HIREQUIP HOLDINGS LIMITED V CITY HIRE CENTRE (1973) LIMITED HC NAP CIV 2004-441-362

HIREQUIP HOLDINGS LIMITED V CITY HIRE CENTRE (1973) LIMITED HC NAP CIV 2004-441-362 3 October 2005IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY CIV 2004-441-362BETWEEN HIREQUIP HOLDINGS LIMITED Plaintiff AND CITY HIRE CENTRE (1973) LIMITED Defendant Hearing: 25, 26, 27 July 2005 Appearances: S L McMillan & J E St John for Plaintiff G W Calver & L Lafferty for Defendant Judgment: 3 October 2005RESERVED JUDGMENT OF MILLER J[1] The plaintiff ('Hirequip') owns equipment, tools, and machinery that it makes available to tradesmen, contractors, and the public for hire. The defendant ('City Hire') was the sole agent of Hirequip and its predecessor firms in Hawkes Bay for many years. This proceeding stems from Hirequip's decision to terminate the agency and replace it with its own branches in Napier and Hastings. [2] Both parties say their relationship is governed by a written contract of agency signed in 1995, but the initial appearance of consensus is illusory because they dispute whether they are bound by the printed agreement drafted by Hirequip or the same agreement with several hand-written amendments made by Mr Frank Tickner of City Hire. On its face, both parties have executed the agreement but Mr Tickner alone has initialled the amendments. Hirequip says that it prepared and signed the agreement, sent it to City Hire and was assured that City Hire would sign the agreement, but never received an executed copy. It claims the printed documentgoverns the parties' relationship. City Hire says it received an unsigned draft, which it amended and returned. It was then executed, first by Hirequip then by City Hire, which returned an executed copy to Hirequip. [3] The principal amendment concerned the period of notice on termination at will. The printed agreement provided for six months' notice and the hand-written amendments altered that period to 12 months. Hirequip gave six months' notice of termination on 12 February 2004, but its equipment was not returned until 12 February 2005. It also says that in February 2004 it exercised its right under the agreement to demand the immediate return of under-utilised equipment. It seeks damages in conversion. Lastly, Hirequip complains that City Hire has failed to account to it for equipment rentals that were handled as cash sales. [4] City Hire denies these allegations. It counterclaims, saying that by opening branch offices in Napier and Hastings from 1 February 2004 Hirequip breached the exclusive Hawkes Bay agency. It also claims that Hirequip has failed to pay part of the commission due to it for the period between August 2004, when the six months' notice expired, and February 2005. [5] The plaintiff's witnesses were Stuart David McKinlay, the managing director of Hirequip, Stephen Maurice Phillips, formerly chief executive of Projex Limited, Paul John Merriman, management accountant for Hirequip, and Richard William Longshaw, a computer technician of Taradale. For City Hire, the witnesses were the two principals of the firm, Frank McDonald Tickner and his son John Marshall Tickner, Keith Desmond Dolbel, a serviceman employed by City Hire, and Richard John Wimsett, a chartered accountant of Napier. [6] The first task is to determine the terms of the agency. That will resolve the questions whether City Hire unlawfully detained equipment by failing to return it in August 2004, whether Hirequip is liable to pay commission, whether City Hire was obliged to return under-utilised equipment on demand, whether City Hire had an exclusive agency, and the basis on which City Hire was obliged to account for equipment rentals. It is then necessary to determine whether Hirequip breached theagency by opening a branch office and whether City Hire failed to account for cash sales, before determining what damages are payable.The terms of the agency[7] City Hire and its predecessor firm City Hire Centre (H.B.) Limited was the Hawkes Bay agent of Hirequip and its predecessor firms since the early 1970s. In 1995 the principal was called Projex Limited. That firm subsequently amalgamated with Hirequip Holdings Ltd to form the plaintiff. [8] The original agency agreement, which is dated 29 November 1971, provided for termination by three months' notice in writing. Commission was 25% for cash hires and 20% for all other hires. It was increased in 1981 to 25% for all hires. [9] City Hire sought a five-year term for security of tenure. By letter of 26 April 1993, Projex declined the request to extend the notice period from three months to five years but agreed to consider extending it to six months. Projex also advised that it intended to introduce performance monitoring of individual items of equipment. It would be withdrawing for sale or redistribution all items not meeting pre-determined utilisation criteria. City Hire accepted the offer by letter of 27 April 1993. [10] There were further negotiations in 1994 and 1995. The 1994 negotiations arose out of Mr Phillips' concern that Mr Tickner was spreading a rumour among Projex staff that the company was to be sold. He insisted on an apology at a meeting on 24 August 1994. He also elaborated on the performance standards. Projex normally insisted on annual revenues of 240% of book value but did not expect City Hire to achieve that figure immediately. The initial performance target would be 116%. That would require City Hire to co-operate in the return of some under- utilised equipment. That proposal was accepted, and some equipment was returned. City Hire's advisors prepared minutes of the meeting. They record that Mr Phillips confirmed that "a verbal 12 months agreement" as from 17 November 1993 stood as long as performance and conduct requirements were met. In a letter of 25 August 1994, Mr Phillips also recorded that the parties had agreed Projex would prepare an agency agreement proposal that gave "reasonable termination notice".[11] Projex prepared an agency agreement in 1995. Under the agreement, City Hire was appointed as the Hawkes Bay agent of Projex for the purpose of hiring out equipment owned by Projex in accordance with Projex's general instructions for hiring. The agreement recited that Projex appointed City Hire "as the Hawkes Bay agent of Projex for the purpose of hiring out to third parties equipment owned by Projex". It was to be an exclusive agency:Operational Boundaries The agency hereby granted by Projex to City Hire Centre is an exclusive agency to hire out Projex's equipment within the Provincial boundaries of Hawkes Bay. During the term of this agreement Projex agrees: 1. Not to appoint any other agent within the Provincial boundaries of Hawkes Bay; 2. That Projex will not, and Projex will expend its best endeavours to stop, any other agent from hiring Projex's equipment to any hirer within the Provincial district of Hawkes Bay without obtaining the prior consent of City Hire Centre.[12] The agreement provided that Projex would invoice equipment hire charges:Invoicing All invoicing of Projex's equipment hire charges shall be made by Projex, Central Office, Auckland from the hire agreements forwarded by City Hire Centre to that office, or by direct entry to online computer. Credits will be passed by Projex on receipt and authorisation from City Hire Centre of a "Request for Credit" form.[13] Projex was to pay City Hire on a commission basis. The agreement provided that at the end of each calendar month, Projex would pay City Hire commission of 25 percent plus GST of the net hire charged, and 10 percent of the net hire of all other hires initiated by Projex or its agents into the provincial boundaries of Hawkes Bay.Remuneration Payment of Commission to the end of each calendar month shall be paid by Projex to City Hire Centre no later than by the 10 th day of the following month and shall be calculated as follows: (a) Where Projex equipment is stored and maintained by City Hire Centre, a commission of 25% plus GST of the net hire charged. ("net hire" shall mean the gross hire less GST, any discounts and fuel cartage etc, being expenses incurred by City Hire Centre in respect of such hire);(b) All other hires into the Provincial boundaries of Hawkes Bay initiated by Projex or its agents, 10% of net hire (as previously defined). (c) Damage waiver, 10% of the damage waiver invoiced.[14] The agreement also provided for a minimum return for each item of equipment:Equipment – Sales Performance Projex has an expectation of a minimum return on a per calendar month basis of no less than Projex average return throughout New Zealand in respect of all Projex owned equipment stocked by the agent. The month return percentage shall be calculated as follows: Sales per month x 100 __________________________________ Equipment book value at month end The parties are agreed that any equipment not achieving the above minimum return whilst stocked by City Hire Centre will be subject to review on a quarterly basis and may be withdrawn from City Hire Centre's possession after joint consultation between the parties hereto, but at the final discretion of Projex[15] In the version of the agreement that Mr Tickner amended the italicised words have been crossed out. They have also been crossed out on a copy of the agreement signed by Messrs Phillips and Hanvey (but not witnessed, nor signed by City Hire) and retained by Projex. In the end, neither party attached significance to this version, the existence of which the witnesses could not account for. [16] The agreement provided for review. Mr Phillips' evidence was that this clause was inserted because City Hire was the worst-performing of all 15 of Projex' branches and agencies:Review This Agreement is subject to a 6 monthly performance review calculated from the date of this agreement. Such review will be based upon the conditions set out in this agreement and subject to any amendments or alterations agreed to by the parties hereto in writing by way of addition or amendment to this agreement.[17] The agreement also provided for termination at will:Termination This agreement may be terminated by either party giving 6 months prior notice in writing to the other party and upon the expiration of such 6 months notice, this agreement shall be at an end and neither party shall have had any right or claim against the other except that City Hire Centre covenants to forthwith return to Projex all plant equipment and chattels belonging to Projex at the end of the 6 months referred to in such notice.[18] Mr Tickner struck out the references to 6 months' notice in each of these provisions and substituted 12 months. [19] Mr Phillips' evidence was that he prepared the agreement following negotiations, executed it, and sent it to Mr Tickner. Mr Phillips and Mr Martin, Projex' Equipment Manager, signed the agreement, and the company secretary, Mr Hanvey, witnessed their signatures. Mr Phillips had little specific recollection of the sequence of events but the covering letter confirmed that the document sent to City Hire was executed because it stated that two copies were enclosed and invited Mr Tickner to "co-sign one copy and return to me". There were no hand-written amendments made to the agreement that he signed, and had there been he would have initialled them. He referred to a note made by a Projex employee recording that Mr Tickner had said, apparently in a telephone conversation, that the agreement would be signed and returned within a few days. He did not follow up on the missing agreement. Mr Phillips remained at Projex until mid-1996 and there were no further discussions with City Hire regarding the agreement. He did not agree to the amendments made by Mr Tickner; indeed, he did not know of them until very recently. He had made it clear in negotiations that he would not accede to Mr Tickner's request for more than six months' notice. [20] Mr Tickner said that he received the draft agreement, as he described it, from Projex but was unhappy with the termination provisions. He amended the agreement and discussed it with Mr Hanvey. He spoke to him because Mr Phillips had gone overseas. He explained that City Hire wanted a 12 month notice period to provide some security of tenure. Mr Hanvey told him to make the proposed amendments to the draft and send it back to Projex. Mr Tickner said he did that and subsequentlyreceived from Projex a signed amended agreement for execution by City Hire. He executed it in the presence of his accountant, Mr Wimsett, and he sent a copy of the completed agreement to Projex. In cross-examination, however, Mr Tickner was unsure on matters of detail. He could not be sure whether the agreement was signed before he amended it. [21] Mr Wimsett recalled witnessing the agreement but he was unable to say when. He recalled Mr Tickner told him Projex had agreed to 12 months' notice but accepted that may have been said about the time of the August 1994 meeting, which he attended. He identified the document containing Mr Tickner's amendments as the document that he witnessed. [22] Mr Tickner says his account is confirmed by minutes of the meeting on 24 August 1994, in which Mr Phillips is recorded as saying that a verbal 12-month agreement as from 17 November 1993 stood as long as performance and conduct requirements were met. Mr Phillips did not see the minutes, which are unsigned, until very recently, and he thought the writer probably misunderstood the discussion. But taking the minutes at face value, he accepted that he may have given such an assurance for one year only. [23] I am satisfied that Projex executed the agreement before it was sent to Mr Tickner. It follows from this conclusion that Projex did not adopt the hand-written amendments that Mr Tickner made. Both men were credible witnesses but I found Mr Phillips' evidence more reliable. Mr Tickner was vague on matters of detail. The covering letter accompanying the agreement clearly indicates that Projex had signed both copies. Had the unsigned agreement been returned with hand-written amendments it would have been a simple matter to incorporate the amendments on Projex' word-processing system before execution. It is unlikely that Projex would have adopted the amendments without initialling them as Mr Tickner did. I do not accept that the August 1994 minutes, which Mr Phillips had not seen until recently, record agreement to 12 months' notice. At most they record that the agency would not be terminated without cause before November 1994.[24] I incline to the view that Mr Tickner forgot to return the agreement to Projex. Had it been returned, there would be some record of it and some evidence of a response. Mr Phillips had made it plain in negotiations that he would not agree to a 12 month term. Whether or not it was returned, however, I am satisfied that Projex did not accept Mr Tickner's amendments. [25] Accordingly, I reject Mr Calver's argument that the parties are bound by the amended agreement. [26] Ms McMillan argued that the parties are bound by the original agreement, relying on Mr Phillips' insistence that its terms were not open for further negotiation and a hand-written note, apparently made by Mr Hanvey, of a telephone conversation in which Mr Tickner is recorded as saying that he would sign the agreement and return it within the next few days. I reject this submission. The evidence of the hand-written note is strictly inadmissible, and in any event it does not establish that Mr Tickner had agreed to sign the agreement and return it without amendment. On the contrary, I am satisfied that he told Mr Hanvey he wanted a 12 month term and was told to make the amendments and return the agreement to Projex. He made the amendments at that time and Mr Wimsett witnessed Mr Tickner's signature. These actions are not consistent with acceptance of Projex' insistence on a six-month notice period. [27] These findings invite the conclusion that the parties failed to reach agreement and continued to be bound by the original agreement as amended in 1993 and 1994. However, both parties maintained that the balance of the agreement was adopted in practice. For example, Mr Tickner accepted that Projex had recovered under-utilised equipment under the agreement from time to time before it was taken over by Hirequip. He also explained that City Hire ceased to make cash hires from 1995, opting instead to supply its own equipment for that purpose. He understood that the agreement did not allow for cash hires. That development coincided with Projex' recovery of a significant quantity of equipment. City Hire also relied on the exclusive agency provisions. Ms McMillan argued that in circumstances where the parties had adopted the agreement, including the provision for termination on notice,but had not agreed the notice period, then a reasonable period must be implied into the agreement, referring to Devonport Borough Council v Robbins [1979] 1 NZLR 1. [28] I accept this submission in the circumstances. The parties did not agree on the period of notice but they otherwise negotiated and in practice adopted the agreement, including its provision for termination on notice. The only outstanding matter is that of the period of notice. When parties intended to enter an immediate and binding agreement, the Court will do its best to give effect to that intention:Attorney-General v Barker Bros. Ltd [1976] 2 NZLR 495, 498-9. If satisfied that the parties intended to be bound, the Court will strive to find a means of giving effect to that intention by filling the gap: Fletcher Challenge Energy Limited v Electricity Corporation of New Zealand Limited [2002] 2 NZLR 433 at para 60. This is not a case in which the agreement expressly reserved the question of notice for future agreement: Barrett v IBC International Limited [1995] 3 NZLR 170, 177. Accordingly, the Court may rectify the parties' omission by implying a reasonable period of notice into the agreement. [29] I accept Ms McMillan's submission that six months is a reasonable notice period. It is twice the period included in the 1971 agreement, and City Hire accepted six months' notice in the 1993 negotiations. I consider that it is a reasonable period in which to arrange for removal and rebranding of equipment and its replacement. Mr Tickner's concern for a longer period was motivated not by such practical considerations but rather by his wish for security of tenure. [30] That being so, the six months' notice of termination given by Hirequip on 12 February 2004 was effective, and City Hire was not entitled to retain the equipment on expiry of that notice.Second cause of action: conversion after 12 August 2004[31] Hirequip gave notice by letter sent on 21 January 2004 that it no longer required City Hire's services. However, it asserted in that letter that, effective 28 January 2004, all Hirequip plant held by City Hire would be relocated to Hirequip's new Napier branch. Mr McKinlay's explanation for the deliberate breach of what heunderstood to be an agreement requiring six months' notice was that he wanted to negotiate a commercial settlement. To that end he initially maintained that there was no agreement and insisted that termination would take effect immediately. [32] City Hire resisted. By letter of 12 February 2004, Mr McKinlay accordingly gave notice that Hirequip would terminate the agency agreement in six months' time, on 12 August 2004. [33] Mr Lafferty did not dispute that the termination notice was a demand for return of Hirequip's equipment on the expiry of that period of notice. He confirmed that City Hire's only defence to the claim in conversion was that the notice period was 12 months. Accordingly, I find that City Hire unlawfully detained Hirequip's equipment by refusing to return it after 12 August 2004. Detention continued until 12 February 2005, when the equipment was returned. [34] Where the defendant has converted a profit-earning chattel and used it for its own benefit, the owner can recover damages by way of a market hire charge: Strand Electric and Engineering Co Limited v Brisford Entertainments Limited [1952] 1 All ER 796, Hillesden Securities v Ryjak Limited [1983] 2 All ER 184, Modern Transport Engineers Limited v NZ Building Removals Limited (HC Auckland, AP 31-SW01, 12 June 2001, Rodney Hansen J). [35] The authorities are divided on the question whether damages of this kind are compensatory or restitutionary in nature. Under the restitutionary approach, damages are determined by reference to the benefit to the wrongdoer. Under the compensatory approach, they are confined to the plaintiff's loss. Under the latter approach the plaintiff must give credit for costs that it would have incurred in earning the lost income: Nauru Local Government Council v New Zealand Seamen's Industrial Union of Workers [1986] 1 NZLR 466. [36] The restitutionary approach is founded on the principle that a wrongdoer cannot profit from his wrongdoing: Kiwi Packaging Limited v Isaac (1997) 8 NZCLC 261, 399. The compensatory approach holds that the aim of damages is to compensate the aggrieved party, and recognises that there is no necessary correlationbetween the plaintiff's loss and the defendant's gain: Strand Electric and Engineering Co Limited v Brisford Entertainments Limited (above). It has also been held that the approach to damages for wrongful use of property may combine elements of both: Roberts v Rodney District Council [2001] 2 NZLR 402 at para 28. In Gardiner v Metcalfe [1994] 2 NZLR 8, 12, Cooke P held that, while the main settled principle governing damages in conversion is that of restitution, damages in the end are always a question of fact dependant on the particular circumstances, and factors such as foreseeability and directness may have to be weighed in what is essentially a balancing process. A plaintiff may elect whether to recover compensation or to require the defendant to disgorge a benefit gained: Laws of New Zealand: Restitution, para 86. [37] Counsel did not address the measure of damages before me, but Hirequip clearly elected the compensatory approach by seeking damages in the form of revenue that it would have earned had the equipment been returned to it on 12 August. That being so, credit must be given for costs incurred in earning the revenue, to the extent that they are costs that Hirequip would not have incurred in any event. [38] Hirequip claimed damages for the six months in which City Hire detained the equipment by calculating the difference between the actual revenue earned by City Hire and the revenue that Hirequip says it could have earned by renting the equipment itself. The revenue that it could have earned is said to be the Hirequip average return on equipment of the relevant group or class, calculated by dividing all revenue earned in the 2003 calendar year by the book value of all equipment in the relevant group as at 31 December 2003. Hirequip's case is that it would have achieved the average return, either in Hawkes Bay or by moving equipment to areas where there was a demand for it. Mr Merriman, who impressed me as a careful and reliable witness, accepted in cross-examination that where larger equipment might have been taken to other areas there would have been a delay of up to a month in renting it. Subject to that qualification, the evidence that Hirequip would have achieved the average return was not challenged in cross-examination, and I accept it subject to the same qualification.[39] The sum claimed was $116,307.55. This sum, as I understand Mr Merriman's evidence, represents gross revenue. Apart from delays in renting the equipment, Hirequip would have incurred expenses in relocating and hiring the equipment, such as cartage and perhaps fuel, for which no credit was given in his calculations. Such expenses must be deducted unless Hirequip would have incurred them in any event. The evidence does not allow me to form any reliable estimate of these items, or of the necessary deduction that ought to be given for delays in renting larger equipment moved to other regions. [40] For reasons outlined below there will need to be an inquiry into damages in any event. That inquiry will extend to any expenses that ought to have been deducted from the sum of $116,307.55, and the deduction for delays in renting equipment moved from Hawkes Bay to other regions.First cause of action: failure to return non-performing equipment in March 2004[41] Hirequip pleads that City Hire converted all of its equipment in City Hire's possession by refusing to return it in March 2004. It says that it was entitled to the return of these machines under the 1995 agreement because they were under-utilised. As already outlined, the 1995 agreement provided for a monthly calculation of revenues earned by each item of equipment as a percentage of its book value. That was benchmarked against Hirequip's average return throughout New Zealand in respect of all Hirequip-owned equipment stocked by City Hire. [42] Mr Merriman carried out an equipment return for City Hire for the 12 months to 31 December 2003 in which he compared City Hire's performance to Hirequip's average return. That showed a number of pieces of equipment were earning a return, expressed as a percentage of book value, that was materially less than Hirequip's company-wide average. By memorandum of 16 February 2004, Mr Merriman recommended to Mr McKinlay that 14 items be removed from Napier. Mr Merriman's evidence was that after providing his report to Mr McKinlay, the two men met and resolved to withdraw 11 of the items concerned.[43] Mr Merriman understood that notice of Hirequip's requirement that the 11 items be returned was given on 26 February 2004. The demand was made by letter of that date from Hirequip's solicitors. Contrary to Mr Merriman's understanding, but presumably on Hirequip's instructions, it included more than 100 items representing almost all of the Hirequip equipment held by City Hire. The letter said that calculations had been made in relation to the equipment listed but did not give any information about them. It demanded return of the equipment within seven days. Before sending the letter Hirequip seized an opportunity to recover one item from the list, a self-propelled roller, that was located at the Port of Napier. [44] By letter of 3 March 2004, Mr Lafferty asked for particulars of the calculations that Hirequip relied on to activate the performance clause in the 1995 agreement. Mr Lafferty noted, and Mr John Tickner confirmed in evidence before me, that Hirequip had not invoked the performance clause since acquiring Projex. Accordingly, City Hire did not know anything about Hirequip's calculations. The request for information was ignored. [45] The 1995 agreement provided for joint consultation between the parties before any equipment was withdrawn. On the facts, there was no such consultation. I also accept Mr John Tickner's evidence that Hirequip did not advise City Hire at any time of its average return throughout New Zealand, whether in relation to individual classes of equipment or all of Hirequip's equipment of the kind stocked by City Hire. Accordingly, City Hire was never told of the benchmark against which Hirequip had assessed its performance. [46] Mr McKinlay's evidence in chief was that, in accordance with Hirequip's usual business practice, Hirequip regularly reviews the performance of all branches. During 2003, as part of that review process, it became apparent to him that some of the equipment held by City Hire was not reaching sales performance targets. He accordingly asked Mr Merriman to prepare the performance analysis. I regret to say that I did not accept his evidence in that respect. Mr McKinlay had not previously undertaken such a review in relation to City Hire, or if he had done so he had not communicated the results to City Hire. Mr Merriman's evidence was that he was asked to prepare the report at the beginning of February 2004 with a view todetermining which items should be withdrawn under the sales performance clause. The date is significant. City Hire had resisted Mr McKinlay's attempt to terminate the agency immediately, insisting on notice. I am satisfied that Mr McKinlay's motivation for invoking the performance clause was his decision to terminate the City Hire agency. It had nothing to do with an annual review of equipment performance and everything to do with Hirequip's very recent acquisition of a firm called Readyhire, which had branches in Napier and Hastings. I am confirmed in that view by Hirequip's decision, contrary to Mr Merriman's recommendations, to demand return of almost all of its equipment. Nor did Hirequip respond to City Hire's perfectly reasonable request that the performance data be disclosed. City Hire was in no position to know what average return Hirequip was achieving on a national basis. Lastly, Hirequip wholly ignored the requirement for consultation. A right to consultation must be meaningful and cannot be treated as a mere formality. I do not think that the contractual context affects that principle. The essence of consultation is that the person consulted must be given relevant information and a reasonable opportunity to make representations, and the decision-maker should give genuine consideration to those representatives: Port Louis Corporation v Attorney-General of Mauritius [1965] 3 WLR 62, 72 (PC). None of those requirements was satisfied in this case. [47] Ms McMillan pointed to a second amendment to the agreement. As discussed in paragraph [15] above, Mr Tickner struck out the words "but at the final discretion of Projex.". She argued that these words formed part of the agreement and rendered immaterial any failure to consult, since the outcome of consultation was inevitable. I reject this submission. Mr Tickner did not accept those words, which I infer were struck out when he amended the agreement, and there is no basis on which they could be implied into the agreement. In any event, they do not qualify in any way the prior obligation to consult. If anything, they make it more important. [48] In the circumstances, City Hire did not breach the agreement by refusing to return the items listed in the demand of 26 February 2004. On the contrary, Hirequip breached the agreement by demanding return of equipment without consultation and regardless of actual equipment performance.[49] The first cause of action fails.Third cause of action: failure to account for cash hires[50] Many hires, particularly for larger equipment, are made to account holders who Hirequip bills monthly. Other sales are called cash sales because the customer must pay for the equipment by credit card, eftpos, or cash, at the time of hire. Hirequip says that, by volume, around 50% of hires nation-wide are cash hires. They amount to approximately 20% of revenue. [51] City Hire has declared no cash hires to Hirequip. Mr Frank Tickner said the firm did not make any cash hires using Hirequip's gear; rather, it used its own equipment. Hirequip claims that City Hire did make cash hires using Hirequip's gear but failed to account for them. This is a serious allegation and it calls for clear evidence. [52] The 1995 agreement does not refer specifically to cash hires but it does provide that all invoicing of Hirequip's equipment is to be made by head office from invoices or by direct entry to online computer. City Hire did not have the facility to make direct entries by computer. The agreement is consistent with an expectation that City Hire would not make cash hires, because cash hires would not be invoiced by Head Office. They are not invoiced at all, because payment is made at the time of hire. [53] I accept, however, that the agreement certainly does not envisage that City Hire could make cash hires of Hirequip's gear without accounting for them. Notwithstanding Mr Calver's argument to the contrary, the case for an implied term to that effect would be compelling if City Hire did in fact hire Hirequip's gear on a cash hire basis. [54] Mr McKinlay and Mr Merriman gave evidence about the pattern of cash hires for equipment of the classes held by City Hire, based on experience at all other branches. The average was 5.5% of revenues. This figure is lower than the national average of 20% for all cash sales because City Hire had less of the smallerequipment that is frequently hired on a cash basis. Mr Merriman broke the 5.5% down into detailed classes applicable to each item held by City Hire. He applied the expected cash hire percentage for each class to actual revenues declared by City Hire since 2001 on equipment that was known to be available for hire since City Hire had let it to account customers. He was not able to go back further than 2001 using Hirequip's records. It is Hirequip's case that it is inconceivable that City Hire has not been making cash hires of its equipment. Even account customers make cash hires, using a credit card for example, and large equipment is commonly hired on that basis. [55] For purposes of this hearing Hirequip organised a 'sting' involving Mr Longshaw. On 28 February 2004 he hired a pedestrian roller from Mr Dolbel at City Hire. He said he paid cash and was given a City Hire cash sale docket that made no reference to Hirequip. However, the machine he was given was a Hirequip machine. A City Hire employee was told to help him with "the" roller and attached its trailer to his car. He saw no other roller. City Hire did not account to Hirequip for the hire. [56] In response, Mr Dolbel said that the machine Mr Longshaw ought to have taken was City Hire's. City Hire had two rollers alongside one another in its yard and Hirequip owned only one of them. He thought he left Mr Longshaw to hook the roller up to his car as City Hire was short-staffed that day, but told Mr Longshaw to take the City Hire roller. There was no other employee present as John Tickner and the other employee were otherwise engaged at the time. John Tickner and Mr Dolbel both confirmed that City Hire hired out Hirequip gear only to account holders and never on a cash sale basis. [57] I am satisfied that City Hire had a policy of not making cash hires of Hirequip equipment. I accept the evidence of the Tickners and Mr Dolbel, all of whom were credible witnesses, in that regard. City Hire had long opted to supply its own equipment, particularly smaller equipment, and that became more pronounced when Projex began to recover under-utilised equipment in 1995. From that time City Hire did not make cash hires. There were instances, particularly with larger equipment, when the policy meant that a customer who did not have a Hirequipaccount was sent away, but Mr Frank Tickner's evidence that City Hire chose to do that was not shaken in cross-examination. [58] The allegation that City Hire must have made cash hires of Hirequip's gear depends largely on the fact that it would be economically rational to do so where there was a customer demand, but the Tickners did not conduct themselves in that way. They impressed me as decent people who undoubtedly understand the operational side of their business very well, but they do not pay close attention to the financial performance of their equipment. They did not record hire data so as to permit calculation of monthly revenues, let alone profitability, for individual items of equipment. They appear to lack good management information systems; they depended on Hirequip's commission payments to tell them what their gross revenues were. They were not able to enter hires online, as the 1995 agreement envisaged, but had to post hire agreements to Hirequip. There is no evidence that they based decisions to acquire their own equipment on an analysis of its holding costs, or calculated the opportunity cost of their policy of not making cash hires using Hirequip's equipment. They seem not to have appreciated that a policy of not making cash hires of Hirequip's gear might result in Hirequip earning unsatisfactory returns. [59] The cash hire to Mr Longshaw did involve a Hirequip machine. He too was a credible witness. He had every reason to recall the details and no axe to grind. I am satisfied that Mr Dolbel, who had no reason to recall the hire, must have been in error when he said that there was no other employee present. It was a busy day because the firm was working at the annual Mission concert venue. The most likely explanation is not that Mr Dolbel deliberately directed Mr Longshaw to a Hirequip machine, but that he made an error by failing to tell the other employee that it was a cash hire. [60] The third cause of action fails.Counterclaim: breach of exclusive agency[61] The branch offices in Napier and Hastings were acquired as part of Hirequip's purchase of Readyhire. The sale was settled on 28 January 2004. Hirequip planned to replace City Hire with the new branches. Mr McKinlay explained that he gave notice of termination to City Hire on 21 January 2004 in anticipation of taking possession of Readyhire. Hirequip has run the branches since taking them over, although it took some months to begin using its own invoicing systems and to re-brand the equipment. I accept that Hirequip owns the two branches and runs them as Hirequip branches rather than as agencies. [62] Hirequip says the agreement does not preclude setting up a branch office. City Hire says that it does, relying on a purposive construction. It further argues that, whether or not it was entitled to set up its own branch, Hirequip was obliged to account to City Hire for 10% of 'net hire' on all of its equipment hired in Hawkes Bay otherwise than through City Hire. [63] Ms McMillan made the point that the new branches did not add further hire capacity in Hawkes Bay. All that happened was that Hirequip took over Readyhire's existing branches and stock. Accordingly, she submitted, City Hire was no worse off. There are two answers to that submission. The first is that it employs an erroneous reference point. The question whether City Hire suffered a loss is answered not by determining whether Hirequip introduced new capacity into the industry in Hawkes Bay but by considering whether it breached the terms of the agreement. The second is that the submission assumes that Hirequip continued to conduct its relationship with City Hire as it had always done. On the facts, that is not so. John Tickner's evidence, which I accept, was that after setting up the new branches Hirequip refused to supply equipment to City Hire and refused to supply parts for equipment that City Hire had in its possession. [64] The question whether an agency prohibits the principal from appointing any other agent or selling the goods itself is one of construction of the agreement: W T Lamb & Sons v Goring Brick Co Limited [1932] 1 KB 710.[65] In this case, the clause quoted at paragraph [11] above provided for "an exclusive agency" and recorded that Hirequip had agreed not to appoint "any other agent". 'Agent' is a term of flexible meaning. As a company, Hirequip can act only through the human agency of its employees and contractors. But in this context, the agreement not to appoint any 'other' agent suggests the parties had in mind another independent firm such as City Hire itself. [66] If the agreement rested there, I would accept that it did not preclude hires by Projex (now Hirequip) itself. However, the remuneration clause (para [13] above) envisaged that agents located outside Hawkes Bay, or Projex itself, might initiate hires "into" Hawkes Bay and if so would pay a commission to City Hire. So the agreement envisaged that Projex equipment might be operated on hire in Hawkes Bay either through City Hire or by Projex or another agent initiating a hire from outside the region, but not otherwise. For this reason, I accept Mr Calver's submission that the agreement did not envisage that Projex might set up its own branches within Hawkes Bay. It is also necessary to bear the commercial context in mind. While Hirequip prefers to operate through branches, Projex operated a number of agencies, and Mr Phillips said it had no plans to set up its own branch in Hawkes Bay. Had it wished to do so, it could have terminated the agency at will on giving notice. [67] Accordingly, I find that Hirequip breached the exclusive agency by setting up two branches within Hawkes Bay before the six month notice period had expired. [68] The agreement also provided that commission was to be paid to City Hire on the basis that it received 10% of the net hire of "all other hires into the provincial boundaries of Hawkes Bay initiated by Projex or its agents". The term "net hire" was defined to mean the gross hire less GST, any discounts and fuel cartage etc being expenses incurred by City Hire in respect of such hire. Ms McMillan submitted that this provision did not apply because it is concerned with hires of equipment "into" Hawkes Bay and not those made by Hirequip within Hawkes Bay. It follows from my conclusion above that I reject this submission. The agreement used "into" only because it did not envisage that Projex would set up a branch or agency in Hawkes Bay.[69] I find that Hirequip breached the agreement by opening branches and hiring equipment in Hawkes Bay from 28 January 2004 and hiring equipment in Hawkes Bay, whether through its own branches or other agencies, without accounting to City Hire for 10% of the net hire. [70] City Hire pleaded that it suffered loss and damage of an unquantified sum believed to be in the vicinity of $60,000 as a result of these breaches. The pleading is generally framed, but I accept that it is apt to cover both opening of branches and non-payment of commissions. In particular, paragraph 2 of the counterclaim refers to both of the relevant clauses of the agreement. I accept Mr Calver's submission that there will need to be an inquiry into damages suffered by City Hire.Counterclaim: failure to pay commission[71] City Hire complains that Hirequip failed to pay commission due for the months of December 2004 and January 2005 and the first 12 days of February 2005. Hirequip did pay for the months of August-November; Mr McKinlay's explanation for doing so was that Hirequip was trying to reach a commercial settlement with City Hire at the time. [72] This claim presupposes that the prescribed period of notice on termination is 12 months. I have found that it was six months; accordingly, this claim fails.Result[73] The plaintiff has failed on its first cause of action but succeeded in conversion under the second cause of action. The plaintiff's equipment ought to have been returned to it not later than 12 August 2004. It was not returned until 12 February 2005. There will be an inquiry into Hirequip's damages as outlined in paragraphs [39 and 40] above. The plaintiff has failed on its third cause of action. [74] The defendant has succeeded on its first cause of action. There will be an inquiry into damages. The defendant has failed on its second cause of action.[75] As both parties have succeeded in part, it may be that costs should lie where they fall. However, I propose to reserve costs until the question of damages is finally resolved. Delivered at 2.00 pm this 3rd day of October 2005. F Miller JSolicitors:Anderson Lloyd Caudwell, Dunedin for Plaintiff Leo Lafferty, Napier for Defendant