Plaintiff v Defendant

CONTRACT - Agency agreement - Wrongful termination of authority of agent - Whether agency agreement otherwise remains on foot

CONTRACT - Damages on breach - Damages for repudiation - Liquidated damages clause - Whether a penalty - Interest above rate set by the Penalty Interest Rates Act 1983 - Whether a penalty

Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441

Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99

Australian Broadcasting Corp v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540

Automatic Fires Sprinklers Pty Ltd v Watson [1946] HCA 25; (1946) 72 CLR 435

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153

Brogden v Metropolitan Railway Co. (1887) 2 App Cas 666

Carr v J A Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327

Codelfa Constructions Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337

Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520

Commonwealth of Australia v Crothall Hospital Services (Aust) Ltd [1981] FCA 117; (1981) 54 FLR 439

Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Dockside Holdings Pty Ltd v Rakio Pty Ltd [2001] SASC 78; (2001) 79 SASR 374

DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423

Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1914] UKHL 1; [1915] AC 79

GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2008) 128 FCR 1

GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2008) 128 FCR 1

Gordon v Australasian & New Zealand Theatres Ltd (1940) 40 NSWSR 512

Hadley v Baxendale [1854] EngR 296; (1854) 9 Exch 341

Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351

McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 176 ALR 711

Murray Irrigation ltd v Balsdon [2006] NSWCA 253

Pacific Carriers Ltd v BNP Paribas [1982] HCA 24; (1982) 149 CLR 337

Pico Holdings Inc v Wave Vistas Pty Ltd [2005] HCA 13; (2005) 214 ALR 392

Ringrow Pty Ltd v BP Aust Pty Ltd [2005] HCA 71; (2005) 224 CLR 656

Robinson v Harman [1848] EngR 135; (1848) 1 Ex 850

Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332

Thomas Marshall (Exports) Ltd v Guinle (1979) Ch 227

Todorovic v Waller [1981] HCA 72; (1981) 150 CLR 402

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] 219 CLR 154

Westpac Banking Corp v Tanzone Pty Ltd (2000) 9 BPR 17

Willfa & Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426

Willis v The Commonwealth [1946] HCA 22; (1946) 73 CLR 105

1 GT Corporation Pty Ltd ("GT") claims damages against Amare Pty Ltd ("Amare") for several breaches of an agency agreement under which GT acted as an agent for Amare from 2001 to 2005.

2 Amare is a small Melbourne based company that sells and distributes personal protective equipment. Currently, it has about twenty eight employees. Amare's sole shareholder and managing director is Mr Geoff Pizzey.

3 GT's sole shareholder and director is Mr Grant Tuckett. He uses the company to offer his services and, relevantly to the agency agreement in dispute, he used the company to offer his services as a salesman for Amare.

4 Prior to GT entering into the agency agreement with Amare, Mr Tuckett worked for Alsafe Safety Industries Limited ("Alsafe") another business selling personal protective equipment. At one stage, Mr Tuckett was working on commission but after Alsafe was taken over by a large public company Alsafe ceased to employ Mr Tuckett on a commission basis and employed him on a salary. Whilst working at Alsafe, Mr Tuckett worked with Mr Ron Williams as his immediate superior.

5 In 1997, Mr Pizzey ceased to manage Amare on a day to day basis and employed a general manger to do so. In June 2001, the then general manager Mr Ross Kinsman was replaced as general manager by Mr Ron Williams. Mr Williams considered Mr Tuckett to be a good salesman and sounded out Mr Tuckett about moving to Amare. Mr Tuckett said that he would be willing to do so if he could use his company GT as the contracting party and that GT be paid commission on the margin earned on sales.

6 Mr Williams introduced Mr Tuckett to Mr Pizzey prior to Mr Pizzey leaving overseas for a holiday at the end of September 2001. There is some dispute about the timing and circumstances in which Mr Tuckett was introduced to Mr Pizzey.

7 Whilst Mr Pizzey was overseas on his holiday, Mr Williams and Mr Tuckett finalised negotiations for the agency agreement between GT and Amare. Mr Pizzey gave evidence that he expressly instructed Mr Williams not to enter into an agreement with GT whilst Mr Pizzey was away on holidays.

8 In any event on 10 October 2001, the agency agreement was entered into. Mr Tuckett prepared the contract with the help of a solicitor friend and used as a precedent a contract that he had considered putting to Alsafe.[1] Mr Williams and Mr Tuckett made some hand written amendments and signed the contract.

9 Mr Pizzey gave evidence that he did not become aware of the contract until late January 2002 some two months after he returned from his holiday. He did not like the contract. In 2005, he informed Mr Tuckett that he thought the contract was a fraud and that Mr Tuckett and Mr Williams were in "cahoots" in entering into the contract. Be that as it may, Amare does not dispute the validity of the contract.

10 It will be necessary to go to the detail of the contract in due course. At this stage it is sufficient to describe it in general terms. GT was appointed the sole and exclusive agent to act for Amare in three Victorian geographical areas and in respect of other nominated customers. The three areas were part of several areas that Amare divided its Victorian market into. The areas were then known as areas 1, 1A and 2. These subsequently became areas 210, 140 and 220. Speaking generally, area 1 covered the western suburbs of Melbourne and the area down to Geelong. Area 1A was the area beyond Geelong in the Western District to the South Australian border and south of the Ballarat Highway. Area 2 included the CBD of Melbourne and its northern suburbs.

11 Although not specified in the contract, Mr Tuckett had informed Mr Williams that GT intended to employ Mr Chris Littler, another Alsafe employee to handle area 220.

12 The contract provided that each month GT would be paid commission of 60 per cent of the gross margin or profit on the first $20,000 of sales and 40 per cent of the balance.

13 The agency agreement was to last for five years with GT having the option to extend the agreement for three further five year terms. There is a dispute as to whether or not GT required the consent of Amare to extend the term.

14 As mentioned above, GT was to have the exclusive right to sell Amare's product to the customers in the designated areas so that Amare could not engage any one else to sell products in those areas. Amare disputes that the agency was exclusive. It submits that Amare could sell its products in the areas allocated to GT so long as it credited GT for the sales for the purposes of its commission entitlements. Amare did not say what affect such sales would have on GT's performance under the automatic termination clause which I discuss below.

15 The agency agreement provided for automatic termination. In particular, it provided that the contract would be terminated if a defined "Minimum Performance" was not achieved for three consecutive months irrespective of the wishes of the parties. The construction of the terms governing this automatic termination is a matter in issue.

16 The "yearly budget" was used in calculating whether the Minimum Performance had been achieved. What constituted the "yearly budget" is one of the matters in dispute. Suffice it to say that for the first year of the contract the level of sales of Goods to be achieved as "the Budget" was set at $1,420,000 (including GST) at a 24.72% trading margin. One of the issues in the case is whether or not the inclusion of GST was a common mistake that ought to be rectified by amending "including" to "excluding" GST.

17 In October 2001, GT commenced to act as agent. GT signed an employment agreement with Mr Littler on 11 October 2001, the day after the agency agreement was signed.[2] The actual costs to GT of employing Mr Littler was estimated by Mr Tuckett in February 2002 at $9,000 per month or $108,000 per annum[3].

18 Mr Pizzey gave evidence that he first discovered the existence of the agency agreement in late January 2002 when he had occasion to go into the office of the general manager Mr Williams and located the agreement on his desk. He said that he read it and was concerned to see that the commission was 60 per cent on the first $20,000 of gross profit per month and the balance at 40 per cent. Mr Pizzey said that he discussed the agency agreement with Mr Williams. Mr Williams says Mr Tuckett had informed him that if Mr Pizzey was unhappy with any aspects of the agency agreement he would discuss them with Mr Pizzey and resolve them. Mr Pizzey also said that Mr Williams told him that GT was employing Mr Chris Littler to look after area 220 and that Mr Tuckett had said that GT needed the extra 20 per cent commission rate over 40 per cent to meet the extra costs of employing Mr Littler until sales had been built up in area 220. After that happened, GT would be happy to reduce the commission rate of 60 per cent on the first $20,000 of gross profit per month back to 40 per cent. Mr Tuckett disputes this.

19 Mr Pizzey says that prior to his departing for his overseas holiday at the end of September 2001 he had been shown a copy of an agreement between GT and Alsafe and his recollection was that a commission of 34 per cent was being paid by Alsafe. An unexecuted copy of an agreement between GT and Alsafe tendered into evidence uses a commission rate of 38 per cent on gross margins.[4] In any event, Mr Pizzey had in his mind that 34 per cent was the rate paid by Alsafe. At that time, Mr Pizzey had no experience of paying commission rather than a salary and all salespeople working for Amare were on a salary with the possibility of bonuses if budgets were reached.

20 As mentioned above, Mr Pizzey gave evidence that he found out about the contract in late January 2002 and was none too pleased about it. He says he was especially unhappy about the commission structure of 60 per cent on the first $20,000 of gross profit on orders received and 40 per cent on the balance. He was also particularly concerned about the term of the agency agreement and that if extensions were exercised it could run for twenty years.

21 As a consequence of discovering the agency agreement, Mr Pizzey had a meeting with Mr Tuckett on 21 February 2002. Mr Williams was present as well.

22 Mr Tuckett prepared discussion points for the meeting. After the meeting, Mr Tuckett added notes about matters arising out of the meeting and gave a copy to Mr Pizzey. The notes recorded that Mr Pizzey was to put forward new commissions presumably for GT to consider.

23 Mr Pizzey says that at the meeting he discussed with Mr Tuckett the commission rate and suggested a flat rate of 34 per cent should be payable. He says that he could not budge Mr Tuckett one per cent. Mr Pizzey and Mr Tuckett also discussed the allocation of customers to GT and sought to correct what Mr Tuckett said were incorrect allocations.

24 On 14 March 2002, a second meeting was held between Mr Pizzey, Mr Williams and Mr Tuckett. Again allocations were discussed. Mr Pizzey did not put forward any new commission rates. He said he did not do so as it would have been a waste of time. On 11 April 2002, a third meeting was held between Mr Pizzey, Mr Williams and Mr Tuckett. Mr Pizzey says he again raised the issue of commissions being too high but that Mr Tuckett would not change GT's commission arrangements. On 16 May 2002, a fourth meeting was held between Mr Pizzey, Mr Williams and Mr Tuckett and it was agreed to discuss in October 2002 the commission splits between GT and Amare.

25 It is common ground that, due to personal problems, Mr Littler did not perform. In July or August 2002, Mr Pizzey raised his concerns with Mr Tuckett concerning Mr Littler's performance[5]. Prior to 9 September 2002, Mr Williams and Mr Tuckett discussed Mr Littler's performance[6].

26 At Mr Tuckett's request, Mr Williams drafted a letter from Amare to GT[7] of 9 September 2002 as follows:

The results from your (Tuckett's) direct area of activity (Area 210 - western and south west suburbs) are strong and growing ... unfortunately the results out of Area 220 are headed in the opposite direction. Chris has failed to achieve his monthly budgeted sales in every month since November (2001) with the exception of February (2002) ... he is struggling to even maintain a turnover value of the territory as it was when allocated to GT Corporation back in November 2001 which is approximately $45,000 per month. ... Geoff and I have both expressed our concerns to you verbally on several occasions over the past couple of months. ... If Chris again fails to achieve his sales budget for September we will have no choice but to provide GT Corporation with 30 days formal notice of our intent to withdraw the allocated territory 220 (north western city) from Chris' control.

Amare Safety will look to other options to manage and develop this territory. We would be prepared to discuss with you specific customers or parts of the territory 220 that you may wish to retain under your direct responsibility, however, we must firstly resolve this over-riding issue.[8]

27 On 17 September 2002, GT terminated Mr Littler's employment. The letter from Mr Tuckett noted:

GT Corporation's sole area of business is the sale of Amare Safety's products to their customers in Amare Safety's defined areas 140, 210 and 220 (approximately 50 per cent by area of Amare Safety's Melbourne metropolitan business). You are directly responsible for area 220.

I have been concerned about your poor performance shortly after commencement of your employment in November last year ... I have continuously warned you that you need to improve your performance, specifically at your performance review on 2 May and again in July.

Pursuant to your employment contract, you are required to achieve your contribution budget for allocated area each month. ... You have failed to achieve your contribution budget 6 times, including each of the last 3 months and are unlikely to achieve it for the current month ... [9]

28 On 16 October 2002, Mr Tuckett and Mr Pizzey met again. After the meeting the commission paid to GT was reduced from 60 per cent of gross profit to 40 per cent as from 1 November 2002. The parties are in dispute as to whether or not that reduction was done with the agreement of GT in accordance with the agency agreement or merely unilaterally imposed by Amare. GT describes this as the First Commission Breach.

29 In October 2002, Mr Littler left the employ of GT and on 31 October 2002 Mr Tuckett, Mr Pizzey and Mr Williams met to discuss the future of area 220 that had been serviced by Mr Littler. After that meeting, area 220 was allocated by Amare to one of its employees, Mr Michael Smith. The parties are in dispute as to whether or not Amare breached the agency agreement by giving area 220 to Mr Smith and effectively denying GT the right to service area 220. GT describes this as the Territory Breach.

30 In December 2002, Mr Tuckett telephoned Mr Smith and acknowledged Mr Smith was taking over area 220.

31 In about April 2003, Mr Williams left the employ of Amare and in about June 2003 was replaced by Mr Tony Riddell as general manager.

32 On 21 September 2003, Mr Tuckett emailed Mr Riddell in which Mr Tuckett confirmed the accounts that GT retained despite the accounts being in area 220 and confirmed that area 220 was Amare's territory.

33 On 4 December 2003, Mr Pizzey and Mr Tuckett had further discussions about amending the agency agreement. Mr Pizzey was still unhappy about its terms.

34 On 16 December 2003, Mr Tuckett sent to Mr Riddell a proposed new agency agreement with the amendments discussed, particularly the commission payable. The proposed agreement included a budget of $1,772,000 exclusive of GST on a margin of 22.368%.[10] Earlier in about July 2003, Mr Williams had put forward a budget for GT for 2003-2004 which included budget sales of $1,772,000 and a budget margin of $396,690.[11] GT denies that it agreed to that budget despite recording those sales as the budget for 2003-2004 in its budget proposal of 8 June 2004 for the year 2004-2005.

35 The commission put forward in the proposed new agency agreement of 16 December 2003 was 40 per cent and Amare relies on the email and attached agency agreement in establishing the agreement of GT to a reduction of commission to 40 per cent.

36 On 18 December 2003, Mr Tuckett, Mr Pizzey and Mr Riddell met again to discuss the proposed new agency agreement.

37 On 19 December 2003, Mr Riddell emailed Mr Tuckett the agency agreement that was discussed on 18 December with suggested tracked amendments. Mr Riddell confirmed Mr Pizzey was to seek advice on the indemnity and related clauses as well as considering the compensation for termination clause. Mr Riddell added that he would like to think they would have this matter resolved by the end of January.[12]

38 On 21 January 2004, GT sought a response from Amare to the draft agency agreement it had proposed in December but received no response.[13] The negotiations ceased at this point.

39 Early in 2004, GT sought to approach customers in area 220 that Mr Smith was then looking after. On 13 April 2004, Mr Tuckett emailed Mr Smith, with a copy to Mr Riddell, a list of customers that GT was working on in area 220.

40 In May 2004, Mr Riddell requested from GT, and Amare's other salesmen, a proposed budget for 2004-2005 and provided GT with information on its performance for the year to date.

41 On 1 June 2004, Mr Tuckett met with Mr Riddell to discuss the budget for GT for 2004-2005. On 8 June 2004, Mr Tuckett faxed to Mr Riddell a hand written proposed budget for 2004-2005. It included sales of $2,000,000 and a gross margin of 23 per cent.[14] The budget dealt with areas 210 and 140 only. It did not deal with area 220.

42 On 8 June 2004, Mr Riddell responded to Mr Tuckett. He returned a copy of the budget Mr Tuckett had sent to Mr Riddell noting in handwriting on the document that the proposed sales were a 13 per cent reduction on the sales actually achieved. Mr Tuckett had noted on his budget that the proposed sales were a 10 per cent increase on those budgeted by Amare the previous year. After a further exchange of emails, Mr Riddell advised Mr Tuckett he was happy to meet with him to discuss the budget.

43 No such meeting took place and on 24 August 2004 Mr Riddell sent to Mr Tuckett "your 2004-2005 budget" fixing both budget sales and budget margins for both area 210 and 140.[15] Mr Riddell informed Mr Tuckett that if he had any queries "refer to me." No further discussion took place on the budget. The parties are in dispute as to whether or not this particular document constitutes the budget for GT under clause 3.2 and if so for what period.

44 In the mean time on 11 August 2004, Mr Riddell had emailed Mr Tuckett to arrange a meeting to discuss the possible appointment of a business development manager ("BDM") to areas 210 and 140.

45 On 12 August 2004, a meeting took place in the board room of Amare at Mulgrave between Mr Pizzey, Mr Riddell and Mr Tuckett to discuss the appointment of Mr Armstrong as a BDM to boost sales in area 210 and 140. There is a dispute as to what actually transpired at the meeting.

46 There is no dispute, however, that following the meeting an exchange of emails took place between Mr Riddell and Mr Tuckett which concluded with GT agreeing to the appointment of the business development manager to areas 210 and 140. In substance, GT agreed that certain customers could be approached where sales had been below $10,000. A list was agreed on specifying those customers that could be approached by Mr Armstrong and those that could not be approached. The agreement provided for GT to be credited with the sales to any new customer gained after twelve months. There is a dispute as to whether or not this agreement was breached and whether or not the agency agreement was amended in terms of this agreement. GT describe this as the Exclusivity Breach.

47 On 13 August 2004, Mr Tuckett emailed Mr Riddell. Mr Tuckett said that he agreed to allow the BDM access to GT's contracted areas.[16]

48 On 27 August 2004, Mr Riddell emailed Mr Tuckett confirming the agreement for the BDM to operate in GT's areas including that Amare would provide GT with a list of accounts that Amare wanted the BDM to manage, any account activity by the BDM in areas 140 and 210 would not occur without consultation by both parties and the BDM list of accounts would be reviewed periodically by agreement of both parties.[17]

49 On 29 August 2004, Mr Tuckett emailed Mr Riddell stating that he agreed with Mr Riddell's email and waited for Amare's list of target accounts for the BDM that Amare wished GT to consider.[18]

50 On 1 September 2004, Mr Armstrong commenced his role as BDM.

51 On 1 September 2004, Mr Tuckett emailed Mr Riddell to inform him about a potential tender and said that "if we are successful...I will be paid at the normal rate of 40%." Amare rely on this email to establish GT's agreement to the reduction in commission to 40 per cent.

52 On 2 and 3 September 2004, Mr Riddell emailed Mr Tuckett including a list of target accounts applicable "to your area."[19] Mr Tuckett responded wishing Mr Riddell good luck.

53 On 6 September 2004, Mr Tuckett emailed Mr Riddell a list of accounts that GT would like to keep and also the accounts that GT allowed the BDM pursue.[20]

54 On 8 September 2004, Mr Riddell responded saying there were a couple of accounts that he would like to discuss in more detail on Friday 10 September. Messrs Riddell, Tuckett and Armstrong met on 10 September and following which Mr Armstrong started pursuing customers.

55 In early December 2004, Mr Tuckett was informed that GT would no longer be credited with sales made to President Safety. Earlier in August 2003, Amare had agreed in a formal "outsider agreement" that GT could service President Safety and it would be credited with sales to President Safety. President Safety had "ship to" addresses outside areas 210 and 140 and in the normal course these would not have been covered by the agency agreement. On the "outsider agreement" Mr Pizzey had stipulated six months as the period after which the status of the account would be removed.[21]

56 GT claims that President Safety should have been credited to GT in December 2004. Amare denies this, saying that the agreement was not to be reviewed after six months but rather it was only to last for six months. Amare relies on a notation on the form recording the opening of an account for President Safety. The form provides "Review Required (Yes/No)." That is not filled in. Next it provides "Date of Review." That is not filled in. Next it provides "Purpose of Review." In that section Mr Pizzey wrote "6 months."

57 On 17 December 2004, Mr Tuckett gave a power point presentation to the sales staff at Amare using the 2004-2005 budget sent to GT in August by Mr Riddell as GT's budget for that financial year. The presentation included Mr Tuckett comparing actual performance to the budget. Amare rely on this presentation as evidence that GT had accepted Mr Riddell's budget as the budget under clause 3.2 of the agency agreement. GT disputes this.

58 In December 2004, Amare sought advice from its solicitors on the agency agreement without the knowledge of GT. At some time in early 2005, Amare was advised on the automatic termination clause of the agreement.

59 On 7 March 2005, Mr Riddell emailed Mr Tuckett and asked him to meet on 18 March 2005 to discuss sales performance. On 17 March 2005, Mr Tuckett emailed Mr Riddell to inform Mr Riddell that he was attending a funeral and could not make the meeting the next day. On 30 March 2005, Mr Riddell asked Mr Tuckett to meet with him on Friday 15 April "for the territory review."[22] No mention was made of any proposal to discuss the termination of the agency agreement.

60 On 15 April 2005, Mr Tuckett met with Mr Pizzey and Mr Riddell in Amare's board room. The meeting was brief. Mr Tuckett was informed GT's agency agreement had automatically terminated through its failure to achieve Minimum Performance. Mr Riddell had with him a calculation that purported to show as much. He says he may have shown it to Mr Tuckett. Mr Tuckett denies this.[23] He did not give Mr Tuckett a copy nor did he seek to explain the figures or give Mr Tuckett any opportunity to query or dispute the assertion that the agency agreement was terminated.

61 At the meeting, Mr Tuckett was given a letter from Amare's solicitors Davies Elliott addressed to GT informing GT the agency agreement was terminated pursuant to clause 5.2 of the agreement.[24]

62 Mr Tuckett was given another letter from Davies Elliott to GT of 15 April 2005, which enclosed a proposed new agency agreement and gave Mr Tuckett fourteen days to respond to the offer.[25] The new agreement proposed a reduction in commission from 40 per cent to 30 per cent, a 25 per cent reduction in commission. Mr Tuckett was informed he should consult a solicitor. There is a dispute as to whether or not the agency agreement had automatically terminated.

63 As indicated, Mr Tuckett had no warning of what Amare was about to do and was stunned by Amare's actions. GT was highly critical of the manner in which Amare went about asserting the agency agreement was at an end. No issue has arisen, however, in the case which turns on the manner in which Amare went about terminating the agreement. Nevertheless, I think it is proper to say that I found Amare's conduct, in purporting to terminate the agency agreement in the manner it did, shifty and underhanded. Effectively, Mr Tuckett had worked loyally for Amare for three years and one would have expected a more sensitive and tolerant approach to the termination issue than the deceptive and underhanded tactics of Mr Pizzey and Mr Riddell. I have put that conduct to one side in considering the issues in the case, save that it has influenced my thinking to a slight degree in assessing the reliability of the evidence given by Mr Pizzey and Mr Riddell.

64 Mr Tuckett consulted a solicitor. On 20 April 2005, Norton White on GT's behalf responded to Davies Elliott's letter of 15 April 2005 referring to Amare's purporting to terminate the agency agreement and disputing that the agency agreement had automatically terminated under the Minimum Performance provision.[26] Norton White rejected Amare's repudiation of the agreement and advised that the agreement remained in full force. Norton White reserved GT's rights in respect to Amare's breaches of the agency agreement in relation to the first commission breach, the territory breach and the exclusivity breach.

65 On 22 April 2005, Mr Tuckett met alone with Mr Pizzey in the Amare board room. Mr Tuckett says he asked Mr Pizzey to leave arrangements as they were until 1 July 2005 and Mr Pizzey agreed. Amare alleges that in fact an interim agreement was reached by which GT accepted the agency agreement was at an end and accepted that it would only be entitled to 30 per cent commission on gross margins from 1 July 2005 unless otherwise agreed. GT denies any such agreement was made.

66 Mr Tuckett made a diary entry of the meeting.[27] There is no note or reference to any interim agreement. The note records that Mr Pizzey refused to give Mr Tuckett the figures behind the termination. The note also records that Mr Tuckett informed Mr Pizzey that he wanted to stay with Amare but only if things change. The note records he informed Mr Pizzey he would not be signing the new contract.

67 On 28 April 2005, Mr Tuckett again met with Mr Pizzey in the Amare board room. After the meeting, Mr Tuckett made notes of what transpired most of which is disputed by Mr Pizzey. The notes are in the form of an agenda and topics which were discussed.[28] There is no mention of any interim agreement. Rather the note canvasses things that ought to be attended to by Amare to get better value from the services of GT. The note assumes that GT will be continuing to act as an agent for Amare.

68 On 16 May 2005, Mr Tuckett put forward two proposals in relation to "a proposed change of commission rate."[29] Mr Tuckett said that he thought that these would assist Amare in reducing overheads while giving incentive to GT to increase profit. Under option one GT put forward a range of commissions from 34% to 50%. Under option two, GT would receive 40% but would employ an additional person to assist. These were not proceeded with. Meanwhile, GT continued to act as the sole agent in areas 210 and 140 under the agency agreement.

69 On 13 July 2005, Mr Tuckett emailed Michael Smith with a copy to Mr Riddell confirming Mr Smith's acknowledgement to allow Mr Tuckett to approach the Department of Human Services in an attempt to gain their custom for Amare under area 220.[30]

70 On 27 July 2005, Mr Tuckett emailed Mr Riddell informing him that Mr Tuckett was taking leave from 15 September 2005 to 27 September 2005 and advising of arrangements he had put in place to service accounts in his absence.[31] Mr Tuckett's fiancé had sold the lease to the Bridge Hotel at Echuca and settlement was anticipated on 1 September. At one stage the affairs of the Bridge Hotel and Mr Tuckett's involvement with it were the subject of pleadings by Amare. Mr Williams had left the employ of Amare to take over as manager of the hotel. The issues arising out of the hotel were not pursued by Amare.

71 On 18 August 2005, Mr Tuckett telephoned Mr Pizzey to bitterly complain about the reduction of GT's commission from 40 per cent to 30 per cent which was shown on the commission report for July 2005 that GT had recently received. The discussion was very heated. Mr Tuckett made a diary note of the conversation.[32] His note records that Mr Pizzey informed him that he thought the original offer of 30% was too low. Mr Tuckett told him that he had never agreed to such a thing. Mr Pizzey told Mr Tuckett he could not afford GT and alleged that Mr Williams and Mr Tuckett were in cahoots when the agency agreement was made and the agreement was a fraud. Mr Tuckett denied this. As mentioned above, Amare has not made that allegation in the proceeding. On the contrary it has accepted the agreement was valid and binding on Amare. GT describe the payment of the reduced commission as the Second Commission Breach.

72 On 12 September 2005, Norton White wrote a further letter this time alleging breach of the agency agreement in respect of the first commission breach, the territory breach, the exclusivity breach and the second commission breach in July 2005. While reserving all GT's other rights, Norton White demanded payment of the loss calculated at $168,112.87, failing which GT would take such action as it may be advised.[33]

73 On 14 September 2005, Davies Elliott replied to Norton White's letter of 12 September 2005. As to the first three breaches, Davies Elliott alleges that they were each subject of agreement. In relation to the second commission breach, Davies Elliott says the matters referred to reflected negotiation between the parties in relation to the commencement of a fresh agreement.[34] There is no suggestion of any interim agreement in Amare's solicitor's letter.

74 On 20 September 2005 while Mr Tuckett was on leave, Mr Riddell left a voice mail message for Mr Tuckett informing Mr Tuckett that "as negotiation for our new agreement has not satisfactorily concluded there is to be no further sales marketing activity by GT Corporation on behalf of Amare Safety." [35]

75 On 27 September 2005, Mr Tuckett had returned from his holiday and received the voice mail message from Mr Riddell.

76 Despite the direction not to undertake any further sales marketing activity, on 27 September 2005 at 8.44 a.m., Mr Riddell emailed Mr Tuckett and asked him to confirm urgently by the close of business that day, his position regarding "our un-resolved negotiations on your new employment agreement."[36]

77 In response, on 27 September 2005 at 12.28 pm, Mr Tuckett emailed Mr Riddell and informed him that he had no intention of negotiating any new agreement. He also informed Mr Riddell that he was relying on the agency agreement and he intended to enforce it. He also advised that he was in the process of instituting legal action seeking compensation for Amare's repeated breaches of the agreement as detailed in his solicitor's letter of 12 September 2005.[37]

78 On 28 September 2005, Mr Tuckett met with Mr Pizzey to seek to resolve the dispute. He kept a diary note of the meeting. Much of what Mr Tuckett recorded as taking place is disputed by Mr Pizzey.

79 On the next day, 29 September 2005, Mr Tuckett emailed Mr Riddell disputing the effectiveness of Mr Riddell's voice mail message left on Mr Tuckett's mobile phone instructing GT not to perform sales and marketing activities on behalf of Amare.[38] GT advised that it did not accept the purported termination and the agency agreement was ongoing.

80 GT purported to exercise the option to extend the agency agreement under clause 3.10 for a further five year period commencing on 11 October 2006.

81 The letter further says that GT enforces the agreement in particular but not restricted to clauses 3.5 (commission to be paid at the rate of 60%), clause 3.1 (to be the sole agent for clause 2.16 schedule 1 (territory)) and clause 2.6 schedule 2 (customers) 1A (140), 1 (210) and 2 (220) and clause 2.7 (excluded customers).

82 It says that GT will require the removal of any representatives that currently engage in activity with schedule 1 (territory) and schedule 2 (customers) of the agreement.

83 GT asserts it had never been consulted on the sales/margin budgets for all the agreement customers and territories. GT says it did not accept such budgets.

84 GT says that these and any future budgets would need to be agreed upon by both parties and signed off as such as per clause 3.4.

85 Mr Tuckett concluded the letter by saying that GT would continue to perform under the agreement.

86 At 5.32 p.m. on 29 September 2005, Mr Riddell replied to Mr Tuckett by email saying that Mr Tuckett had left Mr Pizzey with no alternative as per his voice mail message and repeated "As negotiations for our new agreement have not reached a satisfactory conclusion there is to be no further sales and marketing activity undertaken by GT Corporation on behalf of Amare Safety."[39]

87 At 10.33 a.m. the next day, 30 September 2005, Mr Tuckett emailed Mr Riddell disputing there was another agreement. He said that Amare had not effectively provided the required notice of termination, that he would continue to fulfil his obligations under the agency agreement and he reiterated the notice provided under clause 3.10 extending the terms for five years.[40]

88 On 30 September 2005 at 11.26 a.m., Mr Tuckett complained to Mr Riddell by email that a client of his had been told GT would not be looking after its account in future. Mr Tuckett said that this was a blatant violation of the agency agreement and he reserved his rights.[41]

89 On 30 September 2005 at 12.44 p.m., Mr Riddell emailed Mr Tuckett referring him to Amare's solicitor's letter of 15 April 2005. Mr Riddell referred to Mr Tuckett's letter saying there would be no discussion entered into with Mr Pizzey. He reiterated the instruction not to undertake further sales and marketing activities on behalf of GT.[42]

90 On 30 September 2005 at 2.15 p.m., Mr Tuckett replied by email to Mr Riddell asserting that Amare was not entitled to cancel the agency agreement. He said that in future all legal issues were to be directed through his solicitors.[43]

91 Thereafter until 20 October 2005, GT procured many orders for Amare and emailed them through to Amare. On other occasions he advised of business that could be tendered for. On one occasion, Mr Riddell replied seeking some information from GT.

92 On 20 October 2005, Mr Pizzey emailed a letter to Mr Tuckett reiterating that the agency agreement was at an end and saying that any payment due to GT arises from "an interim agreement while we negotiated a further agreement." This was the first occasion an interim agreement had been mentioned in the correspondence.

93 The attached commission statement indicated that GT had made sales of $72,151.43 in October 2005.

94 On 21 October, Mr Tuckett emailed GT's customers informing them that GT was no longer acting for Amare and was ceasing to carry out its duties under the agency agreement. At that stage Amare had refused to accept any orders taken by GT.

95 On 2 November 2005, Mr Tuckett took a position with McKnight's Retravision. He made a diary note of this matter. The note recorded that Mr Tuckett expected to be back at Amare shortly. He said he envisaged that he would earn between $60,000 and $70,000 per annum.

96 GT complains of five breaches of its agency agreement with Amare under the headings of the First Commission Breach, the Territory Breach, the Exclusivity Breach, and the Second Commission Breach and complains that Amare wrongly terminated GT's engagement as agent denying it the fruits of the agency agreement.

97 For its part, Amare disputes the extension of the term of the agreement, claims the agreement was terminated in April 2005 and seeks rectification of the agency agreement. It also claims the liquidated damages clause and the interest clause are unenforceable as penalties.

98 I find for the plaintiff in respect of the First and Second Commission Breaches. I find against the plaintiff on the Territory Breach and the Exclusivity Breach.

99 I find that Amare repudiated the agreement and wrongfully terminated GT's authority as agent for Amare.

100 I find that the agency agreement was not automatically terminated in April 2005.

102 I find that the term of the agency agreement was validly extended for five years on 29 September 2005.

104 I will hear further submissions but not receive any further evidence on damages and interest. I have formed the preliminary view that the liquidated damages clause is not a penalty but the interest clause is.

107 GT alleges that on or about 1 November 2002 Amare breached the agency agreement ("The First Commission Breach") by purporting to reduce the commission to which GT was entitled on the first $20,000 of gross profit per month from 60 per cent to 40 per cent.[44] Particulars are given which allege that at Amare's Blackburn offices on or about 16 October 2002, Geoff Pizzey and Ron Williams on behalf of Amare orally told Grant Tuckett on behalf of GT that Amare was going to reduce the commissions payable on the first $20,000 from 1 November 2002 and that Mr Tuckett objected to the purported variation. The particulars conclude that notwithstanding Mr Tuckett's objection, Amare thereafter paid only the reduced commission to GT.

108 GT pleads that GT received no consideration under this alleged agreement.[45] It is not necessary that the consideration given by Amare move to GT. It is sufficient if good consideration moves from the promisee, it need not move to the promisor.[46]

109 In its further amended defence Amare denies the allegation and alleges that in October 2002 GT agreed with Amare to reduce GT's commission from 60 per cent to 40 per cent of gross profit on the first $20,000 in November 2002. Amare give particulars of the agreement as follows. The agreement was partly oral, partly in writing and partly to be implied. Insofar as it was oral, Amare alleges it consisted of conversations the substance of which was as follows. In or about September 2001, Mr Tuckett told Mr Williams that GT intended to employ Mr Littler to manage area 220 and therefore needed 60 per cent of gross profit on the first $20,000 in order to pay Mr Littler's salary. On or about 31 October 2002, Mr Tuckett told Mr Williams and Mr Pizzey of Amare that Mr Littler had been terminated. Amare alleges it proposed and Mr Tuckett agreed to reduce the commission rate to 40 per cent of gross profit accordingly. Insofar as it was in writing, Amare alleges it relied upon emails from Mr Tuckett to Mr Riddell of Amare of 16 December 2003 and 1 September 2004. Insofar as the agreement was implied, Amare alleges it is to be implied from the conversations and documents and from the fact that from 1 November 2002 the commission was calculated and paid accordingly without demur on the part of GT until 20 April 2005. Amare merely denies the allegation that there was no consideration.

110 In its amended reply, GT puts in issue the alleged agreement and says that the proper characterisation of the communication by GT was not that it was consenting to the variation but that GT was attempting to mitigate its loss. It is not clear which of the communications referred to is being pleaded to.

111 As discussed below, Amare relies on an estoppel defence to the alleged territory breach. It alleges that GT agreed to the excision of area 220 from the agency agreement and also pleads that from October and or December 220 and thereafter Amare and GT adopted and acted upon the common assumption that area 220 had been excised. It alleges that pursuant to the common assumption, it appointed Michael Smith as area manager of area 220 and in the circumstances would be unjust if GT was allowed to resile from the assumed common basis of dealing and it is estopped from so doing. An estoppel defence is not relied in defence to the first commission breach. No submissions were made on the failure to plead an estoppel to the first commission breach but it does tend to highlight the absence of consideration on the part of Amare to its alleged contract to reduce the commission payable to GT.

112 Amare submits but does not plead, however, that if the Court finds that what occurred in relation to the "variations" falls short of an agreement, then, nevertheless, GT is estopped from denying that such matters were agreed by reason of the fact there was no written agreement signed by the parties to be bound.[47] In view of the pleadings and the absence of the pleading of reliance and detriment by Amare, it appears that this submission relates to the variation relating to the alleged territory breach and not the variation relating to the first commission breach.

113 The principles of law relevant to amending contracts are well settled. Cheshire and Fiftoot express the position as follows:

"A contract cannot be varied unilaterally, but only by a further contract. Ex hypothese, variation by contract involves two contracts, the existing one (which may or may not continue to exist...) and the new one (the contract of variation)."[48]

See also Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd.[49]

114 In GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd[50] Finn J sets out principles that he says are relevant to variations of contracts which warrant repetition in this case:

(1) Parties to an existing agreement may vary or extinguish some of its terms by a subsequent agreement: Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [(1957) [1957] HCA 10; 98 CLR 93]. In so doing the parties will have made "two contracts": Commissioner of Taxation v Sara Lee Household & Body Care [2000] HCA 35; (2000) 201 CLR 520 at 533; with the latter, no less than the former being subject to the ordinary rules governing contract formation: for example, BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 286; Tekmat Pty Ltd v Dosto Pty Ltd (1990) 102 FLR 240 at 248.

(2) Conduct engaged in for the purposes of ongoing commercial arrangements is not always readily susceptible to the traditional forms of analysis employed by common lawyers for the purposes of determining whether a contract has been formed: Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117. This can be particularly the case when dealings are analysed on an offer and acceptance basis. So in Vroon BV v Foster's Brewing Group Ltd [1994] VicRp 53; [1994] 2 VR 32 at 81, Ormiston J was prepared to accept:

"... that agreement and thus a contract can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances."

Likewise in Integrated Computer Services Pty Ltd at 11,118 McHugh JA observed that:

"... in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed."

(3) In determining whether the communications between the parties constitute a contract the court is not confined to a consideration of the terms or manner in which the communications were made: they must be interpreted by reference to the subject matter and the surrounding circumstances including, inter alia, the nature of, and the relationship between, the parties, and previous communications between them, as well as to standards of reasonable conduct in the known circumstances: Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255. See also Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550.

(4) Post-contractual conduct is admissible on the question whether a contract was formed though it is not admissible on the question of what that contract, if formed, means: Brambles Holdings Ltd v Bathurst City Council [(2001) [2001] NSWCA 61; 53 NSWLR 153] at 163 - 164; Lord Steyn, "The Intractable Problem of The Interpretation of Legal Texts", p 9 ff, The John Lehane Memorial Lecture (2002).

(5) The need frequently arises in relational contracts of significant duration to adjust terms to accommodate changed or unforeseen circumstances. For that reason it is common for such contracts to make express provision for variation. Nonetheless, and notwithstanding their contract, parties in an ongoing business relationship equally commonly "regulate their relationships in accordance with what they consider is fair and reasonable or commercially necessary at particular points in time rather than by reference to a priori rights and duties arising under a contract:" Integrated Computer Services Pty Ltd at 11,117.

115 Amare places reliance on these principles and especially to the principle referred to in paragraph (5).

116 A variation is a second contract and consideration must be established.[51] As discussed above, Amare has not pleaded any consideration for the contract to amend the agency agreement with GT. Further, the absence of consideration may be relevant to the issue of whether GT and Amare intended to enter into a legally binding contract to amend the commission payable.

117 In its outline of closing submissions GT relies on two points. First, that the variation was not in writing signed by the parties and secondly that on the facts GT expressly rejected Amare's suggestion that it would reduce the commissions on the first $20,000.

118 As to the first point, the agency agreement provides as follows:

(1) An amendment or variation to this Agreement is not effective unless it is in writing and signed by the parties.

(1) A party's failure or delay to exercise a power or right does not operate as a waiver of that power or right.

(2) The exercise of a power or right does not preclude either its exercise in the future or the exercise of any other power or right.

119 GT submitted that clause 7.19 is in the contract to avoid the very mischief that the court finds before it in this case. It quotes Cheshire and Fifoot:

Although commercial contracts often contain stipulations that they can only be varied in writing ("no oral modification clauses"), such stipulations are ineffective, except as evidence relevant to the question of whether a variation was in fact agreed.[52]

120 Cheshire and Fifoot cite as authority many cases but draw special attention to the decision of Finn J of the Federal Court of Australia in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd.[53] Finn J said specifically on this issue:

Though lacking legal effect in the face of a subsequent oral or implied agreement, it seems to be accepted that a no oral modification clause can have significant evidentiary effect. As Holmes J commented in Barlett v Stanchfield "The [clause] is a fact to be taken into account interpreting the subsequent conduct of the plaintiff and defendants"; see also Principles of European Contract Law, Art 2: 106.[54]

121 Amare submits that at the end of October 2002, Mr Pizzey, Mr Williams and Mr Tuckett met to discuss Mr Littler and how to grow the business in Area 220. Mr Littler had either gone or had been given notice by this time. Amare submits that Mr Tuckett was asked whether he intended to take on a new employee to manage Area 220. Amare submits he said that he did not.[55] Amare submits he said he wanted to retain the territory and service selected accounts so that he would keep drawing commission from the sales made in that area, consistent with the 9 September 2004 Amare letter. Amare submits that at the meeting, Mr Tuckett acknowledged that GT could not perform that which it had contracted to do and, further, that it did not propose to employ a replacement for Mr Littler.

122 Amare submits that given the size of area 220, more than one person was reasonably required to service the territory, including territory 220. Amare submits that is what had been agreed in 2001. Amare submits that at that time, it was agreed that Mr Littler would service that territory and, after he left, Mr Smith did so. Amare submits that, as Mr Williams said in oral evidence, the size of the area that had to be managed required two persons and the rationale for the 60/40 commission split was that GT required an income to support the employment of Mr Littler[56] in an area which, at the time, was not generating enough income in its current format.[57]

123 Amare submits that it was in this context that the rate of commission was agreed between Mr Pizzey and Mr Tuckett to be reduced to a flat 40 per cent. Amare submits that it was no secret that Mr Pizzey had ever been happy about a 40 per cent rate of commission, let alone 60 per cent on the first $20,000 gross profit.[58] Amare submits that Mr Pizzey's recollection that Mr Tuckett had been on 34 per cent commission at Alsafe coincides with Williams' internal note made shortly prior to the entry into the agency agreement[59] and also with Mr Tuckett's proposal to Mr Pizzey after the 15 April 2005 automatic termination.[60]

124 In fact Mr Williams's internal note also states "consider tiered levels of percentage to compensate for low GP (gross profit) base." This note tends to support Mr Tuckett's contention that the 60 per cent commission was not related to the employment of Mr Littler.

125 Amare submits that Mr Pizzey made his discontent, as to the level of commission, known to Mr Tuckett and Mr Williams in no uncertain terms at the meeting in February 2002 at which time, (as Amare submits) Mr Tuckett and Mr Williams assured Mr Pizzey that the 60 per cent rate of commission was a temporary measure and to "help start up" or finance Mr Littler, and once the area was up and running, the commission would drop back to the flat 40 per cent.[61]

126 Amare submits the issue was raised by Mr Pizzey at subsequent meetings with Mr Tuckett whilst Mr Littler continued to be employed[62] and confirmed by Mr Tuckett's note which referred to "commission split".[63]

127 Amare submits that when Mr Pizzey expressed concern about the rate of commission, as at the first meeting, whilst Mr Tuckett said he would talk about changes,[64] Mr Tuckett never agreed to move one per cent.[65]

128 Amare submits that after Mr Littler left, Mr Pizzey, Mr Williams and Mr Tuckett met to discuss area 220 and Mr Smith.

129 Amare submits that separately, Mr Pizzey met with Mr Tuckett and said that the commission should be reduced to a flat 40 per cent because there was now no need for 60 per cent to cover Mr Littler. Amare submits that in substance, Mr Tuckett said that he "supposed this was right" and that GT could do quite well on 40 per cent.[66] Amare submits that objectively, the rationale by which Mr Pizzey preferred the reduction makes commercial sense; it also fits with the common facts known to those who negotiated the agency agreement in 2001.

130 Amare submits that to the extent Mr Tuckett's witness statement and oral evidence conflict on this issue, the evidence of Mr Pizzey on what was to occur and as to what was agreed should be preferred. Amare submits that is so for the following reasons:

1. That there was an agreement is confirmed by Mr Williams' evidence concerning the phone call he received from Mr Tuckett after the meeting[67];
2. that 40 per cent was agreed is consistent with the absence of any email or demand by Mr Tuckett on behalf of GT for the commission at the higher rate of 60 per cent;

1. it is consistent with the fact that thereafter, once commission reduced to 40 per cent from 1 November 2002, GT generated tax invoices at the flat rate of 40 per cent in lieu of those which had previously been generated based on 60 per cent of the first $20,000 gross profit and 40 per cent thereafter[68];

1. the first occasion on which GT made any complaint of the commission being reduced to a flat 40 per cent was in September 2005 by its solicitor's letter[69];
2. in the meantime, there was no demand for commission at the higher rate in relation to territories 140 and 210. Further, when Mr Tuckett, on behalf of GT, claimed commission in relation to particular transactions, those claims, after November 2002, were all expressed on the basis of an entitlement to a flat 40 per cent commission[70]. In September 2004, Mr Tuckett emailed Mr Riddell and described 40 per cent as GT's "normal rate"[71]. That it was in fact so and accepted to be so by GT appears from that email and the other communications mentioned.

131 Amare submits that applying the criteria referred to by Finn J in GEC Marconi that there was an express agreement to vary or extinguish one of the terms of the agency agreement:

1. even if there is doubt as to an express agreement, the "manifestation of mutual assent is to be implied from the circumstances" set out above;
2. the informality and frequency of dealings and content show the contract was not required to be formally varied or recorded in writing[72];

1. subsequent conduct is all one way, confirming that a contract variation occurred. Just as Mr Tuckett did not seek to sell or claim commission or set budgets for area 220, similarly he did not seek to claim a 60/40 basis for commission at any time from late 2002 until September 2005;

1. this variation, like the excision of area 220 by agreement, was an example of the parties regulating their relationship in accordance with what they considered fair and reasonable at the time.

132 Amare submits that it was consistent with what Mr Tuckett told Mr Pizzey would occur once Mr Littler got "up and running and making a profit in his area."[73] That when Mr Littler left and was not replaced and area 220 was not being served by Mr Littler the basis for the 60/40 split and for area 220 had both disappeared. Amare submits the parties proceeded accordingly by agreement.

133 I shall now return to my analysis of the relevant events surrounding the alleged agreement to reduce the commission. As contemplated at the meeting in May 2005, a further meeting was held regarding commission. Mr Tuckett says that it was on 16 October 2002 and refers to a diary note entered at 16 October 2002 recording; "5.00pm Ron and Geoff." Mr Pizzey did not know the date but said the meeting was after a meeting with Mr Littler and probably after the meeting that excised area 220 from GT's territory.

134 Mr Tuckett says that Mr Williams was also at the meeting with Mr Pizzey. Both Mr Williams and Mr Pizzey said they do not recall Mr Williams being present. Who was at that meeting and what happened is a matter of dispute.

135 Mr Tuckett says that Mr Pizzey opened a copy of the agency agreement and pointing to the commission term told him that GT's commission was being reduced to a flat 40 per cent on 1 November 2002. According to Mr Tuckett, Mr Pizzey said that he should not have to pay a higher rate than Mr Tuckett received when he was at Alsafe.[74] As indicated earlier Mr Pizzey believed the Alsafe rate was 34 per cent. Mr Tuckett says there was no mention of Mr Littler no longer working for GT and that Mr Pizzey did not seek to justify the reduction on the basis that Mr Littler was no longer working for GT.[75] This is important, as Mr Pizzey's version, which I will come to in a moment, submits that he sought to justify the reduction on the fact that Mr Littler had left.

136 Mr Tuckett says he strongly objected to Mr Pizzey's decision pointing out that he had incurred expenses in moving into the city to be closer to his territories, had car commitments and mobile phone plans. Nevertheless, he maintains, Mr Pizzey was adamant. Mr Tuckett says he did not agree to the reduction and made that quite clear to Mr Pizzey.

137 Under cross examination, Mr Tuckett agreed that Mr Pizzey sought to justify the reduction in commission on the basis that Mr Tuckett was no longer employing Mr Littler, GT was no longer covering area 220 and there was no need to cover Mr Littler.[76] This concession was inconsistent with his witness statement. The concession also does not fit easily with the date of the meeting suggested by Mr Tuckett. He says that the commission reduction was discussed on 16 October 2002 and the loss of area 220 subsequently on 31 October 2002. Mr Pizzey did not put a time on the meeting to discuss the commission reduction but he did say in his witness statement that he sought to justify the reduction on the basis that GT was no longer servicing area 220 or employing Mr Littler.

138 Mr Tuckett was not prepared to deny that Mr Pizzey may have referred back to the earlier meetings when they had discussed reducing the commission. He only went as far as saying he would be surprised if he did.[77] He did concede in cross examination that he would be saving about $100,000 in the interim by no longer employing Mr Littler and that he was not proposing to put on someone else.[78]

139 Mr Tuckett agreed that he telephoned Mr Williams but said that he told Mr Williams that he was not happy about the commission reduction and "didn't agree with it and it was just basically done." He said that Mr Williams asked him what he was going to do about it and he replied that he did not know.

140 Mr Tuckett agreed in cross examination that thereafter he prepared his tax invoices to reflect the reduction and never complained about the reduction after the meeting with Mr Pizzey until September 2005 when legal threats were being made.[79]

141 On the other hand, Mr Pizzey says that Mr Tuckett accepted and agreed to the reduction in commission. Mr Pizzey says that Mr Williams was not present. He says that he sought to justify the reduction as Mr Littler would no longer be looking after area 220 and GT would no longer need the increased commission of 60 per cent to pay Mr Littler's wages. He claimed that Mr Tuckett had previously given GT's employment of Mr Littler as the reason for the 60 per cent commission. Mr Pizzey says that Mr Tuckett "said that he supposed this was right, that Chris Littler was no longer employed by him and that he could do quite well on 40 per cent."[80]

142 Under cross examination it was put to Mr Pizzey that he did not seek to justify the reduction in commission based on the fact Mr Littler was no longer employed despite the fact that under cross examination Mr Tuckett had agreed that, contrary to his witness statement, this was the case.[81] When it was put to Mr Pizzey that Mr Tuckett contested the reduction in commission, Mr Pizzey said Mr Tuckett agreed very easily.[82]

143 Under cross examination Mr Pizzey maintained Mr Williams was not at the meeting concerning the commission reduction. He was vague on the timing but was adamant that it was after Mr Littler had gone. He did say under cross examination that he thought Mr Tuckett had relinquished area 220 at the time of this meeting. He was not sure but 90 per cent sure.[83] Mr Littler did not actually leave GT's employ until 25 October but his services had been terminated in September. Mr Pizzey insisted that it was Mr Littler leaving and not the issue about territories that led him to reduce the commission. He said "You see Your Honour, they [referring to Mr Williams and Mr Tuckett] had given me the argument, once they gave it to me and Littler was no longer there, and there was a problem for them to deny it."[84]

144 Mr Williams gave evidence that he didn't believe he was at the meeting where the reduction of commission was discussed.[85] He said that in October 2002 he received a telephone call from Mr Tuckett about the meeting with Mr Pizzey regarding the renegotiation of the commission scheme. Mr Williams stated in his witness statement that Mr Tuckett told him that "while he wasn't happy about it, he had accepted the revised position. He said words to the effect "well I didn't win that one." Mr Williams said that Mr Tuckett told him that under the revised position he would be paid 40 per cent on gross profits generated from his territory.[86]

145 Under cross examination, Mr Williams maintained he was not at the meeting that discussed the commission reduction. Mr Tuckett's version of the conversation with Mr Williams was put to him but he did not change his evidence. He did concede the events took place a long time ago and his memory may not be clear. He confirmed the earlier discussions about reducing the commission and said that he knew that Mr Tuckett would not be happy about the reduction. He said that Mr Tuckett seemed to have acquiesced and was not up in arms about the reduction.[87]

146 Despite Mr Tuckett's practice of taking notes at meetings and producing records of meetings, there is no record of the meeting apart from the diary note of the appointment that says "5.00pm Ron and Geoff"[88]. Although GT's commission was reduced from 1 November 2002 there is no record of any dispute about the reduction of the commission until April 2005 when GT's solicitors wrote to Amare disputing the termination of the agency agreement after the meeting of 15 April 2005. Mr Tuckett conceded he did not dispute the use of 40 per cent commission after the reduction was implemented on 1 November 2002 until after 15 April 2005.

147 On the other hand, Mr Pizzey did not seek to put Mr Tuckett's supposed agreement to reduce the commission in writing even though the agency agreement stipulated that should be done. Mr Pizzey made no note of this alleged agreement.

148 Generally, I found both Mr Tuckett and Mr Pizzey to be honest witnesses. I did form the impression, however, that much of Mr Pizzey's evidence was reconstructed and constituted what Mr Pizzey believed took place rather than what he could actually recall taking place. I was not entirely satisfied with Mr Tuckett's evidence on how the figures in the first Budget were arrived at. I found that he also tended to reconstruct his evidence.

149 Mr Williams honestly conceded the events he was giving evidence about were a long time ago. He properly qualified his evidence by the expression "my best recollection" and to many questions said he did not recall. To the question "That recollection is not very strong is it? Not very clear? He answered "It's a long time ago." He said he could be wrong in his recollection that he was not at the meeting regarding the reduction of commission.[89]

150 The writ and statement of claim are dated 21 October 2005 and legal action had been threatened in September 2005 by GT's solicitors in correspondence with Amare. On 18 October 2005, Amare indemnified Mr Williams from any action, claim or demand by Amare against Mr Williams in respect of his employment by Amare and Mr Williams' relationship with Mr Tuckett or GT.[90] Mr Williams conceded that Amare was critical of Mr Williams for entering into the agency agreement with GT on behalf of Amare.[91] On 30 August 2005 Mr Pizzey informed Mr Tuckett that he believed the agency agreement was a fraud and that Mr Tuckett has been in "cahoots" with Mr Williams.[92] I am not satisfied that the indemnity and the discussions that lay behind it may not have influenced Mr Williams' evidence. No satisfactory explanation was given why the indemnity was given three days before the proceedings were commenced.

151 Mr Williams left the employ of Amare to manage an hotel that Mr Tuckett and his partner had purchased at Echuca. Originally, the statement of claim made allegations that Mr Tuckett's involvement in the hotel led to GT neglecting its contractual duties. Those claims were not pursued. The evidence did establish, however, that Mr Williams ceased acting as manager. Mr Pizzey said in evidence, that Mr Tuckett and Mr Williams had a falling out.[93] That matter was not explored but it is relevant in considering the evidence of Mr Williams.

152 In conclusion, I find that Mr Williams' evidence is of not much weight and provides me with little, if any, assistance one way or the other.

153 Amare rely on the subsequent conduct of Mr Tuckett to establish an agreement to reduce the commission or as evidence that such an agreement was otherwise made.

154 First, Amare relies on the fact that after 1 November 2002, GT did not complain about the non payment of the 60 per cent commission. Further, any written claim for commission was on the basis of 40 per cent and no claim was made to the 60 per cent. Further, Amare submits that as Mr Littler's services were terminated on 25 October 2002 and as discussed below, area 220 was excised from the agency agreement on 31 October 2002, the commercial justification for 60 per cent had ceased.

155 Amare relies on two emails as constituting or evidencing the agreement: emails from Mr Tuckett to Mr Riddell of Amare of 16 December 2003 and 1 September 2004. In the first email Tuckett enclosed a new agency agreement for the consideration of GT.[94] The agency agreement contained a suggested level of commission of 40 per cent. That does not infer that a contract to reduce commission was made in October or thereafter but rather GT accepted the realities of what Amare was willing to pay. The second email of 1 September 2004 was from Mr Tuckett to Mr Riddell. The email dealt with a tender for wire gloves to a potential customer. Mr Tuckett said that if "we are successful with any of the other three tenders I submitted I will be paid at the normal rate of 40%."[95] Again, I do not believe a reasonable construction of the letter is an acceptance of the amendment of the agency agreement but merely a recognition of what Amare had been paying since November 2002. I do not consider the emails establish or evidence the agreement alleged by Amare.

156 I find Mr Tuckett's acceptance of the lower commission relevant but do not give it the weight Amare seek to. Although Mr Tuckett was not an employee of Amare, for all intents and purposes Mr Pizzey treated him as an employee. It was readily agreed by Mr Pizzey that Mr Tuckett was a good salesman, easy to get along with and personable. He presented as such in the witness box. He is not an aggressive or assertive type. It is entirely consistent with Mr Tuckett's version that he had not and was not contracting on behalf of GT to lower the agreed commission but rather accepted the reduction as a fait accompli in the sense that he accepted that all he was going to receive was 40 per cent without agreeing to amend the contract of agency.

157 As indicated above, the test of whether the parties entered into a contract is an objective one to be assessed by a reasonable person in the position of the parties. The conduct of Mr Tuckett must be viewed as a whole and in the commercial context in which GT was operating.

158 It has been submitted by Amare that it was commercially rational and likely that the parties agreed on a commission reduction due to the departure of Mr Littler and the excision of area 220. There is some force in that argument. Equally, however, a reduction of 60 per cent to 40 per cent amounted to a reduction in commissions of approximately $48,000 per year. On the basis of GT's expenses this constituted approximately 30 per cent of net income or profit per year. It seems unlikely that Mr Tuckett would agree to such a large reduction in GT's income when in the previous months he would not agree to even one per cent reduction.

159 In October 2002, Mr Pizzey was anxious to reduce the commission and had been for some time. He believed the agency agreement was a fraud and that Mr Williams and Mr Tuckett were in "cahoots" in entering into the agreement. He believed that Alsafe had been paying considerably less. No other salesman at Amare was being paid commission. Mr Pizzey did not respect the document as a proper contract. I am sure he felt personally justified in reducing the commission to 40 per cent. I am not confident that Mr Pizzey would have been keen to observe the legal niceties in achieving that result. His behaviour, in asserting the agency agreement was at an end in April 2005, was less than honourable and showed that he considered Mr Tuckett to be on the same level as an employee rather than an independent contractor.

160 There is a dispute as to what was said at the meeting in October 2002. No contemporaneous document exists to record what took place. The conduct of both parties after the agreement may be used as evidence of an agreement being entered into though not of its meaning.[96] As indicated above, the conduct is ambiguous and the making of a binding contract is not a necessary inference.

161 Despite Mr Pizzey's sworn evidence that Mr Tuckett agreed to the commission reduction, after having regard to all the relevant evidence including all the evidence relied on by Amare, I am not satisfied on the balance of probabilities that a contract to amend the agency agreement in fact was entered into when Mr Pizzey met with Mr Tuckett on 16 October 2002 or whenever the meeting was held.

The location of the general burden of proof", wrote Professor R Morgan in the article in 44 Harvard Law Review 906 at p 911 to which reference has already been made, "is important at only one stage of the trial, and then only in a situation seldom occurs - namely, when at the close of the evidence the mind of the trier of fact is in equilibrium on the issue.[97]

163 I have had the benefit of seeing Mr Tuckett, Mr Pizzey and Mr Williams in the witness box and subject to vigorous cross examination. I have considered the other matters relied on by Amare as set out in its particulars. Nevertheless my mind is in equilibrium on the issue of whether or not the parties contracted to reduce the commission as alleged by Amare.

164 The authorities on the burden of proof, the legal onus, the evidentiary onus and the shifting onus are legion: see Cross on Evidence. In this case I will refer to two. In Gordon v Australasian & New Zealand Theatres Ltd[98] the plaintiffs had been hired as entertainers by the defendant to perform on tour in Australia and elsewhere. The plaintiffs had their contracts terminated and sued for damages. The defendant alleged that it was entitled to terminate the contracts under a term that provided it could do so where due to the outbreak of war it had formed the opinion that it was expedient to suspend, postpone or abandon the tour. Jordan CJ held that the burden of proof was on the defendant to prove that when it purported to terminate the contracts it was of the opinion that the outbreak of war rendered it expedient to abandon the tour in which the plaintiffs were engaged. In doing so he held that in the circumstances there was no onus on the plaintiffs to prove facts to negative the application of the exception which allowed the contracts to be terminated. In Commonwealth of Australia v Amann Aviation Pty Ltd[99] the plaintiff sought damages for the wrongful termination of a contract to provide aerial surveillance services for the Australian Government. In particular, the plaintiff sought to recover the extensive costs it had incurred in acquiring planes to carry out the contract. The defendant argued that the plaintiff could not recover those expenses if the plaintiff would not have earned sufficient to do so if it had performed the contract. The High Court accepted that was a correct principle of law but held the onus of proof fell on the defendant to establish that, even if the contract had been fully performed, the plaintiff would not have recovered his reasonable expenditure.[100]

165 In this case the issue is clear. In answer to GT's claim for commission under the agency agreement, Amare has raised the defence that a contract was entered into to amend the rate of commission in the agency agreement. GT does not have to prove that such an agreement was not entered into merely on the basis of Amare's allegation that it was. But for the defence it would have been no part of the plaintiff's case to negative the possibility that the agreement sued on had been amended. On the contrary, as Amare alleged the contract to amend the rate of commission, it must establish it. As mentioned above, after taking into account all the evidence I find that it has failed to do so.

166 Neither party addressed me on the absence of consideration. Without the benefit of any submissions I am reluctant to make any findings upon this issue. Nevertheless I feel I must do so. The absence of consideration was raised by GT in its pleadings. Amare denied the allegation but made no submissions on what consideration Amare gave under the alleged agreement to amend the agency agreement. No consideration seems to have been given by Amare. It merely reduced the commission payable. Accordingly, if contrary to my finding, Amare has established there was an agreement to reduce the commission payable, then I find there was no consideration given by Amare for the agreement and that accordingly the agency agreement was not amended as alleged by Amare.

167 For these reasons I find that GT has proved the agency agreement and Amare's failure to pay the agreed commission. It is entitled to the commission due under the agreement until it ceased carrying out its duties in October 2005.

168 GT claims that on or about 31 October 2002, Amare breached the agency agreement ("The Territory Breach") by excising area 220 from the territory referred to in the agency agreement. GT alleges that at Amare's Blackburn offices, Mr Pizzey and Mr Williams on behalf of Amare orally told Mr Tuckett on behalf of GT that Amare was going to remove area 220 from the territory effective immediately. GT alleges Mr Tuckett objected to the purported variation and notwithstanding Mr Tuckett's objection, Amare excised the territory.[101] Further, GT pleads it received no consideration for the reduction of its rights under the agency agreement in respect of area 220.

169 By its further amended further defence, Amare denies GT's allegations and further alleges that GT agreed with Amare to excise area 220 from the territory in or about October 2002 and area 220 was thereafter excised. Amare pleads the agreement was partly in writing, partly oral and partly implied.

170 Insofar as it was in writing, Amare relies upon the letter of 9 September 2002 from Amare to GT, an email of 21 September 2003 from Mr Tuckett to Mr Riddell of Amare and an email of 13 April 2004 from Mr Tuckett to Mr Smith of Amare.

171 Insofar as it was oral, Amare relies upon a conversation in or about October 2002, during which Mr Tuckett told Mr Williams and Mr Pizzey of Amare that he had terminated the employment of Chris Littler, who was GT's employee responsible for area 220. Further, Amare relies upon the matters discussed at a meeting on or about 31 October 2002 at Amare's office in Blackburn between Mr Tuckett, Mr Williams and Mr Pizzey. Amare alleges Mr Tuckett was asked whether GT intended to take on a new employee to manage area 220. Mr Tuckett advised that it did not. Mr Tuckett was asked about GT's plans in relation to area 220. Amare alleges Mr Tuckett said GT had no plans to expand Amare's business in area 220. Amare alleges Mr Tuckett accepted and agreed that in those circumstances Amare would appoint Michael Smith to area 220 and GT would cease to include area 220 in its territory.

172 Amare further relies upon a conversation in or about December 2002 when Mr Tuckett rang Mr Smith and acknowledged that Mr Smith was taking over area 220.

173 Insofar as the agreement is to be implied, Amare says it is to be implied from those documents and conversations, from the fact that from October 2002 GT ceased to carry on any work in area 220 and from the absence of any complaint of the sort alleged between October 2002 and 20 April 2005.

174 Further, as mentioned above, Amare also relies on an estoppel in answer to GT's claim on the excision of area 220. Amare alleges that from October and/or December 2002 and thereafter Amare and GT adopted and acted upon the common assumption that area 220 had been excised. In particular, Amare alleges that Amare ceased to credit sales from customers within area 220 to GT and appointed a new salesperson to area 220, Michael Smith. Amare also alleges that from October 2002 GT ceased to carry on any work in area 220 and between October 2002 and 20 April 2005 did not complain about the excision of area 220 or the appointment of Michael Smith.

175 Amare alleges that pursuant to the assumed common basis of dealing and consistent with it, Amare appointed Michael Smith.

176 Amare alleges that in the premises it would be unjust if GT was allowed to resile from the assumed common basis and it is estopped from so doing.

177 In its further amended reply, GT takes issue with this defence save that it admits the communication with Mr Smith but says the proper characterisation of the communication by GT was not that it was consenting to the variation, but that GT was attempting to mitigate its loss.

178 GT submits there was no variation of the agency agreement in writing as required or at all. GT relies on the evidence of Mr Tuckett that there was no such agreement.

179 Amare submits the excision of area 220 was agreed to by GT. Amare submits that the considerations it relied on from the GEC Marconi case on the reduction of the commission issue have equal application to the excision of area 220, a variation closely related and linked to the 60/40 variation.

1. In October 2002, Tuckett confirmed in a meeting with Pizzey and Williams, that GT would not employ a person to replace Littler. He was told that, if GT did not have a replacement for Littler, that Amare was proposing to transfer Smith to replace Littler in area 220[102]. He agreed to this taking place;
2. in December 2002, Amare offered to transfer Smith to go out to service area 220 and, from that month, GT's area 220 commission payments ceased;[103]

1. there was no protest from Tuckett, apart from his attempt to dissuade Smith from taking up the position in return for an "under the table" payment of $10,000 per annum. Once that attempt failed, Tuckett accepted that area 220 was to be excised and acted accordingly thereafter;

1. in early 2003, Smith commenced to service area 220.[104] On 13 April 2003, Tuckett emailed Smith confirming he would contact Smith about "city based accounts to discuss the best way of servicing their business."

181 Amare submits that on 21 September 2003, Tuckett sent an email to Riddell entitled "Clarification on territory 220 (city)"[105]. In that email, Tuckett "confirm[ed] the following accounts that I have in the city that I [GT] have in the city region". After listing those customers and some potential customers, the email concluded:

As agreed the above accounts remain in my territory 210. As previously discussed, any new inquiries or accounts for the city would be directed to you as the first point of contact and would reside in your territory (220). For new accounts that I generate I will consult with you prior to any actions to determine the best approach. As previously stated I do not actively target city accounts as this is your defined territory.[106]

182 Amare submits that this email, sent one year later, confirmed in writing what was discussed and agreed between Mr Tuckett, Mr Pizzey and Mr Williams in 2002, after Mr Littler had left. It also confirmed that GT was not entitled to commission on sales to "ship to" addresses within area 220 with the exception of those customers referred to in the email. These were to be treated as additional customers and otherwise included within the commission referable to area 210. Amare submits there were other emails from Mr Tuckett to similar effect, recognising and giving effect to the agreement that area 220 was Mr Smith's geographic area and not that of GT. Those emails were not only to Mr Smith, they were also to Mr Riddell.[107]

183 There is no dispute that on 31 October 2002 a meeting took place in the board room of Amare at Blackburn between Mr Pizzey, Mr Williams and Mr Tuckett and at the conclusion of the meeting responsibility for area 220 had been removed from GT. There is a dispute, however, as to whether or not GT agreed to the removal.

184 Mr Tuckett said in his witness statement[108] that at the meeting he was told by Mr Williams that GT's exclusive area 220 was to be removed or taken away from GT and given to Michael Smith. Mr Tuckett says in his witness statement that he said to Mr Williams and Mr Pizzey that he did not agree to this course of conduct. He says Mr Pizzey said that Amare felt uncomfortable having GT in control of such a large chunk of Victoria. Mr Tuckett says he said "I'm being shafted" to both Mr Pizzey and Mr Williams. He says he told them "You can't do that" and neither replied to him. Mr Tuckett says that Mr Williams suggested that GT could now concentrate on areas 140 and 210, to which Mr Tuckett replied that was nonsense and that they could not do this under the agreement. He says that both Mr Pizzey and Mr Williams told him that he could keep control of all customers in area 220 that he had shifted to the customer listing for areas 140 and 210. He said that Mr Pizzey said that as he had already formed the relationship with these customers, it made no sense to take them away from GT.

185 Mr Tuckett says that he told the meeting words to the effect that he was the most skilled salesman so he would manage area 220 himself and make sales to all customers in the area, there was no one better than him to replace Mr Littler and he was sure he could keep expanding sales in area 220.

186 Mr Tuckett denies he was asked whether GT intended to take a new employee to replace Mr Littler.

187 Mr Tuckett says that again GT was offered no compensation for the loss of territory.

188 Under cross examination, Mr Tuckett maintained that he did not agree to the removal of area 220. Mr Tuckett said he was not asked to agree to excise area 220. He said he was not asked but it was put as a demand.[109] Mr Delaney SC asked; "and you accepted the proposition, didn't you?" and Mr Tuckett responded "Not at all. I was very furious at the meeting."[110]

189 In his witness statement, Mr Pizzey says that Mr Williams and he asked Mr Tuckett how he proposed to manage area 220. He said that Mr Tuckett replied that he had no plans. He says that Mr Williams asked Mr Tuckett whether he was going to replace Mr Little and Mr Tuckett said that de did not have anyone in mind. Mr Pizzey then says that Williams said that "we had to fill the area and get a rep in and going. He says he said that, if Tuckett did not have anyone in mind, he had been approached by Michael Smith who would like to go out and service the area, but it would mean that Amare took back area 220. Mr Pizzey says that Mr Tuckett said that this was ok, and that "we had to do something."[111] This is directly contrary to what Mr Tuckett swore.

190 In cross examination, Mr Pizzey said that after the discussion about area 220 Mr Tuckett said "I'm OK. I'll relinquish 220, I can make a good living, 40 per cent on Territory 210 and 140."[112] This version of Mr Tuckett's response was not in Mr Pizzey's witness statement. He did concede that Mr Tuckett may have said "you cannot do it" but denied he said he was being "shafted."[113] Mr Pizzey did concede that Mr Tuckett did say that there was no one better to replace Mr Littler in area 220.[114]

191 Mr Williams says in his witness statement that Mr Tuckett said that he wanted to retain the territory and service selected accounts so that he would keep drawing commission from the sales made in area 220. Mr Williams says that at the meeting he said to Mr Tuckett that Mr Smith should be promoted from sales clerk to be the new area manger for area 220 and remain an employee of Amare. He says Mr Pizzey said he agreed and that he cannot recall precisely what Mr Tuckett said in relation to his proposal "but I do remember that he accepted that this was to be the outcome and did not argue or propose any alternative."[115] Mr Williams also says that Mr Tuckett said words to the effect "I guess I have to accept that and move on."[116]

192 Under cross examination Mr Williams says that he did not remember Mr Tuckett saying "I'm being shafted" but conceded he may have said that. He also conceded that Mr Tuckett may have said that "You can't do that." It was put to Mr Williams that "To those sorts of protests by him, neither of you responded because basically it was a done deal. Yes?" and Mr Williams responded "Possibly, yes more than likely yes."[117]

193 I have already expressed my views on the reliability of the evidence of Mr Tuckett, Mr Pizzey and Mr Williams.

194 I am satisfied on assessing the evidence of the three witnesses to that conversation that Mr Tuckett objected to the proposal and did not agree to it taking place. I accept that in December Amare offered to transfer Mr Smith to service area 220 and from that month GT's area 220 commission payments ceased.

195 I find that after the meeting there was no protest from Mr Tuckett and that he accepted as a fait accompli that area 220 had been excised by Amare from GT's area of responsibility. I do not find that Mr Tuckett sought to dissuade Mr Smith from taking up the position in return for an "under the table" payment of $10,000. In any event, such an offer would have strongly supported Mr Tuckett's version that he did not agree to the excision of area 220 over Mr Pizzey's version.

196 I find that in early 2003, Mr Smith commenced servicing area 220. I also find that on 13 April 2003 Mr Tuckett emailed Mr Smith confirming he could contact him about "city based accounts to discuss the best way of servicing the business."

197 I also accept that on 21 September 2003, Mr Tuckett sent the email to Mr Riddell entitled "Clarification on territory 220 (city)", as referred to in Amare's submissions.

198 I do not accept that this email either assists to constitute an agreement or evidences in writing what was discussed and agreed between Mr Tuckett, Mr Pizzey and Mr Williams at the meeting on 31 October 2002 or at any other time thereabouts.

199 I find that this email merely accepts as a fait accompli that area 220 is no longer the responsibility of GT.

200 Amare also relied on some other factors. It points to the fact that the parties agreed that Mr Tuckett would be allowed to keep certain accounts from area 220 that GT already had included in areas 140 and 210. Secondly, Mr Tuckett had recorded that employing Mr Littler was costing him some $108,000 per year and that he could not afford an employee to handle area 220. Amare argues that commercially it was in GT's interests to be released from servicing the whole of area 220 and that GT's complaint was that it wished, in Mr Pizzey's words, to "cherry pick" the area by servicing existing customers rather than calling cold to develop new customers. Further, Amare points to the agency agreement which required GT to provide "employment of such numbers of sales personnel as is reasonably required by the demands of the Agency." (Clause 4.3(2)). Similarly to the commission reduction, it points to the fact that GT did not ever complain about the loss of area 220 until April 2005 after Amare had asserted the agency agreement had come to an end through the failure of GT to achieve the Minimum Performance requirements. Amare also relies on the fact that in about December 2002 Mr Tuckett telephoned Mr Smith and congratulated Mr Smith for taking over area 220. Prior to his appointment as the salesman responsible for area 220 Mr Smith had worked in the office.

201 Amare also relies on estoppel by convention in its defence to GT's claim in respect of the excision of area 220. I have set the pleading out above. Amare submits that the relevant legal test has been set out in the GEC Marconi case as follows:

202 In GEC Marconi Systems v BHP, Finn J[118] sets out the requirements necessary to establish equitable estoppel and estoppel by convention as follows:

1. In relation to equitable estoppel, Brennan J described its requirements in the following way in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 428-429:

1. In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them, and in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

Of estoppel by convention, the New Zealand Court of Appeal said the following in National Westminster Finance New Zealand Ltd v National Bank of New Zealand Ltd [1966] 1 NZLR 548n at 550:

The authorities show that for an estoppel by convention to arise the following points must be established by the party claiming the benefit of the estoppel (the proponent):

(1) The parties have proceeded on the basis of an underlying assumption of fact, law, or both, of sufficient certainty to be enforceable (the assumption).

(2) Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction.

(3) Such acceptance was intended to affect their legal relations in the sense that it was intended to govern the legal position between them.

(4) The proponent was entitled to act and has, as the other party knew or intended, acted in reliance upon the assumption being regarded as true and binding.

(5) The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption.

(6) In all the circumstances it would be unconscionable to allow the other party to resile or depart from the assumption.

203 I accept these are the relevant principles to apply. I take the references to the intention of the parties in those principles to be their intention as objectively assessed by the reasonable person test as used in the ascertainment of contractual intention.

204 On the basis of the matters I have found above, I find that after 31 October 2002, GT and Amare did proceed on the assumption that area 220 had been excised from GT's territory under the agency agreement. I find that both GT and Amare to the knowledge of each other expressly or by implication accepted this assumption as being true for the purposes of the agency agreement. I find that such acceptance was intended by each (as ascertained on an objective basis) to govern the legal position between them. I find that Amare was entitled to act and had, as GT knew, acted in reliance upon the assumption being regarded as true and binding. I find that Amare would suffer detriment it GT were allowed to resile from the assumption. Amare has employed at its expense Mr Smith to service the area and if GT were allowed to resile from the position Amare would have to pay GT commission as well as Mr Smith's wages. In all the circumstances I find it would be unconscionable to allow GT to resile from the assumption.

205 Despite the issue being pleaded, no submissions were made on consideration. Mr Tuckett did say GT received no compensation. I am reluctant to make any findings on this issue without the benefit of counsels' submissions but I feel that I must, to do justice to the case pleaded. If, contrary to my findings, GT did agree to the excision of area 220, there does appear to be consideration given by Amare in that it gave up the benefit of GT servicing area 220.

206 I am not satisfied on the balance of probabilities that GT did agree to excise area 220 from its territory as alleged by Amare. Further, I am satisfied that, for the reasons mentioned, GT is estopped from resiling from the common assumption that area 220 had been excised from GT's territory as alleged by Amare. The plaintiff's claim for damages on this head therefore fails.

207 GT claims that on or about 12 August 2004 Amare breached the exclusivity provisions of the agency agreement ("the Exclusivity Breach") by appointing a business development manager ("BDM") to promote and procure orders in GT's remaining territory, areas 210 and 140. In particular, GT alleges that at Amare's Mulgrave offices, Mr Pizzey and Mr Riddell on behalf of Amare orally told Mr Tuckett on behalf of GT that Amare was going to appoint another salesperson to promote and procure orders in the territory permanently, effective immediately. GT alleges Mr Tuckett objected to the purported variation and that notwithstanding Mr Tuckett's objection, Amare appointed another agent to promote and procure orders for the goods in GT's remaining territory.

208 GT alleges that as a result of the exclusivity breach, GT has suffered a loss of commission.

209 Amare denies the allegation and alleges further that GT agreed in August 2004 that an agent other than Mr Tuckett of GT should be appointed to areas 210 and 140. Amare alleges the agreement was oral and confirmed in writing.

210 Insofar as it was oral, Amare alleges that on or about 12 August 2004, at a meeting at Amare's premises at Mulgrave between Mr Tuckett, Mr Pizzey and Mr Riddell, Mr Tuckett agreed with Amare's proposal that it appoint a BDM to areas 210 and 140. It says further, that on 27 August Mr Tuckett and Mr Riddell met and agreed that Mr Riddell would provide Mr Tuckett with a list of accounts the BDM would manage, that any account activity created by the BDM would be communicated to Mr Tuckett and that the list of accounts would be reviewed periodically by Amare and GT and amended by agreement if necessary. Further, Amare alleges that on 3 September 2004, Mr Tuckett, Mr Riddell and Mr Pizzey met. Amare alleges Mr Tuckett reviewed the accounts to be managed by the BDM.

211 Insofar as it was in writing, Amare relies upon four emails: from Mr Tuckett to Mr Riddell on 13 August 2004; from Mr Riddell to Mr Tuckett on 27 August 2004; from Mr Tuckett to Mr Riddell on 29 August 2004 in which Amare alleges Mr Tuckett expressly acknowledged his agreement; and from Mr Tuckett to Mr Riddell on 6 September 2004.

213 In its reply, GT takes issue with Amare's allegations save that it admits the communication alleged (without specifying which) occurred but says the proper characterisation of the communication by GT was not that it was consenting to the variation but that GT was attempting to mitigate its loss.

214 A lack of consideration is pleaded but denied by Amare.

215 GT submits that the appointment of the BDM Mr Armstrong in area 260 which included areas 140 and 210 was only acceded to by GT upon strict conditions which were not upheld by Amare so that there was no de facto agreement to vary the agency agreement to appoint the BDM; or any such agreement was breached by Amare.[119]

217 Amare submits that the evidence establishes and the Court should find there was no constraint under the agency agreement upon Amare appointing direct employees to work in the "territory."

218 Amare submits that notwithstanding that was so, the parties did not apply the letter of the contract and, instead, Mr Tuckett was consulted as to the appointment of the BDM. Upon consultation, there was express agreement by Mr Tuckett, on behalf of GT, to the appointment of the BDM.

219 Amare submits the agreement was on condition that specific "customers", who were existing Amare customers with "ship to" addresses in the areas 140 and 210 and were serviced by GT, would remain the customers of GT and that commission entitlement would arise accordingly.

220 Amare submits there was no breach of any terms of the agency agreement concerning the BDM's access to customers in areas 210 or 140 by Amare or Mr Armstrong.

221 Amare submits that emails clarifying lists of accounts to be retained by GT followed a meeting between Messrs Tuckett, Pizzey and Riddell at which there was a discussion of the need to ensure customers were not confused by two agents operating in the same area.[120]

222 Amare submits that after the 27 and 29 August emails[121] and on 1 September 2004, Mr Armstrong commenced the role of BDM.[122]

223 Amare submits that, as had been agreed, there was consultation and agreement as to the BDM target accounts. On 2 and 3 September 2004, Mr Riddell emailed Mr Tuckett including a list of target accounts "applicable to your area."[123] Mr Tuckett responded by email under a column "BDM can have Y/N"[124], wishing Mr Riddell "Good luck and let the Amare sale juggernaut continue!!!!!!"[125] Mr Riddell responded on 8 September[126] and Messrs Riddell, Tuckett and Armstrong met on 10 September, following which Mr Armstrong started pursuing customers across the business.[127]

224 Amare submits that contrary to the assertions in Mr Tuckett's witness statement, from the time of his appointment, Mr Armstrong and Amare did honour the notification conditions. Amare submits that Mr Tuckett's complaint is that Mr Armstrong approached and solicited orders from customers of GT who were not on Mr Tuckett's email list of 6 September 2004

225 Amare submits there was no breach of what had been agreed. No damages are sought in relation to breach of such agreement to allow the BDM to sell in areas 210 and 140 and, if they were, no damages can be shown to have been sustained.

226 Amare submits if there was a breach of the terms of the appointment of Mr Armstrong, no damage was suffered. Amare submit that there was no complaint or objection made in writing by Mr Tuckett either to the appointment of Mr Armstrong or in relation to any particular accounts in the period from September 2004 to September 2005.

227 Amare submits that similarly, there was no breach of agreement to transfer customers after twelve months - assuming one was alleged. Amare submits the twelve month period did not end until 1 September 2005.

228 Both parties agree that GT did agree to Amare appointing Mr Armstrong to act in areas 210 and 140 on certain conditions. The matter was initially broached in a meeting held in the Mulgrave board room of Amare between Mr Pizzey, the new general manager, Mr Riddell and Mr Tuckett. Amare put to Mr Tuckett the proposal to appoint a business development manager to attract new customers and develop customers who did little existing business with Amare. Mr Pizzey concedes that Mr Tuckett argued vigorously against the proposal and that Mr Tuckett did voice his displeasure. [128]

229 I find that all that is ultimately beside the point. Agreement was reached in an exchange of emails and meetings between Mr Tuckett and Mr Riddell on the terms that Mr Armstrong could operate in areas 210 and 140. In particular, in Mr Tuckett's email to Mr Riddell of 13 August 2004, Mr Tuckett said "as per our discussion yesterday with Geoff, I agree to allow business development manager access to my contracted territory..."[129]

230 GT argues, however, that it was a term of the agreement, to allow Mr Armstrong to operate in areas 210 and 140, that Mr Armstrong would not approach any customers not on a list agreed between Mr Tuckett and Mr Riddell without first consulting Mr Tuckett. Mr Tuckett also says that he personally informed Mr Armstrong of this term and Mr Armstrong acknowledged that he would observe the term.

231 GT claims, however, that in January 2005 Amare breached the agreement when Mr Armstrong approached Bakers, a business in area 210 not on the agreed list, without first consulting with Mr Tuckett. GT argues that accordingly there was no agreement. In my opinion, if Mr Armstrong failed to consult with Mr Tuckett on this occasion, that failure did not evince an intention by Amare not to be bound by the agreement. Further I find that Mr Tuckett did not purport to accept the failure by Amare to consult (if it did) and terminate the agreement. In my opinion, any failure of Amare to consult Mr Tuckett amounted to no more than a breach of the new agreement.

232 GT has not alleged a breach of this agreement in its statement of claim. It did submit in argument that the agreement had been breached. No damage has been alleged to flow from the breach.

233 In view of the fact that no breach of the agreement has been alleged and no damage proved I reject any claim based on the alleged breach.

234 In my opinion, the new agreement about Mr Armstrong affected an amendment to the agency agreement. Accordingly, GT has not established that there was a breach of the agency agreement by the appointment of Mr Armstrong and his making the small number of sales in areas 210 and 140 that he did.

235 GT alleges that in or about July 2005, Amare breached the agency agreement ("the Second Commission Breach") by purporting to further reduce the commission to which GT was entitled. In particular, GT alleges that Mr Pizzey without consulting GT took the unilateral decision to and did further reduce the commission payable to 30 per cent of gross profit on the first $150,000 of the orders and 40 per cent of gross profit on all orders that exceed this amount, effective from 1 July 2005. GT alleges that Mr Tuckett objected to the purported variation in a telephone conversation with Mr Pizzey and that notwithstanding Mr Tuckett's objection, Amare thereafter paid only the reduced commission to GT.

236 GT alleges there was no consideration for this purported reduction of GT's rights under the agreement.

237 Amare denies GT's allegations and further alleges that the agreement was terminated pursuant to clause 5.2 on or about 15 April 2005. In particular, Amare alleges that GT failed to meet the Minimum Performance specified in clause 5.2 of the agreement. Amare alleges that for a period of three consecutive calendar months, January, February and March 2005, GT failed to meet the Minimum Performance calculated as set out in schedule 4 of the agreement. It alleges that for the three months between January 2005 and March 2005 the Minimum Performance required was $407,113.20. Amare alleges the actual sales made by GT for those three months were $356,337.07 which falls short of the Minimum Performance.

238 Further, Amare alleges that there was an interim agreement in place between the parties whilst they sought to negotiate as to a new agreement (the "Interim Agreement"). In particular, Amare alleges that the Interim Agreement was partly oral and partly to be implied.

239 Insofar as it was oral, Amare alleges it was constituted by conversations between Mr Pizzey and Mr Tuckett on 15, 22 and 28 April 2005 and on or around 16 May 2005.

240 Insofar as it was implied, Amare alleges the Interim Agreement was to be implied by the conduct of the parties.

241 Amare pleads terms of the Interim Agreement including that GT would continue to act as Amare's agent in areas 210 and 140; that the parties would negotiate in good faith with a view to reaching a new agency agreement; that GT would be paid a commission of 40 per cent of gross profit up to 30 June 2005 and that if the parties had not reached final agreement by 30 June 2005, the commission payable would be reduced to 30 per cent of gross profit on the first $150,000 of order[s] and 40 per cent of gross profit on all orders that exceeded this amount effective from 1 July 2005.

242 Amare alleges that negotiations were not resolved by 30 June 2005 and on 1 July 2005, Amare as it was entitled, pursuant to the terms of the Interim Agreement commenced to pay commission to GT in accordance with the terms of the Interim Agreement.

243 In its Further Amended Reply, GT denies those allegations. Further, it denies that on 15 April 2005 the parties commenced negotiations on a new agency agreement but says the parties were negotiating a new agency agreement ("the Draft Agreement") from about December 2003. In particular, GT says that the negotiations included emails from Mr Tuckett to Mr Riddell dated 16 December 2003 and 21 January 2005. It admits the negotiations were not resolved by 30 June 2005.

244 The issues raised in the alleged Second Commission Breach fall into two categories. First, whether or not the agency agreement was automatically terminated in April 2005 and secondly whether or not GT agreed to the reduction in commission under the Interim Agreement.

245 Within the first issue there are many points to resolve. These include what if any was the 2004-2005 budget for GT under the agency agreement, what is the proper construction of the Minimum Performance calculation and what were orders of goods achieved by GT during the relevant periods.

246 Amare submits that the agency agreement automatically terminated under clause 5.2 of the agency agreement as GT did not satisfy the Minimum Performance requirements for the three month period of January, February and March 2005.

247 Amare submits that the relevant budget for the Minimum Performance calculation was the 2004-2005 budget prepared by Mr Riddell and forwarded to GT on 24 August 2005 ("the Riddell Budget"). GT denies that was the budget agreed under the agency agreement. GT submits that the relevant budget was still the initial budget set in the agency agreement as no subsequent budget was ever agreed.

248 GT goes further and submits that the agency agreement called for the budget to be agreed for the year ending 9 October rather than financial years asserted by Amare.

249 If there was no budget agreed after the initial budget, then the parties agree the agreement did not automatically terminate in April 2005 unless the budget agreement is rectified to read $1,420,000 exclusive of GST rather than inclusive of GST.

250 Amare submits that the Minimum Performance was calculated on budgeted sales revenues rather than the budget margins to be achieved as submitted by GT.

251 If budget margins are the subject of Minimum Performance the parties agree there was no automatic termination.

252 Amare submits that clause 5.2 required the Minimum Performance to be calculated by comparing the amount required to be achieved over three months to the actual amount achieved over three consecutive months. This has been called the simple method. GT disagrees. It says a three consecutive month calculation had to be calculated to ascertain whether or not the Minimum Performance had been achieved for any given month and that to satisfy clause 5.2, the Minimum Performance had to be not achieved for three consecutive given months. This has been called the rolling total method.

253 If the rolling total method is applicable GT submits that the contract did not automatically terminate in relation to January, February and March 2005.

254 Amare submits that sales revenue achieved was either:

(a) the sales of $385,528.50 disclosed on the commission statements provided to Mr Tuckett for the relevant three months;

(b) the sales of $382,546[130] Mr Riddell used in the document he relied on at the meeting on 15 April 2005;

(c) the figures $356,895.27 calculated by Ms McKitterick's review of primary invoices and allocations based on "ship to" within 140 and 210.

255 GT rejects these figures and seeks to use the commission statements adding other to them other amounts it alleges were wrongly omitted from the statements.

256 Unless all these additional figures are added, the parties agree that on Amare's method of calculation and the assumptions underlying the calculation the agreement automatically terminated in April 2005.

257 Amare submits that sales of $407,113.70 were to be achieved using sales revenues, the Riddell Budget and taking a quarter of the year's budget to calculate the required Minimum Performance for a month.

258 At the 15 April 2005 meeting, Mr Riddell used the following figures to justify Amare's assertion the agreement had automatically terminated:

In other words, Amare submits that Minimum Performance sales revenues of $382,546 had been achieved by GT as compared to the required $407, 113.70.

Construction of the Minimum Performance provisions

259 It is convenient to set out the relevant contractual terms.

This agreement shall terminate in the event that the Minimum Performance is not achieved for a period of three consecutive months.

The following terms shall have the following meanings:

**(**2) "Budget" means the sales of Goods to be achieved by GT Corporation for each year of this agreement.

(12) "Minimum Performance" means a minimum level of sales to be achieved for each month of the year without resulting in a termination of this agreement for low orders pursuant to clause 5.2 as calculated using the formula in Schedule 4;

Minimum Performance to be achieved shall be calculated using the formula:

Approximate number of working days for a three month period

(1) For each year of this agreement the Principal and GT Corporation shall establish a level of sales of Goods to be achieved by GT Corporation in the forthcoming year of the agreement which will be the Budget. The initial Budget for the first year of the agreement shall be set at $1,420,000 (inclusive of GST). @ 24.72% TRADING MARGIN.

GT Corporation shall work diligently at all times to promote and procure sales of the Goods of the Principal throughout the Territory and in particular to achieve the Minimum Performance by appropriate means including:

260 As indicated above, the agreement contained terms prescribing circumstances in which the contract would be terminated. Clause 5.2 provided that the contract would be terminated if the "Minimum Performance" was "not achieved for the period of three consecutive months." The Minimum Performance to be achieved was given by a formula set out in schedule four. The used the "yearly budget to be achieved by GT Corporation."

261 Amare relies on several matters to establish that the "Minimum Performance" calculation was to be performed on sales revenues rather than margin revenues. In particular Amare points out that the Schedule 4 calculation is be calculated using the "yearly budget to be achieved by GT Corporation" and the "Budget" is defined to mean "the sales of Goods to be achieved by GT Corporation for each year of the agreement." Further, clause 3.4(1) of the agreement provides, under the heading of "Budget", that "each year of the agreement the Principal and GT Corporation shall establish a level of sales of Goods to be achieved by GT Corporation in the following year of the agreement which will be the Budget." (My emphasis added).

262 Up to this point the language of the agreement suggests that the "yearly budget" in Schedule 4 is a sales revenue figure. But the difficulty arises when the agreement defines with greater particularity what is "the Budget" for the first year where it states "that the initial Budget for the first year of the agreement shall be set at $1,420,000 (inclusive of GST) at 24.72% trading margin." In other words the "Budget" includes a margin figure.

263 Amare submitted that the relevant budget was the budget determined by Mr Riddell in August 2004 and sent to GT.[131] That budget was broken into two parts: a budget for area 210 and a budget for area 140. In respect of each area there were monthly budget sales revenue figures, budgeted cost of goods sold referable to those monthly sales and a monthly budget margin (gross profit) generated by monthly sales. In addition, there was a budgeted total of yearly sales revenue achieved by adding the monthly sales revenue and a similar yearly total of cost of goods sold and a total budget margin for each area. The budget did not contain a consolidated statement of monthly sales revenues, cost of goods sold or budgeted margin for the two areas combined but such figures were readily able to be calculated by adding together the relevant parts of the budgets for the two separate areas.

264 Although the Riddell Budget had separate budgeted figures for areas 210 and 140 and no consolidated figures, both parties submitted that the calculation required the relevant consolidated figures be used in the calculation and not the separate figures actually contained in the Riddell Budget.

265 Assuming, however, for present purposes that the Riddell Budget was "the Budget" for the purposes of the automatic termination clause in April 2005, the question arises what part or parts of that budget were to be subject to the calculation provided for in schedule 4.

266 The Riddell Budget includes both "budget sales" and "budget margin." In those circumstances what is the relevant "Budget" figure? Is it the sales revenues that are to be achieved or is it the margin to be achieved by the sales of Goods? If one ignored the margin achieved how could one say whether or not the budget had been achieved? If, therefore, it was necessary to have regard to the margin achieved, how does one do that in the calculation required by Schedule 4?

267 Amare submits that to the extent the budget is more than simply the level of sales of goods, it consists of two discrete components, both of which must be satisfied: the level of sales to be achieved at no less than the specified margin. The problem with that submission is that only one figure can be used in the Minimum Performance calculation. If sales revenues are used then the two components which are to be satisfied are not captured.

268 As only one figure can be used in the calculation, the only way one can ensure that the budget margin is not overlooked is to use the budget margin itself, which, after all, is the bottom line figure in the budget. The margin is a combination of sales revenues and the trading margin. To that extent the budget margin is a measure of the level of sales. Sales revenue on the other hand does not incorporate any aspect of margin and does not measure the margin.

269 For these reasons, there is a sound argument that in the factual matrix in which the agreement was made the sales margins are the measure of the sales of Goods to be achieved.

270 Clause 3.4 says that the budget for the first year of the contract is to be $1,420,000 (including GST) at a trading margin of 24.72%. The budget does not contain monthly figures or a break down of sales revenues and margins between the then three areas allocated to GT.

271 The parties agree that normally the margin was calculated excluding GST. Thus on this budget the margin would be calculated using the revenue figure excluding GST of $1,290,000 and a margin of 24.72% giving a budgeted margin of $318,888.

272 Amare submits that the reference to including GST was a common mistake and the agency agreement should be rectified to read excluding GST. On that basis the gross margin budgeted for the three years for the first year of the agency agreement was $351,000.

273 In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[132] the High Court stated:

References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That normally requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.

274 On the issue of the use of extrinsic evidence in the interpretation of documents in Codelfa Constructions Pty Ltd v State Rail Authority of NSW[133] Mason J said:

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning...[W]hen the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and the parties' presumed intention in this setting.

275 In this case there is ambiguity in what is meant by the budget in circumstances where after the typed contract was prepared, the parties by hand shifted the focus of the budget from sales revenues to the gross profit or margin derived from sales. The change is readily understandable when one is considering the purpose of the budget and the importance to the parties of the gross profit. The margin or gross profit is the fruits of the agency which are to be shared between the contracting parties. GT concedes that the definition of Budget in clause 2(2) appears to relate to a sales budget but submits that the handwritten amendments "converted the Budget from a sales budget, to a margin of gross profit budget."

276 In my opinion, the presence of the budget margin in the Budget is of critical importance. In the Riddell Budget, the budget margin is the bottom line to be achieved. In the initial budget, the inclusion of the required margin converted the budgeted performance from sales revenue to sales margins.

277 The evidence of both parties established that the most important part of the Budget was the budget margin. Both parties pointed out that it was of little benefit to Amare for sales to be achieved that did not produce a margin.

278 Amare did say that sales revenues by themselves were of some benefit as some suppliers gave rebates if a certain level of sales were achieved and commissions were not paid on these rebates. The rebates meant that the cost of goods was effectively reduced thereby improving the margin.

279 In my opinion, taking into account the objective framework of facts within which the agreement came into existence, the most important aspect of the Budget was the budget margin to be achieved. To GT that was the basis of its commission and to Amare that was the main contributor to its profitability and earnings.

280 The parties were at issue on the precise work the Budget did in the agency agreement. GT submits the determination of whether or not the automatic termination was activated was the only express work the Budget did. Amare also said the Budget was a significant indicator of whether or not GT was performing as was required under clause 4.2.

281 I agree with Amare on this issue. I believe achievement of the Budget was relevant to GT's obligations under clause 4.2. This also provides, in my view, some assistance on whether or not sales revenues or margins from the Budget are to be the subject of the Minimum Performance calculation.

282 The real issue I have to determine is whether or not the agency agreement was automatically terminated in April 2005. Was the agency agreement automatically terminated if the Minimum Performance of budgeted margin was achieved but not the Minimum Performance of budgeted sales revenues?

283 As mentioned above, the main function of the Budget was to provide a means to allow for the automatic termination of the Budget. In my opinion, the commercial interests of neither party would have been served if the agency agreement was automatically terminated where the Minimum Performance margin was being achieved by sales of Amare's goods although the Minimum Performance of sales revenues were not. The sole objective of sales was to make a profit for Amare and the way to make a profit was to achieve a profit on the sale of the goods; that is a margin.

284 It would not make much commercial sense for Amare if the agency agreement was automatically terminated and Amare lost the services of GT when GT was achieving the budgeted sales margins but was not achieving the budgeted sales revenue. Mr Pizzey did not like the agency agreement and wished to renegotiate its terms. At the time the agency agreement was made, however, the retention of GT was seen as of benefit to Amare. It does not make commercial sense to construe the agreement in such a way that Amare may have lost the services of GT and allowed GT to go to a competitor where GT was achieving through the sales of Amare's goods the budgeted bottom line for Amare.

285 In my opinion, taking into account the factual matrix surrounding the agency agreement and in particular the importance of the sales margin to both GT and Amare, and the circumstances in which the meaning of the Budget was qualified by the handwritten notation after the typed version had been prepared, the relevant budget figure for the Minimum Performance calculation was the margin to be achieved by the sales of Amare's goods.

286 As indicated above, there was no issue between the parties arising out of the fact that the Riddell Budget gave separate budgets for areas 210 and 140. I do not need to make any findings on the proper application of the termination clauses arising out of that feature.

287 If I am wrong and the Schedule 4 calculation required sales revenues to be used and not the margin derived from the sale of the Goods, then GT argues that on the Riddell Budget and the Amare figures, the automatic termination was not activated by the January, February and March 2005 sales if the agency agreement requires rolling totals to be used.

288 The parties disagreed on the calculation required under clause 5.2. In substance, GT said that in respect of any one month the figure that was to be compared to the Minimum Performance to be achieved is a figure achieved by summing three months. This must be right as the Minimum Performance is a figure calculated for a three month period as Schedule 4 indicates. Accordingly a three month figure achieved is compared with the Minimum Performance to be achieved as calculated under Schedule 4.

289 Clause 5.2 is activated where the Minimum Performance to be achieved is not achieved for a period of three consecutive calendar months. In this case it is said the Minimum Performance figure was not achieved for the period of the three months of January, February and March 2005.

290 The Minimum Performance figure calculated from the budget under Schedule 4 was a fixed figure that applied for the whole budget year. GT submits that to calculate the amount achieved by GT for January 2005 it was necessary to add the amount achieved by GT for January 2005, December 2004 and November 2004. GT submits that the performance achieved by GT calculated as described above for January 2005 is then compared to the Minimum Performance to be achieved calculated from the budget. The answer determines whether or not the Minimum Performance was achieved in January 2005. The same calculation is then done for each of February and March 2005. If the Minimum Performance is not achieved for each of those three months calculated as aforesaid the agreement is terminated.

291 Amare disagrees. It submits that the formula required the figures achieved for a three month period to be added and that if these did not achieve the Minimum Performance to be achieved, the agency agreement was automatically terminated. Amare submits that to adopt GT's construction would cause the agreement to operate in an unreasonable way.

292 I do not agree that GT's construction is unreasonable. On the contrary, it appears reasonable to me bearing in mind the drastic consequences that could be inflicted on either party should the agreement be automatically terminated.

293 Clause 2 of the agency agreement contemplates that one is able to say for each calendar month that either the Minimum Performance has or has not been achieved. In that case, the calculation required under clause 5.2 must give a figure for each month that can be compared to the Minimum Performance to be achieved. Clause 5.2 requires that there be a failure to achieve the Minimum Performance figure for three consecutive months. In this case then, one must be able to say the Minimum Performance was not achieved in January, it was not achieved in February and it was not achieved in March.

294 Amare argues that the reference to three consecutive months defines the period for which the sales achieved must be added to compare to the Minimum Performance figure generated by Schedule 4. Amare argues that Schedule 4 itself indicates that the Minimum Performance figure is being calculated to compare to an actual three month performance.

295 I agree that Schedule 4 does indicate the comparison is to a three month tally, but the rolling method also tallies a three month figure.

296 Again looking at the object of the termination provision, it would seem commercially unrealistic to take a simple three month period that may include time when GT's sole employee was on annual leave or include January when a great deal of industry shuts down for a significant time. As indicated above, the schedule 4 calculations holds good for the whole year irrespective of the three month period it is being compared to.

297 More importantly, the agreement envisages that for each month it is possible to calculate whether or not the Minimum Performance to be achieved has been achieved and this requires three month's figures to be used when making the decision each month.

298 Accordingly, I find that the rolling total approach is the correct method on the construction of the agency agreement.

299 I have carefully considered the submissions made by Amare on the Riddell Budget but I have concluded that the Riddell Budget was not the budget agreed under clause 3.4 of the agency agreement for the following reasons.

300 The Riddell Budget was sent to Mr Tuckett in August 2004 as GT's budget for 2004-2005. Mr Tuckett did not reply and at no stage expressly said he accepted the Riddell Budget as the budget for the purposes of clause 3.4 of the agency agreement or for any purpose.

301 Amare says that GT by its conduct accepted the Riddell Budget as the Budget for the purposes of the agency agreement and thus for the purposes of clause 3.4. It refers to the fact that Mr Riddell did not raise any concerns with Amare about the Riddell Budget after it was sent to Mr Tuckett. Further Amare relies on the fact that in December 2004, Mr Tuckett gave a power point presentation at a sales meeting using the Riddell Budget as if it were GT's budget as referred to above in the Amare submissions.

302 The Court's task is to ascertain from the dealings between the parties whether they intended to make a concluded bargain or not.[134] The test is objective. The court does not look to the subjective intention of the negotiating parties. Rather, the test is whether a reasonable man or woman in the position of the other party would have concluded from all the relevant circumstances that the party intended to make a binding agreement: Australian Broadcasting Corp v XIVth Commonwealth Games Ltd per Gleeson CJ (Hope and Mahoney JJA concurring.)[135] and Ashington Piggeries Ltd v Christopher Hill Ltd.[136] The court can take into account conduct as well as oral and written negotiations in determining whether the parties have entered into a binding contract: Brogden v Metropolitan Railway Co.[137] See also Codelfa Construction Pty Ltd v State Rail Authority of NSW;[138] Pacific Carriers Ltd v BNP Paribas;[139] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd.[140] In the latter, the High Court said:

It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe.[141]

303 In Commonwealth of Australia v Crothall Hospital Services (Aust) Ltd[142] Ellicott J (Blackburn and Deane JJ concurring) said:

It is open to the parties to a written contract to vary it. This may be done in writing or, except where the contract is required by law to be evidence in writing, by oral agreement. The agreement to vary may be express or implied from conduct: see generally Halsbury's Laws of England 4th ed vol 9, paras 566-5-; Anson's Laws of Contract 18th ed, pp 318 et seq; Goss v Lord Nugent [1833] EngR 618; (1853) 5 B & Ad 58; 110 ER 713; Brunner v Moore [1904] 1 Ch 305; Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd [1957] HCA 10; (1956) 98 CLR 93 at 144. [143]

304 The court went onto find that the Commonwealth had accepted by conduct a variation of a written contract.

305 In Australian Broadcasting Corp v XIVth Commonwealth Games Ltd Gleeson CJ said that in ascertaining the objective determination of the intention of the parties in the circumstances of the case before him that "it is both appropriate and necessary to have regard to the commercial circumstances surrounding the exchange of communications, and, in particular the subject matter of those communications: Allen v Carbone (1975) 132 CLR 528 at 532-532."[144] See also Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd.[145]

306 Applying those tests to this case; would a reasonable man or woman in the position of Amare and thus knowing all the relevant matters that had transpired between GT and Amare have concluded from the conduct of GT that GT had accepted and agreed that the Riddell Budget would be the Budget for the purposes of the agency agreement and in particular for the purposes of the automatic termination provisions.

307 In my opinion, such a reasonable person would not have so concluded. The reasonable person in the position of Amare would have been aware of the following matters. It was the practice of Amare to unilaterally impose conditions on GT as if GT was merely an employee. No agreement had been reached in the previous years of 2002-2003 and 2003-2004 on a budget.

308 Mr Tuckett had put forward a budget for 2004-2005 at the request of Mr Riddell that Mr Riddell had rejected. The figures in the Riddell Budget were well above those put forward by GT. Mr Tuckett was an agreeable person, a team player and was treated by Amare as one of its two best salesmen. There had not been any suggestion made to Mr Tuckett that Amare wished to terminate GT's agency agreement and so far as Mr Tuckett was concerned the budget to be set under the agency agreement and thus for the automatic termination procedure was of little relevance.

309 Mr Tuckett's behaviour in speaking to the Riddell Budget is entirely consistent with Mr Tuckett's conduct of behaving as if he were one of the employee salesmen addressing the targets set by its employer. Mr Tuckett's behaviour would not have indicated to a reasonable person in the position of Amare, and having regard to the commercial circumstances surrounding the events relied on, that GT had accepted figures it had previously rejected as the budget in the agency agreement and more particularly as the budget for the automatic termination mechanism in the agency agreement.

310 As mentioned above, the parties are in dispute as to the correct figures for GT's sales revenues in January, February and March 2005. The resolution of this dispute is only relevant if sales revenues, the Riddell Budget and the simple total method are use in calculating GT's Minimum Performance, as Amare submits they ought.

311 For each month, Amare produced monthly sales figures for GT for each of areas 210 and 140 and provided them in a commission statement in the middle of the next month. The commission statement would calculate the commission due to GT on the relevant monthly sales. The commission statements were prepared by Mrs McKitterick from the Real World reports generated by Amare's computers. On occasions, Mrs McKitterick would make minor adjustments to those sales.

312 A Real World report showing sales revenues and sales margins would be generated for GT and another Real World report would be prepared allocating sales to agents on the basis of the "ship to address." When a sale was entered into the Real World system, the program would allocate the sales to an area and thus to a salesmen or to Amare in respect of some areas. It was possible to override the allocation to salesmen when the invoice was entered, or, to program the Real World default allocation to adopt the identity of the customer as the basis of allocation rather than the location of the ship to address. Thus the allocation could be changed when Amare agreed with GT that despite a customer's ship to address being outside GT's areas GT should be credited with the sales to that customer.

313 Mr Tuckett did not have access to the Real World system and could not change the allocation program. The allocation of customers to Amare was entirely a matter for Amare and its employees.

314 The sales revenues exclusive of GST for January, February and March 2005 under these reports achieved by GT totalled approximately $385,000 and using Amare's simple total method fell short of the Schedule 4 Minimum Performance calculation using budget sales revenues of $407,000.

315 In April 2005, Amare relied on the commission statements in making its calculation to claim that the agency agreement had automatically terminated. At the trial however, Amare argued that the commission statements were wrong and that the correct simple total sales revenues were $355,000. The "correct" figures were arrived at by Mrs McKitterick from an audit she undertook in December 2005. In that audit she ignored the Real World statements relied on to prepare the commission statements. She no longer had a copy of them. Instead she went through all the invoices individually and allocated them to their appropriate salesman on the geographical basis of their respective areas. She only made an adjustment to that process if she personally knew that the specific sale had been allocated by Amare to a salesman even though its ship to address fell outside his area. Thus if an arrangement to alter the allocation from the ship to address to customer had been made between GT and Mr Pizzey or Mr Riddell that Mrs McKitterick did not know about it was ignored by Mrs McKitterick. Mrs McKitterick conceded that there well could have been such arrangements.

316 Although Mrs McKitterick went to a great deal of trouble and effort in her audit the audited figures produced by her are of little assistance to Amare as they were prepared on a false premise: that is that Mrs McKitterick knew of each and every agreement or arrangement between GT and Amare that allocated to GT sales delivered to ship to addresses outside areas 210 and 140. When the ship to Real World report of February was referred to in the cross examination of Mrs McKitterick a significant portion of the sales allocated to GT were in respect of deliveries to ship to addresses outside areas 210 and 140. In many of these cases, Mrs McKitterick was unaware of the agreement or arrangement that GT had with Amare.

317 Accordingly, I find that the relevant sales figures are those used in the commission statements.

318 GT argues sales to President Safety and some other sales achieved by Mr Armstrong as the business development manager in areas 210 and 140 should be added to the sales recorded in the commission statements. As it is, I find that the sales made by Mr Armstrong should not be allocated to GT. As indicated above, I find that Mr Tuckett agreed to the appointment of Mr Armstrong to operate in GT's exclusive areas without GT being credited for the sales of Mr Armstrong. I do not accept that Mr Armstrong's sales should be added to the $385,000. Accordingly, even if President Safety was added to the statement sales, GT would fall short.

319 In that event, and on those assumptions, GT did not achieve the Minimum Performance to be achieved. As indicated above I do not accept those assumptions in any event.

320 Amare alleges that on or shortly prior to 10 October 2001, Mr Tuckett on behalf of GT and Mr Williams on behalf of Amare negotiated the entry into the agency agreement. Amare alleges during the negotiations it was to be a term of the agreement that (a) for each year of the agreement there would be a budget, being the level of sales of protective safety equipment goods to be achieved by GT ("Budget"), (b) the Budget for the first year of the agreement would be set at the amount of $1,420,000 ("the First Budget") and (c) a Budget would be established for each following year of the agreement.

321 Amare alleges that during the negotiations and at the time of the entry into and execution of the agreement, GT and Amare shared the common intention that the Budget and the First Budget would be exclusive of GST.

322 Amare alleges that the intention was common to Mr Tuckett and Mr Williams. Amare also rely on the actual First Budget agreed upon prior to execution of the agreement which budget Amare alleges was exclusive of GST. Amare also relies on the terms of an earlier agreement between GT and Alsafe, upon industry practice and upon the subsequent conduct of the parties.

323 Amare alleges that, as a consequence of a mistake in the drafting, the document provided that the Budget for the first year would be set in the amount of $1,420,000 "inclusive" of GST and seek to rectify the agreement by substituting "exclusive of GST" for "inclusive of GST" in clause 3.4.

324 Mr Williams gave evidence that prior to entering into the agency agreement he prepared a document where he set out certain matters he was considering.[146] In that document he noted that the gross profit for fiscal year 2001-2002 should be $351,000. He says that figure is exclusive of GST. A gross profit of $351,000 will be achieved by sales of $1,420,000 at a trading margin of 24.72 per cent.

325 In addition, Mr Williams prepared budgets for each of the three areas to be granted to GT as follows:

(a) Area 140: budget sales $79,929 at 20 per cent trading margin;[147]

(b) Area 210: budget sales $649,890 at 25 per cent trading margins;[148]

(c) Area 220: budget sales $689,979 at 25 per cent trading margin;[149]

(d) Total sales $1,419,798 that rounds to $1,420,000.

326 The total gross profit in the budget was $350,751 which rounds to $351,000.

327 Amare also submits that the draft contract that Mr Tuckett prepared for use with Alsafe provided that GT would be paid a "commission of 38% (exclusive of GST) on orders received by Alsafe" and thus Mr Tuckett was aware that for commission purposes sales should be expressed exclusive of GST.[150]

328 Mr Williams says in his second witness statement that it was his intention at the time of discussing the agency agreement with Mr Tuckett that the budgeted level of sales would be exclusive of GST and that until he re-read the agency agreement he thought it did just that. He says he must have paid no attention, at the time of signing, to the budget sales being expressed inclusive of GST.[151]

329 Amare submits that it was industry practice to express sales exclusive of GST for budget purposes.

330 Mr Tuckett says that GST was reasonably new and he was not aware of any practice to express budgeted sales exclusive of GST.

331 Mr Tuckett also says after he was cross examined on the issue, that the budgeted sales of $1,420,000 inclusive of GST was inserted in the agreement because Mr Williams suggested budgeted sales of $1,290,000 exclusive of GST.[152] Amare submits that the figure of $1,290,000 appears nowhere in any document in the proceeding and it is not a figure that was referred to in either of Tuckett's two witness statements.

332 I do not accept Mr Tuckett's evidence on this point. The contemporaneous documents suggest that Mr Tuckett was told the budget sales were to be $1,420,000. I believe Mr Tuckett was reconstructing the position in his evidence.

333 Amare seek to rely on the latter years' budgets being exclusive of GST to make out the mistake. I have taken this into account. The later budgets do seem to have been prepared on an exclusive of GST basis but that evidence does not establish the mistake but merely suggest there might possibly have been a mistake.

334 Mr Williams does not refer to any mistake in the agency agreement in his initial witness statement.[153] I do not place great weight on that as he was not directing his mind to that issue at the time of its preparation.

335 More importantly, the parties directed their minds to clause 3.4 at the time of signing the agreement when they added by hand the budgeted trading margin. I find it difficult to accept that they both intended to state the budgeted sales as $1,420,000 inclusive of GST when they intended and agreed that the budget would be $1,420,000 exclusive of GST but saw fit to amend the trading margin two lines below.

336 After considering all the evidence, I am not satisfied on the balance of probabilities that Mr Tuckett intended and agreed the sales budget would be exclusive of GST.

337 I therefore dismiss Amare's application to rectify the agreement.

338 In conclusion, I am of the view that Amare was in error in asserting that the agency agreement was at an end in April 2005 as it pleads under clause 13(b) of the Further Amended Further Defence and accordingly does not make out that defence.

339 As mentioned above the other defence to the alleged Second Commission Breach is the Interim Agreement.

340 The pleadings are set out above at the beginning of this section.

341 The pleading begins by alleging the Interim Agreement was made following the termination of the agreement. I assume, however, that Amare still asserts there was an Interim Agreement even if the agency agreement had not been terminated.

342 There may well be an argument that if the agency agreement had not in fact terminated and an interim agreement was made in the belief it had, then the interim agreement may not have come into force as it was based on an implied condition that there was no other agreement in place governing the matters purportedly agreed on. It is unnecessary for me to address this issue as it was not argued.

Amare's submissions on the interim agreement negotiations

343 Amare submits that in April 2005, Mr Tuckett met with Mr Pizzey and agreed that commission would run at its existing rate of 40 per cent while he and Mr Pizzey were seeking to negotiate a new agreement. Amare alleges that Mr Tuckett agreed that if by the end of June 2005 no new agreement was reached, GT's commission would reduce to 30 per cent on 1 July 2005. Amare claims there was no entitlement on the part of Mr Tuckett to a rate of commission above 30 per cent beyond 30 June 2005.

344 Amare submits that on 15 April 2005, it was plain that Mr Pizzey and Mr Riddell considered the agency agreement over. Amare submits that in the period between that date and 30 June 2005, there was never any acceptance on their part or suggestion by them that they might be wrong.

345 Amare submits they proffered a new agreement to GT at the meeting of 15 April 2005.[154] Mr Riddell told Mr Tuckett to go and get legal advice in relation to it.[155] The new agreement offered was open for 14 days. Within that time, Mr Tuckett contacted Mr Pizzey and sought to meet with him alone.[156]

346 Amare submits that it was at the meeting between Mr Pizzey and Mr Tuckett alone that Mr Tuckett asked Mr Pizzey to let the commission run at the existing rate - 40 per cent - while they were negotiating until the end of the financial year and Mr Tuckett expressed the view that he thought the issues could be resolved before 30 June.[157] Amare submits that Mr Pizzey agreed to Mr Tuckett's proposal and they further agreed, that if there was no agreement reached on the a new agency agreement by 30 June, then the new commission rate of 30 per cent would apply from 1 July 2005 if Mr Tuckett wanted to continue working with Amare.

347 Amare submits that on 16 May 2005, Mr Tuckett put forward two detailed proposals in an email to Mr Pizzey.[158] Amare submits that this establishes acceptance of the fact that the original agreement between GT and Amare was over.

348 Amare submits that some time after the email, Mr Tuckett and Mr Pizzey met but did not come to an agreement on a new agency agreement.[159] Amare submits that it was in that context (the interim arrangement having been agreed between Mr Pizzey and Mr Tuckett on 22 April and there having been no new agency agreement reached by 30 June) that GT's commission dropped to a flat 30 per cent on 1 July 2005.

349 On 10 August 2005, Mr Tuckett telephoned Mr Pizzey and complained about the 30 per cent. It was a short conversation and that was the end of the matter.

350 Amare submits that there was no entitlement on the part of Mr Tuckett to a rate of commission above 30 per cent beyond 1 July 2005.

351 Under cross examination, Mr Tuckett disagreed with Mr Pizzey's version of the post 15 April 2005 events. He admitted that Mr Pizzey maintained the agency agreement was at an end. He said, however, that Mr Pizzey agreed to continue to pay him under the terms of the agency agreement.

352 In his email to Mr Pizzey of 16 May 2005 Mr Tuckett put forward a proposal about commission in relation to "a proposed change of commission." The email is premised on the assumption that the existing agreement still applies and that what was being discussed was a "proposed change of commission."

353 Mr Tuckett took notes of the meetings on April 22 and 28. The notes contain no reference to any interim agreement. Mr Pizzey produced no note or record that an agreement had been reached. I find this a significant omission. At this stage solicitors for each side were exchanging letters. If an agreement had been reached I would have expected Mr Pizzey or GT's solicitors to confirm its existence in writing.

354 I am not satisfied that Mr Tuckett did enter the Interim Agreement as alleged. Amare had unilaterally indicated that it intended to reduce the commission to 30 per cent. All that Mr Tuckett and Mr Pizzey agreed to was to defer the reduction to at least 30 June 2005. I do not accept that Mr Tuckett agreed on behalf of GT to a commission reduction from 1 July 2005. I do not agree that Mr Tuckett sought to amend the agency agreement by his discussions with Mr Pizzey in April 2005.

355 The onus of proof of the Interim Agreement lies on Amare and I am not satisfied that the Interim Agreement was reached as alleged.

356 Accordingly, I find that in or about July 2005 Amare breached the agency agreement by purporting to further reduce the commission to which GT was entitled as alleged by GT.

AMARE WRONGFULLY PURPORTED TO TERMINATE THE AGREEMENT

357 GT alleges that on or about 20 September 2005, Amare wrongfully purported to terminate the agency agreement. In particular, GT alleges that the purported termination was oral and consisted of a voice mail message left by Mr Riddell on the mobile phone of Mr Tuckett.

358 GT alleges that GT did not accept Amare's repudiation of the agreement and by implication affirmed the agency agreement. In particular, GT alleges that in a letter sent by GT to Amare on 29 September 2005, GT advised Amare that it did not accept the purported termination of the agreement. Further, GT alleges that from the time of Amare's repudiation of the agreement, Amare has wilfully prevented GT from performing under the agreement notwithstanding GT having tendered performance.

359 GT alleges that as a result of Amare's wrongful termination GT has and will continue to suffer loss of all remaining commissions whilst Amare prevents GT from performing under the agreement and Amare refuses GT's tender of performance. GT alleges that based on GT's sales performance for the period January 2005 to August 2005, and excluding losses resulting from the other pleaded breaches, the loss can be estimated for 73 months at $1,658,627.80.

360 In the alternative, GT alleges that if the agreement has been terminated, under the liquidation damages provision Amare owes GT one half of the average commission including GST earned by GT to the expiry of the term, plus interest, if not paid within 28 days of the termination.

361 Amare denies GT's allegations and further alleges that the agreement was terminated pursuant to clause 5.2 on or about 15 April 2005 as set out above in the Second Commission Breach.

362 Further, Amare alleges that by GT failing to meet the Minimum Performance, GT evinced an intention to no longer be bound by the agreement and has repudiated the agreement. Amare alleges that in or about April 2005, Amare accepted GT's repudiation of the agreement. Amare rely on a letter dated 15 April 2005 from Davies Elliot, then solicitors for Amare, that was sent to GT confirming the agreement had terminated. Alternatively, Amare alleges that on or about 20 September 2005 Amare accepted GT's repudiation of the agreement and rely on the voice mail message referred to by GT. In the premises, Amare alleges that the agreement was validly terminated on 15 April 2005 or alternatively on 20 September 2005.

363 By its further amended reply, GT admits receiving the letter of 15 April from Davies Elliot addressed to GT and says that by this letter Amare in fact repudiated, whereupon GT elected to affirm the agreement. It refers to a letter from Norton White solicitors for GT of 20 April 2005 which stated, inter alia, that Amare's repudiation was rejected and the agreement remained in force.

364 As indicated above, Amare denies it repudiated the agreement on 20 September 2005 as the agreement had already been terminated in April 2005 under clause 5.2 of the agreement. I have already found that the agreement did not automatically terminate in April 2005 as Amare alleges.

Amare's allegation that GT repudiated the agency agreement

365 I now turn to Amare's other defence to the claim that it purported to repudiate the agreement on 20 September 2005, that is; that on or about 25 September Amare accepted the repudiation of GT as alleged in paragraph 25 of the Further Amended Further Defence.

366 Amare rely on the alleged failure of GT, in or about January, February and March 2005, to meet the Minimum Performance and thereby evinced an intention to be no longer bound by the agency agreement and has repudiated the agreement. It is appropriate that I set out Amare's submissions in full.

367 Amare submits that if failure to meet the Minimum Performance in January to March 2005 did not result in termination of the agency agreement pursuant to clause 5.2, then GT's failure amounted to a repudiation of that agreement by GT, and that was accepted by Amare on 15 April 2005 [or alternatively on 20 September 2005.]

368 Amare submits that the requirement to meet Minimum Performance is an essential term of the agency agreement:

1. even if breach of it did not bring about automatic termination, the fact that it is intended as an event resulting in termination signifies its essential nature;
2. given that there was no means by which the achieving of the budget could be compelled by Amare; the Minimum Performance requirement is a more essential term than the budget requirement, which in itself is an important requirement in the context of an agency agreement for the sale of goods.

369 Amare submits that by GT's conduct in declining its attention to sales throughout 2004 to 2005, and in achieving very poor sales in January to March 2005, together with poor sales in April 2005, GT demonstrated its intention to perform its obligations only if and when it suited.[160] Amare submits the importance of the term that is breached is also a matter to be taken into account in determining, in an objective manner by reference to the effect it would have on a reasonable person, whether there has been repudiation. [161]

370 I reject these submissions on the same grounds that I found that GT had not failed to meet the Minimum Performance required under clause 5.2. Even if sales were poor (which I do not find) I do not consider that GT evinced an intention no longer to be bound by the agreement.

371 In Amare's submissions, it raises further defences to GT's allegation that Amare wrongly repudiated the agreement on 20 September 2005 and that GT did not accept the repudiation as ending the agency agreement.

372 Amare submits that if the agreement did not automatically terminate in April 2005, then Amare repudiated the agreement on 15 April 2005 and that repudiation was accepted by GT. Although not said in its submissions, I have inferred that Amare submits that it did not repudiate the agreement on 20 September 2005 as the agreement was already terminated for this reason.

373 Amare also submits that if Amare did repudiate the agreement, GT accepted the repudiation.

374 Finally, Amare submits that if GT did purport to not accept the repudiation but instead affirm the agency agreement it was not entitled to do so and thus did not do so.

375 These three defences were not pleaded by Amare and were raised for the first time in its final submissions.

376 It is appropriate that I set out in full Amare's submissions on these new allegations. There is a fourth allegation in these submissions which deals with the purported extension of the agency agreement on 29 September 2005 which I deal with in the section on renewal.

377 Amare submits that if the agency agreement did not terminate by operation of the "low orders" clause (clause 5.2) (which termination would have occurred no later than 1 April 2005, although Amare's communication to GT of such a termination occurred on 15 April 2005), then:

1. Amare repudiated the agency agreement on 15 April 2005, and that repudiation was accepted by GT;
2. alternatively, Amare repudiated the agency agreement on 20 September 2005, and that repudiation was accepted by GT.

378 Amare submits that refusal to perform the contract on the basis of an incorrect interpretation of the contract may amount to repudiation.[162] Amare submits that an actual intention to repudiate is not necessary; the issue is resolved objectively by reference to the effect which the party's conduct would have on a reasonable person.[163]

379 Amare submits that if Amare was wrong on 15 April 2005 as to the operation of clause 5.2, it nevertheless manifested a clear intention no longer to be bound by the agency agreement.[164] Amare submits it put forward a new agreement and it made plain it no longer regarded itself as bound by the 2001 agreement. Amare submits that since that day, Amare at all times, remained firm in its view that the agency agreement had terminated by operation of clause 5.2, a matter which reinforces the conclusion that its intention of 15 April 2005 was not open to interpretation.

380 Amare submits that the conduct of GT, between 15 April 2005 and 30 June 2005, was an acceptance of the Interim Agreement being offered by Amare while the parties were negotiating, and thus also an acceptance of Amare's repudiation of the agency agreement.

381 Amare submits that if that conduct by GT up to 30 June 2005 did not amount to acceptance of Amare's repudiation, then the conduct of GT from on or about 12 September 2005, when it instructed its solicitors to write to the solicitors for Amare alleging breaches,[165] was an acceptance of Amare's repudiation. Amare submits the terms of the letter, including but not limited to the demand of payment of $168,112.87 within thirty days of the letter for alleged breaches going back to November 2002, make clear that the relationship had irrevocably broken down and that GT knew this. Amare submits the further letter from GT's solicitors on 15 September 2005,[166] confirming that proceedings would be instituted, is yet further evidence of an irrevocable breaking down.

382 Amare submits that by its notice of 29 September 2005 extending the term of the agency agreement, [167] GT wanted to establish a basis for a larger claim against Amare by way of setting up an extension of the term and GT sought to create documentary evidence of a continuing intention to affirm the agency agreement.

383 Amare submits that the right to affirm a contract is clearly not unrestricted. Amare submits it is clearly unrealistic and/or undesirable for the law to permit a party to insist for an indeterminate time on continued performance in the face of the other party's breach. Amare submits this is so in circumstances where, over a period of months, that other party has consistently communicated that it regarded the agreement as terminated (even if it was wrong in its view of that fact, as a matter of law) and had consistently conducted itself on that basis.

384 Amare submits that in this case GT was effectively providing the personal services of Mr Tuckett to Amare, and Mr Tuckett personally was treated by Amare, on a day-to-day basis, not unlike other employees of Amare who were sales representatives. Amare submits an employee has no right to insist on continued employment after wrongful dismissal.[168]

385 Amare submits that further and in the alternative, GT accepted Amare's repudiation of the agency agreement by the very notice of 29 September 2005 even though it was a document purporting to communicate an election to affirm. Amare submits that the "election" was not an effective election, as it sought to affirm an agreement, key elements of which were no longer on foot.

386 Finally Amare submits that even if there was no acceptance by GT of Amare's repudiation until 21 October 2005 or until 2 November 2005, GT did not on 29 September 2005 have a right to the unilateral exercise of an option to extend the term.

Findings on further defences to repudiation on 20 September repudiation

387 In its submissions quoted above, Amare submits that if the agency agreement did not terminate by operation of "low orders", (which is its first defence to the allegation that it repudiated the agreement on 20 September 2005) then:

(a) Amare repudiated the agency agreement on 15 April 2005 and that repudiation was accepted by GT;

(b) alternatively, Amare repudiated the agency agreement on 20 September 2005 and that repudiation was accepted by GT;

388 In elaboration of (a), Amare submits that if Amare was wrong on 15 April 2005 as to the operation of clause 5.2, it nevertheless manifested a clear intention to no longer be bound by the agency agreement. It put forward a new agreement and says the conduct of GT between 15 April 2005 and 30 June 2005 was an acceptance of the Interim Agreement being offered by Amare while the parties were negotiating and, thus also an acceptance of Amare's repudiation of the agency agreement.

389 As mentioned above, this allegation is not made in the Further Amended Further Defence.

390 Putting that matter to one side for the moment, it is necessary to consider with greater particularity the conduct of the parties on and after 15 April 2005 to 30 June 2005.

391 Under cross examination, Mr Tuckett disagreed with Mr Pizzey's version of these post 15 April 2005 events. He admitted that Mr Pizzey maintained the agency agreement was at an end. He said, however, that Mr Pizzey agreed to continue to pay him under the terms of the agency agreement. In his email to Mr Pizzey of 16 May 2005 Mr Tuckett put forward a proposal about commission in relation to "a proposed change of commission." Amare have construed that email as showing an acceptance of the fact that the original agreement between them was over. I do not agree. The email appears to be premised on the assumption that the existing agreement still applies and that what was being discussed was a "proposed change of commission."

392 More importantly, on 20 April 2005 GT's solicitors wrote to Davies Elliott the solicitors for Amare rejecting Amare's repudiation of the agency agreement. Amare was warned that any failure by it to perform the agreement would be met with immediate and appropriate action.[169]

393 I reject Amare's submission that GT accepted Amare's repudiation of the agreement prior to 1 July 2005.

394 Amare further submits in support of (a) that if the conduct by GT up to 30 June 2005 did not amount to acceptance of Amare's repudiation, then the conduct of GT from on or about 12 September 2005 when it instructed its solicitors to write to the solicitors for Amare alleging breaches was an acceptance of Amare's repudiation.

395 The letter of 12 September 2005, by Norton White to Davies Elliott asserts that the relationship of GT and Amare "is governed" by the agency agreement.[170] The letter complains of breaches of that agreement and seeks damages for the alleged breaches. The letter does not purport to treat the breaches as a repudiation of the agreement or seek to accept that repudiation as terminating the agreement.

396 Nevertheless, Amare submits that the letter of 12 September "is yet further evidence of an irrevocable breaking down." Amare appears to be submitting that GT was not entitled to affirm the agency agreement.

397 Amare submits that the right to affirm a contract is clearly not unrestricted. It submits that it is clearly unrealistic and/or undesirable for the law to permit a party to insist for an indeterminate time on continued performance in the face of the other party's breach. Amare say this is particularly so in circumstances where Amare had made it clear for several months it considered the agreement at an end.

398 Amare submit that GT was effectively providing the personal services of Mr Tuckett to Amare and Amare treated Mr Tuckett not unlike other employees of Amare who were sales representatives. Amare submit that an employee has no right to insist on continued employment after wrongful dismissal. Amare refer to and rely on Automatic Fires Sprinklers Pty Ltd v Watson[171] and Murray Irrigation Ltd v Balsdon.[172]

399 In Automatic Fires Sprinklers Pty Ltd v Watson[173] Latham CJ, Starke, Dixon and Williams JJ all found that an employer's wrongful dismissal of an employee did not terminate the contract of employment unless the employee elected to treat is as such.[174] Latham CJ[175] and Dixon J[176] agreed that the relationship of master and servant could be unilaterally ended by the master discharging the servant. Latham CJ, Starke, Dixon and Williams JJ all agreed that a dismissed servant could not sue for wages unless the service had been provided. Rather, the servant could sue for damages for unjust dismissal for the damage he has suffered by the employer depriving him of his right to give his services and thereby earn his remuneration.[177]

400 It is useful to quote the following passage from the judgment of Latham CJ:

But if a dismissed servant, as in the present case, does not accept his dismissal as a breach entitling him to regard the contract as discharged, he cannot ignore the wrongful dismissal and claim still to be the servant of his employer with the rights of a servant. The dismissal, though wrongful, is not a nullity. ...Thus the wrongful dismissal determines the relationship of master and servant created by the contract, even though the servant may not have accepted his dismissal as entitling him to regard the contact as discharged. Any other view would in effect grant specific performance of a contract of personal service, a remedy which the courts have always refused in such a case.[178]

401 I do not accept that GT affirmed the contract and refused to accept Amare's repudiation as terminating the agency agreement "to establish a basis for a larger claim." Well after the letter of 12 September 2005, Mr Tuckett was negotiating with Mr Pizzey to save the agency agreement and I find that as at 12 September Mr Tuckett genuinely was seeking still to save GT's agency agreement.

402 Even assuming that GT's agreement with Amare was akin to a contract of employment, the authorities relied on by Amare confirms that the wrongful dismissal of an employee will relieve the employee from his obligations under the contract to perform services. Further, the employee cannot sue for specific performance or for wages for services not provided. On the other hand, the employee may maintain the contract for limited purposes even though he no longer has the rights of an employee. Assuming therefore that the unilateral action of Amare is akin to dismissing GT as an employee, the relationship of principal and agent may no longer exist. On the other hand, the contract otherwise remains on foot.

403 In Automatic Fires Sprinklers Pty Ltd v Watson[179] Dixon J said in respect of an employee who had been wrongly dismissed:

"The common understanding of a contract of employment at wages or salary periodically payable is that it is the service that earns the remuneration and even a wrongful discharge from the service means that wages or salary cannot be earned however ready and willing the employee may be to serve and however much he stand by his contract and decline to treat it as discharged by breach....His only remedy is in unliquidated damages for wrongful dismissal. By keeping his contract open, he may be able to resume his service without a new contract, if his employer is induced to retract the discharge. "[180]

404 Dixon J accepted that in the case before him the dismissal had ended the master and servant relationship under the contract of employment but nevertheless held that the contract of employment could still remain on foot.

405 I reject the submission that GT was not entitled to reject the repudiation and elect to affirm the agency agreement.

406 Accepting, for the purposes of the submission, that the agency agreement should be treated as akin to a contract of employment, the situation appears as follows. Amare's conduct in wrongfully repudiating the agency agreement had the effect of terminating the relationship of employer and employee between it and GT, or probably more accurately, terminating the agent's authority to act as agent. GT, however, was entitled to affirm the agency agreement and in the words of Dixon J keep the contract open.

407 In any event, Bowstead and Reynolds on Agency accept that an agent's authority to act as agent for the principal may be unilaterally and wrongfully terminated by the principal but the contract between the principal and the agent remain on foot unless the agent accepts the termination of his or her authority as terminating the contract.[181] Bowstead and Reynolds cite as authority Thomas Marshall (Exports) Ltd v Guinle.[182]

408 I find that GT did affirm the contract and kept it on foot although GT's authority as agent may have been terminated.

409 Accordingly, I find that GT has not accepted the repudiation as a termination of the agency agreement nor has Amare's actions unilaterally had that affect.

410 In elaboration of (b), that is; that Amare repudiated the agency agreement on 20 September 2005 and that repudiation was accepted by GT, Amare relies on GT's letter to Amare of 29 September 2005 in which Mr Tuckett places on record the ineffectiveness and invalidity of Amare's purported termination of the agency agreement. Amare submits, however, that the "election" was not effective, as it sought to affirm an agreement, key elements of which were no longer on foot.[183]

411 This allegation was not pleaded by Amare. Putting that omission to one side for the moment, Amare submits that even though it was a document purporting to communicate an election to affirm the "election" was not effective as it sought to affirm an agreement key elements of which were no longer on foot.

412 I have found the agency agreement remained on foot even if, accepting the arguments of Amare, the authority of GT to act as Amare's agent had been unilaterally terminated by its continual assertion the agreement was at an end and the instruction by Mr Riddell to GT to cease acting as agent for Amare. GT may have wished it to remain on foot in the hope that Amare might be persuaded to accept GT as its agent once again: see Dixon J in Automatic Fires Sprinklers Pty Ltd v Watson.[184]

413 Despite the actions of Amare, I find that at all times up to 15 September 2005, GT sought to keep the agency agreement open in the hope that Amare may resume its services without a new contract.

415 I find that on or about 20 September 2005, Amare wrongfully purported to terminate the agency agreement and has from that date wilfully prevented GT from performing under the agreement notwithstanding GT having tendered performance.

416 GT alleges that on about 29 September 205, GT gave notice under clause 3.10 of the agency agreement exercising its option to renew the agreement for a further five years from 9 October 2006. [185]

417 Amare denies the allegation and alleges that GT was disentitled from any entitlement it otherwise might have had to exercise the option on two grounds: GT alleges that on or about 29 September 2005, the agreement had been terminated; and GT was acting in bad faith in seeking to extend the agreement.

418 Further, Amare alleges that the purported notice of exercise of the option was not a valid notice because it wrongly insisted upon performance: (a) without excision of area 220; and (b) without the agreed role of the business development manager.

419 By its reply, GT denies acting in bad faith and says that the notice represented its genuine desire to continue the agreement.

Amare's submissions on the renewal of the agency agreement

420 In its submissions, Amare claims that the agreement could not be extended as:

(a) on its true construction the agreement required both parties to agree to the new term;

(b) the notice to extend was invalid or ineffective as GT sought to renew an agreement that was no longer on foot as it had been amended as Amare alleges above; and

(c) a valid extension required that GT had properly observed and performed its obligations under the agreement which it had not, including the obligation in all matters to act loyally and faithfully towards the principal.

421 I have assumed these grounds are additional to the pleaded allegations that the agreement had been terminated and the agreement could only be extended in good faith.

Findings on the renewal of the agency agreement

422 Amare alleges the agreement had been terminated under clause 5.2. I have already rejected that ground.

423 Amare also alleges the agreement had been terminated on 15 April 2005 or alternatively 20 September 2005. I have already rejected those allegations.

424 Amare's submissions that the agreement required both parties to agree to the extension are as follows

When construing clauses 5.1 and 3.10 concerning any extension of the term, the Court is required to apply the following principles:

(a) in ascertaining the objective meaning of a contract, its terms must be considered in context;

(b) context includes the "factual matrix", and modern authorities make clear that it is not only after an ambiguity can be established that recourse can be had to considerations of context;[186]

(c) the contract must be considered as a whole;[187]

(d) questions of meaning are "to be answered in a practical and realistic way, not in a way which adopts an overly fine or theoretical approach that is alien to commercial agreements;"[188]

(e) where a contract contains terms that are inconsistent with each other, the court must decide which term represents the objective intention of the parties in the circumstances;

(f) a more reasonable interpretation is to be preferred in cases of ambiguities: "if the language [of a contract] is open to two constructions, that will be preferred which will avoid consequences which appear capricious, unreasonable, inconvenient or unjust,"[189]

(g) the literal terms of a clause in a contract may well be "corrected" to avoid absurd consequences;[190]

(h) there is not the need for an ambiguity before the court may depart from the literal terms of a clause, if necessary to avoid "ridiculous commercial results.[191]

There is, between clause 5.1 and clause 3.10 (1), both a clear conflict and some ambiguity. The question is whether, construed in context and considering the agency agreement as a whole, and seeking to give it business efficacy and avoid absurd, ridiculous or plainly unjust results, this Court should construe it:

(a) by finding that the agency agreement can only be extended by the agreement of the parties (as provided in clause 5.1); or

(b) by finding that it can be extended at the unilateral election of the agent, as GT seeks to contend (by reference to clause 3.10 (1)).

This is an agency agreement, and GT would be the agent of Amare; while GT would be deriving a profit from its efforts, it can hardly be considered a common commercial situation that an agent would be able to bind the principal to use the agent, at the agent's unilateral option.

425 Further, matters leading to the conclusion that the agency agreement could only be extended by the agreement of the parties are relied on by Amare which I quote below.

Did GT have a unilateral right to renew the agency agreement?

426 Clause 5.1 provides that the agency agreement terminates "unless the parties agree to extend the Term pursuant to clause 3.10". Clause 3.10 provides:

(1) GT Corporation may extend the Term of this agreement for 3 further periods of 5 years commencing on the day following the expiration of the Term provided in this agreement, provided GT Corporation has:

(a) properly observed and performed its obligations under this agreement throughout the term; and

(b) has served a notice on Principal requiring such extension not later than 90 days before the Expiry Date.

427 I accept Amare's submissions on the approach to contractual interpretation. There is a conflict between clauses 5.1 and 3.10. Clause 5.1 contemplates an agreement between the parties whereas clause 3.10 provides that GT may extend the term. The question therefore arises; did the parties by this agreement intend that GT should have the unilateral right to extend its term or did the parties intend that an extension would require the consent of both parties?

428 In most commercial contracts an option to extend is a unilateral right. For example in a lease, an option to renew is a right extended unilaterally to the lessee.

429 Amare submits that it can hardly be considered a common commercial situation that an agent would be able to bind the principal to use the agent, at the agent's unilateral option. I do not accept this argument.

430 As discussed above when considering whether the agreement had been terminated, the principal may wrongfully terminate the agent's authority to act as its agent and nevertheless the agent may elect to maintain the contract on foot.

431 Accordingly, the extension of the term would not necessarily bind the principal to use the agent at the agent's unilateral option.

432 Amare also point to the following matters as supporting its contention that the agency agreement could only be extended by the agreement of the parties.

433 There is no provision allowing the principal to terminate the agency relationship on giving a fair notice to its agent. I accept that this is a relevant factor to bear in mind.

434 The initial term of the agency agreement is a very substantial one (5 years), and any investments (sunk costs) on the part of the agent would have been recouped during that initial term. I accept that this is likely to be the case.

435 The period of an extension, if it were available at the unilateral option of the agent GT, would also be very substantial (another 5 years). I accept that this is the case.

436 If GT's construction argument as to clause 3.10 (1) were to be accepted, in fact GT would be able to unilaterally extend for a total of 15 years. I accept that this is the case. But it must be viewed in the light of the other clauses permitting termination, including automatic termination for failure to achieve Minimum Performance.

437 In my view these factors do not override the normal and natural implication that a provision that grants GT the right to renew is a unilateral right given to GT. I consider that this express provision governs the matter. The reference to the agreement of the parties in clause 3.10 must be taken to refer to the agreement that is affected by the renewal.

438 In the circumstances, I reject the submission that both parties had to agree to the extension.

439 Amare argues GT sought to extend the term of an agreement, key elements of which were not on foot.

440 Amare submitted that by its letter of renewal, GT sought to:

(a) "enforce" rates of commission to which GT was no longer entitled;

(b) "require" the removal of other Amare sales representatives from what it described as the "schedule 1 (territory) and schedule 2 (customers); and

(c) disclaim the existence of an agreed budget for the financial year 2004/2005, which budget GT was required to achieve.

441 Amare submitted that GT was no longer entitled to the matters it was seeking to enforce because:

(a) the agency agreement had been varied in that respect;

(b) GT was estopped from asserting on 29 September 2005 that the agency agreement had not been varied; and

(c) the act of seeking to "enforce" each of those terms in an agreement with Amare was done in breach of GT's continuing obligation of good faith under clause 4.4 of the agency agreement and of an implied contractual duty of good faith and fair dealing.

442 In its Further Amended Further Defence Amare relies on two other matters: first, that GT insisted upon performance of the agreement without excision of area 220; and secondly, without the agreed role of the BDM. I have found that there was no Territory Breach or Exclusivity Breach.

443 I do not agree that GT was seeking by its letter of 29 September 2005 to renew an agreement that was no longer on foot. The letter says "GT enforces the agreement in particular to but not restricted to" certain clauses.

444 I do not construe that assertion to be an insistence that the agreement which is to be extended contains those clauses. The letter began by saying that its purpose was seven fold. The extension of the term was one of seven points. The enforcement of rights asserted by GT was another.

445 In my opinion, the notice requiring the extension assumes the agency agreement as it is. The agreement contemplated variations from time to time on such matters as customers and determining annual budgets. I construe the exercise of the option to extend the agreement as no more than extending the agreement as it stood at the time of the notice or as it would stand at the date of its continued application.

446 I reject the allegation that the notice to renew was invalid for the reasons pleaded or relied on in the submission.

447 Amare submits that there was no compliance with clause 3.10 (1) (a) as GT had not properly observed and performed its obligations throughout the term, in particular it had not complied with clauses 4.1 and 4.3 (2). This allegation was not pleaded.

448 The allegation relies on an assumption that if GT is correct on its construction of the agency agreement, as effectively granting it a right to make all sales in territory 220 for the term including to the exclusion of Amare as principal, then it had such a right under the agency agreement only to the extent that (a) it was able to achieve the budget (clause 2(2), definition of "Budget") and (b) it would promote and protect the interests of Amare (clause 4.1).

449 Amare alleges that GT did not comply with its obligations as leading up to September 2002, GT was not promoting and protecting the interests of Amare in the way Littler was performing[192] and after GT terminated Littler's employment, GT did not offer to employ another person to service area 220.

450 Amare submits that if GT is correct in its construction (which is disputed), then it constituted a breach by GT to refuse, alternatively fail, to employ another sales representative to cover territory 220, in a way that would have promoted and protected Amare's interests which would have required a sustained meeting of the budget, in fact expansion of the level of sales.

451 As mentioned above, these allegations were not pleaded in relation to clause 3.10(1)(a). In any event, no complaint was made by Amare that GT was in breach of its obligations. Further, if there was a breach the breach was remedied by Amare taking over area 220 and I have found that Amare did not breach the agreement in taking over area 220.

452 Accordingly, this ground for alleging the renewal was ineffective is not made out.

453 Amare submits that there was no compliance with clause 3.10 (1) (a) as GT had not met the minimum performance requirement for the period January to March 2005.

454 I have rejected that submission in dealing with the alleged automatic termination.

455 Clause 4.4 of the agency agreement provides that "GT Corporation shall in all matters act loyally and faithfully towards Principal."

456 Amare submits that GT was not acting in good faith. Amare relies on two matters as going to lack of good faith.

457 First it pleads that it lacked good faith in seeking to exercise the option. It submits that GT's conduct in giving instructions to its solicitors to institute legal proceedings[193] demonstrate it was not in good faith contemplating resuming the agency relationship with Amare.

458 Secondly, it alleges that GT acted disloyally by making an improper offer to Smith[194]. This allegation was not pleaded.

459 On 15 September 2005, Norton White on behalf of GT had written to the solicitors for Amare saying that they would institute legal proceedings against Amare in respect of the first and second commission reductions, the excision of area 220 and the breach of the exclusivity agreement.

460 On 20 September 2005, Amare had left a message for Mr Tuckett instructing him that GT should cease acting as agent for Amare and confirmed that instruction in writing on 27 September 2005.

461 On 27 September 2005, Mr Tuckett advised Amare that GT was in the process of instituting legal action. Nevertheless, on 29 September 2005, GT purported to exercise its option to extend the term of the agreement for five years.

462 Mr Tuckett denied in cross examination that he was motivated by any desire to improve his position in the foreshadowed legal action. Mr Tuckett denied that he extended the term to enhance GT's prospects in any future litigation. He said that did not cross his mind and to the effect that he never expected the litigation to go ahead.[195]

463 The timing and circumstances of the notice might lead to the inference that Mr Tuckett did exercise the option for the purpose suggested by Amare. On the other hand, his actions during October in trying to keep the agreement on foot and his diary note of 2 November 2005 where he states that he expects to be back with Amare in the near future lead me to conclude that I am not satisfied that Mr Tuckett's dominant purpose was to improve his position in any future litigation. He said he wanted to secure his position as he and his partner wanted to buy a house. The evidence strongly suggests that Mr Tuckett wanted to continue to work for Amare. He went to extraordinary lengths to maintain GT's position as Amare's agent.

464 I find that GT did wish to resume the agency relationship with Amare. In the very notice extending the term of the agreement Mr Tuckett indicated his intention to perform GT's obligations under the agency agreement and confirmed that intention the next day. On the day before the notice, Mr Tuckett had met with Mr Pizzey to seek to iron out their differences.

465 I am not satisfied that GT was not in good faith contemplating resuming the agency relationship with Amare and I am not satisfied as the Further Amended Further Defence alleges that GT gave the notice for the purpose of seeking to obtain collateral advantage in litigation which GT had threatened and intended to institute.

466 After hearing the evidence of Mr Smith and Mr Tuckett, I do not find that Mr Tuckett made any improper overtures to Mr Smith as alleged in the submissions. I am not satisfied that his remark was improper or was anything more than a joke.

467 Assuming for present purposes Amare's submissions on GT's purpose is correct; does that purpose disentitle GT to extend the agency agreement?

468 Although not expressly relied on by Amare, in my opinion the good faith clause merely applies to how GT carries out its duties as agent under the agency agreement. It does not apply to the mechanics of extending the agreement.

469 In any event, I do not believe that it is necessary for GT to establish any particular purpose of motive to validly exercise the option to renew. No authorities were referred to or relied on by Amare in support of its submission that apart from the terms of the agreement GT had to act in good faith to extend the term of the agreement.

470 In conclusion, I find that on or about 29 September 2005 by the letter of GT to Amare, GT gave notice under clause 3.10 of the agency agreement exercising its option to renew the agreement for a further five years from 9 October 2006.

471 GT is entitled to damages for Amare's failure to pay the agreed commission on the orders achieved by GT between 1 November 2001 and 21 October 2005 when GT ceased procuring orders for Amare. This has been calculated in two tranches: first for the period 1 November 2002 until 30 June 2005 and then from 1 July 2005 to 21 October 2005.

472 GT is also entitled to damages for Amare's wrongful termination of GT's authority to act as agent.

473 There are many issues that must be resolved in making these calculations. I have decided that it would be in the best interests of all parties that I receive submissions on the calculation of these damages. I have received evidence on these matters and I will not hear any further evidence. To assist the parties I set out below my preliminary views on some of the issues involved.

474 Where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.[196]

475 The award of damages for breach of contract protects a plaintiff's expectation of receiving the defendant's performance. That expectation arises out of or is created by the contract.[197]

476 The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff's expectation objectively determined, rather that subjectively sustained.[198]

477 The plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed.[199]

478 The damages recoverable are limited by the rule in Hadley v Baxendale[200] where Alderson B said the plaintiff is entitled to recover such damages as arise naturally, that is according to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach.[201]

479 The plaintiff is entitled to be compensated for the loss of benefits that otherwise would have accrued to it if the contract had been performed and these can extend beyond those expressly promised under the contract. Such benefits may include the opportunity to renew the agreement.[202]

480 Accordingly, if it be right to suppose that the loss of the prospect of securing a renewal of the contract was within the contemplation of the parties as a probable result of the breach, the plaintiff is entitled to compensation which takes into account the value of the loss of the prospect of securing a renewal of the contract.[203]

481 To obtain damages for a loss of chance or opportunity it is not necessary to establish that the chance would probably have been realised but rather that there was a chance that might have been realised whatever the degree of probability.[204]

482 Normally, damages are assessed at the time of the breach. This principle is not of universal application and it must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered.[205] The guiding principle in the assessment of damages is compensatory. The object is to award the plaintiff an amount of money that will, as nearly as money can, put him in the same position as if he had not been injured by the defendant.[206]

First Commission Breach and Second Commission Breach

483 On the First Commission Breach, GT submits that the amount of commission that GT was not paid on orders it achieved are $128,000.[207] This figure has been discounted back to its value on 1 November 2002.

484 Accordingly, in this case the breaches causing the damage are the failure to pay the agreed amount on each occasion commission was paid to GT. We know that GT did achieve orders up to 21 October 2005. It may be that there is no need to estimate the likely future damage as at 1 November 2005 when the commission rate was reduced as we know what the actual damage was.

485 It may be that GT is entitled to damages under this head of $128,000.

486 As a result of the Second Commission Breach GT claims damages under this head of $25,437.[208] For similar reasons, it may be that the sum need not be discounted.

487 On the other hand, GT may wish to recover the discounted amount to recover pre-judgment interest.

488 The parties may wish to address me on this issue.

Damages for the wrongful termination of the agency of GT

489 GT claims damages for the wrongful termination of the agency agreement on 20 September 2005. The statement of claim gave an estimate of damages at $1,658,627.80 and said the losses were continuing.

490 Evidence was given of the actual earnings of GT for the years 2005-2006 and 2006-2007. Should these be used to calculate the damage suffered by GT?

491 GT had the opportunity of renewing the agreement for a further ten years. It is arguable that it lost that opportunity through Amare's wrongful termination of GT's authority to act as Amare's agent. How should this lost opportunity be valued?

492 GT's final submissions referred to several calculations of Mr Owain Stone.

493 I would be assisted by further submissions on the damages due to GT through Amare's wrongful termination of GT's authority to act as Amare's agent.

494 GT makes an alternate claim relying on the liquidated damages clause 6.4. GT submits that if the agreement has been terminated, Amare owes GT one half of the average annual commission including GST earned by GT to the expiry of the term, plus interest, if not paid within 28 days of the termination.

495 GT submits that if the term of the agreement was extended the compensation payable on this basis would be $943,356.

496 Amare submits that the liquidated damages clause is unenforceable as a penalty.

If this agreement is terminated by Principal for any reason other than a reason set out in clauses 5.1 to 5.4 inclusive, or otherwise than in accordance with the terms of this agreement, Principal shall pay to GT Corporation compensation as follows:

(1) an amount equal to one half of the average annual Commission earned by GT Corporation to the expiry of the term; and

(2) the compensation shall be paid by Principal to GT Corporation not later than 28 days after termination**.**"

498 Both parties agree that the average annual Commission earned by GT is payable in respect of each remaining year of the agency agreement until it was due to expire. GT does not seek damages under this ground for the loss of the opportunity to extend the agency agreement beyond 2011.

499 Both parties agree that in the circumstances which have happened, the clause is activated and the clause applies to calculate the damages due to the plaintiff for the unexpired portion of the agency agreement. In saying that I acknowledge that Amare still claims the option to extend was not validly made.

500 The agreement was not terminated by Amare but on 20 September 2005 Amare gave notice to GT that it terminated GT's authority to act as agent for Amare. The notice of termination was repeated on 27 September 2005 and also on 20 October 2005. The clause only applies where there is a "termination" by Amare. At law, Amare does not have the right to terminate the contract unilaterally although it does have the right and power to terminate GT's authority to act as Amare's agent. In my opinion, Amare's conduct in terminating the agency does constitute a termination by it within the meaning of clause 6.4.

501 In Ringrow Pty Ltd v BP Aust Pty Ltd[209] the High Court proceeded on the basis that Lord Dunedin's speech in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd[210] expresses the law in Australia on the identification, proof and consequences of penalties in contractual stipulations. Lord Dunedin said:

1. 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....
2. 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.
3. To assist this task of construction various tests have been suggested which if applicable to the case under consideration may prove helpful or even conclusive. Such are:

(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....

(b) It will be a penalty if the breach consists in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid....

(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".

502 Amare submits that the term of the agency is five years and it would be clearly "extravagant and unconscionable" to suggest that , say after twelve months, Amare was required to pay to GT the equivalent of the commission for two full years.

503 Taking 2004-2005, being the last financial year before GT ceased to act as agent for Amare, the financial accounts of GT indicate it earned $208,135.23 commission and incurred $210,919.81 in expenses. Of the expenses incurred the following were not referable to GT carrying out the agency agreement:

504 Thus actual expenses incurred in earning commission was:

505 GT also paid Mr Tuckett a wage. There was no evidence to suggest it was excessive or inadequate. I assume that if GT ceased to carry out the agency agreement it would no longer be obliged to pay Mr Tuckett for acting as a salesman under the agency agreement. On the other hand if the agency agreement had continued I assume he would have been paid as normal. In those circumstances GT was earning some $93,083.55 profit in 2004-2005 under the agency agreement.

506 The liquidated damages clause provided for half of the commission earned to be paid. If 2004-2005 is used, half the commission was $104,067.62. This is some 12 per cent above the actual profit.

507 The profit would have been greater if Amare observed the commission clause. On that basis GT would have earned an extra 20% on $20,000 gross profit each month making a total of $48,000 if a gross profit of at least $20,000 was achieved.

508 Accordingly, on this assumption, GT's profit from conducting the agency ought to have been approximately $140,000 per year.

509 The liquidated damages clause provided for half of the commission earned to be paid. If 2004-2005 is used half the commission was $104,067.62. If commission was paid at the agreed rate, $128,000 was half the commission that ought to have been paid. On this basis the compensation payable was less than the actual profit earned.

510 My preliminary view is that the liquidated damages clause did not constitute a penalty as submitted by Amare.

511 There are many issues to be addressed in assessing damages on which I would be assisted by submissions.

512 Should tax be taken into account and if so how?

513 Should any allowance be made for inflation and if so how?

514 Assuming GT was obliged to mitigate its loss, what did it do to do so and could it have done more?

515 Are GT's damages to be reduced for failure to mitigate its loss and if so what and how much?

516 If future earnings are to be discounted to present values, what discount rate should be applied?

517 What expenses were incurred after GT's authority as agent was terminated and what allowance, if any, should be made for them in calculating the damages for wrongful termination of the contract and how?

518 Does the renewal of the agreement make any difference to the calculation of damages and if so what?

519 How is the possible renewal of the agreement for another ten years to be compensated, if at all?

520 Does the present value of the future profits that might have been earned if Amare had performed the agreement make any difference?

521 I will hear submissions on interest payable under the agreement or otherwise payable at law.

522 Amare claimed the interest provision under the agency agreement constituted a penalty.

All sums due from either Principal or GT Corporation to the other which are not paid on the due date shall bear interest from day to day at the annual rate of interest of 2% above the interest rate specified in the penalty Interest Rates Act as amended from time to time."

524 GT seeks interest from the date the respective liquidated amounts were due at the rate specified. In the case of the reduced commission that will be from the 15th of each month after the month in which the relevant sales were achieved. In the case of the termination that will be from 20 September 2005, if the damages are assessed on the date of that breach.

525 The rate is two per cent above the penalty interest rate. There was no evidence before me as to the rate at which GT would have had to borrow or it could have achieved if it had the moneys to otherwise use.

526 My preliminary view is that the interest clause is a penalty.

527 I shall hear the parties on the quantum of damages including interest.

[3] Tuckett's typed note at CB 567 dated 21 February 2002, Tuckett, cross examination Tr 179

[6] Williams, supplementary statement, exhibit "D 6", paragraph 2 clarify Williams (1), paragraphs 48 and 49

[46] Pico Holdings Inc v Wave Vistas Pty Ltd [2005] HCA 13; (2005) 214 ALR 392 at [66] per Gleeson CJ and McHugh, Gummow, Hayne and Heydon JJ

[48] Cheshire and Fifoot, 9th ed, [22.3]

[49] [2000] HCA 35; (2000) 201 CLR 520 at 533

[50] [2003] FCA 50; (2008 128 FCR 1 at 63 [226]

[53] [2003] FCA 50; (2003) 128 FCR 1

[58] Pizzey, cross examination Tr 510, 512 to 513

[61] Pizzey, cross examination Tr 512 to 513, Williams, cross examination Tr 465

[66] Pizzey, paragraph 53, c/f Tuckett, paragraph 26

[67] Williams, paragraph 53 and cross examination Tr 445 to 447

[70] For example, emails to Riddell at SCB 1160 and 1171

[72] The only such variations were the Tuckett initiated and authored "Outsider Agreements"

[74] Mr Tuckett's witness statement of 24 July 2007 (Exhibit P1) , para 26

[91] Tr 417 lines 12-20, see also Tr 635 lines 22 to 636 line 17

[92] Diary entry of Mr Tuckett, CB 2039

[96] Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at 163-164

[98] (1940) 40 NSWSR 512

[99] [1991] HCA 54; (1991) 174 CLR 64

[102] Pizzey, paragraph 31, Williams, paragraphs 54 to 58

[103] CB 761, Tuckett, cross examination Tr 193

[105] CB 915; see also the email of 18 February 2004 confirming at CB 1115 and on 13 April 2004 at CB 1146

[107] For example, CB 1115, 1146 and Tuckett, cross examination Tr 194 to 195

[118] (2003) 128 FCR 106 at 105-106 [426]

[119] GT's outline of closing submissions [24]

[120] Riddell, paragraph 77, emails of 18 August 2004 at CB 1283, 24 August 2003 at CB 1283, 27 August 2003 at CB 1293

[122] Riddell, paragraph 80, see the letter of offer to him, CB 1280 to 1281

[127] Riddell, paragraph 85, Tuckett, paragraphs 64 and 65

[132] [2004] 219 CLR 154 at [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ

[133] [1982] HCA 24; (1982) 149 CLR 337 at 552

[134] Cheshire and Fifoot's Law of Contract, Sydney: Lexis Nexis Butterworths, 2008 at [3.9]

[135] (1988) 18 NSWLR 540, at 548-550

[136] [1972] AC 441 at 502 per Lord Diplock

[138] [1982] HCA 24; (1982) 149 CLR 337

[139] [2004] HCA 35; (2004) 218 CLR 451

[140] [2004] HCA 52; (2004) 219 CLR 165

[142] [1981] FCA 117; (1981) 54 FLR 439

[145] [2004] HCA 52; (2004) 219 CLR 165 at 177-189

[155] Riddell, cross examination Tr 707

[157] Pizzey, paragraph 56, cross examination Tr 608

[160] Carr v J A Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327 at 351

[161] DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 431

[162] See eg DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423

[163] DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 431

[164] Letters of Amare's solicitor given to GT on 15 April 2005, and subsequent letters, continuing negotiations of the new agreement, intention of Pizzey to only have in place an interim agreement, and Amare ceasing to treat the interim agreement on commissions as binding after 30 June 2005. Letters of 15 April 2005 at CB 1786, 1787, commission statement for June, 10 August 2005, at CB 2030

[168] Automatic Fires Sprinklers Pty Ltd v Watson [1946] HCA 25; (1946) 72 CLR 435; Murray Irrigation ltd v Balsdon [2006] NSWCA 253

[171] [1946] HCA 25; (1946) 72 CLR 435

[172] [2006] NSWCA 253

[173] [1946] HCA 25; (1946) 72 CLR 435

[174] Latham CJ at 450-451, Starke J at 462, Dixon J at 465 and Williams J at 476

[177] Latham CJ at 540-451, Starke at 461-462, Dixon J at 465-466 and Williams J at 476

[179] [1946] HCA 25; (1946) 72 CLR 435

[182] (1979) Ch 227

[184] [1946] HCA 25; (1946) 72 CLR 435 at 465-466

[186] See eg Toll (FGCT) Pty Ltd v Alphafarm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [41]

[187] Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109

[188] McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 176 ALR 711 at 729 per Kirby J

[189] Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109

[190] See eg Westpac Banking Corp v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521; Dockside Holdings Pty Ltd v Rakio Pty Ltd [2001] SASC 78; (2001) 79 SASR 374 at 387, where the Court construed the literal terms of the contract so that there would not be "a ridiculous commercial result based upon a review process which flouts commonsense."

[191] Dockside Holdings Pty Ltd v Rakio Pty Ltd [2001] SASC 78; (2001) 79 SASR 374 at 387

[192] 9 September 2002 letter from Amare to GT, setting out matters not working CB 714; Williams, cross examination Tr 442 to 444, 451 to 452, 453, Pizzey, cross examination Tr 561 to 562

[194] Smith, statement paragraphs 9 to 12 and cross examination Tr 787 to 792, re-examination Tr 801

[196] Robinson v Harman (184) [1848] EngR 135; 1 Ex 850 at 855 per Parke B; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J

[197] Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J at 80

[200] [1854] EngR 296; (1854) 9 Ex 341

[201] Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 90

[202] Ibid at 92 and 94 per Mason CJ and Dawson J and at 102-103 per Brennan J

[203] Ibid at 91 per Mason CJ and Dawson J

[204] Cheshire and Fifoot ninth Australian edition [23.15]; Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

[205] Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 at [5] per Mason J See also Willfa & Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426 at 431; Willis v The Commonwealth [1946] HCA 22; (1946) 73 CLR 105

[206] Todorovic v Waller [1981] HCA 72; (1981) 150 CLR 402 at 412 per Gibbs CJ and Wilson J

[209] [2005] HCA 71; (2005) 224 CLR 656 per Gleeson CJ, Gummow, Kirby, Hayne, Callinan and Heydon JJ at 662-663

[210] [1914] UKHL 1; [1915] AC 79 at 86-87