(7) CSG expected FXA to terminate the Queensland dealerships if CSG reached agreement with Canon; that was "almost certain".
129 In substance, each of those matters (which as I have said is shown by Canon records) was confirmed by either Mr McLaine or Mr Mackenzie in the course of cross-examination, with the exception of a limited dispute as to the fifth matter which I have noted.
130 Before a second meeting, to be held on 29 April 2010, Mr MacKenzie said in an email to Mr McLaine (dated 28 April 2010):
I am going to tell them [Canon] tomorrow that they need to GIVE us the Brisbane MIF if we commit to churn our Darwin and Brisbane MIF to Canon.
They need to give us something for doing that.
131 According to Canon's records of the meeting of 29 April 2010, Mr Mackenzie committed to transfer FXA's Brisbane MIF to Canon (again, there is a confusion as to the number). Mr Mackenzie conceded, with the qualification as to the number, that it was possible that this was said; and added, in my view disingenuously, that he did not know that Canon wanted to hear a commitment to churn.
132 I interpose a comment dealing with objections taken by CSG to the tender of Canon's records (produced on subpoena), some of which I rely on in making findings of fact as to the negotiations and dealings between Canon & CSG. With one qualification, the documents on their face fall within s 69 of the Evidence Act and are admissible as proof of the truth of the facts asserted in the "previous representations" contained in them. It is at most a matter of weight that the authors were not called; and I have noted above that much of what is contained in those documents was confirmed by Mr Mackenzie or Mr McLaine. The qualification to which I referred above relates to a notation placed at the foot of one document (at p688o of Exhibit PX8) purporting to identify the author of the handwritten notes above it. I do not think that that notation was pressed; if it was, I reject it.
133 It may be noted that, in the implementation agreement, Canon agreed to sell a certain number of MFDs to CSG for a specified price (the precise details should be kept confidential), with the price to be reduced by an incentive payment, or rebate, of a specified amount for each FXA MIF which CSG churned to Canon.
134 That both Canon and CSG understood that it was a fundamental importance to Canon that CSG should churn FXA's MIF to Canon is shown by their documents.
135 Mr Smith submitted that CSG's commitments to churn FXA MIF to Canon involved actual, or at least potential, conflict with its duties under cl 3.1.1. I do not think that this is correct. Clause 3.1.1 imposed obligations on CSG for as long as the dealer agreements remained in force. It would be in CSG's interest to continue to promote the sale of FXA products up until (as it expected would happen) FXA terminated the dealer agreements. That is because to do so would maintain or build up the stock of MIF that could, following termination and the exercise of the Brisbane option, be churned, for reward, to Canon. If MFDs were ripe to be churned, a delay in doing so might cause the customer to look elsewhere. Retaining the MIF, even though to do so would delay a subsequent churn to Canon, would avoid potential loss of the customer.
136 Mr Smith submitted that the very existence of the Brisbane option, and the potential benefit of the rebate for each machine churned, would create at least potential conflict because it might cause CSG to delay churning machines until it was in a position to exercise the Brisbane option.
137 There is an answer to this. CSG retained independent contractors as sales agents to sell on its behalf in the territories. Those agents were remunerated only by commission. Mr McLaine's evidence, which on this point I accept, was that it was those agents who controlled the churn, because it was they who had direct contact with the customers, and knowledge of the customers' requirements. In those circumstances, Mr O'Bryan submitted, the agents would act in their own self-interest by churning all customers who were ripe to be churned, because that was how they earned their living. I accept that submission. I note that there is no evidence of any instruction, directive or suggestion from CSG to those agents that they should slow down, or delay, churning their customers' machines. Nor is there any evidence that CSG attempted to churn FXA products to Canon prior to the exercise of the Brisbane option. On the contrary, CSG's records show that from May to August 2010 (the period from entry into the Canon agreements to termination of the dealer agreement), CSG bought more FXA products than it had done during the corresponding months of 2009.
138 Mr Smith submitted, further, that a conflict arose because the commitments to churn FXAs MFDs to Canon once the dealer agreements were terminated and FXA exercised the Brisbane option were in direct conflict with CSG's obligations under cl 30.1.4 (and, if applicable, cl 37.2.2).
139 Mr O'Bryan submitted that there could be no such conflict, because CSG did not believe that the effect of those clauses was to require it to transfer its MIF in the territories without being paid a reasonable commercial value in exchange.
140 CSG was advised that whatever "commercially reasonable co-operation" might mean, it did not require CSG to cooperate in novating customer contracts to FXA without being paid the substantial commercial value of those contracts. There was some evidence that the value of MIF might range from $1,000.00 to $3,000.00 per unit. I deal with, and reject, this argument below; but I accept that this was the effect of the advice given to CSG, and that CSG was entitled to rely upon it.
141 However, the question of conflict of interest is not resolved by reference to subjective factors. The question is whether, on the facts as they are known, there was a conflict (or potential conflict) of interest. Was there a conflict between the commitments given by CSG to Canon, to churn FXA's Brisbane MIF to Canon upon exercise of the Brisbane option, and the relevant obligations (on their proper construction) imposed on CSG by the Brisbane dealer agreement?
142 If, as I conclude below, those obligations on their proper construction require CSG to use commercially reasonable cooperation to attempt to procure the novation of customers to FXA (or a dealer nominated by FXA), and do not entitle CSG to require, as a component or condition of that operation, valuable consideration, then clearly the obligation, so construed, is in direct conflict with the promises or commitments given by CSG to FXA to churn the very same customers to Canon.
143 Mr O'Bryan submitted, further, that cl 30.1.4 applied only where FXA established an alternative dealer in the territory, and that, because FXA in fact took over the territory and sold direct there (through its own sales agents) there was no requirement to assign. For the reasons I give below, I do not accept that submission. But even if it were to be accepted, it does not follow that the commitments given by CSG to FXA, to churn FXA's MIF to Canon on exercise of the Brisbane option, were not in conflict with cl 30.1.4. It was not settled - at least, to CSG's knowledge - that FXA would deal direct, rather than through another dealer, in the Brisbane territory following termination. The question of actual or potential conflict is to be decided at the time the conduct alleged to constitute conflict is committed, and the relevance of what in fact happened in the future does not bear on that assessment.
144 Stepping back from the detail for a moment: in substance, what CSG undertook to Canon was that it would take from FXA the benefit of the MIF that CSG had maintained and built up for it in Brisbane, pursuant to the dealer agreement, and give the benefit of that MIF to Canon. How it could be argued that such an undertaking was not in conflict with the legitimate expectations and interest of FXA under the Brisbane dealer agreement is something that I have difficulty in understanding.
145 For the reasons that I have given, I conclude that there was a conflict of interest between CSG's commitments to Canon, to churn FXA's MIF to Canon on exercise of the Brisbane option, and CSG's termination obligations owed to FXA under the Brisbane dealer agreement.
146 FXA did not become aware of the facts relating to this conflict until after proceedings were commenced. Accordingly, it did not rely upon the conflict in its notice of termination. Mr Smith had submitted, when seeking leave to amend to rely upon conflicts arising from CSG's negotiations and agreements with Canon, that it would be open to FXA to rely upon those matters in support of the termination, even though they had not been specified in the notice. He referred to the decision in Shepherd. Mr O'Bryan did not, then or later, submit to the contrary.
147 Mr Smith relied on a further conflict, based on out of territory sales. The evidence suggested that from time to time, CSA sold MFDs to a customer in its Brisbane territory that had offices or branches outside that territory. When this happened, and the customer had a need for MFDs in those other offices or branches, CSG would supply those also, with the consent of FXA. Mr Smith submitted that, once CSG became a Canon dealer outside of the Brisbane and Maroochydore territories, it would not follow up opportunities for out of territory sales of FXA products, but would, instead, seek to persuade those customers to take Canon products.
148 I do not accept that submission. I have noted about Mr McLaine's evidence to the effect that it was the sales agents who controlled the churn of MFDs, through their knowledge of the customers and their requirements. Further, Mr McLaine said, when an out of territory sale occurred, it was (as one might expect) run by the territory from which it occurred. In the case of Brisbane, that meant, in effect, that the relevant agent would secure the sale of FXA MFDs both within the territory and to offices and branches outside it. Those sales agents, in Mr McLaine's words, "controlled the churn". They only had FXA products to sell. They had neither any interest in selling, nor any ability to sell, Canon products outside the territory.
149 In this context, Mr Smith referred to what I have called the Colorado transaction. Colorado was a Tier 3 customer of CSG's in Brisbane. It ordered a number of FXA MFDs through a sales agent, Mr Mathew Manton. One of those MFDs was to be delivered within the territory. Others were to be delivered outside: that is to say, they were out of territory sales.
150 It appears that some financiers regarded Colorado as a credit risk. However, FXF seems to have had more liberal lending criteria.
151 Mr Smith's case was that Mr McKenzie instructed Mr Manton not to approach FXF, and accordingly the sale did not proceed. Mr Manton appears to have claimed "the com[mission] he missed out on… he would have received if it went through fxf [sic]" (email from Mr Declan Ramsay, CSG's Brisbane sales manager, to Mr Ward of 23 August 2010). The email also asserted that Mr Manton had been "told by Dennis that he would be looked after as he should not be penalised for what CSG have done".
152 Mr Smith submitted, based on this, that Mr Mackenzie had instructed Mr Manton not to approach FXF for finance, and that this was part of a plan to delay the churn of Colorado's MFDs until after the Brisbane option was exercised. That was put to Mr Mackenzie, and he denied it. In this case, I accept his evidence.
153 Mr Manton appears to have begun the churning (or attempting to churn) Colorado's machines in late June 2010. By 12 July, he had obtained an order which was subject to finance; and an FSMA had been signed on the basis, presumably, that finance would be approved. Mr Manton had sought, and obtained, special pricing from FXA to enable the transaction to go ahead.
154 It seems that Mr Manton approached a number of finance companies, but without success. There is no evidence that he approached FXF. As I have said, Mr Smith suggested that this was because Mr Mackenzie had instructed him not to do so.
155 Mr Mackenzie denied giving any such instruction. He said, in substance, that FXF had earlier indicated that it would not entertain any finance proposals from CSG (and in this case, no one seemed to suggest that any relevant distinction was to be drawn between CSG and its sales agents). Mr Mackenzie was correct in this. On 17 May 2010, FXF wrote to CSG (Mr Kugenthiran was the author of the letter and it was addressed to Mr McLaine). The letter stated, among other things, that:
FXF does not propose to accept (or consider) finance proposals by CSG in relation to the Brisbane dealership that are received by CSG after close of business on the date of this letter.
156 Mr Kugenthiran did point out that FXF would honour existing approvals, process approvals already submitted, and deal with terminations of leases in the appropriate way.
157 Although the evidence did not explicitly cover the point, I would infer that CSG's management and sales agents became aware of FXF's stance shortly after 17 May 2010.
158 Those matters provide an obvious explanation of the failure to approach FXF for finance. Even if Mr Mackenzie had given a direction to Mr Manton not to approach FXF, that could hardly have been unreasonable, given FXF's stated attitude.
159 I do not find, in the circumstances of the Colorado transaction, any evidence that CSG was seeking to delay churning FXF MFDs until after it exercised the Brisbane option. On the contrary, I accept Mr O'Bryan's submission that the circumstances of the Colorado transaction show that in July 2010, CSG was seeking to churn Colorado's FXA MFDs, both within and without the territory, by replacing them with new FXA MFDs.
160 The second breach on which Mr Smith relied was failure, on the part of CSG, actively to promote the sale of FXA's products in the territories after 11 May 2010. The only evidence to which Mr Smith pointed, as supporting that allegation of breach, was the evidence relating to the Colorado transaction. For the reasons that I have just given, I do not accept that the evidence shows failure to promote. On the contrary, as I have said, it is consistent with the proposition that, at least during July 2010, CSG was still seeking to promote of FXA products.
161 In those circumstances, I conclude that if, as a matter of intellectual analysis, there were some possibility of a conflict of the kind outlined by Mr Smith, it was not a conflict that, on the evidence, would arise. There was no actual conflict. Nor could there be a "potential conflict", because, by definition, potentiality must have the ability, in some circumstances, to mature into actuality. The factual circumstances that I have recited indicate that this would not happen. Any "conflict" existed (if at all) only at the level of abstract theory.
162 Before I move on from these issues, I will note that the apparent disputes in their statement were not pursued in final addresses, and accordingly I have dealt with them as they are stated.
Issue 1(d): marketing of Canon products on CSG's website
163 Although this was listed in FXA's closing written submissions as one of the seven breaches (in fact, the seventh) on which FXA relied to justify its termination, it was not separately addressed in those submissions. Mr Smith did refer to it in oral submissions, to the extent that he outlined the seven breaches, each of which, he said, was sufficient to justify termination. However, the submission (T464.25-.31) did no more than indicate the nature of the breach. It was not developed.
164 In those circumstances, there is considerable force in Mr O'Bryan's characterisation of this breach as one that was but "faintly suggested".
165 In support of the suggested breach, FXA's solicitors, in a written submission made only after I had reserved judgment, referred to two scanty pieces of evidence. The first was an internal CSG document: an email of 16 June 2010 apparently attaching a document described as "2010 Canon CSG Marketing Initiative". The second was a document which purported to be a screenshot of CSG's website which referred, among other things, to Canon products. Although the screenshot (if that is what it is) was undated, it would appear to relate to a time before 24 August 2010, because it related to FXA products as well as Canon products.
166 There was no evidence that, from the time when that material was put up on CSG's website up until the time of exercise of the Brisbane option (which I will call "the relevant period"), any customer of CSG's in Brisbane or Maroochydore contacted it and sought to order Canon equipment rather than FXA equipment. There was no evidence that, during the relevant period, CSG had Canon equipment available for sale in Brisbane or Maroochydore (although, no doubt, it could have shipped such product in from other regions). More importantly, there was no evidence that, during the relevant period, CSG in fact sold or attempted to sell Canon equipment to any customer in the Brisbane or Maroochydore territories. On the contrary, if the Colorado transaction is any guide to what was happening during the relevant period, CSG was still seeking diligently to sell FXA's products.
167 In circumstances where CSG was a Canon dealer throughout much of mainland Australia, it is very difficult to see how the mere fact that it referred to this, and advertised Canon products on its website, could have given the appearance of any relevant conflict of interest with the business of FXA. In this context, it was common ground that the effect of the provisions relating to conflict of interest was, either as a matter of construction or by application of the doctrine of restraint of trade, that they had no effect outside the territories.
168 Mr Smith did not trouble to address on why the material to which I have referred could reasonably have suggested to a prospective customer, during the relevant period, that CSG was able or prepared or willing to sell Canon products within Brisbane or Maroochydore. I do not propose to explore any further a question that he effectively left in the position that I have described.
169 In those circumstances, I conclude that FXA has not established that whatever (if anything) CSG did after 11 May 2010 to market Canon products on its website amounts to a breach of the relevant clauses of the dealer agreement.
Issue 1(e): misleading or deceptive conduct
170 As I have noted, this issue is no longer pressed.
Issue 2: breach by FXA
Clause 29.1.4
171 In essence, CSG's case was that FXA itself breached cl 29.1.4 of the dealer agreements because it intended to compete, either directly or by appointing other dealers, within the territories. It is not necessary to go to the detail with which CSG sought to support this case, because there are two fundamental flaws. The first is that CSG's dealership was not exclusive in either territory. The concluding sentence of cl 2.1 reads:
Nothing in this Agreement prevents Fuji Xerox from appointing other dealers or agents, or itself supplying any goods and services, within the Territory.
172 CSG pointed to no reason why FXF should be deprived of the right thus reserved to it.
173 The second flaw is that cl 29.1.4 does not impose an obligation to avoid potential conflicts of interest (contrast, for example, cl 14.1.10 read in conjunction with sch 5, which imposes just such an obligation on CSG). Clause 14.1.10 gives one party a right of termination if: