s Tropical Apartments Building: 27 “It is trite law that a party who is not ready willing and able to perform a contract is not entitled to terminate for the other party’s breach (DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 433; Foran v Wight (1989) 168 CLR 385 at 398-402, 451; Segacious Pty Ltd v Fabrellas [1991] 1 QdR 471 at 478)”. [137] The election to terminate purportedly made by the defendant was invalid. However, the defendant’s wrongful termination was accepted by the plaintiff by its behaviour and the contract was at an end. Quantum of loss [138] The defendant is liable to account pursuant to cls 10 and 18 of the final contract for goods sold to customers, whether wholesale or retail, in the Gold Coast area, whether or not the goods were installed in the Gold Coast area. This includes sales to Stephen Frith, Best Western and Liberty Cedar Shutters. I shall hear submissions as to whether this increases the quantum of damages. [139] It was agreed between the parties that $37,685.28 was the amount of profits which should have been accounted for by the defendant to the plaintiff for the period 1 July 1997 to 23 December 1999 if the meaning of cl 10 and cl 18 set out in para 11(b) of the statement of claim were to be preferred by the court, as it has been. From this must be deducted the amount of $4,233.14 for early payment discounts wrongly claimed by Décor Gold Coast. Damages for loss of bargain [140] It appears clear from the reports of Peter Haley, the only reliable accountancy evidence presented, that the business of Décor Gold Coast was incurring losses while it was operating. In the year ended 30 June 1998, the loss was $24,701; and in the year ended 30 June 1999, $7,901; and in the year ended 30 June 2000, $79,515. This does not allow for any salary to Mr Pajo who was employed full-time in the business until it collapsed in January 2000. If he had been paid a commercially realistic salary, the plaintiff’s results for the time of its operation would, as Mr Haley opined, have showed an even greater loss. The cessation of business therefore apparently saved the plaintiff from further losses. It could not have continued, on Mr Haley’s evidence, without further financial support. [141] These matters were put in contention by the defendant in paras 7(b) to (e) of the defence. However, the evidence led by the defendant fails to take account of the difference to the financial viability of the business if the defendant had accounted to the plaintiff for the amounts payable under cl 10 and cl 18 of the contract and if the defendant had passed on to the plaintiff the leads which it was obliged to pass on to the 27 [2001] QCA 56 at [45]. -- 33 of 34 -- 34 plaintiff under cl 10. It may well be that the business would, in those circumstances, have returned a modest profit. That requires further evidence from an expert accountant. I will hear submissions as to directions that should be given to have that matter resolved. I accept that Mr Pajo intended to run the business for about 7 – 10 years, ie for a further 4 ½ - 7 ½ years after it closed. Costs and orders [142] Some submissions have been made as to costs but I will hear further submissions as to costs and interest on the publication of these reasons. I will also hear submissions as to minutes of the order to give effect to these reasons. -- 34 of 34 --