Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited - [2002] NSWIRComm 354 - NSWIRComm 2002 case summary — Zoe

NSWNSWIRComm

Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited

[2002] NSWIRComm 354

Industrial Relations Commission (NSW)|2002-07-01|Before: Boland J, Schmidt J

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At a glance

Source facts

Court

Industrial Relations Commission (NSW)

Decision date

2002-07-01

Before

Boland J, Schmidt J

Source

Original judgment source is linked above.

Judgment (967 paragraphs)

[1]

INTRODUCTION 3 OUTLINE OF APPLICANTS' CASE 9 OUTLINE OF RESPONDENTS' CASE 13 JURISDICTION 16 Submissions on jurisdiction 16 Consideration as to jurisdiction 33 Conclusion as to jurisdiction 56 POWER 56 Remedial relief and specific performance 59 The power to "vary" contracts 71 Conclusion as to power 72 EVIDENTIARY BACKGROUND 72 Caterpillar 72 The Second Applicant 78 The Third Applicant 80 Acquisition by the second and third applicants of the Waugh & Josephson dealership 82 THE FIRST AND SECOND ASSURANCES 86 Estoppel by Convention 99 Promissory Estoppel 100 Conclusion regarding first and second assurances 101 ONGOING INVESTMENTS BY APPLICANTS 102 EARLY EXPRESSIONS OF DISSATISFACTION WITH APPLICANTS 105 MARCH 1993 REVIEW OF GOUGH & GILMOUR 121 JANUARY 1994 REVIEW OF GOUGH & GILMOUR 122 1994 BUYBACK OF CATERPILLAR'S EQUITY IN GOUGH & GILMOUR 124 THE YEARS 1995 AND 1996 129 THE 1997 REVIEW 132 THE TEPS DISPUTE 139 1998 - A CRITICAL YEAR 151 Richard Nitto 152 Kevin Barrett 156 John Langmore 157 RPI dispute 169 The Cadia dispute 179 Consideration of Nitto's decision in 1998 to recommend change of dealer 204 DEALER RATIONALISATION 208 MARCH 1999 REVIEW OF GOUGH & GILMOUR'S DEALERSHIP 217 IMPROVEMENT PLAN; STEP BACK OPTION 235 GOUGH APPROACHED TO SELL 238 THE FOURTH ASSURANCES 241 Conclusion regarding the fourth assurances 253 THE LEGAL ADVICE ISSUE 254 Conclusion regarding legal advice issue 268 SALE/EXIT PROCESS 268 Whether the sale process was a sham 269 Whether the sale process was unfair because it limited the potential for the applicants to maximise the price for the dealership and placed the applicants in a weak bargaining position vis-a-vis WesTrac 277 What conclusions can be drawn from the conduct of the applicants, the respondents and WesTrac during the sale negotiations? 288 Whether the respondents acted unconscionably in deciding to terminate the dealership agreements. 330 THE TERMINATION CLAUSE 333 DISPUTE RESOLUTION 337 GILMOUR'S POSITION 339 EVENTS POST-TERMINATION 341 EXPERT EVIDENCE 347 Conclusion on expert evidence 355 PARTICULAR LEGAL ISSUES 355 Implied term of good faith and reasonableness 355 Thiess Contractors Pty Limited v Placer (Granny Smith) Pty Limited 363 Central Exchange Ltd v Anaconda Nickel Ltd 367 Notice of termination of commercial agreements 369 Crawford Fitting Co v Sydney Valve & Fitting Pty Ltd 369 A & M Thompson Pty Ltd & Ors v Total Australia Ltd 372 Trust and confidence 374 Garry Rogers Motors (Aust) Pty Limited v Subaru (Australia) Pty Limited 376 Relational contracts 379 Procedural fairness 382 SUMMARY OF FINDINGS 383 UNFAIRNESS 390 PRIMARY RELIEF 398 SECTION 107 400 FURTHER PROCEEDINGS 401 ORDERS 402

[31]

In spite of their intention to retain the dealership for the very long term and despite the fact they achieved strong market share and more than acceptable profitability, the applicants: (a) were induced to enter into a sale process for the dealership on the basis that the second respondent had already made a decision that they could not retain the dealership (with the implication being that a cancellation would result if they refused to agree to a sale process); and (b) when that sale process failed, through no fault of the applicants but courtesy of, inter alia , the respondents' breaches of various assurances as to how that sale process would be conducted, had their dealership cancelled without notice and "without cause". 3) Contrary to the repeated assertions of the respondents that this case is somehow "unique", the applicants contend that it is a typical (and indeed a classic) section 106 case, as is apparent from the following incontrovertible propositions, namely: (a) prior to February 1989, the dealership was owned and operated by Waugh & Josephson for many years, but during the 1980s it was poorly managed and had fallen into a parlous state; (b) the respondents were looking for new blood that could turn the dealership around, i.e. return it to a well managed and profitable state. The applicants were chosen as the most suitable individuals to achieve these goals, not only because of their individual qualities but also because of their extensive experience with the management and operation of Caterpillar dealerships; (c) the applicants took enormous personal financial and business reputation risks in the belief that they could turn the dealership business around and on the basis that, if they did so, they could hold on to the dealership indefinitely. Their understanding and belief was that the only condition was that they continued to achieve acceptable market share, were profitable and did not misconduct themselves (whether that be in a criminal sense or otherwise); (d) the applicants upheld their side of the arrangement in that they undoubtedly turned the business around, and expanded it dramatically, and made it into an extremely profitable and sought after business. They had complied with the terms of the Sales and Service Agreement and had not otherwise misconducted themselves so as to provide "cause" for the termination of the arrangement; (e) the respondents, on the other hand, after having received substantial direct and indirect financial and other benefits associated with the success that the applicants have achieved with the dealership, have exercised the power that they have under the Sales and Service Agreement to bring the whole arrangement to an end "without cause". This power has been exercised by the second respondent: (i) without a proper foundation for such exercise, as in fact the applicants were performing well; and (ii) the decision was based on false and misleading reports provided by the first respondent which did not convey the true state of facts relating to the dealership or the sale process. (f) the first respondent induced the second respondent to approve Gough being approached with a "request" that he sell the dealership, by misleading the second respondent into believing, inter alia , that the first applicant was a poorly performing dealer (and had been so for many years); (g) the first respondent, in conjunction with the Vice President - Asia Pacific of Caterpillar Inc. (Mr Ramseyer) and the Stokes' organisation (owner of WesTrac) induced the second respondent into approving the cancellation of the dealership by inducing the second respondent to believe (erroneously) that the applicants had not negotiated in good faith, had deliberately prolonged the sale process, had reneged on a commercial agreement with the Stokes' organisation such that they were responsible for the failure of that process and also to believe either that there were no options to cancellation or that such available options had already been explored without success; (h) the first respondent and Mr Ramseyer engaged in the above misleading conduct so as to disguise their true intention and motivation which was to effect a rationalisation of dealerships in Australia. Their conduct was designed to circumvent the second respondent's overarching policy against dealership rationalisation (save in circumstances where a dealership is already going to "change hands" for other reasons). In any event, and regardless of the motive behind the termination, the first respondent in recommending termination failed to act in good faith or with any proper justification; (i) the applicants were never afforded any opportunity to respond to the March 1999 allegations of poor performance and irreconcilable differences in the relationship; were never given a chance to formulate and/or discuss an "improvement plan to re-establish their viability as a dealer"; were never warned as to the prospect of cancellation unless significant changes or improvements occurred; were never afforded an opportunity to put their side of the story as to why the sale process failed; and were never warned in August/September 2000 that unless a deal was soon finalised then they would be cancelled; (j) the respondents, whilst firm in the view that dealership cancellation only occurred as a "last resort", totally ignored that well established and understandable policy not only by denying the applicants natural justice but also by refusing to take (or even attempt) any one or more of a number of different steps/options that would have (or may have) obviated the need to resort to cancellation (eg the development and implementation of a relationship improvement plan; the Gough "step back" from day to day management idea; permitting the applicants to sell to another Australian or overseas dealer). The first respondent (in conjunction with Mr Ramseyer of the second respondent) misled the second respondent into adopting such a stance by convincing it that there were no options to cancellation that were worth pursuing (especially the "step back" idea and the development of an improvement plan).

[33]

If the Court finds that it does have the necessary jurisdiction and power contrary to the respondents' submissions, the dealership agreements are not unfair and have not become unfair by reason of the conduct of the parties for the reasons that follow: (a) the agreements and their terms - including the reciprocal termination clause and its proper construction and operation that entitled the first respondent to terminate the dealership agreements without cause on 90 days' notice of termination; (b) the unique nature of the Caterpillar/dealer relationship which has at its heart the need for trust, respect, cooperation and open communication; (c) the circumstances in which the applicants acquired Waugh & Josephson and the extensive business, financial and other experience, knowledge and advice they had at the time regarding, inter alia , the manner in which dealership operated and the terms of the reciprocal termination clause; (d) the beneficial use to which the applicants put the reciprocal termination clause (and the nature of the dealership) at the time of the restructure in 1991 and the manner in which that demonstrated their level of understanding and appreciation of the true nature of the relationship. (e) the history of the relationship, and: (i) the demonstrably apparent and acknowledged recurring lack of trust, respect, cooperation and communication between the parties; (ii) the differences in approach and philosophy in relation to various initiatives and business matters; (iii) the difficulties and inability to cooperatively, effectively or expeditiously work through business issues or points of difference; (iv) the personal characteristics and approaches of the applicants - Mr Gough in particular, and the number of people with whom he had difficulty dealing; (v) the numerous attempts over the years by the respondents to restore the relationship to what it should have been and the failure to do that in the face of the applicants' conduct. (f) At all relevant times the second respondent was properly advised of the first respondent's actions in relation to the applicants and was not misled in any way; (g) As to the applicants' conspiracy theory that the first respondent sought to terminate the dealership agreements in order to achieve a rationalisation of the number of dealers without the consent of the second respondent, the first respondent did not do so and there is no substance to the rationalisation conspiracy theory; (h) Despite the nature of the relationship justifying it being brought to an end at a much earlier point in time, the first respondent did not do so and persevered with it until June 1999. (i) Despite its entitlement to do so the first respondent did not in June 1999 seek to rely upon its 90 days' without cause termination right in order to bring the relationship to an end, but rather sought to discuss and agree upon a process with the applicants that would result in a smooth transition with the process involving:

[37]

16 The first matter to consider is whether the Court has jurisdiction to hear and determine the applicants' claims for relief. Mr Hall QC, for the respondents, contended "the contracts constituting the transaction between Caterpillar of Australia Limited and the applicants are beyond the scope of s 106." Mr Hall in his submissions made a careful and thorough analysis of the law relating to jurisdiction under s 106 of the Act and, hopefully, without doing any injustice to those submissions, they may be summarised as follows: (a) The legislative history of s 106 shows that it was originally designed as part of measures to close legal loopholes that permitted the avoidance of the employer-employee relationship and the industrial obligations arising therefrom. The protective measures put in place were in the interests of employees and quasi-employees alike. (b) It is unlikely in the extreme that in 1959 (when s 88F was introduced) Parliament intended the section to reach contracts of sale which led to work being performed in an industry only because employees would work for the purchaser or the purchaser would work for himself: Production Spray Painting & Panel Beating Pty Ltd v Newnham (1991) 27 NSWLR 644 at 656; (1991) 37 IR 46 at 57 per Priestley and Handley JJA. (c) The various legislative amendments to s 88F have not changed the original purpose of the section. (d) In construing the present s 106 and the contracts and arrangements to which it was intended to apply, it is necessary to apply the approach to statutory interpretation which determines the legislative intention behind it: Kingston v Keprose Pty Limited (1987) 11 NSWLR 404 at 421; Production Spray Painting (1991) 27 NSWLR at 648-649; Project Blue Sky Inc. v Australian Broadcasting Authority (1998) 194 CLR 355 at 381. In Isherwood v Bulter Pollnow Pty Ltd (1996) 6 NSWLR 363, McHugh JA (as he then was) referred to the role in approaching the construction of general words in a statute of identifying and using the 'mischief' behind the statute. There McHugh JA emphasized that if the plain words of a provision are read in light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance: see also CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 187 CLR 384 at 408. (e) In Production Spray Painting , Mahoney JA identified the mischief to which the section was directed, the remedy chosen to meet it and the reason behind it. He stated at 649: ".... The mischief to which the section was directed is not a narrow one and should not be artificially restricted. But it lay generally in the area of, as it may be described compendiously, employee protection. The context of the section, its enactment as an amendment of the Industrial Arbitration Act , and the terms of the section itself support this view: see, for example, the reference in the earliest form of the section, to "public interest" and what that term is seen to comprehend." … ".... The mischief included, not merely employment in the strict sense, but the substitutes or stratagems for avoiding employment in the area of the performance of work in an industry. But it was, I think, essentially to mischief in that general area that the section was directed". (f) Under s 146 of the Industrial Relations Act 1996, the Commission is required to have regard to the objects of the Act. The objects are wholly industrial and not commercial. Within the sphere of state industrial legislation and regulation they were neither designed nor intended to either interfere with trade or commerce or to protect corporations or investment/managerial partnerships in entrepreneurial ventures whose interests, it can be assumed, are protected by specialist legal representatives, financial advisors, merchant bankers and accountants. (g) The correct view of jurisdiction, which gives effect to the 'mischief' behind the legislation, involves two elements, both of which must be present in a particular case before s106 can apply: 1. The purpose and effect of the transaction must lead directly to the performance of work by a person in an industry and it must have that as its purpose: See Mahoney JA in Production Spray Painting at 648; Euphoric Pty Ltd v Ryledar Pty Ltd [2002] NSW IRComm 136. 2. The work directly arising from the agreement must be work required as a contractual obligation by one person to be performed for another: see Production Spray Painting at 654 - 657; Becker v Harry M Miller Attractions Pty Ltd (1972) AR (NSW) 298 at 305. (h) The first requirement for jurisdiction referred to as the purpose test, was analysed and explained in Production Spray Painting by Mahoney JA. This approach placed emphasis on a correct identification of the purpose of the transaction. (i) The purpose test may be stated in the following four propositions: 1. The term "whereby" is a word that connotes a causal relationship. Its ordinary signification, however, would lead to unthinkable results, as it would literally sweep up commercial contracts in that it could be said that they in one sense of "causation" in fact lead to work in an industry. There must be limitations, consistent with accepted canons of construction, imposed on the phrase whereby , and upon the substitutes that have at times been advanced, such as in consequence of, in fulfilment of and in contemplation of the parties etc. 2. The means or mechanism propounded is one based on ascertaining the 'mischief' behind the legislative provision and in the light of it to ascertain the 'purpose' of the transaction that is in question. 3. Jurisdiction is only conferred where the transaction has, as its purpose, the performance of relevant work ( Production Spray Painting at 650G). 4. It is necessary to pay regard to the different meanings of purpose. In particular, there is a distinction between the purpose of a transaction and that which the parties have stipulated shall be done in order for that purpose to be achieved. (j) There will be many transactions requiring the performance of work but the performance of work is not a relevant purpose of the transaction. It is clear that in many such cases the work is not, in concept, the purpose of the contract but rather is what, as a matter of obligation, is required to be done in order that the purpose of the transaction be achieved: Euphoric at par [36] per Schmidt J. (k) It is, for jurisdictional purposes, insufficient that work be contemplated by the transaction. It is not uncommon that work will be performed, as a matter of obligation, by or under one party to the transaction entered into by the obligee. The terms and conditions and the means for effecting it, however, may not be under the control or knowledge of the other party to the transaction. The identifiable purpose of the transaction in this case is to promote the marketing and sale of Caterpillar products. The purpose of the transaction is not, in the relevant sense, the performance of work. (l) Section 106 was not intended to interfere with the commercial life of the business community, which is regulated by the general law, the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW), along with legislation for the regulation of corporations generally. (m) As to the second jurisdictional requirement, namely that there must be performance of work for another, In Davies v General Transport Development Pty Limited (1967) 67 AR (NSW) 371 at 373, Sheldon J stated: ".... There is no general charter in the s88F to rescind or vary contracts because they are thought to be oppressive. Its place is in the Act because its basic purpose is industrial. The crucial and restrictive words are 'whereby a person performs work in any industry" (n) Prior to the decision of the High Court in Stevenson v Barham (1977) 136 CLR 190 the accepted approach to jurisdiction required the existence of a contractual obligation in one person to perform work for another. This, it was held, gave the 'industrial colour or flavour': see Ex parte VG Haulage Services Pty Limited: Re Industrial Commission of New South Wales (1972) 2 NSWLR 81 at 87 - 88 per Jacobs JA; see also In Re Becker & Harry M. Miller Attractions Pty Limited (No. 2) (1972) AR (NSW) 298 at 305; Player v Kacy (1971) AR (NSW) 125. Following Stevenson v Barham a broader interpretation of the section emerged: see Mitchell v Vending Machine Co of Australia Pty Limited (1977) AR (NSW) 30. (o) In 1991, the New South Wales Court of Appeal in Production Spray Painting v Newnham re-examined Stevenson v Barham and judgments in other leading cases on the question of jurisdiction. The Court of Appeal was of the view that the Commission in Court Session in the decision under challenge had "purported to follow and apply the majority judgments of the High Court in Stevenson v Barham .... and the decision of the Privy Council in Caltex Oil (Australia) Pty Limited v Feenan ..." but that in fact an incorrect approach had been adopted due to a misunderstanding of the principle as to jurisdiction and, in particular, the context in which that principle has been stated by the High Court. The effect of the decision in Production Spray Painting v Newnham was to reveal as a correct statement of jurisdiction the original and narrower interpretation of the provision by the Industrial Commission in Court Session in Re Becker and Harry M. Miller Attractions Pty Limited (No. 2) and in Player's case, at least insofar as Sheppard J in the latter case had emphasised the importance of the presence of a contractual obligation in a person to perform work for another before jurisdiction could attach. (p) What a detailed examination of the 'jurisprudential story' behind s106 reveals is that the interpretation of what the majority of the High Court had said and done in Stevenson v Barham had been misunderstood by the Commission in Mitchell v Vending Machine Co of Australia Limited . What the Commission in that case had taken the High Court to have said in Stevenson v Barham and which the Commission regarded as "the premise" of the majority decision - (namely - "(the majority judgment) ... must be based on the premise that, so long as a transaction leads directly to work in an industry, it falls under s88F regardless of whether work is for another or not. ...") was quite erroneous. There must be, the Court of Appeal pointed out, the additional element of an obligation on a person performing work for another. A proper understanding of what the majority in Stevenson v Barham had said was not at all contradictory of that proposition. (q) The acceptance of the test expounded upon by the Court of Appeal as embodying the correct test has since been applied by the Commission. After referring to earlier decisions in Myer Stores Ltd t/as Grace Bros v Stowart (1994) 55 IR 21, the licences cases ( Caltex v Feenan ) and the franchise cases ( Australian Business Systems v Smith (1989) 29 IR 172, 184), Peterson J in Mitchell v Interstate Pipelines Pty Limited (1998) 8 7 IR 324, 332 stated: In each of these cases, and in cases generally of each class, the applicant is found to be operating his "own business" but in the relevant sense for another … (r) The decision of the Full Bench in Chrysler Jeep Automotive Distributors Australia Pty Limited v Canberra Star Motors Pty Limited & Ors (1997) 79 IR 452 did not address the second of the two jurisdictional prerequisites, namely the work directly arising from the agreement must be work required as a contractual obligation by one person to be performed by another. It was not asked to do so. Whether or not the first prerequisite (the purpose/causative element) was concluded by the Full Bench's decision in that case or not, the second element remains an issue that has not been addressed by the Industrial Relations Commission of New South Wales in Court Session in relation to a dealership transactions such as are involved in these proceedings. It is this issue and the 'purpose' test referred to as the first jurisdictional requirement that lies at the centre of the respondents' objection to jurisdiction and their defence. (s) Licence agreements such as those in Caltex Oil (Australia) Pty Limited v Feenan and franchise agreements as in Majik Markets Pty Limited v Brakes and Service Centre Drummoyne Pty Limited (1991) 39 IR 169 are within jurisdiction because of the particular terms and conditions that require the performance of work by a person or persons for another. (t) In relation to the Caterpillar dealership in these proceedings: 1. The Agreements do not require or provide for the licensing or operation of premises for the conduct of a business thereon on behalf of or for the benefit of Caterpillar. 2. The primary purpose of the agreement is the development and promotion of the sale of engine products and to provide a high standard of parts availability and mechanical service, in accordance with Clause 2(a) of the Sales and Service Agreement. 3. The Agreement does not provide for the franchising or licensing of a business and does not require the applicants to conduct a business of Caterpillar or a business of their own under Caterpillar's name. 4. The relationship between Caterpillar and Gough & Gilmour is that of ".... independent contractors and vendor and vendee", (cl 27). 5. The Sales and Service Agreement (Clause 2(c)) contains a provision that the principals "will continue in the act of management of a dealer or will continue to own a substantial financial interest in dealer" (emphasis added). This is neither a condition precedent to the operation of the Agreement as in the Majik Markets franchise agreement nor does it impose a contractual obligation upon the dealers to perform work in the business of Caterpillar (as was the case in the Majik Markets franchise). Importantly, they are the working proprietors in their own business. Clause 2(c) provides an option for the principals to either manage or to maintain a financial interest. 6. There are no contractual obligations in the dealers to work for Caterpillar in Caterpillar's business (cf. the Caltex service station business and the Majik Markets Convenience Store franchise). The dealership "business" carried on in the name of Gough & Gilmour is operated by the corporate entity, (the first applicant) and the dealer principals as its proprietors. The sale by Caterpillar pursuant to the Sales and Service Agreement on a wholesale basis of Caterpillar manufactured products to the dealers for the purpose of retail sale by them to third parties does not involve obligations upon them to work for Caterpillar in its (Caterpillar's) business. There is no contractual obligation in them to work for Caterpillar in the accepted and restrictive jurisdictional sense. The fact that, in a general sense, Caterpillar products in due course reach consumers via dealers neither creates nor converts the terms and conditions of the Sales and Service Agreement into a legal relationship by which one works for the other. Although the businesses of Caterpillar and a dealer are interfaced (as is the case in many commercial relationships) by the Sales and Service Agreement, they are separate in terms of assets, goodwill, capital and employment. As Jacobs JA (as he then was) in Ex parte V-G Haulage: Re Industrial Commission at 88 indicated, a contract that simply in a commercial sense involves the provision of goods and services with a consequent performance of services does not satisfy jurisdictional requirements. See also Euphoric Pty Limited v Ryledar Pty Limited . 7 In relation to contractual obligations to provide mechanical services to third parties, such obligations and the performance of them are neither in a direct nor in a legal sense for the financial benefit of Caterpillar. Firstly, the services are not provided to Caterpillar but are rendered by Gough & Gilmour to third parties. They are not services constituting the performance of work or services for Caterpillar in the sense that the Court of Appeal was at pains to emphasize. They are services rendered by Gough & Gilmour pursuant to supplier/service relationships established by service agreements entered into by them with their customers. The remuneration payable for such services, of course, goes to the dealer and not to Caterpillar. In these respects, the necessary element of the provision of services that existed in Stevenson v Barham is absent. There the contract was one under which the share-farmer undertook to do and provide work for the benefit of the farmer owner. It involved a contractual obligation vis-a vis the two for the working of the farm with the milk quota maintained, the farmer benefiting from half the net profits as a result of the work performed by the share-farmer for the owner (and himself). 8. Unlike either the licence agreement in Caltex or the franchise agreement in Majik Markets , no monthly periodic licence fees or other remuneration has been paid or is payable by the dealer to Caterpillar. There is no division of profits for the performance of service work between Caterpillar and the dealer as occurred in Stevenson v Barham . 9. Further, the dealership assets and employees constituting 'the dealership business' were originally owned and operated by Waugh & Josephson Holdings Pty Limited until 1989 when the shareholding was transferred across to the corporate entity then called Elemental Pty Limited. The Agreements were not the instrument which gave rise to the then existing workforce working in the industry and are therefore not within jurisdiction: see Williams v Mathews (1978) 1 NSWLR 78 ( Cahill J). (u) The Agreements in these proceedings do not satisfy the necessary jurisdictional requirements. They do not impose a contractual obligation to perform work on the applicants for Caterpillar or for anyone else. The applicants invested in a multi-million dollar business of which they were proprietors and from which they received remuneration as they determined in the form of profits from the sale by them of products and from providing services to their customers. Their business, though operating commercially under a commercial contract with Caterpillar, was the business for which they worked - not in Caterpillar's business that Caterpillar of Australia owns and operates as a separate business. 17 Mr Kimber SC, for the applicants, maintained there was jurisdiction for the Commission in Court Session to hear and determine the applicants' claim. His submissions in this regard may be summarised as follows:

[38]

(a) The legislative history of the unfair contract provisions indicates that Parliament did not intend to limit the scope of section 106 as contended by the respondents. Although the original objective of section 88F was to protect the system of industrial arbitration and awards, and disallow arrangements which would "…lower standards of wages and working conditions built up over many years of intense union organisation and industrial action" ( Industrial Arbitration (Amendment) Bill 1959, Minister's Second Reading Speech, Hansard, Assembly, 18 November 1959 at 2130), the original purpose has been considerably broadened over time. (b) It could reasonably be expected that, if Parliament were dissatisfied with the unfair contract provisions extending to "commercial cases", an amendment would be passed removing such cases from the jurisdiction of the Court. Despite the enactment of section 275 of the Industrial Relations Act 1991 and s 106 of the Act providing an opportunity to Parliament to remove "commercial cases" from the jurisdiction (as well as the introduction in 1998 of s 109A into the Act providing the same opportunity), no such removal has occurred. In June 2002 the legislature amended the unfair contract provisions again: Industrial Relations Act (Unfair Contracts) Amendments Act 2002. The effect of the Amendments Act is to limit the jurisdiction in respect of employment and partnership contracts. No limitation was introduced with respect to other types of agreements, including "commercial" agreements, even though the legislature would have been aware of the Court accepting it had jurisdiction in such cases. (c) A review of the legislative evolution of the unfair contract jurisdiction shows that it has evolved well beyond merely being a measure to protect certain workers, not covered by award, from exploitation in their employment conditions. It shows the legislature being aware of this evolution, yet not amending the legislation to prevent such jurisdiction continuing. This is consistent with the jurisdiction of the Commission being widened in respect of the definition of industry, and also by the inclusion in the objectives of the 1996 Act (section 3) to promote efficiency and productivity in the economy of the State. (d) Whilst it is true that s 106 is found in industrial legislation, the "industrial flavour" of the provision is reflected in the requirements that the contract or arrangement be one providing "directly" for the performance of work in an industry (see: Production Spray Painting at 58.2-58.4). (e) It is well-established that there is no jurisdictional limitation with respect to "commercial" cases. The Court and its predecessors have long recognised that the unfair contract provisions extend to so called "commercial cases". A Full Bench has recently confirmed that "merely because a contract or arrangement might be characterised as 'commercial' that is not a basis upon which to conclude it cannot be challenged under section 106": Mitchforce Pty Limited v Starkey [2002] NSWIRComm 85. (f) The respondents contended that one of the jurisdictional requirements is the purpose test and rely on Mahoney JA in Production Spray Painting and the Full Bench decision in Euphoric. The respondents submit that, on Mahoney JA's analysis, the purpose of the transaction must be the purpose of both parties and further in applying it there is, in principle, a distinction between the purpose of a transaction and that which the parties have stipulated shall be done in order that the purpose be achieved. There are a number of responses to this submission: (i) Only one member of the Court of Appeal ( Mahoney JA) stated the jurisdictional requirement in terms of "purpose" - the remaining members ( Priestley and Handley JJA) stated the test in terms of the contract or arrangement providing "directly" for the performance of work, without any reference to "purpose". Accordingly, the "purpose" aspect emphasised by the respondents does not form part of the ratio of Production Spray Painting v Newnham ; (ii) The width of "purpose" is sufficient to cover franchise agreements, given that Mahoney JA agreed generally with the reasons of Priestley and Handley JJA (see: 27 NSWLR at 646B) and the majority referred to franchise agreements (implying that such agreements were within jurisdiction) when applying their reasoning to the impugned contract (see: 27 NSWLR at 657F); and (iii) Since Production Spray Painting the Commission in Court Session has on a number of occasions considered the decision in Production Spray Painting and held that it stands for the proposition that the contract or arrangement must be one providing "directly" for the performance of work in an industry as against in a remote or inconsequential manner, for example, Mitchforce v Starkey at pars [35]-[37]; and Chrysler Jeep v Canberra Star Motors at 459. (g) The respondents refer to the distinction between transactions requiring the performance of work and transactions where the performance of work is the relevant purpose of the transaction, and refer to Euphoric at par [36]. The present proceedings are distinguishable from the factual background considered in Euphoric and Production Spray Painting . In both Euphoric and Production Spray Painting the agreements considered involved a completed transaction which did not require an ongoing relationship between the parties requiring work to be performed. The agreement considered in Euphoric had as its purpose simply the sale of goods; the agreements considered in Production Spray Painting were simply for the sale of business. In neither case did the contracts in question attempt to govern how the person was to operate the business/deliver the goods. (h) The purpose of the transaction that is the subject of the present proceedings was to appoint a dealer to sell and service Caterpillar equipment and related services in a geographic area. That is, the purpose of the contract was that work be performed (in both selling and servicing the equipment and related services). (i) The second jurisdictional requirement contended for by the respondents was that a party be under a contractual obligation to perform work "for another": Production Spray Painting. This is not correct, for the following reasons: (i) There are many decisions of this Court, since Production Spray Painting where no such jurisdictional requirement was held to be required. The clearest example (in circumstances of this case) being Chrysler Jeep. See also Starkey v Mitchforce ; Booth v Kritikos Developments ; and, the franchise cases. (ii) The Court of Appeal in Production Spray Painting did not state the jurisdictional requirement in terms of a contractual obligation to perform work "for another" - in fact the only limitation enunciated by the Court was the contract or arrangement must provide "directly" for the performance of work. (iii) The Court of Appeal referred to franchise agreements in analysing whether the impugned contract was within jurisdiction (see: 27 NSWLR at 657F), thereby implicitly accepting that a franchise agreement was within jurisdiction. If the Court of Appeal had intended to adopt the test of performance of work "for another", a franchise agreement would fail to meet such a test because a franchisee does not work (solely) for another but works (at least in part) for itself. The reference to franchise agreements thus shows that the Court of Appeal did not adopt the test that the respondents urge upon the Court. (iv) Production Spray Painting applied the decision of the High Court in Stevenson v Barham. There Mason and Jacobs JJ, (with whose conclusion and reasons Barwick CJ expressed agreement) stated (at 201) as follows: "… if the contract is one which leads directly to a person working in any industry it has the requisite industrial character - it is a contract 'whereby a person performs work in any industry'. This is the relevant jurisdictional fact which needs to be established." (v) It is instructive that in the view of the majority in Stevenson v Barham they did not need to determine whether the relationship between Stevenson and Barham was in fact a partnership agreement. Unless a very wide view of the proposed test is applied, a partnership would not be considered a contract whereby one person works for another person's business rather, as Stephen J stated in the case of a partnership, "they are working together". That the High Court ultimately determined that it did not matter whether Stevenson and Barham were in partnership leads to the conclusion that the High Court did not believe that the appropriate test could be whether one person is working for another person's business. Parliament cannot believe that is the test either, given the recent amendments to the Act. One of those amendments is to limit the ability of partners to take claims in respect of partnership contracts. Parliament clearly believes that partnership claims can be brought, suggesting that Parliament does not consider the section limited to those circumstances where one person works for another person's business. (j) In any event, if contrary to the submissions in the three previous paragraphs, the Court was to apply the "purpose" and "for another" tests urged by the respondents, the dealership agreements that are the subject of these proceedings satisfy those tests: (i) Franchise cases were held to be within jurisdiction by Handley JA ( Kirby P agreeing) in Majik Markets Pty Limited v Brake & Service Centre Drummoyne (1991) 28 NSWLR 443 at 464-465. There Handley JA stated: "while the franchisees, if natural persons, are working for themselves, they also in a very real sense working for the franchisor. If the business was not operated by some franchisee, the franchisor would either have to employ staff of its own or sell or lease the site to an independent purchaser or lessee". In the same way, if the respondents did not enter into an agreement for the applicants to distribute its products in NSW/ACT then it would need to employ its own staff to do that. (ii) The dealership agreements are akin to a franchise agreement (note the fact that the termination notices issued on 26 October 2000 were to constitute notices for the purposes of the Franchising Code). (iii) The applicants clearly work (at least in part) 'for' the respondents in the same way a franchisee works 'for' the franchisor. The Overall Arrangement was said by the respondents to have the effect of creating a 'partnership' between the parties. (iv) The dealership agreements specifically require or provide for the conduct of the business on behalf of Caterpillar. The agreements are not simply commercial contracts for the provision of goods and services, and in that regard can be distinguished from Production Spray Painting and Euphoric . The agreements provide continued contractual obligations on the dealers to work for Caterpillar in work which Caterpillar would have had to undertake themselves if not undertaken by the applicants. The fact that the work undertaken by the applicants is undertaken for the applicants themselves as well as for the respondents is not a bar to jurisdiction. (k) The respondents clearly have a continued interest in the conduct of the applicants' business and the applicants were obliged to comply with the various provisions of the Agreements that specially regulated the performance of work under the contract. This is to be contrasted with, for instance, the contract in Euphoric which did not deal with how the work in delivery of the goods was to be performed by or for the other party, and, therefore, the obligation to deliver the petroleum products purchased was not a purpose of the contract in itself, but rather what the parties had stipulated be done in order that the sale of the petroleum products be achieved. (l) As in Caltex Oil , Majik Markets and Chrysler Jeep the terms of the agreements relate specifically to how the applicants are to operate their dealership arrangement with Caterpillar and thereby directly require work to be performed in accordance with them. Pursuant to the agreements the applicants are required to undertake work for Caterpillar as well as for themselves, and the work they did was work they were required to do by the terms of the contract. (m) The Sales and Service Agreement dated 1 July 1991; the Distribution Agreement for Engines, Parts and Service dated 1 July 1991; and the Product Support Agreement for Engines, Parts and Service dated 12 November 1997 are contracts whereby a person performs work in any industry. In particular: (i) Paragraph 2 of the Sales and Service Agreement dated 1 July 1991 states that the primary purpose of entering into the agreement is to develop, promote and sell lift truck products and provide a high standard of parts availability and mechanical service and to ensure satisfaction by users of lift truck products. Specifically, that this is a personal contract entered into by the respondents in reliance upon the capability of the applicants to provide such sales and service to customers. Without the express written consent of the respondents, the applicants agreed not to appoint others to perform such sales and service responsibilities. Additionally, that the respondent relies upon the qualifications and abilities of the particular individuals named as principals (being the Second and Third applicants) and that those applicants would continue in the active management and continue to have substantial financial interests in the arrangement. These requirements are replicated in the Distribution Agreement for Engines, Parts and Service dated 1 July 1991 (at paragraph 2) and the Product Support Agreement for Engines, Parts and Service dated 12 November 1997 (at par 2). (ii) Each of these agreements also require the applicants to undertake sales and service of the vehicles (as well as maintain a suitable place of business) and to employ an adequate number of qualified sales people and service people; to undertake product safety and improvement and promotion; as well as to keep a proper inventory and sales record of all products and services. (n) Where the Commission has considered particular transactions, such as a simple sale or hire of a business, to fall outside the unfair contract jurisdiction, it would appear that these cases could be distinguished on the basis that there was lacking the direct relationship between the contract being considered and the work that has been performed in the industry. In such cases, the work may be regarded by the Commission to be only a consequential or incidental result of the contract: see Lane & Anor v Industry Equity Ltd & Ors (1985) 2 NSWLR 720; Autobake Pty Ltd v Budd & Anor (1986) 19 IR 18; Little Chelsea Pty Ltd v Mulroad Pty Ltd (1987) 20 IR 132. (o) The dealership agreements would even fulfil the narrow jurisdiction test prior to the High Court's decision in Stevenson v Barham . Even applying such a narrower test of jurisdiction, a wide range of arrangements were held to be within the jurisdiction of the Commission: for example see Larkin's case (1971) AR (NSW) 930 (retail liquor distributorships); Re Williams and Calmex Products (1971) AR (NSW) 264 (wholesale selling); ex parte Ashfield Brokers & Consultants Pty Limited re Witek [1972] 14 AILR 486 (plastic moulding manufacture); ex parte Richardson re Hildred IJ & Ors [1972] 2 NSWLR 423 (entertainment industry); Custom Credit Corporation Limited v Goldsmith & Ors (1976) AR (NSW) 98 (tent hire and distribution). (p) The respondents have placed reliance on Cribb v Korn (1911) 12 CLR 205. The respondents rely on that case for the proposition that in order to establish jurisdiction under s 106 there must be a contract or arrangement the terms of which require work to be done by one person for the benefit of the other party. Such a proposition misunderstands the position clearly established by the case law. Cribb was a case brought under s 10 of the Workers' Compensation Act 1905 and Korn, an injured employee employed by Rano, had failed to prove that Cribb stood in a relationship to him of an employer liable to him in compensation. However, clearly the requirement, that the work being executed by Korn was directly a part of a process in the trade or business of Cribb, arose from the specific statutory framework of the workers' compensation legislation that did not impart liability on anyone who was not the principal of the immediate employer. Such a requirement cannot be translated into the jurisdictional test of s 106. Consideration as to jurisdiction

[41]

20 There were four separate judgments in Stevenson v Barham. The first was that of Barwick CJ, who said in the oft-quoted passage from 192 of the report: Notwithstanding the wide language of s. 88F, I have found difficulty in becoming convinced that it was within the contemplation of the legislature that agreements for business ventures, of which the present may be a specimen, freely entered into by parties in equal bargaining positions, should be so far placed within the discretion of the Industrial Commission as to be liable to be declared void. However, I have come to the conclusion that the language of s. 88F of the Act is intractable and must be given effect according to its width and generality. The legislature has apparently left it to the good sense of the Industrial Commission not to use its extensive discretion to interfere with bargains freely made by a person who was under no constraint or inequality, or whose labour was not being oppressively exploited. 21 This statement by the Chief Justice is an important one because it brings to light in unambiguous language the "width and generality" of s 88F and its successor provisions, and the remarkably broad discretion that lies with the Commission in applying the unfair contract provisions of the Act. 22 Beyond the statement quoted above, the Chief Justice agreed with the conclusion of Mason and Jacobs JJ and the reasons expressed by them for dismissing the appeal. Before going to the judgment of Mason and Jacobs JJ, I should deal with the separate minority judgments of Stephen and Aickin JJ. Stephen J took the view that s 88F was concerned with "any contract in consequence of which a person performs work for another in any occupation etc. in which persons are employed for hire or reward." As to the relationship between Stevenson and Barham, Stephen J said "the present agreement is not one in consequence of which Barham was to perform work for Stevenson." His Honour did not find it necessary to decide whether or not the parties were partners but after referring to Cribb v Korn Stephen J said: The case ( Cribb v Korn ) provides an illustration of a contract, in some respects very similar to the present, which did not create any partnership and in which the farmer who was engaged in working the land was held to be working it not for the owner but for himself. If, in the present case, there was a partnership it might not then be accurate to describe Barham as working for himself but it would be no less inappropriate to describe him as performing his work on the farm for Stevenson in the sense in which s. 88F speaks; he might perhaps best be described, if a description of this concept be sought, as working in the interests of the partnership, which comprised the two of them (at 195).

[43]

24 Aickin J took the view that the agreement did not fall within s 88F. His Honour said at 212-213: It is not an agreement by which one person works for another. It is an agreement by which each party agrees to provide substantial capital assets to a partnership business, each retaining ownership of such assets, and to join with the other in subsequent purchases where requisite of other capital equipment which will become partnership property, and to use all such assets in conducting the partnership business of dairy farmers. Each is to be responsible for certain identified work in the business and to provide or supply the necessary labour to carry out such work. There is no obligation to perform the work personally, though, as I have said above, the agreement contemplated that the respondent Barham would perform personally at least some of the work for which he was responsible. Under such an agreement neither party performs work for the other. Each performs or procures the performance of work for the partnership, i.e. for himself and his partner. For that reason this agreement does not meet the statutory requirement of being one whereby a person performs work for another. Nor can it be said of this agreement that it "discloses a purpose that by the adoption of the arrangement the industrial objectives of the legislation will be more or less defeated". I can see nothing in the Act generally with which such a partnership agreement is inconsistent in terms or in policy. The Act is concerned with employment generally and by s. 88E and s. 88F is extended to include other situations regarded as substantially equivalent to, or as substitutes for, employment but the present agreement does not come within the words or the spirit of those extensions. This is not to say that every agreement cast in the form of a partnership agreement or of a share-farming agreement is necessarily for that reason alone outside the section, but the present agreement certainly is. 25 The joint judgment of Mason and Jacobs JJ, together with the judgment of Barwick CJ, made up the majority. At 201 Mason and Jacobs JJ said: …if the contract is one which leads directly to a person working in any industry it has the requisite industrial character - it is a contract "whereby a person performs work in any industry". This is the relevant jurisdictional fact which needs to be established.

[53]

35 Priestley and Handley JJA went on to say at 657: In our opinion consideration of the section in the light of these other provisions demonstrates that this Court was correct in Ex parte V G Haulage Services Pty Limited in holding that a contract is only within the section if it has "an industrial colour or flavour". It is not sufficient to establish jurisdiction that a contract "involves the provision of goods and services, with a consequent performance of work in an industry" ( Ex parte V G Haulage at 88) (Our italics.) The impugned contract etc therefore must directly, that is under or pursuant to its terms, provide for the performance of work in an industry. Accordingly, the contrast drawn by this Court in Ex Parte V G Haulage Services and approved by the High Court in Stevenson v Barham is between a contract that leads directly to the performance of work in an industry on the one hand, and on the other a contract which does so only indirectly or in a remote or consequential manner. 36 It seems to me what Priestley and Handley JJA decided in Production Spray Painting was that in order to attract the provisions of s 88F the impugned contract has to have about it "an industrial colour or flavour". That industrial colour or flavour is present if the contract under or pursuant to its terms, leads directly to the performance of work in an industry. An "industry" as defined by s 5 of the Industrial Arbitration Act 1940 was one in which persons were employed for hire or reward. In other words, "industry" involved the notion of "employment" which in turn involved the notion of the engagement of one person by another. So that, in my opinion, it is arguable that the majority in Production Spray Painting decided that in order to attract the provisions of s 88F the impugned contract must lead directly to the performance of work by a person or persons for another. It is, therefore, arguable Production Spray Painting had the effect of overruling the decision of the Commission in Court Session in Mitchell v Vending Machine Co of Australia Pty Ltd (No 2) (1977) 77 AR (NSW) 30 where it was held at 36 that: The conclusion of the majority in Stevenson v Barham must be based on the premise that, so long as a transaction leads directly to a person working in any industry, it falls under s 88F regardless of whether the work is performed for another or not. That is our understanding of the majority judgments.

[62]

47 The proposition that the transaction must lead directly to the performance of work by a person in an industry, and it must have that as its purpose, is a stricter test than that applied by Priestley and Handley JJA and to that extent it is a different test. In my opinion, the test applied by Mahoney JA is not the ratio of the judgment in Production Spray Painting and whilst it may be persuasive, it is not binding. 48 Euphoric Pty Limited v Ryledar Pty Limited was an appeal from a single member of the Commission in Court Session. Schmidt J, with whom the other members of the Full Bench (Wright J, President and Walton J, Vice President) generally agreed, said at pars [38] to [40]: 38 In my view, that a contract for the sale of a product imposes an obligation upon the seller to deliver the product to the purchaser, at a particular place or places, is of itself not a sufficient basis to ground jurisdiction under s106, irrespective of how much or little work is required, as a practical matter, in order to effect such delivery. Once the contract seeks to deal with the work required to effect delivery, a different conclusion might result. This, however, was not such a case. 39 The purpose of this contract was to provide for the sale of petroleum by the appellant to the respondents, at regular intervals over the life of the agreement. In order that this purpose would be achieved, the contract stipulated that delivery of the petroleum to the respondents was to be effected at the various sites where the products were to be retailed, by the respondents and third parties. That obligation ensured that the purpose of the contract was achieved, namely that the petroleum which the respondents had purchased be delivered to it, in accordance with its express instructions as to the place of delivery. The transfer of the goods sold was thereby achieved, as contemplated by the Sale of Goods Act 1923 . 40 The transportation of the petroleum to the specified sites in order to affect the required delivery, was a consequential result of the sale contract. The respondents had no interest in how this was done, on what terms, or by whom. They could only complain if they did not receive delivery of the petroleum purchased, at the sites specified. It follows that this contract was simply not one which enlivened the Court's jurisdiction as the result of the delivery obligation.

[72]

· [O]ur single greatest advantage over our competition was and still is our system of distribution and product support. The backbone of that system is our 186 independent dealers around the world who sell and service our machines and diesel engines. · I believe the tight working relationships we have forged with our independent dealers to meet our customers' needs hold lessons for other manufacturers … · [F]ew companies have integrated their dealers into their business systems to the degree we have. · It is not uncommon for our competitors to bypass their distributors and sell directly to the customer if they think a deal is important enough. We'd sooner cut off our right arm than do that. · It is somewhat misleading, however, to talk about "us" and "them", because we genuinely treat our system and theirs as one. Our joint distribution operations are all linked by a worldwide computer network. I can turn to the computer on my desk and find out how many machines in the world are waiting for a part. · Our Partners in Quality program … links personnel at a factory responsible for building a particular machine with people at selected high volume dealerships. They meet quarterly to discuss quality issues. In addition, those dealers audit each machine they receive from the plant, and if there's something wrong, they feed that information back to the plant immediately. · Besides helping us manufacture better products, our dealer network also generates extraordinary and timely market intelligence. · We have good relationships with our dealers not just because they like us but because the investment is good for them and for Caterpillar, and because both parties work to strengthen the relationship built on trust, confidence, shared interests and rewards. · I hear a lot of talk about trust between manufacturers and their suppliers and distributors, but few companies really put their talk into practice. The kind of trust that exists between Caterpillar and its dealers is something that could be built up only over generations. Our dealership agreements are documents that run just a few pages. They have no expiration date, and either party can terminate without cause on 90 days' notice. But turnover is rare because we recognise we're in this together. · Caterpillar helps its dealers finance purchases by customers. It supports dealers in inventory management and control, logistics, equipment management, and maintenance programs. The company … underwrites technical training and support for dealers' personnel in such areas as managing quality, continuous improvement, benchmarking, cost management, and communications. And we are prepared to respond to any need for training that a dealer identifies, whether it be in planning, forecasting, information systems, marketing and advertising, or other business functions. · When we see particular dealers not performing well, we jump in and help them. · Although it is a rare occurrence, the hardest situation is when the problem is the owner's poor leadership. Even in those cases we won't sit on the sidelines. We try to find a solution that the owner can accept. Maybe it's giving a son or a daughter a chance. Maybe it's hiring an outsider to run the business until someone else in the family is ready. Whatever the solution, we will not simply watch while a dealership declines. · There are no secrets between our dealers and us. We have the financial statements and key operating data of every dealer in the world. Dealers wouldn't give us that information if they didn't trust us. In addition, virtually all Caterpillar and dealer employees have real-time access to continually updated databases of service information, sales trends and forecasts, customer satisfaction surveys, and other critical data. · It would be easy for an outside observer to assume that the structures we have created … are the backbone of the relationship with our dealers. But the form is the easy part. What caused the deep relationships to develop are the close personal ties that have been nurtured. Those ties form a kind of family relationship. · Continuity reinforces mutual trust, limits disputes, encourages sharing of information, and generates larger gains for everyone. To that end we prefer to work with privately held enterprises … · We actively help dealers keep the business in the family. For example, when the principal of a privately held dealership is about 50 years old, we hold seminars for the family on tax issues and succession planning - both financial and management. · We also take proactive steps to try to interest children of dealership owners in the business. 57 None of the statements by Mr Fites in his 1996 article were disavowed by the respondents. Indeed, in a letter in April 1996 Mr Nitto commended the article to Mr Gough as a "very compelling description of our partnership." Mr Nitto also said in his letter that the partnership was unique "because no other competitor in this industry and, for that matter, other industries, have the kind of commercial and personal bond that I believe we share with you and your company." The article, I believe, reflects the degree of importance that Caterpillar places on the dealership network and, clearly, Caterpillar regards the network as an essential and integral part of its business. The article does refer to dealers as being "independent" but it also reveals an unusually close relationship that gives it a character that one would normally associate with franchise arrangements. In my opinion, therefore, there is considerable strength in Mr Kimber's submission that the relationship between the applicants and the respondents is akin to that of a franchisor and franchisee. In that respect, I note that the notices issued on 26 October 2000 purporting to terminate the relationship were to constitute notices for the purposes of the Franchising Code.

[76]

· Dealer will maintain a suitable place or places of business at the points shown in Exhibit A to provide adequate sources of products and mechanical service for the benefit of users …All places of business will be maintained by Dealer in a neat and attractive manner with adequate quantities of products specified in Exhibit A - all to the satisfaction of Company (cl 4). · Dealer will employ an adequate number of qualified salesmen to solicit orders for products …and will employ an adequate number of parts and service sales personnel at all times to serve the needs of the territory - all to the satisfaction of the Company (cl 5). · Dealer will at all times render prompt, competent, diagnostic and mechanical service to all users in Dealer's service territory of … products specified in Exhibit A … (cl 6(a)). · Dealer will employ an adequate number of experienced and competent service men, maintain adequate supplies of replacement parts and provide adequate field and shop service facilities to perform all required services to the satisfaction of the Company. · For the benefit of both Dealer and itself, Company will promote its products at its own expense and in its own name to such an extent and in such manner as in its judgment will best tend to support sales thereof, and, when specifically agreed upon in writing, will participate with Dealer in the expense of promoting such products and Dealer's services in Dealer's name in Dealer's territory (cl 8(a)). · Dealer, to the satisfaction of Company, will develop and execute promotion and market development programs to support sales of products specified in Exhibit A …(cl 8(b)). · Dealer to promptly provide warranty for all products in the territory, to the applicable warranty as set out and/or designated by Company (cll 10 and 11). · Dealer to provide detailed regular reports to Company of all inventories, sales, names and addresses of customers and, annually, full detailed financial reporting in Company designated format (cll 24, 25, 26). 63 The 1991 and 1997 Product Support Agreements contain equivalent provisions to those described above with the additional requirement to appoint TEPS dealers where and when instructed by the Company.

[94]

79 Fundamentally, the respondents contended that the primary relief sought by the applicants is massively disproportionate to any loss or damage that could possibly have been suffered by the applicants (the respondents, of course, deny any loss or damage caused by unfairness). 80 It was submitted that s 106(1) of the Industrial Relations Act is closely related to s 87(2)(b) of the Trade Practices Act 1974 (Cth). Reference was made to the decision of Munro J in Re Transport Workers Union of Australia (1993) 50 IR 171, where his Honour referred to s 88F of the Industrial Arbitration Act 1940 in relation to s 87 of the Trade Practices Act (at 221): Under section 127B [of the Industrial Relations Act 1988 (Cth)] it is therefore now open to me to make an order to set aside part of the contract, or to vary it. But such an order can only be for the purpose of placing the parties as near as practicable on such a footing that the unfairness found to exist no longer applies. The scope of the Commission's power to make an order is markedly narrower than that under s88F of the former NSW Act . But it broadly resembles that part of the power in the former Industrial Commission under s88F(1) to make a remedial order declaring void or varying a contract (Hall op cit, 125-127). There is of course a difference between an order declaring the contract void, and one to set it aside. It is based on the time from which the order speaks and the limits of the Commission's powers in determining existing rights. An order to set aside speaks only prospectively. The width of the power in s88F(1) of the former NSW Act to vary a contract is expounded in Sheldon J's comments on "Remaking Contracts" already quoted. That section in the NSW Act was identified as the model for a similar power in s87 of the Trade Practices Act (ACP Mills NSW Industrial Law, 356) which includes a power in s87(2)(b) for the Court to make: 'an order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date before the date on which the order is made as is so specified' While it appears that the Court has not frequently been asked to rewrite contracts under the power … it has been prepared to do so when thought necessary: 'The power conferred by s87(2)(b) is extremely wide. In terms, the discretion is unlimited but the Court would not be justified in varying a contract beyond the extent necessary to provide a result which conformed with the Act and was reasonable between the parties' ( Pont Data Aust v. ASX Operations (1990) 21 FCR 385 at 426 per Wilcox J).' I consider that a similar approach should be applied by the Commission in exercise of its power under s127B to vary a contract. Any exercise of the power must also be for the purpose of placing the parties in such a footing that the recorded ground of fairness etc in the contract no longer applies.

[107]

· Once the jurisdiction of the Court is established (as is the case here), then, provided the Court finds relevant unfairness, it has broad power to set aside or vary the contracts/arrangements under consideration and, in appropriate circumstances, to make monetary orders to remedy such unfairness. The breadth of the Court's power is apparent on the face of sections 106(1) and 106(5). The High Court has observed that the language of the unfair contracts provisions is "intractable and must be given effect to its width and generality": see Stevenson v Barham (1977) 136 CLR 190 at 192. It has been long recognised that the Court and its predecessors have "massive power" pursuant to the unfair contracts provisions to reformulate contracts and arrangements: see Davies v General Transport Developments Pty Limited [1967] 67 AR (NSW) 371 at 373; see also Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited [2001] NSWIRComm 260 at 43. · The Court and its predecessors have long recognised that the unfair contract provisions extend to so-called "commercial cases". A Full Bench of this Court has recently recognised that the unfair contracts provisions extend to "commercial cases", noting: "It is also quite clear that merely because a contract or arrangement might be characterised as 'commercial' that is not a basis upon which to conclude it cannot be challenged under s 106 of the Industrial Relations Act : Loupos v Basa t/as Robert R Andrews Real Estate (1995) 62 IR 397 at 400; Zakrzewski v Rodgers (2000) 106 IR 1 at 10; Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited (No 9) [2001] NSWIRComm 260 at [42]." See Mitchforce Pty Limited v Stark ey [2002] NSWIRComm 85 at par [36]. · Providing that the variation is related to the remediation of the found "unfairness", there appears to be nothing contained in the section itself that prevents the Court varying a contract in such a way that the contract is kept alive. Indeed, the power to vary stands in contradistinction to the power to declare a contract void. A declaration of voidness carries with it the assumption that the contractual relationship has ended or will, by that declaration, end. · The legislation is clearly remedial or beneficial in nature and the Court is therefore required to adopt a broad approach to the construction of the section (see: Euphoric Pty Limited v Ryledar & Anor [2002] NSWIRComm 136 at par [7] per Wright J, President and Walton J, Vice-President, and at pars [49] to [69] per Schmidt J). Section 106 does not restrict the orders that can be made to orders in connection with those parts of the contract concerned with the performance of work (see: Euphoric, par [7] per Wright J, President and Walton J, Vice-President, and at pars [49] to [69] per Schmidt J). Rather section 106 will "be construed so as to give the fullest relief which the fair meaning of the language will allow" (see: Euphoric, par [55] per Schmidt J, citing Bull v Attorney General (NSW) (1913) 17 CLR 370 at 384 per Isaacs J). · The Court has both had occasion to indicate that it has power to make orders varying contractual arrangements so as to keep them on foot and has in fact made such orders: See A & M Thompson Pty Ltd and Others v Total Australia Ltd [1980] 2 NSWLR 1; Elliot v Royal Motor Yacht Club of New South Wales, Newcastle Branch & Ors (1988) 42 IR 35; Starkey v Mitchforce Pty Ltd (2000) 101 IR 177 (see also on appeal Mitchforce v Starkey and Anor [2002] NSWIRComm 85). · To the extent that the equitable principles may be relevant (see Gough & Gilmour Holdings Pty Ltd and Ors v Caterpillar of Australia Ltd and Anor (No. 9) [2001] NSWIRComm 260 at par [54], these principles, increasingly, are even in their application to specific performance, applied with concepts of justice in mind and not as automatic exclusionary principles. The previous reticence of courts to order specific performance must now be read subject to the decision of the High Court in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1. There the High Court rejected the rule as a basis (of itself) for refusing a decree of specific performance. The Court noted, in its joint judgment (at 46, per Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ) that: Constant supervision by the Court by itself is no longer an effective or useful criterion for refusing a decree of specific performance.

[123]

110 Mr Matthew Tong, the first respondent's finance director from 1993 until his retirement in July 2000, gave evidence of the early history of Caterpillar: Caterpillar Tractor Company was formed in April 1925 as a result of a merger between two leading companies that built agricultural equipment being Holt Brothers and CL Best & Co. The name "Caterpillar" was a trademark of Holt Brothers having been adopted following the development of the first agricultural equipment to utilise the idea of replacing wheels with tracks so as to increase area of contact with the ground thereby spreading the load of the equipment and increasing traction. This first Holt track-tractor was tested in 1904. After the test of this first tractor machine, the Caterpillar trademark was coined by Holt. 111 Mr Tong also gave evidence of the reporting lines within Caterpillar: (a) The parent company is Caterpillar Inc, based in Peoria Illinois, USA. (b) Caterpillar Inc is administered by a Board of Directors (including a chairman) and its executive management team. (c) Operationally, Caterpillar Inc has five Group Presidents. Each Group President is responsible for a geographic region and also for certain functional areas of responsibility within the Caterpillar Group as a whole. For example, one Group President might be responsible for the Asia Pacific region and also for the Caterpillar Group finances. Group Presidents report to the Chief Executive Officer, who also serves as Chairman of the Board. The Group Presidents and Chairman are referred to within Caterpillar as the Executive Office. (d) Each Group President has a number of vice presidents. Each vice president has particular roles or functions divided in a similar way to the Group Presidents. That is, they are typically divided by region and by function. For example, there may be a vice president for Asia Pacific (as a geographic region) and also a vice president for a particular function of the Caterpillar Group as a whole - financial operations, for example. (e) The functions that each vice president has are determined by the responsibilities and geographic regions for which the particular Group President is responsible. (f) Each vice president has a number of managing directors or department managers responsible for different areas in the region for which the Group President is responsible. Again, for example, the Asia Pacific region has a number of areas each of which has a managing director responsible to a particular vice president. (g) The vice presidents that deal with functions rather than regions (eg finance) have senior executives reporting to them in relation to the particular function for which they are responsible. (h) Reporting lines at levels below managing director follow what I would describe as a reasonably orthodox corporate approach with various positions created being determined by the requirements of the particular business, region or function. 112 The key personalities within Caterpillar during the period 1989 to 2001 and the positions they held are set out below. Those who gave evidence for the respondents are marked with one asterisk. Those who gave evidence for the applicants are marked with a double asterisk. Caterpillar of Australia is abbreviated to "C of A" in the table: Position Dates Name Chairman of Caterpillar Inc. 1999 - present Mr G Barton " " " 1989/91 - 1999 Mr D Fites Group President of Caterpillar Inc. 1995 - present Mr J Owens* Vice President - Asia Pacific of Caterpillar Inc. 1992 - 2001 Mr S Ramseyer* " " " 1991 - 1992 Mr R Petterson " " " 1985 - 1991 Mr D Coonan** Managing Director of C of A 1999 - present Mr C Curfman* " " " 1991 - 1999 Mr R Nitto* " " " 1987 - 1991 Mr T Thorstenson Regional Manager Australia of C of A 1980s - 1990 Mr N McKay " " " 1990 - 2001 Mr K Barrett* Finance Director of C of A 1993 - 2000 Mr M Tong* District Manager - NSW for C of A 1999 - present Mr P Forsyth " " " 1999 - 1999 Mr G Bowring " " " 1998 - 1999 Mr J Langmore* " " " 1995 - 1997 Mr R Beeler* " " " 1991 - 1995 Mr R Frazer " " " 1987 - 1991 Mr A Wickert** Finance Manager - C of A 1983 - 1992 Mr M Tong* Product Manager - 1999 - 2001 Mr A Mason Jefferies* C of A Sales Development Manager - C of A 1997 - 1999 Mr A Mason Jefferies* 113 Mr Tong gave evidence that "Caterpillar has always relied upon a network of dealers for the distribution of its products." He said:

[124]

Its [Caterpillar's] philosophy is to provide the best equipment, product support or customer service to purchasers of Caterpillar equipment and Caterpillar has always considered that the best way to do this is through a dealer network. The thinking behind this philosophy is that a local dealer network enables a more effective interface between the customer and Caterpillar. Caterpillar has always had a " customers first philosophy ", as explained in the publication " All in a days work - 75 Years of Caterpillar ": "a formula for success can be stated briefly: Find out what products customers want. Design and build them. Keep 'em running. When they wear out, rebuild or recycle. Do it better than anybody else. The "keep them running" part has always been top priority because customers depend on our products for their livelihood - sometimes for life itself, as with generator sets for standby power to hospitals. Caterpillar, dealers, suppliers - and customers themselves - work as a team to provide what we believe is the most extraordinary product support system in the world". Caterpillar has always emphasised and operated on a basis of co - operation and trust as between Caterpillar, the dealers and customers. 114 Mr Tong described in his evidence the importance of trust in the relationship between Caterpillar and a dealer: Caterpillar's business is founded upon a relationship of co-operation and trust with dealers and customers with its objectives including quality products and unbeatable product support and customer service; Caterpillar's business has been built around this relationship-based philosophy. The importance of the relationship of co-operation with dealers was emphasised in the 1926 publication " Across the Table-Caterpillar Tractor Co and its Dealers "… Extracts on pages 5 - 7 read as follows: "The Company markets its products entirely through its authorized dealers, to each of which it assigns a certain territory, in which, with certain exceptions, the dealer's rights are exclusive as is set forth in the General Agreement, which governs the relations between it and its dealers. Before the Company will enter into a dealership relation it has to be satisfied that the prospective dealer has the necessary qualifications and the means with which to give adequate representation in the Territory to be allotted. These qualifications in the order of their importance are: 1. Good character and a sustained reputation for square dealing. 2. Business capacity and enterprise and proven organisation ability. 3. Working capital and established bank relationships. 4. Experience with the line itself or with allied lines. 5. Acquaintance in and knowledge of the Territory. Almost no dealer can be expected to have all these qualifications at the outset, but all must have the qualifications numbered "1" because the dealership relationship with this Company is so close that both manufacturer and dealer must have unbound mutual confidence in and respect for one another. Our dealer organization is our chief pride, and we have good reason to feel that all "Caterpillar" dealers highly regard the Company, its products, policies and methods. It is only upon the basis of such mutual esteem that an enduring relationship can be built. Granting that the purpose of all this activity is profit, how can it be achieved in the best, easiest, and quickest ways? The answer to that question is, "By energy, enterprise and the fullest co-operation between the several dealers and between each dealer and manufacturer." As the dealer has to have the necessary energy and enterprise and the special qualification of good character and should have all or most of the other qualifications above outlined, or be able to develop or attain them, it ought to be a rather simple matter for the fullest co-operation to exist from the start or at least to develop rapidly. The reason for the lack, if any, of the fullest co-operation is not that the company or any of its dealers does not wish for it. The trouble is that it is principally wished for and not worked for. No one ever got anything but "left" by merely wishing. If we aim at nothing, we will hit it. If every dealer will read with understanding all that follows and will act upon it, the profits sought for should come faster and more amply than otherwise would be the case. This is a frank appeal to the dealer's self interest and is offered by us in an equally frank recognition of the fact that "As the dealer profits-so do we". But-as "He profits most who serves best," let us now consider how the dealer should be organized to best serve and so to profit most." 115 There was a particular emphasis in the evidence of the respondents' witnesses on this issue of trust and confidence between Caterpillar and its dealers. For example, in his evidence Mr Ramseyer said: Caterpillar has always regarded positive, trusting and co-operative relationships with its dealers as being central to its business. 116 Mr Barrett, the first respondent's regional manager, said in his evidence: Caterpillar Australia works and co-operates with its dealers so that they focus on their customers and the customers' needs. In this way, the customers can count on Caterpillar Australia, via the dealers, to be working with them to solve problems, provide support and technical expertise. The customer satisfaction achieved by the dealers necessarily affects the volume of orders placed by customers. Caterpillar Australia does not have many set procedures which guide the relationship between it and its dealers. Accordingly, there must be a lot of trust and co-operation between Caterpillar Australia and each dealer in order for the relationship to progress and be workable.

[152]

144 In his evidence Mr Gilmour said: By the time that Mr Gough and I were awarded the Caterpillar dealership, I had worked for Caterpillar dealerships continuously for approximately 17 years. Over that period I had formed strong relationships with various Caterpillar personnel which included interacting on a social basis. I had travelled on several occasions to the United States and within Australia attending numerous Caterpillar dealer conferences, and meeting other dealers. It had been strongly ingrained in me that: (a) Caterpillar expects its dealers to perform in the long term; (b) there is a strong culture of co-operation and assistance between Caterpillar and its dealers; (c) Caterpillar dealerships cannot be bought; dealers have to be selected on merit; and (d) a dealer was secure as long as it performed. Both at this stage and up until recently, my understanding and personal knowledge was that Caterpillar dealerships were held by a dealer for the long term and, in many cases, over several generations. I am aware that, in recognition that dealerships are held over several generations, Caterpillar offers programs from its Head Office in Peoria for succession planning for the children of dealer principals. 145 Mr Coonan said in his evidence: During my time with Caterpillar, the company was always interested in ensuring that dealers held a long-term relationship with Caterpillar. This is because the business of Caterpillar is a long term one. The machines are generally expensive and take some time to design, test and manufacture. The customers are few in numbers so dealers need to be associated with the same customers for a long period of time in order to service the machine and provide new products when needed. In my experience, the average dealership tenure with Caterpillar was in excess of thirty years. The principal reasons for changes in dealers were the death or ill-health of a dealer principal, the retirement of a dealer principal or the lack of an acceptable successor to the dealer principal. 146 Reference was also made by the applicants to a letter from Mr Nitto dated 2 April 1996 that had annexed to it the article by Don Fites, entitled "Make Your Dealers Your Partner". The applicants relied upon various statements in the article regarding the long-term nature of the relationship between Caterpillar and its dealers. The article certainly addresses the long-term nature of relationships but it also refers to the nature and importance of the relationship and to the termination provisions: We have good relationships with dealers not just because they like us but because the investment is good for them and for Caterpillar, and because both parties work to strengthen the relationship. Both parties invest heavily in maintaining a relationship built on trust, confidence, and shared interests and rewards. The rules don't change, so everyone knows what to expect of one another. … The kind of trust that exists between Caterpillar and its dealers is something that could be built up only over generations. Our dealership agreements are documents that run just a few pages. They have no expiration date, and either party can terminate without cause on 90 days' notice. But turnover is rare because we recognize that we're in this together. The final decision either to terminate or to appoint any dealer in the world rests with the CEO of this company, no one else at Caterpillar can make that decision. …They also know very well that Caterpillar is much more than just a good account-we are a valuable long-term business associate.

[160]

154 Mr Gilmour gave evidence that, "for years prior to June 1999", he knew that the dealership agreements contained the 90 days' clause and that Caterpillar and the dealer contractually had the right to terminate on 90 days' notice without cause. Given Mr Gilmour's close and intimate knowledge of Caterpillar in the years preceding 1988 and his close involvement in purchasing the dealership, it is reasonable to infer that Mr Gilmour knew of the 90 days' provision before entering into the dealership agreements. There was no evidence from Mr Gilmour that this was otherwise. 155 I am satisfied that the position in relation to the alleged first and second assurances was that prior to Mr Gough & Mr Gilmour being informed in November 1988 that they had been selected as approved Caterpillar dealers, that they genuinely believed that they were entering a long-term, secure arrangement and I consider that Caterpillar was of this view also. I note in this regard that Mr Tong agreed in his evidence with the proposition that dealers are entitled to assume that unless Caterpillar has got good cause for termination they would be secure. Further, that whilst they were aware of Caterpillar's right to terminate a dealership without cause by the giving of 90 days' notice, the applicants' expectation was that the respondents would not exercise their right and that, therefore, in entering into the dealership agreements it was not a matter that they needed to dwell on. In my opinion, the expectation of a long-term arrangement and the applicants' belief that there was little risk in the dealership being cancelled without cause, were genuinely held. However, they fall short of being expectations and beliefs based on assurances given by the respondents. I am not satisfied on the evidence that assurances had been given to the second and third applicants to the effect the dealership agreements, save in circumstances of low profitability or bankruptcy and/or sustained poor performance or misconduct, would not be terminated.

[169]

162 The fact is that the dealership agreements contain provisions that permit either party to terminate the agreements without cause by the giving of 90 days' notice and the applicants were aware of these provisions before the dealership agreements were entered into by them. Their long experience in Caterpillar dealerships informed the applicants that such dealerships were essentially secure, long-term arrangements and there was little to suggest that the dealership would be cancelled if the dealership performed in terms of profitability and maintenance of market share. However, I consider the evidence falls short of showing that under no circumstances would the dealership be cancelled other than for cause and I do not consider that the applicants received assurances from Caterpillar to the effect that save in circumstances of low profitability or bankruptcy and/or sustained poor performance or misconduct, the dealership agreements would not be terminated. The risk was always there that at some time in the future, Caterpillar would invoke its right to terminate the dealership without cause by the giving of 90 days' notice. In any event, if the applicants did conduct themselves in such a way that there were objectively proper grounds for the respondents to consider they no longer had any trust and confidence in the applicants, then it could be said that the respondents had cause to terminate. 163 Mr Gough said in his evidence that he would not have purchased the dealership if he had been aware that "the 90 day notice of termination provision should operate in accordance with its strict terms, namely, that it could be used to cancel the dealership arrangement regardless of the level of investment and the company's performance in the dealership." On the other hand, the dealership, as Mr Gough and Mr Gilmour knew, was a business with enormous earning potential and with their background and experience they were very confident they could make it work and very keen to do so. I doubt that, in the circumstances, Mr Gough would have declined to purchase the dealership if he had been told in 1988 that, by the way, Caterpillar reserved the right to terminate the dealership by the giving of 90 days' notice if because of the conduct of the dealer principals Caterpillar had lost trust and confidence in them.

[172]

166 As I have said, I consider that both sides shared a belief and an expectation that they were entering a long-term, secure arrangement. Whilst the respondents regarded the 90 days' termination provision as a last resort option I do not consider they had a belief, expectation or intention that the 90 days' notice provision of the dealership agreements would only operate in the event of serious and wilful misconduct or sustained and significant poor performance. Absent this belief and expectation, the respondents did not instil it in the second and third applicants either expressly or impliedly. Indeed, I consider it was unrealistic and unreasonable for the applicants to expect and believe that if they conducted themselves in such a fashion as to cause the respondents to lose trust and confidence in them as dealer principals that they would, nevertheless, remain secure in the dealership and not be subject to termination. Estoppel by Convention 167 The shift in the applicants' position away from an emphasis on establishing that the respondents actually gave the alleged first and second assurances is made even more evident by the applicants' late reliance on the doctrine of estoppel by convention. The applicants submitted that: the Applicants and Respondents entered into the Dealership Agreement on the basis of an assumed fact, namely that, once appointed, dealers could reasonably expect to be secure and retain the dealership for the long term, for their own benefit and the benefit of their children, save in circumstances of sustained poor performance, poor profitability or misconduct. That was the case notwithstanding the existence of the 90 days without notice clause contained in the Agreement. The Court would, adopting the principle that underpins estoppel by convention, approach this case on the basis that the Respondents cannot deny that that assumed fact underpinned the agreement and would, accordingly, vary the Agreement to reflect that assumed fact. 168 In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 64 ALR 481 at 491 the High Court (Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ) defined estoppel by convention as follows: Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his or her detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. 169 As I understand the applicants' contention it was that once appointed, Gough & Gilmour assumed by virtue of the conduct of the respondents that they could reasonably expect to be secure and retain the dealership for the long term, for their own benefit and the benefit of their children, save in circumstances of sustained poor performance, poor profitability or misconduct. Further, given that expectation, the first respondent would not exercise its right under the dealership agreements to implement the 90 days' without cause termination provision. The applicants contended that this was a state of fact assumed by the applicants and the respondents. Therefore, the respondents were now estopped from denying this assumed fact and by way of remedy under s 106 the applicants seek to have the dealerships varied to incorporate the assumed fact.

[187]

… As at October 2000, G&G and GIPL [a company wholly owned by the second applicant and his children] between them had approximately $24 million invested in approximately 121 rental machines. I understand that we are the largest Caterpillar rental dealer in Australia at this time. To put these figures in context, the commitment to rental inventory amounted to over one and a half times G&G's new machine inventory. 180 Mr Gough gave the following information about re-investment in the dealership: Since 1989, I have received (directly and indirectly) approximately $23.4 million in pre-tax dividends. After the payment of tax, all of these dividends (plus a significant proportion of the subsequent earnings thereon net of expenses) have been reinvested in the business of the dealership. While the structure of the transactions underpinning this reinvestment have been complex, in summary, the position as at January 2001 is as follows: (a) $1.45 million was used to repay my personal loans to fund the initial share acquisition; (b) $10 million has been lent directly to G&G by wholly owned family companies; (c) $7.4 million has been invested in GIPL; (d) $5.4 million has been advanced to ACN 085 992 052 Pty Limited, a company owned by myself and Mr Gilmour, the only function of which is to hold some of the inventory for G&G; (e) approximately $510,000 has been used to pay the costs of the WesTrac sale process (referred to below) to date; and (f) approximately $410,000 is being held by ACN 078 280 029 Pty Limited, this being the company which holds my shares in G&G, for working capital needs in the G&G group. 181 In relation to this re-investment Mr Gough said: I would not have reinvested those dividends and I would not have approved of G&G borrowing money and reinvesting its profits in the manner described above … if I had any doubt about the security and longevity of the G&G Caterpillar dealership. I would certainly not have "put all my eggs in one basket" in the manner outlined above.

[198]

190 Mr Barrett acknowledged in his evidence that his personal relationship with Mr Gough was not a good one: In reality Gough and I did not seem to be able to agree on much and, to my observation, he appeared to approach my involvement in matters in a hostile way. Despite the existence of the business relationship over the last 9 or 10 years Gough and I have been unable to develop a positive working relationship. In my view this will not change and I expect the relationship between us to remain poor. Because of these difficulties I have always been of the view that it was critical that the relationship between Gough & Gilmour and the District Managers appointed from time to time be positive, cooperative and effective. One of the reasons I have always thought that this is necessary is to reduce the impact of the relationship difficulties between Gough and me and his antipathy towards me and the way that I operate. To this end, I consciously limited my personal contact with Gough. 191 Mr Barrett also said that Mr Gough had difficulty with a succession of district managers: It is a reflection of the difficulties that Caterpillar experienced with Gough that the turnover of District Managers in New South Wales was high. Ray Fraser, Rod Beeler and John Langmore were District Managers at different times during the period July 1981 (sic) to November 1999. During the time of their respective appointments they each told me of their dissatisfaction and frustration with the working relationship they had with Gough & Gilmour, and particularly Gough. As part of my strategy of trying to manage the relationship with Gough & Gilmour District Managers were changed in an endeavour to make the relationship work. I had hoped that each time I changed a District Manager the relationship with Gough & Gilmour would improve and develop into an effective working relationship but unfortunately this did not eventuate. 192 There were two incidents in particular, the first involving a meeting between Mr Gough and Mr Beeler on 19 June 1996 in respect of invoicing of truck bodies and the second involving Mr Gough and Mr Langmore on 21 May 1999 regarding the Cadia dispute, which stand out as examples of Mr Gough's poor treatment of these two district managers. I will deal with these two incidents in their proper context in this judgment.

[200]

195 I have also had regard to other evidence given by Mr Wickert regarding the negative view Mr Barrett and the managing director of Caterpillar between 1987 and 1991, Mr Thorstenson, had of Gough & Gilmour: From my personal dealings with Kevin Barrett and Terry Thorstenson I formed the view that they were not supporters of Harcourt Gough, nor, to a lesser extent, Tony Gilmour. Many times G&G would be criticised by them in meetings where other CofA staff were present, in ways that I thought were unnecessary or plainly wrong. I noticed that after a while CofA staff, many of whom never travelled to NSW and had no real contact with G&G, began to express similar negative views. Part of the negative opinion expressed by Kevin Barrett and Terry Thorstenson was that "there are great difficulties in working with G&G". In my opinion that became self-fulfilling, as staff imbued with that attitude then approached their dealings with G&G with an unnecessarily negative outlook. I did not share that opinion. 196 Whilst I have approached Mr Wickert's evidence with some caution because of his close relationship with the applicants and because he attributed his failure to obtain further tenure in Australia as being due to Barrett being the Regional Manager at the time, I nevertheless accept his observations about Barrett's negativity towards the applicants. 197 As to the decision of Mr Barrett to remain at arm's length of Mr Gough, I note that Mr Nitto, the managing director of Caterpillar of Australia at the time, endorsed it. This was apparently about 1994-95. If the relationship between Mr Gough and Mr Barrett was so poor that separation was deemed the answer, it seems to me more pro-active steps would have been in order to remedy the problem because Mr Barrett became entirely ineffectual in being able to assist in resolving the increasing relationship problems between Mr Gough and successive district managers and, indeed, between the Gough & Gilmour dealership and Caterpillar of Australia. The first respondent's failure to vigorously and forthrightly address the problems with the applicants early in the period of the dealership made it much more difficult to do so as time went on. 198 What is the more contentious issue, however, is the applicants' submission that Mr Barrett was the cause of much of the animosity that existed between the applicants and the first respondent; that Mr Barrett sought to poison the relationship and that he was instrumental in influencing the decision to end the relationship with Gough & Gilmour.

[224]

· denied that Mr Nitto made any reference to a "woodshed conversation" with Mr Coonan nor that Mr Coonan had cautioned him on his approach and his "win-at-any-cost" mentality. Mr Gough also denied that Mr Coonan had ever delivered such a caution to him. Furthermore, Mr Gough said he was not aware of any asserted "woodshed conversation" until he read the affidavits filed by CofA in these proceedings. I note in Mr Coonan's evidence that he denied that he ever had a "woodshed" conversation with Harcourt Gough or that he "ever communicated to any Cat Inc or CofA person that I had a "woodshed" conversation with Harcourt Gough…. I had no need to have a "woodshed" conversation with Harcourt Gough, as I did not hold the view that his attitude need to change to ensure that there would be no adverse affect on his relationship with CofA." · Denied that Mr Nitto had advised him he was "on a one way ticket that could have serious ramifications unless [I] altered [my] approach and style to the people [I was] trying to influence as a leader and dealer principal". · Denied the assertion that he had an increasingly confrontational approach to all business issues with customers, his own staff, other dealer principals and CofA staff. · Whilst recalling there was a discussion about his communication style and Mr Nitto's complaint about it, Mr Gough denied that Mr Nitto advised him that his "methods of confrontational communication in and outside [my] company had reached the stage of being unacceptable". · Denied that the matters referred to on the list in Mr Nitto's memo served to confirm or demonstrate some asserted problem with his communication style. · As to the items on the list, Mr Gough said as follows: (i) I deny that we had an increasing turnover of people in sales/marketing areas. (ii) I agree that there were, at the time, some short comings in our administration/accounting practices but say that this was addressed soon thereafter by the hiring that month of Mr Danckert. (iii) I am unable to discern, at least with any certainty, what Mr Nitto is referring to when he refers to the "resolution of Hex" hardship claims. However, if this is to reflect an allegation that our hardship claims were over-inflated, then I deny any such assertion. (iv) I have no recollection of any issue concerning the valuation approach for redemption of CofA equity level in G&G (other than with respect to the treatment of franking credits). (v) I deny that there was any lack of co-operation with other dealer principals concerning the start up of the new engine distribution company, EPSA. (vi) I deny that G&G started a price war with Komatsu and other Japanese competitors. (vii) I am unable to discern what Mr Nitto was referring to, in particular, when he listed "customer complaints". (viii) I deny the implication that G&G either wrongly utilised or over-utilised "district resources". (ix) I am unable to discern what complaint, if any, there was about my handling of the final negotiations for the Howick Coal deal. (x) I do not recall there being any major issue concerning G&G's desire to acquire a 793, being a 240 tonne capacity, off-highway truck at a cost of more than $2 million to "use as a demonstrator" with a view to attracting orders from customers for that particular truck. (xi) I deny that G&G had "short-sighted" inventory practices. · Denied that his approach to business dealings was to "attempt to intimidate those who disagree with [me]". · Denied that he had a tendency to "over-use the threat of going to Peoria" if he did not get his way. 207 A prominent aspect of both the applicants' and the respondents' cases in these proceedings was the credit of each other's witnesses. I do not think any one of the witnesses escaped unscathed from criticism of his evidence. Those who particularly came under attack were Mr Gough, Mr Nitto, Mr Ramseyer, Mr Barrett, Mr Langmore and Mr Gammell (managing director of Australian Capital Equity Pty Ltd, the holding company of the Stokes' organization of which WesTrac is a division).

[282]

a. Caterpillar manufacture engines for on-highway trucks. Those engines are used by truck manufacturers, such as Kenworth and Mack Trucks (such manufacturers are referred to commonly as "OEMs"). b. Unlike almost all other Caterpillar products, on-highway engines are sold to the OEMs by Caterpillar directly, rather than via a dealer. c. Truck owners require these engines to be serviced, and because of the nature of their business, they require service outlets across Australia. Dealers can and do provide service for the Caterpillar on-highway truck engines via their branch offices, but such branches alone could not meet the need for service centres across Australia. That led to the creation of second level dealers in each territory called "TEPS dealers". d. These second level dealers are usually companies that sell and service trucks which have Caterpillar engines, for example, the Kenworth dealer in a country town. e. TEPS dealers are appointed by the dealer in the territory (e.g. the First Applicant) on terms agreed between the dealer and the second level dealer (although the First Respondent recommends the standard terms to be used across Australia). f. The terms on which the First Respondent authorises and requests its dealers to appoint second level dealers are set out in a Distribution Agreement for Engine Parts and Service between the dealer and the First Respondent. g. TEPS dealers are entitled to display Caterpillar trade marks and obtain parts at a discount. TEPS dealers are required to meet certain standards to maintain their second level dealer status. 249 On 1 July 1991, Gough & Gilmour and the first respondent entered into a Distribution Agreement For Engines, Parts and Service. Clause 6(c) of the Agreement (which provided for the appointment of TEPS Dealers) stated: (c) In order to increase the availability of parts and mechanical service to those users of engine products who are not adequately served by existing facilities, Dealer agrees to appoint TEPS Dealers throughout his service territory described in Exhibit A. Dealer agrees to appoint as TEPS Dealers only individuals, partnerships or corporations performing designated service functions, and to appoint them in such numbers, at such locations and for such Selected Models as to provide complete and adequate parts availability and mechanical service for such users. Dealer agrees that it is in the interest of both Dealer and Company that all TEPS Dealers be responsible, of good reputation and capable of providing prompt, efficient and high quality service to users. No appointment of a TEPS Dealer shall be made without the prior written approval of Company as to the appropriateness of such appointment. Dealer agrees to inform Company concerning the appointment of any TEPS Dealer and the termination of TEPS Dealers previously appointed, and will from time to time report such information concerning each TEPS Dealer appointed by Dealer as Company may request. 250 Clause 5 of the 1991 Agreement outlined the intent of the TEPS system as follows: (c) Company and Dealer agree that the sale of engines to certain original equipment manufacturers ("OEMs") can usually best be accomplished directly by Company to such OEMs and that such sales of engines are of benefit to Dealer and TEPS Dealers because an expanded population of Caterpillar engines in OEM products creates substantial additional markets for other engine products and service. Company and Dealer also agree that the ability of Company or Dealer to make sales of engines to OEMs is substantially dependent upon supporting selling efforts of Dealer among users and potential users of such OEM products to achieve specification of Caterpillar engine in OEM products purchased by such users and potential users … 251 In about July 1993, a Mercedes Benz/Freightliner dealer in the Dubbo area, Tracserv Pty Ltd, made an application to Gough & Gilmour to become a TEPS dealer. In May 1994 Tracserv complained to the first respondent about the delay in their being advised of the outcome of their application to be appointed as a TEPS dealer. Tracserv was advised that the decision to appoint a TEPS dealer rested with the relevant Caterpillar dealer. Various pieces of correspondence ensued between the first respondent and Tracserv and between the first respondent and the applicants regarding appointment of Tracserv as a TEPS dealer. In September 1994 Mr Nitto expressed to Mr Gilmour his frustration at the time it was taking Gough & Gilmour to make a decision on the matter.

[291]

· The motivation and impetus for the change to the 1991 Distribution Agreement stemmed from the fact that the first respondent, undoubtedly acting in its own self interest (as direct sellers of Caterpillar engines to on-highway truck manufacturers) entered into a formal agreement with the major on-highway truck manufacturers, Mack and Kenworth (OEMs). Under that Agreement, if those companies agreed to use a particular Caterpillar engine in their new trucks, the first respondent would agree to have designated Mack and Kenworth dealers as TEPS dealers. · The effect of reaching those agreements with the OEMs was that even where a dealer had a branch that the first respondent believed could adequately service trucks in a particular area, the first respondent still wanted OEM dealers in that area appointed as TEPS dealers. · The Applicants had, before 1996, more TEPS dealers than any other Caterpillar dealers in Australia. The first applicant had an extensive branch network and did not want a greater proliferation of TEPS dealers in and around the areas in which it had branches. · Given their experience with the TracServ issue, and the perceived need to rationalise and be more selective about appropriate TEPS dealers going forward, the applicants did not see it as appropriate or necessary for the first respondent to assume the power for TEPS dealer appointments in New South Wales. · The applicants expressed concerns about the new Product Support Agreement. These concerns were, on any view, objectively understandable and defensible. However, they were ultimately disregarded or ignored by the first respondent on the basis that: (i) the "power to appoint" clause was non-negotiable; (ii) was standard form in other areas of the world; and (iii) the applicants could "like it or lump it". · The first respondent, on the basis of a clear threat, stated that unless the first applicant signed the new agreement in the form proposed by the first respondent and allowed OEM dealers to enter into the Caterpillar recommended style of TEPS agreement (referred to as a "traditional agreement"), the first respondent would simply proceed to completely by-pass the first applicant and appoint whatever TEPS dealers that it thought was appropriate in New South Wales. · The first applicant's concern regarding the difficulty in properly training and ensuring quality of service by TEPS staff led it to suggest an innovative form of TEPS Agreement with OEM dealers under which it would supply trained labour for TEPS dealers to use from its local branch office. The first respondent asked the first applicant to offer OEMs both styles of Agreement and let them choose whether they prefer the "traditional" TEPS arrangement or the new arrangement suggested by the first applicant. · The applicants did, ultimately, sign the new form of the Distribution Agreement in November 1997 following discussions with and assurances by Mr Tong that the first respondent would not appoint TEPS dealers in New South Wales over the objection of the first applicant. · The Applicants signed the 1997 Distribution Agreement in those terms based on a representation that they were "standard" terms as used "in other areas of the world", and as such, could not be changed. Yet, at the time those representations were being made, the first respondent knew that clause 6 (i.e. the wording being proposed as to the right of the first respondent to insist on the appointment of a particular person as a TEPS dealer) was not the form of agreement being used throughout the world. A "softer" form of words was being used in the North American region. That "softer" form of words was almost identical to the form of words used in clause 6(c) of the original 1991 Distribution Agreement. · The applicants also agreed from late 1997 to offer to the OEM dealers the "traditional" TEPS agreement terms preferred by the first respondent, leading to no outstanding dispute regarding the terms of TEPS Agreements by the middle of 1998. 261 The respondents denied that they were acting in their own self-interest in implementing the revised 1997 Agreement. On the contrary, it was contended that: (a) The impetus for its decision to retain to itself the right to instruct its dealers to appoint TEPS dealers was to ensure that an acceptable and consistent level of broad product support coverage was put in place for supporting OEM users against a background of variable commitment amongst the Australian dealers to developing their truck engine business. (b) Part of the first respondent's intent in developing the on-highway truck engine market generally and, in particular, in implementing the TEPS program, was to provide increased parts and service profit opportunities to Caterpillar's Australian dealers. (c) The first respondent's intention in requiring Gough & Gilmour to execute the revised Product Support Agreement in the same terms as that executed by the other Australian dealers was to ensure consistency within the region. 262 The respondents contended that in contrast to the first respondent's motivations, the applicants' resistance to the revised Agreement and their delay in signing up TEPS dealers under the Agreement was motivated largely by self interested commercial desires - an objective at odds with Caterpillar's objective of developing the truck engine business for the common commercial benefit of the first respondent and its Australian dealers.

[294]

· The draft 1997 Product Support Agreement was circulated amongst the first respondent's Australian dealers in June 1996. · Unlike other Australian dealers who agreed to enter into the 1997 Product Support Agreement in the terms initially proposed by the first respondent shortly after the draft agreement was circulated, Gough & Gilmour did not respond with any comments on the proposed draft agreement until 25 February 1997. · Further discussions between the first respondent and Gough & Gilmour ensued about the terms of the proposed agreement and about the terms upon which Gough & Gilmour proposed to enter into TEPS agreements with TEPS dealers between March and July 1997 The applicants were advised of the first respondent's willingness to incorporate two of Gough & Gilmour's suggested amendments into the 1997 Product Support agreement. · Gough & Gilmour did not respond until 10 October 1997, see letter from Shearman, which (despite the clear message contained in CofA's letter of 29 July 1997 and conveyed in subsequent discussions between the parties that CofA did not agree to the applicants' proposal to amend clause 6(a) to remove the first respondent's ability to require its dealers to appoint TEPS dealers), enclosed executed copies of the 1997 Product Support agreement unilaterally amending clause 6(a). · The First respondent again reviewed Gough & Gilmour's request to amend clause 6(a) and by letter dated 24 October 1997, advised that their proposed amendment was unacceptable. · Gough & Gilmour did not ultimately execute the 1997 Product Support Agreement until 12 November 1997. 265 The respondents contended that the applicants' delay in entering into the 1997 Product Support Agreement, and in implementing the revised TEPS program generally, gave rise to concerns within the first respondent as to the level of coverage and support to truck engine users and complaints to the first respondent from OEMs and truck engine users about the level of such coverage and support. In this regard, the first respondent referred to the following matters:

[311]

· Prior to February 1994, Nitto had some serious doubts about the workability of the relationship. At that stage he did not regard the relationship as totally typified by mistrust or totally unworkable. · Gough's personality made the relationship a very difficult one. An assessment of Gough's personality was seen as underlying the problems in the relationship. · Nitto formed a view about Gough that he was a person who would pursue issues beyond what Nitto thought was reasonable. Nitto formed this view gradually over time. · Nitto's impression was that the relationship had problems at all material times, that he had concerns about the relationship early on. He didn't say that the relationship was bad at all times; he said he developed progressive concerns until 1998. · Nitto put his concerns in writing to Peoria in 1992 regarding Mr Gough. He did not always put such serious concerns in writing. He communicated serious concerns orally to Peoria, usually when there were operational reviews when Owens, Ramseyer or Fites were in Australia. He told the executive office that he harboured serious concerns about Gough and Gilmour's suitability as dealer principals. He shared this concern in various ways from 1992, that there were increasing problems with Gough & Gilmour in terms of how they handled problems. · As at March 1995, Nitto had concerns as to what Gough & Gilmour's strategy was for the future. He also had concerns about customer dissatisfaction levels being high. He also had concerns about the level of staffing and attrition at Gough & Gilmour. He also held the view that there was a lack of mutual trust and respect between the first respondent and Gough & Gilmour. · It was evidenced to Nitto in one form or another through the better part of his tenure that the relationship was underpinned by mistrust. Nitto told his superiors this, from time to time, over five or six years. He told Ramseyer, but didn't commit to paper every conversation that he had with Ramseyer. Many things were done about it; many positive, serious things. Nitto's superiors frequently asked the question of what they were going to do, and the selection of district managers was part of that response. · Nitto would not make the assumption that there were no significant disputes that took place between the parties in 1994, 1995 and 1996. There was a continuation of issues during those years. Rather than getting to a point, given the reaction from the two previous reviews, it was decided to let the district team settle in, establish the relationship and see if the process could be moved forward. The customer satisfaction surveys showed that there were still issues during this time. There were still TEPS issues and attrition issues. The emphasis at the time was to give everybody a little room to see if the relationship could be established. · Nitto was of the view that there was not sufficient progress made about the issues that had been around for a long time during 1998. He relied upon district reports and operational reports from the field people to decide whether or not such progress was made during 1998. Langmore was one of the principal contacts. Nitto felt strongly about the sincerity and sustainability of some of Gough & Gilmour's progress: there were lots of discussions and verbal commitments, which were either half followed through or not followed through at all. · Insofar as Nitto indicated that Gough couldn't be trusted, the foundation for that view is that when a businessman indicates that he's going to address a particular issue and then seems to adopt a strategy that not only doesn't address it but also intentionally doesn't address it, one comes away with a lack of trust in a person's ability or word to honour what he said he was going to do. There were a number of programs over the years that Gough had been asked to consider; he would say they would be considered, and then go about a whole range of actions that basically suggested that not only was he not going to consider it, but he wasn't going to be a party to the programs. The rental issue is a good example. Gough & Gilmour had indicated that they were willing to look at the development of a heavy machinery rental business, but then nothing occurred.

[325]

· The strategy to improve excavator PINS within New South Wales. · To increase agricultural sales. · To introduce quieter machinery in the mining sector and the new Lexion harvester in the agricultural market. · To train staff on "selling the premium" for excavators. · Successful customer events. · Improve performance of project managers. · By June 1998, a major initiative was underway to foster an efficient interface between the respondents and the first applicant in relation to processes and systems. · In June 1998, a major effort was underway between the first applicant and the first respondent to improve some operational measures such as parts fill and service policy redo. · Also in June 1998, an agreement had been reached to undertake strategic initiatives for mining and agricultural markets and an initiative to move the first applicant into rental services. · In November 1997 and following, the first applicant participated with the first respondent in the development of software in respect of the management of mining contracts. · In 1998, the Applicants worked with WesTrac, Hastings Deering and the first respondent to adapt mining fixing operating cost agreements (the FOCUS contracts) to a world wide standard. · In 1998, the Applicants focused on reducing the "service redo" and "policy" costs that were incurred. Since that time, the applicants have achieved success in this goal. · In June 1998, the applicants and the first respondent were working to adapt mining fixed operating costs agreements to a worldwide standard. · The applicants engaged Wickert to conduct a review of its operations and report to it on how its operations could be improved. · The applicants progressed introduction of the rental program. · The applicants commissioned Stephen Dakin to prepare a report on staff satisfaction. · The applicants introduced new processes to reduce the number of errors in warranty claims. · New TEPS agreements were finalised with TEPS dealers. · The applicants opened a new branch in Grafton, and were working on a new branch at Albury (opened in 1999), a major addition to the Hunter Valley store and had plans drawn up for an on-highway truck facility at Parramatta. 295 It would be expected that in the normal course of running the dealership new branches would be opened, that there would be customer events, staff would be trained, sales would increase in relation to certain product lines and an effort would be made to improve the performance of project managers. Accordingly, a number of the matters referred to by the applicants as representing progress made in cooperation with the first respondent may be discounted. As to the other indicators of progress, Mr Langmore's evidence about the lack of it was not that matters had come to a standstill. Mr Langmore acknowledged that there was progress in relation to operational issues and it is to be noted that Gough & Gilmour must have acknowledged to some degree Caterpillar's concern about such matters as staff turnover and aspects of its operations because it brought in consultants (Wickert and Dakin) to examine these issues. So it could not be said that during 1998 the applicants were ignoring the need to improve operationally.

[343]

314 As Mr Nitto explained in his evidence: RPI stands for "Request for Pricing Information". Briefly, this is a system where Caterpillar provides a price discount to a dealer based upon a number of dealer costing assumptions. Audits then occur from time to time to make sure that the assumptions were borne out and appropriate allowances have been made. Typically this results in amounts being owed by the dealer to Caterpillar. It is not unusual to have differences between Caterpillar Australia and its dealers in relation to the outcome of the audit process. In the case of Gough the issue of the RPI audit took over a year to resolve. Throughout this time I had many communications with Gough regarding the issue and he was always extremely difficult to deal with. The fact that there was a disagreement about the amount owing was not to the point. The manner in which he went about dealing with the issue was a further illustration to me of difficulties in the relationship. 315 A fuller description of the RPI process was provided by Mr Tong as follows: The RPI was a program which operated to provide dealers with pricing assistance to help them obtain business - typically from large mining customers. Briefly, it operated in the following way: (a) A dealer would be placing a tender or seeking the business for a particular supply contract to a mining company. (b) In arriving at its bid price the dealer would liaise with Caterpillar Australia with a view to putting together a competitive price aimed at securing the business. (c) Because of the competitive nature of the industry and the limited margins available in the mining industry, the program enabled dealers to obtain discounted prices on equipment from Caterpillar in certain circumstances. From Caterpillar's point of view the incentive was to ensure that the business was obtained but also desired to ensure that the discount was passed on to the customer rather than just improving the profit margin of the dealer. (d) To be eligible for this discounted pricing the dealer was not entitled to charge a price to the customer that allowed for a gross margin above a specified percentage. (e) It was not possible at the start of a deal to determine precisely what the gross margin would end up being. This could only be determined after the business had been won and the various expenses had been incurred and a proper calculation of allowable costs could occur. Consequently, an audit process was in place. Caterpillar would audit dealers' books in relation to RPI business. As part of this process, the dealers would put forward what they said were allowable expenses etc in relation to RPI business. A calculation would then occur to work out whether the percentage gross margin had been exceeded or not. If the gross margin had been exceeded (after taking into account allowable expenses etc) Caterpillar Australia would be entitled to a refund. The amount of the refund would be equal to the difference between the gross margin achieved and the maximum percentage gross margin allowed.

[350]

322 Having received the claim, Mr Gough and Mr Danckert wrote a joint letter to their bankers on 14 October 1998 informing them of Caterpillar's claim. In the letter it was said: We have since reviewed the detail supporting Caterpillar's claim and find them to be substantially flawed … in our view the amount owing (if any) could easily be as little as $4,320 on a sound and logical basis determined in accordance with their very own guidelines. … In short we believe there is little or no possibility that any material, and commercially valid, claim against us will result from this exercise. Our observation, regarding receipt of such an ambit claim, is that there is no coincidence it follows the lodging of our first, of several expected, "Hardship Claims" which result from continual product problems on certain models of equipment. … As you might have already deduced from the above, we intend to vigorously pursue the elimination of the ambit claim from Caterpillar… 323 Gough & Gilmour justified the letter to the bankers on the basis that it was required to make full disclosure of such matter under Bank Covenants and, indeed, this appears to be so. The letter, however, drew a strong reaction from Mr Nitto who said in a letter to Mr Gough on 21 October 1998: As I read the letter closely, I was shocked. It's an extraordinary document that went way beyond a mere notification of delay and request for extension. It calls into question, to an outside third party no less, some of the fundamental core values of the relationship between Caterpillar and its dealers. Further, it does so in a very offensive tone which I regard as totally unacceptable as well as unprofessional. While I accept there will always be perception differences in conducting these audits and that the ultimate outcome is usually a combination of clarification, flexibility and compromise, I find your posture somewhat perplexing given your long association with Caterpillar. 324 Documents internal to the first applicant reveal the depth of ill feeling against the first respondent for making the RPI claim. One of the documents criticised the first respondent in the following terms: To allow such a significant letter to go out to a dealer principal without proper review or consideration can fairly be construed as indicating that either CofA's internal systems are hopelessly inadequate in this regard, or other senior CofA personnel have reckless disregard for dealers, or both. The enormity, and also stupidity, of the dispute and situation we now find ourselves in can be attributed solely to the way CofA chose to communicate their preliminary findings to us. 325 There was also mistrust on the applicants' part of the respondents evidenced by Mr Danckert's recommendation that "we cannot afford to have this happen again and must now commence the laborious process of ensuring that all commitments made to us by the Cat organisation are formerly (sic) documented in writing at the time they are made."

[370]

345 The respondents contended that the significance of the Cadia dispute in the context of the relationship between the applicants and the respondents could be seen in: (a) the applicants' unreasonable and intransigent approach to the merits of the dispute; (b) regardless of ultimately who was right and who was wrong in connection with the merits of the dispute, the applicants' approach to the Cadia dispute was adversarial, uncooperative and aggressive with Gough & Gilmour often seeking to advance its own interests at the expense of the mutual best interests of the applicants and respondents and potentially the customer; and (c) the Cadia dispute is reflective of the breakdown in trust and confidence and supportive of a conclusion that the relationship going forward was unworkable. 346 The applicants contended that their approach to the Cadia dispute was both understandable and reasonable and "it certainly does not support the Respondents' general contention that the Applicants' behaviour in the Cadia dispute provided clear evidence that the relationship was irredeemable." It was further contended that there were similarities between the Cadia dispute and the RPI dispute, namely: (a) In both cases the First Respondent lodged unjustifiable claims on the Applicants. (b) The Applicants were then criticised for resisting those claims and converting the issues involved into protracted disputes in circumstances where any review of the objective contemporaneous material (and, in the case of RPI, Langmore's own opinion) it could not be said that the Applicants behaved unreasonably in either case. (c) The Applicants rational and reasonable resistance to the claims is then portrayed by the First Respondent as an indication of a lack of mutual trust and confidence in the relationship and supportive of the conclusion that the relationship had become irredeemable because of the Applicants' behaviour. (d) Both disputes appear to have been used by the Respondents, on an ex post facto basis, to try to justify the decision to move against the Applicants in March 1999. Their irrelevance to the decision making process that occurred at that time is abundantly clear from the fact that neither dispute was even referred to in the March 1999 review documents. 347 The history of the dispute commences with the fact that in June 1995 Newcrest initiated a tender for the provision of the mining equipment described above. Both the first applicant and the first respondent were understandably anxious to secure both the contract to supply and the repair and maintenance contract. The total value of the equipment the subject of the supply contract was approximately $36 million. The total value of the maintenance service contract was $60 million. Both parties perceived strong competition from a rival firm, Komatsu, which had released a truck onto the Australian market with a substantially increased payload capacity. The role of the first applicant in relation to the tender was that it would be the party responding to the tender and the contracting party with Cadia in relation to both contracts. The role of the first respondent would be to provide the trucks and other machinery and equipment to the first applicant based on the specifications in equipment orders filed by the first applicant with the first respondent. In theory at least, and according to a letter from Mr Nitto to Mr Gerard Danckert, the mining manager for Cadia, Caterpillar was to provide close support for Gough & Gilmour in relation to the performance of the contracts.

[388]

354 On 22 April 1997 Mr Obliubek sent an internal email to Mr Beeler setting out two alternative configurations for the 793C truck to be used at Cadia. Relevantly the email stated that: Rod The following is an estimation of calculated tare weight of 793C for Newcrest Cadia project. I have listed two tare weights, one with the bare minimum weight that has been the driver to achieve 240 tonne payload within published GVW, the other a more practical tare weight that will provide the customer with the lowest cost per tonne. …. Rod, as you can see with a bare minimum truck using the projected new tyres from Michelin and running a super light weight body, the absolute minimum tare weight is 238 tonne (with 785 fuel tank). …. We would have concern running a truck with this type of configuration. For one, the Michelin tyres are yet to be released and proven and it may well be that overall effect is to increase cost per tonne using this tyre option. …. The 27,000 kgs body is a throw away body and needs to be presented to the customer in that light. This body is estimated to provide only 10,000 hours service compared to the 20,000 hours as originally figured in the R&M costs submitted to Newcrest. Again the payload vs repair costs economics needs to be presented to the customer to determine lowest cost per tonne option. Additionally, we should ask ourselves whether it is practical to run trucks on smaller fuel tanks, conventional fan and non fire proof hoods and standard stairs/walkways. Does the elimination of these items actually reduce cost per tonne. Based on the above, it is our recommendation that 230 tonne payload be presented to the customer. On this basis we would allow a maximum/maximum payload of 253 tonne ie 10% of loads above nominal 230 tonne not to exceed tonne payload based on tare weight of 147 tonne. Additionally, the rated payload of the P&H 4100 is 77 tonnes per pass, which equates to 231 tonnes for 3 pass loading. Please discuss this with Tony Sambell with overall objective of lowest cost per tonne with realistic and practical truck specifications.

[419]

380 It was put to Mr Langmore in cross-examination that there was no serious disagreement between the parties over Cadia until the meeting on 11 May 1999. Mr Langmore said: A. That is absolutely wholly inaccurate. We - there'd been a number of very, you know, contentious heated meetings far in advance of May 1999. That was an ongoing thing that, you know, I was pulling my hair out over Cadia over a fairly protracted period of time irrespective of what correspondence I may or may not have written. That was, it was a source of fairly intense friction over a fairly protracted period of time. 381 The applicants submitted that Mr Langmore's evidence to the effect that there was friction between the parties throughout the period of the Cadia dispute should not be accepted because he was unable to point to any instances, other than 11 May 1999, where there was serious disagreement. 382 In the re-examination of Mr Barrett the following exchange occurred: Q. Well, we know of course that that year produced some confrontation and difficulties between the parties over Cadia and the RPI issue, among other things. In terms of your experienced dealings with dealerships, if you have arrived at a position five years after, in this case the buy out, and there is still a perception that the relationship lacks trust and confidence, notwithstanding whatever efforts have been made on both sides, what do you say as a regional manager about the prospect of such a relationship against that background? A. It's certainly extremely difficult to manage key issues of size or that have been long-standing without trust and confidence, to be able to go in and analyse those situations. I think I mentioned earlier if both parties are not working in sync to try to respond to a challenge the size of Cadia, then it is very difficult to get a resolution of such a size - such a problem, that is going to be seen by the customer in particular of value, and certainly that all parties involved are going to be seen to work through the issue and been happy with the outcome. A similar situation with the RPI in terms of having issues that are open for interpretation without having a close working relationship is certainly going to give rise to frequent differences of opinion. To me I think it made both of those subjects very difficult.

[429]

391 In relation to the supply contract, there is no doubt that the major responsibility for the design and manufacture of the bodies lay with Caterpillar. As Mr Williams said in his email of 27 February 1997 "The Body we are proposing for Cadia …". The first applicant did have input into the design, and properly so, but Caterpillar held the proprietary interest in the body design. Design and manufacture were, as senior counsel for the applicants put it, in the respondents' "heartland". Caterpillar also had every opportunity to consider the conditions under which the body would operate. The first respondent was provided with the relevant geotechnical data, including rock size (which did not change) prior to designing the bodies; it carried out an on-site inspection prior to designing the bodies; it had access to information about the use of flat floor bodies at other sites. It is true that the loading tool did change but the first respondent was aware of this before the bodies were manufactured. In any event, the loading method and other factors such as the size of rock being loaded were not the chief causes of the damage; it was rather that the design of the bodies - lightweight and flat floor - was not up to the task. In my opinion, in response to the first respondent's proposal that the first applicant bear half the cost of replacing the bodies, the first applicant was entitled to take the position it did in its letter of 21 April 1999 that: … if it was the case that Gough and Gilmour was expected to assume half the risk for a body that Caterpillar was designing and manufacturing, then the directors should have been made aware of it in writing. The directors were not made aware that this was proposed either verbally or in writing. If that had been the condition on which the bodies were supplied to us by Caterpillar, then the directors would not have committed the company to such a risk. That would have been commercially irresponsible. At the time we committed to the tender and later to the contract, we understood that you could and would design and manufacture a "fit for purpose body", and we think that it was and remains your responsibility to do so. If there had been some understanding regarding the sharing of the design and manufacturing risk, this would have represented a major change in the normal position between us. If we had been going to assume a share of your risk, there would also have been included in the document recording such a change, an understanding about the other elements of risk associated with that deal and usually accepted entirely by the Dealer, eg the exchange risk.

[450]

410 As to the dealer rationalisation plan, the applicants' submission may be summarised as follows: (a) The rationalisation "plan" was embarked upon in conjunction with and/or as a consequence of the encouragement and lobbying efforts made by the Stokes organisation on a regular basis between 1995 and the time at which the first respondent ultimately made the rationalisation decision; (b) There was no reason, apart from rationalisation, to ask the applicants to exit the dealership; the relationship was satisfactory and the first applicant was a performing dealer with acceptable investment levels and high profitability; (c) The applicants' departure was the first stage of a "broader dealer rationalisation plan"; (d) The respondents painted the "blackest possible picture" of the applicants via the March 1999 review in order to obtain approval from Peoria for a dealership change, because the second respondent would not have accepted a dealership change based solely upon rationalisation, inter alia, because of its policy against rationalising performing dealers; (e) Caterpillar Australia defied Caterpillar Inc by persisting in its consideration of rationalisation options; (f) In their evidence to the Court Barrett, Langmore, Nitto, Curfman and Tong all denied the existence of a rationalisation plan in spite of an abundance of clear evidence to the contrary; (g) There is evidence of the "dealer rationalisation plan" and moves to implement it in 1999; (h) Caterpillar Australia deceived Peoria by developing a rationalisation plan without its knowledge or approval, and concealed the "dealer rationalisation documents" from Peoria, so as to obtain Peoria's approval for the otherwise unfounded dealership change; (i) The rationalisation plan is evidenced by the respondents' failure to cancel only as a "last resort", including their failure to contemplate a Gough & Gilmour "improvement plan" or Gough "stepping back" from involvement in the dealership; (j) The respondents failed to provide the applicants with one or more warnings that they faced cancellation; (k) The Dealer Agreements operated unfairly because of their failure to ensure that the applicants were heard prior to the making of the cancellation decision, and because the respondents did not take other alternatives to cancellation (such as improvement plan, step back, etc).

[470]

419 Thirdly, the applicants' contentions amounted to something like this: the first respondent was keen on dealer rationalisation for a number of commercial reasons including cost savings. Moreover, Gough & Gilmour was a dealer that was too difficult to deal with and given the esteem in which the first respondent held WesTrac as a Caterpillar dealer, the NSW/ACT dealership should go to WesTrac. This would achieve two objectives, namely, the commercially sound objective of dealer consolidation/rationalisation involving cost savings and at the same time ridding the first respondent of its problem dealer. All this was to be done without the second respondent being aware of such moves. As Mr Gough said in his affidavit evidence: Any substantial reductions in distribution costs would only be achieved in Australia by the merging of contiguous dealerships. The distance between Western Australia and New South Wales is such as to minimise any such asserted reduction in distribution costs by granting the New South Wales dealership to WesTrac. 420 If what Mr Gough said was correct, the merger of the New South Wales and Western Australian dealerships would not result in any substantial saving of distribution costs. In this respect, I agree with the respondents' submission that "This detracts heavily from the applicants' assertion that the reason for their termination was CofA's objective to save costs by rationalisation." 421 I am satisfied that there was no conspiracy involving the first respondent aimed at getting rid of the applicants as the dealers in NSW/ACT in order to achieve a dealer rationalisation plan and to install WesTrac as the new dealer. Whilst dealer rationalisation was topical from time to time throughout the 1980's and 1990's it only came to the fore as an issue for serious consideration following the decision in 1999 to change dealer in NSW/ACT. The respondents' decision to change the dealer is explicable by the fact they had proper grounds for deciding that by virtue of the applicants' conduct and attitude to their relationship with the first respondent, the relationship lacked the necessary degree of mutual trust and confidence.

[475]

(a) As with the 1997 Review, the 1999 Review was knowingly biased and misleading in that: (i) it was given the appearance of a balanced review, when in fact there was no attempt to give a balanced picture of performance; (ii) it failed to note the many positive achievements of the First Applicant; and (iii) many of its negative conclusions were wrong or misleading. (b) The 1999 Review continued many of the errors that existed in the 1997 Review, and took no account of the fact that Gough had, in his long meeting with Nitto in November 1997, pointed out that the 1997 Review was replete with errors. (c) The 1999 Review unconscionably relied on material contained in the 1997 Review, notwithstanding the fact that Nitto had stated in 1997 that the 1997 Review contained inaccuracies, that the slate would be wiped clean and contrary to an assurance given by Nitto that the 1997 Review would not be used to judge the First Applicant's performance. (d) The 1999 Review was deliberately prepared in that way to lay the groundwork for a decision by the Second Respondent to cancel the First Applicant. (e) While the principal authors of the 1999 Review knew at the time the 1999 Review was written that the First Applicant's performance did not form a proper basis to seek to end the relationship with the Applicants or terminate their dealership, they deliberately wrote a document that was designed to give the impression that the Applicants' performance was such to warrant termination. (f) There is no precedent for Caterpillar terminating a dealership because of the "personality" of the dealer principal. (g) The First Respondent recognised that it could not simply tell Peoria that it did not like working with Gough any more as he was too difficult and expect to gain Peoria's approval for his removal, especially if such an approach was accompanied by a fair appraisal of the First Applicant's performance throughout the years. (h) By overwhelming inference they wrote a negative performance review because they knew that the Second Respondent would not cancel a dealership on grounds other than performance grounds. (i) The First Respondent did not give the Applicants any opportunity to review and comment on the 1999 Review before it was sent to Peoria, denying them natural justice and the opportunity to point out its myriad faults. By inference, that was because the First Respondent knew it was not a fair reflection of the First Applicant's performance, and did not want to give the First Applicant an opportunity to point out its many faults. (j) The First Respondent took those unconscionable steps to encourage a decision by the Second Respondent to cancel the First Applicant, and it did that because by that date it had determined to rationalise the number of dealers in Australia so as to "achieve cost reduction and improve effectiveness of the distribution system" by "eliminating the weakest dealer".

[495]

· New and used machine margins - Gough & Gilmour's new and used machine margins, 7% and 2% respectively, are the lowest of CofA's dealers, which average 10.3% and 6.03% respectively. · Employee satisfaction/turnover - Although Gough & Gilmour have implemented a selective employee satisfaction focus group, employee satisfaction continues to be a potential concern, given the staff turnover", and that there "had been a 50% turnover of Area Managers in the 12 months prior to March 1999. · Customer satisfaction and feedback - The latest survey of customer satisfaction in NSW revealed both an alarming trend towards dissatisfied customers, and absolute measures which are unacceptable by Caterpillar standards. · Parts performance and inventory stocking practices - Gough & Gilmour parts operation is driven by avoiding costs, irrespective of the consequences to customer satisfaction. Customers have been asked to wait two days for part, allowing the dealer to avoid emergency freight charges (refer Appendix C, Jim Callaghan's memo). CofA has modified the emergency freight program to avoid misuse by Gough & Gilmour. Despite this dramatic action, the dealer continues to manipulate the revised system to a point where CofA is now considering removing G&G from the program entirely. Unfortunately, such action will also penalise Caterpillar customers in NSW. The dealer very much envisages their operations feeding from Caterpillar stock, rather than carrying appropriate parts inventories to facilitate their customers requirements. Emergency stock, including x orders is 34.27%. Only five of Gough & Gilmour's branches meet CofA's targeted service fill, their main facility in Parramatta fails to meet the benchmark (86%) with a level of 77.3% stock on hand. · Product problem management - Gough & Gilmour do not take a proactive stance on the application of PSP's to represent value to users in NSW. PSP's are typically applied after failure, in a manner to share cost, rather than a candid approach based on application to restore intended value. · Warranty claims processing - Warranty processing training was initiated at Gough & Gilmour in September 1998 to rectify a high error rate. Despite initial improvements, performance is steadily declining to historically low levels; characterised by high adjustment rates and slow document presentation. · OEM Support Update - The three east coast dealers cover 80% of the truck engine market with Gough & Gilmour the largest with 36%. G&G continue to have the lowest PINS of these three dealers at 15% versus average of 19%. Kenworth is market leader and our main dealer (60% of sales), of the main dealers G&G's territory represents the lowest PINS at Kenworth @ 41% versus and average of 45%. With the largest resident opportunity (approx 33%) of Cat truck engines and the largest transport opportunity (approx 55%), Gough & Gilmour remain the only dealer to not have a truck dyno. … Gough & Gilmour have completed rebuilding the TEPS network (the last dealer to do so). It is becoming apparent now that insufficient training and administration of these TEPS dealers will clearly lead to a repeat of the 1995 breakdown of the TEPS system. · Financial Status - Gough & Gilmour is currently ranked the lowest in profitability among the five Australian dealers (see chart below). · Financial Strength - Gough & Gilmour's excess borrowing capacity of A$20 million to A$30 million will "be consumed by the potential new working capital requirement. This will lead Gough & Gilmour with no capacity to fund business growth… 438 On any objective view of the March 1999 report it paints a negative picture of Gough & Gilmour's performance. Nevertheless, despite some equivocation on the matter, Mr Nitto denied that the March 1999 report was created to convey the view that Gough & Gilmour was a poor performing dealer. His evidence was that the report was designed, to the extent possible, to create a fair and balanced view of the dealership, in terms of all the facts as the first respondent's management team perceived them. Mr Barrett's evidence was that the areas of performance which were highlighted in the report were to indicate where incompatibility [between the two organisations] was manifesting itself in Gough & Gilmour's business "from the end point and the customers' point of view".

[509]

451 The 1999 report drew on material from the 1997 report. Indeed, it could be said that parts of the 1999 report (comparative tables in particular) were an updated version of the 1997 report. When cross-examined about the apparent about-face, Mr Nitto said he had changed his mind about using the 1997 report. The following exchange took place: Q. It would be a fair characterisation that what you are giving to Mr Gough at this time was an assurance that this report would not be used for dealership measurement purposes; that is true, isn't it? A. Yes. Q. And you reneged on that assurance, didn't you? A. No, I changed my mind in December; November, December. … Q. When you say November, December, you changed your mind a year later, in terms of using the 1997 Report as a measurement tool for the dealership; correct? A. Because the issues were still current, correct. Q. And you didn't think it was appropriate, given the assurance you had given, to go back to Mr Gough to enable him an opportunity to comment upon that report in a more fulsome way; correct? A. That's correct. 452 I consider that it was open to Mr Gough to assume that, in the face of his objections, the first respondent would no longer use the 1997 Report as a basis for measuring the dealership's performance. The use of the 1997 material in the 1999 report was undeniably for the purpose of making a statement about the first applicant's performance. It is clear to me that in allowing the 1997 material to be used in compiling the 1999 report, Mr Nitto disregarded his undertaking to Mr Gough and did so without informing Mr Gough that he did not intend to observe his undertaking. The consequence of this action on the part of Mr Nitto is that it may be assumed that he did not agree with Mr Gough that the 1997 Report was flawed or inaccurate but that in 1997 he was not prepared to thrash the matter out with Mr Gough. Nevertheless, Mr Nitto allowed Mr Gough to believe the slate had been wiped clean and there would be a new beginning. The alternative scenario is that Mr Nitto accepted the report was inaccurate and on that basis eliminated the report for measurement purposes. In 1999, however, he resurrected the 1997 Report and used it to compile the 1999 Report knowing it was at least in part inaccurate and knowing he had undertaken not to use it for performance measurement purposes. Whichever scenario is correct Mr Nitto misled Mr Gough.

[546]

I said: "I need to reflect on your comments before I give any response at all." 483 I consider that Mr Curfman adhered carefully to his instructions from Mr Owens; that he (Curfman) was not authorised to terminate the dealership agreements but that he made it clear that the "relationship is over" and there was no going back. It could not be said by any stretch of the imagination there was any implication in what Mr Curfman said on 8 June 1999 that, provided the applicants negotiated in good faith and behaved reasonably in the sale process, if a sale nevertheless did not result, then they would not ultimately face cancellation of the dealership agreements. 484 On 11 June 1999, Mr Gough had a telephone conversation with Mr Curfman concerning his reaction to what he had been told on 8 June 1999. Mr Gough made notes of the conversation and relied on those notes in giving his affidavit evidence. The telephone conversation consisted largely of Mr Gough disputing the allegation of lack of trust and confidence and asking for the reasons why he was being asked to sell. The conversation eventually turned to the options for Mr Gough. Mr Gough's account of the relevant parts of the conversation with Mr Curfman ("CC") were as follows: CC said: "Well, that's where we are. It's about the lack of trust, lack of respect". I said: "I don't believe there is a lack of trust". CC said: "Well, there we are. We think there is lack of trust, and you don't agree. So you see, we cannot even agree on that". I said: "My preference is to remain as a Cat dealer. It is my life. I have worked towards this for 25 years". CC said: "Well, we feel there is no way to do business long term. You have to have a relationship, and it's our opinion that one does not exist". I said: "My question, do I have an option?" CC said: "Well, you can have all the options you want, but we want to assist you to sell your shares". I said: "What are the alternatives?" CC said: "We think your best option is to ask us to find a buyer for your shares". I said: "But you can't tell me why or what has caused this". CC said: "On Tuesday I said we didn't want to get into details, or we will just end up finger-pointing. I think that finding you a buyer is really the best option. I want you to understand that the decision is firm". I said: What about Tony?" CC said: If there is a role for Tony with an incoming owner, then maybe something can be sorted out. I would just defer to you and Tony as to how he wants to . . ." He then paused and said: "Have you talked to Tony?" I said: "I have talked at length with Tony". CC said: "I don't know Tony at all. He seems nice enough. Until I understand what you want to do I cannot talk with Tony. But I must have your firm answer. I have to report to a meeting in Peoria on Monday, and I have to tell them your decision". I said: "But my preference would have been to continue as a Caterpillar Dealer". CC said: "Is that what you want me to tell them?" I said: "Yes". CC said: "Then I will. But I have to tell you that is not an option. Their decision is firm". 485 Once again, Mr Curfman made it clear to Mr Gough that "the "decision is firm" and nothing in the conversation indicated that there was the prospect that the applicants would be allowed to retain the dealership. At this stage there had been no discussion or consideration at all of what might occur if, despite reasonable behaviour by the applicants, any sale fell through. Mr Gough could have had no impression other than that the relationship was over and there was no turning back. The only implication one could draw from that is, notwithstanding that any sale might fall through, the respondents were not interested in continuing the relationship and that the respondents would continue to search for another buyer.

[561]

498 In my opinion none of the evidence, taken in its proper context, supports the applicants' contention that, by implication, they had been assured that if no agreement for a sale at a fair value could be reached the applicants would retain the dealership. Indeed, the contention goes against the evidence: The applicants were told on numerous occasions the relationship was over; as early as 8 June 1999 the applicants were seeking legal advice as to their options relating to termination of the dealership agreements; the applicants' solicitors were asked to give advice on the basis that Caterpillar was contemplating termination of the dealership; legal advice to the applicants was that they should cooperate in the sale price because the 90 days' clause in the dealership agreements "was either difficult or impossible to challenge"; Gilmour was told by Langmore on 13 August 1999 that if Gough & Gilmour were unable to agree on a price with the purchaser then Caterpillar would have to exercise its right to cancel the dealership agreements; the applicants' receipt of the letter from Caterpillar on 6 October 1999 seeking Gough & Gilmour's acknowledgement of Caterpillar's reservation of all of its rights pursuant to the dealership agreement and the applicants' subsequent acknowledgement; following the telephone conversation with Owens on 7 February 2000 when Gough said Owens said to him "I want to avoid a cancellation. We have to remind dealers that they don't own the distribution rights", Gough did not raise with Owens or subsequently with anyone from Caterpillar, the existence of any express or implied assurance that if a sale for fair value could not be reached, the applicants could retain the dealership; at no time during period up to and including February 2000 when the applicants said they realised cancellation was on the cards did the applicants say to the respondents they had been assured that if no agreement for a sale at a fair value could be reached the applicants would retain the dealership; and, at no time did the applicants instruct their legal advisers to write to the respondents to say that the respondents were acting contrary to assurances. Conclusion regarding the fourth assurances 499 The applicants' contention, which constitutes part of the alleged fourth assurance, namely, "by implication, that if no agreement for a sale at a fair value could be reached the applicants would retain the dealership", is not made out on the evidence.

[572]

504 The legal advice issue was the subject of an interlocutory judgment in these proceedings (Gough & Gilmour v Caterpillar of Australia (No. 7) [2001] NSWIRComm 147). The judgment concerned the issue of whether the respondents were entitled to access certain legal advice that the applicants might have received as to their options in the face of the respondents' requirement that the second and third applicants sell their interests in the dealership. Interlocutory Judgment No.7 provides the background to the issue I am now required to address: 35. As I understand Mr Gough's evidence it was that following the conversation with Mr Curfman on 8 June 1999, he was left with the clear impression that unless he entered into negotiations to sell the business, the first respondent would cancel the dealership agreements. At par 272 of Mr Gough's affidavit of 31 January 2001 he deposed that: It was my understanding, based on the conversations referred to above, that unless G&G entered negotiations to sell its business to a purchaser nominated by C of A, we would face the cancellation of the dealership agreement. As such, we felt we had no alternative but to enter negotiations with the potential purchaser or purchasers selected by C of A. 36. At par 383A of his affidavit, Mr Gough deposed that: During this same period [October 2000] G&G became aware, for the first time, of s 106. 37. At par 333 of his affidavit, Mr Gough deposed that he had a conversation with Mr Owens, the Chairman of the second respondent in February 2000: At the end of the conversation with Mr Owens, I was left with no doubt whatsoever that CofA expected G&G to do a deal with ACE, even if the terms offered by ACE were unreasonable, and that G&G would face cancellation unless this occurred. In other words, it was then clear to me that CofA had no intention of honouring its repeated assurances to me that G&G would only be required to sell on fair and reasonable terms and that CofA would assist G&G to achieve such an outcome. 38. At pars 128 and 129 of his affidavit of 31 January 2001 Mr Gilmour stated: On 26 October 2000, G&G was served with notices from C of A dated 25 October 2000, purporting to terminate our Sales and Service Agreement, Distribution Agreement for Engines, Parts and Service and Product Support Agreement for Engines, Parts and Service, on 90 days notice. On our instructions, our solicitors commenced these proceedings on 27 October 2000. I first learnt of s 106 of the Industrial Relations Act in mid October 2000. 39. The state of mind of the second and third applicants as to their position regarding negotiations to sell the business, is summed up at par 31 of the proposed third further amended summons, which states: The second and third applicants were led to believe by the first respondent that unless they entered negotiations with WesTrac to sell the business, they would face the cancellation of the dealership. In the circumstances, they felt they had no alternative but to enter negotiations to sell their shares in the first applicant. 40. This state of mind changed on 7 February 2000, following the conversation with Mr Owens. From then on Mr Gough believed that not only did he have no choice other than to enter negotiations to sell his shares but now he had no choice other than to sell, regardless of whether he achieved fair value, or the dealership would be cancelled.

[583]

(h) Mr Gough wanted legal advice for the purpose of using it as a negotiating tool. 507 In light of this material, the respondents submitted: (a) Shearman clearly was aware, as early as mid June 1999, of Gough & Gilmour's right, pursuant to section 106, to challenge Caterpillar's actions; (b) Gilmour also was clearly aware, as early as 11 June 1999, of that right; (c) Ms Mitchell, Shearman's second-in-charge, was clearly aware as of 11 June 1999, of that right. (Despite the fact that Mitchell was a solicitor, the applicants have discovered no notes of hers of the 11 June meeting; nor have they called her as a witness in this proceeding); (d) As a result of the preceding three sub-paragraphs, Gough & Gilmour clearly had corporate knowledge of the existence of section 106 as early as June 1999: its two in-house solicitors (one of whom was a key member of the core management team) were aware of the provision, as was one of its co-directors; (e) Harmers provided advice to a greater extent than Robinson, in his contradictory, and at times evasive evidence, was prepared to concede. In particular, why would Robinson have been "surprised" on 18 June that Shearman told him that Gough & Gilmour were not going to pursue section 106? If Harmer's advice had been minimal, and/or suggested weak prospects, there would have been no cause for surprise at Shearman's response; the response would have been expected. There could only have been surprise if Shearman, in the face of favourable and/or reasonably bullish advice, was electing to take a contrary course; (f) Despite their denials, Shearman informed Gough and Gilmour of their section 106 rights. It is inconceivable that Shearman would not have done so (in the absence of a deliberate plot by Shearman to deceive and harm her employers), particularly in circumstances where: (i) Gough & Gilmour were spending significant amounts of money in engaging three firms of lawyers, yet the applicants would have the Court believe that Shearman, their own in-house legal counsel and a core member of their management team, was aware of a further potential remedy but had not disclosed it to anybody; (ii) Gough gave evidence that he would do anything to retain the dealership, and that he wanted legal advice as quickly as he could after 8 June; and (iii) Gough, Gilmour and Shearman had discussions about what to do on many occasions from 8 June 1999 onwards. (g) The applicants' sworn evidence to the Commission in these proceedings, concerning their knowledge of section 106, is incorrect and misleading. Unfortunately for them, as a result of the respondents' "pursuit of perfect discovery", they were found out; and (h) Contrary to their assertions, the applicants did not have "no choice" but to follow the sale process; they were well aware of the possible legal remedy available to them under section 106 (and pursuant to other laws), but chose for commercial and strategic reasons to go down the path of the sale process, reserving to themselves the opportunity to institute the section 106 proceedings at a later date if they chose to. Indeed, according to Robinson's affidavit, Shearman informed him on a number of occasions that, rather than giving more thought to section 106, Gough & Gilmour were following the sale "option". The very description of that course of action as an "option", in the context of it being a reason for their asserted failure to give further consideration to section 106, completely belies the applicants' attempt to characterise it as something which was forced upon them as the only course available. The retention of this "option" was consistent with Gough's strategy of keeping Caterpillar busy for years with litigation. 508 What the respondents are asking the Court to accept is that the applicants, and Mr Gough in particular, sought and gained legal advice to the effect that s 106 of the Industrial Relations Act was an effective remedy in the face of the respondents' attempts to force them to sell their dealership. Further, that the applicants knew this advice as early as June 1999 but they chose not to immediately exercise any rights under s 106. Rather, the strategy to be pursued was one of delay and obstruction in the sale process in order to maximise their profits, with the institution of legal proceedings being the applicants' fall back position if required. The respondents contended this strategy reflected badly on the applicants' credit and militates strongly against any finding of unfairness that they assert may have arisen out of the sale process.

[600]

It is submitted that the matters in the previous paragraph, coupled with her unexplained failure to give evidence and her obstructive and unresponsive answers on the interlocutory application, lead inexorably to an adverse Jones v Dunkel [(1959) 101 CLR 298] inference of the strongest kind, namely, that any evidence which she could have given would not have assisted the applicants' case. They also lead to serious questions about the trustworthiness of another key member of Gough & Gilmour's senior management team, with whom Caterpillar would be required to work in the event that the Court ordered a continuation of the relationship. 520 I do not consider there is much doubt that Ms Shearman understood from about June 1999 that s 106 was potentially a significant legal option and it most certainly troubles me that neither she nor Ms Mitchell were called to give evidence. If she had not understood the potential significance of s 106 then in answer to Mr Robinson's question on a number of occasions, "Have you given any further thought to s 106 proceedings?" her answer would have been something like, "What is s 106?" or "How can it help us?" not, "No, at this time we are reluctantly following the sale option." However, as Moore J pointed out in Moshirian v University of New South Wales [2002] FCA 179 at par [50]: At most, the rule in Jones v Dunkel permits an inference that such a witness' evidence would not have assisted the applicant, and that other evidence which might have been contradicted by that witness may more readily be accepted. It does not allow an inference that the witness' evidence would have been detrimental to the applicant's case … 521 Accordingly, in the absence of any direct evidence to suggest that Gough had been told by Shearman about s 106 well before October 2000, the applicants' failure to call Ms Shearman does not allow me to draw the adverse inference that the applicants did not call her because her evidence would have damaged the applicants' case by contradicting Mr Gough's testimony that he was not aware of s 106 until some time about October 2000.

[601]

522 Perhaps, as the applicants submitted, the most potent reason for accepting that Gough was not told by Shearman or anybody else prior to the latter part of 2000 about the availability of s 106 as an option for keeping the dealership, is that if he had been told of such an option he would have engaged in discussions with lawyers "so that he might personally understand the potentiality of s 106" or at the very least required a detailed advice about it. If Mr Gough had any inkling that s 106 might well have been a powerful legal remedy, in my opinion he would have been in personal contact with Harmers very early after being told by the first respondent to sell; Mr Gough was a person who had to know and understand the details of any strategy, including any legal strategy. He was not the type of person to accept advice about the complexities of a provision such as s 106 on a second hand basis, especially given its importance to retaining the dealership. Yet there is no evidence that Mr Gough met with Harmers or received detail legal advice on s 106 until October 2000. Furthermore, as the applicants submitted: …given that Gough had advice from Gilbert & Tobin that his legal options were confined to actions for compensation/damages, it is also inevitable that Gough would not have raised Harmers' view about the availability of section 106 in his discussions at that time with Williamson-Noble. Gough would then have been in the position of having received conflicting advice which he would need to resolve and there is a strong possibility that Gough would have sought to hold a meeting with both Harmers and Williamson-Noble to discuss the matter (again there are no records to suggest that any such meetings ever took place and the Gilbert & Tobin file notes make no reference to section 106 ever being discussed in any of the meetings that they held with Gough). Given his propensity for sending emails to his colleagues, friends and family members and his capacity/preparedness to express his innermost thoughts in such emails and personal letters … there is every basis to have expected that he would have told somebody in the period between June/July 1999 and September/October 2000 that he was aware of section 106 and was keeping his ability to use that section "up his sleeve" (or in his back pocket) to be used at the most appropriate point. (Again, however, there is no suggestion that he had such information in any of his emails/letters that are now before the Court and this is the case in spite of a very extensive discovery process). 523 The respondents submitted that Gough's evidence - that as at 4 August 2000 he considered he was in effect in a position where he had to accept Stokes' offer because he was unaware of section 106 - was "untruthful". The basis of this allegation was the evidence that Gough gave in cross-examination that Shearman "may have told him" about section 106 as early as July 2000. In respect of this submission I note: (a) Mr Robinson's evidence that Harmers were not called upon to provide any advice in relation to the possibility of challenging Caterpillar under s 106 until early October 2000;

[615]

· The Stokes' organisation had been extolling the virtues of dealer rationalisation in Australia since as early as 1995 and it is inconceivable that it would champion such a cause unless it believed that it would be the beneficiary of any such rationalisation process. · Barrett had developed a close personal (and presumably working) relationship with Jim Walker of WesTrac and agreed that he had discussions involving WesTrac at or after the February 1998 Dealer Principal Meeting in Perth. The closeness of the relationship between the First Respondent and WesTrac is also demonstrated by the fact that WesTrac was the dealer chosen for the development of "cell certification" and it was the First Respondent's joint venture partner (and only partner) for the development of the Caterpillar Institute idea. Upon being shown his Performance Review dated 1997, Beeler agreed that WesTrac was the only dealer ultimately to accept the training institute program and the most vocal advocate and supporter of dealer rationalisation was the First Respondent's Western Australian District Manager, Glen Morrison. · Barrett's Dealer Consolidation Options document dated April 1999 was put together whilst Barrett was in Perth, as is clear from his email of 14 April 1999, wherein he told Curfman that he had "today returned from a couple of successful days in Perth". · Curfman and Ramseyer talked in terms of an "Australian solution" from as early as June 1999 and indicated a firm desire and intention to move quickly so as to minimise the prospect that interested dealers and others from overseas would surface as interested potential dealer candidates. · An "Australian solution" did not, however, suggest that the first respondent would countenance any other existing Australian dealer or any other interested Australian company, as Hastings Deering (whilst interested in New South Wales) was ruled out as unsuitable from the outset for reasons that do not stand up to scrutiny and (unlike the situation in 1988) prospectuses were not circulated to potentially interested and suitable Australian companies. · Barrett's Dealer Consolidation Options document and his 8 October, 1999 "most likely" scenarios document both disclosed WesTrac as the undoubted beneficiary of the dealer rationalisation process, with the only residual issue being whether one or two of the other Australian dealer principals (Cavill and Elphinstone) would be offered a minority shareholding in a new New South Wales dealership entity owned by the Stokes organisation. · Contrary to the approach adopted in 1988 when approximately 30 prospectuses were circulated, only two prospectuses were sent out in October 1999. · Unlike the situation that prevailed in 1988, the applicants were not even permitted to negotiate with a number of different potential candidates (or even two) on a "what if"/conditional basis, i.e., what the candidate would be prepared to pay if they were appointed as the dealer. · Curfman, as Managing Director of the first respondent, made clear his unequivocal preference and support for WesTrac known even before the prospectuses were issued to WesTrac and William Adams and then again before receipt of the written submissions from the dealers. · Whilst Gammell denied it, the Stokes' organisation was advised by mid November 1999 that it was likely to succeed. 535 The applicants further submitted that:

[616]

· The reality is that apart from the denial that this was not a true contest and the assertion that it was a relatively "close contest", there is no suggestion in the contemporaneous documentary material that the outcome of the alleged contest was ever in doubt. That is, WesTrac was always going to be selected as the preferred dealer candidate and this is what happened as a matter of fact. Curfman had decided on 26 October 1999 that WesTrac would succeed. · The selection of WesTrac as the preferred dealer candidate for New South Wales was also linked to the deal done between the Stokes' organisation and Ramseyer and the first respondent for Stokes to take a dealership in the North East of China. · The analysis of the respective submissions by the candidates for the dealership does not support the conclusion in favour of WesTrac. Note, for instance, the apparent downplaying of the fact that Victoria and New South Wales were "contiguous" territories in spite of the fact that such a situation would maximise the "synergies" and cost efficiencies that were apparently driving the decision making process. Also, the WesTrac proposal was much more highly geared than the William Adams proposal. Sime Darby like WesTrac was also in the process of acquiring a China dealership and the New Caledonia acquisitions, yet Hastings' Deering China acquisition was a fact that Ramseyer allegedly relied on to rule out Hastings Deering because he felt that Sime Darby "would have to digest" the new China acquisition and New Caledonia acquisition). Furthermore, the Court will note that Dale Elphinstone apparently presented in a presumptuous manner and this was regarded as sufficiently important for Ramseyer to advise Owens in his summary of presentations by dealer candidates. · In spite of the first respondent's commitment to an "Australian solution" and its evidence that there was a relatively close and bona fide contest between WesTrac and William Adams for the New South Wales dealership, with the implication being that William Adams could have easily have won the contest given the merits of its application, the first respondent still refused to allow the applicants to negotiate even with William Adams once the negotiations with the Stokes organisation broke down.

[631]

denied the applicants the opportunity to gain, from the relevant marketplace, a proper assessment as to true or fair market value for the New South Wales dealership business. (c) Furthermore, by permitting the applicants to negotiate only with the Stokes' organisation, in circumstances where the Stokes' organisation was aware from the outset that the applicants would face cancellation if they did not reach a sale agreement with the Stokes' organisation meant that the Stokes' organisation could: (i) insist on the "most extensive due diligence" that Tong had ever seen; (ii) ultimately insist upon a "bargain basement" view as to goodwill (namely $50 million), comfortable in the knowledge that the applicants would be forced to take it if they wanted to avoid cancellation. That is, "fair market value" was determined by what the Stokes organisation deemed it to be; (iii) put enormous pressure on the applicants to compromise with respect to long-established net asset values (as reflected in the audited accounts) on the same basis, i.e. compromise or face the prospect of cancellation; and (iv) hold out for terms and conditions in the proposed contract for sale that reflected the position that the Stokes organisation was assuming "no risk" (whether quantifiable or otherwise) with respect to the deal. (d) The Stokes' organisation was, in effect, put in a position where it "held all the cards" which provided it with an enormous but unfair advantage in the bargaining process. (e) The obvious advantages deliberately bestowed upon the Stokes' organisation, with the corresponding disadvantages then faced by the applicants in the sale process, necessarily resulted in the respondents reneging on clear assurances provided to the applicants during the second half of 1999, not only with respect to the question of price, but also with respect to fair terms and conditions and Caterpillar assistance in the event that the Stokes' organisation sought to drive too hard a bargain or otherwise "chisel" the price.

[644]

563 In this regard, the applicants submitted: (a) By permitting the applicants to negotiate only with the Stokes' organisation, in circumstances where the Stokes' organisation was aware from the outset that the applicants would face cancellation if they did not reach a sale agreement with the Stokes' organisation meant that the Stokes' organisation could: (i) insist on the "most extensive due diligence" that Tong had ever seen; (ii) ultimately insist upon a "bargain basement" view as to goodwill (namely $50 million), comfortable in the knowledge that the applicants would be forced to take it if they wanted to avoid cancellation. That is, "fair market value" was determined by what the Stokes' organisation deemed it to be; (iii) put enormous pressure on the applicants to compromise with respect to long-established net asset values (as reflected in the audited accounts) on the same basis, i.e. compromise or face the prospect of cancellation; and (iv) hold out for terms and conditions in the proposed contract for sale that reflected the position that the Stokes' organisation was assuming "no risk" (whether quantifiable or otherwise) with respect to the deal. (b) The Stokes' organisation was, in effect, put in a position where it "held all the cards" which provided it with an enormous but unfair advantage in the bargaining process. (c) The obvious advantages deliberately bestowed upon the Stokes' organisation, with the corresponding disadvantages then faced by the applicants in the sale process, necessarily resulted in the respondents reneging on clear assurances provided to the applicants during the second half of 1999, not only with respect to the question of price, but also with respect to fair terms and conditions and Caterpillar assistance in the event that the Stokes' organisation sought to drive too hard a bargain or otherwise "chisel" the price. 564 The first thing to record about the applicants' complaint that the Stokes' organisation was in a strong bargaining position because of its knowledge that the applicants faced cancellation if the sale did not go through, is that in 1988 the applicants were aware that the Bond Corporation was subject to cancellation and that the negotiations took place in that light. So much is clear from the evidence of Coonan and Wickert. The other preliminary point to be made about comparative negotiating strengths is that notwithstanding the applicants' submissions they were negotiating with a large corporation that had extensive experience in acquisitions, the applicants themselves were at all material times able to call on a platoon of top-flight financial, accounting and legal advisers. Additionally, Mr Gough is a shrewd, tough-minded businessman.

[659]

577 Not too much can be read into the conduct of the parties at this stage of the negotiations but I do not consider that the applicants acted unreasonably in the sale process during the period July to December 1999. Curfman had an expectation that negotiations would be wrapped up by December 1999 and was obviously disappointed this did not occur. He blamed the applicants for this, mainly because of the ambit position they had taken in opening negotiations with WesTrac by proposing a sale price of $243 million, which Curfman considered could not be supported "by any numbers". Having discussed the negotiations with Westrac, but not Gough & Gilmour, Curfman expressed his discontent to Peoria in a communication dated 17 December 1999. The correspondence does reveal a somewhat prejudiced view of Mr Gough. Curfman said: Spoke with Peter Gammell and Kerry Stokes today. Stokes has offered Harcourt a seven times earning multiple and a very generous blue sky amount to get up to what was anticipated to be a more than fair price. The seven times earning multiple was consistent with our review and that of Harcourt's initial calculation. I learned today that Harcourt is now seeking a 15 times earnings ratio. This came from nowhere and cannot be supported by any numbers. The Stokes offer at roughly $190 million is based on a $140 million in assets and $50 million blue sky. Harcourt is looking for $100 million in blue sky which takes numbers to $240 to $250 million approximately. Business cannot cashflow that amount … Harcourt's stated position is simply that Cat will not terminate and that he will be in business as long as he wishes. Take it or leave it … Negotiations (which is really not an accurate description for what has taken place) are to continue in some format next week. The potential buyer is very frustrated as seller is not negotiating in a realistic manner all with concrete data … wish news was better, but this position has been predictable. We will have a good feeling by the end of next week as to where we stand ...

[683]

599 In a letter dated 22 June 2000, WesTrac advised Gough & Gilmour that it was told in January 2000 the EBIT forecast for 2000 was $34.7million and that this was a "key factor" that led to WesTrac agreeing to exclude 1998 from the original estimate. However, the forecast for 2000 had subsequently been revised significantly downwards to $20 million and in those circumstances WesTrac asserted that the 1998 EBIT may not have been an aberration and perhaps should have been included in determining an appropriate average EBIT. The letter stated: The 2000 EBIT forecast was taken into account in setting the $182.5n offer level. As advised at the meeting held on 28 January 2000, the 2000 EBIT forecast of $34.7m was the key factor which led us to base an estimate of maintainable EBIT on the 1996, 1997 and 1999 average, excluding the 1998 result. If not for that forecast, we would not have accepted PwC's 24 December 1999 advice (repeated in the meeting) that 1998 was "abnormally low", and we would not have had a starting point "enterprise value" of $184.8m (7 times $26.4m). The discrepancy between forecast 2000 EBIT and likely 2000 EBIT becomes more significant in light of the many other discrepancies we have discovered. The apparent overstatement of prior year EBIT, prior year "margin-earning" sales and balance sheet values are also significant issues. For the first time, on 7 June 2000, we were advised that 2000 EBIT will be less than the prior year. This confirms the need for us to accurately determine the true level of maintainable EBIT, so that the appropriate price can be determined. As we have done to date, this needs to be verified by a true measure of the sales revenue on which an EBIT margin is earned. A review of correspondence and meetings between the parties (e.g. our 16 December 1999 fax, and the calculation tabled at the 28 January 2000 meeting) clearly shows that our purchase price calculations are based on a "multiple of EBIT" formula. Your advisers, PwC, accepted the formula-based approach as "a reasonable approach in principle" by fax dated 1 February 2000. PwC's 24 December 1999 letter argues for a multiple higher than 6.5, and EBIT higher than $23m. This is not indicative of rejection of a formula-based approach. Also, no PwC or Gough & Gilmour correspondence argues for a multiple higher than 7.0. There has been no argument for a higher multiple than 7.0 at all, let alone any "consistent" argument. The represented sales levels was the key factor in the assumed maintainable "margin-earning" sales level of $330 million. This was used to check the legitimacy of the three-year average EBIT. Had we had the statutory accounts prior to the 28 January meeting, we would not have presented $26.4m as the "base EBIT", and therefore not generated the "enterprise value" on which the $182.5m price was based. Our due diligence to date indicates that using an 8% EBIT margin (based on "Caterpillar comparables") is not appropriate. Your response does not address the true Gough & Gilmour EBIT and EBIT margin, which remains an issue. For the abundance of clarity there are three possible results of our due diligence on EBIT. AVERAGE VALUE 1997,98,99 and forecast 2000 adjusted per due diligence 18.8m 131.6m 1997,98,99 and forecast 2000 (per G & G) UNADJUSTED 22.0m 154.0m 1996,1997,99, (EXCLUDING 1998 as ABNORMAL) 26.2m 183.4m We await further justification as to why the "valuation" should be based on $182.5m.

[731]

621 According to Gammell, all of the outstanding issues were resolved at the meeting by way of a "commercial agreement" between the parties as follows: (a) "Properties": It was agreed that there would be no adjustment of the asset value of the properties as originally proposed by ACE, but there would be a retention amount or a mechanism to cover exposure and rectification costs in the event of any environmental problems arising. The amount to be retained was agreed at $5 million. It was agreed that ACE would release the retention amount to Gough and Gilmour as soon as ACE was provided with appropriate certification that there were no environmental problems; (b) "Plant and equipment": It was agreed that there would be no further adjustment for plant and equipment. Previously, there had been disagreement over whether ACE would accept plant and equipment at book value; (c) "Maintenance contracts": Gammell said that ACE would be content with the provision (for losses on maintenance contracts) to be an amount that the auditors would sign off on as properly reflecting the loss, and Gough and Gilmour said that they were happy with this; (d) "Buy-backs": It was agreed that there would be no adjustment in the purchase price for buy-backs, but that if ACE could not get the buy-back price for equipment that it sold, Gough and Gilmour would have a call option to purchase it at that price. If ACE's sale price was below the buy-back price, Gough and Gilmour would indemnify ACE in respect of the difference; (e) "Receivables": It was agreed that disputed receivables would be to the benefit of Gough and Gilmour, that is, they would get any amounts recovered. It was also agreed that certain agreed amounts would be taken out of "receivables" in the preparation of the accounts; (f) "Cadia pre-payments": It was agreed that the asset shown with a value of $1.7 million (relating to Cadia truck body repairs) would not be recorded as an asset or reflected anywhere else in Gough & Gilmour's accounts; (g) "Inventories": It was agreed that inventories would be assigned values by the auditors. It was also agreed that if the inventory had not been sold after twelve months then there would be an adjustment of the 10% in favour of ACE, or, alternatively, Gough and Gilmour could purchase the inventory from ACE at book value; (h) "DML": It was agreed in respect of this retention of title claim by DML that Gough and Gilmour would give ACE an indemnity be able to run the case if proceedings were instituted; (i) "Executive contracts": It was agreed that if any executive employees were terminated by ACE within 12 months, Gough and Gilmour would make any termination payments under the contracts.

[732]

622 The question of whether the parties reached a "commercial agreement" on 15 August in relation to all of the outstanding issues, is an important one. In September 2000 the Stokes' organisation informed the respondents that the applicants had reneged on a commercial agreement reached on 15 August. In September, the respondents took the decision to cancel the applicants' dealership. The applicants contended that in taking that decision the respondents were influenced by the Stokes' organisation's claim that the applicants had reneged on a commercial agreement. 623 I accept the applicants' submissions that there was no "commercial agreement" reached between the parties on 15 August 2000 covering all outstanding issues. Those submissions may be summarised as follows: (a) the only contemporaneous notes of the meeting in question were kept by the applicants and those notes do not record that any level of agreement was achieved. (b) given the Stokes' organisation's alleged frustration and exasperation in dealing with the applicants over many months (and in particular their allegation that the applicants did not keep their word), if a total or even a partial commercial agreement had been reached on 15 August 2000, it is inconceivable that Stokes and Gammell would not have insisted either that the agreements reached be recorded in writing (whether in a Heads of Agreement document or otherwise) before the applicants left the meeting or, at the very least, be confirmed in a letter either that day or in the days that immediately followed the meeting. (c) it is even more inconceivable that, if such an agreement had been reached, the Stokes' organisation would not have written a letter to the respondents advising them of such good news. (d) the Court has not been assisted by any evidence from Stokes himself with the inference between that he would have been unable to corroborate Gammell's view of the meeting. (e) as is revealed from Gammell's own evidence, the correspondence (by letter dated 22 August 2000) that passed between the parties immediately after the 15 August meeting only suggested that Gammell was "disappointed that you are revisiting matters individually we thought we had agreed as a package at our meeting on 15 August 2000. However, I provide comments on each of these issues you have raised . . ." Given the style of Gammell's earlier (and later) correspondence, if he truly believed that the applicants were reneging on a commercial agreement, considerably stronger and clearer language would have been anticipated in his letter of 22 August 2000. (f) the correspondence from the Stokes' organisation thereafter tended to corroborate the applicants' view as to what had occurred at the meeting on 15 August, in that its own letters referred to "position proposed" (although it is noted the letter goes on to refer to the meeting as "reflecting our final position"); and, "tentative agreements". (g) it is also inconceivable that the applicants would have, on the spot, agreed to allow the Stokes' organisation to retain $5 million of the agreed value with respect to the Parramatta property pending some unspecified EPA "clearance" process. This is not only because the applicants were firm in the view that no retention sum was fair or reasonable (as the site was not contaminated) but also because there was no (necessary) allied agreement as to the particular EPA process in contemplation (assuming that one existed); as to the timeframe for the conducting of such a process; or as to whether the necessary "clearance" to facilitate the Stokes organisation's release of the $5 million retention sum was a total or 100% clearance, or some other level of confidence about the safety or non-contamination of the site. (h) it is also inconceivable that the applicants would have, on the spot, agreed to spend up to $1.4 million on termination payments to executives in the event that the Stokes' organisation simply decided (as a matter of its own discretion) to terminate the applicants' executives, who are on written contracts, during the first twelve months that the Stokes' organisation operated the New South Wales dealership business. (i) whilst Stokes and Gammell were clearly pressing for full warranties, indemnities and personal guarantees the proposed form of those terms had not been the subject of discussion between the lawyers even in draft form (although Stokes obviously believed that they were in such a standard form that they could be obtained by the push of a button of the applicants' solicitor's computer). (j) Gammell says separate agreements were reached with respect to each line item, yet he kept no notes of those alleged agreements, and did not record in his affidavit what he believes was actually said that evidenced a series of oral agreements. (k) Gammell admitted, after reference to being bound by oral agreements as a Scot, that he did not believe that he had entered a legally binding agreement under Australian law. (l) Gilmour's conversation with Curfman on 22 September 2000 about the difficulties they were experiencing with the Stokes' organisation was entirely inconsistent with the applicants believing that there had been an agreement reached on 15 August.

[753]

644 The respondents contended that there was no proper foundation to support any of the applicants' contentions. The respondents rejected the applicants' assertions as "ill founded and offensive." The respondents submitted that the direct oral evidence of the respondents' witnesses disproved the applicants' contentions. Further, even if, for arguments sake, the oral evidence was to be ignored, the fact that certain matters were not expressly referred to in the affidavits does not provide an evidentiary, factual or legal basis for inferences of the kind contended for. Even if, again for the purpose of argument, this was assumed not to be so, given the direct oral evidence on the point and the absence of any direct evidence to the contrary, it is manifestly clear that no such inferences of the kind contended for can be drawn. This was so because: (a) the "only available" inferences which the Court is asked to draw involve five separate collusive conspiracies each between five people in different organisations and located in different cities and parts of the world - such conspiracies are said to extend to the collusive conduct throughout the period September 2000 to date; (b) the applicants assert that the inferences to be drawn include inferences that "agreements/arrangements or understandings" (of an unspecified nature) were entered into and that the reason it was all being kept secret was because each of Owens, Ramseyer, Curfman, Stokes and Gammell were "well aware" that the meeting was unconscionable and in breach of various (unspecified) sections of the Trade Practices Act and section 46 of that Act; (c) not only were such matters not put to these witnesses but the proposition that such a cascade of conspiracies was motivated by express knowledge of particular provisions of the Trade Practices Act is nothing short of incredible; (d) the applicants' contentions require a conclusion that the senior Caterpillar executives and Gammell lied under oath calmly and consistently in relation to these matters; (e) they ignore the direct oral evidence of the witnesses; (f) they fail to recognise, adequately or at all, the fact that there is no direct evidentiary basis for any such allegation; (g) they overlook the fact that, far from seeking to cover up the fact that discussions occurred between Ramseyer, Owens and Curfman, each of them referred to discussions between them in their respective affidavits. Although it is true that the affidavits did not refer to the fact that some of this discussion occurred on a cruise ship and that, with the benefit of hindsight, it may have been desirable to do so, the express reference to the fact that discussions occurred between the individuals is completely inconsistent with the notion of a "cover up"; (h) the applicants' submissions seek to create a colour or flavour so as to suggest that some how it was inappropriate or improper for Caterpillar executives to be guests (along with 300 or so others) on the cruise ship at the time of the Olympics. There is simply no basis for any such conclusion;

[754]

(i) there is no evidence of any communications between the parties regarding any of the alleged five collective conspiracies the subject of the inferences contended for - and despite the fact that, on the applicants' case, such conspiracies must have involved communication between organisations, cities and countries over nearly a two year period; (j) the applicants contend that these conspiracies were motivated by, inter alia, knowledge and awareness of the terms of section 46 of the Trade Practices Act and the fact that the alleged conduct constituted an abuse of market power. The far fetched nature of this allegation is apparent on its face. For the sake of completeness, it perhaps ought be noted that there is no evidence that these individuals (at least two of whom are not resident in Australia) had any knowledge of the various provisions, and that the issue does not form part of this case. Furthermore, there is no foundation in fact or law for any such allegation in relation to section 46; (k) the witnesses' conduct in the witness box is entirely inconsistent with the existence of such conspiracies. If the desire was to keep these various matters secret, having carefully and collectively having done so over many months (on the applicants' case), the witnesses would have lied on oath about the cruise ship rather than freely give evidence about what transpired; (l) the public nature of the event, the number of guests involved, and the nature of the Caterpillar organisations and dealerships make it inherently unlikely that the applicants or others were not aware of the fact that Caterpillar representatives were guests of Stokes in relation to the Olympics. In any event, such matters objectively militate against the existence of any secret conspiracy; (m) contrary to the implicit assertion of the applicants, Canizales v Microsoft & Ors (2000) 99 IR 426 provides no authority or support for the contention that inferences of the kind referred to above ought be drawn in this case. Whether it is appropriate to draw an inference in a given case is determined by the nature of the inference sought to be drawn and the facts of the particular case (including the consequences which would or might flow from it). The suggestion that the drawing of an inference in one case (albeit of a different kind, involving different facts etc) warrants the drawing of serious inferences of the kind contended for in this case is without merit; (n) as the Courts have been careful to point out, "… inference must be carefully distinguished from conjecture or speculation …" Even if this was a case where the conjecture were plausible (which it is not) it would not assist the applicants. "A conjecture may be plausible, but it is of no legal value, for its essence is that it is a mere guess …" ( Scott v Perry 1995 (SR) NSW 375 at 377), 383 (Full Court). "In contradistinction to such a conjectural opinion, an inference is a reasonable conclusion drawn as a matter of strict logical deduction …" from the established facts. It must be something which follows from given premises as certainly or probably true, and the mere possibility of truth is not sufficient to justify an inference to that effect. Gurnett v Macquarie Stevedoring Co Pty Ltd (1955) (SR) NSW 243 at 248 (Full Court).

[763]

653 The evidence supporting such an inference is as follows: (a) Owens, Ramseyer, Curfman and Gammell failed to reveal in their affidavits that a meeting had taken place on a cruise ship on 17 September involving themselves and Mr Stokes to discuss the sale process. The explanations provided by the respondents' witnesses for not mentioning the significant meetings on the cruise ship were entirely untenable. (b) Owens Ramseyer and Curfman failed to disclose in their affidavits that soon after the meeting with the Stokes organisation Owens authorised Curfman to initiate the termination process immediately. (c) On 15 September Gammell indicated to the applicants that the Stokes' organisation would "revert with a marked-up contract that could lead to a conclusion of this transaction as soon as we are able". (d) On 17 September there were two meetings held on the cruise ship, the first between Stokes, Gammell, Owens, Ramseyer and Curfman and the second between Owens, Ramseyer and Curfman. Whilst Curfman expressed some uncertainty as to the date upon which those meetings occurred, initially saying it was 18 September but thereafter was not quite so sure, Gammell was clear that the meeting that he and Stokes attended with the respondents' representatives took place on Sunday, 17 September 2000. The likely conclusion is, therefore, that both meetings occurred on that day. (e) Stokes and Gammell expressed the view that "they had never dealt with more difficult people in their lives"; they vented their frustration; and, said they thought they were wasting their time and that a deal would not be made. Stokes had claimed, in effect, that the applicants had reneged on a "commercial agreement" made on 15 August. (f) On that same day (17 September) Owens, Ramseyer and Curfman met and resolved that the first applicant should be cancelled due to the total "frustration" on everybody's part with respect to the sale process and with a view to bringing the 14 months' process to a close. (g) Curfman was authorised by Owens to either "pursue with our legal counsel the steps required to terminate" (Owens' evidence) or to "initiate a termination process immediately" (Curfman's evidence). (h) On Monday, 18 September 2000 the Stokes' organisation announced to the applicants that it had changed its mind. It no longer intended to provide a marked-up contract and instead demanded the applicants supply a contract that reflected the "final" offer that it presented on 15 August 2000, with the added threat being that unless such a contract was supplied by 22 September 2000 the Stokes' organisation "will have no alternative but to withdraw from negotiations for the purchase of the company". (i) The Stokes' demand was repeated in its letter of 20 September 2000. In that letter, the Stokes' organisation also confirmed that the terms proposed by it on 15 August "for handling the various contentious issues . . . reflected our final position"; that the contract should reflect "our previous final terms by close of business on Friday, 22 September"; and that "we are not going to address and negotiate these issues on a piece meal basis." (j) The Stokes' organisation commissioned a report from PWC Perth on the value of the Dealership on 5 September 2000. Rather than advise PWC Perth on 28 September 2000 that it was withdrawing from the negotiations to buy the Dealership, it received the PWC Report on 29 September and by 9 October 2000 was advising the National Australia Bank that it was forwarding a typographically correct copy of the valuation that week. This behaviour was consistent with the later admission in the Stokes' organisation letter to Ramseyer dated 12 December 2000 that its withdrawal from negotiations on 28 September was only "temporary". (k) Whilst Curfman asserted that in the week of the 17 September 2000 decision he was instructed to initiate the termination process immediately, he also asserted that he endeavoured to get the Stokes' organisation "back to the negotiation table." However, his evidence as to what he did and when was both vague and confusing, and was inconsistent with his treatment of the applicants after 17 September. The applicants approached Curfman (both orally and in writing) on and from 22 September 2000 to report on the difficulties they were having with the Stokes' organisation and the deadline that it had imposed of 22 September 2000 and to seek his advice and assistance. Despite the requests for assistance Curfman did not seek to call a meeting between Gough and/or Gilmour and the Stokes' organisation during that week (even though he knew the applicants were willing); did not advise the applicants that Owens and Ramseyer were in town and had already met with Stokes and Gammell; and, provided Gough and Gilmour with no constructive advice or assistance whatsoever at any time prior to the Stokes' organisation's decision to withdraw from negotiations on 28 September 2000. Curfman did not suggest a meeting with Owens and Ramseyer so that the applicants could give their side of the story with respect to the sale process and to answer the Stokes' organisation's allegation that the applicants had reneged on the commercial agreement reached on 15 August 2000. (l) If it had truly been the respondents' strategy following the meeting on the cruise ship to get the parties back to the negotiating table, it would have been expected that Curfman would have intervened in a positive and helpful way in response to the applicants' request for assistance and would have also approached the Stokes' organisation. That was not the case. (m) The failure by the respondents to provide any constructive assistance to the applicants was in spite of the assurances of assistance that had been made to the applicants from the outset of the sale process. For example, the following statements were made to the applicants:

[770]

· Ramseyer indicated that the position was that if there was an impasse then he would seek authority to cancel the dealership agreements; · Ramseyer admitted that he did not seek to investigate as to why the negotiations failed but just spoke to Stokes and relied on information provided by him; · Ramseyer admitted that whilst the Stokes' point of view as to why the sale process had failed may have been a little biased, he made no allowance for that bias and did nothing to overcome it, for example, by seeking to check whether the Stokes' assertions were true or not; · Ramseyer and Curfman came to the conclusion that Gough was stalling the issue and would not proceed to a sale; · Ramseyer believed that the failure of the sale process must have been Gough's fault; · There was no report prepared on the failed negotiations; · Curfman believed that the applicants had reneged on the details of the commercial agreement; he accepted the Stokes organisation's explanation at face value; and did not seek to verify the accuracy of the Stokes' organisation's account of the agreement; · Curfman was aware that there was an issue as to asset values but this was a matter "between buyer and seller" and therefore he did not get involved; · Curfman indicated that the respondents' position was that it did not care who was to blame for the state of the negotiations; · By around 28 September 2000, Curfman accepted the Stokes' organisation's view that a deal would not be done and that this could all be blamed on the applicants. This was his view although he was not in a position to evaluate who was reasonable and who was unreasonable in the process; · Curfman claimed that he had no way of knowing whether the applicants had been negotiating in good faith or if their position was reasonable; · Curfman did not attempt to verify the Stokes' organisation's claims regarding the negotiations as he did not trust the applicants; · Curfman agreed that nobody conducted an evaluation to determine whether the applicants behaved unreasonably during the negotiations; · Curfman admitted that it was the first respondent's role "to assist" the applicants if any difficulties arose in the negotiations but refused to do so (when the applicants requested assistance on 22 September 2000) because the cancellation decision had already been made by around 18 September 2000; · Curfman was aware of the parties' disagreement over EBIT and the Stokes' organisation's view that the goodwill should be $50 million instead of $82 million, but did not ask anyone to check the EBIT figures; · Curfman admitted that it would have been a good idea to get an independent party or an agreed party to come in and value the assets to see if the parties could reach an agreement; · In August 2000 Curfman was aware that there were fourteen issues in contention between the parties but did not attempt to resolve any of them; · Curfman at no stage suggested that there should be a third party intervention to try and resolve the dispute despite the fact he felt it was a good idea.

[780]

f) other factors that suggest that a 90 days' clause is both unfair and unreasonable include the following: i) The first applicant has contracts of employment with approximately 800 staff (as at 15/1/2001); ii) The first applicant has invested heavily in a range of in-house training programmes to develop the skills of its workforce; iii) The first applicant has consistently maintained the biggest apprentice training programme of any Australian dealer at an overall cost in excess of $20 million over the past 12 years; iv) The first applicant invests heavily in employee training and its apprentice program in order to maintain a highly skilled workforce; v) It has always been Danckert's view that the decision to open a branch is a long term decision. If Danckert had been aware that there was a real likelihood of the dealership being terminated, he would not have supported significant expenditure towards new or existing branches and would certainly have opposed the purchase and development of the Parramatta site; vi) Over the years Danckert has supported the first applicant being placed in a position of significant exposure for liability under leases, believing there was no prospect of the 90 day term being invoked. g) the 90 days' clause is also unfair and unreasonably short by reference to the principles enunciated in a significant number of decisions of this Court (and its predecessors), with respect to both employment contracts and independent contractual arrangements see: for instance, Avis v AMP [1995] NSWIRC 238 as affirmed on appeal in AMP v Avis (1997) 111 IR 1 (5 years notice); see: also Mitchell v Interstate Pipelines Pty Limited (1998) 87 IR 324 (6 months' notice); h) in the context of this particular contract/arrangement, the 90 day clause is also inconsistent with the principles enunciated in Day v Lumley Life Limited (1999) 90 IR 70 at 71 as cited with approval in Reich v Client Server Professionals of Australia Pty Limited . That is, just as employers cannot conduct themselves by reference only to their own best/self-interest, this principle applies with equal force in the context of longstanding business relationships between independent contractors. It is also contrary to established and recognised notions of "business morality": see the Commonwealth v Verwayen (1990) 170 CLR 394 at page 441.2 to 441.6; see also Northside Development Pty Limited v Registrar General (1990) 170 CLR 146 at page 165.1; i) the first applicant entered into many other contracts and arrangements on the basis of its expectation and belief of a long term arrangement that could not be terminated on 90 days' notice.

[817]

692 The respondents referred to various bank and other documents that they submitted revealed the various undisclosed options considered by the applicants and the fact that they were pursuing a deliberate strategy on the basis of perceived fall back positions. The essence of this strategy, it was submitted, was tying Caterpillar up in the courts for years knowing there was always the option of selling to WesTrac or pursuing some other profitable alternative. The respondents referred to a number of examples of the alternatives, including: (a) Danckert's 14 June 2001 letter to Colin O'Connor of Westpac attached updated financial information in respect of the borrowing facilities in place between Gough & Gilmour and Westpac. The letter stated, in part: "I also confirm my previous advice to you that we do actually have 'on the table' a refreshed offer from Australian Capital Equity indicating their willingness to resume negotiations to purchase the company for an amount equal to net assets, plus goodwill of $50 million. Whilst their proposal is not currently being pursued, it continues to represent a fall-back position for our shareholders". (b) Westpac's "credit approval summary" for Gough & Gilmour dated 25 August 2001 recorded, under the heading "principal credit risks and justification", the following: "The outcome of the litigation against Caterpillar of Australia is expected to take many more months to decide (likely early 2002). Win or lose, Gough & Gilmour have some reasonable commercial alternatives available to it, including the option to sell the business to WesTrac for an amount approaching the current offer of net assets plus $50 million goodwill. WIB's position is adequately documented and secured and in the unlikely event that we would have to exercise our security, our facilities would largely be repaid by the net amount that would be owed by CAT for the return of Caterpillar inventory plus cash on hand." (c) Westpac's August 2001 "Credit Risk Analysis" stated, amongst other things: "There are many possible outcomes for Gough & Gilmour depending on the result of the litigation including: · the business continues 'as is' with a 'fairer' distribution agreement; · the business is sold through a competitive process i.e. involving more potential buyers than just WesTrac; · WesTrac and Gough & Gilmour recommence negotiations for the sale of the business and an agreement is reached. According to Gough & Gilmour the offer from WesTrac of 'net assets plus $50 million in goodwill' is still 'on the table' but is not being actively pursued at present; · Gough & Gilmour continue to trade as dealers in used Caterpillar equipment and provide maintenance services for Caterpillar and other equipment. They may also use their extensive branch network to distribute other related products to the same customer base. In addition they could acquire or merge with other businesses (such as Emeco or Expressway Spares) that currently operate in this market 'space'."

[818]

693 The applicants submitted that the Court should not draw any adverse inferences from the fact that they have declined to negotiate with WesTrac since December 2000 when WesTrac sought to re-open the sale negotiations and instead have pursued the litigation alternative. This was so, it was submitted, for the following reasons: (a) The applicants have desired to retain the dealership and they only ever negotiated with the Stokes' organisation because they were unaware of any legal process that could have enabled them to keep the dealership. Once they became aware of section 106 and immediately took proceedings pursuant to that section with a view to keeping the dealership, what had formerly been an imperative to negotiate with the Stokes' organisation, was no longer operative. (b) The Stokes' organisation had played "hardball" at all stages of the negotiations; had refused to accept any of the applicants' responses/defences to the various allegations/criticisms made by the Stokes' organisation of the applicants' stance on the question of asset/goodwill value and/or appropriate contractual terms; and had in fact adopted a belligerent and aggressive approach in those negotiations. The applicants had no basis for believing that the Stokes' organisation would behave any differently on the resumption of the negotiations. (c) The respondents, whilst initially providing assurances to the applicants as to the assistance they were prepared to give if Stokes sought to "drive too hard a bargain" or otherwise "chisel the price", reneged on those assurances and categorically refused to provide any support or assistance to the applicants even when that support, assistance and advice was sought at the most critical stages in the negotiations, that is late July / early August and again in mid-September 2000. Accordingly, the applicants were concerned about the respondents' impartiality and their capacity and preparedness to provide genuine assistance to the applicants in the face of any unreasonable stance/behaviour on the part of the Stokes' organisation. (d) The applicants were aware that their bargaining power was decidedly weaker post cancellation and so were reasonably entitled to believe that there was even less chance of a fair deal in that new context. (e) The nature and extent of the contact between the respondents and the Stokes' organisation during the sale process, being contact that had occurred to a very large extent without the applicants' knowledge, has only served to confirm the reasonableness of the applicants' stance with respect to the issue of resuming negotiations with the Stokes' organisation.

[850]

719 It was submitted for the applicants that: The term of good faith and reasonableness requires a contracting party not to act in a manner which would unreasonably deprive the other contracting party of the benefit of the bargain (see Burger King Corporation v Hungry Jacks Pty Ltd ). The primary aspect of the bargain of which the Applicants would be deprived is security, were the Respondents able to act in breach of this implied term. ... A contracting party must not exercise its powers in reliance on inaccurate information or wrong facts (see: Renard Constructions (ME) Pty Limited v Minister for Public Works ). This is relevant to the fact that the Second Respondent, and Owens in particular, exercised its powers based on inaccurate information (eg that the Applicants had reneged on a commercial agreement; and that the March 1999 Report was accurate, and a lack of relevant information, ignorant as to the true relevant strength of the First Applicant as a dealer and as to the First Respondent's true motivation to remove Gough and Gilmour, namely rationalisation of the Australian dealerships. ... The term [good faith and reasonableness] will prevent a party from exercising a contractual power for an extraneous purpose, that is, a purpose foreign to that for which the contractual power was granted (see: Burger King Corporation v Hungry Jacks Pty Limited and Far Horizons Pty Limited v McDonald's Australia Limited ). This would prevent, for example, termination of the Dealership for the purpose of forcing the dealer to capitulate as to the terms of a sale of the dealership and/or to ensure the implementation of a dealer rationalisation plan. The term requires a contracting party to refrain from acting capriciously (see: Garry Rogers Motors (Aust) Pty Limited v Subaru (Aust) Pty Limited [1999] FCA 903). Accordingly, the Respondents should not have made the capricious decision to cancel the dealership in September 2000 particularly without affording procedural fairness. ... a party must not engage in subterfuge [ Burger King ]. The First Respondent sought to create a false impression of the First Applicant (namely that the First Applicant was a poor performing dealer and would get worse, and that the f irst Applicant had reneged on a commercial agreement with the Stokes organisation) so that the Second Respondent would support termination of the Applicants' dealership. ... A party must not exercise its rights (for example, to terminate a contract) or engage in acts outside the contract (for example, communications with prospective new dealers), in a manner which would destroy the position of the other party, which unreasonably interferes with the enjoyment of a benefit conferred by express contractual terms and which does not give recognition or due regard to the legitimate interests of both contracting parties (see: Overlook v Foxtel; Far Horizons Pty Ltd v McDonald's Australia Limited ). For example, in this case, the First Respondent should not have told the Stokes organisation that the First Applicant was facing cancellation, which was inappropriate and gave the Stokes organisation an enormous bargaining advantage over the First Applicant.

[857]

725 In Peter Rochester Gow v Cronulla Sutherland Leagues Club Ltd [2002] NSWIRComm 247, Walton J, Vice President was discussing the notion of unfairness in the context of s 106 and in doing so (at pars [350] to [352]) referred to equivalent notions in the context of contract law: 350 In Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992 ) 26 NSWLR 234, which concerned a building and engineering contract , Priestley JA found "There is nothing in the slightest novel in the implication of terms requiring reasonableness by parties to a contract in implementing terms of the contract" (at 260). The implication was supported by common law principles of implication at law, statutory analogy (where the legislature implies terms into classes of contract to make the contracts work more fairly between the parties) and a growing openness in Australia to United States contractual doctrines of good faith and fair dealing. His Honour stated (at 265): Similarly, there is a close association of ideas between the terms unreasonableness, lack of good faith, and unconscionability. Although they may not be always co-extensive in their connotations, partly as a result of the varying senses in which each expression is used in different contexts, there can be no doubt that in many of their uses there is a great deal of overlap in their content, particularly in the kind of situation being discussed in the present case. 351 (This judgment has been applied by Finn J of the Federal Court in Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1 and referred to by the High Court in Royal Botanic Gardens and Domain Trust v South Sydney City Council. 352 An application of the discussion in Renard as to the interplay between notions of "reasonableness", "conscionability" and "good faith bargaining" leads readily to the conclusion that unfair dealings by a party to an arrangement during its operation or a failure to bargain in good faith, either in the course of reaching an arrangement or subsequent to the making of an arrangement (where the arrangement, for example, requires further negotiation), may result in the arrangement being an unfair contract for the purposes of s106 of the Act. This is so, as the concept of reasonableness is inherent in the notion of fairness (see, Outboard World Pty Limited T/as Budget Waste Control (Sydney) v Muir (1993) 51 IR 167 at 183, although the Commission was careful to ensure cautious attention to the actual tests applicable in s246 of the Industrial Relations Act 1991 rather than the general notion of "unfairness") and conscionability is expressly referred to in the definition in s105. Further, it is unavoidable that the denial of an arrangement, once entered into, would constitute an act of unfairness both in terms of "fair dealing" and having regard to the legitimate expectations of the party subjected to such conduct.

[863]

731 In relation to an argument that the parties had an "understanding" that the termination clause would only be used in very limited circumstances, the Court stated at [19]: Mr Morris' statement that he could not see any situation in which Placer would need to invoke the termination clause falls into the same category. The mere fact that at the time in question Mr Morris could not conceive of a situation in which Placer would exercise its rights under the termination clause does not mean that he represented that such a situation would never arise. After all, Placer insisted on the termination clause being inserted in the contract, even though Thiess wished it to be removed. Thiess was well aware of the risks of agreeing to the contract with the termination clause in it and accepted those risks. 732 The respondents contended the following propositions flow from the decision in that case: (a) The insistence and express agreement of all well advised parties to accept that their contractual relations is subject to the right to terminate, other than for cause, is fundamental to the decision by the party with the right of termination to enter into the contract; (b) Whether the risk or contingency of the exercise of the power of termination was a high risk or a low risk/contingency does not override or detract from the express right which the parties agreed as between them shall exist; (c) Although the parties at the time of entering into the contract, could not envisage a circumstance in which the right would be exercised does not lead to the conclusion there was a common intention that it would not be implemented; (d) The very fact that attention was drawn to the right to termination during the contract formation stage, that the contract was 'offered' on that basis and was understood and accepted as fundamental to it, constituted, in the respondents' submission, the basis for a legitimate expectation in the party (in this case Caterpillar) offering the contract that the other will abide by its terms; (e) Given the disclosure by Caterpillar of the existence, nature and effect of the termination provision (even though no duty of disclosure existed in it) in the contract formation stage, the applicants' attempt to disown the agreement based on it, evidence conduct that is repudiatory in nature.

[878]

747 Further, at 448 his Honour said: If, during the contract, a party, acting within the scope of the agreement, engages in extraordinary expenditure or effort, that factor must be taken into account in determining the reasonableness of any notice given. The weight to be given to the factor will vary from case to case and the particular circumstances. … On the other hand, recurrent expenditure or effort not being of an extraordinary nature would not seem relevant to the reasonableness of the notice period. The expenditure of money or effort is simply part of the ordinary cost of doing business. Once the business has existed for a reasonable period, the inability to profit from such work or expenditure is part of the business risk that the agent or distributor takes in entering into an agreement which is terminable at any time. Further, the prospect of obtaining profits in the future is not a relevant factor to be taken into account except so far as it is consequential upon the incurring of extraordinary expenditure or effort within the scope of the agreement." 748 McHugh JA (with whom Priestley JA agreed) also made the following observations at 448 as to the purpose of a notice for a reasonable period: The chief purpose of a notice for a reasonable period, therefore, is to enable the parties to bring to an end in an orderly way a relationship which, ex hypothesi, has existed for a reasonable period so that they will have a reasonable opportunity to enter into alternative arrangements and to wind up matters which arise out of their relationship. Matters to be wound up will include carrying out existing commitments, bringing current negotiations to fruition, and, where appropriate, obtaining the fruits of any extraordinary expenditure or effort carried out within the scope of the agreement. The line between ordinary recurrent expenditure and effort and extraordinary expenditure and effort will not always be easy to draw. But in general it will be determined by what the parties would reasonably have contemplated was extraordinary effort or expenditure.

[897]

768 It was submitted by the respondents that: ... the loss of trust and confidence on the part of the first and second respondents in this case represented, for similar reasons to those identified by Finkelstein J, a good reason to terminate the agreements and that the period of the notices of termination (being an agreed period of 12 months) together with the period from 8 June 1999 to 25 October 2000 was more than reasonable notice, taking into account the chief purpose of a reasonable notice of termination as discussed in Crawford . Also, it represented an action designed to promote the legitimate interests of the first respondent. 769 On the other hand, the applicants said in respect of the approach taken by Finkelstein J: This decision does not ... stand for the proposition that a subjective, unreasonably based loss of confidence can legitimately be a reason for a termination of a dealership arrangement. To the contrary ... it can be taken from the reasoning of Finkelstein J that a termination based on an unreasonable loss of confidence would constitute a breach of the obligation to act fairly and in good faith. The Respondents note in respect of the Garry Rogers Motors v Subaru decision that the failure to implement a single proposal was sufficient to lead the Court to conclude that Subaru was justified in terminating the relationship. However else the Garry Rogers Motors v Subaru decision might be distinguished (eg an interlocutory decision), it is clear that even on the Respondents' case a single incident would not have been a sufficient basis for termination given the nature of the relationship that the Respondents say should and did exist. Indeed, the Respondents' witnesses went out of their way to accept that it was entirely appropriate for dealers to reject Respondent initiatives. In any event, it is difficult to countenance the same outcome in Garry Rogers Motors v Subaru had it been heard as a section 106 case. The Applicants contend that the result in Garry Rogers Motors v Subaru was not correct nor fair applying section 106 principles.

[902]

774 Thomas J then discussed whether the law of contract should recognise a general duty of good faith in the performance of contractual obligations. His Honour then stated: [42] We have already noted that a duty to exercise good faith in the performance of a contractual obligation is most often asserted in the context of relational contracts, such as agency relationships, distributorships, partnerships, franchise arrangements and joint ventures. Readiness to import such a term is founded on the fact that the parties have a mutual interest in the successful performance of their agreement. [43] There is again no need for a dissertation on the characteristics of relational contracts as the present agreement undoubtedly falls within that category. Relational contracts are often long-term contracts, but not necessarily so, but long-term contracts by their nature are likely to be relational. In essence, relational contracts recognise the existence of a business relationship between the parties and the need to maintain that relationship; the difficulty of reducing important terms to well defined obligations; the impossibility of foretelling all the events which may impinge upon the contract; the need to adjust the relationship over time to provide for unforeseen factors or contingencies which cannot readily be provided for in advance; the commitment, likely to be extensive, which one party must make to the other, including significant investment; and that they are in an economic sense likely to be incomplete in failing to allocate, or allocate optimally, the risk between the parties in the event of certain future contingencies. See Taylor, supra, at 459 and 479 [Veronica L Taylor, "Contracts with the Lot: Franchises, Good Faith and Contract Regulation" [1997] NZLRev 459]; Hunter, supra, at 19 [H O Hunter, "The Duty of Good Faith and Security of Performance", Jnl of Contract Law (1993) 19]; Goetz and Scott, supra, at 1090 and 1091[Charles J Goetz and Robert E Scott, "Principles of Relational Contracts" (1981) 67 Virginia L R 1089]; Goddard, supra, 436, 430-431, 436, and 457 (424 and 426) [David Goddard, "Long-Term Contracts: A Law and Economics Perspective" [1997] NZLRev 423]; and Eisenberg, supra, at 294-295 and 296 [Melvin A Eisenberg in "Good Faith and Fault in Contract Law"]. [44] Consequently, a relational contract is one which involves not merely an exchange but a relationship between the contractual parties. The parties are not "strangers" in the accepted sense and much of their interaction takes place "off the contract" requiring a deliberate measure of communication, co-operation, and predictable performance based on mutual trust and confidence. Expectations of loyalty and interdependence mark the formation of the contract and become the basis for the rational economic planning of the parties. (Taylor, supra, 479).The norms of the ongoing relationship, of necessity, tend to supplement the express contractual obligations. Good faith is required to ensure that the requisite communication, co-operation and predictable performance occurs for the advantage of both parties. In short, the obligation seeks to hold the parties to the promise implicit in a continuing, relational commercial transaction.(Ibid). [45] Such considerations as these led Elias CJ to say in Stanley v Fuji Xerox (NZ) Ltd (Unreported, HC Auckland, CP 479/96, 5 November 1997, at 58 that the implication of good faith "necessarily arises whenever a contract is predicated upon mutual confidence". Other cases in New Zealand which recognise this obligation are referred to in Cheyne, supra [Judith Cheyne "Commercial Good Faith" [2001] NZLJ 245]. The cases in Australia which recognise the obligation in relational contracts are dealt with in Webb, supra [Eileen Webb, "The Scope of the Implied Duty of Good Faith - Lessons from Commercial and Retail Leasing Cases" (2001) 9 Australian Property Law Journal]. Those cases need not be repeated here. [46] There can be little doubt that the contract between Bobux and Raynor is predicated upon mutual trust and confidence and gave rise to a reasonable expectation of communication, co-operation and predictable performance. These features become all the more important when the contract is for an indefinite period. With the passing of time there could be no other effective basis on which the parties could pursue their mutual interest in the supply and distribution of Bobux products in the United Kingdom. Thomas J would have been prepared to imply a term of good faith in the contract.

[917]

Mr Nitto was entitled to take the decision in 1998/1999 to recommend a change in the dealer for New South Wales and the ACT. This was so for the following reasons: (a) The second applicant was the dominant personality with whom the first respondent was required to deal with in the principal/dealer relationship; (b) The second applicant's influence and authority over the first applicant was pervasive; any dealings by the first respondent with the first applicant were invariably subject to the dominating influence and authority of the second applicant; (c) The influence and authority of the second applicant also dominated the third applicant; (d) Whilst the first respondent contributed to the poor state of the relationship by its conduct and flawed policies and procedures in the TEPS, RPI and Cadia disputes, it did not display by its conduct an ongoing and wilful disregard for the importance of cooperation, trust, confidence and respect in the relationship, such disregard being characteristic of the applicants' conduct; (e) The first respondent had proper grounds for coming to the view that its relationship with the applicants lacked mutual trust and confidence; (f) There were no assurances (of the nature of the alleged first and second assurances) given by the respondents to the applicants that were inconsistent with the first respondent's right to terminate the dealership agreements without cause; (g) The second applicant conducted himself in such a manner that it demonstrated a sustained lack of cooperation with, and trust and respect for, the first respondent; (h) The applicants' conduct and adversarial attitude towards the first respondent placed a continuing strain on the relationship between the applicants and the first respondent; (i) The strained relationship between the first respondent and the applicants was not occasional as one might expect in a normal business relationship but was a constantly recurring theme throughout much of the period of the relationship.

[939]

782 It is important, in my opinion, to have regard the whole of the relationship between the applicants and the respondents before any judgment can be made about questions of unfairness and whether the contracts and/or arrangements constituting that relationship should be declared wholly or partly void, or varied, and whether money orders should be made in connection with the contract and/or arrangements varied or voided. In Cavacuitti v XTMCA Ltd (Toyota Motor Corporation Australia Pty Ltd) [2002] NSWIRComm 117 (5 June 2002), Marks J adopted the test of unfairness as applied by Sheldon J in Davies v General Transport Development Pty Limited and stated (at par [61]): In determining whether there is an unfair arrangement for the purpose of proceedings brought under section 106 and especially taking into account subs (2), the Court is required to exercise a value judgment reflecting contemporary community values derived from the commonsense approach characteristic of the ordinary, reasonable, hypothetical "standard" member of the community. The value judgment must obviously take into account the totality of the circumstances of the relationship between the parties and the totality of the interests of each of the parties. (my emphasis). 783 Section 106 of the Industrial Relations Act provides: 106. Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case. (6) In making an order under this section, the Commission must take into account whether or not the applicant (or person on behalf of whom the application is made) took any action to mitigate loss.

[941]

The nature and degree of the unfairness within the purview of s275, as a matter of law, relates to ordinary standards of fairness by directing attention to the particular circumstances of the individual contract or arrangement concerned. Whether or not a contract or arrangement is unfair is a matter to be decided upon examination of the facts of each particular case : Incitec Limited v Barry (1992) 45 IR 148 at 154; and Baker v National Distribution Services Limited (1993) 50 IR 254 at 270. ... 7. The test of unfairness involves the commonsense approach characteristic of the ordinary juryman by applying standards providing a proper balance or division of advantage or disadvantage between the parties who have made the contract or arrangement, bearing in mind the conduct of the parties, their capability to appreciate the bargain they have made and their comparative bargaining positions when entering into the contract or arrangement; Davies v General Transport Development Pty Limited (1967) 67 AR (NSW) 371 at 374; A & M Thompson Pty Limited and Others v Total Australia Limited [1980] 2 NSWLR 1 at 13 and Baker at 271. 785 In A & M Thompson Pty Ltd and Others v Total Australia Limited [1980] 2 NSWLR 1 at 13, the majority of the Industrial Commission in Court Session considered the nature of the unfairness attracted by section 88F of the Industrial Arbitration Act 1940 as follows: It has been said that fairness is determined by the commonsense of a juryman and that it is a moral and not a legal issue ( Davies' case). Whether this be so or not, it does seem that in distinguishing between what is fair and what is not fair the Judge must apply standards which appear to him to provide a proper balance or division of advantage and disadvantage between the parties who have made the contract or arrangement. In doing so, he would also have to bear in mind the conduct of the parties, their capability to appreciate the bargain they had made and their comparative bargaining positions when entering into the contract or arrangement.

[943]

The second and third applicants were experienced businessmen and possessed a close working knowledge of Caterpillar and its system of dealerships. Messrs Gough and Gilmour were aware of the lucrative nature of Caterpillar dealerships and were very keen to purchase the Waugh & Josephson dealership. 2. The second and third applicants entered into the dealerships with their eyes open and with the assistance of legal, accounting, financial and corporate advisors. They were aware that they were required to sign standard form contracts. They were aware of the without cause termination provisions in the dealership agreements. Nevertheless, their expectation upon entering into the dealership agreements was that the agreements constituted long term, secure arrangements. 3. At the time of entering into the dealership agreements the second and third applicants were aware that Caterpillar reserved the right to select its dealers and that dealerships could not be bought and sold. Further, that because of the without cause termination provisions Gough and Gilmour were aware that there was no goodwill attached to the dealership. 4. The second and third applicants were very successful in building up the dealership into a profitable business. They invested substantially in the business on an ongoing basis. 5. The first applicant acquired the Caterpillar dealership business with an investment of $7 million. It has achieved returns on its investment in the dealership business in the period from 1989 to 2000 totalling $97.4 million. The pre-tax return for this period totals $142.2 million. The after-tax returns achieved by the first applicant on its investment in the dealership business over this period have averaged 34 per cent per year. The pre-tax return for the same period has averaged 45 per cent. 6. The total return received by Gough from 20 February 1989 to 30 June 2000 was $130.59 million, assuming a value of his shareholding at 90 per cent of the value of the offer by WesTrac of 26 March 2001 (assessed at $116.35 million). 7. The total return received by Gilmour over the period from 20 February 1989 to 30 June 2000 was $16.74 million which sum includes a calculation of the value of his shares on a sale to WesTrac calculated as 10 per cent of the $116.35 million figure. 8. Characteristic of relational contracts, essential elements of the relationship between the applicants and the respondents were mutual trust, confidence, respect, cooperation and open communications. 9. There was a history of relationship problems throughout much of the time the second and third applicants had been dealer principals and there was a lack of mutual trust, confidence, respect, cooperation and open communications between the parties. 10. There was an inability to cooperatively and expeditiously work through business issues and differences. 11. The applicants' conduct and adversarial attitude towards the first respondent placed a continuing strain on the relationship between the applicants and the first respondent and undermined the maintenance of trust, confidence, respect and cooperation between the applicants and the respondents. 12. The first respondent contributed to the breakdown in the relationship between the applicants and the respondents, especially through its failure to properly address relational issues early in the relationship and through its culpability in the TEPS, RPI and Cadia disputes. However, it did not display by its conduct a sustained and wilful disregard for the importance of cooperation, trust and confidence in the relationship, such disregard being characteristic of the applicants' conduct. 13. The first respondent had proper grounds to recommend in March 1999 to the second respondent that the relationship with the applicants be brought to an end. However, in failing to give the applicants notice of its recommendation and in light of its conduct in using material to support its recommendation that it had assured the applicants would not be used, and its conduct in misleading the second respondent in respect of the basis for the recommendation (i.e., poor performance as well as loss of trust and confidence), the first respondent acted unfairly and inconsistently with its "last resort" policy, which involves dealers being given every reasonable opportunity of remaining as a Caterpillar dealer.

Parties

Applicant/Plaintiff:

Gough & Gilmour Holdings Pty Limited

Respondent/Defendant:

Caterpillar of Australia Limited

Legislation Cited (5)

Fair Trading Act 1987(NSW)

Contracts Review Act 1980(NSW)

Agricultural Holdings Act 1941(Cth)

Trade Practices Act 1974(Cth)

Industrial Relations Act 1988(Cth)

Cases Cited (80)

SECOND RESPONDENT Caterpillar Inc. FILE NUMBER: IRC 5227 of 2000 CORAM: Boland J CATCHWORDS : Unfair contract - Dealership agreements - Sale and service of mining and construction equipment and machinery - Dealership agreements provide for termination without cause on 90 days' notice - Dealership agreements sought to be terminated by respondents - Whether dealership agreements unfair - Whether sale process unfair - Whether overall arrangement between applicants and respondents unfair - Whether Commission in Court Session has jurisdiction to hear and determine application for relief - Orders sought by applicants to keep dealership agreements on foot - Whether orders sought beyond power - Commercial agreements - Long history of difficult relationship between applicants and respondents - Estoppel by convention - Promissory estoppel - Implied term of good faith and reasonableness - The relevance of precedents under the general law and trade practices law to issues arising under section 106 of the Industrial Relations Act 1996 - The rule in Jones v Dunkel - Specific performance - Relational contracts - Trust and confidence - Expert evidence - Notice of termination of commercial contracts - Procedural fairness - Standard form contracts - Unfairness found by virtue of respondents' conduct in seeking to end relationship - Unfairness found in respondents' conduct in the sale process and in seeking to terminate the dealership - Overall arrangement found to be unfair within meaning of sections 105 and 106 of Industrial Relations Act 1996 - Primary relief refused - Further proceedings to hear submissions on alternative forms of relief - No order under s 107 of Industrial Relations Act 1996 - Costs reserved Agricultural Holdings Act 1941 (Cth) Contracts Review Act 1980 Fair Trading Act 1987 Industrial Arbitration Act 1940 LEGISLATION CITED : Industrial Relations Act 1991 Industrial Relations Act 1996 Industrial Relations Act (Unfair Contracts) Amendments Act 2002 Sale of Goods Act 1923 Trade Practices Act 1974 (Cth) Workers' Compensation Act 1905 A & M Thompson Pty Ltd and Others v Total Australia Ltd [1980] 2 NSWLR 1 Akron Securities Limited v Iliffe 1997) 41 NSWLR 353 Alcatel Australia Limited v Scarcella & Ors (1998) 44 NSWLR 349 Apple Communications Ltd v Optus Mobile Pty Ltd [2001] NSWSC 635 Ashfield Brokers & Consultants Pty Limited re Witek, Ex parte [1972] 14 AILR 486 ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (1991) 27 FCR 492 Australian Business Systems v Smith (1989) 29 IR 172 Australian Mutual Provident Society v Avis (1997) 111 IR 1 Autobake Pty Ltd v Budd & Anor (1986) 19 IR 18 Avis v Australian Mutual Provident Society (unreported, Schmidt J, CT 1310 of 1995, 21 December 1995) Baker v National Distribution Services Limited (1993) 50 IR 254 Bamco Villa Pty Limited v Montedeen Pty Limited [2001] VSC 192 Beahan v Bush Boake Allen Australia Ltd (1999) 93 IR 1 Beard v Caltex Oil (Australia) Pty Limited (1979) AR (NSW) 601 Becker & Harry M. Miller Attractions Pty Limited, Re (No. 1) (1972) AR (NSW) 204 Becker v Harry M Miller Attractions Pty Limited, Re (No.2) (1972) AR (NSW) 298 Bennett v BP Australia Limited (unreported, No.632 of 1983, 28 March 1984) BNY Australia v James (1992) 26 NSWLR 57, (1992) 40 IR 1 Bobux Marketing Limited v Raynor Marketing Limited [2001] NZCA 348 Booth v Kritikos Developments Pty Limited (1995) 59 IR 228 Bull v Attorney General (NSW) (1913) 17 CLR 370 Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 Byrne v Australian Airlines Ltd (1995-1996) 185 CLR 410 Caltex Oil (Australia) Pty Limited v Feenan [1981] 1 NSWLR 169 Canizales v Microsoft Corporation & Ors (2000) 99 IR 426 Cavacuitti v XTMCA Ltd (Toyota Motor Corporation Australia Pty Ltd) [2002] NSWIRComm 117 Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94 Chrysler Jeep Automotive Distributors Australia Pty Limited v Canberra Star Motors Pty Limited & Ors (1997) 79 IR 452 CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 187 CLR 384 at 408 Commonwealth v Verwayen (1990) 170 CLR 394 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 64 ALR 481 Courtney Creche Pty Limited v Okko's Fine Art & Custom Framing Pty Limited (1995) 7 BPR 14,337 Crawford Fitting Co v Sydney Valve and Fitting Pty Ltd (1988) 14 NSWLR 438 Cribb v Korn (1911) 12 CLR 205 Custom Credit Corporation Limited v Goldsmith & Ors (1976) AR (NSW) 98 Davies v General Transport Development Pty Limited (1967) 67 AR (NSW) 371 Day v Lumley Life Limited (1999) 90 IR 70 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 Elliot v Royal Motor Yacht Club of New South Wales, Newcastle Branch (1988) 42 IR 35 Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 Euphoric Pty Limited v Ryledar & Anor [2002] NSWIRComm 136 Far Horizons Pty Limited v McDonald's Australia Limited [2000] VSC 310 Futuretronics International Pty Limited v Gadzhis (1992) 2 VR 217 Garry Rogers Motors (Australia) Pty Limited v Subaru (Australia) Pty Limited [1999] FCA 903 Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited (unreported, Boland J, 23 November 2000) Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited (No. 7) [2001] NSWIRComm 147Gough & Gilmour Holdings Pty Limited v Caterpillar of Australia Limited (No. 9) [2001] NSWIRComm 260 Gurnett v Macquarie Stevedoring Co Pty Ltd (1955) (SR) NSW 243 Harcourt Brace & Co (Australia) Pty Limited v Cory (1997) 81 IR 321 Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1 Incitec Limited v Barry (1992) 45 IR 148 CASES CITED : Isherwood v Bulter Pollnow Pty Ltd (1996) 6 NSWLR 363 Johnson v Unisys Ltd (2001) All ER 801 Jones v Dunkel (1959) 101 CLR 298 Kham & Nate's Shoes No. 2 v First Bank of Whiting (1990) 908 F 2d 1351 Kingston v Keprose Pty Limited (1987) 11 NSWLR 404 Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 Kostakis v New World Oil & Developments [1997] NSWIRComm 84 Krambousanos v Jedda Investments Pty Ltd (1996) 64 FCR 348 Lane v Industry Equity Ltd (1985) 2 NSWLR 720 Larkin and American Refrigeration and Investment Corporation Pty Limited, Re (1971) AR (NSW) 930 Little Chelsea Pty Ltd v Mulroad Pty Ltd (1987) 20 IR 132 Loupos v Basa t/as Robert R Andrews Real Estate (1995) 62 IR 397 Majik Markets Pty Limited v Brake & Service Centre Drummoyne (1991) 28 NSWLR 443, (1991) 39 IR 169 Malik v Bank of Credit and Commerce International SA (in compulsory liquidation) [1998] AC 20 Manni v Scully (1967) AR (NSW) 606 Marks v GIO Holdings Ltd (1998) 196 CLR 494 McIntosh v Dylcote Pty Ltd [1999] NSWSC 230 McPhillips v Ampol Petroleum (Victoria) Pty Ltd (1990) ATPR 51-247 Metropolitan Life Insurance Co v RJR Nabisco Inc (1989) 716 F Supp 1504 Mitchell v Interstate Pipelines Pty Limited (1998) 87 IR 324 Mitchell v Vending Machine Co of Australia Pty Limited (1977) AR (NSW) 30 Mitchforce Pty Limited v Starkey [2002] NSWIRComm 85 Moshirian v University of New South Wales [2002] FCA 179 Myer Stores Ltd t/as Grace Bros v Stowart (1994) 55 IR 21 Northside Development Pty Limited v Registrar General (1990) 170 CLR 146 Outboard World Pty Limited T/as Budget Waste Control (Sydney) v Muir (1993) 51 IR 167 Overlook v Foxtel [2002] NSWSC 17 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 Peter Rochester Gow v Cronulla Sutherland Leagues Club Ltd [2002] NSWIRComm 247 Player v Kacy (1971) AR (NSW) 125 Pont Data Australia Pty Limited v ASX Operations (1990) 21 FCR 385 Port Macquarie Golf Club Limited v Stead (1995) 64 IR 53 Production Spray Painting & Panel Beating Pty Ltd v Newnham (1991) 27 NSWLR 644, (1991) 37 IR 46 Project Blue Sky Inc. v Australian Broadcasting Authority (1998) 194 CLR 355 Queensland Independent Wholesalers Ltd v Coutts Townsville Pty Ltd [1989] 2 Qd R 40 Reich v Client Server Professionals of Australia Pty Limited (Administrator Appointed) 99 IR 69 Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 234 Richardson re Hildred IJ, Ex parte [1972] 2 NSWLR 423 Rolles v Donald Scott Surgicals Pty Ltd (unreported, Fisher P, Cahill V-P, Bauer J, 19 February 1998) Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436 S H Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482 Scott v Perry 1995 (SR) NSW 375 Stanley v Fuji Xerox (NZ) Ltd (Unreported, HC Auckland, CP 479/96, 5 November 1997) Starkey v Mitchforce Pty Ltd (2000) 101 IR 177 State of New South Wales v Health & Research Employees Association (unreported, Fisher CJ, Bauer and Hill JJ, 31 March 1993) Stevenson v Barham (1977) 136 CLR 190 Thiess Contractors Pty Limited v Placer (Granny Smith) Pty Limited [2000] WASCA 102 Transport Workers Union of Australia, Re (1993) 50 IR 171 VG Haulage Services Pty Limited: Re Industrial Commission of New South Wales, Ex parte (1972) 2 NSWLR 81 Walker v Industrial Court of New South Wales (1994) 53 IR 121 Westfield Holdings Limited v Adams (2002) 114 IR 241 Williams and Calmex Products, Re (1971) AR (NSW) 264 Williams v Mathews (1978) 1 NSWLR 78 Zakrzewski v Rodgers (2000) 106 IR 1 HEARING DATES: 10/27/2000; 11/10/2000; 11/17/2000; 03/27/2001; 03/28/2001; 03/29/2001; 04/03/2001; 05/16/2001; 05/18/2001; 05/28/2001; 05/29/2001; 05/30/2001; 05/31/2001; 06/01/2001; 06/04/2001; 06/05/2001; 06/06/2002; 06/07/2002; 06/08/2001; 06/12/2001; 06/13/2001; 06/14/2001; 06/15/2001; 06/19/2001; 06/20/2001; 07/03/2001; 07/05/2001; 07/20/2001; 08/23/2001; 08/24/2001; 08/27/2001; 08/29/2001; 08/30/2001; 09/06/2001; 09/07/2001; 09/10/2001; 09/11/2001; 09/12/2001; 09/13/2001; 09/14/2001; 09/19/2001; 09/20/2001; 09/21/2001; 09/24/2001; 09/25/2001; 09/26/2001; 09/27/2001; 09/28/2001; 10/02/2001; 10/23/2001; 11/28/2001; 12/07/2001; 12/10/2001; 12/12/2012; 01/29/2002; 01/30/2002; 01/31/2002; 02/01/2002; 02/04/2002; 02/05/2002; 02/06/2002; 02/07/2002; 02/08/2002; 02/11/2002; 02/13/2002; 02/26/2002; 02/27/2002; 03/04/2002; 03/05/2002; 03/06/2002; 03/07/2002; 03/08/2002; 03/13/2002; 03/14/2002; 03/15/2002; 03/18/2002; 03/20/2002; 03/21/2002; 03/22/2002; 04/08/2002; 04/09/2002; 04/10/2002; 04/11/2002; 04/12/2002; 05/09/2002; 05/10/2002; 05/13/2002; 05/14/2002; 05/15/2002; 05/27/2002; 05/28/2002; 05/29/2002; 05/30/2002; 05/31/2002; 06/17/2002; 06/18/2002; 06/19/2002; 06/20/2002; 06/21/2002; 06/25/2002; 06/26/2002; 06/27/2002; 06/28/2002; 07/18/2002; 08/26/2002; 08/27/2002 DATE OF JUDGMENT: 12/19/2002

[2001] VSC 192

[2002] WASCA 94

[2000] VSC 310

[1997] NSWIRComm 84

[2000] WASCA 102

(1998) 44 NSWLR 349

(1991) 27 FCR 492

(1989) 29 IR 172

(1997) 111 IR 1

(1986) 19 IR 18

(1993) 50 IR 254

(1999) 93 IR 1