First Plaintiff v Defendant

First Plaintiff v Defendant - [2011] VSC 490 - VSC 2011 case summary — Zoe

[16]

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.

[20]

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.

[86]

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.

[101]

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]

[102]

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.

[174]

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.

[187]

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.

[225]

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.

[267]

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.

[299]

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.

[506]

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".

[515]

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.

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