MacDonald Holdings (QLD) Pty Limited v Nikolas [2007] NSWSC 552 | Case summary

MacDonald Holdings (QLD) Pty Limited v Nikolas [2007] NSWSC 552 | Case summary | Zoe

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50035/05 MACDONALD HOLDINGS (QLD) PTY LTD & ORS v VIKTOR NIKOLAS & ORS JUDGMENT Introduction 1 The plaintiffs, MacDonald Holdings (QLD) Pty Limited (MDH), Green Eagle Projects Pty Limited (GEP), Ian Grant MacDonald (MacDonald) and his father, Ian Robert MacDonald, seek damages from the defendants, Viktor Nikolas (Nikolas), his father Petar Nikolas and their company Gwydir Erosion & Fabrimat Supplies Pty Limited (Gwydir), for fees claimed to be owing under a Licensing Agreement and under a Dry Hire Agreement (Hire Agreement) (the Fees). The plaintiffs claim that Gwydir wrongfully repudiated the Agreements by failing to pay the Fees and that the plaintiffs accepted those wrongful repudiations and terminated the Agreements. 2 The plaintiffs also claim that Gwydir, and Nikolas and his father as directors of Gwydir, represented that: (1) Gwydir had the capacity to perform the Agreements when it did not; and (2) Gwydir by itself, or supported by Nikolas and his father, had the financial capacity to honour the commitments under the Agreements when it did not. The plaintiffs claim that in reliance upon the representations they were induced into entering into the Licensing Agreement and the Hire Agreement and claim damages under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW) in the amounts of the outstanding Fees. 3 The defendants cross-claim against the plaintiffs alleging that MacDonald engaged in misleading or deceptive conduct whereby Gwydir was induced into entering into the two Agreements. The defendants seek an order for the return of moneys paid under the Licensing Agreement ($395,000) and the Hire Agreement ($119,046.64). They also seek the return of an amount of $100,000 for an item of equipment, described in the Licensing Agreement as a "Head including Goose Neck" (the Head) that MDH failed to deliver. 4 Although there were numerous representations pleaded in the cross-claim, by the time the trial had concluded the only remaining representation alleged to have been made was that a few days prior to 14 November 2000, at the Union Hotel in North Sydney, MacDonald represented to Nikolas that during the financial year 1999-2000 the "sheetpiling business conducted by the MacDonald Group of Companies, in New South Wales had turned over $4.5 million". It is alleged that this representation was false in that the sheetpiling business in New South Wales had turned over only about $815,000. It is alleged that Nikolas advised his father of the representation and that Gwydir was induced to enter into the Licence Agreement and Hire Agreement on the basis of the representation.

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The MacDonald System 5 The MacDonald Sheet Piling & Anchor System (the System) was developed in Queensland by the MacDonald family. It is described as a versatile ground support system consisting of a series of overlapping formed steel sheet piles cantilevered or restrained by passive ground anchors. The System is used in a variety of applications including foreshore protection, harbour works trench support, earth support for basement construction, underpinning and open-cut trench excavation. The parties 6 MacDonald operated MacDonald Sheet Piling Pty Limited from the commencement of its operation in New South Wales in about 1997 and worked on site as the manager of the business. MacDonald's father is a director of MDH which operates the sheet piling business on Queensland, the head office for which is on Hope Island, Queensland. MacDonald is not a director of MDH or GEP. 7 Nikolas worked with his father's firm, IM Engineering, as a labourer where he received estimating and technical training and steadily progressed from labourer through to project manager. He holds certificates in quality assurance and safety and has licences to operate industrial equipment of various sorts. Nikolas' father is a mechanical fitter, a motor mechanic and a mill (clamp) engineer. Prior to the involvement with the New South Wales sheetpiling business, Gwydir carried on business as an erosion contractor installing fabrimat (polyester concrete mattresses) mainly for irrigation channels and in conjunction with various government departments and councils. Nikolas and his father purchased Gwydir from a businessman, Tony Hayes, who is an associate of MacDonald's father. Background to Agreements 8 At a meeting in the MDH office on Hope Island in May 2000 Tony Hayes suggested to MacDonald that Nikolas and his father might be potential licensees for the sheetpiling business in New South Wales. Mr Hayes advised MacDonald that Nikolas and his father had purchased Mr Hayes' screw piling and concrete pumping business. 9 In June 2000 MacDonald met with Nikolas and his father at a major construction site at Kurri Kurri, New South Wales, to demonstrate the nature of the work carried out in New South Wales. Nikolas advised MacDonald that he would like to look into the business further and MacDonald invited him to visit the Sydney office to review various soil conditions and gain an insight into the current systems. In July 2000 Nikolas attended the offices of John Barker, MacDonald's accountant. Although the defendants originally relied upon quite a deal of evidence in relation to this meeting to establish their misleading or deceptive conduct claims, it became irrelevant after the defendants abandoned all bar one of the alleged misrepresentations. 10 In July 2000 Nikolas and his father had a meeting with MacDonald at Camperdown on a proposed development site. At this meeting Nikolas advised MacDonald that he and his father were interested in becoming subcontractors for the System and were prepared to supply labour and to be trained. Between July and October 2000, the discussions and meetings between Nikolas and MacDonald were based upon a plan for Gwydir to provide sub-contractor services to MacDonald's business. It was not until October 2000 that Nikolas expressed an interest in licensing the business. On about 21 October 2000 in a telephone conversation in which MacDonald suggested that Nikolas should start thinking about the training of a third person, Nikolas claims the following conversation took place: Nikolas: If you're feeding us sub-contract work in Sydney $25 is okay but what if we obtain work on the Central Coast or in Newcastle?

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4.1 The Sheet Piling Jaw and an Adaptor for Driving Sheet Piling ("Head") including Goose Neck and spare set of Jaw Inserts and Adaptor Plates is for HIRE ONLY from the Licensor, for the sum of $100,000.00 (AUD) per Head, for a period of ten (10) years from the date the above mentioned equipment is received by the Licensee. The Licensor will lease to the Licensee as many Heads as the Licensee requests, and on the expiry of the Lease for a Head, the Licensee will have the right to lease a replacement Head from the Licensor for a further ten (10) year period on similar terms. The Licensor agrees to properly pack each Head for shipment. Risk of loss due to the damage or destruction of a Head shall be borne by Licensee after delivery to the carrier for pick-up from Licensor's plant. The terms of payment for the lease fee, payable for a Head, is $25,000.00 deposit payable upon signing of this Agreement or upon a request by Licensee for an additional Head. Balance of the Head lease fee is due 30 days thereafter. 26 Clause 15 was in the following terms: 15 Development The recipient acknowledges and agrees that in the event that it or any of its employees creates, improves, discovers or otherwise develop or creates improvements, enhancements, modifications, developments and innovations to the Confidential Information in the course of the Permitted Purpose, all rights, title and interest in and to such improvements and innovations shall be solely and exclusively owned by the Licensor unless otherwise agreed by the parties in writing. 27 There is no other reference in the Agreement to "Confidential Information" nor is there any other reference to "Permitted Purpose". The word "recipient" suggests that this clause may have been cut and pasted from some other document in which a recipient apparently received information said to be confidential for some permitted purpose. Clause 20 moves into language of "owner" and "client", not elsewhere defined, in relation to insurance of, amongst other things, "equipment". 28 Clause 22 of the Agreement provided relevantly: 22 Financial Policies 22.1 Licensee acknowledges the importance to Licensor of Licensee's sound financial operation and Licensee expressly agrees that it will: (a) Maintain and employ in connection with Licensee's business and operations under this Agreement such working capital and net worth as may be required to enable Licensee properly and fully to carry out and perform all of Licensee's duties, obligations and responsibilities under this Agreement. (b) Pay promptly all amounts due to Licensor in accordance with terms of sale extended by Licensor from time to time. 29 Clause 23 provided: 23 Use of Licensor's Name 23.1 Unless agreed in writing by the Licensor, the Licensee will not use, authorise or permit the use of the name "MacDonald Sheet Piling" or any other trade mark or trade name owned by Licensor as part of its firm, corporate or business name in any way. Licensee shall not contest the right of Licensor to exclusive ownership of any trade mark or trade name used or claimed by Licensor. Licensee may, subject to written authority from Licensor, utilise Licensor's name, trade marks or logos in advertising on stationery and business cards. Notwithstanding the above, the Licensor consents to the use by the Licensee of the name "MacDonald Sheet Piling (NSW 1) Limited" as contemplated by this clause.

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The client must: (a) pay the total rent specified in the schedule to the owner at the time specified in the schedule WITH THE EXEPTION (sic) of each December being two weeks payment discount; (b) make all payment to the place and in the manner specified by the owner by writing from time to time (or if the owner does not so specify then by cash or cheque to the office of the owner set out above) and without set-off deductions or withholdings on any account; (c) pay interest on any rent or other money which the client does not pay on the due date or on demand (as applicable). Interest will be calculated daily at the rate of 2% per annum above the owners['] cost of funding the overdue amount. Unpaid interest will be compounded monthly. 39 The Hire Agreement also provided as follows: 11 Procedure on expiry or termination 11.1 When this agreement expires (and is not renewed in accordance with clause 11.3) or is terminated the client must at its own expense promptly return the equipment to the owner at the office of the owner described in the schedule or at such other place as the owner directs in writing. The equipment when so returned must be in good order and repair (normal wear and tear excepted). 11.2 If the client does not return the equipment to the owner when required by this agreement, the owner may at any time retake possession of the equipment and the client: (a) authorizes the owner to enter any premises where the equipment is located to dismantle the equipment if necessary and to remove it and to repair or reinstate those premises if the owner considers it appropriate to do so; (b) release the owner from any liability which the owner might otherwise have for any damages or loss caused by the owner retaking possession of the equipment in accordance with this clause; and (c) must reimburse to the owner on demand all costs and expenses incurred by the owner in retaking or attempting to retake possession of the equipment including, with limitation, costs and expenses incurred in doing anything contemplated in paragraph (a) and any monies paid by the owner in releasing any lien claimed over the equipment. ... 12 Default 12.1 Each of the following is an event of default under this agreement: (a) the client does not pay on the due date any installment (sic) of rent or other money payable under this agreement;

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January to June 2001 42 The plaintiffs claim that Nikolas Pty Limited (NPL), not Gwydir, operated the NSW1 business between January 2001 and June 2001 and that any losses were suffered by NPL and not by Gwydir. The defendants claim that NPL was Gwydir's nominee and that the payments that were made by NPL were made at Gwydir's direction and were payments on behalf of Gwydir. There are bank records recording various payments, some of which are referred to below, but otherwise there are no loan or transactional documents recording any arrangements between Gwydir and NPL in relation to the operation of the sheetpiling business. 43 Anthony Monahan, the financial controller for NPL, gave evidence that in January 2001 there was no system set up to manage the accounting of the business. He agreed in cross-examination that the absence of such a system was "very poor" (tr 358) and also agreed that the business headquarters at North Sydney were "very disorganised" (tr 357). His preference would have been for an accounting system to be set up within days of the business being taken over (tr 359). He attended to the setting up of accounts for utilities, rent, telephones and general supplies from late January into February 2001. This was operated as a paper system and converted to a computer system at the end of February 2001. 44 Mr Monahan's main function during January to June 2001 was for NPL but there may have been some occasions when he "did something for Gwydir". The bank account for MacDonald Sheetpiling NSW (NSW1) was apparently opened on 17 January 2001 with the National Australia Bank (the Bank) in Hamilton near Newcastle in New South Wales. The account was styled "Nikolas Pty Limited t/as MacDonald Sheetpiling NSW". Mr Monahan gave evidence that Nikolas raised a loan for $220,000 and $120,000 was deposited into the NPL account on 18 January 2001. On the same day a cheque in the amount of $100,000 was written which appears to have been deposited into the account of IM Engineering, however Mr Monahan was not able to offer an explanation for that transaction (tr 369). In cross-examination he was taken to other transactions in the IM Engineering account including transfers of $65,000 and agreed that it would appear that such deposits were to bring the overdraft within its limits (tr 371). The NPL account also included entries styled "Loan To Gwydir" of: $8,000 on 14 February 2001, $10,000 on 19 February 2001, $6,000 on 22 February 2001. There were also transactions listed as "pay Gwydir (Vn)" two amounts of $5,280 on 2 March 2001. There was also an entry on 9 March 2001 "Pay Gwydir Inv 42" in the amount of $10,371. 45 On 13 March 2001 the entry for cheque number 285 of $29,791.66 appears to be a payment of the monthly hiring fee under the Hire Agreement. There were further payments of invoices on 15 March 2001 styled "Pay Gwydir Inv 049" and "Pay Gwydir Inv 050" in the amounts of $1,463 and $3,300 respectively. On 26 March there were two entries "Pay licence Gwydir" each of $3,410. On the same day there was a further amount for cheque number 316 in the amount of $29,791.66, apparently for the hire fee. On 29 March there was a "Loan to Gwydir-Bb" in the amount of $964.20. Mr Monahan gave evidence that he understood that excavators were being used in the production of income for NPL trading as MacDonald Sheet Piling NSW. He agreed that income from that business was received by NPL. 46 It is apparent that on 14 February 2001 CBFC provided $110,000 to Gwydir for the leasing of two pieces of equipment. On the same day, Mr Monahan sent a facsimile to MacDonald's father in Queensland asking him to note that $110,000 had been deposited into MDH's bank account that day on behalf of "Viktor Nikolas (Nikolas P/L)". Mr Monahan advised in that fax that $65,000 of that amount was a payment instalment "as required" and the balance of $45,000 was a "credit" to NPL and should not be used. Mr Monahan advised that Nikolas would discuss the matter with him and give him a "full explanation". Mr Monahan said Nikolas directed him to send the fax in those terms (tr 388).

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47 The plaintiffs seemed to claim that NPL did not have enough resources to operate the business and that it operated the business in a less than competent fashion. It was claimed that any loss was suffered by NPL and that Gwydir cannot claim such a loss; alternatively if NPL was acting on Gwydir's behalf, any loss suffered by Gwydir was as a result of NPL's incompetence. The evidence relied upon in this regard, although very general indeed, included: that Nikolas attended the business irregularly; that a contracts manager was not appointed until March or April 2001; that a contracts estimator was not appointed until March or April 2001; and that the business was under capitalised. The defendants claim that there were few contracts available to NPL and that although clause 2 of the Licensing Agreement required MDH to transfer contracts to it, no such contracts were transferred to it. 48 On 28 May 2001 Nikolas, Mr Monahan and Mr Linbeck flew to Queensland to attend a meeting with MacDonald, his father and Garry Barker at Hope Island. At this meeting Nikolas provided those present with a copy of a document analysing the profit and loss of the business to that date which showed a loss of $163,891. Mr Linbeck asked MacDonald's father why he thought the figures were so different to those of the previous year and suggested it had to be one of two things; either the cost of the goods had increased or alternatively a different type of work was done. Both MacDonald and his father confirmed that the cost of the goods was the same. Mr Linbeck suggested there was a need to compare the type of work done in 2000 against the type of work done in 2001. Nikolas said that he had a million dollars already approved by the Bank to purchase the machinery. McDonald said that such amount would not be enough to buy the machinery and that he bought one of the excavators for $300,000 that was now worth $400,000 because of the drop in the Australian dollar. Nikolas suggested that MacDonald get an independent third-party valuation and he would pay whatever the third-party said it was worth. Nikolas suggested that this way MacDonald would still make money on his investment. MacDonald's father said, "No, I sold you New South Wales too cheaply. I'm not selling you the equipment; the lease term is for 3 years. That's how I'm making my money". Termination 49 No further payments were made by the defendants after 29 May 2001. On 4 June 2001 Reynolds Lawyers wrote to the directors of NPL advising that they acted for MDH and that NPL was indebted to MDH in the amount of $76,303.40 for goods supplied to NPL. The letter claimed that such amount had been outstanding for a considerable period and that MDH demanded repayment within seven days of the date of the letter. The letter also advised that if NPL failed to pay that amount MDH would take immediate steps to seek payment by way of Statutory Demand with a view to winding up NPL. 50 In their respective pleadings the parties referred to a letter dated 18 June 2001 from GEP's solicitors to Gwydir's solicitors as the document allegedly terminating the Hire Agreement. Neither party has burdened the Court with this document in the evidence and it is unnecessary to refer to it other than to fix the date upon which it was alleged that the Hire Agreement was terminated by reason of Gwydir's alleged wrongful repudiation by non-payment of amounts due under the Hire Agreement 51 On 17 July 2001 the plaintiffs' solicitors wrote to the defendants' solicitors in terms that included the following: Our client seeks to record their disappointment in that your clients have failed to accept the invitation to discuss matters that are outstanding.

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Accordingly, we formally notify your client that their wrongful recission (sic) is accepted and the Licensing Agreement is now terminated. 52 Although the evidence lacks precision, there is no issue that MDH re-entered the North Sydney premises after the defendants left the business in July 2001. At that time MDH repossessed the business and the equipment. GEP contends that NPL was trading the business and in possession of the machinery up until and including July 2001. A liquidator was appointed to NPL in March 2002. Previous proceedings 53 In July 2001 GEP commenced proceedings in the Supreme Court of Queensland seeking damages of $935,024 for non-payment of the Fees under the Hire Agreement. On 7 December 2001 the defendants commenced proceedings in the Industrial Relations Commission of New South Wales seeking orders declaring the Licensing Agreement and the Hire Agreement void on the basis that they were unfair contracts within the meaning of s 106 of the Industrial Relations Act 1996 (NSW). Although the evidence does not disclose the detail with any particularity, it appears that the parties decided that they would proceed with the present proceedings instead of these previously commenced proceedings. These proceedings 54 The present proceedings were commenced by way of Summons filed on 18 March 2005. The proceedings were heard on 9, 10, 12, 16, 17, 18, 23 and 26 October 2006 and 26 February 2007. There were major problems with the plaintiffs' affidavit evidence. Much of it was inadmissible and, having regard to the fact that these parties had been litigating for so many years, I granted leave to call oral evidence to replace the largely inadmissible affidavit evidence. There were also numerous amendments to the plaintiffs' and defendants' claims during the proceedings. The plaintiffs abandoned a number of misrepresentations alleged to have been made by the defendants and the defendants abandoned a number of misrepresentations alleged to have been made by the plaintiffs. Although the defendants had originally sought some relief under s 106 of the Industrial Relations Act 1996, that was also abandoned. 55 After the evidence concluded on 26 October 2006 the parties sought further adjournments in November and December 2006 to comply with a regime for final submissions. The plaintiffs filed written submissions in chief on 6 November 2006. The defendants' submissions were filed on 23 November 2006 and the plaintiffs' submissions in reply were filed on 5 February 2007. Final oral submissions were made on 26 February 2007. Mr DK Jordan of counsel, leading Ms L Young, of counsel, appeared for the plaintiffs and Mr James Miller, of counsel, appeared for the defendants.

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Plaintiffs' claim re Licensing Agreement 56 The payments due from Gwydir to MDH pursuant to clause 1 of the Licensing Agreement were: $200,000 on the signing of the Agreement on 19 December 2000; and then $100,000 every two months on each of 19 February 2001, 19 April 2001 and 19 June 2001; or every three months on 19 March 2001, 19 June 2001 and 19 September 2001 depending upon the level of business performance against expectation. The payments due under clause 4.1 were: $25,000 as deposit on signing of the Agreement on 19 December 2000 and the balance of $75,000 on 18 January 2001. 57 The plaintiffs submitted that as the "expected" business performance was not defined in the Licensing Agreement it was not possible to ascertain when the business performance was "lower than expected". It was submitted that this part of clause 1 of the Licensing Agreement had no effect, and accordingly the three instalments of $100,000, after the initial payment of $200,000, were to be paid every two months rather then every three months. 58 The plaintiffs created the following payment schedule to demonstrate the outstanding amounts as at the date of purported termination of the Licensing Agreement: Date Payment Required Sum of Payments Required Payment Made Sum of Payments Made 10 November 2000 $0 $25,000 $25,000 19 December 2000 $25,000 Deposit for the Head $25,000 $25,000 21 December 2000 $25,000 $40,000 $65,000 2 January 2001 $200,000 Initial payment under clause 1 $225,000 $65,000 18 January 2001 $75,000 Balance of payment for the Head $300,000 $220,000 $285,000 14 February 2001 $300,000 $45,000 $325,000 19 February 2001 $100,000 First instalment on two monthly basis - clause 1 $400,000 $325,000 14 March 2001 $400,000 $12,707.75 $337,707.75 19 April 2001 $100,000 Second instalment on two monthly basis - clause 1 $500,000 $337,707.75 21 May 2001 $500,000 $20,000 $357,707.75 29 May 2001 $500,000 $32,292.25 $395,000 19 June 2001 $100,000 Third instalment on two monthly basis - clause 1 $600,000 $395,000

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59 The plaintiffs claim that Gwydir was in continuing default of the payment requirements under the Licensing Agreement from 19 February 2001. Although payments were made after that time the plaintiffs claim that by June 2001 $600,000 should have been paid and only $395,000 had been paid. 60 MDH was entitled to treat Gwydir's non-compliance with its obligations under clause 1 of the Agreement as a failure to perform a material obligation. The plaintiffs were entitled to terminate the Agreement if Gwydir had not cured that failure within the time specified in a "Time to Cure Default Notice". It has not been suggested by the defendants that MDH failed to comply with the service of the requisite Notice. Rather it was submitted that the business performance was lower than expected; the instalments became payable three monthly; and as at the date of purported termination Gwydir was not in breach of its obligations under clause 1 of the Agreement. 61 There is no issue in relation to the accuracy of the amounts in the payment schedule table above, however the defendants claimed that as the Head was not delivered to Gwydir it is reasonable to bring all the payments to account as payments under clause 1 of the Licensing Agreement. On that approach and on the premise that the instalments were to be paid every two months, by 17 July 2001 (the date of MDH's alleged acceptance of Gwydir's wrongful repudiation) Gwydir should have paid $500,000 and it had only paid $395,000. If the instalments were to be paid every three months on the basis that business performance was lower than expected, Gwydir should have paid $400,000 with the balance of $100,000 due on 19 September 2000. Thus, Gwydir was still in default by an amount of $5,000 as at 17 July 2001. Uncertainty 62 A term in a contract is uncertain if it is not possible to ascertain the true intention of the parties in respect of that term. The apparent haste with which the Licensing Agreement was finalised by Gwydir without the assistance of an independent solicitor had the outcome of imprecision and some contractual curiosities. If there had been agreement on what the "expected" business performance was to be, so that Gwydir's liability to pay the instalments under clause 1 was extended from every two months to every three months, it is reasonable to expect that the parties would have included it in the Agreement or perhaps in some contemporaneous document or communication. The first mention of the expected business performance concept is found in Gwydir's letter of offer dated 17 November 2000. There is nothing in that letter that provides any definition of the so-called "expected" business performance. That expression found its way into clause 1 of the Licensing Agreement again without any definition. 63 The letter of offer was sent about one week after the alleged representation in the Union Hotel that the turnover of the business in New South Wales was $4.5 million or between $4 million and $4.5 million. The Licensing Agreement was signed after MacDonald gave Nikolas document 322 recording gross revenue for NSW1 in the previous financial year of $4.3 million. Nikolas' evidence in his affidavit of 17 January 2006 was that he made a note on document 322 of the net profit of 22.8% and that MacDonald said, "That is an absolute minimum net profit you can expect." Although Nikolas claimed that he was "impressed with the calculation of gross and net profit of the business" and that he relied on document 322 in forming his decision to cause Gwydir to enter into the Agreement, the statement allegedly made by MacDonald about the expected minimum profit was not pleaded as a representation in the defendants' misleading or deceptive conduct claim and it was certainly not referred to in Nikolas' evidence as a matter that he relied upon in causing Gwydir to enter into the Licensing Agreement. There is also no suggestion in Nikolas' evidence that he included the expected business performance concept in the letter of offer as a result of anything said by MacDonald. 64 Nikolas gave no evidence of his "expectations" of the performance of the business at the time the letter of offer was sent on 17 November 2000. Even assuming that the expected business performance was that it would have a gross turnover similar to $4.3 million, there is no mechanism in the Licensing Agreement for the assessment of "business performance" against that expectation. The meaning of "business performance" is also rather elusive. It is certainly far from clear as to whether the parties meant for instance: the gross revenue as against the previous year; or the net profit of the operation at a particular time compared to the previous year; or the number of contracts secured against the number secured for the same period the previous year; or the prices negotiated in the contracts as compared to those in the contract the previous year. Commercial common sense suggests that where the expression "business performance" is combined with the concept of being "lower than expected" the parties probably intended that the performance of the business as a whole, that is the gross revenue less the expenses, being the net profit was what was intended by the use of that expression. 65 However there is also the question of when such an expectation was to be measured against performance. The first instalment of $100,000 was due two months after the payment of the initial $200,000. Questions that arise on this aspect of the matter include, if it was gross revenue that was the measure of business performance, whether it was intended that the revenue for that two month period was to be compared with the revenue for the same two month period the previous year or whether it was intended that a pro-rata comparison of 2/12th (or some other fraction) of the revenue of the previous year be made without taking into account the possible impact of industry holidays at the beginning of the year. Further questions arise because of the explanatory statement in the letter of offer that the three instalments were to be "over a six month period" or "over a nine month period" and the reference in clause 1 of the Agreement to "bi-monthly or quarterly payments". If the payment of the first instalment was made at two months and business performance fell below expectations at about three and half months, it is not clear when the next instalment would fall due. The possibilities include the next payment being due three months from the last payment, being at the fifth month, or being due at the sixth month on the basis that the payment regime was then over a nine month period. This analysis demonstrates even further the uncertainty of the intention of the parties in using these words in clause 1 of the Agreement.

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69 The plaintiffs submitted that the "term" that is able to be severed is that part of clause 1 that provides that "in the event business performance is lower than expected in which case the payments of $100,000 will be payable every three months". The Court strives to preserve the validity of commercial agreements: Trawl Industries of Australia Pty Limited v Effem Foods Pty Limited (trading as "Uncle Bens Of Australia") (1992) 27 NSWLR 326 per Kirby P at 332; however if, for instance, a term or part of the contract is uncertain, severance may occur if it does not result in materially altering the nature of the bargain that the parties have struck: State of New South Wales v Banabelle Electrical Pty Limited (2002) 54 NSWLR 503 at 517-518 paras [32]-[36]. 70 In The Life Insurance Company of Australia Limited v Phillips (1925) 36 CLR 60 Knox CJ said at 72: When a contract contains a number of stipulations one of which is void for uncertainty, the question whether the whole contract is void depends on the intention of the parties to be gathered from the instrument as a whole. If the contract be divisible, the part which is void may be separated from the rest and does not affect its validity . 71 The test to be applied is whether the parties intended that if clause 1, or any part of it, could not for any reason take effect, the whole contract must fail: Fitzgerald v Masters (1956) 95 CLR 420 at 427 per Dixon CJ and Fullagar J; Brew v Whitlock (No 2) [1967] VR 803 at 807 per Winneke CJ, Little and Gowans JJ; Whitlock v Brew (1968) 118 CLR 445 at 461 per Taylor Menzies and Owen JJ; David Jones Limited v Lunn (1969) 91 WN (NSW) 468. Clause 35 evinces an intention that the parties wished to protect the balance of the contract from failure after severance of a "term". The use of the word "term" in clause 35 of the Licensing Agreement suggests that the parties were not intending that severability would only be available if the invalid portion of the agreement was of a minor nature. However that is not to suggest that the use of that word in clause 35 endorsed severance of a term, the result of which would be to materially alter the nature of the bargain between the parties.

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72 The issue that arises in this instance is whether the severance of the offending part of clause 1, thereby preventing Gwydir from relying upon the second alternative for a longer period over which to pay the $300,000, would materially alter the terms of the bargain between the parties. In determining this issue it is appropriate to compare the weight that the uncertain, and therefore unenforceable, aspect of the consideration bears in relation to the consideration as a whole: DW Greig and JLR Davis Law of Contract (Lawbook Company, Sydney, 1987) at 371. 73 In Fitzgerald v Masters (1956) 95 CLR 420 the executors of the estate of the late John Martin Fitzgerald (the deceased), the appellants in the High Court, appealed from an order made in the Supreme Court of New South Wales that they, as executors of the will of the deceased, specifically perform an agreement in writing dated 5 March 1927, entered into between Rupert Clarence Masters, as purchaser and the deceased as vendor, of certain land in Dubbo, New South Wales. The contract recited that a deposit of £200 had been paid and that the balance of the purchase money was to be paid "in instalments of £10 or more, at the option of the purchaser, per month", the first of such payments to be made on or before 1 April 1927. Clause 2 of the contract provided that Masters was entitled to equal possession of the Homestead Farm with the deceased and was equally liable for the rents, rates, taxes, mortgage payments, including interest, and costs of any improvements or repairs. Clause 3 provided for transfer of one half interest in the Homestead Farm to Masters when he had paid the full amount of £850 to the deceased and provided that Masters complied with clause 2 of the contract. Clause 8 provided: "The usual conditions of sale in use or approved of by the Real Estate Institute of New South Wales relating to sales by private contract of lands held under the Crowns Lands Act shall so far as they are inconsistent (sic) herewith be deemed to be embodied herein". The appellants claimed that the document executed by the parties was not effectual to bring a contract into existence in that the terms were so uncertain that the "sale" could not be enforced. That argument was based on clause 8 of the contract. Mc Tiernan, Webb and Taylor JJ said at 438: In the circumstances of the case it [clause 8] must be regarded simply as a compendious provision inserted by way of more abundant caution to cover such incidental matters as did not obtrude themselves for the consideration of the parties. But their intention that they should be bound by the declared terms is clear. And it is equally clear that they intended their agreement to subsist even if the provisions of cl. 8 should fail to incorporate some term or terms from an identifiable form containing "usual conditions". But it is said that if the provisions of cl. 8 proved to be nugatory, not because of the failure to find not inconsistent terms in an identifiable form, but because of the non-existence of any such form, the conclusion should be reached that the parties failed to agree. The suggestion does not carry conviction to our minds. Clause 8 was merely an appendage to the parties' declared agreement and there is nothing to show that it was intended to serve any purpose beyond providing for possible contingencies the nature of which they do not appear even to have contemplated. That they did not contract by reference to the provisions of any known form speaks eloquently that they mistakenly assumed the existence of some form of contract such as that described in cl. 8 does not affect the matter. 74 The primary consideration for the agreement was that Gwydir would pay MacDonald $500,000 in exchange for an exclusive licence to use "the MacDonald System" in New South Wales. The amount of $500,000 was payable in any event and although of the option of having an extra three months to pay the balance of $300,000 would probably not be appropriately described as a "mere appendage", its absence does not in my view materially alter the nature of the parties' bargain. 75 There may be a question of whether the provision in the Licensing Agreement, "in the event business performance is lower than expected in which case the payments of $100,000 will be payable every three months" is a "term" within the meaning clause 35 of the Agreement. It was not submitted that such provision was not a "term" within the meaning of that clause and, in any event, I am satisfied that this provision would fall within that description. I am satisfied that it is appropriate to sever the provision in clause 1 which provide that, "in the event business performance is lower than expected in which case the payments of $100,000 will be payable every three months". Accordingly by 17 July 2001 Gwydir was in default of its obligations under the Licensing Agreement. Gwydir is entitled to a reduction in the amount owing of $100,000 by reason of the non-delivery of the Head. I am also satisfied that Mr Miller's submission that all monies paid, including the amount for the Head, should be taken into account in relation to Gwydir's liability to MDH in respect of the $500,000. By reference to the Payment Schedule extracted earlier, the amount owing is therefore reduced to $500,000 of which $395,000 had been paid. Gwydir had failed to pay $105,000 then owing to MDH. 76 The next question that arises is whether MDH was entitled to terminate the Licensing Agreement. MDH claimed that Gwydir's non-payment of the fee under clause 1 of the Licensing Agreement was a breach of a fundamental term entitling it to treat such breach as a wrongful repudiation of the Licensing Agreement and to terminate it. Clause 24.2 (a) provided that MDH could terminate the Agreement if Gwydir failed to "fulfil or perform any one of the material duties, obligations or responsibilities" under the Agreement and if such failure was not cured within the time specified in the "Time to Cure Default Notice" from MDH. 77 In its original Summons, filed on 18 March 2005, MDH claimed that on or about 20 June 2001, Gwydir was in breach of the provisions of clauses 1 and 4 of the Licensing Agreement (C 10). Gwydir denied that contention without particularising the basis of such denial (C 13). MDH claimed that by reason of Gwydir's breaches of clauses 1 and 4 of the Licensing Agreement it had wrongfully repudiated the Agreement and had evidenced an intention no longer to be bound by it (C 13). It claimed that on or about 17 July 2001 MDH notified Gwydir that it had accepted its wrongful repudiation of the Agreement and its unwillingness to be bound by it and terminated the Licensing Agreement (C 14). In its original Defence dated 22 July 2005, Gwydir denied it had wrongfully repudiated the Licensing Agreement, without particularising the basis of that denial, and also denied that MDH was entitled to terminate the Agreement, however at that stage it indicated that it would rely upon s 106 of the Industrial Relations Act, a claim which as I have already said was later abandoned (C15 and 16). 78 MDH reiterated the claims in relation to wrongful repudiation in its Amended Summons filed on 18 October 2006 (C 10-16). In its Amended Defence, filed on 24 October 2006 and further amended on 26 October 2006, Gwydir abandoned the claim in relation to s 106 of the Industrial Relations Act, referred to the fact that it would rely upon the matters pleaded in the cross-claim, and denied it had wrongfully repudiated the Licensing Agreement and that MDH was entitled to terminate it (C 13-17). There was no reference in the respective pleadings, nor was there any written or oral submission made by or on behalf of Gwydir that MDH was not entitled to terminate the Licensing Agreement by reason of any failure to comply with clause 24.2(a) of the Licensing Agreement. The defendants' defence as run at trial and put in final submissions was that: Gwydir was entitled to make quarterly payments rather than bi-monthly payments because business performance was lower than expected and was therefore not in default as at 17 July 2001; even if the payments were due bi-monthly the next instalment was not due until 19 June 2001; the Hire Agreement was terminated on 18 June 2001 having the effect of terminating the Licensing Agreement on the same day thus wrongfully terminating the Licensing Agreement prior to the next instalment of $100,000 being due to MDH. 79 As I have said earlier, the parties have not burdened the Court with a copy of the letter of 18 June 2001. However the detail of the letter was not relied upon other than for fixing the date. Mr Miller submitted that when the Hire Agreement was brought to an end it was impossible for Gwydir to exploit its purported exclusive rights in New South Wales because it did not have access to the equipment essential for that exploitation. It was also submitted that the termination of the Hire Agreement made it impossible for MDH to comply with its obligations under clause 4 of the Licensing Agreement. It was submitted that because termination of the Hire Agreement effectively destroyed the substratum of the Licensing Agreement, rescission of the Hire Agreement would terminate the Licensing Agreement. 80 I do not accept that the termination of the Hire Agreement, assumed to be on proper grounds, terminated the Licensing Agreement. The Licensing Agreement was between MDH and Gwydir. The Hire Agreement was between GEP and Gwydir. There is no doubt that on termination of the Hire Agreement Gwydir was obliged to return to GEP the equipment the subject of the Agreement (cl 11). The Hire Agreement does not refer to the Licensing Agreement. Clause 4 of the Licensing Agreement was a lease arrangement between MDH and Gwydir that did not depend upon anything in the Hire Agreement between GEP and Gwydir. MDH was obliged to lease the Head to Gwydir independently of anything in the Hire Agreement. There is nothing expressly or by implication in either the Licensing Agreement or the Hire Agreement to suggest that the parties intended that when the Hire Agreement was terminated, the Licensing Agreement would thereby be terminated. In a practical sense, it would certainly make life more difficult for Gwydir to continue with its Licensing Agreement once it lost the entitlement to the Hire Agreement, however it was in a position to consider alternative commercial arrangements either with MDH or GEP for the hire of relevant equipment. I am not satisfied that the parties intended that the termination of the Hire Agreement terminated the Licensing Agreement. I am also not satisfied that the Licensing Agreement was frustrated by the termination of the Hire Agreement. Accordingly the Licensing Agreement remained on foot until 17 July 2001.

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81 Another reason I have recounted the way in which the defendants approached the trial and final submissions is to highlight the fact that it was never suggested that any termination of the agreement was wrongful by reason of non-compliance with clause 24.2(a). It is therefore unnecessary for me to deal with such clause; however, it seems to me that Gwydir did not require MDH to give it in any formal sense a Notice to Cure Defect under clause 24.2 (a). It is obvious that the parties had reached an impasse in relation to Gwydir's failure to make payments due for product supplied to it by MDH. The letter of 4 June 2001 referred to earlier in this judgment gave Gwydir seven days to pay certain amounts that were outstanding. It is true that this letter does not refer to the specific agreement under which the demands were made but it is clear that Gwydir was in default, and that it evinced an intention to no longer be bound by the Licensing Agreement. The letter of 17 July 2001 refers to the fact that MDH had invited Gwydir to discuss the outstanding matters and also referred to Gwydir's failure to comply with clause 12 of the Licensing Agreement, which contained an obligation on Gwydir to pay all charges due within 14 days of delivery in the amount shown on "the invoice". This appears to be a reference to the supply of products from MDH to Gwydir rather than any suggestion of non-payment of the licence fee instalments. 82 In any event, as I have said, the defendants did not characterise or even raise any failure on MDH's behalf to give it time to cure any defect as conduct that would disentitle MDH from validly terminating the Licensing Agreement. I am satisfied that MDH was entitled in the circumstances both of non-payment of amounts for products and for failure to pay the instalment due under clause 1 of the Licensing Agreement to terminate the Agreement. 83 MDH is entitled to entry of judgment against Gwydir in the amount of $105,000. MDH also claims interest under s 100 of the Civil Procedure Act 2005 (NSW). If the parties are unable to agree on an order for interest I will hear argument in due course. Plaintiffs' claim re Hire Agreement 84 Under the Hire Agreement, Gwydir paid GEP monthly payments of $29,791.67 for the months of January up to and including April 2001. GEP claimed that Gwydir's failure to pay any further monthly payments was a breach of a fundamental term, amounting to a wrongful repudiation which it accepted on 18 June 2001 thereby terminating the Hire Agreement (cl 9 and 13). GEP abandoned its claim for the total amount of $935,024 being the total of the amount of instalments for three years and now only claims the amounts of the Fees due for one year, being $29,791.67 for the remaining eight months of that year totalling $238,333.36 or alternatively for the three months of July 2001 as at the date of termination, being $89,375.01 inclusive of GST. 85 GEP contends that clause 9(a) of the Hire Agreement sets out a "calculation" of total rent amounting to $357,500 and then divides that amount by 12 to arrive at a monthly instalment amount of $29,791.67. The Schedule to the Agreement provides for monthly instalments to be made on the first day of each month. GEP contends that the proper interpretation of the Schedule and clause 9(a) is that the hire amount is the yearly payment of $357,500 which GEP had agreed to accept in monthly instalments. It was submitted that GEP extended a concession to Gwydir in allowing it to pay the rental in instalments over 12 months, rather than requiring an "up-front" payment of the total rental amount. It was submitted that the total amount was an existing debt at the time the Hire Agreement was terminated. In those circumstances it was submitted that the proper quantum of damages is the amount owing under the Agreement at the date of termination, calculated as the total yearly rental, less the amounts paid. The amount paid is $119,166.68 leaving the balance of $238,333.36 owing to GEP at termination.

[84]

86 The defendants claim that clause 13.2 of the Hire Agreement is void or alternatively unenforceable as a penalty. It is alleged that clause 13.2 allows GEP to take advantage of its provisions on the occurrence of either a serious or a trivial breach. The plaintiffs submitted that this cannot be the case having regard to the clearly expressed delimiting words in the first sentence of clause 13.2, which refer only to a failure to comply with "fundamental provisions" of the Hire Agreement. It was submitted that a breach of a fundamental provision is not a trivial breach. GEP relies upon clause 13.2(b) as a contractual basis for accelerating the payment of the remaining rental instalments for the first year of rental. In this regard reliance was placed upon the following passage from Gibbs CJ's judgement in O'Dea v Allstates Leasing System (W.A.) Pty Limited (1983) 152 CLR 359 at 366-367 (footnotes omitted): The cases to which counsel for the first respondent referred in support of his argument that there can be no question of penalty in the present case seem to me to fall into two classes. In the first class of case, if a sum of money is payable by instalments, and it is provided that in the event of one instalment not being punctually paid the whole sum shall immediately become payable, the acceleration of payment is not a penalty: The Protector Loan Co. v Grice; Wallingford v Mutual Society . Similarly there is no penalty where it is agreed to charge a certain rate of interest on condition that if payment is made punctually the rate will be reduced ( Astley Weldon at p.1322) or where a creditor agrees to accept payment of part of his debt in full discharge if certain conditions are met but stipulates that if the conditions are not met he will be entitled to recover the original debt: Thompson v Hudson at pp15-16, 27-28, 30 ; Ex parte Burden; In re Neil . In all the cases of this kind there is a present debt, which, by reason of an indulgence given by the creditor, is payable either in the future, or in a lesser amount, provided that certain conditions are met. The failure of the conditions does not mean that the creditor becomes entitled to damages; the consequence is that the sum which was always owed, but which the debtor was allowed to pay by instalments or in a smaller amount, becomes recoverable at once or in full. 87 There is no issue that the payments of the monthly rental amounts under the Hire Agreement ceased as at April 2001. The only real issue raised by Gwydir in its final submissions to the claim under the Hire Agreement is whether clause 13.2 is unenforceable as a penalty. For ease of reference relevant parts of clause 13 are set out again: 13. Fundamental provisions

[87]

(e) any interest pursuant to clause 9(c). 88 GEP submitted that even if the Court is not willing to accept its entitlement to the amount of rental for the full term of the Hire Agreement from January to 28 December 2003, it should be entitled to rental for 12 months because that was a debt owing at the time of termination. It was submitted that GEP indulged Gwydir in allowing it to pay by monthly instalments of $29,791.67. I disagree with that submission. The rental provisions in the schedule, being the calculation of the rental per month, must be read with the provisions of schedule 3 setting out the term of the Hire Agreement. Clause 9 required Gwydir to pay the "total rent specified in the schedule" to GEP "at the times specified in the schedule WITH THE EXEPTION (sic) of each December being two weeks payment discount" (cl 9(a)). The schedule required Gwydir to pay "$29,791.67 per month including GST, payable in advance on the 1st day of each month". The calculation in the schedule was on the basis of $6,500 for 50 weeks plus GST being $357,500. That figure was then divided by 12 to reach the monthly figure. The fact that the calculation referred only to 50 weeks does not in my view mean that the total rental in the schedule was $357,500. It was the monthly figure for the three-year period, not limited to one year's rental. 89 The fact that clause 13.2 stipulates that the payments are to be by way of "liquidated damages" may create a presumption in favour of that classification but it is not conclusive: Dunlop Pneumatic Tyre Co Limited v New Garage and Motor Co Limited [1915] AC 79 per Lord Denedin at 86; Boucaut Bay Co Limited (in liquidation) v The Commonwealth (1927) 40 CLR 98 per Isaacs ACJ at 107. It is not suggested that a claim under clause 13.2(a) for unpaid rent up to the date of termination is a penalty. Indeed that was the alternative claim made by GEP in final submissions. 90 It is only clause 13.2(b) that is claimed to be a penalty. It was submitted that clause 13.2(b) would allow GEP not only to the return of the equipment, the subject of the rental agreement, but also to payment of the rental for the full period of the agreement that had been terminated whilst being free to obtain additional rental for the returned equipment. There is no provision whereby Gwydir would be entitled to a reduction in the payments if GEP obtained rental payments from other parties for the returned equipment.

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91 In Dunlop Pneumatic Tyre Co Limited v New Garage and Motor Co Limited [1915] AC 79 the appellants entered into a contract with the respondents under which they supplied motor-tyre covers and tubes. In exchange for certain discounts and concessions the respondents agreed not to do certain things including: not to tamper with the manufacturers' marks; not to sell to any private customer or co-operative society at prices less than the then current price issued by the appellants; not to supply to persons who the appellant had decided to suspend from supply; and not to exhibit or to export without the appellants' assent. The agreement included clause 5, whereby the respondents agreed to pay to the appellants five pounds, "for each and every tyre, cover or tube sold or offered in breach of this agreement, as and by way of liquidated damages and not as a penalty". At first instance the Master decided that the five pounds fixed in the agreement was liquidated damages. The Court of Appeal, by majority, held that the five pounds was a penalty. In the Privy Council, in which the appeal was allowed, Lord Dunedin said at 86: 1. Though the parties to a contract who use the words "penalty" or "liquidated damages" may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim and in nearly every case. 2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage ( Clydebank Engineering and Shipbuilding Co. v. Don Jose Ramos Y ƶ quierdo y Castaneda [1905] A.C. 6). 3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach ( Public Works Commissioner v. Hills [1906] A.C. 368 and Webster v Bosanquet [1912] A.C. 394). 92 Lord Dunedin then referred to various tests that had been developed to assist in the task of construction, which included the following, at 87: (a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. (Illustration given by Lord Halsbury in Clydebank Case [1905] A.C. 6) (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid ( Kemble v Farren 6 Bing. 141). … (c) There is a presumption (but no more) that it is penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage" (Lord Watson in Lord Elphinstone v Monkland Iron and Coal Co. 11 App. Cas. 332). 93 An almost identical test was used in Esanda Finance Corp Limited v Plessnig (1989) 166 CLR 131 where Wilson and Toohey JJ (at 141) although stressing that latitude must be given to genuine pre-estimates of damages, noted that a sum will not be upheld and will be declared a penalty when it is "out of proportion", or "extravagant, exorbitant or unconscionable". 94 Clause 13.2 (b) seems to me to allow the full amount of the rental for the three year term without acknowledging that the equipment would be returned to GEP whereby it would have the benefit of its use or rental. That seems to me to be what was described as "extravagant and unconscionable" by Lord Dunedin. I am also satisfied that it falls into the category of what Lord Dunedin described as 'in terrorem' of Gwydir. I am of the view that clause 13.2(b) is unenforceable as a penalty. However I am satisfied that GEP is entitled to the unpaid rental under clause 13.2(a).

[91]

Amendments to Cross-Claim 99 As I have said earlier, there were many applications to amend the pleadings as the trial progressed. When the trial of this matter commenced the defendants relied upon a cross-claim dated 22 July 2005. That cross-claim contained numerous alleged misrepresentations that had been infelicitously pleaded. At the conclusion of Nikolas' evidence on 18 October 2006 Mr Miller sought leave to amend the cross-claim to abandon many of the pleaded representations. After debate it was noted that counsel for the respective parties would confer in respect of the proposed amendment and that it was "expected that the amendment will confine the claims made by the cross-claimants rather than expanding any claims, but for the claim" in respect of the Head (tr 340). Leave was granted to file an amended cross-claim which was filed on 24 October 2006. On 25 October 2006 the parties attempted mediation but were unsuccessful. 100 On 26 October 2006 Mr Jordan objected to the amended cross-claim on the basis that it was outside the leave that was granted. The amended cross-claim included claims in respect of documents 320, 321 and 322. It was alleged that those documents contained representations as to turnover that were misleading or deceptive. After further debate Mr Miller conceded that the new representations proposed in the amended cross-claim were outside the leave granted and advised that he no longer pressed those representations (tr 347). The amended cross-claim was further amended by the deletion of those new representations so that the only remaining representation pressed by the cross-claimants is the alleged representation in the Union Hotel at North Sydney in November 2000. However, as I have said earlier, the cross claimants relied upon the documents 320, 321 and 322 in support of the claim that it is more probable than not that the representation at the Union Hotel at North Sydney was made in the terms as pleaded. 101 I should also record that, although these amendments were made, final written submissions filed on behalf of the cross-claimants dated 23 November 2006 persisted in referring to the contents of documents 320, 321 and 322 as though such documents had been separately pleaded as representations. In final oral submissions on 26 February 2007 Mr Miller proceeded on the basis that the only representation as pleaded was that allegedly made at the Union Hotel and that the documents were deployed in the way referred to above.

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The alleged misrepresentation at the Union Hotel at North Sydney 102 The original cross-claim dated 22 July 2005 included the following contention: 15. A few days prior to 14 November 2000, Viktor Nikolas had a meeting with Grant MacDonald at the Union Hotel in North Sydney, during which Grant MacDonald represented that during the previous financial year, the sheetpiling business conducted by the MacDonald group of companies in New South Wales had turned over $4.5M. 103 The amended cross-claim, filed on 24 October 2006 and amended further on 26 October 2006, included the following contention: 16. A few days prior to 14 November 2000, Viktor Nikolas had a meeting with Grant MacDonald at the Union Hotel in North Sydney, during which Grant MacDonald represented that, during the financial year 1999-2000, the sheetpiling business conducted by the MacDonald Group of Companies, in New South Wales, had turned over about $4.5 million (" the Turnover Representation "). Particulars The Turnover Representation was oral and consisted of words, spoken by Grant MacDonald, to the effect that the MacDonald Group of Companies operated a sheetpiling business which, during the financial year 1999-2000, had a gross turnover of about $4.5 million. 104 Although Nikolas did not specifically refer to the conversation at the Union Hotel in his affidavit evidence, it did include the following paragraph (in par 55): I relied upon Grant's reiteration that the turnover of the business was between $4.4 and $4.5 million in the previous financial year and that the business was, at the time of the conversation referred to immediately above [a conversation on 14 November 2000 in the MDH offices at North Sydney], then worth more than $4.5 million dollars per year. These figures were mentioned a number of times by Grant during the course of the negotiations leading up to Gwydir Erosion entering into the licensing and dry hire agreements and I relied upon it in choosing to enter into those agreements. 105 In his affidavit of 15 September 2005 MacDonald gave the following evidence: 22. In respect of the alleged representations that during the previous financial year the sheetpiling business conducted by the MacDonald group of companies in New South Wales had turned over $4.5 million I say that this figure is an accurate reflection of the New South Wales gross turn over for that period. 106 MacDonald was cross-examined in relation to this paragraph as follows (tr 138-140): Q. You see the proposition which is put there in relation to the turnover of the New South Wales business? A. Yes.

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Q. During the course of the preparation of your affidavit of September 2005 you became aware that the turnover for New South Wales 1 in that financial year 99/2000, was an amount of about $750,000 [later corrected to $825,000]? A. Whatever they told me, the accountants, whatever at that time. 127 There are many curious aspects to this case, not the least of which were the myriad of amendments and changing positions of the parties throughout the trial. MacDonald's evidence is also very curious. It appears that his original affidavit evidence was correct, that is, that the figures mentioned at the Union Hotel were an accurate reflection of the gross turnover for the New South Wales business. It is true that the business turnover included the income for both Harbourgraphics and NSW1. I am not sure why, having given this evidence effectively justifying why the alleged representation in the cross-claim was made, MacDonald then gave oral evidence that the turnover to which he referred at the Union Hotel was the combined Queensland and New South Wales turnover. It appears from the evidence that the Queensland operation was "roughly" or "approximately" the same as the turnover of the New South Wales business (tr 402) and thus the combined turnover would have been double the figure mentioned by MacDonald. It is all very odd. The other curious aspect of the matter is the pleaded words "the McDonald Group of Companies" in the representation as claimed in the cross-claim. As I have said earlier, the route that Mr Miller took to try to establish that such expression excluded Harbourgraphics was flawed. 128 I am of the view that it is very unlikely that MacDonald used the rather formal words "the MacDonald Group of Companies in New South Wales" in his conversation at the Union Hotel. I am not persuaded that MacDonald's version of what was said can be accepted. I found him a rather unreliable witness. I am satisfied on all the evidence that it is more probable than not that what MacDonald said at the Union Hotel was that the turnover of the New South Wales business was between $4 million and $4.5 million. Was the representation false? 129 MacDonald was the construction manager for Harbourgraphics from 1997 until mid-2000. The financial statements for Harbourgraphics record a gross turnover for the year ending 30 June 2000 for the sheet piling operation in New South Wales of $3.27 million. Although MacDonald gave evidence that he pointed out to Nikolas a number of archived job files (tr 211) Nikolas claimed that he was unaware that any of the income recorded for NSW1 related to income earned by Harbourgraphics. This claim by Nikolas was tested in cross-examination in particular by reference to Appendix A to the Licensing Agreement, in which there was a reference to "Harbour Graphics" in Nikolas' handwriting. That reference was in relation to the "re-sale of NSW total region" and included the statement that such sale could occur at any stage in the future "with no monies or entitlements to go to Ian McDonald or any entities which he may own eg (Macdonald Sheet Piling, Harbour Graphics, Green Eagle Projects etc.)". Nikolas was cross-examined as follows (tr 260-261): Q. So, by the time that you drafted this document on 19 December 2000, you were aware of the existence of Harbourgraphics as an entity? A. That's correct.

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130 I am not satisfied that the reference to "Harbour Graphics" in Appendix A to the Licensing Agreement proves that Nikolas was aware that Harbourgraphics earned income from sheet piling in New South Wales. Nikolas was attempting to exclude companies associated with Ian MacDonald from receiving any monies in any future sale, irrespective of the nature of the company's business. There is absolutely no suggestion that Harbourgraphics was mentioned at the Union Hotel meeting, nor is there any suggestion that Harbourgraphics was mentioned in documents 320 to 322. 131 Christopher John Ryan, the accountant for the sheet piling business carried on by MacDonald in both Queensland and New South Wales at the relevant time, gave evidence that the turnover for NSW1 for the year ending 30 June 2000 was $826,000 and that Harbourgraphics had a turnover of $3.3 million, thus making a total turnover of the New South Wales business of about $4.125 million. In cross-examination of Mr Ryan Mr Miller elicited evidence that Harbourgraphics operated the New South Wales business for the majority of the year ending 30 June 2000 and that in the latter part of that year NSW1 took over trading the business (tr 401). It was well before the defendant became interested in the New South Wales business that Harbourgraphics had ceased to operate it. There does not seem to me to be anything sinister about the change of entity operating the New South Wales business. As I have said, this is not a case in which it is suggested that Harbourgraphics continued to trade in New South Wales in competition with NSW1 after Gwydir entered into the Licensing Agreement and Hire Agreement. 132 There is absolutely no issue that MacDonald advised Nikolas that if he wanted to look at the accounting and financial statements in relation to the New South Wales business, he would have to go to Hope Island where the documents were held. There is also no issue that there was a conversation between MacDonald and Nikolas in which Harbourgraphics was mentioned and that Macdonald said that Harbourgraphics did not have anything to do with the New South Wales business any more (tr 190; tr 258-259). That was a true statement. The representation that I have found that was made at the Union Hotel was not false. The turnover of the business in New South Wales in the year ending 30 June 2000 was $4.3 million and was within the range mentioned by MacDonald in the representation. 133 Mr Ryan was taken to document 322 and gave the following evidence in cross-examination (tr 404): Q. 4.3 million is set out as the gross turnover? A. Yes

[248]

Reliance 135 Although, having regard to my finding in relation to the representation, it is unnecessary to deal with reliance, I should say this. There was a paucity of evidence in relation to any reliance upon a conversation in the Union Hotel. As I have said earlier, Nikolas did not even refer to the alleged representation in his affidavit nor did he give oral evidence in chief of the content of such representation. The letter of offer dated 17 November 2000 was written within days of the representation and made no reference to the representation. The letter of offer included the rider that the payment regime in Option 2 would become operative when business performance was lower than expected. I am of the view that the inclusion of that rider means that the defendants did not rely upon the representation, but rather sought to protect themselves against the prospect of lower then expected business performance, by giving Gwydir a longer time within which to pay the balance of the instalments. Even if I had found that the representation made by MacDonald at the Union Hotel was not true, I would have had difficulty finding that Gwydir had relied upon it for the purpose of entering into the Licensing Agreement or the Hire Agreement. 136 The misleading or deceptive conduct claim against MDH fails. The cross-claim will be dismissed. Conclusion 137 MDH is entitled to the entry of judgment on its claim under the Licensing Agreement. GEP is entitled to the entry of judgment on its claim under the Hire Agreement. The plaintiffs' misleading or deceptive conduct claim is to be dismissed. The cross-claim is to be dismissed. The parties are to bring in Short Minutes of Order reflecting these findings together with an agreed order in relation to interest and costs. If the parties are unable to agree on an order in relation to costs and/or interest, I will hear argument when the matter is listed for the filing of the Short Minutes by arrangement with my Associate. **************************

MacDonald Holdings (QLD) Pty Limited v Nikolas

At a glance

Court

Decision date

Before

Source

Judgment (249 paragraphs)

Parties

Legislation Cited (5)

Cases Cited (8)