BDM GRANGE LTD v TRIMEX PTY LTD [2017] NZCA 12

BDM GRANGE LTD v TRIMEX PTY LTD [2017] NZCA 12 [17 February 2017]IN THE COURT OF APPEAL OF NEW ZEALANDCA645/2015[2017] NZCA 12BETWEEN BDM GRANGE LTDAppellantAND TRIMEX PTY LTDRespondentHearing: 4 August 2016Court: Kós P, Harrison and Venning JJCounsel: L J Turner for AppellantM H L Morrison and C M Hanafin for RespondentJudgment: 17 February 2017 at 10:00amJUDGMENT OF THE COURTA The appeal is allowed in part:(a) by setting aside judgment for the respondent for special damages of $1,537,643 and substituting judgment for $1,419,297; and(b) setting aside judgment for the respondent for general damages of $150,000.B Any issue as to practical implementation of the revised calculation of permissible deductions by the appellant is to be dealt with in the High Court, as is costs in that Court.C The appellant will have costs in this Court for a standard appeal on a Band A basis, together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Kós P)[1] Trimex Pty Ltd held the Australasian distribution rights to a number of leading cosmetics brands, such as Clarins. BDM Grange Ltd was its long term New Zealand distributor, remunerated by a profit share arrangement. A dispute arose about costs BDM was entitled to deduct. In 2012 Trimex terminated the distribution arrangement.[2] In the High Court, Duffy J found costs deductions made by BDM were impermissible. Partly as a result of this, BDM had underpaid Trimex its net profit entitlement. On that basis she entered judgment against BDM for $1,537,643.1[3] Duffy J also found BDM had committed the tort of injurious falsehood by sending three emails to customers of Trimex in 2013. For that she awarded general damages to Trimex of $150,000.[4] BDM appeals. The issues on appeal have narrowed from those before the High Court. They are:(a) Issue 1: did the Judge err in finding BDM had made impermissible deductions for advertising and promotions costs (A&P costs) for the 2011 and 2012 financial years?2(b) Issue 2: did the Judge err in quantifying damages at $150,000 for injurious falsehood?[5] The amount in dispute in Issue 1 is $702,746. It comprises $590,866 for the Clarins line, $92,771 for the RoC line and $19,109 for Swarovski.31 BDM Grange Ltd v Trimex Pty Ltd [2015] NZHC 2469 ("HC Judgment").2 The parties adopted a financial year that ran from 1 October to 30 September of the next year.3 A table setting these figures out is shown at [22].Facts[6] Trimex is an Australian company that holds distribution rights in Australasia from certain brand principals for high quality cosmetics. Its main business was distributing cosmetics produced by the French group Clarins.[7] In 1984 Trimex agreed with BDM that the latter act as its wholesaler in New Zealand. BDM would store the products in its warehouses and distribute them to retailers. This arrangement was informal, flexible, ill-defined and not ultimately governed by the written joint venture contract they entered at that time. No such joint venture actually occurred. The parties at trial approached the task of defining the scope of the arrangement by reference to correspondence and other course of conduct evidence.[8] It was common ground the arrangement provided for an equal share of net profits. The general framework for sharing of profits was that BDM would deduct from the total sales to retailers the costs of the products sold, as well as any returned products and duty and taxes paid, to arrive at a gross margin. BDM would then deduct two further sets of costs from the gross margin: warehouse and administration costs (W&A costs) and advertising and promotion costs (A&P costs). The latter eventually were disbursed costs paid to third parties such as media. The balance left after those deductions was divided equally between BDM and Trimex. As will be clear from this account, BDM had the money. It also had the profit payment obligation.[9] A dispute arose in the 2011 and 2012 financial years over the deductions BDM made for W&A and A&P costs. The working relationship fell apart. The arrangement was terminated by Trimex in June 2012, with effect from 30 September 2012.[10] BDM issued proceedings in the High Court on 11 October 2013. It claimed there was a joint venture or partnership. It sought a taking of account.[11] Trimex counterclaimed for breach of contract by BDM. It said BDM had deducted too much for W&A and A&P costs. It thus had underpaid Trimex its profit entitlement.[12] Later in October 2013, after the arrangement had been terminated and its proceedings had been filed, BDM sent emails to three companies with whom Trimex had continuing business relationships. The emails were in similar terms and included statements that:(a) a termination fee of $3.7 million payable by Trimex to BDM was outstanding;(b) Trimex was unwilling or unable to pay that amount and other interested parties dealing with Trimex should be aware of this concerning matter for their own business interests; and(c) sworn evidence by Trimex filed in the High Court in respect of the dispute contained material incorrect or false statements.BDM offered to discuss general business with some of the recipients, including, forone recipient, "the NZ market, BDM and opportunities that exist for [certain cosmetic products] within such, should you be available."[13] Trimex claimed damages for these statements, relying on the tort of injurious falsehood.High Court decision[14] The Judge rejected BDM's primary claim that the parties operated apartnership or joint venture with fiduciary duties. In rejecting this submission, the Judge found the relationship governed by a purely contractual distribution agreement. This general finding is not challenged on appeal.[15] The focus of the High Court decision was on Trimex's counterclaim thatBDM had breached the distribution agreement by making excess deductions for W&A costs and A&P costs.[16] On the W&A costs question the Judge found the parties had agreed BDM could deduct only 17 per cent of net sales for the 2011 and 2012 financial years, not 22.5 per cent as BDM claimed. This finding too goes unchallenged on appeal.[17] It is, however, necessary to describe the Judge's findings on A&P costs insome detail.A&P costs deductions[18] Trimex's pleaded counterclaim was that the parties would deduct only an "agreed percentage contribution to BDM's" A&P costs. The Judge noted the corefeatures of this claim were:(a) A&P costs were partly subject to direction from the brand principals. They required a minimum level of spending on A&P consistent with maintaining an up-market brand image. For Clarins products, for instance, the principal required 24.6 per cent of total annual net sales less special value sales to be spent on A&P. Compliance with this Clarins pricing structure was essential to the right to distribute Clarins products.(b) In addition to the minimum rate set by Clarins, BDM and Trimex agreed each year on an additional figure BDM could spend on A&P. The level of permitted additional spending was influenced by the marketing plans in place. BDM was also allowed to spend a sum on margin shortfalls in the 2011 financial year.[19] BDM's counterclaim defence was that it was free to deduct its actual A&P costs. During trial it modified that position, and accepted that only reasonable costs could be deducted.[20] Duffy J found there was no evidence, apart from in BDM's managing director Mr Berryman's evidence-in-chief, that BDM was entitled to spend unilaterally what it chose to spend on A&P subject only to a requirement to act reasonably. She said there was strong evidence that the parties would agree on limits on A&P in each financial year. She noted that on occasion Trimex would give notice to BDM that itwas not to exceed the agreed level without Trimex's prior approval.[21] The Judge therefore found that Trimex's agreement was required for any additional A&P expenditure beyond agreed budgeted levels. BDM's submission that it could incur whatever A&P spending it liked subject only to a requirement to act reasonably was implausible.[22] The competing positions of the parties at trial can be tabulated thus:CLARINS RoC SWAROVSKI2011 Net sales 7,492,059 168,643 68,6592011 — BDMA&P 2,315,158 118,879 28,625% of net sales 30.9 70.5 41.72011 — TrimexA&P 2,154,454 33,729 13,732% of net sales 28.7 20.0 20.02011 Variance 160,704 85,150 14,8932012 Net sales 7,950,577 (24,059) 53,9872012 — BDMA&P 2,386,004 7,621 17,713% of net sales 30.0 (31.7) 32.82012 — TrimexA&P 1,955,842 0 13,497% of net sales 24.6 0 25.02012 Variance 430,162 7,621 4,216Total variance 590,866 92,771 19,109Total variance(all brands) 702,746[23] In the 2011 and 2012 financial years the Judge found BDM spent more thanthe agreed budget on A&P. For 2011, BDM was only entitled to deduct "the Clarins24.6 per cent minimum as well as the overspend of $311,408 that Trimex had agreed to for the year" together with a further agreed sum of $79,000 for margin shortfalls. For 2012, Trimex did not agree to any overspend and BDM could not have honestly believed it could incur any overspend, so only the 24.6 per cent minimum should have been deducted.[24] Clarins dominated this aspect of the dispute: 84 per cent of the disputed A&P costs variance was for Clarins. As to the other lines, the Judge held:(a) Swarovski: BDM was limited to 20 per cent of net sales in 2011, and 25 per cent in 2012; and(b) RoC: BDM similarly was limited to 20 per cent in 2011. The Judgeaccepted the evidence of Trimex's witnesses that RoC wasdiscontinued and BDM could sell (and keep the proceeds of) any remaining stocks, but could make no costs deductions for that line in that year.[25] Adjusting the financial statements to remove the wrongly claimed expenditure by BDM for W&A and A&P costs, the Judge found BDM owed Trimex the sum of $422,580 for 2011 and $1,115,063 for 2012. Of that total sum of $1,537,643, some $702,746 was attributable to A&P costs. Judgment was enteredaccordingly. The Judge recorded that BDM did not challenge Trimex'squantification of the sums of money that remained owing to it.[26] Inherent in these reasons, but not explicitly stated, was a finding that the A&P costs deduction was based on taking a percentage of actual sales, determined at the end of each financial year. The Judge noted this consequence in the following paragraph:4[147] Apart from BDM Grange spending more on A & P or margin short falls than was agreed to by Trimex, another way the agreed A & P overspend4 Footnote in original.might have been exceeded was if the actual volume of sales in a financial year was much lower than the estimated sales on which the budgeted A & P costs were based.64 The budgeted A & P costs would have included the 24.6 per cent Clarins minimum requirement calculated on estimated sales. If the budgeted A & P expenditure was fully spent but the actual sales were lower than the estimated sales the A & P expenditure would exceed the budget. Trimex did not dispute this. However, its concern was to ensure that BDM Grange did not actively exceed the agreed overspend without the approval of Trimex.64 In the annual budget the minimum A & P expenditure was calculated on 24.6 per cent of the estimated sales.[27] The Judge did not consider an alternative possibility — now raised by BDM— that permitted A&P spending to be pre-determined for the financial year based on taking a percentage of budgeted (or expected) sales. BDM's trial position, of course,was that it was entitled unilaterally to set A&P costs, so long as reasonable.Injurious falsehood[28] The other focus of appeal is the High Court's approach to the injuriousfalsehood claim. The essential elements of that tort are (1) a false statement, (2) published maliciously, (3) to a third person (4) with damage resulting.5[29] Duffy J found the statements in the emails concerning non-payment of a termination fee and filing of false evidence by Trimex were objectively false. And that those statements were published maliciously, with the intention of injuringTrimex's business relations with the recipients. Those findings are not challenged onappeal.[30] The Judge then turned to the fourth element: whether damage resulted. She noted s 5 of the Defamation Act 1992 applied. This means proof of special damage was not needed if publication was likely to cause pecuniary loss.[31] She said that although it could not be said with certainty that Trimex had suffered damage caused by the false statements, it was very likely that the emails had caused pecuniary loss. This was because the statements would give rise to concernsabout Trimex's solvency, how it conducts its business and the honesty of its officers.5 Stephen Todd (ed) The Law of Torts in New Zealand (7th ed, Thomson Reuters, Wellington, 2016) at [15.3.03].The statements would likely have discouraged the recipients from commercially engaging with Trimex when they could avoid doing so. The statements also included an offer by BDM to provide its services to the recipients, which suggested it was attempting to portray it was a better company to do business with.[32] The Judge considered an award of general damages was appropriate. She referred to a statement from this Court in Siemer v Stiassny that general damages can be awarded in a defamation case as a rough estimate of the probable extent of an actual loss a person has suffered.6 She quantified damages at $150,000 based on the following factors: the recipients of the injurious falsehoods had not ceased trading with Trimex; the statements may have cast doubt as to Trimex's solvency andintegrity; the statements were formally written down; Trimex received no retractionor apology; the statements would have had some damaging impact on Trimex'sreputation in an industry that trades upon reputation; and the emails were sent for apurpose calculated to cause financial damage and potentially to BDM's financialgain.Issue 1: did the Judge err in finding BDM had made impermissible deductions for A&P costs for the 2011 and 2012 financial years?[33] In his written submissions Mr Turner reargued BDM's case at trial that BDMcould incur its actual and reasonable A&P costs. That argument was rejected by the Judge for the comprehensive reasons she gave. The argument was not pursued in oral submissions. It follows that there must have been some agreed cap on BDM'spermitted A&P spending. The question is how that cap is determined.[34] Mr Turner submitted the Judge erred in finding that A&P costs were capped based on a percentage of actual sales for the financial year. Instead the A&P costs were in fact capped based on a percentage of expected or budgeted sales agreed by the parties at the start of the financial year. The documentary evidence showed Trimex seeking to impose a cap based on a percentage of actual sales cap over theyears and being rebuffed by BDM. The parties' course of conduct was to allowdeduction for A&P based on the sum budgeted at the beginning of the year. It would not make commercial sense for BDM to have agreed to bear the risk of lower than6 Siemer v Stiassny [2011] NZCA 106, [2011] 2 NZLR 361 at [48].expected sales to BDM because much of the A&P expenditure was committed at the beginning of each financial year and could not be decreased when sales were lower than expected.[35] In response, Mr Morrison for Trimex submitted it pleaded and proved the distribution agreement included an A&P cap based on a percentage of actual sales. All the witnesses assumed the A&P percentage was based on actual sales, andBDM's new argument based on a percentage of budgeted sales was not put to thewitnesses. He emphasised in particular evidence of what happened in the 2010 financial year, immediately prior to the disputed years, and stressed the dangers of drawing conclusions from trading statements in the earlier years of the contractual relationship in the context of a flexible and ill-defined agreement.Analysis – Clarins 2011[36] We are persuaded that Duffy J erred in concluding that permissible A&P deduction for Clarins products was confined to 24.6 per cent of actual net sales, determined at the end of each financial year, together with pre-agreed overspend amounts. We consider this overlooks the importance of the annual process of agreeing a fixed budget for marketing in advance of each trading year.[37] First, we make the obvious but important point that the onus of making out the claims of overdeduction by BDM lay on Trimex throughout. It was the counterclaim plaintiff. It was for it to establish, on the balance of probabilities, the precise degree of overdeduction. And that meant it had on the same basis to establish exactly what the agreement was in relation to the incurral of A&P costs.[38] As noted earlier, BDM's case at trial, initially, was that it was entitled toclaim its actual A&P costs. Then it accepted that only reasonable, actual A&P costs might be deducted.[39] Mr Morrison was disposed to complain that the argument now being advanced by BDM on appeal — that the A&P deduction be based on budgeted rather than actual net sales — was a third stance, and not one advanced at trial by BDM. That may be so, but as we will demonstrate the evidence essentially conformed tothe two pleaded positions. No one focused particularly on what might happen if actual net sales were less than budgeted net sales. As we will see, that situation in fact occurred in 2010 and 2011. And none of that alters the incidence of the onus on Trimex to establish the basis for deduction of A&P costs as a prerequisite to proving overdeduction by BDM.[40] Secondly, we turn to Trimex's counterclaim pleading. Paragraph 4.2(d)alleged that the annual royalty payment involved a deduction from total net sales(producing a gross margin sum) and then deduction of the "agreed percentage contribution to BDM's advertising and promotion costs". After further deduction ofthe W&A costs, 50 per cent of the balance was payable by BDM to Trimex.[41] Paragraph 4.3 alleged in relation to Clarins products that the distribution agreement required the parties to agree at or around the commencement of eachfinancial year to a "fixed budget". That fixed budget would specify "A&P spend as a percentage of total net sales" and a further "maximum permitted overspend" of thatsum.[42] Paragraph 4.4 alleged a similar "fixed price structure" would be agreed at oraround the commencement of each financial year for the other brands, RoC andSwarovski. The total permitted A&P spend on those products was "expressed as apercentage of net sales". In 2011, 20 per cent for each line. In 2012, 25 per cent forSwarovski and nothing at all for RoC as that line was being discontinued.[43] There are some difficulties with this pleading. As to paragraph 4.2(d), as a matter of simple mathematics, a percentage cannot be deducted from a gross sum. Itfollows that the "agreed percentage contribution" deduction was necessarily also agross sum, albeit one based upon a percentage calculation. The pleading at paragraphs 4.3 and 4.4 emphasised that what was agreed at the start of each year wasa "fixed budget" or price structure. Yet despite that allegation, it seems Trimex was actually asserting that where net sales came in at year's end below the levelbudgeted, so that what had been "approved" became instead a higher percentage of alower net sales figure, Trimex was not bound to agree to that mathematicaloverspend. In that sense, it was not a "fixed budget" at all — despite the pleading otherwise.[44] Thirdly, these alleged terms of the distribution contract were not written down of course. Nor could either counsel point to any definitive, consensual oralexpression. The overwhelming emphasis of counsel's submissions on the subjectwas on the viva voce evidence given at trial. So the question is what term has beenincorporated by reference to the parties' course of dealing. The incorporation ofterms by a prior course of dealing is a question of fact and degree. Where there is consistency in a course of conduct that may give rise to the implication of a particular contractual result.7[45] Fourthly, the precise point in argument largely passed the witnesses by.BDM's witnesses asserted a right to deduct actual A&P costs. Trimex's, the right todeduct only 24.6 per cent of net sales plus any agreed overspend. As we observed more than once at the hearing, that rather begged the question whether that was 24.6 per cent of budgeted net sales or 24.6 per cent of actual end of year net sales. Given that A&P costs are (1) actual disbursed costs paid to third parties, (2) incurred through the year — so largely irreversible, (3) budgeted on the basis of the expected sales set in the start-of-year "fixed" budget, and (4) incurred for the joint benefit ofBDM and Trimex, it is counterintuitive that costs incurred faithfully according to the budget could fall on one party — BDM — alone. We consider that if that wasindeed Trimex's case, it needed to be put plainly to BDM's witnesses.[46] Fifthly, we think it significant that BDM could only deduct its actual spend.It was not entitled to charge an inflated A&P "cost" in the event actual salesexceeded expectations. That is, 24.6 per cent of whatever actually was sold. Mr M H Carriol, Trimex's managing director until 2004 and thereafter its chairman, made that clear in this passage:It could well be that when you're off towards the end of the financial year the sales are not what they were contemplated, $5,000,000 but maybe 5.5, 5.6. Immediately that has a correlating effect, it means that the amount spent or intended to be spent for A and P in percentage term, which cannot be7 Kim Lewison The Interpretation of Contracts (6th ed, Sweet & Maxwell, London, 2015) at [3.13].varied at the last minute, turned out to be less than the amount, not in nominal dollar but in percentage term because the sales are higher, so yes, you can finish the year with an amount of A and P spend below the prescribe amount due to the sales materialising in higher than expected.Commercial logic would suggest that constraint would also apply if sales underperformed. A&P costs were actual disbursed costs paid to third parties. BDM could not retrospectively reduce those costs if sales came in below expectation.[47] Sixthly, Trimex's witnesses in fact emphasised the importance of achievingthe budgeted expenditure. Mr M H Carriol stated that the A&P percentage figurewas an absolute requirement "imposed on Trimex as the amount to be spent, finish, top no discussion, take it or leave it." If BDM spent less than the agreed percentageof actual sales, the underspend might be carried into the next financial year. But if it was not material, Trimex could agree to the difference. He was then asked by the Judge whether there was a percentage limit of net sales that could be spent on A&P.He said, "our perspective is very simple, very clear, there is a percentage A&P tospend and it is to be spent, no more, no less". Later in his cross-examination Mr Carriol was asked about a growth target for net sales for the 2010 financial year of 4.2 per cent and how that might impact on A&P:Q But of course, and I think you gave evidence yesterday that [if] the sales target in a budget does not meet them that will result in a lowerA and P available wouldn't it?A Sorry, can you rephrase that?Q Yes.A The sales target?Q If your sales are less then ultimately the amount of money which the 24.5% would represent would also be a lower number of coursewouldn't it?A Yes, but it's not the target that's why to understand your question, ifthe sales results —Q Yes.A — not the target, if the sales result are less than anticipated, what is creates or it could create, depending when you start noticing that these sales are going to be less, but it could create potential overspend at the end of the financial year and if it is not that material, maybe even forget about. But if it is material then you say"Ah hah, we have to carry it over for next year." Carry over, which I've explained yesterday. If, on the contrary, you have more thanwhat you have anticipated and therefore generate more A and P, and you have not had time during that financial time or intention to — or maybe purely the intention to leave it for the next financial year because it could be useful for the launch of something that you are already aware, then you carry it over for the next financial year. Soit's all always interlinked. I don't know if it's what your questionwas because it was mixing between target and (inaudible 15:08:48) result.[48] Mr Morrison submitted this evidence could hardly be clearer that A&P was tied to actual sales, not budgeted sales. We do not see it that way. It appears to us to reinforce the proposition that the budgeted A&P spend governs the right to deduct. It does not suggest that the consequent notional overspend (caused by the A&P percentage inflating due to lower than expected net sales) falls on BDM alone. In short, BDM neither had to increase the A&P spend if net sales overshot nor to pay itself for A&P spend exceeding 24.6 per cent if sales underperformed.[49] The reason for the assumption by the witnesses that A&P spending would vary with the level of actual sales is that was the basis of the Clarins requirement (although we are not apprised of the contractual arrangement between Clarins and Trimex). But it does not follow that the contract between BDM and Trimex was on the same footing.[50] Mr M H Carriol's son, Mr J M Carriol, took over as Trimex's managingdirector in 2004. His evidence emphasised the importance of setting the budget atthe outset of the trading year. As he put it, "Trimex and BDM would agree theClarins' Budget and any agreed A&P overspend will be provided for in that budget."He also noted that as a matter of practice BDM often incurred unauthorised A&P overspend over and above what was agreed at the outset of the trading year. Trimex was increasingly unhappy about that. But as Mr Carriol acknowledged, in practice it tended to permit BDM to include that additional overspend in the calculation of the annual royalty payment. This evidence again demonstrates the importance of budgeted A&P costs between BDM and Trimex.[51] Mr J M Carriol acknowledged in evidence that the relevant budget for 2011 was recorded in an A&P dissection report that was in evidence. It showed budgetednet sales of $7,652,000 and an A&P spend of $1,882,392 (being 24.6 per cent of the net sales figure) plus an agreed overspend sum of $390,408. That is, a total A&P budget of $2,272,800. Mr Carriol accepted that to be the case.[52] Seventhly, we turn now to the witnesses for BDM. It is necessary only to refer to the evidence of Mr Berryman, managing director of BDM from 2004. He confirmed that the parties would agree at the start of the financial year on anoverspend "above the 24.6%" through BDM providing an A&P dissection report and that this was a "logical position given the dynamics of the price structure and adistributor's margin being available within that price structure." He explained thatmost A&P costs were fixed before the start of the year, and it was difficult to reduce investment in A&P once a financial year commenced. At another point in cross- examination Mr Berryman referred to the difficulty in keeping A&P spending to a fixed percentage of actual sales:Now if sales don't come in where we like them to come in and that's oftenthe case because this isn't a known business unfortunately, we will be overspent and you'd then need to share in it, that's common knowledge of anybody in the industry. I can't predict, nobody can and that's the game we are in. So, therefore, to say, "Well when that happens BDM", and it will happen, "You take the risk", it's changing the way we've played the game for 26 years, that's what that's doing, and we weren't going to accept that I'm afraid.[53] It was not put to Mr Berryman that where net sales fell below budgeted levels, BDM alone was responsible for A&P costs equal to the difference between 24.6 per cent of budgeted and actual net sales. That is the simple propositionimplicit in Trimex's "corrected" analysis, summarised in the table at [22] above.[54] Eighthly, it is instructive to consider what happened in previous years where no dispute exists as to entitlement. Mr J M Carriol gave a useful example from the 2010 trading year:With regard to A&P for the 2010 Trading Year, the Clarins' Price Structurerecording the total A&P spend of 24.6% applied. The parties had agreed aClarins' Budget for the 2010 Trading Year in the manner that I have described above, being the "A&P dissection report" for that year. The firstcolumn records the forecast (i.e. agreed) budget based on net sales of $7,400,000. The total available A&P spend in the first table is recorded as being $2,140,400, comprising 24.6% of total net sales ($1,820,400) plus afurther $320,000 (being the agreed Clarins' maximum A&P Overspend)comprising the total agreed A&P spend for the 2010 Trading Year of $2,140,400.[55] In fact in 2010 net sales were slightly less than the projected $7,400,000. Netsales were instead $7,266,657. The year end reconciliation (called a "trading statement") showed actual A&P total spend of $2,115,202 compared to a budgeted sum of $2,140,400. As Mr J M Carriol observed, that was 29.1 per cent of actual net sales, and therefore an A&P overspend of $327,604. An overspend of $320,000 had been approved in advance in the original budget. As Mr J M Carriol went on:Trimex was happy to agree the modest additional A&P overspend and we accepted the 2010 trading statement prepared by BDM.[56] In context, we infer that the course of dealing between the parties made that agreement inevitable. That is, the mathematical "overspend" was unobjectionablegiven the fact that the total A&P spend did not exceed that budgeted for and agreed to at the beginning of the trading year. No example of an overspend being rejected while still within the total original budgeted A&P spend was put to us.[57] We now draw these points together.[58] In our view the most that can be said is that in the end of year reconciliation trading statement, the A&P calculation was based on actual net sales — so that sales underperformance might lead to a notional "overspend". That is exactly whatoccurred in 2010. But nothing in the evidence suggests that where BDM had incurred actual A&P costs within the figure agreed in the "fixed budget" at thebeginning of the year, for the ultimate joint benefit of both parties, it would be liablealone to meet some of those costs simply because actual net sales at year's end were less those budgeted at year's start. Such a stance is counterintuitive, commerciallyillogical, was not what occurred in the preceding year, 2010, and to the extent it was put at all to Mr Berryman was rejected.8[59] It follows that we reject Trimex's submission (accepted by Duffy J) that thepermissible A&P deduction for Clarins products was confined to 24.6 per cent of actual net sales, determined at the end of each financial year, together with pre-8 See [52]–[53] above.agreed overspend amounts. Instead we find that BDM was permitted to deduct A&P costs up to the budgeted sum (based on percentage contribution plus agreed overspend), so long as those costs were in fact incurred. Any deduction beyond that depended on ad hoc party agreement.[60] It follows also that for the 2011 year, BDM was entitled to deduct actual A&P costs for Clarins products up to the budgeted sum of $2,272,800. Not the $2,154,454"corrected" sum proposed by Trimex and adopted by the Judge.9Analysis – Clarins 2012[61] Turning then to 2012, the position is less clear. As Mr J M Carriol records, no agreed budget was reached at the start of the trading year. BDM did not assert otherwise, and the Judge found no agreed budget had been reached.10 Nor was therean agreed overspend. Mr J M Carriol's position was that in those circumstances,BDM had no authority to apply other than the fixed A&P rate as set by Clarins —that is 24.6 per cent of actual net sales.[62] Despite disagreement, the commercial relationship continued. And BDM continued to incur A&P costs, as Trimex well knew. There is a gap in the contractual arrangements as to what was to happen in deducting such costs. In suchcircumstances, the Court will do its best to give effect to the parties' intention. Indoing so it may imply a term.11[63] The starting point for considering whether a term should be implied is the advice of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings, where Lord Simon said:12[F]or a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that'it goes without saying'; (4) it must be capable of clear expression; (5) itmust not contradict any express term of the contract.9 See table at [22] above.10 HC Judgment, above n 1, at [164].11 Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd [2002] 2 NZLR 433 (CA) at [58], [60] and [64].12 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 52 ALJR 20 (PC) at 26.[64] These criteria were later interpreted by the Privy Council in Attorney-General of Belize v Belize Telecom Ltd not as independent tests which must each be surmounted, but rather a collection of ways in which judges have expressed the central idea that the proposed implied term must spell out what the contract actually means.13 Lord Hoffmann giving the advice of the Board said the only question is what the instrument read as a whole against the relevant background would reasonably be understood to mean, and noted that the court has no power to improve upon the instrument or make it fairer or more reasonable.14[65] The approach in Belize Telecom has been adopted in New Zealand15 and applies in situations such as the present where the contract is partly oral.16[66] The United Kingdom Supreme Court has recently elucidated the following further principles in Marks and Spencer plc v BNP Paribas Securities Services Trust Co:17(a) The implication of a term is not critically dependent on proof of an actual intention of the parties, as the focus is on the position of notional reasonable people in the position of the parties at the time they were contracting.(b) A term should not be implied into a detailed commercial contract merely because it appears fair or it would have been agreed upon if it had been suggested as a term.(c) The test of necessity for business efficacy involves a value judgment, and a more helpful way of putting this requirement may be to askwhether without the implied term the contract would "lack commercial or practical coherence".13 Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at [27].14 At [16] and [21].15 Nielsen v Dysart Timbers Ltd [2009] NZSC 43, [2009] 3 NZLR 160 at [25] per Tipping and Wilson JJ and at [62] and [64] per McGrath J. See also Hickman v Turn and Wave Ltd [2011] NZCA 100, [2011] 3 NZLR 318 at [248].16 Crema v Cenkos Securities plc [2010] EWCA Civ 1444, [2011] 1 WLR 2066 at [37].17 Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2015] 3 WLR 1843 at [21].[67] We put to one side the discussion in Marks and Spencer as to whether the implication of terms is part of the process of interpreting a contract or a separate exercise in adding to the contract.18 It is unnecessary to comment on this issue in the present case. The New Zealand Supreme Court has suggested it may require further consideration in the future.19[68] The present case has similar features to others in which courts have implied terms that price is to be a reasonable market level in the absence of agreement by the parties. An example is Beer v Bowden.20 Mr Bowden rented premises for a term of 10 years, with specified rent of £1,250 for the first five years and thereafter "such rent as shall thereupon be agreed between the landlords and the tenant". There wasno arbitration clause. The parties failed to agree on rent after the first five years had elapsed. The English Court of Appeal implied a term that in the absence of agreement the rent was to be the fair market rent. This was necessary to give business efficacy to the rent review provision.21 It was untenable to suggest the tenant could stay and pay no rent, or that the rent should remain at £1,250.22 The Court rejected a submission that a term requiring market rent could not be implied because there was no arbitration clause.23[69] Likewise, here the A&P budget was to be agreed, and in the absence of agreement we consider it is necessary to imply a term as to what A&P deductions are permissible in the absence of agreement. Such a term is necessary to give business efficacy and commercial coherence to the arrangement.24 The parties' joint salesexercise continued, despite disagreement in this point of detail. Had it not continued, there would have been serious problems for, and with, Clarins. Trimex cannot have intended that in the absence of an agreed budget, BDM would incur no18 Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd, above n 17, at [22]–[31].19 Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89 at [81].20 Beer v Bowden [1981] 1 WLR 522 (CA). See also Foley v Classique Coaches Limited [1934] 2 KB 1 (CA); Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2001] 2Lloyd's Rep 76 (CA); and Attorney-General v Barker Bros Ltd [1976] 2 NZLR 495 (CA).21 Beer v Bowden, above n 20, at 527.22 At 525.23 At 525–526.24 BP Refinery (Westernport) Pty Ltd v Shire of Hastings, above n 12, at 26; Attorney-General of Belize v Belize Telecom Ltd, above n 13, at [27]; Nielsen v Dysart Timbers Ltd, above n 15, at [25], [62] and [64]; Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd, above n 17, at [21].A&P spending at all. That would be inconsistent with the externally imposed Clarins requirement for these high end cosmetics. There was no prohibition at the start of the 2012 financial year by Trimex on BDM incurring A&P costs. There was no warning that BDM would be proceeding at its exclusive economic risk in doing so. Indeed, Mr J M Carriol accepted that BDM could make deductions for A&P in the absence of agreement as to budget; he suggested on the basis of 24.6 per cent of actual sales.[70] Mr Turner suggested, however, that BDM could deduct an amount of overspend in addition to 24.6 per cent of actual sales for 2012. He submitted clear indications had been given by Trimex as to the permissible overspend, despite accepting there was no final agreement on budget. He pointed the Court to overspend figures in a document prepared by Mr Berryman in early December 2011, a few months into the 2012 financial year as part of ongoing negotiations. That document has a Plan A and Plan B budget, with overspends of $389,300 and $251,740 respectively. Plan A was an aggressive brand growth strategy for 2012; Plan B more moderate.[71] This submission appeared to rest on the basis of an estoppel by representation. Four elements must be established by a party asserting such an estoppel:25 that the party to be estopped has acted in a clear and unequivocal manner which has caused the claimant to have a certain belief or expectation; that the claimant has relied reasonably upon that belief or expectation; that the claimant has suffered detriment by relying on that belief or expectation; and that it would be unconscionable for the party to be estopped to depart from the belief or expectation.[72] We do not consider the document Mr Turner referred us to provides a clear basis for an estoppel given the fundamental difficulty and that it proposed two possible budgets. Similarly, any reliance by BDM on this statement was not reasonable. The document was prepared by Mr Berryman, and it is entirely unclear to what extent it was accepted by Trimex. It was prepared in the course of negotiations, with the expectation of final agreement to follow. The fluid nature of the negotiations is evidenced by a subsequent document prepared by Mr M H Carriol25 Wilson Parking NZ Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44].in which the overspend for Plan B was reduced to $214,600, as well a subsequent attempt by Mr M H Carriol to alter the Plan B budget on the basis Clarins would not be making any contribution towards A&P. All of these negotiations were occurring against a backdrop of deteriorating business relations and a developing dispute overpermissible W&A deductions. It follows we reject Mr Turner's estoppel argument.[73] We have also considered whether a term might be implied that there would be a base level of overspend at a similar level to that agreed in the previous financial years — that is, four to five per cent of budgeted sales. But such a term does not meet the tests in BP Refinery and Belize Telecom. First, the overspend for each year was a topic on which the parties had divergent views in the budgeting process. The parties operated on the basis that they would be free to agree or disagree about overspend for future years as their perceived interests dictated.26 Mr Berryman accepted that at the commencement of each year the parties would agree to a budgetincluding agreed overspend after Trimex had assessed BDM's A&P dissection report and "what it was agreeable to". Secondly, negotiation might have yielded anynumber of alternative levels of budgeted overspend, so it cannot be said that four to five per cent would be so obvious it goes without saying.27 Finally, an implied term as to overspend is not necessary to give the agreement practical or commercial coherence because the parties already have a basis on which BDM may incur and account for A&P expenditure. It would constitute the Court attempting to improvethe parties' agreement, which is not the proper function of the law of implied terms.[74] The only term that meets the tests in BP Refinery and Belize Telecom for theimplication of a term reflects Mr J M Carriol's acceptance that BDM could continueto deduct 24.6 per cent of actual sales. That is the obvious and reasonable commercial basis for deductions in the absence of agreement, and in the absence of an agreed budget.26 See BJ Aviation Ltd v Pool Aviation Ltd [2002] EWCA Civ 163 at [23].27 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 335.[75] The result is in the 2012 year, the A&P deductions for Clarins products must be limited to 24.6 per cent of actual (not budgeted) net sales. That is the same $1,955,842 sum proposed by Trimex and adopted by the Judge.28Analysis – other products[76] We turn now briefly to the position concerning the RoC and Swarovski lines. As noted earlier, the appeal was much dominated economically by the Clarins calculations. It was wholly dominated by them forensically. Although the notice of appeal makes brief reference to the other lines, no written or oral argument was addressed by Mr Turner to the RoC and Swarovski lines. In those circumstances wesee no reason to differ from Duffy J's conclusions with respect to them.Conclusion[77] We conclude that the Judge did err in part in finding BDM had made impermissible deductions for A&P costs for the 2011 financial year. The excess sum of $702,746 calculated by the Judge must, in accordance with [60] above, be reduced by $118,346.29 The result is that judgment for the respondent for special damages of $1,537,643 must be set aside and judgment for $1,419,297 substituted therefor.30 If any issue arises as to practical implementation of the revised calculation, that is to be dealt with in the High Court.Issue 2: did the Judge err in quantifying damages at $150,000 for injurious falsehood?[78] Mr Turner submitted general damages are not appropriate for injurious falsehood. The Judge erred in focussing on reputational damage, which is relevant to defamation but not injurious falsehood. The tort of injurious falsehood protects parties from loss of business flowing as a natural and probable consequence from false statements. The Judge should have found there was no likelihood of Trimex suffering pecuniary loss by the falsehoods.28 See table at [22] above.29 That is our figure of $2,272,800 less the High Court's figure of $2,154,454.30 See [25] above.[79] He further submitted the Judge's findings as to what were probable losseslacked an evidential basis. For instance the Judge's finding that the emails cast doubt as to Trimex's solvency and integrity is contradicted by its ongoing businessdealings with the recipients. To establish a probable loss, Trimex needed to provide evidence as to its ongoing business and communications with the recipients of the emails. But the evidence from Trimex was that by the time of trial, 13 months after the emails were sent, it could not say with any certainty that it had suffered damage.[80] For Trimex, Mr Morrison submitted BDM's argument leads to a return to thecommon law position and ignores s 5 of the Defamation Act. The legislature had done away with the difficult requirement of proving special damage. There was sufficient evidence of a likely pecuniary loss flowing from the falsehoodsthemselves. Trimex's chief financial officer said there was a risk that the recipientsof the emails would walk away from their distribution agreements with Trimex.BDM's managing director accepted that he sent the emails with the intention of gaining distribution contracts from the recipients in the future.[81] Trimex says general damages were appropriate because actual damage could not be objectively calculated. A rough estimate is all that was required. An award of $50,000 for each of the three recipients is realistic in the context of total net annual sales of around $1 million in New Zealand.Analysis[82] We start by examining the legislative policy behind s 5 of the Defamation Act:5 Malicious falsehood actionable without proof of special damageIn proceedings for slander of title, slander of goods, or other malicious falsehood, it is not necessary to allege or prove special damage if the publication of the matter that is the subject of the proceedings is likely to cause pecuniary loss to the plaintiff.[83] This section has its origins in a report published in the United Kingdom in 1948 by the Committee on Defamation Law chaired by Lord Porter. The Porter Committee noted the difficulties in proving special damage in the tort of maliciousfalsehood due to technical rules of evidence, and recommended the tort should be actionable without proof of special damage for words having a natural tendency to cause actual pecuniary damage:3150. Actions on the case, by which are meant, in the words of Bowen LJ in Ratcliffe v Evans (1892) 2 QB 524 (CA) "actions for written or oralfalsehoods not actionable per se or even defamatory, where they are maliciously published, and are calculated in the ordinary course of things toproduce and do produce actual damage" require, as their definition shows,proof of special damage if they are to succeed. In this category are included actions for slander of title, slander of goods and other false, but non- defamatory, statements of fact made maliciously and calculated to cause damage.51. The necessity of furnishing proof of special damage has rendered this type of action rare in the extreme; but statements of these kinds may cause very serious damage which, owing to technical rules of evidence, it is impossible to prove strictly as special damage. In the result, the injured person is left without any remedy for the loss which he has suffered. In our view, this constitutes an injustice which should be righted by an amendment of the existing law.53. [Actions] should be actionable without proof of special damage Proof of express malice would, of course, remain a necessary ingredient of the cause of action and no action would lie except in respect of words having a natural tendency to cause actual pecuniary damage.[84] The reference in s 5 and the Porter Committee report to "special damage" isto a pecuniary loss capable of objective calculation that must be pleaded and proved. It is to be contrasted with the concept of general damage, which refers to damage that cannot be objectively calculated, such as for non-pecuniary loss or future pecuniary loss. General damage is presumed as a matter of law to be the direct natural or probable consequence of a wrongful act and need not be specifically set out in pleadings.32[85] The Porter Committee's recommendation was enacted in s 3 of theDefamation Act 1952 (UK), which provided in an action for malicious falsehood it31 Report of the Committee on the Law of Defamation (London, 1948).32 Harvey McGregor McGregor on Damages (19th ed, Thomson Reuters, London, 2014) at [3-003]–[3-005]; Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Thomson Reuters, Wellington, 2011) at [2.3.1]–[2.3.2]. There are two separate senses in which the terms"general" and "special damage" are used, one relating to the nature of the loss, and the otherrelating to the pleading and proof requirement, but in the context of s 5 of the Defamation Act both meanings are in play.would not be necessary to allege or prove special damage if the words are"calculated to cause pecuniary damage to the plaintiff". This provision was copiedinto the New Zealand statute books as s 5 of the Defamation Act 1954 (NZ), which was re-enacted with modernised language in the 1992 Act.33 The phrase "calculated to cause pecuniary damage" was replaced with the expression "likely to cause pecuniary loss", reflecting the judicial interpretation of the term "calculated".34[86] An example of the application of the section is Customglass Boats Ltd v Salthouse Brothers Ltd, decided under the 1954 Act.35 In that case Customglass made an injurious falsehood by advertising to the public that it was the designer of boats that were in fact designed by Salthouse. Mahon J found it was likely that potential purchasers of boats might purchase from Customglass as a result of the advertisements, and Salthouse would lose trade.36 He awarded general damages of $500, based on a consideration of Salthouse's potential loss of design fees, but did not consider that "substantial" damages could be awarded.[87] Another example is Sallows v Griffiths.37 The defendant, Mr Griffiths, made a false statement about his business associate Mr Sallows to three recipients within their company. The statement alleged Mr Sallows had acted deceptively towards Mr Griffiths, and led to his summary dismissal at a board meeting. No damages for the injurious falsehood were available, however, because Mr Sallows had already been compensated for his wrongful dismissal through employment law mechanisms and there was no evidence he would be likely to suffer any other damage from publication to the three internal recipients.38[88] The effect of the section is that the plaintiff does not need to plead or prove specific pecuniary loss. The court will infer the existence of incurred or future pecuniary loss and damages will necessarily be at large rather than being precisely33 Defamation Bill 1988 (72–1) (explanatory note) at iv.34 Customglass Boats Ltd v Salthouse Brothers Ltd [1976] 1 NZLR 36 (SC) at 49. See more recently Tesla Motors Ltd v BBC [2013] EWCA Civ 152 ["Tesla (CA)"] at [27].35 Customglass Boats Ltd v Salthouse Brothers Ltd, above n 34.36 At 49–50.37 Sallows v Griffiths [2001] FSR 15 (CA) at [17].38 At [17].quantifiable.39 In essence, the claim may be for general damages. But as Sallows v Griffiths shows, the presumption in favour of damages is not irrebuttable.[89] Although a plaintiff relying on s 5 need not plead special damage, the pleading for general damages must be particularised. The issue of pleading sufficiency was raised in Tesla Motors Ltd v BBC, where the plaintiff was claiming general damages for malicious falsehood based on statements in a Top Geartelevision show that a Tesla electric vehicle had run out of charge, had broken brakes, and had overheated.40 The defendant said the pleading was inadequate and applied to strike it out: Tesla had baldly stated that each broadcast was calculated to cause pecuniary damage to it in respect of its business. In the English High Court, Tugendhat J said the plaintiff needed to give particulars of the alleged probable damage and the grounds relied on for saying that damage is more likely than not. For instance, Tesla might have pleaded it would likely need to incur additional advertising expense to counter the effects of the falsehoods.41 The Court of Appealsaid the pleading should identify the "nature of the loss and the mechanism by which it is likely to be sustained."42 This pleading requirement is a fundamental requirement of fairness to the defendant.[90] In the present case, Trimex simply pleaded:Trimex is presently unable to quantify the damage that it has suffered, if any (as relevant to a claim for compensatory damages).General damages are sought however in the sum of $50,000 in respect of each of the three separate Misrepresentations particularised above, being a total of $150,000.This was inadequate. Although Trimex did not need to plead specific pecuniary losses it had already occurred (ie special damage), it needed at least to allege how general damage was likely to occur.39 McGregor McGregor on Damages, above n 32, at [46-011] and [46-004]40 Tesla Motors Ltd v BBC [2011] EWHC 2760 (QB).41 At [66].42 Tesla (CA), above n 34, at [37].[91] More fundamentally, however, Trimex has not met its onus of showing the three emails are more likely than not to cause or to have caused pecuniary loss to Trimex.[92] First, in the period from the statements being made in October 2013 until trial concluded in December 2014, Trimex acknowledged it had an ongoing business relationship with each of the email recipients. There was no evidence that there had been any adverse effect on its business with those recipients since the statements were published. If there was any pecuniary loss in that period, Trimex would have been in a good position to show the recipients had refused to (or needed extra inducement to) continue with their arrangements. Trimex did not give discovery of communications with the recipients.[93] Secondly, Trimex has not explained why the recipients would be likely to have taken the statements seriously. It is entirely likely the recipients would have given little weight to an email out of the blue from BDM, especially if they were aware of the falling out and animosity between BDM and Trimex. One of therecipients seems to have taken this attitude. He replied to BDM's email: "Inrelationship with your problem with Trimex, this is not my issue and I wish you willfind a suitable solution."[94] Plainly Trimex was in a position to give immediate comfort to the recipientsof BDM's hamfisted emails.[95] Thirdly, since October 2015 Trimex has been able to mitigate its loss by informing the recipients the statements were false. It now has BDM's acceptance ofthe High Court finding that the statements were objectively false. The risk of pecuniary loss going forward is negligible.[96] Fourthly, this case is entirely distinguishable from Customglass Boats Ltd v Salthouse Brothers Ltd. In that case the statements had been advertised to the public at large. It is more difficult to identify damage in such a case. The policy of s 5 was clearly engaged. This case is quite different. The only people who seem to havereceived the falsehoods are the three recipients. They are readily identifiable. And there is no evidence they are likely to have reduced their trade with Trimex.Conclusion[97] Trimex has not shown it is more likely than not that it has or will suffer pecuniary loss. Its failure to do so means the award of $150,000 general damages must be quashed.Result[98] The appeal is allowed in part:(a) by setting aside judgment for the respondent for special damages of $1,537,643 and substituting judgment for $1,419,297; and(b) setting aside judgment for the respondent for general damages of $150,000.[99] Any issue as to practical implementation of the revised calculation of permissible deductions by the appellant is to be dealt with in the High Court, as is costs in that Court.[100] The appellant will have costs in this Court for a standard appeal on a Band A basis, together with usual disbursements.Solicitors:Whaley Garnett, Auckland for AppellantLowndes Jordan, Auckland for Respondent