Firmstones Pty Limited v Davies

Tobacco licence fees 6 Prior to 5 August 1997 the Australian States and Territories imposed fees for tobacco licences required to be held by tobacco wholesalers and retailers. In general, the licence fees were calculated as a flat fee, plus 100 per cent of the value of tobacco sold by a licensed tobacco wholesaler to a retailer in the month commencing two months before the licence expires. Retailers were only liable to the 100 per cent ad valorem fee if they purchased tobacco from unlicensed wholesalers. 7 The tobacco wholesalers charged this licence fee onto the retailers. Some wholesalers charged the tobacco licence fee as a separately identified amount, while others included it in the price of tobacco products. The result was that the wholesalers' licence fees were effectively paid for by retailers. 8 On 5 August 1997, the High Court declared that provisions in the Business Franchise Licences (Tobacco) Act 1987 (NSW), which imposed fees for tobacco licences, were invalid on the basis that they imposed duties of excise: Ha v State of NSW (1997) 189 CLR 465. 9 Subsequently, certain NSW retailers took legal action against Rothmans to recover the licence fees which Rothmans had charged them on invoices between 1 July 1997 and 5 August 1997. The relevance of these dates is that Rothmans collected tobacco licence fees during this period, but did not pay them on to the Office of State Revenue. As such, the amounts collected were a windfall gain to Rothmans. A single judge of the Federal Court held that the retailers in Roxborough were not entitled to a refund of amounts paid to Rothmans in respect of licence fees (Roxborough v Rothmans of Pall Mall Australia Ltd (1999) 161 ALR 253). On appeal, that decision was upheld by a majority of the Full Court ((1999) 95 FCR 185). 10 In August 2000, the retailers in Roxborough were granted special leave to appeal to the High Court of Australia. The appeal was heard in May 2001 and judgment was reserved. In a position paper prepared by the plaintiff on 17 October 2001 (from which the preceding account is largely taken) it was stated that the High Court is expected to hand down its judgment in the next few months, and that "we understand that the retailers have reasonable prospects of success". 11 Prior to 18 October 2001 Mr King had no knowledge of the Roxborough litigation, nor was he aware of the possibility that retailers might be able to recover tobacco licence fees. Franklins was a substantial retailer of tobacco products at the time.

The agreement pleaded 12 Paragraph 4 of the Statement of Claim pleads and particularises the agreement for the breach of which the plaintiff sues as follows: "4. By an agreement ("the agreement") made in or about October 2001, the second defendant engaged the plaintiff to do, in addition to work in relation to the recovery of sales tax which is not in dispute ("the work not in dispute"), such work as was necessary to achieve a refund from tobacco suppliers of the tobacco licence fees incorrectly charged by those suppliers. PARTICULARS The agreement was partly written and partly oral. To the extent the agreement was written, it was set out in a memorandum for a meeting held on 18 October 2001 and 2 letters from the plaintiff to the second defendant dated 25 October 2001 and 29 October 2001. To the extent the agreement was oral, it was made in: (i) a conversation between Mr Peter King and Ms Eunice Koh (on behalf of the second defendant) and Mr Adrian Firmstone and Mr Ronald Hyland (on behalf of the plaintiff) on 18 October 2001; (ii) a conversation between Mr Stephen Kroon (on behalf of the second defendant) and Mr Adrian Firmstone on 22 October 2001; and (iii) a conversation between Mr Peter King (on behalf of the second defendant) and Mr Adrian Firmstone on 25 October 2001." 13 The defendant denies the existence of that agreement. Alternatively, the defendant contends that if there was a binding agreement, it was for an indefinite period, and was thus the subject of an implied term that the defendant could terminate the agreement on notice. 14 At my request, and as part of its submissions, the plaintiff prepared a document which listed the obligations to which it was subject in consequence of the making of the pleaded agreement. The document is as follows: "The plaintiff says that it was under the following obligations after its offer was accepted in the telephone conversation between Mr Firmstone and Mr King on 25 October 2001: (a) the plaintiff was obliged to review the Roxborough decision when it was handed down with a view to identifying any factual or legal differences which would prevent the decision from applying to Franklins; (b) the plaintiff was obliged to advise Franklins of the decision and whether and how Franklins could take advantage of the decision to recover tobacco licence fees it had paid; (c) if the decision permitted any recovery action by Franklins against the wholesalers, the plaintiff was obliged to take such steps as were necessary to obtain a refund from the wholesalers (those steps are described in paragraph 14 of Mr Firmstone's second affidavit); (d) if the decision precluded all recovery actions by Franklins, the plaintiff would so advise Franklins; (e) if no High Court decision was handed down because the Roxborough litigation was compromised, the plaintiff was obliged to take such steps as were necessary to prosecute a claim for recovery from the wholesalers, which would very likely require the commencement of legal proceedings; (f) all of the work done and expenses incurred by the plaintiff in prosecuting Franklins' claim for a refund were to be at the plaintiff's expense. Franklins was under the obligation: (a) to take or permit the taking of such steps as were necessary on its part to obtain refunds from the wholesalers; (b) if amounts were recovered, to pay to the plaintiff 35% of those amounts." 15 Evidence was given on behalf of the plaintiff by Mr Firmstone, by Mr Ronald Hyland, a consultant employed by the plaintiff and by Mr Stephen Kroon who was Franklins' Merchandise Technology Manager from April 1997 to 14 December 2001. Evidence was given on behalf of the defendants by Mr King, by Ms Eunice Koh who was Franklins' Taxation Accountant at relevant times and by Mr Hawkins, who was the Chief Financial Officer of Franklins at relevant times. 16 Those witnesses gave accounts of meetings and telephone conversations which differed to some extent. The most significant difference is between the account given by Mr Firmstone and by Mr King of a telephone conversation on 25 October 2001. It was not suggested that any witness was dishonest, or generally unreliable. Rather, the case was conducted on the basis that it is for me to assess the cogency and accuracy of the witnesses recollections in the light of the surrounding circumstances.

18 October 2001 17 A meeting was held at Franklins' premises on 18 October 2001. Present at the meeting were Messrs Firmstone and Hyland on behalf of the plaintiff, and Mr King and Ms Koh on behalf of Franklins. The meeting lasted about an hour. At that meeting a document styled "Matters for discussion - meeting 18 October 2001" which had been prepared by Mr Hyland and settled by Mr Firmstone was produced and discussed. Mr Firmstone was informed at that meeting that Franklins was then in the process of a "managed sell down" involving the sale of all of its stores, which would hopefully be completed by the end of 2001 or early 2002, with a view to placing Franklins in voluntary liquidation early in 2002. 18 The document styled "Matters for discussion - meeting of 18 October 2001" contains five items. Items 1, 2 and 3 list opportunities for sales tax refunds from suppliers and from the ATO in relation to: 1. Sales Tax/Capital Equipment and Non-Trading stock items 2. Sales Tax/Unpopped Popping Corn and other specific trading stock 3. Sales Tax/Wine Coolers and Alcoholic sodas and contains a brief discussion of those opportunities. Item 4 relates to a refund of GST on which the plaintiff was awaiting Franklins' instructions. Item 5 is as follows: "Tobacco Licence Fees Opportunity for refund of licence fees paid to tobacco wholesalers prior to the High Court decision in Ha v The State of NSW on 5 August 1997, subject to a favourable decision of the High Court in Roxborough v Rothmans of Pall Mall Australia which is expected before the end of this year. The attached Position Paper at Appendix B outlines the relevant issues involved." 19 The position paper at Appendix B includes a section headed "Background" from which the material under the heading "Tobacco Licence fees" above is largely taken. The "issue" is identified in the position paper as being whether other retailers can recover tobacco licence fees paid to tobacco wholesalers but not in turn paid by the wholesalers to the various State or Territory revenue offices. The prospective benefit which might be gained by other retailers taking action against the tobacco wholesalers is identified as the recovery of amounts charged by the tobacco wholesalers to the retailers during the period 1 July 1997 to 5 August 1997, but not remitted to the relevant State or Territory revenue offices. The position paper states that if the High Court decides in favour of the retailers in Roxborough the prospects of delivery of that benefit is high. The position paper concludes: "RECOMMENDED COURSE OF ACTION We recommend that no action be taken until the High Court delivers its decision in Roxborough. We can see no upside in putting the tobacco wholesalers on notice of your likely claim. If you did this, the wholesalers might be encouraged to settle with Roxborough and the other retailers involved in that case, to avoid the prospect of Roxborough establishing a legal principle against them. If the High Court decides in favour of the retailers, we will then contact you with our recommendations regarding what you should do." 20 It is common ground that the bulk of the meeting was devoted to consideration of the sales tax items. There was an urgency about the sales tax items, as "stop the clock" letters needed to be sent by 21 November 2001. The discussion of the GST item was short, and it was left on the basis that Mr King would need to follow the item up internally, to see where it was within Franklins, and he would get back to Mr Firmstone about it. 21 The discussion then moved to item 5. Mr Firmstone's estimate, which I accept as a reasonable estimate, is that the discussion of this item occupied about ten minutes. Mr Firmstone's account of that conversation, as given in his affidavit, is as follows: "Me: 'The next issue we wish to discuss is an issue involving tobacco licence fees which were paid by tobacco retailers such as Franklins to their suppliers in the five weeks prior to the decision of the High Court in the Ha v Hammond case. These fees were not paid by the suppliers to the State Revenue Office and a group of tobacco retailers, headed by a gentleman by the name of Roxborough, has been seeking recovery of these monies through the courts. The amounts involved will be substantial as the licence fee was 100% of the tobacco price.' King: 'Where is the matter up to and what is involved?' Me: 'Appendix B which is attached to the Memorandum which I've given you sets this out. In short, Roxborough was lost in the Federal Court, but has been appealed to the High Court and has been heard. A decision is likely before Christmas and we understand that the prospects are reasonable. However, we recommend that you do not take any action involving suppliers until after the High Court hands down its decision. We will monitor the matter and, if the decision favours recovery, we will consider its impact on Franklins and advise you in relation to the way forward. We would then undertake everything necessary to secure the maximum recovery for Franklins at our expense.'" In cross-examination Mr Firmstone accepted at the end of the meeting that the issue of tobacco licences was left on the basis that there was nothing to do, as it was subject to the High Court's decision in Roxborough. 22 Mr King's account of that discussion, as given in his affidavit is as follows: "Firmstone: Oh, and there's one final matter. As you can see in point five of the discussion paper, and Appendix B, we have prepared a position paper on the issue of tobacco licence fees. For a five week period in 1997, we may be able to obtain refunds for you of the tax paid on sales of cigarettes. However, the Court action in relation to this matter is currently before the High Court and we will keep you abreast of any result. There is a six year limitation period. King: Is any action required by us at this stage? Firmstone: No - there is nothing for Franklins to do at this stage. We are just letting you know about the possibility of recovering the tobacco licence fees. We will keep you posted of any developments, and we can discuss what action, if any, is required at a later stage." 23 Mr King has no recollection of Mr Firmstone saying that he proposed a fee of 35 per cent of net recoveries as the basis of the plaintiff's fee, although he accepts that this may have occurred. Ms Koh did remember that Mr Firmstone said that the 35 per cent fee would apply to tobacco licence recoveries, and thus supports Mr Firmstone's recollection in this respect. 24 Mr King denies that he asked "how long would it take" or that he said "we would probably be interested in pursuing these matters". His attitude was that tobacco licence fees may or may not be an issue for Franklins later on, depending on the result in Roxborough. There was no immediate need to deal with the matter. "It was made very clear that this is a matter for information only at this stage, no further action or consideration required". Mr King had no idea of the sums of money that might be involved. 25 Mr King's evidence was that in order to give final approval to recover tobacco licence fees he would need to understand the implications for Franklins of the High Court's decision in Roxborough, to ascertain the likely quantum of any recovery, and to discuss the matter with and obtain approval from other Franklins managers, including Mr Hawkins. Mr King took no steps after the meeting to progress the tobacco licence fee matter within Franklins. 26 Mr Hyland's affidavit evidence includes the following: "The High Court's decision is expected to be handed down before Christmas. Accordingly, at this stage, we don't think that any action needs to be taken. Once the decision comes out, we'll inform you and consider the appropriate action to be taken. King: 'We would probably be interested in pursuing these matters. I need to talk to some of our people first and I will get back to you.'" 27 Mr Hyland accepted in cross-examination that Mr Firmstone told Mr King there was nothing to do at that stage in relation to the tobacco licence fees matter, and the project was wholly dependent on what might happen in the Roxborough case in the High Court. If the retailers were successful, Firmstones would make recommendations in relation to the project which Franklins were free to accept or reject. There could not be a final decision as things stood at 18 October 2001. 28 Ms Koh's account of this meeting, as given in her affidavit, is: "Firmstone: As you can see from Appendix B [to the discussion paper], for a five week period in 1997, we may be able to obtain refunds for you of the tax paid on sales of cigarettes. However, the Court action in relation to this matter is currently before the High Court. We will keep you abreast of any result." In cross-examination, Ms Koh accepted that in the course of discussion on the tobacco licence paper, Mr King told Mr Firmstone that he would need to talk to people within Franklins and he would get back to him. At the end of the meeting Mr King said that "we would probably be interested in pursuing these matters", which she understood as referring to all of the matters discussed at the meeting. 29 It is common ground that at no time during the 18 October 2001 meeting did Mr Firmstone disclose the steps necessary to secure a claim for refunds of tobacco licence fees, or the likely quantum of any recovery of tobacco licence fees. Nor was there any discussion as to who the lawyers might be. Nor did Mr Firmstone say that the plaintiff would indemnify Franklins against any adverse costs order.

Mr Kroon 30 Mr King says that shortly after the meeting he telephoned Franklins' business analyst, Mr Stephen Kroon. He asked Mr Kroon to check with Joe Bullara, Franklins' Merchandise Director, as to whether pursuit of sales tax refunds suggested by Mr Firmstone would cause any problems with Franklins' remaining suppliers given the wind-up. He forwarded a copy of the matters for discussion paper to Mr Kroon. 31 In his affidavit Mr Kroon said that he was asked by Mr King to see what sort of money is involved in the proposals referred to in the discussion paper. He then deposes to a conversation which he had with Mr Hyland (Mr Firmstone says that the conversation was with him) in which he was told how to calculate the amount of tobacco licence fees involved. Subsequently Mr Kroon calculated an estimate of the tobacco licence fee involved. 32 In cross-examination, Mr Kroon agreed that Mr King told him that Mr Firmstone had asked whether Franklins was interested in pursuing some sales tax refunds. Mr King wanted him to investigate what the quantum was. He asked him to check with Joe Bullara as to whether, in a general sense, it would cause any problems with Franklins' remaining suppliers given the wind-up. Mr King said nothing about the calculation of a tobacco licence fee during this conversation. 33 Mr Kroon wanted to get a better understanding of the proposals. Whilst Mr King at no time asked him to do an analysis insofar as tobacco licence fees were concerned: "I proactively looked at every item within that paper". It is unclear when the calculation of the tobacco licence fee was undertaken. 34 Mr Firmstone's account of his conversation with Mr Kroon creates the impression that Mr King had asked Mr Kroon to calculate the amount of the tobacco licence fee. If that were so, then it would be inconsistent with Mr King's evidence. There is an issue on Mr Kroon's affidavit as to whether the conversation on this topic was with Mr Firmstone or Mr Hyland. Mr Hyland's evidence does not throw any light on the matter. In any event, the cross-examination of Mr Kroon makes it clear that his testimony does not impeach or contradict or otherwise call into question the evidence given by Mr King. Any involvement which Mr Kroon had in relation to tobacco licence fees was not at the request of Mr King, but on Mr Kroon's own initiative.

25 October 2001 35 I accept Mr King's evidence that on 25 October 2001 he received a telephone call from Mr Kroon in which he was told that Joe Bullara has "no problems with us pursuing the sales tax refunds". 36 Mr Firmstone's affidavit includes the following account of a telephone conversation which he had with Mr King on the morning of 25 October 2001: "King:'We wish to proceed with the matters discussed at our meeting and covered in your memorandum. Please remind me of the fee basis you are proposing.' Me: 'Our fee proposal is 35% of net refunds for the sales tax and tobacco licence fee issues and a fee for service with a fee estimate of between $1,000 and $1,500 for the GST matter.' King: 'That's fine. Can you please let me know what you need? Eunice Koh will be your contact person at Franklins. Can you also send me a letter confirming the various projects you will be undertaking and our fee arrangements?' Me: 'I will do that Peter. To start the ball rolling, I will send you a note setting out details of the products involved in relation to wine coolers and alcoholic sodas, capital equipment and store consumables.'" 37 Mr King's account of that conversation is as follows: "I telephoned Firmstone on 25 October 2001 during which the following words were spoken: King: I have checked internally with our category management team, and the construction design department, and they have no problems with us proceeding with the sales tax recoveries. Please go ahead and contact Stephen Kroon and Joe Brindcadt for the purpose of obtaining supply information so that the stop the clock letters can be sent as soon as possible, and in any event before the deadline. Firmstone: Okay. King: Can you also confirm your fee proposal in writing please? Firmstone: Sure, I will do that, and in the interim, I will send you a fax containing more detail about the wine cooler, alcoholic soda and capital equipment items, the subject of the sales tax refund claim." 38 Mr King says that in that conversation he did not address the proposal about GST refunds or about tobacco licence fees. 39 On 25 October 2001 the plaintiff wrote to Franklins enclosing schedules relevant to the sales tax projects. The letter concluded: "I will send you a note shortly to outline our fee arrangements for the various projects to be undertaken in line with our discussions."

29 October 2001 40 On 29 October 2001 the plaintiff wrote to Mr King. I set out the terms of the letter in full: "29 October 2001 Mr Peter King Financial Controller Franklins Limited 62 Hume Highway CHULLORA NSW 2190 FAX No: (02) 9722 1510 Dear Peter Refund Projects Sales Tax/GST/Tobacco Licence Fees The purpose of this letter is to confirm the basis on which we are prepared to undertake projects for Franklins aimed at securing the following sales tax, GST and tobacco licence fee refunds for the company in line with the matters addressed at our meeting on 18 October 2001 and during my subsequent telephone discussions with Stephen Kroon and yourself: TAX REFUND FROM BASIS OF CLAIM/GOODS INVOLVED Sales Tax Suppliers Sales tax overcharged on - · capital equipment, consumables and other in-store, warehouse and head office purchases · unpopped popping corn, anti-flea products and No Frills petroleum jelly · wine coolers and alcoholic sodas GST ATO GST paid as a consequence of Franklins' July/August 2000 'settlement' with the ACCC in relation to GST classification errors. Tobacco Licence Fees Suppliers Fees paid to tobacco wholesalers, and not paid by them to the State Revenue Offices, prior to the decision in Ha v The State of NSW on 5 August 1997 that such fees were unconstitutional.

My understanding of our agreement is that: · we will liaise with relevant Franklins' personnel to obtain access to, and will then carry out a review of, necessary purchase invoices and other documentation; · we will prepare necessary communications with suppliers and the ATO for issue on Franklins', or on our, letterhead as the circumstances require; · we will undertake follow-up action with suppliers and the ATO to ensure that Franklins receives its refund entitlements; · Franklins will make available necessary personnel and resources to enable us to carry out the necessary documentation reviews and other tasks required; and · we should commence this project as soon as possible to maximise Franklins' refund opportunities. Fee for Project On the matter of our fees for undertaking this project, our agreement is that we would be paid 35% of any sales tax and tobacco licence fee refunds received by Franklins from suppliers or the ATO. In relation to the GST matter, our fee would be time based which we would estimate to be in the order of $1000 - $1,500. If there are any issues of concern to you, please do not hesitate to contact me as soon as possible. Ron Hyland will call Eunice Koh shortly to commence pursuing these matters. Yours sincerely Adrian Firmstone Director" 41 Franklins did not respond to that letter. Mr King denied that the letter was an accurate reflection of the conversation with Mr Firmstone on 25 October 2001. The reason he says he did not reply to the letter was that it reflected the agreement reached on 25 October 2001 in relation to sales tax recoveries, and it was no more than a proposal as to the basis on which the plaintiff was prepared to undertake recoveries in relation to GST and tobacco licence fees should Franklins wish the plaintiff to undertake that work at a later stage. The letter needs to be read against the background that at the meeting of 18 October 2001. It was accepted that Mr King would need to get back to Mr Firmstone on the matter of the GST. The matter of the tobacco licence fees was left on the basis that nothing needed to be done, or could be done, until the High Court delivered its decision. 42 The letter refers to Franklins making available the necessary personnel and resources. This matter had not been the subject of any specific discussions. 43 Mr Hyland contacted Ms Koh once or twice after the October meeting in relation to sales tax recoveries. He did not contact her in relation to GST recoveries or tobacco licence fees.

The decision in Roxborough and thereafter 44 The High Court handed down its decision in Roxborough on 6 December 2001. The decision was favourable to the position of the retailers (see (2002) 76 ALJR 203). 45 Mr Hawkins, Franklins' Chief Financial Officer, first became aware of the possibility of recovering tobacco licence fees on or around 6 December 2001, when he was given a copy of the High Court decision. He understood that the quantum of any recovery was likely to involve millions of dollars. 46 On 10 December 2001 Mr Kroon contacted Mr Hawkins and Mr Hyland to arrange a meeting for 11 December 2001 with Mr Hyland to discuss the sales tax refund project and the implications of the High Court decision in Roxborough. 47 On 11 December 2001 Mr Hyland attended a meeting at Franklins' premises with Messrs King, Kroon and Hawkins. At this meeting Stephen Kroon indicated that the amount involved in relation to tobacco licence fees would approximate $6.5 million. During the course of the meeting Mr Hyland gave Mr Hawkins a copy of the plaintiff's letter of 29 October 2001. A detailed account of the meeting is attached to Mr Hyland's affidavit. Mr Hawkins agrees with that account. It is sufficient for present purposes to record that Mr Hawkins said that whilst there was an agreement in relation to sales tax recoveries, Franklins had no agreement with the plaintiff in relation to tobacco licence fees. 48 On 12 December 2001 there was a telephone discussion between Mr Firmstone and Mr Hawkins. Mr Hawkins said that he could not understand why Franklins should pay the plaintiff a 35 per cent fee, when the High Court had made its decision, and Franklins could get a refund of the tobacco licence fee itself. Mr Firmstone asserted the existence of an agreement as set out in the 29 October 2001 letter. Mr Firmstone said that he had no idea that over $6 million was involved when he proposed the 35 per cent fee, and he was prepared to be flexible. 49 On 12 December 2001 there was a conversation between Mr King and Mr Firmstone in which the different positions of the parties were repeated. On 12 December 2001 Franklins sent a fax to the plaintiff asserting a misunderstanding concerning the plaintiff's arrangements with Franklins in relation to the various projects outlined in the letter of 29 October 2001, and a desire to clarify these arrangements. The letter asserted that there was no agreement in relation to the recovery of tobacco licence fees. If the plaintiff considered that this aspect of the proposal was in any way accepted by Franklins, then the letter is an immediate termination of any arrangements, other than those relating to the recovery of sales tax on capital equipment purchases. 50 A further meeting took place between Mr Firmstone, Mr Hyland, Mr King and Mr Hawkins on 19 December 2001 at which the possibility of Franklins getting the plaintiff involved in the recovery of tobacco licence fees was discussed. On 21 December 2001 the plaintiff wrote to Franklins setting out its version of the facts. Franklins responded on 28 December 2001 with its version.

Quantum 51 The plaintiff proved the quantum of Franklins actual recovery of tobacco licence fees by tendering deeds between Franklins and the tobacco wholesalers, which disclose those amounts, but which contain covenants requiring Franklins to keep the amounts confidential (confidential Exhibit B). Other retailers represented by the plaintiff obtained a higher proportionate recovery than did Franklins. The details are in confidential Exhibit A. The evidence does not establish why Franklins obtained a proportionate recovery less than was achieved by the other retailers. The plaintiff estimated that its costs of recovery would have been $125,999. 52 Evidence was filed on behalf of Phillip Morris Limited to the effect that disclosure of the information contained in confidential Exhibits A and B would prejudice its negotiating position in relating to the settlement of outstanding claims which have been made by other retailers. In those circumstances I have decided not to discharge the orders which I made provisionally under s 50 of the Federal Court of Australia Act 1976 (Cth) in relation to the confidential exhibits, and I abstain from mentioning the figures referred to in those exhibits in these reasons: cf David Syme & Co Ltd v General Motors Holdens Ltd [1984] 2 NSWLR 294. 53 It is sufficient for present purposes to record that if the plaintiff were to succeed in establishing the contract on which it sues, the damages to which it would be entitled are in excess of $1 million.

The parties' cases 54 The Statement of Claim alleges that in October 2001 Franklins engaged the plaintiff to do such work as was necessary to achieve a refund from tobacco suppliers of the tobacco licence fees incorrectly charged by those suppliers. In submissions the plaintiff put its case on the basis that the plaintiff made an offer with respect to the recovery of tobacco licence fees on 18 October 2001, which was accepted on 25 October 2001 when Mr King said to Mr Firmstone that Franklins wished to proceed with, amongst other things, the recovery of the tobacco licence fees. The letter of 29 October 2001 is a confirmation of that agreement. 55 The defendant denies any such agreement and joins issue on the question of offer and acceptance. The defendant submits that, in any event, the parties did not intend on 29 October 2001 to enter into a legally binding agreement insofar as the tobacco licence fees are concerned. At most, the plaintiff had an "agreement" with Franklins that once the issue of recovery of tobacco licensing fees was resolved by the High Court, Franklins might enter into a contract in relation to the provision of the plaintiff's services. There was, in any event, no agreement that the plaintiff was to have the exclusive right to provide the relevant services. Any agreement was terminable on notice.

My Decision 56 Mr King was first alerted to the possibility that tobacco licence fees might be recoverable from tobacco wholesalers at the meeting of 18 October 2001. There was no discussion at that meeting of the sums of money likely to be involved. Mr King had no understanding as to what those sums might be. Whether there was, or was not, an "opportunity" for the recovery of tobacco licence fees was dependent on the decision of the High Court. 57 The position paper recommended that no action be taken until the High Court delivered its decision in Roxborough. If the High Court decided in favour of the retailers, then the plaintiff would contact Franklins with its recommendations regarding what Franklins should do. The discussion at the meeting was consistent with the position paper. 58 Mr Firmstone accepted in evidence that all he was intending to convey by the position paper was that once the decision of the High Court was known, he would contact Franklins regarding his recommendations, which might have been acceptable or unacceptable to Franklins. They could have led to further negotiations between the parties as to what might be the appropriate course to proceed with. 59 Mr Firmstone, Mr Hyland and Mr King all accept that at the end of the meeting of 18 October 2001 the matter of tobacco licence fees recoveries was left on the basis that there was nothing for Franklins to do at that stage. 60 It is probable that Mr Firmstone proposed that his fee would be 35 per cent of net recoveries. His recollection is that he did mention the fee, and in this he is supported by Ms Koh, although her evidence is "we didn't talk about fees regarding tobacco licence fees". Whilst Mr King does not recall the reference, he does not deny it. 61 It is probable that the discussion on the specific topic of recovery of licence fees concluded as Mr King asserts, on the basis that the plaintiff would keep Franklins posted of developments, and what action, if any, was required could be discussed at a later stage. That is consistent with the position paper, and with Mr Hyland's evidence as to the discussion. 62 Mr Firmstone. Mr Hyland and Ms Koh all say that at the end of the meeting Mr King said that Franklins would probably be interested in pursuing these matters, but he needed to talk to his people first, and he would get back to the plaintiff. Mr King denies that this was said. 63 In my view, it is probable that something was said by Mr King in general terms at the conclusion of the meeting about interest in the proposals, the need for him to pursue them with people in Franklins, and that he would get back to Mr Firmstone. However, I am satisfied that any general observations made by Mr King in this respect did not involve any departure from the proposition that there was nothing to be done in relation to the recovery of tobacco licence fees until the decision of the High Court was known, and the plaintiff had communicated its recommendations to Franklins.

Was there an offer? 64 There was no offer made at the meeting of 18 October 2001 which was capable to acceptance by Franklins. In particular, the plaintiff did not then offer to enter into an engagement of the type alleged in par 4 of the Statement of Claim. Nor was Franklins then asked to retain the plaintiff to undertake recovery work in relation to the tobacco licence fees. All that the plaintiff did was to provide Franklins with information as to a possible commercial opportunity, and to indicate a willingness to assist Franklins to exploit that opportunity in return for a contingency fee, if the decision of the High Court was favourable. It is not legitimate to interpret as an offer a statement of intention as to a future course of action, not put forward as an offer and not inviting acceptance or rejection: Carter and Hyland Contract Law in Australia (4th ed.) at [206]. At the meeting of 18 October 2001, the plaintiff did not invite Franklins to accept or reject anything. What the plaintiff recommended was deferral of further consideration of the matter of recovery of tobacco licence fees, a recommendation with which Franklins appeared to concur.

Was there acceptance? 65 There was an urgency associated with the pursuit of the sales tax proposals. On 25 October 2001 Mr Kroon had communicated to Mr King that Joe Bullara had no problems with Franklins pursuing the sales tax refunds, and it is probable that Mr King would convey that information to Mr Firmstone so that the "stop the clock" letters could be sent. The account of the conversation with Mr Firmstone on 25 October 2001, given by Mr King is consistent with the probabilities in this respect. It is common ground that the plaintiff was retained to pursue the sales tax matters in the telephone conversation of 25 October 2001. 66 However, nothing had changed in relation to the GST or the tobacco licence fees from where those matters were left at the conclusion of the meeting of 18 October 2001. There was no reason for Franklins to engage the plaintiff to pursue either of those matters on 25 October 2001. There was nothing which the plaintiff could usefully do at that time in relation to the tobacco licence fees. 67 I accept Mr King's evidence that he had not given further consideration to the pursuit of the tobacco licence matter after the meeting of 18 October 2001, and that he had taken no steps to progress the matter of tobacco licence fees within Franklins. I also accept Mr King's evidence that he would need to discuss such a matter with other Franklins managers, including Mr Hawkins, and that he had not done so. Mr Hawkins' evidence confirms the evidence of Mr King to this extent. 68 These factors suggest that it is unlikely that on 25 October 2001 Mr King would have entered into a commitment to engage the plaintiff in relation to all matters discussed at the meeting of 25 October 2001, including tobacco licence fees. However, before coming to a conclusion as to which of the differing versions of the conversation of 25 October 2001 I accept, it is necessary to consider the terms of the letter of 29 October 2001. 69 The plaintiff contends that it is ridiculous to characterise this letter as an agreement in relation to sales tax, but as merely a proposal in relation to GST and tobacco licence fees. In the plaintiff's contention it is clearly an agreement in relation to each of the three matters, and the reason Mr King did not respond to the letter was that it accurately reflected his conversation with Mr Firmstone on 25 October 2001. 70 If a letter purporting to record an oral arrangement between businessmen fails accurately to record the terms of that arrangement, then ordinarily one would expect the matter to be raised at the time. But whether a failure to respond leads to an inference that the letter does accurately record the arrangement reached, notwithstanding a subsequent denial by the recipient of the letter, depends on a consideration of all the circumstances, including the terms of the letter, the reason given for failure to respond and one's assessment as to the credibility of that reason. 71 The letter records the basis on which the plaintiff is "prepared" to undertake the three projects. It does not expressly assert a retainer from Franklins to pursue each of those projects on its behalf. The letter does refer to Mr Firmstone's understanding of "our agreement" in relation to five specified matters of an administrative nature, but Mr Firmstone accepts that at least the second last of those matters had not been the subject of express arrangement. The last of those matters could not refer to the tobacco licence fee project because that project was not to commence as soon as possible, but only after a favourable High Court decision. Mr King thought that the references to the ATO related to sales tax, rather than to tobacco licence fees. The letter does refer to "our agreement" in relation to fees, but it invites Franklins to contact Mr Firmstone "if there are any issues of concern to you". Whilst I accept that Mr Firmstone proposed a fee of 35 per cent at the meeting of 18 October 2001, no participant at that meeting gives any evidence of discussion of the fee proposed or acceptance of it. Ms Koh says there was no such discussion. Whilst the letter says that Ron Hyland will call Eunice Koh shortly to commence pursuing "these matters", in fact the only contact was in relation to sales tax matters. 72 There is some force in Mr King's observation that if the letter is read divorced from its context it is more in the nature of a proposal, than a confirmation of the terms of a done deal whereby the plaintiff was retained to act on behalf of Franklins in relation to each of the projects. His acceptance that the letter was an agreement in relation to sales tax was based upon the instructions which he gave the plaintiff to pursue the sales tax matter on 25 October 2001, rather than on the terms of the letter. 73 On one view, the letter may provide some support for the position adopted by Mr Firmstone; on another view, the terms of the letter are equivocal. In my opinion, the letter falls far short of establishing that Mr Firmstone's account of the 25 October 2001 conversation is to be accepted in preference to Mr King's. The objective circumstances which make it improbable that a conversation occurred in the terms contended for by Mr Firmstone are so strong that they are not outweighed by the terms of the letter, or Mr King's failure to respond to it. I accept Mr King's evidence that he construed the letter as a proposal as to the basis on which the plaintiff was prepared to undertake the pursuit of tobacco licence fee refunds (should the opportunity to pursue those refunds arise) rather than as a confirmation that it had been retained by Franklins to pursue that matter. When the letter is considered against the background of the meeting of 18 October 2001, that is not an unreasonable construction to place on it. Accordingly, I prefer the evidence of Mr King as to the conversation of 25 October 2001 to that of Mr Firmstone. It follows that even if an offer were made by the plaintiff on 18 October 2001 in the terms for which the plaintiff contends, there was no acceptance of that offer by the defendant.

An agreement to agree? 74 Even if a conversation occurred on 25 October 2001 in the terms contended for by Mr Firmstone, it does not follow that the plaintiff is entitled to succeed. A statement that Franklins wish to proceed with "matters discussed at our meeting and covered in your memorandum", in its application to tobacco licence fees, conveys no more than a concurrence on the part of Franklins with the plaintiff's suggestion that the decision of the High Court should be awaited after which the plaintiff would contact Franklins with its recommendations. 75 Whilst there may have been an anticipation or expectation that the plaintiff would be retained on the terms set forth in the 29 October 2001 letter, even if one accepts Mr Firmstone's evidence in relation to the 25 October 2001 conversation, the evidence as a whole falls short of establishing a concluded agreement to the effect of that alleged in the Statement of Claim. Franklins had not committed itself to the retainer of the plaintiff with respect to the pursuit or possible pursuit of recovery action. Given that the plaintiff, on its own case, advised Franklins that once the High Court's decision was known, it would make recommendations, then it is clear that how and whether any services were to be performed by the plaintiff was undecided. At most, the plaintiff had an "agreement" with Franklins, that once the issue was resolved by the High Court, Franklins might enter into an arrangement with the plaintiff. In Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647, Higgins J (sitting at first instance) said at p 650: "Moreover - though it ought to be superfluous to say it - it is one thing for two parties to settle what are to be the terms of an agreement, if it should be made; and quite another thing to make the agreement." 76 The application is dismissed with costs. 77 Had I reached a different conclusion, I would have calculated the plaintiff's damages by reference to the amounts actively recovered by Franklins. There is no evidentiary foundation which would sustain a calculation based upon an assumption that Franklins would have held out for better terms if the plaintiff was engaged in connection with the recovery process. I certify that the preceding seventy-seven (77) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Counsel for the Applicant: Mr A Robertson SC, Mr M Leeming

Solicitor for the Applicant: Robert Richards & Assoc

Counsel for the Respondent: Mr D Studdy, Mr R Scruby

Date of Hearing: 12, 13 February 2003