Nicky Elleet is a famous Australian model. In recent years she has not been offered as many fashion assignments as she had in the past. “Oh well,’’ she thought, “time to move on”. She decided to try and use her media profile to move to the next stage of her career. To that end she decided to go into the skin care business and create a range of ‘Elleet’ skin care products. To achieve this she would need to engage a manufacturer to produce the products and a laboratory that could create the formulas for her unique range. She would also need to convince retailers to agree to stock her products in their stores.
She commenced discussions with AuzLotion Pty Ltd a company specialising in the bulk manufacture of creams and lotions. She made it clear that she needed the manufacture of the products to proceed quickly as she wanted them in the shops for Christmas 2015. The negotiations resulted in Nicky and AuzLotion signing the following letter of intent on 1 August 2015:
Letter of Intent
1. Having completed negotiations, Nicky Elleet and AuzLotion Pty Ltd agree to sign a formal Contract to reflect the following.
2. Pursuant to this letter AuzLotion will manufacture a skin care range of lotions and creams for sale to Nicky with a view to Nicky on-selling the products to retailers.
3. The products will be manufactured according to formulas to be supplied by SkinCare Laboratories Pty Ltd. AuzLotion agree to contract with SkinCare for the development and supply of these formulas.
4. The price for the manufacture of the products will be determined by AuzLotion.
5. Nicky in her absolute discretion has final approval of all products and agrees to execute a formal manufacturing contract giving effect to these terms.
6. This agreement is for a ‘first run’ which will involve manufacturing 100,000 units reflecting the range of formulas provided by SkinCare to Auzlotion but actual numbers of any particular product in the range is at the discretion of AuzLotion. The parties agree to negotiate a further agreement for a second run.
7. This agreement is subject to Nicky locking in contracts with retailers to her satisfaction.
AuzLotion entered into a design contract with SkinCare Laboratories on 16 August 2015. SkinCare formulated a set of preliminary formulas for a range of products and sent them to Auzlotion on 15 September 2015. There was enough detail in these for AuzLotion to get started on the manufacture. AuzLotion forwarded a copy of the specifications to Nicky and let Nicky know they had commenced preliminary aspects of the manufacture and that in their view the quality of the products looked excellent. Nicky phoned the manager of AuzLotion to thank him for getting things moving so quickly and said, “the products look great, but what would I know, ha, anyway great news I have two small retailers already locked in”.
Two weeks later the final formula specifications arrived. They contained some minor changes that could be easily incorporated into the work AuzLotion had done. AuzLotion then went about assessing the price. They arrived at a figure of $2 million for the first run. By this stage they had incurred $150,000 in costs.
Nicky was informed of this price and took the view that it was too high. She has also not been able to lock in a contract with the major department store that she had met with. They had told her that they were not prepared to devote a large section of their stores in the Christmas period to a whole range of new products that were unknown to buyers. They had suggested they might be prepared to stock one product. Nicky was dispirited with this news and cancelled the meetings she had arranged with other major department stores. She made the decision that it was too ambitious to create an entire range of products at this early stage. She decided to focus on one product and thought that if she had to choose one thing that would attract some public attention it was sun care and so she independently called SkinCare to ask whether they could create a moisturising sun cream; this was not part of the initial range of formulas. In a follow up meeting with Skincare, AuzLotion was told that Nicky had asked them to develop a sun cream because she had had problems with some larger stores. AuzLotion heard nothing from Nicky and kept manufacturing the products as per the original formulas. By mid November they completed the manufacture of the first run of products.
Nicky refused to pay for the products produced by AuzLotion or take delivery of them. She claimed there was no contract obliging her to pay for them and, moreover, she had not approved the specifications. Moreover, she just got offered a role in a movie and had decided to pursue an acting career instead.