First Plaintiff v Defendant

1 In late 1992 the second plaintiff ('Prosilis') was an ambitious 28 year old marketing man based in Sydney. For the previous five years he had been employed by Woolworths in positions relating to its national advertising and marketing activities. He had gained considerable experience in connection with the production and distribution of advertising catalogues. He wanted to turn this to his own account, in a very large way.

2 Prosilis set up a private company, Australian Catalogue Corporation Pty Ltd ('ACC'), to provide services to clients in this field. Prosilis and his then wife were the sole shareholders and directors of ACC. At the same time ACC was quietly taking steps with a view to acquiring a substantial interest in, or assuming control of, a certain network of State based letter box distribution companies called ADN.

3 In about March 1993 ACC set its sights on the defendant, then called Coles Myer Ltd ('CML'), as a potential major client. CML was a large public company with several well known retail subsidiaries, including Myer Stores Limited (also known as Myer Grace Brothers ('MGB')), Coles Supermarkets Australia Pty Ltd, Kmart Australia Ltd and Target Australia Pty Ltd, among others. At that time the companies in the CML group were commissioning, between them, approximately 650,000,000 catalogues per year. This was more than any other organisation in Australia. Over several months ACC sought to persuade CML and its subsidiaries that they could save many millions of dollars on catalogues by using the services of ACC.

4 Indeed, the plaintiffs claim that on 12 November 1993 ACC entered into a binding agreement (now called by the plaintiffs 'the audit and implementation agreement') with CML under which ACC was to audit the production and distribution of catalogues by certain of CML's subsidiaries so as to identify savings in relation thereto and then to implement savings; and that CML was to pay fees to ACC calculated as 12.5% of savings identified by ACC and implemented by CML or 7% of savings identified by ACC but not implemented by CML. The plaintiffs further claim that pursuant to the agreement ACC identified numerous savings; that many of these were actually implemented; that CML wrongly refused to pay fees to ACC on the percentage basis and wrongly repudiated the agreement; that by a deed of assignment executed in December 1995 ACC assigned its rights and interests under the agreement to the first plaintiff ('ACOM'); and that CML is accordingly liable to pay amounts to ACOM by way of unpaid fees together with damages for breach of the so-called audit and implementation agreement.

5 Alternatively, the plaintiffs claim that CML is estopped from denying that it entered into the audit and implementation agreement with ACC. In the further alternative, the plaintiffs claim that ACC was entitled to remuneration on a quantum meruit. They contend that both the estoppel claim and the quantum meruit claim have been duly assigned by deed to ACOM.

6 The current statement of claim - the Amended Further Amended Statement of Claim dated 4 June 2010 ('AFASC') - also includes a section headed 'Unjust Enrichment' which incorporates by reference the same allegations as underpin the claim made by ACOM for unpaid remuneration under the audit and implementation agreement. However it seems that the unjust enrichment claim is no longer pressed.[1]

7 Next, the plaintiffs claim that on 6 October 1994 CML entered into a binding agreement with Prosilis to provide to a company to be formed by him (hence not ACC) 50 percent of the letter box distribution work of all of CML's subsidiaries for a period of five years on certain terms. Prosilis incorporated ACOM in December 1995. ACOM claims to be the company entitled to the benefit of the alleged agreement (which the plaintiffs call 'the letter box distribution agreement'). ACOM says that CML broke the agreement by refusing to provide it with any catalogue distribution work. Damages are claimed by 'Prosilis and/or ACOM'[2] for this alleged breach of the alleged agreement.

8 Each of the two pleaded agreements is alleged to have been made, at least in large part, orally.

9 The plaintiffs' particulars of loss and damage[3] quantify the combined claim under the so-called audit and implementation agreement at $6,630,979. The claim for damages under the so-called letter box distribution agreement is quantified at $24,030,933. This makes a grand total of some $30 million, not including interest.[4]

10 ACC went into liquidation in mid 1996 at the instigation of creditors.

11 The plaintiffs issued the writ in this proceeding in 2000. Almost a year later, in 2001, they served it on CML. CML vigorously denies all liability. It also disputes all or most elements of the claimed quantum.

12 This proceeding was not entered in a judge-managed list. I had no involvement in the interlocutory stages. The proceeding was set down for trial on an estimate that it would occupy six weeks of hearing time. At the outset the plaintiffs' senior counsel handed up a document entitled 'Notes of Opening'. It was 100 pages long, closely typed, with 529 paragraphs and hundreds of cross-references to documents. As senior counsel's opening progressed from day to day, it became apparent that a full hearing of all of the issues, including quantum, would take very much longer than six weeks, notwithstanding that witness statements of the proposed witnesses had been ordered and filed. On the fifth day of the opening the defendant's senior counsel submitted that the court should hear and determine certain preliminary questions. As later refined, the proposed questions were, in substance, whether either of the alleged binding agreements had ever been entered into at all, whether any estoppel had arisen in favour of ACC and whether the relevant deed of assignment covered either the estoppel claim or the quantum meruit claim. It became virtually common ground that preliminary questions along these lines should be isolated and determined in advance. In due course I made an order accordingly under Rule 47.04 of the Supreme Court (General Civil Procedure) Rules 2005.[5]

13 The trial of the preliminary questions has itself been challenging for all concerned. The events in question happened some 6 or 7 years before the proceeding was commenced. The plaintiffs then took a further 10 years to bring the proceeding on for trial, a total of 16 or 17 years after the events complained of. (They claim that the defendant was difficult in relation to particulars and discovery). The plaintiffs have been obsessive about detail. They rely, albeit for limited purposes[6], on the alleged conduct of the parties (including numerous alleged conversations) over a lengthy period, and on statements in, and inferences from, numerous documents. Their senior counsel said during final submissions that Prosilis had 'lived and breathed this case for approximately 16 years'.[7] Prosilis himself said in evidence that he had worked on his first witness statement constantly for about seven months or more.[8] He said that at one stage the draft reached 1,000 pages.[9] Ultimately it was 'reduced' to 271 pages and 589 paragraphs, not including the various schedules thereto. Nearly every paragraph contains a cross-reference to a document or multiple cross-references to documents. The schedules are also very extensive. Schedules 1-9 comprise a series of indexes to other documents. These particular indexes, alone, are 253 pages long. The first of them - Schedule 1 - is a 43 page index of the invoices and other commercial records of MGB which Prosilis allegedly analysed in the course of auditing MGB's catalogue expenditure. The remaining schedules relate wholly or mostly to quantum: schedules 2-9 are indexes to the (further) primary or source documents (mainly discovered by the defendant) on which the plaintiffs would now rely to prove their case on quantum; schedules Q1-Q13 are mainly spreadsheets and tables created by the plaintiffs relating to the quantification of their claims for remuneration and damages; and schedules P1, PA and P2-P13 are principally additional tables and spreadsheets of a similar kind.

14 Mercifully, it has not so far been necessary to read Prosilis' lengthy second witness statement, which relates only to questions of quantum. However, his third witness statement, which was filed in reply to the defendant's witness statements, is itself 37 pages long and, like his first witness statement, it contains a multiplicity of cross-references to documents.

15 The state of the court book has produced further difficulties. It is about 10,000 pages long, not counting index volumes. (This is in addition to the witness statements.) It is in 3 sections. Section 1 comprises current pleadings, and is contained in a single volume - a mere 324 pages. Section 2 comprises documents all of which relate to liability. It consists of an index volume and a further 9 thick, untabbed volumes containing 3969 pages. Section 2 is not in consistent chronological order or in any other sensible order. The index volume is of little or no help. Section 3 relates mainly but not exclusively to questions of quantum. Altogether section 3 consists of 17 volumes. The first is a large index volume which, again, is virtually useless for present purposes. The next 3 volumes of section 3 contain documents relevant to liability, being copies of the invoices and other commercial records of MGB referred to in the above mentioned index comprising schedule 1 to Prosilis' first witness statement. These records run to 1045 pages. Like the documents in section 2, they are not in consistent chronological order or in any other sensible order. There is also a supplementary court book containing about 140 pages of additional liability-related material. So the total number of liability-related pages in the court book is 5,154. By consent, all of those pages (plus the associated indexes) were in evidence, for all purposes.[10]

16 Because the documents in the relevant parts of the court book are in no useful kind of order at all, it is necessary in reading a witness statement to go back and forth between the various folders at every turn.

17 Altogether, six witnesses were called on the trial of the preliminary questions - three by the plaintiffs and three by the defendant. Apart from Prosilis, the plaintiffs called a former employee of ACC, Christopher Poulos, and a former financial adviser to Prosilis/ACC, Patrick McMenamin. The defendant called three former executives of CML or MGB, Neil Osborne, Jon Wood and Robert Hampson. By way of evidence-in-chief each witness did little more than adopt his witness statement or statements. Each was then extensively cross-examined. Subject to certain objections by the defendant to which I will come, the witness statements of all six witnesses went into evidence by consent. The plaintiffs also tendered, and I admitted into evidence, a small part of a witness statement filed by the defendant with respect to a proposed witness (Mr Michael Wall) who was ultimately not called on this part of the case. That completed the evidence. The matter as a whole has so far occupied 19 hearing days. The transcript runs to 1,904 pages. At the end of the hearing I expressed concern about the time that would necessarily be involved in producing a detailed judgment, given my other commitments at that time. I offered to provide answers to the preliminary questions together with short reasons at a relatively early date, with a view to then going on to deal with any residual issues. However both sides urged me to take whatever time was necessary to produce full reasons.[11] Indeed counsel for the plaintiffs, in particular, had already submitted that the transcript 'requires a careful and considered reading'.[12] Conscious of the vast efforts put into this case by the parties, I have endeavoured to comply with their requests. I have read, re-read, compared and considered the relevant witness statements, the multitude of evidentiary documents, the transcript, the plaintiffs' detailed chronology, the lengthy written submissions, the authorities cited and the various schedules, aides memoire and other documents handed up by the parties.

18 It is not necessary for me to make rulings on the objections made by the defendant to parts of the plaintiffs' witness statements. The objections are contained in schedules that were handed up, by consent, for consideration after the trial. The objections are largely to the effect that the parts in question constituted hearsay, an opinion or a conclusion. The plaintiffs have conceded some of the objections. On the other hand the defendant has acknowledged that many others have lost significance. I have assumed in the plaintiffs' favour (without deciding) that each still contentious part of the plaintiffs' witness statements is admissible. On the other hand I have borne in mind the defendant's objections when considering the weight to be given to the witness statements.

19 In the end I have concluded, in substance, that the preliminary questions should all be answered in favour of the defendant. The plaintiffs' case relies heavily on witnesses' accounts of oral conversations held long ago, largely unsupported by contemporaneous notes or records. Basic features of the plaintiffs' case are out of line with commercial reality and normal expectations. Particular parts are inherently unlikely; or self-contradictory; or inconsistent with the documentary picture. In some respects the plaintiffs' case is inconsistent with oral evidence given by the plaintiffs' own witnesses, to say nothing of the evidence given by the defendant's witnesses. As will be seen, I simply do not accept the evidence of the plaintiffs' witnesses on numerous important matters. They were not impressive witnesses. They lacked credibility. In particular, I regard the evidence on controversial matters of the plaintiffs' main witness, Prosilis, as very unreliable, notwithstanding that occasionally it received a small degree of support from parts of the evidence given by the defendant's witnesses. The plaintiffs' failure to call the solicitor who was acting for ACC at relevant times, Mr Werry, is also telling. By contrast, the defendant's witnesses were highly impressive. All three of them had left the service of CML or MGB many years before. They had nothing to gain or lose financially from the outcome of the case. Generally speaking, and taking into account the difficulties under which they were labouring due to the passage of time since the events in question, I accept their evidence. In relation to the facts the burden of proof lay, of course, on the plaintiffs. Because the relevant events occurred so long ago, that burden was more difficult to discharge than otherwise. The plaintiffs have conspicuously failed to discharge it.

20 I am not satisfied that either of the agreements alleged by the plaintiffs was entered into. Nor am I satisfied that the estoppel claim or the quantum meruit claim was assigned to ACOM by the deed of assignment. The estoppel claim therefore falls away. If I had been required to decide the estoppel claim, I would have rejected it.

21 The major issue between the parties at this stage is whether an enforceable agreement in the form of the alleged 'audit and implementation agreement' was made. The parties spent considerably more time and effort on this issue than on the question whether the alleged 'letter box distribution agreement' was made, notwithstanding that the nominal quantum of the claim under the latter was almost four times greater (about $24,000,000 compared with about $6,600,000). This is understandable. While, on close examination, the (elaborate) case for the existence of the audit and implementation agreement was far from strong and has clearly failed, the (simpler) case for the existence of the letter box distribution agreement was, on close examination, preposterous.

22 As to the estoppel issue and the two assignment issues, the parties gave them far less attention again. At the commencement of the hearing the plaintiffs had not even pleaded (in any clear fashion) that ACC's alleged estoppel and quantum meruit entitlements had been assigned to ACOM. There was not a single reference to assignment of the alleged estoppel and quantum meruit entitlements in the plaintiffs' 100 page 'notes of opening'. Indeed, there was no reference to estoppel or quantum meruit at all. Leave to amend the statement of claim so as to allege the assignment of the alleged estoppel and quantum meruit entitlements was only sought after the hearing had progressed for some days. Leave was granted, principally because it was not suggested or anticipated that the grant of leave would lead to an expansion of the evidence on either side.[13] Nor did it. In final submissions, the parties confined themselves to relatively brief legal submissions on these three issues.

23 The preliminary questions are expressed as follows:

(1) Was there an agreement to the effect alleged:

(a) in paragraphs 3 and 4 of the further amended statement of claim filed 20 October 2005 (the "Statement of Claim");

(b) in paragraph 3F of the defence to the further amended statement of claim filed 11 November 2005 (the "Defence");

(c) in paragraph 3G of the defence?

(2) Is the first plaintiff ("ACOM") entitled to bring the estoppel claim referred to in paragraphs 27 to 31 of the statement of claim, having regard to the terms of the assignment between ACC as assignor and ACOM as assignee dated 20 December 1995 and appearing at pages 2593 to 2628 of the Court Book (the "assignment")?

(3) If the answer to question (2) is yes, is the defendant estopped from denying the existence of the audit and implementation agreement (as referred to in paragraph 3 of the statement of claim), as alleged in paragraph 31 of the statement of claim, by reason of the matters alleged in paragraphs 27 to 30 of the statement of claim?

(4) Is ACOM entitled to bring the quantum meruit claim referred to in paragraph 32 of the statement of claim, having regard to the terms of [the] assignment?

(5) Was there an agreement to the effect alleged in paragraphs 33 and 34 of the statement of claim?

24 By way of explanation, preliminary question (1)(a) deals with the major issue to which I have referred, being the question whether the 'audit and implementation agreement' was made. The defendant denies that the parties made an agreement in the terms alleged by the plaintiffs or any agreement at all. Alternatively the defendant says that any agreement made was too uncertain to be enforceable. Questions 1(b) and 1(c) reflect the fact that the defendant says, in the further alternative, that any agreement made was of a far more limited kind, either an agreement as pleaded in paragraph 3F of its defence (the 'interim test audit agreement') or an agreement as pleaded in paragraph 3G of its defence (the 'remuneration agreement'). It will be seen in due course that the answers to questions 1(b) and (c) are of little or no significance. Question (2) deals with the alleged assignment of the estoppel claim. Question (3) deals with the alleged existence of the estoppel claim. Question (4) deals with the alleged assignment of the quantum meruit claim. Question (5) deals with the alleged making of the so-called letter box distribution agreement.

25 It will be noted that preliminary question 1(a) refers to paragraphs 3 and 4 of the further amended statement of claim filed 20 October 2005. Those paragraphs remain unaltered in the current version of the statement of claim.[14] It is desirable to set out paragraphs 3 and 4 of the statement of claim in full:

(3) In 1993 Australian Catalogue Corporation Pty Ltd ('ACC') negotiated with the defendant and in November 1993 agreed with the defendant to audit production and distribution of direct marketing catalogues to identify savings in relation thereto, and then implement savings by changes to the catalogue production, including creative, pre-press, printing and film imposition and catalogue distribution, including line freight and letter box distribution of subsidiaries of the Defendant ("the audit and implementation agreement").

PARTICULARS

The audit and implementation agreement was partly in writing, partly oral and partly implied.

In so far as it was in writing, it was constituted by:

(a) a 21-point summary and action plan sent to the Defendant by ACC under cover of a letter dated 11 June 1993;

(b) a preliminary audit comprising a letter dated 10 September 1993 together with attached executive overview of savings for Myer Grace Bros. catalogue program and presentation by overhead projection presented to the Defendant by the second Plaintiff, Ovid Prosilis ("Prosilis") on 10 September 1993;

(c) a confidentiality deed executed by the Defendant on or about 8 November 1993;

(d) a letter from Peter Wilkinson, Chief Operating Officer, Retail for the Defendant ("Wilkinson"), entitled "To Whom It May Concern" dated 4 November 1993;

(e) a letter from Prosilis to Neil McKay ("McKay"), Acting Group General Manager - Marketing of Myer Stores Ltd ("MGB"), dated 4 November 1993;

In so far as the audit and implementation agreement was oral, it was constituted by:

(a) conversation between Prosilis and Osborne, Group General Manager - Retail Services, Coles Myer ("Osborne"), McKay, Michael Wall, National Advertising Manager - MGB ("Wall"), Peter Waterman, Media and Traffic Manager - MGB ("Waterman") and Pat Sufra, Head Finance Executive - MGB ("Sufra") at MGB's premises in Bourke Street, Melbourne on or about 29 October 1999; the relevant substance of the conversation was that those present agreed financial benchmarks for the ACC audit and that ACC would be given the entire MGB 1993 winter and summer catalogue sales plan for full audit;

(b) conversation between Prosilis and Osborne at the Executive Offices of MGB in Bourke Street, Melbourne on 22 November 1993; the relevant substance of the conversation was to the effect that it was agreed between Prosilis and Osborne that:

(i) the parties to the audit and implementation agreement were ACC and the Defendant;

(ii) MGB would be the initial business to be audited;

(iii) ACC would audit MGB and three other major subsidiaries of the Defendant, namely Kmart, Target and Coles Supermarkets instead of the six previously proposed;

(iv) at least $4 million savings must be identified in the initial business, namely MGB, before the other three businesses were subject to audit;

(v) ACC would report monthly or as soon as practicable regarding progress of audits, implementation of recommendations and negotiation with service providers in the course of implementation;

(vi) the remuneration to ACC would be:

(x) 12.5% monthly in arrears for twelve months of implemented savings (difference between benchmark and actual cost) from the time of implementation, whether implemented by ACC or otherwise and even if such implementation be discontinued; and

(y) 7% monthly in arrears for twelve months of savings identified by ACC but not implemented by the Defendant (difference between benchmark and ACC estimated cost);

(z) 12.5% for twelve months of implemented savings introduced by the Defendant subsequent to the twelve months referred to in (x) and (y) above.

(vii) ACC would receive $10,000.00 a month advance on forthcoming remuneration for six months.

In so far as the audit and implementation agreement was to be implied, it was to be implied from:

(a) the fact that Prosilis and Osborne shook hands on the deal at the end of the conversation on 22 November 1993 and that that evening or shortly thereafter Osborne and his wife, Brenda McGahan ("McGahan"), took Prosilis to dinner at the Latin Restaurant in Lonsdale Street, Melbourne to celebrate the conclusion of the agreement;

(b) the fact that from about November 1993 onwards ACC performed the audit in respect of the 1993 catalogues sales program of MGB in accordance with the methodology in the 21-point summary and action plan presented to the Defendant in June 1993;

(c) the fact that ACC provided an executive summary to Robert Hampson, Group General Manager, Merchandise - MGB ("Hampson") by fax dated 22 December 1993 of the audit findings ("the executive summary");

(d) discussions between Prosilis, Chris Poulos ("Poulos") of ACC, Osborne and Hampson at the MGB office in Bourke Street, Melbourne on 14 January 1994, the relevant substance of which conversation was to the effect that:

(i) Prosilis presented the audit consisting of a summary in the form of a spreadsheet, overheads and three lever arch folders of source materials for the summary and the executive summary identifying approximately $11.65 million as savable within MGB;

(ii) Hampson accepted the summary on behalf of the Defendant and entered into discussion about the implementation of the savings proposed;

(iii) it was agreed between Hampson, Osborne and Prosilis that ACC would commence implementation with the letterbox component of distribution;

(iv) it was agreed that Wall would introduce ACC to Centar Demographic Marketing ("Centar") in respect of (iii).

(e) a letter from Prosilis to Hampson on 18 January 1994 confirming the matters agreed on 14 January 1994;

(f) a meeting between Prosilis and Hampson, Osborne, McKay and Wall at the MGB head office in Bourke Street, Melbourne on 19 January 1994 at which Prosilis re-presented the audit presented on 14 January 1994 and Hampson confirmed the matters agreed on 14 January 1994;

(g) a letter dated 19 January 1994 from Prosilis to Wall seeking information to enable ACC to implement the audit;

(h) letters from Hampson dated 1 February 1994 to letterbox distributors Progress Press, Salmat Group ("Salmat") and Australian Distribution Network ("ADN");

(i) the payment by the Defendant to ACC in February 1994 of $30,000.00, being three months' payment at $10,000.00 per month from November 1993 onwards, and a further payment to ACC of $30,000.00 in May 1994;

(j) the provision by ACC on 10 March 1994 to the Defendant of the implementation report referred to in paragraphs 8, 9 and 10;

(k) an unsigned remuneration agreement prepared in or about April 1994;

(l) the above;

(m) by law.

(4) There were terms of the audit and implementation agreement that, inter alia:

(a) ACC would conduct audits of the production and distribution of direct marketing catalogues (including creative, pre-press, printing, film imposition, line freight and letterbox distribution) conducted by subsidiaries of the Defendant to identify savings in relation thereto and to then implement savings by changes to the catalogue production and distribution of the said subsidiaries.

(b) the audit and implementation agreement would apply to four major subsidiary companies of the Coles Myer Group, namely MGB, Kmart, Target and Coles Supermarkets;

(c) MGB would be the initial business to be audited;

(d) at least $4 million worth of savings must be identified in the initial business before the other businesses were the subject of further audit;

(e) the remuneration to ACC would be:

(i) 12.5% monthly in arrears for twelve months of implemented savings (difference between benchmark and actual cost) from the time of implementation, whether implemented by ACC or otherwise and even if such implementation be discontinued; and

(ii) 7% monthly in arrears for twelve months of savings identified by ACC but not implemented by the Defendant (difference between benchmark and ACC estimated cost);

(iii) 12.5% for twelve months of implemented savings introduced by the Defendant subsequent to the twelve months referred to in (i) and (ii) above;

(f) ACC would receive $10,000.00 a month advance on forthcoming remuneration for six months.

PARTICULARS

The Plaintiffs refer to and repeat the particulars to paragraph 3.

26 It is not necessary to set out paragraph 3F or paragraph 3G of the defendant's defence in terms. In substance, paragraph 3F alleges that if any enforceable agreement relating to remuneration was entered into between ACC and CML in about November 1993, there were terms of that agreement (the 'interim test audit agreement'), amongst others, that, pending conclusion of negotiations for a detailed, written remuneration agreement, CML granted ACC limited authority to conduct a test audit of MGB; and that CML would pay ACC $10,000 per month for expenses, provided that such amounts would reduce any amounts that might become payable under the proposed agreement if the parties entered into such an agreement. In substance, paragraph 3G alleges, in the further alternative, that if any agreement was made, it was made in accordance with the terms of an unsigned draft document entitled 'Remuneration agreement' that was delivered by CML to ACC for consideration in April 1994.[15]

27 On the other hand, for the sake of further explaining preliminary questions (2), (3) and (4), it is desirable to set out in full the particular paragraphs of the statement of claim that are referred to in those questions, namely paragraphs 27-32 thereof, and I will also set out paragraph 32A which was inserted in the statement of claim by amendment pursuant to the abovementioned grant of leave:

1. Further and alternatively, by the conduct referred to in paragraph 3 the Defendant:

(a) represented to ACC;

(b) further or alternatively, caused ACC to assume and believe -

(i) that ACC and the Defendant had entered into the audit and implementation agreement;

(ii) that the Defendant was obliged to carry out the audit and implementation agreement;

(iii) that the Defendant was obliged to remunerate ACC in accordance with the audit and implementation agreement.

(a) relied and acted to its detriment upon the representation;

(b) further or alternatively, acted to its detriment on the assumption and in the belief -

and further and alternatively to the knowledge of the Defendant or further or alternatively without correction by it.

PARTICULARS

ACC continued to conduct the audit and ancillary work associated with the audit for the Defendant between about November 1993 and February 1996.

1. Further or alternatively, ACC and/or ACOM would suffer detriment if the Defendant was permitted to depart from the representation and the assumption and belief.
2. It would be unfair and unjust for the Defendant to depart from the representation and the assumption and belief.
3. In the premises, the Defendant is estopped from denying the existence of the audit and implementation agreement, its obligation to carry out the audit and implementation agreement, its liability to remunerate ACC and the Plaintiff in accordance therewith and to pay damages to the Plaintiff for breach thereof.
4. Further and alternatively, ACOM claims the remuneration to which ACC was entitled on a quantum meruit.

32A. On or about 20 December 1995 ACC assigned it's right title and interest:

(a) described in paragraphs 27-31;

(b) described in paragraph 32;

to ACOM and Notice of the Assignment was given to the Defendant by letter dated 1 April 1996.

28 Preliminary question (5) refers to paragraphs 33 and 34 of the statement of claim. They are set out in full below. However I should first identify certain of the persons and things referred to in paragraphs 33 and 34. The reference in paragraph 33 to Patrick McMenamin is a reference to a person who acted as a financial advisor to Prosilis in 1994. The plaintiffs called him as one of their three witnesses. The person referred to as 'Wood' in the same paragraph is Jonathon Wood, a former senior employee of CML. He was one of the defendant's three witnesses. The expression 'CCD Analysis' in paragraphs 33 and 34 is shorthand for 'Census Collector District Analysis' and means the mapping or counting of dwellings or letter box delivery points by reference to census details. The reference to 'Centar' is a reference to a firm called Centar Demographic Marketing which was in the business of providing demographic and other consulting services in relation to letter box delivery at the time in question. The expression 'overs' contained in both paragraphs refers to an alleged practice of letter box distributors that was much discussed during the hearing, namely systematically overstating the number of letter boxes to which deliveries could be made in a particular area whereby, allegedly, clients were substantially overcharged. Paragraphs 33 and 34 of the statement of claim read:

1. Further, in October 1994 Prosilis and the Defendant negotiated and entered into an agreement in relation to letterbox distribution ("the second agreement").

PARTICULARS

The second agreement was partly oral and partly to be implied.

In so far as it was oral, it consisted of:

(a) a conversation between Prosilis, Patrick McMenamin ("McMenamin") and Wood on 6 October 1994 at the Defendant's offices at Tooronga; the substance of the conversation was to the effect that:

(i) the Defendant agreed to provide 50% of its catalogue business to a company to be incorporated by Prosilis;

(ii) the said business would be provided to the said company on terms similar to the tender process then in place;

(iii) the letterbox distribution would be based on CCD analysis;

(iv) the second agreement would be for a five year period;

(v) the second agreement was subject to an audit by Price Waterhouse, the Defendant's auditors, engaged by the Defendant, to be conducted with the assistance and involvement of Centar, of the audit conducted by Centar in June to September 1994 on the subject of overs proving that there were indeed substantial overs; and

(vi) the Price Waterhouse audit would be available by May 1995.

In so far as the second agreement was to be implied, it was to be implied from:

(a) a letter dated 29 September 1994 from ACC to Wood together with attachment headed "Coles Myer Group Catalogue Expenditure";

(b) the above;

(c) the matters referred to in paragraphs 35, 41 and 42 hereof;

(d) the law.

1. There were terms of the second agreement, inter alia, that:

(a) the Defendant agreed to provide 50% of its catalogue business to a company to be incorporated by Prosilis;

(b) the letterbox distribution would be based on CCD analysis;

(c) the said business would be provided to the said company on terms similar to the tender process then in place;

(d) the second agreement would be for a five year period;

(e) the second agreement was subject to an audit by Price Waterhouse, the Defendant's auditors, engaged by the Defendant, to be conducted with the assistance and involvement of Centar, of the audit conducted by Centar in June to September 1994 on the subject of overs proving that there were indeed substantial overs; and

(f) the Price Waterhouse audit would be available by May 1995.

29 As can be seen above, the particulars to paragraph 33 of the statement of claim assert that the letter box distribution agreement was partly oral and partly implied. They assert that the matters from which the agreement is allegedly able to be implied include those referred to in paragraphs 35, 41 and 42 of the statement of claim.[16] Paragraph 35 of the statement of claim alleges that the 'Price Waterhouse purported audit' was prepared on or about 8 June 1995 but was not made available to Prosilis or ACC until about 30 October 1995. Paragraph 41 alleges that Prosilis incorporated ACOM in or about December 1995 to carry out the letter box distribution agreement. Paragraph 42 alleges that in or about January 1996 ACOM contacted all retail subsidiaries and/or divisions of the defendant except MGB, including World 4 Kids, to present a proposal for letter box distribution services by ACOM and presented a proposal to World 4 Kids.

Formation of the alleged contracts: the case actually put by the plaintiffs and the relevant legal principles

30 As indicated above, it is alleged in the particulars under paragraph 3 of the statement of claim that the so-called audit and implementation agreement was partly in writing, partly oral and partly implied. The five documents alleged to constitute the written part of the agreement are dated between 11 June 1993 and 4 November 1993. The two conversations alleged to constitute the oral part are stated to have taken place at meetings on 29 October 1993 and 22 November 1993 respectively. However it is now common ground that the reference to 22 November 1993 was an error and that the meeting in question occurred on 12 November 1993. The 13 paragraphs stating matters from which the agreement is to be implied include allegations of matters occurring from 'November 1993' (para (b)) until 'in or about April 1994' (para (k)).

31 These particulars might have suggested that the plaintiffs' case would be that the 'audit and implementation agreement' was really an implied agreement that developed over time up until about April 1994, and that the making of it was to be implied from the whole of the events and circumstances occurring between June 1993 and April 1994, rather than from the application of the conventional principles of offer and acceptance to particular written or oral communications. However, as the defendant points out in its written final submissions,[17] the plaintiffs did not actually assert such a case. Indeed in the body of the statement of claim it is alleged (in paragraph 3) that '[i]n 1993' the parties 'negotiated' and that 'in November 1993' they 'agreed'. In their outline of final submissions the plaintiffs did not seek to locate any part of the alleged agreement itself in any document at all[18] or in any source of implication. Rather they located it exclusively in the conversation which allegedly took place at the meeting on 12 November 1993. That was a meeting at which only two persons were present - Prosilis and, representing CML, Neil Osborne.[19] The forensic focus on this meeting was reinforced by the plaintiffs' senior counsel during his final address when he said that the plaintiffs' case was that the parties 'agreed on 12 November 1993'.[20] This was no doubt quite deliberate. The evidence allowed no scope for arguing that the terms of remuneration had been agreed before 12 November 1993. And there were real problems for the plaintiffs in the material relating to the post-November 1993 period. For example, at least some drafts of the written 'remuneration agreement' that were circulated between ACC and CML after 12 November 1993, and in particular the April 1994 draft, contained terms that, if they were in truth terms of the agreement, were clearly not complied with. Among other things, the April draft made the right to remuneration dependent on written acknowledgment by CML that savings had been duly identified by ACC. There was never any such written acknowledgement. Hence, if this was truly a term, then the plaintiffs' claims under this head would almost certainly have been defeated in any event. Although it seems that for most of the interlocutory stages of this case the plaintiffs did not appreciate this particular problem,[21] once they did they had little option but to focus squarely on the meeting of 12 November 1993 and to try to distance themselves from the written drafts that had been circulated in the period after the meeting.

32 Given the way in which the plaintiffs actually put their case,[22] the principal task of the Court on this part of the case is to determine, to the extent possible and proper in the light of the evidence, and subject to the fact that the burden of proof rested throughout on the plaintiffs,[23] what was actually said and done by Prosilis and Osborne in the course of the conversation at the meeting of 12 November 1993 and then, if it be possible and proper in the light of that determination, to consider whether or not the conversation gave rise to a legally binding agreement between ACC and CML in the terms alleged by the plaintiffs, applying the standard objective test[24] and other relevant principles of contract law including, in particular, the principles relating to completeness and certainty.[25] The plaintiffs have not contended that any of the alleged terms was inessential. In that regard, apart from the estoppel and quantum meruit claims, the plaintiffs have not put forward any half-way house or fall-back position. So, contractually, they stand or fall on the proposition that all of the alleged terms were agreed.[26]

33 Nevertheless I should mention that during his opening the plaintiffs' senior counsel did briefly flirt with two possible modifications of the allegations relating to the terms. First, he suggested[27] that the alleged term that ACC was entitled to 7% of savings identified by ACC (but not implemented) might, in the alternative, be limited to savings reasonably identified by ACC. However, as will become apparent, that suggestion was not in harmony with the evidence later given by Prosilis, nor with the thrust of the plaintiffs' case generally. Moreover, as the defendant's counsel submitted,[28] an amendment to the statement of claim would have been necessary to authorise the advancement of an alternative claim on the suggested basis. None was ever sought. Second, the plaintiffs' senior counsel said at another point[29] that if the Court found that the April draft represented the agreement between the parties, the plaintiffs might still be able to maintain their claims for unpaid remuneration and damages for breach. However, that suggestion, also, was contrary to the way in which the plaintiffs' case was otherwise put. Indeed Prosilis himself later said during his evidence that he would never consciously have agreed to the terms set out in the April draft.[30] As he apparently had realised by the time of filing his third witness statement,[31] and as I have already mentioned, if those terms were truly part of any agreement, then the plaintiffs' claims under this head would almost certainly have failed in any event. Further, once again, an amendment to the statement of claim would have been necessary had the plaintiffs wished to pursue this suggested alternative, and no such amendment was ever sought.

34 The defendant does not accept that all of the terms now alleged were even discussed, let alone agreed, at the meeting on 12 November 1993. Moreover, the defendant says that the need for savings to be agreed by CML in writing was discussed many times and was an underpinning principle. Further, the defendant contends that Osborne was acting in an advisory role, rather than a negotiating role, in November 1993; that Osborne had indicated to Prosilis that he did not have authority to commit CML to an agreement at the meeting of 12 November 1993;[32] and that Osborne said words to the effect that any agreement would be subject to a formal contract. The plaintiffs dispute all this. They say that while the parties intended to have the alleged agreement formalised by their respective solicitors, they should nevertheless be taken to have intended to become legally bound immediately. In other words, the plaintiffs contend that this is a Masters v Cameron[33] situation, and in the first category of case referred to therein.[34]

35 For the purpose of demonstrating that the alleged oral agreement of 12 November 1993 was in fact made, rather than to demonstrate an implied agreement, the plaintiffs do continue to rely on all or most of the matters listed in their particulars under paragraph 3, and on other matters as well.[35] These various matters relate both to the period before 12 November 1993 and to the period after it. The plaintiffs submit that these matters are 'indicia' of the alleged agreement. For example, one such matter on which they rely is the work which they claim ACC did for CML and/or MGB, especially after 12 November 1993, being work which they characterise as auditing and implementation pursuant to the alleged agreement. The defendant does not accept, even, that the claimed work (or much of it) was done, much less that it was done pursuant to the alleged agreement. However the defendant does not contend that evidence of this kind cannot be relied upon for the purpose of seeking to demonstrate that an alleged agreement was made. Indeed, the defendant itself relies in part on events that allegedly occurred, or did not occur, after 12 November 1993 as indicating that the plaintiffs' allegations as to what had been said and done on 12 November 1993 were false in relevant respects. The parties were entitled to proceed in this way. It involved no contravention of the principle that post-contractual conduct cannot be used to determine the meaning of a contract.[36] Post-contractual conduct is admissible on the question whether a contract was formed.[37] Further, in a case where it is acknowledged or found that an agreement of some kind was made but the terms are in dispute, post-contractual conduct is admissible on the question of what terms were agreed, though not on the question of what the agreed terms mean.[38] Similarly, pre-contractual conduct may supply background and may also bear on the probabilities as to what took place on the occasion in question.

36 As to the so-called letter box distribution agreement, much the same applies. The plaintiffs did not press the proposition that that alleged agreement could be implied from any of the matters particularised under paragraph 33 of the statement of claim. Rather, as before, they submitted that those matters and other matters were merely 'indicia' of the formation of the alleged oral agreement.

37 As the defendant submitted[39], in determining whether, objectively, a concluded agreement was made, the court may have regard to factors such as the customary method of concluding a contract, or whether an informal exchange or arrangement that is alleged to have formed a contract would accord with the expectations of the parties in a contract of the kind that is in dispute. And, as the defendant further submitted,[40] the greater the magnitude of the transaction, the less likely that the Court will conclude that an informal arrangement amounts to a contract. And I would add:

The mere fact that the parties have committed substantial resources does not necessarily mean that they have made a contract. Tamberlin J in Seven Cable Television Pty Ltd v Telstra Corp Ltd[41] made the point that the parties may well have made a commercial commitment (involving many millions of dollars in that case), without necessarily having made a legal commitment.[42]

Structure of findings of fact: key factual contests: matters of credit

38 Generally speaking, I will make findings of fact in chronological order, by reference to the main parts of Prosilis' story from its beginning to its end. The findings will therefore deal with facts relevant to all five of the preliminary questions. One reason for taking this approach is that the plaintiffs' senior counsel submitted that there was a 'thread' that bound the entire case together, being the alleged phenomenon of 'overs'.[43]

39 So far as the period before 12 November 1993 is concerned, the facts and circumstances of most significance are those which would make it more likely or less likely that Osborne had become ready, willing and able, by the time of the meeting on 12 November 1993, to commit CML to an enforceable agreement with ACC on the terms now alleged by the plaintiffs. In this respect, apart from the direct controversy between Prosilis and Osborne as to what was actually said and done at the meeting, key issues are whether Osborne was, or appeared to be, authorised by CML finally to conclude a remuneration agreement at the meeting; and whether CML was likely to have been prepared to agree to pay fees to ACC for savings that were merely proposed or identified by ACC but neither verified nor acknowledged by CML, either in writing or at all. So far as the period after the meeting of 12 November 1993 is concerned, the facts and circumstances of most significance are, first, those which logically bear on the likelihood that Prosilis and Osborne had actually made the alleged agreement at the meeting; second (for the purposes of the estoppel claim), those facts which might indicate reasonable reliance by ACC on an express or implied representation by CML that it had agreed[44] to the terms now alleged by the plaintiffs, and consequent detriment to ACC; and, third, those facts which, in addition to the direct evidence about the relevant conversation, logically bear on the likelihood that Wood (on behalf of CML) made a contractual promise at the meeting of 6 October 1994 to provide 50 percent of CML's catalogue business for five years to a company to be formed by Prosilis on the terms now alleged by the plaintiffs. As to this third aspect, the plaintiffs contend that a key factual indicator is the extent to which CML was impressed by the credentials of Prosilis and ADN in the context of the controversy about 'overs' and the alleged potential for substantial savings.

40 Issues of credit loom large. In particular, a major attack was made on Prosilis' credit. Some of the matters put against Prosilis' credit related directly to the facts of this case. Others were collateral. For the most part I will deal with the collateral matters after setting out my findings on the directly relevant events.

41 The plaintiffs led a considerable amount of evidence about Prosilis' background and about his work in the period between 1986 and 1992. Most of it came from Prosilis himself. It related mainly to his familiarity at that time with emerging methods of catalogue production and distribution and his and ACC's alleged success in saving money for Woolworths and others in relation to those processes. The evidence was designed, I gather, to persuade the Court that, by virtue of his experience, attributes and knowledge, Prosilis was 'in a unique position and presented a unique opportunity to Coles Myer'.[45] The plaintiffs also adduced evidence from Prosilis to the effect that a senior officer of CML (Wilkinson) had said to him in June 1993 that 'Coles Myer and especially MGB were under trading and profit pressure'[46] and that he (Wilkinson) wanted to realise the prospective savings which Prosilis had by then outlined to CML, if they existed, quickly - preferably by January 1994.[47] Presumably it was thought that the combination of those propositions, if accepted, might lead the Court to accept also that CML became very anxious to engage ACC and became prepared to do so precipitately and on terms that might otherwise seem uncommercial or unduly favourable to ACC.[48]

42 It was not in dispute, and I accept, that Prosilis graduated in 1986 with a Bachelor of Commerce majoring in Marketing. I accept also that Prosilis was employed as a business development executive with Stratagem Pty Ltd, a creative design and print production management company, between December 1986 and October 1987; that he gained experience there in desktop publishing using the Apple Macintosh system; that he formed the view that this and other new technologies would cause changes in the catalogue industry; that he moved to Woolworths in 1987; and that the technologies in question were thereafter used at Woolworths. However, on Prosilis' own evidence, the new technologies had become known and used in the industry, at least to a significant extent, by 1992. Indeed Prosilis' use of them at Woolworths was the subject of two trade press articles that had been published by 1992, copies of which Prosilis provided to CML at an early stage.[49]

43 I accept that from about 1987 until late 1992 Prosilis was employed by Woolworths under the supervision of Mr Denzil Campbell, the National Marketing Manager of Woolworths. I accept that Prosilis was the National Advertising Manager of the General Merchandise Division of Woolworths and that in 1992 he became chairperson of an internal Woolworths committee that dealt with issues and negotiations relating to the distribution of retail catalogues on behalf of all of the retail divisions of Woolworths. Prosilis claims that he personally was responsible for introducing substantial changes and efficiencies at Woolworths. For example, he claims that by introducing Apple Macintosh technology he achieved savings of 20% of catalogue production costs; that he dispensed with the services of the incumbent advertising agency; and that he took over the role of 'in house agent' personally. In addition, he claims that by introducing ADN as a new distributor for some Woolworths catalogues, he was able to negotiate rate reductions with the other major national distributors, Salmat and Progress Press, and as a result achieved a saving for Woolworths on distribution of $700,000 per annum. It is common ground that, even after Prosilis resigned from Woolworths in late 1992, Woolworths retained his new company, ACC, as a consultant. The plaintiffs claim that ACC then achieved further savings for Woolworths; and that ACC was also involved in catalogue production work and presentations for other clients such as Dominos Pizza, Silvio's Pizza, Lowes Manhattan, Jack's Tyres and Granny Mays, among others.

44 Prosilis himself was, of course, the plaintiffs' main witness on these matters, although some corroborative general evidence about ACC's business was given by ACC's then Director of Marketing and Sales, Mr Christopher Poulos. The defendant did not cross-examine the plaintiffs' witnesses on these matters to any great extent nor did it call any evidence to the contrary. On the other hand, Prosilis had a tendency towards self-aggrandisement - sometimes approaching grandiosity and even, I think, fantasy - both in the course of his marketing activities during the period in question and while giving evidence in this Court. I note that Osborne said in evidence that, shortly after Prosilis first approached CML, Osborne had caused some investigations to be made about the work of Prosilis at Woolworths. Osborne was cross-examined about this briefly. He said, and I accept, that the security department of CML had done the inquiries and had reported back that Prosilis had actually worked at Woolworths and that 'his boss [presumably Mr Denzil Campbell] said that he did a reasonable job'.[50] On the other hand, it is tolerably clear that, for a time, Osborne was impressed by Prosilis to a certain extent. He acknowledged in his evidence that it would not ordinarily be the case that a person could get access to the Chief Operating Officer of a public company (here, Wilkinson)[51] as quickly as Prosilis did.[52] When it was put to Osborne that Prosilis was in a special position because he was supplying services to CML's chief competitor, Woolworths, and to others and that he had had an intimate knowledge of industry rates and charges, Osborne replied: 'Yes but you can buy that from other people as well'.[53] On the other hand, Osborne acknowledged that if he had not thought that Prosilis could have brought in some extra skills he would not have had him there in the first place.[54] Osborne did go on to support Prosilis within CML and MGB (particularly with respect to 'overs') for a considerable time, notwithstanding internal resentment.[55] On the other hand, Osborne said in his evidence, and I fully accept, that Prosilis was always prone to 'big statements'.[56]

45 On the available evidence I cannot make satisfactory findings about the extent, if any, of the savings which Prosilis (on his own or otherwise) achieved for Woolworths, although I accept that he did develop a close knowledge of the technical and commercial aspects of the production and distribution of retail catalogues and that he was of at least some value to Woolworths in this regard. I do not consider it is necessary to go any further because, even if Prosilis had been as successful for Woolworths as he claims, I would still not be satisfied, having regard to all of the evidence in the case, that the relevant personnel at CML and MGB were so impressed with Prosilis and his proposals that they were moved to abandon ordinary caution in dealing with him. On Prosilis' own evidence, some eight months passed between the time of his first approach to CML and the critical meeting of 12 November 1993. In the meantime, there were several meetings between the parties and a good deal of correspondence passed between them, as I will indicate in due course. Lawyers became involved on both sides. Osborne repeatedly said in evidence, and I accept, that he (Osborne) had had no great personal interest in or knowledge of the technical side of catalogue production, and that his main interest in Prosilis had arisen from Prosilis' contention that the letter box distributors were engaging in the practice of 'overs' and from the prospect that Prosilis might be able to help to reduce or eliminate that problem. Osborne also said, and I accept, that there were a lot of people trying to sell things to him at the time and that he was very busy,[57] and that everyone he dealt with claimed that they could generate savings for CML of 10 to 20 percent (as Prosilis did in a letter dated 11 June 1993: see below).[58] Similarly, Wood said, when cross-examined about a (later) claim made by Prosilis to CML that there were potential savings of 15 to 20 million dollars, that many people came to CML claiming that they could save the company a lot of money and that most claims led to nothing.[59] So far as trading and profit pressure is concerned, I note that Wilkinson was not called by either party. He left the CML Group in about 1996. Neither side has submitted that a Jones v Dunkel inference should be drawn from the failure of the other side to call him. In any event, even as quoted by Prosilis, Wilkinson was emphasising the position of MGB rather than that of CML. Further, when Osborne was first cross-examined about CML's financial position at the relevant time, he denied that CML itself was under pressure. He said: 'Coles Myer wasn't, Myer was'.[60] Later he was asked whether he recalled Wilkinson saying that 'Coles Myer and especially MGB were under trading and profit pressure and wanted to see if savings, if they existed, could be quickly realised' and he answered: 'I'm not sure of the exact words but that was the situation'.[61] I did not understand Osborne to be resiling here from what he had said previously. Osborne did go on to say that it would 'always' have been 'our' (meaning, I think, CML's) aspiration to see savings demonstrated quickly.[62] However, in later cross-examination it was put to Osborne that there was some urgency with the project. He responded that that was not so from his point of view, because he knew it was going to take a long time; and that although 'we' wanted savings as quickly as possible, 'this was transformational'.[63] Later again, Osborne denied that he had brought in Prosilis because of a time problem or issue.[64] I accept Osborne's evidence in these respects. Another witness called by the defendant, Mr Hampson, when he was asked about this topic, said that it was MGB that had been performing badly, although he did acknowledge that these problems were publicly known and had been reported to the Stock Exchange.[65] Mr Hampson had been employed at all relevant times by MGB, not CML.

46 I accept that Prosilis had some relevant skills and knowledge, and was articulate and forceful, and that MGB, and indirectly CML, wished to achieve savings at this time if possible, but Prosilis was dealing with a large public company with numerous subsidiaries and an elaborate management structure, and I do not accept that he was 'unique' or that he represented, or was seen to represent, a 'unique opportunity' for CML or MGB, or that in the circumstances I should be ready to believe that CML was prepared to take what would otherwise be startling risks in dealing with him.

47 During the period in question Prosilis was no shrinking violet. In his first move, he went right to the top of CML. In about March or April 1993, having discussed his strategy with Poulos, Prosilis sent a facsimile to Mr Solomon Lew, the then Chairman of CML. It read:

Dear Sir,

I believe I can save you many millions of dollars.

If you are interested, please contact me.[66]

Prosilis sent a Woolworths business card with the facsimile. The card stated his title as National Advertising Manager, General Merchandise, Variety and Supermarkets, Woolworths. Of course by this stage Prosilis had ceased for some months to be directly employed by Woolworths and no longer held the title referred to.

48 In April 1993 Prosilis received a reply from Wilkinson whose position then was Chief Operating Officer, Retail, of CML. Prosilis responded to Wilkinson and this led to a face to face meeting between Prosilis and Osborne on or about 28 May 1993. Osborne had commenced working with Myer in Queensland in 1978. From then on he had held various positions of increasing importance until eventually being appointed Group General Manager - Retail Services of CML in mid 1992. He reported directly to Wilkinson.

49 The May meeting took place in a boardroom at CML headquarters in Tooronga. Both Prosilis and Poulos attended on behalf of ACC. Prosilis made some brief notes during the meeting.[67] Wilkinson was originally to attend the meeting on behalf of CML and Osborne apologised for the absence of Wilkinson.[68] I note that Osborne continued to report to Wilkinson right up until Osborne was transferred to MGB in or about early November 1993.

50 At the May meeting Prosilis and Poulos made a presentation using slides and an art folder. Prosilis said he believed that CML could save money (between 10 and 20 percent of current expenditure) using new technology in catalogue production. In Poulos' witness statement, as elaborated upon in his oral evidence,[69] Poulos effectively says that this was, for the most part, a standard ACC pitch rather than something specific to CML. Prosilis says that the slides were regularly carried around in a black carousel; and that the art folder contained images describing how ACC produced catalogues. He says that ACC did the presentation for different potential clients on approximately a weekly basis during 1993, amounting to some 30-50 presentations that year.[70] In addition, Poulos says that he and Prosilis had prepared in advance a mock up of an ACC-style version of MGB's Father's Day catalogue, and that they showed this to Osborne. As mentioned above, I accept Osborne's evidence that he personally had little interest in such matters. However it is common ground that Osborne was interested by a slide that showed quantities of catalogues being discarded; and that there was some discussion of 'overs' Osborne acknowledges that he told Prosilis at this meeting that CML would be interested if Prosilis could find savings resulting from 'overs'.

51 On the other hand, contrary to Poulos' claim, I accept Osborne's evidence that he did not say to Prosilis during the meeting that he (Osborne) 'had full authority to act on behalf of Coles Myer'. I accept Osborne's evidence that he did not make any statement of the kind alleged and that he could not truthfully have done so because, in fact, he did not have the suggested authority. Prosilis himself says that Osborne said that he would discuss the proposal with Wilkinson and would contact Prosilis if 'we' wanted to take the matter further.[71] Similarly, Osborne says that he told Prosilis that before taking any further action he would have to discuss the proposal with Wilkinson.[72]

52 Further, I accept Osborne's denial that during the meeting he said words to the effect of 'Ovid, to get this started what do we have to do? What do you need from me?' I accept Osborne's evidence that he did not make any statement to that effect, as the meeting was an exploratory meeting, and such questions would have been far too prescriptive and detailed for such a preliminary meeting.[73]

53 I note that Prosilis says in his first witness statement that he told Osborne that he estimated at that time that he could save $5-$15 million for CML (as a whole).[74] It is not clear from the witness statement whether this was meant to include savings on 'overs'.

54 As a follow up to the May meeting, ACC sent a letter dated 11 June 1993 to Osborne summarising what Prosilis describes as the main points raised during the meeting.[75] It enclosed a proposed confidentiality agreement drafted by Werry Altobelli, ACC's solicitors, together with the documents which Prosilis refers to as a '21 Point Plan' and an 'Action Plan'.[76] The draft confidentiality agreement recites, among other things, that '[t]he Customer[77] has requested ACC to provide an advertising/production audit (hereinafter called 'the Audit') in respect of the Customer's product'. In the letter of 11 June 1993 Prosilis stated: 'I believe that as a general principle, there is 10-20% inefficiency in the system. This equates to something in the range of 5-15 million dollars in savings for Coles Myer Ltd'. Prosilis says that these were prepared 'for Mr Osborne and Mr Wilkinson to consider my proposal for a preliminary audit of CML'.[78] None of the documents made any reference to 'overs'. Osborne did not reply to the letter of 11 June. As mentioned above, I accept that there were many people trying to sell him things and that he was very busy. Osborne said, and I accept, that he did not always write back to such people. Indeed, it transpires that he did not write a single letter to Prosilis or ACC or ACOM during the whole of the period in question. By contrast, Prosilis (through ACC) was generally very quick to write self-serving letters.

55 There was a further meeting at CML headquarters in Tooronga on or about 25 June 1993.[79] Prosilis and Poulos attended on behalf of ACC and Osborne and Wilkinson of CML were present. Prosilis essentially repeated his presentation from the May meeting and spoke to the '21 Point Plan' and the 'Action Plan'. Wilkinson queried Prosilis as to why he had chosen to approach the corporate office rather than the individual businesses in the CML group. Prosilis replied with words to the effect that the proposed changes needed to be driven from the top and managed centrally. He used an analogy of the Roman Senate providing a member of the Senatorial staff to one of its generals in order to enhance that general's authority with other officers. Prosilis also predicted resistance from entrenched management. Indeed in his witness statement Prosilis says that he remarked:

My personal view is that some of these managers currently negotiating for your businesses are like corporate zombies in that once you discover how inept they are, they are literally going to be fired.[80]

It is common ground that Prosilis expressed himself this dismissive kind of way not only on this occasion but frequently.

56 I accept that at this meeting Prosilis offered to perform what he now describes as a 'preliminary audit' of one of the businesses of Coles Myer with a view to preparing findings and a report. Prosilis claims that he said words to the effect: 'If you accept my findings, then I will conduct a full and comprehensive audit of the entire catalogue program for the 1993 year using every invoice and cost in your records and comparing that to what I could produce a catalogue for and what competitors are paying in the market'.[81] Again, I accept that something like this was said, although, having regard to certain evidence of Osborne referred to below, I am not convinced that the word 'audit' was used by Prosilis at this meeting. I do accept Prosilis' evidence that he said he would need about two weeks to prepare a 'preliminary report'.[82] Subject to replacing the expression 'preliminary audit' with 'preliminary report', I accept also Prosilis' evidence that, when asked what this would cost Coles Myer, he said words to the effect:

The preliminary [audit] will be for free. Both parties will share the risk in order to establish any potential. If I save you nothing, you pay me nothing. If I save you a king's ransom, you'll pay me a king's ransom. If however you accept the preliminary [audit] and instruct me to conduct a full audit and realise the potential savings an agreement will be prepared between us.[83]

Further, I accept that Wilkinson responded that ACC should start at MGB.

57 Prosilis and Poulos claim that Prosilis told Wilkinson and Osborne at this meeting that ACC would be risking its future relationship with Woolworths and others if it began to work for CML, and so ACC needed to be guaranteed access to at least six CML businesses to make it worthwhile. While I accept that Prosilis did say something along these lines at a later stage, it is unlikely that he said it at this particular, early meeting.[84]

58 Osborne does not dispute, and I accept, that it was mentioned at this June meeting that benchmarks of current costs would need to be clearly set before ACC proceeded with a full examination, so that there could not be any dispute or confusion in the future. Indeed, Osborne says that the necessity for this was self-evident.[85]

59 On the other hand, I do not accept the evidence of Prosilis and Poulos that Wilkinson said words to the effect: 'If you succeed with the preliminary audit I will give you the businesses you need for Coles Myer to bring about the changes'. Such an unguarded statement is unlikely to have been made. I accept that Wilkinson said that he agreed in principle with the idea of a confidentiality deed, but required the final terms to be further considered.

60 I accept also that an arrangement was made for Osborne to introduce Prosilis to the relevant staff at MGB for the purposes of the proposed preliminary work. However I do not accept the statement made by Poulos[86] (but not by Prosilis himself) that Wilkinson added that he would provide to Prosilis an authority on CML letterhead which would include a requirement 'that no contract can be renegotiated without you being a joint signatory and approving these changes'. Nor do I accept that Wilkinson added: 'You will become our agent and act on our behalf'. I do not believe that Wilkinson would have said this at such an early stage. The so-called 'preliminary audit' had not even begun. As will be seen, Prosilis later tried to get an authority of the kind suggested by Poulos, but only received something significantly less.[87]

61 I accept that on or about 6 August 1993 Prosilis and Poulos attended a meeting at the offices of MGB in Bourke Street, Melbourne and were introduced by Osborne to Mr Neil McKay, the Acting Group General Manager - Marketing of MGB, Mr Michael Wall, the National Advertising Manager of MGB and Mr Peter Waterman, the Media and Traffic Manager of MGB. I accept that it was arranged that information and relevant documents would be provided to ACC together with space at MGB's offices for an anticipated period of about two weeks commencing on or about 24 August 1993.

62 I accept that on or about 24 August 1993 Prosilis attended at the offices of MGB to commence the work which he now calls the 'preliminary audit'. I accept that he was taken to an office and provided with a bundle of documents by Mr Wall and Mr Waterman.

63 Prosilis says that on 30 August 1993 (during the so-called preliminary audit), he telephoned Osborne to complain that Wall and Waterman were being obstructive by not providing a complete set of invoices for the 1993 catalogue program and in other ways.[88] Prosilis says that this led to Waterman dropping a large bundle of additional documents in the office while appearing to be agitated, angry and aggressive.

64 By now, according to Prosilis himself, the majority of documents relating to the summer and winter sales plan for the year 1993 had been provided to him.[89] Prosilis also says[90] that the documents he was given in August and September 1993 for the so-called preliminary audit represented 'most' of the defendant's documents contained in Schedule 1 to Prosilis' first witness statement. He acknowledged in his evidence that, for the purposes of the 'preliminary audit', he was put in possession of all contractual and other documents that set out the rates being paid by MGB; and all but an insignificant number of invoices; and the complete 1993 sales plan.[91] Indeed, nowhere does he identify any specific source document (contained in Schedule 1) that had not been provided to him as part of the 'preliminary audit' (as distinct from the later alleged 'full audit'). It is more or less common ground that Prosilis did at least some investigation and analysis during this two week 'preliminary' period, including making contact with third party suppliers.[92] However, ACC had agreed to do this work without charge; and, as I have mentioned, the defendant now contends that, afterwards, ACC did little or nothing more by way of 'auditing'. Senior counsel for the plaintiffs conceded that there was not much evidence that any new work was done between 10 September and 22 December 1993[93] and also conceded that Prosilis did not contact any production suppliers after the 'preliminary audit'.[94] I will return to this debate when I come to the period between October 1993 and January 1994.

65 In his witness statement Prosilis went through, in considerable detail, the methods by which he says he conducted the 'preliminary audit'. He claims that he looked at the components or building blocks of each catalogue and at the various suppliers to MGB, including the Mattingly advertising agency which charged a substantial annual fee for its work. As to the production components, Prosilis says he looked at, among other things, photography, typesetting and computer software and hardware. As to pre-press, he says he looked at storage, file transfer, high resolution scanning and other things. He says he also examined printing costs. He says he assessed possible paper rebates. He says he also considered possible lead time cost reductions and made an estimate of savings on interest on working capital.

66 Prosilis says he took the Father's Day catalogue as an example and extracted all the MGB costs associated with each component from the documents provided and compared those costs with the costs which, he claims, ACC would have charged for the same work.[95] He claims that the variance between the MGB total costs on the Father's Day catalogue and the ACC total costs was $149,562.[96] This would have represented a reduction of about 12%.

67 Prosilis also says that he took the results of the Father's Day catalogue analysis and assumed that the variances were applicable across the entire winter and summer MGB catalogue program, which involved a total of 65 catalogues for the year.[97]

68 Prosilis says that, as a result, he estimated that a total saving of $14,850,000 was possible.[98] In purported support of this, Poulos says that, though he remained in Sydney during the two week period and Prosilis was mainly in Melbourne, he was in contact with Prosilis from time to time during the period.[99] He proceeds: '[Prosilis] showed me some of his calculations and I recall being surprised at the numbers of 'overs', as this figure was very high. I recall that the savings we were projecting from MGB were about $15 million dollars. I recall this because we were elated that the savings we had estimated we could achieve for the CML organisation at our presentation to Mr Wilkinson in June 1993 appeared to have been achieved in MGB alone. The potential savings for the CML Group seemed staggering and we were very excited about this'.[100] I do not accept Poulos' evidence in this regard. It is inconsistent with the admission which, as will shortly be seen, was made by Prosilis at the hearing to the effect that the figure of $14,850,000 did not include any amount for savings on overs.

69 Prosilis claims that on 6 September 1993 he showed Wall and Waterman certain specified supplier price documents and the sales plan 'and confirmed with them that these were the documents that formed the supplier costs and contracts for various periods referred to in the documents that were the base costs upon which the marketing budget and sales plan were based'.[101] There is no contemporaneous written evidence to support this claim. Osborne makes no reference to the matter in his evidence. Having regard to Prosilis' unreliability generally, and to my findings below concerning the related matter of the so-called 'benchmarks meeting' of 29 October 1993, I am not satisfied that Prosilis' claim as to what occurred on 6 September 1993 is correct.

Meeting on 10 September 1993: presentation of findings on 'preliminary audit'

70 Prosilis claims that he had completed the so-called preliminary audit by 10 September 1993 and that he attended a meeting on that day with Osborne and handed over a letter dated that same day and certain attachments. Prosilis does not say where the meeting took place. Osborne says in his witness statement[102] that he does not recall this meeting (or the alleged meetings of 25 June 1993 and 6 August 1993) and that he does not recall Prosilis ever conducting a preliminary audit. However, Osborne explained in his oral evidence that when preparing his witness statement he had been aware that Prosilis had done some relevant work at some stage, but he had had difficulty recalling when, and with the expression 'preliminary audit'.[103] As far as I can tell, the expression 'preliminary audit' does not appear in any relevant contemporaneous document. Further, except in the recitals for the draft confidentiality agreement[104] prepared by Werry Altobelli which was included as one of the several attachments to ACC's letter of 11 June 1993, not even the word 'audit' had been used in any relevant document created prior to 10 September 1993 or indeed in the correspondence of 10 September 1993 itself. Although the word 'audit' (as distinct from 'preliminary audit') was used in documents (including the draft remuneration agreements) created from October 1993 onwards, I accept Osborne's explanation.

71 Osborne says in his witness statement that he has been shown a letter from ACC dated 10 September 1993 which apparently attached what was described as an 'Executive Overview of Savings from Myer/Grace Bros Catalogue Program'; and that he does not recall ever receiving this correspondence. However Osborne goes on to make some comments about it. In particular he says that the correspondence referred to the opportunity to make savings in areas which he had previously told Prosilis were not within Osborne's scope to review, and in which he had no interest. On the other hand, with the benefit of cross-examination, Osborne was prepared to accept that he had had a meeting with Prosilis on or about 10 September 1993 and that Prosilis had made a presentation about the work he had been doing. I accept that at the meeting Prosilis handed over the letter dated 10 September 1993, the 'Executive Overview' document and also an attached document headed 'Projected Cost Savings for Myer/Grace Bros Catalogues'.[105]

Myer/Grace Bros has the opportunity to save between $10 and $15 million in the production of their catalogue program.

The Executive Overview further stated that the areas to be addressed were:

(1) current technologies v optimum technologies;

(2) competitive market rates;

(3) process/structure applied to management and workflows;

(4) third party negotiator;

(5) involvement of corporation to leverage business volume.

A short commentary on each area was provided. The attached document headed 'Projected Cost Savings for Myer/Grace Bros Catalogues' was likewise brief and general. It listed eight areas of savings, namely agency fee, production, pre-press, printing, distribution, paper rebate, lead time reduction and interest on working capital. Under 'agency fee', certain sub-components were listed but without any separate figures. An overall total of $700,000 in savings for agency fee was claimed. Similarly, under 'Production', certain components were set out without separate figures, and an overall total ($4.8 million) was specified. There was a similar pattern for pre-press, with a total of $1.5 million claimed. For printing, $2.1 million was claimed with no components referred to at all. For distribution, $1 million was claimed, again with no breakdown at all. For paper rebate, $2 million was claimed. It was acknowledged in the document that the figure for paper rebate related to the entire CML catalogue range, not just MGB. Under 'lead-time reduction' (which refers to later delivery of promotional stock to stores allowing a reduction in working capital), a claimed saving of $2.5 million was listed. Under interest on working capital, a claim was made at 10% per annum of $2.5 million i.e. $250,000. The grand total was $14,850,000, as mentioned above.

73 In his witness statement Prosilis claims that at the meeting on 10 September 1993 he made a presentation on an overhead projector which comprised essentially three groups of documents. [106] The first group allegedly comprised the documents to which I have just referred. The second group allegedly comprised the results of his analysis of the Father's Day catalogue and the source documents for the MGB costs of the Father's Day catalogue. The third group allegedly comprised documents relating to 'overs'. There is no suggestion that any new documents relating to 'overs' were included. Nor is it suggested that Prosilis said anything significant about 'overs' at the presentation on 10 September 1993. No amount is claimed for savings on overs in the Executive Overview or in the Projected Costs Savings document.

74 In the relevant part of his witness statement and in his evidence, Prosilis tried to convey the impression that Osborne was mightily impressed by this presentation. For example, Prosilis claims that he gave Osborne a practical demonstration of artwork technology in relation to the Father's Day catalogue, and that in response Osborne said: 'That's an excellent idea as I would be able to approve the artwork quicker'. Prosilis insisted that he could recall this virtually word for word.[107] Prosilis was unconvincing in this respect. I am not satisfied that Osborne said anything along these lines. I accept in substance the evidence of Osborne that such matters were not within his scope to review and were matters in which he had no interest.[108] I accept also the evidence of Osborne that some of ACC's suggestions were of no value to CML either because they paid insufficient regard to CML's policy of respecting the independent decision making of the various CML business units or because, in some cases, the suggested strategies for aggregation and cooperation had already been the subject of analysis independently of any involvement of Prosilis or ACC.[109]

75 Importantly, neither the letter of 10 September 1993 nor the Executive Overview nor the 'Projected Costs Savings' document contained any detail as to how savings were to be realised. I am not satisfied - at this distance in time - that the missing detail was supplied to Osborne's satisfaction by Prosilis' presentation on the day.

76 In any event, Prosilis himself quotes Osborne as having said towards the end of the meeting of 10 September 1993 that he would have to speak to Wilkinson and that he would call Prosilis to discuss the matter.[110] This is also consistent with Osborne's evidence that he himself had no decision making authority in this matter.

77 Prosilis claims that, towards the end of the meeting, Osborne said words to the effect:

This is good work. Ovid, is it really that much? You had said it would be $15 million for the entire group. Is it really that much just for Myer Grace Bros?

Neil, I agree. I thought I would find $15 million across all of the businesses but it looks like there is $15 million to be saved in just in one business alone.

This was put to Osborne in cross-examination. I accept Osborne's response, which was:

I think I said it was a lot of money, and it was more than what I would have been expecting.[111]

As I understood this answer, Osborne was not saying that he had accepted Prosilis' claim that some $15 million could be saved in MGB alone. Nor was he resiling from his stance that the documents lacked detail and cogency.

78 Prosilis himself had previously been cross-examined on this topic. He struggled to defend his position in relation to the documents in question.[112] It was put to him that a range of $10 million to $15 million was broad and fairly unhelpful as an indicator to a client of potential savings. Prosilis claimed that it was accurate for the purposes of a preliminary audit. He claimed that 'the client' was a person who understood what he was trying to achieve. If this was a reference to Osborne, I prefer Osborne's evidence about his actual areas of interest and expertise. Prosilis went on to say:

If I say it's in the order of ten to fifteen that doesn't mean its zero or one, it might be eight, it might be twenty....it certainly won't be zero.[113]

Prosilis claimed that from the documents, and because of Prosilis' expertise, the client could know 'with certainty' that there were millions of dollars in potential savings.[114] He claimed that his estimates were 'within a reasonable tolerance level'.[115] He then said that some components relied on a 'guesstimate of other subsidiaries' and that he had not visited these subsidiaries. However this soon unravelled. He had to acknowledge that only the paper rebate savings claim related to the whole CML group. Thereafter he struggled to explain how the estimate might come down to $8 million. He said that the range of $8 to $20 million had been given because 'we were talking about corporation volumes in certain areas, especially when it came to letterbox distribution and when it came to calculating overs.'[116] However, he then acknowledged that the saving of $1 million for distribution rates applied to MGB alone (notwithstanding that it was to be achieved by leveraging CML-wide volumes) and he further acknowledged that there was no element of savings on 'overs' in these figures.[117]

Meeting on 28 September 1993: commencement of discussions about a remuneration agreement.

79 I accept that there was a further meeting between Prosilis and Osborne on 28 September 1993 and that it took place at the head office of CML in Tooronga. There are no contemporaneous notes of this meeting. It was referred to in a relatively short letter from ACC to CML dated 14 October 1993 to which I will come. Prosilis claims[118] that at the outset Osborne said words to the effect:

We wish to proceed with the audit and implementation of these potential savings. We will need to discuss what this will cost us.

80 This was put to Osborne in cross-examination. He said, and I accept, that he did not remember using those particular words but rather indicated that, having spoken to Wilkinson, the outcome was that they wanted to go to the next step and that the next step was to see whether there were any savings that could be implemented in MGB.[119]

81 Asked whether that meant that Prosilis was to carry out a full audit, Osborne said that he would not have called it an audit but rather a project. Although some of the documents later created referred to a 'Catalogue Efficiencies Project', Osborne simply called the matter 'Catalogues'. That was the name that Osborne caused to be endorsed on the top of relevant documents that came to him. As mentioned above, the expressions 'audit' and 'implementation' did appear in the drafts of the proposed agreement which began to be produced and circulated from October 1993. However, I am not satisfied that this language was actually used at the meeting of 28 September 1993.[120]

82 In his first witness statement Prosilis said that at the outset of the meeting on 28 September 1993 he put the following seven points to Osborne:

• • a minimum of six CML businesses to be audited;
  • a fee equivalent to 20% of what was saved;
  • working capital to cover my expenses for the audit of $10,000 per month for three months;
  • I expect to be finished by the end of December 1993 to enable me to deliver as had been requested by Mr Wilkinson at the 25 June 1993 meeting;
  • the moneys should be paid to me in advance and should be offset against later payment on terms;
  • if savings are not found, then the advance given to ACC will be refunded to Coles Myer;
  • ACC's entitlement to payment would be contingent on identifying savings and not on implementation.[121]

83 Prosilis then attributed to Osborne words to the following effect:

I agree that ACC will receive 12.5% of the savings identified by the audit, and ACC will receive $10,000 for three months as an advance for the work.[122]

Next, according to the witness statement, Prosilis said words to the effect that these matters in relation to remuneration should be reflected in a remuneration agreement and that this should be drawn up between CML and ACC, and Osborne said 'Yes'. Then Osborne allegedly brought up the matter of financial benchmarks as previously raised by Wilkinson and said that he (Osborne) would arrange a meeting to establish the benchmarks.

84 According to his witness statement, Prosilis then said to Osborne that the agreement should apply to the six businesses of CML because, once the news leaked out of what he was doing for CML, he would lose 'all the other ACC business, including Woolworths' and that he would be 'finished in the industry once this work starts'.[123] Prosilis claims that Osborne then invited him to do the work as an employee of CML and that he refused this offer. He says he gave two related reasons for the refusal, as follows:

I have other clients that I produce catalogues for and I also continue to work with Woolworths as a consultant. If I was to accept your offer of working as part of your management team I would have to relinquish those other clients because as you can understand Woolworths would not accept me being an employee of Coles Myer who is their largest competitor. Further what is attractive to me under the company structure that I have proposed to you as ACC, is that I want to be paid a percentage of what I save you which is the standard industry practice with advertising agencies and their clients.

A comment is perhaps warranted here. Although it is not disputed that Prosilis was pushing to obtain as much work as possible from CML and its subsidiaries, including access to as many businesses as possible, and although in the witness box Osborne acknowledged that Prosilis' concern about his future in the industry as a result of the proposed project was a reasonable one,[124] Prosilis surely contradicted himself at the meeting if he said, on the one hand, that once news leaked out that he was doing the proposed project on contract for CML he would lose all the other ACC business, including Woolworths, and would be finished in the industry and, on the other hand, that he did not wish to become an employee of CML because it would require him to relinquish Woolworths and ACC's other clients.

85 Prosilis claims that Osborne next said words to the effect:

I understand. I need to tell you also that Mr Wilkinson and Mr Mattingly of the advertising agency for Myer Grace Bros are very close friends and are currently on a fishing trip together. I want you to start the work for us one week from today after Mr Wilkinson returns from the fishing trip. It looks like what you intend to do for us will shock Mr Mattingly and greatly reduce the fees we pay to them and this will affect the friendship between Mr Wilkinson and Mr Mattingly. I also want you to begin immediately on the work required to audit the 1993 calendar year. I have spoken to Mr Wilkinson and we would like you to start with Myer Grace Bros since you already have experience of what is going on in there.[125]

Prosilis claims that he responded by saying that he would require a written authority from 'Peter Wilkinson himself as the Chief Executive Officer of all Coles Myer businesses'; that Osborne agreed to organise this; that Prosilis said he would commence invoicing $10,000 per month immediately to cover expenses and as an advance on remuneration, to be offset against any fees ultimately payable; and that Osborne concluded by saying that he was prepared to take a risk and pay the advance fees given the potential to save so much money as indicated in the report of the preliminary audit.[126]

86 Osborne refers to this meeting of 28 September 1993 in paragraph 27 of his witness statement. He says, and I accept, that he would not have agreed to pay ACC a percentage of savings (as alleged by Prosilis) without previously analysing the possible costs to Myer and the areas of the Myer business to which the costs would be charged; that he did not recall making any offer of employment to Prosilis; and that he did not say to Prosilis that Wilkinson was on a fishing trip with Mr Mattingly. Osborne says, and I accept, that he has never known Wilkinson to go fishing.

87 Under cross-examination Prosilis gave quite unconvincing evidence about the 'fishing trip' story. I will return to that when dealing discretely with Prosilis' credit.

88 In the witness box[127], Osborne acknowledged that at the time in question he definitely wanted to realise savings, if available, as quickly as possible, but denied that he was in a 'hurry'.[128] He agreed that the cost structure needed to be talked about and that it was likely that Prosilis had wanted six businesses to 'audit'. As to fees, Osborne acknowledged that Prosilis may have started at 20%. As to working capital or money for expenses, Osborne thought that they had agreed on six months at $10,000 per month. (This was in fact the arrangement ultimately made: see below). Osborne commented that he could see that Prosilis was spending money.[129] Osborne could not remember Prosilis saying that he wanted to be finished by the end of December 1993. Osborne commented that that would have been, in his mind, impossible as at 28 September 1993. I accept that this was Osborne's state of mind; and, having regard to what actually happened and did not happen thereafter, I accept that Osborne was, in substance, correct.

89 Osborne further commented that he had suggested the $10,000 per month because that was about the amount that a senior advertising executive would earn at the time.[130] He said he could not go beyond that, especially when no outcome had yet been achieved. Osborne could not recollect any suggestion that the $10,000 per month should be refunded to Coles Myer. (I note that, eventually, six payments of $10,000 per month were made and no request for a refund was ever made).

90 In the witness box Osborne was not sure who had suggested the need for documentation, but he confirmed that it had been common ground that the matter of remuneration needed to be documented.[131] He also confirmed that, in his view, it was self-evident that financial benchmarks needed to be agreed.[132] He repeated that he had no recollection of asking Prosilis to work for Coles Myer as an employee.[133] He denied saying that Wilkinson and Mattingly were close friends and were on a fishing trip together.[134] Nor had he any recollection of saying that he wanted Prosilis to start the work immediately or within a week.[135] On the other hand, Osborne acknowledged that if Prosilis' report had taken effect, it would have had large implications for Mattingly.[136] Osborne also acknowledged that it was likely that he said to Prosilis that he was prepared to take the risk on $10,000 per month in advance fees.[137]

91 It will be recalled that in his first witness statement Prosilis said that he had put to Osborne at this meeting of 28 September 1993, in effect, that ACC's entitlement to payment should arise from the mere unilateral identification of savings by ACC and should not be contingent on acceptance or implementation by CML. Indeed, Prosilis said this three times, one way or another, on the same page of his first witness statement, and he included the reasons he had given at the time for allegedly insisting on it.[138] In a subsequent part of the witness statement Prosilis said that he had raised this same claim again at the critical meeting of 12 November 1993 and that Osborne had agreed to it.[139] As the hearing before me drew towards a close, the plaintiffs apparently perceived that any focus or emphasis on the corresponding alleged term of the alleged 'audit and implementation agreement' was unlikely to be beneficial to their cause. Perhaps the uncommerciality and unlikelihood of an arrangement under which large sums of money (hundreds of thousands of dollars or even millions) would become payable for mere suggestions that were neither accepted as valid nor implemented dawned on them. And they were confronted by the defendant's unsurprising contention that CML had at all times required that any liability for fees be dependent upon written agreement by CML or MGB that claimed savings existed. In any event, in their final submissions the plaintiffs tried to defeat or deflect that contention by submitting that the parties had really 'contemplated realisation of savings by performance, that is implementation' and that '[n]either Mr Osborne nor Mr Prosilis contemplated a 7% remuneration. They both contemplated 12.5% of actual savings. The focus was on actual savings. Mr Osborne gave evidence that his focus was on obtaining the savings.[140] ... The 7% was simply to protect ACC [if] MGB decided not to implement an initiative. The proof was to be in the eating of the pudding.'[141] While Osborne did say that his main focus was on obtaining savings, he also maintained throughout his evidence[142] that he would not have agreed, and did not agree, to any suggestion that CML be required to make payment in the absence of written acknowledgement by CML of a proposed or potential saving. As will be seen, I accept Osborne's evidence in this regard. Hence the plaintiffs' attempt to downplay the significance of what Prosilis had repeatedly said in this regard in his first witness statement does not avail them. Indeed this matter is but one example of a strong tendency on the part of the plaintiffs to shift their ground from time to time in pursuit of perceived advantage.

92 As to the allegation that it was proposed by Osborne at the meeting of 28 September 1993 that ACC would start work immediately or within a week, I note that the plaintiffs do not suggest that this actually happened. In fact, Prosilis' own evidence indicates that he was insistent on obtaining documentary authority from the most senior ranks of CML before he was prepared to go any further.[143] Incidentally, Prosilis was inaccurate in his abovementioned reference to Wilkinson as 'the Chief Executive Officer of all Coles Myer businesses'. Wilkinson did not hold that position. He was the Chief Operating Officer - Retail. This error is related to another error concerning the position of chief executive officer of CML made by Prosilis in his evidence, being an error of more significance (see below).

93 Finally, it is noteworthy that Prosilis himself said in his first witness statement that he had said to Osborne at the meeting on 28 September 1993 words to the effect that the matter of remuneration 'should be reflected in a Remuneration Agreement and that this should be drawn up between CML and ACC.'[144]

94 On 7 October 1993 Prosilis sent a fax to Osborne attaching a letter dated 5 October 1993 from Graeme Werry of Werry Altobelli addressed to the Secretary of CML.[145] The latter referred to a draft confidentiality deed which represented a re-draft by CML of Werry Altobelli's earlier draft confidentiality agreement. By the letter, Werry Altobelli requested two amendments to the deed. The last paragraph of the letter read:

We would be pleased if you could also give consideration to the terms of the revised Remuneration Agreement which is enclosed. Our client will require the terms of the Remuneration Agreement to [be] finalised before it proceeds with the implementation of the Audit.

No copy has been found of the 'revised Remuneration Agreement' referred to in the letter nor of any prior draft. However, the letter confirms that from the outset ACC itself attached importance to the finalisation of a written remuneration agreement and, further, required that such an agreement be finalised before it would proceed with the proposed audit. The fact is, of course, that no such finalised written agreement was ever signed.

95 On 14 October 1993 Prosilis wrote direct to Osborne on ACC letterhead. Omitting formal parts, the letter reads:

Following our meeting at 1:00 pm on Tuesday 28th September 1993, I have set out to formalise and finalise the arrangement between yourself (Coles Myer Ltd) and myself (ACC).

By now you would have already received my required additions to the Confidentiality Agreement that your Solicitors redrafted for ACC.

I have now attached to this letter the draft Remuneration Agreement for you to finalise.

The salient points which I believe we discussed and are contained within the Remuneration Agreement are as follows:

(1) ACC is to be remunerated at the rate of 12.5% of what we save Coles Myer Ltd.

The formula for what savings means, I have tried to define so that we do not have any dispute down the track.

(2) We agree that this rate would apply to a minimum of six Coles Myer businesses.

(3) We agree to an advance of $10,000 per month for three months. This is to be reviewed at the end of three months and represents working capital for ACC to do the job for Coles Myer Ltd.

If ACC does not achieve savings for Coles Myer Ltd, the $30,000 would be refunded and/or renegotiated immediately.

I have spoken to you on the telephone about the impending affect (sic) of Christmas shutdown. We need to finalise the Confidentiality Agreement, the Remuneration Agreement and set dates for commencement as soon as possible. I propose that we aim for Wednesday 20th October 1993. I will make the Directors of ACC available to you for signing all documentation in Melbourne. To achieve this goal, your Solicitors will need to move quickly on any concern they may have with the wording of the Remuneration Agreement.[146]

96 The attached draft remuneration agreement[147] was ambitious, obscure and inconsistent with the covering letter. It was not restricted to savings on catalogues. Indeed catalogues were not mentioned. It envisaged 'an advertising and production audit ... in respect of the marketing and sale of [CML's] product or service'. It gave ACC an entitlement to a fee equivalent to 12.5 percent of 'the reduction or savings in the gross advertising, marketing and sales expenditure (... 'marketing expenditure') achieved or incurred by the customer in the first twelve (12) months following the implementation by [CML] of the Audit or any recommendations contained in the Audit'. It would have required CML to procure that not less than six (unspecified) subsidiaries or related corporations engage ACC to conduct audits for them on the same terms. In an opaque and internally inconsistent way it sought to grapple with the inherently difficult problem of defining the comparison periods for the purpose of calculating actual savings. Further, it contained a provision (clause 8) whereby if for any reason CML or a subsidiary chose not to implement any changes recommended by ACC in the Audit 'then the fee payable to ACC hereunder shall be calculated not by savings in marketing expenditure actually realised by [CML or the subsidiary] but rather in the value of potential savings in marketing expenditure identified by ACC in the Audit'. The draft did not include any protection for CML or its subsidiaries in relation to this situation. Clause 8 of the draft was not flagged in the covering letter, which purported to describe the draft as providing (only) for remuneration at a rate of 12.5 percent of 'what we save Coles Myer Ltd'. The letter sought to persuade CML to move quickly. However, as will be seen, CML and its lawyers picked up the difficulties with ACC's draft to which I have referred, and other difficulties. The claims made by ACC at this stage, to the extent that they could be understood at all, were so one-sided and so wide that it may be thought unsurprising that (as I would hold, contrary to the plaintiffs' case) the parties did not thereafter reach an agreement along those lines.

97 On 21 October 1993 Helen Dyson, internal legal counsel at CML, sent a fax to Werry, copied to Osborne, replying to Werry's letter of 5 October 1993 addressed to the Secretary of CML. The fax indicated that CML accepted Werry's suggested amendments to the confidentiality deed and that execution copies had been prepared and would be sent to ACC that day. Dyson also advised that she was reviewing the Remuneration Agreement and would give Werry her comments shortly.[148]

98 A copy of the confidentiality deed as executed is included in the evidence.[149] Presumably it was executed on or about 21 October 1993. A document headed 'ACC Consulting Summary' is referred to in and annexed to the deed.[150] Apart from the heading, the ACC Consulting Summary is identical to the so-called 21 Point Plan which was one of the documents enclosed with the above mentioned letter from ACC to Osborne of 11 June 1993, which in turn was part of ACC's standard 'pitch'. There is no reference to distribution of catalogues (as distinct from production) or to the problem of overs in the 21 Point Plan/ACC Consulting Summary. On the other hand, the recitals to the confidentiality deed, as executed, state that CML 'has requested ACC to provide an advertising/production audit (hereinafter called "the Audit") of the direct marketing strategies, including the catalogue production and distribution programs, of the Coles Myer Group of companies'. And the recitals also contain a reference to 'distribution' and 'volumes'. The substantive terms of the confidentiality deed are fairly standard. However clause 5 envisages that ACC will remain free to conduct advertising/production audits 'for other small customers'. Moreover, clause 8 of the deed provides that, with the consent of CML, ACC would be entitled to identify CML as one of its customers for testimonial purposes in promoting ACC's services to other potential customers. Again, this seems a little difficult to reconcile with the suggestion made by Prosilis from time to time that it was critical that he be given access to multiple CML businesses because he would become a 'pariah' in the industry once it became known that he had been engaged by CML.

99 In the context of the dispute about Osborne's authority at or about this time (21 October 1993), it is significant to note that the confidentiality deed was signed for CML by Williamson (not Osborne) and was witnessed by Wood.

100 Prosilis claims that on or about 29 October 1993 he and Poulos attended a meeting at MGB in Bourke Street, Melbourne with Osborne, Wall, Waterman, and McKay as well as another MGB employee, Mr Pat Sufra. I accept that there was a meeting between these individuals on 29 October 1993.

101 Prosilis claims that he took along certain letters and agreements that had earlier been supplied to him for the purposes of calculating current costs during the 'preliminary audit'. Prosilis purports to specify the particular documents in his witness statement.[151] He claims that he placed the documents on the table and asked the MGB executives to confirm that each represented the current rates being paid by MGB to the relevant suppliers. He claims that they acknowledged that this was so.[152] None of this is admitted by CML.

102 On the other hand it seems to be common ground that Prosilis was told at this meeting or at about the same time that the agency fee then being paid to Mattingly was $7,000,000 per annum.

103 Prosilis claims that he had a discussion with Sufra at the meeting about obtaining more information relating to reductions in working capital and interest expenses as a result of timetable improvements in the production of catalogues. However that may be, I accept Osborne's evidence that he told Prosilis around this time (and that it was the fact) that Osborne was not interested in savings on interest because the business units of CML were measured on earnings before interest and tax, and so Osborne would not be able to generate any 'interest in interest' within the business units.[153]

104 Prosilis claims that ultimately he said to the attendees at the meeting of 29 October 1993:

Do you all agree that the costs we have discussed from the various suppliers are the starting point for calculating the cost reductions of the audit that will be conducted by ACC.

105 Poulos purports in his witness statement[154] to corroborate, in substance, Prosilis' account of the meeting of 29 October 1993 with respect to the obtaining of acknowledgements from those present that the documents said to have been tabled represented MGB's current costs. On the other hand, Poulos adds a recollection that Prosilis also gave the MGB executives who were at the meeting, including Osborne, a presentation of his 'findings' from the two week 'preliminary audit', even though Prosilis had already presented those findings to Osborne 'privately on 29 September 1994'. Presumably this is a mistake for 29 September 1993. Even so, the date is wrong. It is now common ground that the presentation to Osborne had occurred on 10 September 1993. Poulos claims in his witness statement that the MGB executives appeared to be shocked at the results - that is to say, shocked by the claim that about $15,000,000 could be saved in MGB by using ACC's services. (It will be recalled that Poulos also claims that Prosilis' findings were truly staggering and had earlier caused Prosilis and Poulos to become very excited). Prosilis says nothing about a savings presentation at this meeting. It will be seen in due course that a month later, on 26 November 1993, Prosilis faxed a copy of the self-same 'findings' (the Executive Overview document and the Projected Cost Savings document) to Wall in apparent response to a request by Wall for proof of savings. In the fax Prosilis did not suggest that he was merely repeating himself to Wall. In my view, Poulos' evidence about a savings presentation at the meeting of 29 October 1993 was an embellishment which throws substantial doubt on his evidence about this meeting generally.

106 I am not satisfied that documents were tabled at the meeting as claimed by Prosilis, much less that benchmarks were agreed upon by reference to such documents, or at all. The claim is based mainly on the alleged recollections of Prosilis and Poulos, which I regard as unreliable. It is contradicted by Osborne and it gains little or no support from the documentary evidence.

107 Osborne does not recall seeing any relevant documents tabled at the meeting of 29 October 1993. Nor does he recall that Wall, Waterman or McKay confirmed that any such documents were documents belonging to MGB or that any such documents contained the current rates paid by MGB to the respective suppliers.[155] Osborne denied that any savings benchmarks were agreed at the meeting.[156] Prosilis conceded under cross-examination that there is no document from CML or MGB which signified that agreement had been reached in relation to savings benchmarks.[157]

108 Although Osborne accepts that he told Prosilis around this time that the parties would have to agree in writing what the savings were, and thus that they would have to agree on the starting points, and although he thought that a method for determining benchmarks may have been agreed,[158] he was firm and clear in his evidence that the parties never did reach agreement on dollar figures for costs, either at the meeting on 29 October 1993 or at any other time.[159]

109 The plaintiffs submit that their 'benchmarks' claim is supported by letters of ACC dated 4 November 1993 and 4 January 1994. However, as will be explained when I come to them in a moment, I consider that those letters tend to undermine, rather than support, the plaintiffs' 'benchmarks' claim. As I have said, I do not accept that claim.

1 November 1993: the new roles of Osborne, Wilkinson and Wood

110 It is common ground that Osborne was appointed Group General Manager-Retail Services of CML in mid 1992 and that, in that position, he reported directly to Wilkinson. It is also common ground that Osborne transferred to the employment of MGB in or around October or November 1993 and that Wilkinson also transferred to MGB around the same time or soon after.[160] Osborne's new position at MGB was Group General Manager - Logistics. Osborne said in his witness statement, [161] and I accept, that this role was largely a supply chain role, and did not involve marketing or catalogue production and distribution; that although he was formally appointed to the role in November 1993 there had been a handover period throughout October; and that Osborne assisted Wilkinson in Wilkinson's own transfer to MGB. In early 1994 Osborne also assumed the role of Group General Manager - Finance and Administration (CFO) for MGB.[162] Wood was appointed to Osborne's former position of Group General Manager - Retail Services for CML. He had previously been an executive assistant to Wilkinson.[163]

111 Notwithstanding Osborne's transfer from CML to MGB and his change in roles, he continued to have further discussions with Prosilis.

112 There is some uncertainty about the precise date when Wood took over Osborne's role at CML, but the weight of the evidence indicates that it had occurred by about 1 November 1993. It will be recalled that Wood had witnessed Wilkinson's signature on the confidentiality deed on or about 21 October 1993. Osborne said at one point in his oral evidence that the change occurred on or about 1 November 1993.[164] As the defendant submits[165] the best contemporaneous evidence is a memorandum of 4 November 1993 from one Andrew Booth, a solicitor employed by CML, being a memorandum to which I will refer in more detail shortly. The introductory words of the memorandum suggest that the change occurred prior to 4 November 1993, because it described Osborne as the 'General Manager Logistics Myer Stores' and it described Wood as 'General Manager Retail Services'.[166] So the memorandum supports Osborne's recollection. I am fully satisfied that the change had taken place prior to the critical meeting of 12 November 1993.

'Benchmarks' letter of 4 November 1993 and follow-up letter of 4 January 1994

113 On 4 November 1993 Prosilis wrote to McKay on ACC letterhead. The letter reads (omitting formal parts):

Following our meeting on Friday 29th October 1993, I have subsequently set out the bench marks which Myer Stores Ltd and the Australian Catalogue Corporation Pty Ltd have agree (sic), represent the starting point for calculating cost reductions for the purposes of the remuneration agreement submitted by ACC to Coles Myer Corporation.

and overtime/late briefing rates as currently negotiated between Myer Stores Ltd and Gasworks and applicable as of this day dated Thursday, 4th November 1993.

Page rate and late briefing charges as currently negotiated between Myer Stores Ltd and Show adds and is applicable as of this day dated Thursday 4th November 1993.

Current rates as negotiated between Myer Stores Ltd and their respective printers, as well as any in progress or pending for the summer 1994-1995 catalogue program.

Letter box and insert rates based on dollar per 1000 as currently negotiated between Myer Stores Ltd and its distributors whether letter box or newspapers and applicable as of this date dated Thursday 4th November 1993.

To be advised after meeting with Pat Sufra of Myer Stores Ltd.

It has been agreed that each one of these components may have a separate starting point in terms of its ability to be impacted by ACC because of work in progress already committed by Myer Stores Ltd with current suppliers at current rates.

ACC will notify Myer Stores Ltd in writing of the date in [sic] which each one of these components has been impacted and on what date the 12 month period for calculating the savings period benchmark begins.

NB: The costing process is based on the above rates being extrapolated out to the summer 1994/1995 program. To facilitate ease of calculation, the period will generally be agreed to be from February 1994 through to January 1995 inclusive. However, it is also agreed based on the earlier comment that different components may be impacted at separate starting dates, ACC will endeavour to implement savings as soon as possible, that is prior to February 1994. As mentioned, the 12 month period will then apply from this starting date agreed upon between Myer Stores and ACC in writing.

114 The so-called 'benchmarks' letter of 4 November 1993 is hardly helpful to the plaintiffs. It does not refer to a single specific contract or invoice. It refers to only three suppliers by name - Mattingly, Gasworks and Showads. The only dollar figure given is the $7,000,000 for Mattingly. That figure had been supplied to ACC orally. The letter purports to provide that in some cases but not in others the start date for calculating cost reductions will be 4 November 1993, notwithstanding that the alleged benchmarks agreement had been made some days earlier. Another vague aspect of the 'benchmarks' letter arises from the reference to 'any quotes in progress or pending for the summer 1994-1995 catalogue program' in relation to printing. Further, the letter purports to give ACC a discretionary power to specify separate starting points for different components (as well as a discretionary power to 'notify' MGB in writing of 'the date in which each one of these components has been impacted'). By contrast, in the final ('NB') paragraph of the letter ACC refers to a certain period that 'will generally be agreed'. And there is also a reference in that paragraph to a twelve month period applying from a starting date 'agreed upon between Myer Stores Ltd and ACC in writing'. Incidentally, the use of the expression 'in writing' both here and in the preceding paragraph is at least consistent with the defendant's contention that a requirement for written agreement by CML or MGB to benchmarks and proposed savings was always insisted upon by CML. Further, there is no evidence that, after the sending of this letter, ACC ever notified MGB 'in writing' of any starting date or 'impact' date in relation to savings or that there was any agreement in writing between MGB and ACC in relation to starting dates. Indeed, as already mentioned, Prosilis conceded that there is no document from CML or MGB signifying agreement in relation to any aspect of savings benchmarks at all.

115 The absence of any agreement on benchmarks is confirmed, in my view, by a letter dated 4 January 1994 written by Prosilis (on ACC letterhead) to Robert Hampson, the then Group General Manager, Merchandise of MGB. The letter enclosed a copy of the 4 November 'benchmarks' letter and said that this letter 'was presented to Michael Wall to be forwarded to Neil McKay more than eight weeks ago for reproduction on Myer/Grace Bros' letterhead and to be co-signed by Neil McKay'.[167] Unsurprisingly, MGB never did reproduce the highly unsatisfactory ACC 'benchmarks' letter of 4 November 1993 on its own letterhead. Nor did CML ever co-sign such a letter.

116 It is noteworthy that neither in the 'benchmarks' letter of 4 November 1993 nor in the follow up letter of 4 January 1994 is there any suggestion that documents had been tabled at the meeting on 29 October 1993 for the purpose of setting benchmarks. There is no reference to the tabling of any such documents at all.

117 In my view ACC's 'benchmarks' letters (of 4 November 1993 and 4 January 1994) do not assist the plaintiffs' claim that savings benchmarks were agreed on 29 October 1993. Quite the opposite. In any event, even if some kind of agreement on savings benchmarks was arrived at on 29 October 1993 it was so vague that it does not significantly advance the plaintiffs' case in relation to the alleged making of the 'audit and implementation agreement' on 12 November 1993.

4 November 1993: letter of authority from Wilkinson

118 Prior to 4 November 1993 Prosilis requested Osborne to provide him with a letter of authority along the lines previously sought. After an exchange of drafts and confirmation from Prosilis that an expiry date of 10 May 1994 would give him enough time to complete his audit, a letter of authority dated 4 November 1993 on CML letterhead was signed by Wilkinson as Chief Operating Officer Retail of CML and provided to Prosilis.[168] It read as follows:

To Whom it May Concern

Re: Catalogue Production

This letter is to confirm that Coles Myer Ltd has engaged the Australian Catalogue Corporation (ACC) Pty Ltd (ACN 058 100 271) to audit and implement changes to the catalogue production, pre-press, printing and distribution for the Myer Grace Bros subsidiary companies. Implementation of changes to current operating procedures and contracts must be jointly signed off by ACC and the Myer Grace Bros Group General Manager Marketing. This letter is effective until 10 May 1994.

In his first witness statement Prosilis asserts that the MGB Group General Manager Marketing at the time was McKay and that Robert Hampson took over the position in late December 1993. It appears that that is not strictly correct. Hampson said in the witness box that at the time when the issue with Prosilis arose there was no Group General Manager of Marketing and that MGB was recruiting for it. Hampson said that he himself never became Group General Manager of Marketing. Rather, he said, a relatively junior executive was performing a holding role. I gather that this was McKay. Hampson said that he himself only became involved at a strategic level. Hampson did not take over McKay's role. McKay continued to manage day to day marketing matters, and in particular catalogue production.[169]

119 I accept that the Wilkinson letter of 4 November 1993 indicates that there was some kind of expectation at this time on the part of both CML and ACC that ACC would be involved with respect to suggestions for changes to MGB's current operating procedures and contracts in relation to catalogue production and distribution. However, contrary to Prosilis' interpretation of the letter, I would not read it as constituting a directive to CML staff or MGB staff requiring them to make no changes without the involvement of ACC. Prosilis had actually sought an authority of that kind from CML, but he did not get one. Moreover, the Wilkinson letter predates the critical meeting of 12 November 1993 and says nothing about the terms on which ACC would be remunerated for any services it provided.

120 As mentioned above, Andrew Booth, an in-house solicitor at CML, prepared a memorandum dated 4 November 1993 addressed to Osborne and copied to Wood and Dyson. Both Osborne and Wood say that they received the memorandum on or about 4 November 1993. The memorandum comments on the draft remuneration agreement that had been received from ACC. The memorandum is divided up under seven headings - parties to the agreement, number of businesses, role of ACC, marketing expenditure, calculation of remuneration, advance, and statements and inspections. The points made by Mr Booth of most significance for present purposes may be summarised as follows. CML may not be the appropriate party because it does not produce and distribute catalogues. Booth understood that CML may not have agreed that ACC would audit at least six businesses. This aspect required clarification. The role of ACC was not clearly specified. More detail was needed as to what the ACC audit would entail and as to the form of report to be provided on completion. Nor was it clear whether ACC would be involved in implementing any recommendations contained in the report. The question whether CML was to have a discretion regarding the future role of ACC needed to be addressed. The definition of 'marketing expenditure' was too wide. It needed to be confined to expenditure relating to the production and distribution of catalogues. Amendments were needed to clarify the periods to be adopted to ensure an appropriate costs comparison. There needed to be clarity as to whether ACC was to benefit from savings made in the period referred to as the 'post-audit period' that were not attributable to ACC's work or that would have been achieved in any event. There was a need for clarification as to whether ACC's remuneration was to be based on actual savings realised by CML or on potential savings identified by ACC. Arguments against entitling ACC to remuneration based on potential cost savings included that there were a considerable number of legitimate reasons why CML may choose not to implement changes recommended in the audit, eg the changes may result in a catalogue of unacceptable quality, style or length. Further, it may not be acceptable to CML to pay a fee based on the value of savings identified by ACC but not independently calculated or verified by CML. It may not be possible for CML to actually realise the level of savings estimated by ACC. There was a need to consider security for the repayment of the advance of $10,000 per month. There was a need to tighten up the clauses relating to the provision of information by CML to ACC so as to protect CML's confidential information and to avoid oppressive requirements.

9 November 1993: request to obtain alternative printing quote

121 On 9 November 1993 Prosilis was copied into a fax[170] from Wall to Waterman relating to MGB's catalogue program for winter 1994. The fax conveyed an opinion of Wall that there should be a change to the style of the front cover of the catalogues. There is some indication in this brief, cryptic fax that Wall's recommendation related to the saving of expense, although there is no indication that it had anything to do with any recommendation or suggestion previously made by Prosilis or ACC. The fax from Wall to Waterman included the following sentence:

To this end, can you and Ovid work on including alternative printing quotes based on this request.

122 In his witness statement Prosilis claims that the request for his participation in obtaining an alternative printing quote was in accordance with the 4 November 1993 letter of authority. I am not convinced that that is so, given that the request seems to be unrelated to Prosilis' prior proposals. In his oral evidence Prosilis referred to the request as evidence that he was entitled to be involved in anything that addressed the reduction of costs by way of negotiations or quotations or in anything else that related to changing what MGB was then doing with respect to catalogues, based on the benchmarks allegedly determined on 4 November 1993.[171] Prosilis says that this was important to ensure that he would be duly credited as having identified the potential saving. A passage in the evidence of Prosilis which includes a reference to this point is highlighted on the front page of the plaintiffs' outline of final submissions. However, for present purposes, it seems to me that the request from Wall to Waterman and Prosilis to obtain alternative printing quotes assists the plaintiffs very little. Prosilis does not say that he actually became involved in obtaining the alternative quotes. Nor is there any other document in the forest of tendered documents to indicate that CML or MGB involved Prosilis in negotiations or dealings with third parties to reduce production costs for MGB at this particular time.[172] There is clear evidence to the contrary.[173] Indeed, the plaintiffs' Senior Counsel conceded during his opening that Prosilis was not so involved.[174] On the other hand, the request by Wall of 9 November 1993 is some indication that it was expected that Prosilis would have some such involvement in the future. Of course it says nothing about the terms on which Prosilis or ACC might become so involved.

12 November 1993: meeting between Osborne and Prosilis

123 Prosilis gives his account of the critical meeting of 12 November 1993 in paragraphs 106 to 127 inclusive of his first witness statement. It is an extraordinarily detailed account. It purports to set out what took place and what was said by Prosilis and Osborne to each other in precise chronological order. Prosilis asserts that he was able to do this because the Booth memorandum, of which he had a copy when preparing his witness statement, had been used as a kind of agenda for the meeting and because his copy of it (which is in evidence)[175] contained some marginal notes he had made during the meeting. I will endeavour to summarise what Prosilis says about what occurred.

124 Prosilis says that the meeting was arranged in a prior telephone call made by Osborne to him. Prosilis claims that Osborne said words to the effect (my emphasis):

Ovid we have been reviewing the remuneration agreement and we need to meet to discuss its terms.

Prosilis allegedly told Osborne that he had received the letter of authority from Wilkinson and had commenced doing the audit of the catalogues and that, accordingly, he recognised the need to finalise the remuneration agreement. According to Prosilis, Osborne then said that they would also need to discuss some management changes that were occurring in head office.

125 Prosilis says, and it is common ground, that the meeting occurred at MGB's offices in Bourke Street, Melbourne, not at CML headquarters in Tooronga; that Osborne handed Prosilis a copy of the Booth memorandum; and that Prosilis had not seen this document before.

126 Next, in paragraph 108 of his witness statement, Prosilis attributes to Osborne certain statements about management changes, including that Wilkinson was to become Managing Director of MGB and that Osborne was to become General Manager Logistics at MGB. In addition, Prosilis quotes Osborne as having said words to the following effect: 'There is now a new Chief Executive Officer of the Coles Myer Group and that is Mr Peter Bartels. Mr Bartels was previously with Fosters Brewing and has now been brought in and will replace Mr Wilkinson. Mr Jon Wood was the 2IC of Mr Bartels at Fosters Brewing and he now has been brought in and he will be doing the work as General Manager Retail Services of Coles Myer'.[176]

127 Prosilis claims that he said to Osborne that he was concerned that Bartels and Wood would not know anything about his project. Prosilis says that Osborne told him he need not worry because there was a transition period between Wilkinson and Bartels[177] and between himself and Wood and that Prosilis' matter 'would remain' with Osborne. Prosilis attributes words to the following effect to Osborne: 'I retain the authority and the responsibility to finalise this agreement because Mr Wood does not know anything about it. I will advise Mr Wood about the history of the project but we are here today to finalise this agreement'.

128 Prosilis claims that he then read the first part of the Booth memorandum relating to the question of parties. Having done so, Prosilis allegedly reminded Osborne about Prosilis' previously expressed strong preference for the project to be driven from the top down. Prosilis claims that Osborne agreed with this and commented 'You know what it's like when you get lawyers involved. You and I, we just want to be able to do this project but the lawyers always find little problems that need to be dealt with'. However Osborne then allegedly came up with a (new) proposal that ACC be required to demonstrate a significant level of savings in MGB before being allowed to enter other businesses. Osborne allegedly mentioned $4,000,000. After discussion it was allegedly agreed that if the threshold of $4,000,000 was reached ACC would be guaranteed automatic entry into other businesses without interference from their management. Osborne also allegedly said that if ACC only found some lesser but still significant amount, such as $2,000,000 or $3,000,000, then ACC would be allowed into other businesses by agreement. Prosilis says he agreed to this. There is a handwritten note by Prosilis on the Booth memorandum under 'parties'. It reads '4M or by agreement'.

129 Prosilis claims that he next read the words under the subheading 'Number of Businesses' in the Booth memorandum. According to Prosilis, Osborne asked him which six businesses he had in mind. Prosilis then listed seven businesses - MGB, Coles Supermarkets, Kmart, Target, Fosseys, World 4 Kids and Katies - and said that he had in mind selecting six of those businesses. At the same time he wrote out the list of seven businesses on a blank sheet of paper that formed part of the memorandum.[178] He says that Osborne replied that he should concentrate on the large subsidiaries and omit Katies, World 4 Kids and Fosseys. Prosilis claims that he replied that Osborne needed to understand that the project would make Prosilis a pariah in the industry because there would be 'enormous disruption' to CML's existing supply network and those suppliers would seek to black ban Prosilis in the industry and it was even likely that Woolworths would cease to use his services once they became aware that he was assisting CML to such a large degree to reduce their costs and become more competitive. On this basis Prosilis sought a guaranteed minimum number of businesses and Osborne allegedly agreed to guarantee access to MGB, Coles Supermarkets, Kmart and Target if ACC met the $4,000,000 threshold. This was allegedly agreed and Prosilis made a note - 'subject to success at Myer/Grace' in the relevant part of the margin of the memorandum.

130 Next Prosilis and Osborne allegedly turned to the third part of the memorandum under the heading 'Role of ACC'. Prosilis allegedly said to Osborne that there were two parts to the process - identifying savings and then actually implementing the savings. He allegedly said that, based on his experience at Woolworths, he would anticipate resistance to change within CML. On that basis Prosilis proposed (for the first time) a two tier remuneration structure based on identifying potential savings and implementing those savings. He claims he said:

If I identify potential savings and you choose not to implement, then I'll be paid a 7 percent fee. If you subsequently choose to implement those savings and realise those savings then the fee will increase to 12.5 percent. Implementation will require more work than simply identifying the potential.

Prosilis claims that Osborne replied with words to the effect:

I agree that you should be paid 7 percent for identified potential savings. I also agree if we choose to implement that is different work and you will be paid 12.5 percent.

The marginal notes include the expressions 'audit', 'implement', '12½% and 7%', among a few others, near relevant parts of the memorandum.

131 Next Prosilis and Osborne allegedly dealt with the definition of 'marketing expenditure' and made it clear to each other that the work was to be restricted to the production and distribution of catalogues.

132 Next they allegedly came to section 5 headed 'Calculation of Remuneration'. Prosilis claims that he said to Osborne that the existing management inside the CML businesses had had sufficient opportunity to bring savings and had been incapable of doing so, and that they did not have the advantage that Prosilis had of still working for Woolworths. According to Prosilis, Osborne agreed and commented that the point was only there because the lawyers put it in.

133 As to the next point in the Booth memorandum relating to cost savings or price reductions resulting from competitive pressures or the introduction of better technology or that would otherwise have been obtained irrespective of the audit, Prosilis claims that he dispatched this problem by reminding Osborne of the criticisms he had previously made about existing suppliers using outdated technology for catalogue production. Prosilis says Osborne agreed and made another comment to the effect that the point was only there because the lawyers had put it in.

134 The next point in the memorandum raised the distinction between actual savings and potential savings. Prosilis claims Osborne said words to the effect:

Coles Myer will pay you 7 percent of the potential savings identified by ACC. If we actually implement any of your identified potential savings, that will be a different payment structure and that will become 12.5 percent. The two payment tiers are separate. They are different jobs. I understand that you only need to identify potential savings to be paid 7 percent. If we go further and we implement those savings and actually realise those savings that will be 12.5 percent.

135 Next Osborne allegedly said that there needed to be a definite period where ACC's payments started and finished and Prosilis allegedly proposed that the entitlement be for a designated 12 month period with payments to be made each month. Osborne then allegedly agreed that whether the payment was to be at 7 percent for identifying potential savings or at 12.5 percent for implemented savings it should be calculated for a 12 month period.

136 Then, Prosilis allegedly raised the prospect that he might miss out on some payments for identifying savings if CML's managers allowed a period (within the 12 month period) to pass before implementing the recommendations. Prosilis allegedly said he wanted protection from this situation and Osborne allegedly agreed, saying words to the effect:

I agree Ovid. If you identify savings or if we implement savings you should be paid for the work you have done for us. What I propose is that the responsibility for the implementation of what you identify should become ours. We will agree to write to you within 28 days from the day you present to us the savings and we will let you know in writing what components of the catalogue production process we will ask you to implement. In the event that we do not respond to you in writing within 28 days then it will be taken that we want you to implement those savings for us. This will address the situation where if there is a management change or there are managers who are otherwise upset with being shown up or somehow as you put it, not responding because this is not their idea, it will require them to write to you and definitely advise if they do not want to proceed.

137 Next, Prosilis claims that he asked what would happen if CML or a subsidiary chose not to implement an identified saving during the 12 month period, but chose to do so 'perhaps 18 months or 2 years later'.[179] Osborne allegedly replied that if they chose to implement at a later stage what ACC had identified then they would subsequently pay ACC at the higher rate. They would pay ACC 7 percent for identifying the potential saving and if they later implemented the proposal they would increase that payment to a 12.5 percent fee. They would pay that fee whether or not they used ACC to implement or whether or not they did it themselves or with other suppliers. (There is no suggestion that Osborne (or Prosilis) specified any definite time limit in this regard.)

138 Prosilis claims he said that he agreed with this.

139 Next, Prosilis claims he sought protection from a situation where implementation was commenced during the 12 month period but then ceased, whether for strategic reasons or because of a commercial philosophy concerning strategic business alliances or for other reasons that had nothing to do with efficiency. Osborne allegedly replied that if they commenced implementation and then ceased then ACC should be paid 12.5 percent in respect of the entire 12 month period for the particular catalogue component in relation to which a potential saving was identified during the audit. Prosilis claims he agreed with this.

140 Then, Prosilis claims he referred to the suggestion by Booth that ACC's claimed costs might need to be independently verified by CML. Prosilis allegedly said that whilst as a consultant he would share with CML his experience and know-how from within Woolworths and his knowledge about the cost structures paid in the market generally, he was not in a position to be able to tell CML what Woolworths paid directly. Osborne allegedly replied to this with words to the effect:

Ovid if you identify the savings for us we will not require them to be independently verified. The real benefit to Coles Myer will not be in just identifying savings but in realising them. The benefit is in implementing them. If during implementation there are no savings then you won't be paid anything because you will get 12.5 percent of nothing.

141 Next, they allegedly turned to the matter of advance payment. Osborne said that he was prepared to take a risk with a view to saving millions. Prosilis allegedly then said words to the following effect:

Neil you've made me concede six businesses down to four. Having made that concession and because I estimate that the audit will take approximately six months, I want to renegotiate $10,000 for three months to be $10,000 for six months. ... .

Osborne allegedly agreed to this and then Prosilis allegedly reassured him that the monies would merely be an advance against fees and would be offset against the fees. They would not be additional. Osborne said, allegedly, that he was happy about this.

142 Next, Osborne and Prosilis allegedly discussed section 7 of the Booth memorandum headed 'Statements and Inspection'. Prosilis allegedly agreed that the materials to be provided should be limited to those relevant to catalogue production and letter box distribution and that materials relating to television or radio were not required. Osborne then allegedly said that he and the businesses would have to provide ACC with all the invoices and other materials that make up the costs that ACC was auditing from which to identify savings.

143 Prosilis claims that at the conclusion of the meeting he said to Osborne: 'Neil we are clear on what we have agreed today, you have responsibility for it and I will not be caught up in any management change'. Osborne then allegedly said words to the effect:

Ovid I have full authority to complete this agreement. We have a deal. Congratulations. I want to celebrate by going out to dinner tonight. Can you join me and my wife Brenda and we will go out.

144 Prosilis completes this part of his witness statement by saying:

At the end of this meeting, Mr Osborne shook my hand and later that evening or shortly thereafter at a date I cannot now recall, Mr Osborne and his wife, Ms Brenda McGahan, took me to dinner at the Latin Restaurant in Lonsdale Street, Melbourne, to celebrate the conclusion of the agreement.[180]

145 The handwritten notes in the margins of the Booth memorandum are brief and sketchy. They are not inconsistent with Prosilis' version of what took place at the meeting but neither are they inconsistent with the defendant's contentions.

146 Save to the extent that Prosilis' account of the meeting on 12 November 1993 is common ground, I do not accept it. There are many reasons for this. I will now mention briefly some of the main ones. As I have said, Prosilis' account is extraordinarily detailed, and it is utterly self-serving. I have merely summarised it above. It is much longer;[181] and it contains many more quasi-quotes. It is not credible that, 16 years after the event, Prosilis or anyone else could reliably give such a precise and ordered account of the things done and the words said at the meeting without the benefit of a much better record than Prosilis' sketchily annotated copy of the Booth memorandum. Further, Prosilis' account is contradicted in important respects by Osborne. I will come to that shortly. The suggestion that Osborne claimed to have full authority, and the intention, to conclude a binding agreement there and then is fanciful. Prosilis admits that on various prior occasions Osborne had told him that he needed to consult Wilkinson about Prosilis' proposals. Wilkinson, not Osborne, had signed the confidentiality deed and the letter of authority. Wood had now become involved, at least to some extent.[182] Moreover, by the time of the meeting of 12 November 1993 Osborne was no longer an officer of CML. The meeting was held at the offices of MGB, not at CML headquarters. The alleged terms are complex and not of a standard kind and would require careful drafting. Further, many of the points, including the $4 million threshold and the 7% remuneration 'tier', were only raised for the first time at this meeting. Solicitors were involved on both sides. One or two written drafts had already been circulated between the solicitors and drafts continued to be circulated between the parties and the solicitors afterwards. ACC had previously sought an appointment for the directors of ACC to come to Melbourne 'for signing all documentation'.[183] Osborne said in the witness box: "I didn't transact with anyone without a contract".[184] I accept that evidence. It is not credible that either Prosilis or Osborne said anything at the meeting to indicate that his side intended to be bound to the alleged terms in the absence of a signed, written agreement. Further, the alleged terms are inconsistent with various recommendations made to CML by its own solicitor, Mr Booth, in his memorandum of 4 November 1993. And, as will be seen, the alleged terms are also inconsistent with all drafts that were thereafter circulated, being drafts to which ACC raised no relevant objection. In addition, as I will further explain, I am not satisfied that ACC or Prosilis had actually commenced the alleged (full) 'audit' by this time or that ACC or Prosilis ever did any significant auditing for CML or MGB after this time.[185] I take into account also my view that both Prosilis and Poulos were generally unreliable witnesses whereas Osborne, Wood and Hampson were generally reliable.

147 In paragraphs 43 to 47 of his witness statement, Osborne refers specifically to Prosilis' account of the meeting of 12 November 1993. He says in paragraph 43, and I accept, that he does not recall the alleged lead up telephone call. He says in paragraph 44, and I accept, that the relevant paragraphs of Prosilis' witness statement contain a number of material factual errors, including the following:

(a) Paragraph 108 alleges that Osborne told Prosilis about management changes at Coles Myer. The appointment of Bartels had occurred in June 1992, well prior to 12 November 1993, and Osborne would not have discussed a matter of such common knowledge with Prosilis.

(b) Paragraph 108 also alleges that Osborne said to Prosilis words to the effect 'I retain the authority and the responsibility to finalise this agreement because Mr Wood does not know anything about it'. This was not the case. By this time Wood had told Osborne that he wished to take a more active role in discussions with Prosilis, since Wood was taking over Osborne's role at CML; and Osborne had told Wood that he was happy for Wood to assume responsibility. Osborne did not have any (actual) authority to finalise any agreement with Prosilis.

(c) Paragraph 112 alleges that Osborne 'guaranteed' Prosilis access to other Coles Myer businesses if he identified $4,000,000 of savings. Osborne would not have 'guaranteed' such access, as it was Wood's responsibility, not Osborne's, to arrange for any further introductions of Prosilis to other Coles Myer businesses.

(d) Paragraph 112 also alleges that Osborne agreed that if Prosilis identified a significant amount of savings, but less than $4,000,000, he would be allowed access to other Coles Myer businesses by agreement. Osborne does not recall, and would not have agreed to, any relaxation of the monetary threshold for savings which Prosilis was required to reach. In any case, the introduction of Prosilis to other Coles Myer businesses was the responsibility of Wood, not Osborne.

148 Osborne goes on to say in his witness statement[186], and I accept, that he does not remember the precise dates of conversations with Prosilis in 1993, although he was having meetings with Prosilis in November 1993; that by this time Osborne was no longer with CML and had moved to MGB and was only interested in the MGB component of Prosilis' work; and that Osborne had told Prosilis this. Osborne further says, and I accept, that at no time did he ever tell Prosilis that he agreed to an agreement between ACC and CML of the kind suggested in the statement of claim and in Prosilis' witness statement. Rather, as I accept, Osborne told Prosilis that any agreement had to be signed by CML - which was subject to Wood's approval - and had to be ratified by the other business units and would also be subject to formal sign off by Wilkinson or his successor at CML.

149 Osborne further says in his witness statement[187], and I accept, that Osborne believes that he went to dinner with Prosilis at some stage in about November 1993, but that this was merely out of courtesy, given that Prosilis had travelled down from Sydney. Prosilis and Osborne did not celebrate the conclusion of any agreement. As to Prosilis' statement that Osborne shook his hand at the end of a meeting, Osborne says, and I accept, that Osborne commonly shakes hands before and after most meetings with suppliers, customers or guests, and that he shook hands with Prosilis out of common courtesy, not to indicate the conclusion of any agreement.[188]

150 Earlier in his witness statement - in paragraph 31 - Osborne had provided a broader description of the course of his discussions with Prosilis about a possible remuneration agreement in October and November 1993 "after I assumed my new role at MGB". Among other things, Osborne had there said, in substance, that at the conclusion of discussions Prosilis accepted that the initial focus would be on distribution savings (not production savings) exclusively. However, having regard to all of the evidence, including the cross-examination of Osborne and the documentary evidence, it seems to me that this position was not reached until a little later - probably December 1993 or January 1994. Until then - as is indicated by the confidentiality deed of 21 October 1993, the letter of authority of 4 November and the 19 November 1993 draft of the remuneration agreement,[189] among other things - it seems that Prosilis was still pushing to be granted a wide initial scope of work, including work relating to the production of catalogues, and that CML had not ruled this out. Subject to that qualification I accept paragraph 31 of Osborne's witness statement, in which he says that, although he cannot remember the precise language used or the precise dates of particular discussions, the substance of his discussions with Prosilis was as follows:

(a) Osborne said that MGB would allow ACC access to certain of MGB's documents relating to its catalogue process, upon ACC signing an appropriate confidentiality undertaking.[190]

(b) Osborne requested that ACC identify specific areas where MGB might be able to save money on its catalogue distribution process, particularly in regard to overs.

(c) Osborne said that if ACC did this, MGB would then review those opportunities for savings and ensure that they existed.

(d) Osborne said that if Myer agreed in writing that there were actual savings and if it then achieved those savings, ACC would be paid 12.5 percent of the savings actually achieved.

(e) Prosilis also insisted that ACC be entitled to 7 percent of savings which MGB agreed in writing existed, but did not implement. Osborne told Prosilis that he thought this was unnecessary, since he could not see why MGB would not implement a saving which existed and could be implemented. Prosilis was, however, quite insistent about this. Prosilis told Osborne that he believed that certain personnel in MGB were connected with Progress Press and with the other major letter box distributor, Salmat, and that he believed that they would not implement savings, even if the opportunities to make savings existed. Osborne said that ACC would also be entitled to 7 percent of savings which MGB agreed in writing existed, but did not implement.

(f) Osborne said that if ACC did not identify real savings, neither MGB nor CML would pay ACC anything.

(g) Osborne said that if ACC were successful in identifying savings in MGB's catalogue distribution process, then ACC would be able to examine other aspects of MGB's catalogue production process, in which case:

(i) any savings ACC identified would again be subject to MGB agreeing in writing to the savings before any remuneration was payable; and

(ii) after consultation with Jon Wood (who by then had control over other CML business introductions), if ACC were successful in identifying $4,000,000 worth of savings in MGB, and if MGB agreed in writing that these savings could be realised, then ACC would be permitted to review the letter box distribution processes for catalogues in certain other business units of CML.

(h) Osborne said that this arrangement was to be subject to a formal contract to be reviewed by the solicitors for CML, agreed to by the relevant business units and by Wood, and signed by Wilkinson or his successor at CML.

(i) At the conclusion of Osborne's discussions with Prosilis, Prosilis said words to the effect that what Osborne proposed was acceptable to him.

151 Further, I accept the statement in Osborne's witness statement[191] that Osborne did not ever sign any legal document which had not been created or previously approved by the CML legal department.

152 Osborne's evidence about the meeting of 12 November 1993 was not significantly shaken by cross-examination. If anything, it became more compelling. In the witness box Osborne denied that he said to Prosilis at the end of the meeting 'Congratulations, we have a deal'. Osborne explained that it would have been 'very premature' to say that.[192] Osborne repeated in the witness box, and I accept, that he told Prosilis at or before the meeting that he was moving to MGB; that Wood would be taking over all of his responsibilities; that he no longer had the carriage of the central contract; and that once he moved to MGB he was not in control of any dealings conducted by CML any more.[193]

153 Moreover, Osborne said in the witness box, and I accept, that he told Prosilis during the 12 November 1993 meeting that he was merely acting in an advisory capacity rather than negotiating the terms of the proposed agreement with Prosilis or ACC.[194] Osborne said, and I accept, that the reason why he met with Prosilis on this particular occasion was because Osborne thought it was only courteous to do so, in order to explain exactly what stage had been reached at CML with the negotiations; that he was transitioning to MGB; and that the Booth memorandum had come in from the CML legal department.[195]

154 Osborne further said in evidence, and I accept, that he and Prosilis discussed the Booth memorandum at the meeting, but Osborne did not tell Prosilis that MGB would be the initial business that ACC would be entitled to audit and that the other businesses would be Coles Supermarkets, Target and Kmart. Rather, Osborne told Prosilis that they were the big businesses, and that he should probably concentrate on them.[196] Further, I accept Osborne's denial that he told Prosilis that points raised by CML's lawyers were not important.[197] I accept Osborne's evidence that if Booth had raised a concern in the memorandum, Osborne would have been concerned about it.

155 Osborne acknowledged in his evidence that there may have been discussion at the meeting of 12 November 1993 about a need to achieve a $4,000,000 threshold of identified savings before access to the other CML businesses would be considered.[198] However I accept Osborne's further evidence that he did not say that if the $4,000,000 threshold was reached, there would be an automatic entry to the other businesses without interference from management.[199] I accept that Osborne told Prosilis that Osborne had to have agreement from the relevant business units because he did not have any control over other business units.[200]

156 Earlier, when being cross-examined about the meeting of 28 September 1993, Osborne had said that he had a memory of, among other things, 12½% as being 'one of the numbers that we had landed on'.[201] Later, in relation to the meeting of 12 November 1993, Osborne was asked whether he recalled a discussion about two tier remuneration, being a 7% fee for potential savings not implemented and a 12.5% fee for savings implemented. Osborne replied that that was an 'ongoing conversation that we'd had over time'.[202] Then there was the following exchange:

Was it culminating on this occasion? ... That's what we - that's what I think we finished with.

Yes? ... If someone was talking numbers that's what I'd say, 12½ or 7.[203]

In their final submissions the plaintiffs seek to make something of Osborne's use of the expressions 'landed on' and 'finished with'. They also draw attention to the following exchange[204] which occurred at the beginning of the next hearing day:

... Mr Osborne, you gave instructions for the November 1993 draft agreement, didn't you? ... I talked to our lawyers about what I thought was the principles of the agreement that I was building up with Mr Prosilis.

It was the agreement that you'd reached on 12 November 1993, wasn't it? ... I can't remember the exact date, but around that time.

However, these references must not be taken out of context. For example, as to the last mentioned exchange, Osborne immediately went on to repeat that he was not negotiating terms but rather explaining CML's position to Prosilis by reference to the Booth memorandum.[205] Osborne also said, and I accept, that the instructions to the lawyers for the draft agreement were given by himself and Wood in consultation.[206] Having been shown the first post-12 November 1993 draft remuneration agreement (the draft dated 19 November 1993), Osborne identified some things in it that he had had nothing to do with, and said: 'So there was more than one cook, if you put it that way'.[207] Counsel then took Osborne to paragraph 31 of his witness statement in which, as mentioned above, Osborne sought to describe the substance of the discussions he had had with Prosilis in October and November 1993. In particular, counsel took Osborne to the statement in sub-paragraph 31(i): 'At the conclusion of my discussions with Mr Prosilis, Mr Prosilis said words to the effect that what I proposed was acceptable to him'. Then the following exchange took place[208]:

Doesn't that indicate that you and Mr Prosilis had agreed on as you say, the broad principles at least in respect of how the audit implementation agreement was to work? ... I would say we reached preliminary agreement on the broad principles. There was, as I said, more than one cook in this.

I suggest to you that when you were having your discussion with Mr Prosilis at that stage that it wasn't advisory. You were there finalising an agreement with him? ... Um, it depends what date it happened. If it was November, it was advisory because at that time I had handed over to Mr Wood who would need to be the person that signed off because he'd taken over my old job.

But you were the one negotiating with Mr Prosilis at that stage? ... I was communicating with him, what would be acceptable to us.

And I suggest to you that when I took you through on Friday on - being the 12 November discussion, was what you agreed with Mr Prosilis were the broad principles? ... I was explaining the broad principles to him. I had no power to change those principles so I couldn't negotiate.

I accept Osborne's evidence as given in this exchange. Similarly, I accept the subsequent evidence given by Osborne[209] that, although he expected a formal contract to come, he did not think that the contract was to be just a formality.

157 Importantly, throughout his evidence Osborne was clear, unshaken and convincing in relation to the need for identified savings to be agreed in writing. For example, he said: 'That was discussed many times. It was always an underpinning principle of going forward'.[210] Osborne confirmed that this was said both in respect of the 12.5% for implemented savings and the 7% for potential savings: 'They both had to be agreed in writing'.[211] He said he had told Prosilis this well before 12 November 1993 and commented 'How else would you gauge the savings anyway if they weren't agreed in writing?'[212] On the next day of hearing counsel tackled Osborne on this point again.[213] Counsel put to Osborne that Prosilis had said to him that Osborne could rely on Prosilis' skill and expertise and that there was therefore no need for any agreement on identified potential savings. Osborne replied: 'He may have said that. If he had said that, I would never have agreed with it'.[214] It was then put to Osborne that he never envisaged potential savings and only envisaged implemented savings. Osborne replied: 'But savings have always got to be verified before anything happens'.[215] Osborne then explained that there were in-house experts in senior positions in the MGB Advertising Department who could have verified savings claims, including Wall and Waterman. Counsel then put that they were the very people that Prosilis had been critical of in relation to catalogue production and distribution. Osborne replied: 'I think he was critical of everyone'.[216] Counsel then put, again, that Osborne had never envisaged paying for potential savings at 7% because they were all going to be implemented; and Osborne replied that he could not envisage a situation where someone would agree that savings were made and then ignore them.[217] Finally, counsel suggested to Osborne that he had said to Prosilis words to the effect: 'We don't need to agree on potential savings or verify them'. Osborne replied 'I've said that that's ridiculous'.[218] Osborne's evidence on this important point makes complete sense, and I accept it unreservedly.

158 The plaintiffs claim that, between November 1993 and early January 1994, through Prosilis, ACC carried out a full audit of the production and distribution of catalogues by MGB in accordance with the abovementioned 21 Point Plan and Action Plan which had been presented to CML in June 1993.[219] It is not necessary for me to examine this claim in minute detail. Even if it were true, it would not outweigh the numerous other matters which underlie my lack of satisfaction that the parties reached a concluded agreement at the meeting of 12 November 1993 on the terms alleged by the plaintiffs. I refer to the point made by Tamberlin J in Seven Cable Television Pty Ltd v Telstra Corp Ltd[220] that while one or more parties may well have made a very substantial commercial commitment, that does not necessarily indicate that all relevant parties have made a legal commitment.[221]

159 In any event, I am by no means satisfied that ACC did the claimed work in the period in question. I have already made some findings and observations which bear on this. I would add the following at this stage.[222]

160 In his first witness statement Prosilis gives a very detailed description of what he calls the 'audit process'[223]. In re-examination Prosilis was taken through the type of work he allegedly did for the audit in similarly minute detail. However, he did not, either in his witness statements or in the witness box, specify the dates on which he did the work, nor say exactly where he did it, nor what other commitments he had at the time. No diary entries or the like were produced.

161 Annexed to Prosilis' first witness statement is a spreadsheet which allegedly represents a contemporaneously produced summary of the results of the alleged audit. It purports to show that there could have been savings in MGB catalogue production and distribution in excess of $8.6 million.[224] Prosilis said in his witness statement[225] that this figure did not take into account:

• Dispensing with the agency fee entirely.
• The reduced lead time for the production of catalogues and the consequent benefit in reduction of working capital.
• Interest [on] working capital.
• 'Overs'.
• Paper reduction costs.
• Rate reduction for each business as opposed to the further reductions to be obtained through rate reductions for the entire group.
• Volume rate reduction for each individual business.
• Leveraging group volumes including group volume rebate and group volume rate reduction.
• Group paper rebates. Piggy back/secondary/multi rate all group catalogues.

162 There was a major contest at the trial as to whether Prosilis really produced this spreadsheet at or about this time or whether, instead, he produced it much later for his own purposes in seeking to be paid by CML. I will say more about this when I come to the question of Prosilis' general credit. For now it is enough to say that I am not satisfied that the spreadsheet was produced as part of the alleged MGB full audit in 1993-1994.

163 The plaintiffs' senior counsel sought to obtain an admission from Osborne that he had asked Prosilis to do a full audit at or about this time and that he had seen Prosilis doing so. There was an exchange between senior counsel and Osborne as follows:[226]

But you didn't go down that track in the end did you because you asked Mr Prosilis to conduct a full audit ultimately? ... I wouldn't say I asked him to do a full audit.

But that's what happened isn't it? ... That's what happened because he kept trying to increase the scope of what I was particularly interested in.

He wanted to cover (indistinct) production and distribution ... He did yes.

And when he did the preliminary audit he covered production and distribution? ... Looks like that from this.

When he did the full audit later he covered production and distribution is that correct? ... That's what I saw from the result yes that's what he presented.

164 In my view, Osborne was here referring mainly to what Prosilis had presented to him. Osborne appeared to have no independent recollection of having actually seen Prosilis do any work in the nature of a full production and distribution audit.

165 Poulos purports to corroborate Prosilis' claims about the audit. In his witness statement Poulos claims that from 29 October 1993 until the end of 1993 he saw Prosilis do a lot of work on the alleged MGB full audit. He says:

I estimate from my observation that he appeared to be spending 90 percent of his time on the MGB audit. I saw him calculating and making examinations from documents. I saw him conducting meetings, some of which I took part in, with suppliers such as Diamond Press, Hanan (sic) Print and Ian McPherson, to discuss and negotiate prices for catalogue production if CML could be brought in as a customer.

However, as I have already mentioned, the evidence indicates clearly, and it was conceded by senior counsel for the plaintiffs during his opening, that Prosilis did not contact any MGB production suppliers for audit purposes after the conclusion of the 'preliminary audit' on or about 10 September 1993.[227] Whatever Poulos may have said previously, the plaintiffs' case - now - is, I think, that Prosilis did all of the work by reference to information already available to him.

166 As mentioned above, the plaintiffs claim that ACC was the possessor of highly valuable expertise and knowledge and that ACC represented a 'unique opportunity' for CML and MGB. If that be correct, then ACC was in a strong bargaining position, as CML must have been aware. As mentioned above, the plaintiffs themselves led evidence that both Prosilis and Werry had previously informed CML that ACC would require a signed, written remuneration agreement for the purposes of the proposed audit. Why would ACC have risked its position by actually carrying out the audit before obtaining such an agreement? If ACC really did have something of great value to offer, I do not think it would have risked it in this way.

167 On 15 November 1993 Wall wrote to Prosilis at ACC (with copies for McKay and Waterman) in the following terms:

Dear Ovid

SUBJECT: CATALOGUE SAVINGS

This note serves to confirm the next step in terms of ACC's involvement in generating savings for Myer Grace Bros. This process has been ratified by Myer Grace Bros' senior management.

Before we move forward and you make contact with our suppliers, I need to be convinced that the identified savings are real. To this end, I would like to arrange a meeting for w/c 22 November at which time you will outline in detail how you arrived at the savings, ie comparative rates charged to other companies, then this needs to be provided. Client names are not necessary. Furthermore, I would like you to provide an insight into how the savings will be generated, ie installation of new technology, improvement in Myer Grace Bros' internal efficiencies, eradicating supply inefficiency.

Jolanta will organise a time in your diary for the presentation. If you have any queries please don't hesitate to call.

168 The plaintiffs submit that this letter indicates that agreement had been reached and the next step was simply procedural. I disagree. It is equally consistent with no definite agreement having been reached for the engagement of ACC. Of course, it says nothing about any remuneration terms.

169 Contrary to what turns out to be a relatively insignificant aspect of paragraph 31 of Osborne's witness statement,[228] the letter does indicate that the parties contemplated ACC being involved in issues relating to catalogue production, as distinct from or as well as distribution, in the immediate future. However the letter also tends to show that Prosilis had done no more work in relation to catalogue production since his presentation of the 'preliminary audit' on 10 September 1993. It seems clear that Wall, at least, needed to be convinced that the savings then identified by ACC were real. This in turn is more consistent with CML/MGB wishing to test ACC than with the current existence of a binding contractual relationship between them.

Draft remuneration agreement of 19 November 1993 and Werry's comments of 3 December 1993

170 On 19 November 1993 Booth faxed to ACC (attention Prosilis) a draft remuneration agreement, without comment. There was considerable debate at the hearing about the proper interpretation of this draft and subsequent drafts. It would lengthen these reasons unduly to set out the terms of the various drafts in full. However it should be noted that in each draft the author dealt separately with, among other things, the $4,000,000 threshold, the 12½% fee for implemented savings and the 7% fee for non-implemented savings. Clause 1 of the 19 November draft spells out that ACC was only to be involved in implementation of those recommendations identified by ACC during the audit which CML 'authorises ACC in writing to implement'.[229] It is also spelled out in clause 2(b) of the draft that ACC would only have an entitlement to provide audit services in relation to businesses other than MGB if it identified savings in excess of $4,000,000 in MGB and 'the Customer [defined as CML] accepts and agrees that the likely reductions or savings in the Catalogue Rates [as defined] of [MGB] attributable to those recommendations identified by ACC which the Customer wishes to adopt during the Post Audit Period [as defined] will exceed $4,000,000' or 'the Customer agrees in writing with ACC'. It would be a very strange thing if, despite the need for CML's acceptance and agreement to the nature and value of proposed savings for the purposes of the threshold, CML was to have no say as to the validity of proposed savings for the purposes of ACC's remuneration. With that in mind, I turn to clause 3 of the draft which is headed 'Remuneration of ACC'. The plaintiffs fasten on the wording of clause 3.1 which is headed 'Remuneration where ACC recommendations are adopted'. Clause 3.1 reads:

The Customer must pay ACC a fee equivalent to 12.5 percent of the reduction or savings in Catalogue Rates achieved by each business in respect of each Component [defined to cover 'creative', 'production', 'distribution and '(agency) fees'] throughout the Post Audit Period in comparison with the Catalogue Rates for the relevant services and/or products from Service Providers [as defined] throughout the Pre-Audit Period [as defined] as a result of the provision by ACC of the Audit Services in respect of those initiatives adopted by the Customer.

The plaintiffs point out that there is no reference in this clause to agreement by CML, much less agreement in writing. On the other hand, it is strongly arguable that the requirement for prior agreement on the part of the Customer, even in relation to savings measures that are actually implemented, is implied in the document as a whole. That argument is particularly strengthened by the language of clause 3.3 which is headed 'Payment of Remuneration'. The first sentence of sub-clause 3.3(a) reads (my emphasis):

The fees payable to ACC under clause 3.1 and 3.2 will be paid by monthly instalments equivalent to 1-12th of the projected reduction or savings in catalogue rates (as agreed by the Customer) during the Post Audit Period.

This sentence contains an obvious error which, to his credit, Mr Werry of Werry Altobelli ('Werry') picked up and pointed out when he saw it. The expression 'equivalent to' is wrong because it would have the effect that by the end of the 12 month period the fee to ACC would equate to the entire amount of the annual saving, as distinct from 12½% or 7 % thereof as the case may be. Putting that aside, the parenthetical expression 'as agreed by the Customer' supports strongly the proposition that CML's agreement was to be required in respect of all proposed savings, including savings from implemented recommendations covered by clause 3.1. In any event, the situation is even clearer in the draft in relation to unimplemented recommendations. Clause 3.2 reads:

(a) The Customer must pay ACC a fee of equivalent to 7% of the potential reduction or savings in catalogue rates attributable to those initiatives identified by ACC as a result of conducting the audit which the Customer advises ACC it does not propose to adopt during the Post Audit Period.

(b) The amount of the potential reduction or savings referred to in clause 3.2(a) is the estimated amount of the potential reduction or savings attributable to the initiatives referred to in that clause throughout the Post Audit Period in comparison with the catalogue rates for the relevant services and/or products from Service Providers throughout the pre audit period, as agreed in writing by the Customer. (My emphasis).

The plaintiffs argued that the expression 'as agreed in writing by the Customer' in clause 3.2(b) and also the expression 'as agreed by the Customer' in clause 3.3(a) referred to agreement as to the quantum of the 'Catalogue Rates', not agreement as to the nature, acceptability or likely quantum of the savings from the suggested measure. But that submission must fail. 'Catalogue Rates' is defined in the draft as follows:

"Catalogue Rates" means, in respect of each Business, the rates obtained by the Business from Service Providers for services and/or products in connection with its catalogue operations.

The plaintiffs would equate 'Catalogue Rates' with the much discussed concept of 'benchmarks' and they point out that it is acknowledged on all sides that there was a need for agreement as to benchmarks. That may be so, but the benchmarks are only part of the calculation of (past or future) savings. Reading the 19 November draft as a whole, it is clear that the expressions 'as agreed in writing by the Customer' and 'as agreed by the Customer' are meant to apply to the savings, not just the benchmarks. Otherwise, one would expect to see a similar phrase inserted in each place where the expression 'Catalogue Rates' appears including, in particular, in clause 3.1 (see above) and in clause 2(b) referred to above. No such expression appears in those places.

171 Werry wrote to CML's company solicitor on 3 December 1993 commenting on the 19 November draft.[230] There is no suggestion that Werry wrote this letter without instructions. In the letter, Werry seeks certain amendments to the draft. As to the clause relating to the $4,000,00 threshold, Werry requests that a proviso be added as follows:

... PROVIDED THAT the Customer will not withhold its acceptance and agreement in respect of the likely reductions or savings in such catalogue rates unless there is manifest error in ACC's calculations and in any case the Customer will not withhold its acceptance and agreement in respect of those reductions unreasonably.

Our client is concerned that as the Clause has been drafted the Customer could withhold its agreement to the likely reductions capriciously.

Correspondingly, Werry requests an expansion of the parenthetical expression 'as agreed by the Customer' in clause 3.3(a) of the draft (which deals with payment of remuneration) so as to read:

(as agreed by the Customer which agreement shall not be withheld unreasonably).

Werry sought no corresponding amendment to clause 3.2 (which contains the expression 'as agreed in writing by the Customer'). This may have been just an oversight. In any event, Werry plainly understood the reference to acceptance and agreement in the clause relating to the $4,000,000 threshold to be a reference to acceptance and agreement in respect of 'the likely reductions', and not just in respect of benchmarks. And, as I have mentioned, it would not be sensible or logical to read the remuneration clauses differently.

172 Moreover, Prosilis claims that on 12 November 1993 Osborne agreed that ACC would be entitled to nominate potential savings without any scope for challenge by CML or MGB, even on the ground of unreasonableness. If that had been true, Werry would surely have demanded that it be reflected in the document. At best, there might have been some suggestion in reply by CML/MGB to the effect that a provision should be included to prevent ACC (as distinct from CML/MGB) from acting unreasonably. None of this happened, then or ever.

173 Indeed, it is noteworthy that neither in this letter nor in any subsequent letter does Werry say or imply that a complete agreement of any kind has already been reached between the parties. Rather, Werry's correspondence clearly proceeds on the basis that the parties are still in negotiations. For example, the letter of 3 December 1993 raises the question whether ACC's fees would be paid in advance or in arrears and Werry says that ACC had 'anticipated' that its fee would be paid in full at the commencement of the post audit period. Werry goes on to say that, as the work 'to be performed'[231] by ACC is 'now' being divided into components, it is apparent that the fees due to ACC 'will now be' broken down into parts and paid relative to ACC's performance in respect of each component. Werry proceeds to say that this should make it easier for CML 'to accept the proposal' that ACC's fees be paid in advance; and he comments that, according to his client, payment in advance had been agreed to by Osborne 'during initial discussions'.

174 There is one other important feature of the Werry Altobelli letter of 3 December 1993. It requests the insertion of the following provision:

The Customer shall notify ACC in writing of the initiatives which it agrees to adopt within fourteen (14) days of completion of the Audit, failing which the Customer shall be deemed to have advised ACC that it does not propose to adopt such initiative.

It will be recalled that Prosilis said in his witness statement that he and Osborne had agreed at the meeting of 12 November 1993 that the responsibility for implementation should lie with CML and that CML would be obliged to write to ACC within 28 days from the day on which ACC presented the savings to advise which suggested changes in the catalogue production process CML would ask ACC to implement; and that in the event that CML did not respond to ACC in writing within 28 days it would be taken that CML wanted to implement (through ACC) all the changes suggested by ACC. The 19 November draft contained no such default clause. Rather, it contained a provision (clause 2(d)) to the effect that ACC was only required to provide services in the nature of implementation or negotiation with a third party in relation to recommendations which CML authorised ACC in writing to implement or adopt, and the clause went on to provide that:

The Customer has complete discretion as to whether or not to adopt any initiative identified by ACC.

Werry's letter does not say that the draft should already have included a default clause, much less a 28 day default clause. He himself comes up with a suggestion for a 14 day default clause. His approach is inconsistent with a prior agreement to a 28 day default provision. Further, Werry's letter also suggests that, in the absence of written notification the default position will be that CML is deemed to have advised that it does not propose to adopt the relevant initiatives, whereas, of course, Prosilis said the opposite was agreed with Osborne on 12 November 1993.

175 Cross-examined about this and other like instances, Prosilis could say only that Werry kept making mistakes or misunderstood his instructions or had an unduly timid style. However the plaintiffs failed to call Werry; and gave no explanation. The defendant submits that a Jones v Dunkel[232] inference can be drawn against the plaintiffs in this regard, and the plaintiffs made no submission to the contrary. I would indeed infer that Werry's evidence would not have helped the plaintiffs' case and I have taken that inference into account in drawing inferences of fact, which I consider to be open on the evidence which has been given, in relation to matters about which Werry could have spoken, such as whether Prosilis himself received or was aware of the Wood memorandum of 28 February 1994 which is referred to below and why ACC did not object to provisions in the draft agreements which the plaintiffs now say were inconsistent with the agreement allegedly made on 12 November 1993.

26 November 1993: fax from Prosilis to Wall re breakdown of savings

176 On Friday 26 November 1993, in apparent response to a request made by Wall at a meeting foreshadowed in Wall's abovementioned letter of 15 November 1993, Prosilis sent a fax on ACC letterhead to Wall in the following terms:

I am providing you with the breakdown of where the savings are to be realised as per our meeting this week.

Thank you for the invoices you sent me this week. I have received them and have commenced my analysis.

I need to commence my negotiations with suppliers w/c Mon 29/11. Please phone me on the matter of "green" for "go".

What Prosilis enclosed with this fax as constituting 'the breakdown of where the savings are to be realised' was nothing more than the old familiar 'Executive Overview' and 'Projected Cost Savings' documents, which (still) suggested a grand total of $14,850,000 in savings. These are the same documents as those to which I referred above in commenting that I was not satisfied with Poulos' evidence that a corresponding presentation had been made to Wall and others at the so-called 'benchmarks meeting' of 29 October 1993.

177 In this fax of 26 November 1993 Prosilis also referred to invoices sent to him by Wall earlier in the week, and said that he had commenced his 'analysis' of them. Prosilis refers to this fax and these invoices in his first witness statement, without otherwise identifying the invoices or indicating how many there were.[233] There is no other clear and acceptable evidence about them. In any event, any 'analysis' of the invoices had made no impact on Prosilis' 'findings' to that stage, because they had not led to a single change to the 'Executive Overview' and 'Projected Cost Savings' documents that were attached to the fax.

178 The plaintiffs' case is that a large scale audit was required. A 6 month audit period had been sought by ACC. This was to be followed by the presentation of findings and then by 'implementation'. Implementation would involve, mainly, negotiating with third party suppliers. It is at least odd, then, that on this Friday (26 November 1993) Prosilis, having apparently done little or nothing by way of audit to that stage,[234] was calling for the green light to contact suppliers the very next week.

15 December 1993: memorandum from Booth to Wood and Dyson concerning draft remuneration agreement

179 On 15 December 1993 Booth sent an internal memorandum to Wood (with a copy to Dyson) in preparation for a meeting to be held that afternoon. The memorandum related to the draft remuneration agreement of 19 November 1993 and Werry's comments on it. Attached was a draft response to Werry together with observations in square brackets which were apparently intended, in the first instance at least, to be circulated internally only. However, as will appear shortly, the entire document was later (on 3 February 1994) sent by Wood to Prosilis.

180 Once again, this document indicates that, as far as Booth was aware, negotiations were ongoing and no concluded agreement had yet been arrived at. For example, the document discusses the pros and cons of including a provision to the effect that CML would not unreasonably withhold its agreement to savings calculations made by ACC for the purposes of the $4,000,000 threshold. Similarly, Werry's proposal for a 14 day default notice period was considered in a way fully consistent it with being a new proposal. Likewise, the memorandum indicates that the question whether remuneration should be paid in advance or not was treated as debatable and not the subject of any existing mutually agreed position.

181 On 22 December 1993 Wall wrote to Prosilis (at ACC) with copies to McKay, Hampson, Osborne, Wood and another MGB employee.[235] The letter indicates that, so far as MGB was concerned, ACC had made little or no progress in the previous month. The relevant part of the letter reads:

Confirming yesterday's telephone conversation, senior management require a written proposal from you detailing both at a macro and micro level, how you intend to make the estimated savings. Once this is supplied they will be in a better position to make a decision. I should add that management may require you to make a presentation. I shall advise if this is the case.

Specifically, under each of the four identified areas (production, film separations, printing and distribution).

• The basis on which you arrived at the figures.

• The method by which you believe savings will be achieved.

As we discussed, our Summer 93 (August-January) base programme would certainly have changed since your original audit. I attach a copy of our most up to date program which you may wish to use as the basis for confirming your figures.

182 On the same day, 22 December 1993, Prosilis sent a fax on ACC letterhead to Hampson who had by this stage assumed a greater role in the matter.[236] On the cover sheet, Prosilis said:

Following is the Executive Summary you requested.

Each component in the process requires a detailed presentation in itself, and is thus impossible to contain within the confines of six pages.

Enclosed with the fax was a six page document entitled 'Executive Overview for Myer/Grace Bros Catalogue program'. This was really little more than a combined version of the two documents to which I have referred many times, namely the Executive Overview document and the Projected Cost Savings document. Once again, it commences with the statement that MGB has the opportunity to save 'between 10 and 15 million dollars in the production of their catalogue program'. The document sets out under the heading 'Findings' brief statements and figures that are strikingly similar to the statements and figures in the earlier two documents. This time the grand total (of savings) is stated to be $11,650,000. This figure differs from the previous figure of $14,850,000 by an amount of $3,200,000. That amount in turn is accounted for by the omission of a claim in respect of the agency fee ($700,000) and the omission of the claim for $2.5 million for reduction of working capital. Otherwise the figures are exactly the same. There is a slightly expanded comment under the heading 'Involvement of Corporation to leverage business volume'. It is at a very high level of generality. On the first page of the new 'Executive Overview', under the heading 'Background', ACC says, among other things, that '[t]he basic premise of the proposal is simple'. This is followed by a familiar treatment of recent technological changes. Then the following sentence appears:

ACC was invited by Mr Peter Wilkinson and Mr Neil Osborne to conduct an audit of the Myer Grace Bros expenditure on catalogues. All of the above issues are relevant to Myer Grace Bros.

This appears to be a reference to what the plaintiffs now call the 'preliminary audit'. There is no suggestion in this document that ACC had carried out two separate 'audit' exercises. Further, the reference to Wilkinson tends to confirm that ACC was speaking of the so-called preliminary audit, because there is no evidence that Wilkinson had any direct communication with ACC after June 1993. This impression is further entrenched by the material set out under the next heading, 'Methodology'. It is there stated that:

The Audit sought to establish expenditure patterns over a twelve month period. ... Please note that the objective of the exercise was to work with aggregate figures in order to establish trends and windows of opportunity.

The Myer Grace Bros programme is a moving target. The number of catalogues to be produced is constantly under review as are the formats to be used and the number of pages to be included.

ACC was provided with Summer '93 and Winter '93 sales and production plans.

In this period there was 65 catalogues scheduled for a total of 1,620 pages and a total print quantity of 150,500,000 catalogues. This formed the basis for analysing the quality and quantity of expenditure.

It will be noted that this section is expressed in the past tense and refers to one audit only. It refers to aggregate figures. It refers to the Summer '93 and Winter '93 sales and production plans. There is no reference to Wall having provided Prosilis on that very same day (22 December 1993) with MGB's 'most up to date programme' which Wall had suggested Prosilis may wish to use as the basis for confirming his figures.[237] Despite the use in this December 1993 document of the past tense in relation to the audit, I note that in their outline of final submissions the plaintiffs suggest that the audit was completed in 'early January 1994'. By contrast, Poulos acknowledged that it was likely that the 'audit' had finished by the time the (new) Executive Summary was sent out (22 December 1993), although he said he couldn't recall.[238]

183 Prosilis acknowledged that, in terms of figures, the 'findings' in this new Executive Summary were almost identical to the preliminary audit findings of 10 September 1993.[239]

14 January 1994: presentation to Osborne and Hampson

184 Prosilis and Poulos claim that on 14 January 1994 Prosilis gave a presentation to Hampson and Osborne of the results of the so-called audit. In his witness statement, Prosilis does not refer to Poulos being present, but Poulos himself claims to have been there. Prosilis says in his witness statement that his presentation included an overhead display and consisted of the following:

(a) The (new) 'Executive Overview' which Prosilis had sent to Hampson on 22 December 1993.[240]

(b) Numerous documents that had been extracted from the preliminary audit presentation given to Osborne on 10 September 1993.

(c) An art work folder containing 'mock ups' of art work produced by ACC of the example of the MGB Father's Day catalogue.

(d) Transparencies of the Father's Day catalogue which Prosilis had 'received during the course of the audit from Mattingly and which I re-designed showing the output on the dye-sublimation printer'.[241]

(e) Three lever arch folders containing all the working documents and source documents that had been provided to Prosilis by MGB since the first day of the preliminary audit to the end of December 1993, and the abovementioned spreadsheet.[242]

185 In Poulos' witness statement there is no reference to the controversial spreadsheet. However, when Poulos was called to give evidence in chief he was specifically asked by the plaintiffs' counsel a series of questions which elicited evidence from Poulos that he had been aware of Prosilis putting together the spreadsheet and that it had been 'presented' at the meeting of 14 January 1994. Counsel's questions had begun in an objectionably leading way. In any event, I was completely unimpressed by the evidence of Poulos on this matter. As the defendant points out,[243] in Poulos' witness statement he describes other documents as having been presented at this meeting, including the three lever arch folders, but makes no mention of the spreadsheet which, according to Prosilis, was included in the three lever arch folders. In cross-examination, Poulos could not explain why he had not referred to this in his witness statement.[244] Further, it became apparent during cross-examination that Poulos was not familiar with the detail of the audit which Prosilis claims to have conducted and that Poulos had frequently seen Prosilis work on various spreadsheets.[245] These matters cast doubt on the accuracy of Poulos' evidence that it was the particular spreadsheet at CB 846 that Prosilis relied upon at the meeting of 14 January 1994. I do not accept Poulos' evidence in this respect.

186 It will be noted that, apart from the controversial spreadsheet, there is little or nothing in the documents said to have been presented on 14 January 1994 to indicate that Prosilis had done anything more by way of auditing than he had done in August/September 1993. It will be recalled that the example of the Father's Day catalogue is the same example that was used in September 1993. In his witness statement Prosilis states as follows:[246]

1. During the process of showing the folders to Mr Hampson and Mr Osborne I started to go into more detail in relation to the process. Mr Osborne said to me words to the effect of:

"Look Ovid we don't need to look at all of this detail. This is the work that we've asked you to do. We just want you to present us the Executive Overview of what the potential savings are".

1. Mr Hampson then said to me words to the effect:

"Ovid look, as you know I'm only very recently appointed in my position here in MGB. Neil has had carriage of this before my appointment. I am however very eager to be able to move this project along".

1. Mr Osborne and Mr Hampson had a brief private discussion, Mr Hampson then turned to me and said words to the effect:

"Ovid we accept the savings. We agree that there appears to be an enormous amount of money for us to be able to save MGB. We want to commence implementation immediately. How can we immediately implement the savings that you are proposing. Where do you think we should start?"

"We can commence with the letter box distribution immediately".

"Okay. I agree that we can start with one component and try and get results immediately. You will need to arrange a meeting with Mr McKay and Mr Wall".

Prosilis then speaks about being given authority to deal directly with MGB's distribution services suppliers. There is a debate between the parties as to whether this amounted to 'implementation' of Prosilis' recommendations, or was rather in the nature of a test of ACC itself. I prefer the latter characterisation.

187 I do not accept the evidence of Prosilis and Poulos to the effect that Hampson said anything to the effect that he and Osborne accepted ACC's presentation and the so-called savings. Once again, there are many reasons for my non-acceptance of this evidence. It is not consistent with the previous letters from Wall to Prosilis seeking detail and proof. It is not consistent with the fact that, as the plaintiffs themselves acknowledge, the focus switched immediately to distribution rather than production, whereas the new 'Executive Overview' was mainly concerned with alleged savings in production rather than distribution. Further, Hampson had only recently come into the matter. It is not likely that he would have made a definitive statement of the kind suggested.

188 I accept the evidence of Osborne and Hampson about this matter. Osborne rejected any suggestion that any agreement was reached at the meeting on 14 January 1994 that the so-called audit correctly identified savings of or in excess of $11.65 million. He also rejected the suggestion that it was agreed that ACC should commence implementing the proposals contained in the so-called audit with respect to letter box distribution.[247] I note that there were precious few proposals relating to letter box distribution in the Executive Overview. I accept Osborne's evidence that he told Prosilis that it was still necessary for ACC to prove that savings actually existed, and that ACC should focus on the issue of overs and do so by conducting a tender process.[248] Likewise, Hampson rejected the suggestion that he had accepted the so-called savings that Prosilis had presented; and he denied that he had asked Prosilis to commence implementation immediately. Rather, Hampson said, and I accept, that he would not have made such effusive statements immediately.[249] I accept that Hampson told Prosilis to focus only on distribution of catalogues as a test case to prove that savings could be made as a general proposition before he could move on to other aspects.[250] I note that Prosilis himself refers to a 'test catalogue' in the relevant paragraph of his witness statement.[251]

189 As the defendant submits,[252] Osborne was clear in the witness box that he would not have said that MGB accepted the savings presented, because at the time of this meeting they had not verified what Prosilis had allegedly audited.[253] Osborne said, and I accept, that verification involved not only an analysis of the dollar figures of identified potential savings to be made, but also the verification of service levels and whether there was any competence in the area[254]. In addition, Osborne said, and I accept, that he would not have said at the meeting that implementation could go ahead immediately, because the potential savings could only be identified when CML and ACC had agreed the benchmarks, and as at that time actual dollar benchmarks were still not agreed.[255]

190 Further, I accept that it was Hampson's idea, not Prosilis' idea, to try to verify whether there were any savings by starting with letter box distribution.[256]

191 On 18 January 1994 Prosilis wrote to Hampson on ACC letterhead.[257] He referred to the meeting of 14 January 1994, noting that it was attended by Osborne, Hampson and himself, with no reference to Poulos. Prosilis said that he wished to outline the 'salient points as agreed'. Five points were then set out. Not one of them is to the effect that Hampson or Osborne had agreed with savings presented at the meeting. Indeed there is no reference to the so-called audit or to production savings at all. Moreover, consistently with the defendant's position, but inconsistently with the plaintiffs' position, the letter confirms that the agreed process would require starting with the letter box distribution component of the catalogue program 'and treating the successful completion of this specific task as the prerequisite for moving on to other aspects of catalogue production'. In the letter Prosilis concentrated on his having been given or promised authority to approach third party suppliers of distribution services on behalf of MGB. It is perhaps not surprising that Prosilis was keen to confirm his authority in this respect, given what is now known about the depth of his connections to ADN at that time.[258] In any event, since Prosilis was very prone to write self-serving letters, the omission from this letter of any suggestion that savings had been agreed is very damaging to the contrary claim now made by the plaintiffs.

19 January 1994: repeat presentation to McKay and Wall

192 Prosilis claims that on 19 January 1994 he attended a further meeting at MGB and that McKay, Wall and Hampson were present with him.[259] He says that he essentially repeated the presentation he had given on 14 January to Hampson and Osborne for the benefit of McKay and Wall. I refer to my above findings about that matter. Prosilis then says that those present discussed 'the points raised in my letter of 18 January 1994'.[260] That is the letter to which I have just referred, being a letter which says nothing about the so-called audit or about savings on production. Prosilis then says that the people present discussed points which were later referred to in a letter dated 19 January 1994 which Prosilis wrote to Hampson following the meeting that morning. Once again, there is nothing in the letter of 19 January 1994 to support the plaintiffs' allegations about acceptance of savings. Indeed, notwithstanding that it is alleged in the statement of claim that at the meeting on 19 January 1994 'Hampson confirmed the matters agreed on 14 January 1994', that allegation is not expressly made anywhere in Prosilis' witness statement or in any other evidence. For the reasons I have already given, I do not accept that Hampson issued any such confirmation at the meeting on 19 January 1994.

February 1994: authorisation of ACC to organise distribution tender

193 It is common ground that a tender process was conducted during February 1994 in relation to the distribution of MGB's winter and summer catalogue program for 1994, with the assistance of ACC.[261] Tenders were received from Salmat on 17 February 1994 and from Progress Press and ADN on 18 February 1994. Part of the tender process included an analysis of each company's distribution data in order to determine whether overs existed. To assist in the tender process MGB engaged Centar. Centar had previously assisted MGB in relation to 'value segment analysis', being the application of demographic techniques to attain more precise targeting of potential customers. Hampson was particularly concerned with ensuring reliability of delivery, since catalogue distribution was an important part of MGB's advertising strategy.[262] Progress Press (which was MGB's current letter box distributor) had generally been a reliable delivery company.[263]

194 As the defendant submits,[264] MGB was also concerned to ensure that its catalogues were of high quality.[265] Therefore, even though the lowest tender price was submitted by ADN, MGB was not prepared to give ADN the work, let alone a substantial percentage of the work, without a trial[266].

7 February 1994: letter from Werry to CML concerning remuneration agreement

195 As mentioned above, it seems that on or about 3 February 1994 Wood faxed to Prosilis a copy of the draft letter dated 15 December 1993 which contained observations about Werry's comments on the 19 November 1993 draft of the remuneration agreement. Prosilis must have referred this to Werry shortly thereafter, because on 7 February 1994 Werry wrote to CML (Attention Helen Dyson) responding to the (draft) letter of 15 December 1993.[267] Once again, Werry's letter appears to assume that all matters are still up for negotiation. Further, the letter is quite inconsistent with any suggestion that CML or MGB had already accepted a post-audit presentation of savings. Otherwise, Werry would not have been discussing the drafting of the $4,000,000 threshold clause as he did in this letter.

196 In relation to clause 3.3(a) of the 19 November draft remuneration agreement, Werry says this in the letter:

We note your comments as to your desire that no restrictions be placed on Coles Myer's ability to choose whether or not to implement recommendations of ACC. Our only concern is whether the words in brackets, namely: "(as agreed by the Customer)", are meant to give Coles Myer the right to determine whether or not in fact ACC has identified savings in catalogue rates, or whether the words are merely intended to preserve to Coles Myer the right to choose whether or not it will adopt initiatives identified by ACC.

The same query arises in respect of the words "as agreed in writing by the Customer" at the end of clause 3.2(b).

We would appreciate receiving your clarification in respect of the meaning of these words.

We would also appreciate it if you could inform us as to whether Coles Myer is prepared to pay ACC's fee in full at the commencement of the Post Audit Period. (Emphasis in original).

Tellingly, having raised the question of the intended meaning of the phrases 'as agreed by the Customer' and 'as agreed in writing by the Customer', Werry expressly contemplates that the phrases may be intended to give CML the right to determine whether or not in fact ACC has identified savings in catalogue rates, not merely to give CML the right to choose whether or not it will adopt initiatives identified by ACC. Werry does not contend that the former interpretation would be unacceptable or contrary to a prior agreement between the parties. In his third witness statement Prosilis asserts that the question raised by Werry in this regard was irrelevant because the words 'as agreed by the Customer' related to the rates or benchmarks which had to be agreed.[268] I have already explained why I do not agree with that assertion, which was also put forward by counsel on behalf of the plaintiffs. In his (third) witness statement, Prosilis gave no other explanation for the tenor of Werry's letter of 7 February 1994.

16 February 1994: meeting between Werry, Wood, Osborne and Booth

197 In his third witness statement Prosilis says that he and Werry came to Melbourne for a conference on 16 February 1994 with Wood, Osborne and Booth at CML's office in Tooronga with a view to finalising the remuneration agreement.[269] He says that the meeting dealt with the 19 November 1993 draft and the relevant correspondence, including the letter from Werry of 7 February 1994. Werry made some handwritten notes on a copy of that letter during or after that conference.[270] Prosilis says:

26. The notes of Werry make no reference to the need for there to be agreement or agreement in writing or verification by CML of potential savings. There was further discussion in relation to the threshold $4,000,000 clause 2b(i)(B) and Mr Werry's notes refer to that.

27. At the end of that meeting all was agreed.

198 Understandably, in the absence of Werry, the defendant objects to most of that passage of Prosilis' third witness statement. However, as indicated above, I need not rule on that or any other evidentiary objection. The fact is that Werry's notes do not assist the plaintiffs. Quite the opposite. Among other things, they tend to confirm that the parties were still in negotiation. They include a note as follows:

Andrew Booth to redraft to say Coles has a discretion whether or not to reject savings, but not the question as to whether ACC has demonstrated $4,000,000. (Emphasis in the original).

There then follows what appears to be a draft of a provision to give effect to this point, namely 'Unless Robert Hampson and Neil Osborne determine that savings are not available'. Beneath that the following note appears:

Ovid is prepared to accept that Robert and Neil will be the arbiters as to whether ACC has identified $4m savings.

It is true that these notes are placed opposite a reference to clause 2(b)(i)(B) of the 19 November 1993 draft remuneration agreement, which related only to the $4,000,000 threshold. However, for the reasons I have given earlier, it is not to be supposed that CML was intended to have a discretion to reject savings for this purpose but not for remuneration purposes, at least in respect of unimplemented savings.

199 With respect to the question of notification of a decision to implement, Werry's note reads:

28 days is agreed, or such longer period as parties may determine.

The plain inference is that a new arrangement to this effect was made for the first time at the meeting. In any event, the inclusion of the expression 'or such longer period as parties may determine' is certainly not reflective of anything said by Prosilis in respect of his discussions with Osborne on 12 November 1993.

200 In relation to clause 3.1 (which relates to remuneration) Werry's note reads:

If it become apparent that a saving can't be implemented then instead of paying 12.5%, Coles to pay nil. This applies under current wording - because 12.5% of zero equals zero.

If Coles authorises implementation, but then for strategic reasons decides to cancel, Ovid gets 12.5% of savings he could have achieved.

Next, in relation to clause 3.3 (payment of remuneration) Werry's note reads:

Neil has agreed to pay quarterly in advance. But Jon Woods [sic] insists on monthly in arrears.

These notes do not reveal any express answer to the queries contained in Werry's letter of 7 February 1994 about the meaning of 'as agreed by the Customer' and 'as agreed in writing by the Customer'. However, the note relating to the situation where a saving 'can't' be implemented (in which situation CML is to pay nil) is more consistent with the defendant's position than with the plaintiffs.

201 The reference to a 12.5% fee for measures implemented and then cancelled is new. That is to say, it was not in the 19 November 1993 draft.

202 In any event, for Prosilis to say, as he does in para 27 of his third witness statement, that at the end of the meeting of 16 February 1994 'all was agreed' is surely to say that, until then, all was not agreed. This is a direct contradiction of the plaintiffs' own case.

21 February 1994: revised draft remuneration agreement

203 On 21 February 1994 Booth sent Werry a fax, copied to Wood, attaching a revised draft of the remuneration agreement.[271] In the fax Booth said that the draft was 'marked up to show the changes we most recently agreed upon' and he said that he had sent a copy to Wood 'for his approval'.

204 There is no reference to this draft in any of the multiple versions of the statement of claim. Nor was it referred to in Prosilis' original lengthy witness statement. Indeed the only draft referred to in the statement of claim or in Prosilis' first witness statement is the draft of 27 April 1994, to which I will come. Nevertheless, the plaintiffs now say that the draft of 21 February 1994 is fully consistent with, or at least is the closest of the drafts to, the agreement allegedly concluded between Prosilis and Osborne on 12 November 1993. Given the findings I have made and will make about the relevant course of events, I regard the plaintiffs' submission in this respect as merely opportunistic. In any event, there are aspects of even the 21 February draft that do not match the case now advanced by the plaintiffs. Without listing them all, I mention the following.

205 In the recitals (in common with the recitals in every draft) it is stated that the Customer has 'requested' ACC to provide an audit and that ACC 'expects to' identify areas for savings. That is hardly consistent with the audit work having already been done and reported on by this stage, as the plaintiffs now say was the position. There is a new defined term: 'Prevailing Catalogue Rates'. The definition of it includes a requirement for agreement between the Customer and ACC about existing catalogue rates, and it requires that the agreement be recorded in or substantially in the form contained in annexure A to the draft agreement. It also requires that all this be done prior to the commencement of the audit services in respect of the relevant component. Needless to say, no such things have ever been done. The requirement for acceptance and agreement by the Customer in respect of 'the likely reductions or savings' is retained in clause 2(b)(i)(B), with, in my view, the consequences to which I have referred.

206 Consistently with Werry's notes, in the 21 February draft the expression 'Customer' in clause 2(b)(i)(B) is defined to mean 'Neil Osborne and Robert Hampson or such other persons as shall hold the offices within Coles Myer Ltd as held by them as at the date of this agreement'. Of course, Robert Hampson was not even on the scene as at 12 November 1993.

207 There is a new clause 2(e) which, in accordance with Werry's notes, provides for the Customer to notify ACC in writing of the initiatives which it agrees to adopt 'within 28 days (or such longer period as the parties may agree) of receiving from ACC the written recommendations and initiatives identified by it following its conduct of the audit of the relevant component, ... '. Clause 2(e) continues: '...failing which the Customer shall be deemed to advise ACC that it does not propose to adopt such initiative' (my emphasis). This default position is consistent with Werry's proposal in his letter of 3 December 1993. However, Prosilis now claims that Werry made a mistake on 3 December 1993 in this regard, and that the inclusion of the word not in the draft of 21 February 1994 was also a mistake. He says that the opposite was agreed with Osborne on 12 November 1993. He points out that the not was removed in later drafts. Nevertheless, I regard Prosilis' contention that there had always been an agreement with Osborne about a 28 day notification period with a positive default position as far fetched and unacceptable.

208 The 21 February draft also includes revised versions of paragraphs (a) and (b) of clause 3.2, which relates to the entitlement to remuneration where ACC's recommendations are not adopted. The revised draft paragraphs are as follows:

(a) The Customer must pay ACC a fee equivalent to 7% of the potential reduction or savings in Catalogue Costs which may reasonably have been expected to result from the reduction in Catalogue Rates attributable to those initiatives identified by ACC as a result of conducting the Audit which the Customer advises ACC it does not propose to adopt during the Post Audit Period.

(b) The amount of the potential reduction or savings referred to in Clause 3.2(a) is the estimated amount of the potential reduction or savings in Catalogue Costs which are reasonably attributable to the initiatives referred to in that clause throughout the Post Audit Period in comparison with the Catalogue Costs which would have been incurred at the Prevailing Catalogue Rates.

209 It is true that the expression 'as agreed in writing by the Customer', which formerly appeared in clause 3.2(b), was not included in any part of clause 3.2 of the February draft. However, the expression 'which may reasonably have been expected to result from the reduction' was inserted in clause 3.2(a). As a result of this and other changes, clause 3.2 of the February draft is extremely difficult to interpret. However, the insertion of the word 'reasonably' in clause 3.2(a) at least renders unacceptable any suggestion that, under this draft, CML was to be bound by ACC's unilateral declaration as to the potential savings. And, as I have mentioned above, the plaintiffs had not sought to further amend their statement of claim so as to allege this very different kind of agreement.

210 One other feature of this 21 February draft (and of all the drafts to a greater or lesser extent) is that it envisages that ACC will provide audit services to a 'Business' separately in respect of each of the four specified components of that Business' catalogue operations, namely creative, production, distribution and agency fees. Of course, the plaintiffs do not suggest that they provided audit services separately in respect of those components. They say that ACC's alleged full audit covered both production and distribution and that the results were presented as a whole on 14 January 1994. I have already indicated my views about the plaintiffs' claims in that regard.

28 February 1994: Wood memorandum concerning draft remuneration agreement

211 On 28 February 1994 Wood sent a memorandum to Booth. According to the memorandum itself, it was to be copied to Prosilis, Osborne, Hampson and Werry. Opposite the name 'Graeme Werry" was the correct fax number for Werry. However, notwithstanding that Werry remained ACC's solicitor at this time, Prosilis claims that he never saw or received the Wood memorandum.[272] He claims that:

It introduces terms that were never agreed by me. It back tracks on the agreement.[273]

212 I do not accept Prosilis' evidence in this regard. Wood's memorandum led to a further redraft of the remuneration agreement by Booth who, on 24 March 1994, faxed that redraft to Prosilis personally under cover of a fax sheet which Prosilis admittedly received, and which said:

I attach a draft remuneration agreement, which has been rewritten in accordance with the memo from Jon Wood dated 28 February 1994.[274]

213 Wood's memorandum of 28 February 1994 stated that Wood had received Booth's 21 February draft and that that draft did not lend itself to a patch up job and may need to be rewritten. In the memorandum, Wood asked Prosilis to comment if Prosilis did not agree. As the defendant submits,[275] the Wood memorandum was inconsistent in a number of critical respects with the version of the agreement contended for by the plaintiffs in this proceeding. For example, as Prosilis accepted, the memorandum made it perfectly clear that CML was to have involvement in the process of determining potential savings and benchmarks[276], and that this process was to include a review of the potential savings and benchmarks provided by ACC by two designated executives of CML, as a result of which they would propose benchmarks and potential savings which were acceptable to the business units.[277]

214 As the defendant further submits,[278] the 28 February 1994 memorandum was indicative of Wood's view at the time that Booth's redraft of 21 February 1994 did not reflect the contemplated agreement. Wood gave evidence, which I accept, that as the commercial content of the draft agreement was discussed, it was clear to Wood that the draft was not working, and he made that clear to the others involved.[279]

March 1994: distribution services tender process

215 On 10 March 1994 ACC and Centar delivered their reports regarding the tenders received from the letter box distributors to Hampson, Wall and Osborne.[280] As the defendant notes,[281] ACC's report claimed that a saving of $714,851 could be made if MGB engaged ADN to conduct all of MGB's letter box distribution rather than Progress Press, and that savings could be made from reducing the overs currently produced in order to meet Progress Press's distribution requirements. Progress Press's level of overs was said by Centar to be around 6.7%, based on results for one Melbourne suburb (Oakleigh).

216 Contrary to the plaintiffs' case, I accept Osborne's evidence that he did not ever agree that savings had been identified or could be realised by using ADN as a new letter box distributor.[282] In the witness box Osborne gave evidence, which I accept, rejecting the suggestion that he had said at the time that the results of the tender were staggering and shocking, and that he accepted the savings identified by Prosilis. Osborne pointed out that he was not an expert in this area.[283]

217 Likewise, in evidence which I accept, Hampson rejected the suggestion that he had told Prosilis at the time that the results of the tender were staggering and shocking, and that CML was going to address the issue of overs immediately and that CML would request ADN to do a test catalogue for MGB, and that if ADN was successful with the trial test, CML would give ADN its distribution work. Hampson said, and I accept, that he would not have made such statements because they would have been totally unlike his business conversations; and that at that stage his impression was that there remained significant argument between Progress Press, Centar and Prosilis over technical aspects of the distribution process.[284] I also accept Hampson's evidence that he did not recall Osborne telling Prosilis that Osborne accepted the savings Prosilis had identified.[285]

218 As the defendant points out[286] both Osborne and Wood said that it was appropriate, even desirable, for letter box distribution companies to produce a certain percentage of overs, so that there would be some surplus catalogues which could be utilised to replace spoiled or defective catalogues, or if delivery points changed, or for use in stores. They considered that an appropriate percentage of overs was between about 1% and 2%.[287]

219 During March 1994 CML's internal auditor, Dennis Timewell, reviewed ACC's savings calculations in its report following the tender process.[288] Timewell did not fully agree with ACC's calculations.

24 March 1994: further revised draft remuneration agreement

220 As mentioned above, on 24 March 1994 Booth sent a fax to Prosilis, copied to Werry, attaching a further draft of the remuneration agreement.[289] It is common ground that both Prosilis and Werry received this material. And, as I have already said, the fax stated that the draft had been rewritten in accordance with Wood's memorandum of 28 February 1994. Like the 28 February 1994 memorandum, this draft was quite inconsistent with the agreement now sought to be relied upon by the plaintiffs. In paragraphs 29 and 30 of his third witness statement, Prosilis himself points out several of the stark inconsistencies between the March 1994 draft and what he now claims was agreed on 12 November 1993. Although Prosilis now refers to all of this as the 'Wood back track'[290] it is highly significant, in my view, that neither Prosilis nor Werry expressed any adverse reaction about the Wood memorandum or the March 1994 draft at the time. Prosilis admits that there was no objection at the time.[291] No explanation for this was given in Prosilis' third witness statement. He gave a purported explanation in the witness box, to which I will return when dealing with Prosilis' credit generally.

221 The March 1994 draft made provision for a date in 1994 - not 1993 - to be inserted as the date of the agreement. The draft expressly acknowledged that an aggregate sum of $40,000 (comprising 4 payments of $10,000) had by then been paid to ACC as an advance. Otherwise there was no reference to anyone having already taken steps contemplated by the draft agreement.

April 1994: Osborne's non-acceptance of the tender process results

222 In evidence which I accept,[292] Osborne said that in April 1994 he told Prosilis that he would not accept the results of the tender process without a trial to determine whether ADN would be capable of fulfilling MGB's letter box distribution requirements.

20 April 1994: fax from Werry to Booth concerning remuneration agreement

223 On 20 April 1994 Werry sent a fax to Booth, copied to Wood, requesting certain amendments to the draft remuneration agreement of 24 March 1994.[293] As the defendant points out,[294] Werry's fax acknowledged that potential savings required the concurrence of the designated executives of the relevant CML subsidiary and, as Prosilis admitted in the witness box,[295] the fax did not take issue with the various abovementioned differences between the draft of 24 March 1994 and the version of the agreement now said by the plaintiffs to have been agreed on 12 November 1993.

27 April 1994: further revised draft of remuneration agreement

224 On 27 April 1994 Booth sent a fax to Wood, copied to Werry and Prosilis, attaching a further revised draft of the remuneration agreement.[296] Once again, provision was made in this draft for inserting a 1994 date of agreement. And, again, reference was made to past payments of the monthly advance (by then amounting to $50,000 in total), but there is no reference to any other relevant past conduct. Moreover, as the defendant points out,[297] this draft agreement provided, amongst other things, that:

(1) both 'Benchmarks' and 'Potential Savings' were to be agreed by the parties under clause 4.4;

(2) prior to the commencement of the audit, the Designated Executives (Osborne and Hampson for MGB) were to review the potential savings and benchmarks identified by ACC and advise ACC in writing of the benchmarks and potential savings acceptable to MGB[298]; and

(3) the parties would seek to agree on the benchmarks and potential savings identified by the Designated Executives under clause 4.3.[299]

Both 'Benchmarks' and 'Potential Savings' were relevant for the determination of remuneration.[300]

225 As the defendant further points out,[301] this 27 April 1994 draft of the agreement is the draft referred to in (amongst other places):

(1) the contract of assignment of 20 December 1995[302] (which Prosilis himself prepared);

(2) the plaintiffs' original statement of claim which was filed in May 2001;[303]

(3) The plaintiffs' further and better particulars of 31 October 2001;[304]

(4) the plaintiffs' further amended statement of claim which was filed in 2005;[305]

(6) Prosilis' first witness statement of 31 July 2009[307]; and

226 So, as the defendant emphasises, for almost 16 years, until March 2010, the plaintiffs contended that the draft of 27 April 1994 embodied the terms of the agreement upon which they relied.[309] The first occasion that Prosilis took issue with the 27 April 1994 draft was on 23 March 2010, when Prosilis provided his third witness statement.[310]

May 1994: further communications about draft remuneration agreement

227 On 10 May 1994 Wood received a fax from Prosilis claiming that CML had breached an agreement between CML and ACC.[311] The 10 May 1994 letter also asked for a signed counterpart of the 27 April 1994 draft remuneration agreement.[312]

228 On 20 May 1994 Wood sent a fax to Prosilis, copied to Wilkinson and Osborne, attaching yet another revised draft remuneration agreement.[313] Wood's fax stated that he had been unsuccessful in being able to provide ACC with unfettered access to CML's other business units, and that he would therefore be handing responsibility for this contract directly to Osborne, as the contract would now be between ACC and MGB. Wood did not then and has never since acknowledged or agreed that there was a breach of any agreement between CML and ACC.[314]

229 It may be accepted that Prosilis was unhappy that any agreement was now to be between ACC and MGB only. It may even be accepted that, as Prosilis claims,[315] Prosilis protested to Osborne that it had been envisaged that the agreement would be broader and, even, that Osborne did not disagree with that. However, I accept Osborne's evidence [316] that he did tell Prosilis, at or around this time, as he had told him throughout their dealings,[317] that Osborne could not speak or make decisions on behalf of CML, but only on MGB's behalf. In any event, in my view, for the reasons I have already given, CML was perfectly free as a matter of law to withdraw from the scene, because it had not made any binding agreement with ACC that precluded it from doing so.

230 As the defendant points out,[318] no remuneration agreement was ever signed. I accept the defendant's submission that no agreement was ever signed because final agreement as to terms was never reached.[319] Prosilis agreed that no execution copies of the 27 April 1994 draft were ever prepared,[320] and that there was never a concluded document that was agreed between the parties.[321]

June 1994: correspondence from ADN; discussions between Prosilis and Wood

231 On 6 June 1994 Osborne received a copy of a letter from the managing director of the Victorian Division of ADN[322]. As the defendant points out,[323] the letter stated that the Victorian Division was resigning from the group and also contained allegations about various representations said to have been made by Prosilis to ADN about being awarded MGB's business.

232 Contrary to the allegations in paragraph 270 of Prosilis' first witness statement, I accept the evidence of Wood that Wood did not agree on 7 June 1994 or any other time that ACC had completed the whole of the audit component of the alleged audit and implementation agreement in respect of MGB; or that ACC had completed the implementation component in respect of MGB letter box distribution except for the assessment of overs; or that the remaining components of the alleged agreement for MGB and the other subsidiaries would be postponed until the completion of the audit by Centar.[324]

233 Prosilis further claims[325] that he said to Wood that he proposed to invoice CML and MGB for the work done to date and that Wood replied that he should delay sending invoices until after the Centar audit had been completed. I accept Wood's evidence that he does not recall ever saying that Prosilis should delay sending invoices, and that he does not believe that he ever did so, because it was his view that not only was there no finalised agreement, there would be no obligation for MGB or CML to pay anything to ACC in respect of savings in any event unless and until MGB or CML had agreed in writing that ACC had identified actual savings.[326]

234 Contrary to Prosilis' evidence,[327] I accept Wood's evidence that he never agreed with Prosilis that ACC was entitled to audit any business unit of CML other than MGB.[328]

235 On 22 June 1994 Prosilis sent a letter to Osborne defending himself and ACC in relation to the matters referred to in the letter from ADN of 6 June 1994.[329]

236 In June 1994 Centar presented a further report on its analysis of catalogue distribution numbers.

237 On 28 July 1994 Prosilis sent Osborne a letter in which he stated that, without waiving ACC's rights under the original remuneration agreement with CML, he wanted to come to a mutually agreeable figure that represented an acceptable calculation of the fees he could charge MGB.[330] Prosilis suggested a fee payable of $448,860, less the $60,000 already advanced, ie $388,860.

238 On or about 30 July 1994 Osborne telephoned Prosilis to discuss the contents of his letter, particularly the claim for remuneration. Osborne says, and I accept, that he told Prosilis that Prosilis was not entitled to any money since MGB had not agreed in writing that realised savings existed.[331]

August 1994: further communications about overs

239 On 19 August 1994 Progress Press wrote to Hampson stating that there was a level of only 1.2% overs, compared to a level of 5.9% which was, at that time, being claimed by Centar.[332]

240 It is common ground that there continued to be discussions and correspondence between Progress Press, Centar and MGB over this period regarding discrepancies in Progress Press's distribution counts, in an attempt to ascertain whether or not Progress Press had an unacceptable level of overs.

September 1994: Centar's final analysis and Prosilis' proposal to set up a letter box distribution company

241 On or about 26 September 1994 Centar presented its final analysis.[333]

242 In September 1994 Prosilis approached Wood with a proposal worked up by Mr McMenamin (as a financial advisor to Prosilis) for a direct financial investment by CML in a letter box distribution operation to be conducted by a company controlled by Prosilis that could compete with the two incumbent letter box distributors, Progress Press and Salmat.[334]

243 On 29 September 1994, Prosilis attended a meeting with McMenamin and Wood[335]. Prosilis handed Wood a letter dated 29 September 1994, which had reference to rates and overs.[336] McMenamin presented his proposal for investment by CML in Prosilis' proposed letter box distribution company.[337] McMenamin said in the witness box (but, as the defendant points out,[338] not his witness statement) that Mr Simon Pownall of Centar was present for part of the 29 September 1994 meeting, and that Pownall gave a presentation which lasted for 20 to 30 minutes, after which time Pownall left the meeting.[339] However, neither Prosilis nor Wood suggest that Pownall was at this meeting. As the defendant submits, it seems clear that McMenamin's recollection was incorrect.

October 1994: meetings between Prosilis and Wood: the alleged letterbox distribution agreement

244 Prosilis claims[340] that on 6 October 1994 he, Pownall and Wood met at the Target head office in Geelong, probably in the morning. Also present, he says, were Mr Barry Coade, Advertising Manager, and Mr Gary Lever, Marketing Manager, of Target. Prosilis says that, in substance, he presented the results of the February 1994 tender process for Salmat. Prosilis claims it was a short meeting and that Mr Coade asked them to leave. Prosilis says that, outside in the car park, Wood said to him words to the effect:

Coles Myer is morally and ethically obliged to pay ACC if these savings are identified.

Wood was asked about this claim in the witness box. His answer was:

If savings were identified, I have no doubt I would have said that.[341]

In context, it is clear that Wood was here referring to ACC's involvement in relation to the particular question of overs, as distinct from the broader alleged audit and implementation agreement. He was certainly not resiling from his evidence that, as far as he was aware, no concluded agreement in the nature of the alleged audit and implementation agreement was ever reached. Indeed, the very reference to 'morally and ethically', as distinct from 'legally' tends to confirm this.

245 Next, Prosilis claims that he had a further meeting with Wood on that same day, 6 October 1994. He says that McMenamin was with him and was the only other person present. He does not say where the meeting took place. This was the meeting at which the alleged letter box distribution agreement, as pleaded in the statement of claim, was allegedly made. The pleaded terms of the alleged agreement are set out towards the beginning of these reasons. By comparison to the amount of material put forward by Prosilis in relation to the alleged audit and implementation agreement, relatively little is said about the alleged letter box distribution agreement. In any event I should set out in full the account of the meeting as given by Prosilis in paragraphs 291-294 of his witness statement:

291. On 6 October 1994 Mr McMenamin and myself met with Mr Wood again. At the beginning of the meeting I said to Mr Wood words to the effect:

"I want to invoice the work that I have already done for the audit and implementation agreement".

"I want you to hold off invoicing, Centar have finished their audit and presented to us and I am satisfied there are "overs". I am conducting my own personal analysis of the CCD's and I have been given a disk and I am reviewing them myself. I want to appoint our corporate auditors Price Waterhouse to review the Centar audit to ensure the figures are correct. I want Price Waterhouse to tick off on Simon's work[342] because we are going to look at Court proceedings against Progress Press. It looks like it's been going on for years. I want them to reimburse us. If I have to go to court I want to go with one of the big seven, it will add credibility to the reports".

I then asked Mr Wood how long this would take and he said words to the effect:

"Price Waterhouse will audit the letter box figures from December 94 until April 95 and it will take about 6 months. The report should be available in April 1995. I want you to wait until May 1995 before invoicing Coles Myer because if it gets dirty with News Ltd I need a report from one of the big seven to make it stick".

"Progress Press have agreed to quarantine 5% of every invoice so that we can re-coup some of the money immediately. When the audit is completed by Price Waterhouse and presented you will be present at that presentation".

"I don't like Salmat. I think they have been lying to me. I don't like Progress Press".

I then asked Mr Wood whether he has an answer to the investment proposal.

Mr Wood said words to the effect:

"I have discussed the proposal with Mr Bartels. Rather than take an equity position in your company, we propose you become a direct supplier to Coles Myer and we provide you with 50% of the catalogue business with Coles Myer on terms similar to the ADN tender for a five year period. It is within my power to give you 50% of the Coles Myer work. I can give you 50% of the work because I control that work. I will arrange appointments for you with the businesses. I want you to approach the businesses of Coles Myer yourself and I will direct 50% of their contribution work [sic, scil distribution work] to you".

"I have been buying media centrally for all the businesses and so I can organise the work for you from all the businesses".

"The letter box distribution would be to CCD level, we can get Simon Pownall to provide the delivery numbers and any CCD analysis and this has the benefit of being someone independent".

The rate which was to apply was raised and Mr Wood said words to the effect of:

"The rate to be charged would be based on the tender responses and the Australian Distribution Network rates as the bench-mark will apply".

"This will fix the problem of "overs" because there will be a real competitor for five years".

"This is dependent on the audit of the Centar report by Price Waterhouse. I want to engage our auditors Price Waterhouse with the assistance of Centar to do an audit of the Centar Report of its work in June to September to confirm the existence of the substantial "overs" and if they confirm that, you've got the business".

"About six months, there is a lot to do. The Price Waterhouse audit will be available by May 1995. When the report is released we will call a meeting and you will be invited".

I said words to the effect that I would form a company and begin work on creating a competitor in the letter box distribution market.

292. Mr Wood said:

"Peter Bartels has a more democratic management style. He wants you to quote for the work as a normal commercial process and we will direct 50% of the business to your company".

293. At the end of the meeting Mr McMenamin and I shook hands with Mr Wood acknowledging agreement. After the meeting I said to Mr McMenamin:

"It does not matter that we do not have the capital because we now have the means to raise the capital".

294. Mr McMenamin and I had dinner to celebrate our success.

246 Once again, the plaintiffs invite me to accept that Prosilis has been able to recall and record, at least in substance, all that was said on each side at this meeting and the order in which it was said. On this occasion, there is not a single contemporaneous document or note to assist Prosilis to recall what was said at this meeting.

247 McMenamin purports to give a corroborating account of the meeting, again without the benefit of a single contemporaneous note or record. McMenamin's account is set out in paragraphs 18 to 24 of his witness statement, as follows:

18. In or about early October 1994, Mr Prosilis asked me to attend a further meeting with Mr Wood in Tooronga at which the outcome of Mr Bartels' consideration of our proposal was to be discussed.

19. On 6 October 1994, I took another flight to Melbourne with Mr Prosilis where we again met with Mr Wood. This meeting was held in Mr Wood's office in Tooronga. Mr Wood was seated behind his desk and Mr Prosilis and I were seated opposite. Mr Wood said words to the effect that: "Mr Bartels has considered your proposal and while he too was very excited by the costs savings opportunity, he was not in favour of a direct investment by Coles Myer into our supply chain". He said words to the effect that: "The direct investment suggested in your proposal is not going to have legs, but an indirect investment was possible by engaging you to carry out a substantial portion of our letter box distribution work". He went on to say that in Mr Bartels' view the level of financial involvement is inappropriate but that Coles Myer was prepared to contract this work to you. He said words to the effect that: "Whilst your proposal envisaged that Coles Myer would initially contract 100% of their catalogue distribution to your company to ensure realisation of these savings, Mr Bartels felt that this was too radical and that a reassignment of 50% of the letter box distribution work would produce the desired competitive result". Mr Wood then told us that he was authorised to offer us 50% of the work.

20. Mr Prosilis then said words to the effect: "Okay, that's great but if we are to implement this, you would need to give us some assured continuity as it would be no use to give us just one or two contracts". Mr Prosilis said further we would need a reasonable opportunity to deliver the designed results and that the work would have to continue for a substantial period of time to enable us to raise capital for the company based upon projected earnings. Mr Wood responded to this by saying words to the effect that the Coles Myer Group "had previously let printing contracts for five years for much the same reasons and that the contract would be for a five year period".

21. Mr Prosilis then confirmed in words to the effect: "To ensure the realisation of savings, printing and letter box distribution quantities would be objectively and independently provided from census data compiled by Centar Demographic Marketing". He further stated that in all other respects the terms and conditions of the contract would be consistent with the tender specifications issued by Coles Myer with his assistance in or about February 1994 and the submission by ADN in response to that tender. Mr Wood agreed and stated words to the effect that "This would be essential".

1. Mr Wood then told us that the engagement of Mr Prosilis' company would need to be delayed until about April or May 1995 to enable a corroborating audit of the Centar Demographic Marketing reports. Mr Wood stated words to the effect that: "It is necessary to conduct that audit under status quo circumstances and for the audit to be conducted by a high profile audit firm such as Price Waterhouse, who are the auditors for Coles Myer". Mr Wood stated words to the effect that: "The purpose of the audit was not to challenge the findings of Centar, which had been accepted by Coles Myer, but to corroborate the findings, as litigation between Coles Myer and both Progress Press and Salmat was highly likely". Mr Wood stated words to the effect that: "Coles Myer would engage the auditor and the audit would be conducted with the involvement and the assistance of Mr Simon Pownall of Centar Demographic Marketing".
2. After this meeting, Mr Prosilis and I were quite ecstatic. Mr Prosilis said to me words to the effect: "If we have the work, what does it matter that we do not yet have the capital, as we now have the means to raise the capital". We then went out to a restaurant to celebrate a successful conclusion of the deal. I had achieved what I had been engaged by Mr Prosilis to do even though it was not exactly in line with the initial proposal.

24. Wining [sic, scil Winning] such a contract is a significant achievement and was a highlight of my career at the time. It is not something that you easily forget.

248 The defendant disputes the accuracy of both Prosilis' account and McMenamin's account. The defendant relies on the contradictory evidence of Wood, together with the alleged unreliability of Prosilis and McMenamin and a number of other matters.

249 In his evidence, Wood accepts that he had a meeting with Prosilis and McMenamin on or about 6 October 1994 during which Prosilis told him that Prosilis intended to set up a national letter box distribution company. It is common ground that Wood told Prosilis that CML would always welcome additional players in the letter box distribution market, and that Prosilis was welcome to tender for catalogue distribution work for CML's various business units.[343] Wood says, and I accept, that he also told Prosilis that Prosilis could not continue any form of auditing for CML or any of its subsidiaries if he were to set up a company that was to compete against those companies that he purported to audit.[344] Wood says that Prosilis said he agreed with this. Prosilis claims that Wood did not raise this point,[345] but I prefer Woods' evidence to Prosilis' evidence in this respect.

250 As the defendant submits,[346] Wood steadfastly rejected the proposition that any of the terms of the alleged letter box distribution agreement were, or could have been, agreed at the meeting on 6 October 1994. Wood flatly rejected the suggestion that there was any agreement negotiated or entered into at that time.[347] For example, Wood did not understand how he could have said that he wanted Prosilis to approach the businesses of Coles Myer himself, with Wood then directing 50% of their distribution work to Prosilis. Wood accepted that he would have said that Prosilis could talk to the businesses and work with them on tenders.[348] However, without detail as to what components of what business Prosilis was tendering for, Wood said (and I accept) that it would have been impossible for him to even consider entering into a commercial agreement of the nature contended for by the plaintiffs, without documentation and without any input from the businesses.[349] Wood continued - and I accept - that, in any event, he did not have the authority to make any such agreement. He said, and I accept: 'The budgets were set by and controlled by the businesses. My job was to work with them to get the best out of the group, not to dictate terms to them'.[350]

251 A little later in the course of his evidence, Wood said - and I accept - that he could not have agreed at the meeting that the rate to be charged would be in accordance with the tender responses and that the ADN rates as the benchmark would apply. Wood very plausibly explained that there were good reasons for this, including that the catalogue distribution requirements of MGB would be quite different from the catalogue distribution requirements of Kmart, Target or Coles. The catalogue sizes would be different. The number of CCD's covered would be different. There could be no blanket rate. He gave the example of Myer Direct being a very targeted distribution whereas supermarkets were very broad.

252 In addition, Wood gave evidence, which I accept, that it would have been impossible for him to take 50% of CML's letter box distribution business and give it to an untried supplier.[351] I accept Wood's evidence that he knew very little about ADN except that it was a loose affiliation and that Prosilis had made a presentation about them. Most convincingly, Wood then gave evidence that he would have been completely out on a limb if, in those circumstances, he had risked 50% of CML's catalogue marketing budget on what would have been a whim, with no formal agreement, no discussion about rates, no discussion about quality and no discussions with the individual businesses. Correspondingly, I note that during the entire period in question MGB was not prepared to make use of ADN except on a very limited trial basis in relation to a single catalogue in November 1994.

253 Contrary to the evidence of Prosilis and McMenamin, Wood further said, and I accept, that the possibility of actual litigation with Progress Press and Salmat was not in the air at the time so far as Wood was concerned.[352]

254 In their final submissions the plaintiffs seek to discount the evidence of Wood insofar as he denied that an agreement in the nature of the alleged letter box distribution agreement had been made. The plaintiffs submit that the agreement came about in the context of overs being a burning issue, not only for MGB but for Wood. They rely on the Centar report of September 1994[353] and in particular on a particular part of the Executive Summary thereof relating to potential savings on overs. I note it is there stated that MGB 'should' be able to save 'up to' 10% in print and distribution costs '(2.5 Mill)' and that 'CML should be able to save same - closer to 20 Mill'. This language itself was vague. Moreover, it was acknowledged in the very next part of the Centar report, under 'Other issues'[354] that none of the distributors had willingly supplied data during the February tender; that the Salmat data was problematic; and that the data from Progress Press was incorrect, had been changed, was difficult to access and involved altered definitions. The very fact that, on the plaintiffs' own case, Wood and CML wished to have Price Waterhouse analyse the Centar report hardly suggests that Wood was convinced by it. The plaintiffs point out that Wood said that he wanted to get to the bottom of the overs situation[355] and that Wood accepted during his evidence that Pownall of Centar quite possibly went through his report with Wood on 26 or 27 September 1994.[356] That overs was a burning issue is demonstrated - the plaintiffs say - by evidence given by Wood to the effect that if it could have been established that Progress Press's figures had been incorrect to such an extent that CML was owed money by Progress Press for past years, then 'you couldn't have stopped me getting it off them' and 'I would request we got free catalogues for three or four years, to pay for the past payments'.[357] However, Wood immediately went on to say that he did not have any available information that would have enabled him to take such measures.[358] I accept Wood's evidence in this regard.

255 The defendant submits that the alleged letter box distribution agreement was 'straightforward and simple',[359] but the evidence of Wood to which I referred above demonstrates the very opposite. Prosilis himself says (and the plaintiffs plead) that the agreement was subject to an audit by Price Waterhouse 'proving that there were indeed substantial overs'.[360] What would constitute 'substantial' overs in this context? This 'straightforward and simple' condition was apparently not perceived at all by McMenamin, whose evidence was to the effect that the engagement of Prosilis' proposed letter box distribution company was absolute. According to him, commencement of the work was to be delayed until after the receipt of the Price Waterhouse report but the engagement was not conditional on the outcome of that report at all.

256 The plaintiffs then invite me to reject Wood's evidence to the effect that he did not have the capacity to make the letter box distribution agreement and that any such agreement would have to be taken to the individual business units and ratified by them. The plaintiffs say that this proposition is inconsistent with the previous investment proposal having been taken to the CEO, Mr Bartels, between 29 September 1994 and 6 October 1994. But there is no inconsistency. Mr Bartels might well have been merely the 'first stop'. Indeed, Prosilis himself records Wood as having said to him at this very meeting that 'Peter Bartels has a more democratic management style'.[361]

257 Next the plaintiffs submit that Wood's assertion of lack of authority is inconsistent with his evidence that he would have demanded three to four years' free distributions if significant past overs had been established. The plaintiffs point out that any such free distributions would have been for the subsidiaries, not for CML itself. However, it could hardly be expected that any of the subsidiaries would have any objection to being provided with across the board benefits as a result of action by their parent company. However, the imposing on them of a requirement to use a new distributor with which they were not familiar would be something quite different.

258 Then the plaintiffs submit, without giving a transcript reference, that the evidence of Mr Hampson was that if the CEO (Bartels) directed a subsidiary to do something that would be done. They call this the 'Top Down point'. Having scoured the transcript of Hampson's evidence, I assume that the plaintiffs are referring to the passage[362] where senior counsel took Hampson to the 22 December 1993 Executive Overview document which included a recommendation to involve CML as a whole to leverage savings. Counsel asked Hampson whether this had been mentioned by Prosilis at the presentation on 14 January 1994 and Hampson said he could not remember this. Hampson then commented that CML's subsidiaries were run as separate organisations and that the leveraging suggestion was well outside his area of control or interest. Then the following exchange took place:

Whose area of interest would that have been? ... Um, it would have had to have been - in those days the Group was run as separate independent autonomous divisions. Target (indistinct) did its own business, Kmart, Myer. So it would have needed in those days someone like - if we have been successful in Myer, Mr Bartels.

Yes. ... Taking it up the tree and then back down and saying to Target, you will you know, follow similar steps to what Myer was but it was - there was - each division just operated so autonomously they may have been totally separate companies. So it would have needed Bartels as Chief Executive of the company to take it on.

Hampson was not saying in this passage that Bartels was in the habit of directing, or was likely to direct, a subsidiary to do something in the nature of taking on a completely untried catalogue distributor. Quite the opposite. In that regard, I would refer again to Prosilis' own evidence as to Woods' comment about Bartels' democratic management style. The CML companies were entitled to operate in the way they did and to limit the ordinary authority of someone like Wood. I see no basis, in the matters relied upon by the plaintiffs to which I have so far referred, for holding that CML would not have limited Wood's authority in the way he described.

259 Next, the plaintiffs submit that I should not accept Wood's evidence about the limitation of his authority because, on a completely separate topic, he was 'talking off the top of his head'.[363] The plaintiffs submit that Wood was 'patently wrong' to suggest that Simon Pownall had been associated with ADN and that, for that reason, Price Waterhouse was to verify Pownall's work in relation to ADN. The plaintiffs submit that Wood's evidence in that respect[364] was not credible. There is no merit in this submission. Whether or not Pownall was actually associated with ADN is not the point. I do not accept that Wood was talking off the top of his head when he said in evidence that he 'saw Simon as associated with ADN'. He was tackled about this by counsel and explained that the reason for his understanding was that he believed that Pownall had been introduced to CML by Prosilis.[365] Counsel suggested to Wood that Pownall had been working with MGB for some time on value segmentation. Wood replied that he was not aware of what MGB and Pownall had done in that regard, and that all the meetings he had had with Pownall involved Prosilis also. If Wood was mistaken, his mistake was understandable. He was not talking 'off the top of his head'.

260 Next the plaintiffs rely on McMenamin's evidence[366] to the effect that Wood had said at the meeting of 6 October 1994 that Bartels had said to him previously that CML was ready, willing and able to engage the services of ADN as coordinated by Prosilis. This evidence of McMenamin was tantamount to an assertion that Wood had been told by Bartels to give a contract to Prosilis on the spot. But, as I have indicated, Wood's evidence was quite inconsistent with this. Wood's evidence accords with the inherent probabilities. McMenamin's does not. I do not accept McMenamin's evidence in this regard. It follows that I reject the plaintiffs' submission that Wood's 'suggestion of lack of capacity and authority is simply a smokescreen'.[367]

261 Next the plaintiffs submit that the letter box distribution agreement as alleged by Prosilis makes sense in the context of the burning issue of overs and the desire to get rid of them by the introduction of a competitor in the industry. In my view, even in that context, the alleged agreement does not make sense.

262 The plaintiffs say that the proposition that Prosilis represented a new and untried business was only partly true given the extent of Prosilis' unique knowledge, experience and ability to mould the ADN network or set up his own.[368] I do not accept that Prosilis had 'unique' knowledge, experience and ability. Further, there was obvious disharmony in the ADN network at or about this time. It seems to be common ground that it did not thereafter survive for very long, at least in its then form.

263 Finally, in this regard, the plaintiffs submit that the making of the alleged letter box distribution agreement should be seen as reflecting a strategic decision from the top (ie, from Bartels) with a view to breaking the Progress Press and Salmat duopoly. As I have mentioned, Wood acknowledged that further competition in the distribution industry would be welcomed. That does not mean, however, that it is reasonable to accept that the alleged letter box distribution agreement was in fact made.

264 Prosilis accepted that there was no contemporaneous note or memorandum of this alleged oral agreement nor any heads of agreement nor any correspondence between lawyers recording the essence of the agreement.[369] Similarly, as the defendant points out,[370] although McMenamin claimed that the letter box distribution agreement was a serious commercial transaction, he did not recall writing anything down about it and he did not believe that any documents recording the agreement were created at the time.[371]

265 Moreover, as the defendant also points out,[372] Prosilis conceded that the very first time he referred, in writing to CML, to the existence of the letter box distribution agreement was when he filed the writ in this proceeding in the year 2000;[373] and when asked why he had not earlier raised it in correspondence to CML, Prosilis' explanation was that he had 'given up letter writing' by then.[374] That explanation is clearly incorrect. Prosilis wrote many letters in which one would expect to see a reference to this agreement if it existed. For example, he wrote a letter to the then chairman of CML, Nobby Clark, on 4 March 1996 containing numerous complaints.[375] Prosilis claimed in evidence that he did not mention the matter in this letter because he 'thought it was all lost'.[376] The defendant gives the further example of a letter written by Prosilis to Wood dated 1 April 1996. [377] Again, Prosilis makes numerous complaints. In evidence Prosilis said that he did not bring up the alleged letter box distribution agreement in this letter because he was 'dealing with a different topic'.[378] He said that this letter to Wood was all about overs. It is true that that was the main theme. However the plaintiffs have said over and again in this case that the matter of overs was inextricably linked to the letter box distribution agreement. Wood, of course, was the very person who allegedly made the letter box distribution agreement with Prosilis. Those examples are more than sufficient to make the point. However I should also refer to the terms of Prosilis' second letter to Nobby Clark, which is dated 1 April 1996.[379] Once again, Prosilis raises a broad range of complaints. Among other things, he asserts that Wood had committed 'grave errors in judgment'. His description of one of those alleged errors is as follows:

Informs ACC to come back as direct supplier to Coles Myer rather than as consultant and suggests ACC will be awarded contracts against "News Ltd" monopolies.

That appears to be a reference to the meeting of 6 October 1994. It appears to amounts to an admission by Prosilis that at the meeting, Wood did no more than indicate that ACC might in the future obtain distribution contracts (note the plural). This would be consistent with Wood's recollection of the meeting but directly inconsistent with the plaintiffs' claim that an agreement in the nature of the alleged letter box distribution agreement was made on 6 October 1994. However, the specific part of the latter of 1 April 1996 to which I refer was not put to Prosilis for comment at the hearing. In these circumstances, I do not take that part into account as an admission or otherwise.

266 As mentioned above, McMenamin's account of the terms of the letter box distribution agreement is inconsistent with Prosilis' account, in that McMenamin asserted that the letter box distribution agreement was not subject to any conditions nor limited by any other arrangement except a timing issue.[380]

267 Even on the plaintiffs' own case, the claim for the letter box distribution agreement is internally inconsistent and utterly implausible. Why would the company which was to be the beneficiary of the contract be required to tender for the work with the subsidiaries of CML if it had been guaranteed 50% of that work by CML already? Asked this question in the witness box, Prosilis gave an explanation not previously suggested. He said that the agreement was 'hush hush'.[381] Prosilis was not clear as to the persons from whom knowledge of the existence of the agreement was to be kept. But, initially at least, he indicated that those persons were to include the relevant personnel at the subsidiaries. In effect, then, he was positing that Wood (of his own initiative) had decided to engineer a farcical process which would involve, among other things, a high risk of embarrassment of the decision making personnel at the subsidiaries should they make and communicate a decision on an application by Prosilis for distribution work that was inconsistent with the pre-ordained 50% arrangement. When this was pointed out to Prosilis, he could offer no sensible rationale or explanation.[382]

268 Further, in relation to the letter box distribution agreement claim overall, I agree with the following submission of the defendant:[383]

Critically, and stepping back from the evidence of the three relevant witnesses in considering the matter objectively, it is completely implausible that the parties, and in particular Coles Myer, would have intended to make a concluded oral bargain at that meeting in relation to all of the extremely significant matters which are said to be the subject of the letter box distribution agreement, when (among other things): (1) catalogue distribution was such an important part of MGB's and the other subsidiaries' business strategy; (2) the agreement could have committed Coles Myer to potential payments of many hundreds of thousands, or millions, of dollars; (3) one of the parties to the agreement had not yet been incorporated; and (4) the agreement was premised on the use of ADN, which was untested, and was in fact undergoing a trial (in relation to one catalogue only) at about the same time or shortly afterwards.

269 Thus I agree with the defendant[384] that, as a matter of commercial reality, an agreement of such significance could never have been entered into by CML in the circumstances alleged by the plaintiffs. The letter box distribution claim is not supported by one contemporaneous document. Moreover, it was never mentioned before the proceeding was commenced in the year 2000. The claim is, and always has been, hopeless. Indeed, it is clear from Wood's evidence that he considered the claim to be preposterous. I would accept that characterisation of it. The very fact that the plaintiffs have been prepared to make and maintain this preposterous claim since the year 2000 suggests in itself that any and every other claim they make in this proceeding should be viewed with great caution.

Further events in October 1994 including the commencement of the Price Waterhouse review

270 It is common ground that in about October 1994 Price Waterhouse began to conduct an analysis relating to Progress Press and the issue of overs. There is a contest between the parties as to whether Price Waterhouse was intended to, or did, analyse the past conduct of Progress Press and its historical database of delivery points or whether, on the other hand (whatever it ought to have done) Price Waterhouse did no more than analyse and report upon the current state of the Progress Press distribution database as at the date of the report. It is not necessary for me to express any view on that debate for the purpose of answering the preliminary questions.

271 Osborne told Prosilis around this time that he was prepared to wait until the end of the Price Waterhouse exercise before he made a final assessment as to the position regarding overs.[385]

272 On 17 October 1994 Wood received a letter from the joint managing director of Salmat regarding Prosilis and ADN.[386]

273 On 19 October 1994 Salmat sent Wood a letter clarifying certain matters in relation to Salmat's response to the tender process.[387]

274 In about the second half of October 1994 Wood contacted Target, which was the predominant user of Salmat within CML, and organised a meeting between himself, Target, Salmat and Centar to analyse Centar's figures. At that meeting Salmat presented its corrected data, and when that data was analysed, Target (and Wood) were satisfied that Salmat's distribution data was correct.[388] It is not necessary for me to express a view about whether Target and Wood were justified in being so satisfied.

275 There was a limited trial of ADN by MGB in November and December 1994 in relation to a single catalogue. There is a controversy about the actual and reported outcome of that trial, but it is not necessary for me to make any findings on that controversy in order to answer the preliminary questions.

276 Price Waterhouse presented its audit report on 8 June 1995.[389] It was very brief. Price Waterhouse stated that, based on its review, the procedures performed by Progress Press for the Melbourne, Sydney and Brisbane metropolitan regions during the period from 1 November 1994 to 31 March 1995 were reliable, so as to give an accurate number of deliverable households within a sample deviation range of 1.8% (based on a maximum tolerable deviation rate of 5%).

277 Prosilis endeavoured to suggest that the Price Waterhouse audit report itself constituted evidence of substantial overs,[390] but, as the defendant submits, Prosilis ended up appearing to concede that it did not constitute such evidence.[391] In this regard, Prosilis conceded that for the purpose of preparing his abovementioned letter of 29 September 1994, Prosilis regarded 'substantial' overs as between the range of 9% to 20%, not 1.8%. However, as I have indicated, the plaintiffs would say that the Progress Press database was recounted or updated in some way. Osborne rejected the plaintiffs' suggestion that he had met with Prosilis and Pownall of Centar on 10 November 1995 and 13 December 1995 and had accepted that the Price Waterhouse audit was wrong.[392] I accept Osborne's evidence in that regard. However, as I have already mentioned, it is not necessary for me to make any finding about the nature or validity of the controversial aspects of the Price Waterhouse audit in order to answer the preliminary questions.

278 The plaintiffs claim that at the alleged meeting of 13 December 1995 Prosilis was told by Ms McGahan (an employee of MGB and the wife of Osborne) that MGB had worked on areas the subject of Prosilis' alleged audit and had produced a catalogue known as the Christmas 1 Catalogue in-house. Prosilis claims that he then asked when he would be paid. He claims that McGahan said to him that he could start preparing invoices for work done to date. Osborne could not recollect that the Christmas 1 Catalogue had been produced in-house, although it appears to be common ground now that it was. Osborne emphatically denied that McGahan had said words to the effect that doing it in-house had saved MGB an enormous amount of money and that everything Prosilis had said about doing it in-house was correct.[393] I prefer Osborne's evidence to that of Prosilis in this regard.

279 Osborne further said that he found it 'impossible' that McGahan had requested Prosilis to start preparing invoices for work done to date. I accept Osborne's evidence and I do not accept that McGahan or anyone else at the meeting said anything that could reasonably indicate that MGB or CML accepted that it had any liability to Prosilis. In that regard, I take into account the several responses from MGB/CML to the claims and invoices that were ultimately sent by Prosilis in 1996.[394]

December 1995: registration of ACOM and assignment

280 ACOM was registered in New South Wales on 18 December 1995.[395]

281 By a contract of assignment taking the form of a deed dated 20 December 1995 ACC purported to assign to ACOM its rights against CML under 'the Contract' as defined in the deed. The salient provisions of the deed are set out below.

282 The plaintiffs claim that Wood intervened in February or April 1996 to prevent Shane Lipton of World 4 Kids (another Coles Myer subsidiary) from hearing a presentation by Prosilis. Wood stated, and I accept, that he would not have directed another business not to deal with a third party if that business wanted to do so.[396]

283 On 5 March 1996 McGahan wrote to Prosilis to summarise a meeting she had had with Prosilis on 16 February 1996 concerning, among other things, Prosilis' claim for remuneration said to be owing.[397] There is nothing whatsoever in that letter to indicate any acceptance on the part of MGB or CML that anything was owing. On 3 April 1996 another officer of MGB, Roy Tavenor, wrote to Prosilis, with a copy to Wood, rejecting Prosilis' claims for remuneration.[398]

284 It is common ground that ACC was placed in liquidation on 9 July 1996. And it was deregistered on 23 December 1998.

285 This proceeding was commenced in the year 2000, but, as Prosilis acknowledged,[399] the writ was not served until one year later.

286 I have already said a great deal about the relative credibility of the witnesses in this case. In the course of making the findings of fact set out above I have indicated that there are many strong reasons, quite independent of questions of credibility, for not accepting the plaintiffs' case as to either of the pleaded agreements. In those circumstances, I can deal with the additional matters relating to the credibility of the individual witnesses and the matter of relative credibility overall without descending into the minutiae of the matters relied upon by the parties.

287 The defendant submits that the court would be quite entitled to conclude that in many respects Prosilis is not a witness of truth, and the defendant submits that the court should reach that conclusion. However, the defendant acknowledges[400] that, given Prosilis' apparent obsession with this case, and his relentless pursuit of it over many years, despite its many obvious difficulties, the court might instead conclude that Prosilis has erroneously come to believe that his version of events is correct. The defendant submits that, either way, Prosilis is not a reliable witness. I accept that, one way or the other, Prosilis is not a reliable witness. I do not need to decide, and do not decide, whether or to what extent Prosilis was telling deliberate untruths in his evidence. However, I do agree with the defendant's further submission that Prosilis was defensive, frequently intransigent, argumentative and unresponsive, and all the less reliable accordingly.[401]

288 Of the matters to which I have already referred potentially bearing on Prosilis' credibility, I take into account, especially, Prosilis' willingness to change his story or his case when it suits him, such as his recent departure from reliance upon the 27 April 1994 draft agreement; his suggestion that he did not receive or see the 28 February 1994 memorandum from Wood; the extraordinarily detailed nature of his accounts of the various relevant meetings and discussions;[402] and Prosilis' very strong tendency to blame everyone except himself for anything that did not advance his case (for example, blaming his lawyers for getting the drafts of the first alleged agreement wrong).

289 When Prosilis was asked to explain why he had maintained for some 16 years that the 27 April 1994 draft agreement best reflected the alleged agreement, Prosilis was most unconvincing. He said that the 'last version of the drafting which contained the essential terms that most closely approximated the history of the drafting is contained in the 27 April 1994 draft agreement'. (My emphasis).[403] This was really no explanation at all. In his first witness statement Prosilis had stated that 'the unexecuted final draft of 27 April 1994 is the written embodiment of the agreement I reached with Mr Neil Osborne on 12 November 1993'.[404] To say that is to say something very different from merely saying that the 27 April draft most closely approximated the history of the drafting.

290 Prosilis accepted in the witness box that he never raised his dissatisfaction with the March draft and the April draft with Osborne.[405] However, he said that he did not complain about the drafts because he was trying to 'salvage the good will', and that he and Werry had discussed this matter and decided to 'keep our powder dry', as Prosilis believed he was 'horribly exposed' to CML.[406] Prosilis conceded that there was no suggestion in his third witness statement that he and Werry had decided to keep their powder dry.[407]

291 I accept the defendant's submission that Prosilis' evidence about the 27 April draft is manifestly implausible.[408] I accept that the likelihood is that when Prosilis was confronted - 16 years later - with Coles Myer's witness statements which were served in early February 2010, he realised that the terms of the 27 April 1994 draft did not suit his case after all. I accept that his attempt to resile from the 27 April draft was an attempt to avoid the inescapable fact that there was no evidence of any written agreement by MGB or CML to the identification of potential savings by ACC for MGB. I accept that this is the reason why Prosilis now prefers the 21 February 1994 draft.

292 Further, I agree with the defendant[409] that the additional evidence Prosilis gave about the inaccuracy of the 27 April draft is entirely inconsistent with his previous position. It will be recalled that Prosilis went so far in his oral evidence as to say that the 27 April draft contained clauses that were unworkable and that he would not have agreed to the protections they gave CML and, indeed, that there could never have been an agreement reached between ACC and CML if CML had persisted in wanting those terms.[410]

293 I accept the defendant's submission that Prosilis' credibility is also affected by failures on his part to disclose matters of importance from time to time.

294 Prosilis applied for admission to practice as a solicitor in New South Wales in October 2002. Earlier, in 1998, Judge Herron of the District Court had handed down a judgment in which he completely rejected Prosilis' evidence and came to the conclusion that Prosilis was not being truthful and that he was prepared to tell a fantastic story.[411] In cross-examination in the present case, Prosilis acknowledged that that was the finding of Judge Herron.[412] Prosilis further conceded that when he applied for admission to practice as a solicitor in New South Wales he did not disclose Judge Herron's finding that he had been an untruthful witness.[413] The plaintiffs' counsel submit that there is nothing to indicate that Prosilis had been obliged to disclose that finding. In my view, the obligation must have existed. I emphasise, however, that the defendant does not ask me to take into account the finding of Judge Herron in its own right as going to Prosilis' credibility, and I do not do so.

295 In or about February 1994, when Prosilis was purporting to provide independent assistance to CML with respect to the distribution tender process, he and his company, ACC, had a significantly closer involvement with ADN than he had disclosed to CML or MGB. In effect, he had options to acquire substantial equity in some of the State based ADN entities. He needed only to apply the ACC company seal to the relevant contracts in order to exercise these 'options'. The plaintiffs can only say in their submissions about this matter that 'the proposed agreements never took effect'.[414] In my view, that is hardly an answer.

296 Osborne tackled Prosilis about his connections to ADN after Osborne received the abovementioned correspondence relating to ADN. In response, Prosilis showed Osborne a copy of a letter he had sent to Mr Rechner of ADN (Vic) responding to Rechner's allegations against Prosilis. In his letter to Rechner, Prosilis had stated that he had no agreements or management contracts or shareholdings in ADN or in any State ADN business.[415] However, in fact, this was wrong. Whatever the status of the 'options', Prosilis had a consultancy fee arrangement with ADN. He was on a monthly retainer to ADN (NSW).[416] Prosilis said in evidence that he had not thought it relevant to let Osborne know about the retainer with State ADN entities (as distinct from the national organisation).[417] However, as the defendant submits[418] this demonstrates a remarkable lack of awareness by Prosilis of his ethical obligations.

297 As the defendant further submits,[419] Prosilis was present in court during the opening of the plaintiffs' case by their counsel and made no attempt, despite appearing to listen attentively and provide counsel with instructions on other matters from time to time, to correct anything said by counsel about his involvement with ADN. When referring to the alleged letter box distribution agreement, senior counsel for the plaintiffs submitted that:

... Prosilis had not contemplated this at the time he conducted the audit for MGB of letter box distribution, or conducted the tender and the previous audit of the MGB production and distribution.

298 There was then an exchange in which senior counsel confirmed that what Prosilis had not contemplated was the potential of becoming a letter box distributor. Counsel said that the matter of becoming such a distributor was completely fresh to Prosilis when he approached McMenamin, the financial adviser, about the matter in June or July 1994. Asked whether Prosilis had had any prior involvement in any way with anyone involved in trying to get the distribution business from CML, senior counsel responded in the negative. However it was later established that those statements were quite incorrect. Prosilis ultimately conceded that the unsealed ADN contracts suggest that he intended to form a national letter box distribution network in January 1993.[420]

299 Prosilis claimed in evidence that the contracts were insignificant because they were not to come into force unless every State agreed. However, there is nothing in the contracts themselves to indicate that there was any such condition.

300 Further, I accept that Prosilis not only failed to disclose his involvement with ADN to CML, he failed to disclose it to this Court when he should have done so. As the defendant submits[421] there were numerous opportunities for Prosilis to have made such disclosure which he failed to take up. He failed to disclose the existence of the unsealed contracts in any of his affidavits of documents in this proceeding, even as documents he once had but no longer has.[422] In addition, he tried to suggest during cross-examination that the documents were 'stolen'.[423] As the defendant points out, if that had been the case, then that was an obvious explanation to include in an affidavit of documents.[424]

301 Prosilis has demonstrated a significant lack of candour on the matter of his involvement with ADN.

302 In Prosilis' first witness statement, when discussing the meeting of 28 September 1993, Prosilis said that Osborne told him that Wilkinson and Mattingly were very close friends and were currently on a fishing trip together. Under cross-examination Prosilis said that Osborne had told him about the fishing trip on the sixth floor outside the elevator as Prosilis was leaving the Coles Myer building, and Prosilis was at pains to bolster this account by giving an explanation about the security requirements at Coles Myer. When confronted with his witness statement and the fact that, in the statement, the fishing trip story is relayed as having been told part way through the meeting, Prosilis rejected the proposition that the rest of the meeting occurred at the elevator, and he rejected the proposition that the fishing trip story was out of order in his statement. Instead, he said that Osborne made the comments attributed to him about the fishing trip twice: once during the middle of the meeting and again at the elevator as Prosilis left. Prosilis conceded that this was not mentioned in his statement. Prosilis went on to say that the first draft of his witness statement was 1,000 pages long and that the matter may have been left out in the course of editing. I do not accept that explanation.

303 I have already referred to the controversy about whether the spreadsheet at CB 846 was really produced in around late 1993 or early 1994 while Prosilis was conducting an audit of MGB. The spreadsheet is undated. Prosilis said the spreadsheet was compiled by reference to summaries of MGB and ACC costs which he had created at the time. However, most of the ACC summary documents are dated 27 February 1996. Prosilis attempted to explain this in his witness statement. He said that the original documents were stored on a computer and printed out at the time that invoices were being prepared for sending to CML in the period from February to April 1996, but that the documents were compiled in the November/December 1993 period and the 1996 date was simply the date when the documents were printed.[425] He said that the details from the ACC summary documents were 'recorded' and 'entered' on spreadsheet 846 and that he carried out the same exercise for each of the 62 catalogues for the 1993 calendar year.

304 I agree with the defendant's submission[426] that there is, at the very least, considerable doubt as to whether the ACC summary documents were created in 1993, as opposed to 1996, and that that in turn raises doubt as to whether the spreadsheet was created as claimed by Prosilis. The defendant lists six good reasons for such doubt based on discrepancies in the contents of the documents alone.[427] Prosilis' explanations for those discrepancies were less than compelling. The hard copies of the ACC summary documents that had been created in 1993/94 are no longer available. Prosilis claimed that they had been destroyed. He said that the documents were kept on a balcony at one stage, that he had had an infestation of pigeons which were infested with lice and which destroyed a large volume of documents, and that the documents were also affected by rain, damp and mould.[428] Prosilis also said that a complete set of photocopies had been stored under a house, but these were destroyed by rats and mould.[429] It is troubling that Prosilis was able to produce so many thousands of documents for the purposes of this case, but not these particular documents. In the end, I do not make a positive finding that Prosilis has consciously lied about the spreadsheet. However, taking into account all the evidence relating to that matter, including my lack of satisfaction that Prosilis actually did any significant auditing at the relevant time, I would simply say that I am not satisfied that the spreadsheet was produced at the time claimed.

305 To reiterate generally, I do not regard Prosilis as a reliable witness.

306 As to McMenamin, I refer to the observations about him already set out above and I would add that I agree with the defendant's submission that McMenamin appeared to take a partisan view of the litigation[430] He gave all of his evidence emphatically, including the parts mentioned above which appear to be plainly incorrect.

307 I have already made unfavourable observations about the reliability of Poulos' evidence. I would add that, as the defendant submits,[431] there were remarkable similarities between Poulos' witness statement and that of Prosilis in their accounts of the discussions at certain meetings. However Poulos emphatically denied that they collaborated. In my view, at the very least, Poulos' recollections cannot be relied upon. As the defendant further submitted,[432] Poulos' powers of recollection, even of recent events, were poor. While he purported to remember clearly events from 17 years ago because they were 'memorable' he was not able to accurately recall events of just over one year ago when he came to Melbourne several times to prepare his witness statement. He stated several times that this was in mid-2009, and only accepted that it could not have been so when told that his statement was filed at the end of March 2009.

308 The plaintiffs make no attack at all on the credibility of Hampson.

309 As to Osborne, they merely say 'he sings the company's song, no doubt out of loyalty to a former employer'. Osborne had left the company 14 years before he gave his evidence. I do not accept that he was merely singing the company's song. Like Wood and Hampson, Osborne had some difficulty recalling precise details of the relevant events that had happened 16 or 17 years before, but I accept that he did his best.

310 Again, the plaintiffs allege that Wood was singing the company's song. But he had left the company in the year 2000. Some other matters said by the plaintiffs to go to Wood's 'credibility' in relation to the letter box distribution agreement claim have already been dealt with above. There was no merit in them.

311 I accept the defendant's submission that Osborne, Wood and Hampson all did their best to recall the relevant events.[433] I agree that they gave clear and cogent evidence about the matters that they were able to recall having discussed, and about the matters that they were sure were not discussed. I agree that they were responsive to questioning under cross-examination and showed commendable stoicism despite being placed in the invidious position, not of their own making, of having their memories tested about events which occurred so many years ago. I agree that they were all demonstrably astute professional business people not likely to have made hasty or ill considered statements or decisions.

312 I regard each of them as a wholly credible witness.

313 Preliminary questions (2) and (4) require the Court to determine whether, as a matter of interpretation only, the abovementioned deed of assignment dated 20 December 1995 covers the 'estoppel claim' and/or the 'the quantum meruit claim', as respectively defined.

314 The assignment deed purports to record a contract made for consideration. It relevantly provides:[434]

In consideration of [ACOM] fulfilling contractual obligations for Administration, Production and Distribution operations owed by [ACC] to Woolworths Limited, [ACC] assigns to [ACOM] by way of transfer the whole of [ACC's] rights, title or interest in the Contract between [ACC] and [CML].

1.5 "The Contract" means whereupon [ACC] and [CML] did enter into negotiations over the terms of their contract between November 1993 and April 1994 but, by 27th April 1994 the terms of the contract were agreed and a contractual document containing those terms was prepared by [CML's] solicitors...and transmitted by them to [CML] and to [ACC], comprising the documents as listed in the schedule attached hereto.

It is not necessary to identify the listed documents.

316 By clause 4 of the deed, ACC purports to assign to ACOM 'all interest, burdens, and benefits in the Contract'. By clause 5 ACC 'warrants' that the Contract is in effect and is fully assignable. Clause 8 provides that the deed, including any attachments, 'is the entire agreement between the parties'. It is not necessary to mention any other provisions.

317 Neither the estoppel claim nor the quantum meruit claim is expressly referred to in the deed. Each claim is quite different in law from a contract or debt claim. Each would require the establishment of different or additional facts. I note in passing that it is by no means clear that the benefit of a restitutionary claim such as quantum meruit is even capable of assignment as a matter of law.[435] Neither side made any submissions as to whether the assignment of either claim was legally possible. In any event, given the absence of express reference to the estoppel and quantum meruit claims in the deed, and given the presence of the 'entire agreement' clause, the onus was on the plaintiffs to advance arguments as to why the deed should be read so as to cover the claims in question. No such arguments were advanced. The plaintiffs merely asserted that the claims were covered. That is insufficient. Questions (2) and (4) should accordingly be answered in the negative.

318 For the sake of convenience I repeat here the terms of questions (2) and (3):

1. Is ACOM entitled to bring the estoppel claim referred to in paragraphs 27 to 31 of the statement of claim, having regard to the terms of the assignment between ACC as assignor and ACOM as assignee dated 20 December 1995 and appearing at pages 2593 to 2628 of the court book?
2. If the answer to question (2) is yes, is the defendant estopped from denying the existence of the audit and implementation agreement (as referred to in paragraph 3 of the statement of claim), as alleged in paragraph 31 of the statement of claim, by reason of the matters alleged in paragraphs 27 to 30 of the statement of claim?

319 Because, as indicated above, I would give a negative answer to question (2), there is no need to answer question (3). However, for completeness, I will briefly indicate what my conclusions relating to question (3) would otherwise have been.

320 The plaintiffs rely on the principles of promissory estoppel as enumerated by Brennan J in Waltons Stores (Interstate) Ltd v Maher:[436]

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.

321 There is some uncertainty as to whether promissory estoppel constitutes an independent cause of action, or whether it is a doctrine by which one party is estopped from denying an element of a cause of action relied on by a another.[437] I would find that the plaintiff has not made out any estoppel on the facts, and I do not express an opinion on the legal issue.

322 The plaintiffs allege that the defendant induced ACC to assume that the defendant and ACC had entered into an enforceable agreement in the terms of the alleged audit and implementation agreement.[438] As I have previously mentioned, the statement of claim refers only to a representation as to a past agreement. It was neither pleaded nor otherwise suggested by the plaintiffs that CML had represented that it would agree to the alleged terms.

323 I would not accept that ACC assumed that a binding agreement had been made. Nor would I accept that the defendant did anything to induce any such assumption.

324 As the plaintiffs put their case, Prosilis could only have adopted any assumption that the parties had a binding agreement as a result of the critical meeting of 12 November 1993.

325 I have rejected Prosilis' account of that meeting of 12 November 1993, save to the extent that it is common ground.

326 Further, the subsequent exchanges of draft remuneration agreements and correspondence between ACC and CML and their solicitors would have confirmed to any reasonable person that no relevant binding agreement had been reached on 12 November 1993 (or thereafter).

327 I would have been far from satisfied that ACC (or Prosilis) ever actually assumed that the alleged audit and implementation agreement was in place.

328 The estoppel claim would have failed accordingly.

329 Having regard to the findings set out above, the preliminary questions should be answered as follows:

[1] See paragraph 221 of CML's final written submissions dated 9 June 2010, as amended on 15 June 2010, to which the plaintiffs made no response in their closing submissions.

[4] By now the claim for interest alone would presumably exceed the grand total of the principal claims.

[6] See below under the heading Formation of the alleged contracts: the case actually put by the plaintiffs and the relevant legal principles.

[10] Transcript, 1182-1185. Volumes 4-16 of Section 3 of the Court Book were not tendered on this part of the case because they were said to relate exclusively to quantum.

[12] Outline of closing submissions, 37.

[13] A new paragraph, [32A], was inserted in the statement of claim pursuant to this grant of leave. See below.

[15] This unsigned draft agreement is the document referred to above in para (k) of the particulars of implication under para (3) of the plaintiffs' statement of claim.

[16] See para (c) of the particulars of implication.

[17] Defendant's final written submissions, [223]. The defendant refers to Vroon BV v Foster's Brewing Group Ltd [1994] VicRp 53; [1994] 2 VR 32, 80 (Ormiston J) and Ambridge Investments Pty Ltd (in liq) (receiver appointed) v Baker [2010] VSC 59 ('Ambridge'), [184]-[203] (Vickery J). See also Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd [2009] VSCA 238; (2009) 25 VR 411, esp 419-423; Seddon and Ellinghaus, Cheshire and Fifoot's Law of Contract (LexisNexis Butterworths, 9th Australian edition, 2008) [3.9].

[18] With the possible exception of the letter dated 4 November 1993 signed by one Wilkinson, referred to in para (c) of the particulars under paragraph 3 of the statement of claim. See plaintiffs' outline of final submissions, 1 (but compare 2-10).

[19] There is a dispute about the authority of Osborne as at 12 November 1993, to which I will return.

[21] For example, there is a significant contrast between Prosilis' first witness statement and his third witness statement in this respect. See further below.

[22] See and compare Mildura Office Equipment and Supplies Pty Ltd v Finance Australia Ltd [2007] VSCA 112.

[23] Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] VicRp 55; [1994] 2 VR 106 ('Toyota'), 150 (Brooking J) and 176-177 (Tadgell J); PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd [2007] VSCA 310; (2007) 20 VR 487, 505 (Ashley JA, with whom Maxwell P and Nettle JA agreed).

[24] See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, [38] and [40]-[41]; Byrnes v Kendle [2011] HCA 26; (2011) 279 ALR 212, 229 [59] and 236-238 [98]-[104]; Austin Bloodstock Pty Ltd v Massey [2011] VSC 421 (Pagone J), [1]-[2].

[25] See eg Toyota [1994] VicRp 55; [1994] 2 VR 106, 199-205 (Phillips J); Seddon and Ellinghaus, above n 17, [6.1]-[6.7].

[26] See Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 (FC); Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 C-F (Gleeson CJ with whom Hope and Mahoney JJA agreed); Toyota [1994] VicRp 55; [1994] 2 VR 106, 130 (Brooking J) and 204-205 (Phillips J).

[32] However the defendant does not contend that actual authority on the part of Osborne was essential. It implicitly concedes that ostensible authority on his part would have been sufficient if it had existed.

[33] [1954] HCA 72; (1954) 91 CLR 353.

[34] Plaintiffs' outline of final submissions, 20. See Geebung Investments Pty Ltd v Vargo Group Investments (No 8) Pty Ltd (1995) 7 BPR 14,551 ('Geebung'), 14,569-70; PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd [2007] VSCA 310; (2007) 20 VR 487, 504-505 (Ashley JA with whom Maxwell P and Nettle JA agreed).

[35] See plaintiffs' outline of closing submissions, 4-10.

[36] Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153, 163-165 (Heydon JA); Ambridge [2010] VSC 59, [200].

[37] Ibid. See also Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695, 700 (Kaye J with whom Marks and Teague JJ concurred).

[38] Sudojo Consulting Pty Ltd v Africa Pacific Capital [2008] NSWSC 353, [20] (Einstein J).

[39] Defendant's final written submissions, [227] citing Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia (1976) 50 ALR 363. And see esp 372-373 (Moffitt P). See also Clifton v Palumbo [1944] 2 All ER 497, 499; Toyota [1994] VicRp 55; [1994] 2 VR 106, 130-133 (Brooking J).

[40] Defendant's final written submissions, [228] citing, among other cases, Toyota [1994] VicRp 55; [1994] 2 VR 106, 131 (Brooking J) and Player v Isenberg [2002] NSWCA 186, [50] which contains a relevant extract from the judgment of Kirby P in Geebung (1995) 7 BPR 14,551, 14,569. See also Player v Isenberg [2002] NSWCA 186, [49], [51] and [52] and the cases cited in those paragraphs.

[41] (2001) 171 ALR 89 at 121. Appeal dismissed: [2000] FCA 1159; (2000) 175 ALR 433.

[42] Seddon and Ellinghaus, above n 17, [3.9]. See also Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, 20 (Kirby P).

[44] The statement of claim refers only to a representation of past agreement. It was neither pleaded nor otherwise suggested by the plaintiffs that CML had represented that it would agree to the alleged terms.

[45] Final address of senior counsel for the plaintiffs: transcript, 1762.

[46] First witness statement of Prosilis (PWS 1), [52].

[48] Perhaps it was also thought that the material about Prosilis' background and expertise might help to persuade the Court that, later, CML actually made savings based on ACC's work.

[49] CB, 341-342; PWS 1 [29], [33].

[50] Transcript, 1263-1264. See also Osborne's witness statement, [9].

[58] Transcript, 1279- 1280; CB 386.

[68] PWS 1, [37]; Poulos' witness statement, [15]; transcript, 1265 (Osborne).

[69] Poulos' witness statement, [19]; transcript 1196-1197.

[70] Poulos' witness statement, [19]; Transcript 1196-1197.

[72] Osborne's witness statement, [15].

[73] See also Osborne's witness statement, [16].

[76] Ibid. Compare statement of claim, [3], particulars para (a). Compare also the documents themselves: CB 386-394.

[84] See evidence of Osborne at transcript, 1284-1285.

[86] Poulos' witness statement, [41].

[87] Letter signed by Wilkinson dated 4 November 1993: CB 632.

[88] Osborne did not recall this telephone call: Osborne's witness statement, [22]. However the tenor of Osborne's evidence about Prosilis' general attitude towards and interactions with MGB staff was consistent with it.

[94] Transcript, 158. However Prosilis was involved in a distribution tender process in February/March 1994.

[99] Poulos' witness statement, [49]-[51].

[100] Poulos' witness statement, [52].

[103] Transcript 1296-1297; cf 1288-1290.

[108] Osborne's witness statement, [25].

[120] See cross-examination of Prosilis at transcript, 784.

[134] Ibid. Strictly speaking, as the transcript reads, Osborne was only asked whether he recollected saying this; and he simply answered: 'No'. But I understood this as a firm denial.

[139] PWS 1, [117]. See further below.

[141] Plaintiffs' final written submissions, page 13.

[145] Supplementary Court Book (SCB) 4033-4034.

[148] CB 629; Transcript 824-825 (Prosilis).

[151] PWS 1 [98]. Each is in the Court Book.

[156] Osborne witness statement [para 36]; transcript 1315-1318.

[160] Osborne witness statement; [4], [20], [28]-[30]; transcript 783 (Prosilis).

[163] Osborne witness statement para [30]; Wood witness statement para [2].

[171] Transcript 959. I have already found that no such benchmarks were agreed.

[172] I put aside the involvement of Prosilis in Jan-March 1994 in obtaining tenders for catalogue distribution services: see below.

[173] See, eg, letter of 15 November 1993 (CB 638) and fax of 26 November 1993 (CB 648), both referred to below.

[176] Herein lay Prosilis' second error about the CEO of CML - see above and below.

[178] The handwritten list on the otherwise blank page is included in the evidence: CB 634.

[182] Wood was copied into the Booth memorandum of 4 November 1993 (CB 633-637) He was not at this stage involved in discussions with Prosilis or ACC, but he was told about them by Osborne: Osborne's witness statement [30]. Wood's witness statement [15]; cf transcript at 1463-1464, 1470 (Wood). By 3 December 1993 Werry Altobelli were writing to "Solicitor Coles Myer Limited: Attention John Wood" about amendments to the draft remuneration agreement: CB 654.

[183] ACC's letter of 14 October 1993: CB 624-625: see below.

[185] As to the later involvement of Prosilis and ACC in a catalogue distribution tender process on behalf of MGB, see further below.

[188] As to whether shaking hands has any particular legal significance in any event see Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) Aust Contract Rep 90-059 at 90, 329 per Kirby P; cf at 90, 340 per Powell JA; and see Seddon and Ellinghaus, above n 17 at [3.9].

[190] As mentioned above, it seems that the confidentiality deed was executed on or about 21 October 1993.

[219] See AFASC para 3, particulars of implication (b) and see pages 1-2 and 6 of the plaintiffs' outline of final submissions.

[220] (2001) 171 ALR 89 at 121. Appeal dismissed: [2000] FCA 1159; (2000) 175 ALR 433.

[222] Additional matters tending in the same direction will be mentioned under subsequent headings.

[229] See clause 1.1 - definition of 'audit services'.

[232] [1959] HCA 8; (1959) 101 CLR 298. My understanding of the Jones v Dunkel principles is as indicated in my judgment in Schweitzer v Schweitzer [2010] VSC 543, [42].

[234] Apart from the 'preliminary audit'.

[241] This can only be a reference to the preliminary audit, since Prosilis did not contact any suppliers during the so-called full audit.

[247] See Osborne's witness statement, [56-58]; transcript, 1373, 1393.

[248] Osborne's witness statement, [58].

[249] Hampson's witness statement, [10]; transcript 1564-1565.

[261] Transcript, 975 (Prosilis). See also the letters of 1 and 4 February 1994 authorising Prosilis of ACC to act on behalf of MGB for the purpose of accepting tender submissions for the letter box distribution of MGB catalogues: CB 1086-1091.

[262] Hampson's witness statement, [16] and [20].

[263] Hampson's witness statement, [17].

[268] PWS 3, [22]. To the extent that this was an assertion of law it was no doubt inadmissible.

[274] The fax of 24 March 1994 also went to Werry, as is common ground.

[280] CB 1412-1421; CB 1422-1443.

[282] Osborne's witness statement [73].

[287] Osborne's witness statement, [77]; Wood's witness statement, [22].

[289] CB 1466-1472; transcript, 944-945 (Prosilis).

[292] Osborne's witness statement, [89].

[300] See clauses 4.4, 5.1, 5.2 and 5.3.

[302] CB 2593-2628; transcript, 954-955 (Prosilis). See below.

[303] As acknowledged by Prosilis: transcript, 953.

[311] CB 1594-1596; transcript, 956 (Prosilis).

[314] Wood's witness statement, [31].

[316] Osborne witness statement, [94].

[317] Meaning, I understand, throughout their dealings since Osborne moved to MGB.

[319] See Wood's witness statement, [35].

[322] CB 1630-1631; transcript 983-984 (Prosilis).

[324] Wood's witness statement, [36].

[326] Wood's witness statement, [37].

[328] Wood's witness statement [38].

[329] CB 1640-1641; transcript 990 (Prosilis).

[331] Osborne's witness statement, [105].

[334] Wood's witness statement, [45]; transcript 1500 (Wood).

[336] CB 3428-9, transcript 1037 (Prosilis).

[337] CB 3430-3441; transcript 1038 (Prosilis).

[338] Defendant's final submissions [98].

[342] This is a reference to Simon Pownall.

[343] Transcript, 1065-1066 (Prosilis); transcript 1500 (Wood).

[347] Wood's witness statement, [48]-[51].

[359] Outline of final submissions, page 35.

[360] AFASC, [34(e)]. The Price Waterhouse exercise was to involve only Progress Press, not Salmat.

[363] Outline of final submissions, 36.

[365] By that time Wood was apparently aware that Prosilis had at least some kind of association with ADN.

[367] Outline of final submissions, 36.

[368] Outline of final submissions, 37.

[384] Final submissions, [298] and [299].

[385] Osborne's witness statement, [111]; transcript, 1420 (Osborne).

[388] Wood's witness statement, [57]-[58].

[389] CB 2414; transcript, 1057 (Prosilis).

[392] Osborne witness statement, [119]; transcript 1420, 1422.

[402] As the defendant submits, these accounts are manifestly reconstructions rather than the product of any real recollection, particularly in regard to the fact that the relevant events occurred 16 to 17 years ago: final submissions, [129].

[404] Prosilis' witness statement, [259].

[414] Outline of final submissions, 22.

[425] Prosilis' witness statement, [163]-[164].

[435] See Dodds-Streeton JA's extensive discussion of this issue in Equuscorp Pty Ltd v Cunningham's Warehouse Sales [2010] VSCA 1, [274]-[310]. That case concerned assignment of a different species of restitutionary right, the right to recover funds advanced under an unenforceable loan contract.

[436] [1988] HCA 7; (1988) 164 CLR 387, 428-429.

[437] See discussion in Harrison v Harrison [2011] VSC 459, [363] (Kaye J).

[438] AFASC, [27(b)]; Plaintiffs' outline of submissions, 31.