CATCHWORDS
CONTRACT - respondent acts as distributor of appellant's seeds - contract not reduced to writing - dispute as to terms - whether contract terminable on three years notice - whether appellant knew and approved of the "outsourcing" of seeds - whether respondent's purchase of seeds from a competitor amounted to breach of express or implied term of the contract - whether repudiation
JURISDICTION - consideration of federal jurisdiction in appeal to Federal Court from state Supreme Court involving infringement of copyright, damages for breach of contract, passing-off and contravention of Trade Practices Act 1974 (Cath)
DAMAGES - whether expense incurred in mitigating respondent's loss - whether credits given by respondent for seeds returned to it - whether loss of profit on sales - interest
COPYRIGHT - whether appellant had acquired a licence from respondent - whether licence incidental to or co-terminous with the distributorship arrangements between the parties
THOMPSON & MORGAN (UNITED KINGDOM) LIMITED and DEFENDER LIMITED v ERICA VALE AUSTRALIA PTY LIMITED
NG 698 of 1994
NG 899 of 1994
LOCKHART, GUMMOW and HILL JJ.
19 APRIL 1995
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY) Nos. NG698
GENERAL DIVISION ) and NG899 of 1994
On appeal from the Supreme Court of New South Wales.
BETWEEN: THOMPSON & MORGAN
(UNITED KINGDOM) LIMITED
First Appellant
DEFENDER LIMITED
Second Appellant
AND: ERICA VALE AUSTRALIA PTY LIMITED
Respondent
BEFORE: LOCKHART, GUMMOW, HILL JJ.
PLACE: SYDNEY.
DATE: 19 APRIL 1995.
MINUTE OF ORDER
THE COURT ORDERS THAT:
1. The appeal in what was previously proceeding 5302 of 1988 in the Supreme Court of New South Wales be allowed. The appeal in what was previously proceeding 4209 of 1989 in the Supreme Court of New South Wales be dismissed.
2. Orders 4, 11 and 16 made by the Supreme Court of New South Wales on 23 September 1994 be set aside.
3. Upon the respondent by its counsel
undertaking to the Court that it shall not part with its assets or incur
liabilities other than in the ordinary course of
business, the stay of execution granted by order 14 of the Supreme Court of New
South Wales made 23 September 1994 be extended to and be discharged on 10 May
1995.
4. Upon the discharge of the stay in order 3, the judgment in favour of the respondent against the appellants in Order 8 made by the Supreme Court of New South Wales on 23 September 1994 may be set-off against the judgment of the Supreme Court of 14 June 1991 in favour of the first appellant and against the respondent.
5. The respondent pay one-half of the costs of the appellants of the proceeding at first instance; and the respondent pay the costs of the appellants of the appeal; but otherwise there be no order as to the costs of the appeal.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY) Nos. NG698
GENERAL DIVISION ) and NG899 of 1994
On appeal from the Supreme Court of New South Wales.
BETWEEN: THOMPSON & MORGAN
(UNITED KINGDOM) LIMITED
First Appellant
DEFENDER LIMITED
Second Appellant
AND: ERICA VALE AUSTRALIA PTY LIMITED
Respondent
BEFORE: LOCKHART, GUMMOW, HILL JJ.
PLACE: SYDNEY.
DATE: 19 APRIL 1995.
REASONS FOR JUDGMENT
THE COURT:
Jurisdiction
This is an appeal, by leave, from orders made in the Equity Division of the Supreme Court of New South Wales (Brownie J). The orders were made in the exercise of federal jurisdiction with which that Court is invested by the Copyright Act 1968 (the Copyright Act).
It is
appropriate to outline the steps by which the jurisdiction of this Court has
been attracted. Section 131B of the Copyright Act provides that an appeal
lies from the decision of a court of a State in an action under Part V of
that statute to this Court, or, by special leave of the High Court, to that
Court. Part V (ss. 114-135) deals with
remedies for infringements of copyright.
Further, sub-s. 24 (1) of the Federal
Court of Australia Act 1976 (the Federal
Court Act) provides that subject "to any other Act", whether
passed before or after the commencement of the Federal Court Act, this Court has jurisdiction to hear and
determine, in such cases as are provided by "any other Act", appeals
from judgments of a court of a State, other than a Full Court, given in
exercise of federal jurisdiction. The
phrase "any other Act" refers to an Act of the Parliament of the
Commonwealth: Acts Interpretation Act
1901, s. 38.
It is well settled that federal jurisdiction invested in a State court may be attracted by a step taken in the proceeding after it has been instituted. For example, in Felton v Mulligan (1971) 124 CLR 367 at 403, Walsh J held that federal jurisdiction may be attracted by a defence or by an answer made to a defence if a title, right, privilege or immunity, upon which the defence or its rebuttal is founded, is given by and depends upon the Constitution or upon a federal law. Further, as Barwick CJ pointed out at 373, in that event the jurisdiction which is exercised by the State court throughout the case will be federal.
An additional example to those referred to by Walsh J is provided by an order for consolidation. In this case, an order for consolidation was made by Brownie J pursuant to Part 31 Rule 7 of the Supreme Court Rules. "Consolidation" is a process by which two or more proceedings are, by order of the Court, combined and become the one action. On 23 September 1994, Brownie J ordered as follows:
"Proceedings no 5302/88 and 4209/89 be consolidated and that in the consolidated action Thompson and Morgan (United Kingdom) Limited be the First Defendant, [Neville] Cox Second Defendant, Defender Limited Third Defendant and Defender Home Garden Pty Limited the Fourth Defendant."
In each proceeding, the plaintiff was and remained Erica Vale Australia Pty Limited (Erica Vale).
Orders then were made on 23 September 1994 in the consolidated matter. The two proceedings had been heard together and reasons for judgment covering both matters had been delivered on 6 and 20 June, and 8 September 1994.
Proceeding No. 4209 was an action for copyright infringement and, as will become apparent, arose out of the same factual matrix as action No. 5302, which was concerned principally with issues of breach of contract.
In our view, it is clear that the effect of the order for consolidation is that all of the orders made by Brownie J on 23 September 1994 were made in the exercise of federal jurisdiction, with the result that any appeal would properly lie to this Court. This was his Honour's intention in making the consolidation order, as he had earlier indicated in his reasons delivered on 8 September 1994.
It appears that, for more abundant caution, a notice of appeal, purportedly in what had been proceeding No. 5302, was filed in the New South Wales Court of Appeal, so that orders might then be made transferring that appeal to this Court under the cross-vesting legislation. However, it is a consequence of the conclusions we have indicated above that these precautionary steps were, in truth, otiose. The proceeding in this Court, as to its entirety, has its jurisdictional root in the federal legislation to which we have referred.
Another preliminary question of jurisdiction must be mentioned. When the matter was called on for hearing before us, the attention of the parties was drawn by the Court to order 11 made by Brownie J on 23 September 1994. This was in the following terms:
"Liberty be granted to any party to apply upon 5 day's notice in the event that the Commissioner for Taxation asserts that the Plaintiff is liable to pay capital gains tax on the judgments or any part of them."
The judgments referred to were in favour of the present respondent against the first appellant for damages for breach of contract, and against the first and second appellants for copyright infringement. The appellants challenge both judgments on the present appeal. Nevertheless, the effect of order 11 was to render the judgments interlocutory in nature. This was in accordance with the principles explained by the High Court in Computer Edge Pty Ltd v Apple Computer Inc. (1984) 54 ALR 767, and often applied in this Court.
We have referred to sub-s. 24 (1) of the Federal Court Act. In addition to this being expressed as subject to any other Act, it is also subject to s. 24 itself. Sub-section 24 (1A) provides that an appeal shall not be brought from a judgment referred to in sub-s. 24 (1) that is an interlocutory judgment unless leave to appeal is given.
On the matter being drawn to the attention of the parties, no objection was taken to the grant of leave and leave was given.
The Nature of the Case
The first appellant (Thompson & Morgan) is a British company whose business of producing and supplying seeds was established in 1855. Thompson & Morgan exports its products to more than 100 countries and each year introduces approximately 150 new seed varieties. Its seeds are used in botanical gardens in many countries. By the time of the trial in 1993 the company had ceased to do business in Australia.
The second appellant (Defender) or a related corporation, Defender Home Garden Pty Limited, was appointed distributor of Thompson & Morgan's products in Australia and New Zealand subsequent to the collapse of the commercial and contractual relationship between Thompson & Morgan and the respondent (Erica Vale). Erica Vale had been the Australian distributor of Thompson & Morgan's products since 1975. The present litigation arises out of the breakdown of that relationship. In June 1988, Thompson & Morgan purported to terminate the contract between them by notice to expire at Christmas in that year. This period of notice later was extended to 1 June 1989. Erica Vale's case is that this was a repudiation of the contract by Thompson & Morgan, which repudiation Erica Vale accepted so as to discharge the contract. For its part, Thompson & Morgan contended that the contract was terminable at will or by giving reasonable notice, and that such notice as had been given was reasonable.
Thompson & Morgan also contended that it had been entitled to terminate the contract for breaches by Erica Vale of which it was not aware at the time but upon which it was now able to rely: Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359. In particular, Thompson & Morgan alleges that, in breach of contract, Erica Vale, without the knowledge or consent of Thompson & Morgan, had "outsourced" supplies, by buying seeds from one of Thompson & Morgan's competitors and marketing them as being the seeds of Thompson & Morgan. Particular complaint was made of the purchase by Erica Vale by order in March 1988 of some 93,000 packets from a rival English business, Plants of Distinction. This order included 30 varieties of seed.
In addition to these matters being put forward by Thompson & Morgan in defence of the action against it by Erica Vale for breach of contract, Thompson & Morgan relied upon them by way of cross-claim. It sought damages for breach of contract, passing-off and contravention of ss. 52 and 53(d) of the Trade Practices Act 1974. Thompson & Morgan also, by its cross-claim, sought to recover moneys due and owing for seeds purchased by Erica Vale between October 1986 and June 1988 and supplied by Thompson & Morgan. That last mentioned issue was tried separately, and on 14 June 1991 a Master in the Equity Division gave judgment for Thompson & Morgan against Erica Vale for $167,371.88, including interest under s. 94 of the Supreme Court Act 1970 (NSW) to the date of judgment. The Master ordered that execution on that judgment would be stayed until further order.
The issues which went to trial on the pleadings included an admission by Thompson & Morgan that in or about May 1975 it and Erica Vale entered into an agreement:
"(a)that [Thompson & Morgan] will supply to [Erica Vale] seeds and seed packets carrying its get-up and name for which [Erica Vale] will pay [Thompson & Morgan];
(b) that [Erica Vale] shall be the sole and exclusive distributor of [Thompson & Morgan's] seeds in Australia and New Zealand."
It will be necessary to refer further to admission (a).
There was an issue on the pleadings as to whether the contract was partly oral, partly in writing and partly by conduct (as Erica Vale asserts) or partly express, arising from conversations, and partly implied by the nature of the agreement entered into between the parties (Thompson & Morgan's contention). The significance of this difference will become apparent when we turn to consider the contractual effect given by the primary Judge to the letter of 27 January 1981.
The parties also were in dispute as to certain copyrights, being literary works in the printed material on certain seed packets and on certain insertions placed in those packets. Erica Vale had adapted for Australian conditions material supplied by Thompson & Morgan. The dispute was whether, as a result of the efforts of Erica Vale, copyright subsisted in the Australian packaging, Erica Vale was the owner of it, and it had been infringed by Thompson & Morgan and Defender.
The learned primary Judge declared that Erica Vale was the owner of copyright in the literary works appearing on a large number of packages and awarded Erica Vale damages against Thompson & Morgan and Defender for infringement being $5,000 together with interest under s. 94 from 1 July 1990 of $2,896. The Court also granted injunctive relief against further infringement of copyright.
On the cross-claim by Thompson & Morgan and Defender, Brownie J noted in the reasons for judgment delivered 6 June 1994 that he did not understand Erica Vale to dispute its liability on the passing-off claim against it. On 23 September 1994, his Honour ordered that there be judgment for Thompson & Morgan against Erica Vale "for damages for passing off and refer to a [Master] an enquiry as to damages. This judgment takes effect on 23 September 1994". We observe that this order also was interlocutory in nature.
As regards the action for goods sold and delivered, in his reasons given 8 September 1994 Brownie J decided that the appropriate course was to leave the 1991 judgment on foot, and to terminate the stay. Accordingly, on 23 September 1994, his Honour ordered that the stay granted by the Master on 14 June 1991 be terminated, but that the execution of all judgments and other orders, other than the injunctive order in respect of infringement of copyright, be stayed for 28 days and, if an appeal be lodged, be stayed until further order.
His Honour ordered that otherwise the cross-claim be dismissed. This reflected the finding adverse to Thompson & Morgan on the issue of repudiation. On the claim of damages for breach of contract by Erica Vale against Thompson & Morgan, the primary Judge entered judgment for $904,880, a sum which included interest under s. 94.
Contractual Issues
It is appropriate now to turn to the contractual issues.
The contractual relationship between Thompson & Morgan and Erica Vale continued over 13 years from 1975. Mr Keith Sangster was the Managing Director of Thompson & Morgan, and Mr Michael Forster was the Marketing Director of Erica Vale. Before 1974, Thompson & Morgan sold seeds in Australia by mail order, from the United Kingdom. Erica Vale approached it and by June 1975 discussions had produced the result that Erica Vale became the Australian distributor of Thompson & Morgan. Erica Vale did not act as agent of Thompson & Morgan; cf Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 93, per Mason J. Thompson & Morgan sold seeds to Erica Vale, which resold them to sub-distributors, who in turn sold them to retailers. The seeds sold by Erica Vale were put out under the brand name of Thompson & Morgan, generally in packets printed by Thompson & Morgan's printer.
The contract between the parties was never reduced to writing, despite a number of drafts which passed between solicitors retained by the parties between 1978 and 1981.
In the course of discussions in England in January 1981 between Mr Forster and representatives of Thompson & Morgan, a letter dated 27 January 1980 (which it was agreed was an error for 1981) addressed to Mr Forster on the letterhead of Thompson & Morgan was signed by Mr Forster, by Mr Keith Sangster and by Mr Bruce Sangster on behalf of the respective companies. The primary Judge rejected a submission that "the letter should not be treated as having any contractual effect". He concluded that "the letter must be treated as contractual" and should be construed as meaning that a party wishing to terminate on notice needed to give the other party 3 years' notice, so that Thompson & Morgan's notice of June 1988 constituted a repudiation by it of the contract. His Honour further held that Erica Vale should be taken to have accepted that repudiation as discharging the contract when from at least 14 July 1988 it refused to pay for seeds previously sold to it by Thompson & Morgan, on the footing that Thompson & Morgan's repudiation had relieved it of its liability to pay.
The letter of 27 January 1981 read as follows:
"We wish to confirm the arrangement that exists between Thompson & Morgan (Ipswich) Ltd and Erica Vale Australia Pty Ltd to the effect that Erica Vale Australia Pty Ltd have the sole and exclusive distribution rights for Australia and New Zealand for the Thompson & Morgan brand products.
This is intended as an on-going arrangement and can only be terminated by mutual agreement and then be subject to a minimum of three years' notice."
During the period of their relationship, the parties corresponded frequently and had regular face to face consultations either by Mr Forster going to Ipswich, or Mr Sangster coming to Australia. The primary Judge held that the other terms of the contract between the parties had to be spelled out from a very large number of letters, telexes, faxes and contemporary notes of conversations, as well as some oral evidence. His Honour noted that the task was "complicated by the fact that the relationship changed gradually over a period of years".
However, his Honour said that it was not in dispute that by early 1988 the terms of the contract included the following:
"the plaintiff would purchase seeds from Thompson & Morgan, and pay for them; the price to be paid would be calculated by reference to Thompson & Morgan's recommended retail prices for each individual variety of seeds, less certain agreed discounts; the parties would share equally any profit or loss resulting from currency fluctuations; Thompson & Morgan would supply the plaintiff without charge the packets in which the seeds would be sold; the price to paid by [Erica Vale] included the costs ordinarily incurred by Thompson & Morgan in sending the seeds to Australia, including freight charges and customs duties; and [Erica Vale] would pay Thompson & Morgan a 'royalty' in respect of seeds sold by it as Thompson & Morgan seeds which had been 'outsourced'.
By 1988, the agreed discounts included a discount for buying in bulk; a second discount, to reimburse [Erica Vale] for the costs it was expected to incur in advertising Thompson & Morgan seeds in Australia; and a third discount, to reimburse the plaintiff for the costs it was expected to incur in placing seed stands in retail stores, that is, stands upon which Thompson & Morgan seeds would be displayed for sale."
During the course of the hearing, the appellants sought leave to amend the notice of appeal so as to contend that the primary Judge erred insofar as he found that Thompson & Morgan was under any contractual obligation, as of July 1988, to supply to Erica Vale at that time or at any other later time, products referred to in the letter of 27 January 1981, other than such products which had been the subject of an order placed by Erica Vale and accepted by Thompson & Morgan. Counsel for Erica Vale submitted leave should not be granted. He pointed to admission (a) which we set out above. We reserved the question of leave.
Brownie J also dealt with the matter of "outsourcing", in terms which found there to have been a certain "intention" of the parties reached by 1980. His Honour said:
"I think the parties ought to be taken to have originally contemplated that [Erica Vale] would not purchase seeds other than from Thompson & Morgan, except where there were pressing reasons for buying from elsewhere, such as Australian quarantine laws, but that by as early as 1980 that original intention had been watered down, progressively, so that it was the intention of the parties that [Erica Vale] might, generally speaking, buy in seeds from other sources, and sell them in Thompson & Morgan packets. It was not obliged to seek the consent of Thompson & Morgan to these purchases; but it was obliged to tell Thompson & Morgan of them after the event, and it was obliged to pay Thompson & Morgan a royalty in respect of each such sale.
Up until 1988, each of these purchases had been made from a supplier outside England, but it does not seem right to say that they had not been made from competitors of Thompson & Morgan, and several of the purchases had been made for no other reason than that the supplier was prepared to sell to [Erica Vale] at a cheaper price than Thompson & Morgan."
His Honour later said that it was not "entirely easy" clearly to express the implied term contended for, that it was impermissible for Erica Vale to buy from an English supplier without the prior consent of Thompson & Morgan, so as to accommodate the way in which the contract had actually been performed. Nevertheless, his Honour said that "[i]n the end" he had "rather hesitantly" come to the conclusion that there was a breach of an implied term to this effect. The reasoning for that conclusion appears in the following passage:
"[This
was] because the history of the relationship was one of gradual relaxation
of the original concept that [Erica Vale] would only buy Thompson & Morgan
seeds, or as it agreed in advance; and this step represented a further retreat
from the original position, where the plaintiff might reasonably have expected
that Thompson & Morgan would wish to be consulted before agreeing to any
further relaxation. It is true that the
parties had moved quite a long way from the original concept, but what was done
here involved the plaintiff purchasing relatively large quantities of seeds
from a competitor of Thompson & Morgan, in England."
By its notice of contention, filed, by leave, during the course of the hearing of the appeal, Erica Vale contended that the primary Judge erred in finding that there was an implied term of the contract between the parties that Erica Vale could not purchase relatively large quantities of seed from an English competitor of Thompson & Morgan without the prior consent of Thompson & Morgan.
The primary Judge went on to hold that although there was a breach of this implied term it did not constitute a repudiation of the contract by Erica Vale, in the sense of a refusal to be bound by its terms, or the demonstration of an intention to fulfil the contract only in a manner substantially inconsistent with the contractual obligations of Erica Vale. On the appeal, Thompson & Morgan submitted that his Honour was in error in not finding that the breach constituted a repudiation which entitled Thompson & Morgan to terminate the agreement.
The conclusion to which the reasoning of the primary Judge led was that the contract had been wrongfully terminated by Thompson & Morgan, thus rendering it liable in damages to Erica Vale. On the appeal, Thompson & Morgan contested the assessment of those damages in several respects. It further submitted that Erica Vale had conducted the trial in such a way as to involve an election by it to pursue the damages claimed in this form rather than any other, so that it would not now be appropriate to order a fresh hearing on the issue of damages if Thompson & Morgan succeeded in its submissions as to the error involved in the course taken by the primary Judge in assessing damages.
The contractual issues on the appeal are whether
(i) it is open now for the appellants to contend that the primary Judge ought to have held that, as of July 1988, Thompson & Morgan was obliged to supply Erica Vale only in response to orders accepted by Thompson & Morgan, and, if so, whether this contention is correct;
(ii) the primary Judge erred in finding an implied term that Erica Vale could not purchase relatively large quantities of seed from an English competitor of Thompson & Morgan without the prior consent of that company;
(iii) having found that term, his Honour nevertheless was in further error in finding that there had not been a repudiation by Erica Vale of sufficient seriousness to have entitled Thompson & Morgan to terminate the contract; and
(iv) on its proper construction, the letter of 27 January 1981 was contractual in nature and, in any event, should be construed as meaning that a party wishing to terminate on notice needed to give 3 years' notice so that Thompson & Morgan had terminated in breach of that requirement.
We turn to issue (i): whether it is open now for the appellants to contend that the primary Judge ought to have held that, as of July 1988, Thompson & Morgan was obliged to supply Erica Vale only in response to orders accepted by Thompson & Morgan, and, if so, whether this contention is correct.
As mentioned earlier, the issues which went to trial on the pleadings included an admission by Thompson & Morgan that in or about May 1975 it and Erica Vale entered into an agreement that Thompson & Morgan would supply to Erica Vale seeds and seed packets carrying its get-up and name for which Erica Vale would pay Thompson & Morgan, and that Erica Vale would be the sole and exclusive distributor of Thompson & Morgan seeds in Australia and New Zealand.
In our opinion the admission by Thompson & Morgan on the pleadings is inconsistent with the stance which Thompson & Morgan now seeks to adopt that it was not under a contractual obligation as of July 1988 to supply to Erica Vale at that time or at any other later time products referred to in the letter of 27 January 1981 other than such products which had been the subject of an order placed by Erica Vale and accepted by Thompson & Morgan. The admission by Thompson & Morgan in the pleading is that there is a contract between the parties, not just a series of ad hoc contracts constituted by individual orders. This is the way the case was conducted and argued before the primary Judge. There was an admission that there was a contract; the only question was as to its terms. In our opinion it is inconsistent with the admission and the manner in which the trial was conducted that leave to amend be granted. We decline to grant that leave.
Even if we had been disposed to grant leave, the issue would have been resolved against Thompson & Morgan. It has been Thompson & Morgan's case throughout this matter that Erica Vale could not purchase seeds from overseas suppliers of seeds other than Thompson & Morgan without that company's prior consent. For reasons which follow under issue (ii), the primary Judge found, correctly, that Erica Vale could not purchase relatively large quantities of seed from English competitors of Thompson & Morgan without its prior consent. It would be a curious contract if one party is bound to obtain most of its supplies from the other party yet the latter is free to decide whether to supply the former party or not. The facts of this case lead to the conclusion that Thompson & Morgan's case on this question must fail.
Contractual issue (ii) is whether the primary Judge erred in finding an implied term that Erica Vale could not purchase relatively large quantities of seed from an English competitor of Thompson & Morgan without the prior consent of that company.
The implication of terms in a contract to give it business efficacy has received much judicial attention. As Mason J. observed in Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 at 346, when speaking of implied terms necessary to give business efficacy to a particular contract:
"For obvious reasons the courts are slow to imply a term. In many cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue. And then there is the difficulty o identifying with any degree of certainty the term which the parties would have settled upon had they considered the question.
Accordingly, the courts have been at pains to emphasise that it is not enough that it is reasonable to imply a term; it must be necessary to do so to give business efficacy to the contract. ..."
Later in his reasons Mason J. said at 346-347:
"The basis on which the courts act in implying a term was expressed by MacKinnon L.J. in Shirlaw v Southern Foundries (1926) Limited [1939] 3 KB 206 at 227 in terms that have been universally accepted: 'prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying ...'
The conditions necessary to ground the implication of a term were summarized by the majority in BP Refinery (Westernport) Pty Limited v Hastings Shire Council (1977) 52 ALJR 20 at 26: '(i) it must be reasonable and equitable; (ii) 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; (iii) it must be so obvious that 'it goes without saying'; (iv) it must be capable of clear expression; (v) it must not contradict any express term of the contract.'"
This well known set of propositions stated by the Judicial Committee in BP Refinery (Westernport) has been referred to with approval on several occasions by the High Court.
However, in that regard, the primary Judge referred to the judgment of Deane J in Hospital Products, supra at 121 and in Hawkins v Clayton (1988) 164 CLR 539 at 571-2. In the latter case, Deane J pointed out that where the parties have not attempted to spell out all the terms of their contract, there is no question of effectively altering the terms in which the parties have seen fit to embody their agreement. Rather, the function of the Court is to establish what the contract is, the parties not having themselves fully stated its terms.
There is an essential distinction between implying terms into contracts to give them business efficacy and ascertaining the express terms of a contract from all the relevant circumstances in cases where the intention of the parties is not directly expressed, and the question is one of drawing inferences from the evidence as to what are the express terms.
The confusing or misleading nomenclature of the expression "implied terms" as covering "a number of dissimilar notions" is discussed in Halsbury's Laws of England, 4th ed, vol 9 at paras 212 and 351. Thus, the implication of a term to give the contract business efficacy is distinct from the implication of a term as a legal incident of a particular class of contract: see Liverpool City Council v Irwin [1977] AC 239; Codelfa esp. per Mason J at 345.
When one turns to the pleadings in this case to see what issues were raised with respect to the alleged implied term there emerges a confusing and imprecise picture. We refer in particular to paragraphs 2, 3 and 5A of the further amended defence of Thompson & Morgan to Erica Vale's claim, paragraph 4 of the fourth amended statement of claim, paragraphs 4(d) and 5 of the reply to the amended defence of Thompson & Morgan and paragraphs 3, 4(b), (c) and (d) of the amended cross-claim of Thompson & Morgan. The analysis of the pleadings shows that the parties were not at all clear as to whether there was being asserted an implied term in the sense of a term necessary to give the contract business efficacy or a term to be inferred from the conduct of the parties which results in an express term.
The primary Judge used the expression "implied term", but acknowledged that:
"... since the terms of the contract were never reduced to writing, it is not necessary to establish the five conditions which would be necessary if the contract had been reduced to writing: see Hospital Products Limited v US Surgical Corp (1984) 156 CLR 41 at 121 and Hawkins v Clayton (1988) 164 CLR 539 at 571-3."
A little later in the same passage in his Honour's reasons for judgment he spoke in the traditional language of implied terms to give contracts business efficacy when he said:
"... however, it is not immediately apparent that although the parties had agreed that the plaintiff might purchase seed that it regarded as being of proper quality ... each of them would have 'testily' said 'of course' if asked whether it was impermissible to buy from an English supplier without the prior consent of Thompson & Morgan."
Reading his Honour's reasons for judgment as a whole he probably did approach the question of the relevant term on the footing that for it to be implied it must satisfy the test of business efficacy. But we have the impression that he was also looking at the matter with a view to ascertaining by inference all the express terms of the contract.
The primary Judge said that it was "not entirely easy" to express this term in clear language. His Honour's hesitancy in finding that there was such a term appears to have been due primarily to his view that, although the original intention of the parties was that Erica Vale could not purchase relatively large quantities of seed from an English competitor of Thompson & Morgan without the prior consent of that company, by 1980 that original intention had been "watered down" or "relaxed". His Honour found that thereafter there was an implied term that Erica Vale might, generally speaking, bring in seeds from other sources and sell them in Thompson & Morgan packets, that Erica Vale was not obliged to seek the consent of Thompson & Morgan to those purchases, but was obliged to tell Thompson & Morgan of them after the event and pay Thompson & Morgan royalties in respect of such sales.
The implication of terms into formal contracts which contain express terms (the usual occasion on which the doctrine of implied terms is invoked) is not readily consonant with the present case. Here the essential task for the Court is to ascertain what the parties have in fact agreed upon, the terms to be gleaned from many documents, conversations and business dealings over a number of years. It is not a case where all or most of the terms of the contract are clear and have been the subject of express agreement between the parties, the terms of which are directly proved, so that what remains is to consider if a term must be implied to give the contract business efficacy.
We agree with the primary Judge that it was a term of the contract between Thompson & Morgan and Erica Vale that Erica Vale would not purchase relatively large quantities of seed from English competitors of Thompson & Morgan without its prior consent. But it was an express term inferred from the evidence, not an implied term necessary to give business efficacy to a particular contract.
The contractual relationship between Thompson & Morgan and Erica Vale continued over some 13 years from its inception in 1975 until termination on 24 June 1988 with a run-off period until 1 June 1989. During the period of their relationship the parties had regular face to face meetings and exchanged correspondence frequently. The terms of the contractual relationship have to be inferred from large numbers of letters, telexes, faxes and contemporary notes of conversation and oral evidence.
During the business relationship of the parties there were occasions on which Erica Vale purchased seeds from English suppliers other than Thompson & Morgan, but there was only one occasion of Erica Vale not obtaining the prior consent of Thompson & Morgan to such purchases, and that was a case where Thompson & Morgan was unable to supply. This related to a purchase of 4,000 "carrot chantenay" seed packets; but this seed had to be purchased in Australia because at the time it was a prohibited import due to quarantine problems. Hence, it is an instance of Thompson & Morgan being unable to supply seeds to Erica Vale.
Whenever Erica Vale wished to purchase seeds from an English supplier other than Thompson & Morgan it first obtained the latter's consent, thus manifesting the view of the parties that such consent was a necessary incident of their business relationship.
The primary Judge found that there were some twenty or so instances of what he said constituted "relaxation" or "watering down" of the original term. Counsel for Thompson & Morgan submitted that his Honour erred in this finding and that on proper and full analysis of each of the alleged occasions, only one instance exists of Erica Vale not obtaining the prior consent of Thompson & Morgan to the purchase of seeds from another English supplier. Counsel submitted that this is an example of a case where Thompson & Morgan was unable to supply, namely, the purchase of 4,000 "carrot chantenay" seed packets previously mentioned.
We have examined the various occasions to which his Honour made reference. Only the example given with respect to "carrot chantenay" is an instance of a purchase by Erica Vale of packets of seed without prior consent from Thompson & Morgan. Two of the examples mentioned by his Honour (relating to purchase of bonsai seeds and conifer seeds) are not examples of purchases of seeds from suppliers other than Thompson & Morgan without consent. Consent was given with respect to them; although they are examples of seeds being changed in packets without prior consultation with Thompson & Morgan. The examples to which his Honour made reference are not instances of purchases being made from suppliers other than Thompson & Morgan without its prior consent. They demonstrate commercial behaviour between the two companies consistent with the term that Erica Vale could not purchase relatively large quantities of seed from an English competitor of Thompson & Morgan without its prior consent except in the case where Thompson & Morgan was unable to supply the seeds. His Honour erred in finding that the original term of the contract had been "watered down".
In our opinion, it was an express term of the contract between Thompson & Morgan and Erica Vale which was operative as of July 1988 that Erica Vale could not purchase relatively large quantities of seed from an English competitor of Thompson & Morgan without its prior consent.
Issue (iii) is whether, having found the term mentioned in (ii), his Honour was in error in finding that there had not been a breach by Erica Vale of sufficient seriousness to have entitled Thompson & Morgan to terminate the contract. The breach was the purchase on 3 March 1988 by Erica Vale from Plants of Distinction of approximately 90,000 seed packets containing 30 varieties of seeds.
His Honour found that Erica Vale breached the implied term. In our view this finding of breach was correct; though, for reasons given earlier, it is a breach of an express term. But his Honour reached the conclusion that the breach did not constitute a repudiation of the contract for a number of reasons. He accepted that the test of whether a breach is repudiatory or not is an objective one and referred to Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited (1989) 166 CLR 623 at 657-8. Yet he had regard to the fact that Mr Forster of Erica Vale believed that what Erica Vale did was permissible and that his view was not an unreasonable one. In our opinion Mr Foster's belief that Erica Vale's conduct was permissible in this case does not bear on the question of breach. His Honour's view that the breach was not repudiatory was influenced by his earlier finding that there had been a gradual "watering down" or "relaxation" of the original term of the contract that Erica Vale would only buy Thompson & Morgan seeds, so that at the end of the day the breach appeared to his Honour to be somewhat formal.
We said earlier that there had not been a "watering-down" of the original term; it remained in force at the date of breach.
The term that was breached was plainly of importance to the parties. Erica Vale was the exclusive distributor of Thompson & Morgan seeds in Australia with the consequence that Thompson & Morgan could not distribute its seeds in Australia other than through Erica Vale. The quid pro quo from Erica Vale was its promise that it would not purchase seeds in relatively large quantities from an English competitor of Thompson & Morgan without its prior consent. Relatively large quantities of seeds were purchased from Plants of Distinction, a competitor of Thompson & Morgan. This purchase of some 90,000 seed packets represented approximately 25% of the Erica Vale's total requirements of seed packets from a direct competitor of Thompson & Morgan. In our opinion the breach was a serious breach of a condition of the agreement, sufficiently serious to justify termination: see Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 at 561-2. Erica Vale evinced an intention no longer to be bound by the contract which entitled Thompson & Morgan to terminate the contract. Erica Vale purchased the seeds from Plants of Distinction without the knowledge or consent of Thompson & Morgan and marketed them as being the seeds of Thompson & Morgan.
Thompson & Morgan was not aware of this breach of contract by Erica Vale at the time it was made, but in our opinion it was open to Thompson & Morgan to rely upon it. A party terminating an agreement may be justified in doing so by proof of circumstances existing prior to termination but of which the party terminating the agreement was unaware until subsequently thereto: Shepherd v Felt and Textiles of Australia Limited, supra. As Rich J. said (45 CLR at 370)-
"The suggestion faintly made that, because the defendant was unaware of the plaintiff's misdeeds in this matter until after the termination of the contractual relationship, they could not constitute a defence, is an ancient heresy to which I am surprised to find any surviving adherence."
In our opinion Erica Vale did repudiate its contractual obligations and the repudiation was of sufficient seriousness to have entitled Thompson & Morgan to terminate the contract.
Issue (iv) is whether on its proper construction, the letter of 27 January 1981 was not contractual in nature and in any event should not be construed as meaning that a party wishing to terminate on notice needed to give 3 years' notice so that Thompson & Morgan had terminated in breach of that requirement.
His Honour found that the letter of 27 January 1981 did have contractual operation, so that one of the terms of the contract between them was that Erica Vale had the sole and exclusive distribution rights for Australia and New Zealand for the Thompson & Morgan brand products. In our opinion it has not been shown that his Honour erred in finding that this was a term of the contract as of July 1988.
Since Erica Vale repudiated its contractual obligations entitling Thompson & Morgan to terminate the contract, the construction of the 3 year notice provision in the letter of 27 January 1991 strictly does not arise. His Honour construed it as meaning that a party wishing to terminate on notice needed to give 3 years' notice. Although 3 years is a long period of notice (and it does not apply in a case such as the present where the conduct of Erica Vale was repudiatory), there were commercial considerations which doubtless appeared to the parties to be sound to support this term. Each party would need to make other arrangements if the contract came to an end. This would involve Thompson & Morgan arranging for a suitable Australian distributor and Erica Vale arranging for appropriate sources of supply of seeds. The business arrangements between the parties doubtless involved capital expenditure which they would have sought to recoup over a period of years, justifying a lengthy phasing out period of their relationship. The introduction of new contractual relationships between each party and third parties would take time to develop and time for the market would adjust.
Thompson & Morgan was entitled to terminate the contract because of the repudiation by Erica Vale of its contractual obligations. Thompson & Morgan is entitle therefore under its cross-claim to recover damages from Erica Vale.
As mentioned earlier, Thompson & Morgan sued Erica Vale for the unpaid price in respect of seeds sold between October 1986 and June 1988 which was the subject of a judgment of a Master in the Equity Division of the Supreme Court on 14 June 1991 who stayed execution on the judgment until further order. Brownie J ordered on 23 September 1994 (Order 3) that this cross-claim be determined separately from every other question and before other questions and that the order be deemed to have taken effect on and from 14 June 1991, the date of the Master's judgment. On 23 September 1994 Brownie J ordered (Order 14) that the stay granted by the Master be terminated, but the execution of all judgments and other orders, other than Order 9 (which is immaterial for present purposes) be stayed for 28 days from 23 September 1994 and then, if an appeal is lodged, until further order. We propose to order that the stay of execution be discharged from today.
The primary Judge considered Thompson & Morgan's cross-claim for damages for passing off, breach of contract and contravention of the Trade Practices Act. As to passing off, his Honour said that he understood Erica Vale did not dispute its liability, given his findings, and that there should be an inquiry as to damages unless the parties could agree upon the measure of the damages. His Honour said that Thompson & Morgan is entitled to damages equivalent to the lost royalty payments, and it may be that it can establish some lost profits otherwise. He said that for the reasons which he had given earlier the claim for exemplary damages should be dismissed. He dismissed the cross-claim for damages for various breaches of contract and certain other breaches which did not sound in damages. His Honour said that in due course he proposed to give judgment for the amount of damages as assessed upon the inquiry; otherwise he would be inclined to dismiss the cross-claim without making any order for costs adverse to Thompson & Morgan by reason of the dismissal of it, but he said the parties might care to make submissions as to this. His Honour then dismissed Thompson & Morgan's cross-claim for damages. These cross-claims were brought in proceeding 5302 of 1988 in the Supreme Court.
In our opinion these findings of his Honour should not be disturbed.
Erica Vale's claim for damages
Erica Vale claimed damages against Thompson & Morgan for the latter's alleged repudiation of the contract between them arising from Thompson & Morgan's alleged unlawful termination of the contract by failing to give not less than three years' notice of termination.
In view of our finding that Thompson & Morgan was entitled to terminate the contract for breach by Erica Vale, the latter's claim for damages does not strictly arise for determination. However, a great deal of the argument of counsel on the appeal was devoted to this question and the primary Judge gave careful attention to it, so we propose to consider it.
Although in its further amended statement of claim Erica Vale particularised its damages substantially by reference to its having incurred a loss of profits of some $864,532 by reason of the repudiation of the contract by Thompson & Morgan, its claim for damages had shifted by the time of the hearing. By that time damages were claimed under four headings, viz:
* Expenses incurred in mitigating Erica Vale's loss.
* Credits given by Erica Vale for seeds returned to it for being out of date.
* Interest incurred in consequence of the need to borrow money to replace lost working capital.
* Lost profit on K-Mart sales.
It is not clear what led to the reformulation of the damages claim. Some clue may be found in an affidavit of Mr Forster filed on behalf of Thompson & Morgan which suggested that Erica Vale had "managed to win over most of its retailers" except K-Mart. Another clue may perhaps be found in the report of Mr Plater, an accountant instructed by Thompson & Morgan which suggested that for some time prior to the breach of contract the business of Erica Vale had run at a loss.
Whatever the reason, the reformulated claim was advanced through the evidence of an expert accountant, Mr Blackie, who gave evidence for Erica Vale. This evidence concentrated on the four heads of damage claimed. Thompson and Morgan, for its part, made plain through the evidence of Mr Plater that it took the view that damages were properly to be calculated by reference to the profit which Erica Vale would have made had three years' notice been given, after taking into account the profit in fact made during the 10 months' period of notice in fact given. The report accepted that damages should include as well "appropriate additional costs".
The general rule for assessing damages in contract is that a plaintiff is entitled to be put into the position, so far as monetary damages can do that, in which it would have been if the contract been performed: Robinson v Harman (1848) 1 Ex 850, 154 ER 363; Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd (1981) 145 CLR 625 at 637 per Gibbs J. However, a plaintiff is under a duty to take such reasonable steps as may be necessary to mitigate its loss. If the plaintiff in mitigating that loss acts reasonably but suffers a further loss, then the plaintiff is entitled to recover that further loss brought on by the act of mitigation. If on the other hand the act of mitigation operates to diminish or extinguish the plaintiff's loss, that will operate to the benefit of the defendant.
In the present case the primary Judge made no findings which would enable damages to be assessed in accordance with the ordinary measure of damages for breach of contract. In particular his Honour did not determine what profits, if any, Erica Vale had lost by reason of being given a lesser period of notice than the three years provided for in the written agreement between it and Thompson & Morgan.
It is not readily apparent whether in the years preceding the repudiation of the contract by Thompson & Morgan, Erica Vale was in fact making a profit from sales of seeds purchased from Thompson & Morgan. Accounts of Erica Vale in evidence disclose an overall loss, but as Erica Vale was apparently conducting a business or businesses other than the sale of Thompson & Morgan seeds these accounts would not have enabled this Court to make its own calculation. There may have been other evidence adduced at the trial which would enable such a calculation to be performed. Counsel for Thompson & Morgan suggested from the bar table that there was. Not all of the evidence, however, was duplicated in the appeal books.
If it should turn out to be the case that the repudiation of the contract by Thompson & Morgan would in fact have brought a loss-making operation to an end, it is hard to see how it could be said that Erica Vale had indeed suffered a loss at all. As a result of the repudiation of the contract it would have been better off. In such a case with no loss to mitigate no duty to mitigate could arise. If on the other hand it should turn out to be the case that, had a three year notice period been given, Erica Vale would have derived profits which the repudiation deprived it of, then prima facie the monetary value of the profits foregone would, subject to questions of mitigation, provide the proper measure of its damages.
Because there are no findings on these matters it is clear that it would have been necessary that the matter go back to the primary Judge to determine damages in accordance with the ordinary measure of damages for breach of contract, if we had concluded that Erica Vale was entitled to claim damages from Thompson & Morgan.
Expenses incurred in mitigating loss
It was Erica Vale's case below that it had incurred expense in establishing a new business to replace the business lost by virtue of Thompson & Morgan's alleged breach. As finally formulated, the claim was expressed as follows:
1989 1990 1991 1992 Total
Advertising 23,601 49,961 19,422 5,359 98,343
Seed stands 15,266 3,834 9,775 11,029 39,904
Seed packets 32,945 126,840 27,721 74,690 262,196
Printing 4,325 10,065 1,248 3,653 19,291
Total 76,137 190,700 58,166 94,731 419,734
Objection to the claim as so formulated was made in part because, it was said, what was claimed was the capital cost of setting up a new business. Since these amounts would have been expended had Thompson & Morgan given three years' notice, the most that the plaintiff could have claimed was the loss sustained by reason of having incurred this expenditure earlier than would otherwise have been the case.
During the
course of the trial the primary Judge had expressed a tentative view in favour
of the position taken by Thompson & Morgan.
However, ultimately his Honour accepted the submissions of counsel for
Erica Vale and the total of
damages assessed under the four heads excluding interest was found by his
Honour to be $904,880. The precise
manner in which the figure was calculated is not presently material.
No doubt a plaintiff in the position which Erica Vale found itself who, for example, was required to make what is obviously capital expenditure, such as the purchase of a building, as a result of a wrongful termination of a distributorship agreement and did so to mitigate its loss would not be entitled to claim the totality of the capital outlaid. This is so because it must be assumed that a plaintiff, given three years' notice to terminate a distributorship agreement terminable at the end of that period, would have expended the money to purchase the building in any event. All that has happened is that the need so to do has accelerated. Damages for mitigation would thus properly be calculated by reference to the additional cost of outlaying the money earlier than would otherwise have been required. If on the other hand the expenditure in question represented recurrent expenditure, such as, for example, day to day advertising (the initial advertising may stand in a different position) those expenses would necessarily be taken into account in calculating the plaintiff's loss in ordinarily principles because offsetting the profits which it would have earned under the contract if the requisite notice period had been given must be the profits it in fact earns by carrying on the new business. This perhaps is only another way of saying that expenditure on a new business conducted in place of the earlier distributorship would need to be offset by income derived from carrying on that business.
After the alleged repudiation of the contract by Thompson & Morgan, Erica Vale apparently purchased and sold seeds under its own name rather than selling seeds under the Thompson & Morgan name. This, as his Honour held, involved establishing in the market a new brand name with no existing reputation in place of selling under a well established brand name. The price for which Erica Vale purchased seeds from Thompson & Morgan was calculated at a price which allowed to Erica Vale a discount of 8 percent for advertising and a further discount of 6 percent by way of contribution towards the cost of seed stands. In establishing its own business Erica Vale may have purchased seeds at a price greater or less than the price charged to it by Thompson & Morgan. It is not apparent from the judgment what happened. It is true that it was found that no specific rebate was given for advertising but that finding of itself is hardly determinative.
The same problem is confronted when one considers seed stands. The fact that Erica Vale's purchase price of Thompson & Morgan seeds allowed a contribution towards the cost of seed stands hardly means that Erica Vale is entitled by way of damages to an amount equal to the cost of new seed stands. It may have been able to purchase seeds from a new supplier at a price less than that which it purchased from Thompson & Morgan despite the allowance for advertising.
It may very well be that seed stands are properly to be treated as a capital outlay. But all this means as indicated above is that the outlay was incurred at a time earlier than it otherwise would have been incurred. To allow the whole amount expended as damages would not reflect the loss suffered by Erica Vale.
Similar comments could be made with respect to the cost of seed packets (a recurrent rather than capital expense) and the costs of printing those packets. To bring these amounts into account without offsetting income that must have been derived from the new business involves error.
His Honour accepted that credit had to be given for "additional income" received by Erica Vale in consequence of its facilities having become available to be used to earn income by way of mitigation of its loss. It seems that there was none. Mr Blackie so reported. Perhaps the difficulty lay in the concept of "additional income". Be that as it may, it seems clear that calculation of Erica Vale's alleged loss would be made by first determining what if any profit it lost as a result of the alleged wrongful termination, subtracting, if any, net profit it derived as a result of commencing its own business and allowing for the fact that any capital expenditure had been incurred at an earlier time than would have otherwise been incurred had Thompson and Morgan not terminated the contract.
Credits for seeds returned
Little need be said in respect of these credits. Erica Vale was not required as part of the contractual arrangements between it and Thompson & Morgan or by arrangements between it and retailers to grant a credit for seeds returned where the "use by date" had passed. It had however done so during the contractual period and continued to do so after termination. Its motivation so to do was no doubt to retain the goodwill of retailers in connection with the seed business which it commenced to carry on under its own name. Prima facie these were proper expenses of carrying on its own business to be deducted from sales made in carrying on that business. As such it would be appropriate to take into account the cost of these credits in assessing damages in the ordinary way. If the Thompson & Morgan business was carried on prior to the termination at a loss then it is hard to see how any allowance should be made for this expenditure.
Interest on working capital
His Honour did not award damages under this head and it need not further be considered.
Lost profit on K-Mart sales
A significant part of Erica Vale's Thompson and Morgan business consisted of sales of seeds to sub-distributors which in turn sold to K-Mart. It claimed damages by reference to the profits from sales to K-Mart lost as a result of the alleged repudiation by Thompson & Morgan of the contract.
By allowing to Erica Vale damages under this heading his Honour segregated the K-Mart business from the remaining Thompson & Morgan seed business carried on by Erica Vale. It is hard to see how this could be supported. It may very well be that the remaining business was unprofitable. But whether this be so damages must be calculated by reference to the loss suffered under the whole contract not merely the loss suffered on termination of the contract in respect of part only of the business carried on under it. Once a computation of damages is made in accordance with ordinary principle to allow damages in respect of a part of the business would be to compensate a plaintiff twice. Hence it is not necessary to determine separately the lost profit on the K-Mart business if a calculation of damages is made in the usual way.
If we had found wrongful termination by Thompson & Morgan it would have been necessary that the matter be remitted to the Supreme Court of New South Wales for determination of what, if any, damages Erica Vale had suffered. If there were damages to mitigate, then of the categories of damage claimed the cost to Erica Vale of incurring sooner, than otherwise it would have, initial advertising expenditure to establish goodwill in its own name may have been allowable. If damages had been calculated in the ordinary way, taking into account any additional profit which Erica Vale may have derived during the three year notice period, there wold have been no need for any further head of damages for recurrent expenditure of the nature of advertising etc as claimed. It if had been the case, as seems highly unlikely, that no gross income at all was derived from the new business in the three year period, so that in carrying on its new business Erica Vale in fact suffered loss equal to its gross outgoings a serious question would have arisen whether such loss was attributable to Thompson & Morgan once account is taken of the diminution in profits caused to Erica Vale by virtue of the termination.
A question arose during the course of the appeal as to whether, if the matter were remitted for assessment of damages in accordance with the correct principle, that assessment should proceed solely on the evidence heard at first instance or whether fresh evidence could be admitted. Given the way the trial was run there is much to be said for the view that the assessment of damages would proceed by reference to the evidence at the hearing. After all, there must come a time when a plaintiff's case is closed. However the matter would have properly one for the primary Judge to whom Erica Vale could have made application, if it so desired, for the reception of fresh evidence.
Copyright
The damages for copyright infringement were awarded by the primary Judge in respect of the period identified by his Honour as commencing in about the middle of 1989 and ending when Thompson & Morgan ceased to do business in Australia, "apparently a period of a small number of years". The contract between Thompson & Morgan and Erica Vale had been purportedly terminated by Thompson & Morgan with final effect on 1 June 1989.
Upon the hearing of the appeal, the appellants abandoned all copyright issues save one. It was contended that Thompson & Morgan had acquired a licence from Erica Vale which extended to cover the activities after mid-1989 which the primary Judge held to have constituted infringements.
The licence was not said to arise by reason of any express contractual grant. It was submitted that by undertaking modifications to the Thompson & Morgan packets, Erica Vale had obtained an economic benefit because packaging bearing English sowing instructions would not have been well received by the Australian gardener.
The next step was to submit that these circumstances attracted the reasoning of Jacobs J in Beck v Montana Constructions Pty Ltd (1963) 5 FLR 298. Jacobs J held that in the circumstances of that case, the vendors of land had implied permission or consent from architects employed by them to the use of their sketch plans for the construction of a building on the land and that the vendors had been entitled to transfer to the purchasers the right to use the plans.
There has been some uncertainty as to whether the licence found in Beck was conferred as a matter of contractual implication to give business efficacy or arose, as a matter of law, as inherent in a contract of that particular description, namely, between owner and architect. The matter was explored by the Full Court of this Court in Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225 at 239-241. In that case, it was unnecessary to decide the question because the term relied upon, whatever its nature, was superseded or supplanted by the express terms of the arrangement between the parties. In the present case, the licence enjoyed by Thompson & Morgan, whatever its juristic nature, would have been incidental to and, in our view, co-terminous with, the distributorship arrangements between the parties. On Thompson & Morgan's case, that came to an end with the expiry of the notice of termination on 1 June 1989. The licence would not extend to authorise further exploitation of Erica Vale's copyright thereafter, and, in particular, in the period in respect of which the primary Judge held there had been infringement.
Accordingly, the orders made by the primary Judge in respect of copyright infringement should not be disturbed.
Costs
We shall make no orders as to costs until we have heard submissions from the parties. Our provisional view is that, as each party had partial success at the trial, there should be no order as to the costs of the proceeding at first instance; and that Erica Vale should pay the costs of Thompson & Morgan of the appeal, but otherwise there should be no order as to the costs of the appeal. But we shall hear counsel later to-day before forming any final view. We shall then make our orders for costs.
Orders
Later to-day we shall also hear counsel on the form of final orders dispositive of the appeal, if they wish to make submissions.
The orders which we propose (together with orders for costs) are as follows:-
1. The appeal in what was previously proceeding 5302 of 1988 in the Supreme Court of New South Wales be allowed. The appeal in what was previously proceeding 4209 of 1989 in the Supreme Court of New South Wales be dismissed.
2. Orders 4, 11 and 16 made by the Supreme Court of New South Wales on 23 September 1994 be set aside.
3. The stay of execution granted by Order 14 of the Supreme Court of New South Wales be discharged from today.
4. Liberty to apply be reserved to any party on 7 days' notice.
I certify that this and the preceding forty-six (46) pages are a true copy of the reasons for judgment herein of the Court.
Associate
Dated: 19 April 1995
Counsel for the Appellants : Mr A R Emmett QC
Mr G Rundle
Solicitors for the Appellants : Connah Steed & Co
Counsel for the Respondent : Mr M B Oakes SC
Solicitors for the Respondent : Webster O'Halloran
Date of Hearing : 23, 24 February 1995
Date of Judgment : 19 April 1995
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY) Nos. NG698
GENERAL DIVISION ) and NG899 of 1994
On appeal from the Supreme Court of New South Wales.
BETWEEN: THOMPSON & MORGAN
(UNITED KINGDOM) LIMITED
First Appellant
DEFENDER LIMITED
Second Appellant
AND: ERICA VALE AUSTRALIA PTY LIMITED
Respondent
BEFORE: LOCKHART, GUMMOW, HILL JJ.
PLACE: SYDNEY.
DATE: 19 APRIL 1995.
REASONS FOR JUDGMENT
LOCKHART J.
[At 9.30am]
The Court has reduced its reasons for judgment to writing and in a moment they shall be published. It is convenient if I read, though in a slight different order, the last two pages of our reasons to make it clear in broad fashion what the Court has done. The orders which the Court proposes in addition to which there will be orders for costs are as follows:
(1) That the appeal in what was previously proceeding 5302 of 1988 in the Supreme Court of New South Wales be allowed, and the appeal in what was previously proceeding 4209 of 1989 in the Supreme Court of New South Wales be dismissed, the latter being the copyright matter.
(2) That orders 4, 11 and 16 made by the Supreme Court be set aside.
(3) That the stay of execution granted by order 14 by the Supreme Court be discharged from today.
(4) That liberty to apply be reserved to any party on seven days notice.
I say "orders which the Court proposes" because the Court intends to stand the matter down until 2.15pm today for two purposes: first, to hear counsel on the form of orders, and secondly, on the question of costs of the proceedings at first instance and on appeal. We do not propose at the moment to make any orders as to costs until we have heard submissions from the parties.
Our provisional view is that as each party had partial success at the trial there should be no order as to the cost of the proceeding at first instance, and that Erica Vale should pay the costs of Thompson & Morgan of the appeal; but otherwise there should be no order as to the costs of the appeal. We will hear counsel later today before forming any final view.
The Court publishes its reasons and we will adjourn until 2.15pm today so counsel and solicitors and parties have had a chance to read what we have written.
[At 2.15pm]
This morning the Court gave its reasons for judgment in this appeal. At the conclusion of its reasons the Court expressed certain provisional views on costs, but made it clear that it had not reached a final view, and would make no orders as to costs until it heard counsel later today. We have now heard counsel on that question. The Court also indicated the orders which it proposed to make, other than as to costs, by way of disposition of the appeal, but again said that orders would not be made then but would be made later today in the event that counsel may wish to make submissions on the question of the appropriate orders to be made on the appeal. Counsel have assisted the Court by their submissions on both the question of the form of orders and the appropriate orders as to costs, the costs being those of the proceedings at first instance and of this appeal.
Turning first to the form of the orders, counsel for the respondent has requested the Court to ensure that any discharge of stay of execution orders should not operate until three weeks from today in the event that it may seek special leave to appeal to the High Court from this Court's decision. Counsel has indicated that, if the stay of execution that was granted by the Supreme Court in order 14 be extended for three weeks, it is prepared to undertake that it will not dispose of its assets or incur liabilities in the meantime otherwise than in the usual course of carrying on its business. That undertaking has been proffered by counsel for the respondent. In the opinion of the Court this is an appropriate order to make on the basis of that undertaking being given.
The other matter to which our attention has been drawn by counsel concerns the judgment which is the subject of order 8 of the Supreme Court's orders of 23 September 1994, when judgment was entered effective from 23 September 1994 in favour of the respondent against Thompson and Morgan, and the party that was then the third defendant. That was a judgment in favour of the respondent in relation to the copyright issue that arose in the proceeding.
What is sought by counsel for the appellants is that there should be a set off of the amount of that judgment against the judgment of which the appellants have the benefit, from the order of the Supreme Court of New South Wales made on 14 June 1991, a judgment in favour of the first appellant. The Court is of the view that that is an appropriate order to make.
As to costs, the Court expressed a provisional view earlier today, but has now heard argument on costs. We are satisfied that the principal issue at first instance was the question of breach of contract and that the copyright issue, though a significant issue, was not an issue of the same dimension as the contract issue.
The Court is of the opinion, doing the best it can in all the circumstances, that the appropriate order for costs of proceedings at first instance is that the respondent should pay one half of the costs of the appellants of the proceedings at first instance. The Court is also of the view that the respondent should pay the costs of the appellants of the appeal. We note that counsel for the appellants has informed us that the principal appellant is Thompson and Morgan (United Kingdom) Limited and that no costs over and above the costs that have been incurred by that company have been incurred by the second appellant, Defender Limited.
The orders of the Court are therefore as follows:
(1) The appeal in what was previously proceeding 5302 of 1988 in the Supreme Court of New South Wales be allowed. The appeal in what was previously proceeding 4209 of 1989 in the Supreme Court of New South Wales be dismissed.
(2) Orders 4, 11 and 16 made by the Supreme Court of New South Wales on 23 September 1994 be set aside.
(3) Upon the respondent by its counsel undertaking to the Court that it shall not dispose of or part with any of its assets or incur any liabilities otherwise than in the ordinary course of its business, the stay of execution granted by order 14 of the Supreme Court of New South Wales and made on 23 September 1994 be discharged on 10 May 1995.
(4) Order that upon the discharge of the stay mentioned in order 3, the judgment for the respondent against the appellants in order 8 made by the Supreme Court of New South Wales on 23 September 1994 may be set off against the judgment of 14 June 1991 in favour of the first appellant and against the respondent.
(5) The respondent pay one half of the costs of the appellants of the proceedings at first instance, that the respondent pay the costs of the appellants of the appeal and that otherwise there be no order as to the costs of the appeal.
I certify that this and the preceding five (5) pages are a true copy of the reasons for judgment herein of the Court.
Associate
Dated: 19 April 1995
Counsel for the Appellants : Mr A R Emmett QC
Mr G Rundle
Solicitors for the Appellants : Connah Steed & Co
Counsel for the Respondent : Mr M B Oakes SC
Solicitors for the Respondent : Webster O'Halloran
Date of Hearing : 23, 24 February 1995
Date of Judgment : 19 April 1995
