Greenridge Botanicals (Aust) P/L v Nevin
[2000] QCA 498
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- Greenridge Botanicals (Aust) P/L v Nevin[2000] QCA 498
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Greenridge Botanicals (Aust) P/L v Nevin[2000] QCA 498
Greenridge Botanicals (Aust) P/L v Nevin[2000] QCA 498
SUPREME COURT OF QUEENSLAND
CITATION: | Greenridge Botanicals (Aust) P/L v Nevin & Anor [2000] QCA 498 |
PARTIES: | GREENRIDGE BOTANICALS (AUSTRALIA) PTY LTD ACN 010 633 100 (plaintiff/appellant) v JAY NEVIN and JUSTINE NEVIN (defendants/respondents) |
FILE NO/S: | Appeal No 9113 of 1999 DC No 52 of 1998 |
DIVISION: | Court of Appeal |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | District Court at Toowoomba |
DELIVERED ON: | 8 December 2000 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 9 October 2000 |
JUDGES: | Pincus and Davies JJA and Mackenzie J Judgment of the Court |
ORDER: | Appeal dismissed with costs. |
CATCHWORDS: | DAMAGES – MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT – GENERAL DAMAGES – GENERAL PRINCIPLES – DIFFICULTY OF ASSESSING DAMAGES – where appellant failed to give sufficient notice for termination of oral exclusive distribution agreement – where appellant in breach of implied term – consideration of the correct measure of damages for breach of contract – whether the evidence was sufficient to enable an assessment of the nett loss to be made – whether the damages awarded was a reasonable reflection of the nett loss suffered Hadoplane Pty Ltd v Edward Rushton Pty Ltd [1996] 1 QdR 156, applied Ray Teese Pty Ltd v Syntex Australia Limited [1998] 1 QdR 104, considered |
COUNSEL: | C E K Hampson QC with S D Rapoport for the appellant R J Douglas SC for the respondents |
SOLICITORS: | Davidson & Sullivan (Toowoomba) for the appellant Aitken McLachlan & Thorpe (Sydney) for the respondents |
- THE COURT: This is an appeal from a judgment given in the District Court on 21 September 1999. The appellant was the plaintiff in that action but the only issue in the action concerned the defendants' counter-claim it being admitted by the defendants that the plaintiff was entitled on its claim to $69,835.00. The respondents' counter-claim was one for breach of an alleged implied term of an exclusive distribution agreement between the parties that the respondents were entitled to six months notice of termination of the agreement. The existence of that term was not contested in this appeal, the only question being the measure of damages for its breach. The learned trial judge awarded $62,095.33 being the lesser of two alternative amounts contended for by the respondents ($69,835.90) less some commission which should have been allowed for.
- The appellant seeks a judgment in its favour on the respondents' counter-claim on two bases. The first involves contentions that the learned trial judge awarded damages on the basis of gross loss of profits (that is, commission) whereas the correct measure of damages was nett loss of profits (that is, commission less the expenses of earning that commission); that there was no evidence from which nett profits could have been inferred; and that consequently this Court is unable to assess damages on the correct basis. Secondly it is submitted that no credit was given by the learned trial judge for the respondents' earning capacity after termination of the agreement by the appellant. Alternatively, on the same bases the appellant seeks a retrial of damages with the qualification that this Court should first give the parties an opportunity to agree on the amount of damages in accordance with reasons stated by this Court.
- The respondents concede that the correct measure of damages is nett loss and that concession is undoubtedly correctly made: see Hadoplane Pty Ltd v Edward Rushton Pty Ltd.[1] However it contends that the result is nevertheless the same. The questions which arise therefore are whether the evidence is sufficient to enable an assessment of nett loss to be made and, if so, what that loss was. The learned primary judge appears to have assessed damages on the basis of gross loss or on the basis that there was no difference between the two.
- The facts on which these questions arise are not disputed. By an oral contract between the appellant and the first respondent in 1991 the parties agreed that the respondent would have the exclusive right to distribute the appellant's products in a defined territory for a commission of 20 per cent of gross sales, the consideration for the exclusive agency being $6,000 to be deducted from commission due. From time to time thereafter the territory gradually expanded so that, by the time the appellant terminated the agreement on 17 February 1998, which by then was with the respondents as partners, the territory included a large part of Sydney, Wollongong and the North Coast and New England areas of New South Wales. During the period of the agreement the gross sales by the respondents, of the appellant's products increased from about $24,000 per year in value to over $500,000. The agreement was terminated summarily by the appellant on the date already referred to.
- The respondents distributed products other than those of the appellant but the distribution of the latter's products represented a substantial but, in the period immediately prior to termination of the agreement, apparently declining proportion of their business. In the 1997 financial year, according to a table drawn up from the respondents' books by an employee of the appellant, it represented 60 per cent but in the seven months from July 1997 to January 1998 inclusive it represented a little less than 50 per cent. This was, in part, attributable to a seasonal decline in sales of the appellant's product during the summer months and, in part, to an increase in sales of other products. But there was no reason to think that, over the long term, sales of the appellant's products were declining. The evidence of Mr Michael, an accountant who examined the respondents' books of account and heard the male respondent give evidence, was to the effect that this upward trend continued up to the date of termination and his gross profit projections were on the basis that it would have continued thereafter. As we understood the appellant's argument no issue was taken with Mr Michael's evidence which was accepted by the learned trial judge.
- Towards the end of the 1997 calendar year the respondents acquired new premises, took on three new staff, spent about $5,000 in buying a computer and installing shelving in the new premises and leased a car for the use of one of the new employees, a sales representative. Their intention to do so was communicated to the appellant and the appellant's managing director responded personally and encouragingly.
- His Honour's assessment of the respondents' loss of profits over the six months period which he held should have been the notice period, was based on Mr Michael's calculations. He calculated a hypothetical gross profit figure, that is 20 per cent commission on gross sales, for that period by projecting as monthly sales over that period the monthly sales in the corresponding period of the 1998 year increased by the percentage by which those sales exceeded the sales in the corresponding period of the previous year and, where there were no actual sales for the 1998 year (that is, for April, May or June 1998), an average percentage increase of 8.15 per cent (the average increase over the months July 1997 to March 1998) was taken. As already mentioned, no issue is now taken with these calculations. However it is said, correctly, that they represent gross income, not nett income.
- Mr Douglas SC for the respondents, accepting that the appropriate basis for calculation is nett loss, points out that the outgoings which would have continued had the contract continued in existence did in fact continue. Indeed they increased in the period after February 1998. Having remained fairly stable over the period from July 1997 to January 1998 they then gradually increased from a little over $10,000 in January to a little over $21,000 in August. The new premises and equipment obtained were retained as were the three new employees. He submits therefore that at least the same expenses would be common to both the hypothetical and actual incomes during the notice period.
- Mr Hampson QC for the appellant submits that this expenditure was unreasonably incurred. The additional employees, whose wages appear to be the largest component of this increased expenditure, should, he submits, not have been retained after the agreement was terminated. However this was never put to the male respondent in cross-examination and he had explained that he retained those staff, in effect, in an attempt to retain and rebuild his business. His Honour found that, after termination of the agreement, the male respondent worked 16 hours a day attempting to replace the business which the respondents had lost. To this end he and his sales representative visited all the retailers to whom he had previously sold the appellant's products and that alone took about two months. That, he said, was necessary in order to maintain their confidence in the respondents as suppliers of goods of this kind.
- Mr Hampson also submits that the respondents' argument fails to take into account the profits earned by that expenditure which would not have been earned had the contract not been terminated. The real questions, it seems to us, are whether any and, if so, how much of that profit is profit which would not have been earned if the contract had continued and whether and, if so, to what extent it yielded a nett profit when regard is had to the increased costs of earning it already referred to.
- As already mentioned, well prior to the date of termination, sales of products other than those of the appellant increased. For example in the calendar year 1997 the monthly sales of such products were, in chronological order, $3,338, $4,272, $3,636, $11,288, $6,179, $6,124, $9,378, $7,719, $8,200, $12,208, $11,337 and $8,855. This shows a steady and substantial increase over the year. Moreover in January and February those sales were $10,153 and $12,753. When looked at in the light of this increase, the sales during the balance of the period of notice do not show any surprising leap. They were, from March to August 1998 inclusive, $14,140, $15,608, $19,260, $16,764, $22,049 and $17,962. It would be difficult to say, and it would no doubt involve an element of speculation, that any of this increase since mid-February 1998 was attributable to the respondents' increased capacity to sell other products in consequence of termination of the agreement. Moreover in view of the suddenness of the termination and the consequent need which the male respondent felt to visit personally all of his customers in an attempt to retain their custom, a task which alone took about two months, and the fact that new staff had been engaged only shortly before termination, there is reason to think that the respondents would have had less rather than more time in which to sell other products during the six months immediately following termination.
- In addition, as already mentioned, expenses increased during that period; and once the gross profit from the sale of the appellant's products was lost in consequence of the termination, they were not much less and sometimes more than gross profits. This can be seen by stating the expenses for each of the months from February to August, together with the gross profits for that month in parenthesis. They were $12,585 ($12,753), $13,099 ($14,140), $14,647 ($15,608), $17,205 ($19,260), $12,133 ($16,764), $22,257 ($22,049) and $21,002 ($17,962).
- In our opinion these facts demonstrate that:
- it was not unreasonable of the respondents in the circumstances of the case to retain, during the notice period, the services of the employees who had recently been engaged or the premises, equipment or car recently obtained;
- the respondents' expenses during the notice period continued at a gradually increasing level, and were probably no less than they would have been had the respondents retained the appellant's business;
- it was improbable that the respondents increased their sales of products other than those of the appellant during the notice period in consequence of the termination;
- in those circumstances the gross profit which would have been earned by the respondents during the notice period from the sale of the appellant's products but for the termination is a reasonable reflection[2] of the nett loss of the respondents during that period in consequence of the termination.
- The appeal should therefore be dismissed with costs.