Specific Communications
109On 27 July 2012 there was a communication between the Referee and the plaintiffs' solicitors (CB5/1746). The letter indicated that there had been a test sample of 400 stock keeping units (SKUs) taken from the plaintiffs' data. The Referee made observation that "overwhelmingly the total value of credits recorded does not appear to reconcile with the component parts". The defendant submits that this is a key indication of the data not reconciling and a flawed system but because the enquiry was made of the plaintiffs somehow or other this gives rise to a demonstration of bias. I regard this proposition, as indeed many others suggested by the defendant, as fallacious. This was a perfectly sensible and relevant enquiry so that the Referee could understand (assuming his analysis was correct) how the plaintiffs' system worked and if it could be reconciled. The mere fact that the defendant had no knowledge of this communication was entirely his own doing. But putting that to one side, it is inconceivable in my view that the defendant could have made any contribution other than speculation as to the interpretation of the sample taken from the plaintiffs' records and/or data. In my view no contribution of any meaningful nature could likely be made by the defendant. It is implausible that an accountant undertaking such an analysis would ask a third party (not an expert nor a former employee familiar with such matters) what he or she thought of the data or indeed any explanation about what the plaintiffs had proffered. I regard the complaint by the defendant in this regard as having no substance.
110The defendant points to a further communication on 13 September from the Referee to the plaintiffs' solicitors in which the Referee made a comment again about the incongruous results the Referee had obtained by reviewing a number of instances of SKUs taken randomly (CB5/1756). Again bias is alleged in part because from time to time during the course of his submissions Mr Hanna adverted to what he described as "collaboration" between the Referee and the plaintiffs. He used the term in that context undoubtedly as an epithet. The plain reality is that when one reads the material objectively, and the communication of 13 September is no exception, I regard it as quite a simple request on the part of the Referee to try to understand the data. I do not think it could reasonably be construed otherwise. Again I regard this complaint as having no substance.
111The next complaint is made about an email of 26 September (CB5/1758). This is a communication from the plaintiffs' solicitor to the Referee. The source of the complaint is the reference to telephone conversations which apparently occurred between somebody from the plaintiffs' solicitor and the Referee on 19 and 25 September. The response from the Referee is reference to further analysis which would be provided for comment "tomorrow". Again the defendant says as he had no knowledge and he should have had knowledge of this communication it is an example of bias. I reject that proposition. The communication is in my view entirely innocuous. Again it is part of a chain of enquiry being undertaken by the Referee to understand the plaintiffs' data. In my view it is wholly unreasonable to suggest this could be evidence of bias, in any sense.
112A further example of bias is said to be evidenced by a communication from the Referee to the plaintiffs' solicitors of 26 September (CB5/1758). This is a repetition of part of the chain of emails that I have previously referred to. The mere fact that the defendant had no knowledge of the communication is simply in my view not relevant given the regime which is in place. There is nothing on the face of the email that could rationally give rise to any suggestion of bias. It goes without saying given the nature of the email that the defendant in my opinion could have done no more than speculate about these materials even if an opportunity had been given to comment on it.
113The next complaint is made about an email of 28 September (CB5/1762). The defendant relied heavily upon this email. The email is a communication between the Referee and the plaintiffs' solicitor. The Referee sets out in the communication what he has sought to do, namely compare the electronic inventory supply records extracted from the records of Priceline for "internal consistency" to test the correspondence of inventory ordered, invoiced to and received over the relevant period. This was clearly a relevant line of enquiry. The Referee then set out the exercise he had undertaken and produced a summary of results. In a very large number of cases having examined the complete 26,972 SKUs in various situations there were clear discrepancies shown in the data. The Referee sought further information and assistance from the plaintiff.
114In the course of the hearing Mr Hanna who appeared drew my attention to the following phrase used in the letter (CB5/1764):
Requests
The following are sought from Priceline on the basis that they may be the main sources of difference, and allow greater agreement between the data...
115There was some suggestion made during the course of the hearing again that this was indicative of some collaboration between the Referee and the plaintiff. Emphasis was placed on the term "agreement". I reject that proposition as a rational and/or objective interpretation of the letter. Again this is plainly and obviously an attempt on the part of the Referee to understand the plaintiffs' system and internal inconsistencies and/or variations in the data which emerged by reason of certain comparisons which the Referee sought to undertake. The Referee was making no finding at this point against any party except to say that he had found inconsistencies. Complaint is made that this analysis was not disclosed and therefore the defendant was not afforded any opportunity to comment. As an example I specifically requested during the course of the hearing that Mr Hanna indicate to me precisely what he could have said or indeed more to the point what he wished to say about the data and about the comments and observations of the Referee. After much prevarication he hinted that he might have had some extra time to employ or retain some expert (which he had never done during the whole course of the Reference) in order to help him interpret the materials. I regard the complaint as having no substance.
116The difficulty with this proposition is that it would have required access to the data which the Referee had, and which his own solicitor Mr George Hanna had eschewed any interest in accessing. At best it would have been permitting the defendant an opportunity to speculate on a largely uninformed basis about the inconsistencies or difficulties the Referee had detected. In the first instance it may well have required the Referee taking some considerable time to explain to the defendant how he had come to the views he had come to. I regard this process as bordering on the absurd. Mr Hanna with all his experience of his own internal system and given the number of years he has been in dispute with the plaintiffs was simply unable to articulate in what way he could have made any contribution to this communication between the Referee and the plaintiffs and for that matter the Referee's analysis. Although he knew a great deal about his own internal records and without becoming repetitive he had no expertise in terms of accountancy nor was he familiar at least on the materials I have seen with much of the internal workings of the plaintiffs' systems. That he was not afforded an opportunity to intrude into this communication I do not regard as an indication of bias or for that matter a breach of the rules of natural justice. Again it was in substance a perpetuation of the very regime that he had himself instigated.
117The next complaint made is in relation to a communication on 10 October between Mr George Hanna and the Referee (CB5/1773). Mr George Hanna had requested information seemingly about communications between the plaintiff and the Referee. The Referee told Mr Hanna, correctly in my view, that he had not completed his draft report and that no draft report had been provided to the plaintiffs. He did indicate that a request for information had been made and that it was proposed that there be a meeting in relation to that matter in the near future with the representatives of the plaintiff. The email went on to indicate that the request related to enquiries about the electronic data and that it seemed unlikely that the defendant would be able to assist. It did indicate however that if there were any matters the Referee would raise them with the defendant. I regard this as both a truthful and perfectly transparent communication. The materials I have seen support and corroborate the propositions made in that email. What was occurring was that the Referee was making a number of requests to understand the plaintiffs' data. Unsurprisingly the Referee wanted to be satisfied that there was proof of delivery and if so how it could be proved if at all. Again the comment by the Referee that he did not believe the defendant could make any contribution is in my opinion an understatement. As I have said apart from highly speculative comments, it is inconceivable that the defendant could contribute relevantly and meaningfully to the Referee's understanding of the plaintiffs' internal records.
118Importantly however on 11 October the Referee reported to the Court and to each of the parties (CB9/3873). He gave an update of what he had been doing including making it plainly apparent that he was proposing the next day to meet with the plaintiffs' personnel. He also made it plain that he had been corresponding with the plaintiffs about their data but had not considered it necessary to refer his questions to the plaintiffs to the defendants because it was unlikely that they would be able to assist. He indicated that he did not consider his current understanding of the plaintiffs' electronic data to be sufficiently sound to allow him to report to the Court. He asked for an extension of time. No complaint was heard from either side as to the way in which the Referee was conducting the process, most importantly from the defendant. At no point during this period did the defendant seek to approach the Court for any direction about the flow of information or indeed the regime which the Referee had in place.
119On 23 October the Referee corresponded with Mr George Hanna (CB5/1775). He noted the request by Mr Hanna for information addressed to the plaintiffs and indicated that having again reviewed that request he remained of the view that there would be no purpose in passing it on to the defendant. He stated that the request related to the nature and arrangement of electronic data provided by the plaintiffs and that he would be providing relevant documents to the defendant in due course. The defendant appears to have accepted the Referee's explanation and again no complaint was made and certainly not to the Court.
120The Referee's position was in my view entirely appropriate. I am fortified in this view again by the inability on the part of Mr Hanna at the hearing to give me any assistance as to how he might have contributed and/or relevantly commented on the data.
121The next complaint is made about a communication on 5 November (CB5/1777). The Referee prepared a great volume of material as a result of an analysis of the electronic data provided by the plaintiff. The Referee had created a summary page and colour coded it accordingly. He sought clarification as to whether or not his classification of the data was correct and whether there is any additional material that the plaintiff wished to proffer. He required the plaintiff to confirm that it had provided all relevant information to him. This communication is said again to be an example of bias. I again regard that proposition as without substance and reject it. It is a mere request for information or confirmation. It was neither discourteous nor relevant for the defendant not to be copied in on such communication or indeed such materials. For reasons I have already expressed I do not regard this as an indication of bias or for that matter a breach of the rules of natural justice in the circumstances.
122The next complaint relates to an email of 18 December from the Referee to the plaintiffs (CB8/3243). It attaches spreadsheets which contain data additional to that which had already been referred to. The Referee indicated the basis upon which he wanted to use the data subject to the plaintiff providing an explanation. The defendant makes the point that the data again provides variances or evidence of flaws in the data provided by the plaintiffs. The person to whom the enquiry was directed was the person who had created and stored the data and sensibly if there was one to give would have given any explanation. For reasons I have already stated I fail to see how the defendant could have contributed in any way beyond speculation about the analysis undertaken by the Referee and the questions it posed of the plaintiff. I reject the complaint as having any rational basis.
123On 21 January 2013 it seems a meeting took place between the defendant and the Referee at which certain materials were handed over. Neither Mr Hanna nor his former solicitor Mr George Hanna make any reference to what occurred at the meeting. There seems little doubt such did take place. It was a meeting that took place in the absence of any representative of the plaintiffs.
124In February 2013 the Referee published the initial draft report (CB1/91). The report is really more in terms of a projection of the ultimate format of the report rather than any detailed analysis of the materials. There were apparently no annexures to that report but the reasoning process is set out to some limited extent.
125Under the heading "Inventory Invoiced by Priceline" the Referee stated that a review had been conducted to compare the inventory invoiced by Priceline to Hanna with invoices confirmed as being received by Hanna from Priceline (CB1/100). A copy of the comparison was going to be contained clearly in a more detailed draft. However the Referee observed that following his review he concluded that from 29 January 2008 to September 2009 (which has been described in the hearing as correctly as the critical period) there were 1,378 invoices issued by Priceline to Hanna totalling $1,239,731.48. The Referee then commented that of these invoices 64 only had not been acknowledged as being as goods received by Mr Hanna. The 64 invoices totalled only $30,499.05 inclusive of GST. The largest amount of those invoices not acknowledged by Mr Hanna was one dated 24 September 2009 totalling $7,739.44. In a highlighted section of the report the Referee indicated that he had sent an email to the plaintiffs requesting further information about the 64 invoices. Thereafter the Referee supplied, albeit in skeletal form, some further analysis of the invoices and further comments reconciling certain differences between the data.
126At the conclusion of the report the Referee made it apparent that (subject to further information being provided which had been sought) he had in effect tentatively formed the view that Mr Hanna owed a sum of $132,962.98 in relation to what was described as the Franchise Sundry Account and $574,223.56 in relation to the Designated Stock Account.
127The defendant complains about this report on the basis that it showed some bias or somehow or other was inappropriate behaviour on the part of the Referee. Again I regard that proposition as having no substance. The Referee had been engaged in the Reference with members of his staff analysing the materials and communicating with the parties at this point for the best part of nearly nine months. In any event it was a draft communicated to the parties and clearly subject to obtaining further information and clearly and obviously circulated for the purposes of comment and debate.
128On 5 February Mr Hanna sent an email to Mr George Hanna and to the Referee (CB9/4231). He referred to telephone calls he had had with the Referee on 22 and 23 of January and was asking for suitable dates for a meeting. Having received what he described himself as a "Preliminary Draft Report" which he noted was subject to further information and documentation he asked for all annexures and supporting documentation.
129On 20 February Mr Hanna again communicated with the Referee and provided his "calculations" in relation to what he described as the initial "BRI Conclusion" regarding the credit notes for July 2009 (CB9/4228).
130On 1 March Mr Hanna had a meeting with the Referee, which he followed up with an email of 4 March (CB9/3946). In that email he indicated that he had asked for certain materials including the complete list of questions that had been provided to each party since the start of the reference period. In particular he was interested in a list of questions which had been sent to the plaintiffs in around September/October 2012. He made the point that in his opinion the material provided by the plaintiffs was inconsistent. He thought he could provide and point to relevant information for the benefit of the Referee. He then set out in detail various difficulties and inconsistencies in relation to the draft report provided in February. He queried the invoice dated 24 September 2009 for $7,739.44 as being an invoice dated two months after the termination of the franchise. He also referred to other amounts by way of a shortfall incorrectly calculated in the order of $10,199.65 (asserted to be the correct shortfall) and complained that the Franchise Sundry Account analysis did not address his concerns. He said he needed an opportunity to verify the accuracy of responses given by the plaintiffs (I interpolate) to the Referee's questions. Apart from his reference to the one invoice dated 24 September 2009 at this point at least he made no reference to the other sixty three invoices which the Referee had referred to in the draft.
131On 12 March the Referee responded indicating that he was now working towards completing his report with reference to documents that had been made available by the parties (CB9/3945). The defendant was told that unless the Referee had any further uncertainties or issues that required clarification it was not proposed that any further matters would be referred to the parties. He also made note of the fact that the process had been protracted. The Referee again confirmed that the requests in September and October of 2012 had related to the electronic data and to the Referee requirement of the plaintiff to assist in interpreting that data. The Referee was at pains to indicate that he had applied the same "principle" to his dealings with the plaintiff and the defendant, namely that he had not provided the plaintiffs' solicitors with documents and response that he had been provided with although there had been requests. Again Mr George Hanna's email of 9 July was noted and further confirmation that documents upon which the Referee's report would be based would be included in the final "draft" report to be provided to the parties. In conclusion the Referee stated:
As you are aware we have not been able to access the data you provided on 1 March 2013. With regard to the "summary of invoices not received" (as per the attached file), unless we are able to ascertain the corresponding invoice number for each "ID" reference we may not be able to use this information. Accordingly please provide the invoice number for each of the 'ID" references. The Referee will consider the material if it is received this week given the deadline and availability as noted in your email.
132On the same day Mr Hanna confirmed that the invoice information was indeed contained in the spreadsheet and that contact would be made to clarify any aspect of the spreadsheet the following day (CB9/4225). On 13 March the Referee sent to Mr Hanna a list of invoices issued by the plaintiffs that "do not appear to have been received by your store" (CB9/3954). Mr Hanna was asked to review and make comment on the invoices. Indeed this was the list of 64 invoices totalling $30,499.05.
133On 14 March a telephone conference was conducted between Mr Hanna and the Referee. It was in part to discuss the list of invoices and in particular the non receipt of invoiced stock. Prior to the telephone conference Mr Hanna had sent an email attaching documents "that illustrate how to match the invoices and the spreadsheet information" (CB9/4222).
134Later that day the Referee sent emails to Mr Hanna concerning certain invoices (CB9/3958 and 3961).
135On 15 March the Referee sent an email to Mr Hanna requiring explanation in relation to two invoices (CB5/3964). Later that day Mr Hanna responded with what he described as "my detailed response to the Preliminary Draft Report" (CB5/3965). He also indicated that he would forward the annexures referred to in his response early next week and he would be attending to various requests made by the Referee.
136As an example of the defendant's dealings with the Referee, none of the emails I have just referred to above including what was described as the "detailed response" were sent to the plaintiffs.
137On 20 March Mr Hanna sent an email to the Referee referring to another meeting which had been held "earlier this afternoon" in which Mr Hanna indicated that he had handed over a folder with annexures and extra documents regarding queries raised by the Referee (CB9/4193).
138On 29 April the Referee circulated a further draft but very detailed report with multiple annexures (CB1/105). It identified quite specifically the plaintiffs supporting documents which included numerous CDs and communications between the Referee and the plaintiffs' solicitors. It identified the dates upon which emails and/or materials had been supplied.
139Likewise there was a section dealing with the defendant's supporting documents which again indicated the materials supplied by Mr Hanna on the various dates supplied either by Mr Hanna or his brother Mr Peter Hanna. The report sets out in considerable detail both the process and the methodology adopted by the Referee. He indicated in his executive summary that the answer to question 1, namely the retailer's liability to the franchisor under the Sundry Debtor Account, was revised to a figure of $98,542.92. As far as question 2 was concerned, being the retailer's liability under the Designated Stock Account, he was of the view that the retailers liability was $634,476.80 (which figure had been revised upwards from the February report). He described what he had received by way of supporting documents from both the parties but emphasised that he had not been involved in an assurance review or audit. He indicated that he had used a number of personnel within his office with particular expertise, especially that of Mr Hemsworth a chartered accountant who specialised in spreadsheet analysis.
140In relation to the Designated Stock Debtor account he described at CB1/122, in my view correctly, that account as recording invoices issued and credit notes allowed by the plaintiffs to the defendant and payments made by the defendant for the provision of Stock within the Designated Range which included both direct stock supply and nominated third party stock plus a distribution fee. He then set out in some detail the terms of trade and various other terms of the Franchise arrangement.
141Equally he then described in some detail at CB1/124 the Sundry Debtor Account as recording invoices and credit notes issued by the plaintiffs to the defendant on account of Fees, including the provision of Services and Systems provided by the plaintiffs to the defendant, for the operation of the Franchise Business. He then described the system of rebates and how it operated. In a section headed "Parties Dispute Concerns and Historical Conduct" he set out in considerable detail the concerns that he had perceived to have been expressed by each of the parties during the Reference process (CB1/125).
142Mr Hanna during the course of the hearing did not seek to suggest that the Referee had not either comprehensively and/or accurately set out his concerns in that further draft report. While I do not propose to deal with all of the matters in passing I note that the Referee noted as the first concern of the defendant that the defendant had questioned the reliability of the plaintiffs Invoicing System in respect of Direct Supply Stock which failed accurately to reflect all invoices for stock said to have been supplied and/or the existence and/or quantum of credit notes issued by the plaintiffs. As I have already observed this was at the very core of the dispute between the parties and Mr Hanna for some considerable time placed the reliability of the invoicing system on the table as a substantial reason why the Referee should be dissatisfied with much of the data provided by the plaintiffs. Further the Referee noted that the defendant was concerned with the "integrity of the data" contained in the Systems and the discrepancies between them as to the Stock Quantities supplied to the defendant by the plaintiffs.
143Following a detailed description of the systems and the comparison of automated and non automated stock supply which contained a detailed flow chart, the Referee set out how he understood the direct supply system to operate. He clearly did so on the basis of his then understanding and clearly also on the basis that this was indeed a further draft report for comment.
144He then set out again in considerable detail the supporting documents he reviewed and in particular in a detailed table set out the supporting documents provided by the respective parties. He observed for example that certain documents had not been made available to him particularly covering the early period of the franchise which required him to draw inferences as to the operation of the Systems and the tendency towards regularity or otherwise.
145Again in considerable detail he set out his approach to the questions and in particular the methodology used to calculate his answers in respect of each question. He noted in particular that the defendant's first concern (set out in section 7.3 and 14.1 of the Report) was the reliability of the plaintiffs invoicing system in respect of direct stock supply. The Referee noted that the defendant had questioned the accuracy of the monthly Statement. He also noted however that the plaintiffs contended that whilst not all invoices or credit notes for an individual month were brought to account in a monthly statement generated for a given month missing invoices and credit notes had however been brought to account in the following months carried forward balance in aggregate although not item by item. The Referee indicated that he compared the defendant's supporting documents to the listing of invoices and credit notes provided by the plaintiffs to him as extracted from the plaintiffs systems representing the totality of direct supply stock and third party supplied stock during the supply term in respect of the designated stock debt or account. He then concluded:
From my analysis it appears that any transaction that occurred after the generation of the monthly Statement was "missed" was brought to account in the following months carried forward Debtors Balance. Early closure represents a deviation from the practice contemplated in the Franchisee Manual at page 4/32. However it is my view that the deviation does not cause loss to the retailer.
As to issues of reliability of some entries not appearing on the monthly debtor account as comprising part of the Retailers final Designated Stock Debtors Account balance, the value of credit notes issued exceeds the value of invoices (if disputed) where on an overall basis it was not possible to establish that the Retailer suffered any loss.
146In similar fashion the Referee then went on to analyse third party invoices, credit notes and other matters identified including a comparison of stock invoiced and received. In this section of his draft report he again referred to the 64 invoices which had been the subject of enquiry and his analysis this time brought him to the view that there should be a reduction of the amount of $4,517.88 (inclusive of GST) to the defendant's liability to the plaintiffs in respect of the relevant account. He also noted that where possible he had sought to identify supporting documents that corroborated or may verify the accuracy of the Systems independently of the electronic data. He noted that neither party had produced supporting documents that permitted him to undertake an extensive substantive testing of the level of corroboration. However what he had seen suggested to him that there was no data integrity issue. He then undertook an analysis of a comparison of stock delivered and invoiced. He went on to consider other matters including the Sundry Debtor Account reconciliation issue.
147As I have already observed, attached to this draft were detailed annexures setting out the calculations and much greater detail as to the methodology undertaken in the context of the concerns expressed by both the defendant and the plaintiffs. In his analysis in Annexure A6 (which dealt with the comparison of stock invoiced and received) he observed that neither party had produced Proof of Delivery or other records directly verifying delivery of the stock supplied to the defendant for the term of the franchise. He took the view that the records were somewhat academic because they would only ever show the receipt of a certain number of pallets. He then set out in some little detail the methodology he adopted in relation to this exercise and on any reading of this section of the report set out in great detail the concerns of both parties, the data that he used, and the exercise which he describes as his initial review and upon analysis came to the view that the invoices showed a very high level of correlation to acknowledged orders.
148On 22 May the Referee forwarded a letter to the Court, and to Mr George Hanna and the solicitors for the plaintiffs (CB9/3878). Under the hearing "Review and Procedural Fairness" the Referee set out his position in relation to the issue of procedural fairness. I have quoted from this report earlier in the judgment at paragraph [31]. The "criticism from one party" which the Referee refers to is clearly a criticism from the solicitor for the plaintiffs which I have earlier referred to. The Referee made it abundantly plain to the parties and to the Court the reasons why he chose to communicate separately with the parties and their representatives and his general approach to the gathering of information. He again confirmed, as was plain and obvious, that the parties were to proceed upon the basis that they were invited to make comments upon the report and depending upon those comments he may well be able to report soon to the Court by way of final report. No complaint was made by any party to the Court.
149On 12 June Mr Hanna sent a copy of the April report together with detailed marginal criticisms and notes highlighted in yellow in respect of any portions of the report I infer he wished to make comment upon (CB9/4090). He indicated in his email to the Referee that he had pointed out several misstatements in the draft and he would like a meeting in order to discuss them. He had also detected errors in some spreadsheets. It is fair to say that Mr Hanna commented extensively on many sections of the April draft report. As a result no doubt the Referee invited Mr Hanna to produce additional documentation which he had referred to in some of those comments. It is also plain and apparent that the Referee and/or his staff took on board the comments made by Mr Hanna.
150In a letter to Mr George Hanna dated 23 July the Referee in a twelve page letter responded to Mr Hanna's comments (CB9/4005). In a number of areas the Referee indicated that as a result of taking on board Mr Hanna's comments he was proposing to make changes to in particular in relation to the alleged inadequacy of the plaintiffs' internal accounting system. The Referee said:
Timely reconciliation by the Retailer and the Franchisor's bookkeeping staff on a month-to-month basis of Debtor Account Statements ought to have identified the issues in the first instance "picking up" that an invoice or a Credit Note had not been recorded in the relevant month Debtor Account Statement but that the opening "balance of the next months Debtor Account Statement would show a monetary difference being the sum of the "missing entries" from the end of the previous month.
This weakness in the Franchisor's Accounting System may have been frustrating from the Retailer's view point. However Monthly Debtor Account Statements issued subsequently reflected the correct "Debtor Balance" where the Retailers accounting staff ought to have adjusted records accordingly on a progressive basis.
The only incorrect entry identified in the analysis was the allocation of two credit notes for a total of $34,420.06. These were incorrectly credited to the Designated Stock Debtor Account instead of the Sundry Debtor Account. The entries have been adjusted by the Referee.
151In a number of respects the Referee also indicated to Mr Hanna that he was proposing to rewrite a number of sections of the annexures as a result of comments made by Mr Hanna.
152The Referee however indicated that substantially he thought that the defendant's liability would remain as previously stated. The Referee however did not send this letter to the plaintiffs or their representatives but only to the defendant.
153On 24 July the Referee issued what was intended to be a final report but which took into account the various corrections he had indicated he would make (CB1/235). On this occasion as part of the materials attached to this report he included Mr Hanna's detailed criticisms of the April Report.
154The Referee met separately with Mr George Hanna and Mr Hanna on 7 August and discussed the various issues and underlying materials.
155On 8 August the Referee again responded on a number of issues clearly raised during the course of the meeting described as "three areas" (CB9/4018). Mr Hanna was obviously concerned about the level of proof of delivery, what was said to be initial deliveries in November/December 2005 and the settlement of the sundry account. In relation to the latter he had always maintained that there had been a reconciliation and that a number of employees of the plaintiff had confirmed that liability under that account up to the end of January 2009 had been settled and paid in full.
156On 9 August Mr Hanna sent a detailed letter to the Referee articulating in some detail his concerns about each of the issues just mentioned along with others (CB9/4087). He asserted that the report of the Referee contained "serious inaccuracies" and he requested the Referee to take the various matters into account that he had undoubtedly raised both at the meeting and in this email.
157In or about August a number of things occurred. At or about this time it is common ground that Mr Hanna dispensed with the services of Mr George Hanna as his solicitor. On 15 August Mr Hanna sent an email to the Referee (CB2/519). In passing I should observe that neither his email of 9 or 15 August were sent to the plaintiffs' representatives. Nonetheless, in the email of 15 August he set out again in some considerable and additional detail further reasons why the Referee should re-consider various aspects of the report. In particular he referred to proof of delivery and provided two specific examples that referred to particular invoices. He contended that proof of delivery was at the "heart" of the dispute, and urged the Referee to pursue third party carriers for information, examples of which he attached to this communication. He asserted that he had been frequently invoiced for stock that did not arrive and he requested that the Referee examine courier company records in order to help accurately determine if stock was actually delivered to his store. Apart from this rather belated request for the Referee to pursue third parties it does not seem to me that Mr Hanna had very much by way of fresh material for the Referee's consideration.
158Before the Court and the Referee, Mr Hanna also took exception to the Referee's report having determined contrary to Mr Hanna's assertion that there had been overcharges in relation to third party invoices and that in fact there had been some undercharges. He indicated that he had reviewed a number of them and that the issue had been misinterpreted by the Referee. He gave two examples which he asserted were supported by documentary proof. He made further comment about the settlement of the Sundry Debtor Account and the alleged reconciliation requesting that the Referee adjust his liability based on what he described as "documentary evidence" which amongst other things contained an email from a Mr Ken Carville (relevantly an employee of the plaintiff) purporting to indicate that the relevant account had been reconciled and paid out.
159On 16 August the Referee issued a supplementary report (CB2/478). He dealt with each of the issues Mr Hanna had raised.
160In relation to proof of delivery documentation he again identified the concern raised by Mr Hanna. Indeed he said (CB2/487):
The Retailer in our meeting suggested that I might seek documents from third parties, in particular the carrier. The Retailer indicated that his inquiries suggested that third parties held such documents.
161The Referee then referred to the two examples given by Mr Hanna. Mr Hanna asserts that the Referee misinterpreted the two documents. Even assuming that to be correct, for reasons I will come to I think nothing turns upon this. The Referee said it seems to me quite sensibly:
Moreover although I have not undertaken the enquiry I doubt whether original Delivery Documents from 2005 would be held by third parties. The tendency of my experience and other commercial investigations is that because such records are costly to store they are destroyed as soon as they cease to be of apparent relevance for the parties to the carriage of the contract. That is to say within months of the payment of the account. I note that the delivery slips provided by the retailer are both "Receivers Copy".
162In that report the Referee, correctly and appropriately in my view, set out the practical difficulties at that stage of the Reference in attempting to investigate the matter further. Amongst those matters was the identification of the third party carriers, the issue of subpoenas, the time and cost involved in potentially acquiring such records if any did exist and then the inadequacies of the likely comparison that could be made.
163In relation to invoices generally and particularly in relation to the initial deliveries in November and December 2005 the Referee noted that there was a system for disputing invoices which Mr Hanna had made extensive use of and that it was not apparent from the materials he had examined that there was any systematic error or refusal by the plaintiffs to honour legitimate and timely claims for credits. Further he thought there was no rational suggestion that the invoices were in fact "inauthentic".
164In answers to the original questions, the Referee gave alternative answers to question one on the basis of whether or not a reconciliation of the Sundry Debtor Account had been completed, and confirmed his calculation in relation to question two.
165The analysis in relation to the reconciliation and settlement of the Sundry Debtor Account is set out at some detail at CB2/491-492. The Referee formed the view, which I believe was open to him, that on the supporting documents there did not appear to be a final reconciliation in a way evidencing an intention on the part of the plaintiffs to settle and compromise the account. While there were a number of the plaintiffs' employees who made statements regarding reconciliation, in my view the Referee on the available materials and given his expertise as an accountant was perfectly entitled to form the view that there had not been a reconciliation. In doing so, he made express reference to a number of emails which I will set out below. He took those matters into account and formed a different view of the facts from that asserted by Mr Hanna.
166On 2 March 2009, Ms Lynne Gallucci wrote an email (CB2/648) regarding a Core Ranging Trial at Liverpool, although the email was not sent by Ms Lynne Gallucci to Mr Hanna. The email relevantly stated:
The reason this store has been selected is primarily due to its ongoing poor trading performance over a number of years...
The first step was for the franchisee to pay the outstanding B account balance as agreed with Fernando [Fernando Calagiore, API National Credit Manager] and this happened as planned last Friday February 27th.
167On 9 March 2009, Mr Ken Carville wrote an email to Mr Hanna (CB2/646) which relevantly stated:
Thought you may be interested in seeing the document I prepared to show Ashley Killick [Chief Financial officer of the plaintiffs]... The purpose was to illustrate two matters, one the history of how these matters have been so badly handled and secondly the amount a customer's account can then be subsequently distorted or inflated by the practice of not following through claims in a timely manner.
168On 7 July 2009, Mr Hanna emailed Mr Ken Carville and Mr Fernando Calagiore (CB2/709) and attached a letter which relevantly stated:
Regarding the resolution of the outstanding issues I would like to implement a plan similar to that agreed upon in November 2008, but not executed, being to:
...
5. Complete the reconciliation process begun in January 2009; then meet again at this time to put in place the final payment plan for the balance owing.
[emphasis added]
169The Referee noted that he had not heard any evidence on this issue from the participants, and neither have I as no oral evidence was presented or was there any cross-examination that would provide material beyond the supporting documents that were before the Referee.
170In his submissions on the issue of reconciliation (T101.14-T108.15), the defendant brought my attention to correspondence that was not referred to by the Referee in the supplementary report, but that had occurred between the Referee and the plaintiffs without being copied to the defendant. In an email dated 20 June 2012 from the solicitors for the plaintiffs to the Referee (CB8/3606), in response to a request for information and documents by the Referee dated 6 June 2012, the following appears at CB8/3619:
In a meeting between Mr Hanna and Ms Tan of Priceline, they sought to reconcile Mr Hanna's sundry account with a view to then attempting to reconcile the stock account. The reconciliation of the stock account was not completed. The reconciliation of the sundry account was completed.
[emphasis added]
171Counsel for the plaintiffs sought to deal with this letter in the following manner (T159.32-T159.44):
Let it be assumed that the letter of June 2012 when it spoke of a process of reconciliation constituted an admission by API that, not only was there an account reconciliation, but an account stated, a quite separate thing - let that be assumed. It is inconsistent with the pleadings because my client, although it has not filed a reply, has joined issue impliedly on the allegation, but, even if there was an allegation of an account stated and some admission, it was entitled to retract that and it did do that at least and it was plain on the terms of the referee's report that it denied an account stated and it was there for Mr Hanna to comment on. And what the referee did, very fairly, was say, Look, to the extent there is a conversation involving Ms Tan, I am not prepared to deal with that, that is a matter which the Court should deal with, but what I will do, if there was an account stated, is review what the balance owing is, and he found there was a balance owing by Mr Hanna to API.
172What has not been provided is a clear and unequivocal acknowledgment on the part of the plaintiffs that the defendant's liability in respect of the Sundry Debtor Account up to January 31 2009 would be satisfied in full by the payment of $29,565.61. More to the point, the materials are entirely ambiguous at best.
173In addition, the Referee had clearly formed the view that the parties were arguably mistaken about the amount said to be reconciled. He observed (at CB2/491) that:
Because I identified transactions which had either wrongly been brought to account in the Retailer's favour or which had been omitted from the Reconciliation, I arrive at a higher level of indebtedness on this Debtor Account than what the Retailer contends was agreed in the reconciliation.
174The Referee went on to note that:
My view is that the Supporting Documents do not indicate that the account was finally reconciled in a way evidencing an intention on the part of the Franchisor to settle and compromise the account.
175As noted above, the parties were content to have the dispute concerning the reconciliation determined by me on the basis of the documents before the Referee. Based on my examination of those documents, I regard the position in relation to reconciliation as at best ambiguous and on balance I consider the view expressed by the Referee is more probably than not correct, namely that there was no final reconciliation.
176The Referee in the supplementary report set out what he thought Mr Hanna owed even if he were incorrect in relation to the reconciliation. In short if the account had not been reconciled by compromise he considered the amount outstanding to be $98,542.92. If on the other hand it had been reconciled there would still be an amount outstanding of $46,626.73. On any view I do not consider the Referee fell into error, and I determine that that the account had not been reconciled and the larger amount of $98,542.92 should be adopted.
177In addition, the defendant also asserts that the Referee made certain specific errors in his reports, to which I have previously referred in [49], in coming to his answers regarding the two questions of the Reference.
178I note the relevant principle in Chocolate Factory at 7(7) that generally findings of fact should not be reagitated in the Court, and that the Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he did. I also note the principle at 7(13) that a question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised "by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it", but rather "to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence".
179In relation to the first complaint regarding proof of deliveries, I refer to the extensive consideration by the Referee in the July report (CB1/291-293) and the August report (CB2/486-489). Given the emphasis placed by the Court on proof of delivery it is understandable why the Referee spent an enormous amount of time trying to understand the documents and I am satisfied that he has conducted a thorough and comprehensive analysis. No error has been demonstrated that would justify the rejection of the report in whole or in part.
180The second complaint relates to the treatment of third party invoices. In my view, the Referee conducted a comprehensive examination of the contemporaneous records (CB1/417-423) and committed no error that would necessitate the rejection of the whole or this specific part of his report.
181The third complaint relates to an alleged incomplete analysis of Club Charge overcharging (CB2/600-602). In my view, the Referee attempted to resolve this issue as best he could given the limited documents available to him.
182The fourth complaint relates to the supply of stock at the beginning of the franchise relationship. The Referee rejected the assertion of the Retailer in relation to initial deliveries at CB2/489-490 and gave his view that the invoices provided the best record available. The Referee stated:
There was a System for disputing invoices; the Retailer made extensive use of it and it is not apparent that there was any systematic error or refusal by the Franchisor to honour legitimate and timely claims for credits;
Accepting the Retailer's contention would deny the Franchisor recovery for all Stock supplied at the beginning of the relationship. Even allowing that there may have been some discrepancies in the initial supply which may not now be capable of being identified or remedied, it would be manifestly wrong to conclude that no stock was supplied when the Franchise was begun.
183In my view, it was entirely reasonable for the Referee to form such a view and the defendant has failed in his assertion that any error was committed in relation to the supply of stock at the commencement of the franchise.
184In light of my views set out above, the principles enunciated by McDougall J in Chocolate Factory, the protracted nature of the Reference and the comprehensive analysis conducted by the Referee, the significant expense of the Reference and the central significance of section 56 of the Civil Procedure Act I am of the view that there is ample reason to accept the submission of the plaintiffs that those contested findings relate to factual matters and there is no basis to conclude that they were so unreasonable so as to justify the rejection of the report.