Plaintiff v Defendant

Supreme Court of Victoria|2008-06-24|Before: ROBSON J

CONTRACT LAW - Damages - Liquidated damages clause - Whether penalty - Principal wrongly terminates agent's authority in breach of agency agreement - Whether agent entitled to damages for loss of opportunity to extend term of agency - Whether liquidation damages clause determines damages for loss of opportunity as well as breach of agency agreement.

CONTRACT LAW - Agency agreement - Wrongful repudiation by principal - Termination of authority of agent - Whether instruction not to make sales on behalf of principal constitutes termination of agent's authority.

GT Corporation Pty Ltd v Amare Safety Pty Ltd [2008] VSC 143

Hadley v Baxendale [1854] EngR 296; (1859) 9 Ex 341

1 GT Corporation Pty Ltd ("GT") claims damages against Amare Safety Pty Ltd ("Amare") for several breaches of an agency agreement made 10 October 2001. I have decided the liability claims and gave my reasons in GT Corporation Pty Ltd v Amare Safety Pty Ltd[1]. I found that Amare breached the agreement in two respects, which are described as the First and Second Commission Breaches. I also found that Amare wrongly purported to terminate the agreement. I reserved my decision on the question of damages.

2 In my previous reasons I formed the preliminary view that the liquidated damages clause, 6.4, is not a penalty and is otherwise valid. I formed the preliminary view, however, that the interest clause is a penalty clause and may not be relied upon. I have now heard further argument on damages and also gave leave for GT to make a claim for unpaid commissions for 1 - 19 September 2005.

3 I now deliver my reasons on the damages claims. I find that the liquidated damages clause is not a penalty but the interest clause is. I find that the liquidated damages clause was triggered before GT extended the term of the agreement. I find that GT is not entitled to further damages for loss of opportunity to extend the agency agreement. In summary, I have found that GT is entitled to the following damages:

(a) On the First Commission Breach: $119,412 and interest from 21 October 2005 until the date of judgment.

(b) On the Second Commission Breach: $25,216 and interest from 21 October 2005 until the date of judgment.

(d) On non-payment of the September sales: $12,197.67 and interest from 21 October 2005;

giving a total of $281,916.02 and interest accrued from 21 October 2005 until judgment totalling $87,936.40. This comes to $369,852.42.

4 The parties agreed on the quantum of damages for (a) and (b) above. There were several issues between the parties, however, arising out of the assessment of damages for (c) above. Both parties agree that damages for the wrongful purported termination of the agency agreement ought to be calculated under clause 6.4 of the agreement.[2] GT accepts that as a consequence of that wrongful purported termination and the events that followed, the agreement has been terminated by Amare within the meaning of clause 6.4.[3]

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**.**

6 Under clause 6.4, the parties agree that the "average annual Commission" earned was $118,592.18.[4] Amare submits that the period "to the expiry of the term" within the meaning of clause 6.4 is to be calculated to 9 October 2006 (approximately 13 months). On the other hand, GT submits that the period should take into account the extension of the agreement affected on 29 September 2005 to 9 October 2011.

7 GT submits that it is entitled to common law damages for the loss of the opportunity to extend the contract for the two outstanding option periods from 2001 to 2016 and 2016 to 2021. Further, GT says that if Amare is correct and the period under clause 6.4 is only to 9 October 2006, then GT is also entitled to common law damages for the loss of the opportunity to extend the contract for the first option period of 2006 to 2011 in addition to its entitlement to damages for the loss of the opportunity to extend for the further two periods. On the other hand, Amare submits that damages for the loss of the opportunity to renew or extend the contract are not available to GT. Amare submits they were not claimed on the pleadings, were not opened by GT, no evidence was led by GT to make out the claim and clause 6.4 excludes such a claim by its ambit or under the rule in Hadley v Baxendale.[5]

8 GT also seeks to claim commission due to it for sales it made on behalf of Amare for nineteen days from 1 September 2002 to 19 September 2002 of $12,197.67 or alternatively $11,472.82. I have given leave to GT to amend its claim accordingly. Amare says there is no evidence to support the claim. Further, if there was such a claim, Amare submits it has been absorbed into the liquidated damages available under clause 6.4 and that GT is not entitled to any further moneys for outstanding commission payments but is limited to the sum due under clause 6.4.

9 The statement of claim dated 21 October 2005 relevantly provides as follows:

16. On or about 20 September 2005, Amare wrongfully purported to terminate the Agreement.

The purported termination was oral. It consisted of a voicemail message left by Tony Riddell on behalf of Amare on the mobile phone of Grant Tuckett on behalf of GT.

The substance of this message was that Amare had terminated the agreement, effective immediately and that Amare would no longer deal with GT. The purported reason given by Riddell was due to 'negotiations for a new contract having broken down'.

GT did not accept the purported termination. In a letter sent by registered post and email by GT to Amare on 29 September 2005, GT advised Amare that it did not accept the purported termination of the Agreement (being the voicemail message described above) and that the Agreement was ongoing.

17. GT did not and does not accept Amare's repudiation of the Agreement (particularised in paragraph 16 above).

18. From the time of Amare's repudiation of the Agreement (particularised in paragraph 16 above), Amare has wilfully prevented GT from performing under the Agreement, notwithstanding GT having tendered performance.

This last allegation is of particular relevance to the issue on damages. GT now submits Amare only terminated GT's authority as agent on 20 October 2005 or at any event after the contract had been extended on 29 September 2005.

10 Under the heading of "Particulars of Loss and Damage", GT claimed:

19. As a result of the above breaches of the Agreement, GT has suffered, and will continue to suffer, loss and damage.

(e) As a result of Amare's wrongful termination pleaded in paragraph 16 above, GT has and will continue to suffer the loss of all remaining Commissions whilst Amare prevents GT from performing under the Agreement and refuses GT's tender of performance.

These losses commenced in September 2005. Based on GT's sales performance for the period January 2005 to August 2005, and excluding the losses resulting from the other pleaded breaches, the loss can be estimated at $22,463.67 including GST plus $257.26 interest under the Agreement each month. The loss will continue for the balance of the term of the Agreement, i.e. 73 months until 8 October 2011. It is estimated at $1,658,627.80.

GT requires discovery of, inter alia, Amare's sales and financial records in order to adequately particularise these losses.

(f) In the alternative that 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.

GT requires discovery of, inter alia, Amare's sales and financial records in order to adequately particularise these losses.

It should be noted that the losses are alleged to commence in September 2005.

11 GT gave further particulars of economic loss on 25 July 2006 as follows:

5. As to paragraph 19(e) ("The Termination") of the Statement of Claim:

Between 20 September 2005 and 11 October 2011, the sub-total loss suffered by the Plaintiff, excluding penalty interest, is $871,594. See Table 15 at p.18 of the report of Stone for more detailed calculations.

7. As to paragraph 19(f) ("The Alternative Termination") of the Statement of Claim:

Under clause 6.4 of the Agreement, one half of the average annual commission received by the Plaintiff is $98,463. See Table 18 at p.20 of the report of Stone for more detailed calculations.

As indicated above, the parties have now agreed under the alternative termination that the figure is $118,592.18, rather than $98,463 as alleged in the particulars. It should be noted that GT alleges the damage was incurred between 20 September 2005 and 11 October 2011.

12 In my judgment on liability I dealt with the claim that Amare wrongfully purported to terminate the agency agreement in paragraphs [357] - [415]. That analysis finished with the conclusion that, as alleged by GT, 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.

13 The exact date on which Amare prevented GT from performing under the agreement, notwithstanding GT having tendered performance, is now of critical relevance in calculating damages. In substance, Amare alleges that on 20 September 2005 GT's authority to act as agent for Amare was terminated and GT was thereafter prevented from earning commission. I have found that, in breach of the agency agreement, Amare could in fact unilaterally terminate GT's authority as agent and thus prevent it from earning commission under the agency agreement. Both parties agreed that in such circumstances, clause 6.4 would, thereby, be activated and the clause apply to calculate the damages due to GT for the unexpired portion of the agency agreement.

14 In paragraph [500] of my earlier judgment I said:

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.

15 Amare submits that I have found that GT's authority to act as Amare's agent was terminated on 20 September 2002 and that Amare's conduct constituted a termination by it of the agency agreement within the meaning of clause 6.4.

16 At the trial on liability no submissions were put to me by either party as to the precise time when GT's authority to act as agent was terminated or when Amare terminated the agency agreement for the purposes of clause 6.4.

17 That issue has become of particular relevance for the purposes of assessing damages under clause 6.4. If the agency agreement was terminated by Amare within the meaning of clause 6.4 before the purported extension of the term of the agreement on 29 September 2002, Amare claims that the period "to the expiry of the term" is the period to 10 October 2006. If, on the other hand, the agreement had been extended to 10 October 2011 before the agreement was terminated by Amare within the meaning of clause 6.4 (other than for the reasons specified), then the period "to the expiry of the term" is the period to 2011 and the damages would be approximately six times larger.

18 As indicated above, the issue before me at the trial on liability was whether on or about 20 September 2005 Amare wrongfully purported to terminate the agreement. For the reasons referred to, I held it had. The issue of the damages flowing from the breach is a different issue. The particulars alleged that from the time of Amare's repudiation of the agreement, Amare has wilfully prevented GT from performing under the agreement. It is this prevention which is the cause of the damage GT has suffered. Amare prevented GT from performing under the agreement by withdrawing its authority to act as agent, refusing to accept any orders it procured and otherwise obstructing GT in carrying out its duties. GT submits that Amare may have stated to GT it was withdrawing GT's authority on 20 September 2002 but it in fact did not do so until 20 October 2002. Amare relies on my earlier finding in paragraph 500.

19 In my opinion, it is open for me to review that finding for the reasons given above. I reserved my decision on damages for further submissions. It is open to me to decide which of the dates I refer to in paragraph [500] or any other date was the date at which Amare terminated the agreement within the meaning of clause 6.4.

20 It is convenient to examine the evidence surrounding the purported termination of the agreement by Amare. Much of this is taken from my earlier judgment but it is embellished in certain respects.

21 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."[6] No mention was made of any proposal to discuss the termination of the agency agreement.

22 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 that 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.[7] 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.

23 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.[8]

24 Mr Tuckett was given another letter from Davies Elliott addressed to GT of 15 April 2005, which enclosed a proposed new agency agreement and gave Mr Tuckett fourteen days to respond to the offer.[9] The new agreement proposed a reduction in commission from 40 per cent to 30 per cent.

25 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.[10] 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.

26 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 alleged that 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. I have found no such agreement was made.

27 Mr Tuckett made a diary entry of the meeting.[11] 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.

28 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.[12] 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.

29 On 16 May 2005, Mr Tuckett put forward two proposals in relation to "a proposed change of commission rate."[13] Mr Tuckett said that he thought that these would assist Amare in reducing overheads while giving incentive to GT to increase profits. 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.

30 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.[14]

31 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.[15] Mr Tuckett's fiancé had sold the lease to the Bridge Hotel at Echuca and settlement was anticipated on 1 September.

32 On 18 August 2005, Mr Tuckett telephoned Mr Pizzey to 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. Mr Tuckett made a diary note of the conversation.[16] His note records that he informed Mr Pizzey 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.

33 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.[17]

34 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 the 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.[18]

35 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." [19]

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

37 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."[20]

38 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.[21]

39 On Thursday, 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.[22] GT advised that it did not accept the purported termination and the agency agreement was ongoing. Under the letter 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. 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). 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. GT asserts it had never been consulted on the sales/margin budgets for the customers and territories found in the agreement. GT says it did not accept such budgets. 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. Mr Tuckett concluded the letter by saying that GT would continue to perform under the agreement.

40 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."[23]

41 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.[24]

42 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.[25] This is also evidence that Amare had taken steps to implement its direction to GT that there was to be no further sales and marketing activity undertaken by GT on behalf of Amare.

43 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.[26] 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.[27] On 4 October 2005, Davies Elliott wrote to Norton White alleging the agency agreement had terminated. Davies Elliott required GT to -

• Transfer the mobile telephone number used by GT in conducting the agency to Amare.

• Make immediate arrangements to remove the name "Amare" from any email address used by GT.

• Return all company documents which are the property of Amare to Amare.

• Desist from making any further contact with any of the customers or clients of Amare.[28]

44 In response, Norton White, by letter of 4 October 2005, repeated GT's position that the agency agreement had not terminated and that GT was doing its best to perform the agreement. The letter stated:

Your client has and is causing huge disruption to our client's business as well as embarrassment by advising our client's customers, including some of its biggest customers, that our client is no longer associated with your client and that they are not to deal with our client. Employees of your client have also been instructed not to talk or deal with our client. In addition, orders that our clients have placed are no longer being credited to our client, but to other salespersons. Your client is doing all it can to prevent our client from performing. Needless to say our client is and will continue to suffer losses of a critical magnitude. Your client will ultimately be held fully liable therefore.[29]

This letter provides further evidence that Amare was implementing the direction it had given to GT on 20 and 30 September 2005.

45 On 5 October 2005 at 9.37 a.m., Mr Tuckett emailed Mr Riddell advising of a successful purchase order from the Department of Defence.[30] At 9.42 a.m., Mr Tuckett emailed Mr Riddell advising of an order from MacMillans Publishers.[31] At 2.20 p.m., Mr Tuckett emailed Mr Riddell to organise a quote for Macraw Maintenance.[32] At 4.10 p.m., Mr Riddell emailed Mr Tuckett conveying an offer from Mr Pizzey to discuss issues between them.[33] At 4.14 p.m., Mr Tuckett emailed Mr Riddell informing him that Mr Tuckett intended to do a training session with one of Amare's customers. He asked Mr Riddell if there was an issue about this.[34] Mr Riddell replied, saying if you do this "you do this under your own volition and under no circumstances are you acting on behalf of, or with the support of Amare Safety."[35]

46 On 7 October 2005 at 11.33 a.m., Mr Tuckett emailed Mr Riddell about the closure of Cabot in Altona.[36] At 12.14 p.m., Mr Tuckett emailed Mr Riddell to organise a quote for Wattyl.[37] At 2.09 p.m., Mr Tuckett emailed Mr Riddell seeking an update of pricing for the V/Line procured products.[38] At 2.17 p.m., Mr Tuckett emailed Mr Riddell concerning Don Smallgoods.[39] At 3.26 p.m., Mr Tuckett emailed Mr Riddell with tender information for the Department of Defence and said that he usually submitted tenders to the Department of Defence, however, "due to the circumstances you have me operating under" he felt that Amare should attend to the tender.[40]

47 On Monday 10 October 2005 at 10.40 a.m., Mr Tuckett emailed Mr Riddell confirming he had faxed through orders for Don Smallgoods.[41] He asked Mr Riddell to adjust the order.

48 On 11 October 2005, Mr Tuckett emailed Mr Riddell and asked him to process an order from the City of Wyndham.[42]

49 On 13 October 2005 at 9.37 a.m., Mr Tuckett emailed Mr Riddell and asked him to process an order for Cabot.[43] At 9.45 a.m., Mr Tuckett emailed Mr Riddell and asked him to process an order placed to Laforge.[44] At 9.51 a.m., Mr Tuckett emailed Mr Riddell to follow up an order emailed through by GT from Macraw.[45] At 11.20 a.m., Mr Tuckett emailed Mr Riddell and suggested that he update the Patrick Portlink website.[46] At 2.55 p.m., Mr Tuckett emailed Mr Murray of Patrick Portlink with a copy to Mr Riddell about problems Mr Murray had using Amare's on-line ordering website.[47]

50 Further similar emails were sent by Mr Tuckett to Mr Riddell on 13 October 2005[48], 14 October 2005[49], and 17 October 2005.[50]

51 On 18 October 2005 at 10.35 a.m., Mr Tuckett asked Mr Riddell to process an order for Cabot.[51] At 10.51 a.m., Mr Tuckett emailed Mr Riddell asking him to fax through to Mr Murray of Patrick Portlink details of their purchases.[52] At 10.56 a.m., Mr Tuckett emailed Mr Riddell asking him to process an order on behalf of EMS.[53] At 12.05 p.m., Mr Riddell emailed Mr Tuckett about Contract Resources order 113091 referring to an order faxed through (presumably by GT) and correcting the price. Mr Riddell asked Mr Tuckett, who quoted to him the price at KCC.[54] At 12.12 p.m., Mr Tuckett emailed Mr Riddell answering Mr Riddell's question.[55] At 2.08 p.m., Mr Tuckett emailed a further order through to Mr Riddell.[56] At 5.24 p.m., Mr Murray emailed Mr Tuckett asking him to send the information "we talked about".[57] At 5.30 p.m., Mr Tuckett emailed Mr Riddell about the information he had requested for Mr Murray.[58] He asked him to forward the request ASAP. By email sent at 5.44 p.m. and copied to Mr Riddell, Mr Tuckett replied to Mr Murray.[59]

52 On 18 October 2005 at 3.43 p.m., Mr Tuckett received an order from CFCL Australia.[60] It asked for a logo to be attached to rail jackets. The order was forwarded to Mr Riddell at 6.00 p.m.[61] The next morning at 8.12 a.m., Mr Riddell responded to Mr Tuckett asking the position of logos to go on the product ordered by CFCL Australia.[62] Mr Tuckett advised Mr Riddell of the position.[63] On 19 October 2005, Mr Tuckett forwarded further orders to Mr Riddell.[64]

53 On 19 October 2005, Norton White wrote to Davies Elliott complaining that commission for September 2005 had not been paid by 15 October as it should. They also complained that Amare had been advising customers that GT is no longer associated with Amare and further frustrating GT's performance by withholding product information and not responding to correspondence. They said that GT could not be expected to continue in this manner. They said that in the result, GT will continue to do its best to perform for a further 14 day period and if by that time Amare has not ceased its unlawful conduct and shown a commitment to honour the agreement, GT will suspend its attempts to perform the agreement until such time as Amare resumes its own obligations.[65]

54 By fax (sent at 11.41 a.m.) and hand delivery on 20 October 2005, Russell Kennedy solicitors wrote to Norton White stating they now act for Amare.[66] They refer to the differing views in the correspondence between their predecessor Davies Elliott and Norton White about whether or not the minimum performance processes of the agency agreement caused the agency agreement to terminate on 31 March 2005. They agree with Davies Elliott's construction and say:

However, there is another issue which has been investigated by our client which, in our opinion, entitles and entitled our client to terminate the Agency Agreement in 2001 or, alternatively 2003.

They then set out the matters concerning Mr Williams' employment in the Bridge Hotel at Echuca, the subject of the allegations in the defence that were not pursued at the trial. Russell Kennedy alleged:

We are instructed that Mr Tuckett actively pursued the Agency Agreement while at the same time offering Mr Williams the prospect of resigning as soon as a suitable hotel lease was available on terms which gave Mr Williams and his wife an ample income and a share in the equity in such a hotel. Mr Williams is in no doubt that influence was brought to bear on him to execute the Agency Agreement against express instructions from Mr Pizzey that he was not to do so.

In 2003 Mr Williams and Mr Tuckett formed an agreement in which Mr Williams would manage the Bridge Hotel, Echuca with his wife in return for an agreed income and a 20% equity share. Mr Tuckett was to, and did, purchase the lease of the hotel. We are instructed that Mr Tuckett told Mr Williams that his involvement should not be disclosed to Mr Pizzey or our client because to do so would jeopardise the Agency Agreement. In our opinion Mr Tuckett's apprehension was well founded.

Russell Kennedy concluded by saying that the alleged repudiation of the Agency Agreement has been accepted by Amare and Amare "will now appoint its own agent to the territory the subject of the Agency Agreement."

55 On 20 October 2005 at 2.43 p.m., Michelle McKitterick emailed Mr Riddell on GT's sales attaching September 2005 and October 2005 sales of GT.[67] At 3.20 p.m., Mr Pizzey emailed a letter to Mr Tuckett as follows:

I am advised that the Agency Agreement dated 10 October 2001 has terminated and any payment due to your company arises from an interim agreement while we negotiated a further agreement. Those negotiations are at an end both practically and for reasons which will become apparent from a letter sent to your lawyers. It is on that basis only that the attached payment is made and the payment is not to be construed as an affirmation of the original agreement. If you take a different view the attached payment is to be returned.

The payment details show a deduction representing consignment stock for which G.T Corporation is responsible. When you facilitate payment or the return of stock to us there will be a further payment to you.

56 The attached commission statement (the same as that sent to Mr Riddell on 20 October 2005) indicated that GT had made sales of $87,460.29 in October 2005, earning commission of $8,147.24 inclusive of GST.[68]

57 On 20 October 2005 at 6.35 p.m., Mr Tuckett emailed Mr Pizzey in response to his fax. He said:

For the umpteenth time the 'Agreement' dated 10 October 2001 has not terminated and there is no interim agreement and there never has been.

He said that Amare owed GT commission for September 2005. He also said the payment of $1,477.68 referred to in the letter appeared to be conditional upon GT accepting that the agreement has been terminated. He said this was not the case and he would return the payment. He referred to the letter from Amare's solicitors to his solicitors (presumably Russell Kennedy's letter) and says the allegations are completely baseless and they can expect a response tomorrow.[69]

58 Further emails concerning customers were sent by Mr Tuckett to Mr Riddell on 20 October 2005.[70]

59 On 21 October 2005 at 9.56 a.m. Mr Tuckett emailed Mr Riddell asking him to process an account on behalf of CFCL Australia.[71] At 2.25 p.m. that day, Mr Tuckett emailed Mr Riddell about back orders outstanding to Cabot.[72] Mr Riddell replied at 2.25 p.m. as follows:

All orders will be processed, however no commission will be paid to you. I refer you to the letter sent to your solicitor dated 19 October 2005 and require you to cease representing yourself as Amare Safety's agent.[73]

I presume Mr Riddell meant to refer to Russell Kennedy's letter of 20 October 2005.[74] Mr Riddell had not sent similar letters asking GT to cease representing itself as Amare's agent in response to orders placed earlier in October.

60 At 2.47 p.m., Mr Tuckett emailed Mr Riddell concerning an order placed by Patrick Portlink.[75] Mr Riddell replied at 5.30 p.m.:

We will organise. I refer to the letter sent to your solicitor dated 19 October 2005 and require you to cease representing yourself as Amare Safety's agent.

Again, I presume Mr Riddell meant to refer to Russell Kennedy's letter of 20 October 2005.

61 On 21 October 2005 at 5.04 p.m., 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.[76]

62 On 21 October 2005, Norton White wrote to Russell Kennedy replying to its letter of 20 October 2005. They referred to their letter of 19 October 2005 to Davies Elliott and said as follows:

In light the allegations and the purported action that your client attempts to take in your letter of 20 October 2005, and in light of your client's letter to our client (also sent yesterday, enclosed) in which your client makes it clear that it does not intend to pay our client what it is owed for September 2005 commission, our client will bring the 2 week period forward and, effective immediately, will suspend all efforts to perform under the agreement until your client shows a commitment to honour the agreement.

63 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.[77]

64 Mr Tuckett gave evidence about his experience after he received Mr Riddell's telephone message.[78] He said as follows:

From 21 September 2005 to 21 October 2005 I continued to do all I could do to work and perform GT's duties under the Agreement (CB 247-6 to 250-6, CB 252-6, to 296-6). Mr Riddell responded (CB 277-6, p 2096; 287-6, p 2108). I dealt with numerous customers and received numerous orders. I did not mention my dispute with Amare to any customers or suppliers. I duly forwarded on orders to Amare as I always had. Amare caused substantial disruption to GT's business as well as embarrassment by advising GT's customers, including its biggest customers with whom I had dealings for many years, that GT and I were no longer with Amare. Employees of Amare were instructed not to talk or deal with me in relation to Amare business. In addition, orders that I have placed were no longer credited to GT, but to other salespersons. The situation become impossible for GT. Amare did all it could to prevent GT from satisfactorily performing under the agreement. See CB 247-6, p.2063; CB 300-6, p 2125 and CB 302-6, p 2126.

65 Mr Riddell merely said about the dealings with Mr Tuckett in October:

Tuckett continued to send me emails in relation to accounts despite the Agreement having terminated. I responded to a few emails where it was necessary to assist a customer.[79]

66 When did Amare terminate GT's authority to act as agent? Amare alleges it terminated the authority by Mr Riddell's voice mail instruction of 20

September 2005. All parties concede it was terminated by 20 October 2005. The conduct after 20 September 2005 is relevant to throw light on whether at 29 September 2005 (when GT extended the term of the agreement) Amare had terminated GT's authority as agent.

67 There is evidence supporting each party's contentions. The voicemail message of 20 September 2005 withdrawing GT's authority to act as agent for Amare was clear. Mr Riddell said "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." [80] The message makes clear the basis upon which Amare had previously authorised GT to act as agent was the negotiation over a new agency agreement and why the authority was now withdrawn. The instruction was confirmed on 29 and 30 September by Mr Riddell. The instruction was also confirmed by Davies Elliot's letter of 4 October requiring GT to desist from making any further contact with Amare's customers.[81] There is little doubt that after 20 September 2005, Amare was disrupting and impeding GT's business as alleged in Norton White's letter of 4 October 2005[82] and of 19 October 2005.[83] Russell Kennedy's letter of 20 October 2005 expressly said that Amare had terminated the agreement and would now appoint its own agent.[84]

68 On the other hand, after Amare purported to terminate the agency agreement of 10 October 2001, GT continued to act as agent with the authority of Amare until at least the time that Mr Tuckett went on holiday in September 2005. Amare had expressly authorised GT to do so during the negotiations for a new agency agreement. After Mr Tuckett returned from holiday, GT continued to procure and forward orders to Mr Riddell in October. There is no suggestion these were not fulfilled. GT continued to seek to fulfil its duties as an agent. Amare acknowledged this in its commission statement October sales credited to GT.[85] Twice on 18 October 2005 Mr Riddell asked Mr Tuckett questions about orders that Mr Tuckett had procured. He did not tell Mr Tuckett that GT was not authorised to procure the orders but appeared to accept them. Apart from the letter of 4 October of Davies Elliott, until the events of 20 October and thereafter, no objection seems to have been made to GT about it procuring orders on behalf of Amare. Amare did not set about appointing a new agent in GT's areas until after 20 October 2005 according to Russell Kennedy's letter of 20 October 2005. Mr Pizzey was the sole shareholder and director of Amare. He was the ultimate decision maker for the company and was actively involved in the purported termination of the agreement on 15 April 2005 and the subsequent negotiations. He did not inform tell GT that the agreement of 10 October 2001 had terminated and negotiations for a new agreement were at an end until after Amare's solicitors had alleged the agreement was at an end due to the alleged breaches of fiduciary duty arising out of the relationship of Mr Tuckett and Mr Williams and the Eucha Hotel. Mr Pizzey had agreed to GT continuing as agent during the negotiations on 20 October 2005. Mr Pizzey's behaviour could be interpreted as being consistent with the agency continuing until 20 October 2005.

69 GT pleaded that the voicemail constituted a purported termination of the agreement. GT pleaded that as from the time of Amare's repudiation (i.e. 20 September 2005) Amare has wilfully prevented GT from performing under the agreement. The evidence referred to above indicates that Amare proceeded on the basis that GT's authority had been terminated. This finding is consistent with my earlier finding. It is also the basis of GT's claim that it suffered damage after 20 September 2005.

70 According to the evidence, after the notice of 20 September 2005, GT did not start to place orders with Amare until 5 October. At that stage, Amare's solicitors had demanded that GT cease contacting Amare's customers. The acceptance of the orders and Mr Riddell's conduct on 18 October does not fit easily with GT's authority being terminated. However, I believe these were ad hoc transactions and did not indicate that GT was continuing as the authorised agent for Amare.

71 After considering all the evidence, I find Amare had wrongly terminated GT's authority to act as agent by its voice mail instruction of 20 September 2005 which Mr Tuckett received on 27 September 2005, before the extension of the agency agreement. Accordingly, the period "to the expiry of the term" under clause 6.4 is 20 September 2006 to 9 October 2006 inclusive. On this basis, the liquidated damages are $125,090.35.

72 In my earlier judgment I formed the preliminary view that clause 6.4 did not constitute a penalty.[86] At the hearing on damages, Amare did not seek to argue the point further.[87] The parties have agreed the "amount equal to one half of the average annual commission earned by GT" under clause 6.4 is $118,592.18. I estimated GT's profit from conducting the agency approximately $140,000 per year. Neither party disputed that estimate. On this basis the compensation payable under clause 6.4 was substantially less than the actual profit earned and potentially lost. Accordingly, I find that the liquidated damages clause was a genuine covenanted pre-estimate of damage and does not constitute a penalty.

73 Neither party made any further submissions on my preliminary view that the interest clause is a penalty.[88] Accordingly, for the reasons given, I find the clause is a penalty.

74 I find that GT is not entitled to damages for the lost opportunity or chance of extending the agreement under the options contained in the agency agreement. I find that clause 6.4 was intended to be exhaustive as to the damages that Amare was obliged to pay GT if it terminated the agreement, as I have found it did, on 20 September 2005.

75 Further, the pleadings do not make any reference to such a claim. GT relies on paragraph 19(e) of the statement of claim in support of its argument that it is entitled to such damages. It makes no reference to damages for the loss of the opportunity of extending the agency agreement. On the contrary, it makes a claim for the loss for the term of the agreement, which it alleges is to 8 October 2011. This date is given on the assumption that the contract which was terminated had already been extended to that time.

76 Further, the evidence that GT led, and in particular the evidence of Mr Stone, did not purport to make any claim for lost opportunity or chance. Mr Stone expressly said in paragraph 105 of his report[89] as follows:

I note that it is possible that there is ongoing loss that will occur after 10 October 2011 because of the option for a further extension of five years that was available to GT Corporation under the Agreement. However, I have not undertaken any estimation of such amount. To do this, I would require sales information by month which I have not been provided with.

77 Further, GT submitted that I should make an estimate of the value of the lost chance on the basis of making adjustments to Mr Stone's estimate of the loss on the assumption that the contract had been extended until 2011. Mr Stone's calculations may have been appropriate for the loss of opportunity applicable to the first option, but was not appropriate for the subsequent options.

78 Amare submitted that a claim for damages for loss of opportunity to extend the agreement would fall foul of the second limb in Hadley v Baxendale: that is:

Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of the both parties, at the time they made the contract, or the probable result of the breach of it ...

79 Amare submitted that the parties turned their minds to what was the possible consequence if there was a breach by clause 6.4.

80 In the circumstances, I do not consider it necessary to deal with this submission in any detail. But for clause 6.4, GT would have been entitled to damages for the loss of the opportunity to extend the agreement if it had so claimed. The rule in Hadley v Baxendale would have imposed no barrier. As it is I have found that clause 6.4 provides for liquidated damages flowing from Amare's breach which covers the loss of opportunity to earn further commissions.

DOES THE EXTENSION OF THE AGENCY AGREEMENT ON 29 SEPTEMBER 2005 MAKE ANY DIFFERENCE TO THE CALCULATION OF DAMAGES?

81 I have found that the notice to GT of 20 September 2005 constituted a termination of the agency agreement within the meaning of clause 6.4 which triggered an entitlement of GT to liquidated damages. I have also found that the agency agreement otherwise remained on foot and was in fact extended for a further five years.

82 Amare submitted that the authority of GT to act as Amare's agent was validly terminated and no further orders for goods could be obtained. The authority was wrongly terminated and GT was entitled to damages for the loss of the ability to earn commission. But for the liquidated damages clause, GT would have been entitled to damages for the loss of the opportunity to extend the agency agreement and enjoy the benefits of the agreement. The fact that the agency agreement was extended on 29 September 2005 would have been relevant to an assessment of the damages for the loss of the opportunity to extend and enjoy the benefits of the agreement. As it is, I have found the liquidated damages clause binds the parties on the damages recoverable by GT.

83 GT has, with leave, amended its statement of claim to add paragraph 20 as follows:

"Further, in breach of the Agreement, Amare has, despite demand by GT, failed or refused to pay to GT commissions for the period 1 to 19 September 2005 inclusive, by reason of which GT has suffered loss and damage."

84 Under "Particulars" it is noted that GT demanded payment of the September 2005 commissions by letter from its solicitors to Amare's solicitors dated 19 October 2005.[91]

85 The evidence led in support of this claim was limited. The September and October commission sales document sent to GT[92] indicates that commission was owed to GT.

86 Amare's letter accompanying the payment said the payment details show a deduction representing consignment stock for which GT is responsible. "When you facilitate payment or return of stock to us there will be a further payment to us". No evidence has been tendered to justify this deduction. No defence has been pleaded to the amended statement of claim that seeks to justify the deduction.

87 GT does not seek to make a claim for the October sales. The September gross profit derived from sales procured by GT was $32,359.25. The commission due including GST was therefore:

88 GT has only sought to claim $12,197.67, being 19 of 20 days.

89 Mr Tuckett was on holidays from 15 to 27 September 2005. The allowances made by GT is more than generous. Amare claimed the moneys due for commission were absorbed in the liquidated damages clause. The argument is without merit. I allow the claim.

[48] CB 2083, 2084, 2085, 2086, 2087, 2088, 2089, 2090, 2091

[87] Further submissions of the defendant on damages [17]

At a glance

Court

Decision date

Before

Source

Judgment (153 paragraphs)

Parties