Playcorp Pty Ltd v Taiyo Kogyo Limited [2003] VSC 108

Playcorp Pty Ltd v Taiyo Kogyo Limited [2003] VSC 108 - VSC 2003 case summary — Zoe

[9]

(i) Stephen William Grant, who had changed his name from Glatt on 29 July 1999. In the correspondence he is referred to by his former name. For that reason, and to avoid confusion, it is convenient to refer to him by his former name of Glatt. He became a director of Playcorp in 1985 and managing director in 1988. He ceased to be a director and employee of Playcorp in January 2000. Essentially, and critically for this case, he had been responsible for, and the central figure in, the trading relationship with Taiyo. He made three witness statements and gave evidence over several days. He was extensively cross-examined. His evidence was central to establishing the factual foundation for Playcorp's claim both on liability and quantum. (ii) Harry Cooper, who between about 1986 and until 25 June 1999 was Chairman of directors of Playcorp. He was also a director of a number of companies in the Century Plaza Group of companies which included Playcorp. (iii) Yuki Tsugu Futamura, who commenced employment with Taiyo in about 1985, became director in charge of marketing in 1992 and who was dismissed from his employment by Suto on 20 May 1985. Suto did not give evidence. The reason for the dismissal was neither advanced in evidence by Taiyo nor put to Futamura in cross-examination. He was not attacked in his credit on that account; he was dismissed but I was not told why. In his position with Taiyo it had been Futamura's role to deal with Playcorp. In that context he dealt with Glatt, and they developed a strong personal relationship of mutual trust and respect. Futamura gave evidence as to the dealings between the companies, and with Tyco, and the signing of the distribution agreement by himself, Suto and Glatt. In 1996 Playcorp sought to develop some R/C toys. For this purpose a company called Quantum Toy Concepts Pty Ltd ("Quantum") was registered on 12 July 1996 with Steven Lew, Futamura, Glatt and another person as directors. Futamura, who was then unemployed, assisted in the endeavour. The endeavour was unsuccessful, the activity was discontinued and Quantum was deregistered on 9 October 2000. By reason of his concern that if he gave evidence Suto might bring civil proceedings against him in Japan without just cause, and thereby cause him financial harm, Futamura requested and Playcorp provided him with a written indemnity for costs if that should happen. The indemnity was received as a confidential exhibit. (iv) Neil William Holland, a handwriting expert whose evidence supported the plaintiff's case that the signature of Suto on the distribution agreement was a genuine signature of Suto. (v) Enzo Gatto, who gave evidence as to defects in toys supplied by Taiyo and as to repairing defects in Taiyo toys. (vi) John Francis Redenbach, the merchandise director of Toys R Us (Australia) Pty Ltd, who has had extensive experience in the retail merchandising of toys in Australia for more than 20 years, who gave evidence of matters concerning the Australian market for R/C toys, Playcorp's role in it and other matters. (vii) Aubrey Laurence Whitear, an accountant who gave expert evidence in support of Playcorp's loss of profits claim. (viii) Monica Pinda, a Japanese translator, whose witness statements concerned her translation of a number of documents from the Japanese to the English language. Her statements were tendered without the need to call her.

[10]

(i) Masafumi Itani, who since July 2001 has been the marketing director of Taiyo, the position formerly held by Futamura. Overall he has been in the employ of Taiyo for 10 years, always in the marketing department and until his employment ceased, working under Futamura. His evidence related to a number of aspects of the case. (ii) Rie Imafuku, an interpreter and translator of the Japanese language. Her witness statement contained her translations of four witness statements from the English to the Japanese language, and certain other documents from the Japanese to the English language. (iii) Noritsugu Sasahara, who since July 1992 has been employed by Taiyo as an auditor. His evidence was directed to the matter of Taiyo going public and whether that project required an agreement with Playcorp of the nature constituted by the distribution agreement. He also gave evidence of other matters including a lack of knowledge of such an agreement. (iv) Gregory Pollard Meredith, an accountant who gave evidence as to the loss of profits claim. (v) Gary Lindsay Storey, a handwriting expert who gave evidence as to the genuineness of the signature of Suto on the distribution agreement. (vi) Takeshi Tomozawa, who commenced employment with Taiyo in 1992 and has worked throughout in the marketing department. He is now assistant manager to Itani. (vii) Neil Tilbor, a resident of the United States, whose witness statement was tendered without the need to call him. In summary his evidence was concerned with the development of R/C toys for Taiyo, the manufacturer of toys by Taiyo, the adaptation or redesign and development of toys and the role of Taiyo and Tyco in these matters. (viii) Noel James Batrouney, solicitor for Taiyo, whose affidavit was tendered without the need to call him. The affidavit was relied on to answer a suggestion of recent invention in relation to Taiyo's allegation of forgery of Suto's signature on the distribution agreement. The suggestion had been made in cross-examination of Itani.

[43]

Then, on 1 October 1992 Futamura sent a facsimile to Glatt in which he referred to the preparation of documents necessary for Taiyo to go public. In that connection he wanted to know Playcorp's capital and number of employees. It is the fact that Taiyo did give consideration to going public and that over a period work was undertaken accordingly. Nomura Securities was engaged as adviser and underwriter. As an auditor Sasahara was engaged on the project. There were issues about this but having considered the evidence I find that Sasahara did ask Futamura to obtain a written agreement with Tyco and Playcorp for the purpose of the float. I should record that I found Futamura to be an honest and reliable witness. I do not consider that his evidence was affected by any ill-will towards Taiyo or Suto. I note too, as mentioned above, that Taiyo's counsel were not prepared to allege anything adverse against Futamura in relation to his dismissal. Nor were they prepared to allege directly that he had forged Suto's signature on the distribution agreement. By contrast I was not impressed by Sasahara. The important position of Playcorp as an overseas purchaser of Taiyo product was made obvious in cross examination. So too was Taiyo's case affected by a combination of an evident lack of organisation of its contemporaneous documents and a tardy discovery of documents which, considered overall, left me with an absence of confidence in Taiyo's evidence as to critical documents not being in its possession. This was reflected in not merely the late production of documents but, for instance, the omission to discover the letter from Itani to Grey dated 28 September 1995. An element in the tardiness on discovery was, I find, a concern as to finding, and then having to produce, documents that might not be helpful to Taiyo's position. I find too that the witnesses remaining in the employ of Taiyo were much affected by the dominant role and power of Suto whose obvious wish was to defeat Playcorp in the litigation. Sasahara's evidence was affected by these factors and, I find, relevantly tailored to suit the case desired to be advanced by Taiyo. Sasahara was not a reliable witness. Wherever his evidence conflicts with the evidence of Futamura or Glatt I reject it. I add that the above finding that Sasahara asked Futamura to obtain a written agreement is one that, regarding the evidence overall, accords with the probabilities.

[51]

"This will confirm our Working Agreement, whereby Taiyo Kogyo Co. Ltd. Of Japan ("Taiyo") will continue to manufacture radio control toy products for Tyco Industries, Inc. and its worldwide subsidiaries and affiliates ("Tyco"), as follows: 1. This Agreement shall be in effect until December 31, 1994. Thereafter, this Agreement shall be automatically renewed on a year-to-year basis unless either party gives written notice of its intention to terminate this Agreement not less than six months prior to the end of any calendar year. Such termination shall become effective on the last day of that calendar year. 2. Taiyo shall manufacture certain radio control products for distribution by Tyco on an exclusive basis worldwide, excluding Japan and Australia. Taiyo shall continue to offer other (non-Tyco) radio control products to Radio Shack stores. Taiyo shall continue to have the right to offer the full line of radio control products (Tyco and non-Tyco) to Sheng Tai Toys in Singapore, New Zealand Playcorp in New Zealand and United Trading Estates in the United Arab Emirates. In addition, Taiyo shall continue to offer to Asahi the nine items previously agreed to, but only until February 28, 1995. Thereafter, sales to Asahi will cease. 3. Tyco will continue to use its best efforts to develop new product ideas for radio control toys to be manufactured by Taiyo, including soliciting product ideas from outside inventors. When royalties are due to outside inventors, Tyco will be responsible for all royalties in the countries that it sells these items, and Taiyo will be responsible for Japan, Australia, and any other countries in which it sells to someone other than Tyco. 4. Each year Taiyo and Tyco shall meet and negotiate in advance the price for the products Taiyo intends to sell to Tyco the following year. Taiyo shall bill Tyco at prices and terms negotiated between the parties. 5. ... 6. ... 7. If this agreement is terminated as described in Paragraph 1, then Taiyo agrees not to sell any items developed by Tyco to any other customer worldwide except Japan, without the written consent of Tyco."

[156]

"3. THE AGREEMENTS 3.1 The parties agree that as from the settlement date Playcorp does not have any authority or licence to distribute in New Zealand and will not distribute in New Zealand any Tyco toy. 3.2 The parties agree that as from the settlement date Playcorp does not have any authority or licence to distribute in Australia and will not distribute in Australia any of Tyco's New Products. 3.3 Tyco agrees that Playcorp may (without payment of any fee or royalty) continue to have the exclusive right to distribute in Australia (but not in New Zealand) Tyco toys other than Tyco's New Products and (subject to clause 3.12 hereof) to use the Intellectual Property Licence in Australia in respect of Tyco toys other than Tyco's New Products without payment of any fee or royalty. 3.4 Without prejudice to the rights of Playcorp against Taiyo for damages in respect of any termination of the Distribution Agreement by Taiyo, Playcorp agrees that as from the settlement date Playcorp must not seek nor will it seek any licence or authority from any person (including Taiyo) to distribute in Australia (other than as set out in Clause 3.3) any Tyco toys. 3.5 Playcorp agrees that as from the settlement date Playcorp must not seek nor will it seek any licence or authority from any person (including Taiyo) to distribute in New Zealand any Tyco toys. 3.6 Playcorp agrees that it will not take any legal action against Taiyo for specific performance of the Distribution Agreement. 3.7 The parties agree that as from the settlement date the Intellectual Property Licence will terminate without prejudice to the rights of Playcorp set out in Clause 3.3. 3.8 The parties agree that as from the settlement date Tyco shall have the exclusive right in New Zealand to the exclusion of Playcorp (whether on Tyco's own account or through Tyco's authorised agent) to distribute Tyco toys. 3.9 The parties agree as between themselves only that as from the settlement date Tyco shall have the exclusive right in Australia to the exclusion of Playcorp (whether on Tyco's own account or through Tyco's authorised agent) to distribute Tyco's New Products. 3.10 Playcorp agrees that if within the 90 day period commencing on the settlement date, Tyco pays to Playcorp a further sum of US$195,000 then Playcorp will immediately: (a) covenant never to commence any proceedings against Taiyo in respect of the Taiyo Claim; and (b) terminate any proceedings commenced against Taiyo in respect of the Taiyo Claim on the basis that no orders be made other than to dismiss the claims of Playcorp. 3.11 Playcorp will take no action to prevent Taiyo supplying Tyco (or its authorised agents) with any Tyco products to be distributed by Tyco (or its authorised agents) pursuant to the terms of this Deed. 3.12 Nothing in this Agreement gives Playcorp any right or licence to use the trademark or tradename 'Tyco' or any variation or combination of it."

[239]

Itani was in the witness box for some three days during which he was extensively and rigorously cross-examined. Due to its length I do not set out all his evidence but I have regard to it. In the course of this cross-examination Itani confirmed that it was Futamura's responsibility to handle a matter such as a commercial contract with a customer, and obtain Suto's approval. It is consistent with his evidence that Futamura might not necessarily have informed him of the agreement and its signing. He was asked about the translation of the agreement which he said he prepared following receipt of the agreement from Cooper, which had not been discovered by Taiyo, and said he had translated the agreement. He was asked a number of questions about that document and other documents that Taiyo had not discovered. In the course of explaining this Itani said "we had a hard time" locating documents. He further said that he could not explain why Taiyo had not discovered his letter to Grey dated 28 September 1994. He agreed that Taiyo's records were not kept in very good order. There was reference to documents in a warehouse (further to which see the evidence of Tomozawa referred to below). He agreed that it was possible that the disorder of Taiyo's files explained why he had not been able to find the distribution agreement. I interpolate that that was a telling concession and, I find, reflective of the true situation. Later in the cross-examination Itani said that he did a lot of translation work for Futamura. He did not think that Futamura asked him to translate the agreement or that he started but did not finish the task. It was possible that that had happened, but this would have been unusual, it was not something he did every day, "so if he asked me to do this kind of thing, I mean I don't know he long he asked me or I just did the one sentence, it could be possible but I don't think so, I don't remember I did anything like that". He was overworked and it was possible he could not get beyond starting the translation but he doubted that. He agreed that a person called Montegi had worked in his section; he was no longer employed by Taiyo.

[248]

Then there is the facsimile referred to at [166] which Futamura said he sent to Suto and the other directors of Taiyo on 17 March 1994. The December and March notes reveal a consistency in approach by Futamura in the way of sending information to Suto. But, more important are the following points. First, the reference to having sent translations of the Playcorp agreement is consistent with Futamura having sent the translation on 15 December 1993. Second, of the directors named in the 17 March 1994 facsimile only Sasahara gave evidence. In his witness statement he said that he "never saw such translation" and never examined the translation of a draft agreement as referred to in the facsimile. It was not in his file relating to the possible float of Taiyo. He did not say that he did not receive the 17 March 1994 facsimile. I have already made an adverse finding concerning Sasahara as a witness; see at [23]. But, apart from that, it is consistent with his evidence that Futamura did send the agreement direct to Suto, and it is consistent with his and other evidence concerning the lack of order in Taiyo's documents and Taiyo's unsatisfactory approach to discovery, that the agreement and the 17 March 1994 facsimile were sent but placed in a different file or area of document storage to do with marketing, or misplaced and forgotten, or ignored. Further, regarding the matter overall, the external indicators provided by the communications between Futamura and Glatt support their evidence. They are consistent with two companies in an existing commercial situation entering into a written agreement in aid or furtherance of their dealings, as Taiyo did with Tyco. The written communications concerning the agreement were a fact and there is discovery of such communications by Playcorp and Taiyo. As counsel for Playcorp submitted, the chronology of events with so many written communications, and conducted over a substantial period of time, belied clandestine conduct suggestive of a forgery. Futamura's evidence that he sent the note dated 15 December 1993 on that date together with a translation of the agreement to Japanese, is supported by the fact that Taiyo made discovery of the note and translation in its affidavit of documents affirmed by Itani on 17 November 1998. Further, the notes dated 15 December 1993 are consistent and show that Futamura was dealing with Playcorp and Tyco at the same time in relation to an agreement, and keeping Suto informed.

[273]

(a) Under the distribution agreement Playcorp was entitled to "such products as are manufactured by or for Taiyo from time to time". The evidence established, and in the end there was no dispute, that the great majority of such products were developed by Taiyo for Tyco,[32] that is they originated with Tyco.

(b) By its letter dated 9 August 1995 (referred to at [35]), Tyco advised Playcorp that beginning in 1996 Tyco would take over distribution of all new Tyco developed R/C items in Australia and New Zealand, but that in 1996 Playcorp could distribute all R/C items it was currently distributing including Rebound. It is to be noted that the agreement between Taiyo and Tyco made 14 January 1994 was terminable on six months' notice. If Tyco had given such notice it would have been entitled to prevent Taiyo from selling Tyco originated (or "developed") products to Playcorp. A portent of such action was contained in Tyco's letter to Taiyo dated 17 June 1992 (referred to at [21]).

(c) By the agreement made on 26 March 1996 (referred to at [93]) Playcorp gave up its right to distribute in Australia Dagger, Mutator and any new Tyco developed products. It gave up totally its right to distribute any product in New Zealand. This meant that Playcorp was free to distribute in Australia any Taiyo product and old Tyco product.

(d) The deed of release made 30 May 1996 (referred to at [104-109]) confirmed this position but defined what was a new Tyco product and thus clarified what products Playcorp could sell in Australia. The definition appears at [106]. The definition establishes 31 December 1995 as the date at which it is to be determined whether a toy is a Tyco New Product within the meaning of cl 1.3 of the deed of release. Although cl 3.2 provides that from the settlement date, which was 31 May 1996, Playcorp had no authority or licence to distribute Tyco New Products in Australia, counsel for Playcorp treated the agreement in the deed of release as flowing back to 26 March 1996. Hence, as from that date, what remained in the basket of goods available to Playcorp were:

(i) all toys manufactured by Taiyo and devised by Taiyo, whether new or altered toys, and

(ii) all Tyco toys manufactured by Taiyo that Playcorp had distributed or sold prior to 31 December 1995 and which had not been "re-designed" within the meaning of the definition of Tyco's New Products.

(e) For completeness, by the deed of termination and assignment Playcorp gave up, from 5 December 1997, its right to distribute in Australia Tyco toys other than Tyco's New Products. Hence, from 5 December 1997, Playcorp had no right to distribute or sell any Tyco toys in Australia.

[331]

Point (b) is correct. The amount of US$17 is the average cost of the amount stated for repairs in Playcorp's letter dated 2 October 1995, and the subsequent letter dated 30 October 1995 affirmed that as the "negotiated agreed minimum fee with all our service agents". That was not a correct statement. All that Playcorp established by evidence was that which Gatto deposed to. In his evidence Gatto set out a fixed price scale for labour costs for the repair of Taiyo R/C toys. That ranged from $10 for a transmitter repair to $18 for a circuit board repair. Spare parts were additional. Whatever the cost might have come to, from the point of view of Playcorp, Gatto was speaking in Australian dollars. There was no evidence that Playcorp had negotiated an agreed minimum fee of US$17 per unit with its service agents, as stated in Playcorp's letter dated 30 October 1995. Nor was there a minimum figure per vehicle. There was a range of figures, and they were in Australian dollars. It may have been that the costs to Playcorp worked out to be at or somewhere near AUD$17 per unit, but not US$17 per unit on the evidence. The calculation which produced the figures in the 2 October 1995 letter was not put in evidence. The suggestion in the evidence of Glatt and Cooper was that they relied on information provided to them by an employee of Playcorp, David Joel who headed the accounting department. (It is a reasonable inference that he would be the David Wolfe Joel referred to at [20]). Glatt said that the figures in his letter dated 2 October 1995 were provided to him by Joel, and that he relied on them. Glatt's subsequent letter dated 30 October was also based on information provided to him. Playcorp did not call Joel, nor any other person who could establish the facts stated in those letters. The failure to call Joel or any other such witness, to establish these matters, in particular the US$17 figure, was significant. Glatt and Cooper could not establish the matters stated in the October letters from their knowledge. I conclude that the claim was put on the high side, in US dollars, for bargaining purposes. Beyond that, the figure of US$99,688 was not established. It is a reasonable inference that it could not be.

[336]

Taiyo's submission was that Playcorp's claim was "false and grossly exaggerated". It is necessary to understand what was happening. Playcorp was seeking to deal with a problem of Taiyo's making. It was not Playcorp's fault or responsibility that it had purchased from Taiyo numbers, which reached abnormally high levels, of defective goods. It was not Playcorp's fault or responsibility that Taiyo determined to shun its prior manner of dealing with Playcorp and not address the situation in a manner which produced commercial satisfaction and, in the process, accept responsibility in relation to defective products. If Taiyo had acted as it had in the past, or as it did with Tyco in giving appropriate credits, the situation would likely have been resolved. Taiyo strung Playcorp along, and while that was happening Cooper could sense that the actions, or forces, of Tyco and Taiyo were moving in the direction of closing the door on Playcorp's future distribution. The circumstances provoked a monetary claim. I find that Taiyo's conduct led Playcorp to put the claim at the highest level for the purpose of subsequent negotiations to resolve the claim. It is indisputable that there were defective products and, in my view, in the circumstances it was not unreasonable for Playcorp to make, and press, a monetary claim. While the figures at trial turned out to be less than those claimed on 2 October 1995, especially in relation to the cost of repairs, the quantity of returned product and the repair costs were always verifiable and would have been expected to be verified in the ordinary course. It was in the nature of the claim that it was likely to be subjected to a process of verification, discussion and negotiation. It is not surprising that Playcorp would open the process at the top end of a possible range. But, in the context of the commercial relationship between these parties, is Playcorp's claim fairly to be described as false, grossly exaggerated and unreasonably made? I do not consider that the differences in the actual quantities of returned product in respect of which the claim was made in October 1995 and the claim as it is now put, could fairly warrant the claim being characterised as false, grossly exaggerated or unreasonably made. The real sting, in my view, lies in the area of the claim for the cost of repairs, which was based on the unestablished average figure of US$17 per unit. Not only was it not established by evidence, there was no attempt to establish it. As I have pointed out, or would find, the repair costs were not more than AUD$17 per unit. And, in the end, all that was proved was AUD$9,294, an amount so much less than US$99,688 as, without explanatory evidence, to make one wonder how it could have been arrived at. I accept that it was advised to Glatt and that it had some basis but in the absence of evidence I can make no conclusion as to the cogency of that basis. As events have transpired it appears a very considerable exaggeration. I must refer however, to the earlier finding that Playcorp incurred repair costs greater than the $9,294. How much greater I am unable to find.

[344]

These conclusions remove the factual basis relied on by Taiyo in its pleading for the allegation that Taiyo was entitled to conditionally refuse supply. I would in any event find that Taiyo had not been entitled to refuse supply as it did. In insisting that further dealings between the parties depended on Playcorp accepting its offer on the faulty products claim, which it had not genuinely or reasonably considered, Taiyo was in breach of the distribution agreement. At one point Taiyo's counsel submitted that Taiyo's offer of US$20,000 was reasonable "given that the discussion had become focused on monetary compensation". In part, the submission that the offer was reasonable was based on its being calculated by reference to the market share of Playcorp in relation to Tyco's share (see at [73]). This assumed, it would seem, that the comparison was in all respects equal. That is, there was no factor which might have meant that Tyco received no greater percentage of defective Triple Wheels and Python than Playcorp. But at least in respect of the instance referred to at [222] this was not the case. Furthermore, the offer was the suggestion of Tyco, whose interest was adverse to Playcorp, and did not reflect an informed appreciation by Taiyo of the value of Playcorp's claim. Indeed, it could not have been an informed offer, as Taiyo had put aside undertaking an investigation of Playcorp's claim. It was thus that the discussion was focussed on monetary compensation. That was the direction in which Taiyo's approach took the matter. In the circumstances, the offer of US$20,000 on 8 February 1996 can be described as "a reasonable proposal" only in the context of being a low offer, unrelated to the actual experience or loss of Playcorp, in an attempt to dispose of a claim admittedly arising out of the supply of defective product. In that sense, perhaps the same as Playcorp's excessive figure for its claim for repair costs, the proposal was reasonable. But that did not mean that it represented the reality or a fair figure.

[388]

"9. Each one of those toys or products was a toy or product which Playcorp had sold and distributed in Australia prior to 31 December 1995. Under the agreement made with Tyco in 1996, Playcorp was entitled to sell old Tyco toys that it had sold or distributed prior to 31 December 1995 as well as old and new Taiyo toys. 10. As the person responsible, year by year, for deciding the range and variety of the goods to be ordered from Taiyo, I say that if the distribution agreement with Taiyo had not been terminated in March 1996, Playcorp would have chosen to order from Taiyo and sell and distribute in Australia a selection of those toys. 11. Throughout all of its trading with Taiyo, Playcorp each year selected a range of R/C toys for sale to retailers in Australia. Even if confined in 1996 and 1997 to old Tyco toys and old and new Taiyo toys, there is within the toys I have listed above the sorts of toys which would have made up a marketable range or basket of goods in which Playcorp could have traded in 1996 and 1997. 12. Each year, Playcorp ordered approximately 100,000 to 150,000 units of R/C toys from Taiyo. Under the distribution agreement Playcorp had to make minimum annual purchases of US$1,000,000. 13. I make the following comments about the toys listed above and the quantities that Playcorp would have ordered during 1996 and 1997: (a) Rebound In my first witness statement I described Rebound as a sensational R/C toy that I believed would capture the imagination of children and be a great success in the Australian market. My initial impression of Rebound turned out to be correct. I also said in my first witness statement that Rebound was the most popular toy in memory. In 1995 Playcorp purchased 24,000 units of Rebound. As I stated in my first witness statement, Playcorp would have purchased an additional 40,000 units of Rebound in 1995 if Taiyo had been able to supply them. As a result, Playcorp did not satisfy the market demand for Rebound in 1995. Based on my experience in the toy industry as described in my first witness statement, I believe that the demand for Rebound would have continued throughout 1996 and 1997. Accordingly, in 1996 Playcorp would have ordered a minimum of 40,000 units of Rebound based on the unsatisfied demand for the product in 1995. In 1997 Playcorp would have ordered at least another 30,000 units of Rebound. The wholesale price for which Playcorp sold R/C toys to retailers can be seen from Playcorp's Product Sales Reports which are contained in SCB 43-146. The wholesale price for which Playcorp sold Rebound was approximately $60 per unit."

[413]

Points (a) and (f) are correct. There is no evidence at all that prior to rescission on 29 March 1996 or at any subsequent time until Glatt's third witness statement that Playcorp considered how it would or might have conducted business with Taiyo under the distribution agreement after March 1996 in light of the 1996 deed of release and the 1998 deed of termination. No business plan, or financial model, was ever developed or considered, or, if it was, it was not put forward in evidence. There is no contemporaneous note or discussion as to the approach that Playcorp would have taken if it had sought to continue business with Taiyo under the agreement. There are the exaggerated profit forecasts including that in the abandoned Exhibit 9. It was not until Glatt carried out his exercise in his third witness statement that Playcorp ventured a statement as to how it would have conducted business in the changed circumstances. It is evident from Glatt's witness statement that Glatt undertook this exercise only between 14 and 19 November 2001. That was well over five years after termination. And Glatt had not been involved in the toy industry since leaving Playcorp in January 2000. Even before his departure from Playcorp, following termination of the Taiyo agreement, Playcorp engaged in selling its stocks of toys obtained from Taiyo but never sought to purchase further product from Taiyo. It went through the process, which Glatt was responsible for, via the company Quantum, of developing a R/C toy called Reactor; see at [5](a)(iii). The board of directors decided not to continue the project, it would seem with some displeasure directed towards Glatt. But, in summary, that was it. That part of Playcorp's business activities came to an end. It follows that since termination Playcorp had no experience of engaging in the R/C toy market, save to the extent mentioned, and thus there is no reference to or reliance on any such experience in Glatt's third witness statement. He has had to fall back on his experience and on that basis express his opinion as to what Playcorp would have done. Accordingly, Glatt's exercise is hindsight reconstruction. This must be weighed in the balance with Glatt's evident experience and knowledge of the Australian market. But a sense of the market is not the whole story, and Taiyo correctly points out that Glatt effectively had no present or recent experience of the cost of conducting such a business. Playcorp has left this aspect to Whitear and he has sought to cover the situation by using percentages derived from the agreed statement of facts.

[438]

The next inconsistency was the level of sales Tyco was able to achieve to September 1997 of items in respect of which Playcorp claimed compensation, and with the assertion that Playcorp would have made those sales. The assertion relied on was made in particulars of loss and damage filed by Playcorp on 22 July 1997 in the proceeding it brought against Tyco; see at [115]. The particulars alleged that by reason of Tyco's breach of the deed of release, Playcorp was deprived of goods (being old Tyco toys) which had been sold in Australia and which, if given supply, Playcorp would have sold. Playcorp alleged that it would have been able to sell the toys in question and claimed a loss of profit. In subsequent particulars, Playcorp set out a list of toys including the quantity sold by Tyco in Australia, the information having been, as I understand it, provided by Tyco.[53] The list records total sales of only US$376,000 and includes only two old Tyco products which are included in Glatt's projected sales for 1996 and 1997. They are Micro Nitro Invader (9,006 units) and Mini Traxx (2,496 units). That, it was submitted, represented a radically different picture in terms of what Tyco did compared to what Glatt now states that Playcorp would have done. In other words, in the litigation in 1997, Playcorp alleged that it would have sold all of the items in the list if it had been given supply. But in the present litigation Playcorp has abandoned that position and relies on only two of the products in the list. Moreover, Playcorp's case is that it would have sold more product than Tyco did. The example is Mini Traxx of which Playcorp sold 2,496 but of which Glatt states that Playcorp would have ordered 10,500 units. On that point I find, relevantly, that Playcorp had a well established successful business operation whereas Tyco was more in the position of commencing in Australia. It is a vital difference. Nevertheless, there is the wider inconsistency mentioned. It is to be explained, I think, because in the 1997 litigation Playcorp sought the benefit of what Tyco had achieved in sales without actually undertaking the exercise which was required for the purpose of this case and which was finally undertaken by Glatt. The course taken by Playcorp in the 1997 litigation was an easy, adventitious way of handling the matter.

[447]

In addition, there are the matters of the appropriate application of the historic percentages for the gross profit margin and variable costs. I now deal with those matters. On the former there is the fact that Playcorp's profit margin may have deteriorated with the change in available product. As I have pointed out, the highly successful Rebound was available and this must significantly make up for the loss of new products in Glatt's projection. Yet the fact is that the shipping history indicates that each year Playcorp introduced a number of new items along with including some old items to produce a successful mix. And there was evidence of Whitear that he was instructed that sales of new products involved a higher margin than old products. The significance of that point related, in particular, to the loss of new Tyco product, as Taiyo's counsel said. But Rebound was a Tyco product and it still had a very large unsatisfied potential in Australia. I do not consider that the projections in Appendixes 5 and 6 should be rejected because, by reason of the use of the historic gross profit margin, they assume the availability of new Tyco product which obtained a higher margin. While it may be that a margin somewhat less than 41.47 per cent should be considered more likely, the result that Playcorp's claim should be rejected in toto on this account would constitute an injustice that the due administration of justice should not readily permit. It would be a manifest and gross injustice. The same is true of the submission that unless Glatt's third witness statement was accepted in its entirety no evidence of lost sales and profit was offered by Playcorp. It was for the reason of pressing this submission that counsel for Taiyo submitted that Playcorp's case on damages is to be determined on the probabilities. Hence, unless Playcorp established the balance in its favour to an extent, say, of 51 per cent the claim must fail. That is not withstanding that it has clearly and indisputably suffered loss.

At a glance

Court

Decision date

Before

Source

Judgment (512 paragraphs)

Parties

Cases Cited (18)