SVI SYSTEMS PTY LIMITED v BEST & LESS PTY LIMITED

SVI SYSTEMS PTY LIMITED v BEST & LESS PTY LIMITED - [2001] FCA 279 - FCA 2001 case summary — Zoe

[245]

… But even in such a case the plaintiff must put the court in the position of being able to quantify in money the damage he has suffered… So, if in a running down case the plaintiff alleged no economic loss and merely alleged physical injuries, no particulars of injury being supplied, and the defendant admitted that the plaintiff had as a result of his negligence suffered injury which was not insignificant, and the action proceeded to trial as an assessment of damages, the plaintiff would fail if he did not lead some evidence of the nature of his injuries, since the assessment of damages would be impossible. The case would be one in which damage was admitted but the plaintiff had failed to prove facts from which damages could be assessed, there being nothing upon which the opinion and judgment of the court could operate. I entertain no doubt that the general proposition that if damage is proved the court must regardless of the circumstances make some assessment of the damages cannot be sustained. I doubt very much whether the Full Federal Court intended to lay down any such general proposition in Enzed Holdings … at 183, where the court said: "The principle is clear. If the court finds damage has occurred it must do its best to quantify the loss even if a degree of speculation and guess work is involved. Furthermore, if actual damage is suffered, the award must be for more than nominal damages."… I think that the passage is to be read down by reference to the facts of the case with which the Full Court was concerned, one in which, in the opinion of the court, "precise evidence" was not obtainable… 130 Thus the Court is required to "do its best to quantify the loss even if a degree of speculation and guesswork is involved". There has been a substantial amount of evidence about what loss Divergent may have suffered which enables me to quantify a part but not necessarily the whole of the loss. The rest requires the application of the criteria and principles derived from the case law referred to.

The components 131 Divergent's basic claim is for loss of profits caused by Pepkor's breach of contract. There are three distinct components of this loss all of which were provided for in the Divergent contract: the loss of installations, the lost provision for maintenance of the installations, and the loss on additional services to be provided under the contract. 132 After the calculation of these elements of the loss, three other factors must be taken into account. First is interest. When calculating interest on various components of loss, Mr Gower originally adopted a constant rate of 9.5%, the rate set for the Supreme Court of New South Wales as at 29 February 2000. Mr Bryant noted two changes in the Supreme Court interest rate since 29 February 2000: on 1 March 2000 (to 10%) and again on 1 September 2000 (to 11%). I accept Mr Bryant's approach. The second is the effect of inflation. Mr Gower adopted a constant rate of 3% for the Consumer Price Index (CPI) whereas Mr Bryant applied the CPI rates published by the Australian Bureau of Statistics. Again, I have accepted Mr Bryant's position. Third is taxation. Both experts agreed that as Divergent will be required to pay tax on the sum awarded, a sum to take into account tax on the award should be added, accommodating the changes to the corporate tax rate on the introduction of the "New Tax System" (36% to 30 June 2000, 34% from 1 July 2000 to 30 June 2003, and 30% from 1 July 2003). Mr Gower said that tax should be calculated on both the principal sum and the interest. Mr Bryant argued that tax should be calculated only on the principal sum. I accept Mr Bryant's position.

Installation 133 Although its statement of claim stated that the system was installed in 44 stores at the termination of the contract, Divergent's evidence was that only 42 installations were in place at that time. The Divergent contract provided that the 47 installations were to have been completed by no later than 31 October 1998 and in all stores by 31 October 1999. Although the actual happenings on the ground make this rate of progress seem a little conservative, I have proceeded on the basis of that rate of installation (basic installation rate). 134 The contract also provided for the price of the system to remain constant if it was installed in 100 stores. There was also evidence of some negotiations between Divergent and Pepkor about the possibility of installing the system in 100 stores, but those negotiations came to nothing. I ignore them. 135 On the other hand, Mrs Webb's evidence and a document produced by Ginger Max dated 21 October 2000 and called "Details of Stores Rolled Out On Or After 1/4/98 With Details of Correspondence" (Exhibit 2R6) were both consistent with 44 installations when the contract was terminated. Therefore, any loss suffered can only be calculated in respect of Pepkor's failure to install the system in 38 stores. 136 It seems that the revenue calculations per store installation are consistent as between the experts but there is a difference between them on the expenses per store, particularly the cost to Divergent of the software. Mr Gower assumed that the cost of the software to Divergent was largely in accordance with what was referred to as "Mr Triesman's facsimile", a document produced to him by Divergent, which worked out to be around $2,636 per store. Mr Bryant assumed that the cost to Divergent of the software was in the order of $12,000 because of "transfer pricing" between Divergent and SVI. 137 I have formed the view that Mr Gower's calculations are to be preferred as supported by the evidence. I see transfer pricing between Divergent and SVI as essentially an irrelevant internal cost between related corporate entities. 138 Apart from these matters, there was virtually no evidence to enable this calculation to be performed with any certainty. However, based on my findings and taking into account changing interest, tax and inflation rates, I have calculated the loss in respect of installations as follows: Revenue In-store hardware per store $42,350.00 In-store software per store 8,750.00 Services per store 2,395.00 $53,495.00

Expenditure In-store hardware per store $33,826.00 In-store software per store 2,646.00 Services per store 1,000.00 37,472.00 Revenue less expenditure (per store) $16,023.00

Gross for 38 stores 608,874.00 Less tax (at 36%) 219,194.64 Nett for 38 stores 389,679.36 Less discount factor (15%) 58,451.90 Present Value 331,227.46 Add tax on current value (at 34%) 112,617.34 Present Value plus tax on award $443,844.79

Interest on present value To 29/2/00 (547 days at 9.5%) $47,156.81 1/3/00 to 31/8/00 (184 days at 10%) 16,697.49 1/9/00 to 20/03/01 (201 days at 11%) 20,064.22 83,918.52 $527,763.31

Maintenance 139 Again the expert positions on revenue per store were consistent but their assessment of the length of the maintenance contract and the cost of the maintenance to Divergent differed. Mr Summers' undisputed evidence was that a POS system would be retained for between 5 and 10 years, say 7 years. He also testified that normally maintenance would not have started until a year after installation. 140 The accountants have calculated the loss on the maintenance of the installation in 40 "lost" stores (ie 40 stores not installed with the Divergent system) whereas the Divergent contract provided in substance for maintenance on 82 stores. I think that the contractual provision should prevail. 141 The calculation of maintenance depends on the total cost of software and revenue. I have formed the view that the evidence supported Mr Gower's calculation of maintenance revenue at 15% of the total cost of software and expenses at 35% of revenue. I have therefore calculated the total cost of the software and revenue as follows: In-store software Head Office software Total cost of software (82 stores) $717,500.00 $30,645.00 Revenue per annum (at 15%) all stores $107,625.00 Revenue per annum (at 15%) per store $1,312.50 $4,596.75 Revenue per month (at 15%) per store $109.38 $383.06

142 On the other hand, Mr Gower based his calculations on the assumption that maintenance would commence on the date of installation whereas Mr Bryant proceeded in accordance with Mr Summers' choice of one year after the date of installation. I accept Mr Bryant's position. There was no evidence as to when each installation commenced operation and what moneys were paid for any maintenance actually carried out so no even generally supported calculation can be made. Doing the best I can, and erring on the side of conservatism by adopting the basic installation rate, I have allowed Divergent compensation for lost maintenance on 44 stores and Head Office for the period from 1 September 1998 to 31 October 1999, on 47 stores and Head Office for the period from 1 November 1999 to 31 October 2000, and on 82 stores and Head Office for the period from 1 November 2000 to 31 October 2006.
143 Again taking into account changing interest, tax and inflation rates, I have calculated damages in respect of maintenance as follows:

44 stores + Head Office 1/9/98-31/10/98 2 months - 44 stores 9,625.00 plus 2 months - Head Office 766.13 10,391.13 Less expenses @ 35% 3,636.89 6,754.23 Less tax @ 36% 2,431.52 4,322.71 Less 15% discount 648.41 3,674.30 Interest (61 days at 9.5%) 58.34 3,732.64

44 stores + Head Office 1/11/98-31/10/99 1 year maintenance 44 stores 57,750.00 plus 1 year maintenance Head Office 4,596.75

                                    62,346.75

Less expenses @ 35% 21,821.36 40,525.39 Less tax @ 36% 14,589.14 25,936.25 Less 15% discount 3,890.44 22,045.81 Interest (1 year at 9.5%) 2,094.35 24,140.16

47 stores + Head Office 1/11/99-29/2/00 4 months - 47 stores 20,562.50 plus 4 months - Head Office 1,532.25 22,094.75 Plus CPI @ 5% 366.23 22,460.98 Less expenses @ 35% 7,733.16 Plus CPI @ 5% 128.18 7,861.34 14,599.64 Less tax @ 36% 5,255.87 9,343.77 Less 15% discount 1,401.57 7,942.20 Interest (121 days at 9.5%) 250.12 8,192.33

47 stores + Head Office 1/3/00-30/6/00 4 months - 47 stores 20,562.50 plus 4 months - Head Office 1,532.25 22,094.75 Plus CPI @ 5% 369.25 22,464.00 Less expenses @ 35% 7,733.16 Plus CPI @ 5% 129.24 7,862.40 14,601.60 Less tax @ 36% 5,256.58 9,345.03 Less 15% discount 1,401.75 7,943.27 Interest (122 days at 10%) 265.50 8,208.77

47 stores + Head Office 1/7/00-31/8/00 2 months - 47 stores 10,281.25 plus 2 months - Head Office 766.13 11,047.38 Plus CPI @ 5% 186.14 11,233.52 Less expenses @ 35% 3,866.58 Plus CPI @ 5% 65.15 3,931.73 7,301.79 Less tax @ 34% 2,482.61 4,819.18 Less 15% discount 722.88 4,096.30 Interest (62 days at 10%) 69.58 4,165.88

47 stores + Head Office 1/9/00-31/10/00 2 months - 47 stores 10,281.25 plus 2 months - Head Office 766.13 11,047.38 Plus CPI @ 5% 186.14 11,233.52 Less expenses @ 35% 3,866.58 Plus CPI @ 5% 65.15 3,931.73 7,301.79 Less tax @ 34% 2,482.61 4,819.18 Less 15% discount 722.88 4,096.30 Interest (61 days at 11%) 75.30 4,171.61

82 stores + Head Office 1/11/00-31/10/01 1 years - on 82 stores 107,625.00 plus 1 years - Head Office 4,596.75 112,221.75 Plus CPI @ 5.1% 5,723.31 117,945.06 Less expenses @ 35% 39,277.61 Plus CPI @ 5.1% 2,003.16 41,280.77 76,664.29 Less tax @ 34% 26,065.86 50,598.43 Less 15% discount 7,589.76 43,008.67 Interest (to 28/02/01 - 120 days at 11%) 1,555.38 44,564.05

82 stores + Head Office 1/11/01-31/10/02 1 years - on 82 stores 107,625.00 plus 1 years - Head Office 4,596.75 112,221.75 Plus CPI @ 2.3% 2,581.10 114,802.85 Less expenses @ 35% 39,277.61 Plus CPI @ 2.3% 903.39 40,181.00 74,621.85 Less tax @ 34% 25,371.43 49,250.42 Less 15% discount 7,387.56 41,862.86

82 stores + Head Office 1/11/02-30/6/03 8 months - 82 stores 71,750.00 plus 8 months - Head Office 3,064.50 74,814.50 Plus CPI @ 2.4% 1,795.55 76,610.05 Less expenses @ 35% 26,185.08 Plus CPI @ 2.4% 628.44 26,813.52 49,796.53 Less tax @ 34% 16,930.82 32,865.71 Less 15% discount 4,929.86 27,935.85

82 stores + Head Office 1/7/03-30/10/03 4 months - 82 stores 35,875.00 plus 4 months - Head Office 1,532.25 37,407.25 Plus CPI @ 2.4% 897.77 38,305.02 Less expenses @ 35% 13,092.54 Plus CPI @ 2.4% 314.22 13,406.76 24,898.27 Less tax @ 30% 7,469.48 17,428.79 Less 15% discount 2,614.32 14,814.47

82 stores + Head Office 1/11/03-30/10/06 3 years - 82 stores 322,875.00 plus 3 years - Head Office 13,790.25 336,665.25 Plus CPI @ 2.5% 8,416.63 345,081.88 Less expenses @ 35% 117,832.84 Plus CPI @ 2.5% 2,945.82 120,778.66 224,303.22 Less tax @ 30% 67,290.97 157,012.26 Less 15% discount 23,551.84 133,460.42

Total Award - present value $310,880.45 Plus tax 34% 105,699.35 416,579.80 Plus interest 4,627.80 $421,207.60

Additional services 144 Again this calculation depends on the total cost of software and revenue. The revenue per store was again consistent as between Mr Gower and Mr Bryant but the length of time to be allowed for these services and the cost of the maintenance to the services differed. Mr Summers' undisputed 7 years as the expected life of the system must also be taken into account. 145 Again the evidence provided little assistance. Again the accountants have in my view wrongly calculated this loss on the basis of the 40 "lost" stores instead of 82 stores. I have formed the view that the evidence supported Mr Gower's calculations of ongoing additional services revenue at 20% of the total cost of maintenance and expenses at 35% of maintenance revenue. I have therefore calculated the total cost of the software and revenue as follows: In-store software Head Office software Total cost of software (82 stores) $717,500.00 $30,645.00 Revenue per annum (at 20%) all stores $143,500.00 Revenue per annum (at 20%) per store $1,750.00 $6,129.00 Revenue per month (at 20%) per store $145.83 $510.75

146 Mr Gower based his calculations on the assumption that these services would commence on the date of installation and would last for seven years whereas Mr Bryant assumed that the services would commence one year after the date of installation and would be provided for three years. I accept Mr Bryant's assumptions. Again in the absence of evidence but again erring on the downside, I have allowed damages for lost ongoing additional services on the basic rate of installation, viz. 44 stores and Head Office for the period from 1 September 1998 to 31 October 1999, on 47 stores and Head Office for the period from 1 November 1999 to 31 October 2000, and on 82 stores and Head Office for the period from 1 November 2000 to 31 October 2001.
147 On this basis, and again taking into account changing interest rates, tax rates and CPI rates, I calculate damages in respect of additional services as follows:

44 stores + Head Office 1/9/98-31/10/98 2 months - 44 stores 12,833.33 plus 2 months - Head Office 1,021.50 13,854.83 Less expenses @ 35% 4,849.19 9,005.64 Less tax @ 36% 3,242.03 5,763.61 Less 15% discount 864.54 4,899.07 Interest (61 days at 9.5%) 77.78 4,976.85

44 stores + Head Office 1/11/98-31/10/99 1 year - 44 stores 77,000.00 plus 1 year - Head Office 6,129.00 83,129.00 Less expenses @ 35% 29,095.15 54,033.85 Less tax @ 36% 19,452.19 34,581.66 Less 15% discount 5,187.25 29,394.41 Interest (1 year at 9.5%) 2,792.47 32,186.88

47 stores + Head Office 1/11/99-29/2/00 4 months - 47 stores 27,416.67 plus 4 months - Head Office 2,043.00 29,459.67 Plus CPI @ 5% 1,472.98 30,932.65 Less expenses @ 35% 10,310.88 Plus CPI @ 5% 515.54 10,826.43 20,106.22 Less tax @ 36% 7,238.24 12,867.98 Less 15% discount 1,930.20 10,937.79 Interest (121 days at 9.5%) 344.47 11,282.25

47 stores + Head Office 1/3/00-30/6/00 4 months - 47 stores 27,416.67 plus 4 months - Head Office 2,043.00 29,459.67 Plus CPI @ 5% 1,472.98 30,932.65 Less expenses @ 35% 10,310.88 Plus CPI @ 5% 515.54 10,826.43 20,106.22 Less tax @ 36% 7,238.24 12,867.98 Less 15% discount 1,930.20 10,937.79 Interest (122 days at 10%) 365.59 11,303.38

47 stores + Head Office 1/7/00-31/8/00 2 months - 47 stores 13,708.33 plus 2 months - Head Office 1,021.50 14,729.83 Plus CPI @ 5% 736.49 15,466.33 Less expenses @ 35% 5,155.44 Plus CPI @ 5% 257.77 5,413.21 10,053.11 Less tax @ 34% 3,418.06 6,635.05 Less 15% discount 995.26 5,639.80 Interest (62 days at 10%) 95.80 5,735.59

47 stores + Head Office 1/9/00-31/10/00 2 months - 47 stores 13,708.33 plus 2 months - Head Office 1,021.50 14,729.83 Plus CPI @ 5% 736.49 15,466.33 Less expenses @ 35% 5,155.44 Plus CPI @ 5% 257.77 5,413.21 10,053.11 Less tax @ 34% 3,418.06 6,635.05 Less 15% discount 995.26 5,639.80 Interest (61 days at 11%) 103.68 5,743.47

82 stores + Head Office 1/11/00-31/10/01 1 years - on 82 stores 143,500.00 Plus 1 years - Head Office 6,129.00 149,629.00 Plus CPI @ 2.3% 3,441.47 153,070.47 Less expenses @ 35% 52,370.15 Plus CPI @ 2.3% 1,204.51 53,574.66 99,495.80 Less tax @ 34% 33,828.57 65,667.23 Less 15% discount 9,850.08 55,817.15 Interest (to 20/03/01 - 140 days at 11%) 2,355.03 58,172.18

Total award - present value $123,265.81 Plus tax 34% 41,910.38 165,176.19 Plus interest 6,134.80 $171,310.99

Total damages 148 These calculations lead to total damages as follows: Installation $527,763.31 Maintenance $421,207.60 Additional Services $171,310.99 $1,120,281.90

Costs 149 Section 43 of the Federal Court of Australia Act 1976 (Cth) provides: (1) The Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs shall not be awarded. (1A) …… (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

150 I have said in various decisions: eg Librizzi v Flower Power Pty Ltd [2000] FCA 1500, Re Sanchez; Ex parte Smits & Anor (1994) 49 FCR 326, that this section does not provide a "usual rule" or "normal order" but that the issue of costs is within the unfettered discretion of the Court to be exercised judicially in light of all the circumstances of the particular case. In other words, successful parties are only entitled to, or for that matter to be refused, an order for costs if the relevant circumstances of the case warrant the making, or refusal, of such an order.
151 It is my opinion that the circumstances of this case dictate a conclusion that:
     (a) the first, third and fourth respondents pay the applicant's costs including the costs payable by the applicant to the second respondent;
     (b) the applicant pay the second respondent's costs;
     (c) there be no order as to the costs of the cross-claims.

Orders 152 The orders will be as follows: 1. The applicant's application against the second respondent is dismissed with costs. 2. The applicant's application against the first, third and fourth respondents is allowed. 3. The first, third and fourth respondents are to pay to the Applicant damages in the sum of $1,120,281.90. 4. The cross-claims are dismissed. 5. The first, third and fourth respondents will pay the applicant's costs including the costs payable by the applicant to the second respondent. 6. There is no order as to costs in respect of the cross-claims, except as to the third cross-claim in which the first, third and fourth respondents will pay the second respondent's costs. I certify that the preceding one hundred and fifty-two (152) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marcus Einfeld AO.

Associate: Dated: 20 March 2001 Counsel for the Applicant: Mr C Gee QC with Mr R Kaye Solicitor for the Applicant: Derrick Zabow & Co Counsel for the 1st, 3rd and 4th Respondents: Mr JC Campbell QC with Mr TJ Hancock Solicitor for the 1st, 3rd and 4th Respondents: Abbott Tout Counsel for the 2nd Respondent: Mr DE Horton QC with Mr VRW Gray Solicitor for the 2nd Respondent: Denes Ebner Date of Hearing: 16 - 26 October 2000; 9, 10 November 2000 Written submissions completed: 17 November 2000 Date of Judgment: 20 March 2001

ENDNOTES:

[330]

It is generally accepted that, in determining whether what the parties have done results in a binding contract, their intention is significant. And there is reference in the cases and the textbooks to the question whether, for there to be a binding contract, it is necessary that the parties have an actual or subjective intention to contract… But questions in that form are, I think, apt to mislead: it is, in my opinion, of more assistance to ask whether actual or subjective intention to contract plays a part in determining whether there is a binding contract, and (if it does) what part it plays. The proper view is, in my opinion, that the existence of a contract is a consequence which the law imposes upon, or sees as a result of, what the parties have said and done. Actual subjective intention to contract is a factor which the law takes into account in determining whether a contract exists but it is not, or not always, the determining factor. The matter may be tested by an example: A says, "I promise to sell Black Acre to B for $100"; and B says, "I promise to buy Black Acre from A for that price", the promises being made orally. In such a case, a binding contract will be held to exist. And this will be so even though neither A nor B subjectively adverted to (and therefore had no actual subjective intention as to) whether, by the exchange of those promises, a binding contract would be made. The law will hold a binding contract to have been made even though neither had any actual subjective intention that there be a contract, in the sense that neither party gave any thought to the matter. The law looks, in this regard, to what the parties have done, viz, to their exchange of promises to buy and sell; and it treats the fact of that exchange as prima facie sufficient for imposing on them the legal relationship of contract. It will determine whether, according to what they said and did, they exchanged congruent promises: if they did, a contract will prima facie result.

[331]

But this does not mean that actual subjective intention qua contract may not be relevant. Thus, if A, notwithstanding what he said, had the actual subjective intention that no contract should result, a binding contract may not be held to exist. If the terms of A's promise were such that B, as a reasonable man, would take it to involve a legal commitment and B did not know that A did not intend that there be a binding contract, then a binding contract would result. A would not be permitted to set up, against such a meaning of what he had said, a contrary subjective intention. But the result would not, I think, be the same if B knew of A's actual subjective intention. The law would not, I think, impose the relationship of contract where, eg, A thought he was play-acting and B knew of that fact. A's actual subjective intention would be effective to prevent the contract arising. A fortiori, if both A and B had the intention that no contract should result, and each knew of it, then none would be imposed. And, I think, this notwithstanding that a reasonable bystander would take from what they said and did that there was an exchange of congruent promises and a mutual purpose to contract. I put aside for this purpose special cases, of estoppel, third party rights, and the like. The result is therefore that intention to contract, in the subjective sense, is relevant to but not determinative of the existence of a binding contract. It acts, in a sense, as a limiting factor, that is, as a reason for not giving to what on the face of it is an exchange of congruent promises, the legal consequences which would otherwise be given to it. And on this basis, it is, in principle, relevant to know what was the actual subjective intention of each party, in the example that I have given, in order to determine whether the legal relationship of contract is to be held to exist. More correctly, it is relevant to know the intention of the one party where it is the intention of or known to the other. If it be relevant, in this sense, to know the intention of the party or parties that no contract result, is it relevant to know that it was the intention that a contract should result? I think it is. The significance of intention, in the example I have taken, is that the law sees it as relevant to the determination of whether the legal relationship of contract should flow from what the parties have said and done. It is, similarly, relevant to know that they both, or that one with the knowledge of the other, intended that a binding contract should ensue. It does not follow from this that intention to contract will always result in the relationship of contract. There is a difference between the effect of an intention that there be no contract and one that there be a contract. What the parties do with the intention to contract may, because of defects in what they have done, eg, the uncertainty of it, not produce a contract. But, notwithstanding, eg, the exchange of congruent promises, what they do will not produce a contract if there be no mutual intention, known between them as I have indicated. 88 Thus where a contract is alleged to be found in a written signed document, notwithstanding that the document contemplates further agreement including additional terms, for example, to be recommended by the parties' legal advisers, the court may have regard to extrinsic evidence of surrounding circumstances for the purpose of determining objectively whether a concluded contract was intended.

Commerciality 89 Terms may also be implied where there is a need to give business effectiveness to the contract: Milne v Municipal Council of Sydney (1912) 14 CLR 54; Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; Shell Co of Australia Ltd v Esso Australia Ltd [1987] VR 317; McRae v Commonwealth Disposals Commission (1951) 84 CLR 377; Gullett v Gardner (1948) 22 ALJR 151; Maritime Services Board of New South Wales v Australian Shipping Commission (1991) 27 NSWLR 258; Breen v Williams (1994) 35 NSWLR 522. A term will only be implied if it is necessary to make the contract effective in a business sense: Butts v O'Dwyer (1952) 87 CLR 267; Australian Meat Industry Employees' Union v Frugalis Pty Ltd [1990] 2 QdR 201; Bond v HongkongBank of Australia Ltd (1991) 25 NSWLR 286; Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (rec apptd) (in liq); Canham v Australian Guarantee Corp Ltd (1993) 31 NSWLR 246; Smith v Welden (1922) 30 CLR 585; Heimann v Commonwealth (1938) 38 SR (NSW) 691; Bragg v Alam [1981] 1 NSWLR 668; Codelfa Construction; Meehan v Jones; Booker Industries; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41. The fact that it appears reasonable to imply a term is not sufficient: John Holland Construction & Engineering Pty Ltd v World Services and Construction Pty Ltd (unreported, SC (Vic) Byrne J, 27 August 1994). 90 Consequently, if the contract is commercially effective without the term, the term should not be implied: Heimann; Blacktown Municipal Council v Doneo [1971] 1 NSWLR 157; Wasson v Commercial and General Acceptance Ltd (1985) 2 NSWLR 206; Australian Meat Industry Employees' Union v Frugalis Pty Ltd; David Leahey (Aust) Pty Ltd v McPherson's Ltd [1991] 2 VR 367; Ian Delbridge Pty Ltd v Warrandyte High School Council [1991] 2 VR 545. However, a term should be implied if the contract is unworkable or ineffectual without it: Hospital Products; Ling v Commonwealth (1994) 51 FCR 88; Gallagher v Pioneer Concrete (NSW) Pty Ltd (1993) 113 ALR 159; Forsayth NL v Australasian Gold Mines NL (No 1) (1992) 7 WAR 549; Ausdoc Office Pty Ltd v Complete Office Supplies Pty Ltd (1996) 136 ALR 659. 91 A commercial agreement should be read by reference to the relevant words in the written document. Subject to giving the words in a written agreement the natural meaning that they bear, the words of an agreement between commercial parties should not be given a meaning which makes commercial nonsense or would be commercially inconvenient: Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd. Moreover, the further the parties have gone with a commercial agreement, the more likely will any reasonable term be implied to give effect to the parties' intentions: F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd's Rep 53; Foley v Classique Coaches Ltd; Hempel v Robinson; Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444). The further the parties have gone with a commercial agreement, the more likely will any reasonable term be implied to give effect to the parties' intentions: F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd's Rep 53; Foley v Classique Coaches Ltd; Hempel v Robinson; Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444.

Co-operation 92 Where co-operation in performance between the parties is required by a contract, a term may be implied to create a duty to co-operate: Butt v McDonald (1896) 7 QLJ 68; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; United Motels Ltd v Cooper [1964] NSWR 1252; Bragg v Alam [1981] 1 NSWLR 668; Beaton v McDivitt (1987) 13 NSWLR 162; CSS Investments Pty Ltd v Lopiron Pty Ltd (1987) 16 FCR 15; Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board [1989] 1 QdR 499; John Holland Construction & Engineering, or a duty not to do anything which will frustrate the operation of the contract: Butts v O'Dwyer; Trade Practices Commission v CC (NSW) Pty Ltd (1994) 125 ALR 94. 93 The need for business efficacy may give rise to an implication which imposes such obligations on both parties: United Motels Ltd v Cooper [1964] NSWR 1252; Strati v JAG Investments Pty Ltd (1980) 1 BPR 9600; Booker Industries; Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455; Gregory & Bradshaw; Hospital Products; Gallagher v Pioneer Concrete (NSW) Pty Ltd (1993) 113 ALR 159; South Launceston Football Club Inc v Tasmanian Football League Ltd (1995) 4 Tas R 342.

Obviousness 94 The term to be implied must also be obvious. The principle for obviousness is whether, in the event of some "officious bystander" suggesting the term alleged to be implied into the contract, the parties would have regarded the term as too obvious to require express provision: Bonney v Hartmann [1924] St R Qd 232, Breen v Williams. The term must have been obvious to both parties: Goldsbrough Mort & Co Ltd v Carter (1914) 19 CLR 429; Peters American Delicacy Co Ltd v Champion(1928) 41 CLR 316; Gullett v Gardner (1948) 22 ALJ 151, at the time of entry: Gough Bay Holdings Pty Ltd v Tyrwhitt-Drake (1975) 34 LGRA 22, into the contract: Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23 NSWLR 190; L J Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52; Ross McCartin Realty v Chard Holdings Pty Ltd (No 2) [1991] 1 QdR 182; Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] 2 VR 732. The test for implication of an obvious term is an objective one: Heimann.

Consistency 95 The term sought to be implied must be consistent with the other terms of the contract: Himbleton Pty Ltd v Kumagai (NSW) Pty Ltd (1991) 29 NSWLR 44; Farrow Mortgage Services Pty Ltd (in liq) v Edgar (1993) 114 ALR 1; Heimann; Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54; Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd [1991] 2 VR 417; Honeyman v Nhill Hospital [1994] 1 VR 138; Peters American Delicacy; Farrow Mortgage Services Pty Ltd (in liq) v Edgar, and not deal with a matter already sufficiently dealt with by the contract: Bonney v Hartmann; Shepherd v Felt and Textiles; Di Dio Nominees; Ling v Commonwealth; Gallagher v Pioneer Concrete; Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507; Casson v Mirror Motors Pty Ltd (1961) 78 WN (NSW) 762; Ansett Transport Industries; Hospital Products; Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635; Transfield Properties (Kent Street) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321; Gemmell Power Farming Co Ltd v Nies (1935) 35 SR (NSW) 469; Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348; Thors v Weekes (1989) 92 ALR 131; Trade Practices Commission v CC.

Master agreement 96 In Federal Commissioner Of Taxation v Suttons Motors (Chullora) Wholesale Pty Ltd (1983) 47 ALR 449, a "master agreement" was described as an agreement, whether oral or written, governing all the particular transactions between the parties. Typically it contains terms and conditions which govern each transaction such as the method of exercising an option, events of default, conditions precedent, representations and warranties. Such an agreement would be used in circumstances where the parties expect to enter into a series of similar transactions and wish to incorporate similar terms into each transaction when the transaction occurred, but with the flexibility to choose which terms were used in respect of particular transactions. As each "exercise of an option" under a master agreement is in effect a "new contract", the same principles of construction and interpretation must apply to each.

"Best endeavours" clause 97 Where the question arises whether the parties are not bound unless and until an event occurs or condition is fulfilled, the effect of the clause will depend on the intention of the parties to be ascertained from the agreement and other admissible evidence: Gregory & Bradshaw. The effect of the clause may be to postpone the existence of a binding contract until fulfilment: Roach v Bickle (1915) 20 CLR 663; IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 49 ALJR 176, or the performance of a binding contract formed immediately: Gange v Sullivan (1966) 116 CLR 418; Smallman v Smallman [1972] Fam 25; Perri v Coolangatta Investments Pty Ltd(1982) 149 CLR 537; Booker Industries; Gregory & Bradshaw. In the former case, either party may withdraw from the transaction until the condition has been fulfilled. However, in the latter, neither party may withdraw until the time for fulfilment has passed: Gregory & Bradshaw; Perri v Coolangatta Investments Pty Ltd. In the absence of a contrary intention or the existence of circumstances precluding the inference, it will be inferred that the parties intend to be immediately bound by the contract but that the obligation to perform has been postponed: Gange v Sullivan; Perri v Coolangatta Investments; Gregory & Bradshaw; Commonwealth Homes and Investment Co Ltd v MacKellar (1939) 63 CLR 351; Progress and Properties (Strathfield) Pty Ltd v Crumblin (1984) 3 BPR 9496; Newmont Pty Ltd v Laverton Nickel NL [1983] 1 NSWLR 181; Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153. 98 Where satisfaction of the contingency present in a "subject to" clause depends on one or more parties taking steps, or not taking steps, to procure its satisfaction, it will generally be implied, where the contingency postpones performance of the contract, that the parties will take reasonable steps to ensure the fulfilment of the contingency, or at least not take steps to prevent its fulfilment: Booker Industries; IOC Australia; Butts v O'Dwyer; Kennedy v Vercoe (1960) 105 CLR 521, Strati v JAG Investments Pty Ltd (1980) 1 BPR 9600; Progress and Properties (Strathfield); Gregory & Bradshaw. 99 In cases where the contingency requires the satisfaction or approval of one of the parties, the mere fact that there is an element of discretion on the part of the party does not indicate that the agreement is illusory or uncertain: Meehan v Jones; Progress and Properties (Strathfield); Magnacrete Ltd v Douglas-Hill(1988) 48 SASR 565. 100 It is a question of construction whether an objective or subjective test applies, and whether the contingency is satisfied by a bona fide and honest dissatisfaction: Meehan v Jones; Woodside Offshore Petroleum, or must pass an objective test of reasonableness: Meehan v Jones; Zieme v Gregory [1963] VR 214; Progress and Properties (Strathfield); Parland Pty Ltd v Mariposa Pty Ltd(1995) 5 Tas R 121. 101 A term requiring "best endeavours" implies an obligation "to do all one reasonably can in the circumstances to achieve the contractual object but no more": Hospital Products, and to do "all that could reasonably be expected of (the promisor) having regard to the circumstances of its business operation": Transfield Pty Ltd v Arlo International Limited (1980) 144 CLR 83.

Novation 102 It is not possible to assign contractual obligations: Century 21 (South Pacific) Pty Ltd (in liq) v Century 21 Real Estate Corp (1996) 136 ALR 687. However, the original parties to a contract may by novation agree to substitute one contract or contracting party for another, thereby transferring the burden of a prior contract: Konstas v Southern Cross Pumps and Irrigation Pty Ltd (unreported, Federal Court of Australia, Tamberlin J, 3 July 1996), the consideration usually being the discharge of the old contract: Scarf v Jardine (1882) 7 App Cas 345; Olsson v Dyson(1969) 120 CLR 365. 103 In Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 IPR 315 at 320, Powell J concisely described the essential nature of a novation: Reduced to its simplest form, a novation is merely a contract between three parties, the obligee, the original obligor and the substituted obligor, the effect of which contract is that in consideration of the obligee releasing the original obligor from his obligation, the substituted obligor promises the obligee that he will assume responsibility for the performance of the obligation. Being, in essence, but a contract - albeit, perhaps, a special kind of contract - a novation, to be effective in law, must exhibit the usual phenomena of contract, that is, offer and acceptance, the fact of acceptance being communicated to the offeror unless communication has been expressly or impliedly dispensed with.

This dictum was followed by Carruthers J in Mutual Export Corporation & Ors v Asia Australian Express Ltd & Ors (The "Lakatoi Express")(1990) 19 NSWLR 285. 104 In Olsson v Dyson at 388, Windeyer J (in dissent) described the difference between an assignment and a novation as follows: … Novation can still be used as it was in earlier times. It can still be the means to the end which the law now allows to be reached by other means. The ultimate distinction, in juristic analysis, between a transfer of a debt by assignment and by novation is simple enough. Novation is the making of a new contract between a creditor and his debtor in consideration of the extinguishment of the obligations of the old contract: if the new contract is to be fully effective to give enforceable rights or obligations to a third person he, the third person, must be a party to the novated contract. The assignment of a debt, on the other hand, is not a transaction between the creditor and the debtor. It is a transaction between the creditor and the assignee to which the assent of the debtor is not needed. The debtor is given notice of it; for notice is necessary to complete an assignment pursuant to the statute or in the case of an equitable assignment to preserve priorities. But the debtor's assent is not required. He is not a party to the transaction. In Scarf v Jardine (1882) 7 App Cas 345, at 351 Lord Selborne said novation "means this - the term being derived from the civil law - that there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties; the consideration mutually being the discharge of the old contract". In that sense "novation" means simply a new contract standing in the place of the old. It may be a new contract between the parties to the old contract, A … and B …; or it may be a contract between them and a new party, or parties, e.g., between A, B and C… It is in the latter sense that the word is most often used in common law countries in connexion with the transfer of debts from one creditor to another.

105 In Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 15 NSWLR 641, the New South Wales Court of Appeal accepted Windeyer J's view and said at 646:

The essence of a novation and the element which distinguishes it from an assignment is that the consent of the debtor is required - the ordinary situation is one which arises where one debtor or creditor is substituted for another - whereas for an assignment the co-operation of the debtor is unnecessary although he must be given notice by statute or to preserve priorities in equity.

This requirement that all parties consent when novating a contract is in fact well established: Parker v Wise(1817) 6 M & S 239; Wilson v Coupland(1821) 5 B & Ald 228; Wharton v Walker(1825) 6 Dow & Ry KB 288; Robinson v Podosky [1905] St R Qd 118; Abbott v Hessen (1913) 15 WALR 80. 106 Whether there is a novation depends on the intention of the parties: Vickery v Woods(1952) 85 CLR 336; Cook v Chas E Blanks Pty Ltd [1968] 3 NSWR 356; TJ Precision Engineering Pty Ltd v Crane Copper & Aluminium Pty Ltd [1968] 3 NSWR 360; Valentine Films Pty Ltd v Trimex Pty Ltd (unreported, Federal Court of Australia, Merkel J, 7 March 1996). Contracts may be novated either expressly or impliedly: George v Roach (1942) 67 CLR 253, and can be inferred from the conduct of the parties. In Olsson v Dyson at 390, Windeyer J described when novation can be implied or inferred as follows: Quite apart from the question whether the extinguishment of a prior obligation by B to A can provide consideration for a promise by B to C, is the question whether there can be an implied as distinct from an express extinction of the prior obligation. This was a problem for early Roman law too - and it is of some significance that much of the learning concerning novation, as well as the word itself, has an origin in Roman law: see e.g. Wilson v Lloyd (1873) LR 16 Eq 60 at p 74. Justinian met the difficulty by providing that a stipulation should not operate as a novation unless the parties expressly declared that their object in making the new contract was to extinguish the prior obligation: Institutes, Bk. III, 29, 3. However, the requirements of our law are satisfied by a tacit agreement to extinguish the former obligation, and this is inferred when an inconsistent obligation is by agreement substituted. Consent can also be inferred from conduct without express words: Re European Assurance Society Arbitration Acts and Wellington Reversionary Annuity and Life Assurance Society (Conquest's Case) (1875) 1 Ch D 334; Re Head; Head v Head (No 2) [1894] 2 Ch 236; Re the Estate of Philip Levi & Co; Ex parte Levi (1874) 8 SALR 144; Chatsworth Investments v Cussins (Contractors) Ltd [1969] 1 All ER 143.

Collateral contract 107 Generally, a collateral contract involves as consideration the making of some other contract (the principal contract) so that a statement made before or at the time of entry into the principal contract is enforceable as based on an executed consideration: Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133. A collateral contract may be either antecedent or contemporaneous: Angell v Duke (1875) LR 10 QB 174. There are two forms of such contracts: (a) A person (the promisee) enters into a principal contract with another person (the promisor), after a statement which takes effect as a term in a second contract between the promisee and the promisor collateral to the main contract: Heilbut, Symons & Co v Buckleton [1913] AC 30; (b) A person (the promisee) enters into a contract with a third person following a statement by another person (the promisor), and the statement takes effect as a term in a contract between the promisor and promisee collateral to the main contract between the promisee and the third person.

108 Collateral contracts exist independently of the principal contract to which they relate, and the same rules of contractual construction apply: Heilbut, Symons; Hoyt's v Spencer. Thus:

(a) where the principal contract is illegal and unenforceable, the collateral contract may be the subject of an action; (b) where a contract is required to be evidenced by writing, the collateral contract may be the subject of an action if it is not required to be in writing; and (c) where a collateral contract of the second type exists, the privity of contract rule is avoided.

109 In order to establish a collateral contract in respect of a statement of fact, three circumstances are usually present:
     (a) an intention by the maker of the statement that the statement be relied on;
     (b) reliance by the party alleging the existence of the contract. There is a presumption of reliance where the maker of the statement intended the statement to be relied on and a contract was entered into: De Lassalle v Guildford [1901] 2 KB 215; Heilbut, Symons; Bulloch v Glasson (1915) 15 SR (NSW) 91; J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435; and
     (c) an intention on the part of the maker of the statement to guarantee its truth or falsity: Heilbut, Symons; Major v Bretherton (1928) 41 CLR 62; Gardiner v Grigg (1938) 38 SR (NSW) 524; Cutts v Buckley (1933) 49 CLR 189; Wells (Merstham) Ltd v Buckland Sand and Silica Ltd [1965] 2 QB 170; J J Savage.

110 The third circumstance is essential and must be proved or inferred: Routledge v McKay [1954] 1 WLR 615; J J Savage; Something Better Pty Ltd v Pyramid Building Society (in liq) [1996] 2 VR 352.
111 A collateral contract may also arise where the statement relied upon is directly promissory in character or effect rather than representational: De Lassalle; Lawrence v Cassel [1930] 2 KB 83; Shepperd v Council of the Municipality of Ryde (1952) 85 CLR 1; Cutts v Buckley; J J Savage; Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445. Statements which are, in essence, merely expressions of opinion are rarely found to be collateral contracts, even if relied upon: J J Savage; Ross v Allis-Chalmers Australia Pty Ltd (1980) 55 ALJR 8.
112 It is not possible to infer a collateral contract for which the consideration is the entry into the principal contract, if it is agreed prior to the making of the statement subsequently relied upon as a collateral contract, since the consideration in such a case would be past consideration: Hercules Motors Pty Ltd v Schubert (1953) 53 SR (NSW) 301.
113 A statement will not take effect as a collateral contract between the parties to the main contract if it is inconsistent with the principal contract: Hoyt's v Spencer; Maybury v Atlantic Union Oil; De Lassalle; Cairns Festival Faire Pty Ltd v AEFC Ltd (unreported, Federal Court of Australia, Heerey J, 3 September 1993). The basis is a principle which must govern the bargain of a contractual promise made in consideration of entering into the main contract, namely, that the parties shall have and be subject to all of the respective benefits and burdens of the principal contract. To hold otherwise would make the collateral contract the dominant contract: Hoyt's v Spencer; Leipner v McLean (1909) 8 CLR 306; Cutts v Buckley; Gardiner v Grigg; Maybury v Atlantic Union Oil; Esanda Ltd v Burgess [1984] 2 NSWLR 139; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1.

Findings and conclusions 114 I find that the Divergent contract was legally binding. Ginger Max agreed to purchase and Divergent agreed to supply certain goods for due payment. They clearly intended to create legal relations by reducing what they saw as the essential terms of their agreement to writing and subsequently acted on the written document in a substantial way. The parties did not believe, and I cannot see any basis for holding, that the price or any other essential term was uncertain. 115 It is obvious that Ginger Max intended the Divergent system to be installed in all its stores. There would have been no point in changing systems at great expense and trouble to finish with different systems in different stores. In respect of the "best endeavours" clause, I find that Ginger Max did "all [it] reasonably [could] in the circumstances to achieve the contractual object". In fact, Ginger Max did more than "all that could reasonably be expected of [it] having regard to the circumstances of its business operation". By the time Ginger Max transferred ownership of Best & Less to Pepkor, it had performed a major part of the contract, even better than its own expectations. 116 Pepkor's submission that the contract was incomplete because things such as the "Acceptance Test Criteria" and the "pilot" phases should have been expressed must be rejected. Certainty may be achieved by an appeal to the understanding or practices of business people. In commercial reality, the development of software for a particular application can be fluid. System requirements can change as the software is being developed and a particular solution or program is found to be unsatisfactory. In fact, Divergent and Ginger Max passed through the "Acceptance Test Criteria" and the "pilot" stages without difficulty and showed by their conduct that they understood and could apply the terms of the contract without difficulty. By the time of the sale contract, the Divergent contract had been significantly performed by both Divergent and Ginger Max towards the goal of installations in all the Best & Less stores. Their conduct made clear that their contract was not a "master agreement". 117 The contract did not fail because NCR, as a party which was to perform part of the obligations, did not sign it. It was not essential to the installation of the Divergent system that the hardware be supplied by NCR. In computer terms, the life of hardware is also short and the contract specifically provided for hardware upgrades once better technology became available. 118 On the novation issue, it is important to consider not only the intention of the parties, but also their conduct. Ginger Max and Pepkor expressed their respective intentions to novate the Divergent contract in the sale contract. Divergent expressed its consent and intention to novate its contract by signing and returning the novation document provided to it by Ginger Max. Although the words used in the two contracts to describe the Divergent contract are not identical, it is obvious that the parties intended to novate its substance. There was and could have been no confusion about what was being novated. It is inconceivable that Pepkor could have believed that the novation clause and Schedule 4 of the sale agreement did not have the effect the parties clearly intended and the meaning their words clearly convey. Furthermore, in my opinion, Pepkor's conduct in requesting the installation of the system in six further stores following its takeover is, if not decisive, very persuasive of its intent and of its understanding of the contractual position.

The oral evidence 119 The evidence of Pepkor's lay witnesses can be construed in different ways. Looked at from their point of view, Messrs Stassen, MacDonald, Marais and Aderem at best misunderstood the contract and what the Divergent and Ginger Max interests told them. However, this possible explanation does not ring true. All four men have a great deal of commercial experience and business acumen. It defies commonsense that all of them could have made such an error. At the other end of the scale of probabilities, they manufactured their recollections. Given the combined commercial experience between them and their potential liability to Divergent, this conclusion is in my view the more likely. At the very least they manicured their recollections to escape a clear liability of their company. 120 Chief among my reasons for this finding is what struck me as the manifestly arrogant attitudes of these men whom, as witnesses, I found significantly unimpressive. In my opinion, their evidence was in many respects quite untruthful. They denied one statement after another when it did not suit their case or point of view only to lead, as I have earlier described, to inconsistency and conflict with logic and commonsense. The same result did not flow from Divergent's witnesses whose evidence, as I have shown, was uncomplicated, consistent and sensible. The principal Pepkor witnesses, especially Messrs Stassen, MacDonald and Marais, are all highly intelligent, well educated men with commercial commonsense. These obviously admirable features were at once the cause of their downfall. My conclusion from their evidence is that they used their cleverness to cover, first, a deliberate commercial decision to ignore their clear assumption of Ginger Max's obligations to Divergent. Their secondary goal was to challenge Divergent to take court proceedings in the probable belief that Pepkor's hefty determined resistance and apparently superior financial strength would win the day by wearing Divergent down and, hopefully, exhaust its capacity to fund litigation. This ploy was wholly unsuccessful precisely because it was too "clever". 121 I accept that Messrs Stassen and MacDonald wanted to eliminate Pepkor's obligations under the Divergent contract but I do not accept their evidence about the matter. In particular I do not believe that they did not understand its commercial requirements. Apart from the novation issue, the Divergent contract would, if unenforceable against Pepkor on the principal grounds relied on, also have been unenforceable against Ginger Max. They must have recognised how illogical it was for Divergent and Ginger Max to leave themselves open to the loss of such a commercially viable and important contract, including Ginger Max's need to continue to operate a business vulnerable to commercial competition and loss by a failure to replace outdated but essential equipment. Yet if they are to be believed, not a word passed about this phenomenon. On the contrary, they at all times acted as if the Divergent contract was clear, secure and binding. 122 Mr Aderem had a particular interest in manufacturing his evidence. Mr Rosen's role in his retrenchment by SVI would have made him contemptuous of Mr Rosen and this case presented a perfect opportunity for the settling of old scores. However, as Mr Aderem was not cross-examined to this effect, it would not be appropriate to reject his evidence on this basis. As it happens, his evidence was unpersuasive but peripheral. 123 Both Mr Rosen and Mr Thomas were convincing and credible witnesses. I accept their evidence that they were several times told by the Pepkor representatives that Pepkor would proceed and was proceeding with the installation of the Divergent POS system, even when and after Pepkor had determined to go elsewhere for a POS system. Pepkor deliberately concealed this intention from Divergent. This conduct breached and brought to an end the novated Divergent contract and caused Divergent to suffer loss. Ginger Max cannot be held liable for Pepkor's breach of contract as Pepkor in large measure conceded. Divergent's claim must succeed against Pepkor, but must fail against Ginger Max.

Misleading and deceptive conduct 124 Divergent claimed that it was misled or deceived by both Ginger Max and Pepkor about their intentions regarding completion of the installation of the POS system in accordance with the Divergent contract. Pepkor claimed that it was misled or deceived by both Ginger Max and Divergent about the binding nature of that contract. In view of my findings on the contract, it is not necessary to consider Divergent's claims against Pepkor in any detail. I have no doubt that Pepkor did mislead divergent about its intentions for the Divergent contract. Clearly Divervent did not mislead Pepkor. Likewise, I am quite convinced that Ginger Max did not mislead or deceive Divergent. It did what it said it would do and performed even better than it thought it could. Neither did Ginger Max deceive Pepkor, which in any event made its own decisions about the Divergent contract and was not influenced by anything said or done by Ginger Max. I accept the evidence of Mr Ginges that he did not make or authorise anyone else to make any representations to Pepkor suggesting that the Divergent contract was not binding. 125 For these reasons, I find that: (a) the Divergent contract was legally enforceable against Ginger Max for the installation of the Divergent POS system in at least 82 Best & Less stores; (b) the contract was novated by Ginger Max to Pepkor on the sale of Best & Less, Pepkor thereby assuming the obligations of Ginger Max under it; (c) Pepkor failed to complete the contract and caused loss to Divergent; (d) Ginger Max did not mislead or deceive Divergent or Pepkor; (e) Pepkor misled Divergent but Divergent did not mislead Pepkor; (f) Pepkor is not entitled to indemnity from Ginger Max for any liability to Divergent.

Damages

The principles 126 Damages in contract are awarded to place the applicant in the position in which it would have been had the respondent performed the obligation that was breached: Johnson v Perez (1988) 166 CLR 351; Parramatta City Council v Lutz (1988) 12 NSWLR 293; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; Manser v Spry (1994) 181 CLR 428; Nominal Defendant v Gardikiotis (1996) 186 CLR 49. Another expression of the principle has been that where the respondent contracts to do something and fails to do it, the respondent must, so far as money can do so, put the applicant in the same position as if the thing had been done: Holmes v Jones (1907) 4 CLR 1692. In assessing damages for breach of contract, the loss must be identified by reference to the position of the applicant after the respondent's breach, and the applicant must establish what has been lost: Ravinder Rohini Pty Ltd; Amann Aviation Pty Ltd. 127 Both Mr Gower for Divergent and Mr Bryant for Pepkor provided reports and gave oral evidence on Divergent's loss. There was a gigantic difference between their assessments. Mr Gower estimated the loss at between $1.1million and $1.5million[98] while Mr Bryant put the loss at $35,000[99]. Their oral evidence disclosed that each had made their calculations on the basis of different assumptions, and that if each had based their calculations on the other's assumptions, they would in all likelihood have reached the same or a similar result. Despite my efforts to have them try to close the gap and reach an accord, at least on some of the appropriate assumptions having regard to the evidence, their unwillingness or failure to do so, presumably because they lacked instructions to make the attempt, has left me with the task of examining to what extent the evidence supports the major assumptions of one expert over the other. The parties' attitude in this regard subjects them to the application of certain well accepted principles of law which may not operate to their benefit. 128 In Amann Aviation, Mason CJ and Dawson J said at 83: The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can (Fink v Fink (1946) 74 CLR 127, at p 143; McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, at pp 411-412; Chaplin v Hicks [1911] 2 KB 786, at p 792). Indeed, in Jones v Schiffmann ((1971) 124 CLR 303, at p 308) Menzies J went so far as to say that the "assessment of damages ... does sometimes, of necessity involve what is guess work rather than estimation". Where precise evidence is not available the court must do the best it can (Biggin & Co Ltd v Permanite Ltd [1951] 1 KB 422, at p 438, per Devlin J). And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages (See McGregor on Damages, 15th ed (1988), pars 357-359). 129 In JLW (Victoria) Pty Ltd v Tsiloglou & Ors [1994] 1 VR 237 at 241-6, Brooking J, (with whom Tadgell and JD Phillips JJ agreed in substance) said (authorities omitted): A plaintiff cannot recover substantial as opposed to nominal damages unless he proves both the fact and the amount of damage… If he proves the fact of the loss but does not call the necessary evidence as to its amount he cannot be awarded substantial damages… he must put the tribunal in the position of being able to quantify in money the damage he has suffered… So juries in personal injuries cases are often directed that the plaintiff must prove to their satisfaction what he has suffered and will suffer and what is fair and reasonable compensation in respect of that. It is often said that the amount of the damage must be proved with certainty, but this only means as much "certainty" as is reasonable in the circumstances… Where precise evidence is obtainable, the court naturally expects to have it; where it is not, the court must do the best it can… The nature of the damage may be such that the assessment of damages will really be a matter of guesswork… …

Parties

Applicant/Plaintiff:

SVI SYSTEMS PTY LIMITED

Respondent/Defendant:

BEST & LESS PTY LIMITED

Legislation Cited (3)

Federal Court of Australia Act 1976(Cth)

Fair Trading Act 1987(NSW)

Trade Practices Act 1974(Cth)

Cases Cited (128)

(1933) 49 CLR 189

(1952) 85 CLR 336

(1968) 118 CLR 429

(1968) 118 CLR 445

(1969) 120 CLR 365

(1970) 119 CLR 435

(1973) 129 CLR 629

(1980) 144 CLR 83

(1982) 149 CLR 571

(1982) 149 CLR 337

(1982) 149 CLR 600

(1984) 156 CLR 41

(1986) 160 CLR 1

(1986) 161 CLR 500

(1991) 174 CLR 64

(1999) 198 CLR 511

(1980) 55 ALJR 8

(1983) 47 ALR 449

(1985) 2 NSWLR 309

(1990) 19 NSWLR 285

(1990) 20 NSWLR 310

(1994) 36 NSWLR 290

(1999) 46 NSWLR 267

(1983) 1 IPR 315

(1929) 43 CLR 310

(1927) 39 CLR 302

(1976) 50 ALR 363

(1961) 104 CLR 149

(1990) 26 FCR 21

(1964) 112 CLR 597

(1988) 15 NSWLR 130

(1989) 18 NSWLR 398

(1998) 44 NSWLR 349

(1995) 36 NSWLR 709

(1949) 80 CLR 11

(1925) 36 CLR 60

(1990) 20 NSWLR 251

(1990) 3 WAR 486

(1956) 95 CLR 420

(1940) 63 CLR 161

(1975) 12 SASR 481

(1992) 27 NSWLR 326

(1994) 122 ALR 637

(1994) 49 FCR 155

(1908) 7 CLR 617

(1923) 32 CLR 81

(1923) 32 CLR 159

(1988) 18 NSWLR 540

(1988) 164 CLR 53

(1995) 185 CLR 410

(1987) 16 FCR 314

(1992) 28 NSWLR 17

(1960) 104 CLR 206

(1989) 16 NSWLR 582

(1991) 24 NSWLR 1

(1954) 91 CLR 353

(1991) 30 FCR 300

(1998) 44 NSWLR 103

(1910) 10 CLR 674

(1994) 63 SASR 557

(1988) 14 NSWLR 523

(1992) 37 FCR 554

(1927) 40 CLR 227

(1991) 23 NSWLR 571

(1992) 28 NSWLR 338

(1943) 67 CLR 266

(1973) 130 CLR 353

(1991) 23 NSWLR 481

(1912) 14 CLR 54

(1931) 45 CLR 359

(1951) 84 CLR 377

(1948) 22 ALJR 151

(1991) 27 NSWLR 258

(1994) 35 NSWLR 522

(1952) 87 CLR 267

(1991) 25 NSWLR 286

(1993) 31 NSWLR 246

(1922) 30 CLR 585

(1985) 2 NSWLR 206

(1994) 51 FCR 88

(1993) 113 ALR 159

(1992) 7 WAR 549

(1996) 136 ALR 659

(1979) 144 CLR 596

(1987) 13 NSWLR 162

(1987) 16 FCR 15

(1994) 125 ALR 94

(1983) 153 CLR 455

(1995) 4 Tas R 342

(1914) 19 CLR 429

(1928) 41 CLR 316

(1990) 23 NSWLR 190

(1977) 138 CLR 52

(1991) 29 NSWLR 44

(1993) 114 ALR 1

(1977) 139 CLR 54

(1953) 89 CLR 507

(1993) 177 CLR 635

(1994) 36 NSWLR 321

(1937) 59 CLR 348

(1989) 92 ALR 131

(1915) 20 CLR 663

(1975) 49 ALJR 176

(1966) 116 CLR 418

(1982) 149 CLR 537

(1939) 63 CLR 351

(1983) 153 CLR 153

(1960) 105 CLR 521

(1988) 48 SASR 565

(1995) 5 Tas R 121

(1996) 136 ALR 687

(1989) 15 NSWLR 641

(1942) 67 CLR 253

(1919) 27 CLR 133

(1928) 41 CLR 62

(1952) 85 CLR 1

(1990) 94 ALR 445

(1909) 8 CLR 306

(1988) 166 CLR 351

(1988) 12 NSWLR 293

(1994) 181 CLR 428

(1996) 186 CLR 49

(1907) 4 CLR 1692

(1946) 74 CLR 127

(1971) 124 CLR 303

(1984) 57 ALR 167

(1994) 49 FCR 326

[2000] FCA 1500

Cited By (3)

Allianz v Fyna

Dig It Landscapes Pty Ltd (in liq) v Bupa Aged Care Australia Pty Ltd

Evans Deakin Pty Ltd v Sebel Furniture Ltd

At a glance

Court

Decision date

Before

Source

Judgment (106 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (128)

Cited By (3)