No.
6056
of
1997
- This case is brought by a Victorian Company, Playcorp Pty Ltd
("Playcorp") against a Japanese company, Taiyo Kogyo Co Ltd ("Taiyo"). In its
business Taiyo manufactured toys and in particular radio controlled toys ("R/C
toys"). For some years until 1996 Playcorp purchased such products from Taiyo
for sale to retailers in Australia and New Zealand. When the companies
commenced their dealings, and until 1991, Playcorp was known as George Tauber
Imports Pty Ltd ("GTI"). At first the distribution arrangements were informal
but by a written agreement stated to be made on 1 January 1993 and to commence
on 1 July 1993 Taiyo appointed Playcorp as its exclusive distributor in
Australia and New Zealand for the resale of products manufactured by or for
Taiyo from time to time and Playcorp agreed to sell the products and existing
Taiyo products in that territory. The agreement, which I refer to as "the
distribution agreement", was expressed to continue in force until
31 December 1998 unless earlier terminated as therein provided. A deal of
these products were designed by or for, and were manufactured by Taiyo under
arrangement with, a United States company Tyco Industries Inc, referred to in
correspondence as Tyco Toys and which I refer to as "Tyco". Although Playcorp
achieved a high level of sales in Australia differences arose between Playcorp
and Taiyo, and Tyco. It is Playcorp's case that in the circumstances Taiyo
repudiated the distribution agreement by refusing to supply products and that
on 26 or 29 March 1996 Playcorp accepted the repudiation and terminated the
agreement. On 18 June 1997 Playcorp commenced this proceeding claiming damages
in respect of two matters, namely, the profits it contends it would have earned
if the distribution agreement had run its course, and the profit lost and
repair costs incurred as a result of quantities of the products having been
delivered in a defective state.
- In final address Playcorp sought the following amounts as
damages:
1. Loss of profits: $2,347,965.
2. Defective goods: $374,605 made up as to $365,311 profit lost
on such goods and $9,294.00 as repair costs.
- Tyco denies the claims thus raised, both on liability and
quantum. There is no counterclaim.
- The trial commenced on 24 November 2000. An amended statement
of claim had been filed in May 2000. The defence and the reply were amended,
and further particulars of each were provided, during the trial. On 4 December
2000, it seeming that Playcorp might be prejudiced if the hearing were to
continue without time being granted to consider new matters, I adjourned the
hearing to a date to be fixed in February 2001. I also vacated an order made
earlier by the Listing Master that the evidence of a Japanese witness, Shohei
Suto, the President of Taiyo, be taken by video link. As it transpired, the
hearing did not resume until 19 November 2001.
- By the end of the trial Playcorp had called seven witnesses and
Taiyo six. They included, on each side, an accountant and a handwriting expert
to give opinion evidence on the loss of profits claim and the authenticity of
the signature of Suto on the distribution agreement respectively. In addition
each side had tendered a witness statement, and Taiyo had tendered an
affidavit, without the need to call the witness. There was also a significant
amount of documentary material. More specifically, the witnesses called
were:
(a) For Playcorp:
(i) Stephen William Grant, who had changed his name from Glatt on
29 July 1999. In the correspondence he is referred to by his former name. For
that reason, and to avoid confusion, it is convenient to refer to him by his
former name of Glatt. He became a director of Playcorp in 1985 and managing
director in 1988. He ceased to be a director and employee of Playcorp in
January 2000. Essentially, and critically for this case, he had been
responsible for, and the central figure in, the trading relationship with
Taiyo. He made three witness statements and gave evidence over several days.
He was extensively cross-examined. His evidence was central to establishing
the factual foundation for Playcorp's claim both on liability and quantum.
(ii) Harry Cooper, who between about 1986 and until 25 June 1999 was Chairman
of directors of Playcorp. He was also a director of a number of companies in
the Century Plaza Group of companies which included Playcorp.
(iii) Yuki Tsugu Futamura, who commenced employment with Taiyo in about 1985,
became director in charge of marketing in 1992 and who was dismissed from his
employment by Suto on 20 May 1985. Suto did not give evidence. The
reason for the dismissal was neither advanced in evidence by Taiyo nor put to
Futamura in cross-examination. He was not attacked in his credit on that
account; he was dismissed but I was not told why. In his position with Taiyo
it had been Futamura's role to deal with Playcorp. In that context he dealt
with Glatt, and they developed a strong personal relationship of mutual trust
and respect. Futamura gave evidence as to the dealings between the companies,
and with Tyco, and the signing of the distribution agreement by himself, Suto
and Glatt.
In 1996 Playcorp sought to develop some R/C toys. For this purpose a company
called Quantum Toy Concepts Pty Ltd ("Quantum") was registered on 12 July 1996
with Steven Lew, Futamura, Glatt and another person as directors. Futamura,
who was then unemployed, assisted in the endeavour. The endeavour was
unsuccessful, the activity was discontinued and Quantum was deregistered on 9
October 2000.
By reason of his concern that if he gave evidence Suto might bring civil
proceedings against him in Japan without just cause, and thereby cause him
financial harm, Futamura requested and Playcorp provided him with a written
indemnity for costs if that should happen. The indemnity was received as a
confidential exhibit.
(iv) Neil William Holland, a handwriting expert whose evidence supported the
plaintiff's case that the signature of Suto on the distribution agreement was a
genuine signature of Suto.
(v) Enzo Gatto, who gave evidence as to defects in toys supplied by Taiyo and
as to repairing defects in Taiyo toys.
(vi) John Francis Redenbach, the merchandise director of Toys R Us (Australia)
Pty Ltd, who has had extensive experience in the retail merchandising of toys
in Australia for more than 20 years, who gave evidence of matters concerning
the Australian market for R/C toys, Playcorp's role in it and other matters.
(vii) Aubrey Laurence Whitear, an accountant who gave expert evidence in
support of Playcorp's loss of profits claim.
(viii) Monica Pinda, a Japanese translator, whose witness statements concerned
her translation of a number of documents from the Japanese to the English
language. Her statements were tendered without the need to call
her.
(b) For Taiyo:
(i) Masafumi Itani, who since July 2001 has been the marketing
director of Taiyo, the position formerly held by Futamura. Overall he has been
in the employ of Taiyo for 10 years, always in the marketing department and
until his employment ceased, working under Futamura. His evidence related to a
number of aspects of the case.
(ii) Rie Imafuku, an interpreter and translator of the Japanese language. Her
witness statement contained her translations of four witness statements from
the English to the Japanese language, and certain other documents from the
Japanese to the English language.
(iii) Noritsugu Sasahara, who since July 1992 has been employed by Taiyo as an
auditor. His evidence was directed to the matter of Taiyo going public and
whether that project required an agreement with Playcorp of the nature
constituted by the distribution agreement. He also gave evidence of other
matters including a lack of knowledge of such an agreement.
(iv) Gregory Pollard Meredith, an accountant who gave evidence as to the loss
of profits claim.
(v) Gary Lindsay Storey, a handwriting expert who gave evidence as to the
genuineness of the signature of Suto on the distribution agreement.
(vi) Takeshi Tomozawa, who commenced employment with Taiyo in 1992 and has
worked throughout in the marketing department. He is now assistant manager to
Itani.
(vii) Neil Tilbor, a resident of the United States, whose witness statement was
tendered without the need to call him. In summary his evidence was concerned
with the development of R/C toys for Taiyo, the manufacturer of toys by Taiyo,
the adaptation or redesign and development of toys and the role of Taiyo and
Tyco in these matters.
(viii) Noel James Batrouney, solicitor for Taiyo, whose affidavit was tendered
without the need to call him. The affidavit was relied on to answer a
suggestion of recent invention in relation to Taiyo's allegation of forgery of
Suto's signature on the distribution agreement. The suggestion had been made
in cross-examination of Itani.
- It is convenient to note the position of Suto. He founded
Taiyo. He is President and his wife is the Vice President of the company. In
addition to them there were seven other directors, all employees of the
company, each of whom was responsible for an area of the business. The areas
were banking, accounting, research and development, tooling, production,
purchasing and marketing. Futamura, and now Itani, was the director
responsible for marketing. The directors rarely met as a board. Suto
controlled the company. No major decision could be made without his approval.
Such a decision would be whether to enter into an agreement such as the
distribution agreement. Further, Suto would have to sign such an agreement.
Hence, while a matter such as the distribution agreement was within Futamura's
area of responsibility, the agreement could not be made without the approval of
Suto. Although Tyco has had an ownership interest in Taiyo since 1992 or
1993,[1] what I have described as the manner of
operation of the business was the position at all material times.
- Taiyo's solicitors filed a witness statement and a
supplementary witness statement for Suto in October and November 2000
respectively. Among other things the statements denied that he had signed the
distribution agreement. This was to support Taiyo's case that his signature
thereon was a forgery. In accordance with practice Suto had not signed the
witness statements. They were in draft form and would not constitute evidence
until adopted by him in chief.
- Prior to commencement of the trial in November 2000 an order
had been made by the Listing Master that Suto's evidence be given by video link
from Japan. Suto was resident in Japan and not in good health. However, it
was preferable for Suto to give his evidence in court in Melbourne and in case
that became possible, and in order to ensure the matter was considered afresh,
I vacated the video link order on the adjournment in December 2000.
- In the course of the resumed hearing in December 2001 Taiyo's
counsel again raised the matter of how Suto's evidence could be taken. Relying
on up-to-date materials concerning Suto's health which indicated he was in
hospital and could not leave it until the end of the year, and that a video
link to the hospital could not be arranged, counsel sought an order that I, and
the parties representatives, travel to Japan to take his evidence. It quickly
transpired that this was not possible for the reason that Japan did not permit
such action by an Australian judicial authority. Evidence by video link was
also precluded. In the end, following the completion of all other evidence,
Taiyo's counsel did not press the matter further and closed Taiyo's case
without evidence from Suto.
Issues
- It is convenient to identify the issues or areas of contention
counsel left for determination. Summarily stated they are:
1. Was Taiyo bound by the distribution agreement? It is common
ground that this depends on whether Suto signed the document or his signature
was placed thereon by another person without his knowledge or authority. Taiyo
was bound in the former case but not in the latter.
2. If Taiyo was bound by the distribution
agreement:
(a) What products was Playcorp able to purchase under the
agreement? This is to be considered as at the date of rescission (26 or 29
March 1996) and subsequently within the period of the agreement (that is, prior
to 31 December 1998). The issue involves reference to events between Playcorp,
Taiyo and Tyco and their impact or likely impact on Playcorp's business in the
R/C toy market.
(b) Did Taiyo repudiate the agreement, and was Playcorp entitled
to rescind? Whether Taiyo did repudiate the agreement involves a consideration
of the parties' actions in relation to Playcorp's defective product claim.
Their actions are to be assessed in the context of the relevant circumstances.
Playcorp contends that Taiyo refused to supply it with products under the
agreement and that the terms and circumstances of the refusal constituted a
repudiation of its obligations under the agreement. That entitled Playcorp to
rescind and it did so by a letter on 26 or, alternatively, by a further letter
on 29 March 1996. Taiyo contends the defective products claim was false,
grossly exaggerated and unreasonably made, that it constituted an attempt by
Playcorp to force new terms of trade on Taiyo, and that the pressing of the
claim was a breach of an implied obligation to deal in good faith. In those
circumstances Taiyo contends it was entitled, as it did, to conditionally
refuse to supply products until the claim was settled. Thus its conduct was
not repudiatory. Taiyo further, and alternatively, contends that Playcorp was
not ready and willing to perform its obligations under the distribution
agreement and, that being so, Playcorp was not entitled to rescind.
(c) What damages is Playcorp entitled to receive? The claim for
loss of profits involves a consideration of what Playcorp would have done after
March 1996 in the conduct of its toy business. The case as to what it would
have done including what products it would have purchased and sold was based on
evidence of Glatt which Taiyo attacked. In addition to issues as to the amount
of any damages including a contention of Taiyo that no loss was shown, there is
an issue whether two amounts received from Tyco should be brought to account in
reduction of any damages.
3. The second head of damages concerning the defective products
claim raised issues as to the relevant terms of sale and the applicable law in
that respect, and as to the proper calculation of the claim.
Background
- Before Glatt joined GTI in 1985 the man behind the company,
George Tauber, had developed business contacts with manufacturers of toys in
Japan. One of those manufacturers was Taiyo. At this time R/C toys had been
introduced to the market in Australia and GTI was dominant in that market.
Such toys were small replica models of luxury vehicles such as Porsche and
Mercedes Benz. They were indoor toys which performed simple movements without
high speed, performance or agility. GTI was the exclusive distributor in
Australia for R/C toys manufactured by Taiyo and two other Japanese
manufacturers, Nikko and Yarezawa.
- When Glatt joined GTI in 1985 its principal business activity
was the importation and distribution of toys in Australia and New Zealand. He
identified the business opportunity of developing for the Australian toy market
a R/C toy of a different nature, namely, a larger vehicle with a motor which
could be used "off road", ride over obstacles, and which could be used by
children. He worked to develop the idea with a view to high volume sales
promoted by television advertising.
- Accordingly, in May 1985 Glatt went to Japan with Tauber to
meet suppliers and find a product suitable for promotion on television. He met
Taiyo executives including their director of sales and marketing and his
assistant Futamura (who later became director).
- As a result, in 1986 GTI marketed a Taiyo R/C toy in Australia
called Jet Hopper. It was marketed through retailers under the Metro brand
which was owned by GTI. It was heavily promoted on television. It was fast,
agile, able to clear obstacles and be used outdoors. It achieved phenomenal
sales, about 130,000 units in 1986. That led to Tyco distributing the toy in
the United States in 1987 under the name Turbo Hopper, with great success.
Naturally, Playcorp's success advanced the business relationship between GTI
and Taiyo. It is also led to many other R/C toys being successfully marketed
in Australia by GTI and later Playcorp.
- The R/C toy market developed, new toys were introduced and the
range was increased. Briefly, in 1987 Jet Hopper was an even greater success
selling more than 150,000 units, and Taiyo introduced a version on a smaller
scale called Mini Hopper, two-thirds of the size and price of Jet Hopper. It
did not possess the same performance levels, was cheaper and appealed to
younger children. It sold in large quantities without affecting sales of the
bigger R/C toys. In 1988 a third category or section of the R/C toy market was
created when Taiyo introduced the Micro Hopper which was smaller again, and
cheaper with lesser performance abilities, and which appealed to even younger
children. Thus, by 1988 there were three distinct categories of R/C toy in the
market in Australia, and that continued to be the case. They were the full or
normal size high performance vehicle, the mini and the micro. Within that
market there was a difference between toys that were promotional and those that
were not, the former being the latest or a prior very successful toy to be
promoted through various media including television commercials, at substantial
expense. Some R/C toys held their appeal and could be sold steadily for some
years. In some cases Taiyo would redesign a toy such as by a change of colour,
decal, body shape or type, or other features to retain or create
appeal.
- In 1987, reflecting its success in the Australian market, GTI
decided to distribute only Taiyo manufactured R/C toys. Over time GTI (and
Playcorp) devoted substantial sums and effort promoting Metro R/C toys obtained
from Taiyo. While the toys were developed by Taiyo from time to time Glatt's
opinion was sought about their concept. It is evident that Glatt possessed a
keen sense of what would appeal in the market. It was no coincidence that by
the early 1990's Playcorp, to use Redenbach's words
"... continued to be the dominant supplier of radio controlled toys
in the Australian market. It was well known in the industry. There was no
other company ... aggressively marketing and heavily promoting radio controlled
toys in Australia".
It was not every toy that was the subject of such promotion.
The pattern each year was to choose a new product or two considered likely to
have substantial appeal and heavily promote such product. These were called
lead items, the product possessing some special features which gave it special
appeal. Playcorp would have other Taiyo R/C toys in the three categories
mentioned of normal, mini and micro, which might be a mixture of new and old
and include redesigned toys.
- Taiyo also manufactured R/C toys for Tyco. In this
relationship Taiyo developed products from concepts introduced by Tyco. Such
toys were part of the line of toys presented by Taiyo each year and from which
Playcorp selected items for distribution in Australia. In his witness
statement Glatt described these as Tyco/Taiyo toys. In respect of such toys a
royalty of about 5% was included in the purchase price charged to Playcorp, and
which Taiyo remitted to Tyco for itself or the inventor.
- GTI sold all toys under the Metro brand. Tyco did not sell
its Tyco brand R/C toys in Australia. From about 1987 Taiyo allowed GTI (and
later Playcorp) to use certain Tyco packaging and promotional items to
advertise Tyco/Taiyo toys in Australia. In 1992 the arrangement was changed in
that Tyco required Playcorp to pay an annual fee of $10,000 for the use of
Tyco's packaging, art work and $6,000 per Tyco commercial.
- I have referred to the close relationship that developed
between Glatt and Futamura. They were in frequent (Glatt said weekly) contact
concerning the development, ordering and supply of R/C toys. It was an
informal arrangement, in that there was no written agreement by which Playcorp
was granted a distribution right, and hence the personal relationship with a
common sense of purpose and understanding was of fundamental importance to,
indeed underlay, the ongoing successful commercial relationship between the
companies. Itani agreed that the good relations between Glatt and Futamura
were in the interests of each business, and that it was a business relationship
in an industry in which personal relations were unavoidable. The fact of the
matter was that, notwithstanding the absence of a formal agreement, GTI (and
later Playcorp) was the sole distributor of Taiyo toys and Tyco/Taiyo toys in
Australia and New Zealand.
- Once a year, on a visit to Japan, Glatt would meet with Suto.
They had a cordial business relationship. It is a reflection of the
relationship and in particular of Suto's confidence in and regard for Tauber
and Glatt that they were asked to become, and accepted appointment as,
directors of two companies associated with Taiyo called Taiyo Toy (Hong Kong)
Company Limited and Taiyo Engineering Services Co Ltd. They also held shares
in the former company. Later, in 1991, it seems David Wolfe Joel, financial
controller of Playcorp, became a director of the latter company. I accept
Glatt's evidence that he did not really know what the companies did, but
Futamura told him they needed foreign directors and that Suto trusted him.
Suto was chairman or President and conducted the affairs of the companies
without reference to Tauber or Glatt who signed documents sent by Suto via
Futamura. In the case of the former company and I assume the latter Suto
provided them with a written indemnity for any personal liability as a
director.
- In June 1992 Glatt met the President of Tyco, Richard E Grey
in New York. In the course of Playcorp's business Glatt travelled overseas and
frequently met Grey and other Tyco executives at trade fairs and other
occasions. Glatt had an "excellent" personal relationship with Grey and most
of Tyco's senior sales and marketing executives. At their meeting in June
1992, Grey told Glatt that Tyco intended to establish its own distribution
company in Australia in 1993 to distribute its toys in Australia, but not
Tyco/Taiyo toys. As Playcorp, Taiyo and Tyco had a good relationship, Tyco was
content for Playcorp to remain the sole and exclusive distributor in Australia
and New Zealand for R/C toys manufactured by Taiyo including Tyco/Taiyo toys.
As long as Playcorp continued to do a good job with these products, he saw no
need to change that arrangement. Later in June Glatt received from Futamura a
copy of a letter dated 17 June 1992 from Grey to Futamura which concerned the
matters discussed with Glatt. Glatt regarded the letter as consistent with the
discussions. Nevertheless the letter should be set out as its terms reflect a
developing attitude by Tyco towards distributing its products and it is part of
the context in which future events are to be understood. It also discloses
that Tyco required annual review of the arrangement whereby Playcorp could
distribute Tyco/Taiyo toys. The letter (and Futamura's reply dated 18 June
1992) also reflects the importance and effect of the close personal
relationship between Futamura and Glatt. The letter dated 17 June 1992
stated:
As you know, I met with Steve Glatt in New York last Thursday.
We had discussions about several things, including future distribution in
Australia of radio control and our Illco pre-school toys.
Tyco has become a large toy company and our international operations are
important to the overall financial health and growth of the company.
As President of Tyco, I have the obligation to our employees and shareholders
to do what is best for Tyco. This includes protecting Tyco's distribution
rights, particularly where we have our own subsidiary company. At the same
time, we want to be considerate and fair to our special friends.
We expect to have our own distribution company in Australia in 1993. I've told
Steve that all Tyco products, including Illco pre-school, will be marketed by
Tyco beginning in 1993. This is normal procedure.
We should also do this with those ratio control products "created" by Tyco.
However, I recognise the close relationship of Yuki-san and Taiyo with Steve.
Because of this, we agree that Playcorp can continue distribution of all Taiyo
radio control, including Tyco-designed products, in Australia.
Each Year, Taiyo and Tyco should review this. If Playcorp is performing up to
reasonable levels by using heavy TV promotions, etc., then the arrangement
should continue. Otherwise, perhaps we should consider a change.
Yuki, although Playcorp pays royalty on Tyco-designed items and reasonable
charges for the use of Tyco-style packaging and Tyco TV commercials, our people
feel that Tyco should do its own marketing worldwide. However, I recognise
your difficult position. Since we are more than business associates I am happy
to help you this way at this time".
- In the wider context, the position with the overseas
distribution of Taiyo products was that Tyco was the major distributor in the
United States, Asahi Corporation distributed Taiyo products in Europe and GTI
(Playcorp) distributed Taiyo products in Australia. These were Taiyo's three
major distribution regions outside Japan. Taiyo's relationship with Tyco
developed in the 1991/1992 period. Tyco wished, and Suto approved, Tyco taking
over distribution in Europe from Asahi. The views expressed by Grey in his
letter are consistent with this change in distribution
arrangements.
- Then, on 1 October 1992 Futamura sent a facsimile to Glatt in
which he referred to the preparation of documents necessary for Taiyo to go
public. In that connection he wanted to know Playcorp's capital and number of
employees. It is the fact that Taiyo did give consideration to going public
and that over a period work was undertaken accordingly. Nomura Securities was
engaged as adviser and underwriter. As an auditor Sasahara was engaged on the
project. There were issues about this but having considered the evidence I
find that Sasahara did ask Futamura to obtain a written agreement with Tyco and
Playcorp for the purpose of the float. I should record that I found Futamura
to be an honest and reliable witness. I do not consider that his evidence was
affected by any ill-will towards Taiyo or Suto. I note too, as mentioned
above, that Taiyo's counsel were not prepared to allege anything adverse
against Futamura in relation to his dismissal. Nor were they prepared to
allege directly that he had forged Suto's signature on the distribution
agreement. By contrast I was not impressed by Sasahara. The important
position of Playcorp as an overseas purchaser of Taiyo product was made obvious
in cross examination. So too was Taiyo's case affected by a combination of an
evident lack of organisation of its contemporaneous documents and a tardy
discovery of documents which, considered overall, left me with an absence of
confidence in Taiyo's evidence as to critical documents not being in its
possession. This was reflected in not merely the late production of documents
but, for instance, the omission to discover the letter from Itani to Grey dated
28 September 1995. An element in the tardiness on discovery was, I find, a
concern as to finding, and then having to produce, documents that might not be
helpful to Taiyo's position. I find too that the witnesses remaining in the
employ of Taiyo were much affected by the dominant role and power of Suto whose
obvious wish was to defeat Playcorp in the litigation. Sasahara's evidence was
affected by these factors and, I find, relevantly tailored to suit the case
desired to be advanced by Taiyo. Sasahara was not a reliable witness.
Wherever his evidence conflicts with the evidence of Futamura or Glatt I reject
it. I add that the above finding that Sasahara asked Futamura to obtain a
written agreement is one that, regarding the evidence overall, accords with the
probabilities.
- In accordance with Sasahara's request, in 1993, Glatt states
that in or around April, Futamura told Glatt that for the purposes of the float
it was necessary for Taiyo to enter into written agreements with its
international distributors. Futamura asked if Playcorp could prepare a first
draft and Glatt agreed. There was also to be an agreement with Tyco.
- Playcorp's case is that this conversation led to the impugned
distribution agreement which is dated 1 January 1993. The relevant events
concerning it's making occur through to September 1994 when, on Playcorp's
case, it was signed by Futamura and Glatt, it having already been signed by
Suto. I return to the events when discussing whether Suto signed the
agreement.
- For the moment it is sufficient to say of the agreement that
by its terms Taiyo appointed Playcorp as its exclusive distributor for the
resale of products (defined to mean products manufactured by or for Taiyo from
time to time) in Australia and New Zealand ("the territory") from July 1993
and, unless earlier terminated as therein provided, until 31 December 1998, and
thereafter to be renewed by agreement. By cl 3, concerning "Supply of the
Product", Playcorp agreed to send all orders for the products to Taiyo's office
in Tokyo or such other address as may subsequently be notified by Taiyo, in
writing, for acceptance or objection by Taiyo,[2] and Taiyo agreed that upon receipt of orders Taiyo shall
use all reasonable endeavours to meet the delivery date.[3]
- For its part, by the agreement Playcorp agreed to distribute
and sell the products and existing Taiyo products in the territory,[4] not to appoint another person in the territory
as a distributor or agent for the products in the territory or supply any of
the products to any other person in the territory for use or resale,[5] and to use its best endeavours to promote the
sale of the products in the territory and satisfy market demand.[6] As to payment the agreement provided:
"4.3 Playcorp shall pay to Taiyo the minimum sum of $US 1,000,000
during the first calendar year of the Agreement in payment of Products. In the
event that the earned payments during the first calendar year do not equal or
exceed $US 1,000,000 then Playcorp shall pay such additional sum, which
together with the earned payment will equal $US 1,000,000 prior to 31 December,
1993.
Thereafter, subject always to Taiyo being able to continue to offer to Playcorp
a range and depth of Products not less than those available 1992/3, Playcorp
shall pay to Taiyo the minimum sum of $US 4,000,000 for the balance of the Term
in payment of Products. In the event that the earned payments during the
period until 1 January, 1998 do not equal or exceed $US 4,000,000, then
Playcorp shall pay such additional sum, which together with the earned payment
will equal $US five million prior to 31 December, 1997.
4.4 Playcorp shall account to Taiyo of all sales of Products in the Territory
on an annual basis."
- For its part, by the agreement Taiyo authorised Playcorp to
use the Taiyo trademark and copyrights in the territory on or in relation to
the products for the purpose of exercising its rights and performing its
obligations under the agreement.[7] Taiyo
further agreed to provide Playcorp with samples, catalogues, brochures and
up-to-date information concerning the products as Taiyo considered appropriate
or Playcorp reasonably required to assist with the sale of products, and
endeavour to answer as soon as practicable any technical enquiries concerning
the products made by Playcorp or its customers.[8] Clause 8.9 provided that the agreement shall be binding
upon and enure to the benefit of the parties and their assigns and successors
except that if Glatt is no longer the managing director of Playcorp, Taiyo may
terminate the agreement on six months' notice. The agreement was also liable
to termination if either party is in default of an obligation and did not cure
such default to the satisfaction of the other party within 30 days of notice to
do so,[9] or (to summarise) a party became
insolvent.[10] Finally, by cl 8.9 it was
provided that the agreement shall be construed in accordance with the laws of
Australia.
- On 14 January 1994 Taiyo and Tyco recorded a written
distribution agreement. The document was in the form of a letter to Futamura
from Grey of Tyco and was signed by Suto by way of agreement by Taiyo. It
provided for Taiyo to manufacture radio controlled toys for distribution by
Tyco on an exclusive basis world wide excluding Japan and Australia. It is
important and I set it out;
"This will confirm our Working Agreement, whereby Taiyo Kogyo Co.
Ltd. Of Japan ("Taiyo") will continue to manufacture radio control toy products
for Tyco Industries, Inc. and its worldwide subsidiaries and affiliates
("Tyco"), as follows:
1. This Agreement shall be in effect until December 31, 1994. Thereafter, this
Agreement shall be automatically renewed on a year-to-year basis unless either
party gives written notice of its intention to terminate this Agreement not
less than six months prior to the end of any calendar year. Such termination
shall become effective on the last day of that calendar year.
2. Taiyo shall manufacture certain radio control products for distribution by
Tyco on an exclusive basis worldwide, excluding Japan and Australia. Taiyo
shall continue to offer other (non-Tyco) radio control products to Radio Shack
stores. Taiyo shall continue to have the right to offer the full line of radio
control products (Tyco and non-Tyco) to Sheng Tai Toys in Singapore, New
Zealand Playcorp in New Zealand and United Trading Estates in the United Arab
Emirates. In addition, Taiyo shall continue to offer to Asahi the nine items
previously agreed to, but only until February 28, 1995. Thereafter, sales to
Asahi will cease.
3. Tyco will continue to use its best efforts to develop new product ideas for
radio control toys to be manufactured by Taiyo, including soliciting product
ideas from outside inventors. When royalties are due to outside inventors,
Tyco will be responsible for all royalties in the countries that it sells these
items, and Taiyo will be responsible for Japan, Australia, and any other
countries in which it sells to someone other than Tyco.
4. Each year Taiyo and Tyco shall meet and negotiate in advance the price for
the products Taiyo intends to sell to Tyco the following year. Taiyo shall
bill Tyco at prices and terms negotiated between the parties.
5. ...
6. ...
7. If this agreement is terminated as described in Paragraph 1, then Taiyo
agrees not to sell any items developed by Tyco to any other customer worldwide
except Japan, without the written consent of Tyco."
- In early 1994 Glatt raised concerns with Futamura about Tyco's
distribution of R/C toys in Australia. It is not necessary at this point or
later to detail all the communications. I note that Futamura took the matter
up with Grey and that Grey wrote to Futamura on 24 March 1994
saying;
"Regarding Australia, you are correct that our agreement is for
Playcorp to continue to sell all Tyco/Taiyo R/C items, and so I'm sorry if I've
made you concerned. As you have stated, however, other items such as Matchbox
or Preschool R/C are not part of the agreement, and will be sold by Croner-Tyco.
The question of licensed properties was not considered when we made our
original agreement. For example, where we have the master toy license for a
property like Looney Tunes or X-Men or Viper, and we have the basic toy line,
we feel R/C should be part of our basic line. In fact, many retailers sell the
licensed R/C in the same area of the store with other licensed toys, like
Looney Tunes R/C with other Looney Tunes merchandise, not with other R/C.
Yuki, this should not trouble you. For this year, we have already agreed that
Playcorp can handle our licensed R/C. And for future years, we have time to
discuss it further so we can explain in detail why we believe licensed R/C is
separate from Tyco/Taiyo R/C."
- Futamura and Glatt communicated about these matters.
- In June 1994 Tyco informed Futamura of not being able to find
Playcorp R/C toys in New Zealand and Futamura queried Glatt about performance.
- In late 1994 Playcorp found a number of items were being
returned as defective. This concerns the defective products claim to which I
refer later. I also pass over a difficulty that Playcorp had of obtaining
supply of a R/C toy called Rebound.
- It is convenient to move then to 16 May 1995 when Futamura
informed Glatt that he would be leaving Taiyo "suddenly as at May 20". Glatt
replied by facsimile the following day expressing shock and requesting that
Futamura arrange an appointment with Suto to discuss the future of the
Australian and New Zealand distribution of Taiyo products. At Futamura's
request Itani arranged an appointment and Glatt met Suto in Japan on 26 May. I
return to this meeting in dealing with the forgery issue.
- On 9 August 1995 Grey wrote to Glatt and Suto. The letters
are important. They followed and reflected discussions between Taiyo and Tyco.
The letter to Glatt advised of a new policy regarding Tyco developed R/C
products. From 1996 Tyco would take over distribution of all new Tyco
developed R/C items in Australia and New Zealand. In view of the importance of
the letter I set it out:
"I wanted to write to you personally to let you know our new policy
regarding Tyco developed R/C products.
In the past because of your long relationship with Taiyo, we have agreed for
Playcorp to distribute Tyco-developed R/C items in Australia and New Zealand,
even though Tyco was distributing them directly in the rest of the world.
However, we have told Taiyo that beginning in 1996, we must take over the
distribution of all new Tyco-developed R/C items in Australia and New
Zealand.
Suto-san proposed that the balance of the Taiyo line, that is, all R/C items
you are currently distributing in 1995, including Rebound, you can continue
with in 1996 and we have agreed. Hopefully, this will give both Croner-Tyco
and Playcorp exciting Taiyo R/C to sell in 1996.
I wanted to let you know before either of us committed to any customers for
1996, or showed any Australian customers our 1996 line.
We appreciate our long relationship and hope you understand that we must make
this change at this time. We wish you the best of luck in the
future".
- The letter to Suto was in the following terms:
"In the past, when we have discussed distribution in Australia and
New Zealand, you have told us that Playcorp has been a good distributor for
Taiyo, and that Taiyo feels loyalty to Steve Glatt and Playcorp.
Until now, we have agreed to let Playcorp distribute items developed by Tyco
because of Steven Glatt's long relationship with Taiyo. However, beginning in
1996, we must take over distribution of all new Tyco-developed R/C items in
Australia and New Zealand.
We agree to let Playcorp continue for 1996 with all the items they are
distributing in 1995, including the Rebound, so they will have a strong Taiyo
R/C line to sell.
I intend to send a letter directly to Steven explaining that Tyco must do this
at this time. We want to let him know now, so that he has time to make his
plans for 1996.
Suto-san, we thank you for your understanding and your continuing
cooperation."
- The letter to Glatt concerned him as it reduced the products
available to Playcorp from those available under the arrangements stated in
Tyco's letter dated 17 June 1992 and under the distribution agreement. In
response, Glatt wrote to Suto and Grey on 15 September 1995 in terms settled by
Cooper. The letters referred to and relied upon the distribution agreement,
requiring it to be performed.
- On 19 September 1995 Itani wrote to Playcorp saying that "we
are unable to locate the contract document you are talking about in our Tokyo
office". He asked if Playcorp could fax the document. On 26 September Grey
wrote separately to Glatt and Suto saying he was unaware of the agreement and
requested a copy by fax. Glatt went overseas on 27 September and
thereafter in 1995 and 1996 matters concerning the distribution agreement and
the legal implications were handled by Cooper (who is a lawyer).
- I do not set out all the communications that followed
concerning the distribution agreement. I note that on 28 September Cooper
faxed a copy to Itani, and, on the same day, Cooper faxed a letter to Grey
stating that he consented to Taiyo releasing a copy of the agreement to him but
that he considered he could not do so without Taiyo's permission. On 28
September Itani faxed the agreement to Grey with a letter
stating:
"We just received fax copies of the agreement from Playcorp. Since
Suto san does not remember he might have put his signature on it without
knowing too much about the deal. We appreciate you helping us on this matter.
Thank you and best regards,"
It is important to note that this letter was not discovered by
Taiyo; it was obtained by Playcorp from Tyco following an application to the
Court. On 29 September Grey wrote to Cooper making points about the
distribution agreement and stating that for reasons outlined it was consistent
with Tyco's intentions.
- At this time and continuing there are communications
concerning defective products and the supply of spare parts, further toys
required by Playcorp, issues between Tyco and Playcorp, and from time to time
the distribution agreement. It is not necessary to set it all out, and in
particular I defer further reference to the distribution agreement. In the
course of this Tyco and Taiyo communicated and Tyco proffered advice to Taiyo
as to how it should deal with Playcorp, in particular on the defective products
claim and the matter of future supply to Playcorp. It is evident their
relationship was becoming closer and stronger and that since the departure of
Futamura, and doubtless having regard to the far greater amount of business
done with Tyco, Suto allied Taiyo with Tyco and supported its interest against
Playcorp.
- There are seen to be two lines in the parties dealings. There
is the dispute between Playcorp and Taiyo over Playcorp's defective products
claim and requests for supply and that leads to the issue of breach of the
distribution agreement by Taiyo, repudiation and rescission. The other
concerns issues between Playcorp and Tyco which arose out of Playcorp's claim
of rights under the distribution agreement and how that affected Tyco and
Tyco's desire to sell products in the Australian market.
- Without going into all the details or tracing every step I
refer to some of the events.
- On 2 October 1995 Glatt wrote to Suto making a claim for US
$268,943 for defective products. The letter had been preceded by a deal of
effort on Glatt's part to deal with the matter. The letter
stated:
"Dear Suto-San,
Re: CLAIM FOR DEFECTIVE PRODUCTS
As we have indicated to you over several months, the repair and return
rate of both Triple Wheels, 6V Python and other categories has been
unacceptably high. Through our repair agents and returns to our warehouse we
have incurred high expenses and a warehouse full of faulty product.
We have listed below our claim which does not take into account the loss of
goodwill Playcorp has suffered as a result of the problems incurred due to a
fault with the product. This matter now requires attention and finalisation
and can no longer be delayed.
RETURNS |
US
$
|
|
Quantity
returned
|
|
7,184 |
FOB
cost
|
22.35 |
|
Freight |
1.21 |
US$
23.56
|
Total |
|
US$
169,255
|
|
|
REPAIRS |
|
|
Quantity |
|
5,864 |
Total
cost of repairs
|
|
US$
99,688
|
|
|
|
|
TOTAL
CLAIM
|
|
US$
268,943
|
Should you wish us to return to you the faulty product, shipment can be
arranged. You should be aware that faulty product is continuing to be returned
as the remaining portion of stock is sold through by the retail trade.
We look forward to a quick and positive response in order to finalise this
matter".
The amount claimed as the cost of repairs is an average cost of
US$17 per unit.
- Itani responded to the claim on 5 October 1995 in terms
drafted by Tyco. He said he wanted to finalise the matter in a way that was
fair to Playcorp and Taiyo. For this purpose he requested further
information. He requested confirmation that the returns were for Triple Wheels
and Python, and how many, and whether any 6V Scorcher had been returned and how
many. As to repairs, how many were for Triple Wheels and Python, and could
Glatt explain how the average cost was $17? That seemed very high as Taiyo had
supplied parts for repairs and it cost less than $17 to make and package a new
product. Glatt responded with the following letter on 30
October:
"Thank you for your fax of 5th October, 1995. In
response to your queries please find the following information:
RETURNS TO 10TH OCTOBER, 1995
Triple
Wheels
|
4,546 |
|
Python |
1,686 |
|
6.0V
Scorcher
|
20 |
|
9.6V
Scorcher
|
452 |
|
Wave
Albatross
|
228 |
|
FX4 |
63 |
|
Harley
Davidson Pick-Up
|
132 |
|
Rebound |
43 |
|
Firepower |
14 |
We
are expecting more returns on Firepower with time
|
|
|
7,184 |
|
The
cost of repairs is due to the fact that in Australia labour is very expensive.
It is not viable for our repair agents to fix a defective product for less than
$17.00, excluding parts. This is a negotiated agreed minimum fee with all our
service agents. They charge Playcorp a fixed minimum labour charge per
vehicle. The split up of repairs is as follows:-
|
Triple
Wheels
|
3,428 |
|
Python |
1,074 |
|
6.0V
Scorcher
|
80 |
|
Other |
1,282 |
|
|
|
5,864 |
|
|
|
|
|
Hopefully
with this information you have requested, this matter can now be settled. I
look forward to your prompt response."
|
- While this was happening, and there were communications about
spare parts and supply, on 27 October 1995 Playcorp sought information from
Taiyo of products available to it in 1996 including any new Taiyo developed
products. That was to facilitate planning and the placing of orders for the
first half of 1996.
- Also on 30 October, Glatt wrote to Suto requesting a formal
response to his letter dated 15 September (referred to at [37]) which referred
to the distribution agreement.
- Finally on 30 October, Cooper wrote to Grey taking issue with
his letter dated 29 September (referred to at [39]) and threatening
litigation to protect Playcorp's interest unless there was a compromise. The
letter stated that Taiyo would be in breach of the distribution agreement if it
did not supply Playcorp with product as defined in the agreement. That
included Tyco developed products.
- In the subsequent on-going communications between the parties,
in the course of which Taiyo and Tyco communicated including as to Taiyo's
responses to Playcorp, the parties edged closer to disputation. In this
process the issues between Playcorp and Taiyo on the one hand and Playcorp and
Tyco on the other hand were sought to be isolated by Playcorp, and it would
seem Tyco, but the underlying commercial perspective of Taiyo led to it
conflating the issues and in that respect Tyco's interest was on the Taiyo
side. As matters progressed Suto took Taiyo more and more to Tyco's side, and
in the course of doing so Taiyo sought from Tyco, and obtained, guidance as to
how to deal with Playcorp.
- On the matter of the defective product claims, Taiyo stalled.
That led to Glatt, on 15 and 27 November 1995 writing to Itani requesting a
response to the claims for faulty merchandise. In the latter letter he
observed that he had discussed the matter with Itani for many months, and that
Itani had advised him not to officially forward a claim until Tyco had
negotiated on the same matter. (That referred to the fact that Tyco, like
Playcorp, had made claims on Taiyo in respect of faulty merchandise.) Glatt
further observed that he had delayed for several further months because of
Itani's advice that Suto had other concerns.
- On 10 November 1995 Grey wrote to Cooper responding to his
letter dated 30 October. He expressed interest in finding a way to
resolve their differences in a businesslike and reasonable fashion. However
Cooper had to understand that Tyco was committed to expanding its 1995 entry
into the Australian R/C market with additional items for 1996. Tyco had
developed two new promotional items for 1996, the 6.0v Dagger and the 9.6v
Mutator. Tyco would be prepared to discuss making one of those available for
Playcorp, plus the related advertising and packaging materials, for 1996 in
exchange for the return of some of the older Taiyo products for distribution by
Tyco through Croner-Tyco.
- Cooper responded with a letter to Grey dated 24 November 1995.
He objected to cease trading in any old items as stock was still held in store,
and stated that as Taiyo produced both Dagger and Mutator, Playcorp was
entitled to them under its agreement with Taiyo. A consequence was for
Playcorp to be given the rights to one additional new product each year
commencing with Dagger in 1996 conditional upon Taiyo settling Playcorp's
faulty product claim, and on Taiyo and Tyco acknowledging that all past models
which may be re-launched in their original or a revamped form still belong
exclusively to Playcorp in Australia and New Zealand. Cooper asked Grey to
discuss the matter with Taiyo.
- Grey responded by letter dated 1 December 1995. Among a
series of points he said the following. Tyco would prefer Playcorp to
distribute Mutator, and Croner-Tyco to distribute the Dagger. Playcorp could
use the advertising and packaging materials for Mutator on the same terms as
previously given and have the distribution rights for the remaining period of
the Taiyo agreement. He noted that Playcorp had not paid Tyco's fees for use
of advertising and packaging materials for 1994 and 1995 and asked that
accounts for those fees totalling $44,000 (which were sent separately that day)
be paid. He said that beyond 1996 Tyco could not offer any further new Tyco
developed R/C toys after Mutator. However, Grey said, that would give Playcorp
time to develop its own new items for 1997 and beyond. The matter of
Playcorp's faulty product claim was between it and Taiyo and it was not
appropriate for Tyco to intervene. As to past models (distributed by Playcorp
in 1995 and prior), while Tyco could not agree not to distribute new or revised
items using some common parts or features, it did not intend to introduce
during the remainder of Playcorp's agreement with Taiyo items substantially
similar to Playcorp "past models". Finally, Grey proposed that Tyco take over
New Zealand distribution in 1996.
- On 4 December 1995 Cooper suggested to Grey that Playcorp have
Dagger instead of Mutator. Grey replied saying that was acceptable if all the
other points in his letter dated 1 December were acceptable.
- Cooper replied on 8 December 1995 stating that a
non-negotiable requirement of the settlement was attention to Playcorp's faulty
product claim, to which there had been no meaningful response. He also asked
for costs of Dagger and Mutator and some samples.
- Tyco responded on 8 December with letters to Itani and Cooper.
The letter to Itani stated that Tyco was trying to avoid a lawsuit with
Playcorp over distribution in Australia and what Tyco had offered Playcorp.
The letter asked Itani to send Cooper the FOB costs of Dagger and Mutator. The
letter also referred to Playcorp's faulty product claim stating that Playcorp
was anxious to settle it, and that it would be helpful if Taiyo could make some
offer in settlement. The letter to Cooper provided some information concerning
Dagger and Mutator, stated that Tyco had asked Itani to respond on the faulty
product claim but there was nothing further Tyco could do on that claim, and
assumed that Playcorp otherwise agreed to the terms in Tyco's letter dated 1
December 1995.
- Taiyo's response to the prod from Tyco was a letter from Itani
to Glatt dated 11 December 1995 stating that Taiyo had not neglected the
faulty products issue and that "a little more time" was needed. Glatt
responded on the following day stating that the time now elapsed in dealing
with the claim was "beyond being acceptable" and requested a conclusion. Glatt
noted that Taiyo had settled similar issues with Tyco "quite some time
ago".
- In a response to Glatt later on 12 December Itani referred
both to the faulty products matter and to a request of Playcorp concerning
distribution in 1996. The letter stated:
"I talked with Suto san today once again and passed your urgent
request on these outstanding issues. Believe it or not, Suto san does not
remember at all that he signed over the Agreement even after Mr. Cooper
previously faxed us the copy of it while you were away. He wants to conclude
the quality claims and 1996 Australian distribution issues when he actually
sees the original Agreement where you can prove it was certainly made
between you and Suto san. Would you please mail us the original
Agreement as soon as you can? As we previously advised, this paperwork is not
officially filed at Taiyo Tokyo or anywhere in our company, while we see the
Agreement with Tyco is officially filed by our managing director."
- This letter was the first time that Taiyo linked a conclusion
on the issue of the faulty product claim to distribution under the agreement.
It should also be mentioned that in his evidence Itani said that the letter was
intended to convey a strong statement that Suto had not signed the agreement
and that Taiyo was not bound by it. He also acknowledged being aware that Tyco
and Playcorp were negotiating in relation to distribution of products in
Australia and New Zealand. He was so aware from the ongoing communications
between Taiyo and Tyco. It was thus natural, and reflective of their
relationship, that on 12 December Itani provided a copy of this letter to
Tyco.
- Tyco returned a letter to Itani by facsimile later that day
(12 December). The letter provided information on the FOB cost of Dagger
and Mutator to assist advice to Playcorp. The letter stated that Tyco felt
that Taiyo should act on the two outstanding issues of supply and faulty
product:
"[A]s quickly as possible, however, we suggest you address them as
two separate issues. We don't feel they should be mixed or connected in any
way, since they are different topics. If you would please respond to both in
separate faxes, this would help keep them apart. Playcorp would then file them
in separate folders. I hope you understand."
The letter then referred to claims by Tyco for faulty products,
namely the items Triple Wheels and Python, for which debit notes were enclosed
for US$285,507.50. Tyco then suggested Taiyo offer Playcorp a market share
percentage of what Taiyo paid Tyco. On the basis that in its best year, 1994,
Playcorp had about 4-5% of Tyco's market, it was suggested that Taiyo offer 5%
of $285,507.50, or a settlement of $14,275.37. Adding a little to show "[Y]ou
are nice, reasonable guys and want to resolve this issue" Taiyo "might consider
a settlement of $18,000 or $20,000 to see what they say."
- Further communications occurred on 13 December 1995. Itani
sent a facsimile to Tyco which commenced with thanks for passing Suto's request
to Grey and then stated:
"As you know, Suto san is now ready to set his Patriot Missiles to
protect Tyco/Taiyo business. We look forward to Grey san's response.
...
1. Re: Playcorp Issue.
Thank you and Mark san for giving us helpful suggestions on the outstanding
issues. Suto san does not want to give up on these issues as he is saying Grey
san does not have to offer any kind of compromise for them, but he will handle
all by himself, if Grey san treats him to dinner in Hong Kong. Again, we look
forward to Grey san's response."
- Notwithstanding that he was the author of the letter, and, as
I find, it reflected a discussion he had had with Suto, in cross-examination
Itani was evasive as to what the reference to "Patriot Missiles" meant. The
cross-examination had been preceded by questions in his cross-examination the
previous afternoon (28 November 2001) as to the intended meaning of the
expression "patriot arm" in a letter Itani sent to Tyco on 28 March 1996. In
that letter Itani advised that, in relation to dealing with Playcorp, "Suto san
has another idea/patriot arm to protect ourselves with". Itani said he did not
know what "patriot arm" was. Although he wrote the letter he could not
remember "right now" what "patriot arm" was. He did not know if Suto told him
what it was. He was not sure exactly what Suto said, adding that "[H]e told me
similar things and I just interpreted in this way". In short, his evidence
left one unenlightened as to the intended meaning of the words or as to the
course of action which they were intended to convey or Suto had in his mind. I
thought at the time, and on reflection in light of all the evidence I consider
now, and find, that Itani's evidence was deliberately evasive and
non-responsive. In short, I find that the evidence was deliberately
false.
- I conclude in the same way in respect of the evidence he gave
the next day as to the intended meaning of the expression "Patriot Missiles" in
his earlier letter to Tyco dated 13 December 1995. I interpolate that the
production of this letter by Taiyo only occurred over the lunch break on 29
November 2001 during Itani's cross-examination. It was an example, among
others, of Taiyo's lax observance, or perhaps disregard, of the requirements of
discovery of documents. In any event, when asked as to the meaning of the
expression "Patriot Missiles", Itani skirted around without stating what Suto
had in mind, which I find Itani knew. He said that Suto was very upset and
that he was "going to talk to some press people here or something". He also
said that Suto complained that "somebody forged my signature". According to
Itani, Futamura's wife was related to Suto's wife, and Suto had said he would
talk "to his relative or whatever, something like that". Itani then agreed
that Suto was thinking of a tactic to shut Playcorp down from the Australia
market. He was then asked if the tactic was to say to Playcorp take $20,000
(for faulty products) or no more supply and he answered "I think that was
something that Mr Suto was trying to tell me". These answers exposed what
in any event I would have found was the reason for Itani's disinclination to
state the intended meaning of the expressions "Patriot Missiles" and "patriot
arm". The reason was that an honest answer, which I find lay within Itani's
knowledge to give, would have exposed Suto's state of mind as to the approach
to be taken by Taiyo in dealing with Playcorp, in particular to out-manoeuvre
Playcorp and bring their relationship under the alleged distribution agreement
to an end.
- Finally on 13 December 1995, Tyco sent a facsimile to Itani.
The letter was from the marketing manager. He had met with Grey to discuss
Itani's telephone call to Suto and "our call last night". The letter dealt
with a number of matters commencing with Playcorp. He set out revised FOB
costs for Dagger and Mutator. He requested that they not be sent to Cooper
until Suto and Grey "decide whether we will offer Playcorp any product or
not".
- On 14 December Cooper sent a letter to Itani, with a copy to
Grey. The letter pressed for resolution of the faulty product claim, which was
independent of Playcorp's 1996 distribution rights. He refused to send Itani
the original of the distribution agreement but offered the opportunity for
inspection in Playcorp's office. As to 1996 distribution, the letter said that
based on representations from Tyco and Playcorp's fault claims being met in
full, Playcorp was prepared to be reasonable with the balance of the agreement.
For that purpose he requested the FOB costs of Dagger and Mutator, and the
relevant samples and videos.
- Grey replied to Cooper on 15 December. He provided costs for
1996 of Dagger and Mutator and asked some questions relevant to the resolution
of differences.
- On 19 December Cooper wrote to Grey (with a copy to Itani) and
to Itani (with a copy to Grey). The letter to Grey was in furtherance of
negotiating a settlement. The letter to Itani noted that Tyco's price for
Dagger and Mutator was too high and requested a realistic price.
- Grey responded on 22 December. Tyco wished to settle the
issues with Playcorp. However, if Playcorp will not agree Tyco will assume no
settlement can be reached and begin distributing all Tyco-developed R/C in the
Australian and New Zealand markets in 1996. Cooper responded on 28 December
stating that settlement must be achieved with Taiyo, and that if Tyco sued,
Playcorp would counterclaim for breach of the Taiyo agreement.
- On 18 January 1996 Sullivan, Tyco's vice president, marketing,
sent a letter to Itani which recorded some thoughts and statements of Suto.
They record that Suto was sure he did not sign the Playcorp agreement, that
Suto would ask Glatt to visit Yamagata (in Japan) with the original agreement
and discuss returns with him, and that Suto had recently suggested another
strategy regarding Playcorp which Tyco will discuss and respond to next
week.
- In February and March 1996 a good deal of correspondence
passed between the parties. On 5 February Sullivan wrote to Itani advising
that Tyco's lawyers in Australia were going to write to Playcorp for payment of
the amount of $44,000 and threatening other action. The letter contemplated
settlement on the matter of distribution. Tyco expressed agreement with
suggestions of Suto that Tyco not try and take over distributing all R/C items
in Australia in 1996. Tyco "agree[d] that it may be better not to fight Steven
for the distribution this year". The letter concluded with a request for
advice of Suto's thoughts "about our plans".
- As foreshadowed, on 7 February Australian lawyers for Tyco,
Cowley Hearne, wrote to Playcorp. They sent two letters. One letter demanded
payment of the $44,000 within seven days. The other letter gave three months'
notice of termination of the licence to use Tyco's television commercials and
packaging designs in promoting the sale of R/C products.
- Also on 7 February, Cooper sent a letter to Itani with a copy
to Grey. To Itani, he requested a reply to his facsimiles of 14 and 19
December 1995, stated that Playcorp was prepared to settle along the lines
suggested by Grey but required a firm quote for Dagger and Mutator so as to
elect the product to market in 1996 as part of the compromise, requested Taiyo
confirm it was willing to supply these products and requested resolution of the
faulty product claim.
- Later on the same day (7 February) Tyco sent a facsimile to
Itani with proposed responses by Taiyo to Playcorp. On the matter of the
faulty goods, the proposal was as stated on 12 December 1995 to offer $20,000.
On the matter of Dagger and Mutator prices were proposed to be offered to
Playcorp.
- On 8 February 1996 Itani sent a letter to Cooper in which he
offered US$20,000 for the faulty product claim, and provided the FOB costs of
Dagger and Mutator. The letter was on the lines proposed by Tyco. In relation
to the defective products claim Itani stated (as Tyco suggested) that
Playcorp's market share percentage was about 4-5% of Tyco's and that Playcorp
should bear some of the responsibility as Tyco did.
- Cooper responded with letters to Itani and Grey on 26
February. In the letter to Itani, inspection of the faulty products was
invited and compensation in full was requested (Tyco's position being
irrelevant), the willingness of Taiyo to supply Dagger and Mutator was
acknowledged and the prices were accepted and samples were requested; concern
was expressed that Taiyo was deliberately refusing to respond to Playcorp's
orders for spare parts for the repair of faulty units.
- With his letter to Grey dated 26 February Cooper sent a copy
of his letter to Itani. Cooper made two proposals for settlement, each
alternate to the other. Under Alternative A Taiyo would grant Playcorp a full
credit for its warranty claims, whereas under Alternative B Playcorp would
pursue that claim against Taiyo through the courts. In addition under
Alternative B, the Taiyo agreement remained on foot until resolution of the
court case, Playcorp would pay Tyco $44,000 and distribute Dagger and Mutator.
Alternative A also included a package of terms.
- Passing over facsimiles between Tyco and Taiyo on 27 and 28
February, Grey responded to Cooper's letter on 28 February. He rejected
Alternative A as that required Taiyo to grant a full credit for Playcorp's
warranty claims, and did not involve Tyco. But Tyco could agree to Alternative
B, with certain qualifications. Grey outlined, in addition, an Alternative C
under which Playcorp pursued the claim against Taiyo for faulty product, paid
Tyco the $44,000, and Tyco paid Playcorp $100,000 in exchange for Playcorp
terminating its agreement with Taiyo, giving Tyco the right to sell all Taiyo
products in 1996.
- It was then Itani's turn. On 29 February he wrote to Cooper
rejecting Playcorp's proposal on faulty products and insisting that $20,000 was
reasonable and fair. Itani added that:
"At the same time, we are afraid that your present attitude toward
the settlement of defective product may result in an irreconcilable sort of
situation between Playcorp and Taiyo in terms of the 1996 R/C
business."
Finally, Itani denied that Taiyo was deliberately refusing
spare parts.
- Cooper responded with letters on 8 March. In a short letter
to Itani, he rejected Itani's offer on the faulty product claim as insulting,
repeated offers to Taiyo to inspect the goods, and stated that Playcorp would
pursue the claim "without interference to our 1996 RC business. Any attempt by
you to link the two will only compound the breach of our existing agreement."
He requested advice by return whether Taiyo was prepared to supply Playcorp
with 1996 product while Playcorp separately pursued the old
claims.
- In his letter to Grey, Cooper rejected Alternative C. That
left Alternative B as a basis for settlement. Playcorp was prepared to commit
to spending on further advertising in Australia in order to promote the product
instead of paying Tyco a recoupment of the 1996 packaging and advertising
expenditure. In a reply the same day Grey rejected Cooper's proposal and
suggested that a version of Alternative C giving Tyco the right to distribute
all Taiyo products in Australia and New Zealand might be the best
resolution.
- The correspondence was resumed a few days later on 11 March.
Dealing first with Taiyo, Itani sent a facsimile to Cooper which, apart from an
introductory paragraph, repeated his letter sent on 29 February. In the
introductory paragraph Itani stated that Taiyo did:
"[N]ot have a suspicion about the returns in your warehouses, but
we just feel your claim is totally unreasonable."
Cooper responded immediately stating, in particular, that
Playcorp was ready, willing and able to commence marketing for 1996 and
requesting samples of Dagger and Mutator for showing at the Toy Fair. He
warned Taiyo not to repudiate the agreement.
- In his letter to Grey dated 11 March Cooper suggested that
Tyco supply Playcorp with the Dagger and Mutator commercials as part of an "all
in" settlement with Playcorp continuing to have the Australian rights pursuant
to its agreement with Taiyo until the faulty product claim was settled. As to
Alternative C, Cooper said that if Playcorp was to step out of the picture
immediately and completely, Playcorp required US$500,000 which would cover
Playcorp's loss of profits on the three years remaining under the agreement,
Tyco's claim of $44,000 and Playcorp's defective products claim against
Taiyo.
- On 15 March Grey wrote offering to pay $156,000 net now or
$200,000 payable by three equal annual instalments commencing now. Then,
following a telephone conversation concerning settlement on 17 March, Cooper
sent a letter to Grey expressing shock, in the circumstances of the state of
the negotiations, to learn that Croner-Tyco had commenced marketing Dagger and
Mutator in Australia. He sought an explanation and made a further proposal for
resolution of the matter.
- Also on 18 March, Itani sent a letter to Cooper repeating
Taiyo's attitude to the faulty product claim and stating that:
"We strongly feel your claim for the '95 returns/high-priced
repairs and our '96 business are very much interlinked. We would prefer to
resolve last year's problem before proceeding with '96 shipments."
- Finally on 18 March, Cooper sent a facsimile to Itani
demanding pursuant to cl 6.2 of the agreement, that Taiyo provide Playcorp
with samples of Dagger and Mutator "failing which we shall have no alternative
but to take action to enforce our rights under the Agreement".
- On 19 March Cooper wrote to Grey after they had spoken on the
telephone. Cooper expressed his preference to settle on Alternative A, and
confirmed that Grey had agreed to instruct Croner-Tyco to withdraw from the
offer of Dagger and Mutator. (Under Alternative A, Playcorp was to have Dagger
and Mutator in 1996.) On that being done Playcorp would pay the $44,000 and
not sue Tyco or Croner-Tyco. Grey was also to tell Taiyo that he would not
offer those goods for sale in order not to infringe Playcorp's agreement.
Cooper then made an offer on Alternative C, as a second preference. The offer
was, further to the letter dated 11 March, to abandon all future new products
from Tyco for $500,000 minus AUD$250,000 being Playcorp's claim against Taiyo.
But Playcorp would retain its action against Taiyo and its right to continue to
buy spare parts and old Taiyo products assuming Taiyo would be willing to
supply.
- Also on 19 March Cooper wrote to Itani referring to his
conversation with Grey as to withdrawing Dagger and Mutator, and offering an
independent arbitration of the defective product matter in Australia. Cooper
requested that Itani immediately agree to supply Playcorp in accordance with
the agreement.
- On 20 March Grey wrote to Cooper confirming withdrawal of
Dagger and Mutator. He assumed Playcorp could now send the $44,000. Then, as
to Alternative B he pointed out that he could not assure that Taiyo would
supply Dagger and Mutator. That issue, combined with the cost to Playcorp of
producing new commercials, packaging and samples, made Alternative C worth
considering. Grey made a final offer of $260,000 (or $216,000 net of
$44,000).
- Having thus heard from Grey, on 20 March Cooper sent a letter
to Itani asking whether he would now agree to supply Dagger and Mutator in
accordance with the agreement. In reply, on 21 March, Itani wrote
saying:
"Please let us summarize our direction on the defective R/C's and
our '96 business once again in this fax.
1. Defective R/C's and Returns
We feel your claim is totally unreasonable because:
1. ) The defective items Playcorp has indicated as compensation had been
repaired all by yourself without Taiyo's agreement.
2. ) The problem like this should typically be settled timely.
Playcorp should not have accumulated the defectives or compensation
figures from previous years to report Taiyo.
3. ) Playcorp did not officially report anything from their incoming
inspections.
4. ) In order for Taiyo to admit your indication on the faulty goods is
genuine, Taiyo feels they all must be inspected by a Japanese lawyer,
not by an Australian lawyer.
Therefore, we strongly feel our offer of US$20,000 for your claim is very
reasonable.
2. ) '96 R/C Business
As previously mentioned, we would like to stress that the returns/high priced
repairs and our '96 business are very much interlinked. In other words, unless
you agree to our approach for the defective R/C's and returns, we are very
sorry we can not offer any R/C's including the new items, Mutator and
Dagger. We just hope you have not been showing any of Taiyo R/C's during the
Toy Fair. Another thing we would like to make clear about is that what
Mr. Richard Grey has advised you only indicates Tyco's decision toward
Playcorp, not Taiyo's decision. We would like to stress that "Tyco is
not Taiyo". We hope this will help you understand better on this matter.
Again, we are sorry that we can not agree to supply you any items, we
naturally include Mutator and Dagger, as long as you do not accept our offer of
US$20,000 as a quick settlement."
- In an attempt to find a point at which compromise might be
reached, on 22 March Glatt spoke to Itani and offered to settle the
defective product claim for US$150,000. Itani then sent a facsimile to Glatt
in which he rejected the offer. Itani said he had spoken to Suto and that the
offer was "far too high for us to consider". There was no
counter-offer.
- 26 March was a significant day. A number of events occurred.
Itani rang Glatt at Playcorp's office in North Melbourne during the morning and
advised that because of Playcorp's unreasonable attitude concerning its
defective product claim Suto no longer wished to do business with
Playcorp.
- Separately, and working from his Collins Street office, Cooper
prepared and sent a letter to Grey in response to his letter dated 20 March.
Cooper rejected the Alternative C offer. Alternative B could not come into
play because of Taiyo's attitude. As a result Playcorp was continuing with its
agreement with Taiyo still on foot. Playcorp would continue to use every
possible means to secure continued supply for the remainder of the agreement.
The amount of $44,000 was being sent to Tyco "today" in payment of Tyco's
claim. It is to be noted that earlier in March (it would seem on 13 March
1996) Tyco had served a statutory demand on Playcorp for the debt (in
AUD$57,926).
- Later in the day Karsten Malmos of Tyco, who was then in
Melbourne, contacted Glatt and Cooper. The three men met at Playcorp's office
in the afternoon. Prior to the meeting Glatt advised Cooper of his
conversation with Itani that morning.
- The meeting with Malmos occupied several hours. Malmos said
he wished to resolve the issue of Tyco distributing Tyco/Taiyo toys in
Australia and New Zealand. There was a negotiation. An agreement was reached.
It was written out by hand in point form, dated 26 March, and signed by Malmos,
Glatt and Cooper. It was agreed a formal document would be prepared recording
the agreement. The document stated:
"- Tyco will immediately refund US$44,000
- Tyco will pay US$305,000 for Playcorp not to interfere with Tyco distributing
in Aust Dagger + Mutator or any other 'new' Taiyo developed product. Payment
to be made in seven days.
- Playcorp retains all its rights against Taiyo
- Playcorp has no claim to N-Z market
- Playcorp retains rights for any 'old' product it has marketed from Taiyo in
the past."
As I understood it, it was accepted before me that the
reference to "new Taiyo" was intended as a reference to "new
Tyco".
- Following the meeting Cooper asked Glatt to telephone Itani in
Japan. Cooper wanted confirmation of Itani's advice earlier that day. Glatt
rang and he and Cooper jointly spoke to Itani on the speaker telephone. They
gave evidence that Itani said that Suto no longer wished to do business with
Playcorp. In his witness statement Cooper added that Itani further said, in
substance, that Taiyo would not supply Playcorp with any products. According
to Cooper, they told Itani they accepted the situation and would take
appropriate legal action against Taiyo. In his witness statement Itani said
that Cooper spoke with an aggressive tone and pressed him to say that Taiyo
would not supply products in 1996. Itani said that he would not commit to such
a position but wanted to resolve the claim for defective products before
discussing supply.
- The witnesses were taxed on their account of this conversation
in their oral evidence. It is not necessary to set the evidence out. It was
clear to me on Itani's evidence, and I in any event find it to be the fact,
according as it does with Suto's established prior position and the
probabilities, that Itani's response, in substance, was that unless Playcorp
accepted Taiyo's offer of $20,000 for the defective product claim Taiyo would
not supply in 1996. Itani confirmed that that was Suto's position at the time.
I reject Itani's evidence in his witness statement in so far as it is contrary
to this finding.
- Immediately following the conversation Cooper dictated a
letter to Itani which he and Glatt signed and sent by facsimile to Itani. The
letter, dated 26 March, states:
"I am writing this facsimile together with Stephen Glatt after his
conversation with you a little earlier, and our subsequent joint conversation.
You have advised that Suto san does not wish to do business with us, and will
not supply us. You further offered that if we were to accept $20,000 in full
settlement of our defective products claim you would again approach Suto san
and try to convince him to supply us with Dagger and Mutator for 1996.
As I indicated to you on the phone this is not acceptable. We do not agree to
relinquish our claim for defective products for a token sum of $20,000.
Moreover at this point in time Suto san will not supply us under any
circumstances. We do not require you to appeal that decision. We will make
other arrangements for 1996 and take immediate legal action against you for the
following:
1. Defective products claim - US$268,943 as at 26/3/1996.
2. Damages claim for loss of profits and wrongful termination of contract.
3. Legal and other costs.
Unless the full amount of US$268,943 is paid to us within 7 days we have no
other choice than to proceed against you on all the above claims.
Please advise us within 24 hours of your acceptance or otherwise. Your payment
now of our justified claims in full will save you unnecessary legal costs and
very high damages if we are forced to proceed to court."
- On 27 March Sullivan sent a letter to Itani advising that Tyco
had resolved the issue of distribution of new Taiyo/Tyco product in Australia
and New Zealand. Tyco had paid Playcorp "some money to secure the distribution
of new items". Taiyo's issue with Playcorp regarding defective returns was not
addressed. Taiyo would have to handle that issue. The letter concluded with a
suggestion that:
"[J]ust to protect yourselves, you may want to make clear to
Playcorp that you would distribute product to them if the issues regarding
defectives was resolved. That way, they cannot blame you for breaking the
contract."
- In a facsimile sent to Sullivan on 28 March Itani responded,
in relation to the resolution concerning new Taiyo/Tyco product, that he had
informed Suto who had said "That is exactly what I wanted to see". Suto also
said that Taiyo would resolve the defective product issue. As to the
suggestion in Sullivan's letter concerning distribution, Itani advised that
Taiyo had deliberately held off responding to the last fax at least until they
(Playcorp) called again. Taiyo, Itani said, is "trying to see what move they
make because Suto San has another idea/patriot arm to protect ourselves with.
Thank you for your suggestion."
- In the meantime Tyco's solicitors Cowley Hearne prepared a
deed of release in relation to the handwritten agreement, and forwarded it to
Cooper on 28 March for his consideration. Cooper responded with comments on 29
March.
- On 29 March Cooper sent the following facsimile to Itani
concerning termination of the distribution agreement. The letter
states:
"Your refusal to supply us with products, which you are obliged to
do under the distribution agreement dated 1 January, 1993 ('the agreement'),
constitutes a repudiation of the Agreement which we have accepted, or
alternatively hereby accept.
We record that our acceptance of your repudiation and the consequent
termination of the Agreement is without prejudice to our claim for damages
which we have and will suffer as a consequence thereof. In this regard, our
rights are reserved."
- Itani responded by facsimile on 1 April. He acknowledged the
last facsimile but disagreed with the content. As to the statement in the 26
March facsimile that Suto and Taiyo were refusing to sell Playcorp product in
1996, Itani said:
"What we have consistently said is that, until we resolve the issue
of returns, we can not ship you more product and risk further unreasonable
damage claims.
We hope you understand our bottom line on this matter."
- Cooper responded on 3 April with a facsimile to Itani stating
that the claim in respect of defective products is a separate and distinct
issue from supply of product under the distribution agreement. Taiyo had
refused to supply Playcorp with product.
- Tyco did not make payment of the amount of US$349,000 as
provided in the agreement made on 26 March. Nor had the deed of release been
agreed and signed. On 18 April Cooper instructed solicitors, Clayton Utz, to
commence proceedings against Tyco for recovery of the amount due. Following a
letter of demand a writ was filed in this Court, and served, on 6 May seeking
judgment against Tyco for US$349,000.
- The writ provoked a renewal of discussions concerning the
deed of release. Terms were agreed and the deed, which was duly signed by Tyco
and Playcorp, states that it is made on 30 May 1996. It is necessary to refer
to relevant provisions of the deed. I shall do so in as summary a way as
possible.
- Tyco agreed to pay Playcorp AUD$459,006 with interest from 5
April 1996 until the settlement date which was 31 May 1996 or such other time
as may be agreed.[11] It was then agreed as
follows:-
"3. THE AGREEMENTS
3.1 The parties agree that as from the settlement date Playcorp does not have
any authority or licence to distribute in New Zealand and will not distribute
in New Zealand any Tyco toy.
3.2 The parties agree that as from the settlement date Playcorp does not have
any authority or licence to distribute in Australia and will not distribute in
Australia any of Tyco's New Products.
3.3 Tyco agrees that Playcorp may (without payment of any fee or royalty)
continue to have the exclusive right to distribute in Australia (but not in New
Zealand) Tyco toys other than Tyco's New Products and (subject to clause 3.12
hereof) to use the Intellectual Property Licence in Australia in respect of
Tyco toys other than Tyco's New Products without payment of any fee or royalty.
3.4 Without prejudice to the rights of Playcorp against Taiyo for damages in
respect of any termination of the Distribution Agreement by Taiyo, Playcorp
agrees that as from the settlement date Playcorp must not seek nor will it seek
any licence or authority from any person (including Taiyo) to distribute in
Australia (other than as set out in Clause 3.3) any Tyco toys.
3.5 Playcorp agrees that as from the settlement date Playcorp must not seek nor
will it seek any licence or authority from any person (including Taiyo) to
distribute in New Zealand any Tyco toys.
3.6 Playcorp agrees that it will not take any legal action against Taiyo for
specific performance of the Distribution Agreement.
3.7 The parties agree that as from the settlement date the Intellectual
Property Licence will terminate without prejudice to the rights of Playcorp set
out in Clause 3.3.
3.8 The parties agree that as from the settlement date Tyco shall have the
exclusive right in New Zealand to the exclusion of Playcorp (whether on Tyco's
own account or through Tyco's authorised agent) to distribute Tyco toys.
3.9 The parties agree as between themselves only that as from the settlement
date Tyco shall have the exclusive right in Australia to the exclusion of
Playcorp (whether on Tyco's own account or through Tyco's authorised agent) to
distribute Tyco's New Products.
3.10 Playcorp agrees that if within the 90 day period commencing on the
settlement date, Tyco pays to Playcorp a further sum of US$195,000 then
Playcorp will immediately:
(a) covenant never to commence any proceedings against Taiyo in respect of the
Taiyo Claim; and
(b) terminate any proceedings commenced against Taiyo in respect of the Taiyo
Claim on the basis that no orders be made other than to dismiss the claims of
Playcorp.
3.11 Playcorp will take no action to prevent Taiyo supplying Tyco (or its
authorised agents) with any Tyco products to be distributed by Tyco (or its
authorised agents) pursuant to the terms of this Deed.
3.12 Nothing in this Agreement gives Playcorp any right or licence to use the
trademark or tradename 'Tyco' or any variation or combination of
it."
- The expression "Tyco's New Products" was defined in cl 1.3 as
follows:
"For the purposes of this Deed, except where the context of this
Deed otherwise requires Tyco's New Products means those Tyco toys that:
(a) Prior to 31 December 1995 have never been distributed or sold by Playcorp
in either Australia or New Zealand or in both Australia and New Zealand; or
(b) Prior to 31 December 1995 have been distributed or sold by Playcorp in
either Australia or New Zealand or in both Australia and New Zealand and on or
after the settlement date have been re-designed by or on behalf of Tyco.
For the purposes of this clause, 're-designed' means altered in any manner but
does not include:
(a) a mere alteration to the decals of a toy;
(b) a mere alteration to the colour of a toy;
(c) a mere alteration to the name of a toy; or
(d) an insubstantial alteration to the shape of a toy such that the altered toy
is substantially similar to the original toy."
The expression "Taiyo Claim" was defined to mean a claim
against Taiyo for loss and damage suffered as a result of Taiyo's repudiation
of the distribution agreement and for defective products supplied by Taiyo
under the agreement.
- The Distribution Agreement referred to in cl 3.4 and cl 3.6
is the distribution agreement between Taiyo and Playcorp made 1 January
1993.
- The reference to the Intellectual Property Licence in cl 3.7
referred to the agreement whereby Tyco authorised Playcorp to use Tyco
packaging, designs and advertising relating to Tyco toys.
- The deed of release provided that in consideration of Tyco's
payment and the provisions of the deed the parties mutually released and
indemnified each other from claims, and Playcorp agreed to discontinue the
Supreme Court proceeding.[12] Tyco duly paid
the settlement sum of $459,006 but did not pay the further amount of US$195,000
referred to in cl 3.10.
- The deed of release did not, however, settle all matters
between Playcorp and Tyco. Problems arose as to whether a product was "new" or
"old" within the meaning of the expression Tyco's New Products. The issue had
the potential to arise when a Tyco toy distributed before 31 December 1995 was
"re-designed" and introduced to the market for distribution. Clause 1.3 dealt
with "re-design" but not in an all-inclusive sense. It stated four respects
which did not constitute "re-design" but the clause left it as a matter of
judgment as to whether a "re-design" was "a mere alteration" to the decals,
colour or name of the toy, or "an insubstantial alteration to the shape of the
toy", and did not otherwise define the criteria by which to determine whether a
toy had been "re-designed".
- On 7 August 1996 Cooper received a letter from R Michael
Kennedy, senior vice president and general counsel of Tyco, seeking Playcorp's
approval to market an old product, Rebound, in Australia. He offered a royalty
for the right to do so.
- On 1 October 1996 Cooper wrote to Tyco complaining that, in
breach of the deed of release, Tyco had distributed in Australia certain old
products. He requested that such distribution cease and that Playcorp receive
an account of profits.
- Not having received a proposal from Tyco, on 2 December
Cooper wrote to Cowley Hearne threatening to issue proceedings unless a
satisfactory offer was received. The managing director of Croner-Tyco wrote to
Glatt on the subject on 20 December. He proposed that in relation to two
items, Scorcher 4x6 and Wild Thing 11, Croner-Tyco pay Playcorp the net amount
representing the profit made on their sales plus an additional amount of
compensation as consideration for a release from claims in relation to any
future product launch that could be construed to have come from an old product.
Croner-Tyco believed that from a practical point of view Playcorp will no
longer be able to source product from Taiyo. Taiyo sold 90% of its product
through Tyco's subsidiary. If Playcorp did not accept the offer Croner-Tyco
would litigate. But, in addition, it was prepared to offer an Olympics project
to Playcorp. Playcorp did not accept the offer.
- On 5 January 1997 Cooper wrote to Cowley Hearne advising that
any offer must be within the magnitude of US$300,000 since a settlement is to
cover all future "old" Taiyo products to be reintroduced to the
market.
- The dispute was not resolved. On 14 May 1997 Playcorp
commenced a proceeding in this Court against Tyco alleging a breach of the deed
of release by distributing in Australia Tyco toys other than Tyco New Products
and/or causing or permitting Croner-Tyco to sell, offer for sale or distribute
such toys in Australia. The relief claimed was an injunction to restrain Tyco
from distributing in Australia R/C toys not being Tyco New Products and
damages. In the course of the proceeding, on 22 July 1997 Playcorp
provided particulars of its loss and damage and, on 9 September 1997,
provided further and better particulars of its loss and damage.
- The proceeding was settled in December 1997. The settlement
was effected by a deed of settlement made in December 1997 and a deed of
termination and assignment made in February 1998. The parties to the deeds
were Tyco of the first part, Playcorp of the second part, and Croner-Tyco,
Mattel Inc, Mattel Pty Ltd and Matchbox Collectables Pty Ltd of the third
part.
- By the deed of settlement Tyco agreed to pay Playcorp
AUD$37,000 on or before 5 December 1997 as a contribution towards
Playcorp's costs of the proceeding.[13] Tyco
duly paid the settlement amount of AUD$37,000. In consideration of that
payment Playcorp released Tyco and the parties of the third part from all
claims in the proceeding.[14]
- By the deed of termination and assignment Tyco agreed to pay
to Playcorp AUD$340,000 on or before 5 December 1997 in consideration of
Playcorp entering into the deed.[15] Tyco and
Playcorp agreed that from the date of payment Playcorp's exclusive right to
distribute Tyco toys in Australia other than Tyco's New Products, and to use
the Intellectual Property Licence referred to in cl 3.3 of the deed of
release, is terminated and all rights or obligations arising under or in
relation to that exclusive right are terminated.[16] From the payment date Playcorp had no right or
entitlement to sell or distribute Tyco toys in Australia.[17] It was further agreed:
(a) That from the payment date the unwritten agreement dated
26 March 1996 and all rights thereunder is terminated.[18]
(b) That Tyco and the parties of the third part had no right to use any
intellectual property of Playcorp.[19]
(c) That, with the exception of Playcorp's rights to the intellectual property
in the Metro trademark, on the payment date Playcorp assigned all its right
title and interest in any intellectual property of or in relation to Tyco toys
held by Playcorp.[20]
Finally, by way of completely concluding any issues vis-ā-vis Playcorp
and the other parties, Playcorp released Tyco and the parties of the third part
from all claims whatever relating to the right referred to in cl 3.3 of the
deed of release, the Intellectual Property Licence, the unwritten agreement
dated 26 March 1996, and the purchase, sale or distribution of Tyco toys in
Australia.
The distribution agreement - a forgery?
- This issue arose on the pleadings in the following way. In
the statement of claim Playcorp pleaded that by an agreement made on 1 January
1993 Taiyo granted Playcorp the exclusive right to sell and distribute in
Australia and New Zealand the toys and R/C products manufactured by or for
Taiyo. In particulars the agreement was stated to be in writing constituted by
a document dated 1 January 1993. That is the distribution
agreement.
- Taiyo's pleading to the agreement changed from its initial
defence dated 26 March 1998 to the fourth amended defence dated 27 November
2000. In the initial defence Taiyo admitted supplying products to Playcorp but
otherwise denied the allegation. Thus, the agreement was put in issue. An
amended defence dated 15 September 1999 added a number of specific grounds to
the general denial of the agreement. These included that the signature of Suto
to the document relied on by Playcorp is a forgery. The fourth amended defence
abandoned all these specific grounds with the exception of the plea of forgery.
In its final form Taiyo's defence to Playcorp's plea of the distribution
agreement is in the following form:
"3. The defendant:
(a) admits that during the period April 1994 to December 1995 it supplied toys
and radio control products to the plaintiff for re-sale in Australia and New
Zealand;
(b) otherwise denies the allegations in paragraph 3 and says further that the
alleged Distribution Agreement bears a signature on behalf of the defendant
that is a forgery.
Particulars
The Distribution Agreement relied on by the plaintiff bears, on page 7, two
signatures of directors purporting to execute the document on behalf of the
defendant. The first of those signatures is a forgery of the signature of the
President of Directors of the defendant, Mr Suto. The second signature is that
of Mr Yuki Futamura, who was until 1995 a director of the defendant. The
defendant is unable to say who placed the purported signature of Mr Suto
on the document or when it was placed on the document save to say that it was
not Mr Suto, who did not sign the document and has never done so."
- In a reply dated 29 November 2000 Playcorp denied the
allegations in para 3(b) of the fourth amended defence.
- It is an unusual feature of the case that the person whose
signature is alleged to have been forged, did not give evidence. Furthermore,
at the trial counsel for Taiyo did not put to any witness that he had forged,
or been involved in the forging of, Suto's signature. While this may be
regarded as being consistent with the particulars in the defence, it is
significant that in the course of lengthy cross-examination it was not put to
either Futamura or Glatt that he had forged the signature or was in any way
involved in the forgery. The failure to put the allegation to Futamura was
significant, considering the seriousness of the issue raised by Taiyo, which is
an allegation of dishonest conduct of a most serious type, and as the thrust of
the issue as to the making and validity of the agreement was directed at
Futamura. On Futamura's evidence it was he, and he alone, who introduced the
matter of the agreement with Playcorp, who negotiated the agreement with
Playcorp, and placed it before Suto who ultimately returned it to him duly
signed. Counsel for Taiyo challenged the factual correctness of Futamura's
account in cross-examination, and by the evidence of witnesses called by them.
He was attacked on his credit with a view to establishing a finding that his
evidence, where challenged, not be accepted. This included his evidence as to
the agreement and what he did with it at Taiyo, and his communications on the
matter with Suto.
- An important, if not essential, part of the substratum on
which the allegation of forgery rested was the relationship between Glatt and
Futamura. The inference seemed to be that the circumstances made
understandable the forging of Suto's signature. Yet, if Suto's signature was
forged, and it was not forged by Futamura with or without the involvement or
knowledge of Glatt, who had written the signature or had an interest in doing
so? Neither Taiyo, nor the evidence, pointed to any other person. On the
evidence, the only reasonable hypothesis would seem to have been that the
signature was written or caused to be written by Futamura with or without the
involvement or knowledge of Glatt. The inference was that the relationship
between Futamura and Glatt should be regarded as providing the interest which
produced the agreement (alleged not to have been required by Taiyo or in its
interest) and the forging of Suto's signature thereon.
- Yet Taiyo did not put to Futamura that he had written, or
caused to be written, Suto's signature on the agreement, or to put an
allegation of involvement or knowledge to Glatt. I find as a fact on the
evidence that the only persons who might have had an interest to write Suto's
signature on the agreement were Futamura and Glatt. It is of course true that
Taiyo was, apart from seeking to establish the plea of forgery, entitled to put
Playcorp to its proof of the agreement, and that included establishing that the
impugned signature was that of Suto. Yet, allowing for that, it was, in my
view, too artful for Taiyo to seek to build up clouds of suspicion and doubt by
reference to a range of matters directly concerning those persons, but to avoid
putting the fundamental allegation to them. It may be said (as I have first
pointed out) that the failure to put the allegation was consistent with the
terms of the defence, and with an insufficiency in instructions, and I do not
overlook the limited terms of the defence. However, the reality of the conduct
of Taiyo's case was a heavy attack on the credit of Futamura and Glatt, in
order to demonstrate unreliability in their evidence, in particular as to the
agreement and its signing.
- I conclude on this point concerning the way in which Taiyo
conducted its case of forgery by pointing out that in his evidence in chief
Futamura stated that:
"The signature on the distribution agreement is Mr Suto's. I did
not forge it."[21]
Futamura was not cross-examined on his evidence that he did not
forge Suto's signature. He was cross-examined on many things, and his credit
was challenged in many respects, but he was not cross-examined on that
evidence.
- In support of the submission that the signature on the
distribution agreement was not signed by Suto, Taiyo's counsel relied on a
range of matters which were the subject of evidence or inferences arising
therefrom. In a nutshell, in Taiyo's written submission the following was
contended: certain evidence of Storey was to be preferred to that of Holland;
from Taiyo's point of view, there was no good reason for Suto to have signed
the agreement; the agreement had not been filed at Taiyo or Playcorp; Glatt's
evidence as to the signing of the agreement was pure reconstruction; Futamura's
account of Suto having signed the agreement was incredible; non-performance
under cl 4.4 of the agreement was inconsistent with execution in 1994; Glatt's
failure to mention the agreement at his meeting with Suto in May 1995 was
inconsistent with the agreement having been signed by Suto; and, allowing for
cultural differences, Taiyo's reaction when the agreement was asserted was
consistent with Suto not having signed. Of course I have regard to the full
terms of the written submission and counsel's oral address.
- In turn, Playcorp's counsel provided a written submission of
considerable elaboration. I have regard to it all, and to the oral submission
although, as with Taiyo's submission, I do not set it all out.
- Taiyo's submission commenced with the evidence of the
handwriting experts, Holland and Storey. It was submitted that I should accept
Storey's evidence that the "hen", being the squiggly "S" like stroke which
descends through "Suto", was written first in the disputed signature whereas it
was written second (after "Suto") in the control or genuine signatures. This
was an issue of sequence - in what sequence in the writing of the disputed
signature was "Suto" written in relation to the descending "hen"
stroke?
- On a plain reading of his witness statement, Holland's view
appeared to be that the "hen" came second in the control signatures,[22] whereas in his oral evidence he said that on
stereomicroscopic examination he could not determine the sequence of the
intersections in the "Suto" and the descending "hen". He was of the same
opinion in relation to the disputed signature, which he also examined
microscopically. The evidence was inconclusive as to which came first, and
thus did not permit him to express a conclusion. When he had said in his
witness statement, having analysed the construction of the signature "Suto",
that the pen had been lifted and "a separate stroke has been made near the
middle of the signature that cuts across the "u" formation of the surname
"Suto", he explained in cross-examination that he was not implying that one was
cutting over the other, he was just saying there was an
intersection.
- Prior to the trial, after becoming aware of Storey's opinion
that the "hen" had been written first in the disputed signature, Holland
re-considered the matter, including conducting another microscopic examination,
and adhered to his opinion. He did not provide a supplementary
report.
- In his evidence in chief Holland did not refer to having
twice undertaken a microscopic examination to determine the sequence of the
signature. The matter of sequence was an important issue. It was also a
difficult issue, he considered "probably one of the most difficult and
challenging areas of a document examiner". When pressed in cross-examination
as to why he had not referred to his examinations and opinion on the matter of
the sequence of the signature he said it was "maybe an oversight" but the
reason was that he "couldn't offer any evidence because it was inconclusive, so
that's probably why I didn't go to ... paper in a report or even in my witness
statement".
- On the other hand, Storey was of the opinion that in the
genuine signature Suto had written the "hen", which he described as a
descending double "S" formation, over the "uto" of "Suto", whereas in the
disputed signature the reverse had occurred.[23] He had first examined the disputed signature on 29 June
1998 at the office of Playcorp's solicitors. At that examination he had a
magnifying glass and a stereoscopic microscope. He formed the opinion then
that the "hen" had been written first. He also formed the opinion that the
signature was a forgery. Shortly thereafter the genuine signatures were made
available and he examined them and compared them to the disputed signature. He
adhered to his initial opinion.
- In the course of his re-examination I permitted Storey to
produce and explain the operation of the stereoscopic microscope which he had
used in his examination of the documents, and which had an associated light on
a flexible arm to better enable examination from various angles. He placed the
signature page of the agreement under the microscope and demonstrated what in
substance he did when he examined the document. He said that he was of the
opinion that the image in the microscope demonstrated that the "hen" was
written first. The "hen" intersected "Suto" at six points. He conceded that
at one of those points it appeared that the "hen" was written second, but in
his opinion the other five intersections showed it was written
first.
- In a short adjournment Playcorp's counsel looked at the image
in the microscope. As they wished to then cross-examine Storey further I
looked at the image in the microscope. I did that for the purpose of better
enabling me to understand the evidence.
- In further cross-examination following the demonstration
Storey was asked why his report to Taiyo's solicitors, dated 6 July 1998, made
no reference at all to the order in which the "hen" had been written. His
answer was to repeat what he had said earlier, that he did not record all his
observations in the report. He adhered to his notes made in July 1998 having
recorded his then view that the "hen" had been written first. Subsequently, in
2000, he conducted a further examination under controlled light. It was
following that examination that, in a supplementary statement pursuant to Order
44 dated 20 October 2000 Storey stated that the "hen" had been written first.
Storey agreed that this was "the first document, at least the first court
document in which it is said that the evidence [he proposed] giving is that the
'hen' appears underneath the "uto".
- The position of Storey on this aspect is somewhat similar to
the position of Holland in relation to his omission to disclose his view that
the sequence could not be determined. But there is a difference in their
position. Storey's notes made at his original examination record that the
"hen" was "done 1st". Holland did not produce notes referring to his view.
What is more significant concerning Holland is that his witness statement was
misleading on the point. In para 5 he referred to having used a
stereomicroscope to examine "the line structure and stroke sequence ... in
detail at various magnifications". That, he said, allowed "the signature
construction to be established including: pen lifts, stroke direction,
unsteadiness, hesitations and the type of writing instrument and ink used". He
then proceeded, in para 6(a)-(g), to describe the characteristics in signature
construction revealed by the microscopic examination of the control signatures.
It was in the concluding para 6(g) that he made the statement referred to above
that the "hen" "cuts across the 'u' formation of the surname 'Suto'". The
impression given is that the "hen" was written second. Then, in para 8, he
stated that the signature of Suto on the distribution agreement exhibited the
same structural features referred to in para 6.
- This evidence indicated that Holland's opinion was that in
the disputed signature the "hen" was written second. In cross-examination
Holland disavowed possessing any such opinion. It is significant to note that
in his oral evidence in chief counsel took Holland to and had him elaborate on
a number of matters, in the course of which he was taken to para 6(a)-(f). But
counsel stopped at para 6(f), and then moved to another area without giving
Holland the opportunity to comment on para 6(g). Later in his evidence in
chief counsel took Holland to the matter of the sequence of the writing of the
"hen". The evidence which Holland then gave concerned the disputed signature,
as distinct from the control signatures, in the course of which a number of
magnified photographs were referred to and tendered. Holland stated that the
sequence could not be determined.
- It was not until cross-examination that Holland disclosed
that he was unable to determine the sequence in the control signatures. The
evidence was not wrung out of him. He gave it immediately on being asked the
question. He also said, correctly and fairly in my view, that in evidence in
chief he was "just following the line of questioning". He went on to say that
looking at it now he should have expressed para 6(g) differently as he was
not meaning to state the sequence in which the "hen" had been
made.
- It is obvious enough that in his witness statement Holland
should have clearly and directly stated his view on the matter of sequence. He
knew it was a relevant consideration. He accepted that the words in the
witness statement were his, and that they did, or had the tendency to, give a
misleading impression of his view. By the time he gave evidence Storey's view
on the matter of sequence was known, and, therefore, Holland might have
provided a supplementary witnes