District Court New South Wales Medium Neutral Citation: M & A Pharmachem Limited v Laderma Pty Ltd [2013] NSWDC 253 Hearing dates: 19 - 22 November 2012; 14 February, 1 April, 20 May 2013; submissions to 10 June 2013 Decision date: 25 October 2013 Before: Gibson DCJ Decision: (1) Judgment for the plaintiff for €99,607.44. (2) Liberty to the parties to bring in Short Minutes of Order representing the mathematically agreed judgment sum and interest. (3) Cross-claim dismissed. (4) Defendants/cross-claimants to pay plaintiff/cross-defendant's costs of the proceedings. (5) Liberty to apply in 28 days in relation to costs. (6) Exhibits retained for 28 days. Catchwords: CONTRACT - plaintiff and first defendant enter into distribution agreement which is terminated - plaintiff seeks return of 50% advance made for two orders cancelled after the distribution agreement ended - first defendant claims the plaintiff consented to the assignment of the contract to the second defendant, into whose bank account the moneys were paid - same bank account used successively by first and then second defendants - whether the plaintiff's contract was with the first or second defendant at the time of termination - whether moneys paid under a mistake of fact - whether the plaintiff consented to the assignment - express novation - implied novation - conventional estoppel - total failure of consideration - cross-claim for loss of profits - whether an obligation to provide an inventory of unsold goods was an implied term - whether plaintiff's failure to provide a complete inventory of unsold goods was a breach and/or resulted in loss - loss of opportunity claim - causation issues - judgment for plaintiff and cross-claim dismissed PRACTICE AND PROCEDURE - applications to amend the pleadings by both parties - application by defendants to amend the defence and cross-claim during the hearing and during submissions refused. Legislation Cited: Civil Procedure Act 2005 (NSW), s 21 Conveyancing Act 1919 (NSW), s 12 Cases Cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 Baltic Shipping Company v Dillon (1993) 176 CLR 344 Belligen Shire Council v Colavon Pty Ltd [2012] NSWCA 34 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 Fox v Percy (2003) 214 CLR 118 Grey v Australian Motorists & General Insurance Co Ltd [1976] 1 NSWLR 669 Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713, [2007] NSWSC 5 Owners - Strata Plan No 44999 v Premier Holdings Corp Pty Ltd [2012] NSWSC 171 Pacific Brands Sport and Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 Sydney South Western Area Health Service v MD [2009] NSWCA 702 University of Western Australia v Gray (2009) FCR 346 Upper Hunter County District Council v Australian Chilling and Freezing Co Pty Ltd (1969) 118 CLR 429 Van Lynn Developments v Pelias Construction Co Ltd [1969] 1 QB 607 Vickery v Woods (1952) 85 CLR 336 at 345 W F Harrison & Co Ltd v Burke [1956] 1 WLR 419 Wright v TNT Management Pty Ltd (t/as Comet Overnight Transport) (1989) 15 NSWLR 679 Yorkshire Water Services Ltd v Sun Alliance & London Insurance PLC [1997] 2 Lloyd's Rep 21 Texts Cited: - Category: Principal judgment Parties: Plaintiff/Cross-Defendant: M & A Pharmachem Limited First Defendant/Second Cross-Claimant: Laderma Pty Ltd (ACN 050 106 968) Second Defendant/First Cross-Claimant: Laderma Health International Pty Ltd (formerly Laderma Trading Pty Ltd) (ACN 134 067 066) Representation: Plaintiff: Mr G A Sirtes SC / Mr A Combe Defendants: Mr Miller SC / Mr D A Moujalli Plaintiff: Kemp Strang Defendants: Thomsons Lawyers File Number(s): 2011/146530 Publication restriction: None Judgment The claim and the cross-claim in these proceedings 1The plaintiff seeks repayment of the liquidated sum set out at paragraph 13 of the statement of claim filed on 5 May 2011(€99,607.44). That sum was a deposit paid by the plaintiff for two orders of the defendants' products, cancelled in March 2010, shortly before the distribution agreement pursuant to which the goods were ordered (entered into on 4 April 2007 with the first defendant) expired on 4 April 2010. 2The plaintiff's claim against the first defendant is brought on the basis that the first defendant was the signatory to the distribution agreement entered into on 4 April 2007. The claim against the second defendant is brought, not because of a contractual relationship, but because the second defendant took control of the "Euro Account" (the name given in the pleadings to National Australia Bank Ltd account LADEREU01) into which the plaintiff banked its payments pursuant to the distribution agreement during that agreement's duration. 3All of the products the subject of the two cancelled purchase orders were sold in the months following the expiry of the distribution agreement for a substantial profit (just under a 60% margin after expenses). On what basis, therefore, could the defendants retain the 50% deposit paid by the plaintiff towards the purchase of these goods? No claim is brought that the plaintiff wrongfully terminated the agreement, or cancelled the order in circumstances causing loss to the defendants. The answer to this question lies in the attempt of the defendants to commence a restructure of their company group prior to November 2008, without first notifying the plaintiff, their expectation that the plaintiff would agree to sign a deed of variation substituting the new company for the old. When the defendants failed to provide financial information to the plaintiff sufficient to persuade the plaintiff to execute the agreement, the plaintiffs refused to sign the variation deeds. 4As the correspondence set out below demonstrates, in response to an email expressing concern about the financial structure of the first defendant, the first defendant sought the consent of the plaintiff to put all contracts for the purchase of products through the second defendant and to implement a new agreement. The plaintiff claimed that it never consented to the purported assignment (paragraphs 6-10 of the statement of claim) and has asserted in evidence that the changing of the name of the bank account holder and documentation was done, if not surreptitiously, with so little fanfare that the plaintiff's servants and agents never noticed that Laderma Pty Ltd ("Laderma") had been replaced by another company with the similar-sounding name of Laderma Trading Pty Ltd ("Laderma Trading"). 5When this distribution agreement was terminated on 4 April 2010, there was a credit to the plaintiff of €99,607.44 for delivery of goods pursuant to Orders 4478 and 4512. The quantum is not in dispute (paragraphs 12-14 of the statement of claim). 6According to the plaintiff's pleadings, the first defendant initially advised the plaintiff on 13 April 2010 that it would hold these funds pending a re-purchase of products from the plaintiff by the first defendant. When this did not occur, the plaintiff issued a creditor's statutory demand to the first defendant requiring payment of the sum of €99,607.44. On 13 September 2010 the first defendant, Laderma, commenced proceedings in the Supreme Court of New South Wales seeking orders that the statutory demand be set aside on the basis that the payment made by the plaintiff to the Euro Account was not received by the first defendant but by the second defendant, Laderma Trading. 7The defendant's position, as set out in its defence of 4 August 2011, is that the first defendant assigned its rights under the distribution agreement to the second defendant, Laderma Trading, on 15 January 2009, and that the plaintiff was given notice of this assignment by emails dated 10 and 17 November 2008, by a draft deed of variation in about March 2009, and by a further draft deed of variation in May 2009. The plaintiff did not sign these deeds, but continued to place orders in accordance with the distribution agreement, which the defendants say constitutes acceptance of their conduct. Alternatively, the plaintiff and second defendant entered into an agreement ("the novated agreement"), in terms of which the second defendant granted the plaintiff the right to sell the Flexitol range of products on the same terms as under the distribution agreement. The dates given for that novated agreement vary, in the pleadings and in the submissions, but the date finally selected by the defendants in their closing submissions appears to be 4 December 2008. 8The plaintiff has filed a Reply setting out that no modification of the distribution agreement was possible unless it was in writing and signed by both parties and that no such modification or variation occurred. 9The defendant brought a cross-claim for additional freight charges of $78,127.80 and a claim for loss of profit and loss of sales from "the terminated order" which was given a preliminary estimate in the cross-claim filed on 4 August 2011 of £492,000 (UK). In written submissions the freight claim was reduced to $66,102.38. Economic loss of £374,835.97 was claimed for loss of opportunity to purchase unsold goods in the possession of the plaintiffs. Very little was said about the loss of profit and loss of sales from "the terminated order" after Mr Sher's evidence that these goods were in fact sold at what Mr Sirtes SC, throughout the trial, referred to as a "big fat profit". 10The defendants' defence and cross-claim were the subject of a series of attempts to amend during the hearing. This added substantial complexity to what had originally been a straightforward claim for money paid for purchase of goods, in circumstances where the distribution agreement had come to an end and there were outstanding transactions. 11The complications caused by these applications to amend both the defence and cross-claim not only caused the proceedings to be adjourned, but added confusion and uncertainty as to the basis upon which the defence and cross-claim were pleaded. Dealing with a claim where the defence and cross-claim change during the hearing is not an unexpected or difficult problem in trial management. The real difficulty in the present case was not only that fresh defences were put before the Court, but also that there were changes to the factual substratum of these claims. The delay this caused was considerable, as it required several adjournments of the proceedings. 12I shall first set out the factual basis upon which the claim and cross-claim are brought, and then identify the issues for determination, the parties' arguments and the relevant facts in relation to these issues. The creation of the 4 April 2007 agreement 13In his affidavit of 2 August 2012, Mr Gatenby provides an outline of the circumstances in which he was approached by Steven Sher, a director of the first defendant, in early 2007. Mr Sher's affidavit of 19 June 2012 tells a similar story of discussion of a number of amendments and drafts. In particular, there was discussion about the form of clause 8.2(iv) (affidavit of Mr Sher paragraph 19 and following, affidavit of Mr Gatenby paragraph 15 and following). The parties executed a distribution agreement on 4 April 2007. The distribution agreement 14This was a trading activity between parties who had endeavoured to set everything out in writing, in circumstances where any amendments had to be agreed to by a specific procedure. The provisions may be summarised as follows: (1)The contracting parties are Laderma Pty Ltd (ACN 050 106 968), the first defendant, and the plaintiff. (2)The commencement date was the date of execution of the agreement (clause 1.1) for a period of 3 years (clause 2.2) to be automatically renewed for the succeeding 1-year period providing the parties agreed. (3)The contract expressly excluded products currently distributed by Taurean Health Pty Ltd (clause 1 definition of "products"). (4)The terms and conditions of sale set out in paragraph 3 were as follows: "3: Terms and Conditions of Sale 3.1 Purchase Orders (a) The Distributor shall purchase the Products by means of written purchase orders, which shall be subject only to the terms and conditions of this Agreement, and shall include full details of the Products required and the delivery details. (b) In the event of a conflict arising between the terms and conditions contained in this Agreement and any other agreement or arrangement between the parties, the provisions of this Agreement shall prevail. 3.2 Minimum Quantities Subject to the provisions of this Agreement, the Distributor shall purchase such quantity of the Products from Laderma as set out in Schedule 2. 3.3 Prices The Distributor shall purchase the Products at the prices set forth from time to time by Laderma. All prices are expressed C&F UK and shall be payable in Euros and subject to any applicable taxation thereon. Prices shall be subject to change, on notice by Laderma to the Distributor. 3.4 Payment (a) The Distributor shall pay 50% of the purchase price for the Products to Laderma upon placement of order and the remaining 50% of the purchase price upon receipt of the goods, at the Distributor's premises. (b) The Distributor shall, at its expense, obtain any and all such approvals from the banking and other governmental authorities of the Territory as may be necessary to guarantee payment of all amounts due hereunder to Laderma. (c) Payment shall be made into an account stipulated by Laderma to the Distributor in writing. (d) Interest at the rate of 1.5% (one and a half percent) per month shall be paid by the Distributor on all the moneys which the Distributor fails to pay Laderma on due date, such interest to be calculated from due date for payment to date on which payment is actually received by Laderma, both days inclusive. 3.5 Reservation of Ownership Laderma reserves title in the Products until paid for in full by the Distributor. Laderma hereby authorises the Distributor to transfer title to the Products in the ordinary course of its business, provided that in such case, the Distributor hereby assigns in advance to Laderma any proceeds from the sale of such Products if not already paid by the Distributor. 3.6 Delivery (a) Laderma shall deliver the Products C&F UK. (b) Delivery occurs when the Products are made available for collection at the address designated by Laderma at which point the Distributor accepts all risk of loss. (c) The Distributor shall be obliged to inspect all Products upon delivery and shall endorse the delivery note as to any missing or damaged Products. No claims for missing Products shall be valid unless the delivery note has been endorsed as aforesaid and unless, in addition, the Distributor notifies Laderma in writing within 10 (ten) business days of the delivery of the Products furnishing full details in regard thereto. Any damaged Products shall be held for collection by Laderma for a period of 60 days after which they will be disposed of by the Distributor and any costs of disposal will be payable by Laderma. The Distributor shall bear the onus of proving that upon delivery, any Products are missing or that the Distributor's order was not complied with. (d) If Laderma is unable to deliver the Products to the Distributor due to any act or omission on the part of the Distributor, it shall be entitled to charge the Distributor for all expenses incurred in connection therewith, including without limitation, the storage of the Products." (5)The obligations of the distributor were set out in paragraph 5. This is relevant to the cross-claim, as are clauses 4.2 (limitation of liability), 5.2 (reporting requirements) and 8.2 (right of parties on termination). These are set out in more detail below. (6)Clause 5.8 provided an indemnification. (7)Clause 8, the termination clause, must be set out in full: "8: Termination 8.1 Termination This Agreement may be terminated prior to expiration of the initial or any renewal term, by written notice to the other party as follows: (a) By either party, in the event of the other failing: (i) to perform any of its obligations and failing to remedy such failure within 30 (thirty) calendar days after receiving written demand; (ii) to make any payment in terms of this Agreement on due date and persists in such failure for a period of 3 (three) days after the date of written notice by the aggrieved party requiring the defaulting party to effect such payment. (b) By Laderma, effective immediately: (i) if the Distributor commits an act which is or would be an act of insolvency, or if a receiver, receiver and a manager, liquidator, administrator, trustee or similar official is appointed over its assets or business; or (ii) if the Distributor enters into or proposes to enter into an arrangement, composition, or compromise with its creditors or any class of them, or there is declared by a competent court or authority, a moratorium on the payment of indebtedness by either party or other suspension of payment generally; or (iii) if the Distributor ceases to carry on business; or (iv) if there shall occur any change in the ownership or control of the Distributor, if the new owners are associated in any way with any competing Products; or (v) if any law or regulation shall be adopted or in effect in the Territory that would restrict the termination rights of Laderma or otherwise invalidate any provision hereof; or (vi) in terms of clause 2.2(b). 8.2 Rights of Parties on Termination (a) The following provisions shall immediately apply on the termination or expiration of this Agreement: (i) The Distributor shall cease all sales of the Products subject to clause 8.2(a)(iv). (ii) All indebtedness of the Distributor to Laderma shall become immediately due and payable without further notice or demand, which is hereby expressly waived, and Laderma shall be entitled to reimbursement for all legal fees as provided herein that may be incurred in collecting or enforcing payment of such obligations. (iii) The Distributor shall: (A) remove from its property and immediately discontinue all use, directly or indirectly, of Intellectual Property Rights, or of any word, title, name, expression, trademark, design, or marking that, in the opinion of Laderma, is confusing or similar thereto regardless of whether or not such name has been registered by the Distributor. (B) transfer and assign to Laderma any domain names registered by the Distributor that relate to the Products; (iv) Laderma shall have no obligation to repurchase or to credit the Distributor for Products in its inventory or received on or after the date of termination of this Agreement, Laderma may at its discretion however repurchase from the Distributor, at the then current prices less any applicable and then current discounts or at the net prices paid by the Distributor to Laderma, whichever is the lower, any or all Saleable Products purchased by the Distributor from Laderma. All Products that are not Saleable Products shall be valued at nil. The Distributor agrees and undertakes to ship such repurchased Products to Laderma or to a designated third party, as stipulated by Laderma to the Distributor in writing. All shipment and ancillary costs and expenses relating to such repurchase shall be paid for by Laderma Ltd. Any Saleable Products that Laderma elects not to repurchase must be sold or destroyed by the Distributor within 120 days of termination or expiration of this Agreement and the Distributor must certify to Laderma in writing that it has either been sold or destroyed. (v) The obligations of the Distributor under clauses 3, 4, 6, 7, 8, 9, 10 and 11 shall survive the termination or non-renewal of this Agreement for any reason. It is expressly agreed that the expiration of this Agreement shall not affect such of the provisions of this Agreement as expressly provide that they will operate after any such expiration or termination or which of necessity must continue to have effect after such expiration or termination, notwithstanding that the clauses themselves do not expressly provide for this. (vi) Laderma shall be entitled, for transitional purposes, prior to the expiration of this Agreement, to appoint the Distributor's successor (if any) and allow such successor to make himself known as Laderma's distributor with effect from the date of expiration of this Agreement and be able to commence distributing the Products in the Territory from 6 (six) weeks prior to the expiration or termination of this Agreement. Laderma will ensure that such appointment is merely for the purposes of achieving a fluid transition and for the successor to make itself known to the trade. The successor is not to take orders for the Products during this transition period to expiration date. (vii) The Distributor shall, upon Laderma's request, do all things necessary to transfer all registrations, licenses, permits, approvals and any other authorisations required for the importation, promotion, marketing, sale and distribution of the Products in the Territory, to Laderma or its authorised nominee." (8)Clause 11.1 contained an "Entire Agreement" clause which is of central importance to these proceedings: "11.1 Entire Agreement This Agreement represents the entire agreement between the parties and supersedes all prior discussions, agreements, and understandings between them. No modification or variation of this Agreement or any terms hereof will be effective unless in writing and signed by both parties." (9)Clause 11.5 contained a "Non Assignment" clause as follows: "The Distributor shall not sell, assign, delegate or otherwise transfer any of its rights or obligations hereunder without the prior written consent of Laderma." 15The clauses relevant to the Cross-Claim are: (1)Clause 4.2 Limitation of Liability provides: "4.2 Limitation of Liability (a) Neither party shall be liable to the other for any consequential, incidental, indirect, economic or punitive damages (including damages for loss of business profits, goodwill, business interruption, loss of business information, and the like) arising out of the use, distribution or inability to use or distribute the Products even if Laderma has been advised of the possibility of such damage. (b) In no event shall Laderma's liability under this Agreement or any transaction contemplated by this Agreement exceed the purchase price for the Products in question. The Distributor hereby releases Laderma from all obligations, liability, claims or demands in excess of the limitation." (2)Clause 5, concerning the obligations of the distributor, included an inventory clause at 5(e) as follows: "(e) The Distributor shall maintain an adequate inventory of current sales material and samples in an efficient and effective manner to promote the sale of the Products in the Territory." (3)The reporting requirements at paragraphs (c) and (d) provided as follows: "(c) The Distributor shall provide Laderma with Product and market information, which it may reasonably require, from time to time. (d) The Distributor shall maintain for a period of 5 (five) years complete and accurate records of all Products sold or on hand and shall keep information on each batch of Products sold to Distributor in order to enable recall of specific batches." (4)The rights of the parties on termination, which are set out above, contain clause 8.2(iv) and (v), both of which are relevant to the Cross-Claim. The parties commence trading 16On 24 October 2007 the agreement between the first defendant ("Laderma") and Taurean came to an end (affidavit of Mr Sher, paragraph 34) and the first defendant appointed Pharmachem as the exclusive distributor of Flexitol products in the United Kingdom. Laderma recovered the Flexitol products, which Taurean had in stock (affidavit of Mr Sher, paragraph 36). The parties continued to do business without incident until Mr Riding sent an email on 8 November 2008 expressing concern about the financial structure of Laderma, seeking further financial information about it and its company group. It was in the course of the response to this letter that Mr Sher first intimated that a company restructure following the death of his father meant that a new company, Laderma Trading Pty Ltd ("Laderma Trading", the second defendant in these proceedings) would be taking the place of Laderma. These emails are central to the subsequent events in these proceedings. The emails of 8 and 10 November 2008 17At all relevant times Mr Sher was the sole director of both Laderma and Laderma Trading. Prior to 8 November 2008, the plaintiff and its servants and agents did not know of Laderma Trading's existence. 18On 8 November 2008, Mr Riding sent an email to Mr Sher seeking, inter alia, financial and structural information about Laderma, because the level of financial outlay was too high: "Steven, prior to your visit to the UK in December please can you consider the following points which we would like to address at our meeting: 1. The level of financial outlay / exposure in terms of deposits paid when orders are placed is too high to replicate next year so we need to work together to see how this can be reduced. 2. There are two ways to do this, namely a reduction in the amount of the deposit paid when the order is placed and a reduction in the lead time between order and despatch of the goods. 3. We would like to explore the possibilities under both of these headings, possibly by working more closely with your suppliers and yourselves on the subject of forecast orders. We would be willing to commit to a certain level of packaging etc provided we were given an assurance by you that we would be able to take delivery of, and sell, any product that needed to be packaged in such materials. 4. When the amount of stock that we have to hold because of the lead time on deliveries is taken into account our total investment in the Laderma range, including payments on account exceeded £1 million last year which is clearly too high a burden for us to bear in the future particularly when it appears to us that we are bearing the bulk if not all of the cashflow burden. There must [sic] a way in which your suppliers (and Laderma) can take a greater share of the cashflow impact. We would like to discuss this with you in an open and honest way to try and come up with a compromise that suits both parties. 5. I am not sure that this is possible via e-mail but we could at least set the ball roiling before your visit with a view to reaching agreement when we are all face to face. On this subject please could you let us have a copy of your most recent accounts to enable us to ascertain the financial strength of your company. Please could you also confirm the structure of your operations if more than one company is involved. We are of course more than happy to reciprocate with any financials you may require. 6. I must stress that we are committed to maintaining and indeed building on the success we have had to date with the Flexitol range of products so please do not take this e-mail in a negative way, we are merely seeking to spread the risk of financing this growing range of products between all the stakeholders in the supply chain (whilst guaranteeing that we will take delivery of any stock specifically manufactured for M&A). I look forward to hearing from you in due course." [Emphasis added]. 19There is no suggestion that the plaintiff had been told of the existence of Laderma Trading prior to this email. Mr Riding (who was not called to give evidence, a matter of significance, according to the defendants) is referring to "Laderma products", calling the company "Laderma" and asking "your company" (i.e. the first defendant) to provide information about its financial strength because of concerns about the "cashflow impact". He specifically asks for confirmation of the structure of Laderma's operations "if more than one company is involved". 20Mr Sher replied on 10 November 2008. In this email, he makes the first reference to a change in the company structure to replace Laderma with Laderma Trading: "We are as always open to assisting you but it is important you understand the context within which we are working. Our terms with most of our distributors are 100% upfront payment, hence we have already provided you with a better arrangement. One of the issues it appears with the level of investment you have in inventory is that over 40% of your current investment in inventory are sitting in 3 products being skin oil, and the two prescription items, both of which have achieved far less sales volume than was originally projected by M&A. We have assisted M&A during the year with various pricing/margin issues, and due to concerns mentioned previously by Steve/Mike are currently working on ways to reduce lead times which involves us investing in and holding selected items of packaging and raw materials on hand, subject to binding forecasts from yourselves. Lead times should be reduced to approximately half of what they are currently on this basis which will cut your required funding requirements moving forward, with payments term to remain as is. We expect this to be effective during 1st 1/4 of 2009. We trust this addresses your concerns and once inventory levels of 3 sku's [sic] mentioned above deplete, that this will also assist. As a private company we do not release financial information of the nature suggested. Whilst we do not doubt the commitment M&A have been making to the Flexitol brand, it would make us more comfortable to understand what level of investment you have in-mind moving forward. On a separate note we still do not have a contract in place between our companies that covers all items being distributed. Due to the passing of my father a few months ago, who was a shareholder in Laderma P/L we have been advised to set up a new entity Laderma Trading P/L through which all contracts will be entered into for the Flexitol product range. Our suggestion is that we put forward a new agreement covering all items to be effective 1 Dec 2008. We await your comments re above before putting forward a draft agreement for your review." [Emphasis added] 21It is not in dispute that this somewhat offhand reference to a new company, described as "on a separate note" at the end of a long email, is the first time Laderma gave any notice of a change in its structure. What is in dispute is whether the plaintiff, in the same informal way, agreed to deal with this "new entity" in an email of 4 December 2008 (or at the other times referred to in the defence). This requires analysis of the correspondence between the parties from that date. Correspondence from 15 November to 4 December 2008 22On 15 November 2008, Mr Riding wrote again to Mr Sher. It is helpful to set out the whole email, because it indicates the degree to which this proposal for a new company structure was actually discussed (or even considered important) by the plaintiff's executives: "Steven, thank you for your response to my request for you to consider ways in which M&A can reduce the level of investment in inventory for the Flexitol range. I note what you say about the reduction in lead times and that would indeed be a great help. What we need to agree on is a definite lead time which would allow us to plan our stock levels more accurately to reduce the amount of stock we hold. If these reduced lead times are agreed then we would expect any late deliveries which would cause an out of Stock situation to occur to be partially air freighted at your expense to preserve the integrity of supply to our larger customers. I would expect that this cost could be passed on to your suppliers if they fail to meet the production deadlines. We are quite happy to guarantee to purchase any stock manufactured in our packaging within the range of our forecast purchases but we do need to revisit the Agreement on the subject of termination provisions. The current clause gives M&A the right to continue to sell the products within a 150 day period post termination but we need to add a further provision that allows 150 days from termination or receipt of stock whichever is the later. We are still not convinced that payment up front of 50% on order and 50% on delivery is a fair apportionment of the cashflow impact of stocking a large range of products such as this particularly when one considers that the profit share for Laderma (which now includes 25% of the Taurean share) is effectively paid up front before we even sell a single tube never mind collect the money for the sale. We would like to discuss some arrangement for at least deferring payment of the extra profit share element of the purchase price for an agreed period . The reason we asked for some financial information about Laderma P/L is that we are effectively lending your company the amount of the up front deposits without any guarantee that these funds will be used to purchase goods for M&A . In view of the amounts involved it is normal business practice to satisfy oneself about the financial stability of a supplier to whom one is advancing considerable sums of money . Please could I ask you to reconsider this request - we do not need to see any profit figures -just the balance sheet and confirmation that the accounts have been audited or prepared by an independent firm of accountants. We would not be happy with any proposal to change our agreement to a new company which would presumably have no assets if the deposits were to be paid to this newco [sic]. We would however be prepared to place orders with newco but pay the deposits to the existing company (subject to seeing some financial statements as requested)." [Emphasis added] 23Mr Sher replied to Mr Riding's email on 16 November 2008 saying the following: "We are becoming concerned re M&A's position both from a potential cash flow funding ability and commitment to invest into the Flexitol business moving forward. You did not respond to my question in my last email as to the level of investment M&A intend making available to invest in the Flexitol business moving forward? Whist we are open to making attempts to try to assist you which we already have in motion, we are not open to rework our arrangement to the extent you are suggesting. We are committing to invest in packaging to reduce lead times. This is not just a cash flow issue but also an additional expense as we need to warehouse packaging and pay double shipping costs when packaging is eventually required by our manufacturers. Our concerns relate to risks associated with your changing forecasts - for example Nov "binding" forecasts were in many cases halved in PO's provided. Whilst we're not chasing for these extra orders now, this is an example of where we are exposed to additional costs of holding packaging for extended periods of time and running into issues with our manufacturers who have committed to specific raw materials and opened up manufacturing slots/capacities for us. Our suppliers will not commit to cover costs due to delays - unfortunately we have negotiated the best pricing with them we can to be competitive and they will not assume risk if equipment breaks down, raw materials fail testing etc. This is something that is a risk managed by our distributors in every market and needs to continue to be the case. In terms of risk you refer to paying upfront with no guarantee that we will manufacture product. Pls bear in mind this exposure is limited to possibly 50% of 1-2 orders at any one time and is offset by our exposure whereby we are holding packaging without guarantee that it will be taken, then shipping orders to you without payment or guarantee of payment of the balance of the 50% owing. If you were to quantify this risk, we do not see this as significant in the broader scheme of the business in the UK, and once again I refer to my opening sentences of this email which we view as the main issue at hand here. We are restructuring due to my father passing away and future dealings will be with a newco. If you are uncomfortable with this, we can consider working on an LC basis, but quite frankly we think this is unnecessary and once again in quantifying risks involved am not sure this is a major issue. We need some direction from you in next few days as to our concerns and as to how we move head from here." [Emphasis added] 24Mr Riding replied on the same day saying: "... If you moving the trade to a newco [sic] then please can you confirm what capital this company will start off with so that we can take a view on whether or not we wish to use letters of credit in the future..." [Emphasis added]. 25Following this email, Mr Sher replied by saying: "It is important we get this cleared up before my visit through a combination of emails and telechats where necessary. The purpose of my visit is to focus on 2009 planning and discuss a strong pipeline of exciting opportunities. We would envisage from early next year subject to 4 month binding forecasts from M+A that we would be able to reduce manufacturing lead times to 4 weeks and possibly less. Suggest you use 4 weeks for your calculations, and that you then outline any areas of "risk" you perceive [sic] which we can try to address if possible. Pls [sic] could you get back to us early this week." [Emphasis added]. 26On 17 November 2008, Mr Riding sent the following email to Mr Sher: "Steven, I have asked Steve McGowan to rework our forecast ordering and stockholding requirements based on the 4 week lead time which I am sure will make a sizeable difference to our cashflow - thank you. The only other area for us to resolve is how we can get some comfort over the up front payments to a company (ie Laderma) about who we have no financial data or Credit Report - please see my earlier comments for the reasons why i think this is a reasonable request. I accept that the risk to M&A will be reduced if the lead times are reduced but we are still at risk to the extent that deposits paid by us to Laderma are not passed on to the manufacturers in the event of Laderma (or the newco) going into liquidation (possibly through no fault of your own - these thing do happen and it is my job to identify and then try to limit the risk to M&A). I will be in the office all day on Monday from 9.00 to 5.30 so if you think we can resolve this by talking through this issue please call me." [Emphasis added] 27Mr Sher replied on the same day, on 17 November 2008, as follows: "For your information the newco is buying all assets and liabilities from Laderma, so it's not an entity that has nothing. Please also bear in mind that the Flexitol brand has substantial value and by us not supplying product/fulfilling orders, we risk damaging this brand which makes no sense at all. In terms of risk, if you offset deposits paid 4 weeks in advance of production by M&A, against 6-8 week lead times for shipping and clearance whilst we wait for the balance, as well as the packaging we are needing to hold ongoing, then risk from our perspective is higher for us if you decide not to pay, decide to discontinue Flexitol distribution and/or have cash flows issues of your own etc. I am currently in the US, we can try arrange a call if above is unclear, but I am jam packed with meetings etc and due to fly out Wed so email would be best for now. Will await any further comments from you via email, and any further input once Steve has reworked the numbers." [Emphasis added]. 28On 23 November 2008, Mr Sher sent another email to Mr Riding as follows: "We have not heard anything further to our email below and in relation to Steve's recalculations with revised lead times? I also attach a letter from our bank which we requested per your email and which hopefully gives you the comfort you need." 29Did the documents that were attached provide that comfort? Mr Riding replied to Mr Sher on 4 December 2008 as follows: "Steven, I have now had a chance to review the revised order schedule prepared by Steve McGowan based on the revised order lead times set out in your e-mail dated 17 November and I can confirm that these are acceptable from a risk / cashflow point of view (thank you also for the letter from your bank which is of some comfort although disappointingly still some way short of a set of accounts that would have hopefully cleared up once and for all our concerns about the overall financial strength of Laderma. Nevertheless we accept that our exposure is limited in practice to any deposits not passed on where production has not started which makes it an acceptable risk so I do not propose to pursue this matter any further). Hopefully this clears any remaining issues regarding logistics and leaves you free to focus on 2009 with Mike and Steve when you visit next week." [Emphasis added] 30The defendants submit (written submissions, 4 June 2013) that this email was saying yes to the proposal. The defendants submit this proves that Mr Riding's email of 15 November 2008 (where he said "we would not be happy with any proposal to change our agreement to a new company") was not the last word on the subject, that the emails exchanged after 15 November contradict the claim that the plaintiff was not prepared to trade with a "newco", and that it is clear from Mr Riding's email of 16 and 17 November 2008 that he contemplated Pharmachem trading with the "newco". Why else, it is submitted, could he be making the risk analysis referred to in the emails of 16 and 17 November 2008? The defendants argue that it is "clear from Mr Riding's email of 4 December 2008 that his queries in relation to the proposal to set up Laderma Trading as the contracting party had been resolved" (submissions, 4 June 2013, paragraph 2.3). 31I agree that the terms of the 4 December 2008 email could not be clearer, if seen in the context of the correspondence as a whole. Mr Riding's emails about the "risk analysis" in fact predate the notification of the "newco", and the "risk analysis" in his emails of 16 and 17 November 2008 consists of raising issues in response to Mr Sher's requests. Mr Riding's conclusions about the proposal may be seen in the 4 December 2008 reference to the letter from the bank as "still some way short", and a set of accounts was still sought (it should be noted that this request also predated the advice of a "newco"). Most importantly, the plaintiff not only refused to sign the two deeds of variation sent to them in 2009, but also continued to call the company they were trading with "Laderma" and to repel attempts by Mr Sher to raise the proposed "newco" take over during their discussions and emails about this subject. Corporate conduct after 4 December 2008 32The next question is what to make of the words in italics in the email set out in the paragraph above. The key to this lies in the conduct of the parties from that time. It is in this regard that the defendants submit that the failure to call Mr Riding, Mr Armstrong and/or Mr McGowan (written submissions 4 June 2013) are relevant. As is set out in the section on credit below, this is a submission that I reject. 33Did the defendants commence to act as if the plaintiff was prepared to deal with the "newco"? Notwithstanding the plaintiff's correspondence, and the failure to sign the successive deeds of variation, from this time onwards, emails from "Laderma Trading Pty Ltd" commenced to be sent as if the "newco" was indeed trading in the place of Laderma. 34However, the changes to the trading patterns between the parties were very subtle. The address, website and telephone and fax numbers remained the same; essentially, only the word "Trading" was inserted. No change was made to any of the existing banking accounts, and the plaintiff's personnel continued to conduct business in the same way, as did the personnel employed by the defendants. The plaintiff continued to refer only to "Laderma" in all its dealings (up until termination of the contract) and, significantly in my view, was never corrected about this practice by the defendants. Funds continued to be deposited in the same account, without any complaints or concerns by the defendants as to the banking documentation (which neither side tendered; nor was any packaging, with changed names for the products, tendered). 35The defendants' written submissions (paragraph 4.2) summarise the relationship between the parties over the next fifteen months as follows: (a)Pharmachem paid amounts stated in POAs and invoices issued by Laderma Trading. (b)Pharmachem continued to make payments into the same bank account, although that bank account now had the name Laderma Trading. (c)Pharmachem took delivery of products from Laderma Trading. However, there appears to have been no change in the delivery methods, any more than the banking methods, beyond this additional word in the name of the defendants. (d)Pharmachem sent claims for credit on account of advertising and promotion costs. There is no evidence that these were addressed to Laderma Trading, but Laderma Trading processed these adjustments. (e)Pharmachem received the benefit of credit given by Laderma Trading on account of advertising and promotion costs. 36In other words, the parties continued trading as before, but with the word "Trading" appearing in the name of the party with which the plaintiff was carrying on business. Correspondence after 4 December 2008 37While these parties continued to trade as before, what correspondence were the directors of the companies exchanging? The defendants draw my attention to a series of emails and faxes which they submit shows recognition of the existence of the "newco", and acceptance that this is the company that they accepted they were dealing with. 38On 6 February 2009, Ms Gaikwad of "Laderma Trading Pty Ltd" sent an email to Mr McGowan (which was also sent to Mr Riding) saying: "We have reviewed the A&P claim submitted by M&A and the total claim that you would be receiving is EU 108,976.22. However whilst calculating this figure the following pointers have been considered." 39This email is the first of a series handed up by Mr Miller during submissions to illustrate that changes were made to the existing trading arrangement which were referred to in the emails and discussions about the "newco" (and that these changes were accepted by the plaintiff). This change essentially consists of the fact that these emails have a "footer" at the end of the email showing the reference "Laderma Trading Pty Ltd" as being the company (as is the case with the banking and delivery arrangements, the company address remained the same). 40The next email Mr Miller pointed to is one dated 10 February 2009, which Mr Riding sent in reply to the plaintiff's email of 6 February 2009: "Pramita, I am please to agree your summary below - please can you advise which order you want to set off the balancing credit note of EU 6936.20 against?" 41"Pramita" regularly dealt with the transfer of products before and after Laderma Trading came into existence. The defendants submit that this reply to an email with a footer saying "Laderma Trading" is further evidence of email exchanges showing acceptance of the changes. 42On 23 February 2009, Mr Badler from "Laderma Trading Pty Ltd" (see footer of the email) sent an email to Mr Pessagno in the following terms: "From: Delon Badler [DelonBadler@laderma.com.au] Sent: 23 February 2009 07:38 To: Gerard Pessagno Cc: Philip Riding; Steven Sher; Pramita Gaikwad; Steve McGowan Subject: M&A Invoices & Updated Deposit Schedule Hi Gerard Attached please find the relevant documents for a Shipment that has been packed for M&A. I have also attached a copy of the updated Deposit schedule, where you will be able to trace the deposits that have been applied to the various invoices. Upon arrival of this container, the net amount owing for all these attached invoices amounts to €47,189.56. There is a credit on your account from the recent A&P claim of €6,936.20 that needs to be deducted off this, so that the net amount payable upon arrival of this container is €40,253.36 Pls could you confirm that you are in agreement with all the invoices and amounts relating to these documents. If you have any queries, please feel free to let me know. Kind regards Delon Badler GM Finance & Operations Laderma Trading Pty Ltd 205 Victoria Street Beaconsfield NSW 2015 Australia" [Emphasis added] 43The defendants, in their closing submissions, specifically drew my attention to the highlighted portions. They did not refer to the email address "laderma.com.au", previously used by Laderma, and which appears to have been simply taken over by Laderma Trading. The address "Laderma Trading Pty Ltd" appears in the "footer" at the end of the email, but this is not part of the email address. I was not shown any emails with "Laderma Trading" in their address, or any different email address. Like the banking and ordering systems, the same transaction methods as were in place before December 2008 were still in place after that date. 44An email in similar terms was sent by Mr Badler to Mr Pessagno on 19 March 2009 as follows: "From: Delon Badler Sent: Thursday, 19 March 2009 4:19 PM To: 'Gerard Pessagno' Cc: 'Philip Riding'; Steven Sher; Pramita Gaikwad; Steve McGowan Subject: M&A Invoices & Updated Deposit Schedule Hi Gerard Attached please find the relevant documents for a Shipment that has been packed for M&A. 1 have also attached a copy of the updated Deposit schedule, where you will be able to trace the deposits that have been applied to the various invoices. Upon arrival of this container, the total net amount owing for these attached invoices amounts to €49,134.88. Pls could you confirm that you are in agreement with all the invoices and amounts relating to these documents, If you have any queries, please feel free to let me know. Kind regards Delon Badler GM Finance & Operations Laderma Trading Pty Ltd 205 Victoria Street Beaconsfield NSW 2015 Australia" [Emphasis added] 45The defendants submit that this is an indication of willingness of the plaintiff to deal with Laderma Trading. 46On 27 April 2009, Mr McGowan sent an email to Mr Sher saying: "Could you arrange payment of the outstanding amount of €49,134.88" 47The defendants submit that this is further indication of willingness of the plaintiff to deal with Laderma Trading. 48On 28 April 2009 at 8:05pm, Mr Sher from "Laderma Trading P/L" sent the following email to Mr McGowan as follows: "Hi Steve, Our margins are pretty tight but in the interests of trying to get this product established we are prepared to supply you at the price suggested. We do need to limit investment Into this line as a result of reduced margins - pls outline what you have in mind in terms of spend -we would suggest limiting to 10% of purchases on a 50/50 matched spend basis - is this workable? We believe winter is the huge lip balm season in the UK. If you are going to be needing to place decent qty orders we'll need adequate lead time to get tubes produced which is up to 12 weeks dependent on qty. Await your thoughts/suggestions. Regards, Steven Sher Managing Director Laderma Trading P/L 205 Victoria Street, Beaconsfield, NSW, Australia 2015" [Emphasis added] 49That email is also significant, the defendants submit, because it shows an acceptance of the price changes that were under discussion at the same time that Laderma Trading had been put forward as the new trading partner. Later, on 28 April 2009, Mr Sher (again with a footer of "Laderma Trading P/L") sent another email to Mr McGowan as follows: "Hi Steve, We will most likely need to do an averaging of pricing whereby we ensure you get the pricing you need from Boots, but we continue to sell to you at existing pricing for other retailers as we are otherwise eroding our margins too much. Lets get Boots on board if possible on the understanding that we will get you the pricing you need for their requirements. We are hoping for some decent volume runs to try to achieve larger batch sizes to offset some of our margin erosion on this line. Regards, Steven Sher Managing Director Laderma Trading P/L 205 Victoria Street, Beaconsfield, NSW, Australia 2015" [Emphasis added] 50This email shows the reference to both Laderma Trading and changes to pricing. 51On 13 May 2009, Mr Badler from "Laderma Trading Pty Ltd" sent the following email to Mr Pessagno: "Hi Gerard Attached please find the relevant documents for a Shipment that is being packed this week for M&A. I have also attached a copy of the updated Deposit schedule, where you will be able to trace the deposits that have been applied to the various invoices. Upon arrival of this container, the total net amount owing for these attached invoices amounts to €36,639.65. Pls could you confirm that you are in agreement with all the invoices and amounts relating to these documents. If you have any queries, please feel free to let me know. Kind regards Delon Badler GM Finance & Operations Laderma Trading Pty Ltd 205 Victoria Street Beaconsfield NSW 2015 Australia" [Emphasis added]. 52Mr Miller identified this letter, in the course of submissions, as further evidence of willingness to trade on new terms with the new company. 53On 22 May 2009, Ms Gaikwad from "Laderma Trading Pty Ltd" sent an email to Mr Pessagno saying: "The following goods have been picked up by M&A from our UK Bristol Warehouse. And the amount due for this shipment is EU 1559.17. ... Could you please arrange for the payment of this amount into the Brands Worldwide UK Ltd account. Attaching the account details for your reference: [account details]" [Emphasis added] 54Mr Miller submitted that this email was significant for the same reasons. Brands Warehouse was a warehouse used by the first defendant, and later the second defendant, to store their products in the United Kingdom. 55On 26 May 2009, Mr Badler sent an email, which does not contain an email footer, to Mr Pessagno as follows: "Hi Gerard We have not yet received this payment at Barclays. Pls could you confirm whether the transfer has been made? Kind regards Delon" 56Mr Miller submitted that this email confirmed the plaintiff was paying Laderma Trading (although acknowledging this was at the same bank, and banking account, as Laderma). Similarly, as to airfreight, on 27 May 2009, Mr Badler from "Laderma Trading Pty Ltd" sent the following email to Mr Pessagno: "Hi Gerard Attached please find the relevant documents for an airfreight shipment that is being flown this week to M&A. I have also attached a copy of the updated Deposit schedule, where you will be able to trace the deposit that has been applied to this invoice. Upon arrival of this airfreight, the total net amount owing for this invoices amounts to €33,537.86. Pls could you confirm that you are in agreement with the amounts relating to these documents, if you have any queries, please feel free to let me know. Kind regards Delon Badler GM Finance & Operations Laderma Trading Pty Ltd 205 Victoria Street Beaconsfield NSW 2015 Australia" [Emphasis added] 57On 3 June 2009 Mr Badler of "Laderma Trading Pty Ltd" sent the following email to Mr Pessagno: "Hi Gerard We have been notified by our freight forwarder that the airfreight referred to below has been delivered. Pls could you arrange for payment of the outstanding balance. Kind regards Delon Badler GM Finance & Operations Laderma Trading Pty Ltd 205 Victoria Street Beaconsfiefd NSW 2015 Australia" [Emphasis added]. 58On 3 and 9 June 2009 Mr Badler of "Laderma Trading Pty Ltd" sent similar emails to Mr Pessagno. The 9 June email (without any Laderma Trading footer) was as follows: "Hi Gerard We have yet to receive payment for Invoice 211 that was delivered to your warehouse a week ago. I also sent you an email about this last week Thursday but have yet to receive a response. Pls could you get back to me ASAP so that we can close this invoice out. Kind regards Delon" [Emphasis added]. 59Who did the plaintiff think it was dealing with when it received these emails from "Laderma Trading Pty Ltd", when it had an agreement with Laderma? Was there agreement between the parties that, notwithstanding the unsatisfactory nature of the banking information, and the plaintiff's failure to sign the deed it was sent, that it might as well continue trading? 60Some insight may be gleaned from other correspondence between Mr Sher and Mr Riding which was occurring at approximately the same time as these emails and letters were being exchanged between the companies' employees. That correspondence was not included in the defendants' submissions, although it is more directly relevant to the question of whether the plaintiff was willing to deal with Laderma Trading. 61First, there was a significant gap between the December 2008 email, and any step taken by the defendants to regularise their trading arrangements to replace the first defendant with the second. The reasons for this were not explained. 62On Monday 25 May 2009 Mr Sher sent an email, without any prior instigation, as follows: "Steve, As discussed previously we need to get an updated contract in place to cover new products, change of company and our arrangement on an ongoing basis. We have previously sent you a deed of variation which outlined our agreed terms of working together. The only outstanding item in this document which had not yet been agreed upon was the performance criteria, and we assume this is because performance requirements were beyond what you were comfortable committing to in light of your inventory holdings? As such we have redrafted a deed of variation to the existing agreement as attached, which is in line with what was originally agreed, but now also incorporates further products agreed to, and the assignment of the original agreement from Laderma to Laderma Trading due to the passing of my father. For purposes of the rest of 2009 we intend to use your forecasted purchases (please provide update through to end Dec 09), which allow us to progress towards the end of the year without any unrealistic expectations. This is challenging considering your level of inventory and hence reduced sales levels, as from our perspective 2009 purchases by you are well below what we would have envisaged. The agreement then allows performance criteria to be agreed upon for 2010 onwards, we will remove current 2010 performance criteria from this schedule, and replace with agreed 2010 numbers once we have a clearer understanding of the actual 2009 numbers and as inventory numbers are brought in line with requirements. We will aim to finalise these details to [sic] by 31 Oct 09. Pls review and let us have any comments you may have as we would like to execute this agreement asap." [Emphasis added]. 63The previous discussion was the December 2008 discussion. Attached to this was a revised deed between Laderma Pty Ltd, M&A Pharmachem Ltd and Laderma Trading Pty Ltd. 64There was no reply, and nothing further happened until Mr Sher sent a lengthy email (on Wednesday, 9 September 2009), dealing with a wide variety of issues including monthly reports, marketing, inventory requirements, the ordering process, new products, distribution opportunities. On the second-last page of this document, Mr Sher put the following proposition, under the heading "Contract": "Contract A revised draft contract has been sitting with Philip for much of the yr? We need to look at putting this [sic] hopefully can finalise by the time I visit?" [Emphasis added]. 65"Much of the year" was something of an overstatement, since Mr Sher had done nothing between March (when the first deed was sent) and May 2009. Mr Sher's hope that his second attempt to have the new agreement, replacing the first defendant with the second, agreed to and signed by the plaintiff did not, however, meet with any response. 66Months went past. On Monday, 12 October Mr Sher sent another email listing many of the same issues such as inventory planning, new products and the like, and underneath the heading: "Contract" This time, there was no text underneath this subheading at all. There appeared only a simple question mark, like this: "?" [Emphasis added]. 67This entire email came back with feedback in red added to each of Mr Sher's comments in the email (set out as the response to his questions), outlining what was to be discussed. The relevant entry beside the question mark for "Contract" stated: "MG will discuss with Philip." [Emphasis added]. That suggests that there was to be some discussion about the proposal to replace Laderma with Laderma Trading. Whatever was discussed, the defendants do no submit that anything was agreed to or signed in October 2009. 68The email of 4 November 2009 in reply was similarly brief. Under the heading "Contract", Mr Sher had simply the word "Mike??" [Emphasis added]. Once again, the defendants do not claim that this resulted in an the signing of any agreement in November 2009 or any other conversation or indication of willingness as at this date to agree to these changes. 69This is because the defendants' case is that the plaintiff in fact agreed to a novation of the agreement in December 2008. The defendants' submission is that correspondence about what Mr Riding called the "newco" (Laderma Trading) stopped at the 4 December 2008 email, and that Mr Riding's email indicated a willingness of the plaintiff to deal with Laderma Trading, need to be seen in light of the subsequent correspondence between the parties. 70The importance of Mr Riding's email of 4 December 2008 is not apparent from the defence, as this email, and this date, is not identified in the defence or cross-claim as significant. Its importance arose from evidence during the trial by Mr Sher, who claimed that this email amounted to express (or at least implied) acceptance of the new company, Laderma Trading, in place of the old. 71The disputed issues of fact centre on the impact of the name change, from Laderma to Laderma Trading, viewed in the context of the lack of any other changes to how the parties did business, and the failure of the plaintiff to sign any variation deed (in circumstances where it must have been clear to Mr Sher that the plaintiff was not going to do so) and whether in those circumstances, by continuing to trade, the plaintiff agreeing to, or accepting, the replacement of Laderma with Laderma Trading. The evidentiary basis upon which the defendants base their defences, namely asserted concessions and admissions by Mr Gatenby in his evidence as corroborated by contemporaneous emails, faxes and business practices, needs to be examined with care. The "corroborative" evidence 72The defendants rely both upon the 4 December 2008 email and upon the evidence of Mr Gatenby, the sales and marketing director of the plaintiff (and its sole witness) as being "corroborated by the documentary evidence" (paragraph 2.6, submissions of 12 March 2013). 73Before considering Mr Gatenby's evidence, I note that his "corroborative" documentary evidence is identified by the defendants as being the following: (a)Pharmachem placed orders for all Flexitol products distributed in the United Kingdom, and it was Laderma Trading which manufactured these; (b)The plaintiff knew Laderma Trading issued purchase order acknowledgements (see Exhibit 3, T 100 - 101); (c)The plaintiff knew Laderma Trading issued invoices for the supply and manufacture of Flexitol: Exhibit 4; T 102 - 110; (d)The plaintiff knew Laderma Trading was supplying Flexitol: T 107 - 110; (e)The plaintiff knew Laderma Trading was being paid: Exhibit 4; T 102, 110; (f)The plaintiff was receiving emails from Laderma Trading, with "Laderma Trading Pty Ltd" in the email footer; (g)Pharmachem made claims to Laderma Trading for credit on account of advertising and promotional costs which were processed and credited by Laderma Trading (Exhibit L 1, pp 257 - 258, 260 - 270 and 286; Ex 5, pp 3, 20, 22). 74In the paragraph above, I have reproduced the list set out in the first written submissions at 2.6, not because it is comprehensive, but to demonstrate how relevant evidence has been omitted. There is a similar but more detailed list at paragraph 9.9, which refers specifically to shipping (paragraph (g)), submissions of bills for advertising and promotional costs (paragraph (k)). (See a further list at paragraph 4.2 of the further submissions of 4 June 2013. One of the difficulties in analysis of the defendants' submissions has been the repetition of this list in varied forms throughout the submissions, each containing some elements different to the other). 75Matters omitted from this first list include the correspondence set out above (although this correspondence, at least up to the 4 December 2008 email, formed part of a bundle of material handed up to me as being the central documents in the case). Nor does this list refer to products being manufactured by Laderma Trading to meet specific orders for the plaintiff, which were provided with customised printing and packaging to address regulatory and branding requirements (affidavit of Delon Badler, 19 June 2012, paragraph 16), although the contents of the packaging, if tendered, may have been an indication to the plaintiff as to the name of the company they should be dealing with. Nor does the defendants' list refer to the two orders placed by the plaintiff which are central to the plaintiff's claim (purchase order 4478, Exhibit L 1, 299) and 4512 (Exhibit L 1, 313). After Laderma Trading commenced manufacturing these, the plaintiff cancelled the orders in breach of the Distribution Agreement (these are the goods which the plaintiff claims Laderma Trading went on to sell for a "big fat profit"). 76The defendants submit that the evidence of the documentary evidence listed in paragraph 2.6 "gives rise to the clear inference that there was a contractual relationship between Pharmachem and Laderma Trading in the period from early 2009 until April 2010 on the terms of the Distribution Agreement (written submissions, paragraph 2.7). This submission is repeated at paragraph 9.10, where the defendants state: "Pharmachem does not proffer a single reason in its lengthy submissions as to how it is that the above conduct, when viewed objectively and in its entirety, can be consistent with anything other than an intention to novate the Distribution Agreement to Laderma Trading." 77This is the basis upon which the defendants argue that the plaintiff was under no mistake when it made payments to Laderma, or alternatively a common law conventional estoppel prevented Pharmachem from denying this. This submission confuses the legal issues. The defendants have conflated their own defence of novation with the plaintiff's case (in which novation plays no role) as well as with the elements of their defence of conventional estoppel. In addition, Closer analysis of the "documentary evidence" listed in 2.6 shows the "documentary evidence" does not include any documents originating from the plaintiff, any reply from the plaintiff to the requests to sign the variations, or any requests from the defendants to use the correct name "Laderma Trading" in transactions, or any change in banking or ordering procedure. 78The defendants' submissions on this (and other) issues demonstrate what Mr Sirtes SC called "fence-sitting" (written submissions, 9 August [sic] 2013) and "continual flipflopping" (written outline, 20 May 2013) in the presentation of the defendants' claim and cross-claim. Schedules of documentary evidence containing only part of the factual material are provided, the defences are run together, and the submission is made that the plaintiff has not produced any evidence in reply. This particular list refers to only documentary evidence from "early 2009", without referring to the correspondence leading to the 4 December 2008 email asserted by Mr Sher (and in oral submissions) to be the "clincher", or to the continuing exchange of correspondence up to 4 November 2009 which, to the contrary of these documents, shows the plaintiff continuing to rebuff requests to sign the deeds of variation sent by the defendants. The proposed amendments to the defence and cross-claim, which included withdrawing admissions and changing the dates pleaded as being the dates when the new agreement was alleged to have been entered into, are also of relevance. 79What the defendants have done is to present the facts of their case in piecemeal style, with alternate dates or documents relied upon (such as the four dates given for novation and assignment), with the result that to quote each differing list would become confusing and repetitive, however faithfully that summary reflects the defendants' submissions. This makes an analysis of the facts relied upon by the defendants difficult. 80 Having noted what the "corroborative" evidence is, I now set out the principal evidence upon which the defendants rely, namely the evidence of Mr Gatenby as well as the "absent" Pharmachem witnesses who have failed to give evidence, from which I am asked to draw a Jones v Dunkel inference. Although the defendants submit that intention is irrelevant in relation to the defendants' witness Mr Sher (" the relevant question is not whether Mr Sher subjectively intended to novate": submissions, paragraph 9.8), this submission is not applied with parity to Mr Gatenby. Further, contrary to the defendants' written submissions, paragraph 9) that the subjective intentions of the parties are irrelevant, the defendants are in fact equating the defendants' intentions (in changing their letterhead and company name) and Mr Sher's statements (in the email chain set out above) as evidence of intention to novate even though these documents are essentially evidence of the defendants' subjective intentions. (As Mr Sirtes SC went on to point out, Laderma had no intention to novate the agreement to Laderma Trading, but to sell Laderma's business to Laderma Trading, but that is another issue). 81Having noted these preliminary issues, I now set out a summary of those passages of the evidence of Mr Gatenby and Mr Sher referred to in the parties' submissions as being germane. The degree to which credit findings are relevant to the issues in the case, as well as the nature and extent of documentation of the kind identified by the defendants, can then be considered. The evidence of Mr Gatenby and Mr Sher 82Both parties made submissions about the credit of Mr Gatenby and Mr Sher, who swore affidavits in relation to the discussions which accompanied the correspondence set out above. Mr Gatenby 83Mr Gatenby had limited recollection of the events in question (see, for example, T 59 - 60, T 69 - 70). He answered questions quite frankly, but became confused in his evidence about Laderma and Laderma Trading, stating that he was not aware that Laderma Trading was another company, different to Laderma, although "I see that now". 84The defendants particularly drew my attention to the following: (1)Mr Gatenby's assertion that he was not aware that Laderma Trading was another company (T-106) should not be accepted. (2)This is, in part, because Mr Gatenby stated (at T-107): "Q. And because of that, you knew that Laderma Trading Pty Ltd was supplying products to Pharmachem. That's the case, isn't' it? A. Yes. Q. Because you knew that Pharmachem had an obligation to pay for those products, didn't it? A. Yes. Q. That's why you didn't take any steps to prevent Mr Pisanio from paying the amounts which were stated in the invoices from Laderma Trading Pty Ltd. That's the case, isn't it? A. Yes. Q. Now, Mr Gatenby, could I ask you to go to the very last page of that document, which has a schedule on it. Mr Gatenby, have you gone to the last page of that document? A. Yes. Q. You're aware, aren't you, that when Mr Badler forwarded invoices to Pharmachem they were often accompanied by a schedule of this nature? A. Yes." As Mr Gatenby did not correct the cross-examiner as to name of the company, this was seen as an admission that he knew that the plaintiff was in fact dealing with Laderma Trading Pty Ltd and not Laderma. However, given Mr Gatenby's earlier evidence about not knowing the difference, I am inclined to see this as being a witness not picking up a fine point in the course of cross-examination. (3)The following passage occurred at T-109-111: "Q. Mr Gatenby, you're aware that under the distribution agreement, advance payments for purchase orders had to be made. You're aware of that, aren't you? A. Yes. Q. You're aware that in the correspondence between the parties, those advance payments were sometimes referred to as deposits. A. Yes. Q. You're aware of that because the purchase order acknowledgments referred to a 50% deposit, didn't they? A. Yes. Q. So you knew that the references to the deposits were in relation to the 50% advance payment which Pharmachem was required to make under the distribution agreement. That's the case, isn't it? A. Yes. Q. That means when you saw the schedule which is headed Euro Customer Deposit Account, you knew that this schedule recorded the 50% advancements which had been made by Pharmachem, did you? A. Where are they? Q. That's the very last page to the first stapled set of documents in that folder. A. Yes. Q. Your answer is yes, is it, to my question? A. Sorry, could you repeat the question? Q. Certainly. When you saw this schedule, you knew that it recorded the 50% advance payments which had been made by Pharmachem under the distribution agreement. That's the case, isn't it? A. Yes. Q. And you knew from this schedule that the account into which those deposits had been made was an account of Laderma Trading Pty Ltd. That's the case, isn't it? A. Why would I know that? Q. Because in the top left-hand corner there's a reference to Laderma Trading Pty Ltd. That's the case, isn't it, Mr Gatenby? A. I can see it now. [Emphasis added]. Q. And underneath it you can see Euro Customer Deposit Account. That's the case, isn't it? A. That's what I can read. Q. Because of that, you knew that the 50% advance payments from early January 2009 were being made to an account of Laderma Trading Pty Ltd. That's the case, isn't it? A. Yes. Q. You did not object to Pharmachem making those payments to Laderma Trading Pty Ltd, did you? A. Yes. It was not my area of expertise. Q. That's not the question I'm asking you, Mr Gatenby. I'm asking you, you made no objection, either within Pharmachem or to Laderma Trading Pty Ltd, about Pharmachem making payments to Laderma Trading Pty Ltd. That's the case, isn't it? A. No. I made no objection. Q. You made no objection because you're of the view that Laderma Trading Pty Ltd was entitled to those payments, weren't you? A. No. Q. You didn't believe Laderma Trading Pty Ltd to be entitled to those payments? A. Sorry. Would you repeat the question? Q. I'm sorry, Mr Gatenby, if I've confused you. My question is you made no objection because you believed that Laderma Trading Pty Ltd was entitled to these payments. Is that the reason why you didn't object? A. Yes. Q. You believed that it was entitled to these payments because you knew that Laderma Trading Pty Ltd was supplying products under the distribution agreement to Pharmachem. That's the case, isn't it? A. I can't remember. Q. You know from the invoices that Laderma Trading Pty Ltd was supplying the products. You've said that, haven't you? A. Yes. Q. You've said that, because of that, Pharmachem had an obligation to pay Laderma Trading Pty Ltd. That's the case, isn't it? A. Yes. Q. For that reason you didn't have any concern or raise any complaint that deposits were being paid into an account of Laderma Trading Pty Ltd. That's the case, isn't it? A. Yes." 85What the answers make clear is that Mr Gatenby is still not appreciating the difference between Laderma Pty Ltd and Laderma Trading Pty Ltd. As he said at the T-110.1: "I can see it now." His confusion about Laderma Trading Pty Ltd needs to be seen in light of his frank admission that he did not appreciate that the company had simply changed its name. 86The defendants submit (submissions 4 June 2013) that, having failed to call Mr Riding, "Pharmachem cannot contend that Mr Riding had some lingering (and undocumented and uncommunicated) reservations about dealing with Laderma Trading". 87However, the documentation during 2009 makes it clear that the plaintiff was not prepared to sign either of the two variation documents sent to it. The plaintiff continued to trade as before. To do otherwise would have amounted to a breach of the contract in existence with Laderma. 88In practical terms, the evidence of these other witnesses would have made no difference. I decline to draw a Jones v Dunkel inference. 89It is helpful to consider the issue of Mr Gatenby's credit in light of my findings in relation to the evidence of Mr Sher. Mr Sher 90During his cross-examination, Mr Sher claimed that the plaintiff had agreed to novation: "Q. You could ask your client, M&A Pharmachem, if it wished to novate its arrangement to Laderma Trading, but you knew that you couldn't do anything to compel it to do so, didn't you? A. We had asked and they'd agreed. Q. You knew that you couldn't compel it to do so if it disagreed, didn't you? A. But they had agreed. Q. Can you answer my question? A. Can you repeat it, please? Q. Yes. You knew that if they disagreed, you could do nothing to compel them to do so, didn't you? A. I'm not sure. Q. Now, when you said "they'd agreed", you understood, didn't you, that in order for this novation to occur there was going to have to be something signed by M&A Pharmachem in order for that to happen. A. Not necessarily." 91As proof of the agreement, Mr Sher referred to the email dated 4 December 2008 (the text of which is set out above) which, he stated, proved the plaintiff's agreement to enter into a novated agreement. That email contained the sentence: "Hopefully this clears any remaining issues regarding logistics and leaves you free to focus on 2009 with Mike and Steve when you visit next week." 92When Mr Miller SC provided me with a bundle of relevant correspondence during closing submissions, this document was effectively the final document in the chain with which I was presented (tab 5 of the defendants' tender bundle on submissions). His submissions were that Mr Sher's evidence on this issue should be accepted. 93As the extracts from the correspondence set out above show, this email was taken out of context, in both a chronological and a comparative way. In comparative terms, the opinions Mr Riding was expressing were no different to those he had expressed on 14 October 2008 (which, it is important to note, predated Mr Sher's email advising of the defendants' restructuring). 94However, in a chronological sense, the 4 December 2008 email was not the end of the chain; it was in the middle of a series of emails. The evidence of this is the correspondence Mr Sher continued to send in 2009, culminating in the use of question marks. 95Further, the importance of this email is nowhere to be found in the defendants' affidavit evidence. Not only is there no mention of oral acceptance of a notated agreement as at this date in the pleadings, but there is no evidence to this effect in any of Mr Sher's three affidavits, as he conceded in cross-examination (T 245 - 6): "Q. There's nowhere in the three affidavits you filed a single conversation you've set forth in quotations with anyone where that person on behalf of M&A comes along and says to you, "Steve, we're very happy to enter into this novation or transfer our business to Laderma Trading," have they? A. No, I've set nothing out in this affidavit in quotation format of that nature, no. Q. In fact you prepared an affidavit as late as Friday of last week, didn't you? A. Correct. Q. You understand this case has been going on since April 2011. Correct? A. I'm well aware, yes. Q. You understand, don't you, that one of the key issues in this case was whether or not there was a transfer of business from Laderma to Laderma Trading by M&A. Correct? A. Absolutely. Q. So you would understand that a key issue in this case would be whether or not M&A had in fact agreed to do so. Correct? A. Yes. " Q. Now, in terms of what you say M&A had agreed to do so, at any stage after you say that you received this agreement did you send a single piece of correspondence - an email, a letter, a message in a bottle, anything - to anyone at M&A where you said, "Why aren't you signing this agreement when you have already agreed to do so?" A. Absolutely. Q. Where? Show me one piece of correspondence where you've said that. A. Every summary of my notes that I had a meeting with Q. Show me where it is. I'm not talking about your summary of your notes. I'm talking about correspondence that you sent to someone from M&A where you've said, "Why aren't you signing this? You've already told us you're happy to do so." A. Those were the notes I was sending to M&A. Q. Show me where they are. A. I sent the correspondence of our meetings to Mike. Q. By all means, show me where they are. A. It's about finding them. Q. Take your time." 96Mr Sher had the overnight adjournment in which to look for such documents. It was in this context that he referred to the email of 4 December. No other documents were produced. 97The submissions of the plaintiff are that the evidence of Mr Sher on this issue suggests recent invention (written submissions, paragraph 38(ii)). That claim can best be analysed by a consideration of other evidence given by Mr Sher. 98In cross-examination, Mr Sirtes SC inquired about the arrangements Laderma made with its other clients (no objection was taken to this line of questioning). Was Laderma continuing to trade with its other customers, or were those agreements also terminated? 99Mr Sher's answers on this issue were as follows: "Q. Was Laderma Pty Ltd manufacturing product? A. In a very limited capacity. Q. Who was it supplying that product to? A. I guess to various customers. Q. I don't want you to guess, I want you to tell me. A. Various customers. Q. Where? Where were they? Here or overseas? A. Overseas. Q. In England? A. I'm not sure. Q. How can you not be sure? You're a director of the company. A. I don't have a list of the invoices with me. Q. I see. Well, how much dollar value was it turning over then? A. I'm not sure. Q. $10? $100? $100 million? How much? A. I can't state exactly." (T 234) 100Mr Sher's agreed that there were "residual transactions that needed to go through" for other clients (T 234). He estimated these transactions were to the value of about $100,000 in 2009. 101Mr Sher was then asked how he reconciled the fact that Laderma was still trading with these customers with statements to the contrary in his affidavit: "Q. Let me ask you to go to page 3 of the affidavit. You will see there's a heading there that says The Alleged Debt is Not Owed, about halfway down the page. Do you see that? A. Yes. Q. You'll see paragraph 20, it says, "The plaintiff ceased carrying on its business in November 2008 when its business was assigned to Laderma Trading." A. Yes. Q. In light of the sworn evidence contained in that paragraph, do you wish to change the testimony you gave yesterday in this court under oath? A. No. Q. How do you reconcile those two statements, that is, the evidence you gave yesterday that the company continued to trade, albeit in a relatively small capacity, and what you said in paragraph 20? A. It wasn't carrying on its business to the same - in the same capacity or to the same extent. Q. You have no difficulty, and I don't say this in any degree of insult, but you have no difficulty understanding or comprehending the English language, do you? A. Generally not. Q. You would accept, wouldn't you, that a statement as plain as, "The plaintiff ceased business, carrying on its business in November 2008 when its business was assigned to Laderma Trading," has the effect of suggesting to the reader that it's ceased carrying on its business. Correct? A. If you read it that way, yes." (T 241) 102Another indication of the relationship between Laderma and Laderma Trading would be the value of Laderma's business as acquired by Laderma Trading. Mr Sher was unable to tell the court the purchase price Laderma Trading Pty Ltd paid for the business of Laderma and, more importantly, how such a purchase price could have been arrived at in the absence of novation of the contract with Pharmachem: "Q. Was it the same number as was the subject of the valuation that had been arrived at by the independent valuer? A. I believe so. Q. How as it possible in the absence of there having been any novations of the various underlying agreements between Laderma and the various companies that it had business arrangements with to value the business? A. You might have to ask Grant Thornton, I don't know." (T 239) 103Mr Sher was also unable to recall what legal advice he received about novation, except that he had to move Laderma's contracts to Laderma Trading Pty Ltd (T 240). The following exchange occurred at T 240 - 41: "Q. Thank you. Now, you'll see in clause 7.2 it says: "If having complied with its obligations under clause 7.1 the vendor is unable to cause that novation or assignment of any contract concerned by or with effect from completion, the vendor shall, with the purchaser's cooperation, continue to use its best endeavours to do so after completion." Now, did you recognise at the time that you entered into the sale of business agreement that in terms of your business relationship with M&A there was no contractual basis at all that your company could compel M&A to enter into a novation with your company. A. I don't know what the exact definition of a novation is. My understanding of our arrangement with M&A was that we were contracting with them having agreed in principle with all the terms of our arrangement under Laderma Trading, other than our performance criteria that we were contracting with. Q. Let me put it to you again. You've misunderstood my question. Did you understand as at the date that you've signed this sale of business agreement on 28 November 2008 that you were in no position legally to compel M&A to novate the contract that it had with Laderma to Laderma Trading Pty Ltd? A. I still don't understand the question." 104In addition, Mr Sher conceded that every product the subject of the two cancelled purchase orders was sold, in a period of months after expiry of the Distribution Agreement, for a "big fat profit" (approximately 60% margin after expenses): "Q. Can I take you to page 11 of MFI 1. Before you answer the next question, I just want to confirm this. This affidavit was sworn on 13 September 2010 and consistent therefore with the evidence you have just given A. Mm-hmm. Q. --about your knowledge of the profits. By the time you came to swear this affidavit you were aware that in relation to those two purchase orders, your company, and I'm talking in this case about Laderma Trading Pty Ltd, had made a big fat profit on those two sales. Correct? A. Correct. Q. You were aware of that. Correct? A. Mm-hmm. Q. And you were aware that it had suffered no losses at all in relation to those two purchase orders. Correct? A. In relation to those two purchase orders? We had suffered a loss. Q. What was the loss? A. The loss is the lost sale of those products into the market. Q. You sold them, didn't you? A. To somebody else. Q. Yes. So you made no loss because you had in fact sold them. You may not have sold them to M&A Pharmachem but you had sold them and you had booked a profit. Correct? A. To someone else, yes." (T 257) 105Despite making this profit on these items, Mr Sher was not able to answer Mr Sirtes SC's questions as to why, in circumstances where the plaintiff had not received the two purchase orders and those goods which were not only sold to another customer but for a substantial profit, the deposit money paid by the plaintiff was being withheld, and had continued to be withheld since April 2010. 106I take into account, in relation to this last issue, that there is a cross-claim, the nature and extent of which underwent considerable alteration during the hearing. However, the circumstances in which the plaintiff's money was withheld was not explained by Mr Sher on that basis. 107The cross-claim as originally drafted was a claim for loss of profits of £492,000. In the course of the proceedings, Mr Sher conceded, as is noted above, that no loss had been made in relation to the "Terminated Order" (see paragraph 20.5 of the Cross-Claim); in fact the goods had been sold for what Mr Sirtes SC repeatedly referred to in his submissions as a "big fat profit". 108Principally by reason of the bringing of this claim, the plaintiff asks me to find that Mr Sher, having promoted a knowingly false claim has no credibility as a witness and is indeed "dishonest" (written submissions, paragraph 51). Not only has he made false claims in this court, the plaintiff's submissions point out, but he made similar claims in the Supreme court that his companies had sustained losses in relation to the two purchase orders the subject of the Cross-Claim. Observations about the credit of the witnesses 109Trial judges made observations about the demeanour of witnesses as part of the process of finding of fact, but the procedure has been described as both crude and inaccurate, and its defects have been discussed in a number of recent decisions. In Fox v Percy (2003) 214 CLR 118 at [30]-[31] Gleeson CJ, Gummow and Kirby JJ stated: "[30] It is true, as McHugh J has pointed out, that for a very long time judges in appellate courts have given as a reason for appellate deference to the decision of a trial judge, the assessment of the appearance of witnesses as they give their testimony that is possible at trial and normally impossible in an appellate court. However, it is equally true that, for almost as long, other judges have cautioned against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses. Thus, in 1924 Atkin LJ observed in Société d'Avances Commerciales (Société Anonyme Egyptienne) v Merchants Marine Insurance Co; (The "Palitana"): ...I think that an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour. [31] Further, in recent years, Judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility." 110Both Mt Gatenby and Mr Sher are at the head of their respective organisations, with little involvement in either the day-to-day trading activities or the fine-tuning of contractual relations, leaving such matters to others in the organisation. 111Mr Gatenby's credit was attacked on the basis that he could not recall many events. His evidence was that he never noticed the change. This is not only internally consistent with, but corroborated by, the plaintiff's internal and external documentation for the whole of the transactions at all relevant times up to termination of the contract. 112By contrast, Mr Sher's evidence was unsatisfactory in the following respects: (a)His evidence in the witness box contradicted his affidavit evidence, some examples of which are set out above. (b)His affidavit evidence, in both the Supreme Court and this court, claimed very substantial losses in a cross-claim, losses which he conceded had not been incurred. (c)His evidence is in conflict with the contemporaneous documentation of both parties. (d)While Mr Gatenby's lack of knowledge is to a degree explained by the mistake of fact made by the plaintiff, Mr Sher's lack of knowledge of some issues (such as the valuation price at sale of Laderma, the amount to which it continued to trade) is implausible from a sole director of a family company. 113It is a very serious matter to make a finding of credit adverse to a person in business at the level of Mr Sher. Courts do not lightly come to such conclusions. It is only after this analysis of his evidence, that I have come to the conclusion that Mr Sher has been less than frank in his evidence before the court and that Mr Sirtes SC's submissions on behalf of the plaintiff should be accepted. 114This finding is of particular relevance to the facts before me. In the absence of documentation in relation to novation, where the relevant discussions took place between Mr Sher and Mr Gatenby, Mr Sher's lack of credibility is a critical failing of the defendants' case. 115This is also of significance in relation to the objective findings of fact in relation to novation and assignment. The circumstances in which the name Laderma was changed to Laderma Trading Pty Ltd, which I find to have been done subtly and without notice to the plaintiff, show the same lack of frankness and openness that I observed in Mr Sher's evidence. 116It was in the defendants' interest that there should be no doubt, either by the bank receiving the funds, or in relation to the sale price of Laderma, or in relation to company and taxation records, as to the bright line of division between these two companies. Yet there was never any attempt to correct the many invoices sent by the plaintiff to Laderma, and even in 2010, when terminating the agreement, Laderma Pty Ltd was relying upon the Distribution Agreement dated 4 April 2007, rather than any later novated agreement with Laderma Trading Pty Ltd. 117Taking all of the above into account, I am satisfied that Mr Sher is not a witness of credit, and that his evidence should not be accepted unless it is corroborated by evidence established to be reliable. The issues for determination as identified by the parties 118These are the principal issues of fact in the plaintiff's claim. The plaintiff summarises its case against the defendants as follows: (1)The Distribution Agreement was at all times between the Plaintiff and Laderma Pty Limited ("Laderma"); (2)There was no valid assignment between Laderma and Laderma Trading Pty Limited; (a)there was no power or entitlement under the Distribution Agreement for Laderma to assign its rights to any other party; (b)the purported Deed of Assignment between Laderma and Laderma Trading of 16 December 2008 was invalid; (c)Laderma cannot assign the contractual burden (as opposed to the contractual benefit); (d)the assignment 'agreement' is not stamped; and (e)the nature of the relationship between M&A and Laderma was a species of property not capable of assignment; (3)There was no notice of assignment: (a)there was no notice; (b)the unsigned 'Deed of Variation' was not a valid notice. It was a draft agreement; (c)the Recitals in the draft agreement were wrong - the date of assignment was not 25 January 2009 but was 16 December 2008. (d)the notice was not capable of being valid if the purported assignment was not valid. The river cannot rise higher than its source. (4)There was no express novation and neither any implied novation: (a)as regards intention, there must be an intention for a new contractual relationship to arise; (b)there was no requisite intention: (i)M&A did not agree to any novation; (ii)M&A did not sign the Deed of Variation proposed; (iii)Laderma understood, no doubt on legal advice, that in order for any new contract to come into existence between M&A and Laderma Trading, it needed to be in writing; (iv)M&A continued to place purchase orders on Laderma Pty Limited; (v)M&A continued to pay money into the account set up by Laderma Pty Limited. Neither Laderma entity advised M&A that the NAB account was now controlled by Laderma Trading Pty Limited; (vi)the two purchase orders in question were addressed to Laderma Pty Limited; (vii)there was no consistency by Laderma Trading in its dealings with M&A: i.the letters from Laderma Trading to M&A in late March 2010 and 7 April 2010 used Laderma Pty Limited's ABN; ii.Laderma still relied on the Distribution Agreement dated 4 April 2007 in 2010 correspondence with M&A rather than any later novated agreement with Laderma Trading Pty Limited; iii.in correspondence from Thompson Playford Cutlers on 11 May 2010 there was no mention of any novated agreement. (5)Even if there was a contract between the Plaintiff and Laderma Trading the Second Defendant must disgorge the €99,607.00 on the basis that there has been a total failure of consideration. This argument need not arise (nor any argument on the Cross-Claim) if the Distribution Agreement was only ever between the Plaintiff and Laderma. If M&A is found to have had an agreement with Laderma: (a)there has been a total failure of consideration; and/or (b)the payment of the money was made to the Second Defendant under a mistake." (Plaintiff's submissions, paragraphs 1-3) 119The defendants' submissions are as follows: 1. The defendants complain that it is difficult to discern, from Pharmachem's submissions, precisely how it frames its entitlement to restitution, but identifies the plaintiff's claim as follows: (a) The plaintiff asserts that there was no contractual relationship ever formed between it and Laderma Trading and that therefore the payments of money to Laderma Trading was under a mistake; and (b) Alternatively, if there was a contractual relationship between Pharmachem and Laderma Trading, there was a total failure of consideration in respect of the payments made to Laderma Trading. 2. Pharmachem's claim on either of its asserted bases must fail: (a) Firstly, when Pharmachem made the relevant payments to Laderma Trading, it knew that products were being manufactured and supplied to it by Laderma Trading and that Pharmachem was paying Laderma Trading for the manufacture and supply of products. So much was admitted by Mr Gatenby when he was cross examined. Pharmachem could not have been under any mistake when it made the payments to Laderma Trading; (b) Secondly, as Pharmachem received the benefit of Laderma Trading commencing the manufacture of orders 4478 and 4512, and Laderma Trading incurred expenses in relation to the manufacture of those orders, there was no total failure of consideration. Pharmachem breached the contract, after placing orders 4478 and 4512, by refusing to accept the supply of the products it ordered and to pay the balance of the purchase price for them, does not somehow create restitutionary entitlement. Equally irrelevant is the fact that Laderma Trading was able to sell those same products for a profit as Laderma Trading seeks no order in these proceedings for Pharmachem to pay the balance of the purchase price. (Defendants' submissions 20 March 2013, pages 1-2) Was there a mistake of fact? 120The plaintiff's case is that there was no contractual relationship ever formed between the plaintiff and Laderma Trading Pty Ltd, and that the manner in which the word "trading" was insinuated into the second defendant's name, in the absence of a signed agreement in accordance with the terms of the April 2007 contract, should not be regarded as vitiating the need not only for informed consent, but a signed variation of the distribution agreement, a document which contemplated that variations would be in writing. The plaintiff submits the second defendant has thereby received those funds by mistake, in circumstances where that payment unjustly enriches the recipient: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353. 121Any mistake made may be a mistake of either party, or by a stranger, in that there is no requirement for privity between the payer and the recipient of the payment. This is because the right of recovery for an amount paid under a mistake of fact, such as payment into the wrong account, lies not in implied contract but in restitution for unjust enrichment: Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662. 122The plaintiff's written submissions also rely upon the total failure of consideration (written submissions paragraph 6). 123 I next consider the defendants' response to these submissions. Was the payment made under a mistake of fact? 124The defendants submit that the facts are straightforward; their "elephant in the bathroom" submission (as Mr Miller SC put it in his oral submissions) depends upon the fact that all correspondence from this time onwards was signed by the defendant using the word "Laderma Trading Pty Ltd" and not "Laderma Pty Ltd" and on Mr Gatenby's asserted concessions in cross-examination. 125Mr Gatenby's evidence concerning this issue was: "Q. Do you have any recollection of ever saying "don't pay this invoice. This is some other company"? Did you ever say anything like that? A. No I didn't. Q. And why not? A. Because I wasn't aware it was another company." 126This is relied upon by the defendants as evidence of Mr Gatenby's lack of credit as he must have been aware of the change of name from Laderma Pty Ltd to Laderma Trading Pty Ltd. 127However, not one of the documents produced by either party for the whole of the trading relationship contains a reference by the plaintiff to its trading partner as "Laderma Trading Pty Ltd". All of its correspondence continued to be addressed to Laderma Pty Ltd at all relevant times. This continued right up until the time the contract was terminated. To give only one example, correspondence about invoice 4478 from Sheila Crackenby to someone named Pramita at "Laderma", was faxed on 20 November 2009 (affidavit of Mr Gatenby, 1 November 2012, page 47). This was no mere shortening of the company's name; the purchase order is addressed to "Laderma Pty Ltd" (affidavit of Mr Gatenby, page 48), and the follow-up fax of 18 January 2010 is addressed to Pramita at "Laderma Pty Ltd" (affidavit of Mr Gatenby, page 49). 128In addition, at all relevant times, Mr Sher was emailing Mr Gatenby from the unchanged email address stevensher@laderma.com.au and the website remained www.laderma.com.au (see for example his email to Mr Gatenby of 5 March 2010, at page 55 of the affidavit of Mr Sher, 1 November 2012). 129The first time that any email or correspondence was sent to "Laderma Trading Pty Ltd" occurred after the contract was terminated, when the managing director, Mr F.J. Armstrong, wrote in reply to the fax terminating the distribution agreement on 6 April 2010. That letter was in reply to a letter with the name "Laderma Trading Pty Ltd", and that word appears in Mr Armstrong's letterhead which states that the recipient of the letter is "Laderma Trading Pty Ltd" 205 Victoria Street, Beaconsfield NSW 2015. 130However, the letter goes on to say: "Dear Stephen, DISTRIBUTION AGREEMENT - LADERMA PTY LTD AND M&A PHARMACHEM LTD DATED 4 APRIL 2007 ("DISTRIBUTION AGREEMENT")" 131If the plaintiff had thought it was dealing with Laderma Trading Pty Ltd, it would have addressed its correspondence to that corporation. However, that is only one indicia of mistake of fact. The other indicia (which are set out in more detail in relation to the claim of novation, include: (a)No reference to "Laderma Trading" in any of the plaintiff's internal documentation. (b)There was no change to the accounting arrangements and the plaintiff continued to pay Laderma Pty Ltd. There are no financial transactions to which Laderma Trading Pty Ltd was a named party. The plaintiff's evidence was that its servants or agents did not know that the name of the account had changed. (c)This pattern of conduct can be seen consistently over the whole of the parties' trading activities. By contrast, the date(s) upon which the defendants claim that there was assignment and novation changed both in the pleadings and the evidence. On the one hand, there is a consistent course of conduct; on the other, a series of dates for the new trading arrangement was put forward during the hearing. 132I am satisfied that the evidence of Mr Gatenby demonstrates that he did not realise the name change. Neither he nor anyone else on the part of the plaintiff agreed, tacitly, impliedly or otherwise, to deal with Laderma Trading. This is not a case where the parties agreed to sign a document but forgot, or considered it unnecessary. The parties had an "Entire Agreement" clause (clause 11.1) stipulating that no modification or variation is effective unless in writing and signed by both parties. 133The plaintiff submits (written submissions, paragraph C11) that this clause is "the shortest answer" to both the defence and cross-claim. That clause alone would not preclude the finding of the implication of contractual terms, but even if that clause had not been contained in the agreement, the evidence relied upon by the defendants is, for the reasons I have set out above, so weak and implausible that it could not be accepted. 134All of the above evidence demonstrates that the second defendant received 99607,44 euros from the plaintiff by mistake, in circumstances in which it has no legal entitlement to those funds. It has been unjustly enriched by receipt of those funds. 135The defendants have raised a series of defences, as well as a cross-claim, to avoid repayment of this sum. The findings of fact which I make, which are to be applied to the defences and cross-claim, are that the plaintiff only ever had a contract with the first defendant, and never agreed to contractual relations with the second defendant. The money was banked into the account used by the first defendant, into which the plaintiff continued to pay money by reason of its continuing obligations under the distribution agreement with the first defendant. The plaintiff was never told by the second defendant that it had taken over this bank account. 136These factual findings, when applied to the cross-claim, will mean that the cross-claim similarly fails. As Mr Sher conceded in cross-examination, it was only the second defendant that was trading in 2010, and only the second defendant that incurred expenses. Laderma Trading and/or Mr Sher had made Laderma "a corporate persona non grata" (to use the phrase Mr Sirtes SC employs in his first set of submissions at paragraph B8). Thus, the first defendant has suffered no loss, and the plaintiff cannot be in breach of the distribution agreement as regards the second defendant, because it never had contractual relation with the second defendant. The legal issues raised in these defences are complex; the facts, however, remain straightforward. 137This brings me to a consideration of the submissions of the parties as to whether there was a valid assignment either from Laderma to Laderma Trading. Was there a valid assignment between Laderma and Laderma Trading Pty Ltd? 138The defendants assert that the distribution agreement was varied in December 2008, then there was an assignment between Laderma and Laderma Trading in a deed dated 18 December 2008, and then there was a novation of the distribution agreement between the plaintiff, Laderma and Laderma Trading (I note that these are the dates which emerged from the defendants' submissions, and differ from dates set out in the defence). The first issue is whether there was a valid assignment from Laderma to Laderma Trading at all (failing which, the novation argument would not arise). 139The plaintiff submits that no assignment took place because the deed of assignment between Laderma and Laderma Trading was ineffectual because the deed could not assign the burden of the distribution agreement. Clause 2 of the deed provided that Laderma assigned to Laderma Trading all rights, title, interest and benefits "and the burdens of all the obligations, terms and conditions to be observed and performed by the Assignor under the Distribution Agreements". The plaintiff submits that there is no ability to assign a contractual burden as this burden can only be the subject of a novation (as was recognised by the defendants when the sold Laderma's business to Laderma Trading. 140In Contract Law in Australia, 5th ed., JW Carter, at [17 - 030] sets out a general discussion of the circumstances in which the assignment of contractual rights may be an exception to the privity rule, noting at [17-080] some of the "difficult questions" which may arise. In Owners - Strata Plan No 44999 v Premier Holdings Corp Pty Ltd [2012] NSWSC 171, Black J noted at [47], the essential nature of the consent of the other contracting party, which requires novation of the original contract: "[47] ... It is well established that a contractual obligation cannot be assigned without the consent of the other contracting party and this, in practice, requires novation of the original contract: Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at [668]; Fightvision Pty Ltd v Onisforou [1999] NSWCA 323 ; (1999) 47 NSWLR 473 at 491-493; Pacific Brands Sport and Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40; (2006) 149 FCR 395 at [32]. No such tripartite agreement was executed." 141The following lengthy extract from Pacific Brands Sport and Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 at [32] conveniently sets out the principles as follows: "[32] By way of background, it is appropriate to begin with a number of relatively non-contentious propositions. First, it is well accepted that assignable contractual rights are choses in action; are a species of personal proprietary right; and can be transferred to a third party at law or in equity in accordance with the formal rules governing the transfer of such rights: see Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26; Loxton v Moir (1914) 18 CLR 360 at 379. Secondly, while it is not legally possible to assign the burden of a contract (ie the obligation to render performance), it may be possible to assign (a) the entire benefit of a contract (ie the right to receive performance): Don King Productions Inc v Warren [2000] Ch 291 at 318 ("Don King"); (b) if a right under a contract is separate and severable, such a separate and severable right: cf Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at 449-450; or (c) if some only of the rights under a contract are assignable, those rights. "[A]ssignability is not a matter of all obligations arising under a contract or none at all": Don King, above, at 319. Thirdly, a contract may expressly or impliedly authorise assignment of rights in a contract which would not otherwise be assignable: Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225 at 235 ("Devefi v Mateffy"); or, conversely, may expressly or impliedly prohibit assignment of rights otherwise prima facie assignable: Don King, above, at 319. "Such contractual provisions are legally effective" as between the contracting parties: Don King, ibid; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 103 ff ("Linden Gardens Trust"). Fourthly, while the product to be derived from a contractual performance (the "fruits of performance") may be assigned;Devefi v Mateffyat 234, above; the right to that performance may, nonetheless, be unassignable because, having regard to the nature of the contract and the subject matter of the contractual right in question, that right is personal in the sense that the identity of the contractual obligee is material to the contractual relationship itself (ie it is a "personal contract": Peters v General Accident Fire and Life Assurance Corporation Ltd [1938] 2 All ER 267 at 270; Moore v Collins [1937] SASR 195; or to the contractual performance to be rendered: Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1992) 57 BLR 57 at 77 (contract requiring a party to act on the other's instructions); see generally Seddon and Ellinghaus, Cheshire and Fifoot's Law of Contract (8th Aust ed, 2002), [8-6]; Furmston (ed), above, 6.299 ff; Chitty on Contracts, Vol 1 19-053 ff (29th ed, 2004); Farnsworth, above, §11.4. A contractual right, though, will not be personal if, construed in its setting, "it can make no difference to the person on whom the [corresponding] obligation lies to which of two persons [ie assignor or assignee] he is to discharge it ": Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668. Fifthly, seemingly, a contractual right may itself be of such a personal character that it cannot properly be characterised as property: cf Jack v Smail (1905) 2 CLR 684 at 704-705; but it is not clear whether this proposition has salience only in contexts other than assignment of such a right, e.g. insolvency, because of the proposition immediately preceding this which relates expressly to assignments of "personal" contractual rights. Sixthly, the assignee of a contractual right under a legal assignment is entitled, as owner of that right, to take action in respect of it: e.g. Conveyancing Act 1919 (NSW), s 12. Seventhly, a third party may become a "substituted contracting party" by novation of the original contract. Novation will, ordinarily, require the agreement of the original and the substituted party although the original contract itself may, on its proper construction, authorise a party to substitute a contracting party in its place without need for a further tri-partite agreement: see Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 460. On novation, though, there is no assignment of rights and obligations, but rather the creation of new rights and obligations in a new contract: Olsson v Dyson (1969) 120 CLR 365 at 388; Cheshire & Fifoot's Law of Contract, above, [8.45] ff. Eighthly, a contractual obligation cannot be assigned without the consent of the other contracting party: Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668. This, for practical purposes, requires novation of the original contract; Furmston, "The Assignment of Contractual Burdens" (1998) 13 Jo Contract Law 42; see also Vickery v Woods (1952) 85 CLR 336 at 345; Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 491-493. Ninthly, the delegation of performance of contractual obligations is permissible where the obligations assumed do not require personal performance but only the producing of a result: Bruce v Tyley (1916) 21 CLR 277; British Wagon Co v Lea & Co (1880) 5 QBD 149. In such cases perfect performance by the delegate will discharge the delegating contractor's obligation, although that contractor will remain liable unless and until such performance is rendered. "Whether or not in any given contract performance can properly be carried out by the employment of a sub-contractor must depend on the proper inference to be drawn from the contract itself, the subject matter of it, and other material surrounding circumstances": Davies v Collins [1945] 1 All ER 247 at 250." 142The defendants' submissions in reply appear to have accepted the correctness of these statements of the law, in that nothing to the contrary appears in their submissions in reply (as the plaintiff's reply submissions note). The defendants refer to Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at [78] - [80] in relation to novation only (written submissions, paragraph [3.2] - [3.5]) , on the basis that if the parties conduct themselves on the basis that a contract exists, a court will "readily infer" (at [80]) that such a contract has been brought into being. In searching for the contractual intention, "no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements" (Fightvision Pty Ltd v Onisforou at [86], quoting from Upper Hunter County District Council v Australian Chilling and Freezing Co Pty Ltd (1969) 118 CLR 429 at 437 per Barwick CJ. 143However, it is neither narrow nor pedantic to determine that the contract between the plaintiff and Laderma was a personal contract (see the definition of "Laderma" in clause 1.1 and the warranty as to good title in clause 4.1(b)(i)). It was not legally possible to assign the contractual burden. I also note that clause 11.5 (entitled "Non-Assignment") imposed a restraint on any assignment of the distribution agreement by the plaintiff. While the agreement is silent on the issue of Laderma's permission to assign, where there is restraint in relation to the plaintiff's rights, and silence in relation to Laderma's, neither party was entitled, having regard to the terms of the contract, to assign its rights under the distribution agreement. 144I am satisfied that assignment did not occur. If I have erred in this regard, I briefly note that any assignment would have been ineffective as no notice of assignment was given to the plaintiff pursuant to s 12 Conveyancing Act 1919 (NSW) (and the plaintiff also raises the issue of whether the agreement was stamped, although this is not an insuperable difficulty). 145The notice alleged to have been given is contained in the two emails Mr Sher sent on 19 and 17 November, and in the draft deeds of variation provided in March and on 25 May 2009. The defendants have now conceded (in their amended defence) that the two emails could only be notification of a prospective assignment (the date of assignment being 16 December 2008) and as such are invalid. Any notification of the assignment contained in the draft deed of variation was buried in the fine print, as all that was revealed was a statement in Recital B that the agreement was "assigned by Laderma to Laderma Trading on 15 January 2009." 146Mr Sirtes SC helpfully refers to the need for the notice of assignment to be strictly accurate, especially as to the date of assignment: W F Harrison & Co Ltd v Burke [1956] 1 WLR 419. The facts of that case were that the assignment misstated the date, and the notice additionally was drafted before the assignment was executed. While uncertainty about the date may not be fatal for the reasons explained by the NSW Court of Appeal in Grey v Australian Motorists & General Insurance Co Ltd [1976] 1 NSWLR 669 at 681 (see also Van Lynn Developments v Pelias Construction Co Ltd [1969] 1 QB 607 at 612), the requirement for reasonable certainty would be hard to meet with four different dates, one of which is only a month (i.e. March 2009). 147In addition, the date given for the assignment is wrong. The date of the assignment was 16 December 2008, not 15 January 2009; 15 January 2009 was the date of the independent valuation of Grant Thornton. In addition, the deed of assignment, while executed on 16 December 2008, was intended to effect an assignment "upon completion" (clause 2), which Mr Sirtes SC suggests (at paragraph 24 of his initial set of submissions) should be defined as being the "Completion Date" (31 December 2009) but which I consider more likely to be a reference to completion of the deed of variation between the plaintiff and Laderma Trading. That was not sent until March 2009 and never signed. Whatever date the assignment is asserted to have taken place, the notice of assignment, which was incorrect in this vital feature, was therefore invalid. 148In the proposed amended cross-claim, the defendants sought to withdraw "March 2009" as the date for the novated agreement and replace it with "about early 2009". 149In addition, as is noted in the summary of facts set out above, neither of the defendants ever indicated to the plaintiff that, as from some particular date or other, the plaintiff was required to pay Laderma Trading, and not Laderma. Instead, the defendants changed the name of the holder of the foreign currency account into which the plaintiff paid monies, without any notification of the plaintiff. This evidence is relevant to my finding that there was no notice of assignment given to the plaintiff. 150The consequence of these findings is that, as there was no assignment, the assertion of novation must fail. In the event that I have erred in this regard, I set out my findings in relation to novation. Novation 151The particulars of implied novation in paragraph 7(c) of the cross-claim are that the plaintiff placed orders for Flexitol products, after they were sent the Variation Deeds, and these were processed by Laderma Trading, not Laderma; Laderma Trading sent a "Purchase Order acknowledgement" to the plaintiff which was accepted and processed; and the plaintiff was invoiced accordingly by Laderma Pty Ltd (and not Laderma). These particulars were the subject of applications for amendment both during and after the evidence had been completed (for the latest version, see Exhibit X3). 152The particulars to paragraph 7 also state that the express part of the novation arose from the provision of the "2009 deed of variation" (particular (b)). However, it was not submitted that express novation had occurred; the draft deeds of variation (sent March and 25 May 2009) were never signed. The novation in question is alleged to arise by reason of the parties' conduct towards each other from about 4 December 2008. 153For novation to occur there must be a contract already in existence, which is terminated by the parties and replaced by another contract, with either the same or, in some cases, different parties. The most common form of novation in contract is for the substitution of one party by another. Evidence of novation by conduct, particularly in circumstances where the parties had entered into a written contract providing for changes to be in writing, where the plaintiff had refused to sign two variations, would need to be persuasive. The parties must conduct themselves as if a contract exists between them, and intention is "crucial" (Vickery v Woods (1952) 85 CLR 336 at 345, per Dixon J). 154I shall briefly set out the evidence the parties have referred to on this issue of intention: (a)Mr Gatenby's evidence at paragraphs 3 - 7 of his affidavit of 16 November 2012 was as follows: "3. In the email Mr Riding states that: "We would not be happy with any proposal to change our agreement to a new company which would presumably have no assets if the deposits were to be paid to this newco. We would however be prepared to palace [sic] orders with newco but pay the deposits to the existing company (subject to seeing some financial statements as requested" 4. I agreed with the position as expressed by Mr Riding in that email. 5. At no time after that email did Mr Riding inform me that he received information regarding the new company that satisfied him that a change of the agreement was acceptable, and I am not aware of him providing any advice to anyone at M&A to the effect that M&A should change the agreement to a new company. 6. During this period I was in regular contact with Mr Frank Armstrong regarding the dealings with Laderma. At no time did Mr Armstrong inform me that M&A was changing the agreement to a new company. 7. As far as I was aware, the agreement at all times remained with Laderma Pty Limited." (b)The absence of any internal or external documentation created by the plaintiff which refers to Laderma Trading, details of which are set out in the findings of fact above; (c)The circumstances in which the defendants continued to use the same bank, same format and procedure for orders, and never complained or drew the attention of the plaintiff to the new and different company name. 155The defendant draws my attention to concessions asserted to have been made by Mr Gatenby, particularly the following: (a)Mr Gatenby's evidence at T 109 lines 30 - 50 was as follows: "Q. That means when you saw the schedule, which is headed Euro Customer Deposit Account, you knew that this schedule recorded the 50% advancements which had been made by Pharmachem, did you? A. Where are they? Q. That's the very last page to the first stapled set of documents in that folder. A. Yes. Q. Your answer is yes, is it, to my question? A. Sorry, could you repeat the question? Q. Certainly. When you saw this schedule, you knew that it recorded the 50% advance payments which had been made by Pharmachem under the distribution agreement. That's the case, isn't it? A. Yes. Q. And you knew from this schedule that the account into which those deposits had been made was an account of Laderma Trading Pty Ltd. That's the case, isn't it? A. Why would I know that? Q. Because in the top lefthand corner there's a reference to Laderma Trading Pty Ltd. That's the case, isn't it, Mr Gatenby? A. I can see it now." (b)The defendants also ask me to accept the evidence of Mr Sher as well as what I have referred to elsewhere as the "elephant in the bathroom" corroborative documentary evidence. (c)In addition, the evidentiary basis for the material set out in paragraph 7(c) must be taken into account. Have the defendants established evidence of intention by the parties? 156By reason of the factual findings I have made, I am satisfied the defendants have not established any intention on the part of the plaintiff. In addition, I note that the defendants' evidence does not establish any intention, on their own part, to novate the agreement. The following evidence demonstrates that the defendants were not only well aware of the need for novation to be in writing, but also that the plaintiff did not agree, and that in the absence of writing the original agreement remained on foot: (a)Mr Sher acknowledged in cross-examination that he knew that any novation had to be in writing and signed by a person authorised by the plaintiff (T 242). This means that the defendants, through the corporate mind of their common director, were aware that in the absence of the variation deed being signed, the distribution agreement between the plaintiff and Laderma remained on foot. His email of 25 May 2009 acknowledges as much, as he stated "...we need to get an updated contract in place to cover new products, change of company..." (b)Mr Sher and those advising him knew that not only did the plaintiff not have the agreements sent to them in March and May 2009 executed, but that the attempts by Mr Sher to raise this matter in correspondence and meetings were unsuccessful. At no stage during this correspondence did Mr Sher say words to the effect: "Why aren't you signing this agreement when you have already agreed to do so?" "Q. There's nowhere in the three affidavits you filed a single conversation you've set forth in quotations with anyone where that person on behalf of M&A comes along and says to you, "Steve, we're very happy to enter into this novation or transfer our business to Laderma Trading," have they? A. No, I've set nothing out in this affidavit in quotation format of that nature, no. Q. In fact you prepared an affidavit as late as Friday of last week, didn't you? A. Correct. Q. You understand this case has been going on since April 2011. Correct? A. I'm well aware, yes. Q. You understand, don't you, that one of the key issues in this case was whether or not there was a transfer of business from Laderma to Laderma Trading by M&A. Correct? A. Absolutely. Q. So you would understand that a key issue in this case would be whether or not M&A had in fact agreed to do so. Correct? A. Yes." (T 244) No such documents were produced. Mr Sher produced the minutes of meeting he claimed contained this information, but acknowledged that these notes did not say that (T 246). (c)In his final letter terminating the agreement, Mr Sher described the agreement on foot as still being between Laderma and the plaintiff: "Q. Now, you'll see there it says, "Dear Frank," about halfway down page 331. A. Yes. Q. "Distribution agreement Laderma Pty Ltd and M&A Pharmachem Ltd." Dated 4 April 2007. Do you see that? A. Yes. Q. Now, as I understand from the evidence you have already given her Honour, being a person who was careful in the language that you employed, why was it that as at this date when you were talking about the end of an agreement, you made no reference in the subject heading of that letter to Laderma Trading Pty Ltd? A. We never had a signed agreement in place between Laderma Trading and M&A. The only document that was signed previously was the document between Laderma and M&A." (T 292) Mr Sher stated that this letter was drafted by his legal advisers (T 293), and that it was written on advice (T 294), which is an indication of the likelihood of some care being taken over the letter, rather than it being simply a communication from one busy businessman to another. 157I am satisfied that neither the plaintiff nor the defendants had any intention to novate the agreement by implication. Both parties knew that any variation to the agreement had to be in writing. Both parties knew that the plaintiff had not signed, and would not sign, the two variation deeds it was sent. This meant that at all relevant times both parties understood that in the absence of writing the distribution agreement between the plaintiff and Laderma remained on foot. Conventional estoppel 158The defendants submit that the plaintiff is estopped from denying that the products were purchased from the second defendant, and that the products were purchased on the terms of the distribution agreement but with the second defendant substituted for the first defendant. 159For the same factual reasons that I have found that Laderma Trading was not the contracting party, I am satisfied that there is no evidence sufficient to establish that the parties intended to act on the basis that Laderma Trading was the contracting party. Those factual findings, when applied to the elements of common law conventional estoppel, demonstrate the weakness of the defendants' argument. 160The elements of common law conventional estoppel were helpfully outlined by Brereton J in Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713, [2007] NSWSC 5 at [31] as follows: "[31] Thus whereas an intention to vary the original terms is necessary to support a contractual variation, no advertence to the original terms is necessary to found a conventional estoppel having the same effect. An estoppel by convention depends upon the adoption by the parties of an assumption as the conventional basis of their relationship [Dabbs v Seaman (1925) 36 CLR 538 at 549; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 244-5]. Any requirement that the assumption be of a state of facts (as distinct from law) has been discarded [Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 185-9; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 415-6 432 452 and 458; Foran v Wight (1989) 168 CLR 385 at 435 and 457; Commonwealth v Verwayen (1990) 170 CLR 394 at 413 445 and 501; Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Ltd (in liq) [1982] QB 84 at 122; Meagher, Heydon and Leeming, Equity Doctrines & Remedies, 4th ed, [17-020]; MK & JA Roche v Metro Edgley, [71]]." 161His Honour went on to state at [33]: "[33] The similarities between the two doctrines should not be allowed to mask their differences, which reflect the disparate origins of promissory estoppel and conventional estoppel. Promissory estoppel, a creature of equity, is, typically, focussed on the conscience of the defendant: it operates when the defendant has induced or acquiesced in the adoption by the plaintiff of an assumption that the defendant will not assert its strict legal rights, so to prevent unconscionable (or unconscientious) insistence by the defendant on its strict legal rights. On the other hand, conventional estoppel, a creature of the common law, is focussed on the consensual basis of the parties' relationship: it operates when both parties have adopted the same assumption as the basis of their relationship, often without appreciating that any departure from the strict legal position is involved, so as to hold both parties to their common understanding." 162The factors relied upon by the defendants to establish conventional estoppel are set out at paragraph 8.4 of their submissions as follows: "8.4 All of the elements necessary to found a conventional estoppel (as formulated by Brereton J in Moratic) are established in the present circumstances: (a) Laderma Trading assumed that it was supplying Flexitol products to Pharmachem, and that Pharmachem purchased such products, on the terms set out in the Distribution Agreement. This is established by the following: (i) Laderma Trading issued purchase order acknowledgements to Pharmachem which required 50% advance payment for purchase orders in accordance with clause 3.4(a) of the Distribution Agreement (see Ex L 1, pp 301 and 315); (ii) Laderma Trading gave credit to Pharmachem on account of the A&P claims in accordance with clause 5.1(d) of the Distribution Agreement (see Ex L 1, pp 257-264, 265 and 268-270; Ex L 5, pp 3 and 22-23; Ex L 6, pp 16 to 27 and 30 to 35); (iii) Laderma Trading required monthly reports to be submitted in accordance with clause 5.2 of the Distribution Agreement (see Ex L 1, p 287 and Ex L 2). (b) Pharmachem adopted the same assumption. See the evidence referred to in section 4 above; (c) It follows that both Pharmachem and Laderma Trading conducted their relationship on the basis of a common or mutual assumption; (d) Each party knew that the other was conducting the relationship on that basis. This is established by the following: (i) Pharmachem submitted the A&P claims because it knew and intended Laderma Trading to provide it with credit on account of those claims in accordance with the provisions of the Distribution Agreement; (ii) Pharmachem paid the 50% advance payments for orders because it knew that Laderma Trading was supplying it with products in accordance with the terms of the Distribution Agreement; (iii) Pharmachem submitted the monthly reports to Laderma Trading because it knew that Laderma Trading required these to be submitted in accordance with the terms of the Distribution Agreement. (e) Departure from the assumption would occasion detriment to Laderma Trading. Laderma Trading provided the Flexitol products to Pharmachem on the basis that it would have the opportunity to buy-back those products upon expiration of the Distribution Agreement. The importance of the buy-back provisions in clause 8.2(a)(iv) to Laderma Trading's long term business interests is explained in the evidence of Mr Sher (see affidavit of Mr Sher of 19 June 2012 at [19] and [56]). Departure from the assumption will occasion detriment to Laderma Trading in the form of denying it the opportunity to repurchase the Flexitol products supplied to Pharmachem in accordance with the provisions of clause 8.2 of the Distribution Agreement." 163In relation to each of these submissions, I conclude: (a)The evidence is to the contrary. The second defendant decided to restructure his business in late 2008 without consulting the plaintiff, without any revised distribution agreement and without any assignment of the distribution agreement. There was no assumption, by Laderma Trading, that Pharmachem would go along with this and if there were, this assumption would have speedily been put to rest by the refusal of Pharmachem to sign the variation agreements, the terms of their correspondence and the fact that Pharmachem continued to write to, and refer to, "Laderma Pty Ltd". Mr Sher admitted that the completion date of the agreement was 31 December 2008 (little more than a month before he first notified Pharmachem of the proposed change) and at that time he knew that Laderma had a distribution agreement on foot for another 15 months. Whether Pharmachem accepted the proposed corporate restructuring or not was apparently of no importance to Mr Sher, or he would have consulted them in order to have the relevant approvals or agreements in place before he took these steps. (b)Again, any claim that Pharmachem adopted the same assumption is to the contrary of the evidence. There is not a single document generated by Pharmachem over this period showing an acceptance of, or even referring to, Laderma Trading. The correspondence set out above shows that not only did Pharmachem refuse to sign the variation agreements, but also when Mr Sher attempted to discuss it, they maintained the same reluctance throughout the whole of 2009. (c)See (b) above. (d)For the same reasons, I am satisfied that Pharmachem simply carried on business as usual, depositing money in the same bank account, using the same system for advance payments and product orders, submitting monthly reports to the same address and dealing with the same staff personnel. Despite their correspondence being addressed, unfailingly, to Laderma Pty Ltd, they were never once corrected or asked to name the company properly. They paid the 50% advance payments after December 2008 in exactly the same way as they had done beforehand. Even the internal stock reconciliation for Pharmachem (Exhibit 5) - the one document to be expected to reflect some reference to the name "Laderma Trading" - did not do so. (e)Any detriment suffered by Laderma Trading arose from its unilateral decision to sell Laderma to Laderma Trading before any assignment or consent to novation occurred. The defendants, not the plaintiff, were acting in breach of contractual obligations and they did so in an underhand manner. It is not uncommon for actions for breach of contract to have this common thread of company restructuring without notification of long-term contracting parties, of the kind that occurred here. This kind of "detriment" is self-inflicted. Pharmachem had no say in the matter. 164This is not to say that Pharmachem did not know of Laderma Trading's existence. It knew that Laderma operated a group of companies; Mr Sher's letter advising that he proposed to use Laderma Trading was in response to a request for information about not only Laderma's financial situation but also the financial situation of the company group. Pharmachem was entitled to take the stance that, whatever company was manufacturing or distributing the product, its contract was with Laderma. 165The defence of common law conventional estoppel is not made out. Total failure of consideration 166The defendants' claim that they are entitled to keep the sum of 99607,44 is made on the basis that expenses were incurred in manufacturing the products the subject of "the terminated order" (the two purchase orders 4512 and 4478) may be maintained whether or not novation occurred. This is because, even if there was novation of the distribution agreement, Pharmachem can still succeed on the restitutionary claim against Laderma Trading on the basis of total failure of consideration, as it did not receive the products the subject of purchase orders 4512 and 4478. 167I have proceeded with this section of the judgment on the basis that my finding that novation has not occurred is in error. 168I first note the threshold submission of the defendants that the contract must have been discharged for breach or frustration for total failure of consideration to be available (written submissions paragraph 7.3(a) and 7.6 - 7.13). This is incorrect. As Halsbury's Laws of Australia sets out at [370-3310], under the heading "Consensual rescission", consensual rescission has occurred in many of the cases where such relief is sought. The cases referred to by the defendants at paragraphs 7.6 - 7.13 refer to unjust enrichment, and do not support their argument on this point. 169The defendants, having stated that total failure of consideration is required (written submissions, paragraph 7(b)), go on to note that the receipt of consideration for a mistaken payment is a defence (David Securities Pty Ltd v The Commonwealth (1992) 175 CLR 353 at 379 - 380). However, none of the factual circumstances identified by the High Court are made out here, and the defendants' submissions that the consideration did not totally fail apply principles for different kinds of goods, involving skill and labour, or specially prepared for the purchaser. 170There is no evidence that Laderma Trading provided any special skill and labour in order to meet purchase orders 4512 and 4478. Laderma Trading incurred expenses only, and of a general nature which related to all the goods they sold to the plaintiff and other purchasers, rather than especially for these orders. The fact that there was a warranty as to their quality is irrelevant; in modern transactions, warranties apply to all goods. It is hard to understand such a submission in relation to goods which are pharmaceutical products, where regulations as to quality and content presumably apply (although, as this was an issue about which I heard nothing during the hearing, I have been careful not to draw any assumptions). 171The claim that the 50% advance payment was to allow the manufacturer to meet manufacturing expenses is inconsistent with evidence during the hearing that product ordered by the defendants at times bore no relationship to, or even exceeded, the purchase orders. 172Both parties referred me to Baltic Shipping Company v Dillon (1993) 176 CLR 344. However, as the High Court pointed out at 352, the question was whether an advance payment "not being a deposit or earnest of performance" was the question before the court. It was in those circumstances that the court considered it was material to ascertain whether the payee is required by the contract to perform work and incur expense before completing the performance of the contractual obligations. It was in those circumstances that, if the payee was required to do so, and absent some other intention expressed in the contract, it would be unreasonable to hold that the payee's right to retain the payment was conditional upon performance of those contractual obligations. That is not the situation here. The fact that expenses were incurred in the making of the goods the subject of the purchase order overlooks the terms of the contractual terms and, given the ongoing nature of these expenses for bulk manufacture of the Laderma products, is artificial. 173I am satisfied that the payment of 50% by the plaintiff was not an advance payment, but a deposit, made in accordance with the terms of the distribution agreement. The defendants have not taken into account the impact of the retention of title clause, which meant that the plaintiff received nothing until 100% full payment was made. 174Additionally, as to the entitlement to retain the funds in relation to the goods the subject of the terminated orders, these goods were sold, as Mr Sirtes SC regularly reminded me, for "a big fat profit". 175For these reasons, if I have erred in holding that there was no novation, the plaintiff is still entitled to succeed on its restitutionary claim against Laderma Trading on the basis of total failure of consideration, as it did not receive the products the subject of purchase orders 4512 and 4478. Conclusions concerning the plaintiff's claim 176I do not accept the defendants' "elephant in the bathroom" submission that the evidence shows the plaintiff and Laderma Trading were in a contractual partnership. The evidence demonstrates that, at a time when the plaintiff was refusing to sign the variations because of failure to provide adequate financial information, Laderma Trading simply slipped into the role of Laderma as unobtrusively as possible. Although the plaintiff (written submissions, 20 May 2013) submits that Laderma trading was "forced" onto the plaintiff, I am satisfied that the process was considerably subtler and that the plaintiff's executives and employees did not notice the additional word in the company's name. 177All that the defendants can establish is that the plaintiff dealt with Laderma Trading, in circumstances where Mr Gatenby said he did not notice the difference in the company's name, in circumstances where the banking, business, mail and personnel remained the same. 178All of the defences have failed. Judgment will be entered for the liquidated sum sought, with liberty to apply in relation to interest. Costs should follow the event. 179This brings me to a consideration of the cross-claim. The Cross-Claim 180It is necessary to set out the cross-claim pleadings in some detail, partly to demonstrate the overlap with arguments relevant to the plaintiff's claim and partly to illustrate the difficulties caused by the defendants/cross-claimants' application to amend the cross-claim, brought two months after the close of evidence. 181The cross-claim pleads that on 4 April 2007, Laderma and the plaintiff entered into a distribution agreement for the sale of Flexitol products other than those sold by Taurean Health Limited (the Flexitol products were added in October 2007: see paragraph 10 of the cross-claim). By a deed dated 16 December 2008, Laderma assigned its rights under this original agreement to Laderma Trading on 15 January 2009, according to paragraph 5 of the cross-claim. The cross-claim then sets out that plaintiff/cross-defendant (Pharmachem) was given notice of this assignment in the emails of 10 and 17 November 2008 (the text of which is set out earlier in this judgment), and by the draft variations deeds sent in March and 25 May 2009 (these are the deeds which Pharmachem did not sign). This correspondence, and the basis upon which it is asserted novation occurred, has been discussed in relation to Pharmachem's claim, as this was the method of presentation of submissions by the parties. 182The cross-claim then recites that orders were placed in accordance with this novated agreement until termination, that clause 3.4(a) required Pharmachem to pay 50% of the purchase price for goods ordered first from Laderma and then from Laderma Trading, and the remaining 50% on receipt of the goods. The cross-claim then refers to clause 8.2(a)(iv) (the text of which is set out earlier in the judgment), which provided for Laderma (and, the cross-claim avers, Laderma Trading) to repurchase products at their current prices, less applicable discounts. All products which were not saleable products were to be valued at nil. The obligations under clause 8 survived the termination or non-renewal of the agreement. 183Pharmachem had an obligation to provide such product information, from time to time, as was reasonably required (clause 5.2(c)). In addition, there was an obligation for any "saleable products" not repurchased at the time of termination of the contract to be sold or destroyed within 150 days. 184The cross-claim also recites that "saleable products" was a drafting mistake, and that the distribution agreement should be read as "products" in line 6 of paragraph 8.2(a)(iv). If the court does not find that "saleable products" means "products", then the contract falls to be rectified. (This claim was not proceeded with, as the cross-claimants appear to have accepted Pharmachem's submission that this court has no power to rectify a contract: plaintiff's written submissions, paragraph 4.6). 185When the agreement was terminated, "the first, alternatively second, cross claimant" (paragraph 14 of the cross-claim) requested details of unsold products from Pharmachem on 2, 7 and 22 April and 11 May 2010. In breach of the agreement, Pharmachem refused to supply details of all unsold "product" at the termination of the contract (thereby depriving the cross-claimants of their ability to exercise their discretion to repurchase under clause 8.2) and, by reason of the contents of their letter, had sought to impose a condition on the compliance with their obligations, which amounted to repudiation of the agreement. 186A claim is also brought in relation to the order of 20 November 2009, for which Pharmachem had paid 50%, and which Pharmachem had sought to terminate unilaterally. 187The damages sought are set out in paragraph 21. The claims for loss of profits of £492,000 and loss of opportunity for reselling goods that were repurchased have been the subject of revision during the hearing, as is set out in the section of this judgment on the cross-claim quantum. I shall first set out the correspondence concerning the request for an inventory. The correspondence 188The relevant correspondence is as follows. 189On 5 March 2010, Mr Sher sent the following email to Mr Armstrong: "From: Steven Sher Sent: Friday, 5 March 2010 9:50 AM To: 'farmstrong@mapharmachem.co.uk' CC: Mike Gatenby; Delon Badler Subject: Flexitol Dear Frank, Mike Gatenby informed me of your decision not to continue to distribute the Flexitol brand in the UK. We have therefore commenced discussions with other parties such that we can work towards an orderly handover in the near future. We appreciate the association we have had with M&A and will keep you informed as we progress with discussions. Kind regards, Steven Sher Managing Director Laderma Trading P/L 205 Victoria Street, Beaconsfield, NSW Australia 2015 Tel: 61-2-9693-6565 (direct) Fax: 61-2-9693-6575 Fax: 61-2-9693-6566 (direct) Email: stevensher@laderma.com.au Website: www.laderma.com.au" 190In a facsimile bearing no date, but in answer to the email of 5 March 2010, Mr Sher replied as follows: "Attention: Frank Armstrong PER FAX: + 44 194 281 3937 Dear Frank, DISTRIBUTION AGREEMENT - LADERMA PTY LTD AND M&A PHARMACHEM LTD DATED 4 APRIL 2007 ("Distribution Agreement") Following on from our email of 5 March 2010 (a copy of which is attached) we wish to advise that it is not our intention to renegotiate a new agreement with M&A Pharmachem. Pursuant to clause 2.2(b), the Distribution Agreement will automatically terminate on 4 April 2010 given that the minimum purchase quantities have not been met, and in addition and in any event, the minimum purchase quantities for a renewal period have not been agreed upon. In order that we can arrange a smooth transition of the distribution agreement, please can you provide us with the following information: 1. Details of all unsold Flexitol products in inventory broken down by batch/lot no and associated expiry date; 2. Details of all samples, promotional material and other advertising literature in inventory. The information is required in order for us to consider exercising the discretion given to us under clause 8.2 in respect of purchasing such inventory. Please provide the above information by 5.00pm UK time on Wednesday 7 April 2010 so that we can you [sic] make the necessary arrangements to ensure that there are no unnecessary delays. Regards [Signature]Steven Sher Managing Director" 191On 6 April 2010, Mr Armstrong replied saying: "6 April 2010 Laderma Trading Pty Ltd 205 Victoria Street BeaconsfieldNSW 2015Australia Attention: Steven Sher Dear Steven DISTRIBUTION AGREEMENT - LADERMA PTY LTD AND M&A PHARMACHEM LTD DATED 4 APRIL 2007 ("Distribution Agreement") We are writing to acknowledge that we are in receipt of your fax regarding the above. We would like to request additional time to collate the information that you required in points 1 and 2. You requested that the information be provided to you by 5:00p.m. UK time on Wednesday 7 April 2010 but this does not allow us much time taking into consideration that we have only just re-opened today Tuesday 6 April 2010 from the Easter Bank Holiday (Friday 2 April and Monday 5 April 2010). We would like to propose that we have an extension to 5:00p.m. UK time on Wednesday 14 April 2010. Please will you inform us as to whether this is acceptable at your earliest convenience. Regards [Signature] F.J. Armstrong Managing Director" 192On the following day, 7 April 2010, Mr Sher replied: "7 April 2010 Dear Frank, DISTRIBUTION AGREEMENT - LADERMA PTY LTD AND M&A PHARMACHEM LTD DATED 4 APRIL 2007 ("Distribution Agreement") Following on from you fax dated 6 April 2010, and in order to accommodate your request for an extension of time to complete the items listed in points 1 and 2 of our letter sent on 2 April 2010 we propose the following. M&A Pharmachem to make available the following inventory for collection by Laderma Trading Pty Ltd by midday Friday 9 April 2010 to allow Laderma Trading Pty Ltd to ensure a continuous supply of product to customers in the UK. Flexitol Heal Balm 58g 5 sided 50k Flexitol Heal Balm 56g 4 sided 20k Flexitol Heal Balm 112g 25k Flexitol Hand Balm 20k Flexitol C&N Foot 5k Flexitol Foot Cream 86g 7k Flexitol Foot Wash 3k Flexitol Foot Scrub 3k Flexitol Foot Gel 10k Flexitol Lip Balm 5k Flexitol Skin Oil 10k Once this is confirmed Laderma Trading Pty Ltd will make a 50% advance payment for the above goods. Upon receipt and checking of goods Laderma Trading Pty Ltd will make payment of the remaining 50% outstanding. In order that we can arrange a smooth transition of the distribution arrangement, please can you provide us with the following information in relation to the balance of inventory on hand at M&A Pharmachem by 5.00pm UK time on Wednesday 14 April 2010: 1. Details of all unsold Flexitol products in inventory broken down by batch/lot no and associated expiry date; 2. Details of all samples, promotional material and other advertising literature in inventory. We will then work to complete a handover for the remaining inventories and other material shortly after receipt of items 1 and 2 as listed above. Regards [Signature] Steven Sher Managing Director" 193On 12 April 2010, Mr Pessagno of M&A Pharmachem Ltd sent the following email to Mr Sher: "From: Gerard Pessagno [mailto: GPessagno@mapharmachem.co.uk] Sent: Monday, 12 April 2010 7:25 PM To: Steven Sher Subject: ORDER 4512 Dear Steven, Mr Armstrong has asked me to find out when you will be refunding our payment to you re the above order which is now no longer required the amount is €95531.02. Your early response would be appreciated. Kind regards Gerard" 194Mr Sher replied on the same day saying: "From: Steven Sher [mailto:StevenSher@laderma.com.au] Sent: 12 April 2010 11:59 To: Gerard Pessagno Cc: Delon Badler Subject: RE: ORDER 4512 Dear Gerard, We can address refund of this amount, in conjunction with offset against inv#344 which was delivered about 3 weeks ago, along with payment for initial inventory buy back, for which we are still awaiting a response from M&A such that we can keep supplying customers with product. Regards, Steven Sher" 195Later on 12 April 2010, Mr Pessagno sent the following email to Mr Sher in reply: "From: Gerard Pessagno [mailto: GPessagno@mapharmachem.co.uk] Sent: Monday, 12 April 2010 10:04 PM To: Steven Sher Subject: RE: ORDER 4512 Dear Steven, There is no need to offset against inv 344 as we have paid €52759.04 on order no 4478 so take inv 344 for [illegible] this leaves a balance of €4076.42 plus order 4512 €95531.02 = €99607.44 Please make arrangements for this to be repaid to us as soon as possible. Kind regards Gerard" 196The following day, 13 April 2010, Mr Sher replied to Mr Pessagno saying: "From: Steven Sher [mailto:StevenSher@laderma.com.au] Sent: Tuesday, 13 April 2010 6:04 PM To: 'Gerard Pessagno' Cc: Delon Badler Subject: RE: ORDER 4512 Hi Gerard, We're in agreement with your calculations and this amount will be accounted for as part of the repurchase of Flexitol inventory that we should be receiving details of tomorrow. Regards, Steven Sher" 197On 22 April 2010, Mr Sher sent the following facsimile to Mr Armstrong: "22 April 2010 M&A Pharmachem Ltd Wigan Road Westhoughton Bolton BL5 2AL England Attention: Frank Armstrong PER FAX: +44 194 281 3937 Dear Frank, DISTRIBUTION AGREEMNT - LADERMA PTY LTD AND M&A PHARMACHEM LTD DATED 4 APRIL 2007 ("Distribution Agreement") Following on from your fax dated 6 April 2010, we sent a fax dated 7 April 2010 with a revised proposal to which we did not get a response. We also did not receive the information requested by 5:00pm UK time on Wednesday 14 April 2010. The information below is required in order for us to consider exercising the discretion given to us under clause 8.2 in respect of purchasing such inventory. 1. Details of all unsold Flexitol products in inventory broken down by batch/lot no and associated expiry date; 2. Details of all samples, promotional material and other advertising literature in inventory. Your failure to provide this information thus far despite your request for a time extension and assurance to do so, is frustrating our efforts to exercise discretion under clause 8.2 in respect of purchasing such inventory. This has the potential to damage our business and brand in the UK market. As such we once again request you provide this information by no later than 5:00pm UK time on Friday 30 April 2010. We await your urgent reply. Regards [Signature] Steven Sher Managing Director" 198On 11 May 2010, the defendant's solicitor sent the following email to the plaintiff: "11 May 2010 [address] Attention: Mr Frank Armstrong Dear Sir LADERMA TRADING PTY LTD - DISTRIBUTION AGREEMENT We act for Laderma Trading Pty Ltd ("our client"). On 4 April 2007, our client entered into a Distribution Agreement with M & A Pharmachem Ltd ("M&A") ("Agreement"). Under clause 2.3, the terms of the appointment of M&A as our client's distributor terminated on 3 April 2010. There was no agreement to extend the appointment. Under clause 8.2(a)(iv) of the Agreement upon the termination of the Agreement, our client was afforded at its discretion the right to repurchase from M&A its inventory of products, at the then current prices less any applicable and then current discounts or at the net prices paid by M&A to our client, whichever was the lower. All products which were not saleable products, as defined in the Agreement, would deem to be valued at nil. Our client has on repeated occasions requested that M&A provide it with details of any unsold inventory for the purpose of considering whether to exercise its option under clause 8.2. To date you have refused to provide the details. Your refusal constitutes a breach of the ongoing obligations under the terminated Agreement and you are frustrating our client's rights which endure under the Agreement. We are instructed, as we do, to demand that you provide details of all: 1) unsold inventory of our client's products broken down by batch/lot number and associated expiry date; and 2) samples, promotional material and other advertising literature in your inventory. In addition to the ongoing deprivation of its ability to exercise its discretion under the Agreement to acquire the unsold stock, our client records that it has suffered and continues to suffer ongoing damages as a result of your failure to provide the information sought, in particular our client has: 1) recently had to incur considerable airfreight and ancillary costs to supply stock to customers which it would not have had to do if you had complied with your obligations; and 2) had to airfreight inventory to the UK, again at considerable costs, because you have failed to provide the information our client requested to enable our client to determine whether to exercise its discretion under clause 8.2. Our client further instructs us that you unilaterally terminated various orders with our client for stock and have sought to refund from our client of the partial payment in respect of those orders. Our client intends to hold those funds after making deductions for the damages suffered as a result of the termination of those orders, until such time as you comply with your obligation under the Agreement. We suggest that you comply with your obligations immediately so that the matter can be finally resolved. Please address all future correspondence through our offices. Yours faithfully, THOMSON PLAYFORD CUTLERS [Signature] Dan Kramer Partner" 199On 13 May 2010, the plaintiff's then lawyers in England replied to Thomson Playford Cutlers as follows: "13 May 2010 BY FAX: + 61 3 8080 3599 Dear Sirs, Re: Our client: M&A Pharmachem Limited Your client: Laderma Trading PTY LTD We are in receipt of a letter dated 11th May addressed to the managing director of our client company M&A Pharmachem Limited ("M&A"). Please note our instructions in this matter. Your client's claim for damages is wholly specious. The Agreement does not oblige our client to provide your client with the information it requests. In order to facilitate your client's exercise of its right under Clause 8.2(a)(iv) our client is willing to provide such a list, contingent upon your client's payment to our client of the €99,607.44 due to it in respect of cancelled orders ("the Rebate"). In addition our client will also expect to receive in any and all outstanding sums due to our client at that time. The Rebate is a liquidated sum payable immediately. The sum itself has been agreed as accurate and payable by your client's Mr Sher (please see attached e-mail correspondence). Your client has no right to set off or any legitimate grounds for resisting the payment due to our client either under the Agreement or at all. Our client demands payment of the sum without deduction within 7 days of the date of this letter. Yours faithfully, [Signature] FIELDINGS PORTER" 200On 18 May 2010, Thomson Playford Cutlers replied as follows: "18 May 2010 [address] Dear Sir OUR CLIENT: LADERMA TRADING PTY LTD YOUR CLIENT: M&A PHARMACHEM LIMITED We refer to your letter of 13 May 2010. We are disappointed that your instructions appear to be to simply repeat the stance previously adopted by your client, namely that it will not cease frustrating our client's rights under the Agreement until such time as our client meets your client's demands to repay the monies referred to in your letter. Your client has no justifiable basis to adopt this stance and is causing our client ongoing loss. We further object to your assertion that the amount of €99,607.44 is in so far as your client's demand for the payment of €99,607.44 is concerned, we respectfully point out that: 1. As was pointed out in our letter of 11 May 2010, our client is entitled to be compensated for the losses it suffered as a result of the unilateral termination of the orders which your client placed on our client. 2. Whilst Mr Sher's email referred to the calculation of the amounts paid by your client, it did not constitute a waiver of our client's rights to claim damages from your client arising out of the termination of the orders. These damages will be deducted from any amounts paid by your client. 3. To your client's knowledge, our client is also owed monies in respect of the costs associated with the Blistop delivery to satisfy urgent orders in later April (Laderma Health UK Invoice 158) and a short payment in Laderma Trading Invoice 349. 4. It is not open to your client to demand that our client refund any such monies whilst your client is repudiating its obligations under the agreement with our client and deliberately frustrating the exercising of rights vested in our client. Our client is anxious to resolve this dispute, quickly and efficiently. We call upon your client to comply with the demands set out in our previous letter so that our client can consider whether to exercise the option to repurchase the specified stocks. Any further delay is likely to render the rights under the agreement of no value to our client. Your client's compliance with its obligations under the agreement will place our client in a position where a final accounting between the parties can take place, quickly and fairly. We look forward to your prompt response. Yours faithfully, THOMSON PLAYFORD CUTLERS [Signature] Dan Kramer" 201On 26 May 2010, Fieldings Porter sent the following email to Thomson Playford Cutler: "26 May 2010 BY EMAIL dan.Kramer@thomsonplayfordcutler.com.au Dear Sirs, Re: Our client: M&A Pharmachem Limited Your client: Laderma Trading PTY LTD Thank you for your letter of 18th May 2010. We note that you are unable to particularise the contractual provisions you allege our clients to have breached. Our client does not consider itself contractually bound to provide your client with the list demanded. However: 1) Our client is prepared to provide such a list within 5 working days of payment of the sum of €99,607.44 ("the Debt"). It is worthy of note that the Schedule of Products in the Agreement relates only to Flexitol Naturals Skin Nourishing Oil 60Ml. Yours faithfully, [Signature] FIELDINGS PORTER" The implied term argument 202Was either Laderma or Laderma Trading entitled to ask for an inventory? Leaving to one side the issue of Laderma Trading not being a party to the contract, did such a right exist under the distribution agreement? 203The maintenance of an inventory by Pharmachem was to be "sufficient" only to service customers (clause 5.3). The obligation to provide information about the product to Laderma did not contain a specific requirement that an inventory was to be kept and provided upon termination. The cross-claim depends upon the implication of a term requiring Pharmachem to supply details of all unsold products at the termination of the distribution agreement. Should such a term be implied? 204The test for the implication of contractual terms is a strict one: Wright v TNT Management Pty Ltd (t/as Comet Overnight Transport) (1989) 15 NSWLR 679 at 697. 205As the correspondence set out above demonstrates, the defendants' interpretation of clause 8.2(a)(iv) was that upon the termination of the Agreement, Laderma Trading "was afforded at its discretion the right to repurchase from M&A its inventory of products", according to a particular formula. This meant that the plaintiff was obliged to provide a full inventory including batch numbers, quantity and the other inventory details sought. 206What does the use of the word "inventory" mean? The contract provided (clause 5.3 ) the plaintiff should maintain "a sufficient inventory of Products to service the Customers in the Territory" and that the plaintiff should maintain "accurate records of all Products sold or on hand and shall keep information on each batch of Products sold to Distributor [sic] in order to enable recall of specific batches" (clause 5.2(d)). However, all that the plaintiff was required to provide to Laderma was "Product and market information" (clause 5.2(c)), monthly reports for marketing and sales (clause 5.2(a)) and a 12-month rolling forecast (clause 5.2(b)). There is no reference to any requirement for a full inventory to be provided to Laderma upon termination of the agreement, and certainly no provision that such an inventory was a condition precedent to repurchase. 207A term will not be implied where it has been expressly excluded or is inconsistent with the express terms of the contract: Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 448; University of Western Australia v Gray (2009) FCR 346 at [136]; Yorkshire Water Services Ltd v Sun Alliance & London Insurance PLC [1997] 2 Lloyd's Rep 21 at 30, 33. That is all the more the case in a contract of this kind where, as I have already noted, there was an "Entire Agreement" clause (clause 11.1). 208Neither Laderma nor Laderma Trading would be entitled to insist upon a full inventory (including batch numbers and other such details) as a requirement for the purchase of these items. In relation to the entitlement of Laderma Trading to bring such a claim at all, there are significant causation issues which are set out in more detail below. 209This brings me to the issue of quantum. The quantum of the cross-claim 210In the event that I have erred in relation to the rejection of the cross-claim, I summarise the damages claimed as follows: (a)Loss of opportunity of repurchasing the products that were "Not Saleable Products" at nil value; (b)Additional freight costs because further products needed to be shipped to its new distributor in the United Kingdom; (c)Loss of opportunity to repurchase goods in Pharmachem's possession (clause 8.2(iv) of the distribution agreement); and (d)Loss of profits from "the terminated order". 211Confusingly, the loss of profits at paragraph 21.4.2 in the cross-claim (£492,000) appears to relate, at least in part, to the claim for "the terminated order". This is a claim entirely without merit. As I have set out in the section on credit above, Pharmachem has invited me to find that Mr Sher has made a knowingly false claim which should never have been made, and I have done so. Every one of the goods the subject of "the terminated order" was sold for what Mr Sirtes SC has repeatedly, but deservedly, described as a "big fat profit". Mr Sirtes SC has drawn to my attention that allegations by Mr Sher that his companies sustained losses in relation to the two purchase orders the subject of the plaintiff's claim have not only been made in this court but in the Supreme Court. Loss of opportunity 212The amount now sought is £374,835.97, according to the defendants' written submissions (paragraph 12.1). This quantum is claimed as "lost income caused by Pharmachem's breaches". 213Clause 4.2(a) of the distribution agreement excluded any claim by any party, including loss of income of the kind claimed here, due to the "inability to use or distribute the products." This would relate to the whole of this claimed sum. 214In addition, the method of calculation is less than clear, as is the basis upon which it is claimed. 215The method of calculation is set out at paragraph 12.1 of the defendants' submissions of 20 March 2012 [sic]. This can be summarised as follows: (a)The inventory in Exhibit 5 shows the amount of Flexitol Pharmachem had in its stock as at April 2010. Had Pharmachem not breached its obligations, "Laderma Trading or Laderma" (paragraph 12.2(a)) would have repurchased all that inventory in accordance with the buy-back provisions in clause 8.2 of the distribution agreement. (b)The repurchase price is calculated in accordance with clause 8.2(a)(iv) of the distribution agreement, and the on-sell price of the products Pharmachem still had would be calculated on the basis of prices at which products were sold to the new distributor, UDG. The income lost by the cross-claimants (or either of them) is the difference between the repurchase price from Pharmachem and the higher on-sell price to UDG. (c)In addition, there are freight and delivery charges for the amount of $66,102.38, according to paragraph 12.3 of the defendants' written submissions. According to the cross-claim, this freight sum is in addition to the £374,835.97 total, although this is far from clear, from the written submissions, that this sum is to be added (as is the reason for this sum being expressed as a dollar figure when the other currencies are the euro and the pound, all of which the court is left to determine in the event that the cross-claim is successful). 216There is a degree of overlap between these claims so I shall deal with them under general headings. Whether "saleable product" forms part of clause 8.2(a)(iv) 217"Saleable products" are defined by clause 1 of the distribution agreement. Clause 8.2(a)(iv) states: "All Products which are not Saleable Products shall be valued at nil." 218A product valued at nil in could not be included in the obligation to purchase when the parties have agreed that the product is of no value. 219Just under half of the total damages claim relates to £178,241.25 for Skin Oil. This is based on a repurchase price of 0.00 euros, as this was not a "saleable product". This raises the issue of whether "saleable product" could form part of any claim under clause 8.2(a)(iv). 220I am satisfied that product that is not "saleable product" cannot form part of any claim under clause 8.2(a)(iv). The clauses of the contract are clear, in this regard, as to which clauses survive the termination of the agreement. The manner of calculation of the sum confirms this. The Skin Oil value of £178,241.25 is based on a repurchase price of zero, because it is not a saleable product. This highlights the absurdity of claiming for a product that is not saleable. Freight charges 221The basis for the freight claim is that if Laderma/Laderma Trading had recovered the products in Pharmachem's inventory as at April 2010, those products could have been provided to its new United Kingdom distributor, "and the freight charges of transporting products to the UK [for UDG] would not have been incurred", according to the written submissions received after the application to amend the cross-claim. I was not addressed as to what part, if any, of the revised sum relates to "the terminated order". 222I briefly note that the additional costs of supplying customers is a claim with many evidentiary holes. As Mr Sirtes has set out in his submissions at paragraphs 71 - 74, there is no explanation why, months after UDG was appointed (in circumstances where no repurchase contract had been entered into) it was necessary to airfreight goods to the United Kingdom when Laderma Trading had in March 2010 been sending other goods to a warehouse it used in the United Kingdom. No evidence of urgent need for goods requiring their airfreight was led. 223Accordingly, if I have erred in holding that the whole of the quantum claimed for the cross-claim cannot be brought by reason of clause 4.2.2(a), the claims for £178,241.25 Skin Oil and the claim for freight costs should not be permitted. The balance of the claim for damages, while attacked by the plaintiff/cross-defendant as based on "self-serving and unreliable" evidence (submissions in reply, page 16) was not otherwise challenged during the hearing. 224 I shall finally consider the causation argument raised by the plaintiff. It is more convenient to put this argument at the end of the cross-claim because it does not depend on an interpretation of the pleadings but upon fundamental issues arising out of the relationship between the parties. Causation issues 225Pharmachem first submits that if I find that its contract is with Laderma, then it is Laderma, not Laderma Trading, which is entitled to bring this claim. As Laderma is a company trading minimally from 2010, on Mr Sher's evidence, its inability to resell the goods cannot sound in contractual damages. Pharmachem cannot breach a non-existent contract and be obliged to pay a non-contractual party damages. 226The defendant does not have an answer to this causation problem, other than to assert that Laderma Trading was intending to purchase these products. 227Pharmachem submits that it is necessary for the cross-claimants to establish that a contract for the repurchase of the goods (as opposed to the mere request for an inventory) could have been entered into, and that there is no evidence in relation to this issue. The defendants have not directed me to any evidence that such a contract could have been entered into. I am satisfied that the right to repurchase under the contract was Laderma's right. 228In addition, the basis upon which the loss is predicated is the failure to provide an inventory for the purpose of purchase. As is set out above, I have found that there is no entitlement to ask for an inventory of this kind in the distribution agreement. Conclusions concerning the cross-claim 229The cross-claimants have failed on all issues pleaded as well as on the issues of causation. The cross-claimants, even if successful, would not be entitled to damages. The cross-claim is dismissed with costs. As is the case with the costs of the claim, liberty to apply in relation to the costs of the claim and the cross-claim is granted in the event that any order other than the order for costs to follow the event is sought. The application to amend the cross-claim 230On 22 November 2012, at the close of evidence from both parties, these proceedings were stood over to 14 February, 2013 for any further cross-examination of Mr Gatenby on the issue of mistake, and the tender of any further documents by the defendants, by reason of the amendment of the plaintiff on the first day of the trial, as well as a timetable for submissions. I specifically ordered that no further evidence or affidavits be filed (T 351). This was because the parties had already filed extensive evidence setting out all the conversations and all of the relevant documentation and the plaintiff had stated from the first that no additional affidavit evidence would be required. 231Counsel for the defendant submitted (T 351) that it was "inappropriate" for me to make such an order, as further affidavit evidence from Mr Sher or Mr Badley could be required (T 352). As it happened, when the hearing was resumed on 14 February 2013, there was no application for leave to adduce further evidence from any witness in relation to the plea of mistake, and both parties agreed (T 356) that there were no further documents to tender on this issue. 232 On the evening before the 14 February 2013 hearing I received a series of affidavits and learned that on 16 January 2013, during the vacation, the defendants had foreshadowed an application for leave to amend their claim. No notification of this application was given to the court prior to 13 February 2013. 233The amendments in question (which are underlined in the proposed defence and proposed cross-claim which are Exhibit X3) are numerous. Some related to the claim as presently pleaded; these were, in the main, agreed to by the plaintiff. The remaining amendments consisted of what Mr Sirtes SC called two "anchor claims" and some related but lesser amendments. 234The first proposed "anchor claim" amendment consisted of a claim of mistake by Laderma and Laderma Trading, on the basis that they had overpaid credits for advertising promotions since about the end of 2007. In the event that a finding was made by me that the distribution agreement was neither varied nor notated, the cross-claimants argued that since 2007 they had mistakenly overpaid credits, and the return of this sum was sought. 235The second proposed "anchor claim" amendment was a set-off (s 21 Civil Procedure Act 2005 (NSW)) for loss of opportunity arising from the prohibited sale of goods past the embargo period of 150 days in the agreement. 236The nature of the transactions in question, which Mr Miller conceded would require not only a further adjournment but also new evidence, can best be seen from Mr Miller's description of them in his submissions. At T 378 - 80 he gave one example of the advertising and promotion claim, which is the set-off claim. The total involved in the advertising claims was, Mr Miller said, 76,000 euros for transactions between 2007 - 2010 which would mean, since the plaintiff was claiming 99607,44 euros, that the parties were "almost at a nil-all draw" (T 380). This was a strange submission to make when the cross-claim initially made substantial claims for £492,000 for loss of profits (some of which appear, from the submissions received after this application, to have been abandoned, but which nevertheless amounted to £374,835.97 and freight costs of $66,102.38). 237I note these were not actual payments made to the plaintiff, but credits for advertising in accordance with a formula. In addition, these claims would be brought by both cross-claimants, because Laderma Trading was not a party to activities of this kind, even on the defendants' case, until January 2009. 238The lack of relationship between these cross-claims and the plaintiff's claim can readily be demonstrated from an examination of the statement of claim. The plaintiff's case is a claim for 99607,44 euro for two isolated payments, one in 2009 and one in 2010, at the very end of the distribution agreement. 239The case that the defendants now wish to bring, in relation to the advertising rebates, is that because the amount in the signed distribution agreement was informally (i.e. without writing) varied in 2007 between the parties prior to there being any question of a "newco" which would take over the Laderma business, that variation cannot be permitted if variation of the Laderma/Pharmachem agreement is not permitted. There are two answers to this argument. The first is that it does not follow that there was in fact a variation but even if there were, one unrelated agreed variation of a term in a contract does not mean that a subsequent, and significant, amendment to replace Laderma with Laderma Trading must be accepted, or is even related to the earlier oral amendment. If in December 2007 the parties informally changed one aspect of the distribution agreement, that is not a set-off in relation to the payment of money in 2010. Any "mistake" by Laderma in 2007 has nothing to do with the claim by the plaintiff, in an entirely different set of circumstances three years later, that it has paid money by mistake. 240In addition, it is hard to see how the claim can be brought as a set-off under s 21. The claim made by the defendants is not a set-off but a contingent claim based upon factual findings which the defendants ask the court not to make. 241The defendants had little to say about the loss of opportunity claim. Mr Sirtes SC's description of the claim as complex (T 44403 - 4) was not challenged. 242An additional group of amendments (described as the "fourth category" at T 405), the third being those to which there was agreement) amounted to a renewal of the application to amend made during the trial, but with additional factual material of the kind set out above. 243Mr Miller's rationale was that the amendment which I permitted on the first day of the hearing, namely for the plaintiff to bring an alternative claim of mistake, meant that any defence to that claim should not be "constrained and truncated to a defence that is just based on one set of facts, when the evidence already before your Honour already opens up the whole area of another related set of facts that necessarily form part of his [sic] mistake claim" (T 397). Mr Miller characterised my response to this application as having left the door open for a further application. The application to amend was not pursued during the hearing and should not have been brought again after the hearing was over. 244I agree with the plaintiff's submissions (T 360, 384) that these claims could always have been brought and that the failure to do so is not only unexplained but also unsatisfactory. These were matters within the knowledge of the defendants, in the sense that they had considered issues relevant to the cross-claim when that document was drafted. The material upon which these claims is based did not arise from surprise evidence or disclosures during the hearing. There was no explanation as to the delay in bringing the claim as part of the existing cross-claim at the hearing, or for not raising these matters during the hearing or even after the evidence was concluded. Nor was there any explanation for notifying the plaintiff two months after the hearing, during the vacation, or for not notifying the court until the evening before the application was to be made. This delay is exacerbated by the fact that the transactions in relation to one proposed amendment went back to 2007, almost six years before the application for leave to amend was brought. 245The issue of amendment of the defence and cross-claim was raised during the hearing (T 122), although not in the context of advertising costs. When counsel for the defendant conceded that the defence and cross-claim did not refer to a variation of the contract, he sought leave to amend. The issue of variation never featured in the plaintiff's case; the plaintiff's case was that there was only one contract, and that contract came to an end on 4 April 2010. In this respect, Mr O'Donald's affidavit, which states "if [the plaintiff's] contention is accepted by this Court, that the distribution agreement...was never varied" misses the point. The plaintiff has never claimed the contract was varied. 246Nor does a proposed new claim of mistake by the defendants relate in any way to the amendment to plead mistake by the plaintiff on the day of the hearing. The mistake pleas by the parties relate to entirely different matters. 247In addition, at a time when the defendants were considering an amendment to during the hearing, there was no thought of these additional claims, and Mr Miller agreed that these issues had not been considered at the end of the hearing, when all that was sought was leave to tender any additional documents (which was later agreed to be unnecessary: T 356) and cross-examine Mr Gatenby (which never occurred). 248The defendants made some concessions about the payment of costs, essentially in relation to the cost of the plaintiff having to bring witnesses from the United Kingdom (T 383). However, even if costs had been proffered for the hearing thrown away, the circumstances in which a court will dislocate a hearing in order to permit a litigant to bring an entirely new case, especially where the evidence in that case was complete, would have to be compelling. 249Bringing the application caused significant delay to the hearing. The hearing had to be adjourned until Monday 1 April 2013, then to 20 May 2013, and further submissions were then provided in June 2013. This led to further difficulties because of my leave and circuit commitments. 250In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [102], Gummow, Hayne, Crennan, Kiefel and Bell JJ examined the requirement for proffering an explanation when there is delay in applying for amendment: "[102] The objectives stated in r 21 do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will. Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. Whilst r 21 assumes some ill-effects will flow from the fact of a delay, that will not prevent the parties dealing with its particular effects in their case in more detail. It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment." 251The High Court's requirement for an explanation is a significant recognition that applications to amend brought with little or no notice, particularly where such an application is made shortly before or during a trial, may be brought as a trial tactic. The party bringing the application benefits whether the application is successful or unsuccessful, because the appeal process requires the finding of errors of law by the trial judge, rather than appellate examination of the merits of the case, and the search for errors may overshadow what those merits are. Some of the academic articles on this subject refer to late applications to amend, as well as the sudden discovery of material of significance when the hearing is over, issues not raised at the trial and complaints of bias as potentially distracting the court from examination of the factual issues in the trial (see, for example, "Appeal by Ambush" and other articles in the 2011 issue of the Thurgood Marshall Law Review, which devoted an entire volume to the issue of "trial by ambush"). Recent decisions of the NSW Court of Appeal such as Sydney South Western Area Health Service v MD [2009] NSWCA 702; Belligen Shire Council v Colavon Pty Ltd [2012] NSWCA 34) have similarly endorsed these principles. 252At the time I heard the application I had not had the advantage of reading the parties' submissions as to the merits of the cross-claim. Mr Miller's "nil-all draw" estimate that the proposed amendments would be the equivalent of the plaintiff's claim was puzzling at the time, given the size of the cross-claim. Having now had the benefit of the parties' submissions as to the cross-claim, particularly concerning the abandonment of the loss of opportunity for the "terminated order" resales, I am satisfied that the cross-claim as pleaded contained claims that were weak, and must have been known to be so by the defendants and those who advised them. Not only was the cross-claim wholly contingent upon the implication of a term into the contract (in circumstances where the implication of such a term was inconsistent with express terms), but there were significant problems with causation and quantum. 253Accordingly, although it did not play a part in my consideration at the time, the futility of the "terminated order" claim, and the weakness of the remaining claim in relation to causation are factors that should militate against the granting of liberty to amend. Orders (1)Judgment for the plaintiff for €99,607.44. (2)Liberty to the parties to bring in Short Minutes of Order representing the mathematically agreed judgment sum and interest. (3)Cross-claim dismissed. (4)Defendants/cross-claimants to pay plaintiff/cross-defendant's costs of the proceedings. (5)Liberty to apply in 28 days in relation to costs. (6)Exhibits retained for 28 days. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 February 2014