FEDERAL COURT OF AUSTRALIA Becker Group Ltd v Motion Picture Company of Australia Ltd [2004] FCA 630 CONTRACT – film distribution agreement – licensor asserted that it was not bound by agreement – whether assertion constituted repudiation – whether distributor accepted repudiation DAMAGES – licensor promised to put distributor in funds to meet a separate liability to a third party – whether distributor entitled to recover amount of liability – second 'limb' of Hadley v Baxendale Trade Practices Act 1974 (Cth) ss 51A, 52, 81 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 cited Shevill v Builders Licensing Board (1982) 149 CLR 620 cited Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 cited Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 cited Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 cited Friedlander v The Bank of Australasia (1909) 8 CLR 85 cited Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 cited Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527 cited Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 cited GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 cited Holland v Wiltshire (1954) 90 CLR 409 cited Heyman v Darwins Ltd [1942] AC 356 cited Lakshmijit v Faiz Sherani [1974] AC 605 cited Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 applied Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 cited Lamson Paragon Ltd v Spicers (Australia) Ltd [1953] SASR 297 cited Hammond & Co v Bussey (1887) 20 QBD 79 cited R & H Hall Ltd v W H Pim (Junior) and Co Ltd (1928) 33 Com Cas 324 applied Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 applied James Finlay & Co Ltd v NV Kwik Hoo Tong Handel Maatschappij [1929] 1 KB 400 cited North Sea Energy Holdings NV v Petroleum Authority of Thailand [1997] 2 Lloyd's Rep 418 cited Wadsworth v Lydall [1981] 1 WLR 598 cited President of India v La Pintada Compania Navigacion SA [1985] AC 104 cited Hungerfords v Walker (1989) 171 CLR 125 cited JW Carter and D J Harland, Contract Law in Australia (4th ed, 2002) JW Carter, Breach of Contract (2nd ed, 1991) BECKER GROUP LTD v MOTION PICTURE COMPANY OF AUSTRALIA LTD (FORMERLY SCANBOX ASIA PACIFIC LTD) N 404 of 2002 SACKVILLE J SYDNEY 24 MAY 2004 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 404 OF 2002 BETWEEN: BECKER GROUP LTD APPLICANT AND: MOTION PICTURE COMPANY OF AUSTRALIA LTD (FORMERLY SCANBOX ASIA PACIFIC LTD) RESPONDENT JUDGE: SACKVILLE J DATE OF ORDER: 24 MAY 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The applicant be directed to file and serve within seven days (a) short minutes of order giving effect to this judgment; (b) its written submissions as to costs. 2. The respondent file and serve within a further seven days (a) short minutes of order, insofar as the respondent disagrees with those proposed by the applicant; (b) its written submissions as to costs. 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 N 404 OF 2002 BETWEEN: BECKER GROUP LTD APPLICANT AND: MOTION PICTURE COMPANY OF AUSTRALIA LTD (FORMERLY SCANBOX ASIA PACIFIC LTD) RESPONDENT JUDGE: SACKVILLE J DATE: 24 MAY 2004 PLACE: SYDNEY REASONS FOR JUDGMENT an overview 1 This case concerns a dispute about the arrangements for the distribution in Australia of a film called 'The Shrink Is In' (the 'Film'), starring Courtney Cox (of 'Friends' fame) and David Arquette. A promotional document describes the plot of the Film as follows: 'When a neurotic young woman impersonates a shrink to win over her Prince Charming, chaos ensues. She ultimately discovers her Prince to be a toad, and the real man of her dreams to be an eccentric magazine salesman.' It appears that the Film had something in common with the Prince, since it was not a conspicuous box office success. 2 The applicant ('Becker') is a publicly listed company which, since 1985, has conducted operations as an independent theatrical film distributor to cinemas in Australasia. During that time, Becker has released over 200 films for screening in cinemas throughout Australia and New Zealand. Becker purchases films from a number of sources, although most are acquired from international film sales agents and at film festivals, such as the Cannes Film Festival and the American Film Market. It derives revenue from film hire charges from theatrical distribution to cinemas, royalties from video hire, video sales and sales to free-to-air and pay television. 3 The respondent ('Scanbox') is also a listed company, under its current name of Motion Picture Company of Australia Ltd. At the time the relevant events occurred, it formed part of the Scanbox Group of companies. Scanbox is a distributor of films, although until the late 1990s it appears that the company primarily distributed videos. 4 On 28 April 1999, a meeting took place between Richard Becker, the Managing Director of Becker, and Devesh Chetty, the then General Manager of Scanbox. Mr Chetty was also an executive producer of the Film and a director of Shrink Productions Inc ('Shrink'), the producer of the Film. There was some dispute as to the contents of the conversation between Mr Becker and Mr Chetty, but the subject was the Australasian distribution rights for the Film, which was then in production in the United States. 5 After the conversation, Becker and Scanbox entered into a series of written agreements. It will be necessary to examine the terms of these agreements in some detail. For present purposes I shall note their general effect. 6 The first three agreements were signed by Robert Reeve, Becker's General Counsel, on behalf of Becker, in the early hours of 8 May 1999. The three agreements were as follows: (i) The first was a 'Short Form Agreement' dated 7 May 1999, which was signed by Mr Chetty on behalf of Scanbox. Under the Short Form Agreement, Scanbox granted Becker the Australasian and Pacific Island theatrical and other distribution rights to the Film. The agreement required Becker to pay an advance of $400,000 for the licence rights, of which $40,000 was payable on the signing of a 'Long Form Agreement' and $360,000 on notice being given that the 'Initial Delivery Materials' (which included a print of the Film) were ready for delivery. (In this judgment all figures are in US dollars unless stated otherwise.) The amounts were payable to an account to be nominated by Scanbox. The Short Form Agreement recorded the parties' intention to prepare and sign the more formal 'Long Form Agreement' incorporating the basic terms of the Short Form Agreement and otherwise to be negotiated in good faith having regard to customary practices in the territory covered by the licence. (ii) The second was a document referred to at the hearing as the 'Side Letter', also dated 7 May 1999. The Side Letter was signed on behalf of Scanbox by Ms Batsakis, legal counsel for the company. It confirmed that Scanbox had paid $28,000 to the Imperial Bank (the 'Bank'), the US financier of the Film, and required Becker to pay $12,000, being the balance of $40,000 payable by Becker on the signing of the Long Form Agreement. The Side Letter also provided for Scanbox to pay Becker $360,000 upon the latter confirming that the 'delivery materials' (including the Film) were acceptable to Becker. Becker was then to pay the sum of $360,000 in accordance with Scanbox's instructions. In other words, Scanbox was to finance the bulk of the advance which, in the ordinary course, would have been paid by Becker to the Bank at Scanbox's direction. The Side Agreement provided that in consideration of Scanbox paying $360,000, Becker would 'unconditionally' pay it $108,000 by equal quarterly instalments after release of the Film in Australia. The Bank was unaware of the Side Letter at that time. (iii) The third document was a 'Notice of Assignment and Acceptance' ('Assignment Agreement'), the parties to which were Scanbox, Becker, the Bank, Shrink, and Film Finances Inc (referred to as the 'Completion Guarantor'). Mr Chetty signed the Assignment Agreement on behalf of Scanbox. The effect of the Assignment Agreement, relevantly, was that Becker agreed to pay to Scanbox, for the benefit of the Bank and subject to certain conditions being satisfied, $372,000, being the advance of $400,000 less $28,000 already paid by Scanbox to the Bank. Accordingly, on the face of the Assignment Agreement, Becker incurred an obligation directly to the Bank to pay it the sum of $372,000. 7 Two subsequent versions of the Side Letter were signed on behalf of Scanbox and Becker. One was signed on 11 May 1999 by Ms Batsakis (for Scanbox) and Mr Reeve (for Becker). The third and final version of the Side Letter was signed on 19 May 1999 by Mr Chetty (for Scanbox) and Mr Reeve (for Becker). There is no dispute between the parties that the differences between the various versions of the Side Letter are immaterial for the purposes of this case and that the relevant version was that signed on 19 May 1999. 8 Although the Short Form Agreement expressly contemplated execution of the Long Form Agreement, no such document was completed until August 2000. Mr Reeve signed the Long Form Agreement on behalf of Becker on 18 July 2000 and Mr Rhodes, a director of Scanbox, signed it on 10 August 2000 on behalf of that company. The Long Form Agreement required Becker to pay an advance of $400,000 to Scanbox's nominated bank account. Of this sum, $40,000 was said to be payable on execution of the Long Form Agreement, while $360,000 was said to be payable on Becker's acceptance of delivery of the Initial Delivery Materials. 9 On 28 August 2000, Becker advised Scanbox that it had inspected a print of the Film and found it satisfactory. Becker then demanded, pursuant to the Side Letter, payment by Scanbox of $360,000. Becker confirmed that on receipt of that amount it (Becker) would pay the sum, less withholding tax, to the Bank. 10 On 11 September 2000, Scanbox wrote to Becker disclaiming any liability under the terms of the Side Letter, on the ground that Mr Chetty had no authority to bind Scanbox to those terms. Scanbox also suggested that the Side Letter was unenforceable on the ground of illegality. Scanbox refused to pay the sum demanded by Becker. In the present proceedings, Scanbox has not attempted to justify its claim that Mr Chetty lacked authority to bind it. Nor has it pleaded or pressed any claim that the Side Letter was tainted by illegality. 11 On 14 September 2000, Becker notified Scanbox that it (Scanbox) had breached a fundamental term of the Side Letter by refusing to pay the amount of $360,000 due under the Side Letter. Becker purported to terminate the Short Form Agreement and the Long Form Agreement, while reserving all rights arising from such termination. 12 On 18 September 2000, the Bank demanded payment of $372,000 from Becker pursuant to the Assignment Agreement. Following threats of legal action by the Bank, Becker paid the sum of $360,000 to the Bank (less withholding tax of $36,000) on 25 July 2001. The balance of $36,000 was paid to the Bank on 2 October 2001. Becker apparently agreed to pay $360,000 to the Bank rather than $372,000 (and the Bank agreed to accept the lesser amount) because Becker had paid $12,000, the balance of the deposit, to Scanbox in September 1999. 13 Becker paid sums totalling $360,000 to the Bank pursuant to a settlement between it and the Bank. The settlement involved the execution of a deed of release between the Bank and Becker, a fresh Long Form Agreement by Scanbox and Becker (the Bank executing the Agreement as Scanbox's attorney) and an agreement amending the Assignment Agreement executed by or on behalf of Becker, Scanbox, the Bank, Shrink and Film Finances Inc. 14 In these proceedings, Becker seeks relief on the basis on what are said to be Scanbox's breach of contract and contraventions of s 52 of the Trade Practices Act 1974 (Cth) ('TP Act'). Becker seeks declaratory orders. It also seeks damages for breach of contract and damages under s 82 of the TP Act for losses sustained by reason of Scanbox's conduct in contravention of s 52 of the TP Act. becker's claims The Contract Claim 15 Becker pleads that it entered into an agreement with Scanbox for the distribution of the Film comprising the Short Form Agreement and the Side Letter. The pleading describes this agreement as the 'Original Distribution Agreement'. Becker also pleads that the parties to the Original Distribution Agreement intended that the Short Form Agreement would be supplanted and replaced by the Long Form Agreement and that the Side Letter would 'remain as much a fundamental or essential part of the proposed final distribution agreement as it had constituted a fundamental or essential part of the Original Distribution Agreement'. The pleading describes the final agreement, comprising the Long Form Agreement and the Side Letter, as the 'Final Distribution Agreement'. It alleges that the parties treated the Final Distribution Agreement as having been substituted for and supplanted the Original Distribution Agreement. 16 Scanbox does not admit these allegations in its defence. However in final submissions Mr Southwick, who appeared for Scanbox, accepted that the Side Letter formed part of the Original Distribution Agreement; that the Short Form Agreement had been replaced and supplanted by the Long Form Agreement; and that the Side Letter formed part of the Final Distribution Agreement once the Long Form Agreement had been executed. 17 Becker's contractual claim for damages primarily rests on what it says is Scanbox's repudiation of the Final Distribution Agreement by its letter of 11 September 2000. Alternatively, it says that Scanbox breached an essential or fundamental term of the Final Distribution Agreement by failing to make the payment of $360,000 required by par (b) of the Side Letter. In either case, Becker says that it terminated the Final Distribution Agreement by its letter of 14 September 2000 and is therefore entitled to claim damages against Scanbox for breach of contract. 18 Curiously enough, despite pleading that Scanbox had failed to pay $360,000 as required by par (b) of the Side Letter, Becker has not claimed that sum on the basis that it had an accrued right to payment prior to termination of the Final Distribution Agreement: cf McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, at 476-477, per Dixon J. The loss and damage flowing from Scanbox's repudiation or breach of the Final Distribution Agreement are said to comprise the sums paid by Becker to the Bank, together with the sum of $12,000 paid to Scanbox. Thus Becker's claim, as ultimately formulated, is for the Australian dollar equivalent of $372,000, comprising $12,000 paid by Becker under the Side Letter and $360,000 paid to the Bank following its threat to take legal action against Becker to enforce the Assignment Agreement. 19 According to Mr Bevan, who appeared with Mr Cullen for Becker, it was foreseeable at the time the Short Form Agreement and the Long Form Agreement were entered into that Becker would incur a liability to pay the Bank sums totalling $372,000. He pointed out that the Assignment Agreement under which Becker incurred the liability was entered into at Scanbox's request and was executed contemporaneously with the Short Form Agreement and the Side Letter. 20 There is no dispute between the parties that if Becker's claim is upheld, the Australian dollar equivalent of the sums paid to the Bank by Becker should be calculated at the respective dates of payment. Nor, in substance, is there any dispute that the Australian dollar equivalent of $372,000, calculated on this basis, is $A725,402. The accounting experts differed slightly in their calculations, but the figure of $A725,402, which was produced by Becker's expert, is slightly less than the figure ($A729,245) suggested by Scanbox's expert. Becker was content to adopt the lesser figure. 21 Becker initially made an alternative claim for the Australian dollar equivalent of $280,000 as damages for breach of contract, being the sum of $400,000 less the sum $120,000 payable by Becker to Scanbox under the Side Letter. That alternative claim was abandoned in final submissions. The TP Act Claim 22 In opening Becker's case, Mr Bevan said that Becker claimed damages under s 82 of the TP Act for its losses in distributing the Film and what it described as 'loss of opportunity profits'. Much time at the hearing was spent on hearing lay and expert evidence relevant only to this claim. 23 In the end, Becker abandoned the TP Act claim in this form. Becker limited its TP Act claim to the cost incurred by it in acquiring the Film, namely $372,000. This was put on the basis that this was a 'no-transaction' case, in the sense that Becker would never have entered into the film distribution agreements but for Scanbox's misrepresentations. Mr Bevan indicated that Becker's TP Act claim, as ultimately formulated, was merely an alternative to its claim in contract and that if Becker succeeded in its contract claim there would be no need to address the cause of action arising under the TP Act. the agreements Short Form Agreement 24 The Short Form Agreement is expressed to be between Scanbox as 'Licensor' and Becker as 'Distributor'. The Territory is defined as Australia, New Zealand and a number of Pacific Islands. The term of the Agreement is '15 years from full delivery of Delivery Materials'. The 'Licensed Rights' include 'Theatrical', 'New-Theatrical (including so called Public Video and Commercial Video)', 'Home Video', 'Pay Television', 'Free Television' and other rights. 25 Clause 7 of the Short Form Agreement is as follows: '7. ADVANCE Amount: US$400,000 Payable: (a) US$40,000 On signing of longform agreement; (b) US$360,000 On notice that the Initial Delivery Materials are ready for delivery ("Notice of Initial Delivery"); Method of Payment: Telegraphic Transfer to nominated bank account (after deduction of applicable withholding tax).' 26 Clause 8 deals with 'applications of gross receipts'. The expression 'gross receipts' is defined to mean 'all sums actually received by Distributor in connection with the exploitation of the Film'. Clause 8 provides for the apportionment of various categories of receipts between the Licensor and Distributor. 27 Clause 9 provides that 'Deductible Expenses' and the 'Advance' are to be deducted from the Licensor's share of Gross Receipts. The expression 'Deductible Express' is defined to include promotion and advertising and other marketing or distribution expenses. 28 Clause 12 is as follows: '12. DELIVERY MATERIALS As per attached Schedule. At Distributor's expense (recoupable as a Deductible Expense).' 29 The first part of the Schedule is headed 'Initial Delivery Materials' and sets out 23 items. Item 1 is a first-class 35mm composite positive colour print of the Film, fully cut, titled and assembled, with soundtrack in perfect synchronisation. Item 1 and three other items are marked with an asterisk. The other three asterisked items are a 35mm colour composite trailer (Item 2); a Digital Betcam PAL trailer (Item 3); and a Television videomaster of the complete edited, television acceptable version of the Film (Item 19). Six of the remaining items are expressed to require delivery of the relevant material 'if available'. 30 Clause 14 contains special conditions, including the following: · 'The Distributor may terminate this Deal Memo and obtain a full refund of the Advance paid if: (a) the Film is not delivered to Distributor prior to 30 June 2000; or … · The Initial Delivery Materials marked with an asterisk (*) in the Schedule will be delivered by the Licensor to Atlab Australia, Sydney, N.S.W., to be held on behalf of, and under the control of, the Licensor and must be released to the Distributor upon payment of the balance of the Advance to Imperial Bank. The Licensor must authorise Atlab Australia to release such Initial Delivery Materials to the Distributor immediately it receives confirmation that the balance of the Advance has been received by Imperial Bank.' 31 The Short Form Agreement concludes with the following paragraph: 'The parties intend to prepare and sign a more formal long form agreement ("the Long Form Agreement") incorporating these basic terms and otherwise negotiated in good faith having regard to customary practices in the Territory. Until the Long Form Agreement is signed this deal memo will be governed by the laws of New South Wales, Australia and will be a binding and valid agreement as between the parties.' The Side Letter 32 The Side Letter is on Scanbox letterhead addressed to Becker, but signed on behalf of both parties. Scanbox is referred to as 'SAPL'. The letter commences with a statement that Becker and Scanbox 'have signed the short form agreement which will form the basis of the Becker Agreement'. The balance of the letter is as follows: 'a. SAPL confirms that it has paid to the Imperial Bank ("Bank") the sum of US$28,000 being part of the US$40,000 payable by Becker upon execution of the Becker Agreement. Becker shall pay the balance being US$12,000 upon execution of the Becker Agreement. Becker shall be under no obligation to pay to SAPL the US$28,000. If Becker fails to pay the US$12,000, SAPL shall be entitled to terminate the Becker Agreement. b. Upon SAPL receiving written confirmation from Becker that the delivery materials under the Becker Agreement ("Becker Materials") are acceptable to Becker for delivery, SAPL agrees to pay to Becker the amount of US$360,000. c. Upon payment of the US$360,000, Becker shall immediately pay the US$360,000 to the Bank in accordance with the instructions of SAPL. d. Becker acknowledges and agrees that notwithstanding the provisions of the Becker Agreement, SAPL shall be under no obligation to release or deliver, nor will the applicable laboratory be authorised to release, the Becker Materials until SAPL has received written confirmation from the Bank that the US$360,000 has been unconditionally paid to the Bank, whereupon SAPL shall authorise the immediate release of the Becker Materials. e. Without limiting d. above, if Becker defaults with c. above, Becker shall immediately repay SAPL the US$360,000 and SAPL shall be entitled, without prejudice to any other rights it may have against Becker to immediately terminate the Becker Agreement. f. In consideration of SAPL paying the amount of US$360,000 Becker shall unconditionally pay to SAPL the following payments: i. US$27,000 – 3 months after release of the Film in Australia by any means including without limitation by video, theatrical or other ("release") ii. US$27,000 – 6 months after release iii. US$27,000 – 9 months after release iv. US$27,000 – 12 months after release g. If Becker complies with c. above, it will be under no obligation to pay to SAPL the US$360,000 provided that this will not limit or restrict Becker's obligations under f. above. h. If Becker defaults with f. above, SAPL shall, without prejudice to any other rights it may have against Becker, be entitled to immediately terminate the Becker Agreement and all payments under e. above shall become immediately due and payable. i. If SAPL defaults with b. above, Becker shall be entitled to either terminate the Becker Agreement and recover the US$12,000 paid by Becker in accordance with a. above, or the advance under the Becker Agreement shall be reduced from US$400,000 to US$120,000 provided Becker complies with f. above, and if not h. above will apply. j. Becker's recoupment (if any) of the advance paid under the Becker Agreement shall be an amount up to US$120,000, not US$400,000. "Becker Agreement" means the long form agreement between Becker and SAPL in respect of the Film whereby SAPL will agree, in consideration of Becker paying the amount of US$400,000, to grant to Becker certain rights for the exploitation of the Film as more particularly set out in that agreement.' (Emphasis added.) The Assignment Agreement 33 The Assignment Agreement recites that Becker, as 'Lessee', and Scanbox, as 'Lessor', have entered into a 'License Agreement' dated 7 May 1999 with respect to the grant of rights to the Film (Recital A). Presumably the reference to the License Agreement is to the Short Form Agreement. No reference is made in the recital to the Side Letter, an agreement of which the Bank (a party to the Assignment Agreement) had no knowledge at that time. 34 The recitals to the Assignment Agreement continue as follows: 'B. Under the terms of the Distribution Agreement, Lessee has agreed to pay to Lessor the minimum guarantee net sum of US$400,000.00 (the "Minimum Guarantee"), payable in installments as follows upon satisfaction of the condition indicated opposite each instalment amount: 1. $40,000 (the 'Deposit') upon signature of the Distribution Agreement 2. $360,000 upon Notification from Bank, Completion Guarantor [Film Finances Inc] or Borrower [Shrink] that the picture is ready for Delivery (Notice of Initial Delivery). C. As an inducement to Bank to enter into a Loan and Security Agreement ("Loan Agreement") dated as of TBA between SHRINK PRODUCTIONS INC. ("Borrower") and Bank and pursuant to which Bank made a loan (the "Loan") to Borrower to produce the Picture, Lessor, in order to repay the Loan and the indebtedness thereunder, has assigned to Bank all amounts payable by Lessee to Lessor under the Distribution Agreement (the "Gross Picture Proceeds"), including the Minimum Guarantee.' 35 The expression 'Distribution Agreement', referred to in Recital B, is not defined. The statement that the Lessee 'has agreed' to pay the Minimum Guarantee under the Distribution Agreement suggests that the reference is to the Short Form Agreement, rather than to the Long Form Agreement which of course had not then been executed. If this is correct, the Short Form Agreement is described in two different ways in the recitals to the Assignment Agreement. 36 By cl 1 of the Assignment Agreement Scanbox notifies Becker that it (Scanbox) has irrevocably assigned the 'Gross Picture Proceeds', including the Minimum Guarantee, to the Bank and, once the Loan has been repaid, to Film Finance Inc, the 'Completion Guarantor', with any surplus returned to Scanbox. Becker is notified that it is to pay to Scanbox the Gross Picture Proceeds for the benefit of the Bank. 37 Clause 2 of the Assignment Agreement provides as follows: '2. Acceptance and Acknowledgement. Notwithstanding anything to the contrary contained in the Distribution Agreement, for the benefit of Bank and Completion Guarantor only, and without waiving any rights or remedies Lessee may have against Lessor, Lessee hereby acknowledges, covenants, and agrees as follows: (a) Lessee unconditionally agrees to pay to Lessor for the benefit of Bank, Completion Guarantor and Lessor the Minimum Guarantee and other Gross Picture Proceeds in full and in strict accordance with Recital B hereof and the directions contained in Paragraph 1 hereof. (b) The Distribution Agreement is and shall remain in full force and effect and Lessee shall honor and fully perform in accordance with the authority and directions contained in Paragraph 1 hereof. (c) The payment to Lessor of the Minimum Guarantee in full, as and when due hereunder, is a condition precedent to the grant of rights to Lessee pursuant to the Distribution Agreement. (d) Lessee's obligation to pay the Gross Picture Proceeds as set forth herein is absolute and (other than the Deposit, the payment of which is conditioned only on execution of the Distribution Agreement) is conditioned only upon the conditions set forth in Recital B and the provisions of Paragraph 2B hereof and, in the case of Gross Picture Proceeds, other than the Minimum Guarantee, the delivery to Lessee of the Initial Delivery Materials. … (j) No deposits or other payments with respect to the Minimum Guarantee, have been previously paid to Lessor, other than an amount of US$28,000.' The Long Form Agreement 38 The Long Form Agreement provides that Scanbox, as Licensor, grants the 'Licence' (defined to mean the right to exploit the rights set out in Item 5 of the Schedule) to Becker, as Distributor, for the 'Term'. The Term is defined to mean 15 years from complete delivery of the 'Delivery Materials'. The latter expression is defined to mean the materials set out in Schedule 2. Part 1 of Schedule 2 is identical to the first part of the Schedule to the Short Form Agreement. The term 'Initial Delivery Materials' is defined to mean the Delivery Materials set out in Part 1 of Schedule 2. 39 Clause 4 of the Long Form Agreement is as follows: '4. DELIVERY 4.1 On or before the Delivery Date the Licensor must, at Distributor's expense (recoupable as a Deductible Expense), supply and deliver the Delivery Materials to the Distributor at (a) Atlab Australia Sydney, NSW, in the case of the Initial Delivery Materials marked with an asterisk (*) in Part 1 of Schedule 2; and (b) The Delivery Location, in the case of the other Delivery Materials. 4.2 The Distributor shall not be obliged to accept Delivery Materials which: (a) are not of first class technical quality; or (b) are not substantially in accordance with the script and made by the production personnel and containing the production elements approved by the Distributor; or (c) are incomplete; or (d) do not meet the requirements specified in Schedule 2. 4.3 Delivery shall not be completed until all of the Delivery Materials have been delivered to the Distributor and accepted or deemed to be accepted by the Distributor in accordance with this clause 4.3, unless the parties otherwise agree. The Distributor will have forty-five (45) days from and after its receipt from the Licensor of written notice of the Licensor's claim that delivery of the items specified in the notice has been completed, within which to evaluate the Delivery Materials and to notify the Licensor that delivery of those Delivery Materials has been made ("Acceptance Notice") or that delivery of those Delivery Materials has not been made ("Objection Notice")… If the Distributor fails to give the Licensor either an Acceptance Notice or an Objection Notice within the said forty-five (45) day period then the Distributor shall be deemed to have accepted full delivery of those Delivery Materials… The Distributor may accept incomplete delivery of the Delivery Materials but such acceptance will not constitute a waiver of its right to require full and complete delivery of the Delivery Materials at a later time. … 4.6 Notwithstanding the preceding provisions of this clause 4, the Initial Delivery Materials marked with an asterisk (*) in Part 1 of Schedule 2 and delivered to Atlab Australia pursuant to clause 4.1(a) will be held by Atlab Australia on behalf of, and under the control of, the Licensor and must be released to the Distributor upon payment of the balance of the Advance to Imperial Bank. The Licensor must authorise Atlab Australia to release the Initial Delivery Materials to the Distributor immediately the Licensor receives confirmation that the balance of the Advance has been received by Imperial Bank.' The 'Delivery Date' is defined to be 30 June 2000. 40 Clause 5 requires the Distributor to pay the Advance to the Licensor in accordance with Item 2 of Schedule 1. The 'Advance' means 'the amount, if any, specified in [Item 2], being the amount to be paid by the Distributor to the Licensor as an advance payment against the Licensor's share of Gross Receipts'. 41 Item 2 of Schedule 1 is as follows: 'ITEM 2 – THE ADVANCE US$400,000.00 payable by telegraphic transfer to the Licensor's nominated bank account as follows: 1. 10% (US$40,000.00) on execution of this Agreement; 2. 90% (US$360,000.00) on the Licensor's notice to the Distributor that the Initial Delivery Materials are ready for delivery to the Distributor ("Notice of Initial Delivery"), not to be given until the Distributor has accepted or been deemed to have accepted delivery of the Initial Delivery Materials in accordance with clause 4 (and in this regard, those Initial Delivery Materials marked with an asterisk (*) in Part 1 of Schedule 2 will, at that time, be held by Atlab Australia on behalf of the Licensor as provided in clause 4.6).' 42 Clause 10.1 requires Gross Receipts to be applied as set out in Item 10 of Schedule 1. Item 10 is as follows: 'Gross Receipts will be distributed in the following order: (a) First – in payment to the Distributor of the applicable Distribution Fee; (b) Second – in payment to the Distributor of the Deductible Expenses; (c) Third – in payment to the Distributor in recoupment of the Advance until the Advance is fully recouped; (d) Fourth – in payment of the balance of the Licensor.' The 'Distribution Fee' is defined to mean the applicable fee payable to the Distributor from various sources, such as theatrical rights and video rights. The expression 'Deductible Expenses' is defined to include certain costs paid or incurred by the Distributor in connection with exploitation of the Film. The 'Advance' is defined to mean 'the amount, if any, specified in ITEM 2 of Schedule 1, being the amount to be paid by the Distributor to the Licensor as an advance payment against the Licensor's share of Gross Receipts'. 43 Clause 17.1 defines 'Event of Default' to include '(a) A party commits a material breach of this Agreement and fails to remedy the breach with thirty (30) days of notice being given requiring such breach to be remedied such that, in the reasonable opinion of the other party, the first mentioned party is rendered unable to comply with its obligations under this Agreement; … (j) Delivery of the Delivery Materials (other than those specified as being required "if available" or "when available") has not been completed within three (3) months after the Delivery Date.' 44 Upon the occurrence of an Event of Default, the non-defaulting party may terminate the Long Form Agreement (cl 17.3). Any termination is to be without prejudice to any right of action vested in either party prior to termination (cl 17.4). Termination of the Agreement by the Distributor does not prevent it continuing to obtain the benefit of contracts, arising from the exploitation of the Licence, entered into prior to the termination (cl 17.6). events after the initial agreements 45 The three initial agreements (the Short Form Agreement, the Side Letter and the Notice of Assignment) were entered into on or about 8 May 1999. On 14 September 1999, Mr Reeve wrote to Scanbox noting that Becker was required to pay the balance of the first instalment of the Advance ($12,000) on the signing of the Long Form Agreement. He acknowledged that the delay in signing the Long Form Agreement was his responsibility, as he had not responded to a request made by Scanbox for amendments to the draft agreement. In these circumstances, he indicated that he had authorised payment of the $12,000. 46 On 29 March 2000, Scanbox notified Becker that the Film was ready for immediate delivery. The letter stated that under the terms of 'your contract', the rights for the Film started on the day of the Notice of Delivery and would expire after 15 years. However, the following day, Mr Reeve confirmed that Scanbox had said that it would not supply a print of the Film until the Long Form Agreement was signed. Further correspondence on the terms of the Long Form Agreement then ensued. 47 On 1 May 2000, the Bank wrote to Becker as follows: 'Please be advised that the film entitled "The Shrink Is In" is ready for delivery. Upon Notice of Delivery, please immediately remit your payment of Assigned Receipts to Imperial Bank as required in the Notice of Assignment and Distributor's Acceptance. Please remit payment to [a specified] account. Amount: $360,000.' The letter was headed 'PRE-DELIVERY REMINDER'. 48 On 23 May 2000, Mr Reeve of Becker wrote to Ms Krauss of Scanbox referring to correspondence that had taken place relating to the as yet unexecuted Long Form Agreement. The second paragraph of the letter is as follows: 'I am also transmitting a copy of a fax from Imperial Entertainment Group dated 1 May 2000 seeking payment of the amount of US$360,000.00, payable on Notice of Delivery. As you are aware, under the terms of our Side Letter of May 1999 (copy also transmitted), this amount is to be paid by Scanbox to us and then remitted by us to the Bank. However, prior to this occurring the Initial Delivery Materials marked with an asterisk (*) in Part 1 of Schedule 2 of the Distribution Agreement need to be delivered to Atlab Australia by Scanbox for approval by us as set out in Clause 4.6 of the Distribution Agreement. I would be grateful if you could urgently advise me when those Delivery Materials are to be delivered to Atlab Australia as we obviously wish to avoid the position of having the Bank threaten action for non-payment of the second instalment of the Advance.' 49 On 7 June 2000, Mr Reeve of Becker received a copy of an email from Mr Fernando of Scanbox advising that Scanbox was 'ready to ship all initial delivery materials to Atlab as per the terms of the agreement'. On that day he was also advised by Scanbox that it could not deliver a print of the Film direct to Becker as the 'agreement is that the materials are deposited at Atlab and the Bank is insisting that all contracts be adhered to'. 50 Also on 7 June 2000, Mr Reeve informed Ms Krauss of Scanbox that Becker had as yet received no follow-up from the Bank for payment of the $360,000 'payable on Notice of Delivery'. Mr Reeve stressed the importance of signing off on the Long Form Agreement as a matter of urgency 'so that those monies can be remitted to us by Scanbox as soon as we [approve] the Initial Delivery Materials'. 51 On 17 July 2000, Mr Reeve wrote to Mr Davis, apparently the incoming President of Scanbox International, recording his understanding that a print and other materials would shortly be delivered to Atlab. Mr Reeve reported that the Bank had not sought the second instalment of the Advance of $360,000 and stated that he assumed that 'this is because the Bank is aware of the agreement between us to the extent that those monies are not required to be paid until we have inspected and approved the Delivery Materials'. Mr Reeve said that Becker's concern was to obtain delivery of the Delivery Materials as soon as possible so that Becker could approve them and obtain the second instalment from Scanbox for immediate on-forwarding to the Bank. 52 Mr Davis replied to Mr Reeve's letter on the same day, informing him that Ms Krauss had left Scanbox. Mr Davis said that he had given instructions for all materials to be sent to Atlab. In the meantime he would examine the contracts. 53 Later on 17 July 2000, Mr Davis sent another letter to Mr Reeve saying that he had now read the Side Letter and considered that the revised Long Form Agreement 'look[ed] fine'. Because Mr Davis' letter apparently misquoted portion of the Side Letter (by referring to a sum of $280,000 payable by Scanbox rather than $360,000), Mr Reeve sent a further letter the following day which included this passage: 'You will note in paragraph (b) [of the Side Letter] that Scanbox is required to pay the amount of US$360,000 to Becker upon receiving written confirmation from Becker that the Delivery Materials are acceptable.' 54 On 18 July 2000, Mr Reeve forwarded the Scanbox final version of the Long Form Agreement, which he had signed on behalf of Becker. 55 At about this time, a conversation took place between Mr Reeve and Mr Stone of Scanbox in which the latter, newly appointed to Scanbox, said he 'did not know very much' of the Side Letter. On 24 July 2000, a meeting took place at which Mr Reeve explained the history to Mr Stone. 56 On 25 July 2000, Mr Reeve wrote to Scanbox noting that delivery of the Film had not been effected by 30 June 2000 as required by the Short Form Agreement and the unsigned Long Form Agreement. He said it was imperative that outstanding issues be resolved and advised that Becker would have no alternative but to terminate the Short Form Agreement and obtain recovery of the part Advance paid unless the following occurred by 11 August 2000: · delivery of the Initial Delivery Materials to Atlab; · approval of the Initial Delivery Materials by Becker; · payment by Scanbox of $360,000 to Becker being the balance of the Advance; and · execution of the Long Form Agreement. 57 It appears that due to changes of personnel within Scanbox, Mr Reeve was requested to supply Scanbox with copies of relevant documentation. Whatever the reason for the request, Mr Reeve supplied the documentation on 27 July 2000. 58 On or about 10 August 2000, Scanbox executed the Long Form Agreement. 59 On 14 August 2000, Atlab advised Becker that it had received three components for the Film, namely the feature print, a letterbox trailer digital Betacam and a full frame trailer digital Betacam. These comprised three of four asterisked items in the list of Initial Delivery Materials. On 28 August 2000, Scanbox advised Becker that further material relating to the Film had been shipped that day from Los Angeles and that further shipment details on the balance would be provided shortly. 60 On 28 August 2000, Mr Stone of Scanbox told Mr Reeve that Scanbox would not be putting Becker in funds to pay the Bank as he (Mr Stone) could not understand why the deal had been done. This was presumably a reference to the Side Letter. 61 On the same day, Mr Reeve wrote to Mr Stone as follows: 'We advise that the following materials have now been inspected by us and found satisfactory: · 35 mm print of the Film; and · digital betacam of the trailer. In accordance with the Agreement between Becker Group Limited ("Becker") and Scanbox Asia Pacific Limited ("Scanbox") dated May 1999 (copy enclosed) ("the May 1999 Agreement") the amount of US$360,000 is now payable by Scanbox to Becker and accordingly, we enclose our invoice for payment. We confirm that on receipt and clearance of the monies referred to in the invoice, we will immediately wire transfer to the…account of the…Bank the amount of US$360,000 (less withholding tax)… Given: (a) that Imperial Bank is chasing Becker for payment of the US$360,000; (b) that we have to date been unable to obtain from Scanbox either verbal or written confirmation that it will pay to Becker the monies referred to in paragraph (b) of the May 1999 Agreement; and (c) the advice given to the writer this afternoon by Mr Michael Rhodes that, on its most favourable interpretation, Scanbox was disinclined to make payment to Becker of the US$360,000 referred to in the May 1999 Agreement, Becker will have no alternative but to treat the failure by Scanbox to make payment of the enclosed invoice within seven (7) days of today's date as a fundamental breach of its obligations under the May 1999 Agreement entitling Becker to terminate the Distribution Agreement dated 10 August 2000… In the circumstances, Becker reserves its rights against Scanbox and its officers.' 62 On 11 September 2000, Scanbox replied to Becker's letter as follows: 'We say that the demand and accompanying invoice are wrong and invalid and that the amount claimed is not due or owing. Indeed, no amount is due and owing by Scanbox Asia Pacific Limited to you. Further, Scanbox Asia Pacific Limited is not bound by the terms of the side letter. Mr Chetty did not have authority to bind Scanbox Asia Pacific Limited to the terms of the side letter. Finally, as you will be aware we are investigating the circumstances surrounding this matter as we are concerned that the transactions involving the side letter may be of questionable probity. Indeed, we have legal advice to the effect that the side letter is unenforceable against Scanbox Asia Pacific Limited on the grounds (inter alia) of illegality. In the circumstances it is impossible for the directors of Scanbox Asia Pacific Limited to agree to pay the claims you say arise under the side letter.' (Emphasis added.) 63 On 14 September 2000, Mr Reeve replied to Scanbox's letter. The reply included the following: '3. Scanbox is fully bound by the terms of the May 1999 Agreement. Becker was entitled to rely on the circumstances surrounding the entering into of the May 1999 Agreement as a holding-out of Mr Chetty as an officer of Scanbox with authority to bind Scanbox. We also note that, with full knowledge that Becker was relying on the promises of Scanbox contained in the May 1999 Agreement, Scanbox induced Becker to act to its detriment firstly, by entering into the Notice of Assignment and Acceptance and secondly, by paying the balance of the first instalment of the Advance under the Short Form Agreement in the amount of US$12,000 (less withholding tax) on or about 15 September 1999; … 5. If it transpires to be the case that Scanbox used the Short Form Agreement and Notice of Assignment and Acceptance to obtain production funds from Imperial Bank without disclosing to imperial Bank the terms of the May 1999 Agreement, we wish to place it firmly on the record that this conduct was undertaken without the knowledge or approval of Becker who had no reason to believe that Scanbox and its officers would act otherwise than with total honesty in their dealings with the Bank… 6. We note you (sic) advice that Scanbox has "handed back" the Film to Imperial Bank, apparently under the terms of certain non-recourse facilities made available by the Bank to Scanbox for production of the Film. Given that Imperial Bank has already made demand on Becker for payment of the remaining US$360,000 of the Advance agreed to be paid by Scanbox to Becker under clause (b) of the May 1999 Agreement, Becker now finds itself (through no fault of its own) facing action by Imperial Bank for payment of those monies. Should such action eventuate, then Becker will vigorously defend such action and will join Scanbox as a party to those proceedings. 7. The refusal by Scanbox contained in your letter of 11 September 2000 to pay to Becker the amount due under clause (b) of the May 1999 Agreement is a breach by Scanbox of a fundamental term of the May 1999 Agreement, absolutely relied upon by Becker in executing the Short Form Agreement, the Notice of Assignment and Acceptance and the Long Form Distribution Agreement. Accordingly, Becker hereby terminates the Short Form Agreement and the Long Form Distribution Agreement and demands immediate payment of an amount of US$12,000 being the amount paid to Imperial Bank (and the Australian Government, by way of withholding tax) and being that part of the first instalment of the Advance required to be paid by Becker. Becker reserves all of its rights against Scanbox, its officers and other employees arising from such termination and from the circumstances of the transaction generally.' 64 On 18 September 2000, the attorneys for the Bank wrote to Becker pointing out that under the Assignment Agreement, $360,000 was payable by Becker upon notification by the Bank, the Completion Guarantor (Film Finances Inc) or the Borrower (Shrink) that the Film was ready for delivery. The letter stated that Becker had received 'Notification' and accordingly demanded payment of $372,000. The letter threatened proceedings if the demand was not met. (It is not clear why the demand was for $372,000 rather than $360,000.) The letter included the following statement: 'Although not required for payment of the foregoing, the Initial Delivery materials are also being held by your laboratory in Australia.' 65 On 18 January 2001, the Bank's attorneys forwarded to Becker a draft complaint to be filed in the Los Angeles County Superior Court. The complaint named a number of defendants, including Becker. The causes of action pleaded against Becker included a breach of the Assignment Agreement in that it was obligated upon receipt of the Notice of Initial Delivery to pay the Bank $360,000, but had failed to do so. The complaint also pleaded causes of action in fraud, deceit and negligent misrepresentation against Becker arising out of the arrangements in the Side Letter which had not been communicated to the Bank. 66 Thereafter negotiations took place between Becker and the Bank. One of Mr Reeve's concerns was to ensure that if Becker paid the Bank $360,000 it could obtain release of materials relating to the Film still held by Atlab. Another was to secure distribution rights to the Film. 67 As a result of the negotiations, the following documents were executed: · a Deed of Release between the Bank and Becker; · a new Long Form Agreement executed by Becker and by the Bank as attorney for Scanbox ('New Long Form Agreement'); and · an amendment to the Assignment Agreement ('Amendment Agreement') producing a Revised Notice of Assignment and Acceptance ('Revised Assignment Agreement'). 68 The Deed of Release provides that upon the parties entering into the Amendment Agreement and Becker paying to the Bank the balance of the Minimum Guarantee, namely $360,000 in accordance with the Revised Assignment Agreement, each will be released from claims made by the other. Scanbox is not a party to the Deed of Release. 69 The Amendment Agreement substitutes new Recitals A and B in the Revised Assignment Agreement. The new Recital A states that the 'Lessor and Lessee have entered into that certain agreement dated 7 May 1999 (the "License Agreement", which expression includes the said agreement…and any subsequent agreement which supersedes and replaces the agreement)…' (Emphasis added.) Recital B now reads as follows: '1. $40,000 (the "Deposit") upon signature of the License Agreement; provided, however, the amount of $28,000 is hereby credited as paid and the sum of $12,000 is immediately due and owing. 2. $360,000 upon notification from Bank, Completion Guarantor or Borrower ("Notice of Initial Delivery") that the Initial Material (which Initial Materials are set forth on Exhibit A hereto) are available for delivery at Lessee's cost as set forth in the AFMA Standard Terms and Conditions (or, as applicable, the License Agreement).' The Amendment Agreement also substitutes a new Exhibit A to the Revised Assignment Agreement. Clause 9 of the Amendment Agreement states that: 'Notice of Initial Delivery is deemed to have been duly given upon the execution hereof by the parties.' 70 The New Long Form Agreement recites that the Licensor (Scanbox) has the distribution rights in the Film and that it wishes to grant the Distributor (Becker) an exclusive licence to distribute the Film on the terms and conditions set out in the Agreement. Recital D states that the 'parties are entering into this Agreement on the basis that it supersedes and replaces the Short Form Agreement'. The 'Short Form Agreement' is defined to mean the Short Form Agreement executed on 7 May 1999, a copy of which is annexed to the New Long Form Agreement. The New Long Form Agreement makes no reference to the Side Letter. 71 The New Long Form Agreement grants Becker a licence for a term of 25 years from the date of the Agreement (expressed to be 'as of March 2001'). The Advance is said to be $400,000 payable on execution of the Agreement, except for the amount of $40,000 already received by the Licensor. The provisions relating to the application of Gross Receipts are the same as in the Original Long Form Agreement (see [42] above). BECKER'S CONTRACT CLAIM 72 As I have noted (see [16], [20] above), there is some common ground on the contractual claim. The issues requiring discussion only emerged during final submissions and, in the event, required some amendment to the pleadings. As I followed the argument, the issues are these: (i) Did Scanbox's letter of 11 September 2000 constitute a repudiation of, or breach of a fundamental term of, the Final Distribution Agreement? (ii) If so, did Becker accept that repudiation and terminate the Final Distribution Agreement? Or, as Scanbox contends, did Becker simply exercise a contractual right of termination conferred by par (i) of the Side Letter, thereby limiting it to the entitlement specified in par (i), namely repayment of $12,000? (iii) Assuming Becker accepted Scanbox's repudiation, is Becker entitled to recover the sum of $360,000 paid to the Bank in consequence of the Bank's claim under the Assignment Agreement? Scanbox submits that Becker was not obliged to pay any moneys to the Bank under the Assignment Agreement, since the precondition to the existence of that liability, namely the Notice of Initial Delivery as defined in the Assignment Agreement, had never been satisfied. Accordingly, so it argues, the payment by Becker to the Bank was not foreseeable at the time the Short Form Agreement and Side Letter were entered into. Becker says that the precondition required by the Assignment Agreement had been satisfied and, in the alternative, if it had not, Scanbox was responsible for the failure and therefore precluded from relying on it. (iv) Do the New Long Form Agreement and the Revised Assignment Agreement, which give effect to the settlement between Becker and the Bank, release or terminate any claim for damages that Becker may have for Scanbox's breach of the Final Distribution Agreement? According to Scanbox, it is not open to Becker to take the benefit of the New Long Form Agreement, which allows it to recover its costs including the Advance (assuming the Film yielded sufficient revenue) and at the same time claim damages for breach of an earlier version of the same agreement. Mr Southwick argues that the New Long Form Agreement revived the original Long Form Agreement and it is inconsistent with that revival for Becker to claim damages for repudiation of the original agreement. (v) Should the gross revenue derived from Becker from exploitation of the Film under the New Long Form Agreement (amounting to $298,899 by June 2002) be offset against any damages otherwise claimable by Becker? Did Scanbox Repudiate the Final Distribution Agreement? 73 This issue was obscured in argument somewhat by the way Becker pleaded its case and by Scanbox's defence. Becker initially pleaded that Scanbox had committed a breach of a fundamental term of the Final Distribution Agreement by refusing to pay the sum of $360,000 or, alternatively, had repudiated the Final Distribution Agreement. Becker was alleged to have accepted Scanbox's breach of a fundamental term or, alternatively, its repudiation of the Final Distribution Agreement, by the letter of 14 September 2000. Scanbox admitted the latter allegation. 74 Mr Bevan said that in view of Scanbox's admission, Becker had not deemed it necessary to plead specifically that Scanbox had repudiated the Final Distribution Agreement by reason of its letter of 11 September 2000 evincing an intention not to be bound by the terms of the Side Letter. At the hearing, however, Mr Southwick on behalf of Scanbox, argued that Scanbox's obligation to pay the sum of $360,000 under the Side Letter had not accrued by 14 September 2000 because, at that date, Becker had not accepted the Initial Delivery Materials pursuant to cl 4 of the Long Form Agreement. Mr Bevan then sought to rely on what might be described as the broader repudiation argument. I gave leave for Becker to amend its statement of claim to the extent necessary to raise this argument and for Scanbox to amend its defence accordingly. 75 The Side Letter addresses the situation where Scanbox defaults under the obligation imposed by par (b) to pay Becker $360,000 upon receiving written confirmation from Becker that the delivery materials under the Becker Agreement (that is, the Long Form Agreement) are acceptable. Paragraph (i) provides that if Scanbox defaults, Becker is entitled to terminate the Becker Agreement and recover the $12,000 part Advance paid by it (in fact paid on 14 September 1999) or to have the Advance reduced from $400,000 to $120,000 (comprising the part Advance of $12,000 and the four instalments of $27,000 payable under par (f) of the Side Letter, making $120,000 in all). 76 The question of whether a termination of the Long Form Agreement pursuant to par (i) of the Side Letter would entitle Becker to claim damages for loss of bargain was not the subject of detailed argument. However, Scanbox's contentions assume such a termination would not entitle Becker to claim damages for loss of bargain. 77 The fact that a contract provides for termination in the event of breach of a particular term does not of itself establish that the term is to be regarded as essential to the contract: Shevill v Builders Licensing Board (1982) 149 CLR 620. The test is whether the term 'is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor'. See Associated Newspapers Ltd v Bancks (1951) 83 CLR 322, at 337, per curiam, approving the formulation of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, at 641-642. 78 Paragraph (b) of the Side Letter does not specify a particular time within which, following written confirmation that the delivery materials under the Long Form Agreement are acceptable to Becker, Scanbox is to pay the amount of $360,000. Presumably, the obligation is to be performed within a reasonable time: Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, at 567, per Brennan J. 79 Subject to the question of reasonable time, the better view would seem to be that Scanbox's obligation to pay $360,000 to Becker in accordance with par (b) of the Side Letter was of fundamental importance to Becker agreeing to enter both the Original Distribution Agreement and the Final Distribution Agreement. Both the Short Form Agreement and the Long Form Agreement require Becker to pay $360,000, being the balance of the Advance after payment of the deposit of $40,000, subject to fulfilment of certain conditions. It was plainly contemplated that that sum would be paid by Becker to the Bank. Indeed, the Side Letter itself requires Becker to pay the sum of $360,000 to the Bank 'immediately' on receipt of that sum from Scanbox. In short, the contractual arrangement between the parties contemplated, for whatever reason, that Scanbox would put Becker in funds to meets its obligation to pay the balance of the Advance as required by the Short Form Agreement and the Long Form Agreement. By this means, Becker was also to be put in funds by Scanbox to enable it (Becker) to meet its obligation under the Assignment Agreement to pay the Bank the sum of $360,000. On the other hand, a breach of par (b) of the Side Letter could be compensated for by an award of damages and this is an indication that the term was not intended to be essential to the contract: Friedlander v The Bank of Australasia (1909) 8 CLR 85, at 96, per Griffith CJ; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, at 557, per Mason ACJ, Wilson, Brennan and Dawson JJ. 80 Despite the latter point, I think that the appropriate conclusion is that Becker would not have entered into either the Original Distribution Agreement or the Final Distribution Agreement unless assured that Scanbox would comply with its obligation under par (b) of the Side Letter. If this is correct, par (b) is an essential term of both Distribution Agreements. It would follow that if Becker terminated the Long Form Agreement (as part of the Final Distribution Agreement) pursuant to par (i) of the Side Letter by reason of Scanbox's failure to pay the sum of $360,000, Becker would be entitled to sue for damages for loss of bargain. 81 Whether or not this construction of par (b) of the Side Letter is correct, I do not think that par (i) of the Side Letter excludes the application of the common law doctrine of repudiation from the Final Distribution Agreement (which comprises the Side Letter and the Long Form Agreement). There are circumstances in which the doctrine can be excluded from a contract by necessary implication: Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527 (affirmed on other grounds in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64). But Becker's right to terminate the Long Form Agreement under par (i) of the Side Letter by reason of Scanbox's default in payment of the sum of $360,000 is not inconsistent with Becker having the right to terminate the Final Distribution Agreement in the event of Scanbox's repudiation of an integral component of that Agreement, namely the Side Letter. Similarly, in my view, cl 17 of the Long Form Agreement is not inconsistent with Becker having the right to terminate the Final Distribution Agreement if Scanbox repudiated the Side Letter. Mr Southwick did not contend otherwise. 82 In GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1, Finn J stated the applicable principles as follows (at 202-203 [889-891]): '(i) A party will have repudiated a contract if, by words or conduct, it evinces an intention no longer to be bound by it or if that party shows it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and not in any other way: Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625-626; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623. (ii) The party's conduct is to be judged objectively by reference to the effect it would be reasonably calculated to have upon a reasonable person: Laurinda Pry Ltd v Capalaba Park Shopping Centre Pty Ltd at 658; Satellite Estate Pty Ltd v Jaquet (1968) 71 SR (NSW) 126 at 150. (iii) A party that acts on a genuine but erroneous view of its obligations under the contract will not for that reason alone have repudiated it. That party may still be willing to perform the contract according to its tenor; to recognise its heresy; or to accept an authoritative exposition of the contract: DTR Nominees Pty Ltd v Mona Homes Fry Ltd (1978) 138 CLR 423 at 431-432; Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277. But persistence in an untenable construction will ordinarily be regarded as repudiatory: Summers v Commonwealth (1918) 25 CLR 144 at 152; and see Chitty on Contracts, vol 1, para 25-018.' 83 Scanbox, in the letter of 11 September 2000, did not merely refuse to pay the sum of $360,000 on the ground that the amount claimed had not fallen due or was not owing by reason of some defaults in Becker's past. Scanbox expressly asserted that it was not bound by the terms of the Side Letter. This was a renunciation and refusal to perform an integral part of the Final Distribution Agreement: cf Holland v Wiltshire (1954) 90 CLR 409, at 415, per Dixon CJ. Scanbox has not sought in these proceedings to support either of the grounds advanced by it to justify its assertion (namely lack of authority by Mr Chetty to bind Scanbox and illegality). Nor has it adduced evidence that it acted on a genuine but erroneous view of its obligations under the Final Distribution Agreement. 84 The clearest example of repudiation of a contract is an express refusal to perform or an express renunciation of the obligations arising under the contract: Shevill, at 625-626, per Gibbs CJ; JW Carter and DJ Harland, Contract Law in Australia (4th ed, 2002), at 711-712. Scanbox expressly renounced its obligations under Side Letter, which was an integral part of both the Original Distribution Agreement and the Final Distribution Agreement. In doing so, Scanbox evinced a clear intention no longer to be bound by either Agreement. It therefore repudiated the Final Distribution Agreement. Did Becker Accept Scanbox's Repudiation? 85 Where one party repudiates its obligations under a contract, the innocent party is entitled to accept the repudiation, thereby discharging itself from further performance, and to sue for damages: Heyman v Darwins Ltd [1942] AC 356, at 399 per Lord Porter, cited in Shevill, at 626, per Gibbs CJ. The repudiation itself does not terminate the contract; the innocent party must elect to terminate the contract: Heyman v Darwins Ltd, at 361, per Viscount Simon LC; JW Carter, Breach of Contract (2nd ed, 1991), at 324. Where the innocent party relies on a common law right to terminate, it is necessary for that party to act in such a way as to make it plain that it treats the contract at an end: Heyman v Darwins Ltd, at 361. No particular form of words is necessary, so long as the intention is plain: Lakshmijit v Faiz Sherani [1974] AC 605, at 616, per Lord Cross of Chelsea; JW Carter, Breach of Contract, at 334. 86 Nor is it necessary for the innocent party to specify the precise conduct that is said to constitute repudiation of the contract or the breach of a fundamental term. Any ground for termination that exists at the time the innocent party elects to terminate may be relied on at a later date: Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359, at 377-378, per Dixon J. Thus in Carr v J A Berriman Pty Ltd (1953) 89 CLR 327, it was held that the fact that a builder had given a notice of cancellation under a clause that had no application did not prevent the notice being effective to terminate the contract if the builder otherwise had grounds to do so: see at 343, per Fullagar J, with whom Dixon CJ, Williams, Webb and Kitto JJ agreed. See also GEC Marconi v BHP Information Technology, at 172-173 [747], per Finn J. 87 Scanbox contends that Becker's letter of 14 September 2000 exercised the contractual right of termination conferred by par (i) of the Side Letter. It says that the letter cannot be regarded as an exercise of Becker's common law right to accept Scanbox's repudiation as terminating the Final Distribution Agreement. 88 Scanbox's submission assumes that its obligation to pay $360,000 to Becker under par (b) of the Side Letter had not accrued by 14 September 2000 or, if it had, par (b) could not be regarded as an essential or fundamental term of the Final Distribution Agreement. On this assumption, if Scanbox's obligation to pay $360,000 had not accrued by 14 September 2000, it had not breached the Final Distribution Agreement and Becker was not entitled to terminate the Agreement and claim damages for loss of bargain. On the other hand, if the obligation had accrued, Scanbox had not breached an essential term of the Final Distribution Agreement. On the authority of Shevill, according to Mr Southwick, if Becker chose to terminate the Final Distribution Agreement pursuant to par (i) of the Side Letter, it could not claim damages for loss of bargain. 89 As I have explained, I do not think that Scanbox's assumption as to the construction of par (b) of the Side Letter is correct. In any event, I think its argument is flawed. Scanbox, as I have found, repudiated the Final Distribution Agreement by letter dated 11 September 2000. That finding does not depend on Scanbox having breached its obligation under par (b) of the Side Letter by 14 September 2000, the date on which Becker terminated the Long Form Agreement. On the contrary, Scanbox's actions constituted a repudiation, whether or not it had already breached par (b) of the Side Letter by that date. 90 In my opinion, Becker's letter of 14 September 2000 was intended to terminate the Final Distribution Agreement and to enable it to claim damages for loss of bargain, and would be read in this way by a reasonable observer. It is true that the letter is imprecise in a number of respects. It purports to terminate the Short Form Agreement as well as the Long Form Agreement, notwithstanding (as the parties now agree) the latter had supplanted the former. The letter does not explicitly identify the Final Distribution Agreement as the subject of the termination, referring instead to the Long Form Agreement. And the letter refers expressly neither to par (i) of the Side Letter nor to the common law doctrine of repudiation as the basis for termination of the Long Form Agreement. 91 Despite the lack of precision, the intent of the letter is tolerably clear. It expressly states that Scanbox had breached a fundamental term of the Side Letter 'absolutely relied on by Becker in executing [the other agreements]'. The letter reserves all Becker's rights. The point of these statements could only be to show that Becker is terminating the Long Form Agreement and reserving its rights to claim damages for loss of bargain. Otherwise, it would not matter whether Scanbox's breach was of a 'fundamental term' or not. Similarly, I think it implicit in the language of par 7 of the letter, which says that Becker relied on the Side Letter in executing the Long Form Agreement, that the termination is intended to relate to the whole agreement between the parties. While the letter does not expressly assert that the Side Letter and the Long Form Agreement formed a single contract, the letter stresses the link between the two. Given that the Side Letter and the Long Form Agreement together comprised the Final Distribution Agreement, I think that Becker's letter must be read as terminating the Final Distribution Agreement and not merely one component of it. 92 Becker's letter rejects Scanbox's assertion that it was not bound by the Side Letter, but the letter does not expressly rely on that assertion as constituting a repudiation justifying termination of the Final Distribution Agreement. For the reasons I have given, Becker did not need to identify the ground justifying its termination of the Final Distribution Agreement. So long as it had grounds available to terminate the Final Distribution Agreement, its letter was effective to do so. Since Scanbox had repudiated the Final Distribution Agreement, Becker's letter of 14 September 2000 was effective to accept that repudiation and terminate the Final Distribution Agreement. IS BECKER ENTITLED TO RECOVER THE MONEYS IT PAID TO THE BANK? 93 The parties have chosen their own battleground on the question of the quantum of damages flowing from Scanbox's breach of the Final Distribution Agreement. As I have noted, Becker does not claim the sum of $360,000 from Scanbox as an entitlement accrued under the Final Distribution Agreement prior to the termination of that Agreement on 14 September 2000. Becker claims that its damages include the sum of $360,000 that it was forced to pay to the Bank under the Assignment Agreement. Mr Bevan submits that the payment of this sum by Becker to the Bank was a foreseeable consequence of the Final Distribution Agreement (which includes the Side Letter) and on that basis Scanbox is liable to compensate Becker for the payment made by it to the Bank pursuant to the Assignment Agreement. 94 As I followed the argument, Scanbox does not dispute Becker's starting point. Mr Southwick accepts that if Becker validly terminated the Final Distribution Agreement in consequence of Scanbox's repudiation, Scanbox is liable to compensate Becker for any amount it was required to pay to the Bank under the Assignment Agreement. He does not make any submission that the damages should be recovered in the sum of $120,000 that Becker was obliged to pay under the Side Letter. However, Mr Southwick contends that Becker was not obliged to pay the Bank anything. The reason he gives is that the Bank was not entitled to recover the sum of $360,000 from Becker unless and until Becker had received a Notice of Initial Delivery as required by cl 2(a) and Recital B of the Assignment Agreement. Mr Southwick submits that the Bank had never given the required Notice of Initial Delivery. Thus, so he contends, Becker's decision to accede to the Bank's demand was not causally linked to Scanbox's breach of contract. 95 Although Scanbox does not dispute that it is liable for any payment Becker was obliged to make to the Bank under the Assignment Agreement, I should nonetheless consider the foundation for Becker's contention. Mr Bevan relies on two authorities to support Becker's argument: Carr v Berriman and Lamson Paragon Ltd v Spicers (Australia) Ltd [1953] SASR 297. 96 In Carr v Berriman, a proprietor of land contracted to supply a builder with structural steel to be fabricated by the builder or by a sub-contractor to the builder. The builder duly entered into a contract with a sub-contractor to fabricate the steel. The proprietor then repudiated its obligation to deliver the steel and the builder elected to terminate the building contract and sue for damages. The High Court considered it right to allow a 'substantial amount' to compensate the builder for damages recoverable by the sub-contractor from the builder under the fabrication contract (at 352). Since there was no challenge in the High Court to the amount awarded by the trial Judge under this head, the award was upheld. 97 In Lamson Paragon v Spicers, A contracted to sell B fifty tons of manilla board by sample. A knew B intended to resell the board to a sub-purchaser. The manilla board did not correspond with description. The sub-purchaser sued B who, in turn, issued a third party notice against A. Ligertwood J held that B could recover from A the damages and costs B was ordered to pay C, as well as B's costs of defending C's action. 98 Both Carr v Berriman and Lamson Paragon v Spicers deal briefly with the damages issue and thus do not examine the underlying principles in depth. However, the relevant principles were stated by the Court of Appeal in Hammond & Co v Bussey (1887) 20 QBD 79 and were applied by the House of Lords in R & H Hall Ltd v W H Pim (Junior) and Co Ltd (1928) 33 Com Cas 324. See also GEC Marconi Systems v BHP Information Technology, at 211-212 [934]-[940], per Finn J. 99 In Hammond v Bussey, the defendant sold 'steam-coal' to the plaintiffs. The defendant knew the plaintiffs intended to resell the coal to the owners of steamers calling at Dover. The plaintiffs did in fact resell the coal and in due course were sued by the sub-purchasers on the ground that the coal did not correspond to description. The plaintiffs defended the action but the steam-coal was ultimately found not to have been of satisfactory quality. 100 The defendant accepted that he was liable to compensate the plaintiffs for the damages they had to pay to the sub-purchasers by reason of the defendant's failure to supply steam-coal of the requisite quality. However, the defendant resisted the plaintiffs' claim to recover the costs they had incurred in defending the sub-purchasers' action. The Court of Appeal found in favour of the plaintiffs. The Court applied the so-called second limb of Hadley v Baxendale (1854) 9 Ex 341, at 354, 156 ER 145, at 151: 'Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.' (Emphasis added.) 101 Lord Esher MR considered (at 89) that the second limb of Hadley v Baxendale was not confined to a sub-contract that had actually been made at the date of the principal contract, but extended to a contract that would probably be made. Given that the defendant was aware that the plaintiffs intended to resell the steam-coal subject to warranty similar to that provided by the defendant, the bringing of an action by the sub-purchasers and the defence of such an action by the plaintiffs were circumstances that could reasonably be supposed to have been in the contemplation of the parties at the time they made the contract as the probable result of the breach. See, too, at 100, per Fry LJ. 102 In Hall v Pim, the House of Lords accepted that the law as to the calculation of damages due to breach of a contract had been settled by Hadley v Baxendale as explained in Hammond v Bussey: see at 328, per Viscount Dunedin. Accordingly, where a seller of a cargo of wheat failed to deliver the wheat in accordance with the contract of sale, damages were awarded to the purchaser for loss of profits on contracts under which it had resold the wheat. See, too, James Finlay & Co Ltd v NV Kwik Hoo Tong Handel Maatschappij [1929] 1 KB 400; North Sea Energy Holdings NV v Petroleum Authority of Thailand [1997] 2 Lloyds' Rep 418. 103 In each of these cases, the party in default failed to deliver or supply goods as promised. In the present case, Scanbox repudiated an obligation to pay money. In England, it has been held that a plaintiff can recover as special damages under the second limb of Hadley v Baxendale a loss, such as borrowing expenses, suffered in consequence of a failure to pay a sum due under a contract: Wadsworth v Lydall [1981] 1 WLR 598, approved in President of India v La Pintada Compania Navigacion SA [1985] AC 104, at 127. The High Court has gone further, holding that losses attributable to the withholding of money in breach of contract can be recovered without recourse to the second limb of Hadley v Baxendale: Hungerfords v Walker (1989) 171 CLR 125. As Mason CJ and Wilson J said (at 142): 'If a plaintiff sustains loss or damage in relation to money which he has paid out or forgone, why is he not entitled to recover damages for loss of the use of money when the loss or damage sustained…was reasonably foreseeable as liable to result from the relevant breach of contract or tort? After all, that is the fundamental rule governing the recovery of damages, according to the first limb in Hadley v Baxendale…' 104 In this case, the Side Letter, the Short Form Agreement, the Assignment Agreement and the Long Form Agreement are all interconnected, even though the Bank did not become aware of the Side Letter until long after it was signed. The first three documents were executed more or less simultaneously. The Side Letter refers expressly to the Short Form Agreement and to the (then unexecuted) Long Term Agreement. The Side Letter also records that Scanbox had already paid $28,000, being part of the deposit of $40,000 payable by Becker on execution of the Long Form Agreement. Becker was to pay the balance of $12,000 but was not obliged to pay Scanbox the remaining $28,000. 105 The Short Form Agreement, like the Side Letter, records the parties' intention to prepare and execute the Long Form Agreement. The Assignment Agreement records that under the terms of the 'Distribution Agreement', Becker had agreed to pay the 'Minium Guarantee' and requires Becker to pay the Minimum Guarantee to Scanbox for the benefit of the Bank. The Assignment Agreement also provides that the Distribution Agreement is and remains in full force and effort and requires Becker to fully perform that Agreement. 106 The Long Form Agreement, as the parties agree, was intended to supplant the Short Form Agreement. It sets out in more detail than the Short Form Agreement the respective rights and duties of Scanbox and Becker. These include Becker's obligation to pay the Advance of $400,000, of which $40,000 is payable on execution of the Long Form Agreement and the balance of $360,000 on 'Notice of Initial Delivery'. 107 The Side Letter does not merely require Scanbox to pay Becker $360,000 upon satisfaction of the condition specified in par (b). Becker is required by par (c) to pay that amount to the Bank in accordance with Scanbox's instructions. Moreover, Scanbox is not obliged to release the 'delivery materials under the [Long Form Agreement]' until the Bank confirms that Becker has paid $360,000 unconditionally to the Bank. In my opinion, it is quite clear that Scanbox was to pay Becker the precise sum that Becker was required to pay to Becker for the benefit of the Bank under cl 2(a) of the Assignment Agreement. Scanbox was aware of the precise terms of the Assignment Agreement. Scanbox was also aware that Becker had incurred the obligation to pay the Bank the Minimum Guarantee on the faith of its (Scanbox's) promise to put Becker in funds to enable the latter to do so. Scanbox's promise was the very foundation of the arrangement between Scanbox and Becker. 108 It seems to me that, in these circumstances, it was plainly within the contemplation of the parties to the Side Letter that the probable, indeed inevitable result of repudiation by Scanbox of its obligations under the Side Letter would be that Becker would become liable to pay the Bank $360,000 under the Assignment Agreement without having been put in funds by Scanbox to meet that liability. It is equally clear that Becker would not have agreed to incur a liability to the Bank under the Assignment Agreement but for Scanbox's undertaking to put Becker in funds to meet that liability. The case therefore falls within the second limb of Hadley v Baxendale. Subject to Scanbox's contention that Becker was not in fact obliged to pay the Bank the $360,000 under the Assignment Agreement, Becker is entitled to recover the sum of $360,000 as damages for loss sustained by reason of Scanbox's breach of the Final Distribution Agreement. 109 On Scanbox's argument, the critical question is whether Becker was legally obliged to yield to the Bank's demand that it pay $360,000 pursuant to the Assignment Agreement. Scanbox does not say that the Bank could not have taken the steps necessary to render Becker liable to pay that sum under the Assignment Agreement. The contention is that at the time Becker made the payment, the Bank had not given the Notice of Initial Delivery required by the Assignment Agreement. Thus the precondition to Becker's liability had not been satisfied and Becker had paid the money to the Bank without being under any legal compulsion to do so. 110 Clause 2 of the Assignment Agreement provides that notwithstanding anything to the contrary in the Distribution Agreement, for the benefit of the Bank, Becker agrees unconditionally to pay Scanbox for the benefit of the Bank the Minimum Guarantee in strict accordance with Recital B. Recital B records that under the terms of the Distribution Agreement, Becker has agreed to pay Scanbox the Minimum Guarantee of $400,000 payable in instalments upon satisfaction of the specified conditions. Payment of the instalment of $360,000 is said to be conditional upon 'Notification from Bank…that the picture is ready for Delivery ("Notice of Initial Delivery")'. 111 There are some curious features to the Assignment Agreement. The expression 'Distribution Agreement' is not defined. The fact that Recital B records that under the terms of the Distribution Agreement Becker 'has agreed' to pay the Minimum Guarantee suggests that the reference is to the Short Form Agreement, since the Long Form Agreement had not then been executed. This is strongly reinforced by cl 2(b) of the Assignment Agreement which provides that the Distribution Agreement 'is and shall remain in full force and effect'. On the other hand, Recital B1 records that Becker has agreed to pay the Deposit upon signature of the 'Distribution Agreement'. Under the Short Form Agreement, the Deposit of $40,000 is payable upon the signing of the Long Form Agreement. Thus the reference to the 'Distribution Agreement' in Recital B1 is apparently to the unexecuted (or agreed) Long Form Agreement. 112 Recital B2 of the Assignment Agreement records that under the terms of the Distribution Agreement Becker has agreed to pay $360,000 'upon Notification from Bank…that the picture is ready for Delivery'. The Short Form Agreement does not expressly so provide. It requires payment of $360,000 '[o]n notice that the Initial Delivery Materials are ready for delivery', but does not state that notification is to be given by the Bank (which of course is not a party to the Short Form Agreement). The Long Form Agreement provides that Becker is to pay $360,000 on Scanbox's notice to it by Scanbox that the Initial Delivery Materials are ready for delivery, but adds the proviso that notice is not to be given until Becker has accepted or been deemed to have accepted delivery of the Initial Delivery materials in accordance with cl 4. Clause 4 sets out an elaborate procedure for determining when the Delivery Materials are accepted or deemed to have been accepted by Becker. 113 Scanbox's argument appears to assume that Becker could incur a liability to pay $360,000 for the benefit of the Bank under the Assignment Agreement only if the requirements of the Long Form Agreement are met. I do not think that this assumption is correct. It is true that, as between Becker and Scanbox, the Long Form Agreement replaced the Short Form Agreement. But the rights and obligations of Becker and the Bank must be determined by the terms of the Assignment Agreement, which is the only document recording an agreement between them. 114 I think that on its proper construction the Assignment Agreement imposes an unconditional obligation on Becker to pay $360,000 to Scanbox for the benefit of the Bank upon notification by the Bank that the Film is ready for delivery. It is not necessary in order that Becker incur the obligation that it accept or be deemed to have accepted the Delivery Materials in accordance with cl 4.3 of the Long Form Agreement. In my view, the reference to the 'Distribution Agreement' in Recital B of the Assignment Agreement is to the Short Form Agreement then in existence, not to the Long Form Agreement the terms of which had not been settled at the date the Assignment Agreement was executed. As I have noted, that construction is supported by cl 2(b) of the Assignment Agreement. Clause 2(a) and Recital B, when read together, require Becker to pay $360,000 for the benefit of the Bank upon notification by the Bank that the Film is ready for delivery. Taking into account the cross-reference to the Short Form Agreement in Recital B, this means notification that the Initial Delivery Materials are ready for delivery. 115 The Assignment Agreement makes it clear that cl 2 is to prevail notwithstanding anything to the contrary in the Distribution Agreement. Becker's obligation is unconditional and must be carried out in accordance with Recital B2. Becker's payment to Scanbox of the Minimum Guarantee is said to be a condition precedent to the grant of rights to Becker pursuant to the Distribution Agreement (cl 2(c)). These provisions suggest that the Assignment Agreement is intended to impose an obligation on Becker strictly in accordance with the language of that Agreement, and is not to be influenced by any arrangement subsequently made between Becker and Scanbox and incorporated into the Long Form Agreement. It is hardly likely that the Bank would have contemplated that Becker's obligation to pay moneys for the Bank's benefit could be altered by the terms of a subsequent agreement (the Long Form Agreement) to which the Bank was not a party. 116 Given this construction of the Assignment Agreement, in my opinion the Bank gave the notification contemplated by Recital B2 of the Assignment Agreement in its letter of 1 May 2000. That letter, despite its heading, specifically stated that the Film was ready for delivery. It is true that the letter appears to contemplate that a more formal Notice of Delivery will be given by the Bank. But that fact, in my view, does not prevent the letter being effective to satisfy the requirements of the Assignment Agreement. That is, the letter, by stating that the Film was ready for delivery, satisfied the terms of cl 2(a) and Recital B of the Assignment Agreement. 117 There is no evidence to suggest (if it matters) that the Initial Delivery Materials were not in fact ready by 1 May 2000. This is so notwithstanding that Scanbox took nearly four months to ship the key components of the Film. The delay appears to have been due to the developing dispute between Becker and Scanbox and not to the unavailability of the Initial Delivery Materials, as Scanbox advised Becker on 7 June 2000 that it was ready to ship all Initial Delivery Materials to Atlab. In any event, I infer that by the time of the Bank's demand on 18 September 2000, the Initial Delivery Materials had been dispatched by Scanbox or were in the process of being dispatched. 118 If I am wrong in my view of the letter of 1 May 2000, any defect in that letter was cured by the letter of 18 September 2000 from the attorneys for the Bank. The attorneys' letter stated that Becker had already received 'Notification' and demanded payment of a sum that included the $360,000 due under the Assignment Agreement. The letter of 18 September 2000 also stated that, although not required for payment of this sum, the Initial Delivery Materials were being held by Atlab, the Australian laboratory. If no previous letter from the Bank or its agents satisfied the requirements of the Assignment Agreement, it seems to me that the attorney's letter did so. 119 Mr Southwick relied in argument on the fact that the Revised Assignment Agreement includes a provision (cl 9) that deems Notice of Initial Delivery to have been duly given upon the execution of that Agreement. In my view, that provision, in an agreement executed as part of the settlement between the Bank and Becker, has no bearing on whether Becker was obliged to pay $360,000 to or for the benefit of the Bank when it made the payment. 120 For these reasons, I think that Becker, at the time it paid $360,000 to the Bank was contractually obliged to make that payment for the benefit of the Bank. I therefore do not accept Scanbox's argument that Becker was not obliged to pay that sum to the Bank under the terms of the Assignment Agreement. 121 I should add that I have approached this issue on the basis that Becker cannot recover the sum of $360,000 unless, no later than the date of payment, that sum was due and payable pursuant to the Assignment Agreement. I think, however, that it would be enough for Becker to have acted reasonably in paying the $360,000 as demanded by the Bank. If the Bank had neglected to comply fully with the preconditions specified in the Assignment Agreement, but could have cured the defect at any time, I think that it would have been reasonable for Becker to have paid the $360,000 to or for the benefit of the Bank without requiring the defect to be cured. If, therefore, neither the letter of 1 May 2000 nor the letter of 18 September 2000 was formally sufficient to constitute a Notice of Initial Delivery under the Assignment Agreement, but the Bank could have served a proper Notice at any time, Becker would be entitled to recover the sums paid by it to the Bank as damages for breach of the Final Distribution Agreement. Accordingly, even if there was some formal defect in the letters I would not have regarded that of itself as a barrier to Becker recovering $360,000 from Scanbox as damages for breach of the Final Distribution Agreement. has scanbox been released from becker's claim for damages? 122 Scanbox's argument that it has been released from Becker's claim for damages rests in part on Recital D to the New Long Form Agreement which states that the parties (Becker and Scanbox) are entering the Agreement on the basis that it supersedes and replaces the Short Form Agreement. It is not clear why, in the absence of a term releasing Scanbox from its liability in damages to Becker, the New Long Form Agreement should be regarded as releasing Scanbox from its liability in damages for repudiating the Final Distribution Agreement. 123 The Final Distribution Agreement comprised the Side Letter and the Long Form Agreement. While it was perhaps unnecessary for Recital D to be included in the Long Form Agreement, it cannot be read as a release of Scanbox's liability in damages. Neither Recital D nor anything else in the New Long Form Agreement says or implies anything to that effect. 124 In any event, the New Long Form Agreement is in substance a fresh distribution agreement for the Film, which provides for a longer licence period than the Long Form Agreement itself. The entry into the new agreement does not alter the fact that Becker terminated the Final Distribution Agreement and, by reason of the termination, became entitled to sue Scanbox for damages. There is nothing inconsistent between the New Long Form Agreement and Becker's entitlement to damages. should becker's gross revenue from the film be deducted from becker's damages? 125 I think that there are two answers to Scanbox's contention that Becker's damages should be reduced by the amount of gross revenue it received from exploitation of the Film. The first is that its entitlement to exploit the Film derived from the New Long Form Agreement, not the terminated Final Distribution Agreement. As I have said the New Long Form Agreement is in substance a fresh distribution agreement for the Film. It is a new arrangement, independent of the terminated Final Distribution Agreement. There is no reason why any benefit from the New Long Form Agreement should be offset against Becker's entitlement to damages for breach of the Final Distribution Agreement. 126 In any event, I was not taken to any evidence showing that Becker had made a net profit from distribution of the Film, even putting to one side the amount payable by Becker to the Bank under the Assignment Agreement. There was no attempt to dissect and analyse the very confusing figures that were presented on behalf of Becker in support of its (ultimately abandoned) TP Act claim. The factual foundation for Scanbox's submission is therefore wanting. 127 Mr Southwick rather faintly suggested in oral argument that Becker was entitled to offset its gross revenue from the Film against the $360,000 paid to the Bank. This suggestion, however, is based on a misreading of the relevant provision of the New Long Form Distribution Agreement and must be rejected. 128 The result is that there should be no deduction of the gross revenue received by Becker from exploitation of the Film from the damages to which it is otherwise entitled by reason of Scanbox's breach of the Final Distribution Agreement. BECKER'S ALTERNATIVE CLAIM UNDER THE TP Act 129 In view of the conclusion I have reached it is not strictly necessary for me to address Becker's claim under the TP Act. However, in case the matter should proceed further, it is appropriate that I record my findings on this claim. the alleged representations 130 In its pleadings, Becker alleged a series of misrepresentations made on behalf of Scanbox during the period between April 1999 and July 2000. Ultimately, however, Becker relied for its TP Act claim only on the representations allegedly made by Mr Chetty to Mr Becker at the meeting of 28 April 1999. The pleaded representations are to the following effect: (i) a major US film distributor would agree to distribute the Film in the United States before it was delivered to Australia for distribution; (ii) the budget for the Film exceeded $10 million, which would assure it of attracting a major US theatrical release commitment; and (iii) a US theatrical release commitment from a major film distributor was imminent and the distributor would enter a distribution agreement for the Film in the US before it was delivered to its Australian distributor. 131 Becker alleges that each of the pleaded representations was misleading or deceptive when made because Scanbox had no intention of fulfilling the representation or alternatively each representation was with respect to a future matter which Scanbox had no reasonable grounds for making within the meaning of s 51A of the TP Act. WERE THE REPRESENTATIONS MADE? 132 Mr Chetty and Mr Becker first spoke in a telephone conversation in early April 1999. At that time, Mr Chetty asked Mr Becker whether Becker would be interested in some sort of corporate joint venture with Scanbox. A meeting between Mr Chetty and Mr Becker was arranged for 28 April 1999. 133 Mr Becker's version of the conversation is reproduced below. Since he added to his account in successive affidavits, there is some duplication when the material is combined, but nothing turns on this. Mr Chetty accepted that Mr Becker's version of the conversation was accurate in some respects. However, he either denied portions of Mr Becker's account or gave a somewhat different version of what was said. The bolded sections of Mr Becker's version of the conversation are those disputed by Mr Chetty. 'CHETTY: As I mentioned, we've got a new film we're working on called "The Shrink Is In". It stars Courteney Cox from the TV series 'Friends' and the films "Scream" and "Ace Ventura – Pet Detective". It has David Arquette from the films "Scream" and "Ready to rumble". The director is Richard Benjamin who has directed a number of feature films including "Mermaids", "Made in America" and "My Stepmother is an Alien". BECKER: What theatrical commitment does Scanbox have for it in the US? CHETTY: They're on the verge of signing with a "major" right now. BECKER: Who's that? CHETTY: It's not public knowledge yet. We're talking to a number of them. It's most likely to be New Line. BECKER: Are you sure, Devesh? A major US release is critical to our decision to distribute it. CHETTY: Yes. New Line are going for it, but even if it isn't New Line, we will get a "major" to release it. BECKER: What size release is Scanbox expecting? CHETTY: It's still under discussion. If Scanbox goes through New Line instead of its sister company, Fine Line, we can be assured of a "major" release. The budget is over ten million US, but it will look as if it cost twice as much because the film doesn't have the overhead costs of studio films. I need US$400,000 for all media rights in Australasia. BECKER: Unless you've got a US theatrical commitment, I'm not running the risk of paying top dollar, regardless of the budget. CHETTY: I assure you that a US deal is imminent. BECKER: Well, if there isn't one, I'm not interested. In order to qualify for our Nine Network Output Deal, the film must achieve two results. First, its budget needs to be in excess of US$10 million. CHETTY: It's in excess of that. BECKER: It must also have a major US theatrical release. CHETTY: What's the size of the release required? BECKER: A major studio or a major independent must distribute the film theatrically in the US. Unless the film qualifies under our Output Deal, we won't be able to sell it to free-to-air TV. CHETTY: The deal's done. We've got to get everything signed. I have got all my other deals lined up. That's why I need your contract signed up urgently. BECKER: What safeguard would I have if the film isn't released as promised in the US? CHETTY: I'm so confident about this that if the theatrical deal doesn't go ahead in the US, I'll reduce your advance by half. BECKER: It's still too much. I'd rather not buy the film at all if you can't get the US release first! CHETTY: This is only the first of a number of theatrical releases Scanbox is preparing to finance. It'll be good for Becker to develop a relationship with Scanbox. BECKER: All right. We'll pay US$120,000. If the US deal for the theatrical release is done prior to completion of the film, Becker will pay "full fare", the full US$400,000. If not, we pay no more. Understood? CHETTY: I understand. But I assure you that the US deal will be done before the film's finished. The US$120,000 will only be your fall-back position. BECKER: OK. I'll pass this on to our in-house lawyer to do the paperwork for the deal. CHETTY: I'll do likewise. CHETTY: I need US$400,000 for all media rights in Australasia. The contract must show that figure for the territory. BECKER: OK, but if that's the case we'll need a covering letter setting out what you've said, that is, that we'll only be up for US$120,000 if there's no US theatrical release. CHETTY: You'll have to pay 10% on the signing of the agreement. Then the balance to be paid by you is to be paid by quarterly instalments. Scanbox will pay the rest on the delivery of the film. BECKER: All right. How do we get things started on this? CHETTY: Well, you'll need to contact Chris Davis who is the president of Scanbox International Inc in the US. His phone number is… His fax number is… BECKER: OK, but I've stressed the importance of having a US theatrical release. When can we find out more about this? CHETTY: We can discuss it at Cannes at the time of the festival. BECKER: OK. I'll get our in-house lawyer to contact Chris Davis and do the paperwork for the deal. CHETTY: I'll do likewise.' 134 Mr Chetty's version of the conversation acknowledged that Mr Becker was willing to pay $400,000 for the Australasian distribution rights only if a major US theatrical release of the Film was achieved, since this was required to satisfy Becker's free to air television deals with the Nine Network. However, Mr Chetty denied that he had said that a deal was imminent or that it had been done subject only to documentation. He also denied saying that the budget for the Film exceeded $10 million. On his version, the substance of the arrangement was simply that Becker would pay $400,000 if there was a US theatrical release and $120,000 if there was no such release. Mr Becker had not said that he would not be interested in the Film if there was no US theatrical release. Nor had Mr Chetty discussed the timing of payments to be made by Becker, since these matters were to be left to the lawyers. 135 Mr Chetty's version of the substance of the conversation is as follows: 'Chetty: We are making a film "The Shrink Is In" and we are looking to find a distributor to operate in the Australasian region. The film stars Courtney Cox and David Arquette and will be directed by Richard Benjamin. Becker: Does the film have a US theatrical deal? In order to qualify for our Nine Network Output deal, the film must have a major US theatrical release. Chetty: We are in discussions with a number of parties but we have not finalised a deal as yet. Becker: What amount of money do you require for the rights. Chetty: We want $400,000. Becker: That is not feasible if you do not have a theatrical release with a major studio which will enable us to sell the picture to channel 9. Chetty: What figure would you pay if there was no US theatrical release. Becker: Up to $120,000. Chetty: We are confident of getting a theatrical deal however we can not confirm the deal at this stage. Why don't we set a price of $400,000 if a US major releases the film theatrically, if a US theatrical deal is not achieved then Becker can have the rights for $120,000 and SAPL will pay the balance but be entitled to share the income produced in Australasia on a pro rata basis. We will determine the distribution fee and other details later in the long form distribution agreement. If we are able to get a US theatrical release, but not from a major that would be good enough to meet your Australian free-to-air requirements then we will have a look at it and decide in good faith how the payments will be shared. Becker: We can discuss the theatrical deal in Cannes. Becker: I will brief Robert Reeve. Chetty: Chris Davis is the sales agent and Antonia Batsakis is our lawyer and they can finalise the documentation. I gave him both their contact details. Except as set out above, I did not discuss the US theatrical release nor did I discuss the [Side Letter] with Becker again.' 136 It is not an entirely straightforward task to determine what was said at the meeting. There was a good deal of common ground between the two versions of the conversation. The differences in the respective accounts are obviously important for the TP Act claim, but in a sense the two versions are not diametrically opposed. Both Mr Becker and Mr Chetty were attempting to recall the details of a conversation that took place years before they prepared their respective affidavits. Neither had the benefit of contemporary notes of the conversation (although Mr Reeve made notes of instructions Mr Becker gave him shortly before the first set of agreements was signed on 8 May 1999). 137 My impression, having seen both in the witness box, is that each was endeavouring to give an honest recollection of the conversation. Inevitably, however, each account involved substantial elements of reconstruction. It is clear, for example, that Mr Becker reconstructed part of his account of the conversation from notes made by Mr Reeve of verbal instructions Mr Becker gave him some time after the conversation. 138 Mr Becker presented as an able, self-confident business person who sees himself, with some justification, as a skilful negotiator. But he also appears to me not to be overly concerned about the detail of transactions. Mr Becker was content, for example, for Mr Reeve to settle the terms of short form distribution agreements and he (Mr Becker) did not generally think it necessary to read them, notwithstanding that he was the one who had usually negotiated the terms. Mr Becker accepted that this approach left him vulnerable if Mr Reeve misunderstood his instructions as to the contents of a particular arrangement. Indeed, Mr Becker acknowledged that in this case Mr Reeve had not acted in accordance with what he (Mr Becker) claimed to have been the outcome of the conversation with Mr Chetty, namely that if there was no theatrical distribution of the Film there would be no deal. 139 Mr Becker also expected licensors to behave in what he regarded as an appropriate way if transactions did not proceed satisfactorily. He had this expectation whether or not the expected conduct had been recorded in a document. Mr Becker gave examples of distribution arrangements being renegotiated if expected theatrical releases did not eventuate. Yet although he insisted that it was critical that a US theatrical release be obtained for each of the mainstream films distributed by Becker, only one of the 33 Becker distribution agreements in evidence contained a warranty by the licensor that the particular film would be theatrically released in the US. This rather confirmed my impression that Mr Becker was perhaps prone to conflate his expectations of appropriate behaviour by a licensor with the making of representations by that licensor. 140 Mr Chetty also impressed me as a self-confident person. He gave his evidence clearly and with precision. He was adamant that he had not stated in the conversation that theatrical release in the US was imminent, pointing out that it would have been untrue to make that claim. He was equally adamant in his denial that he had claimed the Film had a budget exceeding $10 million. Mr Bevan criticised Mr Chetty for taking time to give some of his answers, but I attribute this to an attempt on Mr Chetty's part to be careful in answering the questions accurately. Mr Chetty was prepared quite readily to agree with some aspects of Mr Becker's account of the conversation. 141 It is necessary to take into account that Mr Chetty had an incentive to exaggerate the prospects for the Film when he had his conversation with Mr Becker. Obtaining an Australian distributor for the Film, although not crucial, was of some significance to concluding arrangements with the Bank to finance the Film and, of course, Mr Chetty had an interest in the success of the Film beyond his role at Scanbox. As he acknowledged, obtaining finance from the Bank was important to completion of the Film. It is also necessary to take account of the apparent intention underlying the Side Letter arrangement, namely to suggest to the Bank that Becker's commitment to pay $400,000 was unconditional. However, Mr Chetty denied that the idea of the Side Letter was his. His evidence, which was not seriously challenged, was that the Side Letter was the idea of, and was drafted by, Scanbox's legal representatives. It was not suggested to Mr Chetty that he had done anything improper in relation to the Side Letter. In my view, his evidence was unshaken by the cross-examination. 142 I have taken into account in making this assessment the cross-examination of Mr Chetty in relation to the record of a meeting held on 13 April 2000 between himself (having by then left Scanbox's employment) and the then directors of Scanbox. Mr Chetty had not previously seen the document which seemed to me to be ambiguous in a number of respects. In the absence from the witness box of any of the other parties to the conversation, I am not prepared to find that Mr Chetty's account of the conversation adversely affects his credit on the critical issues in the present case. 143 I have also taken into account other criticisms of Mr Chetty's evidence made by Mr Bevan. I do not regard any of them as casting serious doubt on Mr Chetty's account. 144 An important matter to consider in assessing the competing versions of the conversation is Mr Reeve's account of a discussion he had with Mr Becker on 6 May 1999 in which the latter gave instructions concerning the Film. Mr Reeve made some brief contemporaneous notes of the discussion. His account of Mr Becker's instructions was as follows: 'Robert, I've agreed to buy rights to a new film called 'The Shrink Is In' from Scanbox. It stars Courtney Cox from the TV show 'Friends'. The deal I've struck with Scanbox is as follows. I've agreed we'll pay US$120,000 but the contract is to show US$400,000. So we'll need to have a covering letter from Scanbox stating that it's conditional on us receiving US$280,000 from Scanbox. I need to see we've got some protection here. Scanbox's general manager Devesh Chetty has told me he's confident of getting a U.S. theatrical release. I've said to him that unless the film meets the requirements of the Channel 9 output deal [an agreement between Becker and the Nine Network which provides among other things that the Nine Network will accept from Becker all 'mainstream' films upon those films meeting certain criteria] then we can't commit ourselves to paying the full US$400,000. We'll pay 10% on signing up to the deal and then Scanbox will pay us US$280,000 when the film's ready for delivery. After that, we'll pay the balance by four quarterly payments. Our payment of the full amount is conditional on a U.S. theatrical release. That brings it under the Nine output deal. For your initial contact, you'll need to speak with Chris Davis who's the president of Scanbox in the US. His phone number is…and his fax number is… I'm going to be meeting up with some Scanbox people at Cannes and I'll discuss the US theatrical release then.' (Emphasis added.) 145 It will be seen that this account records that payment of the full amount of the advance of $400,000 was conditional on US theatrical release. Otherwise Becker was committed only to $120,000. This is consistent with Mr Chetty's version of the conversation, but quite inconsistent with Mr Becker's. Furthermore, Mr Becker is recorded as saying that Mr Chetty had told him that he (Mr Chetty) was 'confident' of getting a US theatrical release. This, too, is consistent with Mr Chetty's version and inconsistent with Mr Becker's. It is hardly likely that Mr Becker would have used those words to Mr Reeve if Mr Chetty had told him that a US release was imminent. Nor is there anything in Mr Reeve's account that supports Mr Becker's claim that it had been agreed that US release was to occur before completion of the Film. I think that Mr Reeve's evidence of what he was told by Mr Becker strongly supports Mr Chetty's account of the conversation of 28 April 1999. 146 I prefer Mr Chetty's account of the conversation of 28 April 1999 to that of Mr Becker. It follows that Becker has failed to make out the representations allegedly made by Mr Chetty. Becker's alternative claim under the TP Act therefore fails. conclusion 147 Becker has made out its case for damages for breach of contract against Scanbox. It has established that it accepted Scanbox's repudiation of the Final Distribution Agreement and suffered loss of $372,000 in consequence. Of this sum $360,000 is the amount paid to the Bank and $12,000 is the part Deposit paid to Scanbox. Since, as I have explained, there is no real dispute that the Australian dollar equivalent of these sums is $A725,402, judgment should be entered for Becker in that amount. Subject to any further submissions I see no reason why Becker should not be awarded interest on that sum. I shall direct Becker to bring in short minutes of order giving effect to this judgment. 148 I shall also direct the parties to file submissions on costs. At this stage, however, subject to any contrary submissions, I should indicate that I am inclined to think that Scanbox should be awarded the costs of attributable to the TP Act claim, which was in large measure abandoned by Becker in final submissions. I certify that the preceding one hundred and forty-eight (148) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville. Associate: Dated: 24 May 2004 Counsel for the Applicant: CJ Bevan with PE Cullen Solicitor for the Applicant: John D Bingham Counsel for the Respondent: M Southwick Solicitor for the Respondent: Conway Leather Shaw Date of Hearing: 5-8 and 16 April 2004 Date of Judgment: 24 May 2004