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[2005] VSCA 269
Court of Appeal (Vic)
2005-11-22
CHERNOV, NETTLE AND ASHLEY, JJ.A.
Original judgment source is linked above.
Contract - Offer and acceptance - Intention to create legal relations - Uncertainty - Whether agreement for purchase of leather uppers sufficiently certain to be enforceable - Implied Term - Reasonable notice - Whether it was an implied term of the agreement that it not be terminated without reasonable notice.
1 I have had the advantage of reading in draft form the comprehensive reasons for judgment of Nettle, J.A. and agree that, for the reasons given by his Honour, the appeal should be disposed of as he proposes.
2 Two central issues were raised by the appeal. The first was whether his Honour erred by deciding the matter adversely to the appellants essentially on the basis of his conclusion that their two witnesses - Messrs Husain and Angelovski - lacked credibility, without having due regard to the evidence that Mr Oliver, of the respondent, gave in the course of his cross-examination. The second matter was whether, in any event, his Honour's findings were against the weight of the evidence, more particularly, whether on the whole of the evidence, it was more probable than not that the agreement between the parties contained an implied term that the respondent would not terminate it without reasonable notice to the appellants. There were other complaints, such as that his Honour's reasons for judgment did not disclose the basis on which he rejected the evidence of the appellants' witnesses, but they need not be considered for reasons which will become apparent.
3 It seems plain enough that his Honour concluded that the appellants' witnesses did not "swear up" to their witness statements, but accepted Mr Oliver's evidence-in-chief that the meeting contended for by the appellants, at which the alleged agreement was said to have been made, never took place. Essentially on the basis of those findings, and by reference to the informality of the dealings between the parties, his Honour concluded that the "suggested agreement was not established".
4 It is well-settled that, ordinarily, this Court should defer to a trial judge's findings as to the credit of a witness in recognition of the often considerable advantages enjoyed by the trial judge in seeing and hearing the witness in the
context of the trial.[1] But, as Nettle, J.A. points out in his reasons for judgment, in this case the learned trial judge failed to make any reference to the lengthy cross-examination of Mr Oliver, during which he gave an account of discussions between the parties that accorded in large part with the version of events given by Messrs Husain and Angelovski. Whilst, as his Honour notes, nothing said by Mr Oliver amounted to an implied admission by him that such an agreement existed, the witness nevertheless gave an account that closely corresponded to that which was given by Messrs Husain and Angelovski. Looked at as a whole, Mr Oliver's evidence, particularly that drawn from him during cross-examination, could not be properly characterised as amounting to a simple denial of what the appellants' witnesses had said. In the circumstances, consideration of Mr Oliver's answers to questions posed to him during cross-examination was critical to the proper determination of the matter. In his reasons, however, his Honour did not deal with this important evidence, which I consider "stood squarely in the path of the conclusion he reached."[2] In the circumstances, I agree that intervention by this Court is warranted.
5 And, as Nettle, J.A. makes clear in his thorough examination of all the evidence, the conclusion is inescapable that, on the balance of probabilities, the parties reached an agreement, an implied term of which was that the respondent would not terminate it without reasonable notice which, in the circumstances, was six months. That agreement was plainly breached by the respondent. Thus, the orders proposed by Nettle, J.A. should be made.
6 This is an appeal from a judgment given in the Commercial and Equity
Division on 13 August 2004 dismissing the appellants' claim for damages for breach of contract.
7 At relevant times the appellants carried on a business in partnership under the name or style of Zazman Exports ("Zazman"), in Kanpur, India, of manufacturing and exporting footwear accessories. At relevant times the respondent O&S Holdings (Vic) Pty Ltd ("Oliver Footwear") carried on business in Ballarat, Victoria and at other places of manufacturing and distributing footwear. Zazman's claim below was that in or about April 1999 Zazman entered into an agreement to sell and supply stitched leather uppers and accessories[3] to Oliver Footwear, for an indefinite period, on express terms that Zazman would at all times keep on hand a stock of leather and accessories sufficient to meet six months' orders from Oliver Footwear and that Oliver Footwear would at regular intervals of six months, or at such other times as Oliver Footwear determined, notify Zazman of Oliver Footwear's requirements for the following six months. Zazman further alleged that it was an implied term of the agreement that Oliver Footwear would give Zazman reasonable prior notice of intention to terminate the agreement, and that Oliver Footwear breached that implied term by terminating the agreement on 8 April 2003 without any notice at all. Zazman claimed that it had thereby suffered loss and damage, by reason among other things of being left with stocks of leather purchased in anticipation of a further six months' orders, and it sought damages to be assessed.
8 After a trial extending over four sitting days[4] and in which seven witnesses gave evidence in chief (by adoption of witness statement) and six were cross examined, the judge found that the alleged agreement was not established to his satisfaction. As the judge put it:
"I find that in early 1999 it was important for Oliver Footwear that its delivery schedule of 90 days from order be maintained. Mr Oliver and Mr Angelovski made this known to Mr Husain. From Mr Husain's point of view this meant that he had to have sufficient stock of leather and accessories on hand to meet this deadline. Since the cow hide had to be imported from the United States or Mexico, this meant that he had to place orders for materials well in advance of the receipt of orders from Oliver Footwear. I am satisfied that, from time to time, Mr Husain on behalf of Zazman Exports and Mr Oliver and Mr Angelovski on behalf of Oliver Footwear discussed how the objectives of their respective organisations might be achieved. From time to time Mr Husain requested, and Mr Oliver agreed, to provide forward estimates for the next six months' orders so that the Indian supplier could lay in the required stock. This sensible procedure was put in place merely to assist Zazman Exports. It was not a binding contract. It was not tied to any arrangement whereby Zazman Exports was not to sell uppers to another customer in Australia."
It followed, as the judge held, that Zazman's claim failed.
Rejection of Husain's and Angelovski's evidence
9 Zazman's principal ground of appeal is that the judge erred in rejecting evidence given by Mr Husain and Mr Angelovski as to the existence of the agreement notwithstanding that Mr Andrew Oliver of Oliver Footwear gave evidence substantially to the same effect. Zazman further contends that his Honour's reasons for judgment are deficient because they do not reveal his Honour's reasons for rejecting the appellants' evidence concerning the existence of the agreement and because some of his Honour's findings are against the evidence and the weight of the evidence. It is convenient to deal with those issues together.
The evidence of Messrs Husain and Angelovski
10 The critical passage of Mr Husain's evidence appears in paragraph 69 of his witness statement, and it will be of assistance later if I set it out now in full:
"At about the time when Oliver Footwear was introducing the range of rubber safety footwear I met with Andrew Oliver and Zoran Angelovksi at Zazman Exports, 150 Feet Road, Jajmau, Kanpur India. Andrew Oliver told me that Oliver Footwear and Zazman Exports had established a commercial relationship in 1991 which involved Zazman Exports selling small volumes of stitched leather uppers to Oliver Footwear. Andrew Oliver told me that since 1995 Oliver Footwear had increased the quantity of purchases it made from Zazman Exports. Andrew Oliver said Oliver Footwear was keen to commence manufacturing a range of polyurethane safety footwear primarily for use in the mining industry and that since import duties for foods imported into Australia had reduced, Oliver Footwear wanted to purchase from Za[z]man Exports stitched leather uppers of significantly greater quantity than it had previously. Andrew Oliver said that Oliver Footwear wanted to deal on an ongoing, exclusive basis with Zazman Exports by purchasing fro Zazman Exports the stitched leather uppers required for Oliver Footwear's range of polyurethane safety footwear for an indefinite period into the future. Andrew Oliver said that in Australia, Oliver Footwear wanted Zazman Exports to manufacture and sell stitched leather uppers for safety footwear exclusively for Oliver Footwear and for no one else. Andrew Oliver enquired whether I was interested. I said Zazman Exports was. However, I said I wanted to avoid a repeat of a situation which occurred in 1996 when Zazman Exports was left with a substantial quantity of leather and accessories which Zazman Exports had purchased for use in the manufacture of the Oliver Footwear range of polyurethane safety footwear. I told Andrew Oliver any arrangement between Zazman Exports and Oliver Footwear had to be strictly adhered to. Andrew Oliver said he was willing to do that. I asked Andrew Oliver how Oliver Footwear envisaged the agreement operating. Andrew Oliver said that every six months or thereabouts Oliver Footwear would notify Zazman Exports by telephone or by fax indicating the quantity of leather and accessories which Oliver Footwear anticipated selling thereby enabling Zazman Exports to gauge the amount of stock which Zazman Exports required in order to meet Oliver Footwear's orders over a particular period of time. Andrew Oliver told me that it was critical for there to be no delay between the date on which Oliver Footwear submitted an order and the date on which Zazman Exports commenced manufacturing in respect of that order. Andrew Oliver said that having a stock of leather and accessories on hand at all times to meet six months worth of orders would enable Zazman Exports to immediately respond to Oliver Footwear's orders. Zoran Angelovski stressed to me that Zazman Exports at all times had to have in hand sufficient stock to be able to meet six months worth of orders from Oliver Footwear. I said I did not want to purchase stocks of leathers and accessories unless Oliver Footwear gave a commitment that Oliver Footwear would place orders and thereby use all the leathers and accessories which Zazman Exports purchased in advance of Oliver Footwear's orders. Andrew Oliver said that Oliver Footwear gave that commitment. I asked Andrew Oliver how each order was to be placed and filled. Andrew Oliver said each six months or thereabouts Oliver Footwear would provide a list of its requirements for the type of leather and accessories which Oliver footwear needed over the following six months. Andrew Oliver said that as Zazman Exports would have on hand at all times leathers and accessories in sufficient quantity to enable it to meet six months worth of orders, at the beginning of each month Oliver Footwear would provide purchase orders over the then following six months or other interval requiring Zazman Exports to make stitched leather uppers from the quantity of leather and accessories held by Zazman Exports. Andrew Oliver told me that every purchase order would set out Oliver Footwear's code for the product being ordered, its description, the quantity required in numbers of pairs and sizes, the price in US dollars per pair and the date by which Zazman Exports was required to deliver the stitched leather uppers to Australia. Andrew Oliver said that unlike the fashion footwear industry, as the safety footwear industry involved fewer styles, it would become apparent shortly after April 1999 which styles of Oliver Footwear's footwear were selling in any given quantity and that Oliver Footwear required Zazman Exports to apply its own judgment in regularly purchasing in advance sufficient quantity of stock to ensure Zazman Exports was able to fill six months worth of orders at all times over an indefinite duration into the future. I agreed."
11 The critical passage of Mr Angelovski's evidence appears in paragraph 15 of his witness statement, and once again it will be of assistance later if I set those out now in full:
"During 1998 and 1999 Oliver Footwear revived its plans to sell the range of rubber safety footwear it had attempted unsuccessfully to market in 1998. In order to produce that range, it was necessary for Zazman Exports to have on hand an appropriate quantity of leather. To that end, Andrew Oliver and I met with Iftik[h]ar Husain at Zazman Exports' premises in Jajmau, Kanpur, India. I told him that Oliver Footwear was reviving its range of rubber safety footwear, that Oliver Footwear wanted Zazman Exports to manufacture the stitched leather uppers component of the rubber safety footwear and that it was necessary for Zazman Exports to get in a quantity of leather in order to commence production. Mr Husain said he remembered how in 1998 Zazman Exports had been caught holding a large stock of leather intended for the production of rubber safety footwear and that Zazman Exports bore heavy losses when Oliver Footwear did not consume that leather. Mr Husain told me he did not want to find himself in that situation again. Andrew Oliver said that Oliver Footwear wanted Zazman Exports to agree to an arrangement that for an indefinite period into the future Zazman Exports would manufacture stitched leather uppers for Oliver Footwear in much larger quantities than Zazman had manufactured previously. Andrew Oliver said that the arrangement required Zazman Exports to manufacture stitched leather uppers exclusively for Oliver Footwear to sell in Australia. Andrew Oliver asked whether Zazman Exports was interested in such an arrangement. Mr Husain said he was. He asked how the arrangement would work. Mr Oliver said that every six months or so Oliver Footwear would inform Zazman Exports of the amount of leather and accessories Oliver footwear intended selling over the then following six months. Mr Oliver said that information would enable Zazman Exports to calculate the amount of material which it needed to get in so as to fulfil the orders. Andrew Oliver said it was critical for there to be no delay between placement of orders by Oliver Footwear and the date on which Zazman Exports commence manufacturing. Mr Oliver said Zazman Exports could respond in such a timely manner if it kept on hand at all times a stock of leather and accessories to meet six months worth of orders. I emphasised to Mr Husain that Zazman Exports had to have on hand at all times sufficient stock to be able to meet six months worth [of] orders from Oliver Footwear. Mr Husain said Zazman Exports did not want to purchase stocks of leather unless Oliver Footwear gave a commitment that Oliver Footwear would place orders and thereby use all the leathers and accessories which Zazman Exports purchased in advance of Oliver Footwear's orders. Andrew Oliver said that Oliver Footwear gave that commitment. Iftikhar Husain asked Andrew Oliver how each order was to be placed and filled. Andrew Oliver said that as Zazman Exports would have on hand at all times leather and accessories in sufficient quantity to enable it to meet six months worth of orders, at the beginning of each month Oliver Footwear would provide pu[r]chase orders requiring Zazman to make stitched leather uppers from the quantity of leather and accessories held by Zazman Exports. Andrew Oliver told Iftikhar Husain that every purchase order would set out Oliver Footwear's code for the product being ordered, its description, the quantity required in numbers of pairs and sizes, the price in US dollars per pair and the date by which Zazman Exports was required to deliver the stitched leather uppers to Australia. Andrew Oliver said that it would become apparent shortly after April 1999 which styles of Oliver Footwear's range were selling in any given quantity and that Oliver Footwear required Zazman Exports to apply its own judgment in regularly purchasing in advance sufficient quantity of stock to ensure that Zazman Exports was able to fill six months worth of orders at all times over an indefinite duration into the future. Iftikhar Husain agreed."
The judge's reasoning
12 The judge was critical of both witnesses**'** testimony. As his Honour put it:
"4. As I have mentioned, dealings between the parties were informal. No written document, or even exchange of letters, recorded the suggested agreement. It was put that it was oral and that it was made in the context of the insistence of Oliver Footwear that Zazman Exports maintain at all times a stock of leather and other materials sufficient to meet six months of orders. It was put that Mr I. Husain on behalf of Zazman Exports agreed to this in exchange for a commitment from the secondnamed defendant, Andrew Wilson Oliver, the managing director of Oliver Footwear, that it would place orders to use up this stock of materials, and that such a commitment was given.
5. There was a surprising degree of uncertainty in the Zazman Export[s] camp as to the conversation which contained this commitment. Its date was uncertain. Initially, in the first and second amended statement of claim filed [in] January and March of this year respectively it was given as 1991. In particulars given in May it was said to have been made in a number of conversations which occurred in 1997 or thereabouts and thereafter. In the third amended statement of claim filed in June the agreement was made in or about April 1999. Two witnesses were called on behalf of the plaintiff on this point. Mr Husain, said in his witness statement that the conversation was in the course of a meeting 'about the time when Oliver Footwear was introducing the range of rubber safety footwear'. The evidence showed that this introduction occurred in 1998 and 1999. The second witness was Zoran Angelovski, the factory manager of Oliver Footwear from 1990 until September 2002. Mr Angelovski fixed the meeting in his witness statement at the same time as Mr Husain - during 1998 and 1999, when Oliver Footwear revived its plans to introduce a range of rubber footwear. Each of the witnesses was cross-examined. Mr Husain said in cross-examination that the discussion took place in August 1998. Mr Angelovski said 'it could have been before or after April 1999'. When pressed further, it was apparent that neither of those witnesses was certain about the date of the meeting.
6. There was a surprising uncertainty about the location of the meeting at which the discussions took place. In the early pleadings the place was not identified. In the May particulars they took place in India and this was the place identified in the June statement of claim. Both Mr Husain and Mr Angelovski in their verified witness statements, likewise, fixed the place of meeting as Ka[n]pur, India. In cross-examination, each of these witnesses resiled from this and located the meeting at Ballarat. This, I think, was not merely an example of inadvertence. The two witnesses on their oath verified their witness statements without qualification. The documents in the Court Book, however, showed beyond doubt that Mr Oliver could not have been in India at the suggested date of April 1999. These two witnesses readily and without any satisfactory explanation resiled from their evidence in chief.[5]
7. There was also some uncertainty about the participants at the discussion. In the statements of claim filed before May 2004 there were said to be a number of persons identified as taking part. Thereafter there were only three, Mr Husain, Mr Angelovski and Mr Oliver.
8. Finally, the evidence offered as to what was discussed at this meeting was unsatisfactory. Having set out over two pages of his witness statement the conversations which were central to the claim, Mr Husain verified it on oath. It was apparent, however, in cross-examination that his recollection was very uncertain and wanting in any of the detail which he asserted in his evidence in chief. Likewise, Mr Angelovski. In his verified witness statement this witness described the conversation over nearly two pages; in the witness box he said he was unable to go 'to the specifics'. [6]
9. This is important because the third person said to be present at this meeting, Mr Oliver, flatly denied that it took place. I accept his evidence on the point."
Errors in the judge's reasoning
13 Other things being equal, the fact that the judge took such an unfavourable view of the principal witnesses for Zazman would mean that this appeal should fail. The judge framed the question for decision in terms of whether Messrs Husain and Angelovski were to be believed and, as appears from paragraph 6 of the judge's reasons, his Honour did not accept their evidence. Furthermore, as appears from paragraph 9 of the judge's reasons, his Honour understood Mr Oliver's evidence as amounting to a denial of what Messrs Husain and Angelovski had said. Given that a trial judge is uniquely placed to assess questions of credit, especially where competing testimony is involved, one would ordinarily have to allow that the judge's view was unassailable.
14 As it happens, however, other things are not equal. As Kirby, J. explained in State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq)[7] where a credibility determination leaves untouched other evidence which requires separate evaluation with no obstacle of a credibility finding and where, notwithstanding the credibility finding, the rest of the evidence at the trial is such as to render the conclusion expressed at first instance improbable or contrary to compelling instances, it justifies and authorises appellate disturbance of the conclusion reached at the trial and the judgment giving it effect. As it appears to me, that is so in this case. In the way in which the case developed below it was not confined to the simple question of whether Mr Husain and Mr Angelovski were to be believed. Counsel for Zazman cross examined extensively and without significant objection on matters that were beyond the letter of the pleadings and, consistently with the evidence adduced by that process, put his final submissions to the judge on the basis that the agreement for which the appellants contended was that which was established by the cross examination. As the case thus developed, the assessment of Mr Husain's and Mr Angelovski's credit ceased to be of great importance. What was important was whether the concessions obtained in cross examination of Mr Oliver established Zazman's case.[8] It was that evidence, not credibility, which needed to be evaluated and, with respect, I consider that the judge's failure to deal with that evidence warrants our intervention. We are bound to conduct a real review of the evidence and draw our own inferences and conclusions, always bearing in mind of course that we have not seen or heard the witnesses.[9]
Uncertainty about dates
15 I begin with paragraph 5 of the judge's reasons. Although it is true that neither Mr Husain nor Mr Angelovski was certain about the date of the meeting, upon the whole of the evidence there can be little doubt that there was such a meeting or meetings and that in all probability it or they occurred between January 1999 and April 1999 (which is to say more or less at about the time specified in Mr Husain's witness statement). So much indeed was conceded in the evidence given by Mr Oliver on behalf of Oliver Footwear in the following passage of his cross examination:
"[Counsel for Zazman] Now, did production of that range, of the 20 series rubber footwear, commence as best you recall in response to an arrangement that Oliver Footwear struck involving you and Zazman Exports? ---Yes.
Were you privy to discussions about the manufacture of stitched leather uppers for the production of the 20 series rubber range? ---Yes.
In 1999 or when, do you say? --- It could have been '98.
...
Are you able to say whether it was in say April 1999?---No, I can't say.
By that answer do you mean you have no recollection or you positively deny that any such discussion - - -?---No.
Hang [on], I have asked you two questions here. Do you positively deny or don't recall?--- I don't deny.
According to your way of thinking it may have very well happened in April 1999, is that right?--- I don't believe it was April, but it happened.
Well, if not April, and production commenced in July, does it mean it was nearer the start of the year 1999?--- Probably.
So I am sorry to be difficult about this, but in order to obtain a date from you, it could be somewhere between January and April of 1999? ---Yes.
...
Somewhere in the period January to April of 1999? --- I can't be sure, but yes."
16 Counsel for the respondent submitted that this evidence of Mr Oliver had to be seen in context and assessed against the way in which the appellants had pleaded their case. So viewed, he said, it was no more than evidence that Mr Husain and Mr Oliver had one or more conversations in which they discussed the manufacture of stitched leather uppers for the 20 series style boot; not evidence of a meeting at which Mr Angelovski was also present and participated and in which an agreement was reached in the terms alleged by the appellants. As counsel would have it, while those of Mr Oliver's answers that I have set out may have been evidence of the existence of some sort of agreement between the appellants and the respondent, they were not evidence of the agreement which was pleaded. It followed in counsel's submission that they were nothing to the point.
17 I do not accept that submission. While procedural fairness sometimes dictates that relief be confined to the pleadings, parties to a proceeding may agree to depart from their pleadings and mere acquiescence may be a sufficient basis to infer that they have done so. In this case I draw that inference that they did do so. As already noticed, counsel for the appellants cross examined on matters that were beyond the pleadings and put his final submissions to the judge on the basis that the agreement for which he contended was that which was established by the evidence. It was not suggested below that he was precluded from making those submissions or that he had to seek or obtain leave to amend before making those submissions, and, if some such objection had been taken below, it may be assumed that leave to amend would have been granted. In the circumstances, I see no basis now to confine the appellants strictly to the pleadings. It cannot be said that the case sought to be made on appeal is new or different from that which emerged at the trial.[10]
Uncertainty about place
18 Turning next to paragraph 6 of his Honour's reasons, it is true that both Mr Husain and Mr Angelovski deposed in their witness statements that the meeting took place in India and that both resiled from that version of events in the course of cross examination. But with all respect, in the circumstances of this case that was hardly a sufficient basis for concluding that they had sought to mislead the court. Granted that Mr Husain did not give a particularly satisfactory reason for getting it wrong, he did not hesitate to admit that he had got it wrong:
"[Counsel for Oliver Footwear] Can you explain to his Honour why paragraph 69 erroneously says that the meeting occurred in Kanpur, India? --- I got the venue wrong, but we had the meeting."
And Mr Angelovski explained that he had based his testimony on his interpretation of his passport, and his belief that he was in India at the relevant time, which, in the scheme of things, one might have thought was perfectly feasible and likely to be right:
"[Counsel for Oliver Footwear] You at least recollect, don't you, that this meeting occurred in Kanpur?--- No, that may not be correct. As I said, in looking through this, I said I knew of a meeting that we had an agreement that was going to take place, as to where I am not sure. I naturally assumed it may have been there by looking at my passport, hey, that ties in with the dates so I might be closely correct. I may not be."
19 If it did matter where the meeting occurred, the weight of evidence is that it was at Oliver Footwear's premises at Ballarat. In cross examination Mr Husain said that his best recollection was that it occurred at Ballarat:
"[Counsel for Oliver Footwear] Where do you say that this meeting - what are the other locations in which it might have occurred? --- Well I think it was Ballarat at the end of 1998.
...
And this meeting was in Ballarat you think? --- Yes, I think that."
Mr Angelovski also said that it was possible that it took place in Ballarat:
"[Counsel for Oliver Footwear] Do you remember, you do remember Mr Oliver and you and Mr Husain all being present together in a room?--- We had been together on a few occasions.
Do you remember them all being present together in a room when this conversation occurs? --- I don't know where this conversation took place, it could have happened even in Andrew's office, I am not sure.
...
And that meeting you do recollect, do you recollect that Mr Oliver and Mr Husain were at that meeting?--- Yes.
And you were at the meeting?---Yes."
And Mr Oliver was also of the view that the meeting could have been at Ballarat:
"[Counsel for Zazman] We have heard a couple of possibilities during the course of this case. Either Ballarat, it could have been a telephone discussion even, but it probably is not India, is that your way of thinking? --- Yes.
Insofar as it could have taken place in Ballarat at your premises, could that be the situation?--- Yes."
20 In point of fact, however, I do not consider that it does matter where or precisely when the meeting occurred. What matters is whether there was a meeting about the arrangement to supply stitched leather uppers and, as has been seen, the evidence is clear that there was one. To quote Mr Oliver's testimony on the point:
"[Counsel for Zazman] Mr Oliver, somewhere between January 1999 and April 1999, is it your evidence that you spoke with Mr Husain on the subject of formulating and formalising an arrangement for the production of the rubber 20 series stitched leather uppers? --- Yes."
21 It is true, as counsel for the respondent contended, that this part of Mr Oliver's evidence was not an admission that he had participated in a meeting at Kanpur, India with Mr Husain and Mr Angelovski at which he agreed there and then to purchase leather uppers on an exclusive basis for an indefinite term. As counsel for the respondent put it, it was in terms no more than an admission that Mr Oliver had a discussion with Mr Husain about the purchase of uppers for the 20 series boot; and, as appears from other evidence, it may be that the discussion was by telephone and it may be that Mr Angelovski did not participate in it. But even as pleaded the appellants' case was that the agreement was constituted by one or more conversations in or about April 1999 and as the case was put, it was of not critical or indeed of any great importance precisely where or when the conversations occurred. In my judgment this evidence was plainly relevant and strongly supportive of the appellants' position.
Persons present at the meeting
22 Turning then to paragraph 7 of the judge's reasons, the judge was right that the particulars filed before 24 May 2004 alleged that a number of people in addition to Messrs Husain, Angelovski and Oliver were present at the meetings, whereas in the third amended statement of claim filed on 4 June 2004 and in the evidence the only participants mentioned were Messrs Husain, Angelovski and Oliver**.** But, with respect, I am unable to see why that should be thought to be so important. On any analysis its significance could rise no higher than that Mr Husain or Mr Angelovski at some point gave an incorrect instruction to Zazman's solicitors and, since the final instructions as reflected in the amended pleading accorded to a large extent with what Mr Oliver said in his evidence on the subject, the worst that could mean was that at some earlier point Messrs Husain and Angelovski had been mistaken whereas what they said on oath was more likely accurate.
The assessment of Mr Husain's credibility
23 That leads to paragraph 8 of the reasons for judgment and to the judge's remark that Mr Husain was in cross examination very uncertain and wanting in any detail which he asserted in his evidence in chief. Needless to say, I do not presume to gainsay the judge's perception of Mr Husain's demeanour in the witness box. His Honour saw the witness give evidence and I did not. With respect, I also agree with his Honour that Mr Husain's viva voce evidence as to matters of detail concerning the meeting at which the arrangement was struck appears to lack the clarity and organisation of his witness statement. But again with respect it is hardly unprecedented that a witness statement settled by lawyers presents as more perspicuous than the acknowledgements, concessions and denials to which a witness is ordinarily confined in cross examination and, if I may say so, it is hardly novel to find business people who are vague about the precise terms of conversations had over a period of time in the context of a continuing commercial relationship. If it mattered, I should not be inclined to attribute as much weight to the disparity between the witness statement and the cross examination as the judge appears to have accorded it. But, as it happens, I do not think it does matter, since it appears to me that any significance which might otherwise have been attributed to Mr Husain's performance in the witness box was largely annihilated by the close correspondence between Mr Husain's witness statement and answers given by Mr Oliver in the course of cross examination.
Mr Oliver's cross examination
24 I start with the first section of paragraph 69 of Mr Husain's witness statement, to which I have already referred:
"At about the time when Oliver Footwear was introducing the range of rubber safety footwear I met with Andrew Oliver and Zoran Angelovksi at Zazman Exports, 150 Feet Road, Jajmau, Kanpur India. Andrew Oliver told me that Oliver Footwear and Zazman Exports had established a commercial relationship in 1991 which involved Zazman Exports selling small volumes of stitched leather uppers to Oliver Footwear. Andrew Oliver told me that since 1995 Oliver Footwear had increased the quantity of purchases it made from Zazman Exports. Andrew Oliver said Oliver Footwear was keen to commence manufacturing a range of polyurethane safety footwear primarily for use in the mining industry and that since import duties for goods imported into Australia had reduced, Oliver Footwear wanted to purchase from Zazman Exports stitched leather uppers of significantly greater quantity than it had previously."
25 In my view that accords substantially with the following passages from the cross examination of Mr Oliver:
"[Counsel for Zazman] Now did production of that range, of the 20 series rubber footwear, commence as best you recall in response to an arrangement that Oliver Footwear struck involving you and Zazman Exports? ---Yes.
Were you privy to discussions about the manufacture of stitched leather uppers for the production of the 20 series rubber range? ---Yes.
In 1999 or when, do you say? --- It could have been '98.
...
Are you able to say whether it was in say April 1999?---No, I can't say.
By that answer do you mean you have no recollection or you positively deny that any such discussions - - -?---No.
Hang [on], I have asked you two questions here. Do you positively deny or don't recall?--- I don't deny.
According to your way of thinking it may have very well happened in April 1999, is that right?--- I don't believe it was April, but it happened.
Well, if not April, and production commenced in July, does it mean it was nearer the start of the year 1999?--- Probably."
...
Mr Husain says 'Andrew Oliver said Oliver Footwear was keen to commence manufacturing a range of polyurethane safety footwear primarily for use in the mining industry and that since import duties for goods imported into Australia had reduced, Oliver Footwear wanted to purchase from Zazman Exports stitched leather uppers of significantly greater quantity than it had previously.' Was something along those lines said? --- I don't remember."
26 I recognise that Mr Oliver's answers do not align precisely with the version of events deposed to by Mr Husain. It would be remarkable if they did. I also recognise that there is nothing in Mr Oliver's answers which of itself necessarily implies that the conversation went as far as an agreement. But as will be seen when Mr Oliver's answers are compared with the remaining passages of Mr Husain's witness statement, it is necessary to read these answers together with a number of others in order to appreciate the full extent of correspondence between each side's version of events. It is also necessary to bear in mind the informality with which commercial agreements are frequently brought into existence. The presumption with commercial arrangements is that the parties intend to create legal relations and thus make a contract. Consequently, and despite the uncertainties which may attend such arrangements, the courts do their utmost to uphold commercial bargains as binding agreements. That is particularly so where, as here, the parties have acted on the basis of the bargain.[11]
27 I move then to the next section of paragraph 69 of Mr Husain's witness statement:
"Andrew Oliver said that Oliver Footwear wanted to deal on an ongoing, exclusive basis with Zazman Exports by purchasing from Zazman Exports the stitched leather uppers required for Oliver Footwear's range of polyurethane safety footwear for an indefinite period into the future. Andrew Oliver said that in Australia, Oliver Footwear wanted Zazman Exports to manufacture and sell stitched leather uppers for safety footwear exclusively for Oliver Footwear and for no one else. Andrew Oliver enquired whether I was interested. I said Zazman Exports was."
As I see it, that accords substantially with the following passages from Mr Oliver's cross examination:
"[Counsel for Zazman] ...Do you recall saying to Mr Husain that Oliver Footwear wanted Zazman Exports to agree to an arrangement for an indefinite period of time into the future, that Zazman Exports manufacture stitched leather uppers in much larger quantities than Zazman Exports had manufactured previously? ---No.
What aspect of that sentence from Mr Angelovski's witness statement that I have just read to you do you challenge?--- It wasn't open ended.
Was it for a confined period?---I don't believe so.
Well it can [only] be one or the other. So what do you say the period was?---As needed, as long as I needed Zazman Exports I would be placing the orders.
...
Mr Husain swears that 'Andrew Oliver said that in Australia Oliver Footwear wanted Zazman Exports to manufacture and sell stitched leather uppers for safety footwear exclusively for Oliver Footwear and for no one else'. Presumably you challenge that, do you? ---No, I won't.
I missed that, I am sorry?---No, I won't.
HIS HONOUR: So he doesn't challenge it.
[Counsel for Zazman] Right, thank you. Mr Husain says that 'Andrew Oliver inquired whether I (?) was interested, and he said that Zazman Exports was'. Do you have a recollection of a response in those terms?---Yes."
28 I move then to the next section of paragraph 69 of Mr Husain's witness statement:
"However, I said I wanted to avoid a repeat of a situation which occurred in 1996 when Zazman Exports was left with a substantial quantity of leather and accessories which Zazman Exports had purchased for use in the manufacture of the Oliver Footwear range of polyurethane safety footwear. I told Andrew Oliver any arrangement between Zazman Exports and Oliver Footwear had to be strictly adhered to. Andrew Oliver said he was willing to do that."
29 Again as I see it, that substantially accords with the following passage from Mr Oliver's cross examination:
"[Counsel for Zazman] Thank you. Mr Husain says he, Mr Husain, 'said he wanted to avoid a repeat of a situation which occurred in 1996 when Zazman Exports was left with a substantial quantity of leather and accessories which Zazman Exports had purchased for use in the manufacture of the Oliver Footwear range of polyurethane safety footwear'. Any recollection of a discussion along those lines?--- It wasn't the polyurethane safety footwear, it was another range - it's technical.
That is fine. On your version - maybe Mr Husain has got the polyurethane wrong - but was the other substance of the sentence correct and discussed?--- Yes.
Reading on, Mr Husain says that he told 'Andrew Oliver any arrangement between Zazman Exports and Oliver Footwear had to be strictly adhered to.' Any discussion along those lines?---No.
He goes on to say Andrew Oliver said he was willing to do that, your response?--- He says a lot of things.
That is true?--- But I can't remember."
30 I turn to the following section of paragraph 69 of Mr Husain's witness statement:
"I asked Andrew Oliver how Oliver Footwear envisaged the agreement operating. Andrew Oliver said that every six months or thereabouts Oliver Footwear would notify Zazman Exports by telephone or by fax indicating the quantity of leather and accessories which Oliver Footwear anticipated selling thereby enabling Zazman Exports to gauge the amount of stock which Zazman Exports required in order to meet Oliver Footwear's orders over a particular period of time."
That may be compared with the following sections of Mr Oliver's cross examination:
"[Counsel for Zazman] Okay, in respect of that sentence you can't remember. He then says that he asked you how Oliver Footwear envisaged the agreement operating. Do you recall a discussion along those lines?---No.
Okay. He says that Andrew Oliver said that 'every six months or thereabouts Oliver Footwear would notify Zazman Exports by telephone or by fax indicating the quantity of leather and accessories which Oliver Footwear anticipated selling thereby enabling Zazman Exports to gauge the amount of stock which Zazman Exports required in order to meet Oliver Footwear's orders over a particular period of time', any recollection about that ?--- No.
Do you essentially accept the thrust of that though, maybe not having a specific recollection of it?--- I don't believe it was six months.
So maybe the duration isn't 6 months, but do you say it was perhaps three months?--- According to the previous fax it was 3 months.
And in other respects that sentence is correct?---Yes.
[HIS HONOUR] Well, didn't you say a moment ago that that is what Mr Husain wanted, he asked you to give him six months pre order list or something? ---Your Honour, I can't remember that ever being discussed.
But did [you] not say earlier that he wanted you to provide him with forecasts of orders?---Yes, yes.
Over what period? Was that a 3, 6 or what number of months?---We never discuss[ed] that.
Never discussed. But looking at this sentence, which has you saying things?---Yes.
If we put aside the six months, is that the thrust of what he wanted you to give him?---Yes."
31 Counsel for the respondent submitted that those answers of Mr Oliver should be seen as confined to but two arrangements of limited duration that occurred after Zazman began to manufacture uppers for the 20 series boot: the first of which resulted in Oliver providing Zazman with an estimate of the orders which would be submitted in the following three months; and the second, which continued on a rolling basis until the beginning of 2001, under which Oliver each six months provided Zazman with an estimate of the orders likely to be submitted over the following six months. In counsel's submission, Mr Oliver's answers did no more than acknowledge in effect that Oliver had attempted to assist Zazman by providing that information at Zazman's request but without any contractual obligation to do so.
32 Maybe that is so. Mr Oliver was insistent throughout his cross examination that he had never bound Oliver to provide estimates or imposed any contractual obligation on Zazman to hold stocks of leathers and accessories to accord to those estimates. The furthest that Mr Oliver was prepared to go was that it was in Oliver's interests for Zazman to hold stocks of leathers and accessories sufficient to meet six months' of orders and for that reason he was pleased to provide estimates as Oliver had done at the times when they had been requested. That leads, however, to the next section of Mr Husain's witness statement and the answers which Mr Oliver gave when cross examined about it. As will be seen, Mr Oliver was not just pleased to have Zazman hold stocks sufficient to meet projected orders. He stressed to Mr Husain that it was vital that Zazman do so.
33 In the next section of paragraph 69 of his witness statement Mr Husain said:
"Andrew Oliver told me that it was critical for there to be no delay between the date on which Oliver Footwear submitted an order and the date on which Zazman Exports commenced manufacturing in respect of that order."
34 In cross examination Mr Oliver accepted that it was so:
"[Counsel for Zazman] Just to read on Mr Oliver, Mr Husain says that 'Andrew Oliver told me that it was critical for there to be no delay between the date on which Oliver Footwear submitted an order and the date on which Zazman Exports commenced manufacturing in respect of that order'. You read that there, don't you?---Yes.
That is correct?---Yes."
35 Mr Oliver sought then to backtrack on that concession when the next section of paragraph 69 of Mr Husain's witness statement was put to him, as follows:
"Andrew Oliver said that having a stock of leathers and accessories on hand at all times to meet six months worth of orders would enable Zazman Exports to immediately respond to Oliver Footwear's orders."
"[Counsel for Zazman] Going on, Mr Husain swears that 'Andrew Oliver said that having a stock of leathers and accessories on hand at all times to meet six months worth of orders would enable Zazman Exports to immediately respond to Oliver Footwear's orders'. Any observation about that sentence?---We never had six months of orders.
Well, we are back in the same position [we were] in respect of the previous reference to six months there was a discussion about three months?---Look, I can't remember."[12]
But the backtracking was short lived.
36 I pass over the next passage of paragraph 69 of Mr Husain's witness statement, which concerns Mr Angelovski (with whom I shall deal separately below), and turn to the next:
"I said I did not want to purchase stocks of leathers and accessories unless Oliver Footwear gave a commitment that Oliver Footwear would place orders and thereby use all the leathers and accessories which Zazman Exports purchased in advance of Oliver Footwear's orders."
That equates to the following section of Mr Oliver's cross examination:
"[Counsel for Zazman] Going on, Mr Husain swears that during this conversation ... which we are addressing, he says he did not want to 'purchase stocks of leathers and accessories unless Oliver Footwear gave a commitment that Oliver Footwear would place orders and thereby use all the leathers and accessories which Zazman Exports purchased in advance of Oliver Footwear's orders'. Do you recall any discussion about a requirement that Oliver Footwear gave a commitment of placing orders so as to consume the leathers?---We gave a commitment, yes---
...
Tell me what that commitment was?---To purchase uppers from Mr Husain, along the guidelines of our six month forecast.
So you would give him - this is what you said you would do, is it? ---Yes.
You would give him a six month forecast?---Yes.
And you'd place a monthly order each month?---Yes.
And they would expect delivery for the order in 3 months?---Yes.
And the amount of that order would be what, in relation to the 6 month forecast?---It varied on the sales for that month.
A commitment is you in fact promising to do something?---Yes.
What were you promising to do?---To order on a monthly basis.
To order what?---Uppers as required.
As required by whom?---By us.
Was there any relationship between the uppers which you committed yourself to order and the forecast, six month forecast which you had given?---Yes.
What was the relationship?---The six month forecast was adjusted every month according to our sales."
37 That leads to the next section of paragraph 69 of Mr Husain's witness statement:
"I asked Andrew Oliver how each order was to be placed and filled. Andrew Oliver said each six months or thereabouts Oliver Footwear would provide a list of its requirements for the type of leather and accessories which Oliver footwear needed over the following six months."
38 That accords exactly with the following passage from Mr Oliver's cross examination:
"[Counsel for Zazman] This is what Mr Husain says: 'Andrew Oliver said each six months or thereabouts Oliver Footwear would provide a list of its requirements for the type of leather and accessories which Oliver footwear needed over the following six months**.** Do you agree?---Yes."
39 In the following section of paragraph 69 of his witness statement Mr Husain said:
"Andrew Oliver said that as Zazman Exports would have on hand at all times leathers and accessories in sufficient quantity to enable it to meet six months worth of orders, at the beginning of each month Oliver Footwear would provide purchase orders over the then following six months or other interval requiring Zazman Exports to make stitched leather uppers from the quantity of leathers and accessories held by Zazman Exports."
40 That may be contrasted with the following passages of Mr Oliver's cross examination:
"[Counsel for Zazman] This is what Mr Husain says: 'Andrew Oliver said that as Zazman Exports would have on hand at all times leathers and accessories in sufficient quantity to enable it to meet six months worth of orders, at the beginning of each month Oliver Footwear would provide purchase orders over the then following six months or other interval requiring Zazman Exports to make stitched leather uppers from the quantity of leather and accessories held by Zazman Exports'. Was that said?---I don't believe it was by me.
Was it by him?--- I can't remember."
41 At the same time, however, it is necessary to keep in view the following earlier and later passages of cross examination. Earlier there had been this exchange:
"[Counsel for Zazman] But you don't take issue with the fact that Olivers required Zazman to have on hand three months worth of stock?---No.
You agree with that ?---Yes.
And for how long do you say you required Zazman to have, on your version of events, three months worth of stock?---Repeat the question, please?
For what period into the future, given that you challenge it being an open ended indefinite arrangement, for what period into the future did you require Zazman to have three months worth of stock on hand?---According to the fax every three months.
So it is a rolling three months period, is that right?---Yes."
"[Counsel for Zazman] You do you say it is six months or do you say it is three months?---The forecast, our forecast was for six months.
Then you say you required Zazman Exports to maintain a quantity of stock at all times, is that right?---Yes."
42 I accept, as counsel for the respondent submitted, that those of Mr Oliver's answers which I have set out in paragraphs 34 to 36 go no further in terms than the two specific and limited arrangements for the provision of forward estimates which I have already mentioned. Mr Oliver did not accept that he agreed at the outset or at any other time to provide forward estimates, except for the two specific arrangements. His concessions are to be read accordingly. But it is clear from the concessions that Mr Husain did express concern about holding the sorts of stocks which were needed to meet the orders that Oliver was likely to place and that in order to persuade Zazman to take the risk Oliver provided estimates on the basis of a commitment to purchase. I do not accept that such a commitment may be sloughed off as a non-binding arrangement of convenience.
43 I turn then to the last section of paragraph 69 of Mr Husain's witness statement, in which Mr Husain said:
"Andrew Oliver said that unlike the fashion footwear industry, as the safety footwear industry involved fewer styles, it would become apparent shortly after April 1999 which styles of Oliver Footwear's footwear were selling in any given quantity and that Oliver Footwear required Zazman Exports to apply its own judgment in regularly purchasing in advance sufficient quantity of stock to ensure Zazman Exports was able to fill six months worth of orders at all times over an indefinite duration into the future. I agreed."
In the following passages of cross examination Mr Oliver in effect confirmed that it was so:
"[Counsel for Zazman] This is what Mr Husain says: 'Andrew Oliver said that unlike the fashion footwear industry, as the safety footwear industry involved fewer styles, it would become apparent shortly after April 1999 which styles of Oliver Footwear's footwear were selling in any given quantity and that Oliver Footwear required Zazman Exports to apply its own judgment in regularly purchasing in advance sufficient quantity of stock to ensure Zazman Exports was able to fill six months worth of orders at all times over an indefinite duration into the future' That is why he says, was that said?---I can't remember.
He then goes on to say you agreed. Did you in fact? ---I can't remember.
...
[Counsel for Zazman] Well let us say after your forecast had been exhausted, you nevertheless required Zazman to supply in a timely manner, didn't you? ---Yes.
What did you expect of Zazman and what requirement did you have of Zazman to make sure that a particular quantity of however many months they had on stock to meet your monthly order?---That wasn't my decision. I didn't run Zazman Exports.
Surely having regard to the fact that this was your biggest supplier at the time, it was very much in your interests to be aware of the ability of your supplier to in fact supply?---Well that is why we give them a 6 month forecast.
What checks did you make along the way after the placement of the first six months forecast and the placement of the first month purchase orders by way of consumption of the materials did you give to ensure that Zazman could continue to meet your demands?---Well it was up to him."
44 Those answers may in turn profitably be read in conjunction with the following, which Mr Oliver gave at another point in the cross examination:
"[Counsel for Zazman] Well, Mr Oliver may I suggest to you that it makes eminent commercial common sense for you to be intimately concerned about your biggest supplier's abilities to supply you, doesn't it?---Yes.
It stands to reason that one of your purposes in meeting with Mr Husain between April '99 and April 2003 was to ascertain that very fact, do you agree with that?---Yes, and other facts.
Of course other facts. But his ability to supply you had a very direct bearing on your livelihood and your company's profitability, didn't it?---Yes.
It must, may I suggest to you, have been the case that on at least one or possibly both occasions between April '99 and April 2003 that when you visited Kanpur you discussed with Mr Husain a maintenance of quantity of stock?---Yes.
Is it your evidence that you discussed a number of months?---No.
Any amount?--- No.
So do you say that you only discussed the simple fact of Zazman having on hand some stock?---Sufficient stocks to cover our orders.
Sufficient is a relative term. Sufficient according to what?---Our six month forecast.
Right. In other words, do we understand you to be saying that when you went there and discussed stock quantities, you discussed with Mr Husain that he had to have on hand stock to meet your forecasts?---Yes."
Mr Angelovski's evidence
45 Given the close correspondence between Mr Husain's witness statement and the evidence given by Mr Oliver in cross examination, it is possible to deal more quickly with Mr Angelovski's witness statement. It will be appreciated that Mr Angelovski's statement accords closely with Mr Husain's statement as to the content of the arrangement between Oliver footwear and Zazman. In addition, however, Mr Angelovski's witness statement provides considerable detail as to the way in which the arrangement operated after April 1999 up to April 2003 when terminated. It includes the following:
"...AC [of Zazman] and I were in constant contact by phone and fax monitoring the speed with which Oliver Footwear consumed the stock which Zazman Exports manufacture and sold to it. It was essential for Zazman Exports to monitor the rate at which stock was being consumed by Oliver Footwear because Zazman Exports had to ensure that at all times it had sufficient quantity of stock on hand to meet Oliver Footwear's orders for six months.
In total I made 12 trips to Kanpur to the operations of Zazman Exports between 1996 and 2003. The commencement date of each of those visits is as follows: 3 January 1996; 18 January 1997; 12 April 1999; 24 May 1999; 17 August 1999; 26 September 1999; 11 October 2000; 21 June 2001; 16 July 2001; 16 July 2002; 22 November 2002; and 29 January 2003.
During each of those visits to Zazman Exports in Kanpur, I inspected the factory operations. During the earlier of those visits, even up to the visit in June 2001, Zazman Exports' factory operations were relatively unsophisticated....In consultation with Mr Husain I recommended and Mr Husain implemented all improvements to Zazman Exports' factory operations which I recommended. It was important to Oliver Footwear for Zazman Exports to make those modifications because the commercial relationship between Oliver Footwear and Zazman Exports was longstanding, it was to continue well into the future and improvements made in a collaborative way were to the mutual benefit of both Oliver Footwear and Zazman Exports."
Significantly, none of that was contradicted or sought to be impeached.
Other relevant evidence
46 Other evidence, which was not controversial and therefore to which it is unnecessary to go in detail, established that the need for six months' holdings of leathers and accessories was worked out on the basis that the leathers had to be ordered and purchased from America, took 90 days to arrive in India, and, after that, had to be treated in India, which took another 21 days. One had therefore to allow 110 days between placement of order and packing of final tanned products, and thereafter it took another 90 days to manufacture the uppers and deliver them to Oliver Footwear in Australia.
The existence of the contract is established
47 It is possible now to draw some conclusions about the nature of the arrangement between Oliver Footwear and Zazman.
48 As has been seen, Mr Oliver accepted that he had been privy to discussions with Mr Husain between January 1999 and April 1999 about the manufacture of stitched leather uppers for the production of the 20 series rubber range. He admitted that he said to Mr Husain that Oliver Footwear wanted Zazman to agree to an arrangement for an indefinite period of time into the future that Zazman manufacture stitched leather uppers in much larger quantities than Zazman had manufactured previously. He agreed that Mr Husain said that he wanted to avoid a repeat of the situation which occurred in 1996 when Zazman was left with a substantial quantity of leather and accessories purchased for use in the manufacture of another range of footwear. He agreed that he said to Mr Husain that every three or six months or thereabouts Oliver Footwear would notify Zazman by telephone or by fax indicating the quantity of leather and accessories which Oliver Footwear anticipated selling, thereby enabling Zazman to gauge the amount of stock which Zazman required in order to meet Oliver Footwear's orders over a particular period of time. He agreed that he told Mr Husain that it was critical for there to be no delay between the date on which Oliver Footwear submitted an order and the date on which Zazman commenced manufacturing the uppers to fill the order. He did not deny that he said to Mr Husain that having a stock of leather and accessories on hand at all times to meet six months' orders would enable Zazman Exports to respond immediately to Oliver Footwear's orders. He agreed that he gave "a commitment", which he acknowledged was a promise, of indefinite duration to purchase uppers from Mr Husain, by monthly orders, along the guidelines of the six monthly forecasts as adjusted each month to accord to sales, and he did not dispute that the arrangement was to be an exclusive arrangement. He did not deny that he told Mr Husain that the safety footwear industry involved fewer styles than the fashion footwear industry and that, consequently, it would become apparent shortly after April 1999 which styles of Oliver Footwear's footwear were selling in any given quantity, and he did not deny that Oliver Footwear required Zazman to apply its own judgment in regularly purchasing in advance sufficient quantity of stock to ensure that Zazman was able to fill six months' orders at all times over an indefinite duration into the future. He agreed that after the forecasts had been exhausted, which I take to mean no longer provided, he continued to require Zazman to supply in a timely manner. He agreed that as Zazman was Oliver Footwear's biggest supplier it was very much in Oliver Footwear's interests to be aware of Zazman's ability to supply. In effect he agreed that it was up to Zazman to put itself in a position where it could comply with the obligation to deliver orders within three months of receipt.
49 In my judgment that evidence makes tolerably clear that in or about April 1999 Zazman and Oliver Footwear did enter into an agreement of indefinite duration for Oliver to place orders each month with Zazman on an exclusive basis for the purchase of Oliver Footwear's requirements of stitched leather uppers for the 20 series style boot and for Zazman to manufacture and supply those leather uppers to Oliver Footwear so as to reach Oliver Footwear within three months of order.
50 In my opinion the evidence also makes it more likely than not that it was an express term of the agreement that Zazman would at all times keep on hand not less than six months' stocks of leathers and accessories in order to ensure that Zazman was able to fill Oliver Footwear orders for leather uppers within three months of receipt of order. The existence of that term is not as clearly established as the existence of the agreement itself; not least for the reason that Mr Oliver strove so much in cross examination to resist suggestions that he made it a term of the agreement that Zazman hold six months' stocks. It will be recalled that he preferred instead to say that it was up to Zazman as to how it went about meeting the contractual obligation to deliver uppers within three months of order. But as has been seen, Mr Oliver was not prepared to deny Mr Husain's evidence that he (Mr Oliver) required Zazman to apply its own judgment in regularly purchasing in advance sufficient quantity of stock to ensure Zazman was able to fill six months' of orders at all times over an indefinite duration into the future, and it is significant that at another point in the cross examination Mr Oliver acceded to the proposition that he had required Zazman Exports to maintain a quantity of stock at all times.
51 As will appear, it is unnecessary in the end to reach a concluded view on the point but, if it did matter, I should be inclined to think that the facts to which I have referred open the door to the line of authority which recognises that parties may drift into a contractual relationship.[13] As Ormiston, J. put it in Vroon BV v Foster's Brewing Group Ltd[14], a manifestation of mutual assent may be made even though neither offer or acceptance can be identified and even though the moment of formation cannot be determined. In point of principle I see no reason why that sort of analysis should not apply as much to an aspect or term of a contractual relationship as to the existence of the relationship itself. Furthermore, to the extent that it is permissible to look to the parties' conduct after entering into the contract,[15] the uncontested evidence of Mr Angelovski, which I have set out above, would tend to put the matter beyond doubt.
52 In any event, on Mr Oliver's evidence alone there can be no doubt that Mr Husain was wary of carrying large stocks of leathers (because of his previous bad experience with another line of footwear), and that Mr Oliver knew that Mr Husain would not have been inclined to carry six months' stocks except for the existence of the contractual obligation imposed by Mr Oliver that Zazman fill Oliver Footwear orders for stitched leather uppers within 90 days of receipt of order.
53 Counsel for the respondent contended that apart from the particular orders which were placed and filled, any overarching arrangement between Oliver and Zazman for the supply and purchase of leather uppers for the 20 series boot was so lacking in certainty as to be unenforceable, and he pointed in particular to the absence of any agreement as to the price or prices at which the uppers would be sold and purchased and the absence of any mechanism by which the price might be set. I do not think that is a problem. As the arrangement worked in fact, the prices were quoted from time to time and either agreed or negotiated and then agreed. There was in effect a commitment from the outset to purchase at the prices established at the outset and as thereafter as they might be adjusted from time to time, and a long course of dealing which enabled each side to determine the elements which went to make up the prices in terms of costs and mark-up and when and to what extent changes would be acceptable.[16] While there was no detailed examination of the matter at trial - presumably because it really did not emerge as an issue until the hearing of the appeal - there is I think enough evidence to conclude that the parties understood the way in which prices would be worked out,[17] and what and when adjustments would be acceptable, and it is plain that they operated very satisfactorily on that basis for a number of years until the agreement was determined.[18] Perhaps if there had been a radical alteration in prices or a departure from what appears to be the understood basis of computing prices, one or other side might have refused to deal. But evidently no such thing occurred. All of the evidence and common sense points in the direction of a commercial arrangement under which Oliver was to purchase all of its requirements of 20 series uppers, at prices determined in accordance with that mechanism, for an indefinite term into the future.
54 I have referred already to the extent to which courts are prepared to go to uphold a commercial arrangement as a binding agreement.[19] Consistently with that sort of approach, I am persuaded that this arrangement was a binding agreement.
Implied term of reasonable notice
55 I am also persuaded that it was an implied term of the agreement that it would not be terminable without reasonable notice. In my judgment it is necessary to imply the existence of that term in order to serve the common purpose that the parties may be expected to have had at the time of entry into the contract.[20]
56 In Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd[21] McHugh, J.A. observed that it is sometimes a common purpose of an agreement that the relationship of the parties will continue long enough after the giving of a notice of termination to enable one or other party to recoup extraordinary expenditure or effort. Otherwise that party would have no incentive to make that sort of outlay for the mutual benefit of the parties. In such cases, it is to be implied that the contract shall not be terminated until there has been sufficient time in operation under the contract for recoupment of the expenditure and effort. A distributorship agreement is an example of the sort of contract which his Honour had in view. But apart from cases of that kind, which are not of immediate relevance for present purposes, the chief purpose of reasonable notice of termination is to instil a degree of order into the process of ending a relationship which ex hypothesi has existed for a reasonable period: to afford the parties a reasonable opportunity to enter into alternative arrangements and to wind up matters which arise out of their relationship.[22] Another way of looking at the matter is to ask what two reasonable business people would have decided as between themselves at the time of entering into their contract should be the appropriate length of notice required for determining their relationship, given its nature and the work and expenditure it was envisaged it would entail.[23]
57 Either way, in my view, it is not realistic to suppose that the contract in this case was to be terminable without notice. Orderly termination of the relationship was bound to require some time to enable Oliver Footwear and Zazman to enter into alternative arrangements and otherwise to wind up matters likely to arise in the course of the contract, and it is naturally to be supposed that each party would have wished to cushion itself against the effects of sudden change and therefore to give itself reasonable time to make alternative arrangements and work out matters in the event of termination.
58 Looking first at the matter from the point of view of Oliver Footwear, and bearing in mind that the purpose of the contract at the time of entry into it was for Oliver Footwear to obtain all of its requirements of stitched leather uppers for the 20 series style boot, an orderly termination of the contract would be foreseen to necessitate sufficient time to find an alternative supplier of stitched leather uppers and for the new supplier to begin to fill orders. At the time of entry into the contract, it was known that it was critical to Oliver Footwear to obtain supplies of leathers as and when required. It was also known that it would be likely to take in the order of six months for an alternative supplier of leather uppers to obtain stocks of leathers from America, or some other source, and to treat and process the leathers into uppers. In those circumstances, I think that reasonable business people in Oliver Footwear's position would say that anything less than six months' notice of termination would be unreasonable to Oliver Footwear.
59 Looking then at the matter from Zazman's point of view, and bearing in mind that it knew at the time of entry into the contract that it would be required de facto or de jure to keep on hand at least six months' supplies of leathers and accessories, and that if Oliver Footwear terminated the contract it would take Zazman in the order of six months to redirect its labour and resources to the manufacture and supply of product to alternative purchasers, I think that reasonable business people would say of someone in Zazman's position that anything less than six months notice of termination would be unreasonable.
60 All things considered, therefore, it seems to me that in order to serve the common purpose of both parties, as assessed at the time that they entered into the contract, it is necessary to imply as a term of the contract that the contract would not be terminable on less than six months notice.
Breach of contract
61 In follows in my judgment that the appellants have succeeded in establishing their claim. Oliver Footwear acted in breach of an implied term of the contract by terminating the contract without reasonable notice, which, in the circumstances, was not less than six months notice.
Conclusion
62 I would therefore allow the appeal and set aside the judgment below. In lieu thereof I would declare that Oliver Footwear acted in breach of an implied term of the contract by terminating the contract without reasonable notice, which, in the circumstances, was not less than six months notice. There should be judgment for the appellants for damages to be assessed and, subject to hearing anything to the contrary that counsel may wish to say, the matter should be referred to the Master, pursuant to Order 51 of the Rules of Court, for the assessment of damages.
63 I agree with Nettle, J.A., essentially for the reasons given by his Honour, that the appeal should be allowed, and that the orders which he proposes should be made. I do, however, wish to say something about the manner in which this proceeding was litigated; for in my opinion it probably helps explain the decision at first instance.
64 The statement of claim in its final form alleged that the agreement on which the plaintiffs sued was made "in or about April 1999". According to pertinent particulars, the agreement was "partly oral, partly in writing and partly to be
implied". So far as it was oral, it was constituted by "one or more conversations" held between Messrs Oliver, Angelovski and Husain at the plaintiffs' premises in Kanpur, India - the substance of the alleged conversation(s) being set out at length.
65 Further according to the statement of claim, there were a number of express terms of the agreement. One of them was that the defendant required the plaintiffs "to have on hand at all times a stock of leather and accessories sufficient to meet six months' worth of orders being placed by [the defendant] at any given time."
66 Notwithstanding the allegation in the statement of claim that the oral content of the agreement had been constituted by "one or more conversations", the evidence in chief of Husain and Angelovski, witnesses for the plaintiffs - given in the form of witness statements - was to the effect that there had been but one relevant conversation.[24] Further, in cross-examination each of those witnesses accepted that there had been only one pertinent meeting[25] - albeit that their evidence, by contrast with their witness statements, was vague as to when and where it had taken place, and as to the detail of what had been said.
67 The learned judge, at the end of the evidence of Husain and Angelovski, knew nothing about the substance of the defendant's case other than that Oliver would deny that there had been a meeting such as the plaintiff alleged. There had been, his Honour observed "no puttage."
68 Oliver's witness statement, which he adopted as his evidence in chief, was dated 9 July 2004. So it post-dated the final version of the statement of claim. In that statement, Oliver gave short shrift to the extensive evidence in chief of Husain and Angelovski concerning a particular meeting:
"I have read the particulars joined to paragraph 3 of the third Further Amended Statement of Claim dated 28 May 2004. I deny attending any meetings in India where the matters alleged in paragraph 3 of the third further Amended Statement of Claim were discussed".
69 As to particular aspects of the alleged agreement, Oliver said this in his witness statement:
"During one of our telephone conversations in early to mid-1999, I recall Iftikhar [Husain] requesting details of Oliver Footwear's forecasts in relation to the New Footwear over the first six months of production using the New Machine. He told me that he wanted to know this so that he could then try and estimate what amount of cow hides he would need to have access to meet the monthly orders that Oliver Footwear might place. I instructed Angelovski to send a fax to Iftikhar giving an indication of what the possible production of the New Footwear would be in the second half of 1999. This is the fax dated 23 April 1999 referred to in the particulars joined to paragraph 3 of the Further Amended Statement of Claim dated 28 May 2004 ...
At no time did I discuss with Iftikhar any 'exclusive supply arrangement' whereby he had to keep 'six months' worth of stock whether it be cow hide or buffalo hide."
70 In cross-examination, as Nettle, J.A. makes very clear, Oliver was effectively cross-examined in an attempt to make good the substance of the agreement contended for by the plaintiffs - not by reference to a particular conversation at a particular place or at a particular time, but rather by reference to things said in a course of conversations over a period of time.
71 This cross-examination, which was directed to a case not so pleaded or particularised,[26] was not the subject of objection.
72 In final address, plaintiffs' counsel contended that, whatever might be said as to the date and place of the agreement, "the intrinsic components of [the] evidence of [Husain and Angelovski] survived in the critical respects." That is, the plaintiffs had established the making of an over-arching agreement pertaining to the supply by the plaintiffs to the defendant of stitched leather uppers and accessories for a new footwear style.
73 Counsel for the plaintiffs addressed the questions when and where the agreement had been made. He urged conclusions which were substantially based upon concessions made by Oliver in cross-examination.
74 Concerning the content of discussions, counsel for the plaintiffs also relied significantly upon concessions made by Oliver. He made the point, too, that the defendant's case had mainly attacked the issues of date and place - not the content - of the alleged agreement.
75 Again, counsel made particular submissions concerning the alleged six months forecast term, and as to the indeterminate period of the alleged agreement. They involved close analysis of evidence given by Oliver; and, in connection with the first of those issues, the significant point, as it seems to me, that such forecasts worked to the considerable commercial advantage of both parties, and were likely the subject of contract.
76 The plaintiffs' case, it can be seen, developed along lines which were not altogether within the final version of the statement of claim. Moreover, that case substantially depended, as the final submissions for the plaintiffs really acknowledged, upon evidence given by Oliver.
77 It is certainly possible, perhaps probable, that the plaintiffs' case must have failed had Oliver not given evidence. But he did give evidence, and the concessions which he made in cross-examination, although in some respects outside the plaintiffs' pleaded case, were relied upon by the plaintiffs in final address. No objection was taken by the defendant to such reliance, just as there had been no objection to the cross-examination itself. Neither again did defendant's counsel make the point that at least the plaintiffs should apply to amend the statement of claim so that it fitted the case within they ultimately sought to make.
78 His Honour was not satisfied that an agreement as pleaded had been constituted by a conversation had in a meeting at a time and place as particularised in the statement of claim and as described in the witness statements of Husain and Angelovski. The availability of such a conclusion - in reliance upon the cross-examination of those two men and/or in reliance upon Oliver's evidence - could not be doubted.
79 But that, as the case had developed, was not the end of the matter. A question remained whether the plaintiffs had established, on all the evidence, the making of an agreement containing all or some of the terms pleaded by paragraph 4 of the statement of claim, and an implied term as pleaded by paragraph 5.
80 The learned trial judge plainly had in mind, because he referred to it, the body of evidence which showed that -
• It was important to the defendant that the plaintiffs supply it with product in a timely manner.
• The plaintiffs needed to order supplies well in advance in order to achieve continuity of supply to the defendant.
• The defendant provided, at the plaintiffs' request, forward estimates of its orders from time to time.
81 This was part only of the body of evidence upon which the plaintiffs relied. Concerning that part, the learned judge concluded that what he characterised as "sensible procedures" had been put in place merely to assist the plaintiffs; and were not such as to constitute, or reveal, a binding contract.
82 I consider, with respect, that what his Honour did was conclude that the pleaded agreement had not been made out in accordance with the plaintiffs' positive case; and then, it may well be because his focus was distracted by that case as it had been pleaded and particularised, address only some of the totality of evidence which demonstrated that an agreement with the essential features contended for by the plaintiffs had been entered into. For the same reason, it may be, his Honour concluded that the provision of forward estimates of orders was merely to assist the plaintiffs; a conclusion which did not sit readily with evidence given by Oliver, or with his Honour's finding that it was important for the defendant "that its delivery schedule of 90 days from order be maintained."
83 In the Commercial List, in which this proceeding was issued and litigated, it has always been considered particularly important to get to the substance of commercial disputes in an expeditious way. To that end, particular practices and procedures have been adopted. But to my mind there is no substitute for adherence to the rules of pleading, there is no sensible basis for the creation and adoption by a witness of a witness statement which represents the honed skills of lawyers rather than the indistinct recollection and the usual language of the witness, and ordinarily there is no basis for non-adherence to basic rules of evidence. This case, as I see it, shows in a number of ways why it is desirable that counsel and solicitors should keep such considerations steadily in mind.
[1] See, for example, Devries v. Australian National Railways Commission (1993) 177 C.L.R. 472 at 479 per Brennan, Gaudron and McHugh, JJ. (referring to Brunskill v. Sovereign Marine & General Insurance Co. Ltd. [1985] HCA 61; (1985) 59 A.L.J.R. 842); and Abalos v. Australian Postal Commission [1990] HCA 47; (1990) 171 C.L.R. 167.
[2] See Fletcher Constructions Australia Ltd. v. Macfarlane and Marshall Pty. Ltd. (No.2) [2002] VSCA 189; (2002) 6 V.R. 1 at 43.
[3] For safety footwear designated 20 series style safety boots.
[4] Which was confined to issues other than quantum: Order of 28 May 2005.
[5] My emphasis.
[6] My emphasis.
[7] [1999] HCA 3; (1999) 160 A.L.R. 588 at 620.
[8] Water Board v. Moustakas [1988] HCA 12; (1988) 180 C.L.R. 491 at 497, per Mason CJ, Wilson, Brennan and Dawson JJ; Nescor Industries Group Pty Ltd v Miba Pty Ltd (1997) 150 A.L.R. 633 at 639-640 (FFCA), per Davies, J.
[9] Fox v Percy (2003) 214 C.L.R. 126 at [24]-[27]; Waterways Authority v Fitzgibbon [2005] HCA 57 at [73]; cf. Commissioner of Main Roads v Jones [2005] HCA 27; (2005) 79 A.L.J.R. 1104 at [73].
[10] Cf. Banque Commerciale S.A. En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 C.L.R. 279 at 284-287, per Mason, C.J. and Gaudron, J.
[11] The Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 C.L.R. 429 at 436-7, per Barwick, C.J.; Hawthorn Football Club Ltd v Harding [1988] VicRp 6; [1988] V.R 49 at 56-7, per Tadgell, J.; Seddon & Elllinghaus, Cheshire and Fifoot's Law of Contract, 8th Aust. Ed. at [5.11] and [6.3].
[12] My emphasis.
[13] Integrated Computer Services Pty Ltd v Digital Equipment Corp (Australia) Pty Ltd (1988) 5 BPR 11,110 at 11,117; Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 N.S.W.L.R. 523; Pobjie Agencies Pty Ltd v Vinidex Tubemakers Pty Ltd [2000] NSWCA 105.
[14] [1994] VicRp 53; [1994] 2 V.R. 32 at 79-83.
[15] Howard Smith & Co Ltd v Varawa [1907] HCA 38; (1907) 5 C.L.R. 68; Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14,551 at 14,569; cf. FAI Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] VicRp 76; [1993] 2 V.R. 343 at 351.
[16] Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyds Rep. 53 at 58; Multi-Core Aerators Ltd v. Multi-Core Aerators Pty Ltd (1995) 40 I.P.R. 462 at 475; cf. Device Technologies Australia Pty Ltd v Applied Medical International Inc. [2001] NSWSC 1110 at [33] and [34].
[17] Foley v Classique Coaches Ltd [1934] 2 K.B. 1 at 8-10, per Scrutton, L.J. and at 11-12, per Greer, L.J.; Cugden Rutile (No. 2) Pty Ltd v Chalk [1975] A.C. 520 at 536.
[18] Hillas & Co. Ltd v Arcos Ltd [1932] UKHL 2; (1932) 147 L.T. 503 at 512-513; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 C.L.R. 429 at 437.
[19] See also Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 C.L.R. 600 at 616-7, per Brennan, J.
[20] Australian Blue Metal Ltd v Hughes [1963] A.C. 74 at 99; Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 Q.B. 556 at 581; Barro Group Pty Ltd v Fraser [1985] VicRp 59; [1985] V.R. 577 at 583-4 (FC).
[21] (1988) 14 N.S.W.L.R. 438 at 444.
[22] ibid. at 448, E.
[23] ibid. at 456, per Clarke, J.A. in diss. but not in point of principle; Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 W.L.R. 361 at 376.
[24] Husain witness statement, paragraph 69; Angelovski witness statement, paragraph 15.
[25] Although on a single occasion, according to the transcript, Angelovski said that he remembered "the meetings".
[26] Nor a case which had been so pleaded or particularised at any time prior to the final version of the statement of claim.
Husain & Ors
O & S Holdings