Insight Oceania Pty Ltd v Philips Electronics Australia Ltd [2008] NSWSC 710 | Case summary

Insight Oceania Pty Ltd v Philips Electronics Australia Ltd [2008] NSWSC 710 | Case summary | Zoe

50241/2007 INSIGHT OCEANIA PTY LIMITED V PHILIPS ELECTRONICS AUSTRALIA LIMITED JUDGMENT 1 On 24 November 2004 the plaintiff, Insight Oceania Pty Limited, entered into an agreement with Philips Medical Systems Australasia Pty Limited (PMSA), a division of the defendant, Philips Electronics Australia Limited, pursuant to which the plaintiff was appointed as PMSA's exclusive distributor of certain diagnostic medical imaging products in Australia and New Zealand (the 2004 Agreement). On 4 April 2005 PMSA assigned its rights and obligations under the 2004 Agreement to the defendant. On 16 June 2006 the parties amended the 2004 Agreement by a Deed of amendment (the Agreement). I will refer to the 2004 Agreement as amended by the 2006 Deed of amendment as "the Agreement". 2 This litigation arises out of the defendant's purported termination of the Agreement by Notices of Termination dated 18 December 2007 (the 2007 Notice) and 23 January 2008 (the 2008 Notice). The 2007 Notice purported to terminate the Agreement on the basis that the parties had not agreed in writing to a reasonably achievable sales goal for the calendar year 2008 referred to in clause 4.01 of the Agreement. The 2008 Notice purported to terminate the Agreement on the basis that the plaintiff had failed to meet its sales goal for the 2007 calendar year. 3 The plaintiff seeks declarations that the Notices are invalid and of no effect and an order that the defendant be restrained from terminating the Agreement on the basis of the Notices. The plaintiff also brought a claim for rectification of the Agreement. It also claims that the defendant engaged in unconscionable conduct within the meaning of s 51AC of the Trade Practices Act 1974 (Cth) (TPA) and misleading or deceptive conduct in contravention of s 52 of the TPA. The plaintiff seeks consequential relief under the TPA restraining the defendant from relying on the Notices; and an order disentitling the defendant from asserting that the 2007 Sales Goal was not achieved. There is also a claim for damages. The claims for rectification of the Agreement were abandoned on the second last day of the trial.

FDG is taken up preferentially by tissues that use glucose as their main energy source: malignant tumours and their metastases; myocardial cells; and neural tissue. Because of its efficacy in imaging glucose metabolism, the major clinical applications of FDG PET are in oncology, cardiology and neurology, with around 80% of PET examinations in Australia currently being performed in oncology. 5 In March 1997 limited Medicare Benefits Schedule funding became available for the evaluation of PET. That funding was limited to the PET units at the Royal Prince Alfred Hospital (RPAH) in Sydney and Austin and Repatriation Medical Centre in Victoria (the Austin), to enable the development of an evidence base for PET in relation to its impact on a limited range of indications in oncology, neurology and cardiology. By mid-1999 the arrangement had failed to produce the level of evidence required to satisfy the requirements of the Commonwealth Government's evidence-based approach to funding for health services. 6 As at 2000 there were four established providers of PET services in Australia being at the RPAH in New South Wales; the Austin in Victoria; the Centre for PET at the PMCI in Victoria; and at the PET Centre at the Wesley Hospital in Queensland. At the time of the events giving rise to this litigation there were an additional nine established providers for PET services using dedicated PET technology being: Liverpool Hospital; Newcastle Hospital; St Vincent's Hospital and Westmead Hospital in New South Wales; Peter MacCallum Cancer Institute and the Monash Medical Centre in Victoria; Royal Brisbane Hospital in Queensland; the St Charles Gairdner Hospital in Western Australia; and the Royal Adelaide Hospital in South Australia. 7 The complex arrangements between Commonwealth and State governments in relation to funding for capital works for the establishment of a PET centre and for access to Medical Benefits Schedule rebates has seen a fairly slow development of PET technology in Australia. Under the Health Insurance Act 1973 (Cth), the Minister for Health may determine that a health service not listed in the Medicare Benefits Schedule shall be treated as if it were so listed in certain specified circumstances and for specified statutory provisions. 8 On 6 December 2005 the then Minister for Health and Ageing made a Determination under the relevant section of the Health Insurance Act being Health Insurance (Positron Emission Tomography) Determination HS/07/05. That Determination remained in force until midnight on 31 October 2007. Clause 4(3) of the Determination was in the following terms:

(b) buildings, where public access between the buildings is by way of a covered pedestrian walkway; where each of the following services is provided (whether or not other services are also provided) (i) PET: (ii) computed tomography; (iii) x-ray; (iv) diagnostic ultrasound; (v) medical oncology; (vi) surgical oncology; (vii) radiation oncology; and (viii) neurology. 12 That Determination applied at an accredited site in a comprehensive facility (clause 5(1)(a)(iii)). The Schedule of Specified Health Services to that Determination remained the same as the previous Determination. The parties 13 The plaintiff commenced operation in December 1998. The directors are John Walstab (managing director), Andrew McDonald and James Hewlett. Mr Walstab has a Certificate of Technology specialising in Electronic Instrumentation from Royal Melbourne Institute of Technology in Victoria. He has been the managing director of the plaintiff since 4 December 1998, responsible for the overall operations and financial performance of the business. Mr Walstab has worked in various management positions with a number of medical imaging suppliers. He was a Sales Manager for Advance Technology Laboratories (ATL), a subsidiary of the defendant, for the period 1990 to 1996 and General Manager for ATL in the period 1996 to 1999. 14 Mr McDonald has approximately 20 years experience in the nuclear medicine market. He holds a Diploma in Nuclear Medicine Technology from the Michener Institute, Toronto, Canada for which he obtained reciprocity when he migrated to Australia in 1990. He has routinely attended and presented at lectures and seminars in Nuclear Medicine and PET technology. His role with the plaintiff is in the marketing, sales and after sales support management of products that the plaintiff represents for the defendant. In this role Mr McDonald is responsible for setting sales targets, negotiating budgets with the defendant, approving marketing expenditures to support the defendant's products and managing the sales team selling the defendant's products. 15 Mr Hewlett has a Bachelor of Science degree in Electronic Engineering from DeVry Institute of Technology in North America. He has also completed courses in Customer Communications, Sales Marketing and People Management and routinely attends lectures and seminars on Nuclear Medicine and PET, both locally and internationally. Mr Hewlett has been a director of the plaintiff since 2005. Prior to that he was an owner-manager of the plaintiff from the establishment of the company in 1998. He has had 18 years experience in the nuclear medicine and PET market, locally and internationally. His role with the plaintiff includes: over-viewing sales performance and management of the sales team; generating sales opportunities; negotiating sales agreements and terms; completing sales contracts; liaising with product suppliers; handling customer "issues and feedback"; monitoring product and product developments; and overseeing the company's financial performance and management of significant assets and liabilities. 16 The Philips Group is a multinational group of companies, which has its head office in the Netherlands. The Group develops, manufactures and services healthcare, lighting, office and other products. The operations of the Group are divided on a regional basis in West Europe, East Europe, the Americas and Asia-Pacific. Each regional office reports to the head office in the Netherlands. The defendant is responsible for operations in Australia and New Zealand. It is a wholly owned subsidiary of Royal Philips Electronics NV, a company incorporated in the Netherlands. It sells products manufactured within the Group and provides engineering support for those products in Australia and New Zealand. It reports to the Asia-Pacific regional office, which is a separate corporate entity registered in Singapore known as Philips Electronics Singapore Pte Ltd. 17 The personnel of the defendant involved in the events giving rise to this litigation are: Harry van Dyke, the CEO of the defendant; Eric Le Bail, General Manager of Sales and Marketing; Phillip Prather, Business Manager - Imaging Systems; Michael Paholski, Business Development Manager - Nuclear Medicine; and Ian Chalmers, Legal Counsel and Company Secretary. Alister Wayne Spittle, who is the CEO and Senior Vice-President of Philips Healthcare MCR APAC, was formerly the general manager of the defendant. He left that position in April 2006 to take up the role of General Manager and Vice President of Philips Medical Systems Asia Pacific in Hong Kong. He resided in Hong Kong until May 2006 and then transferred to Singapore in October 2007. 18 Mr Paholski is the manager responsible for nuclear medicine imaging systems for Australia and New Zealand and health care informatics, being medical imaging archive and patient information systems. He commenced work in that position in January 2007. He holds a graduate certificate in business management from the University of Tasmania. Mr Prather accepted that both Mr Hewlett and Mr McDonald had many years of experience in the nuclear medicine market in Australia and that he had "very little experience" in the Australian PET marketplace (tr 261). Indeed he accepted he was a comparative "babe in the woods". 19 Mr Paholski's position in relation to the respective expertise of those within the plaintiff was more reticent. He gave the following evidence (tr 426-427):

Should the Variable angle camera Brightview not available for delivery before July 2007, the targets shall be reduced by $520,000. 28 The plaintiff's exclusive "TERRITORY" was Australia and New Zealand. 2007 Notice - Competing claims 29 The plaintiff claims that the defendant was obliged to act reasonably in exercising its entitlement to terminate the Agreement under clause 4.01. It was submitted that the defendant was not entitled to require agreement to a sales goal that was not reasonably achievable, particularly because of the important consequences for the plaintiff. The defendant submitted that all the defendant had to do was to "commence discussions", which, it was submitted, could be done unilaterally by promoting a particular figure to the plaintiff as a sales goal. It was submitted that thereafter if the parties did not agree in writing to a sales goal that obviously had to be reasonably achievable, the defendant was entitled to elect to terminate the Agreement. 30 The plaintiff claimed that the defendant put forward a figure that it knew was not reasonably achievable and refused, unreasonably, to budge from that figure. It was submitted that in those circumstances it was not entitled to elect to terminate the Agreement. It was submitted that a pre-requisite to such entitlement was engaging in a co-operative manner with the plaintiff to agree on what was reasonably achievable and that it failed to do so. Additionally it was submitted that the defendant was required to negotiate in good faith with the plaintiff to agree on what was reasonably achievable and it failed to do so. In those circumstances it is claimed that the defendant was not entitled to elect to terminate the Agreement. There are also claims that the defendant acted unconscionably and misled or deceived the plaintiff during the discussions in relation to the setting of the sales goal. It is claimed that such conduct disentitled the defendant from electing to terminate the Agreement. 31 There is an alternative claim that the plaintiff did agree in writing to a reasonably achievable sales goal. That claim is based on a letter dated 17 December 2007, the detail of which is referred to below, which includes the statement: "We can accept the 2008 sales goals with conditions based on market conditions". It will be necessary to analyse that statement in the surrounding circumstances of the final days and hours of the "discussions" in December 2007. 32 There is a real issue between the parties as to whether the sales goal proffered by the defendant was reasonably achievable. Indeed the plaintiff claimed that the defendant intentionally set a sales goal that it knew was not reasonably achievable for the purpose of ensuring that no agreement in writing would be reached by the required date so that it could terminate the Agreement. The plaintiff claimed that as early as May 2007 the defendant had considered the option of distributing its products directly to the market and that its conduct in the latter part of 2007 was aimed at achieving the termination of the Agreement so that it could sell the Products direct to the market. 33 The defendant claimed that it honestly believed that the 2008 sales goal it proffered to the plaintiff was reasonably achievable. It is therefore necessary to analyse the relevant background facts and circumstances leading up to the commencement of discussions in late 2007, the setting of the sales goal and the election to terminate the Agreement. The defendant's claim of honest belief in the sales goal is based in the main on the evidence of Mr Paholski and it will be necessary to review his consideration of various aspects of the market to reach his claimed belief that there would be what he described as a "PET surge" in 2008. January 2007 34 In January 2007, Mr Paholski suggested to Mr Le Bail that he be considered for a dual role in operations management for Healthcare Informatics as well as nuclear medicine. Mr Paholski advised Mr Le Bail that he had experience in nuclear medicine and would like the opportunity to manage a distributor. The job description provided to Mr Paholski included the following:

46 Mr van Dyke asked Mr Paholski to prepare "an overview of the nuclear medicine market" and the defendant's position in the market. He asked Mr Paholski to put together a review that summarised the market and the defendant's "opportunities and options". Mr van Dyke instructed Mr Paholski that nothing "too detailed" was needed and that he just wanted a review that covered the business "as a whole including sales, marketing and customer service". Mr van Dyke asked Mr Paholski whether he could have the report by the end of the month because he wanted to get an understanding of the business. 47 On 28 April 2007 Mr Paholski attended the ANZSNM meeting on the Commonwealth PET Data Collection Project. The data that was analysed at that session had been collected between 1 March 2003 and 15 April 2005. It was reported that the data unequivocally demonstrated the significant impact of PET on management and outcomes in patients with suspected recurrent colorectal cancer and that it was the preferred imaging technique in the management of patients with suspected recurrent ovarian cancer. Mr Paholski claimed that when he left the meeting he had the impression that there was a consensus within the medical community that PET was a superior diagnostic and imaging tool which could substantially change the way in which patients were medically treated, resulting in better outcomes for patients and more cost effective procedures for operators. 48 Mr Paholski did not make any mention in his statement of evidence of a discussion with Mr McDonald at this scientific meeting in relation to the matter of blaming the defendant for the delay in service and delivery of various parts. Mr McDonald dealt with the discussions he had with Mr Paholski at the scientific meeting in his statement of 2 June 2008. Mr McDonald agreed that at the time of the meeting there was a consensus in the Australian medical community on the clinical efficiency of PET scanning, however he claimed that this consensus arose many years prior to that meeting and that the information was not new. In a conversation with Mr Paholski at the meeting in relation to the information, Mr McDonald informed Mr Paholski that this information had been known for some time and that the reason the research was undertaken was that the Federal Government required the information to be validated locally. May 2007 49 Mr Paholski gave evidence that during the ANZSNM meeting on 1 May 2007 he met with Young Chun Kim (Mr Young Chun), from the defendant's associated company in Singapore to which the defendant reported, and Olivier van der Borght from IBA, a manufacturer of cyclotrons. Mr Paholski claimed that Mr van der Borght advised him that IBA was expecting three cyclotron orders in Australia for Adelaide, Nepean and the Brain and Mind Institute (BMRI) in 2007. Mr Paholski claimed that he understood from this meeting that there was an "increased chance" of PET and PET/CT activity in Australia associated with those three cyclotron orders. He also said that he was aware that the plaintiff was the distributor for IBA. On 3 May 2007 Mr Paholski reported by email to Mr Le Bail that:

I-Med are investing in MR selectively (as we are witnessing) as well as wanting to install about 6 PET/CT's on the back of recent Federal Government decisions. I-Med have also submitted a paper to the Fed on PET/CT expansion and support. Interestingly, I-Med would like us to consider working up a finance package on to fund the PET/CT purchases. This change of strategy is to free up cash for growth and acquisition opportunities as well as improve their ROCE ratios. Gary is happy to have an open book discussion on the finance model. He is willing to commit to a period of time to cover the PET/CT costs but does not want them on the balance sheet of his organisation and wants to be able to have an operating expense only (rental) with no residual implications. We will need help on this one! 82 This email was not forwarded to Mr McDonald. Mr McDonald gave evidence that had it been forwarded to him, or had that matter been discussed with him he could have advised Mr Paholski that he had a meeting with Todd Donaghy, a regional manager of i-Med, in February 2007 and that Mr Donaghy advised him that although i-Med was interested in getting into PET/CT, its parent company CVC Asia Pacific, would not commit to purchasing machines unless and until a sound business case had been established. He would also have been in a position to inform the defendant that Mr Donaghy had advised him that a lot of the prospective sites that i-Med had in mind were not eligible for the MBS rebates and until the government funding changed or i-Med was able to find a partner, it was unlikely that any purchases would occur. This seems to be consistent with the suggestion in Mr van Dyke's email that what i-Med were looking for was a "rental" arrangement rather than an outright purchase. 83 In late August the New Zealand government announced its proposed spending on Research and Development in biotechnology. The defendant wrote to the plaintiff on 28 August 2007 enclosing the figures and suggesting they indicated "the potential for animal imaging" in New Zealand. On 29 August 2007 Mr McDonald suggested to Mr Paholski that a doctor from the University of Pennsylvania, Dr Karp, meet with a number of institutions to talk about the defendant's PET technology. Mr McDonald did not ask the defendant to sponsor the trip but rather to contribute to it as recognition of Dr Karp's stature in the defendant's product development. Mr McDonald suggested that the defendant might view this "as a great opportunity to have a research/developer ambassador in this part of the world". Mr Paholski gave evidence that this request suggested to him that there may be "substantial interest in, and opportunities for, PET/CT through 2008". 84 It was in late August 2007 that the Philip's Asia Pacific office set the defendant's Nuclear Medicine AOP for 2008. The NM AOP set an order intake target (OIT) of EUR5,517,000 which was EUR300,000 more than the NM AOP figure proposed in July 2007. The breakdown of that amount consisted of EUR2,981,000 in SPECT - SPECT/CT, EUR1,916,000 in PET - PET/CT and EUR619,000 in RTP products. The NM AOP set a sales target of EUR5,415,000. The breakdown of that amount consisted of EUR3,114,000 in SPECT - SPECT/CT, EUR1,916,000 in PET - PET/CT and EUR384,000 in RTP products. Mr Paholski gave evidence that the effect of the AOP was that the defendant's nuclear medicine order intake budget for 2008 was for orders to the value of EUR5,517,000 and for sales, being delivered systems, of EUR5,415,000.

Hawkes Bay Hospital in New Zealand is looking at a PET/CT. The New South Wales Department of Public Works [New South Wales Department of Commerce] would be looking at systems and we should prepare a bulk discount. The likely hospitals to get systems are Nepean, Prince of Wales, St George, Wollongong and Mater Newcastle. The bulk discount could be for four 16 slice time of flight systems and one 64 slice time of flight system. 86 Mr Paholski also claimed that Mr McDonald referred to the plaintiff possibly entering into a joint venture which would require a refurbished PET. During the meeting Mr McDonald provided Mr Paholski with a copy of the plaintiff's sales funnel. That was apparently the first sales funnel provided to the defendant which contained RTP prospects in addition to SPECT, SPECT/CT and PET/CT prospects. That sales funnel included the following in respect of PET: 2007 Pipeline USD AUD State End User Product order intake date required delivery date IVP end user price % buy % winComments / Issues NSW Nepean Hospital GMN2 DS Q4 2007 Q4 2007 < 8M 10 50%DOC obstruction to project viability NSW Prince of Wales GMN TF Q2 2008 < 3M 20 20%source funds, dept refurb, admin sign-off NSW Wollon gong Hospital GMN P16 DS Q3 Q4 2007 < 1M 50 50%waiting for providsion of service tender to fianlise QLD Mater GXL 16 ? ? 20 100%waiting for site to issue PO and dept refurb QLD PAH GXL 16 ~2.2M 35 50%waiting for funds for ongoing costs to be approved VIC MIA Moorabbin GMN TF Q3 Q4 2007 ~2.5M 30 33%replace older SMS Biograph, working up VIC Austin Health GMN TF Q4 Q1 2008 ~2xM 5 95%no increase to PET reabte, no monies for new camera VIC Austin Health Allegro DS Q3 2007 Q4 2007 $ 395,000.00 99 99%waiting for room to be refurbished to accommodate scanner VIC Alfred Hospital Gemini Q4 2007 Q2 2008 TBA 20 20%funding level not determined yet, site to tender for all options SA Flinders MC GXL 16 TBA gave up funding, need cyclo in Adelaide NZ ADHB GXL 16 Q4 2007 Q2 2008 TBA 10 33%awaitig gov't review of PET NZ TRG GXL 16 Q4 Q2 2008 TBA as above NSW St George Hospital GMN TF Q2 2008 TBA 10 33%System may be provided by Cyclopharma? NSW BMRI GMN TF Q2 2008 25 33%tender for services let, includes 3T MRI, CT, Xray, U/S and PET

I have supported the efforts of doctors from the Nuclear Medicine Department at Royal North Shore in their efforts to gain funding for this scanner. I particularly pay credit to Dr Paul Roach who I have met with to pursue this issue and who has been a very effective advocate for the need for this scanner. I am very grateful that Health Minister, Tony Abbott, has agreed to provide funding for a P.E.T. scanner to be purchased for our area. 101 On 9 October 2007 Mr Paholski sent an article from the New Zealand press to Mr McDonald entitled "Top x-ray scanners for NZ patients". That article recorded that up to 200 patients a year were sent to Australia for PET scans but that an Australian company, Cyclotek, intended to set up a facility in Auckland for a cyclotron and associated production laboratory. The article reported that a chief executive of a major hospital company in New Zealand claimed that this news would accelerate development of a business case to his Board to install a hybrid PET-CT scanner at a cancer centre planned for a hospital in Epsom. 102 On about 19 October 2007 Mr Paholski prepared a document entitled "NM Business review", a PowerPoint presentation in relation to the nuclear medicine market. Mr Paholski said that in this document he referred to the "deterioration of the business relationship" with the plaintiff and the provision of a "Contingency business plan" which summarised personnel requirements if the plaintiff ceased to be the defendant's distributor. Mr Paholski said that he prepared that plan "solely for the reason to demonstrate that a substantial increase in personnel would be required" if the business relationship with the plaintiff continued to deteriorate and the plaintiff ceased to be the defendant's distributor. Under the heading "Insight relationship status" the following appeared: · OIT driven - will not make AOP targets despite verbal agreement to Eric · No regular Funnel updates · No parts inventory provided · No PWC analysis · $100 K of account is in arrears by more than 120 days-parts disputes · No installed base update provided · Last-minute changes to SID (2 x Skylight) · High parts cost - P1 freight - logistics (sic) 103 In the section of the review entitled "Contingency business plan" five people were identified for "Sales/Marketing". Under the heading "Contingency" the following appeared: "Sales targets 2008 - review with Ian Thursday" meaning the in-house lawyer of the defendant Ian Chalmers. Mr Paholski's cross-examination about this document included the following (tr 479 - 481):

The notification sent to customers by Philips Medical Systems recently is currently in dispute and until a full resolution has been given, the court in agreement with Philips has ordered that all customer communications should continue to be with Insight. Insight regrets any confusion which may have been caused by previous correspondence and wishes to advise that Insight will continue to provide full support for sales and service of Philips Nuclear Medicine, PET and RTP products in Australia and New Zealand. 149 On 18 December 2007 Mr Young Chun from the Asia-Pacific office wrote to Mr Paholski asking him for an "update" on various projects and for the detail of any "potential sales of PET equipment in Australia" (tr 389). Mr Paholski responded to Mr Young Chun on 14 January 2008 by e-mail in which he advised that the current "timeline" for the defendant moving back into the Nuclear Medicine market was "uncertain". Mr Paholski enclosed a business plan formulated on the basis that the defendant would sell "directly into the market" around June 2008. The plaintiff relied heavily upon that business plan as evidencing Mr Paholski's true belief in respect of a PET surge in 2008. That business plan forecast only 3 sales of PET CT scanners in 2008, whereas the plaintiff's sales target was for 6 PET CT scanners. Proceedings commenced 150 These proceedings were commenced on 27 December 2007 and the parties have agreed to an interlocutory regime that maintains the commercial relationship for the time being. The matter was set down for hearing for 4 days commencing on 26 March 2008. On the first day of the hearing the plaintiff was granted leave to amend its Summons and Commercial List Statement and as a consequence, the matter was adjourned on 27 March 2007 and re-listed for hearing on 10 June 2008. The matter was finally heard on 10 to 12 and 16 to 20 June 2008 when Mr CRC Newlinds SC, leading Mr P Silver, of counsel, appeared for the plaintiff and Mr IM Jackman SC, leading Mr MR Elliott, of counsel, appeared for the defendant. The contractual relationship 151 The Agreement referred to the plaintiff as "DISTRIBUTOR" and the plaintiff accepted the appointment as the defendant's "exclusive distributor" to market and distribute the defendant's Products in the Territory, Australia and New Zealand. The defendant agreed not to sell its Products in a bundle, which included the "PRODUCTS" as defined, directly to customers in the Territory without the plaintiff's consent (cl 2.02). 152 The relationship was agreed to be that of "vendee and vendor" (cl 18). The parties expressly rejected any notion of agency, joint venture or partnership in their relationship. It was expressly agreed that the plaintiff was not appointed as the defendant's agent or representative and it was also expressly agreed that the plaintiff was not authorised to assume or create any obligation or responsibility on behalf of the defendant or in the name of the defendant (cl 18). Although the relationship is stated to be that of "vendee" (buyer) and "vendor" (seller), the parties agreed to terms that one does not usually find in commercial contracts between a buyer and a seller. This was a far more complex arrangement than that between a buyer and a seller of goods. For instance the plaintiff was obliged to give to the defendant information that would reasonably be categorised as confidential information. It was obliged to give to the defendant every four weeks, the names of third parties that it regarded as "active sales prospects". It was also required to provide to the defendant information about its competitors' products and activities. Importantly, it was also required to provide to the defendant the prices at which the plaintiff sold the products it purchased from the defendant to the end users. It was also required to provide to the defendant information relating to the volume of similar products purchased from other companies and the average selling price for those products (cl 5.07). There was no express restriction in the Agreement on the defendant on the use it could make of this information.

153 Prior to the amendment to the Agreement in June 2006, clause 3.02 provided for automatic renewal of the Agreement at the time the parties agreed in writing to the sales goal. Clause 3.02, as amended in June 2006, provided for automatic renewal unless: (a) the plaintiff failed to meet its sales goals; and (b) the defendant elected to terminate the Agreement because of the plaintiff's failure to meet its sales goal. If the defendant elected to terminate the Agreement on this basis it was required to give the plaintiff 90 days notice in writing on or before 28 February of the year following the calendar year for which the sales goal was not met. At the time the Agreement was amended in June 2006, the parties agreed to give the defendant an additional basis upon which to terminate the Agreement. That additional basis was the failure of the parties to reach an agreement in writing on a reasonably achievable sales goal for the following term by no later than 15 December. If the defendant elected to terminate the Agreement on this basis it was required to give the plaintiff 90 days written notice of that election prior to 31 December. 154 The parties were required to commence discussions by no later than 1 November, to set what was described as an "appropriate" sales goal for the following year. I have no doubt that the parties intended that the "appropriate" sales goal was one that was "reasonably achievable". There was no mechanism set out in the Agreement by or against which the parties were to measure what was reasonably achievable. Clause 5.07 of the Agreement, requiring the provision of sales reports by the plaintiff, had remained unchanged from the time the parties entered into their commercial relationship. It was not amended at the time of the Deed of amendment in June 2006. There is no evidence that the defendant required the plaintiff to produce such sales reports until Mr Paholski introduced the "sales funnel" which then only required some of the information as set out in clause 5.07(a) of the Agreement. The sales funnel did not include any of the matters referred to in clause 5.07(b), (c), (d), (e) or (f).

It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract. 162 The duty to co-operate does not rise above the promises made by the parties to the contract and "cannot over-ride the express provisions of the contract": Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 per Sheller JA (with whom Powell and Beazley JJA agreed) at 368. 163 Mr Jackman submitted that the only thing that the parties agreed upon relevantly was that they would "commence" discussions to set the appropriate sales goal. It was submitted that clause 4.01 did not require both parties to act and that discussions can commence unilaterally with one party putting something to the other, which the other party receives. It was further submitted that the only co-operation necessary was to actually receive the document or oral expression about the sales goal. The word "discuss" is defined as: "to examine by argument; sift the considerations for and against; debate; talk over". The word "discussion" is defined as: "the act of discussing; critical examination by argument; debate": The Macquarie Dictionary Federation Edition, The Macquarie Library (2001). 164 Followers of the art of didacticism may well embrace Mr Jackman's concept of "discussion", but it was not what these parties intended. It seems to me to ignore the commercial reality of the relationship between these two parties. To simply send off a figure to the other side, without more, would not satisfy the requirements of clause 4.01 of the Agreement, irrespective of any implied duty to co-operate. The parties agreed they would commence discussions about the appropriate sales goal by no later than 1 November for the obvious purpose of trying to reach agreement by 15 December. The fact that the Agreement used the plural form of the word (discussions) suggests a process of discourse between the parties as they debated what would be "appropriate" in the circumstances. It was not simply a matter of one party wanting a figure and the other wanting a different figure. The use of the expressions "appropriate" and "reasonably achievable" provided a framework for the parties within which to hold their discussions. They had to co-operate with each other in providing their views on what each thought was reasonably achievable and in debating and considering the reasons why such goals were or were not reasonably achievable. 165 The parties did not intend that the discussions and considerations of what was "reasonably achievable" would occur in a vacuum. These parties had been in a lengthy relationship; were exquisitely aware of the restrictions placed on access to the Medicare Benefits Schedule rebates for PET procedures; were very conscious of the fact that the Federal election was to occur on 24 November 2007; were very conscious of the uncertainties in relation to what would occur in respect of funding for PET either under a returned Federal Government or a new Federal Government; and had access to the previous history of increases in the sales targets over the period of their relationship. The wording of clause 4.01 leads me to the conclusion that the parties intended that they would consider all the relevant surrounding circumstances at the time, including the matters just mentioned, in their discussions in trying to reach an "appropriate" and "reasonably achievable" sales goal. 166 Mr Newlinds submitted that it was important to observe that the parties chose to use the word "discussions" in clause 4.01 as opposed to the word "negotiations". The definition of "negotiate" includes: "to treat with another or others … in preliminaries to a business deal": The Macquarie Dictionary Federation Edition (2001), The Macquarie Library. The concept of a negotiation has a more formal character than the concept of a discussion. Indeed as Wallace JA said in Empress Towers Ltd v Bank of Nova Scotia (1991) 50 B.C.L.R 126 at 135: "In the viewpoint of some negotiators, one is expected to commence negotiations by presenting an extreme position and then, in a series of meetings, gradually withdraw to a more reasonable position". 167 The word "discussions" in clause 4.01 and in the context of the Agreement as a whole, suggests that these parties were to conduct themselves differently to parties in "negotiations". This was a commercial arrangement that allowed one of the parties, the defendant, to have access to most confidential information of the other, the plaintiff. I am satisfied that the parties intended that the process under clause 4.01 was to lack formalism and proceed co-operatively with each party providing proposals and responses as to what they believed was reasonably achievable, having regard to all the circumstances relevant to the sales goal being reasonably achievable. I do not think that it is necessary to imply a duty to co-operate in this regard, because I am of the view that it is clear from the express provisions of the Agreement that this is what the parties intended. If that is wrong then, in all the circumstances, it would be appropriate to imply a duty of co-operation on the parties in the process of their discussions for the purpose of reaching an appropriate and reasonably achievable sales goal so that each party could have the benefit of the Agreement. 168 The second aspect of this alleged implied term is the implied duty to act in good faith. The variety of opinions in both the authorities and commentaries in relation to the implication of a duty of good faith in commercial contracts has been described as "bewildering": Council of the City of Sydney v Goldspar Australia Pty Limited (2006) 230 ALR 437 at 498 par [166]. Unfortunately, Chapter 2 "Good Faith", of the most recent edition of Contract Law in Australia, 5th Ed, Lexis Nexis Butterworths, Australia (2007), now co-authored by JW Carter, Elisabeth Peden and GJ Tolhurst, exacerbates the situation. The authors have declared that [2-01]:

The implication of a term [to act in good faith] by operation of law, applicable across the whole spectrum of the law of contract, is a major step. Further, in deciding to take any such step it is now idle to speak to "the law of contract" without a real appreciation of the deep impact in Australia of various statutory regimes, one of which, of course, gives rise to a most substantial body of work in this [Federal] court, and has done so now for many years. 175 In Pacific Brands Sport & Leisure Pty Limited v Underworks Pty Ltd, Finkelstein J did not take the "major step" of the implication across the whole spectrum of the law of contract but limited it to "commercial contracts": at [64]. The appeal from his Honour's decision was dismissed (2006) 230 ALR 56. The Full Court of the Federal Court (Finn and Sundberg JJ; and Emmett J) did not deal with this point, other than Emmett J simply referring to his Honour's finding (at 105). I came to the conclusion in 2006 that commercial contracts are not a class of contracts that, as a legal incident, have an implied obligation of good faith: Australian Hotel Association (NSW) v TAB Limited [2006] NSWSC 293 at [78]. I remain of that view. As Gyles J said in Council of the City of Sydney v Goldspar Australia Pty Limited at 499 par [168]: "The best way for a single judge to travel through this thicket is to concentrate upon the particular contractual provision in question, the particular contract, in the particular circumstances of the case". 176 One matter that suggests that the parties in the present case intended that they were to act in good faith during these discussions is the fact that the plaintiff was required to provide the defendant with the confidential information pursuant to clause 5.07 of the Agreement without any express limitation on its use by the defendant. The plaintiff was dependent upon the defendant acting in good faith and not misusing the confidential information. The defendant was dependent upon the plaintiff to provide accurate information to it. The defendant did not have any entitlement to check the books and records of the plaintiff and had to accept the material provided to it by the plaintiff. The plaintiff was the only party that knew what the prospects for future sales were by reason of its dealings with third parties in the market. The plaintiff had an obligation to make an honest assessment of the likelihood of sales when it completed the sales funnel and placed the figure in the percentage column for a "win". It was obliged not to place a lower percentage in the sales funnel for the purpose of ensuring a lower sales goal. Such a practice was referred to as "sandbagging", an expression used by Mr Paholski in his e-mail to Mr Le Bail in respect of his suspicions about Mr McDonald's assessments. 177 The purpose of the provision of this information in the circumstances of commercial relationship between these parties was so that the defendant and the plaintiff could together, during their discussions, make a proper assessment of the market for the purpose of reaching an "appropriate" and "reasonably achievable" sales goal for the next year. If the parties did not act in good faith in this process the contract would lack business efficacy. It really goes without saying that in this process of discussion, with the use of the confidential information and with the very important consequences of the process, the parties were to act in good faith. Such a term is most reasonable and equitable in the circumstances, does not contradict any express term and it is capable of clear expression - that in their discussions in relation to the sales goal for the following year the parties would act in good faith: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282-3; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347.

The shortage of facilities is due to cost, highlighted in the current debate between Federal and State governments regarding the Medicare rebate for PET procedures which in turn affect State funding to build new PET facilities. 196 The Siemens media release announced that the two cyclotrons at ANSTO would allow ANSTO to produce other short-lived isotopes for research while ensuring a consistent supply for clinical patients. 197 Another matter that Mr Paholski said that he took into account in reaching his conclusion that there would be a PET surge was the ABC's website article which reported that the Federal Government was "considering" funding more PET machines. Another matter that Mr Paholski relied upon was an email from Mr McDonald in July 2007 confirming that Lake Imaging was considering setting up a private PET/CT service in Geelong. A further matter was the plaintiff's proposed symposium in New Zealand which had 40 people register within 24 hours. Mr Paholski also emphasised his reliance upon Mr McDonald's statement (denied by Mr McDonald) at about this time that the plaintiff was expecting a funding change for the better in Australia for PET. 198 The PET symposium held by the plaintiff in Auckland in August 2007 included a presentation by a director of strategic policy in the Commonwealth Department of Health, Alison McAuslan. That presentation was entitled "PET Funding and Implementation, The Australian Experience". The presentation included the historical context for PET funding in Australia including the funding models that had been used. Ms McAuslan made the point that in considering public funding for PET, the Government had to address two components. The first was that the indications had been assessed as safe, cost-effective and clinically effective and to determine both clinical effectiveness and cost-effectiveness it was important to assess the technology on an indication by indication basis. The second component was that it had to consider what, if any, assistance the Government should provide for the capital costs of the technology. 199 Ms McAuslan's presentation included the following:

All of these factors will mean the need for increasingly sophisticated - and therefore probably expensive - equipment and well trained physicians as well as an increasing number of sites. The implication may well be very significant to the Australian government if there is rapid uptake of this technology. 201 Mr Prather admitted that he and Mr Paholski informed the Asia-Pacific office that whilst there had been "some suggestions of a change in the market in Australia because of changes in government policy, it would not be safe to bet on those for the purpose of a target" (tr 323). Mr Prather sought to qualify this admission on the basis that it occurred in August 2007. This is of course prior to the meeting of 10 September 2007 at which Mr Prather alleged Mr McDonald spoke about the additional licenses, a claim which I have rejected. 202 In final written submissions the defendant carefully analysed the evidence of Mr McDonald, Mr Walstab, Mr Paholski and Mr Hewlett to submit that each held the view there was a reasonable or good prospect of changes occurring to the Medicare reimbursement arrangements. There is overwhelming evidence that everyone involved in this case was hoping there would be a change in the Medicare rebate for PET procedures. However both Mr Paholski and Mr Prather made the sensible observation that it was not appropriate to set a sales goal on such a hope or on government promises during election campaigns. 203 The defendant's written submissions also emphasised Mr Walstab's statements that the PET market is "dynamic" and there can be different perceptions as to "who buys, when they buy, and the time they buy; so it can be quite subjective as to when an actual sale will happen". This statement was relied on in support of the submission that Mr Paholski's assessment of the proposed 2008 sales goal was subjective and based on appropriate material and information. I agree that such an assessment is, in part, subjective. It is true that Mr Paholski provided detailed evidence of what his thought processes were at the time that he made the assessment of what was "appropriate" and "reasonably achievable" for the plaintiff's 2008 sales goal. However what Mr Paholski was actually saying to others at the time that he claims he believed that the proposed 2008 sales goal was reasonably achievable, in particular to Mr Young Chun in July/August 2007 and December 2007, is of significance. 204 I have no doubt that Mr Paholski wanted to terminate the defendant's relationship with the plaintiff. I also accept that his superiors were cautious in trying to temper what he was telling them on the basis that they understood that he did not like Mr McDonald and he had an aim to build his own empire. I am satisfied that the statements he made to Mr Young Chun demonstrate his true belief as opposed to one that has been constructed by way of analysis in this case. The statement in July/August 2007 is an important one because by this stage Mr Paholski had already informed his superiors of a "potential PET surge". Mr Paholski knew that the market was reasonably static when he wrote to Mr Young Chun and advised him that there was no "organic growth" in the market. This view obviously persisted because of his report to Mr Young Chun in December 2007 in which he proposed only three potential sales in the year 2008. 205 In final written submissions the defendant also dealt with the comparison between the 2007 sales goal and the proposed 2008 sales goal. It was submitted that a raw comparison of these figures was not a proper basis for finding that Mr Paholski and Mr Prather did not believe that what was being proposed for 2008 was "reasonably achievable". This was in response to some questions I asked Mr Paholski on the topic (tr 574). It was submitted that the evidence "showed that the matter is not to be judged simply by looking at the dollar figure". It is obvious that one does not deal simply with the comparison of the dollar figures. On the other hand it is a relevant factor to take into account in the circumstances when the same person who increased the plaintiff's sales goal by 177% was arguing with the company to whom the defendant was answerable that a 42% increase was not reasonably achievable and lacked logic. That is what is relevant for consideration rather than the mere dollar figures or comparative percentage increase. 206 The defendant submitted that in re-examination Mr Paholski confirmed that the defendant would have been most unhappy if a PET surge occurred in 2008 and Philips "lost market share". This submission is consistent with some of the defendant's evidence that it was concerned that if there were a PET surge the plaintiff would not go after it. I found this evidence and indeed the emphasis on Mr Paholski's re-examination in this regard at odds with the commercial reality of the defendant's position. This plaintiff has managed to put the defendant in a leading position in the PET market in Australia and New Zealand with a 60% market share. It would appear that the defendant was promoting the proposition that the plaintiff needed to have this huge increase in its sales goal to motivate it to "go after" a PET surge. Firstly it is not clear that such a mechanism would motivate rather than de-motivate anyone, especially this plaintiff. Secondly on the assumption that it may be a motivating factor, this plaintiff certainly did not need it. It had chased the market so well and indeed read the market so well that it had achieved the lead in the market share for the defendant.

217 It must be remembered that the Court is not being asked to determine what a reasonably achievable sales goal was as at the end of 2007 for 2008. Rather it is necessary to assess whether the defendant complied with its contractual obligations in the discussions pursuant to clause 4.01 of the Agreement. It is necessary to determine whether the defendant honestly believed that the sales goal was reasonably achievable. The sales goal was reliant on a PET surge in 2008 and therefore it is necessary to decide whether Mr Paholski honestly believed there was going to be a PET surge in 2008. 218 Mr Newlinds was able to expose the probable real reason for the creation of such a markedly increased sales goal for 2008 in his cross-examination of Mr Paholski. When Mr Paholski was "put on the spot" by his ultimate boss, Mr van Dyke, he told him he was "confident" that there would be a PET surge in 2008. However in cross-examination he gave evidence that as at 23 October 2007, when he told Mr van Dyke he was "confident", he was only leaning towards such a view. I have no doubt that at that time Mr Paholski was not confident that there would be such a surge, however he locked himself into a position from which he could not retreat. I am satisfied that at this time he held the view that he had published to Mr Young Chun, that there was no logical basis to increase the defendant's target by 42% in a market with no organic growth with the current product mix. I am of the view that he increased the plaintiff's target by 177% because he felt locked in after he assured the head of the defendant's Australian operations that he was confident there would be a PET surge. 219 The letter that Mr Paholski wrote to Mr Young Chun on 18 December 2007 in which he provided an "update" and the detail of any "potential sales" is also of importance in assessing Mr Paholski's true belief in respect of a PET surge. On that day Mr Paholski advised Mr Young Chun that there were only three potential sales of PET CT scanners in 2008. At this time Mr Paholski was anticipating the business coming "in house" because the notice of termination had been served that day. On one view, this would allow the defendant to increase its sales, however even taking a view that it may be more difficult with such a changeover and allowing a discount in the number of potential sales, the reduction from six to three PET scanners is certainly a very large reduction. I do not accept that Mr Paholski believed that the sales goal he set for the plaintiff was reasonably achievable without a rather drastic change in the access to the Medicare rebate. Such a change would have to occur in early 2008 to allow it to translate into sales within that year.

Q. Let me understand this: if he had written to you before 5 o'clock and said the words that are in the email that came through at 5.30 - odd that they could accept the target with conditions - to market conditions, would you have gone back and continued negotiations notwithstanding that 5 o'clock had come and gone after receipt of that fax? A. If he had sent written communication prior to 5 o'clock - it wouldn't have had to have been written. If he had and I had discussed them over the phone at that point in time, we may not be sitting here. 227 Mr Prather agreed that the plaintiff had written to him on 17 December 2007 but claimed that it could not comply with his requirements, because it arrived after what he had stipulated in his e-mail of 14 December 2007 as "close of business". Mr Prather suggested that "close of business" meant 5.00 pm because that was the time that the defendant's business closed. He also referred to the hours of 8.30am to 5pm in his contract of employment. It is clear that this multi-national group of companies, in particular the defendant, has business hours that stretch late into the evenings during the week and on the weekends when it communicates with other companies in the Group in the United States of America and in the Far East. Indeed Mr Prather's own email to Mr Hewlett in which he referred to the "close of business" was sent at 5.13 pm. The plaintiff's letter of 17 December 2007 was received by the defendant at 5.38 pm. Mr Prather's suggestion that the letter was not received by "close of business" was an unedifying aspect of his evidence. To suggest that an organisation such as the defendant would have its business closed at 5 pm is, in the circumstances of the evidence, without any foundation. If Mr Prather wanted to put a particular time frame on the plaintiff, he could have inserted an hour of the day by which the response was to be received. He did not do so and it is obvious that the receipt of the letter at 5.38 pm was not after close of business: see Jalun Pool Supplies Pty Ltd v Onga Pty Ltd [1999] SASC 20, Debelle J at [13] - [14]. 228 It is clear that there was consensus at the meeting on 14 December 2007. Mr Paholski's file note reflected that. Mr Hewlett's evidence reflected that. Mr Prather's evidence reflected that. If Mr Hewlett had been the person with "authority", he could have signed something at the meeting on 14 December 2007, however Mr Prather decided to send across the sales goal for someone "with authority" to sign off. I am satisfied that when Mr Hewlett left that meeting he thought consensus had been reached. This may explain the rather relaxed attitude he had to opening his email on 17 December 2007. 229 Once Mr Chalmers intervened with the letter that was totally inconsistent with what had been agreed, the plaintiff was put in a position where Mr Prather then demanded Mr Walstab, the person with "authority" to sign off, to do one of three things: accept the dollar figure as the sales goal; reject the dollar figure of the sales goal; or accept the dollar figure with conditions. Mr Walstab tried to discuss the conditions on the telephone. Mr Prather then adopted a position that he would not discuss the conditions on the telephone. He also refused to set a further meeting time to discuss the conditions and gave Mr Walstab a five o'clock deadline. I regard this conduct by the defendant as totally unconscionable in the circumstances. 230 The defendant submitted that the plaintiff never explained why it was that it did not propose conditions to the defendant in respect of the sales goal. It was submitted that the plaintiff knew from 2 November 2007 that the defendant was willing to consider making the sales goal contingent on market conditions. It is true that the plaintiff did not propose conditions in writing, however as I have found above, Mr Hewlett discussed the conditions at the meeting on 14 December 2007. I have no doubt that when the plaintiff received the defendant's letter of 14 December 2007 on 17 December 2007 with the defendant's markedly changed position, there was quite a deal of confusion. This was exacerbated by Mr Prather's rather combative approach in giving the plaintiff its three options and then seeking to impose a 5 o'clock deadline with a refusal to have a further meeting.

231 The letter of 17 December 2007 from the plaintiff to the defendant in which the plaintiff advised "we can accept the sales goal with conditions based on market conditions" was a confirmation in writing of the consensus that had been achieved at the meeting on 14 December 2007. Accordingly, albeit that those conditions were not written on the letter, the parties had reached agreement of a sales goal made reasonably achievable with the conditions referred to by Mr Hewlett in the meeting on 14 December 2007. Even if that is wrong I am satisfied that the defendant is not entitled to claim that the parties failed to achieve an agreement in writing. The defendant knew that the plaintiff had agreed to the third option - acceptance with conditions - but then it imposed inappropriate barriers of refusing to discuss it further on the phone and refusing to meet to discuss it further and imposing a 5 o'clock deadline. This was quite unconscionable conduct in the circumstances and was in breach of the obligation to co-operate and to act in good faith. 232 I am satisfied that the defendant is not entitled to rely upon the 2007 Notice. The 2008 Notice 233 On 8 November 2007 Mr Paholski wrote to Mr McDonald providing a "package purchase offer" for the RNSH "prospect". There were two offers within the package, the first was for a Gemini Time-of-Flight Performance 16 and Precedence 6 SPECT/CT. The second offer was for a Gemini Time-of-Flight Performance 16. That letter advised that the offer was "valid for a purchase order before December 31 2007". That reference to a "purchase order" was to an order notified to the defendant by the plaintiff. 234 The tension between the plaintiff and the defendant in respect of the availability of spare parts and the servicing of equipment had spilled over into the medical community in the RNSH. In an effort to persuade RNSH to purchase the defendant's equipment from the plaintiff the defendant agreed to provide a particular level of service directly to RNSH as a back up and/or an alternative to servicing by the plaintiff. On 20 November 2007 the plaintiff and the defendant entered into a memorandum of understanding in respect of RNSH in the following terms:

249 When the sales goal was agreed for 2006, the letter dated 24 January 2006 confirming that agreement deleted the expression "Booking Quantity" and replaced it with "Quantity". No mention was made in that letter of the definition of "booking". Six months later when the amendment was made to the Agreement in June 2006, the expression "Booking Quantity" disappeared and was replaced with the expression "Units". However, the definition of "booking" remained at the base of the table in Appendix A, notwithstanding that there was no term "booking" to which the definition could attach. In each of the documents identifying the Sales Goals for 2005 and 2006, there was a heading, "Sales Goal for each Product Line". That heading was not included in the letter of 30 November 2006 that set the Sales Goal for 2007. That is consistent with the amendment that was made to clause 3.02 in the middle of 2006 that it was "the total sales target rather than the individual modality targets" that was to be considered in determining whether the plaintiff had achieved its Sales Goal. 250 Although the actual sales goal for 2007 still included modalities and unit numbers, the express terms of clause 3.02, as amended in 2006, make it clear that in "determining whether the SALES GOAL has been met", the total dollar figure rather than the number of units was to considered. 251 The question is whether the parties intended to continue with the measurement of the plaintiff's sales goal by reference to the number of binding written commitments the plaintiff had from its customers, or some other measurement. There is nothing within the Agreement to suggest that it was some other measurement. During their relationship, the parties had proceeded on the basis that the plaintiff would place orders on the defendant to enable it to deliver the Products to the customer in a timely fashion. The evidence does not establish that in respect of each and every order the plaintiff placed on the defendant, it had a binding written commitment from a customer. However this has not been an issue prior to the 2007 sales goal and the parties have not had to look at the nature of the transactions until the transaction relating to RNSH at the end of 2007. 252 Although the express terms of the agreement developed in a most unsatisfactory manner in respect of the term "booking", I am satisfied having regard to the history between the parties and the commercial purpose of the Agreement, that is, the distribution of the defendant's product to customers, that the intention of the parties was that the plaintiff's sales goal would be measured by the "binding written commitments" the plaintiff received from customers in the particular year that was the subject of measurement. If that were not so, all the plaintiff would have to do would be to forward orders to the defendant at any time during the year for equipment that made up the total dollar amount of the sales goal. That would mean that the plaintiff would be able to stockpile equipment, a process that I am satisfied the parties did not intend. 253 The plaintiff made a further submission that, if it is the total dollar figure that has to be considered in determining whether the plaintiff's sales goal has been met, then the amount that should be considered is the amount at which the plaintiff sold the products to the customers, rather than the amount the plaintiff was obliged to pay the defendant for the products. There is no proper foundation for such a construction of the Agreement. The purpose of the commercial arrangement between these parties was for the distribution of the defendant's products to the customer. Part of that arrangement was an agreement that the plaintiff would achieve its sales goal by obtaining binding written commitments from customers in the marketplace. The defendant had no control over the price the plaintiff sold the product to its customers. The margin the plaintiff placed on the products for sale to its customers may have varied according to the commercial exigencies of the plaintiff's business. I am not satisfied that the parties intended that such an uncertain amount would be that which was to be considered in determining whether the plaintiff had achieved its sales goal. The plaintiff's submission in this regard cannot be accepted. 254 The next question is whether the plaintiff had a "binding written commitment" for the product the subject of the order. The first issue to be considered is the meaning of the expression "binding written commitment". The use of the word "commitment" instead of the word "agreement" seems to me to be of some importance. The meaning of "commit" in the context of this Agreement is to "pledge or bind (a person or an organization) to a certain course": The New Oxford Dictionary of English, (1998) Oxford University Press; or "to bind by pledge or assurance": The Macquarie Dictionary, Federation Edition (2001) The Macquarie Library. 255 The word "binding" in the expression "binding written commitment" seems superfluous from a technical definitional point of view, however it serves to emphasise that the parties intended that the measurement of the sales goal was to take into account something in writing from the customer that bound the customer to purchase certain products. It did not have to be a written purchase order, nor did it have to be a written contract for purchase, although of course each of those documents would qualify as a binding written commitment. So long as the plaintiff had something in writing by which the customer pledged or "committed" itself to purchase the product from the plaintiff, the plaintiff was entitled to have the dollar equivalent of the products that were the subject of the commitment considered when ascertaining whether its sales goal had been achieved. 256 The context in which the word "commitment" appears satisfies me that the parties used it intentionally to accommodate the way in which the nuclear medical equipment market operates. First of all the defendant must have product available or know that it has to manufacture the product to be available for the customer who has made a commitment to purchase it. From the customer's point of view there is a need to prepare a site for the installation of a PET machine including building works to accommodate the equipment. There needs to be advance planning and there may be different time frames from the date a party commits to purchasing product to the date the party places a formal purchase order for the product. The plaintiff did not have to wait for this latter event to place its order on the defendant.

257 The defendant submitted that the evidence establishes that there was no binding written commitment because Dr Roach did not have authority to bind the hospital. Dr Roach was addressing the topic of an "order". Although the email from Dr Bailey was addressed to parties additional to the plaintiff, including the defendant, it advised the plaintiff that "we", I am satisfied meaning RNSH, "have decided to purchase" the TF/64 PET/CT. I am satisfied that this communication was a pledge or a commitment by the customer to purchase the product. In all those circumstances the plaintiff was entitled to have the dollar equivalent of the "TF/64 time-of-flight PET/CT scanner" it placed on the defendant on 31 December 2007 taken into account in considering whether it had achieved its sales goal. 258 Mr Prather agreed in the evidence extracted above that he was aware that RNSH had acknowledged that it would proceed with the purchase. The commercially rational reason for the plaintiff to submit a purchase order was to take advantage of the price that was offered on the equipment that was to expire on 31 December 2007, but in any event it had a binding written commitment to purchase the product the subject of the order on the defendant. In my view the plaintiff was entitled to have the equivalent dollar figure considered in determining whether the sales goal had been achieved. 259 I am satisfied that the defendant is not entitled to rely upon the 2008 Notice because the plaintiff had achieved its sales goal for 2007. 260 The plaintiff is entitled to declarations and consequential orders that the defendant is not entitled to rely upon the 2007 and 2008 Notices. I am very conscious of the fact that the defendant no longer wishes to have the plaintiff as its distributor and notwithstanding an earlier unsuccessful attempt at mediation I wish to hear from the parties as to whether I should refer this matter to mediation prior to making final orders. I will also hear the parties on the issue of costs if they are unable to agree on a costs order. The matter is listed in the Motions List on 1 August 2008. ******************

Insight Oceania Pty Ltd v Philips Electronics Australia Ltd

At a glance

Court

Decision date

Before

Source

Judgment (671 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (10)

Cited By (7)