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  4. Mad Dogs Pty Ltd (in liq) v Gilligan's Backpackers Hotel & Resort Pty Ltd (No 3) - [2015] QSC 319

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Mad Dogs Pty Ltd (in liq) v Gilligan's Backpackers Hotel & Resort Pty Ltd (No 3)[2015] QSC 319

Mad Dogs Pty Ltd (in liq) v Gilligan's Backpackers Hotel & Resort Pty Ltd (No 3)[2015] QSC 319

 

SUPREME COURT OF QUEENSLAND 

 

CITATION:

Mad Dogs Pty Ltd (in liq) v Gilligan’s Backpackers Hotel & Resort Pty Ltd & Anor (No 3) [2015] QSC 319

PARTIES:

MAD DOGS PTY LTD

ACN 112 568 457 (in liquidation)

(Plaintiff)

v

GILLIGAN’S BACKPACKERS HOTEL & RESORT PTY LTD

ACN 093 636 705

(First Defendant)

and

CHRISTIAN JOHN AINSWORTH

(Second Defendant)

FILE NO/S:

SC No 26 of 2009

DIVISION:

Trial

PROCEEDING:

Claim

ORIGINATING COURT:

Supreme Court at Cairns

DELIVERED ON:

9 November 2015

DELIVERED AT:

Cairns

HEARING DATE:

27 April - 1 May 2015 & 23 - 24 June 2015

JUDGE:

Henry J

ORDERS:

  1. Judgment for the plaintiff against the first defendant.
  2. The claim as against the second defendant is dismissed.
  3. I will hear the plaintiff and first defendant as to calculation of damages and interest at 10 am on 27 November 2015.
  4. I will hear the parties as to costs at 10 am on 27 November 2015. 

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – REPUDIATION AND NON-PERFORMANCE – REPUDIATION – GENERAL PRINCIPLES – where the plaintiff claims damages for breach of contract – where the plaintiff claims the defendants wrongfully terminated the contract but withdrew the termination and the plaintiff elected to continue with the contract – where the plaintiff claims the second defendant’s conduct interfered with the contractual relations between the plaintiff and first defendant – where the plaintiff claims the wrongful termination and interfering conduct amounted to repudiation of the contract – whether the conduct of the defendants evinced an intention to no longer be bound by the contract – whether the conduct of the defendants prior to the election by the plaintiffs to continue can be used as evidence of repudiation

TORTS – MISCELLANEOUS TORTS – INTERFERENCE WITH CONTRACTUAL RELATIONS AND OTHER RELATIONS – OTHER PARTICULAR CASES – where the plaintiff pleads the second defendant engaged in interfering conduct on behalf of himself and the first defendant – where the plaintiff pleads the second defendant “was and is the controlling mind of the first defendant” – whether the second defendant was in substance a de facto director of the first defendant – whether an action can be maintained against the second defendant for interfering with contractual relations

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – TERMS ESSENTIAL TO ENABLE PERFORMANCE – where the plaintiff seeks to imply terms into the contract – whether the contract contained an implied term that each party would co-operate by doing all such things as were necessary on its part to enable the other party to have the benefit of the agreement – whether the contract contained an implied term that each party would not interfere or do anything which would put an end to the state of the circumstances which were necessary to enable the other party to perform the agreement – whether the conduct of the defendants was in breach of the implied terms

DAMAGES – MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT – REMOTENESS AND CAUSATION – LOSS OF PROFITS – where the plaintiff is in liquidation – where the plaintiff seeks damages for breach of contract by the defendants – where the plaintiff claims loss of profit under the terminated contract and for future renewal periods – whether the actions of the defendants caused the plaintiff’s insolvency – whether the plaintiff was insolvent prior to the alleged breaches by the defendants

DAMAGES – GENERAL PRINCIPLES – DIFFICULTY OF ASSESSING DAMAGES – where the parties tendered expert reports on damages – where the experts do not agree on calculation of damages – how the court should assess damages of the plaintiff’s future loss under the contract 

Bibby Financial Services Australia Pty Limited v Sharma [2014] NSWCA 37, cited

Biscayne Partners Pty Ltd v Valance Corp Pty Ltd & Ors [2003] NSWSC 874, cited

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283, considered

Bruce J Small No 1 Pty Ltd & Anor v Minister for Natural Resources & Anor [1999] QSC 38, cited

Butt v McDonald (1896) 7 QLJ 68, 70-71, applied

Churchward v The Queen (1865) LR 1 QB 173, 195, applied

County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193, [20-21], cited

Khoury v Government Insurance Office (NSW) (1983-84) 165 CLR 622, cited

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, cited

O'Brien v Dawson (1941) 41 SR (NSW) 295, cited

O'Brien v Dawson (1942) 66 CLR 18, cited

Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444, applied

O'Keefe v Williams (1907) 5 CLR 217, 230, applied

Sandell v Porter (1966) 115 CLR 666, cited

Sargent v ASL Developments Ltd (1974) 131 CLR 634, cited

Shepherd v Felt Textiles of Australia Ltd              (1931) 45 CLR 359, applied

Short v City Bank (1912) 12 SR (NSW) 186, considered

Torquay Hotel Co v Cousins [1969] 2 Ch 106, cited

Tsaprazis v Goldcrest Properties Pty Ltd (2000) 18 A CLC 285, cited

Corporations Act 2001 (Cth) s 9, s 95A

Uniform Civil Procedure Rules 1999 (Qld) r 166(1)

COUNSEL:

CJ Ryall for the Plaintiff

DJ Campbell QC with B Hall for the First and Second Defendants

SOLICITORS:

O'Reilly Stevens Lawyers for the Plaintiff

Creevey Russell Lawyers for the First and Second Defendant

Index 
Heading Page
Introduction6
Issues in brief6
Analytical sequence8
Background prior to the concerning conduct 
The origins of the agreement8
Occupation 9
Pomodoro10
Operations11
Facts: interfering conduct pre 18 July 200712
Construction work12
Construction a cause of reduced revenue?13
Room rate increases14
Increased rates a cause of reduced revenue?15
Early signs19
The antipathy becomes overt in Sydney19
Problems continue22
Analysis: interfering conduct pre 18 July 2007 
Construction or increased room rates calculated to harm Mad Dogs? 29
The legitimacy of taking back Pomodoro31
An entitlement to possession of the front café space?32
Implied obligation35
Application of the implied terms in respect of Pomodoro37
Application of implied terms to reduction in levels of trade39
Application of implied terms to manner of construction40
Evinced an intention to no longer be bound?41
Facts : wrongful termination (and election) 
The contract is terminated43
Termination withdrawn44
Discussion : wrongful termination (and election) 
Termination lawful?45
Election46
Consequence of the election47
Facts: continuing conduct  
The final throes48
Acceptance of Gilligan’s repudiation51
Mad Dogs goes into administration52
Discussion : continuing conduct52
Breaches53
Repudiation – evincing an intention not to be bound54
Insolvency?56
Damages for breach of contract 
Calculation of damages60
Base food cost62
Base Wages and Superannuation63
Base overheads cost64
Future maintainable earnings65
Period of loss66
Growth assumptions and proceeds from sale of assets68
Calculation69
Wrongful interference with contractual relations? 
Liability of de facto director69
Intentional interference with contractual relations?71
Discussion72
Conclusion73
Orders74

Introduction

 

  1. The first defendant company (“Gilligan’s”) operates Gilligan’s Backpackers Hotel and Resort in Cairns City.  Gilligan’s sole shareholder is the second defendant, Mr Ainsworth. 
  2. Mr Ainsworth was a friend of Mr Ben Le-Van, a director of the plaintiff company (“Mad Dogs”).  On 16 February 2005 Gilligan’s and Mad Dogs entered into a contract styled Main Kitchen Agreement (“the agreement”).[1]  Under the agreement Mad Dogs agreed to provide food and catering services at Gilligan’s Backpackers Hotel and Resort (“the hotel”).  The agreement had a three-year term and gave Mad Dogs options to renew for three further such terms[2] but the agreement did not endure the first term. 
  3. By mid-2007 Gilligan’s and Mr Ainsworth were allegedly pursuing a campaign of intimidation and financial pressure against Mad Dogs. The campaign included Gilligan’s allegedly wrongful termination of the agreement by letter of 18 July 2007, purportedly withdrawn by letter of 27 August 2007.
  4. The campaign culminated in the eventual capitulation of Mad Dogs who on 26 September 2007 accepted the first defendant’s alleged repudiation of the agreement.[3] 
  5. In this proceeding Mad Dogs seeks damages against Gilligan’s for breach of contract and damages against Mr Ainsworth for the tort of interference with contractual relations.

Issues in brief

  1. Mad Dogs’ case of breach of contract is articulated across its fifth amended statement of claim (“SOC”), further amended reply (“reply”), answers to the defendants’ request for further and better particulars (“further particulars”) and further explanation of paragraph 9(a) of the SOC (“further explanation”).[4]  It relies, in a generally chronological sequence, upon three categories of concerning conduct.  They are, firstly, so-called “interfering conduct” occurring prior to 18 July 2007, secondly a so-called “wrongful termination” on 18 July 2007 and thirdly so-called “continuing conduct” during the months of August and September 2007. 
  2. Mad Dogs pleads that, by any or all of the interfering conduct, the wrongful termination and/or the continuing conduct Gilligan’s was both:
  1. in substantial, wilful and persistent breach of the agreement and its implied terms; and
  2. evinced an intention to no longer be bound by the agreement and thereby repudiated the agreement.[5]
  1. At trial the evidence led from Mad Dogs’ witnesses about the concerning conduct went unanswered by any witness called by the defendants.  Gilligan's argue that none of the concerning conduct complained of, as unedifying as some of it may have been, actually involved a breach or repudiation of the agreement by Gilligan’s. 
  2. On the specific issue of Gilligan’s allegedly wrongful termination of 18 July 2007 Gilligan’s allege the termination was lawful by reason of breaches by Mad Dogs.  If the termination was not lawful Gilligan’s argues Mad Dogs is precluded from reliance upon it and indeed any earlier breaches because Mad Dogs consented to the dismissal of an application instituted in respect of that termination in August 2007 and elected to continue with the agreement.
  3. As will be seen, much of the defendants’ concerning conduct occurred before Mad Dogs’ apparent election to press on in spite of it.  The resolution of the contractual claim largely turns upon whether subsequent to the election Gilligan’s conduct, considered in the light of its extensive preceding conduct, continued to manifest an intention not to be bound by the agreement.
  4. The defendants further argue that Mad Dogs’ financial position was so bad it cannot prove the loss it claims; indeed that it was insolvent and thus itself in breach of the terms of the agreement and precluded from seeking relief.
  5. As to the alleged conduct of Mr Ainsworth, the defendants deny it amounted to interference with contractual relations and say that in any event Mr Ainsworth was a de facto director of Gilligan’s and thus cannot be personally liable for his actions on behalf of the company.
  6. The defendants further plead that certain features of Mad Dogs’ case allege causes of action that are statute barred due to effluxion of time.

Analytical sequence

  1. After some consideration of factual background it is useful to progress consideration of the events of 2007 using Mad Dogs’ largely chronological division of three categories of concerning conduct, pausing after each to discuss the nature of any breach or evincing of an intention to no longer be bound. 
  2. The factual consideration of those three categories will also include the facts relevant to the case against Mr Ainsworth.  However it is convenient to analyse the legal issues relevant to that case only after dispensing with the whole of the breach of contract case as against Gilligan’s, including the question of damages.

Background prior to the concerning conduct

The origins of the agreement

  1. Mr Ainsworth and Mr Le-Van were friends, having met in high school in 1994.[6]
  2. In 2004 Mr Ainsworth arranged for Mr Le-Van to be employed as director of special projects for Gilligan’s to help develop the Gilligan’s “brand”, make improvements and investigate new properties.[7]  By 2005 the idea was conceived of creating a company run by Mr Le-Van for the purpose of that company taking over the supply of food at Gilligan’s hotel at Cairns. 
  3. That company was Mad Dogs.[8]  Mr Le-Van had some involvement in companies apparently pursuing similar co-operative ventures at Alice Springs and Broome where companies connected with Mr Ainsworth operated similar establishments.[9]  However, those ventures involved separate companies from Mad Dogs.[10]
  4. Mr Paul Durling, General Manager of Gilligan’s until during 2006, testified that the idea to sublet the food service component of its Cairns business came about after Gilligan’s had been in operation for a couple of years, because it was costing Gilligan’s money to operate that part of the business.[11]  Mr Durling said that the provision of beverages and accommodation was Gilligan’s core business and food was a secondary interest, something they had to supply to comply with liquor licensing.[12]
  5. Gilligan’s and Mad Dogs entered into the Main Kitchen Agreement on 16 February 2005.  The agreement’s cover sheet named Mr Le-Van and his associates Benjamin Newman and Lance Collyer as guarantors although the tendered copy of the agreement only contains a guarantee of Mad Dogs’ performance signed by Mr Newman.[13]  Under the agreement Mad Dogs agreed to provide food and catering services at the hotel.  The agreement granted Mad Dogs the sole and exclusive right to provide the food and catering services at the hotel and only obliged Mad Dogs to pay four per cent of its gross sales to Gilligan’s. 

Occupation

  1. Mad Dogs commenced providing its services at the hotel on 1 March 2005.[14] 
  2. The agreement did not specify which parts of the hotel could be physically occupied by Mad Dogs’ personnel or property in performing Mad Dogs’ obligations under the agreement.  The agreement did require that Mad Dogs staff the so-called “main kitchen” properly[15] and required Gilligan’s to ensure appropriately accredited employees of Mad Dogs be “granted reasonable and necessary access” to the hotel to enable Mad Dogs to provide the services.[16]  Those services included “the provision of all food and catering services to the Hotel including the main dining area”.[17]
  3. In addition to allowing Mad Dogs to work in food preparation and service areas at the hotel, Gilligan’s allowed Mad Dogs free use of facilities such as a desk, computer, printer and filing cabinets[18] in Gilligan’s office at the hotel as well as a backpacker’s accommodation room, the so-called Mad Dogs room.  The latter equipped Mad Dogs to use the lure of free accommodation to attract workers and carried the added advantage of staff being conveniently located to fill in at short notice in the event of illness or other absence.[19]  Gilligan’s also paid for all electricity and gas.[20]
  4. At the time Mad Dogs entered into the agreement the hotel contained one commercial kitchen and four main food service areas, namely the back deck area, an undercover dining area, four built-in tables located in a breezeway and a front café located at the street front and entry of the hotel.[21]  The back deck and the undercover dining area were near the main bar area and main kitchen area.  The undercover dining area had tables that were moved in the late evening to make more space for the nightclub/disco area.[22]

Pomodoro

  1. The front café had been an internet café.[23]  It contained five internet terminals[24] at which cake, sandwiches and coffee were served during the day and pizza was served to late night patrons.[25]  The front café had a kitchen but it contained little more than a sink,[26] refrigeration, a stand-alone pizza oven and microwave.[27] 
  2. After the commencement of the agreement, Mad Dogs rebranded the front café to “Pomodoro Italian Pizzeria” and implemented more extensive menus for that area.  This included a breakfast menu and lunch and dinner menus that incorporated Italian-style meals such as pastas and pizzas.[28] 
  3. In time, Mad Dogs purchased and installed two Woodson bain-maries, a counter hot plate and rangehood in the front café.[29]  This was done with the permission of Gilligan’s.[30]  This allowed Mad Dogs to cook more food such as bacon and eggs in the front café.  It also avoided the need to carry such meals from the larger commercial kitchen to the front café, which involved walking through the main bar that would be dirty from the previous night’s trading.[31]

Operations

  1. Mad Dogs would commence serving breakfast in the front café about 6am.  They would serve bar snacks ordered from the bar between midday and 9 pm[32] and serve lunch and dinner in the front café and the main dining area.  After the front café would cease main meals around 9 to 10 pm, Mad Dogs would operate a late night pizza stand there, selling pizza slices and non-alcoholic drinks such as Coca-Cola and Powerade.[33] 
  2. Mad Dogs’ various menus, including for Pomodoro and functions, were discussed with and approved of by Gilligan’s.[34]
  3. The agreement required Mad Dogs to ensure its gross sales exceeded $5,000 per week[35] and pay a licence fee of four per cent of gross sales to Gilligan’s no later than seven days after the end of each calendar month.[36]  It also required Gilligan’s to keep proper books of account and records relating to all transactions[37] and furnish a monthly statement of gross sales in a form reasonably required by Gilligan’s.[38]  However, a much more immediate system of payment and accounting to Gilligan’s was consensually adopted by the parties from the outset.
  4. This involved Mad Dogs operating Gilligan’s integrated digital tills when taking money, using the tills’ MICROS system.   The system would record sales attributable to Mad Dogs personnel.  All till takings were secured and held by Gilligan’s.  At the end of each week Gilligan’s would use the MICROS system to ascertain the total amount of gross sales of Mad Dogs and pay Mad Dogs that amount less four per cent.[39]
  5. For around two years after the commencement of the agreement, the business relationship between Mad Dogs and Gilligan’s apparently worked satisfactorily.  The relationship unravelled quite dramatically during 2007.

Facts: interfering conduct pre 18 July 2007

  1. A very significant proportion of evidence in the case related to the first category of concerning conduct – a broad mix of concerning conduct prior to the letter of termination of 18 July 2007.  In summary it involved a mix of evidence relating to Gilligan’s construction work and increased rates and their impact on Mad Dogs’ revenue and evidence of intimidatory behaviour calculated at having Mad Dogs surrender the space occupied by Pomodoro or ending the agreement entirely.

Construction work

  1. By March 2007 Mr Le-Van noticed construction work had commenced at the rear of the hotel premises.[40]  The works were to improve the rear area and to add additional bar and toilet facilities.  They involved a substantial section of the back deck and its roof and generated noise and dust reducing the amenity of and available space for outdoor dining.[41]  Gilligan’s directed the construction area was off-limits to staff in an email of 18 April 2007.[42]
  2. Gilligan’s had sought and received planning permission from Cairns Regional Council to undertake the construction work back in October 2006.[43]  Mr Le-Van testified that he only became aware the construction work was beginning when he saw dust from people jack-hammering.[44]  However, he became more equivocal on this topic when pressed and seemed to concede he knew in a general sense, if not exactly when, that construction works were going to occur.[45]
  3. Mr Rob Whalley, who bought a share in Mad Dogs and became its company secretary in 2006, gave evidence that the building work intruded into the rear dining space and was highly restrictive of trade due to barricades and scaffolding that was in place.[46]  Mr Whalley stated the construction would also stall for periods of several weeks, where no progress was being made on the construction, yet the barricades and scaffolding remained in place, inhibiting effective trade.[47]
  4. Gilligan’s former general manager, Ian Lone, gave evidence of both Gilligan’s and Mad Dogs having to clean the bar, kitchen and dining areas frequently because of dust and debris blowing into those areas from the construction zone.[48]  He suggested in evidence that this problem may have been reduced by greater use of protective drop sheets and sectioning off, which would also have reduced the visibility to customers of the construction zone.[49] 

Construction a cause of reduced revenue?

  1. Mr Le-Van asserted the construction work contributed to a decrease in Mad Dogs’ revenue.[50]  The financial expert called by Mad Dogs, Mr Jessup, the eventual liquidator of Mad Dogs, reported he had seen no evidence to support that assertion[51] yet his report contained evidence of a decline in Mad Dogs’ revenue in the last quarter of the 2006/07 financial year.[52]  The evidence of decline in revenue in that quarter, coinciding as it does with the timing of the construction work, raises the obvious possibility the construction work contributed to the decline.  Further, that evidence incorporated a break down of “restaurant” compared to “café” sales, the former being main kitchen sales and the latter being the front café sales.  The decline was proportionately greater for the main kitchen than the café.  That too is consistent with the possibility the construction work, which was closer to the main kitchen, contributed to the decline in revenue.  The location of the work makes it likely it had at least some adverse impact on revenue.  However the inevitability of there being other influences on revenue and the generalised nature of the evidence in this context precludes an assessment of whether the construction had a material or only minor impact on revenue.

Room rate increases

  1. Another of Gilligan’s actions said to have impacted adversely upon Mad Dogs’ revenue was a material increase in Gilligan’s room rates in 2007.[53]  It is said to have resulted in a drop in occupancy.[54] 
  2. Despite assertions of common ground about the timing and amount of the increases,[55] those facts are not easily discerned.  Mr Le-Van’s recollection was that the rate increases commenced in April[56] and the defendants’ counsel seemed to concede as much.[57]
  3. Mr Lone, Gilligan’s former general manager, who testified the impact of the room rate changes was not felt immediately, recalled there was a disastrous and dramatic decline[58] but that the rates had been reduced again by the time he left Gilligan’s in the middle of 2007.[59]  At first blush this seems inconsistent with the evidence gathered by Mad Dogs’ expert financial witness, Mr Jessup, which suggests the increased rates were maintained to at least early November 2007.
  4. To ascertain historical room rates Mr Jessup used the search engine “Wayback Machine” whereby cached copies of the Gilligan’s website could be downloaded. The exhibited print outs of snapshots of webpages from the Gilligan’s website[60] shows the rates for dorm beds were from $27 and for deluxe hotel suites were $130.  The webpage snapshot for 18 June 2007 shows those rates had by then risen to $36 and $180.  Mr Le-Van’s evidence suggests that increase must actually have commenced in April 2007.  The rates were still $36 and $180 in the webpage snapshots for 31 August and 2 November.  By the time of a webpage snapshot of 1 January 2008 they had reduced to $25 and $110. 
  5. Mr Le-Van’s recollection in relation to the dorm rooms was that the rate increased from somewhere between $22 to $26 per bed up to “$36 and $48 per bed”.[61]  His recollection of an increase to $36 is consistent with the evidence gathered by Mr Jessup but the evidence of a further increase to $48 per bed in respect of the dorms is not.  Mr Le-Van’s testimony on this aspect was not challenged.  It is generally consistent with the evidence gathered by Mr Jessup save for the assertion that there was at some stage an increase from $36 to $48 per bed in respect of the dorm rooms.  However, Mr Jessup’s evidence relates to snapshots in time, leaving open the possibility that the dorm bed rate of $36 as at 18 June 2007 may have been higher than that for a short period prior to that date or after that date, but prior to 31 August by which time it was $36 again.  The scenario that an increase to $48 did occur, albeit only for a short period, is consistent with Mr Lone’s recollection of a reduction in the increased rate by the time he had left Gilligan’s in mid-2007. 
  6. On the whole of the evidence then the correct conclusion to draw is there was an increase of existing rates for dorm beds and deluxe hotel suites in April 2007 from $27 and $130 to $36 and $180 respectively and the room rates remained at least that high until after 2 November 2007.  In addition, after the initial increase in April in the dorm bed rate from $26 to $36 there was a further increase to $48 for a short period but it was reduced back to $36 by mid-2007.

Increased rates a cause of reduced revenue?

  1. In partial support of its argument that the reduced room rates had a materially adverse impact upon Mad Dogs’ comparable trading levels, Mad Dogs’ called evidence from its company secretary, Robert Whalley, a chartered accountant, who was familiar with Mad Dogs’ trading figures and trends.[62]  Before buying into Mad Dogs on 12 October 2006[63] he assessed it had good financial prospects.[64]  Mr Whalley testified that for the first quarter of 2006/2007 financial year, Mad Dogs’ sales were up 19 per cent on the same quarter the previous year.[65]  In the second quarter sales were up 12 per cent but in the third quarter they fell back 12 per cent in comparison to the same period in the previous year.[66]  It is noteworthy that decline occurred prior to any change in room rates.  By the April/May/June quarter sales were down 21 per cent on the same period in 2006.[67]  Mr Whalley testified this decrease continued into July and August and by the time Mad Dogs’ trade at Gilligan’s ended in September 2007, sales were down around 40 per cent.[68]  Mr Whalley’s evidence of these matters was given orally without reference in court to any exhibited or clearly identified records[69] of either of the financial years he had referred to to make his assessment.
  2. In contrast Mad Dogs’ expert financial witness, Mr Jessup, made assessments based on identifiable financial records.  I accordingly prefer his assessment of Mad Dogs’ comparable trading performance to that of Mr Whalley. 
  3. Mr Jessup’s second report[70] shows some degree of correlation between the increased room rates and a decrease in occupancy and, by implication, revenue for the plaintiff.  A table in his report[71] shows Mad Dogs’ revenue from July 2006 to June 2007 as compared with that same period in 2005/2006.  The table shows a decrease in revenue of five per cent, 15 per cent, 25 per cent and 21 per cent for the months of March, April, May and June 2007 respectively, compared to those months in 2006.  The latter three of those months coincide with the beginning of the era of increased room rates.  However, the same table shows that revenue in the months of December 2006 and January and February 2007 declined by four per cent, six per cent and 25 per cent respectively compared to the previous year’s figures. 
  4. The drop of 25 per cent in February 2007 occurred at a time when Gilligan’s occupancy was almost identical to February 2006 and when their monthly revenue was higher.  This supports the unremarkable conclusion that occupancy variations were not the sole cause of Mad Dogs’ revenue variations.  A potential explanation for the substantial comparable variation in February and to a lesser extent in March emerged in Mr Whalley’s evidence.  He recalled there had been significant overdue revenue from a client called Australand for function catering by Gilligan’s in the first quarter of 2007.[72]  The evidence on this topic was not clear as to when that revenue should have been received if paid on time.  Exhibit 62 suggests though that the relevant total payable by the week ending 14 March 2007 was $22,452.15, which was not paid until partial payments were made in May and June 2007.
  5. Another relevant feature of Mr Jessup’s table is that from July to November 2006 Mad Dogs’ revenue was markedly better than in the corresponding period for the previous year.  It is not suggested that variation had a causal connection with room rate variation.
  6. Mr Jessup’s second report annexes two graphs[73] of Gilligan’s occupancy and accommodation revenue rates prepared by Gilligan’s Accommodation Manager and provided to Mr Le-Van.[74]   The graphs show monthly levels of both occupancy and accommodation revenue compared for the period of July to June 2004/2005 against the same periods in 2005/2006 and in 2006/2007.  The trend in occupancy and revenue from July through to February for all three years is relatively similar but a gap in the occupancy trends opens up from February.  
  7. Unfortunately the significance of the graphs’ trends in the ensuing months cannot be reliably assessed given the process that gave rise to the graphs, including the information used, is unknown.   This limits the graphs’ evidentiary value.  The following three examples also show why the graphs should not be relied on for the purpose of drawing informed conclusions.
  8. Firstly, the graphs show a marked decline in occupancy and accommodation revenues from April to May 2007 but the 2007 graph line ends in mid-May and it is unknown whether the figure used to determine the level the graph line runs to in May 2007 was a complete or only partial figure for that month.  Secondly, while the ensuing occupancy trend for February, March and April 2007 is lower than for the same months in 2006, the trend during the same months in 2006 is also markedly lower than the trend for the same months in 2005.  Why that same period was worse in 2006 than in 2005 is unknown but the fact of it demonstrates a flaw in assuming the further reduction in the same period of 2007 was necessarily due to a change in room rates.  The prospect and extent of seasonal and annual trade variations in a tourist city such as Cairns was not seriously explored in evidence.  Thirdly, there is not a similar departure in accommodation revenue trend for those months as between 2005 and 2006.  Again that is unexplained.  One logical explanation may be that rates were increased in 2006 so that similar revenue was achieved to 2005 without similar occupancy, however the broader history of Gilligan’s room rate variations was not the subject of evidence either.
  9. Mr Jessup’s second report contains a comparative table of Gilligan’s room rates against those of two other backpacker establishments in Cairns, namely Cairns City Backpackers and Castaways.  It shows their rates did not vary to any large extent in the relevant era.  However, that fact is of no particular utility for comparison purposes because those establishments are quite different to Gilligan’s.  Mr Jessup acknowledged that difference.[75]  Unlike those premises, and uniquely for backpacker establishments in Cairns, Gilligan’s also has very substantial hotel facilities likely to attract a broad array of custom.
  10. The overall effect of the evidence as to Gilligan’s room rate changes is that it did coincide with a downtown in occupation and in Mad Dogs’ revenue and by reason of that coincidence the room rate increases were likely a causal contributor to Mad Dogs’ revenue decrease.  The evidence does not support the conclusion it was the sole contributor. Nor does the evidence permit an informed assessment of its proportionate contribution.  However, the evidence is sufficient to support the inference the room rate increases were likely a material rather than minimal cause of Mad Dog’s revenue downturn.

Early signs

  1. Mr Colin Lewsey succeeded Paul Durling as Gilligan’s General Manager[76] during 2006.   Subsequent to his ascendancy there was an obvious change in the tone of relations between the parties. 
  2. By early April 2007 Gilligan’s apparently had misgivings about providing the Mad Dogs accommodation room free of charge to Mad Dogs.  By an email of 3 April 2007 Anthony Brooks, Gilligan’s then director, informed Mad Dogs he had discussed Mad Dogs’ use of the room and indicated Mad Dogs could continue to have the room provided it maintained high standards of food and customer service, organised a budget meal deal for the backpackers and supplied its own linen and cleaned the room.[77]

The antipathy becomes overt in Sydney

  1. By May 2007 Mad Dogs had invested in additional equipment including a multilevel spit-roasting machine for cooking chicken, beef and lamb and hotdog rollers.[78]  It had also developed a proposed new “Flavours of the World” menu – sent to Mr Ainsworth by Mad Dogs in March 2007[79] - and a “cook your own barbeque” plan which Mr Le-Van wanted to consult Gilligan’s about for approval.[80]  To that end in May 2007[81] Mr Le-Van travelled to Sydney and met with persons connected with Gilligan’s, including Mr Ainsworth and Mr Colin Lewsey, Gilligan’s general manager.
  2. In the meetings which ensued in Sydney it soon became obvious that Gilligan’s no longer favoured Mad Dogs’ operations at its hotel.
  3. Initially, Mr Ainsworth arranged for Mr Le-Van to attend Mr Ainsworth’s Sydney home and meet with Mr Ainsworth.  At that meeting Mr Ainsworth told Mr Le-Van “they were interested in having the … front café back”.[82]  Mr Ainsworth told him Gilligan’s were not getting a high enough return from the front café.[83]
  4. Nothing further of relevance was said on that topic that day[84] but Mr Lewsey enlarged upon it the following morning at Gilligan’s head office in Mosman, Sydney when Mr Le-Van met with Mr Lewsey and Mr Ainsworth.
  5. Mr Le-Van testified of the exchange which occurred between Mr Lewsey and Mr Le-Van in Mr Ainsworth’s presence in that meeting, beginning with Mr Lewsey’s indication that he wanted to take Pomodoro back:

“He told me that he wanted to take Pomodoros back.  He wanted to take the front café back. … He said he wasn’t satisfied with the return he was receiving. … And he proposed that he would build a barbeque out the back and he would take it back, and I said to him that he should get an independent valuation from an accountant if he would like to take it back.  And then he said words to the effect of, ‘I don’t give a fuck.  I’ll take it back anyway.’”[85]

  1. The discussion continued after lunch that day in a further meeting between Mr Le-Van and Mr Lewsey and Mr Ainsworth.  In the course of that meeting Mr Ainsworth became irate, telling Mr Le-Van to take off his “greedy glasses” and accusing him of being a thief.[86] 
  2. One of the reasons Mr Ainsworth gave for that accusation was that Mad Dogs was providing free internet to encourage more customers into the front café.[87]  It is unclear why that would have concerned Gilligan’s, unless it was diverting or distracting potential customers and thus profit from Gilligan’s main bar, which was located much further into the premises from the street front.  However, no evidence of such an effect was led and Mr Le-Van and Mr Whalley each rejected a suggestion they knew of such an effect.[88]
  3. Mr Le-Van testified that both Mr Ainsworth and Mr Lewsey were aggressive during the afternoon meeting, saying:

“[T]hey were taking it back.  We’ll send you bankrupt, you know… We’ll cut the gas off.  We’ll, you know, you don’t have a choice, really.”[89]

  1. There was another similarly aggressive discussion in Sydney, probably around lunchtime that day,[90] when Mr Le-Van, Mr Ainsworth and Mr Lewsey were being driven in Mr Ainsworth’s vehicle.  Mr Le-Van testified of that conversation:

“We were talking about the … café, etcetera, and then Col Lewsey sat back and said if you don’t give us back the restaurants, we’ll cut off the fucking gas. … And then he said if you don’t have it back, we’ll get your legs – we’ll have your legs broken.”[91]

  1. Mr Le-Van explained in cross-examination that another of the threats made was that if Mad Dogs did not give up the front café Gilligan’s would “breach” Mad Dogs in respect of the whole agreement.[92]
  2. At some stage during the discussions that day Mr Lewsey and or Mr Ainsworth mentioned in connection with giving up the front café that Gilligan’s would employ Mr Le-Van as the Gilligan’s Group entertainment manager.[93]  Gilligan’s marketing manager, Lance Collyer, had been present for some of the meetings with Mr Le-Van that day.  At one point he took Mr Le-Van aside and said:

“[N]o matter what you do, they’re going to take it back – take the restaurant back, so you should take this job as their entertainment manager.”[94]

  1. The recounting of the Sydney conversations generally referred to the café as the area Gilligan’s wanted to take back although at times the relevant area was referred to as the “restaurant” and, at one point, “restaurants”.  Taking the evidence as a whole it appears it was the front café that was being referred to.

Problems continue

  1. Subsequent to the Sydney discussions, on 18 May 2007 Mr Le-Van received an email from Mr Lewsey requesting access to Mad Dogs’ audited accounts.  The email said:

“Further to our recent discussions regarding the food outlets, in the circumstances we require access to your audited accounts, we need to see that all liabilities are up to date with regard to PAYG, GST, SUPER etc and a list of creditors.

This is a requirement in the terms of the contract.

Please make these accounts available for review next Thursday 24th May 2007 in Cairns as our Group Accountant Jack Thomas will be on site.”[95]

  1. In fact there was no express requirement in the agreement to that effect.  Certainly it included a warranty as to solvency, viz:

“12.2The Operator represents and warrants to Gilligan’s on a continuous basis that: …

(9) It is and will remain solvent at all times during the Term.”[96]

  1. However the only provisions expressly relating to Mad Dogs’ right of access to Gilligan’s financial records were in clause 8 which related to gross sales.  It will be recalled Gilligan’s was obliged to ensure its gross sales exceeded $5,000 per week[97] and that it paid a licence fee of four per cent of gross sales.[98]  Clause 8’s provisions were calculated at providing a means of Gilligan’s being able to check what Mad Dogs’ gross sales were:

“8.2 Operator to Record Gross Sales

The Operator must keep and maintain proper books of account and records relating to all transactions which occur in performing the Services conducted at or from the Hotel so that the Gross Sales in respect of each Financial Year can be readily ascertained and determined.  The Operator must preserve the books of account and records for each Financial Year for at least 12 months after the end of the Financial Year to which they refer. …

8.4 Gilligan’s Right to Audit Records

Gilligan’s may inspect and audit all of the Operator’s books of account, statements, documents, returns, papers and files relating to the Gross Sales.  The Operator at the request of Gilligan’s must make the books of account and records available for inspection or audit at the Hotel or if the Operator considers that to be impractical then at the Operator’s head office. …”[99]

  1. It will also be recalled that from the outset Mad Dogs’ takings were recorded contemporaneously via Gilligan’s MICROS system, leaving little genuine need for Mr Lewsey to seek Mad Dogs’ records for the mere purpose of ascertaining gross sales figures.  Against this background it is unsurprising that on 24 May 2007 Mr Le-Van wrote to Mr Lewsey in response to the abovementioned email, saying:

“You have asked for a large amount of information in relation to the Mad Dogs business.  We note that you are entitled to request some of this information under clause 8 of my catering agreement with Gilligan’s, in order to verify my gross sales figures.  This is for the purpose of calculating the licence fee payable to Gilligan’s.

To assist you, I have attached our revenue report, (showing our gross sales), and also a revenue summary which demonstrates our strong revenue growth.  Please note that our revenue is deposited after each shift into the safe, and then posted by the night auditors.  Mad Dogs’ revenue is then given back to us on a weekly basis, minus the licence fee and any other costs.  As you may be aware, it was set up this way to avoid any disputes about the amount of gross sales at the restaurants.

In relation to the balance of the information, we are unable to understand how our PAYG and superannuation records are relevant to the determination of Gross Sales.  Could you please give us your comments in this regard.

We are happy to provide you with all other information we are required to provide under clause 8 of the agreement. …”[100]

  1. The email went on to indicate Mr Whalley, the company secretary and accountant, was away in Europe and would be returning around 18 June.  The email requested a postponement of any meeting in relation to the balance of the information required until Mr Whalley’s return.
  2. Mr Lewsey responded by email to Mr Le-Van on the same day, writing:

“Dear Ben,

I think you are missing the point, it is not the gross sales we are asking for these are available to us here in Gilligan’s, we want to see that your business is up to date with its obligations regarding my email, this has come about through a food supplier putting you on stop, not being able to serve other food apart from breakfast menu during the day, cutting the amount on plates etc.

I am surprised after our meetings in Sydney regarding the food outlets that you have not attended your business in person, and you always say everything goes wrong when I visit Cairns, I have been here two days, we had to have a pest control company in on Monday due to complaints regarding cockroaches, this was brought about by not cleaning up the kitchen after the evening operation, food scraps were all over the floors and bins had not been emptied, a rough sign went up yesterday saying our kitchen will be closed from 2.30-5.30 signed ‘the chef’.

I do not think waiting 2 weeks is appropriate due to the unprofessional way you are running the food outlets, you are not addressing this by staying away, who is in charge of your operations while you are away?

This is a serious situation that you and I discussed with Christian last week and it needs to be addressed with immediate effect.

In the meantime all floors and furniture in the café need professional cleaning.

Please advise your intentions

Regards

Col …”[101]

  1. This email confirms Mr Lewsey was looking for financial records beyond the purpose underlying clause 8.  It also introduced an array of other purported concerns, particularly as to cleanliness.  Its reference to a food supplier putting Mad Dogs on stop related to the Alice Springs venture.[102] 
  2. On 30 May 2007 Mr Lewsey emailed Mr Le-Van annexing a letter pointing out some of the cleanliness and other problems that purportedly needed to be addressed and in the email alleging that they were breaches of contract.[103]  On 31 May, conscious Mr Lewsey seemed to be going out of his way to find wrongdoing, Mr Le-Van emailed Mad Dogs staff emphasising the kitchen had to be cleaned daily.[104]  On 1 June 2007 Mr Le-Van emailed Mr Lewsey denying the alleged breach of the agreement and foreshadowing a more detailed response in the near future.[105] 
  3. Mad Dogs’ position was that it kept its food preparation and service areas clean.  Ian Lone, Gilligan’s general manager in that era confirmed as much, testifying that Mad Dogs’ kitchen’s cleanliness had been adequate and became cleaner than most local kitchens once under pressure from Gilligan’s.[106]  Nonetheless, in light of Mr Lewsey’s correspondence Mr Le-Van took the precaution of having the kitchen steam cleaned and the café professionally steam cleaned.[107] 
  4. It is unclear whether that occurred before or after Cairns City Council undertook an inspection at Gilligan’s on 6 June 2007.  The council’s letter of 19 June 2007 to Gilligan’s about the inspection indicates it was the “front kitchen and servery” which was inspected.  The defendants tendered the letter at trial but led no evidence as to why council had undertaken the inspection.  The letter noted verbal advice having been given on the inspection that the “area underneath the front servery of the food premises was dirty” and noted that area was required to be kept clean in the future.  However, that could not have been regarded as particularly concerning because the letter also noted the “premises were found to be in a satisfactory condition at the time of the inspection”.  While matters of degree are inevitably involved in assessing cleanliness the evidence overall shows Mr Lewsey’s allegations of uncleanliness were likely incorrect.
  5. Mr Le-Van responded to the various allegations contained within Mr Lewsey’s letter of 30 May 2007 within a week.  He did so by inserting responses to the propositions appearing in it and returning the annotated document by email to Mr Lewsey.[108]  Mr Lewsey’s letter and Mr Le-Van’s inserted responses were as follows (Mr Le-Van’s inserted responses are in italic):

“Further to our last discussion we confirm our disappointment in the running of the food outlets in the Gilligan’s Resort – Cairns as the following:- Our main discussions were about the low return you are receiving on the shop and how you want me to give it back so you can lease it out, you then said that if I didn’t give it back you would take me to court and I would lose, you also said you were not scared to go to court.

Mad Dogs

1, Dirty kitchen in Mad Dogs, food scraps left on floor, bins not emptied from the night before resulting in complaints about cockroaches, we had to have pest control in to rectify.  We requested pest control and we always keep the kitchen very clean.

2, After a request by your staff to swap some equipment around food scraps were found under the equipment attracting pests.  We requested to have the equipment moved because it was an occupational health and safety issue having a water heater next to a deep fryer.

3, A note was left on the counter stating that the kitchen will be closed for three hours, signed the chef.  The snack period between 2.30 pm and 5.30 pm is not a time when we are required to serve food.  The reason for him leaving was to go and purchase more cutlery as cutlery is getting very low due to the number of backpackers who are stealing it to use upstairs in the communal kitchens, Gilligan’s has not been keeping the cutlery stocked therefore we keep getting our cutlery stolen.

Front Café

1, The whole café inc floors and furniture is dirty.  The café is in line with the rest of the building and we have had it all cleaned.

2, Your staff are inexperienced.  Our staff have worked many years in hospitality, this is a broad statement.

3, Your staff are not trained how to use and make drinkable coffee.  Our staff are given full training on how to make coffee, the coffee we use is Mokador which is one of the best in the world.

4, On occasions you are not able to serve the menu due to a lack of food, all day breakfast was on offer the other day because of this.  We are able to serve the menu.  Due to customers demanding breakfast later and later we have incorporated an all day breakfast menu.

5, The portions of food change to suit your stock.  We have no problem with our stock levels.

Both outlets are severely undermanaged.  You requested me to come down to Sydney and meet with you guys so I did and Jason and Rebecca Moss my personal assistant were left to manage the business.

We requested that all items be addressed with immediate effect as we see the above as breaches within your contract.

Colin Lewsey, Regional Manager

I have since come up to Cairns in order to investigate any problems etc and am continuing to implement our strategy, our revenue growth has been very strong, and we are doing everything possible to improve and promote the business.”[109]

  1. Mr Le-Van testified that to stop there being further allegations about a lack of cleanliness he implemented a cleaning roster for the Mad Dogs kitchen and Pomodoro which required signing off by both Gilligan’s and Mad Dogs staff each night following the cleaning by kitchen staff.[110] 
  2. It was implicit in Mr Le-Van’s testimony that he had by this era perceived Mr Lewsey was now intent on seizing any opportunity to allege shortcomings in Mad Dogs’ performance of the agreement.  His perception was well justified. In fact, on the evidence of Mr Lone, Mr Lewsey actually encouraged the concoction of false allegations against Mad Dogs.
  3. Mr Lone was Gilligan’s General Manager for three or four months[111] during mid-2007 but was called as a witness at trial by Mad Dogs.  He testified that when he commenced in about April or June 2007, Mr Lewsey sat him down in Pomodoro and told him that Pomodoro was one of the places Gilligan’s was going to take over and that it was Mr Lone’s job to find as many breaches as possible.[112]  Mr Lone said that Mr Lewsey told him to:

“[E]mploy backpackers if I had to, to make false complaints, offer them free accommodation, free meals, send them to Broome, Alice Springs, do whatever I               had to do; throw a rat in there if I have to.  Take pictures of them and make it good”.[113]

Mr Lone did none of those things.

  1. In cross-examination, Mr Lone admitted that he left Gilligan’s on unpleasant terms, but denied a suggestion put to him by the defendants’ counsel that he left due to an allegation he stole a motor vehicle from Gilligan’s, nor that he was bitter about his departure.[114]  His evidence was uncontradicted at trial.  It appeared credible and reliable. 
  2. On 13 June 2007, Mr Le-Van travelled to Noumea with Mr Ainsworth and Mr Brooks, the travel being paid for by Gilligan’s.[115]  In the course of that trip, between 13 and 16 June 2007, Mr Ainsworth again said they wanted to have the café back.[116]  Mr Le-Van testified that by this stage, he had had enough of it all, and had said that Gilligan’s could purchase the café back following a valuation by an accountant and lease it out to somebody else.[117] 
  3. Mr Whalley, Mad Dogs’ company secretary, after being absent for a month in Europe and troubled by the news of the threat to the business, met with Mr Lewsey at the Cairns Qantas Club lounge on 16 June 2007.[118]  Mr Whalley testified that at the meeting Mr Lewsey said he intended to take Pomodoro back, saying he and Mr Ainsworth were not happy with the returns they were getting and the side deals that had been done in the past.[119]   Mr Whalley testified Mr Lewsey said they wanted a new agreement and wanted Pomodoro back.[120]  Mr Whalley told Mr Lewsey that the loss of Pomodoro would not preserve the structural integrity of Mad Dogs’ business, but in light of Mr Lewsey’s determination Mr Whalley suggested the possibility that Gilligan’s ought pay $275,000 in order to regain Pomodoro.[121]  The possibility that Gilligan’s ought pay money to Mad Dogs in order to take Pomodoro back does not appear to have been seriously contemplated by Gilligan’s.  In the course of this meeting Mr Lewsey did not speak highly of Mr Ainsworth and expressed the view that Mr Ainsworth should stay away from the business and leave it to Mr Lewsey.[122]
  4. In an email sent by Mr Whalley to a number of Gilligan’s and Mad Dogs staff and dated 13 July 2007, Mr Whalley announced the appointment of Adam Cybulski as the new Mad Dogs executive chef.[123]  The email also mentioned the new “Flavours of the World” menu concept and the cook your own barbeque plan, as well as the appointment of a new part-time marketing representative.  Mr Lewsey responded to all recipients of this email, beginning:

“Rob, It is still our intention take back the front café, before you make all these great changes you should look at your Alice Springs operation, we are breaching you again…”[124]

The ensuing list of alleged breaches included Mad Dogs not paying food suppliers, a shortage of staff and the fact that an employee was owed $3,000.  The email ended:

“The arrangements with Mad Dogs is clearly not working and as previously discussed separation is being sought, your request to be paid out the sum of $275,000 has been rejected by Christian, why should he pay for something he gave to Ben, your involvement with Mad Dogs has to be channelled through Ben Le-Van being the principal shareholder of Mad Dogs.

This matter is now of a urgent nature, please get Ben to contact Christian to arrange a meeting in Sydney ASAP.”[125]

  1. Mr Whalley responded to Mr Lewsey on 16 July 2007, copying in his solicitor in Melbourne, suggesting that Mr Ainsworth should contact Mr Whalley himself if he wanted to discuss any matters.[126]  On 17 July 2007 Mr Lewsey emailed Mr Whalley saying:

“Christian does not want to discuss this with you, we want as discussed previously the front café back under our control, Mad Dogs operation has been appalling for some time.  You have been fully aware of this, we are prepared to leave the main kitchen with you as long as it is operated properly, we also said you could have the use of the new BBQ (cook your own), we also as discussed want to fix a rent and not a percentage.”[127]

  1. Mr Whalley spoke by telephone to Mr Ainsworth on 19 July – by which time the termination letter discussed in the next category below had been issued - but Mr Ainsworth directed him back to Mr Lewsey and hung up.  Mr Whalley subsequently met with Mr Ainsworth at his Balmoral home across several days from 28 July 2007, but Mr Ainsworth refused to talk about it, again referring Mr Whalley back to Mr Lewsey.[128] 

Analysis: interfering conduct pre 18 July 2007

Construction or increased room rates calculated to harm Mad Dogs?

  1. The timing of the construction works and increased room rates, preceding and continuing during the intimidatory behaviour of Mr Lewsey and Mr Ainsworth, raises for consideration the possibility it was driven by the same anti-Mad Dogs motivations as the intimidatory behaviour.  However, the evidence does not support such an inference.
  2. The construction works were the subject of an application for approval in October 2006, months before any suggestion of intimidatory conduct.  Moreover, the works involved renovation and improvements of an unremarkable kind for a hotel wanting to attract customers.   The improved amenity of the rear area was in the long run likely to attract more customers who would order food from the main kitchen and potentially from another food outlet at the rear such as a barbeque.  The inconvenience occasioned by the works was not so significant as to impute a motivation other than commercial improvement.
  3. As to the increases in room rates, Mad Dogs contend they were too high and prolonged to be consistent with innocent commercial motivations.  The argument assumes Mr Ainsworth and Mr Lewsey intentionally set about inflicting financial damage on their own business, using high prices to deter room bookings, and thus reduce the number of potential purchasers of Mad Dogs’ food.  Mr Ainsworth and Mr Lewsey certainly behaved poorly during the era in question but even at it most extreme their behaviour suggests an elemental concern for rather than disregard of Gilligan’s capacity to make money.   A more likely explanation for the pursuit of high room rates is that they were an ill-judged attempt to make more money.  It is far from implausible that in a seasonal tourist city a hotel with broad market appeal, from backpackers to more conventional hotel accommodation customers, may test the market with price rises for a prolonged period. 
  4. Two further points warrant emphasis.  Firstly, Mad Dogs’ business was not driven solely by trade with customers actually staying at Gilligan’s.  As with the bar trade of Gilligan’s, Mad Dogs would also have had a substantial volume of street trade.  It is not suggested Gilligan’s engaged in significant rises in its bar prices, something they would likely have done if motivated by a kamikaze theory of deterring customers from their own premises to damage Mad Dogs.  Secondly, Gilligan’s maintained the price increases for some months after Mad Dogs eventually left the premises in September.  That they were maintained for a substantial period after then is inconsistent with the theory the price rises were implemented to damage Mad Dogs. 
  5. Even making due allowance for the largely temporal coincidence of the bad behaviours of Mr Ainsworth and Mr Lewsey towards Mad Dogs commencing in the month after the room rate increases, including the threat to Mr Le-Van to “send you bankrupt”, the evidence does not support the inference that the room rate increases were likely implemented with the intention of inflicting financial stress upon Mad Dogs.

The legitimacy of taking back Pomodoro

  1. The conduct of Mr Ainsworth and Mr Lewsey demonstrates a singular persistence in seeking to take back the front café, i.e. Pomodoro.  The reason given by Mr Ainsworth and Mr Lewsey for wanting it back was that they were not receiving a high enough return from it.  It will be recalled that under the agreement Mad Dogs only needed to achieve gross sales of at least $5,000 a week and only needed to pay Gilligan’s four per cent of gross sales.  Those terms related to gross sales generally and did not distinguish between where in the hotel the sales were made.  The terms were very generous to Mad Dogs.  Such commercial arrangements would ordinarily involve a much higher return on gross sales, more in the order of 25 to 30 per cent of gross sales.[129]  There is no suggestion Mad Dogs failed to meet the weekly gross sales target or that Gilligan’s did not receive its four per cent worth.  Therefore Gilligan’s was at least getting the rate of return assured by the terms of contract. 
  2. These features of the case compel two conclusions.  Firstly, Gilligan’s and Mr Ainsworth had come to regard the aforementioned terms as not providing for a high enough rate of return to Gilligan’s.  Secondly, the terms were so generous to Mad Dogs that Gilligan’s and Mr Ainsworth would have realised Mad Dogs would not readily agree to a variation involving less favourable terms.  Consistently with that thinking intimidatory tactics involving threats and the pursuit of false allegations were adopted with the alternative intentions of either compelling Mad Dogs to give up Pomodoro or ending the entire agreement.
  3. An obvious view of Gilligan’s and Mr Ainsworth’s express desire to take Pomodoro back is that, stuck with a contract which in hindsight provided an unsatisfactorily low rate of return, they decided it would be more profitable to use the space occupied by Pomodoro for some purpose other than the preparation and supply of food. 
  4. Mad Dogs’ counsel argued for a more sinister view, namely that Gilligan’s and Mr Ainsworth must have intended to use the space occupied by Pomodoro for the provision of food, in breach of Mad Dogs’ exclusive right to do so.  However, there is no evidence that is what Gilligan’s or Mr Ainsworth intended to do.  The only evidence on the topic is neutral.  In Mr Le-Van’s letter, responding to Mr Lewsey’s letter of 30 May 2007, Mr Le-Van wrote of a conversation in Sydney with Mr Lewsey that Mr Lewsey had said he wanted to lease the front café area out.[130]  Given that area involved an enclosed space fronting an inner city street and would have a variety of potential tenantable uses it does not follow that any lease of it would inevitably be for the purposes of supplying food and catering services.

An entitlement to possession of the front café space?

  1. The adoption of intimidatory tactics in seeking the return of the space occupied by Pomodoro also demonstrates that Gilligan’s and Mr Ainsworth must have understood Mad Dogs was otherwise contractually entitled to continue to operate in that space.  That is, Gilligan’s and Mr Ainsworth did not think they could legitimately take that space back without Mad Dogs choosing to give it up.  If they understood they were legitimately entitled under the agreement to unilaterally take over that space then doubtless they would simply have done so by locking Mad Dogs out of it, rather than embarking upon their sustained campaign of intimidation.
  2. Notwithstanding that Gilligan’s and Mr Ainsworth had obviously been of that understanding about the agreement’s effect, their counsel argued a contrary effect.
  3. Their counsel was at pains to emphasise, and correctly so, that the agreement was not a lease and did not expressly entitle Mad Dogs to exclusive possession of particular parts of the premises.  The agreement did not expressly name any specific food preparation or food service area save for the main kitchen[131] and the main dining area.[132]  While the name “main dining area” was not defined in the agreement it is obvious even from Mr Le-Van’s evidence that was the name by which the undercover dining area, located near the main kitchen and the main bar, was known.[133]  The facts do not support an inference that that term embraced a separate dining area in a quite separate location at the front café section of the premises. 
  4. However the agreement’s reference to the main kitchen and the main dining area did not mean there were no other areas in the hotel which could be used to prepare or serve food.  That is readily apparent from the merely inclusive context in which the main dining area was referred to in the agreement in the definition of “services” at clause 1.1(28):

“‘Services’ means the catering services to be provided by the Operator to Gilligan’s under this Agreement, including:

  1. the provision of all food and catering services to the Hotel, including the main dining area;
  2. cleaning of food service areas;
  3. provision of food services to functions, groups, …”
  1. That clause illustrates Mad Dogs was not restricted to serving food in the main dining area of the hotel only.  This was a large hotel complex incorporating accommodation and various other rooms, an outdoor area and pool, and substantial bar facilities.  As the sole provider of “all food and catering services to the hotel” it is inevitable that Mad Dogs would be serving food in a variety of areas in the hotel.
  2. It is unremarkable therefore that the agreement referred in the above-mentioned clause to “food service areas”.  In a similar vein, clause 3.1(3)(d) of the agreement, in providing for the need for Mad Dogs to seek approval for changes, referred to “changes to areas at which food is served at the hotel”.  The point is further illustrated by the words of clause 14.3 which relevantly provided:

“Consequences on termination

If this Agreement is terminated:

  1. the Operator must immediately deliver up possession of the Main Kitchen and any other areas, leave all those areas in a clean and tidy condition and make good any damage or destruction …”
  1. The areas of the hotel being referred to in these various clauses of the agreement as areas that Mad Dogs may serve food at or be in possession of were not defined by the agreement.
  2. Counsel for Mad Dogs argued that in the absence from the agreement of identification of the areas where it was agreed Mad Dogs was to provide catering services the subsequent conduct of the parties, particularly Mad Dogs’ operation of the front café from the commencement of the agreement, was admissible to assist in identifying those areas.  As Spigelman CJ explained in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd[134] such evidence does not breach the general rule against the admissibility of post contractual conduct in order to interpret the words of the contract because it is advanced not for that purpose but to identify the subject matter of the contract.  His Honour there doubted whether that general rule applied in any event to conduct which occurred at the time of settlement rather than thereafter.
  3. In the present case, quite apart from the post-contractual conduct involving the use of the front café to provide food services, there is evidence of the nature and use of that area leading up to and at the time of the agreement being entered into.  That area was already being operated as a café.  That front café at that stage had only rudimentary food preparation facilities and was only styled as an internet café.  Nonetheless, the parties to the agreement would have well known it was an area of the hotel used for the provision of catering services.
  4. Given the area’s existing nature and use as a food service area, the bargaining parties would have expected services were to be provided to it under the agreement.  It was an area to which Mad Dogs assumed the obligation of providing food and catering services under the agreement as an incident of being the sole and exclusive provider of those services.  That obligation was accompanied by a benefit.  That benefit was the opportunity to profit from providing food and catering services at the café area at the street front of Gilligan’s.
  5. The real issue though is not whether Mad Dogs assumed an entitlement to provide its services in the front café when it entered into the agreement for it did so by reason of the existing state and use of the premises. The real issue is whether that meant Gilligan’s was thereafter prevented during the agreement from variations to the areas used for food services and if not whether the agreement accorded any protection to Mad Dogs in respect of such variations.  This heralds the significance in this case of the nature of Gilligan’s implied obligation to co-operate.

Implied obligation

  1. Mad Dogs’ SOC pleaded at [3A] that there were two implied terms of the agreement, namely:

“(a) Each party would co-operate by doing all such things as were necessary on its part to enable the other party to have the benefit of the Agreement;

(b)Each party would not interfere or do anything which would put an end to the state of the circumstances which were necessary to enable the other party to perform the Agreement…”

  1. Mad Dogs’ counsel submitted that because the defence contained no denial or non-admission of the two implied terms they were taken to be admitted pursuant to rule 166(1) of the Uniform Civil Procedure Rules (“UCPR”).  Given the mixed legal and factual features inherent in implying the two terms I would not be prepared to accept them merely by reason of a failure to plead directly to them.  In any event there are sound reasons to imply the terms.
  2. Mad Dogs pleaded the two terms were implied “to give business efficacy to the Agreement” and because the “nature and rights and obligations created by the Agreement gives rise to the implication of the terms”.  As to the latter proposition it cited some clauses in particular, including clauses relating to the provision of the catering services, the recording of gross sales, solvency and co-operation.  In respect of co-operation, clause 5.6 provided:

“5.6The Operator acknowledges that the operations of the Hotel require a high degree of co-operation between the parties.  The Operator, its Employees including contractors, subcontractors and suppliers must at all times co-operate and liaise with Gilligan’s, Gilligan’s employees, suppliers and all public authorities as required by Gilligan’s.” (emphasis added)

  1. Counsel for the defendants emphasised clause 5.6 only cast a positive obligation upon Mad Dogs.  This reflects something of a pattern in the agreement generally in that it is replete with obligations to be fulfilled by Mad Dogs and casts few express obligations upon Gilligan’s.  However, the presence in an agreement of express obligations on one party and silence as to the obligations of another will not necessarily prevent the implication of a correlative obligation on the other party.  The relevant principle was articulated in Churchward v The Queen[135] by Cockburn CJ in these terms:

“[A]lthough a contract may appear on the face of it to bind and be obligatory only upon one party, yet there are occasions on which you must imply – although the contract may be silent – corresponding and correlative obligations on the part of the other party in whose favour alone the contract may appear to be drawn up.  Where the act to be done by the party binding himself can only be done upon something of a corresponding character being done by the opposite party, you would there imply a corresponding obligation to do the things necessary for the completion of the contract.”  

  1. The task of providing food and catering services on an exclusive basis on the premises of this substantial hotel complex involved work of such a nature as to make it inevitable that each of the parties would need to co-operate with each other.  Indeed the first sentence of clause 5.6 acknowledged the operations of the hotel required a high degree of co-operation “between” the parties and not merely on the part of Mad Dogs.
  2. In addition it is well established at law that parties to contracts have an implied obligation to co-operate by doing what is reasonably necessary to enable the other party to have the benefit of the contract.[136]  That is correctly reflected in the first implied term pleaded.  The term was an implied term of the agreement in this case.
  3. As to the second implied term, it has long been recognised as an implied obligation upon parties to contracts “that neither party shall do anything to destroy the efficacy of the bargain entered into”.[137]  Subject to one qualification as to its manner of expression, the second implied term is no more than a “negative correlate” of the first.[138]  It reflects that doing what is necessary to enable the other party to have the benefit of the agreement must logically include refraining from conduct that will preclude the other party from being able to perform the agreement and thus being able to have the benefit of it. 
  4. The qualification is that the sentence structure of the pleading leaves some ambiguity in the context in which interference is referred to.  Consistently with the benign interpretation above, that ambiguity ought be resolved so the reference to interference in the second implied term pleaded is taken to mean interference that would put an end to the state of the circumstances necessary to enable the other party to perform the agreement.  Qualified in that way the term was an implied term of the contract.
  5. The defendants’ counsel resisted the implication of both terms on the basis they did not meet the five point test for the implication of a term articulated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings:[139]

“(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

  1. The two implied terms urged by Mad Dogs are reasonable statements of the obvious, not contradictory of any express term in the contract and, despite their generality, are clearly expressed.  They meet the first, third, fourth and fifth tests.  Whether it is correct to regard such generally expressed implied terms as necessary for business efficacy necessarily depends upon the context in which they are sought to be deployed.              

Application of the implied terms in respect of Pomodoro

  1. For the reasons already developed the opportunity for Mad Dogs to provide food and catering services for profit to the front café area of the premises was an identifiable benefit of the agreement into which the parties entered.  This is obvious in much the same way as it is obvious the opportunity to provide food and catering services for profit at other food service areas configured and operating at the hotel at the time of the agreement was a benefit conferred by the agreement. 
  2. The defendants submit notwithstanding this that the agreement’s absence of express provision for an entitlement to operate specific food service areas weighs against a positive obligation to cooperate in preserving the benefit of being able to operate any particular food service area.   The observations of Mason J in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd[140] relevantly observe:

“It is easy to imply a duty to co-operate in a doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract.  It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party’s obligations and are not fundamental to the contract.  Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit.  In such a case, the correct interpretation of the contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.”

  1.  When it is understood what food service areas the agreement related to at the time it was entered into the intention of the parties, as manifested by the agreement as so understood, was that Mad Dogs was acquiring a benefit commensurate with the benefit of being able to operate those food service areas. 
  2. However, time does not stand still at a hotel such as Gilligan’s.  The need to respond to an ever-evolving market and the potential need over time to reconfigure, renovate or move facilities at the hotel are incidents of operating such premises, that is, of business efficacy. The agreement made no provision for what was to occur in the event that Gilligan’s needed to vary an area of food service that Mad Dogs gained the benefit of operating at the time of entering into the agreement. 
  3. Were the need to make such a variation to arise, the business efficacy of the agreement from Mad Dogs’ perspective would obviously be in jeopardy if proper consideration were not given to the operation of its business on the premises. The implied obligation to co-operate would be necessary to give business efficacy to the agreement so the relevant reconfiguration, renovation or move could be implemented but implemented without materially depriving Mad Dogs of the benefit of the agreement. 
  4. It follows that were Gilligan’s minded to put an existing food service area as substantial as the front café[141] to a different use it was obliged not to do so without co-operating with Mad Dogs in making adequate alternate arrangements and equally Mad Dogs was obliged to co-operate in giving effect to those arrangements.  Such arrangements would necessarily be such as to allow Mad Dogs to continue, even if in another part of the premises, to have a benefit commensurate with the extent of the benefit it gained at the time of entering into the agreement.  That benefit included being able to operate the front café for profit.  A failure on Gilligan’s part to co-operate so as to deliver such a commensurate benefit would in the circumstance of this case have been a breach of the implied term of the agreement. 
  5. Here such a breach did not actually eventuate because Mad Dogs remained in the front café still having the benefit of that space.  However, Gilligan’s threatened regaining of that space without regard to delivering a commensurate benefit would potentially provide evidence of an intention not to be bound by the agreement, a topic returned to below.

Application of implied terms to reduction in levels of trade

  1. Mad Dogs also sought to deploy the implied terms in support of an argument that Gilligan’s was obliged to continue to operate “in the usual way” without causing a reduction in the occupancy of its accommodation or patronage of its bars.[142]  This is conceptually different to the above application of the implied terms to preserve a benefit commensurate with a benefit identifiable as part of the subject matter of the agreement.  In entering into the agreement Mad Dogs was gaining the identifiable benefit of operating the front café for profit but it was not gaining any identifiable assurance as to how many patrons would frequent the hotel premises.
  2. Mad Dogs’ reasoning as to the latter appeared to be that it was necessary pursuant to the second implied term that Gilligan’s never do anything – such as significantly increase room rates or engage in substantial construction work – which would result in materially less trade than usual for Mad Dogs. 
  3. The pivotal trade requirement Mad Dogs had to meet to perform the agreement and thus to have the benefit conferred by the contract was to have gross sales of at least $5000 per week.  If Gilligan’s interfered or engaged in other conduct in such a way as to end Mad Dogs’ ability to trade to that minimum level then it would have precluded Mad Dogs from performing the contract and thus breached the second implied term.
  4. Gilligan’s actions did reduce Mad Dogs’ trade, but not to the extent that Mad Dogs could not meet the minimum gross sales performance level required by the agreement.  The second implied term only protected Mad Dogs to the extent of allowing it to perform the agreement, that much being necessary to give business efficacy to the agreement.  It did not extend to preventing Gilligan’s from making any changes to its operations on the basis those changes may result in a reduction of previous levels of custom perceived as usual.  The second term was not breached merely by reason that Gilligan’s actions caused a reduction in trade.

Application of implied terms to manner of construction

  1. Mad Dogs also complains there was a breach of the implied obligation of co-operation because, in respect of the construction, “the co-operation required by the agreement to ensure proper running of the venue including its food service operations never occurred.”[143]  The best evidence of that lack of co-operation was submitted to be Mr Lone’s evidence lamenting the lack of adequate protection against the dust and visibility of the construction site.[144]  It might also be taken to include the periods of apparent inactivity on the jobsite and the adverse impact of the works on Mad Dogs’ operations.
  2. It is commonplace that construction works experience delays from time.  It is inevitable construction works performed on the site of an operating business will disrupt business operations on the site and reduce its appeal to customers.  This complaint, really one of degree, is that more should have been done to minimise the disruption.  That disruption included sound and physical use of space - disadvantages that would not be changed by screening.  Accepting more could have been done to screen off the work site, it is not apparent that would have made such a fundamental difference to the adverse impact of the works that its absence demonstrates a failure to enable Mad Dogs to have the benefit of the agreement. 
  3. It ought be borne in mind that while the works involved inconvenience they would also deliver improvements likely to increase trade, that is, to enhance Mad Dogs’ benefit of the agreement.  That bolsters the conclusion that the extent of the inconvenience, even though more might have been done to minimise it, did not involve a failure to co-operate by doing what was necessary to enable Mad Dogs to have the benefit of the agreement.

Evinced an intention to no longer be bound?

  1. While for the above reasons none of the first category of concerning conduct evidences a breach of an essential term of the agreement there were features of the conduct, which, considered in combination, did evince an intention by Gilligan’s to no longer be bound by the agreement.  Consideration of whether there has been repudiation by reason of a manifestation of unwillingness to perform the contract at all or in substance involves an objective consideration of the conduct of the relevant party.[145]
  2. The features of concern here were, in summary, the threats made by Mr Lewsey and Mr Ainsworth (who while not a director was, for reasons given below, acting for Gilligan’s), and Mr Lewsey’s pursuit of false allegations about Gilligan’s.  The threats were all intended to persuade Mad Dogs to agree to surrender its operation of the front café area occupied by Pomodoro.  They involved threats to cut off the gas to the kitchen, break Mr Le-Van’s legs, breach Mad Dogs in respect of the whole agreement and to take Pomodoro back regardless of Mad Dogs’ wishes. 
  3. The false allegations about Gilligan’s included false allegations of uncleanliness, inadequate staff training, inadequate staff numbers and non-compliance with menu requirements.  The allegations were also intended to intimidate.  They were also accompanied by requests for materials Gilligan’s was not obliged to provide.  In the present context that is of minor moment although it is consistent with Gilligan’s wanting to maintain the intimidation obviously intended by the threats and false allegations. 
  4. The apparent intention of that intimidation was to compel Mad Dogs to agree to surrender its operation of the front café area without Gilligan’s co-operating pursuant to the agreement’s implied term to deliver a benefit commensurate with being able to operate the front café. 
  5. It is true there was some discussion of Mad Dogs instead operating a large barbeque area at the rear deck but Mr Lewsey’s email of 17 July 2007 shows such discussion was predicated on a new agreement involving the payment of rent rather than the agreed four per cent of gross sales.  In short, Gilligan’s was using intimidation to compel Mad Dogs into agreeing to relinquish its rights under the agreement.  Such conduct bespeaks an intention to no longer be bound by the agreement.
  6. Furthermore its campaign of false allegations likely additionally involved the motivation of building a false basis to terminate the agreement by reason of Mad Dogs’ alleged breach of it.  That likely motive was further confirmed by Mr Lewsey’s conduct in requesting Mr Lone to concoct false evidence of breaches.  Such a pursuit of false allegations bespeaks an intention to build a knowingly false basis to terminate and thus bespeaks an intention to no longer be bound by the agreement.
  7. Considered collectively Gilligan’s conduct prior to its termination letter of 18 July 2007 had already evinced an intention to no longer be bound by the agreement.  Mad Dogs could then have accepted such conduct as repudiation and terminated the contract but it did not then do so.

Facts : wrongful termination (and election)

The contract is terminated

  1. By a letter to Mad Dogs dated 18 July 2007 Gilligan’s solicitors, Deacons, gave notice of Mad Dogs terminating the Main Kitchen Agreement, effective 20 August 2007.[146]  The relevant paragraph of that letter stated:

“In light of your company’s breaches of the Main Kitchen Agreement …, Gilligan’s hereby terminates the Agreement.”[147]

  1. The letter did not specify what any of the alleged breaches were.
  2. Mad Dogs responded through its solicitors by a letter dated 27 July 2007 asserting no awareness of any breaches and that Gilligan’s conduct amounted to unlawful termination and wrongful repudiation of the agreement.  The letter stated Mad Dogs did not accept the purported termination and foreshadowed an application to the Supreme Court if the purported termination was not unconditionally withdrawn.[148]
  3. In response, Mr Le-Van received a voice mail message in which Mr Ainsworth said:

“Hi, it’s Christian here. I’ve just read the letter from your solicitor.  You’re fucked. You’re fucking fucked. You’re fucked.”[149]

Mr Le-Van’s recollection of this message is somewhat different than the version recounted in answers to the defendants’ request for further and better particulars which was:

“Hi Ben, it’s Christian.  I read the letter from your solicitor and all I can think is you are fucked in the head, you must be fucked in the head, what you are saying and what you think you will achieve, you are fucked in the head.”             

Given that variance I infer the content of the message was personally critical of Mr Le-Van rather than threatening.

Termination withdrawn

  1. Mad Dogs’ solicitors did institute proceedings on its behalf in the Supreme Court as foreshadowed on 16 August 2007.  That took the form of an originating application, 376 of 2007, by Mad Dogs, Le-Van National Hospitality Pty Ltd and Mr Le-Van against Gilligan’s, CJHA Wonderland Pty Ltd and Mr Ainsworth.  It is apparent from the parties named in that application and the ultimate order made that the application related not only to the purported termination of Gilligan’s agreement with Mad Dogs in respect of the Cairns operation but also in respect of the corporate entities involved in the agreement pertaining to the Alice Springs operation. 
  2. The material declaration and orders sought in the originating application were:

“1.A declaration that the purported terminations of the Main Kitchen Agreements entered into between the first applicant and the first respondent and the second applicant and the second respondent (“the Agreements”) are of no legal effect.

  1. A declaration that the Agreements remain valid and are enforceable by the parties thereto notwithstanding the purported termination of the agreements by the solicitors acting for the first and second respondents.
  1. An order that the respondents be restrained from doing any act or thing which would or may prevent or hinder the applicants from performing their obligations under the Agreements.”[150]
  1. On 27 August 2007 Gilligan’s’ solicitors wrote to Mad Dogs withdrawing what it called “the purported termination” and indicating that Gilligan’s would pay Mad Dogs’ costs of its court proceeding thrown away by reason of the withdrawal of the purported termination.[151]
  2. Two days later on 29 August 2007 the parties signed a consent to order filed on 30 August 2007.  By that document consent was given to the Registrar making three orders.  The first of those orders required Le-Van National Hospitality Pty Ltd to deliver up possession of the main kitchen at the Alice Springs operation leaving it in good condition and returning all keys and passes to the hotel.  The circumstances under which the parties came to consent to the apparent withdrawal of Le-Van National Hospitality Pty Ltd from the Alice Springs operation is unknown.  The order’s reference to it is irrelevant for present purposes save for demonstrating that the parties’ decision making in respect of the consent to order was not solely concerned with the Cairns operation.
  3. More materially the second and third orders to which the parties consented were:

“2.the proceedings commenced by Originating Application No. 376 of 2007 be dismissed;

  1. the Respondents pay the Applicants’ costs fixed in the sum of $2,000.”[152]

Discussion : wrongful termination (and election)

Termination lawful?

  1. The purported termination letter of 18 July 2007 complained of breaches of the agreement without specifying what they were.  Gilligan’s pleads Mad Dogs had repeatedly been in breach of the agreement by failing to keep the kitchen in a clean and tidy and hygienic state in breach of clause 17.2, failing to ensure the kitchen was serving food as required by the first defendant in breach clause 6.1, failing to employ suitably experienced and qualified staff in breach of clause 5.5(6), altering food being served and the menu without approval in breach of clauses 3 and 19, and trading while insolvent.
  2. None of the other allegations of breach by Mad Dogs other than the allegation of insolvency have any substance. Gilligan’s is not said to have believed Mad Dogs was insolvent when issuing the termination letter[153] but if it was insolvent and that fact was thus a valid ground for termination, Shepherd v Felt Textiles of Australia Ltd[154] is long standing authority in support of the lawfulness of the termination notwithstanding that it was done in reliance on invalid grounds.  The issue of insolvency is dealt with later.  The more immediate point is that even if the termination was unlawful Mad Dogs by its conduct elected to affirm the contract, thus precluding it from reliance upon the termination as a breach in any event.

Election

  1. The defendants plead that Mad Dogs cannot rely on the letter of termination as a breach or maintain any claim in relation to the letter of termination because Mad Dogs elected to affirm the agreement in instituting and serving the application for declarations.[155]
  2. An election between rights occurs where a party has two alternative rights and acts in a manner consistent with the exercise of one of those rights and inconsistent with the exercise of the other.[156]  The inconsistent, truly alternative character of the competing courses open is a vital feature of the doctrine of election.[157]  Thus the application ought not be characterised as constituting an election to affirm the agreement unless it can likewise be clearly characterised as constituting an election against rescinding the contract for breach. 
  3. Despite all of Gilligan’s concerning conduct prior to the termination letter Mad Dogs maintained an unambiguous determination to continue with the contract despite the termination letter.  It did not accept the termination.  It threatened to institute an application if the termination was not withdrawn.  When the termination was not withdrawn Mad Dogs went ahead and filed the application, seeking orders that the termination was of no legal effect and that the agreement remained valid and enforceable notwithstanding the purported termination, as well as seeking a restraining order preventing or hindering the applicants from performing their obligations under the agreement.  The application for those orders was clearly calculated at preserving the continued performance of the agreement.  It was an unequivocal affirmation of the agreement.
  4. It ought be acknowledged the application also sought orders relating to Gilligan’s Alice Springs business and it was not persisted in, being dismissed by consent.  This might potentially have meant there existed facts undermining the otherwise obvious conclusion that the application affirmed the agreement.  No such facts were advanced.  It is reasonable to infer the consent dismissal of the proceeding as it related to the business at Cairns resulted from it being rendered pointless by the withdrawal of the termination and not from some unknown fact inconsistent with the application having been an unequivocal election.  Moreover, the broader facts in respect of this era show Mad Dogs remained in operation on the premises during and after the currency of the application, consistently with it electing to affirm the agreement.

Consequence of the election

  1. Mad Dogs’ election to affirm the agreement in the face of the letter of termination precludes it from relying upon the letter of termination as a basis entitling it to terminate. 
  2. What though of the fact that Gilligan’s conduct preceding the letter of termination evinced an intention to no longer be bound by the agreement?  Did Mad Dogs election regarding the letter of termination preclude it from future reliance upon the earlier conduct as evincing an intention to no longer be bound?
  3. The question of whether a party by its conduct evinces an intention to no longer be bound by an agreement necessarily involves the drawing of inferences from an accumulation of facts about the party’s apparent intention.   The question falls for consideration in the context of the point in time when the other party accepts the conduct as a repudiation and thus as a basis for termination.  As will be seen, that point came subsequent to the election.  The facts to be considered in respect of that time will be such facts about Gilligan’s conduct as are relevant to the drawing of an inference about its then evinced intention to be bound by the agreement.  Some such facts may have preceded the election. 
  4. The fact that Mad Dogs elected to affirm the agreement should not preclude consideration of preceding facts if those facts remain relevant to the drawing of an inference as to Gilligan’s evinced intention.  After one party’s election to affirm a contract, in considering whether the other party has evinced an intention not to be bound by the contract, the other party’s acts subsequent to the election do not fall for consideration in a vacuum and should be considered in light of the facts preceding the election.[158]  The extent of the continuing relevance of those preceding facts will of course be influenced by the subsequent facts but logically it is the totality of all such facts as are relevant to drawing an inference about the evincing of an intention that must be considered. 
  5. Consistently with that reasoning, while the letter of termination cannot be relied upon as a breach in its own right, it remains a potentially relevant factual circumstance, just as the withdrawal of the letter does, in shedding light on the subsequent facts and subsequent assessment of whether or not Gilligan’s evinced an intention not to be bound.

Facts: continuing conduct

 The final throes

  1. From the time Gilligan’s sent the letter terminating the agreement, to the time it withdrew its termination, Mad Dogs continued to operate at Gilligan’s premises.[159]
  2. On 30 August 2007, only three days after the withdrawal letter and the day the proceeding was dismissed by consent, Mr Lewsey sent an email to Mr Le-Van stating that in “moving forward” Gilligan’s intended to “work in strict accordance with the contract” and that anything that was “provided for by any previous management” outside of the contract conditions would be subject to change.[160]
  3. Soon thereafter on 3 September 2007 Mr Lewsey emailed Mad Dogs in great detail about adherence to the agreement.[161]  The email referred to the absence of provision within the contract in relation to the provision of office facilities and requested Mad Dogs to vacate any office space by 10 September 2007.  The email went on to identify a number of clauses in the contract which specifically required action by Mad Dogs and requested such actions to occur, notwithstanding that they had occurred.  For example, the email’s reference to the agreement’s requirement at clause 3.1(3)(d) that Mad Dogs seek Gilligan’s approval for changes to prices or types of food being sold was met with a response from Mr Le-Van by email on 10 September 2007 asserting the menus were already available on Mad Dogs’ and Gilligan’s websites as well as in hard copy format on site and had already been approved.[162]  
  4. Some of the requests in Mr Lewsey’s email of 3 September 2007 related to clauses in the agreement where Gilligan’s own conduct had been inconsistent with what was required.  For example, clause 5.5(7) of the agreement required Mad Dogs to “implement an employee training programme which must involve representatives of Gilligan’s, as nominated by Gilligan’s.”[163]   The email on 3 September 2007 requested Mad Dogs provide details of the next employees’ training programme for a Gilligan’s representative to attend.  Mr Le-Van’s emailed response on this issue of 10 September 2007 pointed out that Mad Dogs had an employee training programme in place, yet Gilligan’s employees had never turned up. 
  5. By way of further example the email on 3 September 2007 requested compliance with clause 8.3 of the agreement which required Mad Dogs to furnish certain financial materials relating to the gross sales to Gilligan’s “in the form reasonably required by Gilligan’s”.   However, Gilligan’s had not identified what form it required such records in, a fact Mr Whalley drew to Mr Brooks’ attention by email on 5 September 2007.[164]
  6. Mr Lewsey’s email of 30 August 2007 foreshadowed that he would be coming to Cairns around 12 September 2007.  He did come to Cairns around that time and he and Mr Le-Van walked together to a nearby bar.  The main gist of what Mr Lewsey said was Gilligan’s still wanted to take the café back “no matter what”.[165]  In the course of the conversation Mr Le-Van testified Mr Lewsey said:

“He said, ‘You want to fight me, don’t you.’  I said, ‘No’, and then we went on to talk about how if we went to court he would basically – they had enough money that they’d be able to send us bankrupt and we wouldn’t be able to get to court.”[166]

  1. Mr Le-Van also mentioned the low patronage of Gilligan’s by reason of its high accommodation rates and the construction that had been occurring.[167] 
  2. Mr Lewsey and Mr Le-Van met again the following day at Pomodoro and Mr Lewsey indicated it was Mr Ainsworth who had directed that the accommodation rates be at the high prices that had resulted in the low occupancy.[168]  Mr Lewsey also referred to problems Gilligan’s was having in relation to its suppliers and paying their bills and the business being able to stand up on its own.[169]
  3. Subsequent to the aforementioned discussion at Pomodoro between Mr Lewsey and Mr Le-Van, Mr Le-Van was sitting behind reception in the Gilligan’s office when Mr Lewsey came in and abused him for being there. Mr Le-Van testified of Mr Lewsey’s conduct:

“[H]e came in screaming, ‘What the – what the eff are you doing here.’   And then I said to him ‘You can’t unilaterally vary the contract.’   Then he screamed at me ‘I can do what I fucking well like.  I’ll fucking do what I like.’ And then he kept screaming at me, and then one of the other managers heard it and he stormed off.  Then I left – I left the building.  I went down and – went down to the police here and reported it to the police …”[170]

It appears likely from the content of exhibit 24 that this confrontation occurred on about 11 September 2007.

  1. The following day, 12 September 2007, Mr Le-Van complained in an email to Gilligan’s that Mad Dogs’ weekly revenue had been withheld by Gilligan’s.[171]  That unexplained delay in the weekly payment was remedied by Gilligan’s two days later.[172]  It was not a delay of such magnitude as to suggest deliberate withholding as distinct from administrative oversight or error.
  2. On 14 September 2007, Mr Le-Van sent another email to Mr Brooks.[173]  In this email, Mr Le-Van expressed his concern over a number of issues that he believed amounted to an “unprofessional and incompetent way” the Gilligan’s operation was currently running.  The tone of the email was highly critical of Gilligan’s management and business integrity as well as the venue, staff and general operation.
  3. The email included an accusation that Gilligan’s had “delayed payments by months”.  That was a reference to non-payments of revenue from functions catered for by Gilligan’s, a problem that was said to have started happening when Mr Lewsey was in charge.[174]  The plaintiff did not pursue this aspect of the matter with any specific evidence other than the seemingly isolated example of the Australand revenue discussed above.
  4. Mr Lewsey responded to Mr Le-Van’s email on 17 September 2007 by email, inviting Mr Le-Van to provide particulars in support of his complaints and criticisms.  Mr Lewsey concluded:

“In the meantime, we will continue to comply with our obligations under the main kitchen agreement and we expect you to do the same.”[175]

Acceptance of Gilligan’s repudiation

  1. On 26 September 2007 Mad Dogs’ solicitors wrote to Gilligan’s solicitors accepting what it alleged was a repudiation of the agreement.[176]  The letter recited some of the history leading up to the purported termination of 18 July 2007 and noted that even after the purported withdrawal of that termination on 27 August 2007 it had been obvious the bullying tactics of which the letter complained would continue.  The letter also referred to the fact, which had obviously come to the knowledge of Mad Dogs that Mr Lewsey had instructed Mr Lone to concoct evidence of breaches by Mad Dogs.
  2. The letter also referred to the dramatic downturn at Gilligan’s during 2007.  Of that downturn it said:

“The downturn was caused by two things, the first being the massive increase in prices charged by Gilligan’s for accommodation which resulted in occupancy levels falling from over 90% to less than 40%, in the middle of the tourist season.  The second reason was the construction works which have been and still are under way at the rear of Gilligan’s, which encroach onto the outdoor dining area used by Mad Dogs restaurant patrons … This had a disastrous effect on trading and was done in the middle of the tourist season without any notice to or consultation with our client.”

  1. The letter concluded:

“Ben Le-Van, on behalf of Mad Dogs Pty Ltd, has today sought our advice in relation to the conduct of Gilligan’s Group General Manager, Lucy and sole shareholder Christian Ainsworth, particularly with regard to the contrived allegations of breach and bullying tactics employed by them to force our client out of business.  The conduct amounts to a repudiation of the main kitchen agreement.  Engaging in construction works in the middle of the tourist season, which has quite deliberately made the conduct of our client’s business at Gilligan’s untenable, is a clear breach of the main kitchen agreement.

We are instructed to advise you that our client accepts the repudiation of the main kitchen agreement and reserves its rights. …

We have also advised our client that the culmination of all of the abovementioned circumstances and the poor trading caused by the actions of Gilligan’s leaves the company’s sole director with no choice but to put the company into administration, which he proposes to do tomorrow.”[177]

Mad Dogs goes into administration

  1. On the following day, 27 September 2007, Mr Ian Jessup and Mr Anthony Miskiewicz of Jessups Accounts and Business Advisors were appointed voluntary administrators of Mad Dogs.
  2. They were in turn appointed joint and several liquidators of the company on 24 October 2007.[178] 

Discussion : continuing conduct

  1. Mad Dogs contends it was justified in treating the contract as terminated by reason of Gilligan’s breaches and Gilligan’s repudiation by evincing an intention not to be bound by the agreement.  It is the latter justification that has substance.

Breaches

  1. The four breaches ultimately contended for in written submissions were:
     
  1. the unlawful termination of the agreement on 18 July 2007;
  2. the changes in room rates;
  3. the closure of or restriction in the use of the outdoor dining area without consultation because of construction;
  4. the change to the arrangements in respect of calculation of fees without institution of a new system.
  1. The reasons already given explain why the conduct identified in (b) and (c) did not amount to breaches and Mad Dogs’ election precludes it from reliance upon the conduct in (a) as a breach in its own right. 
  2. It is nonetheless appropriate to re-visit (b) in the light of two particular features of the continuing conduct.  The first feature is that in the conversation between Mr Lewsey and Mr Le-Van on around 12 September at a bar in Cairns Mr Lewsey said, in effect, that if Mad Dogs wanted to go to court Gilligan’s had enough money to send Mad Dogs bankrupt so they would not be able to get to court.  The second feature is that in a conversation the following day Mr Lewsey implicitly accepted the high accommodation prices had resulted in lower occupancy levels. 
  3. These features are not such when taken with the other evidence connected with the room rate increases to prompt any different conclusions from those already reached on this topic.  The words said to have been used by Mr Lewsey when he was seemingly trying to deter Mad Dogs’ from going to court by threatening to send them bankrupt are not said to have been connected with any suggestion there was already a deliberate attempt underway via high room rates to deliberately inflict financial damage upon Mad Dogs.  Nor does Mr Lewsey’s belief the higher room rates were causing lower occupancy levels suggest the rates were intended to inflict financial damage on Mad Dogs. 
  4. The real significance of this evidence lies in its background relevance to assessing whether Gilligan’s was evincing a continued intention not to be bound, discussed below.
  5. As to the conduct in (d) it is said to be a breach of the implied obligation to co-operate.  The change of arrangements referred to in (d) is the indication in Mr Lewsey’s email of 3 September that Mad Dogs ought comply with the agreement’s requirement at clause 8.3 about providing gross sales information “in the form reasonably required by Gilligan’s”.  Mad Dogs contend this breached the implied obligation to co-operate because the request could not be complied with because Gilligan’s had not co-operated by indicating what form it required the information in or by tending to the necessary logistical changes to the existing shared till arrangements.  That such actions needed to occur for the request to be implemented is so obvious that the real test of whether there was a breach lies not in the making of the request but in whether the ensuing events evidenced an unwillingness to tend to the actions required to implement the request while at the same time pressing the request.  Such conduct might more accurately be regarded as a breach of the second implied term.  In any event matters did not progress to that point.  The making of the request without tending to the actions required by Gilligan’s to implement it may provide some circumstantial evidence relevant to the evincing of an intention but it was not a breach.  
  6. There being no breach, consideration now returns to whether there was repudiation.

Repudiation – evincing an intention not to be bound

  1. For the reasons given above Gilligan’s collective conduct prior to its termination letter of 18 July 2007 had evinced an intention to no longer be bound by the agreement. In particular that conduct involved the use of intimidation to compel Mad Dogs into agreeing to relinquish its rights under the agreement and the pursuit of false allegations intending to build a knowingly false basis to terminate.  Each form of conduct bespoke an intention to no longer be bound by the agreement.
  2. In addition, the termination letter was not premised on any genuine breach of which Gilligan’s was aware, thus further manifesting an unwillingness to be bound by the contract.  However, that manifestation was of no evidentiary value by the time of Mad Dogs acceptance of the repudiation on 26 September.  That is because the termination letter had been withdrawn almost a month earlier by Gilligan’s on 27 August 2007. 
  3. On one view the withdrawal of the termination letter provides positive evidence against the on-going existence of an intention not to be bound.  The withdrawal and Mr Lewsey’s indication in his emails of 30 August and 3 September 2007 about wanting to adhere to the requirements of the contract on the face of it positively evidence an intention to be bound by the contract.
  4. However, when that evidence is considered in context it is exposed as mere superficial pretence.  When events in the final month are considered in the light of Gilligan’s earlier manifestations of its intention not to be bound it can be seen those manifestations continued.  That is most obviously apparent from the uncontradicted and credible evidence that in the discussion with Mr Le-Van of about 12 September 2007 Mr Lewsey reiterated that Gilligan’s still intended to take the front café back no matter what. 
  5. This was a reiteration of the central motive behind the past intimidatory behaviour – compelling Mad Dogs to agree to surrender its operation of the front café without Gilligan’s co-operating pursuant to the agreement’s implied term to deliver a benefit commensurate with being able to operate the front café.  Again it was accompanied by intimidation, viz, Mr Lewsey’s references in the same conversation to Mr Le-Van wanting to fight him and to bankrupting Mad Dogs if necessary to prevent it going to court. 
  6. The aggressive posturing of Mr Lewsey was repeated in his outburst upon finding Mr Le-Van in the Gilligan’s office.  While the agreement did not entitle Mad Dogs to the office facilities it had hitherto enjoyed and it was no breach of the agreement for Gilligan’s to withdraw that privilege, the relevance of this episode lies in the remarkable aggression exhibited by Mr Lewsey.  It is consistent with an intention to continue to intimidate Mad Dogs.
  7. There was also a continuation of Gilligan’s past very assertive focus upon Mad Dogs having to comply with the agreement.  Such an assertive focus may in isolation present as innocuous.  However, this assertive focus was occurring against a background where Gilligan’s had previously made false allegations of breach and, as had been discovered by the time of the letter of 26 September, where Mr Lewsey had been prepared to request the concoction of evidence of breaches.  While the intimidation in this context did not again extend to actually making false allegations of conduct that was in breach it falsely implied past failures to comply with the agreement.  For example it sought compliance with the clause relating to the approval of changes to prices and food in circumstances where there had been no past non-compliance.  Similarly it sought compliance with training programme requirements which were supposed to involve Gilligan’s representatives but such representatives had not previously shown up.  Further, as discussed above it sought compliance with requirements for reporting gross sales without doing what it needed to do to facilitate such compliance.
  8. Considered in the light of past events this assertive focus upon compliance in areas where Mad Dogs had given no cause for concern had an obviously intimidatory flavour to it.  It was but a more subtle iteration of the same past message, that Mad Dogs’ ability to comply with the contract would be hampered by Gilligan’s if Mad Dogs did not relinquish the front café without the commensurate benefit to which it was entitled as a benefit of the agreement.
  9. When the events of the final month are considered in the light of the preceding events it can be seen Gilligan’s was continuing to try to intimidate Mad Dogs into relinquishing its rights under the agreement.  Such conduct manifested an intention to avoid its obligation under the agreement to enable Mad Dogs to have the benefit of it, that is, it evinced an intention to no longer be bound by the agreement. 
  10. This constituted a breach by Gilligan’s in the form of repudiation of the contract which Mad Dogs was entitled to, and did, accept.
  11. Insolvency?
  12. Before turning to the assessment of damages occasioned by the breach it is necessary to consider the threshold question of whether Mad Dog’s is precluded from such relief by reason of its alleged insolvency constituting a breach of a fundamental term on its part.
  13. Gilligan’s and Mr Ainsworth placed reliance upon clause 12.2 of the agreement, in which Mad Dogs represented and warranted that it would remain solvent at all times during the term of the agreement.  Clause 14.1 of the contract also provided that if Mad Dogs was presumed by law to be insolvent that would provide legitimate grounds for Gilligan’s to terminate the agreement without incurring liability arising from the termination.  The defendants allege Mad Dogs was insolvent.
  14. By the time Mad Dogs went into administration it had for some time experienced difficulty in meeting some debts.  The timing and nature of the onset of its financial difficulties was explored in cross-examination with Mr Le-Van but he had no knowledge of relevant detail.[179]   It did not appear Mr Le-Van had been actively involved in the day to day management of Mad Dogs’ business.
  15. Gilligan’s tendered a formal proof of debt or claim to Mad Dogs’ Administrators by Mastercut Meats under the Corporations Act 2001 dated 17 October 2007 showing a total amount of $5,652.92 owing to Mastercut Gourmet Meats by Mad Dogs.[180] Gilligan’s tendered a number of unpaid invoices from Cairns meat supplier “Mastercut Gourmet Meats” at trial dating from March 2007 through to September 2007.[181]  Those invoices do add up to a total of $5,652.92 however with the exception of a single invoice for $774.91 dated 1 March 2007[182] the rest of the invoices apparently relied upon in support of the alleged debt were dated in late August and in September of 2007.  The lone invoice from March 2007 therefore appears to be an anomaly.  The long gap in time between it and the invoices in late August and September strongly suggests that either it was not paid because of administrative error or it was erroneously counted as unpaid in Mastercut’s formal proof of debt or claim.  It is impossible to discern which from the evidence adduced at trial.  Either way when it is realised the issue of that invoice’s payment is of no material weight, the remaining evidence of non-payment of Mastercut Gourmet Meats’ invoices only suggests financial difficulty in the closing stages of Mad Dogs’ operation.
  16. In a similar vein Gilligan’s tendered formal proof of debt or claim made to the Administrators of Mad Dogs by PFD Food Services Pty Ltd for $32,867.85 in respect of invoices issued from and including 1 June 2007 to 7 August 2007 and from Coffee Plus in the amount of $2,596.45 for unpaid invoices issued from and including 18 June 2007 to 10 September 2007 and from Dairy Farmers (Danish Distributors) for $2,599.46 from and including 1 July 2007 to 9 September 2007.[183]   It is noteworthy that the PFD invoices dated in June were not due until 15 July 2007 and the sole Coffee Plus invoice due prior to 16 July 2007 had been due on 25 June 2007 and was only in the amount of $127.50.  Considered overall, the tendered evidence in this category serve to demonstrate that Mad Dogs started exhibiting difficulty in meeting due invoices during July 2007.  This falls well short of demonstrating that Mad Dogs was then insolvent but does demonstrate it was in financial difficulty by the final quarter of its operations.
  17. Mr Le-Van acknowledged there had been an ongoing problem with the Australian Tax Office (“ATO”) and a payment arrangement entered into but was vague on the detail of it, understandably so given that he was not prompted by reference to ATO records that were later tendered in evidence. 
  18. The ATO records showed that as early as 2 May 2006 Mad Dogs had an outstanding debt to the ATO.[184]  It appears likely from those notes that at least in the initial stages a tax debt developed as a result of poor financial management and a failure to lodge business activity statements.  As at 1 September 2006 Mad Dogs owed the ATO $112,100.86.[185]  The amount owing thereafter fluctuated as Mad Dogs apparently struggled to comply with a payment plan negotiated by its accountant with the ATO.  The amount owing fluctuated around the $90,000 to $100,000 range for some months thereafter.  During the first half of 2007 it fluctuated more dramatically, reaching a peak of around $178,000 by June before being whittled back again by progressive payments so that by the time Mad Dogs went into administration the debt owing was $117, 253.42.
  19. The liquidators instituted proceedings in 2009 seeking to claw back some of the payments made to the ATO by Mad Dogs on the basis they were unfair preference payments and thus voidable transactions.[186]  In that application Mr Jessup deposed that some 17 payments, totalling $136,855, made by Mad Dogs to the ATO from and including 21 May 2007 to 28 September 2007 “were made during a period of time that the company was insolvent and was not able to meet its debts as and when they became due and payable”.[187]  The Court ordered by consent that the ATO repay $136,855 to Mad Dogs in liquidation.
  20. Further in a report to creditors dated 30 December 2008 Mr Jessup stated:

“Pursuant to the provisions of section 95A(1) of the Act, “solvency” is being able to pay one’s debts as and when they become due and payable.

This is known as the “Commercial Insolvency Test” or the “Cash Flow Test” and is the primary test used to determine insolvent trading.  Our investigations to date have revealed that the restaurant was operating at a loss in recent periods due to the reduction in occupancy levels staying at the Gilligan’s Resort.  Hence the company was most likely to be insolvent, based on the Commercial Insolvency Test, since 30 June 2006.”[188]

  1. It is not readily apparent from the report why Mr Jessup suggested the insolvency problem stretched as far back as mid-2006.  On the whole of the evidence while Mad Dogs’ business was very far from a model of efficiency in that era it did not then appear to have the potential indicia of insolvency.
  2. The real difficulty is whether Mad Dogs was insolvent by the final quarter of its operations from mid-2007 to September 2007, a time when the above evidence shows Mad Dogs was under serious financial distress.  In light of my rejection of the consequences of the construction work and more particularly the increased room rates being connected with the breach on the part of Gilligan’s that financial distress cannot be ignored on the basis that it flowed from any breach by Gilligan’s.
  3. On the other hand the financial difficulties connected with the maintenance of higher room rates was not destined to continue indefinitely.  It will be recalled that whilst Mad Dogs did capitulate in September 2007 that was a result of Gilligan’s having manifested an intention not to be bound by the contract.  Assuming there had been no breach by Gilligan’s the practical question to consider is whether Mad Dogs could have continued to trade, weathering the transitory financial problems until their inevitable easing.  Those familiar with Mad Dogs’ business were particularly robust in their assessment at trial of its future prospects.  A new chef with considerable commercial experience had commenced in mid-2007.  Mad Dogs had invested in equipment to improve its business and it had the benefit of an agreement which was very generous in only requiring it to pay four per cent of gross sales to Gilligan’s.
  4. Even allowing for its markedly reduced revenue by mid-2007 it still had significant cash flow.  It was beginning to accumulate monies owing to a number of trade creditors as mentioned above, however considered in the context of its annual gross sales that was hardly a fatal problem.  By far its most significant debt was to the Australian Tax Office, a debt which appears to have accumulated due to financial mismanagement rather than a trend towards insolvency.  Further it had in place repayment arrangements in relation to that debt and was in a position if it needed to call in directors’ loans.  In addition its most recent member Mr Whalley would have been prepared if necessary to access some of his own resources in order to address any short term liquidity problem. 
  5. It is well established that while a company will be insolvent if unable to pay its debts as and when they become due and payable,[189] a capacity to pay debts is not assessed by bland reference to the company’s balance sheets and the existence of a mere temporary lack of liquidity but rather to the company’s capacity to access the resources necessary to pay its debts.[190]
  6. Having regard to the totality of Mad Dogs’ commercial circumstances it was not insolvent when it accepted Mad Dogs’ repudiation in September 2007 or for that matter in any of the months leading up to that time.

Damages for breach of contract

Calculation of damages

  1. A joint report of the plaintiff’s expert accountant and liquidator Mr Jessup and the defendants’ expert accountant Mr Wood dated 24 April 2015[191] reached some common ground in the approach and methodology by which an assessment of damages may be calculated. The experts agree that the appropriate methodology by which to quantify any loss suffered by Mad Dogs involves both an assessment of the future cash flows lost as a result of the alleged breach by Gilligan’s and the discounting of the future cash flows back to a present value at the date of the breach.[192]
  2. This methodology involves an assessment of future maintainable earning (“base FME”) being the revenue flow that would have been derived by Mad Dogs but for the alleged breach by Gilligan’s. It further includes adjustments to the base FME in each year of the loss to reflect growth/decline in likely revenue and costs and the cash flow that Mad Dogs could have expected to derive in each year of the loss period, but for the alleged breach by Gilligan’s. [193]
  3. The base FME derives from an analysis of Mad Dogs’ actual trading results in the 2006 and 2007 financial years, being the only years for which financial information is available.[194]   It is calculated by taking the base sales and deducting the base food costs, base wages and super, base rent to Gilligan’s and base overheads. The experts agree and I accept that $976,500 is the appropriate base sales figure on which to base the calculation of loss.[195] Aside from the agreed base payment to Gilligan’s of four per cent of base sales, the amounts of the other base costs to be deducted from the base sales figures are in dispute.
  4. The methodology further involves discounting of the lost future cash flows back to the date of the breach, to reflect the risks associated with the cash flows.  The experts agree and I accept that a discount rate of 30 per cent is appropriate for the purpose of discounting the lost cash flows back to a valuation date of 21 August 2007.[196]  That date should more accurately be 26 September 2007.  The experts jointly acknowledge there should be discounting of the calculated loss by the amount of cash flow derived by the plaintiff in the interim, though the preferable option is to use the correct date instead.[197]
  5. Apart from making determinations in respect of base costs it will be necessary to determine whether loss is to be assessed on the assumption all options would have been exercised and but for the breach Mad Dogs would have endured in business at Gilligan’s throughout the consequent maximum hypothetical period or whether it ought be assessed by reference to a lesser period.

Base food cost

  1. The first cost in dispute is the base food costs. Mr Jessup assesses this amount as being 37.5 per cent of the base sales figure.  Mr Wood assesses the percentage at 38.1 per cent.  Mr Wood opined that Mr Jessup’s assessment was not adequately justified on the information available to the parties. Mr Jessup’s assessment was based on financial statements for the two years of trade ending 30 June 2006 and 30 June 2007,[198] as well as benchmarking statistics drawn from website Benchmarking.com.au Pty Ltd.[199]  Mr Wood considers that because the financial statements relied upon show the 2006 and 2007 base food costs as being 36.75 per cent and 39.43 per cent of sales respectively, the appropriate figure to use would be the average of these amounts, or 38.1 per cent.[200]  Mr Wood does not consider the benchmarking figures used by Mr Jessup to be of particular use because they would include statistics of dining outlets that derive part of their income from alcohol, which would not be a feature in the base sales of Mad Dogs.
  2. It is difficult to determine an exact percentage based on the short life of Mad Dogs’ business.  Mr Jessup’s approach also made allowance for the increased room rates leading to a decrease in occupancy and assumed that would have resulted in higher food wastage and spoilage and that this would explain the increase in food costs during the 2007 period.[201] There is no evidence to suggest that this actually occurred to any extent.  I accept Mr Wood’s opinion that if it is the case that there was a lower occupancy and therefore less patronage, the food costs would have likely decreased proportionately to demand.  For this reason, I accept that a reasonable approach to assessing the base food costs in the Mad Dogs operation would be to take the average of the actual trading results for the 2006 and 2007 financial years, 38.1 per cent, which incidentally still falls within the benchmarking data provided by Mr Jessup.

Base wages and superannuation

  1. The amount of base wages and superannuation was not agreed. Mr Jessup assesses the average annual amount at $410,130 or 42 per cent of base sales. Mr Wood assesses the amount at $468,605 or 48 per cent of base sales.
  2. Mr Wood disagreed with Mr Jessup’s assessment for a number of reasons.  Most notably, for the purposes of this imprecise exercise, the disagreement relates to payments to Mr Le-Van of wages that did not relate to the business undertaken to perform the agreement and the exclusion of a Government grant.
  3. As to the exclusion of wage payments made to Mr Le-Van for “business development activities”, they were amounts of $11,553 and $17,250 in 2006 and 2007 respectively. These amounts have been excluded by Mr Jessup on the basis that they did not relate to Mad Dogs business.  Mr Jessup is of the understanding that the business development activities related to operations other than Cairns and as such should not be included as wages relating to the Mad Dogs business. However this was not the subject of any such evidence by Mr Le-Van. On the evidence as it stands Mad Dogs undertook a single business being the provision of catering services relating to Gilligan’s Cairns premises.  It ought be assumed Mad Dogs’ business development costs did relate to its sole business and ought not be excluded.  This would increase the yearly average of $410,130 to $424,531.50.
  4. As to the grant, Mr Jessup applied a total figure of $72,280 to the wage costs across the 2006 and 2007 financial years, which was the amount received by Mad Dogs under a Government grant in the aftermath of Cyclone Larry passing through the area in March 2006.  There is no supporting evidence as to the details of the grant but it is accepted it was intended to assist business in retaining staff during periods of economic downturn following the cyclone.  Mr Wood would only have agreed with an assumption the grant artificially inflated wage costs if there had been a significant downturn in revenue after March 2006, which would have necessarily resulted in reduced resourcing requirements and therefore wage costs.  Mr Wood cites the monthly revenue statistics following March 2006 as remaining fairly constant up until June 2006 where it reached its highest monthly revenue for the two years of trading.  This suggests the grant is unlikely to have distorted the amount expended on wages to an extent equivalent to its amount.   Nonetheless it is reasonable to assume the ready access to such funds would have resulted in a less efficient approach to incurring wages expenditure.  I would allow for 50 per cent of the $72,280 spread over two years, i.e. $18,070, to be regarded as not having been ordinarily necessary for wages. To allow for that I would adjust Mr Jessup’s yearly average upwards further from the above amount of $424,531.50 to $442,601.50.   This equates to 45.3 per cent of base sales.

Base overheads cost

  1. The difference in the experts’ assessments of the base overhead costs is the most significant in any of the disputed calculations. Mr Jessup’s assessment takes into account the actual expenditure of overhead items found in the 2006 financial statement and 2007 trial balance, and adjusts the amounts by deducting certain expenses deemed to be “expenditure incurred by the plaintiff company that can be considered to be personal in nature applicable to the proprietor of the business, or does not relate to the operation of the Main Kitchen Agreement”.[202]  These items include accountancy fees, conference expenses, office expenses, fines, petty cash, crockery and cutlery, kitchen utensils, travelling, freight and cartage, and contract work. Mr Jessup does however include an amount of $3,000 as a general conservative allowance of likely appropriate expenditure not otherwise accounted for.
  2. Mr Wood disagrees with the exclusion of most of the items and amounts deducted from Mr Jessup’s assessment on the basis that the business of Mad Dogs cannot be differentiated or separated from the business of the company because the company was created for the sole purpose of running the business. The business of providing food and catering services under the agreement was the only business carried on by Mad Dogs, indeed it was conceived for that sole purpose.
  3. In cross-examination, Mr Jessup was unable to provide any detailed explanation as to how the expenses could be solely or partly attributed to either the company or the business, except to say that Mr Parry of his office had conducted the necessary research of company records and conversations with Mr Le-Van in order to arrive at the conclusions for each item and amount.[203]  What was assumed as fact from those conversations is not apparent from Mr Le-Van’s evidence, although it is difficult to see why in arriving at a forecast for future overheads an existing pattern of one of the Directors incurring overheads ought be disregarded.  In the absence of more information or explanation, it appears it was artificial to exclude so much expenditure for the cost of the company’s operation was inevitably a cost incurred in order to be able to operate the business.  Nonetheless even if a company only has one business it will to some extent incur costs that are strictly connected with the requirements of operating a corporate entity.
  4. Mr Jessup’s adjusted overheads were assessed at 7.29 per cent of sales for 2006 and 7.11 per cent of sales for 2007, resulting in a base overheads assumption of 7.37 per cent of sales being applied.
  5. Mr Wood’s assessment, which is based on the average of the actual trading expenditure figures contained in the 2006 financial statement and 2007 trial balance, is 11.2 per cent of sales.
  6. I would adjust overheads to an assessment at nine per cent of sales.

Future maintainable earnings

  1. These assumptions give rise to future maintainable earnings as follows:

Future Maintainable Earnings

Sales

$976,500.00

100%

Food Costs

Wages & Superannuation

Licence Fee (rent)

$372,046.50

$442,354.50

$ 39,060.00

38.1%

45.3%

4%

Trading Costs

$853,461.00

 

Gross Profit

$123,039.00

12.6%

Overheads

$ 87,885.00

9%

Trading Profit

$35,154.00

3.6%

Period of loss

  1. It is necessary to decide what period of loss ought be allowed for.
  2. The first term of the agreement was due to end on 28 February 2008.  In order to be granted the option of a further three year term Mad Dogs was required by clause 22.1 of the agreement to give notice of its wish to exercise the option “not more than 6 months and not less than 3 months before the Term expires”.  Subject to compliance with that requirement the agreement stated that Gilligan’s “will” grant a further agreement for a term of three years on the same terms and conditions.  That is, there was no discretionary basis for Gilligan’s to refuse the exercise of any of the first, second or third options to renew.
  3. Counsel for Gilligan’s argued there was a failure to extend the first option period because by 26 September 2007, when Mad Dogs accepted Gilligan’s repudiation it had not, as it by then could have, given notice of its exercise of the option.  However if the agreement had not so ended Mad Dogs still had until about 28 November, three months before the expiry of the term, within which to exercise the option.  There could not have been a failure of the kind contended for until that stage.  The fact that Mad Dogs could by 26 September have already done so, and could have done so as early as about 28 August, is not evidence that even in the absence of Gilligan’s breach it would not have done so within time.
  4. The specific question of whether or not Mad Dogs would have exercised the first, second and third options was not explored with witnesses.  Features favouring the inference the first option would have been exercised include the proximity of the next term, the fact Mad Dogs had been strongly committed to the improvement of its business and its recently exhibited determination to enforce its entitlement to continue with the agreement in the face of the wrongful termination of 18 July 2007.
  5. As against this Mad Dogs business was under serious financial distress by the time it accepted Gilligan’s repudiation but I have not attributed that to any breach by Gilligan’s.  Accepting in this hypothetical exercise that Mad Dogs appreciated its financial distress was an unhappy incident of the vagaries of such a business, including its susceptibility to managerial misjudgements about room rates, its commitment to continue would have been significantly blunted.  On balance however it is likely to have concluded the low occupation levels would eventually improve, given weight to the good deal the agreement represented in light of the comparably very low percentage payment required to be made to Gilligan’s and exercised the first option.
  6. Despite that conclusion it hardly follows Mad Dogs would have seen out the entirety of the ensuing term or extended for a second or third time.  To assume it would have done all of those things and continued for the maximum hypothetical period up to 28 February 2017 would be to make no allowance for the general exigencies of commercial life and to give no weight to the specific exigencies Mad Dogs had in fact experienced during the troubled life of the business thus far.  It is reasonable to make some allowance for those exigencies in arriving at a proper assessment of damages.
  7. Looking beyond the general exigencies of commercial life to the actual exigencies experienced by Mad Dogs it noteworthy that it had not exhibited any particular robustness in weathering a serious downturn in custom and that significant downturns are an occasional incident of business in the tourist sector.  It is also noteworthy that even before the downtown associated with Gilligan’s increased prices it was heavily in debt to the ATO.  As earlier mentioned this appears to have been a result of poor financial management.  Notwithstanding that debt and the downturn being underway Mad Dogs still had loans receivable of $119,647 as at June 2007.[204]  Poor financial management and a lack of accumulated financial resistance to the seasonal and other variations faced by a business of this kind were weaknesses which may have dissipated in time but they were obviously serious problems for this business.  Moreover if the contract had not ended Mad Dogs was yet to adjust to running its business on the premises without the perks of the accommodation room, office and shared till facilities which it had hitherto enjoyed but was not actually entitled to under the agreement.
  8. The serious extent of the problems already faced by Mad Dogs arguably calls for a very high allowance for exigencies, for instance by not allowing for continued operations beyond the end of the first option period.  However it ought be understood that the calculation of future maintainable earnings already reflects an inherent degree of moderation by reason of Mad Dogs not having been as efficient and financially successful as it might have been and might have become. 
  9. I would make allowance for exigencies by allowing damages premised on the term of the agreement being extended to the conclusion of the second option period, 28 February 2014.

Growth assumptions and proceeds from sale of assets

  1. The experts ultimately concluded and I agree that while this exercise is technically an assessment of the loss as forecast when the breach occurred, the passage of years in the interim allows knowledge of actual growth data which is of the most practical assistance in forecasting growth for the purpose of assessing the loss.  I would adopt the following business growth and CPI growth figures:

Business Growth (%)CPI Growth (%)

(Sales, Food Costs, Wages(Overheads, Sales/

& Super, Rent)Food/Rent)

 

01/03/08 – 28/02/09 3.823.1

01/03/09 – 28/02/10        - 4.353.0

01/03/10 – 28/02/11        - 5.963.6

01/03/11 – 28/02/12        - 0.871.3

01/03/12 – 28/02/13        10.952.1

01/03/13 – 28/02/14        - 3.633.1

 

  1. Mr Jessup identified the need to add a $1,500 security deposit to the eventually assessed total. I would do so. Mr Jessup also opined there should be a deduction of proceeds of sale of plant and equipment from the eventually assessed total.  Mr Wood agrees that proceeds from the sale of assets should be offset against the business loss.[205]  However he questions Mr Jessup’s exclusion of a 2003 Ford Falcon XR8 from the proceeds of sales of assets. Mr Jessup favours excluding this on the basis that it was used personally by Mr Le-Van and that there is no reason why this vehicle would have been required for the business.[206]  Mr Wood ripostes that motor vehicles have been included as assets in the Mad Dogs’ 2007 trial balance.  It would be inconsistent to include an item as an asset for the purpose of bettering a company’s financial position only to exclude it to better its loss margin.  The full amount of the sale proceeds should be offset.

Calculation

  1. I require further submissions from the parties, preferably including provision of an assessment of damages table, as to the correct calculation of damages applying the above endorsed approach and findings. 
  2. I will also need to hear the parties as to interest.

Wrongful interference with contractual relations?

Liability of de facto director

  1. Mad Dogs’ claim against Mr Ainsworth in tort for wrongful interference with contractual relations faces a threshold problem.  Directors cannot be sued in court for procuring a breach of contractual rights by their company.
  2. In O'Brien v Dawson[207] Jordan CJ cited some English authorities for the proposition that:[208]

“[T]he fact that one or more directors of a company, acting as such, are the instruments by which the company, without just cause, refuses to perform a contract does not confer on the other party to the contract a right to sue the directors in tort on the footing that they have procured a breach of contractual rights.”

  1. That matter was unsuccessfully appealed to the High Court. Starke and McTiernan JJ concluded a director acting as a director did not incur independent liability as a tortfeasor.[209]
  2. More recently in Tsaprazis v Goldcrest Properties Pty Ltd[210] Hodgson CJ observed of directors’ liability under a contract entered into by a company:[211]

“[I]n general, only the company is liable under such a contract, not its shareholders or directors, unless they guarantee the company’s performance. Directors may become indirectly liable to other contracting parties through breach of their directors’ duties to the company, or through breach of the corporations law relating to such matters as insolvent trading. Consistently with this general approach, directors are not liable for the tort of inducing breach of contract, where, in exercising their functions as directors, they have caused the company to breach its contract.”[212]

  1. Section 9 Corporations Act 2001 (Cth) defines a director as meaning, inter alia, a person not validly appointed as a director if the person acts in the position of a director or the directors are accustomed to act in accordance with the person’s instructions or wishes. 
  2. Whether the above mentioned exclusory principle applies to individuals who are the guiding mind of a company but are not actually directors of it was considered in Biscayne Partners Pty Ltd v Valance Corp Pty Ltd & Ors[213]where Einstein J observed:[214]

“Once a person becomes a de facto director within the meaning of Corporations Act section 9 they become exposed to the same common law and statutory duties as are applicable to directors, including of course the duties imposed by the Corporations Act itself.  It is also possible for a person to become a de facto director as a result of a defect in appointment or where there is simply a failure to formally appoint.  There is no reason in principle for regarding such a person as acting otherwise than a director where the question which arises is whether the acts of that person were the acts of the company.”

  1. These issues were previously considered by me in a summary judgment application in this matter.[215]  At that time Mad Dogs had pleaded that Mr Ainsworth “was and is the controlling mind of the first defendant”, an allegation then denied by the defendants.  Since the likely immunity of de facto directors was exposed in last year’s application the parties’ pleadings underwent a near reversal on this issue.  The plaintiff deleted that part of its pleading which alleged Mr Ainsworth was and is the controlling mind of the first defendant and the defendants inserting a pleading that “the directors of the first defendant were accustomed to act in accordance with the second defendants’ instructions or wishes”. That seismic shift in the parties’ pleaded positions does not appear to have reflected any genuine change in the evidentiary picture. 
  2. As the above discussed review of the evidence pertaining to the three categories of concerning conduct shows, Mr Ainsworth was directly concerned in the operational decision-making of Gilligan’s.  It may be safely inferred from the evidence that its directors and other managers were most certainly accustomed to act in accordance with his instructions or wishes.  Mr Ainsworth was for all intents and purposes acting in the position of a director.  His acts, insofar as they are relevant in the present case, were in effect the acts of a director and thus were the acts of the company. 
  3. He therefore cannot be independently liable for his alleged interference with contractual relations as between Mad Dogs and Gilligan’s and for that reason I would dismiss the claim against him.

Intentional interference with contractual relations?

  1. In the event the above conclusion is incorrect it is appropriate to determine whether the plaintiff’s case against the second defendant for intentional inference with contractual relations has been made out.
  2. It is necessary to show four elements to establish the tort of intentional interference with contractual relations:

(a)that there was a breach of contract or interference with the performance of contract;

(b)the defendant procured or induced the breach or interference;

(c)the breach was induced or procured, or the interference occurred, with the intention of injuring the plaintiff or alternatively where it must have been obvious to the defendant that the reasonable consequence of the procuring, inducing or interfering conduct would be to injure the plaintiff;

(d)there must be injury thereby caused to the plaintiff.[216]

  1. Implicit in these requirements is a requirement for proof of interference in the execution of a contract.  That interference is not confined to the procurement of a breach of contract and extends to a case where a third person prevents or hinders another from performing his contract even though not a breach.[217]  In Bruce J Small No 1 Pty Ltd & Anor v Minister for Natural Resources & Anor[218] Muir J cited authority for the proposition that for an inducement or a procurement to be actionable it must be either direct, or indirect and accompanied by an act wrongful in itself.  His Honour went on to observe:

“It … seems to be established that, in the case of indirect procurement or inducement, the tort will be constituted only if the alleged breach of contract has ensued as a necessary consequence of the alleged wrongful conduct.”[219]

Discussion

  1. It is unnecessary to repeat the evidence already reviewed of Mr Ainsworth’s conduct and the broader facts including the conduct of Mr Lewsey. 
  2. That evidence demonstrated Mr Ainsworth was directly involved in the era prior to 18 July 2007 in pressuring Mr Lewsey to allow Gilligan’s to take back the space occupied by Pomodoro.  However this did not involve interference with the performance of the contract.  At worst, Mr Ainsworth’s conduct in that era procured or induced the potential breach of contract represented by Gilligan’s evincing an intention to no longer be bound.  However no injury was thereby caused at that stage and the repudiation inherent in such conduct was not at that stage accepted.
  3. When consideration is given to the later era, which did culminate in Mad Dogs’ acceptance of Gilligan’s repudiation in September of 2007, it is noteworthy there is no evidence of any continuing conduct on the part of Mr Ainsworth.  Bearing in mind the alleged breaches associated with construction work and increased room rates have not been proved, the plaintiff is really left with a case of indirect procurement or inducement supposedly having the necessary consequence of Gilligan’s – effectively Mr Lewsey’s – evincing of an intention not to be bound.
  4. It is unknown whether Mr Lewsey’s continuation of the campaign to try and intimidate Mad Dogs into relinquishing its rights under the agreement was indirectly procured or induced by Mr Ainsworth.  There is no direct evidence Mr Ainsworth encouraged Mr Lewsey to take the course and it is not an inference supported by any evidence with any temporal connection to this latter phase.
  5. The evidence does not prove it likely that the relevant breach, that is the evincing of the continued intention to no longer be bound, was a necessary consequence of Mr Ainsworth’s conduct.  On balance the evidence suggests that by that phase Mr Lewsey’s evincing of the relevant intention involved the active and aggressive assertion of his role as he perceived it on behalf of Gilligan’s.  It cannot be said his conduct only ensued as a necessary consequence of Mr Ainsworth’s behaviours.
  6. For these reasons the elements of the tort are not made out.  The claim against Mr Ainsworth must therefore fail, even if the above conclusion that his de facto director role precludes him from liability is wrong.
  7. The above findings make it unnecessary to consider the defendants’ limitations defence regarding the statement of claim’s belated inclusion of allegations of Mr Ainsworth’s encouragement of Gilligan’s conduct.

Conclusion

  1. The claim as against Mr Ainsworth should be dismissed. 
  2. In giving judgment for the plaintiff on its claim as against Gilligan’s it will be necessary to set a date to further hear the parties on damages calculations and interest. 
  3. It will also be necessary to hear the parties as to costs.

Orders

  1. Judgment for the plaintiff against the first defendant.
  2. The claim as against the second defendant is dismissed.
  3. I will hear the plaintiff and first defendant as to calculation of damages and interest at 10.00 am on 27 November 2015.
  4. I will hear the parties as to costs at 10.00 am on 27 November 2015.

 

Footnotes

[1] Ex 1.

[2] Ex 1 [22]-[24].

[3] Ex 28.

[4] Ex 23.

[5] SOC [9].

[6] T1-38 LL14-45, T3-26 L40.

[7] T1-38 LL 23-28, T3-19 L23.

[8] T3-14 L18.

[9] T3-79 L37.

[10] T2-12 L42 – T2-14 L11.

[11] T3-92 LL29-34.

[12] T3-92 LL42-45.

[13] Ex 1.

[14] T1-42 L29.

[15] Ex 1 [6.1].

[16] Ex 1 [7.1].

[17] Ex 1 [1.1(28(a)].

[18] T2-36 LL27-40.

[19] T2-36 L6 - T3-94.

[20] T3-23 L27.

[21] T3-39 LL21-24.

[22] T3-40 L35.

[23] T3-93 L35.

[24] T3-22 LL44-45.

[25] T3-18 LL40-46.

[26] T4-4 L35.

[27] T3-13 LL13-36, T4-5 L42.

[28] Ex 2.

[29] T2-9 LL13-25.

[30] T3-19 L6.

[31] T3-18 L46 – T3-19 L2.

[32] T1-44 L12.

[33] T1-46 L20, T2-9 L30.

[34] T2-7 L30 – T2-8 L10.

[35] Ex 1 [9.1].

[36] Ex 1 [8.1].

[37] Ex 1 [8.2].

[38] Ex 1 [8.3].

[39]  T1-44 L16 – T1-45 L15.

[40] T2-87 L21, T3-45 L23.

[41] T2-87 L46.

[42] Ex 38.

[43] T3-48 LL46-47, Ex 31.

[44] T3-44 L2.

[45] T3-44 L6.

[46] T4-13 LL13-19.

[47] T4-14 LL39-41.

[48] T-86 L7.

[49] T3-86 L6.

[50] T3-47 L26.

[51] Ex 49 p26.

[52] Ex 49 p29.

[53] T3-29 L20.

[54] T3-29 LL16-31.

[55] T2-85 L40.

[56] T3-29 L17.

[57] T2-86 L4.

[58] T3-81 LL8-45.

[59] T3-84 L25, T3-91 L14.

[60] Ex 49.

[61] T2-42 L34.

[62] T4-9 LL13-17.

[63] T4-33 L1.

[64] T4-9 L33.

[65] T4-11 L27-28.

[66] T4-11 L31.

[67] T4-11 L32.

[68] T4-12 LL16-19.

[69] The high point was Mr Whalley’s suggestion the defendants’ counsel refer to daily audit reports, suggesting the possibility they were the records he had referred to in order to draw the conclusions to which he testified – T4-39 L47.

[70] Ex 49

[71]  Ex 49 p29.

[72] T4-38 L22.

[73] Ex 49 annexure 8.

[74] Ex 21, 22; T2-43 L23 – T2-46 L45.

[75] He described those establishments as inferior to Gilligan’s – Ex 49 p29.

[76] T2-15 L18.

[77] Ex 20.

[78]  T2-19 LL26-42.

[79] Ex 39.

[80] T2-19 LL24-28.

[81] The timing of the Sydney meetings was not the subject of precise evidence, e.g. T2-24 L21.

[82] T2-23 L27.

[83] T2-22 L40.

[84] T2-23 L27.

[85] T2-17 L15 – T2-18 L1.

[86] T2-20 L19.

[87] T2-20 L24-33.

[88] T3-20 L30 - T4-51 L20.

[89] T2-22 LL15-22.

[90] T2-19 L16.

[91] T2-24 L24 – T2-25 L12 (the transcript’s plural reference to “restaurants” is accurate).

[92] T3-15 T43.

[93] T2-18 L30.

[94] T2-21 L35, T2-25 L36.

[95] Ex 7.

[96] Ex 1.

[97] Per clause 12.2.

[98] Per clauses 1(23) and 8.1

[99] Ex 13.

[100] Ex 8.

[101] Ex 9 (obvious typographical errors corrected).

[102] T3-72 L3.

[103] Ex 10.

[104] Ex 35.

[105] Ex 10.

[106] T3-82 LL36-47.

[107] T2-28 L43, T3-73 L33, Mr Le-Van flagged he would arrange for this back on 24 May 2007 – Ex 34.

[108] T2-31 LL1-15.

[109] Ex 12 (Obvious typographical errors corrected).

[110] T2-28 L43 – T2-29 L2, T2-30 L35 Ex 11.

[111] T3-82 L12

[112] T3-80 LL7-31.

[113] T3-80 L40.

[114] T3-84.

[115] T2-31 LL35-41.

[116] T2-32 L32.

[117] T2-32 LL31-37.

[118] T4-18 L27.

[119] T4-18 LL32-46.  Ex 46 confirms the conversation related to taking Pomodoro back, as distinct from the entire Mad Dogs business and compare T4-51 L9 and T4-54 L33.

[120] T4-23 LL24-34.

[121] T4-20 L12.

[122] Ex 42 RJW-1[13].

[123] Ex 40.

[124] Ex 41.

[125] Ex 41.

[126] Ex 42.

[127] Ex 43.

[128] T4-22 LL22-24.

[129] T3-26 L18.

[130] Ex 12.

[131] Ex 1 [6.1], [14.3(1)].

[132] Ex 1 [1.1(28(a)].

[133] See for example T3-40 L25.

[134][2008] NSWCA 193, [20]-[21].

[135] (1865) LR 1 QB 173, 195.

[136] A principle articulated by Griffith CJ in Butt v McDonald (1896) 7 QLJ 68, 70-71 and applied by the High Court, see for example Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607.

[137] O'Keefe v Williams (1907) 5 CLR 217, 230.

[138] A description used in this context in Cheshire and Fifoot’s Law of Contract Ninth Australian edition p 442 footnote 333, described as a negative covenant in Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126, 142 and arguably an implied term reflecting the prevention principle – see Richco International Ltd v Alfred C Toepfer International GmbH [1991] 1 Lloyd’s Rep 136.

[139] (1977) 180 CLR 266, 283, also adopted in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-82) 149 CLR 337.

[140] (1979) 144 CLR 596, 607.

[141] That the front café was a substantial food service area from the outset cannot be doubted.  Revenue records tabulated at Ex49 p29 show its revenue generally accounted for at least 40 per cent of sales from as early as July 2005.

[142] Plaintiff’s written submissions [12-14].

[143] Plaintiff’s written submissions [56].

[144] Plaintiff’s written submissions [57].

[145] Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, 658.

[146] Ex 13.

[147] Ex 13.

[148] Ex 14.

[149] T2-34 LL7-13.

[150] Ex 64.

[151] Ex 15.

[152] Ex 64.

[153] Acknowledged in addresses 1-11 L21.

[154] (1931) 45 CLR 359.

[155] Third Amended Defence [15].

[156] Bibby Financial Services Australia Pty Limited v Sharma [2014] NSWCA 37 [115] Gleeson JA.

[157] Sargent v ASL Developments Ltd (1974) 131 CLR 634, 641, 655; Khoury v Government Insurance Office (NSW) (1983-84) 165 CLR 622, 633.

[158] Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444, 462.

[159] T2-34 L30.

[160] Ex 16.

[161] Ex 17.

[162] Ex 18.

[163] Ex 1.

[164] Ex 44.

[165] T2-41 LL33-47.

[166] T2-41 L29.

[167] T2-42 L5.

[168] T2-42 L20.

[169] T2-42 L15.

[170] T2-47 L20.

[171] Ex 24.

[172] Ex 25.

[173] Ex 26.

[174] T2-81 L17.

[175] Ex 27.

[176] Ex 28.

[177] Ex 28.

[178] Ex 55B.

[179] E.g. T34-64 L2.

[180] Ex 45B.

[181] Ex 32, Ex 45A

[182] Ex 32.

[183] Ex 51A, 51B, 52A, 52B, 53A, 53B.

[184] Ex 56.

[185] Ex 57.

[186] Ex 2.

[187] Ex 2.

[188] Ex 58 p9.

[189] Corporations Act 2001 (Cth) s 95A.

[190] Sandell v Porter (1966) 115 CLR 666.

[191] Ex 50 p3.

[192] Ex 50 p3.

[193] Ex 50 p3.

[194] Ex 50 p3.

[195] Ex 50 p4.

[196] Ex 50 p3.

[197] Ex 50 p4.

[198] Ex 48 annexures 14 and 15

[199] Ex 49 annexure 2.

[200] Ex 50 p 5.

[201] Ex 50 p6.

[202] Ex 49 p 10.

[203] T4-92 – T4-97 and T5-2 – T5-7.

[204] Ex 60 p15.

[205] Ex 50 p 10.

[206] Ex 50 p 10.

[207] (1941) 41 SR (NSW) 295.

[208] Ibid, 308 (citations omitted).

[209] O'Brien v Dawson (1942) 66 CLR 18, 32-33, 34.

[210] (2000) 18 A CLC 285 [11].

[211] Ibid, [11] (citations omitted).

[212] Also see Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231, [113]- [134], TS and B Retails Systems v 3 Fold Resources Pty Ltd & Ors (No3) (2007) 158 FCR 444, [186].

[213] [2003] NSWSC 874.

[214] Ibid, [115].

[215] Mad Dogs Pty Ltd v Gilligan’s Backpackers Hotel & Resort Pty Ltd & Anor [2014] QSC 165.

[216] Short v The City Bank (1912) 12 SR (NSW) 186, 202 approved on appeal by the High Court in Short v City Bank of Sydney (1912) 15 CLR 148.

[217] Torquay Hotel Co v Cousins [1969] 2 Ch 106, 138.

[218] [1999] QSC 38.

[219] Ibid [23].

Close

Editorial Notes

  • Published Case Name:

    Mad Dogs Pty Ltd (in liq) v Gilligan's Backpackers Hotel & Resort Pty Ltd & Anor (No 3)

  • Shortened Case Name:

    Mad Dogs Pty Ltd (in liq) v Gilligan's Backpackers Hotel & Resort Pty Ltd (No 3)

  • MNC:

    [2015] QSC 319

  • Court:

    QSC

  • Judge(s):

    Henry J

  • Date:

    09 Nov 2015

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2014] QSC 16525 Jul 2014Application for summary judgment or strike out of pleadings without leave to re-plead dismissed: Henry J.
Primary Judgment[2015] QSC 31909 Nov 2015Judgment for plaintiff on trial of claim for breach and wrongful termination of contract: Henry J.
Primary Judgment[2016] QSC 5416 Mar 2016Orders as to damages and costs: Henry J.
Notice of Appeal FiledFile Number: Appeal 3745/1612 Apr 2016-
Appeal Determined (QCA)[2016] QCA 30418 Nov 2016Appeal against [2015] QSC 319 and [2016] QSC 54 allowed; judgment set aside; claim dismissed: Fraser, Philippides and Philip McMurdo JJA.

Appeal Status

Appeal Determined (QCA)

Cases Cited

Case NameFull CitationFrequency
Bibby Financial Services Australia Pty Limited v Sharma [2014] NSWCA 37
2 citations
Jump To
Cite 1 - [2014] NSWCA 37
Cite 2 - [2014] NSWCA 37
Biscayne Partners Pty Ltd v Valance Corp Pty Ltd & Ors [2003] NSWSC 874
2 citations
Jump To
Cite 1 - [2003] NSWSC 874
Cite 2 - [2003] NSWSC 874
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
2 citations
Jump To
Cite 1 - (1977) 180 CLR 266
Cite 2 - (1977) 180 CLR 266
Bruce J Small No 1 Pty Ltd v Minister for Natural Resources & Anor [1999] QSC 38
2 citations
Jump To
Cite 1 - [1999] QSC 38
Cite 2 - [1999] QSC 38
Butt v McDonald (1896) 7 QLJ 68
2 citations
Jump To
Cite 1 - (1896) 7 QLJ 68
Cite 2 - (1896) 7 QLJ 68
Churchward v Queen (1865) LR 1 QB 173
2 citations
Jump To
Cite 1 - (1865) LR 1 QB 173
Cite 2 - (1865) LR 1 QB 173
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981) 149 CLR 337
1 citation
Jump To
Cite 1 - (1981) 149 CLR 337
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (2008) NSWCA 193
2 citations
Jump To
Cite 1 - (2008) NSWCA 193
Cite 2 - (2008) NSWCA 193
Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622
2 citations
Jump To
Cite 1 - (1984) 165 CLR 622
Cite 2 - (1984) 165 CLR 622
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 C.L R. 623
2 citations
Jump To
Cite 1 - (1989) 166 C.L R. 623
Cite 2 - (1989) 166 C.L R. 623
Ltd v Petersville Ltd (2001) 205 CLR 126
1 citation
Jump To
Cite 1 - (2001) 205 CLR 126
Mad Dogs Pty Ltd v Gilligan's Backpackers Hotel & Resort Pty Ltd [2014] QSC 165
1 citation
Jump To
Cite 1 - [2014] QSC 165
O'Brien v Dawson (1942) 66 CLR 18
2 citations
Jump To
Cite 1 - (1942) 66 CLR 18
Cite 2 - (1942) 66 CLR 18
O'Brien v Dawson (1941) 41 SR (NSW) 295
2 citations
Jump To
Cite 1 - (1941) 41 SR (NSW) 295
Cite 2 - (1941) 41 SR (NSW) 295
O'Keefe v Williams (1907) 5 CLR 217
2 citations
Jump To
Cite 1 - (1907) 5 CLR 217
Cite 2 - (1907) 5 CLR 217
Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444
2 citations
Jump To
Cite 1 - (1976) 136 CLR 444
Cite 2 - (1976) 136 CLR 444
Richco International Ltd v Alfred C Toepfer International GmbH [1991] 1 Lloyd’s Rep 136
1 citation
Jump To
Cite 1 - [1991] 1 Lloyd’s Rep 136
Root Quality v Root Control (2000) 177 ALR 231
1 citation
Jump To
Cite 1 - (2000) 177 ALR 231
Sandell v Porter (1966) 115 C.L.R., 666
2 citations
Jump To
Cite 1 - (1966) 115 C.L.R., 666
Cite 2 - (1966) 115 C.L.R., 666
Sargent v ASL Developments Pty Ltd (1974) 131 C.L.R., 634
2 citations
Jump To
Cite 1 - (1974) 131 C.L.R., 634
Cite 2 - (1974) 131 C.L.R., 634
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
2 citations
Jump To
Cite 1 - (1979) 144 CLR 596
Cite 2 - (1979) 144 CLR 596
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359
2 citations
Jump To
Cite 1 - (1931) 45 CLR 359
Cite 2 - (1931) 45 CLR 359
Short v The City Bank of Sydney (1912) 15 CLR 148
1 citation
Jump To
Cite 1 - (1912) 15 CLR 148
Short v The City Bank of Sydney (1912) 12 SR (NSW) 186
2 citations
Jump To
Cite 1 - (1912) 12 SR (NSW) 186
Cite 2 - (1912) 12 SR (NSW) 186
Torquay Hotel Co. Ltd. v Cousins (1969) 2 Ch 106
2 citations
Jump To
Cite 1 - (1969) 2 Ch 106
Cite 2 - (1969) 2 Ch 106
TS and B Retails Systems v 3 Fold Resources Pty Ltd & Ors (No3) (2007) 158 FCR 444
1 citation
Jump To
Cite 1 - (2007) 158 FCR 444
Tsaprazis v Goldcrest Properties Pty Ltd (2000) 18 A CLC 285
2 citations
Jump To
Cite 1 - (2000) 18 A CLC 285
Cite 2 - (2000) 18 A CLC 285

Cases Citing

Case NameFull CitationFrequency
Gilligan's Backpackers Hotel & Resort Pty Ltd v Mad Dogs Pty Ltd [2016] QCA 304 19 citations
Mad Dogs Pty Ltd (in liq) v Gilligan's Backpackers Hotel & Resort Pty Ltd (No 4) [2016] QSC 542 citations
Medicrew Pty Ltd v Van Veenendaal [2023] QDC 1294 citations
1

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