NEW SOUTH WALES SUPREME COURT

CITATION: Biscayne Partners Pty Ltd v Valance Corp Pty Ltd & Ors [2003] NSWSC 874

CURRENT JURISDICTION: Equity DivisionCommercial List

FILE NUMBER(S): 50199/02

HEARING DATE{S): 15/09/03, 16/09/03, 17/09/03, 18/09/03, 19/09/03, 22/09/03, 23/09/03, 24/09/03

JUDGMENT DATE: 03/10/2003

PARTIES: Biscayne Partners Pty Ltd (Plaintiff)Valance Corp Pty Ltd (First Defendant)Holly Rachel Vukadinovic (also known as Holly Valance) (Second Defendant)Rachel Jane Stevens (Third Defendant)

JUDGMENT OF: Einstein J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL: Mr JJ Garnsey QC, Mr R Lancaster, Mr JP Donohoe (Plaintiff)Mr R Cobden, Ms R Rana (Defendants)

SOLICITORS: Tress Cocks & Maddox (Plaintiff)Henry Davis York (Defendants)

CATCHWORDS: ContractsContract of agency for personal servicesArtist and artist's company ["the Company"] enter into contract appointing Managing Agent ["the agent"] as sole and exclusive manager of artist in the entertainment industry

Date from which contract bound the partiesPrinciples of constructionPrinciples governing implication of termsTermination clause providing that no breach of the contract is a material breach giving the other party the right to terminate unless written notice is given followed by failure to cure breach within 30 days of noticeProper construction of termination clausePurported termination by artist and company of contract without giving the 30 day notice to agentSubsequent notice given eight months later without prejudice to validity of earlier termination and purporting to give the 30 day noticeRepudiation of contractNecessity to draw a distinction between on the one hand, a circumstance involving a repudiation by one of the parties in terms of the evincing of an intention no longer to be bound by the contract and on the other hand, a circumstance where the claimed repudiation falls short of an express repudiationTortInterference with contractual relationsInducement of breach of contractPrinciplesPerson committing the tort must be a third party standing outside the contractual relation being interfered withCompany having only one appointed directorArtist found to be a de facto directorWhether artist as de fact director liable for the tort of inducing breach of contract where artist and sole appointed director determine that company should wrongly terminate the contractConspiracyConspiracy to injure by unlawful meansPrinciplesIntent to injure is a reference to the real purpose which the conspirators are trying to achieveEquityRemediesAction for taking of an accountPlaintiff suing on cause of action for breach of contractWhere a breach of contract is established, it must be shown that there is also a breach of an equitable obligation (such as breach of a fiduciary duty, or breach of an obligation concerning the use of confidential information) before an account of profits will flowDamages the only remedy which the common law provides for breach of contractDamagesDamages for loss of chance

ACTS CITED: Conveyancing Act 1919

Corporations Act 2001 (Cth)Evidence Act 1995Fair Trading Act 1987Supreme Court Act 1970Trade Practice Act 1974

DECISION: Purported termination of Management Agreement by Valance parties held invalid. Plaintiff's causes of action in tort for wrongful inducement of breach of contract and for conspiracy to injure by unlawful means not made out. Leave to further address on disparate issues including quantum of damages.

JUDGMENT:

IN THE SUPREME COURTOF NEW SOUTH WALESEQUITY DIVISIONCOMMERCIAL LIST

Einstein J

Friday 3 October 2003

50199/02 Biscayne Partners Pty Limited v Valance Corp Pty Limited & Ors

JUDGMENT

The Proceedings

1 These are proceedings brought by the plaintiff, Biscayne Partners Pty Ltd ["Biscayne"] seeking relief in respect of a Management Agreement ["the Agreement"] made in early 2000. Biscayne is a company owned and controlled by Mr Scott Michaelson. Biscayne through Mr Michaelson was, until expiry of the term of the Agreement, the manager of Holly Rachel Vukadinovic, known as “Holly Valance” [“Ms Valance"]. Mr Michaelson ‘discovered’ Ms Valance. She was born on 11 May 1983 and was aged 15 at the time when she was first contacted by Mr Michaelson. He launched her career through the well-known and long-running TV drama series Neighbours and subsequently as a recording artist. It is common ground that the series has had a tremendous international exposure for those actors who have participated in it.

2 Mr Michaelson had also first appeared in the same TV series. Following some years on the Neighbours cast he was signed by Mr Robert Stigwood, a United Kingdom manager and entrepreneur, and moved to London and worked there for a number of years. He then began his management career, managing the actor Kimberly Davies. He formed his own management company in the United Kingdom in 1995, also pursuing an acting career. In about 1999 he turned his sole focus to his management and business interests.

The Management Agreement

3 The Agreement was in writing and entered into between Biscayne [described in the Agreement as "the Manager"], the first defendant, Valance Corp Pty Ltd ["Valance Corp"] [described in the Agreement as "the Company"] and the second Defendant, Ms Valance [described in the Agreement as "the Artist"]. [Valance Corp and Ms Valance are together referred to as “the Valance parties”]

4 The agreement provided for the appointment of Biscayne as the sole and exclusive manager of Ms Valance in the entertainment industry throughout the world for a period of three years.

5 Albeit being signed, the Agreement is not dated and there is an issue as to the precise date from which the Agreement took effect. The plaintiff’s claim is that the Agreement took effect from 18 May 2000. The defendants’ claim is that the Agreement took effect from 29 March 2000.

6 The agreement provided inter alia:

4. Manager’s Obligations

4.1 Subject to clause 2.5, the Manager agrees with the Company that it will exclusively undertake the following activities to the best of its ability in good faith, in consultation with the Company and the Artist, and diligently to ensure the Artist is regularly engaged within the Entertainment Industry on the best possible terms:

(a) represent the Company and the Artist in negotiations regarding the terms of all contracts for personal services arising in relation to the Artist’s career in the Entertainment Industry;

(b) supervise the Artist’s professional employment and consult with employers and prospective employers regarding the Artist’s professional career, employment and publicity;

(c) promote and publicise the Artist in all relevant media;

(d) engage, discharge and direct all booking agencies, promoters or employment agencies;

(e) negotiate and liaise with film and television producers, record companies, publishers, distributors, sponsors, merchandisers or other similar entities, as the case may be;

(f) seek and negotiate sponsorship and endorsement agreements;

(g) keep the Company informed of all matters which arise for consideration in relation to the Artist’s career, and to be reasonably available to consult with the Company on such matters;

(h) regularly consult with the Company and formulate plans and directions for development of the Artist’s career; and

(i) to exercise all powers granted to the Manager under this Agreement.

12. Warranty and Indemnity

12.1 The Company warrants in favour of the Manager that it will ensure that the Artist:

(a) will make herself available at all times to undertake the Artist’s Activities, unless otherwise agreed with the Manager;

(b) will observe and perform all the terms of any agreements entered into relating to the Artist’s Activities to the best of her ability;

(c) will not enter into any agreements relating to the Artist’s Activities without the Manager’s prior approval;

(d) will, subject to Clause 2.5, refer all offers to undertake Artist’s Activities to the Manager as soon as is practicable upon receiving any such offers;

(e) has full power and authority to enter into this Agreement and has granted no rights inconsistent with this agreement.

Valance Corp

7 Valance Corp, which was incorporated on 10 August 1999, was regarded as Ms Valance's management company. There was however no written agreement to this effect. Ms Stevens is the sole registered director. Ms Valance is the legal and beneficial owner of all of the issued capital of Valance Corp. The defendants admit on the pleadings that the business and affairs of Valance Corp were at all material times controlled and directed by Ms Valance's mother, the third Defendant, Ms Rachel Stevens. Biscayne had pleaded in the alternative:

· that the business and affairs of Valance Corp were controlled and directed by Ms Stevens up to the time when Ms Valance turned 18 years of age, from which date it is alleged that Ms Valence was a de facto officer within the meaning of section 9 of the Corporations Act 2001 (Commonwealth); and

· that the business and affairs were thereafter controlled by both Ms Stevens as well as Ms Valance.

[a late decision not to press the de facto director claim was announced during final

address]

8 It seems clear [cf Transcript 307-308] that at least on and after 11 May 2001 Ms Valance dictated her own activities and those of Valance Corp, albeit consulting with Ms Stevens who often dealt with the lawyers, was copied with formal draft agreements and gave assistance of a backroom nature.

The termination for breach provision

9 The provision governing termination for breach is as follows:

“14. TERMINATION

14.1 No breach of this Agreement is a material breach giving the other party the right to terminate, unless:

(a) the party allegedly in breach is given written notice specifying the nature of the breach (this notice must be clearly headed “Breach of Agreement – Notice to Cure”); and

(b) the party receiving the notice fails to rectify the breach within 30 days of receipt of such notice.

14.2 In the event that this Agreement is terminated pursuant to Clause 14.1, the parties will promptly account to each other in good faith for amounts owed to each other at that time.”

The purported termination

10 By facsimile letter dated 30 January 2002 addressed to Biscayne from London Solicitors, Lewis Davis Shapiro & Lewit, acting on behalf of Valance Corp and Ms Valance ["the first termination letter"]:

· Ms Valance purported to elect to treat the Agreement as void on a number of bases including the fact that the Agreement was signed by Ms Valance in March 2000 when she was 16 years old and that its content was not to her benefit;

· Valance Corp and Ms Valance purported to terminate the Agreement with immediate effect.

11 A letter of 27 September 2002 ["the second termination letter"] from Allens Arthur Robinson solicitors to Biscayne written on behalf of Valance Corp and Ms Valance, purported, if the Agreement remained on foot as at the date of the letter, to give notice to terminate the Agreement pursuant to clause 14.1 at the expiry of 30 days after receipt of the letter in the event that:

"[Biscayne] fails to rectify the following material breach of the Agreement within that time:

"during the period March 2000 to date Biscayne has failed to perform at all times its obligations pursuant to clause 4.1 of the Agreement.”"

12 It is convenient to note that the term "second termination letter" which I have used as an internal dictionary to describe the letter of 27 September 2002 is not altogether accurate because the letter in terms [but without prejudice to the claim that the Agreement had already been validly terminated], gave notice of intention to terminate pursuant to clause 14.1 at the expiration of 30 days in the event of a failure to rectify. In fact following the expiration of 30 days from 27 September 2002 no notice of termination was given. During the hearing counsel tended to refer to the 30 January and 27 September letters as "letters of termination" and this judgment simply adopts the same terminology although, of course, there is a question as to whether one may regard the second letter as being one purporting to terminate the Agreement. The Valance parties put forward the proposition that clause 14.1 simply operated to suspend for a 30 day period, what would otherwise be regarded as a material breach. The proposition was that if the breach was rectified within the 30 day period following the giving of a clause 14.1 notice, then as between the parties, clause 14.1 simply provided a deeming provision so that in that circumstance there never was a material breach. The proposition was that for that reason, following the giving of a clause 14.1 notice not rectified within 30 days, there was no necessity to give a further notice terminating the Agreement. Hence at least one approach

taken by the Valance parties was that there was a termination notice given on 30 January or alternatively on 27 September 2002 [transcript 62]. The question of the proper construction of clause 14.1 is dealt with below.

13 The second termination letter was said to have been given without prejudice to the entitlement of Valance Corp and Ms Valance to act in accordance with the position that the 30 January 2002 notice of termination was validly given [that is, that on 30 January 2002 Ms Valance repudiated the Agreement with the effect that the Agreement was voided ab initio, or in the alternative, that Valance Corp and Ms Valance then terminated the Agreement with immediate effect].

The causes of action

14 No case was pleaded or pursued grounded upon the proposition that Ms Valance was entitled to avoid the Agreement ab initio on any of the bases alleged in the termination letters raising questions as to:

· her age at the time when the Agreement was signed;

· its content not being for her benefit;

· the terms not being properly or fully explained to her;

· her failing to have understood the terms;

· her vesting of trust and confidence in Mr Michaelson such that he was in a position of significant actual and/or presumed influence over her;

· her having allegedly been deprived by Mr Michaelson of her freedom to appoint legal and financial advisers of her own choice or being pressurised into appointing a particular solicitor to represent her in connection with the Agreement; or

· the Agreement not being to her benefit.

15 The several causes of action appear to reduce to:

· breach of contract as against the Valance Corp and Ms Valance (Summons paras 32, 33, 34, 35, 36 and 37);

· wrongful repudiation of the Agreement on 30 January 2002 or on 27 September 2002 as against Valance Corp and Ms Valance (Summons paras 23, 26);

· against Ms Stevens and Ms Valance for inducing Valance Corp to breach the contract by wrongfully purporting to terminate it (Summons para 24, 27);

· against Ms Stevens for inducing Ms Valance to breach the contract by wrongfully purporting to terminate it (Summons para 25, 28);

· conspiracy pleaded as follows:

Further, and alternatively to paragraphs 24 and 27 above, between about August 2001 and 30 January 2002, and subsequently, Stevens and Valance combined and conspired among and between themselves and with certain other persons to

interfere with and to injure and cause damage to the trade, business and economic interests of the plaintiff by, inter alia, depriving the plaintiff of the benefit of the Management Agreement. [Summons paragraph 29]; [the “unnamed conspirators” were identified in final submissions as Engine Room and Mr Klippel]

· claims pursuant to clause 18.4 of the Agreement including a claim that Ms Valance has been substituted as contracting party to the Agreement in place of Valance Corp.

16 A central set of allegations underpinning several of these causes of action is put as follows:

In or about between August 2001 and December 2001 or in or about between August 2001 and January 2002 Stevens and Valance agreed, determined or arranged with and between each other and together with certain other persons that:

(a) the plaintiff should not continue as manager under the Management Agreement;

(b) Valance and Valance Corp should no longer perform their respective obligations under the Management Agreement; and

(c) Valance Corp and Valance should engage a manager situated in the United Kingdom as the exclusive worldwide manager of Valance and Valance Corp in place of the plaintiff.

Particulars

(1) The agreement, determination or arrangement was partly oral and partly implied.

(2) The agreement, determination and arrangement is to be inferred from, inter alia, the following acts, facts and matters:

(a) On or about 26 July 2001 at the Bambini Trust Café, Elizabeth Street, Sydney, at about 10.00am, Mr Andrew Klippel and Mr Todd Wagstaff met Mr Scott Michaelson of the plaintiff and in the course of a conversation invited Mr Michaelson and the plaintiff to agree not to act as the exclusive worldwide manager of Valance and Valance Corp and to agree to the appointment of an agent in the United Kingdom, inter alia to facilitate the recording deal with London Records (90) Ltd. Mr Michaelson refused.

(b) Thereafter Mr Klippel and Mr Wagstaff and Engine Room Records failed and refused to provide Mr Michaelson and the plaintiff with details of Valance's dealings with London Records and trip to and commitments in London in January 2002 for recording and related purposes although they were requested to do so.

(c) After Valance complained to Mr Michaelson on 4 January 2002 at the late notice of the departure date for her trip in January 2002, Mr Michaelson complained to Mr Wagstaff who said to Michaelson that he (Mr Michaelson) would not be around much longer as Valance's manager.

(d) Between about 14 January and 30 January 2002 Mr Michaelson telephoned Valance on several occasions when she was in London to enquire about progress in her trip and Valance either declined to talk with him in any detail or did not return his telephone calls.

(e) Stevens, Valance and Valance Corp with certain other persons

instructed, arranged and procured Lewis Davis Shapiro & Lewit, solicitors in London, to send to the plaintiff without notice a letter dated 30 January 2002 purporting, inter alia, to terminate the Management Agreement.

(f) At all material times the business and affairs of Valance Corp were controlled and directed by Stevens, or alternatively by Stevens and Valance.

(g) Valance Corp and Valance have not sent to the plaintiff details of the activities of Valance or of the gross receipts from the activities of Valance since at least about December 2001, nor have they paid commission, and despite requests have refused to do so.[Summons paragraph 22]

The relief sought

17 Biscayne seeks:

· a declaration that the Agreement is a valid and operative contract binding upon Valance Corp and Valance on and from May 2000;

· a declaration that Valance Corp is in breach of clauses 2, 7, 10, 12 and/or 18 and the implied terms of the Agreement;

· declaration that Valance is in breach of clause 18 and the implied terms of the Agreement and, by its terms, thereby in breach of clauses 2, 7, 10 and 12;

· damages for breach of contract;

· damages for inducing and procuring breach of contract;

· damages for conspiracy;

· exemplary damages;

· further or in the alternative, an account of the commission due to the plaintiff under the Agreement; and

· further or in the alternative, injunctions requiring Valance Corp and Valance to comply with or restraining Valance Corp and Valance from continuing to refuse and fail to comply with their obligations under clauses 2, 7, 10, 12 and 18 and the implied terms of the Agreement.

18 A number of other issues fall for determination including questions of the proper construction of the Agreement.

The defendants’ case

19 In overview submissions the defendants asserted that the causes of action were defended as follows:

· the Management Agreement was validly terminated by reason of the letter from Lewis Davis Shapiro & Lewit dated 30 January 2002;

· that termination was valid by reason of Biscayne’s repeated and continuing breaches of the Management Agreement, in particular, of the core obligations of the Manager under clause 4.1;

· if clause 14.1 applied to the notice of 30 January 2002, clause 14.1 was sufficiently complied with, and the breach was not rectified within 30 days, resulting in termination;

· alternatively, if clause 14.1 applied and was not complied with, notice that did comply with clause 14.1 and resulted in termination was given by the letter of 27 September 2002 from Allens Arthur Robinson; and

· as a further alternative, the letters of 30 January 2002 and 27 September 2002 combined complied with clause 14.1.

20 The same overview submissions are inter alia to the following effect:

Breach of contract

In relation to the action for breach of contract against Holly Valance personally, to the extent that it relies on the provisions of clause 18.4(b) and alleges that Holly Valance was substituted at some time as a contracting party to the Management Agreement in place of Valance Corp (see Summons para 37), the defendants say that Biscayne never exercised in any way the option in clause 18.4(b); and so it did not bring about the substitution contemplated.

It is not contested that after 30 January 2002 (which of course includes after 27 September 2002) Valance Corp did not refer enquiries regarding Holly Valance’s services in the period ending March or May 2003 and did not ensure that Holly Valance did not enter into agreements described in clause 12.1(c) of the Management Agreement without Biscayne’s prior approval; and did not ensure

that Holly Valance referred all offers of the kind described in clause 12.1(d) of the Management Agreement to Biscayne.

Moreover, if to do so was an obligation of Valance Corp after 30 January 2002, or if relevant, 27 September 2002, within the meaning of clause 18.4(a), Holly Valance did not ensure performance of such obligations.

Thus at the heart of the case on breach of contract is the validity of termination of the Management Agreement by the letter of 30 January 2002 or alternatively the letter of 27 September 2002.

Inducement of breach

Nor is it contested that, if the Management Agreement was not validly terminated by reason of the letter of 30 January 2002 or alternatively the letter of 27 September 2002, and if Valance Corp was thereby in breach, that its conduct was relevantly caused or procured by Rachel Stevens and Holly Valance.

It follows from the above that, once the issues that lie at the heart of the contract dispute are determined, Biscayne’s case for inducement of breach of contract will follow.

Termination

Biscayne was at least throughout 2001 and into the beginning of 2002 in material breach of its obligations under the Management Agreement.

Breaches

The defendants contend that Biscayne breached its core obligations in clause 4.1 of the Management Agreement, in that it failed to:

· represent Valance Corp and Holly Valance in negotiations regarding terms of the various contracts between Valance Corp or Holly Valance with any of London Records and Engine Room during the latter half of 2001 (Stevens paras 38, 44, 48, 55; Klippel paras 10, 18, 20, 22; Wagstaff paras 13, 15, 16, 17, 19, 21, 23, 24, 27 and 29; Hollingsworth paras 9, 11, 19 and 22; Fowler paras 19, 20, 21, 26, 27, 29 and 30; Michaelson affidavit 12 Sep 03 (reply) paras 21 and 38);

· supervise Holly Valance’s professional employment (Stevens paras 39, 40, 59 and 60; Valance paras 65-75, 79, 88, 89, 90, 102 and 109; Fowler paras 23 and 32; Hollingsworth paras 11, 16, 22, 24, 25 and 28; Wagstaff paras 19, 27 and 48; Klippel para 13);

· negotiate and liaise with record companies, publishers and distributors (see references in sub-paragraph (a) above);

· keep Valance Corp informed of all matters which arose for consideration in relation to Holly Valance’s career; and be reasonably available to consult with Valance Corp (Stevens paras 46, 52, 53, 54, 55, 59, 66 and 73; Michaelson reply paras 22, 25 and 26);

· consult regularly with Valance Corp to formulate plans and direction for development of Holly Valance’s career (Stevens paras 52, 53, 55 and 56).

Dramatis Personae

21 The evidence makes reference to a significant number of players associated, in varying degrees, with the parties and the development of Ms Valance’s career.

22 The main players are set out below in a short dramatis personae, with the players being grouped into relevant categories.

Legal and Financial players

Mr Brett Oaten

Mr Oaten is an entertainment lawyer based in Sydney at the firm Brett Oaten Solicitors. Mr Oaten

was retained by Mr Michaelson as the legal representative for himself, and at certain times for Ms

Valance and Valance Corp.

Mr Tim Richards

Mr Richards is an entertainment solicitor with Media Arts Lawyers in Melbourne. Ms Valance and

Valance Corp retained him at the time of the negotiation of the Agreement.

Gray & Perkins

Gray & Perkins were the solicitors acting for Engine Room.

Mr James Kirby

Mr Kirby is an accountant. He is the principal of James Kirby & Associates. Mr Kirby was

engaged by Ms Stevens as the accountant and financial advisor for Ms Valance and Valance Corp

in February 2001.

Players associated with Neighbours and Ms Valance’s acting career

Mr Mike Bishop

Mr Bishop was Ms Valance’s acting coach prior to her taking up the role on Neighbours.

Mr Peter Dodds

Mr Dodds is the producer of the television series Neighbours.

Ms Jan Russ

Ms Russ is the casting director and associate producer of Neighbours.

Representatives from Engine Room Music and London Records

Mr Alfie Hollingsworth

Mr Hollingsworth was, during the relevant period, a senior Artist and Repertoire [“A & R”]

executive at London Records. Mr Hollingsworth was a major player in the negotiation and

execution of the London Records deal.

Mr Mike Cariannos

Mr Cariannos is a representative of Engine Room Records. He was present at various meetings in

respect of Ms Valance.

Mr Andrew Klippel

Mr Klippel is a Director of Engine Room Music Pty Ltd, a company set up in conjunction with

Consolidated Press Holdings Limited. Mr Klippel has been involved in the Australian music

industry for fourteen years. He was one of the key players from Engine Room involved in the

negotiation and execution of the Engine Room agreement and later the London Records agreement.

Mr Todd Wagstaff

Mr Wagstaff is the General Manager of Engine Room. He was also one of the key players from

Engine Room involved in the negotiation of the Engine Room and London Records contracts.

Ms Valance’s Manager from May 2002

Mr Jonathan Fowler

Mr Fowler is retained as a consultant to Andy Stephens Management Pty Limited providing artist

management services. He has been involved in artist management since about 1985. Mr Fowler,

who is based in the United Kingdom, is currently the Manager of Ms Valance. From February

2002 Mr Fowler began carrying out informal tasks of a management nature, this arrangement being

formalised in May 2002.

Other players in the entertainment and promotional industries

Mr Jean-Marc Benson

Mr Benson is an artist manager. His previous management experience includes the management of

All Saints.

Mr Terry Blamey

Mr Blamey is the director of Terry Blamey Management and is the manager of Ms Kylie Minogue.

Mr James Breeden

Mr Breeden provided technical assistance on the Holly Valance website at hollyvalance.net.

Mr Duncan Bruce

Mr Bruce is the editor of Inside Sport Magazine.

Mr David Caplice

Mr Caplice is the Director of Caplice Management. He was a contact with whom Mr Michaelson

discussed Ms Valance’s career.

Mr Tony Cochrane

Mr Cochrane is a record producer in the United Kingdom.

Mr Ralph Carr

Mr Carr is the Director of Standard Records. He was the manager of Ms Tina Arena.

Mr David Jaanz

Mr Jaanz is a singing teacher. He took Ms Valance for singing lessons for a period of time.

Ms Jean Kevans

Ms Kevans is involved in marketing for cosmetics company Red Earth.

Ms Helen McCabe

Ms McCabe is an employee of Cutting Edge. She is the assistant to Phillip Moross.

Mr Phillip Moross

Mr Moross is the Director of Cutting Edge, an endorsement and promotions company.

Mr Neil Ridgeway

Mr Ridgeway is the editor of FHM magazine.

Ms Liz Sherriff

Ms Sherriff is the fashion editor of FHM magazine.

Ms Phoebe Wong

Ms Wong is involved in marketing for cosmetics company Red Earth.

The evidence

23 It has to be said that a very substantial amount of evidence was given concerning the events covering the period from the first meeting between Mr Michaelson and Ms Valance and the point in time where their relationship and relevant communications ended. By reason of the holding as to the proper construction of the termination clause a great deal of this evidence which was put forward by the Valance parties as justifying the termination letters and in support of the proposition that the Agreement was either terminated on 30 January 2002 or on the 31st day following 27 September 2002, simply falls away as irrelevant. Without being exhaustive, essentially that evidence sought to make good the proposition that the conduct of Biscayne by its alter ego Mr Michaelson did not amount to:

· the discharge of the suggested obligation that Biscayne fulfil the usual functions of a manager for an artist [cf the use of those words in clause 2.2 of the Agreement, there used to identify that which Valance Corp agreed that it would not do (ie it could not “engage any other manager, agent or representative to fulfil the usual functions of a manager for the Artist”)];

· representing Valance Corp and Ms Valance in negotiations regarding the terms of all contracts for personal services arising in relation to her career in the entertainment industry;

· negotiating and liasing with film and television producers, record companies, publishers, distributors, sponsors, merchandisers or other similar entities, as the case may be; and

· otherwise discharging the manager’s obligations stipulated for in clause 4.1.

24 Evidence was given by number of witnesses including Mr Michaelson and Ms Valance. Broadly it may be said that much of the evidence reduces to the following categories:

The validity of the Agreement

· Detailed evidence of the negotiation of the Agreement leading to the signing of the Agreement suggested as relevant to the date from which the Agreement commenced to bind the parties.

The work and activities undertaken by Mr Michaelson on behalf of Biscayne

· Extensive evidence given by Mr Michaelson as to the inception of his arrangements leading to entry into the Agreement and as to the particular work and activities which he undertook in what is said to have been an entirely proper discharge of the contractual obligations of Biscayne under the Agreement. The evidence as to work and activities is set out in extensive detail in two affidavits, the first of which contains 252 paragraphs and covers a number of years. Whilst there appear to be some matters which are in issue going to the accuracy of this evidence a great deal of it was not in issue.

Failure to perform

· A bracket of evidence covering a number of various matters said by the defendants to make good the proposition that prior to the first and/or the second termination letters, Biscayne had been shown to have failed to fulfil even the most basic of management responsibilities.

Disparate issues

· Evidence going to sundry disparate issues usually by way of adjectival background but including material going to quantum of damages.

Chronology

25 Pursuant to the pre-hearing directions, a detailed chronology was produced by the plaintiff covering a deal of the vast volume of evidence which had been given on affidavit or statement going to the work and activities of Mr Michaelson who for relevant purposes may generally be regarded as the alter ego of Biscayne. [For obvious reasons the Judgment often uses references to Mr Michaelson and to Biscayne interchangeably.] The chronology identified the date of the relevant event, the plaintiff’s version of that event, the source from which that version was taken, the defendants’ version of the relevant event and the source from which that version was taken. The defendants then checked the chronology indicating additional matters and matters of agreement by ticks and additional references. The plaintiff’s version of events was accepted only as amounting to a proper reflection of the plaintiff’s evidence and no more.

26 It seems to me that efficiency dictates utilising the chronology in this form where so many of the relevant events were not in issue and where, by reference to the chronology and to matters which may have been in issue, the Court is able in the Judgment proper, to make findings as to which version of events is accepted as reliable. That chronology in reformatted form is set out as Appendix “A” to the Judgment and is noted up in relation to many of the rulings on evidence. I have in dealing with the evidence relied upon my own notes as to the rulings so that should there be any inadvertent errors made by my research assistant in noting up the chronology, they do not infect the approach taken by me to the evidence in the Judgment proper.

Reliability of witnesses

27 As so often happens there was very little in the way of direct conflict of evidence as between the versions of evidence given by factual witnesses. It is possible to shortly give some findings in this regard:

· Mr Michaelson is generally regarded as a reliable witness. His evidence across an extensive and detailed cross-examination was usually consistent with contemporaneous documents and generally fitted with evidence given by other relatively independent witnesses. Whilst he was clearly deeply affected emotionally through the hearing and at times over-exaggerated in his own favour, by and large his evidence was given firmly and as necessary he conceded where sometimes shown to be in error as to his recollection.

· Ms Valance's evidence is not always accepted as reliable. This is not to say that she was not doing her best on oath to recall what had happened. The experience of the court is that very often, particularly in litigation of high order or involving high emotions, litigants as they prepare for a hearing and as they think back over past events, have a tendency to over-exaggerate in their favour and come to believe a version of events which is then accordingly coloured. No doubt Ms Valance now strongly believes that Mr Michaelson fell down in the proper execution of relevant obligations to be found in the Agreement. The Court of course makes its findings on the basis of the whole of the evidence including contemporaneous documents and the evidence of all witnesses. Lack of material complaint to Mr Michaelson also affects her credit – a matter dealt with below.

· In one particular respect the evidence of Ms Valance is plainly rejected. This concerns the issue of the conversation with Ms Valentine. She gave evidence of a conversation with Ms Valance in around late January or early February 2002 when they were both in the Green Room at the Neighbours studio in Melbourne. Although Ms Valentine could not recall the exact words, the conversation had been along the lines that Ms Valance was feeling bad, she was “a bit stressed out” because she was leaving Mr Michaelson as her manager. She questioned Ms Valance in terms of her contract with Mr Michaelson and on her evidence the substance of what Ms Valance said was that the solicitors for the record company would get her out of that contract and they would be faxing the paperwork to Mr Michaelson in order to do so. In the

course of the discussion Ms Valance had referred to terminating Mr Michaelson as her manager. Ms Valance had said that the record company did not really need Mr Michaelson any more and that they could take care of her now. Ms Valentine was closely tested in relation to this conversation in cross-examination. Her evidence was that she was overwhelmed because she knew how serious this was and she knew how much time Mr Michaelson had invested in Ms Valance and she knew "that this was going to be a very big deal". Under cross-examination her evidence was that she believed that the conversation was more towards January than in February. Under cross-examination it was put to her that Ms Valance had not mentioned anything to do with her record company and Mr Michaelson or the contract but her answer was quite firm to the effect that this was certainly mentioned to her. I formed a very clear view that Ms Valentine was telling the truth. Notwithstanding the clear denial by Ms Valance of this conversation having taken place the Court accepts Ms Valentine as having given reliable evidence. No motive has been shown for any reason why the evidence was not reliable. The evidence of Ms Valance denying the conversation is rejected.

· Ms Stevens’ evidence is not always accepted as reliable. Again this is not to say that she was not doing her best on oath to recall what had happened. Precisely the same comment in relation to high emotions as has been made in relation to the evidence of Ms Valance, can be made in relation to the evidence of Ms Stevens. Curiously her evidence conflicted in a number of areas to that given by Mr Kirby who could not recall detail of conversations or discussions with Ms Stevens.

· Mr Klippel was a particularly impressive witness and his evidence is almost always, but with one or two particular exceptions, entirely accepted as reliable. His evidence was given carefully and conscientiously. His evidence was patently not given with an eye to assisting either of the combatant litigants. Generally his evidence fitted with contemporaneous written material and was consistent with the evidence given by other witnesses.

· Likewise Mr Hollingworth was also a particularly impressive witness and his evidence is almost always entirely accepted as reliable. On rare occasions his evidence may not be accepted where inconsistent with other evidence. It was also given carefully and conscientiously and patently not given with an eye to assisting either of the sides of the bar table. Generally his evidence fitted with contemporaneous written material and was consistent with the evidence given by other witnesses.

· Mr Kirby was not an impressive witness. He seemed to have a very great deal of difficulty in recollecting very much at all in terms of the conversations which he had with Ms Stevens and in terms of other matters where one might have expected him to be in a position to assist. It is difficult to assess why this was the case. Ultimately his evidence is simply not accepted as reliable and where Ms Stevens gave evidence of conversations with him about material matters, her evidence is to be preferred as accurate even though Mr Kirby gave evidence that he could not recall these conversations.

· There was no serious challenge to any particular of the other witnesses’ credit. The evidence of other witnesses is simply weighed and dealt with against all of the evidence where obviously there will sometimes be some conflict and the Court’s findings take all the evidence into account.

28 The convenient course in dealing with the evidence is to relatively shortly provide an overview of the Court’s findings in that regard. Obviously it is unnecessary to set out findings in relation to every piece of the evidence before the Court. The central purpose of the exercise is to thumbnail sketch what the evidence amounted to in terms of the pleaded issues.

Short Overview

February 1999 to July 1999

29 At the commencement of this period Ms Valance was ‘discovered’ by Mr Michaelson. After some discussions relating to matters such as acting and acting classes and the like, Mr Michaelson arranged for Ms Valance to attend her first audition for Neighbours. In this period of time Ms Valance was offered a contract on Neighbours, and notwithstanding real resistance from Ms Valance, she eventually agreed to accept the role on Neighbours. The contract which was signed was a three-year contract dated in about mid 1999.

30 Ms Valance commenced on the Neighbours cast in July 1999.

31 Also during this period a meeting took place on 2 July 1999 at which it was agreed that Mr Michaelson will be Ms Valance’s manager and will receive a 15 percent commission on her income from Neighbours and a 20 percent commission on her income from all other activities in the entertainment industry. The oral arrangement was replaced in the early months of 2000 by the Agreement.

August 1999 to May 2000

32 From around December 1999 negotiations took place which lead to the execution of the Agreement in April/May 2000. Mr Michaelson retained Mr Oaten, to prepare a draft management agreement. In January 2000, Ms Stevens retained Mr Richards to represent the interests of the Valance parties. Mr Richards was recommended by Mr Oaten.

33 On 24 February 2000 a meeting was held between Mr Michaelson, Ms Valance, Ms Stevens, Mr Richards and Mr Oaten (who participated via telephone). During the meeting, there was discussion and agreement as to the terms of the contract. It was at this time that the provisions were explained to Ms Valance.

34 The Valance parties executed the Agreement on 26/27 March 2000 and Mr Michaelson received the executed document in early April 2000. The Agreement was then executed by Biscayne. Mr Michaelson returned the now fully executed copy of the Agreement to the Valance parties [by their solicitor, Mr Richards] on 18 May 2000.

35 During this period Mr Michaelson also arranged promotional activities for Ms Valance, including a photo shoot resulting in her appearance on the cover of FHM magazine in April 2000. Mr Michaelson also liased with other companies including Cutting Edge (in respect of a photography session), Red Earth Cosmetics (a proposal for Ms Valance to become the face of Red Earth) and International Management Group (endorsement opportunities) in an attempt to promote Ms Valance.

36 It was also during this period that Mr Michaelson began to pursue record companies, with the aim of securing a record deal for Ms Valance. These companies included Two Up Records, and Engine Room Music.

March 2000 to 7 December 2000

37 The major event during this period was the signing of the Engine Room Music contract.

38 During this period, Mr Michaelson was liasing, and negotiating with a number of record companies in an attempt to secure a music recording contract for Ms Valance. These companies included Standard

Records, through Mr Carr; Engine Room Music, through Messrs Klippel and Wagstaff; and Mr Caplice (a director of Caplice Management [including Human Nature]) who had indicated that Warners may also have been interested in Ms Valance.

39 From July to November 2000 various meetings took place between Messrs Michaelson, Wagstaff and Oaten and Ms Stevens to discuss signing Ms Valance with Engine Room. Messrs Michaelson, Oaten, Klippel and Wagstaff attended a meeting on 3 November, where the main terms of the Engine Room contract were concluded. Mr Michaelson then discussed the meeting with Ms Valance. The Engine Room Music contract was signed on 7 December 2000.

40 Other events of note during this period include:

· towards the end of 2000, Ms Valance appeared in a film clip for the pop group Human Nature;

· in November 2000 Ms Valance carried out a Neighbours promotional tour to London. During this trip, Ms Valance spent time at London Records [which is part of the Warner group, one of the four or five major record companies in the world] and began recording the single Kiss Kiss; and

· in December 2000 Messrs Wagstaff and Klippel arranged for Ms Valance to fly to Los Angeles and to visit the studios of a production company to start making some recordings.

December 2000 to December 2001

41 Various key events took place in the year between December 2000 and December 2001. Of principal significance is the negotiation and signing of the London Records contract, and the gradual shutting out of Mr Michaelson.

42 Negotiations between Engine Room and London Records began in mid-2001. On 11 August 2001 Ms Valance performed a showcase at studios in Sydney for Mr Hollingsworth. This was organised by Engine Room, and Mr Michaelson did not attend. A dinner was also held at the Establishment restaurant attended by Ms Valance, Mr Michaelson, Mr Hollingsworth and Mr Klippel. The day’s events represented an important opportunity for Ms Valance and others to convince Mr Hollingsworth to consider signing Ms Valance to London Records.

43 Negotiations continued between London Records and Engine Room towards a worldwide recording distribution agreement. During the period of negotiation between September and October 2001, it was made clear to Mr Michaelson that his participation was not required as the deal was to be between the record companies.

44 As the negotiations reached the final stages, Ms Stevens engaged in daily and weekly discussions with Mr Oaten, Mr Kirby (who was appointed as Ms Valance’s and Valance Corp’s accountant in February 2001), Mr Klippel and Mr Wagstaff. Around this time, Mr Michaelson was attempting to contact Mr Hollingsworth to discuss matter, but was unsuccessful.

45 On 15 December 2001 the London Records deal was signed in Melbourne. The effect of the London Records contract was to put London Records in the place of Engine Room, with Engine Room still retaining a percentage pursuant to a replacement agreement.

46 A music publishing agreement was signed between Engine Room, Ms Valance and Valance Corp on 19 December 2001.

47 Ms Valance turned 18 years of age on 11 May 2001.

48 From at least mid 2001, it appears that Mr Michaelson was beginning to be shut out of the activities of Ms Valance and Engine Room. The events in relation to the negotiation of the London Records deal bear this out. Corresponding with this gradual shut out, is the shift towards the search for a UK manager for Ms Valance. At a meeting held at the Bambini Trust Café in Sydney on 26 July 2001, it was put to Mr Michaelson by Mr Wagstaff that in order to secure a deal for Ms Valance in the UK, it might be better to retain an experienced UK manager. Mr Michaelson gave evidence that he was being asked to step aside as Ms Valance’s managing agent in the United Kingdom. Mr Michaelson’s evidence on the issue is accepted as reliable. His removal as managing agent became a certainty in the minds of everyone with whom Mr Klippel dealt while the London Records Agreement was being negotiated. [Transcript 522]

49 During this period, despite not being fully informed of the affairs of Ms Valance and Engine Room, Mr Michaelson continued to liase with the producers of Neighbours on behalf of Ms Valance.

50 Mr Michaelson, from about mid-2001 had plans to relocate to the UK in order to manage Ms Valance’s career. He informed Ms Valance of this on numerous occasions and also discussed it with Ms Stevens in December 2001, just prior to Ms Stevens seeking legal advice about terminating the Agreement. Mr Klippel’s evidence [Transcript 531] which is accepted as reliable in this respect was that Mr Michaelson said at the Bambini Trust Café that:

· he would go to the UK when Ms Valance moved there; and

· if necessary he would use the advice of experienced UK Managers when the time came.

January 2002

51 In January 2002 Ms Valance travelled to London where she recorded Kiss Kiss and films the video clip for the track. Mr Michaelson did not accompany Ms Valance.

52 In December 2001 Ms Stevens sought legal advice from Louis Davis Shapiro & Lewit in relation to whether, in light of the Agreement, Ms Valance is able to obtain alternative professional management.

53 As a result of discussions with Louis Davis Shapiro & Lewit, the first termination letter was drafted on behalf of Ms Valance and Valance Corp. The letter, dated 30 January 2002, was faxed to Mr Michaelson, who received it on 1 February 2002.

54 In summary, the facsimile stated that Mr Michaelson has failed to perform his role as manager under the Agreement, and it is on this basis that the contract is terminated. It is significant to note that prior to receipt of the facsimile, Mr Michaelson had not received any significant complaint about his performance from the Valance parties.

30 January 2002 to 27 September 2002

55 The period between 30 January 2002 and 27 September 2002 marks the time between the first and second notices of termination of the Agreement. During this period certain significant events occurred.

56 Following receipt of the first termination facsimile, dated 30 January 2002, Mr Michaelson sought legal advice. As at that time he maintained that he and Biscayne were ready, willing and able to perform the obligations pursuant to the Agreement. Mr Michaelson gave evidence that Ms Valance changed her telephone number, making her uncontactable. [Transcript 291].

57 During this intervening period, the Valance parties sought out and retained for Ms Valance an alternative manager, Mr John Fowler, who was recommended to Ms Stevens by Mr Hollingsworth who said he had “a project” and would Mr Fowler be interested in looking at it, first met Ms Valance mid January 2002 at the Trafalgar hotel. Mr Fowler was engaged as Ms Valance’s manager by contract signed on 4 May 2002.

58 In mid-2002 Ms Valance left the cast of Neighbours.

27 September 2002 onwards

59 On 27 September 2002, Mr Michaelson received the second termination letter from Allens Arthur Robinson. This letter purported to terminate the Agreement, although was written without prejudice to the rights of Ms Valance and Valance Corp as presented in the 30 January facsimile. The letter purported to give Mr Michaelson 30 days notice of the Valance parties’ intention to terminate the Agreement if Biscayne Partners fails to rectify a material breach, such material breach being described as “during the period March 2000 to date Biscayne has failed to perform at all times its obligations pursuant to clause 4.1 of the Agreement”.

60 Following the second termination letter, the evidence appears to indicate that Ms Valance and/or Valance Corp entered into a number of contracts involving Ms Valance taking part in promotional and modelling work. On the evidence before the Court, these contracts include a contract with 1800/0800 Reverse [Ex PX Tabs 169, 176, 181; Transcript 69]. She also recorded vocals for her second album.

Questions of principle

61 Before returning to the more detailed factual findings, it is convenient to next address questions of principle arising on certain disparate matters where appropriate particular issues may be shortly determined by application of these principles.

The date from which the Agreement bound the parties

62 It is clear that those who ultimately executed the Agreement manifested an intention to contract. The only question which arises is seen to have been as to their intention in terms of the date on and after which the Agreement was to be binding upon parties. The answer to that question turns upon the objective intent as was made plain in the following passage from the speech of Lord Wilberforce:

"When one speaks of the intention of the parties to the contract one speaks objectively - the parties cannot themselves give direct evidence of what their intention was-and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties."

[Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989] [emphasis added]

63 Where an issue arises as to whether or not an agreement came into existence at all, a fundamental question falling for consideration is whether the conduct of the parties viewed in the light of surrounding circumstances, shows or is indicative of such an agreement having come into existence. Precisely the same approach is to be taken where the question falling for consideration is what is the point in time which the conduct of the parties, viewed in the light of the surrounding circumstances, shows the parties to have objectively intended as the date from which the contract was to commence to bind them.

64 The authorities and contract texts are replete with cases involving different facts and circumstances generally dealing with offer and acceptance situations. Hence one may for example find support for the following propositions:

· where an offer has been made, a contract binding the parties will result when, and only when, the offeree has clearly accepted the offer;

· the general rule is that an acceptance must correspond with the offer;

· normally acceptance is not effective until it has been communicated to the offeror;

· a contract is formed at the time when acceptance is effective, usually the time of receipt: Halsbury's Laws of Australia, Butterworths vol 6 [110-445];

· acceptance must take place within the period of duration of the power of acceptance created by the offeror in making the offer. A purported acceptance occurring outside of this period can at best be a counter-offer: Carter and Harland Contract Law in Australia, 4th ed, Butterworths, Sydney 2002 at [242]; and

· the offeror may prescribe the manner in which acceptance is to be made, and if the offeror has insisted upon this as the prescribed method of acceptance, a purported acceptance in any other manner is not an effective acceptance. 'The offeror creates the power of acceptance; and he has full control over the character and extent of the power that he creates.': Carter and Harland Contract Law in Australia supra at [228] citing Corbin on Contract, vol 1, 1963, at 88.

Carter and Harland continue however to make the point that in most cases, an offeror, in

indicating that acceptance may be made in a particular manner, will not be taken to have

insisted that that is the exclusive method of acceptance. The proposition is that if an

offeror wishes the prescribed method of acceptance to be the only method permissible,

this intention must be made quite clear and if it is made quite clear, the direction is

effective.

65 White Trucks Pty Ltd v O'Reily (1948) 66 WN (NSW) 101 (cited in Halsbury's Laws of Australia [110-405] footnote 3) is an example of a holding that the mode of acceptance contemplated was not exclusive so that the offeree was bound by a letter of acceptance even though it had not signed a written memorandum as contemplated.

66 George Hudson Holdings Ltd v Rudder (1973) 128 CLR 387 [cited in the same footnote to Halsbury’s Laws of Australia] involved an offer to sell shares which did not stipulate for acceptance by post, being held to have been validly accepted by the personal delivery of an acceptance.

67 First Energy (UK) Ltd v Hungarian International Bank Limited [1993] 2 Lloyd's Report 194 at 201 per Steyn LJ with whom Evans and Nourse LJJ agreed [cited in the same footnote to Halsbury’s Laws of Australia], is an example of a case where although the relevant hire purchase documents had specified a mode of acceptance, the Court of Appeal held that this was overridden by a letter to which the documents were attached.

The particular facts before the Court

68 The salient feature presented by the clear evidence concerns the simple fact that the parties were content at the time each of them executed the document to execute a document which included the following provision:

17.4 The Manager is not contractually bound by the terms of this Agreement until a copy of the Agreement is fully executed by all parties and delivered to the Artist.

69 Clearly clause 3.1 provided that the term of the Agreement would commence on the date of the Agreement. Equally clearly the first line, following the heading "Management Agreement," was left incomplete.

70 To my mind the whole of the matrix of circumstance covering the period anterior to the signing by the parties of the Agreement and the sundry communications between the parties and their solicitors, permits the Court to infer that the objective intent of the parties was that clause 17.4 would operate in accordance with its terms.

71 The Valance parties contended that Mr Michaelson, following his receipt of the Agreement executed by the Valance parties, could theoretically have simply held onto the Agreement without himself signing and returning it to Ms Valance and could thereby have dictated the occasion when it would be contractually binding upon the parties. The short answers to this proposition are:

· the Court is concerned with ascertaining the objective intent of the parties discerned from the relevant facts, matters and circumstances. In this case that objective intent is most clearly manifested in the wording of the clause within the Agreement which they signed having had the benefit of legal advice in relation to the document; and

· whilst there is no evidence of their having been made aware of this matter, as a matter of principle different causes of action, usually [but not necessarily solely] estoppel based, spring into operation to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that others detriment. In appropriate circumstances such an estoppel could have prevented Biscayne from denying that a contract had become binding upon it notwithstanding that it may not have executed the Agreement. The Trade Practice Act 1974 and the Fair Trading Act 1987 have provisions which can also be mobilised in relation to this general area of wrongdoing.

Construction principles

72 There is no particular issue in relation to the principles to be applied to the construction of the Agreement. To my mind the following matters are unexceptional:

· the court is dealing with a commercial document albeit a contract of agency for personal services. In endeavouring to discern the parties intent and in construing the meaning of the words used, the Court will strive to give the document a commercial, reasonable and rational operation: Australian Broadcasting Commission v Australian Performing Right Association (1972) 129 CLR 99 at 109; Hide & Skin Trading v Oceanic Meat (1990) 20 NSWLR 310;

· the court will strive in dealing with a commercial contract to discern the objective intent of the business relationship or other parameters of a contract in order to give effect to that which the parties may be seen to have bargained for. But always it is to the words of the document that the court must attend, looking in that regard to the whole of the document to discern the parties’ intent;

· in interpreting the expressions used by the parties, the Court will consider them in their context and as a whole. The court should as a matter of course take into account the objective background of the transaction, that is, its factual matrix, its genesis and aim, and the common assumptions: TCN Channel Nine v Hayden Enterprises Pty Limited (1989) 16 NSWLR 130; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289;

· where mechanical provisions intended to operate over an extended period of time are concerned the court endeavours to follow the mechanics and provisions expressed in the contract in the endeavour to follow, always by looking at the manner in which the matter is expressed, how the parties saw the contract as a working guide to the way forward;

· most recently, the High Court has observed in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 292-293 that:

“In Codelfa, Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract:

"presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating".

Such statements exemplify the point made by Brennan J in his judgment in Codelfa:

“The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.””;

· to similar effect is the observation of Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 76 ALJR 246 at 248 (para 11), quoting with approval Lord

Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913 to the effect that interpretation of a written contract involves the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contracting;

· in Investors Compensation Scheme Ltd at 912 – 913, it was said that:

“The background knowledge which a reasonable person in the position of the parties will be regarded as having, for the purposes of the construction of contracts, includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man with the proviso that it should have been reasonably available to the parties”.

“There is of course no doubt but that the court is entitled to inquire beyond the language and to "see what the circumstances were with reference to which the words were used, and the object appearing from those circumstances, which the person using them had in view": Prenn v Simmonds [1971] 1 WLR 1381 at 1384 per Lord Wilberforce: Lakatoi Universal v Walker [2000] NSWSC 113 at par [1039].”; and

· taking account of the context requires that particular terms be considered in light of the whole contract, and particular phrases in the light of their setting: McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579.

The proper construction of the Termination Clause 14.1

73 Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 is a recent decision by the Court of Appeal where an examination, albeit obiter dicta, is to be found in relation to the proper construction and approach to be taken to contractual termination clauses requiring the giving of notices to cure breaches.

74 Clause 15.2 was in the following terms:

15.2 In the case of any breach which is capable of being cured, BKC shall not terminate this Agreement unless and until Hungry Jack's shall have failed to cure such breach within 10 days in the case of default of any obligation to pay money to BKC and within 30 days in the case of any other breach after being notified by BKC of the nature of the default

75 HJPL had submitted that clause 15.2 was concerned with a breach which was capable of cure, not one which was capable of being cured within a specified number of days. Rolfe J held this to be the proper construction of the clause, “the purpose of each clause [being] to give the party [in breach] the opportunity of curing the position for the future”. His Honour had concluded:

“A clause such as 15.2 is aimed at providing certainty. On one view the approach taken by Mr Oslington leads to uncertainty. It leaves open the argument, if no notice to cure is given, whether the breach was capable of being cured, such as to require the giving of a notice. However, if the notice is given and the breach is not cured the arguments are confined to whether there was a breach and whether it was cured within the time specified. On this basis the giving of notice is, in my opinion, a condition precedent to the right to terminate.”

76 The judgment of the Court of Appeal included the following:

[117] His Honour considered that the construction which he found should be given to the clause was supported by authority: see Batson v De Carvalho (1948) 48 SR (NSW) 417; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; and Tricontinental Corp Ltd v HDFI Ltd (1990) 21 NSWLR 689…

[119] That then leaves the second question. Is a breach, which is a once and for all breach, for example, failure to comply with a time provision, capable of being cured?

[120] In L Schuler AG v Wickman Machine Tool Sales Ltd, Lord Reid, in construing a notice of termination clause in an agreement said at 249-250:

“It appears to me that cl 11(a)(i) is intended to apply to all material breaches of the agreement which are capable of being remedied. The question then is what is meant in this context by the word “remedy”. It could mean obviate or nullify the effect of a breach so that any damage already done is in some way made good. Or it could mean cure so that matters are put right for the future. I think that the latter is the more natural meaning. The word is commonly used in connection with diseases or ailments and they would normally be said to be remedied if they were cured although no cure can remove the past effect or result of the disease before the cure took place. And in general it can only be in a rare case that any remedy of something that has gone wrong in the performance of a continuing positive obligation will, in addition to putting it right for the future, remove or nullify damage already incurred before the remedy was applied. To restrict the meaning of remedy to cases where all damage past

and future can be put right would leave hardly any scope at all for this clause. On the other hand, there are cases where it would seem a misuse of language to say that a breach can be remedied.” (Emphasis added)

[121] The statement of Sugerman J in Batson v de Carvalho, at 427, is to the same effect:

“To ‘remedy’ a breach is not to perform the impossible task of wiping it out - of producing the same condition of affairs as if the breach had never occurred. It is to set things right for the future, and that may be done even though they have for some period not been right, and even though that may have caused some damage to the lessor. ... A breach may be remedied ... even though the time for doing the thing under the covenant may have passed ...”

[122] In Tricontinental Corp v HDFI, Samuels JA said at 702:

“It is arguable that the ‘Event of Default’ in this case was one that could not be rectified because the precise time was fixed on 30 November 1987, that time had passed and could therefore not be retrieved: cf the remarks of Lord Wilberforce in Bunge Corporation, New York v Tradax Export SA, Panama [1981] 1 WLR 711 at 715; [1981] 2 All ER 513 at 541, in relation to breaches of time clauses; but see Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 562. If that is the case, then there would be no need to go beyond cl2.2.1(a). In his judgment Waddell A-JA has set out a passage from the judgment of Sugerman J in Batson v De Carvalho (1948) 48 SR (NSW) 417 at 427, concerning the construction of the words ‘capable of remedy’ in s129(1)(b) of the Conveyancing Act 1919. I agree with Waddell A-JA that an analogous approach should be taken to the construction of cl2.2.1. If that is that case, then one fixes upon the effect of the default in the given circumstances rather than upon the historical fact of its occurrence. The principal effect of Selkis' default is that Tricontinental did not receive

its money. If Selkis were given a (sic) opportunity to remedy this, it is possible that it could so arrange its affairs as to enable it to pay up. Hence it might be said that in this sense the event of default was capable of remedy.” (emphasis added)

[123] Waddell AJA said at 722-723:

“It is said that failure to pay on a particular date is not a default which is capable of rectification because the date has passed and nothing can be done to re-establish what should have been done. On this view, only a continuing default could be regarded as capable of rectification. However, in my opinion, the default in failing to pay the bills due on 30 November was capable of rectification by paying the money due, together with additional interest as provided by the facility agreement, at a future date. I adopt the reasoning of Sugerman J in Batson v De Carvalho ... in relation to whether a default under a lease can be remedied.”

[124] In our opinion, these authorities support his Honour's construction of cl15.2, which we consider to be correct.

77 It will be recalled that the termination provision presently before the Court provides as follows:

14.1 No breach of this Agreement is a material breach giving the other party the right to terminate, unless:

(a) the party allegedly in breach is given written notice specifying the nature of the breach (this notice must be clearly headed “Breach of Agreement – Notice to Cure”); and

(b) the party receiving the notice fails to rectify the breach within 30 days of receipt of such notice.

78 The commencement provision that no breach "is a material breach" seems to me to be a deeming provision. Effectively the parties have been content to regulate their respective entitlement to claim any breach to be a ‘material breach’ by this requirement for the giving of notice. They have effectively conditioned their entitlement to rely upon any breach as a material breach, upon the giving of the notice provided for in clause 14.1. The parties have a right [proscribed by exceptions not presently material] which the law protects, to bind themselves by contract to such terms as they see fit.

79 In terms of contracts which expressly provide for an entitlement to rescind in the event of a specified failure by the other to perform, The Law of Contract, 6th ed by G H Treitel makes plain [at 586-587], that the very purpose of such clauses which make express provision for determination is to prevent disputes from arising as to the often difficult question whether a particular failure in performance is sufficiently serious to justify rescission and they take effect, even though there is no substantial failure. The willingness of the courts to give effect to express provisions for determination in that sort of circumstance is based on the assumption that the parties have bargained on more or less equal terms. To my mind, subject only to one matter, precisely the same type of reasoning underpins the proposition that once the parties have bargained, as here, for the clause 14.1 procedure, they should be held to their bargain.

80 The matter to which I refer concerns the necessity to draw a distinction between on the one hand, a circumstance involving a repudiation by one of the parties in terms of the evincing of an intention no longer to be bound by the contract, and on the other hand, a circumstance where the claimed repudiation falls short of such of an express repudiation. Clause 14.1 did not deal with the former situation but it did deal with the latter. And this is a latter situation case in which the claimed repudiation is to be inferred from a range of conduct said to constitute breaches of the Agreement [cf defendants’ final submissions MFI D4 at paragraph 26]. Because that is so, the Valance parties were obliged to utilise the clause 14.1 procedure before being entitled to terminate.

81 In my view clause 14.1 provided a comprehensive procedure for the termination of the Agreement, at least in the circumstances which applied here. Outside of situations of an express repudiation, the provisions of the common law were intended by the parties not to apply. But if contrary to this view, the common law had applied concurrently with the provisions of clause 14.1, in my view none of the alleged breaches of the Agreement put forward by the Valance parties justified them in any view that Biscayne had so conducted itself as to evince an intention no longer to be bound by the Agreement.

82 The very same reasoning represents the approach taken by the Full Federal Court in Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527. In that case clause 2.24 headed "Termination" had provided inter alia:

"Whenever and so often as the Contractor fails to carry out the Contract or comply with a condition of the Contract to the satisfaction of the Secretary then in either of these events the Secretary may, by notice in writing, require the Contractor to show cause in writing to the satisfaction of the Secretary, why the Contract or any specified portion thereof should not be cancelled. If the Contractor fails to show cause in writing, as so required, the Secretary shall be entitled to treat the Contract or any specified portion thereof as having been cancelled and may declare the whole or any part of the security lodged by the Contractor forfeited by the Commonwealth, and thereupon the amount so declared to be forfeited shall become the property of the Commonwealth absolutely."

83 Two members of the Court [Davies J at 532 – 533, Sheppard J at 544] held that the clause did not deal with the case of repudiation by the contractor, using that term in a strict sense as referring to an anticipatory breach. Hence the clause was inappropriate to cover an instance where, before the time for performance arose, the contractor informed the Commonwealth that it did not intend to perform the contract. Davies J found that it would “be straining clause 2.24 to read it as requiring the Commonwealth in such a case to wait until the time for performance had arrived and for the Secretary then to give a notice to the contractor asking for a reason as to why the contract should not be cancelled". Sheppard J [at 544] put the matter as follows:

"I am satisfied that clause 2.24 provided a comprehensive procedure for the termination of the contract, at least in the circumstances which applied here, and that, except in cases of true anticipatory breach, the provisions of the common law were intended by the parties not to apply. Accordingly, the purported termination of the contract by the Commonwealth was unlawful. I should also say, although I do not think it necessary to decide the question, that, if contrary to my opinion, the common law had applied concurrently with the provisions of clause 2.24, the breaches of the contract which were relied upon by the Commonwealth did not justify it in its view that the contractor had so conducted itself as to evince an intention no longer to be bound by the contract."

84 Reference was made to the issue as being whether by the conduct of Amann, it had repudiated the contract. Attention was drawn by Davies J to the following expression of principle to be found in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 634 per Mason CJ:

"There is a difference between evincing an intention to carry out a contract only if and when it suits the party to do so and evincing an intention to carry out a contract as and when it suits the party to do so. In the first case the party intends not to carry out the contract at all in the event that it does not suit him. In the second case the party intends to carry out the contract but only to carry it out as and when it suits him. It is much easier to say of the first than of the second case that the party has evinced an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with his obligations and not in any other way. But the outcome in the second case will depend upon its particular circumstances, including the terms of the contract. In some situations the intention to carry out the contract as and when it suits the party may be taken to such lengths that it amounts to an intention to fulfil the contract only in a manner substantially inconsistent with the party's obligations and not in any other way"

85 I reject the submission put by the Valance parties to the effect that the type of deeming provision to be found in clause 14.1 gave rise to the following propositions:

· clause 14.1 simply operated to suspend for a 30 day period what would otherwise be regarded as a material breach;

· if the breach was rectified within the 30 day period following the giving of a clause 14.1 notice, then as between the parties, clause 14.1 simply provided a deeming provision so that in that circumstance there never was a material breach;

· for that reason following the giving of a clause 14.1 notice not rectified within 30 days, there was no necessity to give a further notice terminating the Agreement.

86 The other two particular points to note are:

· the use of the words "Notice to Cure" as part of the heading to be included in the written notice provided for in clause 14.1 (a); and

· the use of the words "rectify the breach" in clause 14.1 (b).

87 Save in the case of an express repudiation by one of the parties by the evincing of an intention no

longer to be bound by the contract, upon the proper construction of clause 14.1 and applying the approach taken in the above set out authorities cited by the Court of Appeal in Hungry Jack's, the giving of a 30 day notice can be seen to be a condition precedent to the right to terminate for material breach.

88 A separate question arises going to whether the party with the right to terminate has exercised that right. Conventionally the exercise of that right would be a matter of some formality as by a second communication explicitly terminating the contract (although in some circumstances it may be possible to infer the exercise by other conduct). To 'remedy' or 'rectify' a breach is to cure so that matters are put right for the future, that is to say, to fix upon the effect of the default in the given circumstances rather than upon the historical fact of its occurrence.

89 As to whether the requirement to give a particular form of written notice with the particular clear heading provided for in clause 14.1 (a) can be said to be only procedural and not a matter of substance the following may be said:

· there is much to be said for the view that in this particular context this requirement should be regarded as one of substance and as a condition precedent to the entitlement of a party giving the notice to contend that a particular breach constituted a material breach giving it an entitlement to terminate, following a failure to rectify a breach within 30 days of the giving of the notice. The parties were obviously astute to ensure that they would have the clearest possible notice if either of them sought to engage the clause 14.1 procedure. That is understandable in the circumstances. I see no reason why the parties should not be bound to comply with the clause 14.1 (a) procedure which they had stipulated for; and

· ultimately the present case does not turn upon the clear failure by the Valance parties to comply with clause 14.1 (a). Even if the failure to give the requisite notice in the form provided for in clause 14.1 (a) may properly be disregarded as a matter of form, the Valance parties failed to give proper notice within the meaning of clause 14.1 for the reasons which follow.

90 Finally the circumstances which applied in the case presently before the Court are seen clearly to be covered by clause 14.1 by way of a comprehensive procedure for the termination of the contract. And of course it has to be borne in mind that far from any express repudiation of the Agreement, Biscayne by Mr Michaelson was at all material times asserting that it intended to carry out the Agreement and was willing and able to do so.

91 The first termination letter purported to terminate the Agreement with immediate effect. Hence the notice cannot be described as in substance a “Notice to Cure".

92 All that the first termination letter purported to do was:

· first, upon a number of grounds [going inter alia, to capacity, actual and/or presumed influence, and lack of advice] to give notice on Ms Valance's behalf of her election to treat the Agreement as void; and

· secondly, to set out claims that Biscayne had failed to discharge its obligations in accordance with the Agreement in relation to what were said to be numerous failures to fulfill even the most basic of management responsibilities in respect of which several non-exhaustive examples of such failures were said to have been set out.

93 Clearly enough the first termination letter was in substance the very antithesis of a notification which could fairly have put Biscayne on notice that unless matters were put right for the future within the next 30 days, the Valance parties were entitled to terminate the Agreement for material breach. What the

first termination letter was calculated to achieve was quite simply an understanding in the recipient that the Agreement had been terminated. [Cf by analogy the proposition that an ineffective notice of rescission will not be treated as some other form of notice, for example as a notice effective to make time of the essence (George v Pottinger [1969] Qd R 101, 113 (affirmed at (1967) 41 ALJR 85))]

94 As to the second termination letter, this completely failed to specify within the meaning of clause 14.1 (a), the nature of the alleged breaches of the Agreement. What was required in the relevant notice was a specification of "the nature of the breach". In my view the notice purported to be given in the second termination letter in identifying the relevant material breach requiring to be rectified within a period of 30 days as:

"during the period March 2000 to date Biscayne has failed to perform at all times its obligations pursuant to clause 4.1 of the Agreement.”

fell far short of what was required. The following shortcomings are apparent:

· in a manner not dissimilar to that of an ambit claim, the nature of the breach could not be discerned from the reference to a failure to perform obligations pursuant to clause 4.1, which of course simply sets out the whole of the Manager's obligations; and

· the reference to a bracket of time in which Biscayne was said to have been guilty of "failing to perform at all times its obligations" , is ambiguous and could be read as:

- an allegation that Biscayne had at no time during the relevant bracket,

performed its clause 4.1 obligations; or

- an allegation that Biscayne had, during part only, of the relevant bracket of

time, performed its clause 4.1 obligations and during some other part of the

relevant bracket, failed to perform those obligations.

95 The giving of a notice stipulated for in a provision conditioning as a matter of contractual agreement, any breach of the Agreement as amounting to a material breach justifying a right in one party to terminate, is a matter of a signal significance. Upon the proper construction of clause 14.1, the second termination letter did not comprise the giving of the necessary notice to rectify a particular breach as it failed to specify the nature of the breach. If this holding be incorrect, an alternative ground for holding the letter as failing to have comprised the giving of the necessary notice is to be found in the fact that the notice was not clearly headed in the form prescribed by clause 14.1 (a).

96 Further and even if the second termination letter could be properly described as a valid clause 14.1 notice, the fact is that there never was an exercise by the Valance parties of any right to terminate which may have accrued to those parties 30 days following the giving of such clause 14.1 notice.

97 There is an altogether different reason for a holding that the second termination letter cannot be regarded as a valid clause 14.1 notice to cure. This is to be found in the fact that as the evidence discloses, the letter was given after a period of some seven months, following the first termination letter, by the terms of which the Valance parties had purported to terminate the Agreement. But very significantly the evidence

discloses that during that seven-month period, the manager-artist relationship between Mr Michaelson and Ms Valance was effectively shut down by the Valance parties. Granted that Biscayne had at all material times maintained that the Agreement remained on foot, in an environment where as the Court finds there had effectively been a shutting down of the ability of Mr Michaelson to discharge the obligations which he had undertaken under clause 4.1 of the Agreement, it was all the more necessary for the second termination letter to be precise in terms of identifying the nature of the alleged breach. This it failed to do. As with notices making time of the essence of a contractual obligation, contractual notices purporting to terminate for material breach are matters which are "measured out by coffee spoons": cf K E Lindgren, Time in the Performance of Contracts, Butterworths, 1982 and in particular at [419] and [499.15], dealing with the requirement that notices be in order as to form and content.

98 Yet a further obstacle in the way of the Valance parties in terms of the attempt to rely upon the second termination letter lies in the Court’s holding that on the evidence, those parties in sending that letter, were not ready, or willing to proceed to perform the contract, having made that absolutely clear both by the sending of the first letter and by their conduct in shutting down the relationship following the sending of the first letter. Biscayne, upon receipt of the second letter, had every entitlement to view it as a document written in a context in which there was no suggestion that the relationship which had been as a matter of practicality closed down by the Valance parties, was now intended by those parties to be reopened. The second termination letter dealt with a period of time when Biscayne had, on the Court’s findings, been prevented by the Valance parties from carrying out its obligations under the Agreement. Yet the letter made no explicit offer to restore the relationship and was patently a communication sent with a view to simply improving the Valance parties prospects of making good in a court of law, a claim both to have validly terminated the Agreement by the first termination letter and/or to have become entitled to terminate the Agreement following the expiration of 30 days from the sending of the second termination letter. Whilst in a conveyancing context it is possible for a vendor, having first purported by notice to make time of the essence of a contract and thereafter purported to terminate the contract for failure to comply with the time so delimited, to then without prejudice to the claimed validity of the termination, give a second notice purporting to make time of the essence of the contract, such a second notice is properly construed as an "offer to start up again" [that is to say as an offer to re-instate the contract, being an offer capable of being accepted by the purchaser]: Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177. The present context however is quite different and if the second termination letter was to be regarded as a notice to start up again in terms of re-instating the stalled relationship, some form of communication of what precisely was intended by the Valance parties was necessary either in the notice or as part and parcel of the environment immediately anterior to or immediately following the giving of the notice. No such communication took place [save for such few contacts as could only be regarded as a pretence].

99 Ultimately the Court is satisfied from the evidence that as at the date of sending of the second termination letter, the Valance parties were not ready or willing to carry out the Management Agreement in any way, shape or form. The second termination letter was for that reason alone, invalid and ineffective in purporting to invoke and mobilise the clause 14.1 procedure.

Interference with contractual relations - the principles

100 It is convenient to commence with an examination of the relevant principles dealing with this tort and in particular the requirement that the defendant be in the position of an outsider influencing the independent volition of a contracting party.

101 The matter received some detailed attention in Idoport Pty Ltd v National Australia Bank Limited [2001] NSWSC 328. That judgment [Einstein J] includes at [13] - [29] the following statements of principle which are adopted:

State of Mind

In Short v City Bank of Sydney (1912) 15 CLR 148 at 160, Isaacs J said that to constitute the cause of action for inducing a breach of contract:

"… the defendant must have induced or procured the doing of what he knew would be a breach of contract. A bona fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If the defendant did not know of the existence of the contract, he could not induce its breach; if he reasonably believed it did not require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could not be regarded as an inducement or procurement knowingly to break the contract; if he believed on reasonable grounds that the contract had been rescinded, or performance waived, when in fact it had not, he could not be said to knowingly procure its breach."

The joint judgment of the New South Wales Court of Appeal (Sheller, Stein and Giles JJ) in Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 509, after citing the above passage from Short, put the matter as follows:

"In summary, the defendant must know of the contract and sufficient of its terms to know that what the defendant induced or procured the party to the contract to do would be in breach of the contract. If the defendant knew of the existence of the contract but believed reasonably that what the defendant induced or procured the party to do was not a breach, or reasonably believed that the contract had been rescinded or performance waived, the defendant had not knowingly induced or procured the breach."

Later in the same judgment the Court at 512 said that the position might be stated as follows:

"The plaintiff must prove that the defendant intentionally procured the breach. The requirement that the defendant have sufficient knowledge of the contract is a requirement that he had sufficient knowledge to ground an intention to interfere with contractual rights. Ignorance of the existence of the contract or of its terms born of inadvertence or negligence is not enough. On the other hand, reckless indifference or wilful blindness to the truth may lead to a finding of the necessary intention."

Outsiders influencing the independent volition of a contracting party

It is quite plain that the person who commits the tort must be a third party, someone who stands outside the contractual relation being interfered with. The third party cannot be the alter ego of one of the parties to the contract [cf Rutherford v Poole [1953] VLR 130 at 135 per Herring CJ].

O'Brien v Dawson (1941) 41 SR (NSW) 295 (and in the High Court (1942) 66 CLR 18) involved the plaintiffs having sued a company and two of its directors for conspiracy to injure the plaintiffs, alleging that in pursuance of the conspiracy the defendants took possession of certain theatres and ejected the plaintiff from those theatres. On the evidence the plaintiff was shown to have been in

occupation of the theatres under an agreement with the defendant company. The evidence was to the effect that the defendant company acting by the defendant directors terminated the agreement and ejected the plaintiff from the theatres. The verdict of the jury for the plaintiff was set aside by the Full Court and judgment ordered to be entered for the defendants, principally upon the ground that breach of contract by a company acting through the medium of its board of directors does not amount to a conspiracy. Judgments in both the Full Court and the High Court also dealt with whether or not breaches of contract by a company acting through the medium of its board of directors might amount to a tortious procurement of a breach of contract.

Jordan CJ in O'Brien v Dawson [41 SR (NSW) 295 at 307-308] put the matter as follows:

"The next question is whether, if an ordinary limited liability company is a party to a contract, and its directors acting as such, and in the course of conducting the company's business at a Board meeting, resolve that the company shall refuse to perform a contract to which it is a party, the directors knowing that the refusal cannot be legally justified, and effect is given to this resolution, the directors concerned are guilty of the tort-and presumably also of the crime-of conspiracy. I am of opinion that in such a case it is entirely artificial to speak of the directors as "procuring" the company to break its contract in the sense in which this word used in the Lumley v Gye type of case. An incorporated company is a figment of the law. It is incapable of acting except through agents. Its directors are persons who have been authorised by the constituent members of the corporation to cause acts to be done on its behalf. They are its agents who have power to control it’s acts. It cannot act at all except through them or through some other authorised agents. They are not in the position of outsiders who are influencing the independent volition of a contracting party who is capable of exercising volition for himself. It is their volition and theirs only which determines the making, the performance or the breach of the company's contract. In my opinion on the state of facts assumed, they stand in the same position as regards liability to a charge of conspiracy as do joint contractors. This is not to say that every boardroom constitutes an Alsatia in which persons may conspire to their heart's content and with complete impunity so long as they do so in the character of directors of a company and employ the machinery of their company for carrying their conspiracy into effect. It means only that the mere fact that the directors who determine whether or not a company shall perform the obligations of a contract are several in number makes them no more subject to the law of conspiracy then would be a single managing director if it were he who determined it…. Directors of a company are, however, personally responsible for any torts committed by their company in the procuring of which they are personally implicated… But there is authority for the proposition that the fact that one or more directors of a company acting as such, are the instruments by which the company, without just cause, refuses to perform a contract does not confer on the other party to the contract a right to sue directors in tort on the footing that they have procured a breach of contractual rights…” [emphasis added]

The judgment of McTiernan J in the High Court O’Brien v Dawson [(1942) 66 CLR 18 at 34] includes the following:

"A commits an actionable wrong against B if he procures C to break its contract with B… Hence McCardie J said in Pratt v British Medical Association [1919] 1 KB 244 that it is necessary in dealing with actionable conspiracy to distinguish it at once the line of decisions which establish this proposition. He added: "An individual can commit the tort as effectively as an aggregate of persons. The effect of a conspiracy to commit a wrong within Lumley v Gye is of importance only in considering the weight of the acts alleged and the extent of the resultant damage…. But an action by the plaintiff would not lie against the company for procuring a breach of its own contract with him nor against the individual defendants on that cause of action if in terminating the agreement they were acting in pursuance of their authority as directors… There is no evidence that they were not acting in pursuance of that authority"

Starke J. at 32 put the matter as follows:

"A company 'cannot act in its own person for it has no person' (Ferguson v Wilson (1866) LR 2 Ch App 77 at 89). So it must of necessity act by directors, managers or other agents. The company, if it were guilty of a breach of its contract in this case, acted through its director, the respondent Doyle, but it is neither 'law nor sense' (Lagunas Nitrate Co. v Lagunas Syndicate [1899] 2 Ch 392 at 431) to say that Doyle in the exercise of his functions as a director of the company combined with it to do any unlawful act or become a joint tortfeasor. Again it is equally fallacious to assert that Doyle knowingly procured the company to break its contract. The acts of Doyle were the acts of the company and not his personal acts which involved him in any liability to the plaintiff. But I would add that it does not follow that a director of a company would escape personal liability under cover of the company's responsibility if he himself became an actor and invaded the plaintiffs rights, as by trespassing on his land, or seizing his goods and so forth. And for similar reasons the contention is equally untenable that Doyle and the respondent Dawson combined together or engaged in common in knowingly procuring a breach by the company of its contracts. Dawson if he is guilty of a breach of his contract with the plaintiff is of course liable in damages. And here, I think, there is some evidence that the company knowingly, through its director Doyle, procured the breach of Dawson's contract with the plaintiff. Doyle was I think, acting within the scope of his functions as a director of the company in procuring Dawson to terminate his employment with the plaintiff and to enter into an agreement with the company. It was an unlawful act of the company done through its director Doyle. But Doyle is not involved in the act otherwise than as a director. It was again the company's act." [emphasis added]

I take it as clear law that so long as a director is acting within the scope of his authority, the company is responsible for the acts of the director. In other words, the director’s acts are the acts of the company. If the director could by acts within the scope of his authority, induce the company to breach a contract, then the invidious situation which would result would be that the company would be inducing a breach of its own contract.

This reasoning appears clear from Said v Butt [1920] 3 KB 497 where McCardie J dealt with proceedings in which the plaintiff, a Russian gentlemen of independent means went to the Alice Theatre to see a new play. The defendant, the managing director of the theatre company, gave orders to the attendants that the plaintiff was not to occupy his seat and his money was to be returned to him. In the result the plaintiff was refused admission to the performance. He sued the defendant on the ground that he had wrongfully and maliciously procured the company to breach the contract made when the plaintiff had purchased a ticket for a seat entitling him to view the performance.

McCardie J found against the plaintiff because he could not establish the existence of a contract and hence could not prove that the defendant had caused any breach of a contract. His Lordship further considered what would have been the position had there been a contract and observed that strange results would flow from treating servants acting within the scope of their authority as being liable in an action for interference with their employer’s contract with another person. His Lordship said (at 504-505):

"if the plaintiff is right in his contention, it seems to follow that whenever either a managing director or a board of directors, or a manager or other official of a company, causes or procures a breach by that company of its contract with a third person, each director or official will be liable to an action for damages, upon the principal of Lumley v Gye as for a tortious act. So, too, with the manager or other agent of a private firm, who does the like thing. This far-reaching result of the principle here suggested by the plaintiff is emphasised, when it is remembered that in an ordinary action for breach of contract the plaintiff recovers his pecuniary loss only: whereas in an action for wrongfully procuring a breach of contract the damages against the wrongdoer are at large, and may vastly exceed the sum recoverable in a mere claim for breach of contract against the contract …"

After making it plain that his Lordship had not been able to locate any decisions supporting the view that a servant could be liable in tort for procuring a breach of his masters contract with another, his Lordship continued (at 505-506):

"But the servant who causes a breach of his master's contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his master. His acts are in law the acts of his employer. In such a case it is the master himself, by his agent, breaking the contract he has made, and in my view an action against the agent under the Lumley v Gye principle must therefore fail, just as it would fail if brought against the master himself for wrongfully the procuring a breach of his own contract…. To hold otherwise might create at least three actions whenever a managing director or other authorised agent knowingly procured a breach of the employer's contract. First, an action based on contract against the employer for the pecuniary loss caused by the breach of contract; secondly, an action for tort against the agent who had procured the breach of contract, wherein the damages would be at large and might include every element of annoyance, inconvenience, or in dignity; and thirdly, an action against the employer himself for the tort was wrong committed by his authorised agent in procuring the employer to break his contract with the plaintiff….

His Lordship concluded with a holding in which the expression “acting bona fide within the scope of his authority” was used. This formulation occasions some difficulties of interpretation. I shall return to examine the matter [“the acting bona fide within scope issue”] below.

The essential proposition [“the O’Brien v Dawson principle”] is then that directors are not liable for the tort of inducing breach of contract where, in exercising their functions as directors and in acting within authority, they have caused the company to breach its contract. Hodgson CJ in Eq. As his Honour then was, had occasion in the recent decision Tsaprazis v Goldcrest Properties Pty Ltd (2000) 18 ACLC 285 at 288 to accept and apply this basal proposition.

Although…, it is correct that O'Brien v Dawson did not concern procurement of breach of contract but rather conspiracy, courts in Australia since that time have clearly correctly treated what was said in O'Brien on the subject of procurement of breach of contract as binding in terms of principle. The significance of the claim being one for conspiracy demonstrates that the doctrine extends to acts of the officer which caused his or her company to commit a tort.

Although the plaintiffs cited a number of authorities said to support their submissions as to the appropriate principles, in my view the O’Brien v Dawson principle is binding upon a court of first instance in this country.

102 Clearly had Ms Valance at the material time been appointed a director of Valance Corp and had she in that capacity and together with Ms Stevens, also acting in her capacity as director, determined that Valance Corp should breach the Agreement, then it could not be said that Ms Valance or Ms Stevens could be liable for the tort of inducing breach of contract. They would simply, in exercising their functions as directors and acting within authority, have caused Valance Corp to breach its contract.

103 The particular question raised here for decision concerns how one is to characterise the position of and actions of Ms Valance in this regard. The matter arises as follows:

· as already mentioned, Biscayne pleaded that at all material times after she had attained the age of 18 years Ms Valance had been a director within the meaning of section 9 of the Corporations Act 2001 (Commonwealth). That definition relevantly provides that for the purposes of the Act [cf section 6 (1)] , unless the contrary intention appears, the definition of "director" extends to include a person who is not validly appointed as a director, if:

(b) (i) they act in the position of a director, or

(b) (ii) the directors of the company are accustomed to act in accordance with the

person’s instructions or wishes,

Paragraph (b) (ii) does not apply merely because the directors act on advice given by the

person in the proper performance of functions attaching to the person's professional

capacity, or the person's business relationship with the directors or the company;

· during closing address senior counsel for Biscayne indicated that it no longer pressed its allegation

that at all material times after she had attained the age of 18 years Ms Valance had been a director within the meaning of section 9 of the Corporations Act.

· The evidence however is quite clear and supports the finding which is made that at all material times after Ms Valance had attained the age of 18 years, Ms Valance dictated any specific action which would affect Valance Corp, albeit first closely discussing the relevant alternatives with Ms Stevens.

· It was however Ms Stevens who was the only appointed director and who carried out on a day-to-day basis the general business and administrative steps.

104 The evidence of Ms Valance’s conduct reflects a position whereby:

· Ms Valance was the ‘guiding mind’ of the company;

· after Ms Valance turned 18 [and likely, albeit of little relevance, prior to that date] Ms Stevens, as director acted only in accordance with Ms Valance’s wishes; and

· where Ms Stevens did act independently of Ms Valance in some aspects of management of the company, this was only in respect of administration and similar matters.

105 The submission put by Biscayne is that it is necessary to look at the relationship of Ms Valance and Valance Corp in the context of the management agreement with Biscayne where of course, Ms Valance was herself a party being the Artist. The submission was that:

· although Ms Valance could and did "call the shots", she did this not because she was a company officer, but because she was the sine qua non for the activities of Valance Corp, it not being suggested that she attended directors meetings for example;

· as the artist and notwithstanding that she was the beneficial owner of the whole of the issued capital, when she may say that the company should terminate the Agreement, she was not acting as an organ of the company;

· in the same way, if the sole shareholder of a company telephoned the directors and demanded that they terminate a particular agreement under threat that otherwise they would be sacked, such a shareholder would not be acting as a director or officer of the company;

· particular significance is required to be placed upon the distinctions between the artist and the management company, the obligations of each and the deliberate structure chosen whereby the artist was the product exploited by the management company;

· attention required to be given to the manner in which the first termination letter had commenced by the solicitors advising that they were instructed by Valance Corp and by Ms Valance. This it was submitted showed that they had been treated as separate parties;

· whether or not Ms Valance was a de facto director, she was separate from Valance Corp because of her capacity in terms of her status as an artist and also because of her capacity in terms of her status as the controlling shareholder; and

· she had simply not acted as a director in relation to the termination.

106 A recent decision by the New South Wales Court of Appeal has, albeit by way of obiter dicta, had occasion to examine aspects of these questions. LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 dealt with the question of the application of the tort of inducing breach of contract where the facts involved a certain commonality in the directorships of holding company and subsidiaries. One question which arose was whether those bare facts were sufficient without more to justify an inference that the holding company induced a breach of contract.

107 The judgment of Hodgson JA made the point that it was insufficient for a court to find an inducement by the holding company of breach of contract by the subsidiaries, where all that one had was some commonality of certain directors. His Honour appears to be discussing prevention of breach by directors and concentrated on the knowledge of the directors alleged to have induced the breach. In particular his Honour made the point that simply because the holding companies if they knew the facts and had had sufficient time could have prevented the subsidiary from acting as they did, was likewise insufficient to justify an inference that the holding companies or either of them induced a breach of contract. His Honour further expressly referred to the fact that it had not been shown that the common directors knew the relevant facts. The holding was clearly that the mere failure to take steps which might have been taken to prevent a breach of contract was insufficient for the tort of inducement of breach of contract. So much is unexceptional as it seems to me.

108 At first instance Barrett J had dealt with the matter. A summary of his Honour’s relevant reasons as recited in the separate judgment of Young CJ in Eq, were as follows:

89 Barrett J was able to dismiss this point very quickly. His Honour said that the claim must fail on a twofold basis. He said [79]:

"First, directors of a company do not commit the tort of inducing breach of contract when, acting as directors, they cause their company to commit a breach. ... Secondly, a director installed as such on the board of another company by his or her employer is in general presumed not to be subject to the employer's direction when performing functions as a director, so that no vicarious liability attaches to the employer for the employee's conduct in that capacity. ...".

90 After discussing the authorities his Honour said at [96] and [97]:

"There is a distinct air of unreality about the proposition that one wholly-owned subsidiary within and subject to the framework of authority acts intentionally to cause another wholly-owned subsidiary within and subject to the same framework of authority to behave in a certain way when both are actuated by and subject to the common authority. The notion that directors of a company are not guilty of the tort of inducing breach of contract when, duly acting as directors, they commit their company to a course involving such breach was explained by Jordan CJ in O'Brien v Dawson".

His Honour then quoted extensively from O'Brien v Dawson (1941) 41 SR (NSW) 295 at 307-8 and continued at para [98]:

"Central to this notion is recognition that the directors of a corporate

contracting party are not in the position of outsiders influencing the independent volition of a contracting party capable of exercising volition for himself; and that it is the directors' volition which determines the making, the performance or the breach of the company's contract. The directors' volition is thus the company's volition."

91 Mr Sullivan QC accepts that proposition. His Honour, however, continued:

"Within the confines of a group of companies where a holding company such as AW Baulderstone Holdings Pty Limited possesses, in relation to each of several wholly-owned subsidiaries, full and sole capacity to control the content of a corporate constitution (even to the extent of allocating to itself powers otherwise exercisable by the directors), to relieve the directors of the consequences of breach of duty by advance authorisation or retrospective ratification and to change at will the composition of the board of directors, it seems to me to be the case that the holding company like the subsidiary's directors, is not in the position of an outsider influencing the independent volition of the subsidiary."

92 Mr Sullivan challenges what his Honour wrote from "It seems to me". His Honour continued:

"In such a situation, it is the holding company's volition which, sometimes formally by exercise of legal powers but often informally ... determines the making, the performance or the breach of the subsidiary's contract. The holding company does not engage in what in Herring CJ described in Rutherford v Poole [1953] VLR 130 as 'actionable intervention'. There is really no 'intervention' at all. The subsidiary makes the relevant decision but that decision proceeds from an exercise of the holding company's will within and through the subsidiary, rather than upon it."

93 His Honour then found that if it were necessary to do so, he would conclude that neither the first nor the third respondent induced or procured any breach of contract by the second respondent.

109 Young J continued:

94 With great respect to his Honour, I cannot share his view. The result reached in O'Brien v Dawson was based on the fact that there is an agency between the directors and the company and the company can only act through its agent, the directors.

95 The present case is not one of agency. Moreover, there is nothing in O'Brien v Dawson to justify the view that the real rationale of the case was that the directors were the directing mind of the company and thus there was no "independent volition of a contracting party".

96 The basal argument is that if material is known to people who constitute "the brain and nerve centre, the directing mind and will" of the holding company and a subsidiary acts in accordance with that directing mind, then the same consequence flows as if a director was involved. The

words I have quoted derive from what was said by Denning LJ in a tenancy case H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159, 172, though it was applied in a company case by Connelly J in Queensland Re Rossfield Group Operations Pty Ltd (1980) 5 ACLR 237, 242; [1981] Qd R 372, 377.

97 The analogy is completely imperfect and one must not allow nice sounding fuzzy dicta to take the place of proper analysis.

98 Indeed, I agree with Mr Sullivan QC's submission that such a rule as suggested by his Honour could lead to the avoidance of contracts by the simple expedient of acting via subsidiary.

99 The appellant's case is that the substitution of SOL for DSC and any other breaches that occurred could only have taken place with the knowledge of the common directors of all the respondents.

100 It seems to me that there are at least two major problems with this case. First, that anything the directors did was inaction rather than action, and secondly, that it is very difficult to work out which company in the Baulderstone Group was the tortfeasor.

101 As to the first, it should be remembered that Roxburgh J said in British Motor Trade Association v Salvadori [1949] Ch 556, 565:

"Any active step taken by a defendant having knowledge of the covenant by which he facilitates a breach of that covenant is enough."

Unless the alleged tortfeasor company by itself its servants or agents take an active step, it would not seem to be sufficient to make out the tort. There is no active step alleged against either the first or third respondents.

102 Although it is necessary to avoid this problem in the future, the argument on this matter merely raised points of academic interest and I do not propose to extend a judgment that is already too long by dealing with it in more detail.

110 Hodgson JA (with whose judgment Meagher JA agreed) dealt with the matter as follows:

10 In those circumstances, it is not necessary to consider questions of liability for inducing breach of contract or damages. However, I would comment shortly on these matters.

11 The mere circumstance that DSC was a wholly owned subsidiary of BH International with some common directors, and that SOL was a wholly owned subsidiary of BH also with some common directors, is insufficient without more to justify an inference that either BH International or BH, or both of them, induced a breach of contract. It could be inferred that BH International and BH, if they knew the facts, could given time have prevented DSC and SOL acting as they did, if only by calling meetings to dismiss directors or threatening to do. But the directors of DSC and SOL are not liable as such for inducing breach of contract (O'Brien v. Dawson (1942) 66 CLR 18), and in any event it

is not shown that common directors knew the relevant facts. Furthermore, in my opinion the mere failure to take steps which might, given time, have been taken to prevent a breach of contract, is insufficient for the tort of inducement of breach of contract or interference with contractual relations.

111 Whilst of course a court of first instance will endeavour to follow an approach taken by the Court of Appeal even where the manner was then dealt with only by way of obiter, it seems to me that there are difficulties with discerning a common holding as between the three judges sitting on the Court of Appeal. But more particularly the facts presently before the Court are somewhat different and likely distinguishable.

112 The judgment of Young CJ in Eq focuses upon the appellant's case being that the relevant breaches could only have taken place with the knowledge of the common directors of all the respondents. His Honour then perceived problems reposing in the fact that anything which the directors had done represented inaction rather than action and in terms of the difficulties of working out which company in the Group was the relevant tortfeasor.

113 The particular portion of the reasoning which is here in focus concerns the disapproval by Young CJ of the proposition by Barrett J that the holding company, like the directors of the subsidiaries, was not in the position of an outsider influencing the independent volition of the subsidiary and that the subsidiary made the relevant decision which however proceeded from an exercise of the holding company's will within and through the subsidiary, rather than upon it. [cf per contra Santow J in ASIC v Adler [2002] NSWSC 171 at [62] and Foxeden Pty Ltd v IOOF Building Society Ltd [2003] VSC 356 per Habersberger J at [329]]

Dealing with the issue

114 In my view there is no doubt but that on the occasions when the first and then the second termination letters were sent, the directors of Valance Corp were Ms Stevens and Ms Valance [the latter, after attaining the age of 18 years on 11 May 2001 becoming, as Biscayne had or originally pleaded, a director within the meaning of section 9 of the Corporations Act 2001 (Cth)]. It follows that the claims that Ms Stevens and Ms Valance caused, induced and procured Valance Corp wrongfully to purport to terminate the Agreement on or about 30 January 2002 or on or about 27 September 2002 must fail by dint of the principle described in the extract from Idoport as "the O'Brien v Dawson principle": Ms Stevens and Ms Valance being directors of Valance Corp were not liable for the tort of inducing breach of contract where, in exercising their functions as directors, and in acting within authority, they have caused Valance Corp to breach its contract.

115 Once a person becomes a de facto director within the meaning of Corporations Act section 9 they become exposed to the same common law and statutory duties as are applicable to directors, including of course the duties imposed by the Corporations Act itself. [cf Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 at 51-53] It is also possible for a person to become a de facto director as a result of a defect in appointment: Corporate Affairs Commission v Drysdale (1978) 141 CLR 236 or where there is simply a failure to formally appoint: Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173. There is no reason in principle for regarding such a person as acting otherwise than a director where the question which arises is whether the acts of that person were the acts of the company.

116 On the evidence the Court is satisfied that Ms Stevens and Ms Valance at all material times acted only by exercising their functions as directors. Neither of them was at any time in the position of an outsider influencing the independent volition of a contracting party who is capable of exercising volition for himself. There is no question of their being personally responsible for any tort committed by Valance Corp

in the procuring of which they could be said to be personally implicated. They were no more and no less than directors of Valance Corp acting as such, being together the instrument by which Valance Corp, on the Court’s finding without just cause, purported to terminate the Agreement.

117 The further claim which is pleaded [Summons paragraphs 25, 28] that Ms Stevens caused, induced and procured Ms Valance wrongfully to terminate the Agreement also fails. Ms Valance needed and received no inducement, nor prompting in this regard.

The claim for conspiracy

118 This is a claim in respect of the sub-species of the tort of conspiracy commonly called "conspiracy to injure by unlawful means."

119 In Fatimi Pty Ltd v Bryant [2002] NSWSC 750 Campbell J in a careful analysis of this sub-species of the tort put the matter as follows:

176 This second sub-species of the tort of conspiracy has as its elements:

(1) an agreement or combination between the defendants;

(2) that agreement or combination being one which has as at least one of its motives or purposes to injure the plaintiff;

(3) where it is part of the agreement or combination that unlawful means will be used to effect that injury;

(4) where the agreement or combination is actually carried out, and

(5) where the carrying out of it causes damage.

177 It is only the second and third elements which differ from the elements of the first sub-species of the tort of conspiracy, so I shall discuss only those two elements.

Purpose to Injure the Plaintiff

178 In Lonrho Plc v Fayed [1992] 1 AC 448 the House of Lords held that it was not necessary, where a conspiracy involved unlawful means, for an intention to injure the plaintiff to be a predominant purpose (at 468H).

179 In Maritime Union of Australia v Geraldton Port Authority (1999) 93 FCR 34, at 104-107, R D Nicholson J reviewed the Australian law on this topic. His Honour rejected the contention, "that it is unnecessary for specific intent to be proved where a conspiracy involves unlawful acts or unlawful means". The High Court, in Northern Territory of Australia v Mengel (1995) 185 CLR 307, at 342 said that, "... the torts of intimidation and conspiracy, both ... require an intention to cause economic harm." The position is clearly summarised by Drummond J in Gold Coast City Council v Pioneer Concrete (Qld)) Pty Ltd (1998) 157 ALR 135 at 150, as follows:

"The requirement that a plaintiff claiming damages for the second form of conspiracy must plead overt acts evidencing not just an agreement to commit an unlawful act but an agreement made with an intention to injure the plaintiff is no mere technical requirement: it is an essential element of the second form of conspiracy ... that the agreement to commit the unlawful act be made with an intention to injure the plaintiff (even though that need not be the conspirators' predominant intention for combining)."

180 In McWilliam v Penthouse Publications Ltd [2001] NSWCA 237, at [13] Mason P (with whom Handley and Hodgson JJ agreed) said, concerning a conspiracy to engage in unlawful conduct, at [13]:

"... a plaintiff in a case such as the present must establish intent to injure the plaintiff. It is not enough to establish that the acts of the conspirators necessarily involved injury to the plaintiff or that the plaintiff was a person reasonably within the contemplation of the conspirators as a person likely to suffer damage ..."

181 This element of "intent to injure" needs to be understood, in my view, as referring to the real purpose which the conspirators are trying to achieve. The tort of conspiracy to injure (the first sub-species of the tort) reflects an uncontroversial moral view that for A and B to gang up with the principal objective of hurting C is wrong, regardless of the means which are used, and a policy judgment that if such conduct occurs and occasions damage, then an action for damages should lie. In this second sub-species of conspiracy, the policy judgment being made is that, if A and B gang up with one of their objectives being to hurt C, and where they intend to achieve that objective by the use of unlawful means, an action for damages should likewise lie. The policy judgment is made that the additional element of agreement to use unlawful means to effect the harm justifies lowering the bar from a "principal purpose to harm" to a "purpose (not necessarily principal) to harm" test. However, the "purpose to harm" must still be what is actuating the defendants in acting. That the defendants realise that damage to the plaintiff is a likely, or indeed an inevitable, consequence of their action is not enough to satisfy this element of the tort. Rather, damage to the plaintiff must be one of the things which the defendants are trying to achieve.

120 In my view the evidence before the Court does not establish that the Valance parties were trying to achieve damage to Biscayne in the sense of a purpose to harm being what actuated the Valance parties in acting. The fact that the Valance parties realised that damage to Biscayne was an inevitable consequence of their action is plainly insufficient to satisfy this element of the tort. I reject the proposition that the evidence given by Ms Valance should, in context, be read as proving that the Valance parties were trying to achieve damage to Biscayne. In particular the evidence that when the termination letter was sent:

· she knew and intended that Biscayne would be cut out of commission in respect of her activities from that point in time; and

· she appreciated that this meant that Biscayne/Mr Michaelson would be terminated as her managing agent;

proves no such thing.

121 This is not to say that the Valance parties are not shown on the evidence to have been involved in a calculated disregard of the rights of Biscayne and in a cynical pursuit of benefit. That conduct does not amount to a purpose to harm.

122 Likewise the evidence given by Ms Stevens and pointed to by Biscayne does not prove that the Valance parties were trying to achieve damage to Biscayne in the sense of a purpose to harm being what actuated them. This evidence was summarised in final address [Transcript 774-775] as follows:

Ms Stevens at 332, 25 to 29, said this, and this really leads up to the next passage and I had been cross-examining her about not saying to Mr Michaelson even though he had done the records deal and launched Ms Valance on Neighbours and not saying anything to him about terminating his employment and I asked at 25 to 29:

Q. And you didn't feel one jot of compunction in going behind his back in seeking to terminate his employment as a manager without a word to him, did you?

A. No.

Then going forward to 342, which is the more direct evidence, I had cross-examined her on feeling oddly maternal towards Mr Michaelson and then, on 35 - Oh, your Honour had asked:

Q. Did you tell Mr Michaelson those things in the conversation?

That's consulting or dissatisfaction with the matters leading her to consult Jones and the answer was no. Then a question from your Honour:

Q. Why not?A. As I said, I felt sorry for him and I wanted to make sure we were all sure

of what we were doing first and I wanted advice on how to go about it.

And then I said:

Q. And you intended at that stage to cut Mr Michaelson out of all rights for the balance of his management agreement in relation to commission for Holly's activities.

A. Yes.

Q. And so far as you were concerned, that was Holly's view and intention also?

A. Yes.

123 I adopt Justice Campbell’s approach to onus bearing in mind section 140 of the Evidence Act 1995 noting that section 140(2)(c) expresses principles similar to those articulated for the common law by Briginshaw v Briginshaw (1938) 60 CLR 336.

124 That is sufficient for the dismissal of the conspiracy count.

125 To the extent that any of the allegations of inducement of breach of contract or conspiracy refer to conduct of persons prior to 30 January 2002 or prior 27 September 2002, the particulars given of that conduct in paragraph 22 of the Summons relevantly identify conduct said to take place on each occasion after the material date being 11 May 2001 when Ms Valance attained the age of 18 years. For reasons already given, none of those allegations have been made out as supporting such a cause of action.

Breach of Contract cases

126 The breach of contract cases are pleaded very particularly and by reference first to the express terms of the Agreement and secondly by reference to what are alleged to have been implied terms of the Agreement.

Express Terms

127 Whilst the Agreement of course must be closely read to ascertain the precise express terms it seems to me that the paraphrasing of those terms to be found in paragraphs 7-17 of the Summons in substance accurately reflects the proper construction of the express terms. Hence:

7. By written Management Agreement made in or about May 2000 (the "Management Agreement") the plaintiff, Valance Corp and Valance agreed to the appointment of the plaintiff as the sole and exclusive manager of Valance in the entertainment industry as defined in the Management Agreement throughout the world for a period of three years.

Particulars

(i) Management Agreement between the plaintiff, Valance Corp and Valance made in or about May 2000;

(ii) The plaintiff will refer to and rely upon the Management Agreement at the hearing for its full terms and effect.

8. "Entertainment Industry" is defined in the Management Agreement as meaning:

“each and every branch of the entertainment industry now known or later developed including, without limitation, the fields of the making of audio and audio visual sound recordings (including sound engineering and producing), the writing of lyrics and/or composing of music, cinematograph films, personal appearances and performances, television, radio, theatre, merchandising, endorsement, literary endeavours, on-line activities and so called “multi-media:” activities.”

A reference in this pleading to "entertainment industry" is a reference to the entertainment industry as so defined and includes a reference to each part of the definition.

9. It was a term of the Management Agreement that the plaintiff was appointed as the sole and exclusive manager of Valance in the entertainment industry throughout the world for a period of three years from in or about May 2000.

Particulars

(i) Clause 2.1 of the Management Agreement.

10. There were also terms of the Management Agreement that during the period of three years from in or about May 2000 Valance Corp:

(a) would not engage any other manager, agent or representative to fulfil the usual functions of a manager for Valance;

(b) would not carry out the usual functions of a manager for Valance;

(c) would refer to the plaintiff all enquiries regarding the activities of Valance within the entertainment industry; and

(d) would not execute, negotiate or agree to any contract or undertaking regarding Valance’s career without the prior written consent of the plaintiff.

Particulars

(i) Clause 2.2 of the Management Agreement.

11. It was also a term of the Management Agreement that Valance Corp would (subject to clause 7 of the Management Agreement) pay to the plaintiff a commission of 20% of gross receipts as defined in the Management Agreement, that is, 20% of all amounts in whatever form received by or on behalf of Valance for the activities of Valance in the entertainment industry throughout the world during the period of three years from in or about May 2000.

Particulars

(i) Clause 7.1 of the Management Agreement;

12. "Gross Receipts " is defined in the Management Agreement as meaning:

“the total of all amounts, in whatever form received by the Artist or on the Artist’s behalf, in respect of the Artist Activities during the Term and throughout the Territory, but excluding any amounts received by the Artist, or on the Artist’s behalf, in connection with the Artist’s or the Company’s liability to pay any goods and services tax or similar consumption tax in respect of services provided by the Artist or the Company”.

A reference in this pleading to "gross receipts" is a reference to the gross receipts as so defined and includes a reference to each part of the definition.

13. "Artist's Activities" is defined in the Management Agreement as meaning:

“the activities of the Artist within the Entertainment Industry”.

A reference in this pleading to "activities" or "activities of Valance" " is a reference to Artists Activities as so defined including the definition of Entertainment Industry in the Management Agreement and includes a reference to each part of the definition.

14. There were also terms of the Management Agreement that Valance Corp would:

(a) maintain complete and accurate books of account of all the income and expenditure in respect of the activities of Valance in the entertainment industry; and

(b) within fourteen days of the end of each month during the period of three years from in or about May 2000, provide the plaintiff with a full statement of income and expenditure for the previous month.

Particulars

(i) Clause 10.1 of the Management Agreement.

15. By clause 12.1 of the Management Agreement, Valance Corp warranted to the plaintiff that it would ensure, among other things:

(a) that Valance would not enter into any agreements relating to the activities of Valance in the entertainment industry without the plaintiff’s prior approval; and

(b) that it would, subject to clause 2.5, refer all offers to undertake activities of Valance in the entertainment industry to the plaintiff as soon as practicable upon receiving any such offers.

Particulars

(i) Clauses 12.1(c) and (d) of the Management Agreement.

16. It was also a term of the Management Agreement that each of Valance Corp and Valance agreed to indemnify the plaintiff from and against, among other things, all losses, liabilities, damages, costs and expenses suffered or incurred by the plaintiff as a result of any breach by Valance Corp or Valance of their respective warranties or obligations under the Management Agreement.

Particulars

(i) Clause 12.3 of the Management Agreement.

17. There were also terms of the Management Agreement that:

(a) if Valance Corp failed to properly observe and perform any of its obligations or conditions under the Management Agreement, Valance would immediately ensure the performance of such

obligations or conditions;

(b) if during the period of three years from in or about May 2000 Valance Corp failed or was unable to make Valance’s services in respect of the Management Agreement available, Valance could, at the option of the plaintiff, be substituted as contracting party to the Management Agreement in place of Valance Corp so that the plaintiff would have all the rights, privileges, advantages and benefits it would have had under the Management Agreement had Valance been the party to the Management Agreement responsible for those services and obligations from the date of execution.

Particulars

(i) Clause 18.4 of the Management Agreement.

Implied Terms

128 Likewise the Summons carefully pleads the alleged implied terms.

129 It is necessary to again return to the principles in order to assess whether or not these implied terms can be gleaned from the Agreement. The principles referred to in State of New South Wales v Bannabelle Electrical Pty Limited [2002] NSWSC 178 in the following terms are adopted for present purposes:

Principles governing implication of terms

40. It is useful to briefly note the categories, or the points along the spectrum, of differing contractual terms (see Liverpool City Council v Irwin [1977] AC 239 at 254 per Lord Wilberforce).

41. In the first category are terms which are to be found expressly in the contractual statements of the parties or documents into which the parties have reduced their agreement.

42. In the second category are to be found terms which are not to be found within the express contractual statements of the parties or the documents in which the agreement is to be found, but which are found aliunde.

43. The second category is subject to a further division:

· terms which the law finds in a certain class of contract, either by common law or statute, although those terms may not find specific expression in the contractual statements or documents of the parties. [“category “A” terms”]

· terms which are to be implied into a contract to give effect to the presumed intention of the parties: Castlemaine Tooheys Ltd v Carlton and United Breweries Ltd (1987) 10 NSWLR 468 at 486 – 487 per Hope JA, Byrne v Australian Airlines (1995) 185 CLR 411 at 448 per McHugh and Gummow JJ. [“category “B” terms”]

44. Terms which are to be implied into a contract to give effect to the

presumed intention of the parties can be further sub-divided as follows.:

· terms implied into a contract to give effect to the presumed intention of the parties can be implied according to a notorious custom or usage in a particular trade, industry or locality: Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurances (Australia Ltd) (1986) 160 CLR 226 at 236 per Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ. [“category “B(i)” terms”]

· terms implied into a contract from a prior course of dealing: McCutcheon v David MacBrayne [1964] 1 WLR 125 at 134 per Lord Devlin, Hardwick Game Farm v Suffolk Agricultural Poultry and Producers Association [1969] 2 AC 31 at 90 per Lord Morris of Borth-y-Gest, at 113 per Lord Pearce. [“category “B (ii)” terms”]

· terms implied into certain contracts familiar to courts where the principal terms of the agreement are settled but necessary subsidiary terms are absent: Coal Cliff Collieries v Sijehama Pty Ltd (1991) 24 NSWLR 1 at 38 per Handley JA. [“category “B (iii)” terms”]

· terms which are implied to give efficacy to the particular contract: BP Refinery (Westernport Port) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 at 282 - 283. [“category “B (iv)” terms”]

Implication of Terms Ad Hoc

45. The principles upon which a Court will imply a term into a contract as a matter of fact are not in doubt and have been stated and re-stated authoritatively many times. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, the Privy Council, on appeal from the Supreme Court of Victoria, listed the five requirements necessary to be satisfied as follows (at 282 - 283):

‘Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying;’ (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’

46. This statement has been approved by the High Court many times: Secured Income Real Estate v St Martin’s Investments Pty Ltd (1979) 144 CLR 596 at 605 - 606. Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 66, 117 - 118, Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422, 441. The onus for showing that the criteria have been satisfied lies on the party that asserts the implied term; that onus is heavier where, as here, the subject contract is a detailed and complex one. In Codelfa Construction Pty Ltd v State Rail Authority of NSW (supra, at 346) Mason J said: ‘[t]he more detailed and comprehensive the contract the

less ground there is for supposing that the parties have failed to address their minds to the question at issue. And then there is the question of identifying with any degree of certainty the term which the parties would have settled upon had they considered the question.’ [emphasis added]

Equitable and reasonable

47. Upon the first requirement - reasonableness and equitableness - it is possible to say two things. First, it is clear that such a requirement refers to fairness as between the parties. In Byrne v Australian Airlines Ltd (supra, at 442) McHugh and Gummow JJ rejected the suggested implication because [t]he contractual term propounded by the appellants would operate in a partisan fashion.’ Second, it is clear that reasonableness and equity is to be judged by reference to the benefits and burdens each party can expect to enjoy or undertake under the contract. So, in BP Refinery v Shire of Hastings (supra, at 284) the majority of the Privy Council rejected the proposed implication into a rating agreement requiring a continuity of corporate identity on the ground that such an implication would deprive the appellant of a benefit which induced it to make a major capital investment in the defendant’s Shire.

Necessary to give business efficacy to the contract

48. Upon the second requirement, it is clear that the requirement that the term be ‘necessary to give business efficacy to the contract’ is a formula calculated to reject the requirement of mere reasonableness. Thus, in Codelfa Constructions v State Rail Authority of NSW (supra, at 346) Mason J commented that ‘[a]ccordingly, courts have been at pains to emphasize that it is not enough that it is reasonable to imply a term, it must be necessary to do so to give business efficacy to the contract.’ However, to my mind, the comment of the editors of Chesire and Fifoot, Law of Contract (7th Australian Edition, para 10.48) is entirely justified: ‘[i]t cannot be the case that a term must be necessary in the sense that the contract cannot be carried out at all without its incorporation. However, the cases offer little explicit analysis of the phrase ‘effective operation’ or ‘business efficacy.’ In Butts v O’Dwyer (1952) 87 CLR 267 at 280 Dixon CJ, Williams Webb and Kitto JJ commented that ‘the law raises an implication from the presumed intention of the parties where it is necessary to do so in order to give the transaction such efficacy as both parties must have intended it should have.’ Their Honours had previously referred to the comments of Bowen LJ in The Moorcock (1889) 14 PD 64 at 68, where his Lordship said ‘what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men.’ These words were quoted with approval by Gibbs CJ in Hospital Products v United States Surgical Corporation (supra, at 66). In Hamlyn & Co v Wood & Co [1891] 2 QB 488 at 491 Lord Esher MR commented that a court ‘has no right to imply in a written contract any such stipulation, unless, on considering the terms of the contract in a reasonable and business manner, an implication

necessarily arises that the parties must have intended that the suggested implication should exist.’ The judgment of Priestley JA in Renard Constructions v (ME) v Minister for Public Works (1992) 26 NSWLR 234 at 257 - 258 is a recent, and if I may respectfully say so, lucid expression of this view.

49. To my mind, these authorities indicate that the requirement that a term be ‘necessary to give business efficacy to the contract’ does not mean that the term must be so necessary that without the term the contract would, for all purposes be ineffective, but that the term must be necessary to make the contract effective and workable according to the presumed intention of the parties, as disclosed by the terms of the contract and the admissible surrounding circumstances.

So obvious it goes without saying

50. The requirement of obviousness has been tested by asking whether the parties would have readily agreed on the proposed implied term if it had been suggested to them in the course of their negotiations: Shirlaw v Southern Foundaries (1926) Limited [1939] 2 KB 206 at 227 per MacKinnon LJ, Codelfa Constructions Pty Ltd v State Rail Authority for NSW (supra, at 374 per Aickin J). The requirement involves a considerable degree of overlap with that of business efficacy and in that sense addresses itself not to the actual intentions of the parties but to their presumed intention as reasonable persons as disclosed by the contract and surrounding circumstances: Heimann v Commonwealth (1938) 38 SR (NSW) 691 at 695 per Jordan CJ.

Capable of clear expression

51. The requirement that a term be capable of clear expression is one which has two elements. First, the term upon which the parties would have agreed had the matter at issue been drawn to their attention must be clear. Thus, in Codelfa (supra, at 356) Mason J rejected the term which it was contended should be implied because ‘it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances negotiation about that matter might have yielded one of a number of alternative provisions, each being regarded as a reasonable provision.’ [emphasis added] Similar comments appear in the judgment of Aickin J (at 375).

52. The second element of this requirement is that the term to be implied must be one capable of being ‘formulated with a sufficient degree of precision:’ Shell UK v Lostock Garage Ltd [1976] 1 WLR 1187. In Ansett Transport Industries (Operations) Pty Limited v Commonwealth (1977) 139 CLR 54 at 62 Gibbs J nominated the ‘width and lack of precision’ of the suggested implied term as an argument against its implication. It was upon this basis that Viscount Simon LC in Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 at 115 - 117 rejected a suggested implication which applied in the absence of ‘reasonable cause’ because of the difficulty of determining what is a reasonable

cause: see also the comments of Rolfe J in Hungry Jacks v Burger King [1999] NSWSC 1029 (unreported, 5 November 1999 at para 432). However, given the willingness of the Court of Appeal to imply a qualification of reasonableness on the exercise of certain contractual powers, it seems probable that a less stringent view of the requirement of certainty than that adopted by Viscount Simon is appropriate: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Hughes Bros Pty Ltd v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, Alcatel Australia Ltd v Scarella (1998) 44 NSWLR 349. It would appear the modern approach is that stated by Bridge LJ (as his Lordship then was) in Shell UK Ltd v Lostock Garage Ltd (at 1204):

‘It is said that lack of precision in the criterion to be embodied in the implied term is fatal to any implication. But it is no novelty in the common law to find that a criterion on which some important question of liability is to depend can only be defined in imprecise terms which leave a difficult question for decision as to how the criterion applies to the facts of a particular case. A clear and distinct line of demarcation may be impossible to draw in abstract terms; yet the court does not shrink from the task of deciding on the facts of any case before it on which side of the line the case falls. This kind of pragmatism is so deeply entrenched in the common law’s approach to a multitude of legal problems that I decline to accept that the difficulty of defining with precision what term is to be implied in this case is an insuperable obstacle to the implication of any term limiting the plaintiffs freedom to discriminate.’

Consistency with express terms

53. The requirement of consistency with the express terms of the contract requires that the term said to be implied does not contradict the effect of the express terms of the agreement and does not deal with a matter which the contract deals with adequately. In Moorhouse v Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR 708 the defendants argued that a term should be implied into a contract between an author and publisher, to whom the author submits a manuscript to the effect that property in the manuscript, would pass to the publisher. The Court of Appeal rejected this because it was inconsistent with clauses of the contract which (on their proper construction) had the effect of reserving to the author all rights not granted to the publisher (at 708 per Samuels JA). But an express term which deals with a subject cognate to the implied term does not, for that reason, exclude the implied term: thus a contract of agency which expressly casts on the agent an obligation to use ‘best endeavours’ does not exclude an implied term to render faithful and loyal service: Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 378 per Dixon J.

Duty to co-operate

54. In Mackay v Dick (1881) 6 App Cas 251 it was agreed that the pursuers were to supply to the defenders a machine capable of digging and filling a certain volume of clay per day. The parties also agreed that the subject

machine was to be tested at the defenders’ premises and if it satisfied the requirement the defenders were to purchase it. On appeal from the Court of Session to the House of Lords, Lord Blackburn stated that it was impliedly agreed that the pursuers would transport the machine to the defenders’ premises and erect it and generally do all that was necessary for the fair test. Similarly, the defenders were to be taken as impliedly agreeing to allow the pursuers access to their premises and to assist in such a way as to allow the machine to be fairly tested. The general principle was expressed by Lord Blackburn (at 263) as follows:

‘ ... as a general rule, … where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.’

55. The speech of Lord Blackburn presents a difficulty insofar as it is ambiguous as to the basis upon which an implied duty to co-operate is to be founded. While the general principle is expressed by his Lordship as a ‘general rule’ elsewhere the speech proceeds according to what the parties must have been taken to have agreed. The first approach would place the term within what I have called Category A, the second within what I have called Category B (iv).

56. The basis on which Sir Samuel Griffith proceeds in Butt v M’Donald (1896) 7 QLJ 68, a decision of the Supreme Court of Queensland, is clearer. His Honour placed the implied duty to co-operate squarely within terms which are to be implied at law. In that case the plaintiff agreed to sell to the defendant what was described as ‘a butcher’s shop adjoining the Metropolitan Hotel.’ The freehold on which the shop was located belonged, in fact, to another person and the shop itself was a fixture upon the land. The defendant was entitled to the benefit of a lease upon the freehold. At trial, the jury decided the contract was a contract for the sale of the structure of the shop. The owner of the freehold refused to allow the purchaser to remove the structure of the shop. In effect, it seems the vendor had sold something that was not his. Griffith CJ held that there was to be implied into the contract a warranty on the part of the vendor to the effect that he held good title to the structure of the shop or a promise to attain such title. Stating in general terms the latter obligation, Griffith CJ said (at 70 – 71):

‘It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract. In the case of a contract of sale, that rule is applied by implying a promise or warranty that the purchaser shall have title to the property.’

57. The view of Griffith CJ as to the general applicability of the above principle is re-asserted in his judgment as Chief Justice of Australia in Marshall v Colonial Bank of Australia (1904) 1 CLR 632 at 647.

58. In contrast to that approach by Griffith CJ is the approach of Dixon CJ, Williams, Webb and Kitto JJ in Butts v O’Dwyer (1952) 87 CLR 267. In that case the appellant leased with an option to purchase land to the respondent. Under applicable statute law a lease was invalid if it was granted without the approval of the relevant Minister. The lease was not so approved. The respondent entered into possession and later purported to exercise the option. The appellant refused and the respondent sought specific performance. In the opinion of Dixon CJ, Williams, Webb and Kitto JJ a lease which was entered into conditional upon approval of the Minister being gained was not invalidated by the statute, but would (at 280):

‘[p]rima facie ... import an obligation on the part of the person giving the transfer to do all that was reasonable on his part to the end that the Minister’s consent might be obtained. Such a condition could be either express or implied. There is in the present case no express condition ... but we think that such a condition should be implied. It has been held in cases too numerous to mention both before and after the classic statement of Bowen LJ in the case of The Moorcock [1889) 20 PD 64 at 68] that the law raises an implication from the presumed intention of the parties where it is necessary to do so in order to give to the transaction such efficacy as both parties must have intended it should have.’

59. The reference to The Moorcock shows clearly that Dixon CJ, Williams, Webb and Kitto JJ considered that the basis of the implied duty to co-operate was founded on the presumed intention of the parties and the necessity to give business efficacy to the contract. As Lord Wilberforce pointed out in Liverpool City Council v Irwin (at 253), that is the doctrine, if not of the case of The Moorcock itself, of The Moorcock as usually applied.

60. The matter was again considered by the High Court in Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288. There the plaintiffs and the defendants agreed that the plaintiffs should install and give demonstrations of television in the defendants’ store at a particular date. The date set was vacated by consent due to events beyond the control of both parties. The plaintiffs later sought another date upon which they could gain access to the defendants’ store to comply with their obligations under the contract. It was held that the defendants were obliged to set a reasonable time for the defendants to enter the premises to comply with their obligations. The Court (Dixon CJ, McTeirnan, Webb, Kitto and Taylor JJ) said the following (at 297 – 298):

‘The fact that there was no longer a fixed date for performance brought into application the principles which impose on parties, in all cases where the performance of their obligations requires co-operative acts, the duty of complying with reasonable requests for performance made by the other. ... By any appropriate demand the plaintiff was entitled to require the defendant to make its store available to the plaintiff to perform its obligation at some proper and reasonable time. It is hardly necessary to repeat the commonplace statement that what is reasonable depends on all the circumstances including the nature and purpose of the express stipulations. ...

Example after example could be given of commonplace contracts for the performance of work or the rendering of services where one man must make himself or his premises or his goods available to another at some mutually convenient time which is left unfixed or if fixed is allowed to pass. A contract to tailor a suit of clothes, to decorate the interior of a building or to repair a ship’s hull is not unenforceable because no time is fixed for the attendance of the customer upon the tailor or for the commencement of the decorator’s work or for the entry of the ship into a dry dock when it might become available.’

61. A subsequent decision of the High Court in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 illustrates the limits of the obligation to co-operate. There the appellant sold to the respondent land on which was situated a large office block. The purchase price was stipulated as a certain amount, but was subject to a reduction if evidence to the reasonable satisfaction of the purchaser was not produced showing that aggregate rents reached a certain sum. If the latter sum was not reached, the purchase price was subject to a reduction equal to the proportion by which the rents fell short of that certain sum. When it appeared that the vendor would not be able to produce evidence showing aggregate rents had reached a certain sum, the vendor offered to lease part of the building itself to permit aggregate rents to reach the stipulated sum. The purchasers refused. It was common ground that the contract imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract. After quoting Lord Blackburn in Mackay v Dick and Griffith CJ in Butt v M’Donald, Mason J (with whom Barwick CJ, Gibbs Stephen and Aickin JJ agreed) said (at 607 – 608):

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

62. To my mind, Mason J proceeds on the basis that an implied duty to co-operate was one which was inferred as necessary to give business efficacy to the contract in accordance with the presumed intention of the parties. Where the cooperation is necessary for one party to fulfil its fundamental obligations or to attain benefits which are fundamental, such a term is readily inferred without further extensive inquiry. However, where the cooperation is necessary to allow the performance of lesser obligations or to attain lesser benefits, then the term will not be so readily inferred and whether it is to be inferred or not depends upon

the intention of the parties as manifested in the contract itself considered in the context of the admissible extrinsic facts. What obligations or benefits are to be considered fundamental is to be determined, in my opinion, by the application of the test enunciated by Jordon CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) SR 632 at 641 - 642, viz., ‘that the promise is of such importance to the promisee that he would not have entered into contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.’

63. In the subject circumstances, Mason J was satisfied that there was ‘an obligation on the respondent to do all things reasonably necessary to enable leases to be granted:’ (at 608) However, there was, in those circumstances, no breach of that term. Because the purchaser reasonably entertained doubts as to the ability of the vendor to pay the rent on the proposed lease, the purchaser did not unreasonably refuse to co-operate by withholding the lease from the appellants which would have enabled it to receive the full amount of the purchase price.

64. The following authorities may also be noted as establishing an implied contractual duty to co-operate in the performance of contractual obligations as part of the law of New South Wales: United States Surgical Cooperation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 800 per McLelland J, Beaton v McDivitt (1987) 13 NSWLR 162 at 185 per McHugh JA, Trans-Pacific Insurance Co (Australia) Ltd v Grand Union Insurance Co Ltd (1989) 18 NSWLR 675 at 694 per Giles J, New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68, per Mahoney AP, Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236 at 262 per Einstein J, Hungry Jacks v Burger King [1999] NSWSC 1029, per Rolfe J and on appeal – Burger King Corporation v Hungry Jacks JJA at paragraph 144 [2001] NSWCA 187 per Sheller, Beazley and Stein.

65. In Himbleton Pty Ltd v Kumagai (NSW) Pty Ltd (1991) 29 NSWLR 44 Giles J, in relation to the duty to co-operate said (at 61):

“The principle is not in doubt, although what is reasonable will turn on the particular circumstances. Although it is not always stated in the recognised situations in these and like cases, the source of the obligation is still that stated in Butts v O’Dwyer. It is necessary to imply an obligation to act with reasonable diligence to fulfil the condition, since otherwise the agreement can be rendered nugatory by inaction, and it is presumed that the parties did not intend that to be so. But the express obligations of the parties will still govern the transaction and will define the efficacy which they intended it to have and the implication of a term must satisfy the conditions stated in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26; 16 ALR 363 at 376 and adopted in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337:

(1) it must be reasonable and equitable;

(2) it must be necessary to give business efficacy to the contract, so

that no term will be implied if the contract is effective without it;

(3) it must be so obvious that ‘it goes without saying’;

(4) it must be capable of clear expression;

(5) it must not contradict any express term of the contract.”[emphasis added]

66. The following points should be noted concerning the decision of Giles J in Himbleton Pty Ltd v Kumagai Pty Ltd. First, his Honour considered that the basis of the duty was the presumed intention of the parties necessary to give the contract business efficacy: that is, it was a Category B (iv) term. Second, notwithstanding, in certain recognised situations the term was to be implied into a contract without expressly applying the analysis found in BP Refinery (Westenport) Pty Ltd v Shire of Hastings. His Honour’s quotation of the passage in the judgment of Mason J in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (supra) shows clearly that the recognised situations referred to by Giles J are coterminous with the situations in which Mason J considered it ‘easy to imply a duty to co-operate.’ Third, his Honour considered that the content of the implied duty to co-operate as particularised by the plaintiff was excessive given the scope and weight of the express obligations of the defendant under the contract.

67. In the light of this examination of the authorities, I think the following compendious statement of the existence of and content of the implied duty to co-operate can be made. The implied duty to co-operate is a term implied in accordance with the presumed intention of the parties as necessary to give business efficacy to the contract. Depending on the circumstances, the duty may apply so as to prevent one party hindering performance or the occurrence of a condition precedent on which performance depends. Alternatively, it may consist of a duty to take steps to allow the performance of the contract by the other party so as to permit the full realisation of the benefits which the contract contemplates to accrue to that party: see S Stoljar ‘Prevention and Co-operation in the Law of Contract’ (1953) 31 Can Bar Rev 231 at 232.

68. Where the obligation or benefit is of a fundamental nature such that the relevant party would not have entered into the contract without an assurance of strict or substantial performance of the obligation or an assurance of the benefit or a real and genuine chance to gain the benefit, then the term will be implied as satisfying the test for the implication of terms in fact without further analysis. Where the obligation or benefit is not of a fundamental kind, the proposed implied term must satisfy the five point test enunciated by the Privy Council in BP Refinery (Westenport) v Shire of Hastings - See Secured Income v St Martin’s Investment Pty Ltd (supra 607-608 per Mason J).

69. The duty to co-operate is regulated by the requirement that the specified cooperation be reasonable. If such cooperation is reasonable, it is not to the point to say that such cooperation is commercially disadvantageous. However, what is reasonable is to be determined according to the

express obligations and benefits contemplated in the subject contract. Cooperation may not be reasonable if it requires one party to assume a risk extraneous to the risk inherently contained in the transaction or to assume burdens excessive with regard to the benefits it could reasonably contemplate under the contract. Reasonable cooperation does not extend to inducing or compelling a third party to perform acts where benefits under the contract depend on those third party acts. Co-operation may also not be reasonable where that co-operation is likely to be utilised by the other party for purposes extraneous to the contract and detrimental to the co-operating party.

130 Applying those principles the finding is that each of the pleaded implied terms is made out. Those implied terms are as follows:

18.1 That Valance and Valance Corp would take all reasonable steps to enable the implementation and operation of the Management Agreement;

18.2 That Valance and Valance Corp and the plaintiff would co-operate to enable the performance by each party of its obligations under the Management Agreement;

18.3 That Valance and Valance Corp would not conduct their respective activities and businesses so as to affect prejudicially or diminish the value of the rights of the plaintiff or so as to render the rights worthless;

18.4 That Valance and Valance Corp would not conduct themselves or their respective activities and businesses so as to make it difficult or impossible for the plaintiff to carry out its obligations to provide services and otherwise under the Management Agreement;

18.5 That each of Valance and Valance Corp would act in good faith in the exercise and performance of their respective rights, powers and obligations in and under the Management Agreement.

131 Clearly it may be said of both the first and second terms [Summons paragraphs 18.1 and 18.2] that each is appropriate to be implied to give efficacy to the particular contract here in focus. Indeed the obligation or benefit provided for by each of the first and second terms is of such a fundamental nature that it may be said that the parties would not have entered into the Agreement without an assurance of strict or substantial performance of the obligation or an assurance of the benefit or a real and genuine chance to gain the benefit, so that each such term is appropriate to be implied as satisfying the test for the implication of terms in fact without further analysis.

132 Insofar as the third and fourth terms [summons paragraphs 18.3 and 18.4] are concerned this is an area in respect of which it is necessary to tread warily. The matter received extensive treatment in Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 166 in particular at [695]-[728] by way of a survey of case law with respect to the implication of a term in connection with the maintenance of a business. For present purposes neither of the third or fourth terms seems to me to have any particular special significance and Biscayne's case in contract is precisely the same even had neither of these terms been pleaded. The repudiation of the Agreement which is established goes the full distance of giving to Biscayne its entitlement to damages for breach of contract. And likewise the proven breaches of the first two implied terms embrace and include any form of contractual damages which might, if the third and

fourth terms were held to be implied, have been available for breach of those terms. The difficulty raised by the third and fourth terms is more usually something which arises where in a commercial relationship, a claim is made for a breach of an implied term in contract in connection with the business of which the defendant had made the plaintiff an agent. The question which arises is whether the defendant is obliged to carry that business on. Can the business or relevant entity simply cease its activities as by going out of business? Those cases usually concern a business or entity coming to an end by independent circumstances not created by the defendant themselves.

133 It is sufficient for present purposes to accept that the Valance parties having entered into the subject Agreement which could only take effect by the continuance of a certain existing state of circumstances, the court will imply a term on their part that they will do nothing of their own motion to put an end to that state of circumstances under which alone the arrangement can be operative. This likely means that in this particular case both of the third and fourth terms may be implied and are seen as satisfying the 5 point test enunciated in BP Refinery (Westernport). Each is implied in fact, as necessary to enable the Agreement to operate according to its terms and being reasonable, by reason of the nature and terms of the whole of the Agreement. And in my own view each of these terms is also appropriately implied as a matter of necessary implication from the other terms of the Agreement.

134 As to the fifth term it may clearly be implied. As a general proposition, the current state of the law in New South Wales is that there will usually be implied by law into commercial contracts made between parties at arms length, a term requiring the exercise of good faith in the performance of such contracts. Such a term takes its place alongside the implied obligations:

· to do all such things as are necessary to enable the other party to have the benefit of the contractual promise;

· not to hinder or prevent the fulfilment of the purpose of express promises made in the contract.

[Alcatel Australia Ltd v Scarella (1998) 44 NSWLR 349, Burger King Corp v Hungry

Jack's Pty Ltd [2001] NSWCA 187]

135 The recent decision of the New South Wales Court of Appeal in Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187 includes some particular focus upon the implied term of reasonableness, making the point that the Australian authorities make no distinction of substance between that term and the implied term of good faith. The close association of ideas between the terms ‘unreasonableness', ‘lack of good faith’ and ‘unconscionability’ is emphasised in Burger King at para 170 and para 171 where the judgment of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 263 and 265 is cited.

136 In Burger King, the Court said at paragraph 171:

‘Rolfe J observed that in Alcatel, Sheller JA at 369 appeared to equate the notions of “reasonableness” and “good faith”. Whilst Sheller JA did not say that in terms, his review of the case law and academic and extra-judicial writings on the topic, clearly support the proposition.”

137 The nature and extent of the duty was recently considered by Barrett J in Overlook v Foxtel [2002] NSWSC 17:

“[63] But what are the content and effect of such an implied term? This

question was the subject of discussion by the Court of Appeal in Burger King. Sheller, Beazley and Stein JJA referred to the observation of Sir Anthony Mason in his 1993 Cambridge Lecture (see now (2000) 116 LQR 66 at 69) that the concept “embraced no less than three related notions”, being:

“(1) an obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself);

(2) compliance with honest standards of conduct; and

(3) compliance with standards of conduct which are reasonable having regard to the interests of the parties.”

[64] There is some overlap here with the terms implied by law as referred to

in Peters (WA) Ltd. Sir Anthony's duty of “loyalty to the promise itself” may well include the duties not to hinder fulfilment of the promise's purpose and to do everything necessary to enable the other party to have the benefit of the promise. The more substantial and separate content of the duty of good faith itself would therefore seem to lie in the second and third limbs of Sir Anthony's formulation - that is, adherence to standards of conduct which are honest, as well as being reasonable having regard to the parties' interests.

[65] If adherence to such standards of conduct is the predominant component

of a separate obligation of good faith in performance of a contract, it becomes necessary to enquire about the extent to which selflessness is required. It must be accepted that the party subject to the obligation is not required to subordinate the party's own interests, so long as pursuit of those interests does not entail unreasonable interference with the enjoyment of a benefit conferred by the express contractual terms so that the enjoyment becomes (or could become), in words used by McHugh and Gummow JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410, “nugatory, worthless or, perhaps, seriously undermined”. This seems to me to be the principle emerging from para 172 to para 177 of the joint judgment in Burger King where the various authorities are collected and discussed.

[66} Dr Elisabeth Peden of the University of Sydney has characterised the

effect of the good faith requirement in contractual performance as follows (“Incorporation of Terms of Good Faith in Contract Law in Australia”, (2001) 23 Syd L Rev 222):

“Most basically, by using the obligation to perform in good faith as a principle of construction the courts are merely required to ensure that the parties have genuinely adhered to the bargain which they entered into. This will require an examination of the whole contract and the underlying intentions. Strict rights may not be adhered to, if in the context of the contract as a whole, this would subvert the character of the contract. Most cases that discuss the concept do so in terms of negatives, that is, what is not in breach of good faith. This makes sense, since it is the context of the contract read as a whole that will indicate what is

appropriate and what is not.” [67] Viewed in this way, the implied obligation of good faith underwrites the

spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary: Burger King at para 187. The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms.

[68] In many ways, the implied obligation of good faith is best regarded as

an obligation to eschew bad faith. This is borne out by the following succinct statement by Lord Scott of Foscote in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170, a case concerning the duty of good faith in the insurance context:

“Unless the assured has acted in bad faith, he cannot, in my opinion, be in breach of a duty of good faith, utmost or otherwise.”

[69] The approach which regards a duty of good faith as a duty to eschew

bad faith is also supported by United States jurisprudence to which resort may appropriately be had: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Burger King at para 147ff. Writing in 1968, Professor Summers described the duty of good faith imposed by the United States Uniform Commercial Code as an “excluder”: R S Summers, “Good Faith in General Contract Law and the Sales Provisions of the Uniform Commercial Code”, (1968) 54 Va L Rev 195. Its operation and effect were stated as follows:

“It is a phrase without general meaning (or meanings) of its own and serves to exclude a wide range of heterogeneous forms of bad faith. In a particular context the phrase takes on specific meaning, but usually this is only by way of contrast with the specific form of bad faith actually or hypothetically ruled out.”

[70] In Tymshare Inc v Covell 727 F2d 1145 (1984), Scalia J concluded that:

“The doctrine of good faith performance is a means of finding within a contract an implied obligation not to engage in the particular form of conduct which, in the case at hand, constitutes ‘bad faith’.”

[71] Scalia J went on to say that the contract itself will indicate the content of

the duty in the sense that it is imbued or infused with the obligation not to engage in particular conduct.”

Standing back from the detail/Overview perspective

138 Ultimately it is necessary for the Court to stand back from the detailed evidence and to reach findings on the material issues. A number of findings have already been set out in summary form.

139 By far the vast volume of the evidence adduced went to the general question as to whether or not Biscayne, [by Mr Michaelson], by a relevant failure of performance of contractual obligations imposed by the Agreement, has so deprived the Valance parties of what they had bargained for as to justify termination out of hand and without notice. That is to say, was that conduct repudiatory so as to justify termination. The repudiation was said to be justified by past breaches of contractual obligations.

140 Albeit the finding that the failure of the Valance parties to comply with the clause 14.1 procedure removes this as an issue, I propose to deal with the matter in deference to the amount of evidence called on the issue.

141 It is convenient to commence by summarising some of the relevant basal principles.

Repudiation

142 The following propositions are taken from the joint judgment of Deane and Dawson JJ in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623:

· “[R]epudiation of contract is a serious matter and is not to be lightly found or inferred “: Ross T Smyth & Co Ltd v T.D. Bailey Son & Co [1940] 3 All ER 60;

· An issue of repudiation turns upon objective acts and omissions and not upon uncommunicated intention: Laurinda at 658;

· The question is as to what effect the conduct of the entity said to have repudiated would be reasonably calculated to have upon a reasonable person: Laurinda at 658;

· "It is not necessary for repudiation of a contract that the repudiator make plain that he will never perform his contractual obligations at all. What Lord Dunedin described (Forslind v Bechely-Crundall [1922] SC (HL) 173 at 190] as the assumption of ‘a shilly-shallying attitude in regard to the contract’ and what Lord Shaw of Dunfermline [Forslind at 192] called ‘procrastination…persistently practised’ can, in some circumstances, reach the stage of repudiation even though accompanied by assurances of ultimate performance at some future time. In that regard, the law was correctly stated by Lord Shaw in the following extract from his judgment in Forslind [at 191-192] which is directly in point to the circumstances of the present case:

“If, in short, A, a party to a contract, acts in such a fashion of ignoring or not complying with his obligations under it, B, the other party, is entitled to say: ‘My rights under this contract are being completely ignored and my interests may suffer by non-performance by A of his obligations, and that to such a fundamental and essential extent that I declare he is treating me as if no contract existed which bound him’…In business over and over again it occurs – as, in my opinion, it occurred in the present case – that procrastination is so persistently practised as to make a most serious inroad into the rights of the other party to a

contract. There must be a stage when the person suffering from that is entitled to say: ‘This must be brought to an end. My efforts have been unavailing, and I declare that you have broken your contract relations with me:””[Laurinda at 658-659]; and

· "The question whether the stage has been reached when procrastination or non-performance constitutes repudiation is essentially one of fact. The question will, as has been said, only be properly answered in the affirmative when procrastination or non-performance has reached the stage of conveying to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.": Laurinda at 659.

143 The test for anticipatory breach so carefully examined in Amann Aviation would of course require the Court to determine whether it may be inferred that the conduct of the party said to have repudiated was such as to lead a reasonable man to conclude that he did not intend to fulfil his part of the contract.

Dealing with the issue

Finding

144 The Court's ultimate finding is that the proposition that by the date of the first termination letter Biscayne had repudiated the Agreement is not made out on the evidence. I turn to deal with that matter. In doing so it is necessary to focus upon the first termination letter and its allegations as well as such other repudiatory conduct as appears to have been litigated. There are some difficulties in relation to the pleading in this regard which simply asserted that the Agreement had been terminated by the first termination letter, there being no particulars as to any complaints extending outside of what was said in that letter [and which in some circumstances one might find pleaded as giving additional facts and reasons even if not dealt with in the letter but being put forward also to justify the validity of the first termination letter]. [cf Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 377-378]

145 Nevertheless at an evidentiary level it is proper for the Court to infer that careful instructions were taken in relation to the drafting of the first termination letter and that the first termination letter was generally seen at the time as putting forward the real gravamen of those complaints which were thought to be available to be put forward. I interpolate to note a finding that the letter was clearly specious insofar as the initial allegations said to justify the avoidance ab initio by Ms Valance were concerned. The cross examination of both Ms Valance and Ms Stevens read in the light of the evidence as a whole, including the detail of separate legal representation, supports a finding that not one of the grave allegations of misconduct in relation to the negotiations leading to and entry into of the Management Agreement had a shred of substance.

146 The reservation of non exclusivity in relation to the identification of the complaints is noted but it would be unlikely that some other very specific form of complaint which was believed by the Valance parties at the time to be a proper ground of complaint would not have been put forward in this letter.

147 The difficulty is because the first termination letter was so very wide in its general allegations, indeed purporting to give non-exhaustive examples of failures to discharge basic management responsibilities. If one was to endeavour to extract from the first termination letter the precise heads of complaint they appear to be:

· a failure to show any meaningful interest in Ms Valance's career in the entertainment industry ["allegation 1"];

· a complaint with respect to lack of involvement in the securing or negotiating of Ms Valance's publishing agreement with Engine Room ["allegation 2"];

· a complaint with respect to lack of involvement in the securing or negotiating of Ms Valance's recording agreements with Engine Room ["allegation 3"];

· a complaint with respect to lack of involvement in the securing or negotiating of Ms Valance's recording agreements with London Records ["allegation 4"];

[in relation to allegations 2-4 the complaint appears to be that the relevant negotiations

on behalf of Ms Valance were overseen by Ms Stevens who was frequently unable even to

contact Mr Michaelson or to persuade him to take an interest];

· a complaint as to Mr Michaelson having failed to play any part in the activities of Ms Valance as a recording artist [non exhaustive examples being given by way of his alleged failure to make any contact whatsoever with London Records; his failure to organise or accompany Ms Valance on three trips to Europe or to make alternative arrangements for anyone to accompany her and his alleged general lack of interest in terms of recording activities] ["allegation 5"]; and

· a complaint that Mr Michaelson's limited efforts to secure employment for Ms Valance had exclusively involved her appearing in a state of semi-undress in salacious and titillating advertisements and promotional events which invaded her privacy and significantly damaged her long-term career prospects ["allegation 6"].

148 In the course of final submissions the Valance parties submitted as follows:

The breaches by Biscayne of its core obligations in clause 4.1 of the Management Agreement were that it failed to:

· represent Valance Corp and Holly Valance in negotiations regarding terms of the various contracts between Valance Corp or Holly Valance with any of London Records and Engine Room during the latter half of 2001 [ I interpolate that the matters litigated suggest that this claim may be regarded as a restatement of allegations 2,3 or 4];

· supervise Holly Valance’s professional employment ["allegation 7"];

· negotiate and liaise with record companies, publishers and distributors [I interpolate that here again the matters litigated suggest that this claim may be regarded as a restatement of allegations 2,3 or 4];

· keep Valance Corp informed of all matters which arose for consideration in relation to Holly Valance’s career; and be reasonably available to consult with Valance Corp ["allegation 8"] [I interpolate that this allegation appears to extend somewhat outside of, but to overlap with, the matter described above as allegation 4].

149 I proceed below to deal with each of these allegations as well as with some of the other matters which, if they be open on the pleadings, were the subject of some cross-examination.

Lack of complaint

150 Even before turning to the specific allegations there is one matter which is pervasive as an indicator in many respects. Where serious grounds for complaint exist in most walks of life, including the world of breach of contract, it is unusual in the extreme to find that there are no or only minimal complaints of wrongdoing. And notwithstanding the few suggestions in the evidence of Ms Valance to the effect that she had sometimes made a complaint of things that had not been done [as in relation to arrangements for flights or the particular name in which a ticket had been issued, or where she asked why Mr Michaelson was not there or had not come to see her], bearing in mind the type, nature and range of complaints upon which the Valance parties have relied in these proceedings in support of the proposition that Mr Michaelson had repudiated the Agreement, the simple fact of the matter which cries out for attention is that on the evidence there was never an occasion when Mr Michaelson was stood up either by Ms Valance or by Ms Stevens, and when these complaints or anything remotely like them were squarely put to him. Indeed on the one occasion in early 2002 when events were coming to a head, and when Ms Stevens had a lengthy conversation with Mr Michaelson, she did no such thing. One example in the evidence confirmatory of this finding is Mr Wagstaff’s evidence that prior to 26 July 2001 Ms Valance had never complained to him of Mr Michaelson’s performance. [Transcript 647]

Lack of capacity [not put as a ground in the first termination letter]

151 It is quite clear from the evidence that at some time Ms Valance formed the view that Mr Michaelson was not capable of managing her in relation to her recording career [Transcript 398.48]. Under cross-examination her evidence was:

"Its a bit difficult and when you hire somebody because they have expertise and it turns out that they don't, it was very difficult for me to say, "Well, you don't know anything about the music industry". [Transcript 400.30]

152 Ms Valance also gave evidence that at some time she formed the view that Mr Michaelson was simply not capable of being her managing agent. She formed this view approximately 10 months or a year prior to the first termination letter. In giving this answer she continued:

".. [h]is people relationships were terrible. I mean, if he did come somewhere and he rubbed everyone the wrong way. It was embarrassing. He didn't seem to know a lot of the time what he was talking about. He does talk a lot but not about anything that was particularly relevant. I guess not accompanying me to very important things in my career and never really being around." [Transcript 440]

153 The cross-examination of Mr Michaelson on a number of occasions sought to essentially establish that he simply did not have the knowledge or background or in general, the capacity, to act as a managing agent in terms of an artist with a recording career.

154 Whilst not determinative of the issue [cf Shepherd v Felt and Textiles of Australia supra] it seems clear that the first termination letter made no allegation of lack of capacity but was confined to complaints of numerous alleged failures to fulfil what were said to be "even the most basic of management responsibilities". As has already been stated, the Court may obviously infer that the letter was written on instructions [the evidence of both Ms Valance as well as Ms Stevens was clear in relation to close communications with the solicitors before the letter was written], and had those instructions been of a clear

lack of capacity, it would seem likely to expect the letter to have made this allegation.

155 Further in opening the case Mr Cobden appeared to eschew any claim of lack of capacity:

HIS HONOUR: ... I know you are in the process of opening the case to me. From what you have said, what you submitted a moment or two ago in overview, I rather gathered that your clients' submission and case would involve the concept that Mr Michaelson, even at the inception of the agreement, simply did not have the necessary skills to manage as managing agent this particular person. COBDEN: In this particular part of the entertainment industry. HIS HONOUR: Yes, and to the extent that the evidence is then going to go into things such as just what she was doing and what you are going to be putting presumably to him and submitting he should have been about at material times, how does the notice provision work? Can you send a notice to someone to effectively say, "Look, you don't have the capacity to do that which is necessary as managing agent", because it rather seems to go to the commencement and position of the two parties entering the agreement, as I gather your case, as much as to what occurs during the course of it? COBDEN: I hope not, your Honour. I don't put it that way. Mr Michaelson, despite his lack of experience in the music side of things, or let's say in music management generally, could for example out of his share have engaged expertise through 2001 and given the requisite support through 2001 to Ms Valance. HIS HONOUR: What kind of managers for example? COBDEN: For example, or an employee. It is a management company. Coming out of its share, it could have for example on the days when, on our case, Ms Valance was left to record or do a showcase for Mr Hollingsworth of London Records without a shred of management assistance for support, could have had somebody there to do it. It doesn't have to turn on his lack of supplying the requisite expertise.[Transcript 54]

Experience

156 It cannot be suggested that Mr Michaelson had the background experience or capacities of Mr Fowler in relation to managing recording artists. However Mr Michaelson did have some, albeit limited, experience in working with record companies [Transcript 168-169]. When asked under cross-examination which were the record companies he had dealings with prior to August 2001, Mr Michaelson made reference to Standard Records (Ralph Carr), Edel Records (through Phillip Moross of Cutting Edge), Engine Room and Warners (through Mr Caplice). [Transcript 167, 184] Mr Michaelson liased with these people and companies on behalf of Ms Valance.

157 Mr Michaelson met Mr Caplice for the first time on a flight on 21 November 1999. [Michaelson, 1, 62-63] It was Mr Caplice who put Mr Michaelson in touch with Engine Room representatives. Mr Caplice also provided Mr Michaelson with advice and information about Messrs Carr and Klippel and their respective record companies at a meeting on 6 June 2000. [Michaelson, 1, para 115]

158 He had also dealt on behalf Ms Nicola Charles and in his capacity as for manager, with Tony Cochran, London Records label out of England. Ms Charles had recorded a White Label.

Inference

159 Significantly the Valance parties seek that the Court infer this lack of capacity from the evidence generally relating to the manner in which, once the Engine Room contract had been entered into, Mr Michaelson stepped back and permitted Mr Klippel and Mr Wagstaff on to centre stage in terms of handling and dealing with the next stage in Ms Valance's career. That inference cannot appropriately be drawn from these circumstances. The evidence discloses that Mr Michaelson was put in contact with Mr Klippel by Mr Caplice; that Mr Klippel was known to him as the lead singer in Euphoria; that he knew of Mr Klippel and that he was someone who had good vision and was a good songwriter, someone who had worked with "great people" all around the world and was very well-respected in Los Angeles and London and had been involved in a lot of great tracks and was “an up-and-coming person” [Transcript 290]. He had had an initial meeting with Mr Klippel and was fairly impressed with him and his vision and gave evidence that "he seemed like someone who was moving in the right direction". He knew of the band of four girls known as ‘Lash’ which Mr Klippel had just been promoting and was happy with the music. [Transcript 290]. His evidence was:

"I believed in Andrew Klippel's creative direction and I felt that we had the same vision for what we were trying to achieve in relation to Holy as a pop artist" [Transcript 220]

160 Further he gave evidence of knowing what Engine Room had said about been backed by Mr James Packer and that with Engine Room's experience and contacts it had been able to do that.

161 None of this is exceptional. Mr Michaelson acted entirely within his management responsibilities in introducing Ms Valance to Engine Room and in participating in the negotiation of the Engine Room Contract.

Allegation 1 - no meaningful interest in Ms Valance' s career

162 There is absolutely no substance in this allegation. It is certainly not made out on the evidence. Mr Michaelson's meaningful interest in Ms Valance's career is demonstrated by the avalanche of activities by him recorded in his affidavits and summarised in the chronology. They extended to promotional activities. Mr Klippel under cross-examination gave evidence to this effect. His activities included inter alia:

· acting work: meeting with an acting agent from the United States of America; pursuing theatrical (pantomime) work in the United Kingdom [Michaelson, 1, para 82];

· music recording, the net result being the signing of the Engine Room agreement;

· promotional work, including Red Earth and Coral Colours [Michaelson, 1, para 75], two cosmetic companies;

· arranging night club appearances [Valance, paras 39-40];

· photographic shoots, including FHM, Inside Sport [Michaelson, 1, para 91] and Shout magazines;

· liasing with representatives from Foxtel about Ms Valance obtaining work on Foxtel [Michaelson, 1, para 91]; and

· clothing deal with Cutting Edge [Michaelson, 1, paras 29-30].

Allegation 2 - lack of involvement re Ms Valance's publishing agreement with Engine Room

163 There was very little evidence given in relation to this issue. Such evidence as was given in particular by Mr Klippel [Transcript 535-536] makes clear that Mr Michaelson was in fact involved in the negotiation of the Engine Room Music publishing agreement and had initially refused to be prepared to have Ms Valance and Valance Corp sign the agreement in the first form in which it had been put up because it was a long form publishing contract with which he was dissatisfied in terms of a number of aspects. Mr Klippel also accepted that Mr Michaelson negotiated with himself and Mr Wagstaff to a degree in relation to the agreement.

164 Mr Michaelson was not a lawyer. He put Ms Valance and Ms Stevens and by them, Valance Corp in touch with an experienced entertainment lawyer, Mr Oaten. Mr Klippel gave evidence that Mr Oaten was a prominent music industry lawyer who was known to him before he began to deal with him in relation to Ms Valance; that he had not had any doubts about Mr Oaten's capacity to represent Ms Valance; that Mr Michaelson informed him he had retained Mr Oaten to represent Ms Valance in dealings with Engine Room; and that it was his experience that managers of recording artists negotiating an agreement brought in lawyers and accountants [Transcript 522]. The Agreement whilst obliging Mr Michaelson to represent Valance Corp and Ms Valance in negotiations regarding the terms of all contracts for personal services did not mean that he and he alone would be knee deep in those negotiations. Mr Klippel gave evidence that in his experience sometimes managers or managing agents negotiated directly with Engine Room and sometimes they, by reference to the solicitor for the artist, kept an eye on and were in touch with the negotiation. [Transcript 523]

165 Mr Michaelson was entitled to assume, as in fact happened, that Ms Stevens [in close communication with Ms Valance] would be advancing these negotiations towards achieving a publishing agreement, by a very close solicitor client relationship with Mr Oaten. There does come a stage when a managing agent is entitled to step back having satisfied itself that proper arrangements are in place for the settling by close negotiation of the relevant publishing agreement with the entity [Engine Room] to which the managing agent, in a skilful exercise of its obligations, has succeeded in introducing the Artist.

166 The evidence of course quite plainly establishes that Mr Michaelson carried out a deal of close activity in the primary role of interesting Engine Room in Ms Valance.

167 There is no substance in allegation 2.

Allegation 3 - lack of involvement in the securing or negotiating of Ms Valance' s recording agreements with Engine Room

168 Nor is there any substance in this allegation, and for much the same reasons as have already been treated with in relation to allegation 2. Mr Michaelson gave the following evidence which is accepted as reliable in his first affidavit [141-143]:

Finalising negotiations for a recording contract

In about the period August to October 2000 I had various discussions with Valance and Stevens about Mr. Oaten representing Valance now that the Management Agreement had been concluded. We all agreed that Oaten would represent Valance and her company.

There were a series of phone calls between myself, Klippel, Wagstaff, Karen, Ralph Carr, Mr. Caplice, Oaten and Valance as the recording contract negotiations moved to finalisation. On 3 November 2000 at 10.30a.m. I attended a meeting with Oaten. It was a meeting immediately prior to a meeting to negotiate the recording agreement for Valance with Engine Room Music. At the meeting we discussed our strategy. I said to Oaten words to the effect “You can be bullish in the negotiations. Engine Room believes there are two other interested parties.” We had already discussed the less favourable deal offered by Carr and the fact that we had not heard anything from Warners. We agreed that in the meeting with Engine Room I would continue to promote and “upsell” Valance and he would negotiate and fine tune the terms.

On 3 November 2000 at 11.00a.m. I attended a meeting with Oaten, Wagstaff and Klippel at the Alexandria recording studio. We all sat down and proceeded to negotiate the contract. Wagstaff and Oaten conducted most of the negotiations. By the end of the meeting we had agreed all the main terms of the contract. Oaten and Wagstaff agreed to send documentation back and forth between each other to finalise the documentation and we all agreed on a suitable time frame. I thought at the time that Klippel and Wagstaff were in a hurry to sign Valance up. I believed at the time that this was because they believed that the so-called ‘other players’ were trying to sign Valance and may offer a better deal.

After the meeting I called Valance to tell her the good news.

169 Mr Klippel accepted under cross-examination that royalty rates, numbers of CDs, releases of singles, duration of the agreement were discussed with Mr Michaelson, his recollection being of a meeting, which to use his words: " involved Brett Oaten and Mr Michaelson and Todd Wagstaff and myself where, essentially, Todd Wagstaff and Brett Oaten worked through the points of the deal" [Transcript 523]. He could not assist in relation to precisely what communications Mr Michaelson may have had with Mr Oaten in the course of liasing in relation to the negotiations. Ultimately Engine Room retained a solicitor with expertise in the entertainment industry to finalise the documentation negotiating in that regard with Mr Oaten.

170 Here again Biscayne cannot in my view be said to have breached its relevant contractual obligation and for the above reasons. Again it was in association with Mr Oaten that the Valance parties carried out the fine-tuning in terms of the negotiations and this was relevantly unexceptional.

Allegation 4 - lack of involvement in the securing or negotiating of Ms Valance's recording

agreements with London Records

171 It is convenient to commence with a general overview of the evidentiary landscape in relation to this allegation which overlaps with allegation 5 and in relation to which a very great deal of the cross-examination took place.

Stepping back – the evidentiary landscape

172 It is clear from the evidence that once the Engine Room contract had been signed Mr Michaelson stepped back and generally thereafter substantially restricted his further involvement in the nuts and bolts of Ms Valance's recording career. A major issue litigated was whether he had stepped back too far in this respect. Perhaps he had, as a matter of general discourse, but this judgment does not deal with general discourse. For the Court the question is whether, in the approach which he took, his actions, are shown within the principles outlined in Laurinda, to have constituted a repudiation of the Agreement. To answer that question the Court must look at the whole of the evidence. In short terms the evidence on this issue may be said to amount to the following:

· At the time when the Agreement was executed, it was not known whether, and if so to what extent, Ms Valance's career would be one of a pop singer, although clearly the possibility of a singing career, perhaps in tandem with an acting career, was on the cards.

· In relation to the singing career possibility, as already stated, there can be no criticism of Mr Michaelson's promotion to Valance Corp and Ms Valance of Engine Room and of the Engine Room Contract. Engine Room was a perfectly acceptable, albeit relatively small production company. Mr Hollingsworth gave the following evidence:

Q. Mr Hollingsworth, you had apparently quite a deal to do with Mr Klippel and Mr Wagstaff. Can you please in relation to each of them shortly tell us what you from your dealings with them perceived to be their competence, ability, field of endeavour and the like, because, well, you seem to have had a lot of dealings with similar persons in your life, and I'd like to know your assessment in that regard?

A. …the Engine Room were a developing ground for talent. That should be their role in the big scheme of things. They should take artists, develop them to a stage where it's ready to go to the next level, you know, and, as far as that, they have achieved that obviously with Holly and with various other projects that they've been involved with, and, yeah, they're a very good production/record label out of Australia. [Transcript 492.45]

· Mr Klippel gave the following evidence:

Q. When Mr Michaelson came to you, you understood that he was coming to you because of your music industry expertise?

A. Yes.

Q. And it was an expertise or experience of value in a number of areas for developing a recording artist because you had been a performer, you had been involved with developing artists, you had been involved in the record industry?

A. Yes.

Q. And so you brought all those things to bear in Engine Room with Mr Wagstaff?

A. Yes.

Q. And Engine Room, it's public knowledge, is a company in which Consolidated Press Limited or the Packers have an interest?

A. Yes.

Q. And at all times Engine Room has had ample funds to develop artists that were considered worth developing?

A. Yes.[Transcript 520]

· Ms Stevens gave evidence that she formed the views that Mr Klippel was experienced in the music industry in relation to recording and the promotion of recording artists; that he was a suitable person to further the development of Ms Valance and her career in that area; that at all times he was doing his best to do that; that she considered him to be a person who would give appropriate guidance concerning music to Ms Valance; that she considered him to be a person who would give appropriate guidance concerning the sort of music which would further Ms Valance's career, hopefully, to make her a recording artist of note; that so far as she was aware Mr Klippel always did that; that as far as she was aware Mr Wagstaff always did what he had to do in that connection to further Ms Valance's career; that she did not have any complaints in relation to Mr Klippel's or Mr Wagstaff's efforts to get a deal with London Records and Mr Hollingsworth; that she did not have any complaints with the substance of the deal which they got and found Mr Klippel to be a pleasant person and someone with whom she could work in relation to the business affairs of Ms Valance; and that the position was the same in relation to Mr Wagstaff. [Transcript 316-317]

· Ms Valance gave evidence that after she initially met Mr Klippel, she attended at a number of meetings with him before the Engine Room Music agreement was signed in December 2000; that they would talk about creative things, styles of music, signing to majors and the like; that she found him to be a person who she thought was knowledgeable in relation to music in general; that she regarded as someone who appeared to know what he was talking about in relation to popular music and the development of her career, and that he was a person upon whom she was happy to rely in relation to her recording career and its development. [Transcript 369]

· Ms Valance also gave evidence in relation to the role which Engine Room had in persuading a major, namely London Records to take her on:

Q. And you knew at that time [11 August 2001] that Engine Room had the worldwide rights to you as a recording artist, to put it broadly?

A. Yes.

Q. And to your mind at that time, Engine Room had to make the running in getting a major in?

A. Yes.

Q. Because if Engine Room didn't agree with the major as to what deal would eventually be done, there would be no deal?

A. And us, yes.

Q. And you, yes. And you, that's so. But Engine Room to your mind at the time was a necessary participant in any deal to get a major in?

A. They were very important, yes.

· Mr Michaelson gave evidence that at the time of the negotiations of the agreement with Engine Room he had been told by Engine Room that they had the capability of releasing worldwide with their contacts. [Transcript 172]

· It is clear that the whole issue of the possibility of being introduced to London Records occurred by reason of the contacts, approaches and suggestions of Mr Klippel leading to the opportunity of Engine Room to deal with London Records in terms of the negotiation for the replacement contract. Mr Klippel gave evidence that his view [which developed from the middle of 2000 and firmed up by the end of 2000] was that it was not appropriate for Mr Michaelson to be involved in the negotiations to obtain a United Kingdom major. His evidence which is accepted in this regard was that this had also been the view expressed to him by Mr Wagstaff at the time. Importantly it was also Mr Klippel's view that Engine Room had the main responsibility for the conduct of the negotiations with the United Kingdom major, that this was how it had turned out and that this was how Engine Room had wanted it to be. His evidence was that Engine Room had wanted this to be the case not only because it had the contractual rights to Ms Valance, but also because of Engine Room's expertise in dealing with majors in respect of recording artists and that as far as he was aware this was also Mr Wagstaff's view at the time. [Transcript 525-527]. It was put to Mr Klippel that he had suggested to Mr Michaelson that he would not need to be involved in negotiating the deal with London Records. When the question was first put to him, as the transcript records, there was a reasonable length of time before he responded effectively that he could not recall. He later accepted that he could not deny that this may have been said although he could not recollect putting the matter in those terms. The Court's finding is that Mr Klippel gave reliable evidence of his best recollection but that in this particular instance, he clearly could not be certain of what he had said. To the contrary Mr Michaelson's evidence [first affidavit paragraph 223] is accepted as reliable: he recalled a conversation with Mr Klippel who informed him: "The deal with London Records will be between Engine Room Music and London Records. Valance Corp and you will not need to be involved in negotiating the deal". His further evidence, also accepted as reliable on this matter, was that he understood at that time and until the middle of November 2001 that there was no need for him to be involved directly in the negotiations as it was to be a deal between the two record companies whereby Engine Room shared its world wide exclusive recording rights with London Records. Likewise his evidence, also accepted as reliable (first affidavit paragraph [224]), was that in about the middle or late November Mr Wagstaff telephoned him and said "We have virtually finalised our deal with London Records but London Records now want to do the deal in London Records name and Ms Valance's name. The deal is going to be better for Holly".

· The Court also accepts as reliable the evidence given by Mr Michaelson [in paragraph 227 of his first affidavit] that in October 2001 Mr Oaten told him to wait until the London Records deal was finalised before meeting with Mr Hollingsworth. Based on this advice Mr Michaelson whose evidence is accepted in this regard, did not arrange to meet with London Records when in London so as not to jeopardise the deal.

· Albeit that Mr Michaelson was generally very much on the outer edge of the arrangements and dealings concerning selection of tracks to be or being recorded, his evidence which is accepted, is that he did have occasion to meet with Mr Klippel and was given a CD of all the tracks which had been recorded overseas and gave his opinion of what he thought was good and did not think was good, his opinion being the same as that of Ms Valance, so that his opinion was "taken on board" [Transcript 182]. His evidence was that Ms Valance was recording many different songs and he was comfortable with Engine Room coming up with a variety of songs and for him to listen to those songs when the tracks were received which were played to him on many occasions and to give his opinion on them. [Transcript 215]. Having said that,

it does appear from the evidence that Mr Michaelson to use his words:

"[f]elt as time went on that, in hindsight, that they [Engine Room] had left me out of vital communication,.." [Transcript 182.50]

A deal of the evidence justifies this view.

· The negotiations between Engine Room and London Records which resulted in the London Records Agreement critically involved what was in effect a replacement of the Engine Room Contract. For that reason it is hardly surprising that Engine Room were so very much involved in the negotiation of the Agreement. There is no doubt but that Valance Corp by Ms Stevens (whom the evidence discloses was in very close communication at all material times with Ms Valance in relation to the affairs of and contracts being negotiated by Valance Corp – [Transcript 387.42, 397.29]) was obtaining close advice in relation to the terms of the London Records Agreement, inter alia, from Mr Oaten who gave legal advice and also gave advice as to matters such as percentages [Transcript 304.52] and on her evidence also from Mr Kirby who was Valance Corp's accountant [Transcript 323] . In those circumstances there is a strong complaint in relation to Mr Michaelson's relevant absence from being involved in the negotiations as to the precise terms of the London Records Agreement. To my mind, although the criticism in this regard does have some substance, the proper perspective is to view the whole of the re-negotiation against the background that it is correct to say that Engine Room which had the relevant worldwide rights, would necessarily always have been integrally involved as the moving party where the Replacement Agreement which was in effect diluting and altering the anterior Agreement, required Engine Room’s consent and acquiescence. The fact that the London Records Agreement included significant provisions which, in dealing with the rights and obligations of Ms Valance and Valance Corp, went further than those to be found in the Engine Room Agreement, does suggest a particular materiality in Biscayne playing a part in the negotiation. However Mr Michaelson had been the one who introduced the Valance parties to Mr Oaten initially. It is correct to say that by the time the London Records Agreement was being negotiated, to a certain extent it was only Engine Room which had the necessary muscle/bargaining power to press particular provisions where they may affect its anterior rights under its Agreement. Likewise it is fair to say that Mr Michaelson, who was also a client of Mr Oaten, continued to be in contact with Mr Oaten, learning in a general way of developments. But ultimately this is an area where Biscayne had an obligation to represent Valance Corp and Ms Valance in negotiations regarding the terms of the contract [Agreement Clause 4.1]. There is a deal to be said in relation to Biscayne having fallen down in terms of discharge of this obligation, but to my mind in weighing this failure in terms of suggested repudiatory conduct, one critically needs to bear in mind the already identified statements by both Mr Klippel and Mr Oaten each to Mr Michaelson’s knowledge in close contact with Ms Stevens (with whom Ms Valance was in close contact), warning him to keep clear. One also needs to turn to more of the evidence to follow the circumstances in which this failure occurred.

173 There can be no doubt but that the achievement of the London Records Agreement represented a signal enormous step in terms of Ms Valance's career and possibilities. And it had all come about through Mr Michaelson having initially introduced Ms Valance to Engine Room which, through the care and careful husbanding of Ms Valance's career by Mr Klippel, had led to London Records. Mr Klippel gave the following evidence in this respect:

GARNSEY: Q. In relation to London Records, in those negotiations Engine Room had the worldwide rights to Ms Valance as a recording artist?

A. That's right.

Q. And Engine Room had the rights, as you understood it, under the agreement of December 2000 to enter into an agreement…with London Records or with a major irrespective of the rights, …of Ms Valance or Valance Corp in the sense that if it was within the Engine Room rights,

Engine Room could dispose of those?A. If it was a licence, if we'd licensed it, but that wasn't what the deal was.

Q. No, the deal involved a replacement of the Engine Room Music agreement?

A. That's right.

So we could do a direct signing to London Records, which would be a much more substantial thing for them?

Q. Yes.A. And, therefore, for Holly.

Q. That's right. And in that sense it was a very advantageous deal for Ms Valance, wasn't it?

A. Absolutely.

Q. Especially at the stage she was at in the development of her recording and singing career?

A. Yes.

HIS HONOUR: Q. Can you think of any disadvantage to her?A. I can't, actually. I think it's a good deal. It's a good deal for the artist, that

type of thing.

Q. Yes. Very well.A. The only disadvantage would have been the fact that we still were

getting a slice of the pie but, then, without us that wouldn't have happened, so that depends on your perspective on the whole thing, you know.

Q. Well, presumably - is this correct - you've had something to do with a number of people who have made it on to the international scene by this sort of route, signing up with a major?

A. Yes.

Q. And so your answer that you can't think of any disadvantage is informed by that experience of a number of circumstances of people getting on to the world scene?

A. Yes.[Transcript 539-540]

The close out

174 This is a case where the evidence clearly establishes to the satisfaction of the Court that some considerable time before the sending of the first termination letter, Ms Valance had firmly decided that Mr Michaelson "was not up to it", that is to say was not capable of being her managing agent. In terms of when she first formed that impression or came to that decision, her evidence which is accepted as reliable in this regard, was that this was 10 months or a year before the sending of the first termination letter [Transcript 439-440]. This is not inconsistent with her evidence that it occurred before the Stockholm visit [Transcript 398]. There is no doubt also from the evidence given by Ms Stevens, that the discussions in relation to terminating Biscayne's/Mr Michaelson's appointment as manager, had been the subject of discussion over an extended period, possibly before October 2001. [Transcript 321]

175 It seems quite clear that from 11 August 2001 up to the end of January 2002, Ms Valance was firm in her mind that Mr Michaelson "had to go," that is to say, the agreement with Biscayne had to be put to an end. [Transcript 402] Likewise the failure to give the 30 day notice to cure in the first termination letter which was sent on instructions is a clear indicator of the decision not being negotiable.

176 Mr Klippel gave the following evidence:

Q. Was there some occasion when someone at London Records said to you effectively, "Look, we will need to have a leading London managing agent rather than Mr Michaelson. Understand that"?

A. Yes.

Q. When was that?A. Look, that was something I was aware of without London ever

mentioning that.

Q. I see.A. It would have been probably time-wise maybe round the middle of -

middle to late 2001.

Q. Is this when you personally were aware without that having had to be said to you?

A. Yeah, I was just aware of the facility that a manager performs in the UK.

Q. You just told me that you were aware of it without it having to be said to you, and then you gave a date. Were you meaning that's the date when you think you became aware of it without having to be told it?

A. I think so, but the dates - it's difficult with the dates.

Q. In any event, as far as when someone did say it to you, what's your best recollection of who it was and when it was?

A. When someone said it to me?

Q. Yes. Someone from London Records, presumably, if that's what you're saying happened.

A. Someone would have - it would have been spoken about after the period of the Alfie Hollingsworth dinner, after that kind of period, but I was aware of it preceding that personally.[Transcript 528-529]

177 The Court's finding on the evidence is that for a considerable part of 2001 but most particularly from mid year onwards, the writing was on the wall for Mr Michaelson in terms of Biscayne's Management Agreement. The whole tenor of much of the evidence bears this proposition out. In particular the Court accepts the evidence given by Mr Michaelson to the effect that he only learned that Mr Hollingsworth was coming to Australia about a week before 11 August 2001, had been told that he had to be present on the Saturday night, and either had not been told about the arrangement that Ms Valance perform a showcase on the same day (learning of it only after the event, on the night in question) or could not recall even having been told that. [Transcript 176]

178 The close out mindset of both Ms Valance as well as Ms Stevens colour many of the complaints as to Mr Michaelson's conduct during a deal of the 2001 year but most particularly during the period from mid-

year onwards. What was happening surfaced at least on 26 July 2001 when Mr Michaelson met with Mr Klippel and Mr Wagstaff at the Bambini Trust Cafe in Sydney to discuss Ms Valance's recording deal. Whilst there is some degree of conflict in relation to the relevant evidence before the Court, the Court’s finding is that Mr Klippel and Mr Wagstaff expressed the strong view that they needed a United Kingdom manager to look after Ms Valance or would not be able to do a deal with a United Kingdom major. On the Court's findings they tried to insist that Mr Michaelson step aside as Ms Valance’s managing agent in the United Kingdom but he refused. There is no doubt that reference was made to the vastly improved prospects of having an established manager in United Kingdom in terms of Ms Valance's career.

179 Returning for the moment to the meeting at the Bambini Trust Cafe Mr Klippel accepted under cross-examination [Transcript 531] that at this meeting Mr Michaelson had said words to the effect:

"I will be Holly's United Kingdom manager and I will go to the United Kingdom when she moves over there. If necessary, I will use the advice of experienced United Kingdom managers when the time comes."

180 For Mr Michaelson, “it was a turning point because they changed their direction with me” [transcript 142]. The reality of the change was however not to be communicated to him until he received the much later first termination letter. He was still liaising with the producers of Neighbours on behalf of Ms Valance in relation particularly to obtaining time away from the cast.

181 Bearing in mind the very close and increasingly frequent contacts and communications which had for some time already been the order of the day, between Mr Klippel and Mr Wagstaff of the one part and Ms Valance and sometimes Ms Stevens of the other part, and the continuance and increased frequency of those communications from this point in time onwards, the Court is able to infer that the perceptions of Mr Klippel and Mr Wagstaff as to the need for a United Kingdom manager were shared at all material times with Ms Valance as well as Ms Stevens. This is a very important matter to keep in mind because across the whole of the period from mid-2001 up to the first termination letter, any suggested shortcomings by Mr Michaelson/Biscayne in the discharge of contractual obligations imposed by the Agreement are coloured by the dice being so heavily weighed against Mr Michaelson/Biscayne, and importantly, on the Court’s findings, being so weighed in the absence of any communication to Mr Michaelson of that fact. He continued to be entirely unaware of what was happening in this regard. The one glimmer of light came from a call in which [on Mr Michaelson’s evidence which is accepted as reliable on this matter] Mr Wagstaff said that Mr Michaelson would not be around much longer as her manager. But this was completely deflected both by Ms Valance [Michaelson first affidavit paragraph 241] and by Ms Stevens [Michaelson first affidavit paragraph 242], neither giving Mr Michaelson a hint as to the hidden [from him] agenda.

182 Mr Klippel gave the following further evidence [Transcript 552]:

HIS HONOUR: Q. This statement in this e-mail that you read, "Obviously London Records will decide how they want to play this", was it your perception that that was the case, that it was London Records who would decide how they wanted to play the whole scene concerning termination of the management and call the shots?

A. Well, yeah. I mean, London Records were directly affected because their investment is so high in an artist of this nature that they would be expecting to be working with somebody that could bring a lot to the equation in terms of television and radio and promotion, to working with the label. All these big pop artists have that ability and, I mean, they were kind of sold on that at that dinner, so I think that, you know, that's why London Records were important in the equation. If it was Australia, then it could be - it could have worked with Scott, I think, you know, in

that sense.

Q. Well, at the time that the London Records agreement was being negotiated and signed, as you recall it, was it or was it not the case that the real backdrop to the whole enterprise was that everyone that you dealt with from the London Records side of the equation were clear that Scott Williamson [sic] would not be the manager; there would be a London manager?

A. Yes.

183 Much of the cross-examination involving not only the 11 August 2001 meeting and showcase with Mr Hollingsworth, but also involving suggested shortcomings by Mr Michaelson in failing to assess or to be relevantly involved in the selection of which songs should be recorded, and in relation to the recording of Kiss Kiss, might be entirely differently assessed in terms of suggested repudiatory conduct but for the fact that Ms Valance and Ms Stevens were on the Court's findings, already in mindset that Mr Michaelson was to go. It was not a question of whether he was to go. The only question was when and how. And the evidence even answers that question reasonably clearly in terms of a contemporaneous e-mail dated 20 December 2001 from Ms Stevens to Mr Klippel: "Obviously London Records will decide how they want to play this and we will wait to hear from you" [Transcript 333]. It is a short step for the Court to infer that London Records actually had the running, the clear evidence being that London Records wanted the Agreement terminated [Transcript 334]. As the evidence discloses, clearly by late December 2001 knowledge of 'this accident waiting to happen' was being shared by Ms Valance, Ms Stevens, Mr Klippel, Mr Wagstaff and Mr Oaten. Under cross-examination Mr Klippel recalled that towards the later part of 2001, Ms Stevens discussed with him the desirability of terminating Mr Michaelson and the Biscayne Management Agreement. He accepted that Ms Stevens had said to him words to the effect "we are going to terminate the contract" and that he had said words to the effect "okay". He indicated to her that the appropriate course would be to speak to a lawyer with a view to terminating the Agreement. [Transcript 533-534] [cf Transcript 547.26]

184 The matter had been germinating certainly from July/August 2001 and in the mind of Ms Valance, had already been well and truly alive much earlier than that. For those reasons on the Court's findings the evidence given by Mr Michaelson as to his having been left out of the loop on so many matters during the second half of 2001 is accepted as both credible as well as reliable. That evidence fits perfectly with the close out picture and considerably clouds any suggestion that Biscayne/Mr Michaelson can fairly be charged with acts of omission or commission in terms of repudiatory conduct during this period. Mr Michaelson was to go - he just did not know it at the time. All of this is entirely consistent with his evidence of not being informed of the January London trip involving the making of the music video clip of Kiss Kiss. It is noted that Mr Klippel under cross-examination in relation to conversations with Mr Hollingsworth about the Ms Valance trip proposed for January was asked whether there was any mention made of making a music video clip of "Kiss Kiss ". He believed that this was to be part of the trip and that Mr Hollingworth had told him as much, although his recollection was a little cloudy. [Transcript 545]

185 Mr Klippel gave the following further evidence [Transcript 546]:

Q. I want you to go to Monday, 10 December 2001…A. Yes.

Q. And that's an e-mail from Mr Wagstaff to Mr Hollingsworth, copy to you and to Karen?

A. Yes.

Q. So, it's at that stage, 10 December, that you were aware of the trip and

Mr Wagstaff's request in the second paragraph, "We need to confirm that this is the time we want to use to release the first single complete recording", and he is talking about a period in March?

A. Yes, using that time to promote it.

Q. And at that stage, was it your understanding that a master for "Kiss Kiss" had been produced? That's as at 10 December?

A. I don't know whether the master was completed, but within the works, definitely.

Q. Yes. And if I were to suggest to you that Mr Hollingsworth wasn't quite happy with what had happened in November and been worked on?

A. Yeah.

Q. And he did more work on it when Ms Valance got to London in early January?

A. That's right.

Q. Now, it's correct to say, isn't it, that Mr Michaelson was never informed by you or by anyone else so far as you are aware that work on a master of "Kiss Kiss" had commenced?

A. No.

Q. You are agreeing with me, are you?A. Yeah. Not to my knowledge, I didn't talk to him about it being finished

or any of that stuff.

Q. You didn't?A. No.

Q. And so far as you are aware, no-one else did?A. No.

186 In all those circumstances allegation 4 fails to qualify for the description repudiatory conduct. The question is essentially one of fact. The circumstances could not be seen to be such as to convey to a reasonable person in the situation of the Valance parties, a repudiation or a disavowal either of the contract as a whole or of a fundamental obligation under it.

Allegation 5 - failing to play any party in the activities of Ms Valance as a recording artist

187 Here again it is necessary to stand back from such an allegation which requires to be examined against the whole of the evidence, importantly involving the mindset of Ms Valance that Mr Michaelson was not up to the task of being her Manager and critically from the middle of 2001, involving the close out already referred to. The allegation is not of substance when weighed in that way and particularly bearing in mind the context where Engine Room were so closely integrally involved in Ms Valance's relevant recording artist activities, it not being the case that Mr Michaelson could be said not to have communicated with Engine Room. The matter is one degree of contact and detail. He did not have to metaphorically at all times "hold her hand".

Allegations 6 and 7 - limited efforts to secure employment exclusively involving appearances in state of semi undress etc.

188 This allegation is not made out. Neighbours represented a significant role. Mr Michaelson was responsible in a real sense for this opportunity coming forward. It is all very well to say that he was not-but he was. There are numerous actors, tens of thousands seeking such a role all over world. Mr Michaelson saw the talent. He had the contacts. In this matter he discharged the responsibilities of managing agent in spades. The Engine Room contract ultimately finessed into the London Records contract bears testimony to the range and significance of Mr Michaelson's relevant activities. The complaints as to semi-undress appearances were of minor significance hardly worthy of note against the big picture of the general attempts to climb into being noticed. Mr Klippel under cross examination [transcript 565] gave evidence dismissive of the allegation where the publicity was used as a promotional tool rather than as a tool to originate a career. The same matters require the rejection of allegation 7.

Allegation 8 - failure to keep Valance Corp informed of matters which arose for consideration in relation to Ms Valance's career and to be reasonably available to consult with Valance Corp

189 This allegation is not made out when one takes the whole of the context into account. It should not be forgotten that across almost the whole of the period of concern Ms Valance was tied to the Neighbours contract. The allegation also requires to be weighed against the, from mid to late 2001, “hidden agenda" - at least hidden from Mr Michaelson. The close out evidence is pervasive in terms of weighing the significance of this allegation. It suited the Valance parties for example to be in close and regular communication with representatives of Engine Room and with Mr Oaten concerning the negotiations for the London Room contract. It now suits them to claim that Mr Michaelson should have been knee deep in the same negotiations. But he was far from wanted. He was expressly asked to keep out of those negotiations. Everyone but he seems to have realised that he was on the way out. It should not be forgotten that Ms Valance's evidence included that: "[H]is people relationships were terrible…if he did come somewhere he rubbed everyone the wrong way. It was embarrassing. He didn't seem to know a lot of the time what he was talking about. He does talk a lot but not about anything that was particularly relevant" [Transcript 440]. These are not the words of someone likely to have wanted Mr Michaelson [who was not prepared to countenance an outside London Managing Agent], being at close quarters with the negotiations with London Records, whose requirement in that regard was made extremely clear over a period of time.

Delegation

190 Mr Cobden submitted that either:

· a close examination of the evidence disclosed that Mr Michaelson did not in fact delegate any obligations under the Agreement to Engine Room and to Mr Oaten; or

· to the extent that Mr Michaelson on the evidence purported to delegate such obligations to Engine Room and to Mr Oaten, the nature of the relevant obligations was such that they simply could not be delegated.

191 The Court's finding is that here again, the proper discharge of the contractual obligations thrown up by the Agreement can only be weighed against the whole of the evidence. The situation was a very unusual one and the close out was part and parcel of the agenda to have Mr Michaelson removed, albeit that he did not know it at the time. In the particular circumstances which obtained he was entitled to accept from both Mr Klippel and from Mr Oaten the indications that he should not be involved in the London Records negotiation. It is true that Mr Michaelson did step away from a very close involvement in the recording aspects of Ms Valance's career once Engine Room came onto the scene. And it is also true that Mr Michaelson fell far short of having, for example, Mr Fowler's dimension of excellence in terms of discharge

of the obligations of managing agent. Under cross-examination Mr Fowler accepted that the task of managing someone like Ms Valance, who had already had an exposure as an actor, having secured a recording deal and being about to launch a single with other recordings, was a far different matter for a manager than would be the case if the manager took an unknown and had to obtain employment in acting engagements and contracts with a music company, let alone a major recording company. He gave the following further evidence:

“Q. Presumably there are literally millions of people out there trying to get into a circumstance where they would be dealing with someone such as yourself, signed up to a major record company and with a hit song?

“A. Yes

“Q. And all of them trying to find managing agents couldn't be expected to find anyone remotely with the sort of professionalism which you have at the other end of the continuum. Correct?

“A. I'd like to think so" [Transcript 605-606]

192 Mr Michaelson was not at Mr Fowler's end of the continuum-so much is clear. But this is not to say that he was not competent to discharge Biscayne's obligations under the Agreement. The extent and range and nature of his activities in endeavouring to do so up until the close out bears testimony to that fact. And in the particular circumstances relied upon here to sustain the proposition of repudiatory conduct, the relevant delegation was unexceptional taking place at the instance of the Valance parties solicitor as well as Mr Klippel.

Summary on repudiation

193 The Agreement was not terminated by the first termination letter. Nor was it terminated by the second termination letter. Nor was it terminated at the expiration of a 30-day period from the date of the second termination letter. The mechanics of clause 14 were requisite to be complied with and were not complied with. And in any event the totality of the conduct of Biscayne and Mr Michaelson through 2001 and into 2002 and in particular from August 2001 the subject of the allegations and complaints litigated, was not such as in context and on the evidence to evince an intention not to carry out the Agreement at all or an intention to fulfill it only in a manner substantially inconsistent with its obligations and not in any other way.

Claims made for breach of contract directly against Ms Valance

194 Clause 18.4 of the Agreement was in the following terms:

The Artist agrees that:

(a) if the Company fails to properly observe and perform any of its obligations or conditions under this Agreement the Artist will immediately ensure performance of such obligations or conditions.

(b) if during the Term the Company fails or is unable to make the Artist’s services in respect of this Agreement available or in the event of the dissolution of the Company or the liquidation of its assets, or in the event of an arrangement or re-organisation by, for or against the Company, or in the event of the appointment of a liquidator (whether provisional or otherwise), receiver, receiver and manager, or official

manager to the affairs of the Company or all or a portion of the Company’s assets or in the event that the Company makes an assignment for the benefit of creditors the Artist may, at the option of the Manager, be substituted as contracting party to this Agreement in place of the Company so that the Manager will have all the rights, privileges, advantages and benefits it would have had under this Agreement had the Artist been the party to the Agreement responsible for those services and obligations from the date of execution.

195 The summons pleads the terms of clause 18.4 in paragraph 17. Paragraphs 36 and 37 then pleads as follows:

36. In breach of the term pleaded in paragraphs 17(a) and 18 above, Valance Corp failed to properly observe and perform its obligations or conditions under the Management Agreement and Valance did not immediately ensure the performance of such obligations or conditions.

37. Further or in the alternative to paragraphs 30 to 34 above, and without any prejudice to or excuse of Valance Corp from any obligation or liability to which it is subject, Valance Corp has failed or is unable to make Valance’s services in respect of the Management Agreement available and Valance is thereby substituted as contracting party to the Management Agreement in place of Valance Corp so that the plaintiff has all the rights, privileges, advantages and benefits it would have had under the Management Agreement had Valance been the party to the Management Agreement responsible for those services and obligations from the date of execution.

196 An issue arises concerning the proper construction of clause 18.4. The nature of the issues is exposed by the following section of the written submissions of the Valance parties:

Clause 18.4(a)

The first basis on which this claim is put is that Ms valance is in breach of a direct obligation under clause 18.4(a) …

Clause 18.4(a) should be construed strictly contra proferentem. See above the heading should be taken into account in its construction because in this agreement there is no provision excluding headings from construction. It is headed “guarantee” and as such should be construed as one. It is akin to a performance guarantee. Clause 18.4(a) is a conditional performance guarantee whereby Ms Valance is only required to ensure performance of such obligations and conditions upon proof of a breach of the terms of the Management Agreement by the principal contracting party, Valance Corp. It is a secondary obligation of Ms Valance’s. Thus, Ms Valance’s liability only arises as a result of Valance Corp’s default: Thiess Watkins White Constructions Ltd (in liq) v National Mutual Life Nominees Ltd (unreported, NSWSC, 20/10/91); Devico Pty Ltd v Sydney Cove Redevelopment Authority (unreported, NSWSC, 15/04/90).

The terms of the guarantee need to be carefully scrutinised to ascertain whether the obligation of Ms Valance is unconditional in the sense that the obligation arises merely upon demand being made by Biscayne. Careful scrutiny of the clause shows that Ms Valance’s obligation is only triggered if there is evidence

of a breach by Valance Corp. The relevant part of the clause is “If the Company fails to properly observe and perform any of its obligations under this Agreement” (emphasis added). The demand therefore has to be made upon proof of default. That has not occurred. No demand was ever made on Miss Valance to ensure Valance Corp’s performance. See correspondence Vol 5, Tab 111 ff.

Clause 18.4(b)

The second basis is that Biscayne claims that it has availed itself of an option under clause 18.4(b) substituting Ms Valance as the principal to the Management Agreement. The option has not been exercised. What Biscayne has done is to sue the principal (Valance Corp) to the Management Agreement. It has made that election. It cannot, by the same Summons, sue both the contracting party and simultaneously elect to sue the substituted party. They are not alternative causes of action, they are inconsistent ones.

Moreover, there is a threshold issue that also determines the application of clause 18.4(b) against Biscayne. The clause requires that Valance Corp “fails or is unable to make” Holly Valance’s “services in respect of this Agreement available”. It does not say “available to Biscayne”, indeed there is no obligation in the Management Agreement that Holly Valance provide make such services available to Biscayne.

Dealing with the issue

197 It is necessary to closely consider both sub-clauses of clause 18.4. The subject with which sub-clause (a) deals, is the failure of Valance Corp "to properly observe and perform any of its obligations or conditions (sic) under [the] Agreement". The subject with which sub-clause (b) deals is either the failure or inability of Valance Corp, during the term, to make Ms Valance's services in respect of the Agreement available or one of a number of events generally concerning matters fundamental to the affairs or status of Valance Corp, such as dissolution or rearrangement or liquidation or assignment for the benefit of creditors.

198 Certainly the failure or inability of Valance Corp to make Ms Valance's services in respect of the Agreement available will also constitute a failure to properly observe and perform the particular obligation to make Ms Valance's services in respect of the Agreement available.

199 To my mind there is a special significance in clause 18.4 (b) because what it is about is the effecting of a novation of the principal contractual obligations as between Valance Corp and Biscayne whereby Ms Valance in the particular circumstances, subjects herself to assuming the otherwise liability of Valance Corp under the Agreement. In the event that Biscayne exercises its option provided for in clause 18.4, a complete novation will have taken place such that Valance Corp is released from liability under the Agreement. So much follows from the use of the words "be substituted as contracting party": cf Re International Life Assurance Society: ex parte Blood (1870) LR 9 Eq 316 and The Laws of Australia, LBC, 8.6 at [2] and cases cited in footnote 4.

200 So approaching the proper construction of clause 18.4 (b) to my mind reinforces the fact that upon the proper construction of clause 18.4 (a), any suggestion of a conditional performance guarantee analogy is seen to be inapt. In Direct Acceptance Finance Ltd v Cumberland Furnishing Pty Ltd [1965] NSWR 1504 the Full Court dealt with a recourse agreement under which a dealer had agreed, on default by the customer, to pay all amounts that would be paid if the customer's agreement with the financier ran its full course. This was held not to be a guarantee. Notwithstanding the matter having turned upon the necessity, in order for an

obligation to amount to a contract of guarantee, that the liabilities of the debtor and guarantor be co-extensive, to my mind the issue will always turn upon the proper construction of the relevant provision in the relevant contract.

201 Dealing more specifically with clause 18.4 (a), there is authority for the proposition that the suggested condition precedent to a guarantor's liability, namely that the creditor will make a demand on the guarantor before enforcing the guarantee, will not be implied unless the recitals or the general terms of the guarantee indicate otherwise: cf The Laws of Australia, LBC, 8.6 at [142] and authorities noted at footnote 8.

202 Prior to the filing of the Summons Valance Corp had failed to properly observe and perform its relevant obligations under the Agreement. It had breached a contractual obligation by wrongly purporting to terminate the Agreement. It had breached a contractual obligation by wrongly participating in the engagement of a United Kingdom manager as the exclusive worldwide manager of Ms Valance and Valance Corp in place of Biscayne. Upon the proper construction of clause 18.4, immediately upon those breaches of the Agreement Ms Valance become contractually obliged to ensure performance of those obligations. Valance Corp's default gave rise to the liability of Ms Valance. There was no need for anterior demand.

203 Returning to the defendants’ submissions in terms of the so-called ‘threshold’ issue, the words "to Biscayne" are clearly appropriate to be written into the second line of clause 18.4(b) so that the relevant phrase refers to the contingency that during the term, Valance Corp fails or is unable to make the Artist's services in respect of the Agreement ‘available to Biscayne’. So much is obvious from the whole of the Agreement: cf for example the warranty given by Ms Valance in clause 18.2.

204 The defendants seek to rely on Devico Pty Ltd v Sydney Cove Redevelopment Authority (unreported, Supreme Court of New South Wales, 15 April 1990; BC9102111) [“Devico”] in support of the proposition that Ms Valance’s liability only arises as a result of Valance Corp’s default.

205 In Devico the Court was required to construe the following clause in a deed of agreement:

“2(b) In the event that the Developer commits a breach of this Agreement which is not remedied to the reasonable satisfaction of the Authority, the Authority shall be entitled, without prejudice to any other right or remedy of the Authority, to enforce the Bank Guarantee and apply the money or part thereof thereby obtained towards satisfaction of the obligations of the Developer under CL7.”

206 In that case it was held that “[t]he entitlement of [the guarantor] to call upon the guarantee under CL2(b) depends upon it establishing breach by Devico.” (BC9102111 at 14) It was held that no relevant breach was alleged.

207 The clause under consideration in Devico is in any event distinguishable from clause 18.4(a) under present consideration. The Devico clause specifically requires a breach under the agreement which is not satisfactorily remedied to invoke the liability of the guarantor. Presumably under the Devico clause the Authority would be required to give reasonable notice requiring the remedy of the breach.

208 Clause 18.4(a) is much less specific and operates without requiring notice being given to Ms Valance. Action on the part of Ms Valance to ensure that Valance Corp perform such obligations and conditions as it is failing to properly perform or observe, is required “immediately” on the occasion of such failure.

209 On the subject of clause 18.4 (b) and the option to substitute Ms Valance as contracting party in place of Valance Corp, in my view paragraph 37 of the Summons constituted an exercise of an option, the words "is thereby substituted" being appropriately read as "is hereby substituted". The service of the Summons can constitute a contractual act or election.

Formal concerns

210 When the matter was first raised in the opening address by Mr Garnsey QC appearing for Biscayne [transcript 47, 48] it was made plain that the word "thereby" was sought to be read as "hereby". The Court indicated that the question of a cause of action arising after the filing of the summons would not then be a concern to be dealt with during the opening. Had an application for leave to amend accordingly been pressed it is clear that the Court had the power to permit the amendment and further that the date of commencement of the proceedings, so far as that cause of action was concerned, would be the date on which the amendment was made [Part of 20 rule 1 (1), (2) and (3A)]. Further and had this be necessary, Part 20 rules (4) and (5A) may have been engaged with an otherwise order being made pursuant to sub-rule (5A). Part 20 rule 1 (2) makes very plain that all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings and in particular for the purpose of avoiding multiplicity of proceedings. [cf also section 63 of the Supreme Court Act 1970] Further the Overriding Purpose Rule [Part 1 rule 3] may have been appropriately invoked in terms of the purpose of the rules being to facilitate the just, quick and cheap resolution of the real issues in civil proceedings. The issue may be agitated on the occasion when the parties further address on disparate issues.

Damages for loss of chance

The Principles

211 The principles were set out in Lakatoi Universal Pty Ltd v L A Walker [2000] NSWSC 113 [1386]-[1482] which is adopted in that regard:

A series of decisions of the High Court of Australia have affirmed in recent years the principle that a contract to provide a commercial advantage or opportunity, if breached, enables the innocent party to bring an action for damages for the loss of that advantage or opportunity.

[See in particular The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; Sellars v Adelaide Petroleum NL (1992) 179 CLR 332]

The approach was explained as follows in Sellars:

‘In the realm of contract law, the loss of a chance to win a prize in a competition resulting from breach of a contract to provide the chance is compensable, notwithstanding that, on the balance of probabilities, it is more likely than not that the plaintiff would not win the competition. (Chaplin v Hicks [1911] 2 KB 786; McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411-412). As the contract contained a promise to provide the chance, the breach of the contract resulted in the loss of the chance and that loss was for relevant purposes, an actual loss, in the sense in which Dixon and McTiernan JJ used that expression in Fink v Fink [(1946) 74 CLR 127 at 143]. And where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat an award of damages . . . The damages

will then be ascertained by reference to the degree of probabilities, or possibilities, inherent in the plaintiffs succeeding had the plaintiff been given the chance which the contract promised.

This approach is not confined to contracts relating to games of chance, sporting contests or other competitions . . . So in The Commonwealth v Amann Aviation Pty Ltd, Mason CJ and Dawson J, . . . Brennan J . . . and Deane J . . . concluded that a lost commercial advantage or opportunity was a compensable loss, even though there was a less than 50 per cent likelihood that the commercial advantage would be realised. Damages for breach of contract were assessed by reference to the probabilities or possibilities of what would have happened.’

[Sellars at 349 per Mason CJ, Dawson, Toohey and Gaudron JJ; and see in particular Deane J in Amann at 118-126].

The principle had been explained in 1970 by Lord Diplock as follows:

‘The role of the court in making an assessment of damages which depends upon its view as to what will be and what would have been is to be contrasted with its ordinary function in civil actions in determining what was. In determining what did happen in the past a court decides on the balance of probabilities. Anything that is more probable than not it treats as certain. But in assessing damages which depend upon its view as to what will happen in the future or would have happened in the future if something had not happened in the past, the court must make an estimate of what the chances are that a particular thing will or would have happened and reflect those chances, whether they are more or less than even, in the amount of damages which it awards.’

Mallett v McMonagle [1970] AC 166 at 176 [emphasis added]

Dealing specifically with the plaintiffs’ entitlement to recover the value of a lost opportunity, even if its chance of materialising was less than 50 per cent, Waddams ‘Damages: Assessment of Uncertainties 11 (1988) 13 Journal of Contract Law, 55 at 60-61 explains the matter thus:

‘In Chaplin v Hicks, [1911] 2KB 786, the plaintiff was one of 50 persons shortlisted for 12 positions. The defendant, in breach of contract, deprived her of the opportunity of being interviewed, and she was not appointed. The decision of the English Court of Appeal upholding a jury award for the value of the lost chance has been widely followed in Commonwealth jurisdictions. Again where the defendant negligently permits an action to become statute barred, (Kitchen v Royal Air Force Association [1958] 1 WLR 563 (CA); Prior v McNab (1976) 78 DLR (3d) 319 (Ont HC) or fails to take steps that would have given to the plaintiff’s land a chance of profitable rezoning (Multi-Malls Inc v Tex-Mall Properties Ltd (1980) 108 DLR (3d) 399, affd 128 DLR (3d) 192n (Ont CA), the plaintiff recovers damages, even though the chance of success of the action, or of the rezoning application, may have been 50 per cent or less. It is reasonably clear in these cases that the plaintiff has lost something of real value: an action with a 40 per cent chance of success has a real ‘settlement value’; land with a 40 per cent chance of profitable rezoning is more valuable than land without it. The principle here is not, strictly speaking, one of apportionment. The defendant is liable for the full loss caused, but valuation of that loss requires the consideration pf probabilities. In the land rezoning case it is very clear that this is the proper approach, because evidence could often be adduced to show that the land had a

certain market value without the chance of rezoning, and a higher market value with it. The defendant’s wrong deprives the plaintiff of the difference. It is not necessary, however, that there should be any sort of actual market: in Chaplin v Hicks, the plaintiff could not in fact have sold her opportunity, but it was sufficient that she had been deprived of ‘a right of considerable value, one for which many people would give money’. [Fletcher Moulton LJ at 797]…

The principle of measuring compensation according to the value of an opportunity, even if less than 50 per cent, was recognised in the Amman case . . . in the context of a claim for reliance expenses, where other uncertainties were the probability that the government would have cancelled the contract lawfully even if it had not repudiated it, and the possibility that the contract would have been renewed on favourable terms after its expiry. The plaintiff received compensation for these possibilities, even though in respect of each an outcome favourable to the plaintiff could not be shown to have been more probable than not. In Sellars v Adelaide Petroleum NL, the High Court of Australia adopted the same approach to valuation of a loss of commercial opportunity in a case arising under the Trade Practices Act.’

The passage from the joint judgment in Sellars at 355 reads:

‘. . . the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant'’ case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.’

As Waddams (supra) reminds us at 66:

‘This two-step analysis ensures compensation according to probabilities, as in Chaplin v Hicks. The plaintiff established first that she had lost ‘a right of considerable value’; it then followed inevitably that the court must give due compensation for the loss, and that the compensation would be measured according to the probability of success.’

The resultant standard of proof analysis is explained by Waddams at 66 as follows:

‘It should be noted also that the conclusion reached in Sellars does not necessarily imply that the burden of proof on the question of quantification is any less than the usual standard of proof on the balance of probabilities: the result may be explained by saying that the plaintiff did prove (on the balance of probabilities) the value of the chance he had lost, that value depending on probabilities.’

In the result, the court’s task in determining damages for what on the evidence was the plaintiffs’ undoubted loss in this case of the optimal commercial

opportunity of procuring a rezoning of the LCE lands must be ascertained by reference to the court’s assessment of the prospects of success of that opportunity had it been pursued by the Walker Group using their best endeavours.

Difficulties of Assessment

It is also clear that the mere fact that damages cannot be assessed without difficulty and uncertainty does not relieve the court from its undoubted responsibility of attempting to assess those damages as best it can - per Deane J in Amann at 125 - who cites the following passage from the judgment of Dixon and McTiernan JJ in Fink v Fink:

‘Where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat the only remedy it provided for breach of contract, an award of damages.’[(1946) 74 CLR at 143]

However, Deane J does in Amann lay down one caveat of importance:

‘There are, however, extreme cases in which curial procedures are simply inadequate to determine whether there was any real or significant chance that an alleged benefit would actually have been obtained but for the repudiation or breach of contract or to assess the intrinsic worth of a particular suggested “benefit”. The profit which one experienced commercial person may see as lying at the end of some commercial undertaking might be seen as an inevitable and disastrous loss by another. What seems to one person to be a benefit may be thought by other and wiser people to be valueless or even a detriment. The nature of what would have been obtained if the contract had been performed may be so completely speculative that “it is quite impossible to place any value” upon it . . . In such cases, recovery of other than nominal damages by the plaintiff will depend either upon the applicability of principles of restitution to enable the direct recovery of a benefit obtained by the defendant or upon the presumption of value referred to in the following paragraph to enable the recovery of wasted expenditure.’[174 CLR at 125-126]

The same point was made by Latham CJ and Williams J in Fink v Fink (supra at 134):

‘The damage arising from loss of opportunity to obtain a benefit may be so dependent upon a number of contingencies as to be negligible (Sapwell v Bass [1910] 2 KB 486).’…

The court must then do the best that it can to assess the value of the loss:

‘If the plaintiff proves that the defendant has caused a loss, the impossibility of proving the precise value of the loss “cannot relieve the wrongdoer of the necessity of paying damages”. The court, whether judge or jury, will do “the best it can”. The plaintiff must prove what she can reasonably be expected to prove, and will suffer if she fails to adduce relevant evidence within her control, but where the uncertainty is not of the plaintiff’s making, and she has suffered a real loss, the court will attempt to assess it, however difficult the task.’

[Waddams supra at 60 citing Wood v Grand Valley Railway Co (1915) 51 SCR

283 at 289; Penvidic Contracting Ltd v International Nickel Co of Canada Ltd [1976] 1 SCR 267 at 280.]

In Sellars, Brennan J points out at 365 that ‘in the progress of events a point is reached at which it can be said that the plaintiffs had a substantial prospect of acquiring the benefits they were seeking.

Brennan J then at 365-367 refers to the way in which a court views the material bearing on the relevant issues:

‘As the existence and assessment of the value of a valuable opportunity usually depend on an evaluation of hypothetical situations or future possibilities, it is clear that the manner in which a plaintiff discharges the onus of proving his case is different from the manner in which he would discharge it if an issue depended upon the existence of historical facts. In Malec v. J. C. Hutton Pty. Ltd. …. Dawson J. and I observed:

“Hypothetical situations of the past are analogous to future possibilities: in one case the court must form an estimate of the likelihood that the hypothetical situation would have occurred, in the other the court must form an estimate of the likelihood that the possibility will occur. Both are to be distinguished from events which are alleged to have actually occurred in the past.”

We cited what Lord Diplock said in Mallett v McMonagle:

[the above cited extract is then set out]

In Malec (95) Deane, Gaudron and McHugh JJ. Said:

“When liability has been established and a common law court has to assess damages, its approach to events that allegedly would have occurred, but cannot now occur, or that allegedly might occur, is different from its approach to events which allegedly have occurred. A common law court determines on the balance of probabilities whether an event has occurred. If the probability of the event having occurred is greater than it not having occurred, the occurrence of the event is treated as certain; if the probability of it having occurred is less than it not having occurred, it is treated as not having occurred. Hence, in respect of events which have or have not occurred, damages are assessed on an all or nothing approach. But in the case of an event which it is alleged would or would not have occurred, or might or might not yet occur, the approach of the court is different. The future may be predicted and the hypothetical may be conjectured.”

These observations relate not so much to the standard of proof as to the way in which a court views the material bearing on the issues for determination. They can affect the determination not only of the issues of loss and its assessment but also the issue of causation.’[emphasis added]

Dealing more particularly with causation, Brennan J observes at 367-368:

‘But what is the standard of proof in cases where the issue of causation depends on competing hypotheses? There is no reason why the balance of probabilities should not be the standard of proof required to establish both causation and the existence of a loss, though that standard is inappropriate to the assessment of the

amount of a loss where the assessment is merely an evaluation of future possibilities.

In Bennett v. Minister of Community Welfare, Gaudron J. said:

“It might be said that, where questions of causation depend on hypothetical considerations, allowance should be made, as in the assessment of damages, for the possibility that some event would not have occurred. Possibilities, if they are not fanciful, must be taken into account, at least in a general way, whenever causation or the related issue of prevention is in issue. But questions of that kind are not answered ‘maybe’ or, even, ‘more probably than not’. They are answered ‘yes’ or ‘no’ depending on the probabilities for or against. In this respect, they are indistinguishable from the question whether an event happened where possibilities are taken into account but, once the question has been answered, those possibilities have no further bearing on the matter.”

I respectfully agree. Unless it can be predicated of an hypothesis in favour of causation of a loss that it is more probable than competing hypotheses denying causation, it cannot be said that the plaintiff has satisfied the court that the conduct of the defendant caused the loss. Where a loss is alleged to be a lost opportunity to acquire a benefit, a plaintiff who bears the onus of proving that a loss was caused by the conduct of the defendant discharges that onus by establishing a chain of causation that continues up to the point when there is a substantial prospect of acquiring the benefit sought by the plaintiff. Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities. A constant standard of proof applies to the finding that a loss has been suffered and to the finding that that loss was caused by the defendant’s conduct, whether those findings depend on evidence of historical facts or on evidence giving rise to competing hypotheses. In any event, the standard is proof on the balance of probabilities.

Although the issue of a loss caused by the defendant’s conduct must be established on the balance of probabilities, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered. Proof on the balance of probabilities has no part to play in the evaluation of such hypotheses or possibilities: evaluation is a matter of informed estimation.’[emphasis added]

The principles then appear to include at least the following :

1. The requirement that a plaintiff prove a breach of a relevant contract term.

2. The requirement that such breach be proven to have caused the loss of the chance of a commercial advantage or opportunity.

3. The usual onus of proof applies to the issues of :

(a) causation

(b) whether the plaintiff has suffered loss or damage.

4. In this class of case, the plaintiff will show that some loss or damage has

been sustained by showing that the defendants’ relevant breach caused the loss of a commercial advantage or opportunity which had some real value (not being a negligible value) - that value being measured or determined by reference to the degree of probabilities or possibilities. The defendant is in fact liable for the full loss caused, but valuation of that loss requires the consideration of probabilities or possibilities inherent in the plaintiff’s succeeding had the plaintiff been given the chance which the contract promised.

5. The lost commercial advantage or opportunity is a compensable loss even though there may have been a less than 50% likelihood that the commercial advantage would be realised. And in contradistinction to the requirement to establish on the balance of probabilities the issue of a loss caused by the defendants’ conduct, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered. In this area evaluation becomes a matter of informed estimation, proof on the balance of probabilities having no part to play in the evaluation of such hypotheses or possibilities.

6. Extreme cases do arise in which curial procedures are inadequate to :

(a) determine whether there was any real or significant chance that an alleged benefit would actually have been obtained but for the contractual breach;

(b) assess the intrinsic worth of a particular suggested ‘benefit’.

In particular - the nature of what would have been obtained had the contract been performed, may be so completely speculative that it is quite impossible to place any value upon it.

- the damage arising from the lost opportunity may be so dependent upon a number of contingencies as to be negligible.

In such cases, nominal damages only will often be appropriate. Recovery beyond nominal damages will depend either upon the applicability of restitutionary principles to enable the direct recovery of a benefit obtained by the defendant or upon the presumptions of value (referred to by Deane J in Amann at 126-127) to enable the recovery of wasted expenditure.

212 Applying those principles my view is that this is one of the extreme cases in which either:

· the court may be satisfied that there was in truth no chance at all that but for the breaches of the Agreement and the repudiation of the Agreement by the Valance parties, Biscayne would have managed to secure a renewal of the Agreement at the end of its natural term; or

· curial procedures are inadequate to permit a determination of the value of that particular chance.

213 At the end of the day it was the mindset of Ms Valance as to Mr Michaelson's lack of capacity to act as her manager on the world stage into which she had been catapulted which, as night follows day, would have led to the Agreement not being renewed had it continued until the end of term. The loss of

opportunity case fails insofar as opportunity to secure a renewal agreement is concerned. But there were other losses of opportunity.

Quantum and Remedies

214 A number of disparate matters require attention in relation to quantum and remedies.

Whether commission was payable in respect of amounts received after the end of the term

215 The relevant provisions are as follows:

“7.1 Subject to the remaining sub-clauses of this Clause 7, in consideration of the services provided by the Manager under this Agreement, the Company will pay the Manager a commission of 20% on Gross Receipts. This commission will apply in relation to all of the Artist’s Activities.”

“ ‘Gross Receipts’ means the total of all amounts, in whatever form received by the Artist or on the Artist’s behalf, in respect of the Artist’s Activities during the Term and throughout the Territory, but excluding any amounts received by the Artist, or on the Artist’s behalf, in connection with the Artist’s or the Company’s liability to pay any goods and services tax or similar consumption tax in respect of services provided by the Artist or the Company;”

“ ‘Artist’s Activities’ means the activities of the Artist within the Entertainment Industry;”

“ ‘Entertainment Industry’ means each and every branch of the entertainment industry now known or later developed including, without limitation, the fields of the making of audio and audio visual sound recordings (including sound engineering and producing), the writing of lyrics and/or the composing of music, cinematograph films, personal appearances and performances, television, radio, theatre, merchandising, endorsement, literary endeavours, on-line activities and so-called “multi-media” activities;”

“8.1 In recognition of the efforts of the Manager during the Term, the Company agrees that it will, upon termination or the conclusion of this Agreement continue to pay the manager as follows:

(a) the commissions provided for in clause 7 of [sic] income earned during the Term from the Artist’s Activities, but received after the expiration or termination of this Agreement;”

216 The “remaining clauses” to which clause 7.1 is subject are not presently relevant, although clause 7.2 is important in reducing the figure of 20% to 15% in relation to certain activities.

217 The plaintiffs dealt with the matter as follows in their overview submissions:

The plaintiff contends that on the proper construction of the Management

Agreement and in particular clause 7.1 taken together with the definitions of “Gross Receipts”, “Artist’s Activities” and “Entertainment Industry”, the Plaintiff is entitled to commission of 20% in accordance with the Management Agreement from all gross receipts in respect of Artist’s Activities during the term of the Management Agreement, whenever the relevant moneys are received, whether before or after the expiry of the original term of the Management Agreement. The Plaintiff’s case is that this is the effect of the Management Agreement, by reason of clause 7.1 alone, without the aid of clause 8.1 which expressly provides for a continuation of liability to pay commission in respect of post termination receipts of moneys received in respect of Artist’s Activities during the term of the Management Agreement.

218 The defendants’ submission is as follows:

The defendants contend that, unless an amount received after the Term is “earned during the Term” and is then caught by the special provision in clause 8.1(a), no commission is payable. “Earned” in this context must mean “be presently entitled to”. Indeed, as a matter of construction, if the construction that the defendants apprehend is contended for by Biscayne is correct, clauses 8.1(a) and 8.1(b) would be unnecessary. Moreover, if “earned” meant “did the work in relation to” as opposed to “be presently entitled to” in clause 8.1(a) clause 8.1(b) would be unnecessary. These are strong indicators that “Gross Receipts” is to be construed as contended for by the defendants.

This construction is also supported by the contra proferentem rule. See above the Management Agreement is Biscayne’s document and the provision is intended to be in its favour.

Moreover, although the defendants contend that no breach of clause 8.1 has been pleaded and accordingly Biscayne cannot claim for commission in relation clause 8.1(b), which is an entirely separate source of commission, the terms of that clause also tell against a construction of “Gross Receipts” that would allow it to apply to monies received by Holly Valance or on her behalf after the Term has expired, or been terminated, merely because they related in some way to the Artist’s Activities undertaken during the Term. That is because clause 8.1(b) confines any such claim to commission to tightly defined circumstances, and, moreover, applies to those a declining percentage (set out in Schedule 1) instead of the full 20% applicable under clause 7.1.

Clause 8.1(b) is as follows:

“subject to the deductions provided for in Cause 7, the commission based on the formula set out in Schedule 1, on all income received by the Company or Artist from:

(i) any performance by the Artist fully organised by the Manager before expiration or termination of this Agreement, but occurring after the expiration or termination of this Agreement; and

(ii) the exploitation of any sound recording recorded, or musical composition written, during the Term where such exploitation is fully organised by the Manager prior to the expiration of the

Term.(emphasis added.)

Thus no commission is payable except on a “performance … fully organised” by the Manager …”; or in relation to the “exploitation of any sound recording where such exploitation is fully organised by the Manager …”.

It would have been a simple matter of drafting to focus on the “recording” or “writing” of the sound recording or musical composition as opposed to its “exploitation”; “exploitation” would be such things as entering into a new licence of such a sound recording; licensing it for use on the soundtrack to a cinematograph film (eg. synchronisation rights); and the like. The clause does not, for example say that exploitation of any sound recording “where the recording was fully organised by the Manager”; it focuses on the “exploitation” being fully organised.

Again, clause 8.1(b) would not be required at all if a construction were give to “Gross Receipts” pursuant to which, if the “Artist’s Activity” took place during the Term, it did not matter when the “amount [was] received”.

Accordingly, even if Biscayne succeeds in claiming commission for a period after 20 January 2002 (or 27 September 2002) its claim would be limited up to 29 March (or, at the latest, 18 May) 2003. The amount calculated even provisionally by Biscayne reaches well beyond those dates.

[In final address the defendants accepted that the matter of the clause 8.1 claim had been litigated and that no pleading issue was taken. Save for this concession the Court would have allowed an amendment to be made to the summons]

Finding

219 There are some textual difficulties in construing the material provisions dealing with commission.

220 It seems to me that clause 7 should be read as dealing with the subject of pre-termination commission to be contraposed to clause 8 which deals with the subject of post-termination commission.

221 The definition of "Gross Receipts" in its application to clause 7.1 is a reference to the total of all amounts in whatever form as are:

· received by the Artist during the Term; but also being

· received in respect of the Artist's Activities during the Term.

222 Clause 8.1 then deals with payments which are to be made following the termination of the Agreement. In this regard:

· clause 8.1 (a) deals with the commissions provided for in clause 7, but now deals with:

· income earned [in the sense of the artist having carried out the work in relation to the relevant activities], and being so earned from those activities during the Term, but being

· income only received after the expiration or termination of the Agreement;

· an expansion from the entitlement to commission is now provided for by clause 8.1 (b) [commission based upon the formula set out in Schedule 1 becomes payable, in the sense that where certain matters have been fully organised by the Manager prior to the expiration of the Term, then subject to the deductions provided for in clause 7.2, 7.3 and 7.4, commission based upon the formula set out in Schedule 1 ("clause 8.1 (b) commission") is so payable];

· Clause 8.1 (b) commission is payable on all income received [by Valance Corp or by Ms Valance] after the expiration or termination of the Agreement from:

· any performance by Ms Valance which had been fully organised by Biscayne before the expiration of the Agreement, but where the performance occurred after the expiration of the Agreement, and

· the exploitation of any sound recording which had been recorded during the Term, where such exploitation was fully organised by Biscayne prior to the expiration of the Term, and

· the exploitation of any musical composition which had been written during the Term, where such exploitation was fully organised by Biscayne prior to the expiration of the Term.

223 Generally these findings appear to follow and accept certain of the plaintiff’s submissions in this regard including the following:

“13 The claim relies upon the plain words of clause 7.1 of the Management Agreement when read with the definition of “gross receipts” in clause 1. See Overview Submission, para 11 and oral opening, Tp 35.12 to 36.16. The presently relevant part of that definition provides that ““Gross receipts” means the total of all amounts, in whatever form received by the Artist or on the Artist’s behalf, in respect of the Artist Activities during the Term and throughout the Territory”.

14 It is plain that on the proper construction of the definition the phrase “during the Term” does not qualify the word “received”, because (i) the placement of commas around the phrase “in whatever form received by the Artist or on the Artist’s behalf” indicates that it is descriptive of the “amounts” referred to and does not qualify later words in the definition, and (ii) the words “in respect of” establish a notional division of the definition such that the “amounts” are described in the first part and the “Artist Activities” are described in the second. Further, it would defy commercial common sense to suggest that a commission provision in a management agreement would not operate upon income from artist activities carried out within the term and territory of the agreement if payment to the artist happened to occur a day after the expiry of the term.

15 The meaning and effect of clause 7.1 set out above is confirmed by clause 8.1(a). Clause 8.1(a) can and should be read consistently with clause 7.1 and the definition of “gross receipts”. Clause 8.1(a) is confirmatory of the entitlement of the plaintiff to the commission described in clause 7.1 and the words in clause 8.1(a) “of all income earned during the Term from the Artist’s Activities, but received after the expiration or termination of this Agreement” is no more than the

contract’s own gloss on what clause 7.1 means when read with the definition of “gross receipts”. There is no good reason to suppose a new concept of “income earned during the Term” was regarded by the parties as necessary or desirable to introduce into clause 8.1(a) and the Court should not read that clause as introducing ambiguity and potential inconsistency into the terms of the agreement.

224 The present context of course concerns the prevention or cutting out by Valance Corp and by Ms Valance of the managing agent from its otherwise entitlement to organise performances by Ms Valance before the end of the term and from its entitlement to organise for the exploitation of sound recordings recorded or musical compositions written during the Term. But for the wrongful purported termination by the first termination letter, Biscayne had the exclusive rights as manager of Ms Valance as artist for the Term, and Valance Corp had covenanted not to execute, negotiate, or agree to any contract or undertaking whatever regarding her career without the prior written consent of Biscayne.

225 One question which arises concerns whether or not, and if so in what way, Biscayne puts forward the proposition that in relation to the assessment of damages, it does not lie in the mouth of the Valance parties to rely upon their own wrongdoing. [cf written submissions on damages para 44]. This is one of a number of areas requiring clarification and specificity in respect of which the parties will be given leave to further address on damages including loss of opportunity. In terms of the precision of the breaches of contract terms litigated and made out, the Court labours under some difficulty because of the uncertainty as to what particulars have been furnished, there being a number of references to particulars “to be provided in due course” to be found in the breach of contract paragraphs in the Summons. Further in “the manner in which the matter was litigated” there appear to have been a number of specific matters in respect of which evidence has been adduced and with which both parties have treated in final address. For those reasons the precise findings in respect of the breaches of contract terms which “have been litigated” and made out will be handed down following the parties having had an opportunity to read this judgment and to address in relation to that matter. Suffice it to say that as the judgment makes plain, in general terms at the least the following breaches have been made out:

· Valance Corp and Valance have since from a period in 2001, excluded the plaintiff from the management of or involvement in the activities of Valance in the entertainment industry throughout the world;

· Valance Corp and Valance have from a period in 2001, failed to refer all enquiries regarding the activities of Valance within the entertainment industry to the plaintiff;

· Valance Corp has not paid commissions due to the plaintiff;

· from a period during 2001 Valance Corp continued negotiations for, and subsequently agreed to and executed sundry agreements relating to the activities of Valance in the entertainment industry, without the notification or prior approval of the plaintiff; and

· Valance Corp failed to properly observe and perform its obligations or conditions under the Management Agreement and Valance did not immediately ensure the performance of such obligations or conditions.

226 Whether the plaintiff still presses a finding of breach on the basis that Valance Corp had not, at least until discovery, provided the plaintiff with a full statement of income and expenditure in respect of the activities of Valance in the entertainment industry may be the subject of further address.

227 In the result the very close attention given to the proper construction of clauses 7 and 8 dealt with above arguably becomes relevant only in relation to activities post the expiration of the term. The breaches of Agreement prior to the term expiring give rise to a separate head of damages and no double counting is permissible.

The taking of an account

228 Biscayne has claimed an entitlement to an order for the taking of an account of the commission due to it under the Agreement.

229 The issue received attention in Town & Country Property Management Services Pty Ltd v Kaltoum [2002] NSWSC 166 where Campbell J put the matter as follows:

78 The remedy which the plaintiffs seek in relation to this breach, is damages or an account of profits. The cause of action on which the plaintiffs sue is breach of contract. The only remedy which the common law provides for breach of contract, is damages.

79 Equity will sometimes, in its auxiliary jurisdiction, grant an injunction against the repetition or continuance of a breach of contract, but no such injunction was, by the time of the hearing, sought.

80 There are some judicial statements which suggest that an account of profits is not available as a remedy for a breach of contract, but rather that, in circumstances where a breach of contract is established, it must be shown that there is also a breach of an equitable obligation (such as breach of a fiduciary duty, or breach of an obligation concerning the use of confidential information) before an account of profits will flow (Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815 at 835 E-F per Hope JA, Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 180 per Fullagar J).

81 However, there are also some cases where an account of profits has been awarded for breach of a legal obligation. Thus an account of profits is one of the remedies available for the tort of passing off (AG Spalding Bros v AW Gamage Ltd [1914-15] All ER Rep 147; Colbeam Palmer Ltd v Stock Affilliates Pty Ltd (1968) 122 CLR 25 at 32 per Windeyer J). Even in relation to the availability of a remedy of an account of profits for the tort of passing off, however, it appears that it was not the mere commission of the tort which gave rise to the equitable remedy - rather, the Equity Courts looked to see whether, as well, there were factors present (whether it be the protection of property, or the existence of fraud) which justified the intervention of the Equity Court (Colbeam Palmer Ltd v Stock Affilliates Pty Ltd, supra, at 33.8-34.3).

82 In Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41, at 124-125 Deane J expressed the view that the activities of the defendant in that case (which amounted, his Honour held, to a breach of contract which did not involve a breach of fiduciary duty) was nonetheless liable to account for its profits, on the basis that a constructive trust was imposed, which

"...should properly be seen as imposed as equitable relief appropriate to the particular circumstances of the case rather than as arising from a breach of some fiduciary duty flowing from an identified fiduciary relationship." (At 124), and

"...a constructive trust may be imposed as the appropriate form of equitable relief in circumstances where a person could not in good conscience retain for himself a benefit, or the proceeds of a benefit, which he has appropriated to himself in breach of his contractual or other legal or equitable obligations to another."

83 This view of Deane J was a dissenting view. What one can draw from it, though, is that even if an account of profits is sometimes available in circumstances where there has been a breach of contract, something more than a mere breach of contract is needed to demonstrate the appropriateness of awarding the equitable remedy. The same conclusion follows from Attorney General v Blake [2000] UKHL 45; [2001] 1 AC 268.

84 Referring to the remedy as "account of profits" is shorthand. There are two distinct components to the remedy - first, that an account should be taken of the profits which the defendant has earned, and on the second, that the amount of profits so found to have been earned should be paid by the defendant to the plaintiff. As is the case with any remedy which equity grants in its auxiliary jurisdiction, an Equity Court needs to be given a reason, which is sufficient in accordance with equity principles, why it should grant an equitable remedy in addition to, or in lieu of, the ordinary common law remedy.

85 In the present case, the plaintiffs have not alleged, in their Statement of Claim, anything beyond the existence of the restrictive covenant, its breach, and consequent damage. If an equitable remedy is to be granted, it is necessary for the material facts, which justify the award of the equitable remedy, to be pleaded. In this case, no such facts were pleaded. In argument, while counsel for the plaintiffs stated that an account of profits was claimed, no reasons were given as to why it was appropriate. In these circumstances, I am not prepared to grant an account of profits.

230 In my view this restatement of the present position in terms of principle is entirely accurate. I note in particular that the conclusion that an account of profits was a just response to the particular breach of contract before the House of Lords, was reached by a process of analogy:

· first with cases such as Wrotham Park Estate Co v Parkside Homes Ltd [1974] 1 WLR 798 in which damages had been awarded to ensure that the unsuccessful defendant does not unjustly enjoy the benefit of his breach of contract; and

· secondly, with breach of fiduciary duty where an account of profits is an unexceptionable remedy.

[cf "Account of profits for breach of contract", Recent Cases by Mr Justice P W Young

December 2000, 74 ALJ 817]

231 The matter was put as follows by the Full Court [Hill, Emmett and Finkelstein JJ] in Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157:

157 The general rule of the common law was laid down by Baron Parke in Robinson v Harman (1848) 1 Ex 850; 154 ER 363. Parke B said that the aim of contract damages was to place the plaintiff in the same position he would have occupied had the contract been performed. See also Teacher v Calder [1899] AC 451. In Tito v Waddell (No. 2) [1977] Ch 106, when considering the appropriate remedy for the failure by the British Phosphate Commissioners to restore Ocean Island following the termination of mining operations, Megarry VC said (at 332):

"[I]t is fundamental to all questions of damages that they are to compensate the plaintiff for his loss or injury by putting him in the same position he would have been in had he not suffered the wrong. The question is not one of making the defendant disgorge what he has saved by committing the wrong but one of compensating the plaintiff."

158 This principle has been accepted as correct by the High Court. See, eg, Wenham v Ella (1972) 127 CLR 454; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 ("Amann Aviation"). Moreover, as Mason CJ and Dawson J said in Amann Aviation (at 82):

"The corollary of the principle in Robinson v Harman is that a plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed."

Their Honours added:

“If he has suffered no loss, he is not entitled to be compensated. In an appropriate case, the aggrieved party may be able to recover (by a claim in restitution) benefits that he has made available to the wrongdoer; for example, he may be able to recover the price under an incomplete contract or recover possession of goods sold but not paid for. Presently, however, it would be inconsistent with the current principles laid down by the High Court to confer a windfall on a plaintiff under the guise of damages for breach of contract.”

232 As Justice Young commented:

Lord Hobhouse of Woodborough, in a vigorous dissent, emphasised the essence of the action for breach of contract,

"contractual obligations are correctly understood as being the obligation to perform or pay damages for failing to do so-the primary and the secondary obligation" .

When the secondary obligation comes into play, the defendant must pay "a reasonable valuation of what the plaintiff ought to have had but did not get" or, as McHugh J put it in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, the plaintiff should be compensated "by placing it, so far as money can do it, in the same position as it would have been in if the contract had been fully performed on both sides" : 74 ALJ at 818.

233 I have given close consideration to the question of whether or not the circumstances presently before the Court which do, it seems to me, show a calculated disregard of the rights of Biscayne as well as a cynical pursuit of benefit [cf Prior v Lansdowne Press Pty Ltd [1977] VR 65 at 70], Biscayne should be seen to be entitled to an account of profits. Ultimately however it seems to me that this remedy is out of reach in this case.

234 Erbacher "An Account of Profits for a Breach of Contract (Attorney General v Blake)” 29 Australian Business Law Review, February 2001, 73 at 76-77 suggests that the House of Lords formulated an impermissibly wide discretion to order an account of profits, holding that it would be dependent on the facts of each case as to whether the discretion should be exercised:

"The better view might be that the discretion should be confined to the first circumstance identified by the court, namely whether plaintiff has a "legitimate interest" in preventing the defendant from acquiring a profit from the breach, and where the existing remedies would not be adequate. On this approach the plaintiff would be required to prove a special interest in preventing the defendant from profiting from the breach; that is, an interest over and above the usual interest in having the defendant perform the contract. In Attorney General v Blake the plaintiff succeeded because it could demonstrate a wider public interest in ensuring that members of secret intelligence organisations complied with their obligation to maintain confidentiality of intelligence information. In Wrotham Park the plaintiff succeeded because the contractual term breach was protective of a proprietary interest. However in the absence of such a supererogatory interest that claim should fail. For this reason the denial of restitutionary damages in Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361 was arguably correct, as the only interest the plaintiff could demonstrate was a normal contractual interest in having the defendant perform the contract according to its terms (or to seek a renegotiation). This approach will ensure that the remedy will be confined to exceptional cases, thus limiting its uncertainty impact on commercial transactions."

235 An unpublished paper "Focus on the ‘Most Wrong’ Equity Cases 1990-2003”, delivered by Barrett J at the Supreme Court Annual Conference in August 2003, targets Attorney General v Black for that dubious distinction. The paper comprises a detailed analysis of sundry references to the decision of the House of Lords in Australia, the United Kingdom and Canada. The paper includes the following:

“The applicability of the Blake doctrine has been seen in all the English cases as turning on the question whether the particular circumstances are of the “exceptional” kind to which the House of Lords referred. Lord Nicholls recognised that his innovation would produce commercial uncertainty. He hastened to attempt to dispel it by saying that an account of profits might be awarded “exceptionally” where “a just response to a breach of contract so requires”. He went on to say something about the “exceptional cases” he had in mind; but, he said, “no fixed rules can be prescribed” – not something, one would think, that seekers after commercial certainty wanted to hear. One important factor, however, will be whether the plaintiff had “a legitimate interest in preventing the defendant’s profit-making activity and hence in depriving him of his profit”. Lord Nicholls found to be of no assistance some other criteria suggested by the Master of the Rolls in the Court of Appeal; and he expressly rejected as insufficient three factors likewise rejected by the Master of the Rolls: the fact that the breach was cynical or deliberate; the fact that the breach enabled

the defendant to enter into a more profitable contract elsewhere; and the fact that by entering into a new and more profitable contract, the defendant put it out of his power to perform his contract with the plaintiff…

What is the problem of principle with the Blake approach? The remedy of account of profits is for cases where someone misuses a position of ascendancy or influence or trust and obtains something that ought to have gone to a person in a position of protection, vulnerability or beneficial entitlement. Appreciation and accommodation of parties’ positions in those comparative terms is not something with which pacta sunt servanda is concerned.”

236 Whether Attorney General v Black may be resurrected by the appellate tribunals in Australia as otherwise than heretical remains to be seen. Presently the trenchant criticisms of the House of Lord's decision have considerable weight as it seems to me.

237 The present is a case where the conventional remedy for damages is aptly engaged - Biscayne being unable to demonstrate a supererogatory extra-contractual interest, should be compensated by placing it, so far as money can do it, in the same position as it would have been in if the contract had been fully performed on both sides. It cannot be said that not to order an account would abort Biscayne’s rights. The matter ultimately inheres in compensatory damages.

Rulings on evidence

238 During the course of the hearing the Court reserved a decision upon whether or not particular witnesses had been shown within section 79 of the Evidence Act 1995, by their training, study or experience, to have acquired specialised knowledge on the basis wholly or partly of which to be in a position to express particular opinions, such opinions having been included in their affidavits or in supplementary evidence in chief given in the witness box. Cross-examination took place upon the accepted basis that the final judgment would include a ruling as to whether any of the evidence going to such specialised knowledge and opinions would be allowed.

239 This is not an occasion when the parameters of section 79 require detailed examination. The section was the subject of close examination in Idoport v National Australia Bank [2001] NSWSC 123 and the approach there taken as to the principles which inform the proper construction of section 79 is adopted.

Mr Hollingsworth

240 Mr Hollingsworth was put forward as having specialised knowledge in relation to what were the usual functions of a manager especially in dealings with record companies. He had worked in the music business for some 17 years from the age of 21, his experience being with major record companies in promotions and Artist and Repertoire ("A & R"). The position he started in was initially radio promotions with Sony UK. This involved the taking of artist’s recordings to radio stations and convincing radio stations to play records, to promote the artist and arrange interviews and setting up a media campaign for radio. During that period of time of approximately 12 to 13 years, he had dealt with managers for popular artists. Those dealings included sitting down and discussing game plans and strategies with the artist’s manager, generally pertaining to radio promotions.

241 Following that period he went into the A & R area which involved the establishing, finding and developing of artists and the presenting of those artists to the record company to buy into, support, and then to market. His evidence was that there was a particular category of experience and real-world job activity

which can be described as “artist and repertoire”, and that there was another area to that, which was different, and which could be described as a “managing agent” to artist field of endeavour and area of specialty. In relation to the second and different area he had never himself been in a managing-agent relationship. He gave the following further evidence:

Q. And then you go on in the next sentence, in the next paragraph, to say, "In the course of my activities in A&R I have had frequent and extensive experience with artists' managers"?

A. Yes.

Q. And then you elaborate on that. Can I ask you this: is what you say about what an artist's manager does or doesn't do based on your experience that you have had with artists and their managers while you have been in A&R?

A. Both promotions and A&R.

Q. Both radio promotions and A&R?A. Yes.

Q. You haven't, I take it, attended any courses in entertainment, artists' management or anything of that nature?

A. No.

Q. You haven't studied the behavioural characteristics of artists' managers at large in a formal sense?

A. There's no better education than working in the industry.

Q. But the views you express are based on the particular experiences you have had with particular artists and their managers?

A. Yes.

Q. And you wouldn't, for instance, consider yourself qualified to express a view on what a competent artist's manager should achieve by way of contractual negotiations for a recording contract?

A. No, but I'm aware of the parameters.

Q. Yes, but you couldn't say whether it's not within your knowledge and experience to say, "That manager is negligent; that manager is not"?

A. No, no.

HIS HONOUR: Q. Can I ask, have you studied extensively or at all the different types of terms which may appear in one contract between the managing agent and the artist and another?

A. No. ….

GARNSEY: Q. In your affidavit, you have given evidence about what a manager should do in relation to telephone calls, attendances and looking after an artist, and the answer was not telephone calls but --

A. Well, between an artist and a manager, I wouldn't know about that, but between myself and an artist manager, obviously, yes, I would be aware of that.

HIS HONOUR: Q. And why do you say that "between an artist and a manager, I wouldn't know about that"?

A. Because a manager manages an artist. That's between the artist and the manager. It's obviously, you know, not anything to do with myself in that respect.

HIS HONOUR: Yes, very well.

GARNSEY: Q. And it's correct to say, isn't it, that the views you have expressed on what an artist or rather a manager does for an artist on the occasions to which you have referred, those views are based on what you have seen particular managers do for particular artists on particular occasions?

A. Yes.

HIS HONOUR: Q. Without, presumably, is that right, studying at all the management agreements which those particular artists have with their managers?

A. Yes. [Transcript 465-470]

242 In my view Mr Hollingsworth is not shown by his training, study or experience to have acquired specialised knowledge on the basis wholly or partly of which to be in a position to express the views for which he was put forward as to the usual functions of a manager or as to the usual functions of a manager especially in dealings with record companies. He seemed especially to accept that he would not know about what a manager should do in looking after an artist but that his particular area of A & R was that in which he was qualified to express a view. It was not within his knowledge or experience to say that a particular manager was or was not negligent in that he had not studied extensively nor at all, the different types of terms which may appear in one contract between a managing agent and an artist and those which may appear in another such contract. His evidence was that he would not know as between an artist and a manager, what the manager should do: "That's between the artist and the manager. It's obviously… not anything to do with myself in that respect". Granted that he did have views which were based on his observations of particular managers and the work that they had carried out for particular artists on particular occasions, I am not satisfied that he has been shown to have acquired the specialised knowledge requisite to give an opinion on the usual functions of a manager in a managing agent-artist contractual relationship. In consequence his evidence, to the extent it was put forward as grounded upon section 79 specialised knowledge, is disallowed.

Mr Klippel

243 Mr Klippel on the other hand does seem to me to have been shown by his training, study or experience to have acquired the necessary specialised knowledge upon which wholly or partly to be in a position to express an opinion as to the usual functions of a manager/managing agent in contract with an artist. He had been involved in the Australian music industry for 14 years, largely as a songwriter/music producer. On a number of occasions he personally had had managers. He had worked with other managers often. His world was far wider than that of A & R. In consequence all of his evidence is allowed.

Mr Fowler

244 Mr Fowler was also put forward as having specialised knowledge upon the basis of which to be in a position to express opinions as to the usual functions of an artist's manager in particular in dealings with recording companies. It does seem to me that his identified training, study or experience, having been an artist's manager since about 1985 and having managed a number of bands and being aware of the activities

being undertaken for and on behalf of many artists, shows that he has acquired the specialised knowledge upon the basis of which to be in a position to express opinions as to the usual functions of an artist's manager, in particular in dealings with record companies. In consequence all of his evidence is allowed.

Mr Kirby

245 Ultimately the defendants do not put Mr Kirby forward as a person with section 79 specialised knowledge. [Transcript 827]

Mr Benson

246 Mr Benson had been involved in the music industry in the United Kingdom, Europe and elsewhere for the past 30 years in both an artistic and professional capacity. He was a musician, songwriter and producer for most of those years and had been a manager for the past 15 years. He had had extensive experience as a manager in the music industry. He was clearly a person who had had the training, study or experience from which he had acquired the specialised knowledge on the basis of which wholly or partly to be in a position to express opinions as to the usual functions of an artist's manager. In consequence all of his evidence is allowed.

247 It is appropriate to note that even had the evidence given by Mr Hollingsworth which had been put forward a satisfying section 79 of the Evidence Act been held to be admissible as based upon the requisite specialised knowledge, the findings of the Court would have been no different. Indeed all of the evidence given by those put forward as having specialised knowledge as to the usual functions of an artist's manager in dealings with others including the artist, has had to be weighed against the very particular set of circumstances here thrown up by the evidence for reasons clearly spelled out in the judgment.

Leave to further address/ Short Minutes of Order

248 As was made plain during the course of the taking of final submissions, it does seem convenient to leave a number of remaining questions for further address once the parties have had an opportunity to read the above judgment. The particular questions which remain for further address generally go to causation and damages and to one or two matters mentioned in the Judgment. Notwithstanding that detailed written and oral submissions going to relief were received, it may well be that those submissions can be more narrowly focused once the parties have had an opportunity to read the judgment. There is always an opportunity that the parties may now reach agreement on some of the calculations. Short minutes of Order will of course also require to be brought in.

Transcript anomalies

249 Preparation of the judgment has regrettably thrown up some transcript anomalies which were not apparent to me during the hearing of the proceedings. Sometimes the hardcopy version on which I was working may be one or two pages out from the softcopy version from which I was also working. My Research Assistant generally worked from her own hardcopy version which we intended to be regarded as the official version, along with the softcopy version. However, careful checking has now revealed that her hardcopy version was even somewhat different from the two versions from which I worked. As she was responsible for the transcript references now included in the chronology appended to the judgment, it is her version which correctly identifies that pagination. In all the circumstances the convenient course will be to include in the official court file both the hardcopy version from which I worked as well as the hardcopy version from which she worked, as well as a CD with the softcopy version.

I certify that paragraphs 1 - 249 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 3October 2003

___________________Susan PiggottAssociate

3 October 2003

LAST UPDATED: 08/10/2003