Background
1 The first applicant ("Wesoky") is an international cinema and film consultant. The second applicant ("ICFC") is a company established by Wesoky to offer his services to companies engaged in the international cinema and film industry. The respondent ("Village International") carries on the business of motion picture production, distribution and exhibition in Europe, Australia, Asia and other places throughout the world as part of the Village group of companies ("the Village group").
2 On or about 24 October 1996, Village Roadshow Theatres Europe Limited ("Village Roadshow"), which is also part of the Village group, entered into a consultancy agreement in writing ("the original consultancy agreement") with ICFC and Wesoky which provided that ICFC, acting as the consultant, procure Wesoky's services to act as the managing director of Village Roadshow's cinema operations in France and other territories nominated from time to time by the Board of Village Roadshow for a term of five years. Village Roadshow had an option to extend the term for a further three years. The engagement of ICFC and of Wesoky took effect from 1 December 1995.
3 The terms of the original consultancy agreement required ICFC to procure Wesoky to devote substantially the whole of his time, attention and skills during normal business hours to Village Roadshow's activities (cl 2(a)). In consideration of the consultancy services provided by ICFC, through Wesoky, ICFC was entitled to an annual fee of US$300,000 together with additional benefits in respect of motor vehicle expenses, travel, health insurance, accommodation and other matters. In addition to the fee and benefits, Village Roadshow also agreed to offer ICFC, or its nominee, no less than a five percent equity interest in all new cinema exhibition investments in Europe falling under Wesoky's direction and management ("the Equity Interest"). The original consultancy agreement provided that it was to be governed by the law of the United Kingdom.
4 On or about 30 January 1998 the original consultancy agreement was amended in writing with effect from 1 August 1997 ("the amended consultancy agreement"). The amended consultancy agreement provided that it was to be governed by Australian law. Under the amended consultancy agreement, the benefit and burden of the original consultancy agreement was assigned and transferred from Village Roadshow to Village International. The annual remuneration was also increased to US$337,500 and ICFC's and Wesoky's responsibilities were extended to include Italy as well as France.
5 In November 1999 ICFC and Wesoky were in dispute with Village International over their respective rights and obligations under the amended consultancy agreement. Each party thereupon purported to terminate the agreement in reliance upon alleged breaches committed by the other party.
6 The genesis of the dispute between the parties was the desire of the Village group to remove Wesoky from any role, including any position of direction and management, in relation to the group's activities in France and Italy. As a result of that desire, and a reorganisation of the Village group's business interests in Europe, in January 1999 Wesoky was informed that his departure from the Village group was required. However, at the same time, ICFC's and Wesoky's contractual entitlements under the amended consultancy agreement were acknowledged. By late March 1999 ICFC and Wesoky had been formally advised by Village International that Wesoky was not to attend Village's offices after 31 March 1999. Pursuant to arrangements made with the Village group, Wesoky was entitled to seek alternative opportunities for his future employment, notwithstanding that ICFC was continuing to receive payments of the fee and the other benefits payable under the amended consultancy agreement.
7 From April 1999 Wesoky sought to establish the Europlex project. The project involved setting up a company with external finance to acquire, develop and operate cinema complexes throughout Europe. Wesoky obtained the support of the Soros Group for his project. On 10 November 1999, using family entities, a complex series of agreements were entered into, which established the Europlex project as a joint venture. The agreements were to be held in escrow until the termination by ICFC and Wesoky of the amended consultancy agreement. Wesoky and ICF purported to terminate that agreement with effect from about 15 November 1999. Thus, the Europlex agreements did not become binding or operative until the termination had occurred.
8 At around the same time as the termination, the Village group became aware of Wesoky's involvement in the Europlex project. Village International contended that as a result of that involvement, ICFC and Wesoky were in breach of their duties under the amended consultancy agreement and, consequently, it was entitled to terminate the agreement, which it purported to do with effect from 15 November 1999.
9 In the meantime Wesoky and ICFC had issued proceedings in the Court claiming damages against Village International for breach of the amended consultancy agreement and for breach of s 52 of the Trade Practices Act 1974 (Cth) ("the TPA").
10 The contested issues in the proceeding essentially involved three matters. The first related to the claim for damages by Wesoky and ICFC for breaches of the amended consultancy agreement. That claim was put on two bases. ICFC and Wesoky claim to be entitled to be paid salary and other emoluments under the amended consultancy agreement from 15 November 1999 to 30 November 2000, being the end of the five term, less any amounts paid by Village International, or received as salary and emoluments as a result of the Europlex project, in respect of the same period. The second basis for the claim related to ICFC's entitlement to the Equity Interest. Both claims raise the issue of the entitlement of ICFC and Wesoky to terminate the amended consultancy agreement by reason of the alleged breaches of that agreement by Village International. Although there is some dispute as to the nature and extent of any offsetting claims that are to be made as a result of the Europlex project, it is unnecessary for me to consider the detail of the damages claim in the trial on liability.
11 The second contested issue related to certain claims by ICFC and Wesoky as a result of alleged contraventions of s 52 of the TPA. In substance, Wesoky and ICFC claimed that officers of the Village group had engaged in misleading and deceptive conduct in relation to the representations they had made concerning the Equity Interest. In the result, the applicants claimed damages for breach of s 52 and for cl 15 of the amended consultancy agreement, which provides for the Equity Interest, to be varied under s 87(2)(b) of the TPA so it accords with the representations made as to its content by officers of the Village group.
12 The third contested issue relates to the claim by Village International that it was entitled to terminate the amended consultancy agreement as a result of an alleged breach of the agreement by ICFC and Wesoky. The breach was said to arise from ICFC and Wesoky committing themselves to participate in the Europlex project while still being contracted to Village International.
13 The trial of the proceeding was confined to the issue of liability, with all questions concerning damages to be dealt with at a subsequent hearing in the event that liability to pay damages was established by any party.
Breach of contract by Village International
14 ICFC and Wesoky claim damages for breach of contract. The damages include the fees and other benefits payable, but not paid, under the amended consultancy agreement up to 30 November 2000. They also claim that they were entitled to terminate the agreement on 15 or 16 November 1999 by reason of breaches by Village International. The first breach relied upon by ICFC and Wesoky was Village International's requirement that Wesoky no longer attend its offices in France or Italy or perform any functions or duties under the amended consultancy agreement after March 1999. The second breach was said to be the refusal by Village International to provide a non-recourse loan to enable ICFC's acquisition of the Equity Interest that was required to be offered to ICFC under cl 15. Clause 15 remained unchanged in the amended consultancy agreement, save that it was not to apply to investments in Italy. ICFC contended that, as a result of those two breaches, it was entitled to treat Village International as having repudiated the amended consultancy agreement and to accept that repudiation, which it did by its notice of termination with effect from 16 November 1999.
15 The first aspect of the breach of contract claim requires consideration of whether Village International was in breach by refusing to provide Wesoky with any duties or functions under the amended consultancy agreement as from March 1999, despite it acknowledging and meeting its obligations to make all of the payments required to be made to ICFC under that agreement. ICFC and Wesoky claim that Village International was obliged to provide Wesoky with the duties necessary to discharge his primary function under the amended consultancy agreement of establishing new cinema investments in Europe. Village International denies any such obligation and contends it is entitled to place Wesoky on "garden leave", which it did, as long as it pays the remuneration due under the agreement.
16 The question of whether an employer is required as a matter of contractual obligation to provide an employee with work or merely to pay the employee the amount required to be paid under the employment contract when the employee is ready, willing and able to perform the work is a vexed one. Although the question in each case is one of construction of the contract in question, where the contract provides that benefits accrue to the employee as a consequence of the work, courts have more readily implied a contractual obligation on the part of the employer to provide the work, unless the employer has an express contractual right not to do so.
17 Senior counsel for Wesoky and ICFC relied on a number of cases which were said to establish that over the past 20 or 30 years the courts have been increasingly willing to recognise the importance of an employer actually providing an employee with work. See White v Australian and New Zealand Theatres Limited (1943) 67 CLR 266, Marbe v George Edwardes (Daly's Theatre) Limited [1928] 1 KB 269; Langston v Amalgamated Union of Engineering Workers [1974] 1 All ER 980; Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337; Herbert Clayton and Jack Waller Limited v Oliver [1930] AC 209; Devonald v Rosser & Sons [1904-1907] All ER Rep 988; cf Mann v Capital Territory Health Commission [1981] 54 FLR 23.
18 The issue was helpfully analysed by Morritt LJ (with whom Stuart-Smith and Robert Walter LJJ agreed) in William Hill Organisation Ltd v Tucker [1999] ICR 291. The question was whether employment of a senior dealer in a betting business required the employer merely to retain the dealer in service or to give him actual work to be done. Morritt LJ stated (at 298-299) that the question always depends on the particular contract, but nonetheless added that the cases illustrate certain categories and trends that were of assistance. His Lordship, after observing that the courts have been more ready to find an obligation to provide work in theatrical engagements, added:
"Similarly, engagement for a specific project such as employment on a specific voyage (Driscoll v. Australian Royal Mail Steam Navigation Co. (1859) 1 F. & F. 458), or in a specific and unique post such as the chief sub-editor of a newspaper (Collier v. Sunday Referee Publishing Co. Ltd. [1940] 2 K.B. 647), or as the manager of an overseas business (Addis v. Gramophone Co. Ltd. [1909] A.C. 488), have been treated by the courts as giving rise to an obligation on the part of the employer not to do anything which puts the promised employment out of his power. And where the promised remuneration depends on the employer providing the opportunity to earn it then an obligation to afford the employee an opportunity so to do is readily implied: cf Devonald v. Rosser & Sons [1906] 2 K.B. 728 and Addis v Gramophone Co. Ltd. [1909] A.C. 488."
19 Morritt LJ observed at 301:
"In my view, in all cases involving garden leave the first question must be that posed by Sir John Donaldson in Langston v. Amalgamated Union of Engineering Workers (No. 2) [1974] I.C.R. 510. Does the consideration moving from this employer extend to an obligation to permit the employee to do the work or is it confined to payment of the remuneration agreed? If the answer is in the sense of the latter alternative then the employer is entitled to send his employee home on garden leave notwithstanding the absence of an express or implied power to do so because there is no contractual obligation to prevent him. If the answer is in the sense of the former alternative then the employer needs a provision entitling him to send his employee on garden leave so as to absolve him from what would otherwise be a breach of contract. It is unlikely, given the hypothesis on which the point arises, that there could be an implied power for that purpose. Thus, in practice, an employer will need to stipulate for an express power to send his employee on garden leave in all cases in which the contract imposes on him an obligation to permit the
employee to do the work."
20 In order to determine whether an obligation to provide work exists in the present case it is therefore necessary to examine the terms of the amended consultancy agreement in the light of the surrounding circumstances. Those circumstances are that Wesoky was employed for a specific and substantial project and a new and unique overseas post was created for him to enable the project to reach fruition. The nature of his employment was such that maintenance of his skills required continuing work in, and contact with, the cinema exhibition market.
21 The relevant terms of the amended consultancy agreement are that ICFC must "provide the services" of Wesoky in Italy and France, as an executive of Village International, until 30 November 2000. Clause 2(a) required ICFC to procure Wesoky to "devote substantially the whole of his time, attention and skills during normal business hours" to Village International. The agreement also contains provisions prohibiting Wesoky from engaging in activities which might conflict with his duties to Village International during the term of the agreement.
22 A further relevant clause is cl 15. The surrounding circumstances make it quite clear that the Equity Interest to which ICFC was entitled under cl 15 was of major significance in the remuneration package offered by the Village group to ICFC and Wesoky to induce Wesoky to agree to enter into employment with Village Roadshow and, later, Village International. Indeed, that appeared to be common ground. In oral evidence Mr Kirby ("Kirby"), Chairman of the Village group stated that the Equity Interest was an exceptional and generous offer on the part of the Village Group.
23 Clause 15 provided:
"a. In addition to the Annual Fee and the benefits specified in Paragraph 8 hereof, the Company [Village Roadshow] agrees to offer the Consultant [ICFC] or its nominee no less than a five (5) percent equity interest in all new cinema exhibition investments in Europe falling under the direction and management of the Employee [Wesoky] ('the Equity Interest') whilst this Agreement is current.
b. Without in any manner binding or committing the Company to any particular level of investment in cinema exhibition in Europe referred to in Paragraph 15.a. above, it is anticipated that the Company's investment in cinema exhibition in Europe up to December 2000 will be substantial.
c. Should the Consultant agree to accept the Equity Interest in any particular territory offered by the Company, the Consultant must pay for the relevant Equity Interest at the same time as the Company makes its investment in the relevant cinema project.
d. Notwithstanding Paragraph 15.c. above however, subject to the mutual agreement of both parties, the Company is prepared to finance from time to time the Consultant's Equity Interest in any relevant cinema project by way of a non-recourse loan on commercial terms and conditions secured against the assets constituting the Consultant's Equity Interest. It is a fundamental condition of the Company's provision of such finance that the net profits arising from the Consultant's Equity Interest in the relevant cinema business arising from the project be offset against the interest charges of such non-recourse loan from the Company. Any profits derived from the relevant cinema business in excess of what would be required to meet any interest charges would be available to the Consultant to reduce the capital balance then outstanding on the relevant loan from the Company.
e. At the end of the Term or Further Term (if any) of this Agreement, subject to Paragraph 15.g. below, the Consultant must either:
i. retain any or all of its Equity Interest(s); or
ii. sell any or all of its Equity Interest(s) to the Company for a payment by the Company to the Consultant of either:
A. the mutually agreeable fair market value of the relevant Equity Interest in the relevant territory as certified by the independent auditor of the relevant cinema business(es) relevant territory as certified by the independent auditor of the relevant cinema business(es) assuming a willing (but not anxious) vendor and a willing (but not anxious) purchaser contracting at arm's length; or
B. a payment of five (5) years return on equity of the Consultant's relevant Equity Interest in the relevant territory as negotiated in good faith between the parties calculated on the basis of the net profit before tax and depreciation ('cashflow') for the previously completed twelve (12) month period for the relevant cinema business(es) as certified by the independent auditor of the relevant cinema business(es)
which in any event in all of the situations set out in Paragraph 15.e. above shall require the repayment in full by the Consultant to the Company of any amount then outstanding of the non-recourse loan granted by the Company pursuant to Paragraph 15.d. above together with all interest that may be due and payable thereon.
f. The Consultant's Equity Interest and the Company's non-recourse financing thereof, if any, shall not be transferable to any other party other than the Company without the prior written approval of the Company first had and obtained.
g. The company shall hold a first and last right of refusal to purchase the Consultant's Equity Interest net of any loan funds and all interests and other charges outstanding by the Consultant to the Company at a price as set out in Paragraph 15.e.ii.B. above on any of the following dates;
i. At the end of the Term or Further Term (if any); and
ii. At the date of determination of this Agreement if at a date other than 15.g.i. above; and
iii.At a date being no more than five (5) years from the end of this Agreement, however terminated.
This paragraph shall not apply if entity in which the Equity Interest is held has become a public entity (ie, interests have been offered to the public) and the Company has not taken up its rights set out in paragraph 15.h.
h. Notwithstanding any other provision of this Agreement, in the event that the Company decides to seek a stock exchange listing ('Float') for any one or more of the Cinema business(es) in a particular territory in which the Consultant has an Equity Interest, the Company shall be entitled to purchase such Equity Interest from the Consultant on either the same terms and conditions as set out in Paragraph 15.e.ii.B. above or replace the Equity Interest with an equivalent profit sharing arrangement as negotiated in good faith between the parties such that the Consultant would be in no more favourable or unfavourable position had such Float not proceeded."
24 The Equity Interest to be offered under cl 15 related only to new cinema exhibition investments in Europe, with the exception of Italy. Italy was excluded as, under the amended consultancy agreement, ICFC's annual fee was increased to compensate for the fact that Village International's existing arrangements in Italy precluded it from offering any equity participation to ICFC or Wesoky in new investments in Italy. However, the amended consultancy agreement expressly provided for ICFC's and Wesoky's engagement, and therefore ICFC's entitlement to the Equity Interest, to otherwise continue.
25 Thus, it was a very important aspect of the benefit offered to ICFC under cl 15 that Wesoky be permitted to work at least to the extent necessary to enable him to participate in discharging his function of directing and managing new cinema investments in the areas where ICFC was to be entitled to an Equity Interest. Plainly, the benefit of cl 15 was only able to be realised in respect of investments under Wesoky's direction and management.
26 Thus, the present case is one where a significant aspect of the promised remuneration depends on the employer providing the opportunity, or not depriving the other contracting party of the opportunity, to earn it. Consequently, an obligation to afford the other contracting party the opportunity of doing so is readily implied: see William Hill Ltd at 299. Such an implication is also supported by the specific and unique overseas posting undertaken by Wesoky and ICFC to advance their employment and interests (see William Hill Ltd at 298-299), the nature of Wesoky's employment and by the express contractual requirement that ICFC procure Wesoky to devote substantially the whole of his time and skills in business hours to his employer's activities.
27 In all the circumstances it is appropriate to imply a term that Village International would not act in a manner that deprived ICFC of the benefit of cl 15 by excluding Wesoky from any role in the direction and management of new cinema investments in respect of the area in respect of which he was entitled to be offered an Equity Interest under the amended consultancy agreement. From the time Wesoky was instructed not to further attend the offices of Village International, ICFC and Wesoky were effectively precluded from being able to enjoy the opportunity of obtaining the benefits of cl 15 in respect of any new cinema exhibition investments thereafter, as such investments would not fall under Wesoky's direction or management.
28 Accordingly, I am satisfied that by instructing Wesoky and ICFC that Wesoky was no longer to participate in Village International's business activities in Europe after March 1999, Village International breached its contractual obligation to afford Wesoky a role, or not to deprive him of a role, in the direction and management of Village International's new cinema exhibition investments in the areas within which his services had been required to be provided under the consultancy agreement, namely France, and possibly Switzerland.
29 The above discussion has proceeded as if the amended consultancy agreement were a contract of employment between the Village group and Wesoky. However, as previously outlined, the amended consultancy agreement engages ICFC, rather than Wesoky, to provide the activity for which the remuneration is payable. Somewhat surprisingly, neither party made much of this point in their submissions and appeared to accept that the present situation was not relevantly distinguishable from the employment relationships in the cases discussed by Morritt LJ in William Hill. However, I would arrive at the same conclusion if the amended consultancy agreement is viewed as a corporate service contract rather than an employment contract. The main reason for that is that my conclusion is based on the construction of the terms of the contract rather than on the nature of the contract. In any event a contractual term is readily implied to prevent one party from conducting itself in a way that will deprive the other party from the benefits of the contract: see Australian Airline Flight Engineers Association v Ansett Australia Ltd [2000] FCA 1299 at [18] and the cases there cited. In that case I observed [at 18]:
"…where a party is obliged by a contract to perform a particular act, for the presumed advantage of the other, the former party may not be free to act in a manner which deprives the latter of the benefit that party was expecting to receive from performance of the act in question even if that act is not specifically prescribed by the contract (Greig and Davis, The Law of Contract, (1987) at 535-536)."
30 Applying that principle to the present case, I am satisfied that there was an implied term that Village International would not act so as to deprive ICFC of the benefit of cl 15 of the amended consultancy agreement.
31 Accordingly, Village International's conduct, without contractual authorisation, of depriving Wesoky of any opportunity to direct and manage its cinema exhibition investments in any of the relevant territories breached the implied term.
32 The second claim to damages relates to ICFC's claim of breach of cl 15 of the amended consultancy agreement. ICFC claims cl 15 of the amended consultancy agreement entitled it to pay for the Equity Interest by way of a non-recourse loan which was required to be provided by Village International. It is common ground that Village International made new cinema investments in France that fell under Wesoky's direction and control for the purposes of cl 15(a). Village International claims that it offered an Equity Interest in those investments to ICFC, but that ICFC did not agree to accept the offer unless it received a non-recourse loan from Village International to enable it to pay for the interest. Village International contends that, as it was under no obligation to offer to provide or to provide a non-recourse loan, it has not breached cl 15.
33 It is common ground that the parties agreed that the detailed terms and conditions on which the Equity Interest was to be provided were to be set out in the consultancy agreement which was to be prepared by the Village group. It is clear that the precontractual negotiations between the parties proceeded on the basis that Village Roadshow, as the employer, was to provide a non-recourse loan in respect of the Equity Interest to be offered to ICFC. However, as those negotiations consist of statements and actions of the parties which are reflective of their actual intentions and expectations, they are not receivable as an aid to construction as they reveal the terms of the contract the parties intended or hoped to make rather than those they actually made: see Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 per Mason J.
34 The relevant matrix of facts within which the clause should be construed is not in dispute and appear substantially in the contract in any event. Village Roadshow, and later Village International, wished ICFC to procure Wesoky to act as the managing director of their cinema operations in France and such other territories in Europe as were nominated by Village Roadshow or Village International from time to time. The Village group had no existing cinema operations in France but was desirous of employing Wesoky to direct and manage the substantial new investments in cinemas in France that it wished to make. As explained above, the offer to ICFC of the Equity Interest in the new investments was a significant aspect of the remuneration package. Clause 15(b) stated that it was anticipated that Village Roadshow's investment in cinema exhibition in Europe up to December 2000 "will be substantial". In precontractual correspondence Kirby stated to Wesoky that the group was looking to invest US$200,000,000 in new cinema investments in the area of Wesoky's responsibility during the term of his proposed employment.
35 The proper construction of cl 15 is not without difficulty. The difficulty arises, in part, from the fact that the contract appears to have been drafted within the Village group on the basis of other employment agreements and without any specific legal assistance concerning cl 15. Clause 15(a) requires Village International to offer to ICFC or its nominee no less than a five percent Equity Interest in all new cinema exhibition investments in Europe falling under the direction and management of Wesoky while the agreement is current. Clause 15(c) provides that, should ICFC agree to accept the Equity Interest in any particular cinema territory offered by Village International, then ICFC "must pay for the relevant Equity Interest at the same time as [Village International] makes its investment in the relevant cinema project". It is clear from the combined operation of cll 15(a) and 15(c) that Village is required to make a specific offer to ICFC of the right to acquire an Equity Interest in each particular investment to which it is committed and which falls within cl 15(a). When Village International makes its offer it must determine whether the amount of the interest to be offered is five percent or in excess of five percent. ICFC must accept or reject Village International's offer within a reasonable time after it has been made. If ICFC agrees to accept the offer of the Equity Interest it is obliged to pay for it at the same time as Village International makes its investment in the relevant cinema project. Thus, by implication, the offer must be made in precise terms, which are capable of acceptance, so as to create legal obligations in respect of the Equity Interest.
36 The dispute in the present case relates to the operation of cl 15(d) and, in particular, as to whether that sub-clause requires Village International to offer a non-recourse loan to ICFC. ICFC and Wesoky contend that the only sensible construction of the sub-clause is one which requires Village International to offer to provide ICFC with a non-recourse loan on "commercial terms and conditions secured against the assets constituting [ICFC's] Equity Interest". It is then open to ICFC to accept or reject the offer. ICFC and Wesoky contend that the stipulation in cl 15(d) that the company's preparedness to provide the loan is "subject to the mutual agreement of both parties" only relates to the "commercial terms and conditions" on which the non-recourse loan is to be offered, and not to whether there is to be an obligation to offer a non-recourse loan.
37 Village International contends that the words "subject to the mutual agreement of both parties" are a pre-condition to the company's obligation to offer a non-recourse loan as well as to the terms and conditions on which the loan is to be made. Accordingly, it contends that the clause is an unenforceable agreement to agree in respect of the non-recourse loan: see Masters v Cameron (1954) 91 CLR 353 at 362-363.
38 The offer of a non-recourse loan is a matter of considerable significance, particularly in light of the substantial sums expected to be involved in any proposed investment. A non-recourse loan would result in a risk free investment opportunity to ICFC and, as such, would be a significant benefit provided to ICFC.
39 There may be a real question as to whether cl 15 is void for uncertainty. However, uncertainty has not been pleaded or argued by Village International and, on balance, I have concluded that the clause can be given a meaning that accords with the intent of the parties, as disclosed by the language they have employed, that is sufficiently certain to create enforceable rights and obligations.
40 It is of course understandable that Village International would not agree to commit itself to making a non-recourse loan without the commercial terms and conditions upon which the loan was to be made being ascertained. The significance of such terms, such as interest rates, was that recoupment was available to Village International out of the asset constituting the Equity Interest even if there was to be no recourse to ICFC until after the term of the agreement: see cll 15(d). It is implicit that under cl 15 Village International is to offer commercial terms and conditions that are appropriate to the investment made. Accordingly, to construe the provision as obliging Village International to provide a non-recourse loan which is subject to mutual agreement being reached on its commercial terms and conditions is consistent with both the intent of the parties as disclosed by the words they have used, and the object of the Equity Interest being financed by Village International as a benefit forming part of ICFC's and Wesoky's remuneration package. Moreover, such a construction will also give the operation of the clause business efficacy.
41 However, the same cannot be said in respect the submissions of Village International that, under cl 15(d), there is no obligation to offer a non-recourse loan. Village International's interpretation would render cll 15(d), 15(e), 15(f), 15(g) and 15(h) otiose as there is no reason to specify in detail or at all in an agreement to agree, terms and conditions which have no legal force or effect and which may, or may not, form part of a loan offer by Village International or a loan agreement between it and ICFC. Put another way, if the parties intended that Village International was to have an unfettered discretion as to whether or not to offer a non-recourse loan, and as to its terms, there would have been no need to set out any of the terms contained in cll 15(d) to 15(h) as those matters were all to be the subject of future agreement. For example, the provision that a fundamental condition of such finance was that net profits arising from the Equity Interest be offset against the interest charges of the non-recourse loan was entirely unnecessary if it remained to be agreed whether there was to be such a condition or not. The same can be said in respect of each of the other terms and conditions the parties have so carefully set out in other sub-paragraphs of cl 15.
42 I do not accept that cl 15, construed in its proper factual matrix, reflects an intention by the parties that Village International's stated preparedness to finance the Equity Interest by a non-recourse loan on commercial terms and conditions was subject to mutual agreement on whether there was to be such a loan.
43 Clauses 15(f) and 15(g) were relied upon by Village International to disclose such an intention. In the sub-clauses there is reference to the possibility that the loan might not be one which is without recourse. However, the references do not necessarily mean there was to be an option about non-recourse financing. Rather, they refer to the fact that whether there will be non-recourse financing depends on whether the offer is accepted and, in any event, any loan made reverts to recourse financing at the end of the term of the agreement.
44 For the above reasons I am of the view that by cl 15 the parties intended to impose legally enforceable rights and obligations on Village International in respect of the provision of a non-recourse loan to enable ICFC to meet its obligation to pay for the Equity Interest. In an endeavour to give effect to that intention the rights and obligations imposed by cl 15, on its proper construction, are as follows:
· Village International is required to make an offer of an Equity Interest to ICFC in respect of investments falling within cl 15(a);
· Village International and ICFC are required to contribute, proportionately to their pro rata shares, towards all payments which are required to be made in respect of each investment which has been offered to ICFC under cl 15(a) and which ICFC has agreed to accept;
· the obligation of ICFC to pay its contribution can be satisfied by its acceptance of a non-recourse loan from Village International which Village International is required to offer in accordance with the terms and conditions set out in cl 15(d)-15(h);
· the offer of the non-recourse loan required to be made by Village International must state the other "commercial terms and conditions" on which the loan is to be made;
· the terms and conditions must be "commercial" in the sense that they are consistent with the interest rates etc prevailing at the time the investment is made but, otherwise, they must accord with the requirements stipulated in cl 15 in respect of the loan, such as no recourse (cl 15(d)), offsets of interest charges against income from the investment (cl 15d) and the other matters provided for in cll 15(e)-15(h).
· after an offer is made by Village International in accordance with the above requirements ICFC is required to accept the offer (in which case Village International will finance the Equity Interest) or reject the offer (in which case ICFC must pay for the Equity Interest).
45 It is not clear from the amended consultancy agreement what would happen if the parties were in dispute as to whether the terms and conditions offered were "commercial". ICFC and Wesoky contended that such a dispute could be resolved by the dispute resolution procedure in cl 17 which provides for disputes between Wesoky and Village International to be submitted to a mediator and, failing agreement, to an arbitrator. However, cl 17 only relates to a dispute between Wesoky and Village International and not to a dispute between ICFC and Village International. The probable answer is that as long as the relevant terms and conditions are "commercial" then Village International will have discharged its obligation to offer a non-recourse loan.
46 It is sufficient for present purposes for me to conclude that, on its proper construction cl 15(d) imposes upon Village International an obligation to offer a non-recourse loan to ICFC in respect of each investment in which ICFC agrees to participate in accordance with any offer that is required to be made to it under cl 15(a). Thus, the "mutual agreement" that is required before the loan is required to be provided is as to the "commercial terms and conditions" of the loan and not to any of the other matters which have been stipulated by the parties in cl 15 to apply to the loan.
47 A further ground that would support my conclusion is the contra proferentem rule, the justification for which was recently said to be that "a person who puts forward the wording of a proposed agreement may be assumed to have looked after his own interests so that if the words leave room for doubt about whether he is intended to have a particular benefit there is reason to suppose that he did not": see Tam Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd [1996] 2 BCLC 69 per Lord Mustill at page 77 and see generally "Chitty on Contracts" (Vol 1: General Principles) paragraph 12-077 to 12-083 and "The Interpretation of Contracts", Lewison (2nd Edition) paragraph 6.07. Applying this rule to the present case, it may be assumed that the Village group did not intend to have the benefit of having an option as to whether or not to make a non-recourse loan.
48 It is common ground that the only offer that Village International made to ICFC under cl 15 was the offer contained in a letter sent by Simon Phillipson ("Phillipson"), who acted as general counsel for the Village group, to John Dellaverson ("Dellaverson"), Wesoky's attorney in the United States on 10 June 1999. That letter, relevantly, stated:
"We have now compiled the information relating to the sites in which Charles Wesoky claims a 5% interest…
Of the sites listed, Balexert, Lingostiere and Boulogne-Bilancourt are under construction…
Please confirm that Charles is prepared to pay 5% of the development costs to date in relation to those sites and is also willing to pay 5% of the expected costs required to complete those development sites…
Village Roadshow is not prepared to provide finance for Charles."
49 It is also common ground that ICFC wished to participate in the Equity Interest to which it was entitled but required that Village International agree to provide a non-recourse loan in accordance with cl 15. The continuing refusal by Village International to offer to provide a non-recourse loan is a breach of its contractual obligations to ICFC under cl 15.
50 Thus, in two significant respects Village International breached its contractual obligations under the amended consultancy agreement. First, it required that Wesoky cease to perform any duties in relation to the activities of Village International in France. In particular, there was a breach of the obligation to provide Wesoky with any duties that related to the direction and management of new cinema exhibition investments in France, and not to deprive him of the opportunity of engaging in such duties. Second, Village International refused to offer a non-recourse loan to enable ICFC to acquire the Equity Interest to which it was entitled to be offered by Village International.
51 The breaches cumulatively establish that Village International has only been prepared to perform its contractual obligations in a manner substantially inconsistent with the manner in which it was required to perform them and has thereby repudiated the amended consultancy agreement: see Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited (1989) 166 CLR 623 at 647-648 and Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWR 326 at 354.
52 ICFC and Wesoky were entitled to accept the repudiation, thereby bringing the amended consultant agreement to an end, which they did by notice with effect from 16 November 1999.
53 The breach relating to the failure to provide work was clearly established by April 1999. At the time the parties agreed that, while they may agree to disagree on whether there had been breaches of the amended consultancy agreement by Village International, it was in their mutual interests for Wesoky to seek alternative employment opportunities and thereby mitigate any loss that ICFC or Wesoky might suffer if there was a breach. However, it was made clear by each party to the other that by doing so the parties were reserving all of their rights under the agreement, including ICFC and Wesoky's right to contend that Village International was in breach. I am satisfied that although ICFC continued to accept payments under the agreement until 15 November 1999, it did so on the basis that neither it nor Wesoky were acquiescing in, or waiving any of their rights in respect of, the breaches they alleged were being committed by Village International. Those breaches were continuing as at 15 and 16 November 1999 when ICFC and Wesoky were entitled to rely upon them to terminate the agreement.
54 A similar situation applied in respect of the breaches of cl 15. At no time did ICFC acquiesce in any breach, or waive any of its rights, in respect of Village International's refusal to offer a non-recourse loan. Indeed, the first occasion on which Village International stated its position in respect of those matters was on 10 June 1999. It maintained its refusal thereafter. It follows from the foregoing that I reject Village International's submission that Wesoky and ICFC waived their rights in respect of Village International's breaches.
55 Accordingly, on 15 November 1999 ICFC and Wesoky were entitled to treat Village International as breaching its contractual obligations in a manner that entitled them to accept the breaches as a repudiation thereby terminating the amended consultancy agreement.
56 It must follow that ICFC and Wesoky are entitled to claim damages for breach of contract. It is unnecessary for present purposes for me to ascertain what those damages are but they may include:
· the difference between what ICFC and/or Wesoky were entitled to be paid under the amended consultancy agreement and the amount they (or their equivalent interests) received from activities in relation to the Europlex project for the period from 15 November 1999 to 30 November 2000 when the five year term of the agreement was due to end;
· the loss of the opportunity to obtain, with a non-recourse loan under cl 15, no less than a five percent Equity Interest in new cinema exhibition investments falling within the provisions of the clause.
Section 52
57 The s 52 claim took an unusual course. Initially, the claim was based on an allegation that senior executives of the Village group had represented to Wesoky that the Village group (or the relevant employer entity in the group) intended to and would be obliged to provide a non-recourse loan to enable the acquisition of the Equity Interest, but that there was no such intent. Until the last of the witnesses called by Village International it seemed that the s 52 claim was misconceived as no witness called by Village International suggested that it was not his intent that a non-recourse loan in respect of the Equity Interest was to be offered.
58 The evidence then took an unexpected course. The last witness called on behalf of Village International was Mr Peter Foo ("Foo"), the finance director of the Village group. In that capacity, Foo, who does not appear to be legally trained, was responsible for negotiating and preparing the original and the amended consultancy agreements. Prior to Foo giving evidence it had not been suggested by the Village group in any correspondence, in any of the numerous affidavits filed and relied upon by Village International or in the course of any of the oral evidence by Village International's witnesses that in pre-contractual negotiations any officers in the Village group had informed ICFC or Wesoky that the Village group did not intend to be obliged to provide a non-recourse loan to finance the Equity Interest which was to be granted in respect of new cinema exhibition opportunities developed by Wesoky. The offer of a non-recourse loan had featured prominently in the negotiations between Wesoky and Kirby. In his evidence Kirby stated that the equity offer he had made to Wesoky was generous and unprecedented but that he regarded it as appropriate as he was keenly seeking Wesoky's services. On 14 November 1995 Kirby confirmed in writing the basics of "the deal" that he had made with Wesoky in New York. The facsimile included the following statement:
"Village Roadshow would finance a 5% equity in new exhibition opportunities for you personally (we are looking to invest US$200m over the next 3-5 years)."
59 Wesoky responded by a facsimile dated 17 November 1995. He thanked Kirby for the outline of "the deal" and enclosed a summary of employment terms that were to be discussed when Wesoky visited Melbourne late in November 1995 to finalise the details of his employment. Under the heading of "Equity" the summary stated:
"No less than a 5% equity interest will be granted to employee by company in all new exhibition opportunity investments (expected to be a total of $200 million) over the next three to five years."
60 Late in November 1995 Wesoky had a series of meetings in Melbourne, culminating in a meeting with Foo at which he was to discuss the detail of his contract. In his affidavit Wesoky stated that at his meeting with Foo he enquired how the Equity Interest was to work. He stated that Foo replied:
"We advance the costs of the capital in the tax effective means. Then the percentage of the interest rate on the amount of the total investment would be at reasonable commercial terms. A five percent annual equity would have a pay out based upon cashflow of each of the cinemas that you initiate. The loan would be non-recourse at commercial rates. It will be spelled out in the contract."
61 Wesoky's contemporaneous notes of his discussion with Foo indicate that Wesoky was told that there was to be no personal recourse on the loan, which was to be on commercial terms, but that when his employment was finalised with Village, after five to ten years, the loan was to be refinanced with recourse at a commercial rate. Foo's own contemporaneous handwritten note in respect of the same discussion stated:
"Equity will be by way of non-recourse one."
62 The formal documentation of the original consultancy agreement took some time. Foo had ultimate responsibility for the drafting of the agreements. Foo sent the first draft agreement to Wesoky on 15 March 1996. By that time Wesoky had already taken up his employment with Village Roadshow in France. The facsimile enclosing the agreement stated:
"Please find enclosed your draft contract of employment. I hope all is in order and as per our discussions back in December. Please ring or fax me if there is anything I have missed or you recollect differently."
63 Wesoky sought some legal assistance in respect of the contract although it appears that no specific advice was given to him concerning cl 15. The correspondence concerning various details of the consultancy agreement included a letter dated 10 July 1996 from Foo to Wesoky. The letter referred to the possibility of Wesoky's Equity Interest frustrating a float and stated:
"We cannot countenance the scenario whereby a float could be frustrated by your small equity percentage especially since we have funded this. This clause must remain as is as it gives us certainty."
64 Wesoky agreed to the relevant clause remaining in its drafted form. The original consultancy agreement was finally executed on 24 October 1996.
65 It is plain from the foregoing summary that the clear intent of all of the parties was that one of the significant attractions of the package offered to Wesoky and ICFC was a non-recourse loan to finance the Equity Interest that was to be offered by the Village group in respect of its new cinema exhibition investments in France. There is also clear evidence that Wesoky and ICFC relied upon the representations made by officers of the Village group about the provision of a non-recourse loan.
66 Foo swore an affidavit in these proceedings in response to Wesoky's first affidavit. Foo's affidavit, which was sworn on 24 February 2000, denied that he had stated to Wesoky at the November 1995 meeting that:
"Village would simply fund an investment by way of a loan on a non-recourse basis at commercial rates at any time for an unlimited period."
67 Foo's statement was literally correct as Wesoky was told that the non-recourse loan would revert to a recourse loan, for which he would undertake personal liability, at the conclusion of his term of employment after five or ten years depending on whether Village's options for renewal were exercised.
68 In his affidavit Foo added:
"Any funding of an investment would be dependent upon the circumstances at the time and dependent upon the parties coming to a mutual agreement as to any such loan."
69 Foo did not state that he informed Wesoky of the view expressed by him in his affidavit on the funding of an investment.
70 Wesoky prepared a further affidavit in response to Foo's affidavit making it clear that at no time had anyone ever suggested to him that the financing of his Equity Interest would be other than by a non-recourse loan made available to him by Village. Foo did not respond to Wesoky's further affidavit until he gave evidence as the last witness called on behalf of Village International. By that time senior counsel for Village International had cross-examined Wesoky and put to him the first statement referred to above that had been made by Foo in his affidavit. Although Wesoky did not agree with the statement, senior counsel did not put to Wesoky that Foo had told Wesoky that Village would not commit itself to a non-recourse loan in respect of Wesoky's Equity Interest. It may be inferred that, at that stage, it was not being put as part of Village International's case that any such statement had been made. Plainly, the making of any such statement would be a complete answer to the s 52 case being put against Village.
71 In his oral evidence Foo said that at the November 1995 meeting he informed Wesoky in clear terms that Village would not commit itself to a non-recourse loan as that would depend upon the circumstances prevailing at the time. That was the first occasion on which any such allegation had been made. Foo was challenged by senior counsel for ICFC and Wesoky in respect of his evidence. Foo was accused of, but denied, recent invention.
72 I do not regard Foo as offering any satisfactory explanation for why his contemporaneous written records (which were consistent with Wesoky's written records and evidence) differed from his recollection in the witness box, some five years later, of the same events. I found Foo's evidence unconvincing and have no hesitation in finding, on the probabilities, that Foo did not state to Wesoky that Village was not prepared to commit itself in advance to a non-recourse loan.
73 However, Foo's evidence has a more sinister aspect to it. It appears that he did have a concern about the Village group committing itself to a non-recourse loan. Although I do not accept that he communicated his concern to any other executive officers of the Village group at the time, the inference I draw from his evidence is that in the course of drafting the consultancy agreement Foo endeavoured to cloud the issue in the drafting of cl 15. It appears that, in that way, Foo may have thought that he might reserve for Village's benefit the option of whether or not to grant the non-recourse loan.
74 The foregoing summary raises the issue of whether the conduct of officers of the Village group in relation to the events I have outlined is misleading and deceptive. I have referred to conduct of officers of "the Village group" as it is clear that Foo's executive role in relation to the drafting of the consultancy agreement was such that his intent and commitment was the intent and commitment of the companies in the Village group that were involved in ICFC's and Wesoky's engagement: see Krakowski v Eurolynx Properties Limited (1995) 183 CLR 563 at 582-583.
75 However, the respondent to the s 52 claim is Village International, which played no apparent role in the negotiations leading to the original consultancy agreement and only became liable to ICFC and Wesoky under the amended consultancy agreement. It may well be that the conduct of officers of the Village group bound Village International if its entitlements and liability under the amended consultancy agreement were subject to such rights, under the TPA, as then existed in respect of the original consulting agreement. However, no issue was raised as to want of parties nor did Village International plead or contend that the Court cannot or ought not to make orders against Village International if the s 52 case pleaded by the applicants succeeds. As a result these issues were not explored or argued.
76 The misleading and deceptive conduct relied upon by ICFC and Wesoky may be summarised as follows:
· the Village group had represented both orally and in writing that it intended to and was committed to provide non-recourse finance to fund the Equity Interest;
· the representation was a continuing one and therefore was operative at the date each of the consultancy agreements were entered into;
· the Village group was aware that ICFC and Wesoky agreed to enter into the consultancy agreements on the basis of, and in reliance upon, the Village group's representations;
· the Village group had also represented that the obligation upon it to provide non-recourse financing was to be incorporated into the contract;
· the Village group represented that the obligation to provide non-recourse financing had been incorporated into the contract;
· Foo, acting on behalf of the Village group, had formed the intent that the Village group was not to be obliged to provide non-recourse financing;
· Foo prepared the contract with that intent in mind;
· when the Village group, ICFC and Wesoky executed the contract, Foo, acting on its behalf, no longer had a present intention that the Village group intended to provide, and was committed to providing, non-recourse financing;
· Foo refrained from informing Wesoky or ICFC of the Village group's change of intention and commitment or of the significance of Foo's role in drafting of the agreement concerning non-recourse financing.
77 Foo was an unsatisfactory witness and I have not accepted his evidence concerning the statements he said be made to Wesoky at the November 1995 meeting. However, I am prepared to infer that Foo believed that the Village group should not commit itself to providing a non-recourse loan and that that belief led him to draft cl 15 in a manner that created ambiguity, so as to leave it open to the Village group to contend that it is not obliged to provide non-recourse finance. I am satisfied that Foo was aware of the assumption being made by all other parties, including officers of the Village Group, that there was to be a commitment to non-recourse financing and he deliberately refrained from disclosing his intentions to ICFC and Wesoky. Those matters assist in explaining the interpretation difficulties that have arisen in respect of cl 15.
78 In Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd (1998) 155 ALR 714 Finkelstein J considered the circumstances in which a failure to disclose information can constitute misleading and deceptive conduct. His Honour observed at 722:
"It is clear that a failure to provide information can be conduct which is misleading or deceptive. For the purposes of s 52(1) "engaging in conduct" is defined in s 4(2)(a) as a reference to doing or refusing to do any act and by s 4(2)(c) a reference to refusing to do an act includes a reference to refraining (otherwise than inadvertently) from doing that act.
However, when the complaint is that s 52(1) has been infringed by conduct that involves either refusing or refraining from doing an act before that conduct is actionable it must have been deliberately engaged in. Bowen CJ in Rhone-Poulenc Agrochimie SA v Uim Chemical Services Pty Ltd (1986) 68 ALR 77 at 84 said this followed from the use of the words "refuse" and "refrain" in s 4(2). This conclusion is reinforced by the fact that by s 4(2)(c) conduct includes the refraining from doing an act provided it is "otherwise than inadvertently": see also Edgar & Ors v Farrow Mortgage Services Pty Ltd (in liq) [1992] ATPR 46-096 at 53,375; Zaknic Pty Ltd v Svelte Corporation Pty Ltd (1996) ATPR 46-159 at 53362; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 42; Diversified Mineral Resources NL v CRA Exploration Pty Ltd (1995) ATPR 41-381 at 40,284."
and at 722-723:
"Section 52(1) has brought about an important change to this common law position. In Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 at 88 Samuels JA said that now:
'…silence is not misleading only when there is a duty to disclose at common law or in equity. It may simply be the element in all the circumstances of the case which renders the conduct misleading or deceptive.'
See also Demagogue 39 FCR 31 at 40-41, Rhone-Poulenc 12 FCR 77 at 85. One circumstance where the failure to provide information will constitute misleading or deceptive conduct is where the circumstances of the case give rise to a reasonable expectation that if a relevant fact exists it will be disclosed: Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR 46-054 at 53,195. In Demagogue, supra, at 41 Gummow J put the matter this way:
'But, consistently with regard to the natural meaning of the terms of s 52, the question is whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive.'"
79 Finkelstein J found that once the applicant had notified the respondent of its particular concerns about the use of chemicals that might be harmful to his tomato crop, it became incumbent on the respondent to disclose all the chemicals that it used in order to enable the applicant to decide whether to engage or continue to engage the respondent. In that case the s 52 claim failed as there was not a deliberate withholding of information.
80 Counsel for Wesoky and ICFC relied upon comments by Giles J in Asea Brown Boveri Pty Ltd v Burns Philp Trustee Co Ltd (unreported, Supreme Court of New South Wales, 23 April 1990, No 50361 of 1989, Giles J). In that case his Honour recognised at [20] that, if A wrongly represents to B that the document presented for signature records the agreement that they had reached, A may be said to have engaged in misleading and deceptive conduct.
81 In the present case Foo was aware that Wesoky and ICFC had been informed by the senior officers of the Village group that it intended to provide and was committed to providing a non-recourse loan to finance the Equity Interest and would prepare a contract to give effect to that intent. It became incumbent upon Foo to inform Wesoky and ICFC of the change of the intent and commitment and of his endeavour to leave that question open in his drafting of the contract. Unlike the situation in Costa Vraca, I am satisfied that Foo deliberately refrained from providing that information.
82 Village International contended that Wesoky and ICFC did not rely on Foo's conduct as they proceeded on the basis of their own legal advice on the consultancy agreements and formed their own views on cl 15. However, I am satisfied that Foo's conduct was causally linked to the execution of the original and the amended consultancy agreement by ICFC and Wesoky. Induced by the representations of Foo and other officers of the Village group ICFC and Wesoky believed, with good reason, that the consultancy agreement provided that non-recourse finance would be provided. If they had doubted that commitment, or had reason to do so, I am in no doubt they would have required an unambiguous statement of an entitlement to non-recourse finance. I do not accept that they failed to take reasonable care of their interests (see Parkdale Custom Built Furniture Proprietary Limited v Puxu Proprietary Limited (1982) 149 CLR 191 at 199). They sought legal advice concerning the original agreement in circumstances where they had no reason to doubt the assurances they had been given concerning non-recourse finance. ICFC and Wesoky were unaware of the fact that cl 15 was drawn in a manner that clouded that issue and left its operation unclear.
83 I am satisfied that the evidence establishes the essential elements of the misleading and deceptive conduct on the part of officers of the Village group that has been relied upon by ICFC and Wesoky. The totality of that conduct is misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act.
84 However, as I have concluded that, on the proper construction of the amended consultancy agreement, Foo did not succeed in his endeavours, there is no need to grant any relief in respect of the s 52 claim as the misleading and deceptive conduct did not result in any loss and damage. It is also unnecessary to determine whether Village International is liable in respect of that claim. Further, as a result of the same conclusions, it is unnecessary for me to consider the argument that Village International is estopped, by reason of the precontractual negotiations, from relying on the terms of the contract which are contrary to the intent expressed in those negotiations: see Whittet v State Bank of New South Wales (1991) 24 NSWLR 146 and State Rail Authority (NSW) v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 cf Skywest Aviation Pty Ltd v Commonwealth of Australia (1995) 126 FLR 61.
Breach of contract by Wesoky
85 Village International's case of breach by ICFC and Wesoky is based upon obligations imposed upon them during the term of the amended consultancy agreement not to engage in any activity which may reasonably be considered to give rise to a conflict of interest (cl 2g); not to be engaged, employed, concerned or interested directly or indirectly in any business activity of the type in which Village International is concerned (cl 3b) and not to be directly or indirectly concerned or interested in any business in competition with Village International (cl 11a).
86 It is contended by Village International that, although on "garden leave", ICFC and Wesoky continued to be obliged to comply with each of the above provisions and that they breached the provisions by reason of Wesoky's participation in the Europlex project. The extent to which "garden leave" may be used to freeze an individual's work skills and capacities was raised in William Hill at 301-302 Morritt LJ. His Lordship observed that the courts might have to approach "garden leave" provisions with a consciousness that their enforcement should not be to a greater extent than would be covered by a justifiable covenant in restraint of trade previously entered into by an employee.
87 At the outset it is necessary to identify the conduct said to have been in breach of the amended consultancy agreement. Wesoky's establishment of the Europlex project during his "garden leave" involved three elements. The first was seeking out the opportunity. The second was an agreement in principle made pursuant to a letter proposal dated 12 July 1999 to proceed to negotiate the terms of the formal agreements that were necessary to establish the project. The third element was the execution of the formal agreements on 10 November 1999. After their execution the agreements were held in escrow subject to the condition that they were not to be binding or to have any force or legal effect until ICFC and Wesoky gave notice terminating the amended consultancy agreement. Thus, the formal agreements were only to become operative and binding as from 16 November 1999 after notice terminating the amended consultancy agreement had been given. As I have held that the notice was effective to terminate the agreement as a result of Village International's breaches, its entitlement to treat ICFC and Wesoky as also being in breach depends on whether the steps taken by them prior to 16 November, which were preliminary to reaching a final and binding agreement in relation to the Europlex project, breached the amended consultancy agreement.
88 For present purposes I will assume, without deciding, that the conduct in question was capable of constituting breaches of the consultancy agreement. ICFC's and Wesoky's defence to the claim of breach was that the conduct engaged in was expressly authorised by Village International which is therefore now estopped from claiming that the same conduct breached the amended consultancy agreements.
89 My findings of fact on the question of authorisation are as follows.
90 In without prejudice communications in which the parties sought to agree upon a mutually satisfactory basis for the termination of the amended consultancy agreement, the Village group accepted that Wesoky and ICFC were entitled to the compensation and other benefits provided for in the agreement. It was not suggested that the Village group intended, or had any grounds, to terminate the agreement for cause.
91 At a meeting between John Crawford ("Crawford"), Executive Chairman of Village International and Wesoky on 12 February 1999 they discussed how the termination of the consultancy agreement would proceed. The minutes disclose that Crawford said that "if [Wesoky] wanted to use this time to get industry exposure by letting 'companies/executives' know that his contract is ending that would be fine". He also said that he was comfortable with Wesoky attending a cinema industry convention in Las Vegas in March 1999. The convention was one in which opportunities with companies engaged in the industry could be sought. Crawford stated in his affidavit that in the conversation it was agreed that, were Mr Wesoky to consider any other employment, he would need to terminate his agreement with Village prior to taking up that employment.
92 On 24 March 1999 Dallaverson corresponded with Crawford, stating that while Wesoky was prepared to accept the requirement that he no longer appear at work, he required a written undertaking from Crawford that "unless and until complete settlement is reached [the Village group is'] committed to honour all the terms in Mr Wesoky's current agreement". By a further letter dated 31 March 1999 Dellaverson reiterated that, although Wesoky would comply with the order to leave his office, "the consequences of that act will be determined at a later time".
93 The question of the entitlement of Wesoky to seek other employment opportunities was also raised in communications between Dellaverson and Phillipson. On 20 April 1999 Phillipson told Dellaverson that, as far as the Village Group was concerned, Wesoky could go out and look for other future employment opportunities and that would not be regarded as a breach of his agreement with Village, but that before Wesoky accepted any such employment he should come to an agreement with the Village group concerning the termination of his agreement.
94 On 30 April 1999 Dallaverson wrote to Phillipson confirming the conversation, stating:
"…notwithstanding any provision of [Wesoky's] current agreement with you, he is free to discuss employment and/or business opportunities with others, but is not free to accept any potentially competing offer unless and until we come to an agreement. You have also assured me that his non appearance at work is at your request and has no impact on his obligations under his agreement, i.e. the company presumes he is always ready, willing and able to perform."
95 By Phillipson's responding letter dated 3 May 1999 he confirmed the arrangements in relation to Wesoky's "discussions with potential employers".
96 Phillipson sent a further letter on 6 May 1999 in which he complained about Wesoky's continued presence in the Rome office and stated that Wesoky should no longer be attending that office. He added:
"As you are no doubt aware Village Roadshow is unlikely to agree to Charles working for a competitor if he has current information obtained from his being present at the office."
97 On 25 May 1999 Phillipson wrote to Dellaverson confirming that the Village group would like Wesoky to resign his position as an officer and director of Village International, stating:
"…this will in no way prejudice his entitlements under his agreement."
98 It is clear from the communications and correspondence to which I have referred that Wesoky and the Village group regarded it as being in their mutual interests for Wesoky to seek alternative employment opportunities so as to enable the consultancy agreement to be terminated as soon as possible. The Village group saw it as in its interest for Wesoky to obtain alternative employment so it would cease to be liable to make the payments it was obliged to make to ICFC under the amended consultancy agreement. The arrangement was also beneficial to Wesoky as he wished to use his skills to further his career prospects and had no desire to be placed on "garden leave".
99 It is also clear Wesoky's endeavours to seek alternative employment were not to be regarded by the parties as a waiver of any of ICFC's or Wesoky's rights under the amended consultancy agreement, including the right to receive the payments that were required to be made under that agreement.
100 All of the parties reserved their rights under the amended consultancy agreement, save that officers of the Village group, acting on behalf of Village International, agreed that Wesoky was entitled to seek out alternative employment opportunities in the cinema exhibition industry in order to enable an early termination of the amended consultancy agreement.
101 Senior counsel for Village International contended that the agreement was limited to permitting enquiries in relation to the opportunities that were available and did not extend to reaching an agreement, whether conditional or not, accepting employment with another company in the cinema exhibition industry. Although it was agreed that a final agreement with an alternative employer was not to be concluded, in the sense of being legally binding, until ICFC and Wesoky had terminated their contract with Village International, in my view the agreement reached permitted Wesoky to undertake all the anterior steps necessary to reach agreement with an alternative employer. When Wesoky's skills, background and experience are considered it was clear to the Village group, and it must be taken to have been accepted by it, that his negotiations concerning future employment would inevitably be with the Village group's competitors.
102 I do not accept Village International's contention that there was some express or implied limitation on the employment opportunities that Wesoky was entitled to seek. It was suggested by senior counsel for Village International that the opportunities were to be restricted to employment in the strict sense, that is a contract of service, and did not extend to establishing the Europlex project in respect of which Wesoky was to be employed as a consultant with an equity interest in the project. The Village group's experience with Wesoky was such that it must be taken to have accepted that any alternative employment found by Wesoky was likely to involve him in some entitlement to an equity participation. Whether the terms of the equity participation were in the nature of the joint venture or by way of additional remuneration was not a matter of any concern to the Village group.
103 I am satisfied that the employment opportunity sought out and obtained by Wesoky in relation to the Europlex project was the kind of employment that the Village group would have expected Wesoky to endeavour to obtain when it agreed that he was to be entitled to seek other employment opportunities. In the present context I regard the distinction sought to be drawn by Village International between "employment" and "business" opportunities as a distinction without a difference. In my view there can be no legitimate basis for Village International to claim that Wesoky's negotiations in relation to the Europlex agreement exceeded the authorisation given by Village International to Wesoky to seek alternative employment opportunities.
104 Village also pleaded that the employment of Wesoky under the post contractual restraint of trade clause (cl 3b) constituted a breach of the consultancy agreement. Village International did not adduce any evidence to justify the restraint in cl 3b as reasonable nor did it seek to argue that it was a reasonable restraint. Consequently, ICFC's and Wesoky's defence that the clause is void and unenforceable must be accepted as having been made out. The clause is a classic anti-competition restraint of trade provision that has been generally accepted as void and unenforceable.
105 Whether the agreement reached in relation to Wesoky seeking other employment opportunities is to be regarded as a variation agreement, acquiescence, estoppel or waiver, I am in no doubt that the conduct he engaged in was conduct agreed to and authorised by Village International and it is estopped from claiming that that conduct constituted a breach of the amended consultancy agreement. It follows that on 16 November the condition upon which the Europlex agreements were to be held in escrow was satisfied as the amended consultancy agreement with Village International had been terminated.
106 Accordingly, Village International's cross-claim based for breach of contract by ICFC and Wesoky fails and is to be dismissed.
Conclusions
107 For the above reasons I have reached the following conclusions:
· Village International breached the amended consultancy agreement by refusing to offer a non-recourse loan to ICFC, and by putting Wesoky on "garden leave" and is liable to pay the loss or damage (if any) suffered as a result of the breaches;
· ICFC and Wesoky were entitled to and did accept Village International's repudiation of the amended consultancy agreement with effect from 16 November 1999;
· ICFC and Wesoky did not breach the terms of the amended consultancy agreement as a result of their activities in relation to the Europlex project with the consequence that Village International's purported termination of the agreement was ineffective.
108 It is appropriate to grant declaratory relief to give effect to the above conclusions and in due course to give directions for a hearing of the damages claim.
I certify that the preceding one hundred and eight (108) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel.