CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – EXECUTION OF
CONTRACT – CONSTRUCTION OF CONTRACT – VARIATION
OF CONTRACT –
BREACH OF CONTRACT – ABANDONMENT – where the plaintiff and defendant
Source
Original judgment source is linked above.
Catchwords
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – EXECUTION OFCONTRACT – CONSTRUCTION OF CONTRACT – VARIATIONOF CONTRACT –BREACH OF CONTRACT – ABANDONMENT – where the plaintiff and defendantentered into a business agreement– where the plaintiff and defendantvaried the agreement – where the plaintiff sues on the varied agreementfor breaches– where existence and authenticity of agreements contested– whether contract varied or replaced – where the defendantclaimsthe contract was abandoned – principles applicable to abandonmentLimitation of Actions Act 1974 (Qld), s 10Allied MarineTransport Ltd v Vale do Rio Doce Navegacao SA (The “Leonidas D”)[1985] 1 WLR 925, citedCedar Meats (Aust) Pty Ltd v Five Star Lamb PtyLtd [2014] VSCA 32(2014) 45 VR 79, citedCodelfa Construction Pty Ltd v State RailAuthority of New South Wales (1982) 149 CLR 337, cited
Concut Pty Ltd
v Worrell (2000) 176 ALR 693, applied
DTR Nominees Proprietary Ltd v
Mona Homes Proprietary Ltd [1978] HCA 12
(1978) 138 CLR 423, cited
DTR Nominees Pty
Limited v Mona Homes Pty Ltd [1978] HCA 12, cited
Fitzgerald v
Masters [1956] HCA 53
(1956) 95 CLR 420, cited
Groves v Groves [2013] QSC 277,
cited
Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28
NSWLR 194, cited
Johnson v Perez [1988] HCA 64
(1988) 166 CLR 351,
cited
L’Office Cherifen des Phosphates v Yamashita-Shinnihon
Steamship Co Ltd (The “Boucraa”) [1994] 1 AC 486,
cited
Marminta Pty Ltd v French [2003] QCA 541 at [27],
cited
Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31,
cited
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 45,
applied
RMI Pty Ltd v Spray Coupe Pty Ltd [2021] QCA,
applied
Royal Botanic Gardens & Domain Trust v South Sydney City
Council [2002] HCA 5
(2002) 240 CLR 45, applied
Ryder v Frohlich [2004] NSWCA
472, cited
Speets Investment Pty Ltd v Bencol Pty Ltd No 2 [2021] QCA
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - EXECUTION OF CONTRACT - CONSTRUCTION OF CONTRACT - VARIATION OF CONTRACT - BREACH OF CONTRACT - ABANDONMENT - where the plaintiff and defendant entered into a business agreement - where the plaintiff and defendant varied the agreement - where the plaintiff sues on the varied agreement for breaches - where existence and authenticity of agreements contested - whether contract varied or replaced - where the defendant claims the contract was abandoned - principles applicable to abandonment
G Beacham QC with D Tay for the first, second and third defendants
[25]
Bartley Cohen for the first, second and third defendants
[26]
[1] The third defendant, Mr Mak Siu On, referred to in the proceedings as Mr Mak, was born and raised in Hong Kong. He is the son of a rich man. But Mr Mak had his own aspirations. They dovetailed with his "passion for high end fashion".[1] He wanted to market such clothing in China. This was, given developments in the Chinese economy, a visionary goal.
[2] In 2000, however, when Mr Mak was a 23 year old student, it must have seemed a remote prospect. He lacked the knowledge, expertise and contacts - or anything, really - that might have assisted him in realising his ambition.
[3] All of those absent qualities were embodied in the plaintiff, Mr Imam. He had been involved in the fashion industry since 1970, when he was 17. He made his first business connections in Asia in 1974. He grew a business that operated some 40 stores. In doing so he developed many contacts with Italian fashion suppliers.
[4] To Mr Mak, the experienced plaintiff must have presented, when they met in or about 2000, as the ideal mentor. Their acquaintanceship developed into a business relationship which in turn developed into a friendship.[2] With Mr Imam's assistance Mr Mak established the "LIFE China"[3] business, which was conducted through the corporate entities of the first and second defendants.
[5] This background was the subject of much evidence but, in sum, the seasoned plaintiff assisted the inexperienced third defendant to build a successful luxury fashion retail business which now thrives in mainland China, Hong Kong and Macau. Nothing suggests that Mr Mak could have achieved this by himself.
[6] As at 2004, the relationship was close. With Mr Imam's assistance, Life China had established or was in the process of establishing business relationships with leading Italian fashion houses, such as Ittierre S.p.A (Ittierre), Class Cavalli and Paciotti.[4] Mr Imam was a most valuable resource - the divide between the world of Italian fashion and the emerging Chinese economy was not bridged easily.
[27]
[7] It can, however, be inferred that Mr Mak was learning all the while.[5] There was - at least for Mr Imam - a need to formalise the arrangement, to ensure that he would receive, and continue to receive, payment for his efforts. In those circumstances, it is unsurprising that he wanted Life China to enter into a written agreement. He says there were two of those.
[8] In order to decide this case it has been necessary to consider the existence, authenticity, effect, and duration of these written agreements.
[28]
[9] The plaintiff says that a written agreement was formalised in 2004, in a document referred to as the "2004 Consultancy Agreement".[6] It detailed the sorts of things that he was already doing for Life China. Its terms included an assertion of his exclusive right to approve Stock,[7] which was defined to mean men's and women's fashion items of clothing and accessories that was appropriate for supply to and sale by the defendants' business.
[10] The plaintiff as the Consultant, was entitled to be paid Consultancy Fees. These were calculated as an amount equivalent to 10% of the gross sales[8] of each store operated by the defendants. The plaintiff affirms his own belief that this fee was an on-going obligation that would, in recognition of his involvement in the establishment of the business, persist even after termination of the agreement.[9]
[11] The 2004 Consultancy Agreement also included a clause which created Mr Imam's entitlement to a Development Fee. This was a fee payable to him upon sale of any store established by the client and calculated by reference to the goodwill growth enjoyed by that store.[10]
[12] This 2004 Consultancy Agreement also provided for - and had attached to it - a deed of guarantee. It made Mr Mak personally liable for amounts due to the plaintiff.
[13] The existence and authenticity of the 2004 Consultancy Agreement are controversial. The plaintiff says he kept possession of the original, which purports to be signed by both parties. The plaintiff's wife swore that she witnessed the third defendant sign this agreement and the Deed of Guarantee and Indemnity in 2004.[11] The plaintiff's solicitor gave evidence that he recalled seeing the original signed 2004 Consultancy Agreement around 2004.[12]
[14] The third defendant denies ever signing this document,[13] although he admits to signing an agreement at around this time.
[29]
[15] After opening an Ittierre (IT) store, Life China opened an "Emporio Armani" store in Guangzhou. Its sales exceeded the third defendant's expectations. He became concerned about how much he would have to pay the plaintiff under the existing (10% of gross sales) formula.
[16] It followed, Mr Imam said, that the 2004 Consultancy Agreement was varied in 2005. A further document - the "2005 Varied Consultancy Agreement" - was executed.[14] There is no clarity about the date upon which this happened. Until recently, the only original signed copy of the 2005 Varied Consultancy Agreement was held by the plaintiff; it is likely that for a period it was kept in safe custody with his solicitor.[15] Eventually, in August 2020, the defendants' solicitors discovered an original signed version of this document.[16]
[17] The 2005 Varied Consultancy Agreement retained the plaintiff's entitlement to receive an amount equivalent to 10% of the gross sales of Stock in relation to S_tock_ supplied by Ittierre S.p.A.[17]
[18] However, as to the balance of the defendants' expanding operations, the plaintiff's entitlement was calculated by reference to a new formula. Under this 2005 Varied Consultancy Agreement, he was entitled to receive payment equivalent to 10% of the value of Other Stock[18]purchased[19] by the defendants' enterprises.[20] On the realistic assumption that the defendants would be selling stock at a price higher than that for which it was purchased, it would follow that the yield (to the plaintiff) for Other Stock would be proportionally lower than it was for Ittierre S.p.Astock. In that way, this iteration of the agreement improved the defendants' position.
[19] There was another contrast between the documents - the 2005 Varied Consultancy Agreement did make provision for the guarantee in identical terms, but no guarantee was attached to it.
[30]
[20] The plaintiff submits that he facilitated a franchise which allowed Life China to deal in the prestigious Giuseppe Zanotti Design (GZD) label. Once Life China had secured this franchise, the third defendant effectively "shut out" the plaintiff from any further communication.[21] Mr Mak had, it seemed, turned away his former self - the aspirational fashion merchant - and, having been assisted by the plaintiff to become one, embraced the role of successful businessman.
[21] The point came at which the plaintiff was no longer providing the defendants with the Consultancy Services for which both agreements provided. Indeed, there was a period of three years from July 2011 when there was barely any communication between them at all.[22] However, in July 2014 the plaintiff asserted his right to be paid the sum to which he says he was (and continues to be) entitled under the 2005 Varied Consultancy Agreement. He also claims that the defendants breached the 2005 contract by failing to meet a requirement to provide access to financial records. On 23 October 2018 he instructed his solicitors to send a letter that terminated the Agreement for breaches.[23] He seeks damages compensating him for the failure to pay Consultancy Fees attributable to purchasing orders, and for the Development Fees to which he says he remains entitled. His claim might, depending upon how it is calculated, amount to a total of $64,637,484.00.[24]
[22] The third defendant refused to pay the debt that is attributable to something he says he never promised, so the plaintiff attempted, unsuccessfully, to sue for that sum in Hong Kong. He now brings his claim in Queensland.[25]
[31]
[23] As well as disputing the existence of any operational document, the defendants have made an elaborate response to this claim. The parties exchanged some 58 disclosure related letters between 30 January 2019 and 21 August 2020. The majority of these were from the plaintiff's solicitors, who sought disclosure of specific documents. Discerning the functional defence was like trying to press down on a blob of mercury. Apart from those considered below, the defendants have asserted estoppel, waiver and that they did not intend to be bound by any signed agreement. The full history - and fate of each argument - may be relevant to the question of costs.
[24] The whole imbroglio can now be resolved, however, by providing answers to four questions.
[32]
[25] It is first necessary to determine whether the plaintiff and the defendants entered into the 2005 Varied Consultancy Agreement.
[26] As noted above,[26] it is on that agreement that this action is brought. It follows that if the answer to this question is "no", there is no need to consider any further questions.[27]
[33]
Question 2. Was the 2005 Agreement a variation or a new agreement?
[34]
[27] The third defendant would personally be liable for damages if the guarantee was part of this Agreement.
[28] Answering this question involves deciding whether the 2005 Agreement was intended to vary the 2004 Agreement, or replace it.
[35]
Question 3. What were the plaintiff's obligations under the agreement?
[36]
[29] This is an exercise in construction of an agreement.
[30] Specifically, it has to be determined whether the plaintiff had to be involved actively in the defendants' business in order to become entitled to the ConsultancyFees that he now asserts are payable.[28] If he was, no such entitlements could have accrued.[29]
[37]
Question 4. Was the agreement abandoned, terminated or repudiated?
[38]
[31] As noted, the plaintiff sent a letter of termination on 23 October 2018.
[32] However, if there was no functional agreement at that time, then there was nothing for the plaintiff to terminate, and no legal basis for the rights he now seeks to enforce. And it is not open for him to sue on the basis of breaches that occurred prior to 2 November 2012 - any attempt to do so would fail upon application of s 10 of the Limitation of Actions Act1974 (Qld). [30]
[39]
[33] The background is canvassed in [7]-[19], above. Although the plaintiff's case turns on the existence and effect of the 2005 Varied Consultancy Agreement, its status depends on the existence and effect of the 2004 Agreement.
[34] The "Life China" operation was conducted through the first defendant, which is a Hong Kong company incorporated on 10 May 2002.[31]
[35] As noted, the business began with a store that sold "IT" products.[32] The plaintiff made this happen. He obtained the licence that enabled the defendants' business to open the first IT store at the La Perle Mall in Guangzhou. Such a licence is not lightly dispensed, and it was secured by the plaintiff only after much travel and negotiation.[33] Under guidance from the plaintiff, further stores were opened under this brand name. He was willing to provide such services (and more) on the basis that he would receive 10% of future sales revenue from the defendants' business.[34]
[36] In 2003, the plaintiff instructed a solicitor to prepare a written agreement that reflected this arrangement as he understood it.[35] The agreement was to contain a deed which made the third defendant personally liable under the agreement.
[37] Here the controversy begins. The document[36] bears the date 6 January 2004. The plaintiff originally asserted that he had a specific recollection of this 2004 Agreement being signed on 6 January 2004.[37]
[38] This was not possible.[38] The plaintiff then affirmed a specific recollection that the third defendant signed this agreement, and its accompanying deed of guarantee and indemnity, in the lobby of the Intercontinental Hotel, Hong Kong, on 17 February and 21 February 2004.[39] The plaintiff's wife swore to being present when this document was signed, and to having witnessed it.[40]
[39] The third defendant contradicts most of this. He accepts that, at some stage prior to the opening of the IT store in December 2003, he did sign an agreement in the lobby of the Intercontinental Hotel in Hong Kong. The agreement that he signed was, he says, "about four pages" long - the 2004 Consultancy Agreement and the deed of guarantee and indemnity run over 15 pages.
[40]
Question 2. Was the 2005 Agreement a variation or a new agreement?
[41]
[62] The 2004 Consultancy Agreement, signed by the plaintiff and by the third defendant as the authorised officer of the first and second defendants, was accompanied by a deed of guarantee to which reference is made in Clause 10.2 of the agreement itself. That clause provides for such a guarantee if it was required by the plaintiff. It was,[59] and the guarantee was executed and attached to the agreement as Annexure A.
[63] The 2005 Varied Consultancy Agreement refers to the guarantee (and almost everything else) in identical terms. Clause 10.2 is reproduced exactly, but the document itself was unaccompanied by any Annexure A.
[64] If the 2005 Varied Consultancy Agreement was just a variation of the _2_004 Consultancy Agreement, the omission of Annexure A would be of no consequence - the guarantee would in any event attach to the 2005 Varied Consultancy Agreement.
[65] However, if it was a replacement, it was a new agreement to which no guarantee attached. It would follow that the third defendant no longer had obligations as a guarantor, and further follow that irrespective of the position with the first and second defendants, the plaintiff's claim against the third defendant would be unenforceable.
[66] The question as to whether a second contract discharges (and replaces) or varies an earlier contract is to be answered by reference to the intention of the parties as revealed by the later agreement.[60] Examining differences between the two contracts can illuminate that intention.
[67] As noted above ([15]) the need for the 2005 Varied Consultancy Agreement was prompted by Life China's expansion into the Armani line. It accommodated the third defendant's request that fees be payable on 10 per cent of stock purchases rather than sales.[61]
[68] As a result, clause 5 was amended and some new terms were introduced. These included Other Stock and Purchasing Order. Nothing, however, made the completion of Annexure A a prerequisite to the execution of the document. It remained, according to the words on the paper, only something that had to be executed if the Consultant/plaintiff required it.
[42]
Question 3 What were the plaintiff's obligations under the agreement?
[43]
[72] A substantial part of this claim is brought for Consultancy Fees.[65] They are said to be payable because of the business that the defendants have conducted in buying and selling GZD products in some 18 stores since 2008.[66] Focus is on the period that reaches six years backwards from the date upon which the plaintiff purported to terminate the contract.[67]
[73] As put by the plaintiff's counsel:
[44]
"... in 2018, relying upon breaches including the failure to pay those consultancy fees which fell due under the 2005 agreement, the plaintiff, as he was entitled to, terminated that agreement, thereby converting his claim in debt, effectively, under the agreement into one for damages for breach of contract.
[45]
So that's the legal analysis; but it makes no difference, because the claim in debt .....would have been precisely the same as the claim for damages. So the claim for damages is, as in all claims for contract, a claim for a judgment for a sum which will put the plaintiff in the same position as he would have enjoyed, had the 2005 agreement been performed by Mr Mak and his companies."[68]
[46]
[74] There is an obvious issue. As noted above,[69] there has in effect been no relationship, and certainly no business relationship between the parties since 2012. The agreement had not been "performed" by either party since, at the latest, 2010. The plaintiff was not suing for lost income that was referable to anything that he actually did during the period between then and the purported termination.
[75] Rather, this part of his case depends upon an interpretation of the 2005 Varied Consultancy Agreement that confers upon him a right to receive the Consultancy Fees from the moment the agreement was signed and extending, on one view, for perpetuity.
[76] He rejects the suggestion that the agreement required him actually to do anything in order to earn these fees. Rather, he insists on an interpretation that confers upon him a right to receive Consultancy Fees in exchange for the services that were "provided as part of the development of the business". These were, he said, payable "once the business was established". After that he was entitled to a "stream of payments"[70] that would, on this analysis, flow indefinitely.[71]
[77] The defendants therefore direct attention to that which was required of the plaintiff under the agreement. They insist that it required him to do something in order to receive money. If this is so, and an active role was mandated for him, then given that the plaintiff did nothing for and had no involvement with the business since 2012, neither debt nor damages attributable to consultancy fees could have accrued during the period in respect of which the claim is made.
[47]
Principles applicable to construction of the agreement
[48]
[78] Both parties have cited many authorities. Their submissions include lengthy extracts from them.[72] These establish that determination of this dispute begins with reference to the words of the written agreement.[73] Of course, if those words were just a bit clearer, then there would not be a dispute in the first place.
[79] The court must therefore discern the objective of the parties.[74] Since each party insists on their own definition of that objective, the "common intention" to which the court must give effect has to be determined objectively and impersonally.[75] It will reflect the way in which a reasonable person would understand the language used in the agreement.[76]
[80] To that end, regard must be had to the commercial purpose of the contract, which in turn requires that consideration be given to more than the 'internal linguistic considerations" which present on the face of the document.[77] Attention will be paid also to the "surrounding circumstances" that inform an objective conclusion.[78]
[81] It is a measure of the plaintiff's argument that the court is urged, as part of this process, to read into the agreement an implied term on the basis that it is "common experience that contracts ... from time to time fail to cover all of the circumstances."[79] That may be so, and it can be acknowledged that this agreement, perhaps like many, is imperfectly drafted. However, upon application of the tests endorsed by both sides, one commercially sensible meaning does emerge from the document. In the circumstances of this relationship it made sense to require, of the plaintiff, an active involvement in the business. His claim to the contrary is unsustainable.
[49]
The Agreement required the plaintiff to play an active role in the business
[50]
[82] The 2005 Varied Consultancy Agreement recorded a shared vision of the way in which it was anticipated the Life China operation would work. It maintained that the plaintiff was the one who had all the skills and all the contacts. It insists that he was the only one who could provide Consultancy Services.
[83] If the plaintiff was to earn anything on an ongoing basis (as opposed to being reimbursed for expenses), it was only for Consultancy Services. That term's definition demands attention, if only because it includes so many verbs that connote activity: it contemplates that the plaintiff would "provide", "promote", "advance", "use" "enable", "advise", "assist" and "supervise".
[84] The whole business existed for the purpose of "procuring" and selling Stock - unless there was a turnover of Stock (and, by definition, Other Stock) there was no Business.
[85] Save only for the fact that it was not supplied by Ittiere S.p.A, Other Stock had the same characteristics as Stock. That meant that it had to have "been approved by the (plaintiff) as appropriate for supply to and sale in the business".
[86] The plaintiff maintains that the act of "approval" required only the endorsement of a particular fashion line or label. In effect, it is submitted that entitlements attributable to the Business's trade in that line accrued as at the time of such approval, and did not depend on his doing anything after that.
[87] However, to concentrate only on the plaintiff's role in the setup and establishment of the business denies the force and commercial purpose of the instrument as a whole. It might be thought that such a construction gives insufficient recognition to the inherent nature of a fashion business,[80] which deals in commodities that change according to the zeitgeist. But in any case and on any reading, the agreement invested the plaintiff with dominion over the whole concept of Stock.[81] The definition section created a requirement that Stock be "approved" by him. was something provided by . The defendants themselves were, without the plaintiff's written approval, prohibited from dealing with . And of course, unless the defendants were supplied with , there was nothing they could do. It is difficult, in those circumstances, to see how the - of procuring and selling - could continue to function without the ongoing involvement of the plaintiff. Properly read, the agreement did not countenance that was something of which he could approve once and for all time.
[51]
[98] The plaintiff argued that specific aspects of the agreement pointed away from the conclusion that he was required to have ongoing involvement in the business. He says that these facets of the agreement establish that his entitlements continued to accrue even as he was taking no part in the business and making no contribution to it, still less providing the requisite advice. In particular, he:
[52]
(a) argues that his interpretation of the agreement is no more than one would expect in the circumstances. Otherwise, so it is said, his considerable efforts in establishing the defendants' business would, at the whim of the defendants, go unrewarded. He asserts, in effect, that his entitlements depended only upon his approval of "a brand or line of clothing",[87] rather than upon a continued need for him to approve fashion items as appropriate for the business;
[53]
(b) points to Clause 5.2(b)(iii), which established his entitlement to consultancy fees "notwithstanding the termination of the agreement";
[54]
(c) relies upon opening words to Clause 5.2, which provide that those fees are payable in respect of stores for which he "provides or is entitled to provide" those services - the clear implication being, so it is said, that the actual provision of services was not a condition precedent to payment;
[55]
(d) maintains that just because 5.2(b)(ii) appeared to mandate the need for advice about Purchasing Orders before any fee became payable, this did not mean that he had to place those orders, nor even comply with the ostensible requirement that he advise the defendants that an order had in fact been placed. The definition of Purchasing Orders is said to make clear that they could be placed by others with the consequence that the obligation to pay was not necessarily dependent upon anything done by him; and
[56]
(e) identifies the fact that the terms of Clause 3 refer to services that are for the most part things that can be done well in advance of day to day operations, in which he was not required to be involved.
[57]
[99] In sum, the plaintiff submits that every one of these points, and potentially a combination of some or all of them indicate a construction that supports his claim. Accepting that it is their combined effect that may be relevant, each point will be given separate consideration.
[58]
Recognition of the plaintiff's efforts in establishing the business
[59]
[100] As already recorded,[88] the background is one which the plaintiff provided to the defendants many services for which he was not paid directly. Some of these, such as the use of his longstanding reputation in the fashion industry,[89] had an intangible quality and defy straightforward valuation. It would be fair to say that, but for the plaintiff's industry, the establishment of luxury fashion retail businesses under the "Life" brand would not have happened - or at least not in the form that it took.
[101] It also can be accepted that between 2000 and 2010 he went on business trips, conducted meetings and negotiations with contacts, ordered and selected stock, trained staff and generally engaged in the conduct of the business - as contemplated in the agreement.[90]
[102] It is said that the plaintiff's entitlement to a perpetual and passive income is a natural reflection of these roles he played in the establishment of the business. He provided evidence[91] about conversations in which his expectations of ongoing payment were made clear, and in which the third defendant promised that the plaintiff would never be "cut out".[92]
[103] The relevance of some conversations that happened "in or around 2000" is necessarily diminished by the subsequent agreement of 2004, as renegotiated in 2005. Nevertheless, it should be allowed that the "background"[93] may have entitled the plaintiff to something more than a routine commission.
[104] And the written agreements made both explicit and implicit provision for that. The overt method was by way of development fees. They were payable "in respect of each and every store in existence" and not just those that existed as at the execution of the agreement. It was a method by which the parties agreed to quantify the intangible benefit provided by the plaintiff's involvement in the operation.
[105] To the extent that the plaintiff's argument is predicated upon the asserted obvious need for him to be compensated for otherwise unremunerated industry, provision for Development Fees is an important part of the response. It makes commercial sense for the "background circumstances" and the intangible benefits (such as goodwill) that accrued as a result of the plaintiff's efforts to be reflected in this way.
[60]
[110] The plaintiff points to the fact that both limbs of clause 5.2, which created his entitlement to payments, are expressed to apply "notwithstanding the termination of the agreement".
[111] Reference is made to the concept of "termination" in two other parts of the agreement - Clause 8 and Clause 9.
[112] Neither Clause 8.1(b) nor Clause 8.2 contains a reference to termination; both create obligations that would presumably be invoked if the prospect of termination loomed.
[113] Clause 8.1(a) does place an obligation on the defendants to provide the plaintiff with information "after termination of the agreement".
[114] At once, however, it should be noted that the information in question would be of no assistance in the calculation of the consultancy fees claimed in this action, since it required only that details be presented about Gross Sales. The claim made here is only for fees referable to Purchasing Orders, and it might be thought that the plaintiff's need for information about those would be limited, since he would have either placed those orders or authorised the defendants to do so.[95] Sales, on the other hand, were very much part of "day to day" operations, about which the plaintiff might, during the currency of the agreement and at the point of termination, have needed information.
[115] Clause 8.2(a) makes express reference to Clause 9 - Termination. If the agreement was intended to contain a provision that provided for entitlements that accrued and continued to accrue after termination, then Clause 9 is the place where a reasonable business person might have expected to find it. It contains no such term, but it does include two other provisions that are informative.
[116] First, and although it makes an ambit claim about "other rights", Clause 9.2 provides that if the agreement was terminated pursuant to this clause the plaintiff was entitled to recover "any amounts then due to (him) as fees ...".[96] The natural meaning of these words indicates that this entitlement accrued contemporaneously with termination, and did not persist indefinitely.
[117] Further, in its bold typed heading, Clause 9.3 made specific provision for entitlement to as at the date of termination. It is silent about the status of the . It can be inferred that was because it was intended that they should have no more status than that conferred by the preceding sub-clause - that is, an entitlement to any "then due".
[61]
[119] The argument is made that, pursuant to Clause 5.2, fees were payable not just for stores where consultancy services were in fact provided by the plaintiff. It is said to have been enough if he was entitled to do so. The agreement created that entitlement and, therefore, fees were payable whether or not the plaintiff was performing those services.
[120] If the words entitled to provide appeared by themselves, support for the plaintiff's argument might have been stronger. However, if Clause 5.2 was meant to extend the plaintiff's claim for payable fees to every store operated by the defendants, whether or not he had any ongoing connection with it, or even with the business, then there was just no need for the inclusion of the word provides - because it would not matter whether the plaintiff was providing anything or not.
[121] The better approach is to construe the clause so that the terms provides and entitled to provide work harmoniously and in a way that avoids inconsistency between this provision and the commercial effect achieved by the balance of the agreement.[97] That can be done by allowing that the agreement was meant to ensure that the plaintiff could claim a fee even if he had not, as the defendant puts it[98]provided each and every one of the services required under Clause 3.1 in relation to the particular store. It was not intended by these words to confer an inestimable benefit that endured indefinitely.
[62]
[122] It may be, as the plaintiff submits,[99] that the obligation to pay him did not necessarily depend on whether he personally had placed an order. The agreement does contemplate that purchasing orders could be made by someone other than the plaintiff.
[123] Again, however, it is necessary to contextualise that provision by reference to the agreement as a whole. It was expressly contemplated[100] that only the plaintiff could approve dealings between Life China and the Suppliers with whom the orders were placed.
[124] It did not, however, contemplate that an order could be placed for anything apart from Stock or Other Stock.[101] Nor did it contemplate direct contact between the defendants and a Supplier, unless that had been approved in writing by the plaintiff. Only he could do that, and only he could make or approve the placement of orders
[125] Those fundamental characteristics of the agreement dictate that the plaintiff himself was required to play an active role in the business in order to earn a consultancy fee. The fact that orders could, if he allowed, be placed by others, did not remove the requirement for the plaintiff to be involved in the business in an ongoing way.
[63]
[126] The plaintiff argues, by reference to the definition of consultancy services, that they were things rendered "potentially well in advance" of his being paid any money by the defendants,[102] and that this tells against any need for active involvement in the business. Four of the five subparagraphs in Clause 3.1 offer some support for this argument.
[127] Particular emphasis is placed on Clause 3.3(c), which provided that the plaintiff was not to advise or be required to advise... in relation to the day-to-day operations of the business.[103] These remained the sole responsibility of the defendants.
[128] These provisions are said to demonstrate strict limits to the plaintiff's authority. This, in turn, is said to inform the obligations imposed by Clause 3.1.[104]
[129] However, Clause 3.3(d) makes special provision for exceptions in the agreement. And one such exception appears in Clause 3.3(b), which specifically authorised the plaintiff, after proper consultation[105] with the defendants, to be the agent of the defendants in respect of any matter reasonably necessary to carry out the Consultancy Services. The inclusion of this provision - which contemplates the plaintiff's participation in any aspect of the business - points away from any need to read this clause in a way that suggests the plaintiff was entitled to payments without any effort on his part.
[130] Further, framed in this way the argument isolates, for special attention, Clause 3.1(d). The plaintiff agreed to supervise the overall retail operations of the defendants' businesses.[106]
[131] Nowhere in the document did the drafters attempt to clarify the meaning of the terms supervise or day-to-day operations, but there was no such need. A retail operation will always involve some sort of structure in which those who provide overall supervision sit apart from those who perform the quotidian. The clauses are not inconsistent and one cannot be used to defeat the requirements of the other. Supervision is, inherently, an ongoing process. The stark terms of 3.1(d) cannot be ignored. Clause 3 does not, when read in entirety, provide support for the plaintiff's assertion that he did not need to do anything in order to earn consultancy fees under the agreement. On the contrary, he had agreed to .
[64]
[132] The object of the exercise was to make money. To do that, the parties agreed to create a business in which the plaintiff's involvement was indispensable.
[133] The points he now makes may illustrate the proposition that, as allowed by the defendants, no agreement is perfect. However, and although no one term or background circumstance is decisive, when the document and all of the circumstances are examined as a whole, the emerging picture is clear enough. It is not distorted for any or all of the reasons urged by the plaintiff. An objective observer, furnished with the agreement, informed by those circumstances, and exercising rational commercial judgment would not conclude that the mutual intention of the parties was for the plaintiff to receive consultancy fees in the way he asserts he should have.
[134] It follows that the defendants' argument as to the manner in which this agreement should be construed must be accepted. Without performing Consultancy Services, and specifically in the absence of advice about Purchasing Orders, no debt was raised. It was not open for the plaintiff to sue as if there was.
[65]
Question 4. Was the 2005 Varied Consultancy Agreement abandoned, terminated or repudiated?
[66]
[135] It does not necessarily follow that, just because the plaintiff was neither providing consultancy services nor being paid for them, the 2005 agreement itself had ceased to exist. It may be that the defendants were making it impossible for him to supply those services. They may have been breaching the terms of the agreement and either receiving Consultancy Services from someone else or performing the function for themselves without the authority of the plaintiff. The plaintiff does claim, specifically, that the defendants were in breach of the agreement by failing to provide him with information of the kind contemplated by Clause 8, which may have been used by the plaintiff for the purposes of termination in accordance with Clause 9.
[136] Further, if the contract was ongoing, then there was no timetable that insisted the plaintiff terminate it within any particular period. It follows that unless the agreement had, for some reason, ceased to exist then the plaintiff's termination of it in 2018 was valid, and he would at least have been entitled to payment of Development Fees in accordance with Clause 9.3. The validity of any claim to these fees depends upon the status of the contract as at that time. If the plaintiff is right, then he was entitled to stand back from the arrangement, allow the defendants to take the risks and do the work involved in expanding the business, and at the time of his choosing fix the point at which he would terminate the Agreement and thereby capitalise on their efforts. However if, for whatever reason, at some point prior to that date the contract had ceased to be, there was nothing to terminate and is nothing on which he can now sue.
[137] The plaintiff therefore necessarily avers that, even though he was paid nothing[107] since 2008 and did nothing since 2010, the agreement itself was ongoing and continued in force until he terminated it on 23 October 2018.
[138] The defendants counter that, whatever may have been the situation as at 18 July 2005, at some point it became the shared intention of the parties that there was no longer any agreement between them. It is said that whilst it might not be possible to be precise as to the particular moment in time at which their intentions crystallised,[108] it was in any event no later than 2 November 2012 - that is six years prior to the commencement of legal proceedings. If that is so, then neither debt nor damages attributable to anything that happened prior to that time will be recoverable.
[67]
(a) The last time any money was paid to the plaintiff pursuant to the 2005 agreement was in May 2008.[110]
[68]
(b) In an email exchange during March 2010, the plaintiff asked the third defendant about his plans "for payment on my behalf". After suggesting a lump sum annual payment, the third defendant ultimately concluded this exchange by saying "sorry, I cannot help you this time".[111]
[69]
(c) The last "active" business related communication between the plaintiffs was an email in which the plaintiff informed the defendant and his wife that the fashion house Versace was looking for franchises in China and Hong Kong in order to distribute the label "Versus".[112] This was sent on 27 June 2010.
[70]
(d) In June 2010, as a result of what the plaintiff says was a lot of effort from him, an agreement was struck between "Vicini" (the source of GZD products) and Life China. Mr. Eugenio Morselli of Vicini was the person with whom dealings were conducted.
[71]
(e) In an email of 7 November 2010, the plaintiff wrote to Mr Morselli[113] and informed him that he was "no longer involved with the company Life China."[114]
[72]
(f) In an email dated 14 January 2011, the plaintiff wrote to the third defendant and asked him to send a "final account as at the end of 2010, and I will upon receipt, send you a final account. And lets settle our affairs and say goodbye".[115]
[73]
(g) In the same email chain the plaintiff suggested that he and the third defendant calculate what they owe each other "and that will bring our business to an end".[116]
[74]
(h) In an exchange on 26 May 2011 the plaintiff mused that the parties had done "a lot of good things together" and expressed a desire to "stay friends and let the business pressures go their own way". The third defendant recorded that he and his wife had "tears in our eyes when we go through your words".[117]
[75]
(i) In an email of 27 July 2011, the plaintiff wished the third defendant and his wife both "a happy life and successful business" and asked the third defendant to "finalise our buss".[118] The third defendant responded "we will settle it".
[76]
(j) In an email dated 29 July 2011 the plaintiff recalled that when he and the third defendant had first started business, that he foresaw that "one day you will stop speaking to me because of money" and that "our business relationship will come to an end_"_. He maintained, however, that the friendship might persist "without money in the middle". [119]
[77]
(k) On 7 June 2012, the plaintiff, by email, asked to meet the third defendant to "discuss payments_". In the email it was suggested that he and the third defendant should grow up and "let bygone be bygones"_.[120]
[78]
(l) On any view of the evidence, neither the plaintiff nor any of the defendants attempted to perform or call upon each other to perform any aspect of the agreement after November 2010.
[79]
[142] Against that background, the defendants submit that by November 2010 or, if not by then, by May 2011 or in any event as reflected in emails exchanged up until 2012 the agreement was abandoned by both the plaintiff and the defendants.
[80]
Principles applicable to construction of the agreement
[81]
[143] The plaintiff submits that "it is very difficult, albeit not impossible, to establish tacit abandonment by both sides".[121]
[144] That may be so, but the suggested abandonment is not completely "tacit". In any case, the issue is approached not on the basis of a qualified generalisation like that, but by reference to applicable principle. As written by Kiefel J (as her Honour then was):
[82]
"While the Australian cases may not have discussed the theoretical basis for abandonment to any great extent it is clear that regard is to be had to the conduct of the parties and what might be inferred from it. Abandonment may be seen as a conclusion that parties have no further interest in a contract continuing, even though they may have said nothing to that effect. It may nevertheless be clear that they both regard it as at an end. This can more readily be discerned where one or more of the parties have ineffectively attempted to bring the agreement to an end and both behave as if it was ended as occurred in Summers v The Commonwealth (1918) 25 CLR 144 and DTR Nominees Proprietary Ltd v Mona Homes Proprietary Ltd (1978) 138 CLR 423."[122]
[83]
[145] Her Honour pointed to the need for consideration of "the available evidence of the parties' conduct and their circumstances under the agreement".[123]
[146] As is to be expected, a review of other authorities[124] reveals that each case was decided in a different context and turned upon the "available evidence". In this case, relevant considerations include:
[84]
(a) the nature of the relationship between the parties as discernible from the written agreement; in particular, the express provisions referable to the termination of the agreement that were contained in the agreement itself;
[85]
(b) the length of inactivity and, in particular, its length as a proportion of the time for which it was contemplated that the contractual relationship would endure;
[86]
(c) the significance of inactivity when considered in context of (a)-(b); and
[87]
(d) the nature of the relationship between the parties as disclosed by other evidence.
[88]
[147] Whilst as a matter of objective construction the agreement envisages the plaintiff's ongoing and active involvement in the business,[125] the concern under this heading is how it might assist in drawing conclusions about the parties' actual states of mind.
[148] It has to be allowed that if indeed it was because he was "shut out", the plaintiff's failure to perform actions such as approve Stock would not support a conclusion that he thought the agreement had run its course - although it is a pretty good clue that the third defendant saw it that way. However, and even if it was a case of being "shut out", the situation must have been exercising the plaintiff's mind. It is fair to ask what would have been expected of this experienced businessman if he did believe in the ongoing existence of an agreement, especially when he had been so particular about its requirements, and when he must have known that he was not performing them.
[149] His agreement's terms did not contemplate cessation of Consultancy Services on the basis that at some point he may not have been required to provide them. On the contrary, the agreement upon which he had insisted made it clear that he was essentially indispensable to the Life China business as it was depicted in 2005. Termination[126] was the only express method by which disengagement might occur.
[150] The defendants' failure to pay anything to the plaintiff after 2008 was an unmistakable sign that they saw the agreement as having run its course. So if, as seems likely, the reasons for the inactivity all sourced to their unilateral decisions, then the defendants were breaching the agreement. It was open to the plaintiff to trigger the operation of Clause 9, or at least threaten to, at any time during the exchanges that are documented in [141]. For that matter, the plaintiff could have sought the defendants' agreement that termination be effected under that clause by whatever method. He could, at that time, have reaped the benefit of at least the development fees. And if he was of the subjective belief that the contract did provide him with an ongoing right to consultancy fees, then there was no downside to termination at that time - his right to those fees would be unaffected. On his reckoning, they had always been accruing and would continue to do so. There was every reason for him formally to have the contract terminated at that time.
[89]
Re [146] (b) and (c) The duration and significance of inactivity
[90]
[152] There was no provision in the agreement itself as to the length of time for which it was envisaged to continue. This is not a situation in which the prescription of such a term can provide a context for a period of inactivity.[128]
[153] In fact, the contract was, on its face, one that potentially might run for many years. It related to the establishment of a business which might have operated located in numerous stores, in different countries, over a significant period of time.
[154] Further, "inactivity", at least on the plaintiff's part, could not be identified until 2010. His evidence, unchallenged on this point, demonstrates that he performed work for the defendants until then. This included repeated trips to Italy and Hong Kong. These efforts culminated in the signing of the GZD master contract which is the source of so much of that which the plaintiff now claims to be owed.
[155] The defence of abandonment must therefore be assessed against the background of a relatively brief period of inactivity in the course of an agreement that had already run for six years but could potentially run much longer. This period must not be susceptible to characterisation as only a hiatus in the relationship between the parties. It had to demonstrate something more than a lack of "present interest" in prosecuting the agreement.[129]
[156] There is, however, no reason why even a relatively brief period of inactivity might not be used to support an inference of abandonment. An "intent" can form in an instant. And inactivity does have real significance in the context of industry that is predicated upon the concept of constant reinvention. It also has relevance against the background of all that the plaintiff himself says he had been doing up until the cessation of activity. Even if he did not see a requirement for hands on involvement, he had agreed to promote and advance the business. After a significant period during which he was doing just that, he must at some point have realised he was no longer performing that side of the bargain.
[157] At the very least, the inactivity provides a context that makes it easier to draw, from the emails, the conclusion that is in any event compelled by their contents, discussed below.
[91]
Re [146] (d) Other evidence about the relationship
[92]
[158] When, in 2005 there was a shift in the commercial relationship, the parties executed a variation to the agreement. Had it been thought that the chill reflected in post 2010 correspondence (and lack thereof) was no more than another "shift", then there could have been another "variation".
[159] However, as the circumstances listed in [141] demonstrate, the behaviour of each party to the other between 2010 and 2012 was unlike anything that had occurred before. It went beyond a loss of mutual goodwill, which might be spent without abandoning an agreement. And it was the relationship itself the parties were discussing in the correspondence - "our affairs"; "our business"; "our relationship". This was not an isolated squabble about a particular transaction. The circumstances suggest rupture, not rearrangement. The fact that the plaintiff wanted a relationship to continue "without money in the middle" is telling, because that was never going to happen if the contract was an ongoing concern.
[160] Further, as noted, this is not advanced as a case of "tacit" abandonment, nor is abandonment asserted on the basis of inactivity alone. In order to demonstrate that the matter was "off altogether",[130] the defendants do rely upon "some evidence beyond that simply of the parties inaction".[131] And the emails cited in the pleadings are expressed - by both parties, and without dissent from either - in the language of finality.
[161] By 2010 the prospect of a new arrangement was being floated.[132] Of itself, this calls into question the status of and degree of attachment to any existing agreement.
[162] It is true that the email sent by the plaintiff on 7 November 2010 - "I am no longer involved with the company Life China"[133] was not sent to the defendants directly and should not be interpreted as if it was. However, it was at least an indication as to the way in which the plaintiff himself was assessing the status of the 2005 Varied Consultancy Agreement, and was consistent with the way in which both parties were behaving at the time.
[163] The plaintiff nonetheless maintains that emails that he sent to the defendants "demonstrate that the plaintiff continued to chase for fees - consistently with those fees being due at each time he sent his emails - or at the very least that these are ambiguous in that regard".
[93]
[168] Whilst the plaintiff's state of mind in 2011 was one by which he abandoned all intention relevant to the 2005 Varied Consultancy Agreement, it can be accepted that at some later point this attitude changed. He may now even believe that he did not really have the thoughts that he held back then. The backtracking had certainly begun by 2014 when the plaintiff was beginning to make the assertions that are echoed in these proceedings. In correspondence with the third defendant dated 31 July 2014, he did refer[138] to the fact that there was a contract[139], although it can be noted that on 9 August 2014 and again on 15 June 2015, he invoked the notion that money was owed for "sales".[140]
[169] An attempt to explain a lack of action before 2014 is made on the basis that the plaintiff was unable to commence litigation until he invoked the assistance of a litigation funder. This excuse does not really support a finding as to lack of abandonment any more than it does a finding of abandonment followed by a change of heart induced by the combined effect of (the consequences of) bankruptcy and the discovery of litigation funding. It does not, as claimed, create a preference for an "objective likelihood ... that the plaintiff continued to regard his rights as subsisting."[141]
[170] The intricacies of the litigation (as noted, originally pursued in Hong Kong) do provide some explanation for the delay between 2014 and purported termination in October 2018, followed by initiation of these proceedings on 2 November 2018. However, for the purposes of determining whether abandonment had occurred by no later than 2 November 2012, it is the earlier communication, contemporaneous with the formation of mutual intention to abandon, that is relevant. Assertions made in or after 2014 could not reinstate an agreement that had already been forsaken.
[171] That leaves, on the evidence, a period of about three years during which the plaintiff appears to have been uninterested in enforcing an extant agreement that would, by his reckoning, have provided him with a steady stream of income. He further explains this on the basis that he was distracted by other business commitments and bankruptcy proceedings. He also cites respect for the third defendant's privacy following the death of Mr Mak's father (who had been sick since 2011 and passed away in May 2013).
[94]
[173] I have been asked to consider another aspect of the evidence that is said to compel an inference of abandonment.
[174] The defendants have argued that evidence of the plaintiff's conduct in 2014, during bankruptcy proceedings, has particular relevance under this heading.
[175] The plaintiff was required, as part of that process, to provide answers to certain questions. He completed one form, headed "Statement of Affairs"[144] which contained the question "do you have any debts owed to you?" This might be thought to have invited a reference to his entitlements under the 2005 Varied Consultancy Agreement, but the plaintiff ticked the box next to the word "no".
[176] Both the "Statement of Affairs"[145] and a "Business Questionnaire"[146] posed the question "what do you believe is the main cause of your insolvency?" The plaintiff had the opportunity to tick a box that answered this question by reference to his "inability to collect debts due to disputes, faulty work or bad debts". This, too, might be thought to have invited a reference to his dispute with the defendants. Indeed in the proceedings that he initiated in Hong Kong, the plaintiff did affirm that the third defendant's failures had contributed to his bankruptcy.[147]
[177] It is necessary to take into account, when considering the significance of this evidence, the fact that the relevant part of the "Statement of Affairs" does include a field which requires nomination of "Amount owed", and the plaintiff's evidence that he did not at that point include reference to the debt because it was "not quantified".[148]
[178] However this - and the rest of the plaintiff's evidence about the information he had provided - was unconvincing. He was, on his own assertion, an extremely experienced businessman who had been at times successful. He was being forced into bankruptcy. Had he any realistic expectation of any sort of payment due to him from anyone, then it is to be expected that somewhere, in this part of the bankruptcy process, he would in some way have connected that expectation with the defendants.
[179] My views on the significance of his failure to do so have fluctuated. In the end, I have decided its effect is not as dramatic as it initially may have seemed. I find that the plaintiff made deliberate misstatements, but these may have been made for his own purposes at that time. That counts against him in any assessment of his reliability, but it does not hurt him under this heading. In this context, the issue is whether this evidence speaks to the plaintiff's state of mind. On one view it could have established that, so far as he was concerned, any agreement with the defendants had ceased to be. In all likelihood it did. However, once it is allowed that the facts as stated on the forms may not have been an honest reflection of his mental state, then it is necessary to entertain the possibility that they did not truly represent his view of things. In that case, this evidence would not necessarily have the effect for which the defendants contend. Although it was open to do so, it has not been used at all for the purposes of reaching a conclusion about abandonment. Given the effect of the other evidence, it was not necessary to do so.
[95]
[180] A conclusion as to abandonment is the necessary inference to be drawn from the terms of the emails and what they showed about the parties' states of mind. They are to be considered in conjunction with the facts that neither party was performing an agreement that had been fashioned by the plaintiff in considerable detail. It is therefore not necessary to express a detailed conclusion as to one circumstance had such a specific consequence as repudiation, although some were sufficiently telling to have had that effect.
[181] By the time there were "tears in eyes", and in any event by 2 November 2012, neither party was under the illusion that the 2005 Varied Consultancy Agreement was a document with functional relevance. Nothing suggested that they might ever take it up again in the future. They had conducted themselves in a way that could convey only that they had, mutually, decided to abandon it.[151] It was "off altogether".
[182] It may well be that the third defendant, by failing to work in accordance with the agreement as early as 2008 also breached it in many different ways. The plaintiff might, pursuant to Clause 9, have been entitled to immediately terminate[152] the agreement. Had he done so at that time, he might have been entitled, under the same clause, to recover from the defendants any amounts that were then due to him as fees... that would otherwise be due to (him) under (the) agreement. These would, as noted, have at least included the Development Fees. He was nevertheless also entitled to remove himself from the situation entirely. And by his words and (in)action, it can be inferred that is precisely what he did.
[183] It is all too understandable that, at some later stage, the plaintiff might have regretted that. He may rue that he did not insist, at an earlier time, on the payment that he thought was due to him under the agreement. His personal change of heart cannot retrospectively revive the effectiveness of an agreement from which both parties had, as established by the evidence, moved away.
[184] Since the agreement was abandoned, no aspect of the plaintiff's claim can succeed.
[96]
[185] As already foreshadowed, there may be debate about the question of costs[153] in this case. For that reason, and since a significant part of the hearing was consumed by evidence about quantum, and although strictly it is not necessary to do so, I propose to record my views on the way in which I would have dealt with the issues raised under this heading.
[186] The plaintiff's claim comprises of Consultancy Fees, future Consultancy Fees and Development Fees.
[187] Evidence was received concurrently from two experts, Mr Neill Poole and Mr Cosimo Borelli as to the calculation of the quantum of the plaintiff's claim. There was a large area of common ground, and although the complexity of issues meant that resolution of the residual conflict absorbed a lot of legal energy, it was, with respect, skilfully and efficiently litigated by Mr Trim and Mr Beacham QC.
[188] I shall deal with each issue briefly, but the overarching conclusion is that where there is a difference in approach, Mr Borrelli's methodology is to be preferred; there is overreach in the plaintiff's claim.
[97]
Quantum of Consultancy Fees - Period of Entitlement
[98]
[189] The plaintiff claims Consultancy Fees for the period from 2 November 2012. This is the period from which the claim is not statute barred.[154] The defendant submits that this period should be limited to 2 November 2012 to 1 April 2015 for stores located in Hong Kong, and 2 November 2012 to 1 August 2015 for stores located in China. 1 April 2015 and 1 August 2015 are the dates upon which Joint Venture Agreements (JVA) [155] between Life Footwear Company Ltd and GZD Asia Pacific Limited and Giuseppe Zanotti Design Holding Hong Kong Limited (GZD Holding) were completed. In essence, the effect of the JVA was that the existing Life business would be transferred to GZD Holding.
[190] The defendant submits that the effect of this transfer on the notionally current 2005 Varied Consultancy Agreement would have been that, from the completion of the JVA, the GZD stores were not Stores for which the consultant was entitled to provide Consultancy Services.[156] The defendants submit that the transfer amounted to a sale of stores, and that seems to be correct. It would follow that the plaintiff was entitled to Development Fees for the respective stores calculated as at 1 April 2015 and 1 August 2015,[157] but that even if I was wrong about their nature, period of entitlement to consultancy fees would be 2 November 2012 to 1 April 2015 for the Hong Kong stores, and 2 November 2012 to 1 April 2015 for the China stores.
[191] If it was necessary to do so, the Consultancy Fees for this period would be calculated by the method adopted by Mr Poole.
[99]
Quantum of Future Consultancy Fees - Questions (a) to (f)
[100]
[192] If, contrary to my expressed conclusions, there was not a requirement for the plaintiff to provide services under the Agreement, then the questions that would have to be addressed in any quantification of future Consultancy Fees:
[101]
(a) Should the fees be calculated in perpetuity, or over some more limited period?
[102]
(b) Should the fees be calculated as at the termination date, or as at the date of trial?
[103]
(d) What is the appropriate perpetuity growth rate?
[104]
(e) What is the appropriate present value discount rate?
[105]
(f) Whether, and to what extent, should store closures be taken into account?
[106]
[193] I would have taken the view that the calculations should take into account the average life of GZD stores.[158] In all the circumstances, adequate recognition would take the calculation to 2025, seven years from the termination date.
[107]
[194] Fees should be calculated on the basis of the relevant forecasts as at the date of the trial. The general rule that damages are assessed at the time of breach can be accepted, [159] but so too must be the occurrence of significant events - relevant to determining fair compensation - that have occurred since 23 October 2018. These should be reflected in any calculation.[160] The relevant regions in which the stores operate/d have been adversely affected by major geopolitical and economic events such as protests in Hong Kong, the US-China trade dispute and Covid-19. If compensation was to be calculated fairly then it would be necessary for these events to be taken into account.
[108]
[195] The appropriate annual growth rate would be the one adopted by Mr Borrelli.[161] His inclusion of a greater sample of data[162] is a more robust approach than the less inclusive one adopted by Mr Poole.[163]
[109]
[196] The figure of 3%, derived from a consistent and reliable source,[164] should be adopted as the perpetual growth rate. The alternative forecast rates of inflation and GDP are not well sourced.[165] The appropriate rate should be closer to the forecasted inflation rate rather than the forecasted GDP rate, and the more conservative figure suggested by two experts should be adopted.
[110]
[197] The primary difference in the approaches of the experts involved the use of data from the USA as opposed to data form Hong Kong. USA data was said to be more reliable because historical data is available for a longer period of time.[166] However, despite this temporal deficit, the use of Hong Kong data in the calculation of the present value discount rate would be the preferred approach. Some of the stores are located in Hong Kong and other stores have a closer connection to the Hong Kong market than they do with the markets based in the USA.
[111]
[198] There is no basis for any conclusion that the plaintiff was involved in the setup of the "pop-up" store; he would not be entitled to Consultancy Fees flowing from its establishment. Additionally, the assumption that the IFC Mall Store which closed in October 2019 would reopen in Autumn/Winter 2021 / Spring/Summer 2022 should not, for a number of reasons, be included in calculations.
[112]
Quantum of Development Fees - Disagreements (a) to (e)
[113]
[199] To allow for calculation of the Development Fees, there would be a need to address the points on which the experts disagree, these being:
[114]
(a) EBITDA (Earnings before interest, taxes, depreciation and amortisation - under this heading - the only dispute relates to a Macau Four Seasons "pop up" store);
[115]
(e) the market value of the Stores at the Commencement date.
[116]
[200] As the plaintiff was not involved in the establishment of the "pop-up" store, not only would this preclude him from receiving Consultancy Fees said to derive from this store, it ought also preclude him from receiving Development Fees.
[117]
[201] As already indicated, Hong Kong data should be used in calculating any fees. It is more representative of the market in which the stores operate. As such, the EBITDA multiplier - which uses Hong Kong inputs - should be used in the calculation of Development Fees.
[118]
[202] The defendants accept use of the method endorsed by Mr Poole, and had it been necessary to decide, it would have been the appropriate approach.
[119]
[203] The supplier concentration discount of 60% would have been applied to the calculation of Development Fees - it affords at least some recognition to supplier concentration risk.[167]
[120]
[204] The preference is for Mr Borelli's approach of approximating the market values of stores at their respective commencement dates to the cost of inventory and fixtures in the relevant Stores. It reflects the spirit of Clause 6 and the extent to which trading has added value to the store.
[121]
[205] The defendants have succeeded in resisting the plaintiff's claim in its entirety and might therefore anticipate an award of costs in their favour. However, for reasons already identified, the situation is not as straightforward as that.
[206] I shall receive further submissions on this issue from the parties.
[122]
Attachment 1 - Terms from the 2004 Consultancy Agreement
[123]
The 2004 agreement is covered by a page that is dated 6 January 2004[168] and is headed:
[124]
See below the reproduced clauses of the agreement as they read in the 2004 Consultancy Agreement:
[125]
1.1 In this Agreement except to the extent that the context otherwise requires:
[126]
"Business" means procuring, marketing and sale of the stock through the Store or Stores.
[127]
(b) Associates and such other persons as the Client may subsequently involve in the running of the Business or any Stores established in the Territory for which the Consultant is providing or is entitled to provide Consultancy Services under this Agreement,
[128]
and includes LCCL's, GLTCL's, and each Associate's and other person's successors and assigns."
[129]
"Consultancy Services" means the services that the Consultant is to provide to the Client under clause 3, and includes related services reasonably required to enable the Consultant to carry out its obligations under this Agreement.
[130]
"Stock" means men's and women's fashion items of clothing and accessories that have been approved by the Consultant as appropriate for supply to and sale in the Business.
[131]
"Store" means the retail store or stores established by the Client for the purposes of carrying on the Business in the territory.
[132]
In accordance with the Consultant's authority under sub-clause 3.3, the Consultant agrees to provide to the Client the following Consultancy Services in a manner that, in the reasonable opinion of the Consultant, best promotes and advances the Business:
[133]
(a) develop and use the Consultant's current business relationships and any subsequently developed business relationships with the Suppliers during the term of this Agreement, including negotiating with Suppliers on behalf of the Client to obtain the supply of Stock and to obtain any authorisations or licences from the Suppliers necessary to enable the Client to be supplied with and sell the Stock;
[134]
(b) advise the Client in all matters regarding the Stock and the Business, including publicity, public relations and advertising, and the selection of appropriate clothing and accessory lines to become part of the Stock of the Business;
[135]
(c) assist the Client in establishing each Store and each Store's retail and wholesale operations, including:
[136]
(i) assisting with the design and fitout of the Store; and
[137]
(ii) assisting with the initial and ongoing training and supervision of Store staff;
[138]
(d) supervising the overall retail operations of the Business; and
[139]
(e) assist with the identification and establishment of further Stores in the Territory.
[140]
(a) The parties acknowledge that the Consultancy Services are provided by the Consultant as an independent contractor.
[141]
(b) The Consultant is permitted to perform the same or similar services for other clients or devote time to other business activities provided that they do not prevent the performance of the Consultant's obligations under this Agreement.
[142]
(a) The Client authorises the Consultant to approach the Suppliers on behalf' of the Client and to do all things necessary, including obtaining any authorisations or licences necessary to enable the Client to be supplied with and sell the Stock of the Suppliers in the Business.
[143]
(b) The Consultant will be entitled, after proper consultation with the Client, to be the agent of the Client in respect of any other matter reasonably necessary to carry out the Consultancy Services and develop and expand the Business in the Territory for the Client.
[144]
(c) The parties acknowledge that the Consultant will not advise or be required to advise the Client in relation to the day to day operations of the Business, which will be the Client's sole responsibility.
[145]
(d) Except as specifically provided in this Agreement, the Consultant has no authority to act for, or to create, or assume, any responsibility or obligation for, the Client.
[146]
(a) may only use the Consultancy Services provided by the Consultant in any Stores established and operated in the Territory;
[147]
(b) must not act in any way that prejudices or would be likely to prejudice:
[148]
(i) the Consultant's relationship with the Suppliers; or
[149]
(ii) the goodwill and the value of each Store and the Business overall;
[150]
(c) must obtain the Consultant's approval for each new Store it wants to establish and operate in the Territory; and
[151]
(d) must not approach or in any way directly or indirectly communicate or otherwise deal with any Suppliers, except such approaches, communications or dealings as may be approved in writing by the Consultant from time to time.
[152]
The Consultancy Fee is payable by the Client to the Consultant in respect of each Store for which the Consultant provides or is entitled to provide the Consultancy Services under this Agreement.
[153]
The Client agrees to pay to the Consultant on a monthly basis by the twentieth (20th) day of each month such fees and reimbursable expenses as are required under this Agreement into the consultant's bank account or in such other manner as the Consultant may direct in writing from time to time.
[154]
(a) a Store must not be sold without the approval of the sale and the sale contract by the Consultant (which approval will not be unreasonably withheld);
[155]
(b) it will notify the Consultant as soon as reasonably practicable before the intended sale of any Store (and, in any event, at least fourteen (14) days prior to the proposed signing of the sale contract), and provide the Consultant with all information and documents, including a copy of the proposed sale contract and the financial and trading statements and other accounting and business records of the Store, necessary to enable the Consultant to determine or verify:
[156]
(i) the suitability of the prospective buyer to own and operate the Store; and
[157]
(ii) the Consultant' s likely entitlement to the Development Fee;
[158]
(c) each sale contract must contain covenants requiring the buyer to enter into a Consultancy Agreement with the Consultant. The new Consultancy Agreement or other agreements that the Consultant may require the buyer to enter into may contain different terms and conditions, rights and obligations and fees and charges to this Agreement, at the Consultant's discretion; and
[159]
(d) it will provide a copy of each sale contract to the Consultant as soon as reasonably practicable after signing.
[160]
For each Store sold by the Client during the term of this Agreement the Consultant will be entitled to be paid the Development Fee:
[161]
(a) calculated as an amount equivalent to 50% of the growth in value of the goodwill of the Store being sold ("Goodwill Growth") in accordance with sub-Clause 6.4 of this Agreement;
[162]
(b) based on the Goodwill Growth being calculated from the date the Store commenced trading to the date of sale of the Store; and
[163]
(c) paid to the Consultant on settlement of the sale of the Store to which the Development Fee relates, or within five (5) business days of settlement of the sale (if the Consultant in the Consultant's absolute discretion agrees to that later date).
[164]
6.3 Development Fee on Termination of Agreement
[165]
The Development Fee payable by the Client to the Consultant for each Store in existence on termination of this Agreement as provided for in sub-clause 9.3 will be:
[166]
(a) calculated as an amount equivalent to the Goodwill Growth requirement in sub-clause 6.2(a)(i);
[167]
(b) based on the Goodwill Growth being calculated from the date the Store commenced trading to the date of termination of this Agreement; and
[168]
(c) paid to the Consultant within twenty-eight (28) days of the date of termination.
[169]
(a) The parties agree that the Goodwill Growth for each Store either being sold (as provided for in sub-clause 6.2) or in existence on termination of this Agreement (as provided for in sub-clause 6.3) will be valued under this sub-clause 6.4.
[170]
(b) The Goodwill Growth is to be valued and determined on the market value of the Store as agreed by the parties, based on generally accepted accounting principles applicable to the Territory, taking account of the following matters (without limitation):
[171]
(i) assuming that a reasonable time is available in which to obtain a sale of the Store in the open market and for that purpose 120 days will be deemed a reasonable time; and
[172]
(ii) having regard to the following factors (in addition to other factors which the parties agree should reasonably be taken into account) based on the best information available at the time:
[173]
(A) The prospects of the Business being conducted at the Store;
[174]
(B) the value, at a specified capitalisation rate appropriate to the Business being conducted at the Store, of the estimated future maintainable earnings of the Store;
[175]
(C) the yield which an open-market investor could reasonably require in an acquisition of the Store; and
[176]
(D) the net tangible assets of the Store as disclosed in the last audited accounts of the Store.
[177]
(c) Should the parties not agree on the valuation of the Goodwill Growth under sub-clause 6.4(b) above, then the matter will be determined in accordance with sub-clause 10.4 of this Agreement.
[178]
(a) Within seven (7) days of the end of each month both during the term of this Agreement and after termination of this Agreement or any period during which the Client or its Associates receive payment arising out of the Business, the Client will render a written statement of account to the Consultant setting out details of the Gross Sales received in respect of each Store during the preceding month.
[179]
(b) The Client will also prepare quarterly profit and loss statements and such other reports and information as are reasonably required by the Consultant from time to time to enable the Consultant to verify the Gross Sales and the fees payable to the Consultant for each Store, and the Client agrees to keep and maintain, and agrees to ensure that its Associates keep and maintain, separate accounting and financial records for each Store for this purpose.
[180]
The Client agrees that the Consultant is entitled to inspect and audit the accounts, and the financial and corporate governance records of the Business and each Store and the Client agrees to allow, and agrees to ensure that its Associates allow, the Consultant upon reasonable notice to the Client access to these accounts and records, including for the purpose of:
[181]
(a) determining whether a default exists under clause 9; and
[182]
(b) determining and verifying the Consultancy Fees and Development Fees payable to the Consultant under this Agreement.
[183]
This Agreement may be terminated by written agreement between the parties.
[184]
Any wilful or substantial breach of this Agreement by the Client will entitle the Consultant to immediately terminate this Agreement, and in addition to any other rights the Consultant may have at law or in equity, the Consultant will be entitled to recover from the Client any amounts then due to the Consultant as fees or reimbursable expenses that would otherwise be due to the Consultant under this Agreement.
[185]
9.3 Payment of Development Fee on Termination
[186]
On termination of this Agreement for any reason whatsoever, the Consultant will be entitled to be paid the Development Fee calculated in accordance with sub-clauses 6.3 and 6.4 in respect of each and every Store in existence as at the date of termination.
[187]
If the consultant requires it, each Officer of the Client or its Associates must execute a Guarantee in the form attached as Annexure A to this Agreement.
[188]
This Agreement is taken to be made in the State of Queensland, Australia and its construction, interpretation and enforcement is governed by the laws applying in the State of Queensland, Australia. The parties to this Agreement unconditionally and irrevocably submit to the non-exclusive jurisdiction of the Courts of the State of Queensland, Australia and all Courts of Appeal therefrom. The parties to this Agreement waive any rights they have to object to any action being brought in those Courts, to claim that the action has been brought in an inconvenient forum, or to claim that those Courts do not have jurisdiction."
[189]
Attachment 2 - Terms from the 2005 Varied Consultancy Agreement
[190]
"Other Stock" means Stock not supplied by Ittierre S.p.A.
[191]
"Purchasing Order" means an order for Other Stock whether or not the order is placed by the Consultant with a Supplier."
[192]
The Consultancy Fee is payable by the Client to the Consultant in respect of each Store for which the Consultant provides or is entitled to provide the Consultancy Services under this Agreement:
[193]
(i) in an amount equivalent to 10% of the Gross Sales of Stock supplied by Ittierre S.P.A. of each Store;
[194]
(ii) on a monthly basis, ill accordance with the accounting requirements in sub-clause 8.1; and
[195]
(iii) notwithstanding the termination of the Agreement.
[196]
(i) in an amount equivalent to 10% of the Purchasing Order for Other Stock of each Store;
[197]
(ii) within 7 days of the Consultant advising the Purchasing Order has been placed; and
[198]
(iii) notwithstanding the termination of the Agreement.
[199]
The Client agrees to pay into the Consultant's bank account or in such other manner as the Consultant may direct in writing from time to time:
[200]
(a) for Other Stock within 7 days of the Consultant advising the Purchasing Order has been placed; and
[201]
(b) for all other fees and reimbursable expenses as are required under this Agreement on a monthly basis by the twentieth (20th) day of each month.
[202]
[2] As well as being a relationship between mentor and protégé, on a personal level the parties appear to have been close. Mr Mak is the same age as the plaintiff's son. Affidavit of R Imam at [59].
[203]
[3] "Life" derives from the acronym for Luxury Italian Fashion Emporium. Affidavit of M Siu On at [16]. On some issues, such as the guarantee (see [62]-[71] below) there is separate relevance to the existence of the third defendant as an individual. Where the relevance of the defendants' identity is indivisible, the reference will be simply to either "the defendants" or "Life China".
[204]
[6] Attachment 1 contains relevant excerpts from this document. When used in this judgment, these terms are italicised.
[14] Attachment 2 contains provisions of the 2005 Agreement that are different from or additional to the terms of the 2004 Agreement_._ Apart from these words, and the absence of the guarantee, the print on these documents is essentially indistinguishable. As with the terms reproduced in Attachment 1, when used in this judgment they are italicised.
[211]
[15] Exhibit 3 - Letter from Mark Dillman Principal lawyer at Macpherson Kelly.
[212]
[16] Affidavit of M Siu On at [117]; Second further amended defence [1L].
[213]
[17] Ittierre sold brands such as D&G, Just Cavalli Jeans, Ext, John Galliano, Ferre and others. Affidavit of R Imam at [20].
[214]
[20] This case was concerned specifically with purchases of Giuseppe Zanotti Design (GZD) Other Stock There was conflicting evidence on the point, but it can be accepted that the expansion into the GZD line was another example of the way in which the plaintiff played a role in key events that led to the growth of Life China's business.
[215]
[21] Plaintiff's closing submissions at [78]; Affidavit of R Imam at [152]-[161].
[24] The issue of Quantum is discussed below at [185]-[204]. This figure comes from the latest calculations made by Mr Poole, the expert on whose evidence the plaintiff relied, see Exhibit 58: at [84]-[86]. The figure is broken down as follows: $9,459,104 for past consultancy fees, $46,563,484 for future consultancy fees and $8,615,000 for development fees. This is confirmed and summarised in paragraph 7 on page 2 of the Joint Report dated 26 August 2020 (Exhibit 61) - with further cross-references to Mr Poole's reports in the table.
[218]
[25] The law of which is stipulated, by the contract, to be applicable to the agreement between the parties. See Attachment 1 Clause 10.7. Apart from noting (See below at [170]) that they contributed to the delay in the case arriving in this court, it is not necessary to say more about the proceedings in Hong Kong.
[219]
[27] Questions 2 to 5 should therefore be read as notionally being introduced by the words "On the basis that the parties did enter the 2005 Agreement".
[220]
[28] Either under the Agreement or as damages. Plaintiff's closing submissions [169].
[221]
[30] Which provides that a claim of this nature shall not be brought after the expiration of 6 years from the date on which the cause arose.
[222]
[31] Second Further Amended Statement of Claim [3],[3A] admitted by Defence paragraphs at [9], [9A]; Affidavit of Raafat Imam at [25], [62]; Certificate of Incorporation of Loyal Well (China) Company Limited dated 10 May 2002; Certificate of Incorporation in Change of Name of Loyal Well (China) Limited to Life (China) Company Limited dated 24 July 2002. It has two directors - the third defendant, Mr Mak and his wife Rebecca Kong. They are its shareholders. The second defendant is a mainland Chinese company incorporated on 16 December 2003. Mr Mak owns 90% of its shares and has been its sole director at all material times.
[48] On many other issues, the plaintiff's evidence is supported by things like business records and emails.
[230]
[50] The third defendant refused to answer questions some 138 times and on some 60 occasions needed to re-read his affidavit and other documents. There were also long pauses in his evidence before answering questions (some 17 of which are confirmed by the transcript). See, for example, T5-8 lines 27-31, T5-12 lines 2, 13 and 15, T5-23 line 13, T5-47 lines 1 and 11, T5-59 lines 1-2 and T5-60 lines 32-33.
[231]
[51] Affidavit of R Imam, Chronology, starting at p 56.
[55] T9-19 lines 6-10. There is, as the plaintiff concedes, the possibility that the third defendant signed, and then forgot about the 2004 agreement, and did the same with the 2005 agreement that was subsequently discovered by him (in his possession). See also Groves v Groves[2013] QSC 277 and the concept of an "unidentified forger."
[61] Affidavit of R Imam at [107], Chronology RI-1 p 37.
[239]
[63] Of course the third defendant could give no such evidence, because his position is that he did not enter into the 2005 Varied Consultancy Agreement at all.
[240]
[64] This is in fact one more reason to conclude that the agreements are genuine see [59], above. It makes little sense that the plaintiff might have gone to the trouble of forging the 2005 agreement but not bothered to forge the guarantee at the same time.
[241]
[65] It is also brought for the Development Fees attributable to the goodwill growth of those stores, but there is no similar dispute about the construction of the clauses that govern entitlements to those.
[242]
[66] Second further amended statement of claim at [40]; Annexure 1.
[80] The plaintiff illustrated the way in which the industry works when he gave evidence about the way in which Stock from Italy was purchased. The ordering was "seasonal" and therefore "recurring"; Affidavit of R Imam [118].
[83] Plaintiff's written closing submissions at [264]-[265].
[256]
[84] This was described as the plaintiff's "primary case", (Plaintiff's written closing submissions at [264]). To "avoid doubt", he submitted in the alternative that the requirement for "advice" could not be a bar to a claim for damages when the reason he could not provide the advice was because the defendants had breached Clause 8 and denied him the information that would have allowed him to do so. And he says that where, because of a breach of the obligations in Clauses 8.1 and 8.2 and the failure to provide financial information, he cannot now provide notice of the precise dates on which orders were placed, the defendants cannot and should not be permitted to take advantage of their own wrongful conduct. If the defendants were in breach of the agreement in this way in the period prior to 2012, the plaintiff could have terminated the contract on that basis. Those breaches, if they occurred, cannot now affect the outcome of this action as brought. Rather, as will be found, not only did the plaintiff fail to perform the service required of him, but he chose to abandon the agreement. At that point the obligation in Clause 8 ceased to apply and breaches of it prior to the point of abandonment are beyond the reach of this claim.
[93] Such as all of the activity described, particularised in Plaintiff's closing submissions at [27]-[48]; [65]-[67].
[262]
[94] See email exchanges between the parties. Affidavit of R Imam at [106]-[107]. Emails from Mr Mak to Mr Imam dated 3, 7 December 2004. (RAA.001.001.2530; RAA.001.001.2531; RAA.001.001.2617).
[263]
[97]RMI Pty Ltd v Spray Coupe Pty Ltd[2021] QCA 37 per Morrison JA at [13].
[127] Affidavit of R Imam, Chronology, RI-1 p 237 reference to LCC.001.00l.037320; Exhibit 27 p 22.
[287]
[128] Comparisons with the periods of inactivity involved in other cases are unhelpful. Each will turn on its own facts, which might include important distinctions, such as in Fitzgerald v Masters (1956) 95 CLR which was decided on the basis that a party had acquired an interest that could not be lost, irrespective of the delay and lack of activity during it.
[288]
[129]Wallera Pty Ltd v CGM Investments Pty Ltd[2003] FCAFC 27, Kiefel J at [45].
[289]
[130]Wallera Pty Ltd v CGM Investments Pty Ltd[2003] FCAFC 27, Kiefel J at [52].
[290]
[132] Affidavit of R Imam, Chronology, RI-1 p 231.
[291]
[134] A reasonable commercial observer is unlikely to allow for any ambiguity on this point. In all of the circumstances, assertion - or at least explicit identification - of rights under any ongoing agreement were to be expected if the plaintiff's state of mind was as he now asserts.
[138] Affidavit of R Imam, Chronology, RI-1 p 238-9 reference to RAA.001.001.2234
[296]
[140] That is, he did not suggest the currency of a contract based on Purchasing Orders, which were at the core of the 2005 amendments, and of his subsequent claim.
[142] His professed concern is not substantiated by reference to any particular knowledge of the third defendant's personal circumstances. Affidavit of R Imam at [160]; Chronology, RI I p 238.
[150] It should be noted that issues which might have turned on findings about credit (the existence and authenticity of the deeds) have been resolved in his favour.
[153] If such ensues, it may be guided by the observations made by Bond J (as His Honour then was) in Speets Investment Pty Ltd v Bencol Pty Ltd No 2[2021] QCA 39 at [11]- [17].
[167] Mr Poole's approach was to not apply any supplier concentration discount. A supplier concentration discount is required to reflect the reduction to the pool of potential buyers for a store due to the licensing requirements from suppliers, and a general reduction to bargaining power.
[312]
[168] It is accepted that the document was not signed on this date, but as already noted, I do not find it necessary to traverse all of the irregularities in the evidence about the production of this document.
[313]
[169] Life (China) Company Limited and Guangzhou Life Trading Company Limited.
[40] The third defendant says that the only copy of this "four-page agreement" was kept by the plaintiff and that it is no part of the evidence in this proceeding.[42] He does allow, however, that the effect of that agreement was that the plaintiff would be paid 10% of the gross sales made by this IT store for so long as it was in operation.[43] The 2004 Consultancy Agreement had the same effect.
[41] The third defendant does not believe he saw the 2004 Consultancy Agreement until he received a letter from the plaintiff's solicitors on 15 December 2016.[44] He also points to aspects of the evidence which suggest that it is unlikely that documents were completed and signed as averred by the plaintiff and his wife. These include inconsistencies as between the signature on the document and the signature that he was in the habit of using in or about 2004.[45]
[42] Similar controversy attends the authenticity of the 2005 Varied Consultancy Agreement. The plaintiff, for whom its existence is indispensable, says that two copies of this agreement were signed on 18 July 2005. One was kept by the third defendant, the other retained by the plaintiff and lodged with his solicitor "for safe keeping".[46] It was returned to the plaintiff only when he started to pursue this claim.
[43] For a long time the third defendant denied ever signing the 2005 Varied Consultancy Agreement, but eventually disclosed a signed document that looks a lot like it. He asserts, however, that this document was the only copy signed, and that he told the plaintiff he would not provide it to him until he received legal advice.[47] He says that, subsequently, they made a different agreement altogether.
[44] These conflicts would resolve easily enough if it was open to rely on sworn evidence from either party.
[45] There are, however, reasons to be wary of the evidence given by both.
[46] As noted, once the impossibility of his claim that the 2004 Consultancy Agreement was signed on 6 January was established, the plaintiff volunteered a version of events in which it was signed on 17 February 2004. That is an important inconsistency. Concerns about the reliability of the plaintiff's evidence are compounded by conclusions reached below (see [173]-[179]). The plaintiff's evidence cannot establish any proposition, even if only on the balance of probabilities, unless it is supported by logical inference or other evidence that is reliable.[48]
[47] For that purpose he points to the evidence of his wife. Mrs Imam said, and may believe that she witnessed the third defendant's signature, but she could not say when or where.[49] Her signature appears on the same page as the signature of her husband, but not on the same page as the signature of Mr Mak. I do not doubt that, having seen her printed name and signature on page 12 of the exhibit, she believes that she witnessed the third defendant's signature. Her honesty is accepted, however her evidence on this point was insufficiently convincing to tip the balance in the plaintiff's favour.
[48] Even more serious criticisms can be made of the evidence given by the third defendant. Every allowance must be made for the fact that English is not his first language and for the difficulties that were experienced in taking his evidence by way of a video link from Hong Kong. However there was a pattern of evasion which emerged at once, and kept developing as he gave his evidence. It was disconcerting. [50] In his case, as in the plaintiff's, his testimony should be put to one side unless confirmed or supported by other evidence or obvious inference.
[49] The plaintiff attempted to resolve the stand-off by obtaining evidence from a handwriting expert in order to propound the legitimacy of the agreements.
[50] That evidence was not as compelling as it might have been, and the defendants made some inroads into it.
[51] It was not, however, contradicted by any other expert and, on this issue at least, it began to incline the balance of probabilities in favour of the plaintiff's assertion that the third defendant signed the agreements.
[52] The plaintiff also contended that it can be inferred from numerous items of correspondence (summarised in a chronology exhibited to the plaintiff's affidavit) that the defendants acknowledged an obligation to pay the Consultancy Fee that was prescribed in the _2_005 Varied Consultancy Agreement,[51] and that a similar conclusion can be drawn by reference to various financial records.[52]
[53] This argument then fell entirely in favour of the plaintiff because of the unchallenged evidence of the solicitor who was at the relevant times acting for him.
[54] This solicitor did not draft the 2004 Consultancy Agreement, but he swore that it was drafted by the "corporate team" at the firm for which he then worked. He understood the need to ensure that the drafting accorded with the plaintiff's instructions. He was not present when the agreement was signed, but his usual practice was to request fully executed copies of such documents, and he does recall seeing an "original signed consultancy agreement here in Brisbane".[53]
[55] Similarly, whilst this solicitor did not recall exactly when it was that the plaintiff instructed him to draft the 2005 Varied Consultancy Agreement, he did recall that this had in fact occurred. Again, he did not personally draft the agreement - the "corporate team" did that - but he did recall that the 2005 document "arose out of some changes that (the plaintiff) wanted to make to the original 2004 document."[54]
[56] The solicitor did not have a recollection of having seen the original signed 2005 Varied Consultancy Agreement. However, it was his practice to ensure that important documents were duly signed before he closed a file. A scanned copy of this version of the agreement was, at the plaintiff's request, sent to him. From this evidence it can be concluded that, even if it was only in the form of a "copy", the varied agreement did exist in 2005.
[57] It is true that, if the third defendant did not sign either of the agreements provided in evidence by the plaintiff, and was not in fact aware of them, he could not be expected to explain the provenance of such a copy that purports to have his signature on it. He is not necessarily to be taken as asserting that the plaintiff has forged them,[55] and it was not put to the plainitff that he had.
[58] Realistically, however, that must be the defendants' position. In the context of this dispute, they are not the type of documents that could have come into existence any other way.
[59] From there, the plaintiff makes the dispositive point. If the third defendant did not sign the agreements as asserted by the plaintiff, it means that all those years ago, before there was any substantial dispute between the parties, the plaintiff had the foresight to have his solicitor's firm draft both agreements. He must then have gone on not only to forge the third defendant's signature, but also conscript his wife into pretending to be a witness to that signature, before returning to his solicitor at least a copy of the document which recorded this. This effort was, if the defendants are correct, expended on the whim that, any number of years hence, there might have been a need for not one but two Agreements of this kind. Curiously, whilst implementing this scheme, he made the decision not to attach the guarantee to the second agreement. The planning, calculation and subtlety involved is impossibly elaborate.
[60] Without these agreements the legal relationship was tenuous and there were reasons why both parties would have been willing to enter into them. The plaintiff was still doing valuable work for the third defendant. The Life China business began with one store,[56] but it had always been the plan to open further stores, and the plaintiff was still needed for that purpose.[57] The fact that the terms of the first agreement, on one view, weighed in favour of the plaintiff[58] was unsurprising in these circumstances. They were terms that the third defendant would have been willing to accept at that particular point in his business relationship with the plaintiff.
[61] On both sides, relevant recollections are flawed. However, the objective evidence establishes on the balance of probabilities that the third defendant signed the 2004 Consultancy Agreement, and the guarantee, and both copies of the 2005 Varied Consultancy Agreement. The documents that became exhibits 4 and 5 are what the plaintiff says they are - to contend otherwise is to defy the power of logical inference. Even if he had forgotten the details, the third defendant ought, on the evidence, to have made a reasonable concession on this point.
[69] It is theoretically possible (because almost anything is) that the plaintiff decided in 2005 that he did not require it. However, it is said, and I accept, that it is objectively unlikely that the plaintiff, once having obtained the benefit of a guarantee and indemnity as expressed in clause 10.2 would in the following year dispense with it. Functionally, the 2005 Varied Consultancy Agreement "varied" only Clause 5. [62] The significance of that alteration is discussed in detail below, but for current purposes the relevant proposition is that this (two subparagraph) clause was effectively the only change in a document that otherwise purported to be an exhaustive statement of relations between the parties. This does suggest that its effect on the original agreement was intended as no more than an alteration made in order to facilitate the inclusion of Clause 5 and the terms relevant to that clause.
[70] It would have been logical to attach the guarantee to the 2005 Varied Consultancy Agreement. Its absence might do little credit to the document management skills of anyone (including the plaintiff) who could have ensured its inclusion. However, there was no evidence that the absence of a guarantee was a deliberate and considered omission.[63] The defendants' counsel was able to argue, reasonably, that the 2005 Varied Consultancy Agreement did look like an entirely new agreement, but a full appreciation of all the circumstances compels the view that it was a variation calculated to reflect a different payment arrangement for the purposes of OtherStock. There is no objectively rational commercial explanation that could provide a basis for the absence of a guarantee from the 2005 Varied Consultancy Agreement.[64]
[71] It may, given other conclusions reached below, have been unnecessary for me to decide the point, but the balance weighs in favour of the proposition (and I find that) the 2005 Varied Consultancy Agreement operates as a (significant) variation to the one that was executed in 2004. The guarantee would have taken effect had the defendants been found liable. The issue itself is moot, but I shall, when considering the issue of costs, be open to submissions about the relevance of this and any other point unsuccessfully taken by the defendants.
[88] It is true that the plaintiff selected the lines and advice about them was a Consultancy Service.
[89] However, once selected, lines became part of the Stock. And Stock meant items (of clothing and accessories), not labels. The agreement does not read as one in which it was open for the plaintiff to "set and forget".
[90] Without his approval of Stock, or at least his approval of the defendants' dealing with a Supplier who might provide Stock (of which the plaintiff still had to approve), the defendants would have been in the commercially nonsensical situation of attempting to conduct a fashion business in lines that had been selected by the plaintiff, but without items of Stock of which he had approved.
[91] It follows that the role played by the plaintiff in negotiating the agreement for Life China to sell the GZD line, which is the source of the fees he now seeks, cannot be decisive of anything. Even if he was the one who initially "approved" of the Business trading in that line, he has not approved the Other Stock in which Life China has traded since 2012. To be entitled to a Consultancy Fee calculated by reference to that trade, the agreement required him to do that.
[92] Another cornerstone provision of this - and any - agreement is the one that provided for consideration. Clause 5.2(b)(ii) of the 2005 Agreement creates a condition precedent to payment for Consultancy Service. It is the act of advice. Whilst supervis(ing) overall retail operations and having approved items for sale, the plaintiff became entitled to fees calculated by reference to purchases of Other Stock. These became payable after he performed the act of advising that a Purchasing Order had been placed, whether by him or (with his approval in writing) by someone else within the defendants' organisation. It is only by the act of advice that the plaintiff became entitled to the Consultancy Fees he now claims.
[93] It is accepted that, for the purposes of any debt or damages claimed in this action, no such advice was ever provided - as already noted there has been, during the relevant period, no communication between the parties at all, still less was there advice from the plaintiff as to Purchasing Orders that might have triggered an obligation to pay him.
[94] The plaintiff deals with this awkwardness by averring that Clause 5.2(b)(ii) only operated when a Purchasing Order had been placed by him. Since no other provision confers upon him the substantial right that he now asserts, he asks that this be done by reading into the agreement an obligation to pay him - notwithstanding the lack of advice - that arose within a reasonable time of the orders being placed. [83] He must (and does) submit that 5.2(b)(ii) is a clause that might, depending upon the circumstances, "have no work to do".[84]
[95] However, if confronted with the entire document, the reasonable business person would not so lightly attribute occasional otiosity to one of the only two sub clauses that recorded explicitly the basis for payment of consideration.
[96] This part of the agreement reasonably can - and, when read as part of the whole, should - be given some work to do.[85] A sensible construction does that. It was, from 2005, going to be the Purchasing Orders which were the basis for calculation of the payments to be made to the plaintiff for Other Stock. Consistently with a shared vision in which the plaintiff approved Stock and supervised overall retail operations, those payments became due within 7 days of the plaintiff providing the advice about orders that he had made himself or authorised the defendants to make.
[97] This means, on objective analysis informed by commercial reality, that an entitlement to Consultancy Fees arose only while the plaintiff was providing Consultancy Services, and in particular while he was supervising retail operations and approving Stock[86] that could become the subject of a Purchasing Order. If he wanted to be paid he had to advise that such order had been placed. Only this act of advice could keep the "stream" flowing. He did not provide it.
[106] The Consultancy Fees were of a different character, but the plaintiff's foundational role was also reflected in the agreements made about them. In 2004 they were linked directly and immediately to gross sales which derived from business activities and any payment for sale of stock.
[107] As noted, in or about late 2004 early 2005 Mr Mak is said to have conveyed to Mr Imam this current arrangement was too onerous. As a result, from 2005, there were two different types of Consultancy Fees. The existing arrangement continued for "IT" stock. A separate model was developed for "Other Stock". Eventually, GZD products would fall into that category. For "Other Stock" it was agreed[94] that the contract should be varied to 10% of stock cost rather than gross sales.
[108] This change left the agreement in a state that reflected the historical importance of IT Stock. As a proportion of turnover, payments referable to IT would be made to the plaintiff on a more favourable basis than that which applied to any other products. Objectively considered, this aspect of the agreement did in fact accord further recognition of the plaintiff's role in establishing the business.
[109] The plaintiff may now feel that, given the subsequent prosperity of a business that would not exist but for him, he has been rewarded insufficiently. He may feel that, notwithstanding the third defendant's early assurance, he was in fact "cut out". His chagrin might be understandable. His claim is not, however, some sort of equitable one. Nor is this some sort of intellectual property claim, in which an enduring entitlement to payment might be expected. The plaintiff sues upon the agreement and can claim only what he says would have been payable under that agreement. It was fair to argue that there should have been recognition of his role in establishing the business, but it must also be accepted that the agreement did in fact do that - as it reads, and without the need to conjure words which do not appear in it.
Development Fees
Consultancy Fees
[118] In sum, allowance was made, by the words contained in Clause 5.2(a)(iii) and Clause 5 (b)(iii) for the plaintiff's right to claim a fee to which he would have been entitled (because of a sale or a purchasing order placed) but had not received prior to termination. The reference to termination, as inserted at that point, does not alter the fundamental characteristics of the agreement so as to confer a right that existed in perpetuity.
[139] The situation is said by the defendants to be one in which the contract was abandoned. In the alternative, it is said that the same effect was achieved because either the plaintiff or the defendants repudiated or terminated the agreement, and the other party accepted. In practical terms the facts relied upon to establish repudiation and/or termination were part of the case made for abandonment. When pressed, the defendants submitted that this concept should be addressed first, and it is convenient to do so.
[140] The defendants are confined, in these proceedings, by the way in which this issue has been pleaded. Paragraph 1T of the second further amended defence averred that the defendants had not performed the 2005 Varied Consultancy Agreement since early 2008 and that the plaintiff had not performed it by, at the latest, March 2010. It also references the emails identified in [141](b) below.
[141] For those purposes of determining whether the defence is made out on that basis, relevant findings of fact include the propositions that:
[151] He was not, however, obliged to do that. He could, for his own reasons, simply walk away from the arrangement. His failure, during the email correspondence, to refer to the explicit terms of Clause 9 suggests that is what he chose to do at that time. It may be noted that in the email of 29 July 2011, the plaintiff did write that he had "never lost a friend because of money yet" and "was not about to do that". [127]
[164] Chasing fees owed does not, however, speak clearly to the plaintiff's state of mind about the future of the agreement. In context, scant ambiguity attended words like "goodbye". Common sense rebels[135] against the notion that these communications were anything other than final. In fact, the requests made for money were expressed in language which suggests that outstanding amounts were a loose end that had to be tied off in order to bring the business of the parties "to an end". It was something that had to be "settled" and "finalised". On the other hand, whilst even a hard edged commercial observer may have been moved by an expression of wishes for a "happy life" and the notion of "tears in eyes", they would then implement on the basis that these sentiments signified a last farewell.
[165] The alternative is that the language used did not mean that the agreement was "no longer", but reflected a decision made by the plaintiff to forego - for an indeterminate, but temporary period, the length of which was being left to guesswork - his right to a steady stream of income derived from efforts made by defendants, who must have been selling Other Stock that had not been approved by the plaintiff.
[166] The words in question cannot be tortured so as to yield this meaning. Especially is this so when, in these emails, the plaintiff made reference to neither the existence, applicability nor ongoing effect of the 2005 Varied Consultancy Agreement. He did not say he considered it still to be in force, or indicate that he might terminate it, with the consequence that he would be - so far as he was concerned - entitled to Consultancy Fees (indefinitely) and also to Development Fees (immediately). He did not express concern about the fact that the defendants had not, as required, provided him with the information he would have needed if he was to pursue a claim to entitlements under the agreement. He did not assert any existing right to continue to provide Consultancy Services nor did he reaffirm his willingness and ability to perform them. In fact, at no stage did he express hope that his specific brand of Consultancy Services were, or ever again would be, required.[136]
[167] Viewed against a background of relative and relevant inactivity, these communications provide a window into the minds of those who created them. Given the contents of the email of 14 January 2011 and the way in which the third defendant himself characterises the situation,[137] it can be said with certainty that the defendants abandoned the agreement by (no later than) May 2011. The plaintiff's position was made clear in July 2011. The mutual crystallisation of intention to abandon occurred no later than this. By then, both parties had formed an intention that further services would not be provided pursuant to the agreement - with the consequence that further payments would not be made under it.
[172] These are hollow explanations. If the plaintiff retained a subjective belief in the existence of the 2005 Varied Consultancy Agreement, and all that it offered him, then it is not open to accept that these issues would have offered such profound distraction as to prevent the existence of the agreement being raised at all. And even if the sincerity of his feelings about the third defendant's privacy is accepted, it is difficult concurrently to accept that they were felt so strongly and for so long as to explain the extreme act of self-denial involved in forsaking, for an extended period, all of the fees[143] that the plaintiff considered to be his due. There is nothing in the evidence that could justify that conclusion. The plaintiff's conduct for three years after 2011 does nothing to disturb, and serves only to support the conclusion that abandonment occurred at that time.