About Life Pty Ltd v Maddocks Lawyers

Effect on The Natural Grocery Co

1. After receiving Woolworths' letter of demand, Ms Phillips contacted the chairman of The Natural Grocery Co and informed him of developments. Ms Phillips said that they were half way through the due diligence process when the Double Bay sale failed. On 7 June 2017, documents from these proceedings were collated for The Natural Grocery Co's review.
2. As it happened, Maddocks were also the solicitors for The Natural Grocery Co. One of Mr McNee's partners, Duncan Hall, told Mr McNee that The Natural Grocery Co had an interest in buying About Life and asked whether About Life would have a problem with the firm acting on both sides of the transaction. Mr McNee obtained instructions from Mr Green, who said that he was 'shopping the market' as selling About Life, which was struggling financially but still operating, would be getting it 'out of a hole' and also be the best option for Mr Green. On 29 May 2017, Mr McNee made the necessary arrangements to put a 'Chinese wall' in place at the firm.
3. I note from Mr McNee's conversation with Mr Green on about 29 May 2017 that Mr Green's preference was to sell the business to The Natural Grocery Co rather than continue to operate the business. Woolworths' opposition to the sale of the Double Bay store to Harris Farm notified four days' earlier may well have contributed to Mr Green's preference.

Effect on suppliers

1. Ms Phillips said, whilst she had told suppliers that About Life was currently in the process of re-capitalising and expected money to come in soon so About Life could get payments back on terms, after the sale fell through she and Mr Ross-Edwards contacted About Life's top 100 suppliers and advised them that the sale of the Double Bay store to Harris Farm was not proceeding. Woolworths was going to take Harris Farm and About Life to court to try and stop the sale from going ahead, which meant that About Life would not be able to pay suppliers' outstanding invoices as expected. About Life was working on a solution but timing was up in the air. Ms Phillips had been telling suppliers that About Life had a solution and a date for payment, and now did not have either. This is confirmed by Ms Phillips' email to her directors on 8 June 2017: Our cash situation is extreme - further compounded by the fact that we have been telling the supply chain that the [Harris Farm] sale will allow us to get back into terms - now there are whispers this won't happen - we are daily dealing with more on holds, changes to trading terms from 60 days to 7 days and even pro-forma. The supply chain are nervous and right now we can't give them certainty. Our sales are declining daily. …
2. Mr Ross-Edwards described the disruption of the Double Bay sale as a catastrophic event in terms of suppliers, affecting revenue as "we had to tell our suppliers that we were no longer getting that $10 million and … from that point on … they lost all [confidence] because they had no certainty of when they may get paid after that date. … It was in the last week of May that we had to tell them. We had to tell them." Mr Ross-Edwards said, without exception, the suppliers' responses conveyed their disappointment and deflation at the news.
3. Mr Ross-Edwards said, "As soon as that letter arrived from Woolworths, … that was it." From then on, suppliers increasingly told About Life that they were no longer willing to supply unless their account was fully paid or unless cash was paid on delivery. Mr Ross-Edwards said sales revenue in June 2017 "fell off the map because of suppliers."
4. Ms Phillips said the court proceedings created further uncertainty; the court proceedings were the subject of enquiry by suppliers in most communications at that time. Ms Phillips believed that the litigation and About Life's deteriorating cashflow caused suppliers to become sensitive to delays in payment.

Effect on the bank

1. On 2 June 2017, the bank reviewed About Life's position, including with the assistance of risk officer, Mr Chapman. The bank had obtained additional information from the client, being forward quarterly estimates, and had conducted its own sensitivity analysis. Based on this work, bank officers considered that the leverage covenant would be 1.09 for September 2017 and 1.01 for December 2017 whilst the interest coverage ratios would be 6.08 and 7.09 respectively. "This implies adequate headroom under a scenario where we decrease management earnings estimate by 20% and increase interest expenditure by the same margin. Debt is aligned with management estimates within our analysis."
2. Mr Chapman noted that, whilst Double Bay had been the best performing store, the remaining stores generated sufficient EBITDA such that covenants were expected to be easily met after June 2017. "The $5m reduction is agreed as recommended …". Mr Chapman expected there would be a further breach of covenant in June 2017, with the position to be assessed at that time depending on sale progress. Again, it does not appear that the bank communicated to About Life that it would require $5 million from the proceeds of sale.
3. On 8 June 2017, Mr Green informed Mr McNee and Mr Atkin that he had asked the bank for more funds, "The bank said no to more capital." Ms Phillips also updated Mr Beecroft and Mr Green on her discussions with Woolworths, Harris Farm, the bank and The Natural Grocery Co. As to the bank, Ms Phillips advised: They have extended our deadline to pay down the $4mill debt to 14th August - acknowledging that we will either have the $10mill after the court hearing or at least have more clarity on when we should have it. Further they acknowledge our progress with [The Natural Grocery Co] and this gives them some more comfort that we are working on solutions … The bank will not lend us any additional funds - not negotiable
4. Ms Phillips said that she spoke to Mr Morales at the time, and he told her that his team would be fine if the settlement stretched out to mid-August as he did not need to report any covenant breach to head office for the June 2017 quarter until after 14 August 2017, when About Life's compliance reports were due. Assuming the Double Bay sale had settled by then, he would be reporting the breach to head office but also reporting a significant repayment of the debt and recapitalisation of the business. Ms Phillips' email confirms that she remained of the understanding that $4 million from the proceeds of sale would be paid to the bank, and Mr Morales had not disabused her of that notion.
5. In her email, Ms Phillips also advised Mr Beecroft and Mr Green that The Natural Grocery Co was "across the issues" and continuing with the due diligence - "we are close to the end with it" - with some discussion about the possibility of The Natural Grocery Co buying one or two stores as an asset sale during this period. Ms Phillips considered that there was no doubt that these proceedings would go to final hearing, that the bank would give About Life breathing space to repay the debt, and that $2 million was needed to get the company through this period. Consideration was being given to approaching Woolworths for a loan or selling assets to The Natural Grocery Co.
6. On 9 June 2017, Ms Phillips and Mr Ross-Edwards updated the bank. Mr Morales' note records: (emphasis added) Bottom line is, About Life will continue to receive $10m for Double Bay, however it may take a little longer than expected noting the court case. Another update provided by management is that [T]he Natural Grocery Company had made a takeover offer of About Life for ~$13.5m. 95% of due diligence undertaken and transaction is likely to go ahead once the court case above is finalised.
7. Again, it appears from the bank's note that About Life was minded to accept the Natural Grocery Co's offer of $13.5 million.

Assistance from Woolworths?

1. On 14 June 2017, Harris Farm advised it intended to file a cross-claim against About Life, seeking damages and an injunction restraining About Life from assigning the Double Bay lease to Woolworths. It is reasonably clear that Harris Farm was not interested in damages from About Life but getting the Double Bay site. On 15 June 2017, Woolworths informed Mr Green that it was prepared to offer $11 million for the site. Harris Farm considered that it would succeed at trial whilst Woolworths was desperate to keep Harris Farm out of the site.
2. Mr Green reported to Mr Atkin and Mr McNee, "We may need to take this deal and take the risk on [Harris Farm] so we can get the cash into the business to survive." Mr McNee suggested that About Life seek relief from the bank or agree a process for selling other parts of the business to The Natural Grocery Co or someone else, "I suspect if we pay the bank say $5 million now, and pay them out completely on sale to [The Natural Grocery Co] they will be happy." It may be that the bank's expectation to receive $5 million from the proceeds of sale was, by now, apprehended by About Life or its advisers.
3. On 16 June 2017, Harris Farm filed a cross-claim against About Life. Mr Atkin spoke with Woolworths' solicitor, who appeared to be trying to persuade About Life to pay Harris Farm something to make it go away. Mr Atkin said that About Life did not have the financial ability to do so. They discussed "the impending insolvency", agreeing that, if About Life went into voluntary administration, the Council would terminate the lease. Woolworths were then considering advancing $3 million to $4 million to About Life. Mr Atkin advised that About Life "currently has the insolvency practitioners with them giving advice and drafting the appointment resolution. About Life [is] not going to last much more than a couple of days …".
4. On 16 June 2017, Mr Green advised that one of his investors was working on an emergency rescue package which, at least, would give About Life "a bit of backbone in our conversation with [The Natural Grocery Co] on Monday". For a brief moment, on 16 June 2017, Woolworths agreed to advance $4 million to About Life and pay $12 million for the Double Bay lease. The offer was withdrawn the next day. Mr Green noted, "We're now back to considering either a purchase of a few assets (won't work because they would cherry pick the best and leave us with an even bigger problem) or a purchase of the whole company." On 19 June 2017, The Natural Grocery Co made a revised offer, reduced by some $4 million and insufficient to pay the bank debt. Mr Green continued to negotiate with Woolworths.
5. On 20 June 2017, the board met. Mr Beecroft had resigned as a director. The board discussed a capital inflow of $2.3 million to pay statutory obligations of $1.379 million and suppliers of $900,000. Discussion took place as to how to communicate with the bank going forward, including if they required more than $6 million to be paid down. Preparation for voluntary administration was underway, should the company need to take that route. Five parties were listed as having an interest in providing future funding for the business. A potential exit by selling the business to The Natural Grocery Co was also listed as an option. Later that day, Woolworths advised that it was no longer interested in acquiring About Life but was concerned to avoid the company going into voluntary administration. Woolworths was considering providing finance to About Life to avoid that happening.

Post-disaster forecast

1. In support of About Life's request for an advance of $4.75 million from Woolworths, on 21 June 2017, Ms Phillips sent Woolworths a cash flow forecast to 31 December 2017, noting that "March 2017 was when sales started to steadily decline due to stock issues from cash flow". As Ms Phillips explained in her email, the forecast assumed it would take six months to get sales back to April 2017 trading figures, "We was not assuming full recovery of sales until 2018". The forecast assumed that About Life would be "back on terms with suppliers within 30 days, from receipt of funds". Ms Phillips advised Woolworths that the same forecast had been sent to Korda Mentha, who were preparing for voluntary administration.
2. The post-disaster forecast gained prominence as it was relied upon by Mr Samuel as a more realistic predictor of the company's future performance. To this suggestion, Ms Phillips said these cashflows were prepared in an acute situation, with meetings being held at Korda Mentha's offices with the chief financial officer for Woolworths, trying to work through a solution on how the business could survive through this period of litigation. I will return to this at [611].
3. On 25 June 2017, Mr Green updated Mr Stead and Mr Thevenon. He was meeting with The Natural Grocery Co the next morning, with the offer moving "from equity to cash to entice us into a deal … He really wants to do a deal. We're also going to discuss quick sale of Lane Cove." Mr Green was then meeting with the bank in the afternoon to request further funds, but was not optimistic. Mr Green's efforts with an investor to provide a rescue package had been unsuccessful, "They just declined based on the uncertainty of the timing of the $10mm payment and the uncertainty of the damages claims … This week I will go broader with the shareholders to update them and seek advice and capital". David Jones was also "coming back this week with interest and valuations on stores they may want. … [T]hey can get us capital very quickly. They are desperate for locations …".

Move to the "bad bank"

1. On 23 June 2017, About Life made its quarterly loan repayment to the bank of $333,333, but from a bank account which then had no funds.
2. On 26 June 2017, Mr Green, Ms Phillips and Mr Ross-Edwards met with Mr Morales and sought $4 million to allow the business to continue to trade. According to Mr Morales' notes, the hearing in these proceedings was scheduled for 28 July 2017, "Sales proceeds from either stakeholder will fund inventory, salaries, creditors and repay ~$5m of CBAs debt." As I read this note, the client was then proposing that some $5 million of the sales proceeds would be paid to the bank, rather than acknowledging any bank requirement already communicated. The bank was also told that the company was also in final negotiations with The Natural Grocery Co for the sale of the business, with a revised offer of $9 million of which only $4.75 million would be available in cash. Mr Morales' file note concludes, "Discuss position with internal stakeholder for a way forward," this being a reference to the "bad bank".
3. Following the meeting, Mr Ross-Edwards forwarded the post-disaster forecast to Mr Morales. Mr Green reported to Mr Stead and Mr Thevenon that the bank was considering a bridge to get the company a deal with The Natural Grocery Co, "Hard to assess likelihood but they are taking it to head office." The Natural Grocery Co increased its offer slightly.
4. On 27 June 2017, Mr Morales provided his colleagues with a range of documents in advance of a conference, noting that a credit downgrade would be discussed in conjunction with a transfer to the "bad bank". The bank's internal report, on 28 June 2017, considered that About Life was unable to service the $4 million funding sought, and there was a distinct possibility that the business would default within a year if the deficiencies were not corrected in the short term.
5. A further meeting with the bank was arranged for 30 June 2017, this time held at the "bad bank" in the city. Jonathan Clement, executive director of the Credit Structuring Department, attended. As Mr Green described it, the bank would have a "[b]ig team including our relationship folks, the credit guy and bad bank." Ms Phillips understood that the "bad bank" had become involved because About Life could no longer give the bank certainty on being able to pay down the facility, unlike the certainty available in the weeks prior, "It seemed pretty obvious to me."
6. At the meeting, Mr Green requested $1.3 million to support About Life until the Double Bay sale finalised. Following the meeting, Ms Phillips emailed Mr Morales advising that funds were needed by 10 July 2017, "Concurrently we are exploring options to raise equity. Further we believe that [by] continuing to re-negotiate our supplier agreements we could do this for $2million." Mr Morales sought clarification, as only $1.3 million had been mentioned at the meeting. Ms Phillips replied that $1.3 million would suffice; some $600,000 was needed to deal with superannuation and rent on the Surry Hills store, with the balance of the funds to be used to pay suppliers. Further: … we have a long history with the supply chain so these conversations are largely in the spirit of understanding, and on a case by case basis the commercial viability of stretching terms for the short term and payment plans. Put simply any funds we get over the $600k immediate compliance issues will put us in a stronger position with getting inventory levels on a path to optimum and start to re-build sales. …
7. Following the meeting, the bank downgraded About Life's credit rating in light of the company's advice that it needed $1.3 million within the next seven days, with the prospect of needing further funds in the coming month, failing which directors would place the company into voluntary administration. In addition, investors were reportedly unwilling to commit further funds due to potential future litigation "and an apparent lack of confidence in the business in the medium [term]". There was also a lack of clarity about the sustainability of the business model and an ability to restore profitability.
8. The bank appointed McGrath Nicol as Investigating Accountants to advise if there was a rationale to provide funding. Management of About Life's account with the bank was transferred to the "bad bank". Mr Ross-Edwards thereafter dealt with Mr Clement. Mr Ross-Edwards and Ms Phillips attended monthly meetings with Mr Clement and his team. About Life received no further financial support from the bank.
9. Mr Ross-Edwards understood that the failed sale of the Double Bay store and the commencement of these proceedings adversely affected About Life's relationship with its bank. Whilst the bank had been prepared to condone some covenant breaches on the basis that payment from the Double Bay sale was anticipated in June 2017, when it became apparent that the payment would not be received in June and there was uncertainty as to when it would be received, Mr Ross-Edwards understood the bank's attitude to change.

Founders advance funds

1. On 2 July 2017, Mr Green advised Mr Stead that he was working on a backup plan, "Tammie may be willing to step up with cash to match bank and induce them to participate." On 4 July 2017, Mr Green updated Mr Stead, noting that there was not much good news "other than Tammie considering a rescue financing terms TBD …". Mr Green recounted the events leading to these proceedings, noting in respect of Woolworths right of first refusal, "Management had no recollection of that clause, the Board did not recall that clause and our lawyers missed that clause." Given these proceedings, "This means that, while we will definitely get $10 million for the DB lease from either [Woolworths] or [Harris Farm], we don't know when we will receive that capital, and will encounter severe cash flow shortages while this is getting sorted out". After the hearing on 26 and 27 July 2017, either side had a right to appeal, which could take a further three to six months. The loser would pursue a damages claim against About Life. Whilst About Life had been negotiating with both sides "so that we can access the $10 million with an agreed damage amount to the losing side, but both parties are adamant that they have a strong claim and will not settle."
2. Mr Green also advised that The Natural Grocery Co had "tried to use this situation to their advantage and have dramatically dropped their offer from $13.5 million to $9 million" but, when taking into account the different structure of the revised offer, it was more like $6.5 million. The board had been "desperately pursuing a number of options to get capital into the business" including an advance from Woolworths of $4 million on the $10 million, extensive discussions with Harris Farm on the same basis "which came to nothing", the sale of the whole company to Woolworths, the sale of selected leases to David Jones and discussions with the bank about further funds, with the bank to advise its decision on 10 July 2017, "They have stated they would like to help us, but we are not optimistic …".
3. On 5 July 2017, Ms Phillips, Mr Ross-Edwards and Mr Green met with the bank. The post-disaster forecast was discussed: $2 million was needed to allow the business to continue until the end of August 2017, after which an injection of capital of $4 million from the sale proceeds of the Double Bay store would be required. Whilst the cash flow indicated that $4 million would be paid to the bank as debt reduction, "Client was advised that the Bank will likely want to retain the remaining $6m of proceeds as debt reductions". The bank was advised that Ms Phillips and Ms Stewart were raising $2 million equity, whilst Mr Green was trying to raise a further $2 million equity to match this contribution. Mr Green also advised that, if the court case had a positive outcome, "then he may be able to get support from his investors for further capital." In addition, "Surry Hills landlord rental payment of $297k was made from a loan from Tammie & Jodie thus allowing that store to continue to trade."
4. On 7 July 2017, Mr Green updated his investors, including on "a possible $2mm rescue package from the Founders" to be used for compliance payments and critical supplier accounts payable. This amount was not considered adequate to fund operations past August 2017. Mr Green's presentation also contained details on the company's financial performance, noting that sales trend declines had stabilised "until cash flow constraints impacted stocking levels in April and May". The retail customer count and average basket had decreased in May 2017, "also indicative of inadequate stocking due to cash flow constraints."
5. On 10 July 2017, loan agreements were entered into between About Life and Ms Phillips and Ms Stewart for $2.3 million. Ms Phillips and Ms Stewart approached Mr Green to match their contribution. Instead, he transferred a significant portion of his shares in the company to them, so that Ms Phillips and Ms Stewart obtained a majority interest in the company. The money was applied to compliance obligations and payment of $1.1 million to suppliers. This was not sufficient to pay all suppliers in arrears or normalise trade terms.
6. McGrathNichol also produced a draft discussion paper, identifying two key risks: the ability to increase sales once outstanding creditors had been paid and stock levels restored; and, the outcome of the sale of the Double Bay store noting "there remains significant uncertainty around the identity of the ultimate purchaser and the actual timing of settlement (given the current proceedings on foot and the opportunity for an appeal)."
7. On 13 July 2017, Mr Morales met with About life and was informed, "Tamm[ie] and Jodie have injected $2.3m into respective business. Source of funds from refinancing home loans with Westpac." Woolworths was then proposing to inject $2 million capital but investors wanted to bind Ms Phillips not to waive any claim that About Life may have against Woolworths. Unsurprisingly, Woolworths would not do a deal that involved About Life retaining the right to sue it. Mr Morales' note also records that About Life was continuing to look at getting out of the Cammeray lease but would keep the Surry Hills store if the Double Bay store closed; if the Double Bay store continued to operate then About Life would look to exit Surry Hills.
8. Ms Phillips said it was decided that the Surry Hills store should be retained as About Life was closing down an Eastern Suburbs store, being the Double Bay store. Mr Ross-Edwards said that, after settling the dispute with the landlord, the board decided to keep the Surry Hills store going as it was going to be extremely difficult to assign the lease. Keeping both stores open was also relevant for the offer from The Natural Grocery Co, which included those sites.
9. On 14 July 2017, Harris Farm served its evidence, including Mr Harris' affidavit. This prompted Woolworths' solicitor to contact Mr Atkin, as Woolworths had until then been advancing a case that Harris Farm had pursued the acquisition of the Double Bay site either knowing, or being wilfully blind, to the existence of Woolworths' right of first refusal. Woolworths wanted to know if About Life had mentioned the right of first refusal to Harris Farm at any stage. In response to this inquiry, Ms Phillips promptly replied "I can only speak for myself and I did not mention [it] … as far as I know nobody had recall of it".
10. On 20 July 2017, the board met. The stores were continuing to perform poorly. The bank had suggested that $6 million of the proceeds of sale pay down debt. All offers of The Natural Grocer Co had been refused, with dialogue still open if it was prepared to substantially increase its offer.
11. On 21 July 2017, Mr Atkin recommended that About Life brief senior counsel and actively defend Woolworths' claim by disputing the validity of the right of first refusal. Ms Phillips replied that, from her perspective, "there are too many commercial reasons to not do this". Woolworths was still reviewing funding About Life's employee obligations and working actively with McGrathNicol to verify analysis of cash flow; if Woolworths won then About Life was in a strong position to sub-lease the site to operate a store at Double Bay; "Quite frankly pissing of[f] [Woolworths] when you don't need to seems like retail suicide"; further, practically speaking, About Life did not have the resources.
12. On 26 July 2017, the hearing commenced before Emmett AJA. About Life was excused from appearing. During the course of the day, the bank provided its consent to the change in shareholder structure following Ms Phillips' and Ms Stewart's proposal to inject $2.3 million in equity. (I note that, as documented, the funds advanced by Ms Phillips and Ms Stewart were not equity, but further debt.) Provided the capital was provided in the next seven days, the bank was also prepared to allow the company to redraw the June 2017 principal reduction in the sum of $333,333 (dealing with the loan repayment referred to at [451]) and waive future debt repayments until the earlier of 31 October 2017 or completion of the sale of the Double Bay business. "The bank is yet to decide whether it will require the full net sale proceeds to be applied towards debt reduction." The bank reserved its rights on continuing failures to comply with debt covenants.
13. On 28 July 2017, the hearing concluded. As the hearing had been expedited, About Life's solicitors hoped that the Court would hand down judgment within the next month or so. The capital injection from directors was received and applied to reduce creditors. On 17 August 2017, the board met. Sales "have finally stabilized, admittedly on a low base". The directors' loans of $2.3 million had "gone a long way to correcting supply issues … Expect to start building slowly in August 2017. The board was now considering a claim against Maddocks and awaiting the judgment of Emmett AJA, "both sides think it is very close. There is no indication of timeframe." An offer had been received from Woolworths to provide interim funding of employee costs until settlement of the Double Bay sale, subject to waiving any right to sue Woolworths. Mr Green was to seek the consent of investors to this approach. (Consent was not forthcoming and thus nor was $2 million from Woolworths.)

Judgment

1. On 24 August 2017, Emmett AJA gave judgment in favour of Woolworths: Woolworths Limited v About Life Pty Limited [2017] NSWSC 1117. As such, About Life was not entitled to assign the Double Bay lease to Harris Farm unless it had first offered to assign the lease to Woolworths on equivalent terms and Woolworths had rejected that offer. His Honour directed Woolworths to bring in short minutes to give effect to the judgment, including directions for the further conduct of the proceedings.
2. On 25 August 2017, Mr Atkin informed Ms Phillips and Mr Green of the import of the judgment, noting that Harris Farm had until 22 September 2017 to lodge an appeal and, if an appeal was brought, a decision would not be known for another three to six months, "The current state of limbo would remain during that time." If agreement could not be reached by the parties on the appropriate orders to be made following his Honour's judgment, then Emmett AJA would hear argument in the second week of September 2017. On 30 August 2017, Maddocks ceased acting for About Life in these proceedings.
3. On 4 September 2017, About Life met with the bank. In advance, Mr Ross-Edwards provided a presentation concerning the way forward. The expectation was that Harris Farm would not appeal and About Life would complete the sale of the Double Bay store by 11 October 2017, being 28 days after the Court made final orders. About Life then expected to enter into a sub-lease of the site and continue to operate at Double Bay, with a three year lease being discussed with Woolworths. About Life also intended to sue Maddocks for damages.
4. Once sale of the Double Bay store was completed, the choice was to either rebuild the business or sell to The Natural Grocery Co. The presentation reviewed both options. Either way, bank approval was sought to delay loan repayment until 15 October 2017, with repayment of $4 million rather than $6 million, to enable flexibility to remodel the stores "[o]r based on performance ability to draw down the $2 million, when we hit a[n] agreed running rate." As a preliminary position, and subject to credit approval, the bank advised About Life that it would be willing to consider a position where $6 million was applied to debt reduction, $2 million was released to the company and $2 million was held in set-off to be released to About Life in 12 months if trading was satisfactory, otherwise, the monies would be applied to permanent debt reduction. About Life advised that it required the whole $4 million to remain competitive, with $2 million to be spent on trade creditors and inventory and $2 million on improvements to the business. A meeting was to be held in early October 2017 to attempt to agree on a strategy going forward.
5. On 14 September 2017, Emmett AJA made orders giving effect to his Honour's judgment, including that About Life and Harris Farm pay Woolworths' costs of the proceedings, save for the issue as to whether Harris Farm had actual or constructive notice of Woolworths' right of first refusal. About Life immediately offered to assign the lease of the Double Bay premises to Woolworths for $10 million, which offer was promptly accepted. Mr de Fontgalland acted on the transaction. Negotiations ensued in respect of a sub-lease. On 22 September 2017, Mr de Fontgalland requested the Council to consent to an assignment of the lease to Woolworths.
6. On 27 September 2017, the "bad bank" presented its strategy paper, recommending extending the annual review date to 30 November 2017 to allow time to review the borrower's position and agree on a way forward. Much turned on whether About Life could secure a sub-lease of the site. On 29 September 2017, contracts were exchanged with Woolworths. The Council's solicitor advised that the consent period would not commence until certain breaches had been attended to by About Life.
7. By 13 October 2017, About Life had attended to a list of breaches raised by the Council. On 16 October 2017, Mr de Fontgalland sought confirmation from the Council's solicitor that consent would be forthcoming. Ms Phillips also spoke with Council regarding progress. Council wished to know Woolworths' medium and long term plans for the site, on which the Council's consultants would then advise. "According to them the consent period will not start until they are satisfied on this point …" Ms Phillips stressed to Council that About Life needed to settle on the transaction in order to obtain funds to pay its bank and invest in the business. Ms Phillips reported to Woolworths, "I actually am not confident with how much longer CBA are going to give us …" Woolworths replied that they were equally keen to conclude the transaction and would meet with the Council as a matter of urgency.
8. On 20 October 2017, Harris Farm filed an amended cross-claim against About Life, adding Ms Phillips, Mr Green and Mr Beecroft as cross-defendants. Harris Farm sought to recover $588,000 from the directors, being its costs and liability for costs to Woolworths.
9. On 27 October 2017, the Council requested an audit turnover certificate for About Life, which was provided by Deloitte on 30 October 2017. A meeting with Council was arranged on 30 October 2017. As Ms Phillips reported events to Mr Morales the next day, it was a very long but productive session. "The outcome was particularly good for us as Woolworths agreed with Council to give About Life a 3 year fixed term, with no break clause. We now are going to be secure in Double Bay for 3 years - which is quite a remarkable outcome for us … In terms of timing - all is being documented by solicitors this week. Woollahra Council require no other information from Woolworths and have indicated that they will sign the deed to consent once all that was agreed on yesterday is papered." However, Woolworths now sought a three month bank guarantee. Ms Phillips sought the bank guarantee, of some $270,000, from the bank. Mr Morales replied that this was "great news … Almost there!"
10. On 9 November 2017, the board met. It was then expected that the bank would require $7.5 million from the proceeds of sale of the Double Bay store, with the remaining debt to be paid over five years. Mr Ross-Edwards said this was a further change in the bank's position as the new arrangement did not allow for the possibility of any redraw of the facility. By allowing the balance of the facility to be paid over five years, this enabled About Life to keep some stores and continue to trade.
11. On 17 November 2017, About Life filed a cross-claim against Maddocks. The audit of the company's accounts was then underway but never completed.
12. Although About Life continued to try and close the Cammeray store, and made many attempts to do so, this could not be achieved. Mr Ross-Edwards said that Cammeray proved an extremely difficult store to dispose of. Cammeray continued to be a store that About Life intended to close.
13. As to why About Life did not ultimately execute Retail Oasis' recommendation to close the Cammeray and Surry Hills stores, Ms Phillips explained that circumstances changed. The Retail Oasis recommendations had been made before the sale of the Double Bay store. Whilst the board was keen to close Cammeray and Surry Hills, the ramifications of closing either store proved significant and the decision to close the stores changed. As to why the board did not adopt and implement each of Retail Oasis' recommendations, Ms Phillips said, "it is very common … to take on some recommendations [made by consultants] and not others. Let's face it, otherwise you'd have consultants running companies." The Lane Cove pilot never got started, "these wasn't the funds to do it".

Paying Woolworths' costs

1. Mr de Fontgalland said the costs of these proceedings were a 'line item' in commercial negotiations on foot with Woolworths at the time. Mr de Fontgalland was aware that Emmett AJA had made costs orders in these proceedings, but does not appear to have been familiar with the terms of the costs order made, in particular, that the costs order had been made against About Life and Harris Farm. On 17 November 2017, Mr de Fontgalland advised Woolworths' general counsel that About Life was amenable to paying Woolworths' costs of these proceedings from the settlement monies for the Double Bay sale and requested details so that costs could be agreed. Woolworths advised that its costs of these proceedings were $421,372.71, its costs of obtaining consent from the Council were some $15,000 and its costs of the proposed loan to About Life were some $77,000. In total, Woolworths' costs were $514,483.98 and, "we would expect to recover $400,000 - let's discuss and aim to reach agreement on the amount in short order so as not to delay settlement."
2. Mr de Fontgalland sought further detail as, in order for About Life to recover Woolworths' costs from Maddocks or About Life's insurer, the costs needed to reflect what an assessor might calculate them to be. Further detail was provided. Woolworths assumed that its costs of the proceedings would be discounted by 25% by a costs assessor and thus Woolworths would recover $202,471.10 in respect of its solicitor's fees and 100% of its disbursements, less the costs attributable to the constructive notice issue. Rather than conduct a line-by-line analysis, Woolworths' offer of $400,000 (which also included the costs of obtaining Council consent and the proposed loan) was still considered to be some $40,000 less than what Woolworths would recover on an assessment.
3. On 24 November 2017, Mr de Fontgalland advised Woolworths' general counsel that About Life was amenable to paying $400,000 from the settlement proceeds of Double Bay, with $325,000 to be allocated to Woolworths' costs of the litigation and $75,000 allocated to Woolworths other costs, the intention being that the litigation costs were separately identifiable to facilitate recovery of those costs by About Life from third parties. I will return to this topic at [641].
4. On 1 December 2017, the Council consented to the assignment of the Double Bay lease to Woolworths. By 7 December 2017, the terms of the Deed of Consent to Assignment and Variation of Lease had been agreed and signed by the Council, About Life and Woolworths. Settlement was then arranged with the Commonwealth Bank for 12 December 2017, when the deed of consent was exchanged and the sale from About Life to Woolworths settled.
5. Woolworths withheld $470,000 from the $10 million sale price for its costs. The balance was paid to the bank which applied $7.5 million to debt reduction and held the remaining net proceeds of sale, being $1.887 million, on deposit. These funds were released to About Life to be used to pay out and close the credit card ($315,000), superannuation and PAYG obligations ($949,000) and accounts payable ($623,000). Some $150,000 was paid to McGrathNicol. There was some additional legal fees to pay. The bank removed the loan covenants, replaced with a single EBITDA covenant of $150,000 per quarter, "Should the Borrower fail to meet this covenant it is likely that the Bank will ask the Borrower to repay their loan facilities."
6. According to Mr Ross-Edwards, About Life received the net settlement proceeds on the last working day before Christmas 2017. The funds were immediately required to meet various compliance obligations including superannuation, wages and other outstanding debts. There was no money left for working capital to enable About Life to restock or re-establish its inventory. Due to the bank's repayment requirements, Mr Ross-Edwards considered that About Life had no option but to sell its remaining stores and the kitchen at Wetherill Park.
7. On 21 December 2017, the board met. Ms Phillips reported, "The business is really struggling at these sales levels. Many suppliers are getting fatigued, payments will go out to suppliers in the last two weeks of December, as soon as CBA release funds. … The cash flow show[s] that the business will need assistance by end of February at latest." Another offer to purchase the business had been received from The Natural Grocery Co and negotiations were expected to start with another interested purchaser after Christmas "ready for a quick deal".
8. In January 2018, Ms Phillips met with The Natural Grocery Co's chairman and chief executive officer to discuss the possibility of selling the assets of the remaining stores. On 18 January 2018, a non-binding indicative offer was received from The Natural Grocery Co, offering to buy the remaining assets in two tranches. The first tranche comprised the assets used in the operation of the Double Bay, Lane Cove and Crows Nest stores for $4.075 million. In a second tranche, an offer was made to enter into an option agreement whereby The Natural Grocery Co would have the right to acquire all of the shares in About Life based on an agreed pricing mechanism, with the option to be exercised between 1 September 2018 and 31 August 2019. The Natural Grocery Co indicated that the price it was willing to pay for all of the shares in About Life as part of the second tranche was $8.8 million. In February 2018, the bank indicated its strong support for this sale structure. Ms Phillips said the first tranche would leave About Life with four stores and the kitchen and an opportunity to return the business to profitability.
9. On 13 April 2018, Woolworths and About Life entered into an occupation licence for the Double Bay store. Ultimately, Woolworths allowed About Life to continue to operate the Double Bay store for six or seven months. Ms Phillips said that, if the sale of the Double Bay store to Woolworths had proceeded without a court case, she believed there were good prospects that About Life would have been able to negotiate a long-term lease with Woolworths and continue to operate the Double Bay store, noting that Woolworths had earlier relinquished control of the site by allowing About Life to take over the lease for a lengthy period, which in her opinion, indicated that Woolworths had no plans for the site before these proceedings.
10. In April 2018, About Life prepared to complete the first tranche of asset sales to The Natural Grocery Co but, before exchange, the bank advised that it had decided to close all of About Life's banking facilities and intended to withhold $2.5 million of the $3 million sales proceeds and apply $1 million to repay a bill facility and equipment leasing facilities, with $1.5 million to be held in escrow as security for remaining bank guarantees. Negotiations followed but, ultimately, the proceeds of sale of the Crows Nest, Bondi Junction and Lane Cove stores was used to repay the bank and tax obligations. The proposed second tranche did not proceed as About Life's financial position was such it could not wait for the option to be exercised.

External administration

1. By June 2018, About Life had four stores - Cammeray, Rozelle, Port Melbourne and Surry Hills - and the kitchen. Ms Phillips considered it obvious that the business could not survive without a further injection of working capital. There was no opportunity to raise funds. The businesses in all stores had deteriorated to such an extent that there was no realistic opportunity to sell them. Ms Phillips considered that there was no option but to sell the assets and relinquish the leases on the best possible terms. About Life obtained a report from an insolvency practitioner as to its options.
2. By August 2018, Woolworths had advised that it would be terminating the occupation licence of the Double Bay store on 30 September 2018. In October 2018, About Life sold the Rozelle store to Woolworths for $921,000. The Australian Competition & Consumer Commission had to be satisfied as to the transaction and so the transaction did not complete until December 2018. In November 2018, About Life sold the kitchen for $1.875 million. By the end of November 2018, About Life had used the proceeds of sale of its remaining assets to repay the bank in full.
3. About Life was unable to sell the Cammeray or Surry Hills stores. The leases were surrendered and inventory moved to the Rozelle store. About Life forewent the bank guarantees for these leases; from earlier sales, the bank already held the cash to cover some $600,000 guarantees. On 13 December 2018, About Life vacated the Cammeray store and returned the key. The final transaction was the sale of the Port Melbourne store, which was a lease assignment and sale of inventory for about $80,000. There was no payment for the lease assignment.
4. On 17 December 2018, About Life went into voluntary administration, having repaid the bank in full and all wages and employee entitlements. According to a Report on Company Activities and Property completed by Ms Phillips, About Life had net liabilities of $11.8 million.
5. In April 2019, About Life entered into a deed of company arrangement. In September 2019, Harris Farm executed a Deed of Settlement and Release with About Life and its directors in respect of Harris Farm's claim for damages on the basis that the directors would pay $430,000. The settlement sum was paid; the directors now seek these monies from Maddocks under their cross-claims.
6. In Mr Ross-Edwards' opinion, About Life's financial position deteriorated significantly as a result of the failed Double Bay sale. The business was denied necessary working capital. About Life's business was heavily reliant on its supply chain. The business needed to maintain adequate inventory for all stores and the kitchen. It needed cashflow and working capital to maintain that level of stock. He considered that About Life's dramatic deterioration in sales coincided with the inability to get working capital from the Double Bay sale. He also considered that the reputation of the business was damaged by the lack of stock on shelves. The litigation also gave rise to uncertainty and potential liabilities. This excluded raising funds from investors or other lenders as the business was too risky to lend to.

LOSS OF A CHANCE

1. About Life claims to have suffered financial losses due to the delayed receipt of the proceeds of sale of the Double Bay business, which increased its indebtedness and deprived it of working capital and the ability to repay debt or comply with bank covenants. About Life was unable to inject capital into its business at a critical time or repay debt to the bank. About Life failed to comply with its bank covenants and lost the support of the bank. About Life lost the opportunity to attract investors to provide working capital due to the uncertainty associated with these proceedings. About Life was unable to pay its suppliers, who were insisting upon cash on delivery or short payment terms. About Life lost customers as a consequence of dwindling or sub-optimal product on the shelves of its stores. This ultimately led to the demise of the business and insolvency, resulting in About Life entering into voluntary administration on 17 December 2018, with the costs associated with external administration. About Life was also liable to pay Woolworths' costs of the proceeding and to pay its own costs of defending Harris Farm's cross-claim.
2. On being satisfied that About Life would have contracted to sell the Double Bay store in an orderly way and thereby avoided the litigation, delay and costs, the quantum of its loss was said to be the value of the lost chance of future profitable trading or the chance of selling the business while it still had value. It was submitted that About Life was entitled to compensation unless the Court found that the prospect of further profitable trading, or the chance of selling the business while it still had value, was fanciful.
3. Maddocks denied that its actions led to About Life's demise, pointing instead to a range of pre-existing financial problems documented in About Life's board minutes and management reports, including a longstanding lack of working capital, over-expansion, deteriorating sales performance and systemic problems with About Life's business model as identified by Retail Oasis. (Mr Ross-Edwards said that, if About Life had each of the problems asserted by Maddocks, "I wouldn't have been at the company …")

Principles

1. The principles regarding compensation for a loss of chance to pursue a commercial opportunity are well established. There are three steps: Masters Home Improvement Pty Ltd v North East Solution Pty Ltd [2017] VSCA 88; (2017) 372 ALR 440, Santamaria, Ferguson and Kaye JJA at [411]. First, was there a chance? The plaintiff must prove on the balance of probabilities that, absent the negligent conduct, there was some prospect of success. As explained in Sellars v Adelaide Petroleum (1994) 179 CLR 332; [1994] HCA 4 at 355 per Mason CJ, Dawson, Toohey and Gaudron JJ: … the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.
2. Notwithstanding the demarcation between proving that there is some chance and ascertaining the value of that chance, "it will usually be the same body of evidence that tends to establish both the existence of a loss and the amount to be recovered": Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Ltd [2018] 2 Qd R 584; [2017] QCA 254 at [28] per McMurdo JA (Philippides JA and Boddice J agreeing) citing Sellars at 364 per Brennan J.
3. As to the identification of the commercial opportunity, the relevant opportunity is the opportunity to make a profit: see also Principal Properties at [21]. As McMurdo JA clarified (in terms redolent of Brennan J in Sellars at 364) at [23]-[24]: [23] If a commercial opportunity has no chance of being profitable, it is an opportunity of no value and its loss could not be compensable. I would also accept that a commercial opportunity which no rational investor would pursue, having regard to the relative probabilities of a profit and a loss and the likely magnitude of each, would be a valueless opportunity. [24] However, I do not accept that the same may be said whenever it is more likely than not that the pursuit of the opportunity would have resulted in an investor's loss. Many investments are pursued with an appreciation that, more likely than not, they will not be profitable after money is spent in pursuing them. They are pursued because the magnitude of the potential profit, considered against the relatively small amount of the potential loss, makes the risk, sometimes a high risk, of that loss one which is worth taking. …
4. Second, has the opportunity been lost, that is, would the plaintiff have pursued it? Where realisation of the chance depends on a plaintiff's own decision to take it up, the plaintiff must also establish on the balance of probabilities that it would have been taken up: Doolan v Renkon Pty Ltd (2011) 21 Tas R 156; [2011] TASFC 4 at [60] and [66] per Crawford CJ, Blow and Porter JJ; Olympic Holdings Pty Ltd v Lochel [2004] WASC 61 at [121]-[123] per McLure J.
5. Third, what amount should be awarded having regard to the prospects of success if the opportunity had been pursued. The Court must value the lost opportunity by reference to the degree of probability that the events posited by the plaintiff would have occurred, provided that the probability is not so low (less than one per cent) as to be speculative or so high (more than 99 per cent) as to be practically definite: Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20 (per Brennan and Dawson JJ at 639 and Deane, Gaudron and McHugh JJ at 642-3); Berry v CCL Secure Pty Ltd [2020] HCA 27; (2020) 381 ALR 427 at [36] per Bell, Keane, Nettle JJ; Bartier Perry Pty Ltd v Paltos [2021] NSWCA 158 at [154], [203] per Payne JA (White and McCallum JJA agreeing).
6. When considering the probabilities and possibilities, the Court ordinarily takes a "broad brush approach": Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394 at 404; [1989] HCA 11 per Wilson, Dawson, Toohey and Gaudron JJ. The analysis does not lend itself to hard and fast rules: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 119; [1991] HCA 54 per Deane J. However, as Barrett JA (Leeming JA agreeing) cautioned in Thompson v Schacht [2014] NSWCA 247; (2014) 53 Fam LR 133 at [76]: … It is, of course, not possible for the court to make the determination in an evidentiary vacuum and, while the plaintiff is not required to prove the postulated outcome according to the balance of probabilities, there must be some evidence on which to base the determination.
7. An example of the Courts' approach in applying a discount which reflects the prospects of success is Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187, where Hungry Jack sought damages for the loss of an opportunity to expand its business. Hungry Jack's chairman gave evidence that, in the absence of Burger King's conduct, Hungry Jack would have opened 17 new restaurants every year. Sheller, Beazley and Stein JJA noted at [596]: (emphasis added) The base chosen was the best estimate of how many restaurants would be opened … in the years in question. The degree of the decision-maker's confidence in that best estimate will be reflected in the discount for contingencies. But without that estimate, the calculation cannot proceed. Moreover, whatever figure is chosen, an allowance must be made for the possibility that it is too low or too high. None of this is scientific but it is the best that the Court can do. There is a danger in using mathematical calculations which may give a false impression that the result is scientifically arrived at or necessarily precise.
8. In a case where the Court has found that a client has lost a valuable opportunity due to the negligence of the solicitor, the Court tends to assess the damages generously given that it was the solicitor's negligence "which has lost [the client] the chance of succeeding in full or fuller measure": Sharif v Garrett & Co [2002] 1 WLR 3118 at [18] per Tuckey LJ and [39] per Simon Brown LJ (Chadwick LJ agreeing with each).

The lost chance

1. About Life submitted that the lost chance bore "haunting similarity" to Sellars v Adelaide Petroleum, where Adelaide Petroleum was under financial pressure and had two alternatives, being to enter into a transaction with Poseidon or Pagini. Because of unlawful conduct, it contracted with Poseidon. That contract fell over and Adelaide Petroleum then contracted with Pagini but on less favourable terms than if it had contracted with Pagini at the outset. Whilst the Court found that there was only a 40% chance that a contract with Pagini at the outset would have been completed, this was dealt with by an appropriate discount. Here, About Life submitted that the valuable commercial opportunity was a clean, early contract with Woolworths. The Court would be satisfied on the balance of probabilities that, in the absence of Maddocks' negligence, About Life would have offered the Double Bay store to Woolworths on the same terms as Harris Farm and that Woolworths would have accepted that offer. Beyond that were matters of possibilities and probabilities as to how About Life would have fared.
2. Maddocks accepted that, in the counter factual, there was a 100% chance that About Life would have had a clean contract with Woolworths. But this was not the "lost chance"; it was the chance to avoid entering administration and continuing as a company of some value. Maddocks contended that, from at least April 2017, About Life was in a position in which entry into administration would have occurred in the near term regardless of the sale of the Double Bay store.
3. The question is whether About Life has shown some loss or damage by demonstrating that Maddocks' wrongful conduct caused the loss of a commercial opportunity which had some value (not being a negligible value). The classic case of Sellars v Adelaide Petroleum NL might be thought to resemble this case, being the loss of an opportunity to have entered into an agreement with a third party (Woolworths) on the more favourable terms that would have been achieved but for the defendant's wrongdoing (being on terms devoid of the uncertainty, delay and additional costs attended by the contract with Harris Farm): Talacko v Talacko [2021] HCA 15; (2021) 389 ALR 178 at [42] per Kiefel CJ, Gageler, Keane, Gordon, Edelman, Steward and Gleeson JJ.
4. However, as pleaded, About Life's loss was, in essence, the difference between the trajectory which the company took by reason of entering into the Harris Farm contract and the trajectory the company would have taken if it had entered into a contract with Woolworths at the outset. The pleading lists a number of differences between these trajectories, including a "loss of opportunity to stabilise and improve the profitability of the Business with the injection of capital from the sale of the Double Bay Business and to then expand and increase the profitability of the Business with that injection of working capital".
5. Having regard to the pleading, I consider that Maddocks' formulation of the lost chance is preferable, with modification. It is necessary for About Life to establish that the commercial opportunity of a clean, early contract with Woolworths had some value (not being a negligible value) such that, had About Life followed the counter factual trajectory, it would have survived. That is, it is not sufficient for About Life to prove, on the balance of probabilities that, if given the chance, it would have entered into a contract with Woolworths. Rather, About Life has to prove on the balance of probabilities that, had it done so, there was a chance that the company would have had value.
6. As will become apparent from my review of the experts' work on how About Life would have fared in the counter factual, I am satisfied on the balance of probabilities that that there was a chance that About Life would have stabilised and improved the profitability of its business with the injection of capital from the Double Bay sale and then expanded and increased the profitability of its business: see [578]-[606]. Put the other way (noting that About Life and not Maddocks bears the onus), I have not concluded that About Life had no chance of doing so and would certainly have gone into administration.
7. As to the second step, there is no doubt that About Life would have taken the chance if proffered. The balance of this judgment is largely dedicated to the third step, being the amount that should be awarded having regard to the prospects of success if that opportunity had been pursued, that is, the degree of probability that the counter factual posited by About Life would have occurred. Before turning to the differing approaches of the accounting experts to this question, it is timely to consider the components of the counter factual.

THE COUNTER FACTUAL

1. About Life says that if Maddocks had performed its retainer and discharged their duty of care, Ms Phillips would have recalled and produced the Woolworths' Deed of Agreement from her own records or from Mr de Fontgalland's file. Woolworths' right of first refusal would thus have been revealed, and About Life would have offered the Double Bay store to Woolworths instead of entering into a contract with Harris Farm. Assuming that Maddocks had properly identified the existence of Woolworths' right of first refusal in a timely way, the likely date on which About Life would have made an offer to Woolworths in accordance with the Harris Farm offer was around 20 April 2017, being the date that About Life signed the contract with Harris Farm.
2. Maddocks did not dispute that, if Woolworths' right of first refusal had been revealed on or around 20 or 21 April 2017, About Life would have offered the Double Bay store to Woolworths for $10 million on the same terms as the contract exchanged on 21 April 2017.

When would Woolworths have exercised its right of first refusal?

1. About Life says that Woolworths would have exercised its right of first refusal and offered to purchase the Double Bay store and lease for $10 million, and About Life would have accepted that offer. As to how long it would have taken Woolworths to accept the offer, the time in which Woolworths could either accept or refuse was not specified in clause 2.5 of the Deed of Agreement. As such, Woolworths had to exercise its right within a reasonable time. In the circumstances of a take-it-or-leave-it offer on definite terms, About Life submitted that a reasonable time would have been seven days. Whilst accepting that Woolworths would have needed some time to familiarise itself with the position, where it took Woolworths a week after confirming that the sale was to occur (23 May 2017) to commence these proceedings (30 May 2017), it was appropriate to allow no more than one week for Woolworths to accept the offer, being 27 April 2017.
2. Maddocks submitted that a reasonable time-frame was 21 days as any offer would be made 'out of the blue'. Woolworths would need to consider its position and obtain legal advice on clause 2.5 of the Deed of Agreement and the terms of the proposed contract. Woolworths would need to consider whether it wished to take back the Double Bay store as that price and, if it did, what it would do with the store. Woolworths would presumably need to discuss this with consultants. Maddocks pointed to the fact that, when Woolworths learnt of the contract between About Life and Harris Farm, it initially took the position that Woolworths was entitled to an assignment of the Double Bay lease for no consideration; it was only after a month that Woolworths offered to purchase the Double Bay store on the same terms as About Life's contract with Harris Farm.
3. There can be no doubt, from the intensity of negotiations that ensued between each of Woolworths and Harris Farm with About Life during the course of these proceedings, that the Double Bay lease was a valuable asset (see [158]), readily saleable for $10 million, indeed, Woolworths was prepared to pay more if need be. Whilst Woolworths would likely have been a little surprised to be asked to pay $10 million for a lease which it had initially assigned to About Life for nothing, I do not think it would have taken Woolworths long to decide that it would exercise its right of first refusal. Even if Woolworths had no particular interest in using the site itself, it was clearly interested in not having Harris Farm as a neighbour. As Ms Phillips told Ms Badcock on 25 May 2017 - shortly after speaking to Woolworths - Woolworths did not want the store but did not want Harris Farm in the shopping centre and would probably take the store "just to keep [Harris Farm] out".
4. Where About Life was keen to stay in the premises as a licensee, there was not much for Woolworths to decide other than whether it was prepared to pay $10 million to have the occupant of the site of its choosing. With Harris Farm standing ready to take the site, this decision would have been easy to make. Seven days was sufficient. In the counterfactual, Woolworths would have exercised its right of first refusal by 27 April 2017.
5. The parties agreed that it was likely that contracts would have been exchanged 14 days later, being the same period between acceptance of the offer and exchange as actually occurred on the Woolworths' transaction. This seems reasonable. On my calculations, contracts would have been exchanged on 11 May 2017.

When would Council have given consent?

1. Noting that, on the counter factual, the Harris Farm transaction would have been aborted and there would have been a delay associated with changing purchasers, About Life submitted that consent would have been sought from the Council on the day that Woolworths accepted the offer. The position would have been more urgent by then. There would have been an opportunity, during the seven days in which Woolworths considered the offer, to obtain the relevant information to request consent. Further, whilst it ultimately took Council 70 days from the date on which consent was sought to provide its consent, About Life submitted that there were a number of things occurring in that period which would not have occurred on the counter factual. The period would have been shorter on the counter factual, say 65 days, resulting in an assumed date upon which Council consented of 2 July 2017.
2. Maddocks submitted that there was no reason why the Court would infer that the Council would have provided its consent in less than nine weeks from exchange.
3. In determining how long it would have taken the Council to give consent on the counter factual, it is relevant to consider the progress of About Life's request for consent for both the Harris Farm and Woolworths' contracts. About Life's request for consent to assign the lease to Harris Farm was, in essence, a fresh, clean request unsullied by the complexities which followed in these proceedings. About Life's request to assign the lease to Woolworths was, of course, a request to assign to the party to which the Council would, in the counter factual, be asked to consent but at the outset. Useful evidence may be gleaned from both applications.
4. Turning first to the Harris Farm contract, as noted at [383]-[384], consent was sought on 27 April 2017. Harris Farm was a new tenant to the shopping centre. Harris Farm had to complete a tenancy application form (which was initially incorrectly completed and had to be re-submitted). The contemporaneous documents record that, as Harris Farm had incorporated a special purpose vehicle to acquire the Double Bay store, the Council sought further information to satisfy itself that those who stood behind the company would provide financial surety for the prospective tenant.
5. Harris Farm planned to gut the store and install a new fit out. To this end, Harris Farm had to prepare plans for the proposed works. The first site meeting with the Council had to be postponed as the plans were not ready. The contemporaneous documents record that the Council and Harris Farm then spent some time 'to and fro' addressing different aspects of Harris Farm's proposed refurbishment of the site. According to the minutes of the meeting held on 18 May 2017, when Mr Harris asked how long approval would take, a Council representative advised that it would take two weeks from the date when all required information was provided. The Council acknowledged that "the last of the information requested by Council was provided by [Harris Farm] to the [shopping centre] manager on Friday 26 May 2017." That being the case, the Council's consent would likely have been forthcoming by 9 June 2017, being six weeks after the request was made.
6. Turning to the Woolworths contract, the request was made on 22 September 2017. Consent was given on 1 December 2017, being ten weeks later. This process progressed somewhat differently to the process involving Harris Farm. First, my impression from reviewing the contemporaneous documents is that, by reason of the events which led to these proceedings, the Council was not entirely pleased to discover that the entry of Harris Farm into the shopping precinct had been de-railed by Woolworths' right of first refusal contained in a side deed with About Life. As Ms Phillips reported to Ms Badcock on 25 May 2017, "Council hate [Woolworths]. Want [Harris Farm] to get in." Woolworths had sent the Council a letter of demand and joined it as a defendant in these proceedings. Whilst the Council did not take an active role in the proceedings, it is apparent that the Council was less than thrilled.
7. Following Emmett AJA's judgment, the Council retained a major law firm to act on the transaction. The history of the matter appears to have increased the significance of the transaction from the Council's perspective, with an accompanying increase in attention to detail and firm negotiations which may not have been the case in the counter factual. The Council appears to have made Woolworths 'work' to gain Council's consent, including extracting assurances "that the proposed business will be monitored and supported at the highest level within [Woolworths], and that the necessary resources will be provided to ensure ongoing success." On 17 October 2017, following a conversation with the Council, Ms Phillips reported that the Council was "firm that they intend to stand strong on the point that they need to know what Woolworths' medium to long-term plans are for the site. Specifically they said they planned to ask to see the concept with a ten year plan financially modelled that they would then put to their consultants for advice … according to them the consent period will not start until they are satisfied on this point." It is, of course, possible that the Council would have sought to be satisfied in the same manner on the counter factual but, as a matter of impression, how the application for consent unfolded in reality is not necessarily how it would have unfolded in the counter factual.
8. Second, by the time the Council's consent was sought for assignment of the lease to Woolworths, About Life was in default under the lease, with outstanding payments and certifications for heating, ventilation and fire safety. Such breaches do not appear to have been raised when Maddocks earlier sought Council's consent to the assignment of the lease to Harris Farm. These defaults took time to rectify.
9. Having regard to these matters, I consider that the time which the Council took to give consent to the assignment of the lease to Woolworths was longer than it would have taken the Council to give its consent, had it been asked for consent at the outset, and significantly so. I note also that some of the steps in the process which detained Harris Farm may not have affected an application for consent to assign the lease to Woolworths, if made at the outset. Woolworths was not a new tenant to the shopping centre and, likely, would not have encountered the delays associated with a tenancy application form or establishing the backing of a special purpose vehicle. Construction plans would likely not have delayed matters either as, more likely, Woolworths would have had no immediate plans for the site other than 'business as usual', with About Life continuing to trade in the premises under a licence.
10. For the Harris Farm contract, consent was sought a week after exchange of contracts whilst, for the Woolworths contract, consent was sought a week before contracts were exchanged. On the counter factual, I consider it reasonable that Council's consent would have been sought on or immediately after exchange of the Woolworths' contract, that is, 11 May 2017. I consider that consent would almost certainly have been given six weeks later, that is, by 15 June 2017. In addition, given that the steps in the process which detained Harris Farm would likely not have detained Woolworths, it is also quite possible that the Council would have provided its consent within four weeks, that is, by 1 June 2017. I have, however, used the longer timeframe in what follows.

When would the proceeds of sale have been received?

1. Under both the Harris Farm and Woolworths' contracts, settlement was required to be "no earlier" than 28 days from Council consent. In fact, the Woolworths contract was completed 11 days after Council consent. Whilst there was no contractual obligation on Woolworths to settle earlier than 28 days from Council consent, it is apparent that Woolworths was amenable to assisting About Life financially, if need be, and there is no reason to think that Woolworths would have insisted on the 28 day completion period if About Life had requested that settlement take place earlier, for example, because its bank was insisting on payment.
2. If the proceeds of sale were received 28 days after 15 June 2017, then About Life would have received the funds on 13 July 2017. I consider it likely that Woolworths would have provided the funds earlier if need be, including by 30 June 2017, but in any event I am satisfied that the bank would have been content to wait until 13 July 2017 without taking further action. It is apparent from the evidence that About Life had a good relationship with its bank. Notwithstanding significant challenges faced in the months leading up to the sale of the Double Bay store, Ms Phillips and Mr Ross-Edwards would have navigated this short delay with relative ease: see [244].

How much would the bank have taken?

1. About Life submitted that $4 million of the proceeds of sale would have been required by the bank to retire debt, with the balance used as working capital to stabilise the business and improve its profitability; the first mention of $5 million came shortly after the bank was informed of these proceedings. Maddocks submitted that the bank would have required $5.33 million, including the missed loan repayment in June 2017.
2. It is not entirely clear when the bank formed the view that it should require $5 million of the proceeds of sale. The covenant monitoring report referred to at [397] was, as a file, created on 17 May 2017. The report referred to the proceeds of sale being received "before the end of June 2017", being referred to elsewhere in the report as being "in the next few weeks". This would be consistent with the report being prepared in early June 2017. However, the report makes no mention of the fact that the orderly completion of the sale had been disrupted by Woolworths' right of first refusal. The bank became aware of this on 30 May 2017 and thus the report was most likely prepared before that date. That is, the bank formed the view that it would require $5 million before becoming aware of problems with the seamless completion of the sale.
3. Thus, although the bank approved the $5 million reduction on 2 June 2017 (see [437]), being after it became aware that there was an issue with the sale to Harris Farm, the recommendation was made before this problem arose. I consider that the bank would have sought $5 million from the proceeds of sale in the counter-factual. As much as anything, the bank appears to have chosen the figure of $5 million as being 50% of the proceeds of sale, it having earlier expected to receive $4 million from an $8 million sale.
4. I expect that the bank's requirement would have come as something of an unwelcome surprise to About Life and would have been the subject of further negotiations between the bank and its customer. If About Life had been able to make a good case as to why it needed more of the proceeds of sale to improve its business going forward, I expect that the bank would have been receptive. The covenant monitoring report noted, "Whilst acknowledging debt reduction is important, the underlying strategy of the group and the focus to earnings accretion is paramount." That is, the bank considered it more important to ensure that About Life could go forward and prosper (and thereby repay its indebtedness) than for the bank to retrieve any particular sum such as 50% of the process of sale.
5. I consider it likely in the counter factual that the bank would have compromised on the amount it required from the proceeds of sale, for three reasons. First, the relationship between About Life and the bank appears to have been good. Second, such discussions would have been had with Mr Morales and Mr Chapman rather than the 'bad bank', to which About Life was only referred on 30 June 2017 after the failed sale. As Mr Ross-Edwards described it, there was a big difference between being managed in the local business centre with referral to Group Credit Structuring and having 100% of your affairs managed by the "bad bank".
6. Third, and perhaps most importantly, in the counter factual, About Life would be proposing to continue to operate the Double Bay store and enjoy the associated revenue stream: see [494]. As Mr Chapman observed on 2 June 2017, when approving the $5 million reduction in debt from the proceeds of sale, "Double Bay has been the best performing store". Likewise, on 27 September 2017, the bank's strategy paper noted that earnings from the Double Bay store were considered critically important to the group's profitability. In the counter factual, the continuation of the Double Bay store would have significantly enhanced About Life's ability to generate revenue and meet bank covenants, reducing the bank's risk and thus the need to reduce debt from the proceeds of sale.
7. Against this, the post-sale forecast assumed that bank debt would be reduced by $4.333 million in June 2017. As noted at [451], on 23 June 2017, About Life made a loan repayment to the bank of $333,333, but from a bank account which then had no funds. Would this have happened in the counter factual? Actual sales for June 2017 were $1.28 million less than the post-sale forecast, and the worst month for the year by far. On Maddocks' case, this was because About Life's forecasts were wholly unreliable. I consider it more likely that this reflected the impact of the disrupted sale of the Double Bay store on cash flow, suppliers, inventory and customers. Against this, I note Ms Phillips' observation at [172]. In the counter factual, About Life may have generated sufficient sales to pay this debt instalment from ordinary cashflow.
8. From the range of amounts which the bank would require from the proceeds of sale in the counter factual - being from $4 million to $5.33 million - I consider the mostly likely result to be that About Life would have compromised with the bank on reducing term debt by $4.5 million from the proceeds of sale but also paid the loan repayment from the proceeds of sale. That is, $4.833 million would have been required by the bank, leaving $5.167 million to attend to other matters.

What other monies had to be paid from the proceeds of sale?

1. The experts agreed that $56,000 should be deducted from the Double Bay proceeds of sale as costs associated with the sale in the counter factual. This leaves $5.223 million remaining from the proceeds of sale.
2. It will be recalled that, on 28 April 2017, Mr Green advanced $500,000 to About Life, to be repaid from the proceeds of sale of the Double Bay store: see [387]-[388]. A similar loan would have been needed in the counter factual "as a bridge until we get the proceeds of the [Double Bay] sale." I consider it would have been repaid from the Double Bay proceeds in the counter factual. This leaves $4.723 million remaining from the proceeds of sale.
3. Maddocks submitted that a number of other payments would need to be made from the proceeds of sale including for upcoming payments under the ATO payment plan, overdue Surry Hills rent, Mr de Fontgalland's outstanding fees in relation to the dispute with the Surry Hills landlord and the Lane Cove pilot store.
4. As to the Lane Cove pilot, the post-sale forecast anticipated that this expenditure would be incurred in the 2018 financial year but did not identify precisely when. There is no suggestion in the contemporaneous documents that it was envisaged that any amount payable for the Lane Cove pilot store would have come directly out of the proceeds of sale. (As I understand it, Mr Samuel only took it out of the proceeds of sale as, if it had come out of any other month on his calculations, that month would have been cashflow negative.) I expect that About Life would have put stabilising its supply of stock and a potential sale of its remaining assets to The Natural Grocery Co ahead of capital expenditure on the Lane Cove pilot. I accept that it would have needed to tackle this project reasonably promptly thereafter as both the bank and the investors were expecting that the Retail Oasis recommendations would be implemented as a way of turning the company around if About Life did not sell its remaining assets to The Natural Grocery Co.
5. As to the other amounts, Mr Ross-Edwards said that the Surry Hills rent, superannuation and tax payments were taken into account in the board forecasts. Thus, About Life submitted that it was not appropriate to include these items as deductions from the sale proceeds.
6. The post-disaster forecast recorded unpaid Surry Hills rent of $297,005, which About Life proposed to pay in the week ending 2 July 2017. Legal expenses of $46,475 were proposed to be paid in two instalments in the week ending 30 July 2017 and 6 August 2017 (This appears to have been Mr de Fontgalland's fees for acting in the dispute with the Surry Hills landlord). Instalments due under the ATO payment plan were recorded for payment on dates according to the payment plan, as was a superannuation catchup payment of $314,434. These debts are not readily identifiable in the post-sale forecast. Presumably this is because, by 22 June 2017, About Life's cash flow problems were such that it could not attend to regular expenses budgeted in the post-sale forecast.
7. Whether these debts would have gone unpaid in the counter factual is uncertain. I have proceeded on the basis that these debts would have been paid from ordinary trading results rather than the proceeds of sale. I have treated the loan repayment differently (at [546]) as the cumulative expenditure of the loan repayment, rent, compliance payments and legal fees is such that, even taking into account the likely higher June 2017 revenue in the counter factual, I consider it unlikely that all of these bills could be paid from ordinary trading revenue.
8. One point on which both experts ultimately agreed was that no tax would be payable on the profit of the sale of Double Bay due to tax losses. As such, on my calculations, $4.723 million remained from the proceeds of sale.

How much was needed to pay suppliers?

1. About Life submitted that $2.2 million needed to be paid to suppliers to restore trading terms, whilst Maddocks submitted that $4.825 million was needed.
2. The post-disaster forecast included an Accounts Payable aging summary as at 16 June 2017, totalling $4.825 million. Suppliers were grouped according to days payable. Vendors with 30 days payable then totalled some $3 million; 40 days payable totalled $610,000; 45 days payable were some $900,000 and weekly suppliers were some $330,000. Mr Samuel proceeded on the basis that this would need to be paid from the net proceeds of sale. (On my calculations, this would basically exhaust the proceeds of sale, leaving only $119,000.) In doing so, Mr Samuel had regard to the payment terms on invoices rather than the Payable Days of 45 days in the board forecast for June 2017 or commercial arrangements described by Mr Ross-Edwards and Ms Phillips.
3. Mr Ross-Edwards strongly disputed Mr Samuel's calculation that, as at 30 June 2017, About Life owed over $1 million to suppliers who had supplied on a cash on delivery basis this figure "I have no idea where Mr Samuel got this information. … he didn't know every supplier intimately, and some people may have had 30 days on their invoice, but … we normally paid on a 45 day basis. It … varied … enormously …." Mr Ross-Edwards did not agree that all suppliers who had supplied more than 45 days previously would have been paid from the proceeds of sale. No, not necessarily. Look, we had fresh suppliers who we paid seven days, we had people we paid 30, we had people we paid 45 days and some we even paid 60 days, on a normal basis, and that had been going on … forever, not just in a period where we were cash strapped. … we would have paid the people to bring them into terms, to enable a supply to happen. … I have calculated that number at the time, which was 2 million I believe. So, and I stand by that number.
4. Mr Ross-Edwards agreed that he would possibly have paid debts that had been outstanding for more than 60 days "I would have looked at every supplier individually … this is not an exact science. … obviously I would have paid the older ones, but there may have been some of those people who were [in] dispute … I would have paid the amount required to bring them back [in] terms …"
5. Mr Morris took another course. Mr Morris increased the payment to trade creditors from the $2.25 million in the post-sale forecast to $3.2 million as the $2.25 million was based on outstanding creditors of $7.5 million while trade creditors as at 30 June 2017, according to the draft 2017 financial statements prepared by Deloitte, were some $8.1 million. With this increased payment of suppliers, trade creditors at 30 June 2017 were the equivalent of 45 days of cost of sales, which was consistent with board forecasts.
6. The contemporaneous documents assist in determining to what extent Accounts Payable had to be paid down in order to restore supply. In 2013, the bank noted that About Life had some 165 suppliers, with terms for non-perishable goods ranging from 60 to 90 days, whilst perishable goods ranged from 14 to 21 days. "Majority of suppliers are paid within 60 days indicating a positive cash flow cycle, which is the norm for retail/grocery industry." In January 2015, the bank noted that payables had increased slightly from 56 day to 65 days, "Generally fresh produce is 7-14 days, with grocery items up to 90 days. Aged listing is attached, confirming c. 63% is 30 days, and 29% is 60 days."
7. On average, About Life paid its suppliers on 47 days in the 2014 financial year, increasing to 50 days in 2015 and 53 days in 2016. In the 2017 financial year, this increased to 61 days. Ms Phillips said the increase reflected the cashflow difficulties that About Life was increasingly facing. It also indicates the suppliers' tolerance on trading terms: even in 'good' years, on average, suppliers were paid 47 days or 50 days, being more quickly than industry norms (according to the bank).
8. In Mr Green's update to investors in December 2016, Mr Green advised, "We … need to pay down days payable outstanding from 63 days to normal 45 days." In Mr Green's update to investors on 4 May 2017, he proposed to use $1.5 million from the proceeds of sale to "bring inventory back to optimal levels to drive sales."
9. The post-sale forecast, prepared in mid-May 2017, assumed that some $2.25 million of the proceeds of sale would be applied to reduce debts owed to suppliers and reduce Payable Days from 72 days to 45 days. It is reasonable to proceed on the basis that this recorded Mr Ross-Edwards' considered estimate as to how much needed to be paid to suppliers. This is consistent with Mr Ross-Edwards' evidence that, in April 2017, he had calculated the figure needed to bring suppliers back within trading terms as being about $2.2 million and thought it was approximately the same figure as at 30 June 2017.
10. On 17 August 2017, board minutes record that the $2.3 million injected by the founders had "gone a long way to correcting supply issues with out of stocks. Also payment plans with suppliers and constant dialogue has stabilised supply for most suppliers … expect to start building slowly in August 2017. However, additional funds required before all suppliers are on terms." This supports Mr Ross-Edwards' estimate that $2.2 million would be sufficient to resume supply, noting that not all of the $2.3 million injection was used for Accounts Payable. According to a presentation to the bank on 4 October 2017, since the injection of $2.3 million, Accounts Payable had been paid down by $1.4 million, with payable days improved from 56 to 48 days. Approximately 80% (or 182) of supplies were either in terms or had been receptive to payment plans and were supplying About Life without interruption. A further 26 suppliers continued to limit credit and reduce trading terms, resulting in interruptions to their supply.
11. The evidence indicates that About Life was aiming to reduce Accounts Payable to 45 days. There was flexibility in that figure, being the extent to which suppliers were prepared to tolerate late payment before resuming or continuing supply. Mr Samuel agreed that, if Ms Phillips and Mr Ross-Edwards had agreed commercial terms to which he was not privy, then they were in a better position to know what those terms were, however, "the consequence … is that the other funds that are being shown as being overdue will effectively get kicked down the road to the next month. You have to deal with them the next month. … So you need another two million in surplus funds to be able to settle it the following month."
12. I consider that Mr Morris' approach is preferable to Mr Samuel, as being more reflective of About Life's operations. It may be, however, that the Accounts Payable grew higher in June 2017 that it would have in the counter factual. As mentioned, About Life's revenue for June 2017 were $1.28 million less than the post-sale forecast, and the worst month for the year by far, likely reflecting the impact of the disrupted sale of the Double Bay store on cash flow, suppliers, inventory and customers. About Life had less funds to pay its suppliers during that month than may have been the case in the counter factual. Again, I note Ms Phillips' observation at [172].
13. The fact that the post-sale forecast amount of $2.25 million was a sensible estimate of the funds needed to pay down Accounts Payable is borne out by the fact that paying down these accounts by some $1.4 million, using part of the $2.3 million advanced by Ms Phillips and Ms Stewart, appears to have largely restored supply.
14. Taking each of these matters into account, I have rounded Mr Morris' figure down to $2.7 million as being the amount which needed to be paid to suppliers to restore supply to the stores. On my calculations, this would leave $2.023 million from the proceeds of sale.

How much was needed to restock the stores?

1. Ms Phillips said that, once suppliers were within trading terms, About Life would place orders for new inventory on regular trading terms, which were between 30 and 60 days. The new inventory would be paid for in, say, 30 to 60 days' time. Inventory would be increased at the same run-rate as sales. Mr Ross-Edwards said the credit terms on which About Life traded with most of its suppliers allowed for payment of products to be deferred until 'end of month plus 30 days'. In some cases, it was 'end of month plus 45 days'. This meant that for products purchased at the beginning of the month, payment was not due for between 60 and 75 days. Mr Ross-Edwards considered that these credit arrangements represented an important source of finance for the business. As I understood it, About Life would thus not need to spend money on new inventory from the proceeds of sale.
2. There is support for this evidence in the contemporaneous documents. In October 2015, when asked by the bank as to how inventory for the new stores was to be funded, Mr Ross-Edwards advised the bank, "Inventory is pretty much funded by supplier terms for a new store, with large suppliers we normally negotiate extended term for initial inventory." Mr Morris said that numerous business types operate with such "negative working capital", particularly businesses that are able to generate cash quickly by selling products or services to customers before they have to pay their suppliers or employees. Negative working capital is often a positive attribute for a business as it means the business can fund its operations by effectively borrowing from its suppliers. Supermarkets are one such industry; Woolworths and Coles have significant negative working capital.
3. Whilst About Life's reputation with suppliers had been damaged, Mr Ross-Edwards said, "I will say one thing about suppliers in my 35 years, as soon as you pay them, your reputation returns and they are very happy once you … have paid." This is consistent with Ms Phillips' observation to Mr Green on 24 April 2017 that, once About Life was in a position to pay suppliers and re-stock its stores "we will re-gain [credibility] relatively quickly."
4. However, Mr Morris had been asked to assume that About Life would have purchased an additional $3 million of inventory at the end of June 2017 in order to restock stores. This assumption is consistent with the post-sale forecast. On Mr Morris' calculations, About Life would have been in a position to make this level of purchases and, if required, could have paid suppliers for that inventory before the end of July 2017.
5. Mr Samuel considered that additional inventory of $4.239 million would need to be purchased, because inventory would also be needed for the Double Bay store, which was not included in the post-sale forecast. On the counter factual, About Life would continue to run that store under a licence. The figure for Double Bay inventory was calculated by Mr Morris, and adopted by Mr Samuel, based on the cost of sale at Double Bay store in the 2018 financial year and allowing for 60 Inventory Days. This seems reasonable.
6. On my calculations, About Life would have had $2.023 million to pay for new inventory, rather than the $3 million assumed in the post-sale forecast (without Double Bay) or $4.239 million (with Double Bay). Using the latter figure as more reasonable, About Life had half the funds needed to replenish the shelves to support the financial performance of the company post-sale. Whether About Life would have been able to achieve a similar result based on trading terms alone is doubtful. About Life's financial performance post-sale would likely have been less in the post-sale forecast. That is, About Life had a chance of trading profitably; a discount rate can be used to reflect the possibilities and probabilities of doing so with less inventory than forecast.
7. The parties agreed that, in the counter factual, Ms Phillips and Ms Stewart would have been prepared to provide $2.3 million to About Life. That is a reasonable assumption, noting that the founders advanced these funds after the disaster, when the company was in crisis, and thus may be expected to have advanced the same funds in the counter factual. As a presentation to the bank on 4 October 2017 observed, "the owners of the business … put up funds at a very precarious time and back[ed] themselves, while others [with] a lot more means backed away."
8. Taking this into account, About Life would have had $4.323 million at its disposal, being sufficient to pay for the additional inventory including the Double Bay store. Whilst the founders did not advance the $2.3 million until July and August 2017, there is no particular reason why they could not have done so earlier if need be, the funds being raised by mortgages on their homes. As I have proceeded on the basis that Surry Hills rent, superannuation and tax payments itemised in the post-disaster forecast would have been paid with ordinary revenue in the counter factual, the whole advance would have been available for inventory if need be. I am mindful, however, that both experts have factored in the $2.3 million advance in their models and, if the funds were advanced earlier to acquire new inventory, then the funds would not be advanced twice.

Future equity raise?

1. I consider that there was also a chance that About Life could have raised additional equity. Whilst Mr Thevenon, Mr Stead and Mr Beecroft appear to have become disillusioned with the company before the failed sale, it remained possible that Mr Green could have raised further equity from his group of American and high wealth Australian investors: see [237]. Mr Green was confident throughout - even when the crisis was at its worst - that he could raise equity if need be: see [153], [181], [204], [237]. This prospect would obviously have been enhanced if About Life was able to use the proceeds of sale to restore the stores' shelves, patronage and performance.

Future performance

1. Ms Phillips considered that, if the Double Bay store had been sold to Woolworths at the outset, there was no reason why About Life's stores and its catering division could not have been returned to a level of profitability commensurate with the 2016 financial year. Ms Phillips set out her forecast of anticipated growths in revenue in the 2018 financial year, totalling $63.5 million. Further, Ms Phillips believed that there was no reason why the business would not have continued to expand in New South Wales, Victoria and Queensland with equity funding, returning increased annual revenue and EBITDA. Mr Ross-Edwards did not agree that the continued downgrades to revenue forecasts throughout the 2017 financial year signalled that any recovery by About Life would be very slow, "With the right capital, I don't agree." Much then turns on the post-sale forecast and its reliability.

Analysis of post-sale forecast

1. The post-sale forecast predicted sales as follows: 1. Forecast sales for May 2017 were $5.8 million and, for June 2017, $5.5 million. The forecast predicted $68 million sales for 2017, with a gross profit of $28.2 million and increased EBITDA of $7.6 million, presumably by reason of the $10 million received for Double Bay. 2. The forecast sales and EBITDA for the 2018 financial year, being without the Double Bay store, were $66 million (up 18%) with EBITDA of $3.5 million (up 37%). The forecast envisaged capital expenditure at Lane Cove of $800,000, being Scenario 2 of Retail Oasis' recommendations. 3. For 2019, forecast sales were $73.6 million with EBITDA of $4.4 million (both up 20%).
2. Mr Ross-Edwards, in collaboration with Ms Phillips, prepared the sales forecasts, which took into account a proposed upgrade to sites and initiatives to boost sales. When asked what analysis was carried out in respect of the forecast increase in revenue, Mr Ross-Edwards said they looked at past performance, the fact that they had just been through the worst financial year that the company had ever had, the fact that the business was cash-strapped and lacked stock throughout the year "and when you look at those numbers and go back and then reproject, that number … had validity." Mr Ross-Edwards disagreed that there was no real basis for such a forecast; the problems which the business had experienced by reason of its rapid expansion had been substantially resolved. This meant that "whatever we did, programs that were put in place could have a positive effect".
3. The post-sale forecast proceeded on the basis that About Life would retain the Surry Hills and Cammeray stores. This was not what Retail Oasis had recommended, being recommendations which the board had earlier decided to implement. Mr Ross-Edwards said, by then, the board had decided not to close the Surry Hills and Cammeray stores. Whilst, the board minutes did not formally record such a decision, the fact that a decision was taken not to close the Surry Hills and Cammeray stores, at least for the time being, is corroborated by their inclusion in the post-sale forecast. Ms Phillips said that the board did not have a strategy for how to execute the closure of those stores, "it would be misleading to have taken them out [of the forecast], if we didn't have a strategy for how we were going to close them." In reality, the board did not have much choice in the matter as the landlords of both stores simply would not agree to About Life's various proposals to 'get out' of those leases, as is well documented in the contemporaneous records. As Ms Phillips explained, closing stores was as problematic as opening them.
4. The forecast sales revenue for the Lane Cove store was significantly higher than that predicted by Retail Oasis. Sales were forecast to increase from $6.1 million in 2017 to $9.9 million in 2018, being a 62% increase. This far exceeded Retail Oasis' projected increase in sales, on implementation of Scenario 2, of 15%. Ms Phillips did not agree that this forecast increase was untenable. The uplift predicted by Retail Oasis did not take into account the closure of the Double Bay store, which would have the consequence that Lane Cove would become the prime store in the About Life group. The Double Bay store's management team would be moved to Lane Cove, where there had been management issues. Executives, even up to Ms Phillips' level, would also be actively involved in the store as the pilot store. Ms Phillips considered forecasts to be "an achievable target, and I stand behind that."
5. Mr Ross-Edwards said that Ms Phillips put the forecast together, "[I]t made sense to me at the time. … [I]t's not untenable in my opinion. … the assumption sounded reasonable at the time." Further, "I was happy with that … Lane Cove was a very underperforming store … so changes to it could have had a very rapid response …" Mr Ross-Edwards said he would have looked at the assumptions of high growth at the time and given them thought, "based on that store … it's possible that it was quite achievable."
6. Mr Samuel considered the post-sale forecast was optimistic and unreasonable, given the performance of the stores and catering in the 2016 and 2017 financial years. When actual results for May and June 2017 were taken into account, Mr Samuel considered that the forecast increases in sales and EBITDA were very unlikely to eventuate. The force of this observation is diminished given events which unfolded in late May 2017 and June 2017, which may not have occurred in the counter factual. As Mr Ross-Edwards put it, a "catastrophic event" happened the week after the post-sale forecast was promulgated.
7. The experts agreed that they had seen nothing that would cause them to think that the forecasts were deliberately overstated or inflated. There is no reason to doubt that the forecasts were Ms Phillips and Mr Ross-Edwards' genuine formulation, after consideration, of how About Life's business would trade following the sale of the Double Bay store and the deployment of the net proceeds of sale and other company resources to the remaining stores. Whether those forecasts can be relied upon, or should be adjusted in any quantification of damages is the issue.

Reliability of forecasts

1. Mr Samuel considered that About Life's forecasts were unreliable. In making this assessment, Mr Samuel analysed the forecasts, and revised forecasts, during the 2017 financial year. From July to September 2016, actual EBITDA was relatively consistent with the forecast but, from October 2016 on, EBITDA was consistently less than forecast. From December 2016 on, monthly forecast revenue and EBITDA was significantly reduced each month in the management accounts. Despite regular revisions of the 2017 budget, About Life continue to perform under budget. Mr Samuel also observed that revenue for 2015 was 4% below budget and revenue for 2016 was 3% below budget. He concluded that About Life consistently failed to meet budgeted performance and About Life was unable to budget with any degree of accuracy.
2. Mr Ross-Edwards strongly disagreed with Mr Samuel's opinion that About Life's financial forecasts were too optimistic. About Life submitted that, in relation to 2015 and 2016 financial years - noting that the revenue forecast was broadly accurate - the expenses must have been inaccurate to produce inaccurate EBITDA forecasts for those two years. Both years had one-off increases in expenses caused by the expansion of the business by the acquisition of sites, being expenses which would not be replicated in ordinary circumstances.
3. The evidence as to how About Life's forecasts were prepared every year indicated that it was a time-consuming process. Ms Phillip prepared forecast sales and wages. Mr Ross-Edwards reviewed Ms Phillips' sales forecasts "for trends more than anything else". Mr Ross-Edwards provided the remaining items in the forecasts. Mr Ross-Edwards said that he considered the forecasts to be realistic. He prepared the forecasts in consultation with Ms Phillips. He did not at any time seek to overstate the position.
4. When preparing forecast sales, Ms Phillips used historical data as the starting point, then reviewed the strategies in place for the next period. Ms Phillips said, "There are a lot of considerations when you are putting sales forecasts together. … [P]reparing sales forecasts for stores that don't have history does present … obviously greater challenges than stores where you have a lot of history, a lot of data to work with".
5. Bearing in mind that a forecast is a prediction about the future, and to that extent is bound to be inaccurate to some extent, About Life's forecasts appears to have been generally good predictors of financial performance of the business. The bank certainly formed this view in 2011 (see [29]), in 2013 (see [42]), in 2015 (see [75], [92]) and in 2016 (see [118]). The bank was a sophisticated consumer of financial material and scrutinised the forecasts in the course of its annual review and when considering applications for additional finance or covenant breaches. The bank also reviewed the post-sale forecast, which it considered was "underpinned by more conservative assumptions and in our view more accurately reflect the group's current trading position".
6. For the 2014 financial year, according to Mr Ross-Edwards, forecast revenue for the 2014 financial year was some $32 million. Actual revenue was over $36 million, being 12% above budget.
7. For the 2015 financial year, revenue was less than had been budgeted, by $2 million, where revenue had been forecast to increase from some $36 million in 2014 to $53 million in 2015. Mr Ross-Edwards said that, if forecast revenue was adjusted for the late opening of the Surry Hills store, then the forecast was some $35 million such that actual revenue was 2.2% below budget.
8. That is, whilst About Life had forecast an increase in revenue of 46%, only 40% had been achieved. Similarly, EBITDA had been forecast to increase from $3.3 million in 2014 to some $5 million in 2015. Rather than the forecast increase of 52%, an increase of 21% in EBITDA had been achieved. Given the growth which had been achieved, however, it is unlikely that anyone was complaining.
9. For the 2016 financial year, forecast revenue was $57 million, being a more modest 12% increase on 2015 revenue. As it turned out, actual revenue for the 2016 financial year was over $59 million, being 3.7% above budget.
10. For the critical 2017 financial year, Mr Ross-Edwards prepared the forecast in April 2016. Total sales of $81.4 million were forecast, with a gross profit of $33.9 million and EBITDA of $5 million. This represented a 38% increase in revenue on 2016 revenue. Mr Ross-Edwards said revenue projections were buoyed by the successful opening of the Lane Cove and Port Melbourne stores. He considered that those stores commenced trading very well and had high expectations for the new Crows Nest store. He was also expecting that the opening of the new kitchen and warehouse facility at Wetherill Park would contribute to the financial success of the business.
11. Mr Ross-Edwards said the original budget had the new stores starting earlier than they actually did, Crows Nest had only been operating for two weeks and the extent of cannibalisation of existing stores had not been anticipated. He did not then anticipate the extent of the problems that About Life would encounter as a result of its rapid growth, nor the significant failure of the new IT system.
12. As the financial year unfolded, budgeted and actual revenue for the first quarter, being July to October 2016, roughly aligned. The gap between forecast and actual revenue widened in the second and third quarters and increased from 26% below budget to 38% below budget in the final quarter ending June 2017. Ms Phillips accepted that her forecasting efforts in the 2017 and 2018 financial years were not accurate; 2017 "was a very, very difficult year".
13. Mr Samuels' criticism is largely based on the period from October 2016 to June 2017. The 2017 financial year included a series of events which might be considered outside About Life's ordinary business; it was not surprising that a forecast prepared before the events manifested themselves proved well 'off the mark'. Preparing forecasts in that year which proved to accord with actual results would have been difficult.
14. Nor do I consider that Mr Ross-Edwards and Ms Phillip can be criticised, as I understand that they were, for regularly revising the forecast when they formed the view that things had changed and the current forecast was no longer a reasonable predictor of financial performance. Mr Ross-Edwards explained that each forecast was based on assumptions and, as the months moved by and cash and capital raising was pushed back, then assumptions changed and forecasts were missed. Mr Ross-Edwards agreed that this forecast proved to be optimistic. "[T]hey were done [on] assumptions at the time … based on … whatever … was happening at that time and they were the best at that time … they proved not to be accurate. And circumstances changed dramatically over that time. And that is why we sold the Double Bay store."
15. In the result, I consider that the post-sale forecast can be used as a basis for considering About Life's performance in the counter factual, with adjustments (if possible) to reflect the findings of fact I have made and discounted to reflect the possibilities and probabilities.

General financial health

1. Having analysed About Life's stores' revenue, EBITDA and customers, Mr Samuel said that the commencement of About Life's decline appears to have been in about July 2015. After this, About Life was having difficulty meeting its short-term liabilities (having regard to its current, or working capital, ratio). It became predominately funded by creditors and bank borrowings rather than shareholders. Thereafter, each store's EBITDA, customer numbers and customer basket sizes generally declined.
2. Mr Samuel observed that there was a working capital deficit of $5.3 million as at 30 June 2016, where negative working capital indicates that a business cannot cover its current liabilities from its current assets. About Life's inventory balance had increased to $8.1 million. Although the extent of inventory write-offs caused by the defective Bepoz system were not then appreciated, Mr Samuel says that, if the inventory write-off attributable to the 2016 financial year is taken into account, About Life's reported 2016 EBITDA of $2.5 million would have been eliminated, and a negative EBITDA would have been reported instead. Mr Samuel said that EBITDA was the best indicator of cashflow, "if that's negative, it says at an operating level you're making a loss."
3. Mr Morris did not agree that there was a general decline in each store's EBITDA from July 2015. Mr Morris agreed that About Life had negative working capital, and its working capital ratio deteriorated particularly during 2016 and 2017, but did not agree that About Life had to have positive working capital to be in good financial health: see [570].
4. Mr Samuel has undertaken a very detailed review of About Life's financial statements and management accounts, and its historical performance to 30 June 2017. That is only part of the picture. Other parts include the people and events which produced those figures, and which I have endeavoured to summarise in this judgment. Mr Samuel was not asked to consider, or make assumptions, as to whether the events were recurring, the problems had been fixed or the people were able to manage the business better going forward.
5. Having now reviewed a vast amount of evidence on the events which unfolded, I consider that About Life was a company with an experienced and responsible board of directors and competent management. Corporate governance was sound. Financial management was attentive. When new investors joined the company, About Life developed ambitions to expand more aggressively. In 2016, it took on three stores in quick succession while also establishing a new kitchen/warehouse facility and implementing a new IT system. A large amount of one-off expenses occurred. Management was stretched. The new IT systems wasted a large amount of precious cash, the full extent of which was not appreciated at the time.
6. But these were not recurring problems. By June 2017, these problems had been identified and either dealt with or were in the process of being dealt with: see [126], [180], [206], [580]. To the extent that Ms Phillips may not have been able to manage About Life's larger business going forward, steps were underway to recruit a new chief executive officer: see [389]. Further, whilst the contemporaneous documents make several general references to increased competition in the market in which About Life operated (see [91], [381]-[382], [397]), there is insufficient evidence to conclude that there was any material change such that the business was doomed to fail. That is, I do not consider that About Life's business was such that it had no chance of trading profitably going forward.

VALUE OF LOST CHANCE

1. How then does one value the loss of chance? It is necessary to understand the experts' models to assess whether the models can incorporate the findings I have made or otherwise assist in determining the probabilities or possibilities in the counter factual.

Experts' models

1. Mr Morris initially estimated the value of About Life's lost chance using the post-sale forecast as a basis for predicting About Life's financial performance in the counterfactual. It will be recalled that the post-sale forecast was prepared on the basis that About Life would receive $10 million from the sale of the Double Bay store by 30 June 2017 of which $4 million would be paid to the bank, $2.25 million would be paid to supplier to reduce debts, operation of the Double Bay store would cease from 1 July 2017 and About Life's remaining stores would be re-stocked for $3 million. Directors' loans would be repaid by $500,000 in May 2017 and a further $1 million in 2018. Significant savings would be achieved in the operation of the kitchen in Wetherill Park by reducing labour costs by almost half in the 2018 financial year.
2. As the last matter, Mr Samuel cited the forecast reduction in kitchen expenses as "an example of unreasonably optimistic forecasting". Ms Phillips explained that, in June 2017, the project manager employed to establish the kitchen facility came to an end of his short-term contract, which reduced the kitchen costs by some $180,000 a year.
3. Mr Samuel considered that About Life's forecasts were so unreliable that the adjustments made by Mr Morris to the post-sale forecast did not provide a proper basis for About Life's financial performance in the counter factual, as the forecast sales for 2018 and 2019 remained. Mr Samuel made further adjustments to the post-sale forecast as adjusted by Mr Morris. He replaced the Double Bay store's forecast 2018 sales with its actual 2017 sales, re-calculated forecast 2018 and 2019 sales based on the implied percentage increases in the board forecasts and adopted the forecast weekly revenue in the post-disaster forecast, which forecast revenue to 31 December 2017. Mr Samuel assumed even sales for the rest of the financial year and adjusted inventory purchases and trade creditors accordingly.
4. Whilst I agree that Mr Morris' assumption that sales occurred evenly in each month of the 2018 and 2019 financial years is not how sales would have occurred - sales had seasonal variations, at least - adopting figures from the post-disaster forecast is not a good predictor of sales in the counter factual either. The context in which Ms Phillips provided the post-disaster forecast to Woolworths, Korda Mentha and the bank was in a financial emergency. In the month which followed discovery of Woolworths' right of first refusal, the evidence suggests that the position with About Life's suppliers materially deteriorated with consequential effects on revenue. It may well have taken more to retrieve the position than if suppliers had been amenable to continuing to trade with a definite payment in view from the proceeds of sale of the Double Bay store.
5. In addition, Mr Samuel assumed the bank would require $5.333 million from the proceeds of sale, $4.825 million would be paid to suppliers and $1 million would be used for the Lane Cove pilot store. In Mr Samuel's first report, he calculated that the proceeds of sale would not have generated any surplus to be used to restock shelves or restructure the business. Thus, About Life's trading results in the counterfactual would have been worse as the business would no longer have enjoyed revenue from the Double Bay store. Lost revenue from the Double Bay store exceeded the additional interest which About Life paid the bank while waiting for the net proceeds of sale. Thus, About Life suffered no, or minimal, loss in the counterfactual.
6. On receipt of Mr Samuel's report, Mr Morris re-visited his work and adjusted the post-sale forecast to better reflect events which About Life say would have occurred. 1. The draft 2017 financial statements prepared by Deloitte, albeit never finalised, were used for About Life's actual financial results for the 2017 financial year. Although Mr Morris expected that About Life's financial performance in June 2017 was worse than it would have been in the counter factual - as suppliers were informed that the Double Bay sale was now in doubt and responded accordingly - he was not in a position to estimate the effect that it may have had on results and thus assumed that the trading results for May and June 2017 would not have been significantly different in the counter factual. 2. Mr Morris increased the amount to be paid to the bank to $4.3 million to take into account the debt repayment due by 30 June 2017 that was not made and increased the amount paid to suppliers to $3.2 million for Accounts Payable, as already described. 3. The Double Bay store would have operated under a licence from Woolworths for 12 months to 30 June 2018 at levels consistent with its operations to April 2017 and as forecast for May and June 2017 (with the forecast kitchen savings requiring an adjustment accordingly). 4. About Life's directors would have provided additional support to the company, being $2.3 million loans that were advanced in July 2017 and non-repayment of the directors' loans that had been made during the 2017 financial year. Mr Morris also considered, in the counterfactual, that the possibility of further capital raisings remained.
7. As already mentioned, on Mr Morris' calculations, About Life would have had some $2.6 million of cash at 30 June 2017, after paying the bank and reducing creditors. Mr Morris concluded that, if About Life had traded consistently with his adjusted forecast, About Life would have had sufficient financial resources to reduce its indebtedness to the bank by $4.3 million, reduce its indebtedness to trade creditors to an amount equivalent to 45 days of cost of sales, and continue to maintain trade creditors at that level; to purchase additional inventory and restock stores to carry inventory equivalent to 60 days of cost of sales by the end of July 2017 and maintain that level of inventory to pay other creditors and maintain those liabilities at levels consistent with those at 30 June 2016; to fund capital expenditure that was included in the board forecasts, including on the Lane Cove store; and to make the ongoing quarterly repayments to the bank. Whilst About Life would, on occasion, continue to breach bank covenants until December 2017 by reason of the company's extremely poor performance in the 2017 financial year, About Life would have complied with bank covenants thereafter.
8. In Mr Morris' opinion, About Life's loss was the difference between the value of the business as a going concern, assuming that it traded in accordance with the adjusted forecasts, compared with the actual value of About Life when it went into administration. Mr Morris acknowledged that his calculation of loss had not been discounted to reflect the risk that About Life would not have operated consistently with his adjusted forecast, regarding this as a matter for the Court.
9. If About Life traded consistently with Mr Morris' adjusted forecast then About Life's business would have been valued at $18.7 million as at 30 June 2019, being the amount determined by the capitalisation of About Life's future EBITDA of $4.4 million and applying a multiple of 4.25. He assumed that About Life would have been capable of maintaining that level of EBITDA in the 2020 financial year. Mr Morris projected that About Life's net debt as at 30 June 2020 would have been $2.6 million, resulting in a net value of About Life's business of $16.1 million. In fact, when About Life went into administration, its liabilities exceeded its assets by $11.8 million. Accordingly, Mr Morris assessed About Life's loss as the difference between these two outcomes, being $27.9 million.
10. In determining the appropriate multiple by which to capitalise About Life's future maintainable EBITDA, Mr Morris took into account the two offers made by The Natural Grocery Co, one before and one after the sale of the Double Bay store, and calculated the EBITDA multiple implicit within those offers, being between 4 and 4.7. He also had regard to Deloitte's valuation considerations during the 2017 audit, being 4 and 4.5 times EBITDA while McGrathNicol considered a generic range of multiples of three to five times. Mr Morris considered an EBITDA multiple of 4 to 4.5 times EBITDA to be appropriate and adopted the mid-point. (As to an appropriate multiple, I note that, in December 2016, the bank used a multiple of 4.0.) As to the discount rate to be used, Mr Morris used 15% having regard to the offers made by The Natural Grocery Co and Harris Farm but making allowance for the premium in these offers referable to the Double Bay store.
11. Mr Samuel considered that estimated profits for financial years 2018 on should be adjusted to represent the best estimate of the most likely outcome, then discounted to 30 June 2017 - being the date when the hypothetical financial results first differ from the actual results - at an appropriate discount rate to allow for the time value of money and the risks inherent in earning the forecast profits. Mr Samuel did not commit to a more suitable discount rate, but ventured that 20% may be more appropriate. Court interest may then be calculated from the date of loss to the present day.
12. With the further adjustments made in Mr Samuel's second report, his forecast resulted in About Life having a positive cash balance in July 2017 but a negative cash balance in August and September 2017. Thereafter, the cash balances remained negative for the December 2017 and March 2018 quarter, before returning to a positive cash balance as at 30 June 2018 and a negative cash balance as at 30 June 2019. Maddocks contended that, in the counter factual, About Life would have continued to breach its covenants and the bank would have exercised its rights arising from such breaches.

Submissions

1. About Life submitted that there was evidence that the bank either was, or may have been, willing to accept that the profit on the Double Bay sale be recognised in calculating the leverage ratio, as it had in 2016. Mr Green's contemporaneous investor update reported, "the bank will recognise the one-time gain in EBITDA for Q4 FY17 as a result of the gain on the sale of the DB store, which will benefit the rolling EBITDA figure and effectively give us 12 months with substantial headroom on our covenants". As such, it was submitted that Mr Samuel's calculations on bank covenants could be put to one side as he has not recognised the profit from the sale of the Double Bay store in his calculations.
2. About Life submitted that the actuals for at least June 2017 do not properly reflect the counter factual. That is because it is clear that the prospect of the litigation itself and the dispute with Woolworths had an adverse impact on the relationship with suppliers. About Life submitted that the use of an appropriate multiplier in itself factors in the risk that the company will not perform as forecasted. The Court could adopt an approach of further discounting the $18.7 million figure by 23.5%, which would lead to a reduction of $4,394,500.
3. Otherwise, About Life submitted that its loss may be calculated by reference to the non-binding indicative offer made by The Natural Grocery Co in May 2017, being an offer allowing for the sale of Double Bay for the shares in About Life of $13.5 million, on a debt free basis. The net debts as at 30 June 2017, according to Mr Morris, were $4,315,308. It was appropriate to allow for a reduced discount for the lost chance on this scenario, as there were fewer contingencies associated with chance of selling the business for the amount offered by The Natural Grocery Co than in continuing to conduct the business.
4. Maddocks submitted that the chance About Life said that it had lost was no greater than about 5%. Maddocks submitted that there was a real issue in valuation methodology in relying upon conditional non-binding indicative offers: Yakiti Pty Ltd v MacDonald [2019] NSWSC 1772 at [197]. As to About Life's net debt, Maddocks submitted that the net debt of $2.6 million used by Mr Morris included $1.011 million of cash, being the projected cash position at 30 June 2019 and $3.471 million cash as at 30 June 2020. Even if it were correct to add the 2020 financial year (which it was submitted it was not because Mr Morris had already valued About Life at 30 June 2019 and adding EBITDA for the 2020 financial year was double counting) then those cash flows would need to be discounted because the earnings were not certain. Maddocks submitted that the reduction for net debt was at least $6.044 million (when the 2020 financial year cashflows were removed) and probably closer to $6.5 million.

Conclusion

1. As to when damages should be assessed - being as at 30 June 2020 (Mr Morris) or 30 June 2017 (Mr Samuel) - damages for torts or breach of contract are generally assessed as at the date of breach. As Mason CJ explained in Johnson v Perez (1988) 166 CLR 351 at 355-356; [1988] HCA 64: There is a general rule that damages for torts or breach of contract are assessed as at the date of breach or when the cause of action arises. But this rule is not universal; it must give way in particular cases to solutions best adapted to giving an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered … The general rule that damages are assessed as at the date of breach or when the cause of action arose has been applied more uniformly in contract than in tort and for good reason. But even in contract cases courts depart from the general rule whenever it is necessary to do so in the interests of justice.
2. In Ng v Filmlock Pty Ltd (2014) 88 NSWLR 146; [2014] NSWCA 389, Gleeson JA (with whom Tobias AJA agreed) noted that the general rule may give way to another approach where the plaintiff has acquired an asset which would not otherwise have been acquired and the asset is not readily marketable at the time of acquisition: see Vieira v O'Shea [2012] NSWCA 21 at [45]. However, Gleeson JA observed at [59]: It needs to be emphasised that departure from the general rule is not a matter of discretion: Clark v Macourt at [109] (Keane J). A vendor claiming damages assessed at a date later than "the date of breach" must demonstrate that there are particular reasons on the facts which would make it unjust to apply the prima facie or "usual" measure of damages.
3. As I understand it, Mr Morris calculated loss as at 30 June 2020 for convenience, being one month before preparation of his second report. That is not sufficient reason to calculate loss at that date. Further, it involves making further assumptions as to how About Life would have performed beyond the post-sale forecast, which makes the figures for 30 June 2020 less dependable in circumstances where the figures being considered are large and a sound foundation is important. I am uncomfortable going beyond the post-sale forecast, which extended until 30 June 2019 and itself involved an element of speculation which will need to be adjusted by an appropriate Sellars discount.

Value based on post-sale forecast

1. Based on Mr Morris' model, About Life's EBITDA for 30 June 2019 was $4.42 million. Using Mr Morris' 4.25 multiple, the value of About Life was then $18.785 million. About Life's net debt was forecast to be $6.044 million (having removed the cashflow forecast for the 2020 financial year). The net value of About Life as at 30 June 2019 was therefore $12.741 million. Discounted to 30 June 2017 using Mr Morris' 15% per annum discount rate (which I have compounded monthly), the value of About Life in the counter factual was $9.456 million. Using Mr Samuel's suggested discount rate of 20% per annum (compounded monthly), About Life's value was $8.569 million.
2. If I use Mr Samuel's spreadsheet, forecast EBITDA for 30 June 2019 was $3.808 million. Using Mr Morris' multiple of 4.25, About Life was worth some $16.184 million. About Life's net debt, as forecast by Mr Samuel, was $7.517 million, leaving About Life with a net value of $8.667 million. Discounted to 30 June 2017 using a 15% per annum discount rate (compounded monthly), About Life's net value was $6.433 million. Using a 20% per annum discount rate (compounded monthly), About Life's net value was $5.829 million.
3. Despite effort, I have not been about to re-run the experts' financial models with the different figures which follow from the findings I have made. Presumably, this is why the authorities suggest that the Courts take a 'broad brush' approach. I am inclined to use Mr Morris' model, as I am discounting the loss of chance as posited by About Life, as in Burger King v Hungry Jack's where Hungry Jack's evidence as to how it would have grown absent Burger King's conduct was used as a basis for the Court's calculations, discounted to adjust for "the degree of the decision-maker's confidence in that best estimate": at [596].
4. The post-sale forecast may not have been achieved as insufficient funds were available from the net proceeds of sale to acquire new inventory identified by management as needed, unless the founders' advance of $2.3 million was also used (which is taken into account elsewhere in the models). I note also the general 'rule of thumb' in marketing explained by Ms Phillips: loyal customers will persevere for two or three shopping trips but will then stop coming. Given the lack of stock in About Life's stores for several months leading up to the replenishment of stock, additional time may have been needed to tempt shoppers to return: see [176].
5. I note that, when About Life considered Woolworths' revenue figures for the three Thomas Dux stores, About Life reduced those figures by 20% when deciding how much it was prepared to pay for the stores: see [80]. Likewise, the bank reduced About Life's forecast revenue figures by 20% when considering the post-sale forecast: see [436]. I consider that it is appropriate to apply a higher discount, given that the new inventory identified in the post-sale forecast as necessary to drive revenue was, in part, not available on the counter factual. Overall, I have applied a Sellars discount of 40% to the value of About Life in the counter factual, being $5.67 million.

Value based on The Natural Grocery Co offer

1. A useful check on my assessment is the amount which The Natural Grocery Co may have been prepared to pay for About Life's business before disaster struck. In Yakiti v MacDonald, Hamill J noted that the conditional nature of a non-binding indicative offer made in that case meant that it provided a valuation that was of very little probative value. There, the offer was "conditional on a number of imponderable and disputed circumstances" including that the purchaser hoped to re-brand the businesses whilst the vendor's parent company in the United States would not permit re-branding: at [197]-[198].
2. This was unlike an offer considered by the Court of Appeal in MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451. There, Spigelman CJ (Mason P and Hodgson JA agreeing) observed that an offer by a purchaser "is not only relevant it is highly probative. Indeed, whilst allowing for the possibility of further bargaining, it is difficult to conceive what better evidence there could be. Expert evidence may establish that such an offer is inadequate but, unless there are special considerations, the offer clearly establishes a floor": at [97].
3. Here, I consider that the non-binding indicative offer made by The Natural Grocery Co after it was informed that the Double Bay store had already been sold is indicative of value. Whilst the offer was subject to due diligence, it was not "conditional on a number of imponderable and disputed circumstances". The Natural Grocery Co non-binding indicative offer of $13.5 million assumed that About Life would be acquired on a debt free basis with a normal level of working capital (to be agreed). Debt included bank debt, finance leases, GST and any tax payable, other interest bearing debt and entitlement / bonus accruals for staff. As Mr Samuel analysed this offer after allowing for About Life's debts, the price was $5.64 million. From the offer price of $13.5 million, Mr Samuel deducted bank debt of $6.215 million (term debt, credit cards and equipment leases), tax liabilities of $681,000 (PAYG and GST) and employee and superannuation liabilities of $964,000. Mr Morris did not comment on this calculation. As I understand it, Mr Samuel took About Life's board pack for March 2017, containing its actual results, and reduced bank debt by $4 million to reflect the intended repayment following the sale of the Double Bay store. On the counter factual, I have concluded that About Life would more likely have reduced its bank term debt by $4.5 million such that the indicative price was $6.14 million.
4. One could apply a Sellars discount to this figure, on the basis that following due diligence, The Natural Grocery Co would have made a lower offer or withdrawn altogether. The purchase price was based on the 2017 EBITDA run-rate excluding Double Bay based on About Life's financial results to March 2017. The actual results for May and June 2017 were worse, albeit not necessarily worse, or as worse, in the counter factual. Likewise, About Life may have negotiated a higher figure. It ought not be forgotten that David Jones had also expressed an interest in About Life's stores. These sites clearly had value to other retailers (see [450]), which is perhaps not surprising when one considers the time and effort expended by About Life in establishing these stores itself: see [59], [694]. Overall, I have applied a Sellars discount of 10% to this figure, being $5.526 million. This figure need not be further discounted as it was an offer made at the time of breach, with a view to executing a share sale agreement on 30 June 2017.
5. By April or May 2017, the investors' preference appears to have been to sell About Life's remaining stores - if a suitable price was negotiated - rather than press on. Whilst Ms Phillips appeared more inclined to re-build and expand the business, the founders were minority shareholders and, for the right price, would not have been unhappy if the remaining assets were sold and, indeed, would have had little choice in the matter. In the counter factual, I consider it more likely that About Life would have accepted The Natural Grocery Co's offer subject to endeavouring to increase it by further negotiation.

Net loss

1. Whilst there is an element of uncertainty in how About Life would have performed in the counter factual, there is no uncertainty as to how About Life in fact performed, going into administration on 17 December 2018 with net liabilities of $11.8 million. Thus, whilst it is appropriate to discount this figure to reflect the time value of money and thus compare 'apples with apples' as at 30 June 2017, the discount rate will necessarily be less. I have used the Reserve Bank cash rate plus 2%, being 3.5% per annum (compounded monthly). The value of About Life as at 30 June 2017, as events in fact unfolded, was -$10.37 million.
2. Maddocks submitted that, in order to calculate About Life's loss of chance in accordance with the principles in Sellars, the Court would need to add the value of About Life in the counter factual - either based on its future performance or the offer from The Natural Grocery Co - to About Life's losses at the date of administration and then estimate About Life's chance of achieving the benefit of both avoiding the administration losses and realising the value in the company. To the extent that Maddocks suggested that there should be two Sellars' discounts, it is not clear why this is so. Self-evidently, if About Life continued to trade and prosper then it would not have gone into external administration.
3. About Life is entitled to such damages as will put it in the position it would have been in had Maddocks done what they should have done. About Life lost a chance which had real value because the prospect of a successful outcome was substantial rather than speculative. It was lost by Maddocks' conduct. About Life's damages are the difference between the trajectory which the company took, being external administration, and the trajectory it would have taken if it had entered into a contract with Woolworths at the outset. About Life's damages are the gap between the two trajectories.
4. Using $5.526 million as the value of the lost chance, being the effective sale price to The Natural Grocery Co less a 10% Sellars discount, the difference between the counter factual and About Life's actual fate as at 30 June 2017 is $15.896 million.

WOOLWORTHS' COSTS

1. About Life also claimed loss comprising its liability for Woolworths' costs of the proceedings. Maddocks submitted that there was no basis to award damages for the $325,000 paid by About Life to Woolworths in respect of Woolworths' costs of the proceedings. Of this sum, some $11,600 was said to relate to Woolworths' costs of obtaining Council approval for the assignment of the Double Bay lease (being 75% of $15,139 and adding $286.47, reflecting how the settlement figure of $325,000 was said to be calculated). While About Life made a commercial decision to pay those costs, the costs were not referable to Emmett AJA's orders and not recoverable from Maddocks. The Court would not conclude that the remaining $313,000 represented Woolworths' recoverable costs in the Woolworths Proceedings. There was said to be an onus on About Life to prove the reasonableness of its commercial compromise with Woolworths: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38 at [6] per Brennan CJ; see also at [35], [38]-[41] per McHugh J; [70] per Gummow J, [99(1)] per Kirby J and [129]-[136] per Hayne J. Alternatively, Emmett AJA's costs orders provided that About Life and Harris Farm were jointly liable to pay Woolworths' costs. As such, Maddocks could only be liable to pay half at most. Using a broad-brush approach, the Court could not be satisfied that any sum greater than $100,000 is payable.
2. About Life submitted that Maddocks had not pleaded a failure to mitigate and that it would be unfair to allow Maddocks to argue such a defence. Further, and in any event, the settlement was said to be reasonable especially given the predicament that About Life was in at the time. It was submitted that the settlement reflected "a perfectly rational and reasonable approach".

Consideration

1. As to Maddocks' maths, it is not clear why $11,640.72 of the $325,000 is not referrable to About Life's liability under the costs order made by Emmett AJA. Mr de Fontgalland's email of 24 November 2017 stated that $325,000 of the total payment to be made by About Life would be allocated "to Woolworths' costs of the litigation". As Latham CJ explained in Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 370-371; [1943] HCA 4, "The debtor has the right when he makes a payment to appropriate the money to any of the debts owing to his creditor as he pleases, and, if the creditor takes the money, he is bound to recognize this appropriation": at 370-1. Further, at 371: (emphasis added) Neither the Commissioner of Taxation [there, a third party] nor any other person can, in my view, challenge an appropriation so made so as to bring about the result that a payment made in fact on one account shall, in defiance of the intention of the parties to which long-established principles of law give effect, be treated as if it had been made on some other account. If a creditor, having the legal right to do so, chooses to appropriate money towards the payment of one debt rather than towards the payment of another debt, both creditor and debtor are bound by the appropriation and no third party, such as the Commissioner, can have anything to say in the matter. See also Caltabiano v Electoral Commission of Queensland (No 1) [2010] 1 Qd R 100; [2009] QCA 182 at [29]-[34] per Muir JA and at [107]-[111] and [116] per Fraser JA.
2. Costs of litigation that are reasonably incurred in an attempt to reduce losses caused by wrongdoing are a head of loss: Talacko v Talacko at [60] per the Court, following Gray v Sirtex Medical Ltd (2011) 193 FCR 1; [2011] FCAFC 40. In Gray v Sirtex Medical at [26], the Court held that a correct statement of the law was that expressed in Berry v British Transport Commission [1962] 1 QB 306 by Devlin LJ at 321, being: (emphasis added) … if as the result of a breach of contract ... or a tort ... a person … loses an action brought by a third party [here, Woolworths], he may recover against the wrongdoer [here Maddocks] who has broken his contract or committed the tort the costs of the suit; and he will get all the costs he has reasonably expended. The wrongdoer may not argue that the plaintiff is entitled only to party and party costs, notwithstanding that that is all he could or would have got from the third party if he had been successful.
3. Unity Insurance is not applicable. In Unity Insurance, an insured sued its insurer and insurance broker, where the broker had negligently failed to fully disclose the insured's claims history to the insurer when arranging the policy. On making a claim on the policy, the insurer refused to pay the full amount which would have been payable under the policy if not for the non-disclosure. The insured settled its claim against the insurer and sued the broker for the balance. The majority held that the insured's damages were the difference between what it would have recovered under the policy the broker ought to have arranged and the amount recovered under the settlement with the insurer, as long as the settlement was reasonable. It was not necessary for the insured to prove that the insurer was in fact liable under the policy for the full amount claimed, but simply to prove that the insured had made a reasonable settlement with the insurer: Rail Corp of New South Wales v Fluor Australia Pty Ltd [2009] NSWCA 344 at [100] per Macfarlan JA (Allsop P and Hodgson JA relevantly agreeing).
4. Whilst the settlement in Unity Insurance was in respect of the insurer's potential liability, the position is different where a plaintiff has settled an existing liability. As Macfarlan JA explained in Rail Corp v Fluor at [102]: Whilst legal liability to a third party [here, Woolworths] is not a necessary condition of recovery from a contract breaker or a tortfeasor of a payment made to the third party, it is a sufficient condition (subject again to questions of causation and remoteness). As I have concluded that [the appellant] was in fact liable to [a third party] … the amount paid is recoverable from [the respondent] without the need to embark upon any further consideration of the settlement between [the appellant] and [the third party].
5. Likewise, in Yokogawa Australia Pty Ltd v Alstom Power Ltd [2009] SASC 377; (2009) 262 ALR 738, the plaintiff sued a subcontractor for breach of contract which caused delays under the head contract. The plaintiff settled the delay claim with the head contractor and sought to recover the monies from the subcontractor. Kourakis J considered, albeit in the context of client legal privilege, that, as pleaded, the plaintiff was entitled to compensation for the liability it had incurred. At [126]: It is not an element of any part of [the plaintiff's] case, so framed, that the settlement was reasonable. … If it is at all open for [the defendant] to put a case that [the plaintiff] could have negotiated a more advantageous settlement, it is by way of a defensive contention that [the plaintiff] could reasonably have done more to mitigate its loss; but that would be a case on which [the defendant] carried the persuasive burden.
6. Here, About Life had an existing liability to pay Woolworths' costs. The reasonableness of the sum reached to discharge that liability is not in issue. Whilst Maddocks submitted that Mr de Fontgalland undertook the negotiation without reference to the costs orders made by Emmett AJA and without asking for any evidence to test the reasonableness of Woolworths' contentions regarding its costs, these matters go to whether About Life failed to mitigate its loss, rather than whether Maddocks' conduct was causative of About Life's loss. A defendant is required to plead the positive facts relied upon for a failure to mitigate defence: In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) [2021] NSWSC 966 at [546]-[549] per Ward CJ in Eq. Maddocks has not so pleaded and fails on this ground alone: Earth Civil at [549].
7. In any event, as canvassed at [486]-[488], About Life's negotiation of Woolworths' costs of these proceedings was reasonable. The relevant principles were summarised by Vaughan J in AVWest Aircraft at [661]-[662] (citations omitted): 661 The test of reasonableness is objective. Accordingly, it is not satisfied by evidence that the parties thought the settlement was reasonable; nor why they thought it was reasonable. Whether a settlement is reasonable depends on the circumstances at the time of settlement (assuming the claimant acted reasonably in discovering the circumstances material to settlement). Evidence of legal advice is material but not conclusive. The reasoning that supports the advice is important insofar as it reveals why it was thought reasonable to compromise the claim at that level. The court should also be satisfied that the negotiations were conducted with proper care and skill. The settlement must reflect the claimant's true prospects of success - albeit recognising that there may well be an appropriate discount due to the inherent uncertainty of litigation and the benefit not having to incur unrecoverable costs in proceeding to trial. 662 In short, the question of reasonableness is to be determined based on a reasonable assessment of the risk faced by [the plaintiff] if the claims against [the third party] were to proceed to trial and judgment.
8. First, the suggested discount on Woolworths' actual legal costs of these proceedings, being 25% of its solicitor's costs, appears reasonable. Mr de Fontgalland could have called for Woolworths' legal bills and satisfied himself that the amounts cited by Woolworths in the negotiations were correct and identified areas where costs may be further negotiated down but the overall reduction of 25% likely accorded with the experience of both practitioners in costs assessments.
9. Second, whilst the costs order was made against both About Life and Harris Farm, About Life was then being sued by Harris Farm for damages including its costs of defending the proceedings brought by Woolworths. Whilst About Life could have said it would only pay half of Woolworths' costs of the proceedings, no-one suggests that About Life had any defence to Harris Farm's cross-claim for its share of those costs. By agreeing to pay Woolworths' costs of the proceedings in toto, About Life was effectively paying Harris Farm's share which it was obliged to pay in any event.
10. Finally, About Life was then endeavouring to obtain a licence from Woolworths to continue to operate the Double Bay store, and to finally complete the sale. It might be thought foolish to imperil the substantial income stream from continuing to operate the Double Bay store, or from the proceeds of sale, by pressing for, likely, modest further reductions on Woolworths' costs incurred in these proceedings. About Life is entitled to the $325,000 in costs plus interest.

CONTRIBUTORY NEGLIGENCE

1. Maddocks alleged contributory negligence on the part of About Life, through its directors, Mr Beecroft, Ms Phillips and Mr Green, under section 9 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW) and section 5S of the Civil Liability Act. Maddocks contended that About Life contributed to its loss as About Life: failed to comply with the right of first refusal; failed to inform Maddocks of the existence of the right of first refusal; made misleading statements to Harris Farm and Maddocks to the effect that there were no side deeds or impediments to About Life assigning the lease to Harris Farm; failed to carefully consider and heed Maddocks' advice in the email sent shortly before exchange; failed to provide a reasonably accurate response to that email; failed to make reasonable inquiries before responding and failed to alert Maddocks to the fact that further time was needed to provide a reasonably accurate response to Maddocks' email at 4.37 pm on 21 April 2017. Further, About Life failed to put in place a system to ensure that the side deed could not reasonably be overlooked, either by noting the existence of the side deed on About Life's copies of the lease or by prominent file notes on all files relating to the lease.
2. Maddocks submitted that About Life failed to take precautions against the risk of harm that eventuated by reason of Maddocks' breach of duty. Such failures were negligent, as they amounted to a failure to apply the standard of care of a reasonable person in the position of About Life by reference to what About Life knew or ought to have known (namely, the existence of the Woolworths' Deed of Agreement): section 5R. Maddocks submitted that About Life's failure was causative of its loss, whether the section 5D approach to causation or the "common sense" approach set out in March v E & M H Stramare Pty Ltd (1991) 171 CLR 506; [1991] HCA 12 applies, as to which there is debate: Coles Supermarket Australia v Bridge [2018] NSWCA 183 at [31].
3. About Life's negligence was said to be a necessary condition of the occurrence of harm, because had those failings not occurred and reasonably careful steps had been taken to put adequate systems in place then, on the balance of probabilities, the right of first refusal would have been identified and About Life's loss avoided. It was appropriate for the scope of About Life's liability, by way of contributory negligence, to extend to the harm so caused as About Life was a large company that ought to take reasonable steps to protect itself from harm, and given that the existence of the right of first refusal was wholly within About Life's knowledge and not within that of Maddocks, and the steps that could have been taken by About Life to prevent harm were not onerous. Maddocks submitted that the Court should reduce any damages owed by Maddocks to About Life by something approaching 100% and not less than 70% in the circumstances.
4. About Life submitted that, in assessing whether this is in truth a departure from the exercise of reasonable care by About Life, it is important to appreciate that sections 5B and 5C Civil Liability Act apply: Verryt v Schoupp [2015] NSWCA 128 at [27]. That is, in order for any of these asserted failures to amount to a breach of About Life's duty to exercise reasonable care, the Court would have to find that not remembering the existence of the right of first refusal before exchange was a failure on the part of About Life to take reasonable precautions. In circumstances where About Life contends that part of the exercise of reasonable care by Maddocks would have required it to take proper steps which would have led to the right of first refusal being identified in the course of the retainer, About Life contended that none of these matters put by Maddocks against it were "reasonable precautions" for the purposes of section 5B; there was no departure by About Life from the standard of reasonable care in respect of any of these matters. About Life submitted that, if there was an apportionment of liability to About Life for contributory negligence, it should be no more than 10%.

Consideration

1. The principles governing a defence of contributory negligence are derived from section 9 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW), read together with sections 5R and 5S of the Civil Liability Act. In summary, the principles that are applicable in determining whether a person has been negligent also apply in determining whether the person who suffered harm has been contributorily negligent in failing to take precautions against the risk of that harm: section 5R. Accordingly, questions of culpability are to be assessed by reference to sections 5B and 5C: Verryt v Schoupp at [27]. A claim may be reduced by reason of a claimant's failure to take reasonable care to such an extent as the Court thinks just and equitable having regard to the claimant's share in the responsibility for the damage: section 9. The reduction may amount to 100% of the claim, if the Court thinks it just and equitable to do so: section 5S.
2. The test for contributory negligence is stated in Astley v Austrust Ltd (1999) 197 CLR 1; [1999] HCA 6, where Gleeson CJ, McHugh, Gummow and Hayne JJ explained at [30]: (footnote omitted) A finding of contributory negligence turns on a factual investigation of whether the plaintiff contributed to his or her own loss by failing to take reasonable care of his or her person or property. What is reasonable care depends on the circumstances of the case. In many cases, it may be proper for a plaintiff to rely on the defendant to perform its duty. But there is no absolute rule. The duties and responsibilities of the defendant are a variable factor in determining whether contributory negligence exists and, if so, to what degree. In some cases, the nature of the duty owed may exculpate the plaintiff from a claim of contributory negligence; in other cases the nature of that duty may reduce the plaintiff's share of responsibility for the damage suffered; and in yet other cases the nature of the duty may not prevent a finding that the plaintiff failed to take reasonable care for the safety of his or her person or property. Contributory negligence focuses on the conduct of the plaintiff. The duty owed by the defendant, although relevant, is one only of the many factors that must be weighed in determining whether the plaintiff has so conducted itself that it failed to take reasonable care for the safety of its person or property.
3. In Podrebersek v Australian Iron & Steel Pty Ltd [1985] HCA 34; (1985) 59 ALJR 492, Gibbs CJ, Mason, Wilson, Brennan and Deane JJ explained (at 493): A finding on a question of apportionment is a finding upon a "question, not of principle or of positive findings of fact or law, but of proportion, of balance and relative emphasis, and of weighing different considerations. It involves an individual choice or discretion, as to which there may well be differences of opinion by different minds": British Fame (Owners) v MacGregor (Owners) [1943] AC 197 at 201.
4. The High Court continued in Podrebersek explaining the nature of the apportionment task (at 494): The making of an apportionment as between a plaintiff and a defendant of their respective shares in the responsibility for the damage involves a comparison both of culpability, i.e. of the degree of departure from the standard of care of the reasonable man (Pennington v Norris (1956) 96 CLR 10 at 16) and of the relative importance of the acts of the parties in causing the damage: Stapley v Gypsum Mines Ltd [1953] AC 663 at 682; Smith v McIntyre [1958] Tas SR 36 at 42-49 and Broadhurst v Millman [1976] VR 208 at 219 and cases there cited. It is the whole conduct of each negligent party in relation to the circumstances of the accident which must be subjected to comparative examination. The significance of the various elements involved in such an examination will vary from case to case; for example, the circumstances of some cases may be such that a comparison of the relative importance of the acts of the parties in causing the damage will be of little, if any, importance.
5. I do not consider that About Life or its directors were negligent for failing to recall something. Nor did Ms Phillips or Mr Beecroft make misleading statements to Maddocks to the effect that there were no side deeds, in their responses to her email sent shortly before exchange. Ms Phillips and Mr Beecroft simply did not respond to Ms Badcock's question on that subject. It is true that the three recipients of Ms Badcock's email could have taken more time to consider each of the 12 questions posed in that email and undertaken further enquiries, including by reference to About Life's records, other members of staff and Mr de Fontgalland. But in the circumstances in which the email was sent, already canvassed at [370]-[374], I do not consider that About Life or its directors failed to take reasonable care by failing to make such enquiries. Nor was it negligent to fail to tell Maddocks that more time was needed to consider Ms Badcock's email in circumstances where the email itself did not sufficiently identify the information sought, its significance or that it warranted more time to consider.
6. The more significant allegation concerns corporate memory, in particular, document storage and retrieval. Ms Phillips said that she managed the risks posed by Woolworths' right of first refusal by explaining the risk to the board at the time and filing the document. As already noted, About Life's documents, including the Woolworths' Deed of Agreement, were stored on a shared drive to which the company's employees had access. There were over 200,000 documents on About Life's shared drive. Documents on the shared drive were sorted into folders, although Ms Phillips said, "it wouldn't have been me that would've sorted the documents."
7. The Woolworths' Deed of Agreement was stored in the "Double Bay" folder, which was a sub-folder of the "Retail leases" folder, which was a sub-folder within the "Stores leases" folder, which was a sub-folder within the "Company agreements-Contracts-Lease" folder, which was a sub-folder within the "Finance" folder.
8. Ms Phillips said that she went into the folders on the shared drive quite frequently, "I went into multiple folders in multiple locations multiple times a day." However, when Ms Phillips was asked, during the course of the transaction, for the Deed of Agreement for Lease and for the registered Double Bay lease, Ms Phillips located the documents by a document search, rather than by going to the folder on the shared drive: see [278], [292].
9. It was suggested to Ms Phillips that she should have changed the file name of the document to highlight its importance to someone looking for documents in the Double Bay folder. However, Ms Phillips said that she did not, during the transaction, ever go back and look for any documents in relation to the lease. "So even if I had big warning signs on that document, I didn't remember the document and nothing triggered me to remember the document, so even if the document was in size 72 font, I wouldn't have found the document."
10. Mr Ross-Edwards was the company secretary. In transactions concerning About Life's stores, Mr Ross-Edwards ensured that agreements and deeds were recorded in About Life's system. Documents were filed in his office and on the shared drive. He did not believe there would be any chance that documents would be overlooked. However, when the Woolworths' Deed of Agreement was executed, Mr Ross-Edwards had only recently joined About Life and was acquainting himself with the business. He did not see, nor hear of, the Woolworths' Deed of Agreement at the time.
11. Mr Ross-Edwards later filed the registered Double Bay lease in the shared drive in the Double Bay lease folder, where he said there were quite a few documents (by my count, there would have been some 15 documents in the folder at the time). However, the Double Bay lease was not registered until April 2015, being almost a year after the Woolworths' Deed of Agreement had been signed. Any obvious connection between the two documents may have been lost with the effluxion of time. Similarly, on receipt of the signed Deed of Agreement in respect of the Crows Nest, Lane Cove and Port Melbourne stores, together with a deed for assignment and variation of lease for the Lane Cove premises, Mr Ross-Edwards read and filed the deeds in his office and on the shared drive. He minuted that the documents had been signed.
12. When disaster struck, in the course of his telephone conversation with Ms Phillips, Mr Ross-Edwards searched the shared drive and immediately found the Woolworths' Deed of Agreement in the Double Bay folder. This was the first time that Mr Ross-Edwards had seen or heard of the document. It was obvious to him that any deed or agreement relating to the Double Bay premises would be stored in a particular folder on the shared drive in accordance with the systems set up by the company. Ms Phillips also then did a search of the shared drive and found the Woolworths' Deed of Agreement, and said she knew exactly where to find it.
13. Mr Green did not turn his mind to whether About Life's management had put in place a system to ensure that Woolworths' right of first refusal was not forgotten. He expected that management would put such a system in place, but could not say whether he had assumed management had done so. Mr Green did not consider at the time whether management would put in place a system to remind itself of the existence of such rights in order to manage the risk associated with them. He did not recall discussing this with Ms Phillips or anyone from management.
14. Mr Green was the chairman of the board and left storage of the company's records to management, which was reasonable for him to do. Mr Green does not appear to have been familiar with how the records were stored, nor to have given the matter much thought, but one would not necessarily expect the chairman of the board to involve himself in this aspect of the company's operations.
15. The allegation of contributory negligence is, in short, that About Life should have ascertained the position before, or during, Maddocks' retainer and volunteered the information which a solicitor, obtaining instructions in accordance with their duty, would have ascertained. Whilst this may be thought to defeat the purpose of instructing a solicitor, the question is whether About Life failed to take reasonable care of its own interests in the circumstances.
16. When embarking upon this transaction, About Life considered that it was of sufficient size and importance to retain a larger law firm than its usual local solicitor, Mr de Fontgalland. About Life retained a specialist property lawyer, being a senior partner of the firm. About Life made its officers available to provide instructions and was a responsive client. There can be no doubt that, if asked, About Life's officers would have speedily retrieved the Woolworths' Deed of Agreement.
17. Whilst it was suggested to Ms Phillips that she had "miserably failed" as chief executive officer in being aware of the company's important contractual obligations, Ms Phillips replied "if I had acted for myself on this transaction, then yes I think I would be sitting here saying I … personally miserably failed. But I engaged a professional to assist me with that." Ms Phillips said that when the sale of the Double Bay store was being negotiated "I had many things on my mind". Ms Phillips relied upon About Life's lawyers to advise her as to the risks associated with the contracts being entered into and as to the enquiries that should be made before entering into a contract.
18. Whilst About Life was entitled to rely on Maddocks to perform its duty, About Life may share responsibility for what happened by failing to take reasonable care for the safety of its assets and interests. There was no expert evidence as to whether About Life's record keeping systems were deficient or not. The evidence of Ms Phillips and Mr Ross-Edwards indicates that About Life had an adequate system for keeping records such that employees could readily access documents on the shared drive, without the need to locate the hard copy in Mr Ross-Edwards' office. The problem here was that no one looked in the shared drive before giving instructions to Maddocks, nor as the transaction unfolded.
19. True it is that Maddocks did not obtain full instructions from the client to prompt the records to be searched. But where a company is proposing to sell a substantial asset, it is reasonable for the company's officers to check the company's records in respect of that asset to ensure that the solicitor is provided with accurate and important details about the asset in question. The reason why About Life stored the documents on the shared drive at all was because the documents were correctly identified as significant to the ownership and operation of its stores. By failing to check this collection of documents when instructing Maddocks to act on the transaction, I consider that About Life failed to take reasonable care for the safety of its assets and interests.
20. I do consider, however, that Maddocks bore the greater responsibility to illicit this information, should its client fail to volunteer it. This is particularly important where the client is new to the solicitor, giving instructions on an urgent matter of high value and importance, and where the client is stressed or distracted, as this client was. By comparing the relative importance of the acts of Maddocks and About Life in causing the damage which ensued, I consider it appropriate to reduce the damages payable by Maddocks to About Life by 20%. This reduces the damages for a loss of chance to $12,716,800 and for Woolworths' costs to $280,000.

CONCURRENT WRONGDOERS

1. Further, Maddocks says that About Life's claim is apportionable for the purposes of Part 4 of the Civil Liability Act 2002 (NSW) and directors Ms Phillips, Mr Beecroft and Mr Green are concurrent wrongdoers in that they failed to discharge their obligations as directors by exercising reasonable care and diligence. Each of Ms Phillips, Mr Beecroft and Mr Green were concurrent wrongdoers, such that Maddocks' liability is limited to an amount reflecting that proportion of the damage or loss claimed that the Court considers just, pursuant to section 35(1) of the Civil Liability Act.
2. Maddocks acknowledged that there was the potential for overlap between the contributory negligence and concurrent wrongdoer defences. A plaintiff who is contributorily negligent cannot, at the same time on the basis of the same facts, be a concurrent wrongdoer under section 35 of the Civil Liability Act: Golledge Pty Ltd v Ballard (2012) 82 NSWLR 231; [2012] NSWCA 376 at [15], [128]-[132]. However, Maddocks contended that About Life was contributorily negligent while the directors were concurrent wrongdoers and the factual matrix for the contributory negligence and proportionate liability claim did not coincide. Deductions for both defences may be warranted, although if the Court found that the defences were made out by reference to the same conduct on the part of the directors, then Maddocks' liability should not be reduced by reference to both defences, as to do so would "involve an inequitable double discount of the damages by reason of the same acts and omissions" and would therefore "not, to use the word used in s 35(1)(a) of the CLA … be just": Cam & Bear Pty Ltd v McGoldrick [2018] NSWCA 110 at [100]-[101] per Macfarlan JA, McColl AP and White JA agreeing, reasoning by analogy with Daniels v Anderson (1995) 37 NSWLR 438, see at [102].
3. First, it was said that the directors failed to inform Maddocks of the existence of the right of first refusal, even when asked explicitly on 21 April 2017, or to inform Harris Farm that About Life did not have an unfettered right to assign the lease, or to offer the Double Bay lease to Woolworths. For the reasons set out at [662]-[676], About Life's directors did not take reasonable care for the safety of About Life's assets and interests as they failed to examine About Life's records in relation to the Double Bay lease before instructing Maddocks. However, I consider that the factual matrix for About Life's contributory negligence and the proportionate liability claim against the directors coincide and no further deduction from About Life's damages should be made on this account.

Breach of directors' duties

1. Second, Maddocks contended that the directors breached their duties under section 180(1) of the Corporations Act 2001 (Cth), and at equity and common law, to exercise their powers and discharge their duties with reasonable care and diligence. Maddocks says that the directors adopted a flawed expansion plan, acquiring stores without complying with Deed End's recommendations (which cannibalised About Life's existing stores), amongst other problems. About Life's decided to acquire the three Thomas Dux stores in the absence of a report from Deep End on the proposed stores.
2. Whether a director has exercised reasonable care and diligence is an objective test; the question is what an ordinary person with the knowledge and experience of the director might be expected to have done in the circumstances if they were acting on their own behalf and involves balancing the risk of harm and potential benefits to the company: Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 450. As McDougall J put it in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 6) [2007] NSWSC 124; (2007) 63 ACSR 1, the mere foreseeability of harm does not of itself dictate that the question must be answered adversely to the directors; it is necessary to balance risk and reward or, more accurately, to be satisfied that the directors, acting reasonably and in the best interests of the company and employing their individual knowledge and skills and taking account of relevant circumstances, did so: at [1437]. As Ipp J put it in Vrisakis at 449: … the mere fact that a director participates in conduct that carries with it a foreseeable risk to the interests of the company will not necessarily mean that he has failed to exercise a reasonable degree of care and diligence in the discharge of his duties. The management and direction of companies involve taking decisions and embarking upon actions which may promise much, on the one hand, but which are, at the same time, fraught with risk on the other. That is inherent in the life of industry and commerce. The legislature undoubtedly did not intend by [s 180(1)] to dampen business enterprise and penalise legitimate but unsuccessful entrepreneurial activity.
3. In Daniels v Anderson, Clarke and Sheller JJA observed at 501: The courts have recognised that directors must be allowed to make business judgments and business decisions in a spirit of enterprise untrammelled by the concerns of a conservative investment trustee. Any entrepreneur will rely upon a variety of talents in deciding whether to invest in a business venture. These may include legitimate, but ephemeral, political insights, a feel for future economic trends, trust in the capacity of other human beings. Great risks may be taken in the hope of commensurate rewards.
4. Whilst there is no doubt that About Life's acquisition of three new stores within a short timeframe presented significant challenges to the business, in particular, because it occurred at the same time as other challenges to the business including the installation of a new IT system and the establishment of a new kitchen and warehouse facility, there is no evidence - in particular, no expert evidence - to suggest that, in making this decision, the directors of About Life breached their directors' duties to exercise reasonable care when making decisions in the best interests of the company.
5. As to the fact that the three new stores were not in suburbs identified in Deep End's Sydney network plan, Mr Green said he had reviewed Deep End's network plan and it appeared reasonable, "Internally the network plan moved around depending on availability of sites in areas [identified by Deep End] and nearby areas, but it was a fluid plan." In addition to the Sydney network plan, About Life developed site selection criteria, for which Mr Green was responsible.
6. As part of acquiring new sites, Mr Green expected that each potential new site would have a site review package prepared by Deep End, "Ideally, yes …". However, it is apparent the About Life had developed internal models as well. Ms Phillips said that Mr Thevenon ran a consulting company which had done feasibility studies for About Life. Having gone through a number of feasibility projects with Deep End, About Life also created its own feasibility model, "we did build our own model internally for feasibility which was used for determining … the suitability of future sites for the business." Ms Phillips said that this model was really no different to a full due diligence report. Mr Ross-Edwards prepared the feasibility study; Ms Phillips considered him to be "very capable and … they were credible models."
7. In her affidavits, Ms Phillips said that About Life had a full due diligence report prepared for all sites it acquired. In cross-examination, Ms Phillips explained that some of these reports were About Life's internal feasibility model. It was suggested that her affidavit was a lie to cover up her "shocking mismanagement". Whilst Ms Phillips' affidavit could have been clearer, she did not state that the "full due diligence report" obtained for new sites was obtained from an external consultant such as Deep End. I do not find that Ms Phillips lied.
8. About Life did not acquire a full report from Deep End on the proposed acquisition of three stores. Mr Green said that the Thomas Dux stores were in desirable areas according to Deep End's analysis, although the particular suburbs had not been identified by Deep End. The internal feasibility model was used and the results discussed at board level. Mr Green agreed that the company had not invested in studying the effect of cannibalisation, although "[w]e did study the erosion ourselves but [did not hire] an outside party."
9. Ms Phillips considered that, by virtue of the fact that these were Thomas Dux stores, the sites were already serving a customer in About Life's demographic. The stores were in prime locations and had been fitted out to Woolworths' specification, which cost significantly more than About Life's fit-outs. The leases had been negotiated by the Woolworths' property team, who were in a stronger negotiating position with landlords to arrive at favourable terms. Ms Phillips refuted any suggestion that these sites were a bad decision. "I had 22 years' experience in the business. We had a lot of experience around the board. We had a feasibility model. We had an experienced management team. I can't say that I think that Deep End's recommendations should be considered to be superior to what our decisions were. … consultants can provide input and information to assist you with your decision making, but that doesn't mean that that's the booklet that you walk around with and say, 'We could only do this.' … I just couldn't be critical of the site selection."
10. Ms Phillips said that cannibalisation was an expected part of opening new stores, however, the fact that the Double Bay store was expected to cannibalise Bondi Junction did not mean that About Life would not have made the commercial decision to open Double Bay. Bondi Junction had annual revenue of $13 million, which was reduced by 20% due to cannibalisation. But Double Bay quickly became a $12 million store so, commercially, the Double Bay store was still a good decision.
11. Mr Ross-Edwards regarded this as a unique opportunity to purchase established stores in enviable locations with existing fit-outs. About Life would only need to spend about $500,000 on each store to complete the fit-out. If the business had attempted to establish the stores as 'greenfield' sites, each fit-out would have been about $3 million. He considered there was an opportunity to establish three stores with a costs saving of some $6 million.
12. The 8 September 2015 minutes record that Deep End was to look at the effect of cannibalisation of the Cammeray store by the new Crows Nest store. Mr Green said this was something that he thought needed analysis, with the study directed to how About Life would manage Cammeray going forward rather than deciding whether or not to go ahead with the deal with Woolworths in respect of Crows Nest. "[I]t was a package deal with the three stores, and at that point, we were focused on the impact on Cammeray for budgeting purposes".
13. It was suggested to Ms Phillips most forcefully that the board had resolved to get a full due diligence report from Deep End in respect of the acquisition of the Crows Nest store and its impact on Cammeray "and you countermanded that unilaterally". As Ms Phillips ultimately recalled it, the board did not so resolve - certainly the minutes do not record such a resolution - nor did she overrule any such resolution. In any event, as will be seen, Deep End did express its view on this subject. On 7 October 2015, Deep End provided its comments on further work to be done. Deed End noted: (emphasis added) No reports are required for the Thomas Dux acquisitions (Lane Cove, Crows Nest and Port Melbourne) on the basis that [About Life] is happy to apply its own forecasts and my guidance that impacts from the rebrandings of relatively high-volume [Thomas Dux] stores in Sydney will result in a negligible impact on [About Life] Cammeray. That is, Deep End expected negligible cannibalisation on the Cammeray store.
14. Ms Phillips said the Crows Nest site was a very superior site to Cammeray, in a prime location. Previously, a Macro Wholefoods store had successfully operated there; About Life had looked at acquiring the site previously and undertaken due diligence. Crows Nest was then Thomas Dux's best performing store. Although it affected the Cammeray store more than was expected, predicting the actual degree of cannibalisation would not have affected About Life's decision to acquire the Crows Nest store.
15. The board was not without experience, having operated the business for nearly 20 years. The board had, with the assistance of Deep End and Mr Abbott, been endeavouring to acquire new sites for 18 months but had yet to open a new store. The stores offered by Woolworths were perceived to have significant advantages, both in terms of location and existing fit-out such that the 'package deal' was overall considered to be in the best interests of the company. Even if that decision was wrong - and it is not clear that it was wrong - I am not satisfied that the directors breached their duties to About Life when making that decision.

Misleading and deceptive conduct

1. Third, Maddocks contended that Ms Phillips and Mr Beecroft's responses to Maddocks email of 4.37 pm on 21 April 2017 amounted to misleading and deceptive conduct in contravention of section 18 of the Australian Consumer Law. The representations were made "in trade or commerce", being made in connection with the sale of the Double Bay store and, thus, in connection with the implementation of a commercial transaction: Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 604; [1990] HCA 17. The representations were said to be misleading because there was, in fact, a side deed and Ms Phillips had not made enquires other than identifying the Double Bay registered lease while Mr Beecroft made no enquiries. Neither said they needed more time. Maddocks relied on the representations to its detriment. Ms Phillips and Mr Beecroft were said to be liable under sections 236 or 237 of the Australian Consumer Law for damages or compensation to About Life, such loss or damage being the amount of the liability which Maddocks had to About Life. Ms Phillips and Mr Beecroft were "concurrent wrongdoers" and any damages awarded against Maddocks should be reduced accordingly, with by far the lion's share of the responsibility attributed to About Life.
2. For the reasons set out at [375]-[379], I do not accept that the damages payable by Maddocks should be reduced on this account.

EQUITABLE SET-OFF

1. Maddocks claimed to be entitled to an equitable set-off in respect of the liability About Life had to Maddocks by reason of misleading or deceptive conduct on the part of About Life through the conduct of Ms Phillips and Mr Beecroft as its agents. Maddocks was said to be entitled to an equitable set-off because its claim against About Life was intimately connected with About Life's claims against it: AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705 at 710-712. As I am not satisfied that there was misleading and deceptive conduct by Ms Phillips and Mr Beecroft, this claim fails.

DIRECTORS' CROSS CLAIMS

1. The directors brought claims against Maddocks in negligence and for misleading and deceptive conduct, seeking by way of damages the $430,000 paid to Harris Farm. Maddocks denies that it owed the directors a duty of care or engaged in misleading and deceptive conduct. Alternatively, contributory negligence was pleaded and an equitable set-off said to arise by reason of the directors having engaged in misleading and deceptive conduct in their responses to Maddocks' 4.37 pm email.

Negligence

1. The directors claim that, in the performance of Maddocks' retainer with About Life, Maddocks owned the directors a duty of care arising out of the proximity of relationship between Maddocks and the directors, their reliance upon Maddocks to properly advise them and to perform the retainer so that they were not personally exposed to any liability in connection with the transaction, the directors' vulnerability arising out of the reliance upon Maddocks, and the foreseeability of the risk that the directors may have a liability to Harris Farm if Maddocks did not properly perform their retainer. As a result of Maddocks' breach of their of care, the directors suffered loss being the $430,000 owed to Harris Farm.
2. The directors accepted that the issue is whether a duty of care arose. The directors submitted that, in circumstances where Maddocks was advising About Life about the Contract for Sale of Business, including the warranties in clause 10, it was reasonably foreseeable that the contract may give rise to the directors becoming liable, and thus Maddocks' duty extended to the directors. Whether Harris Farm's cross-claim against the directors was meritorious or not, the directors were exposed to potential liability, which was resolved by paying $430,000 in settlement of Harris Farm's claim.
3. While solicitors have been held to owe a duty of care to the directors of their corporate clients by reference to special features of the solicitor/director relationship (Dual Homes Victoria Pty Ltd v Moores Legal Pty Ltd (2016) 50 VR 129; [2016] VSC 86 at [135]), Maddocks submitted that there were no such feature here. The directors had not demonstrated any vulnerability as each could have taken advice elsewhere, or asked Maddocks to act for them: Brownie Wills v Shrimpton [1998] 2 NZLR 320 at 326. It was said that Maddocks could not act for About Life and its directors as a conflict of duty arose as the directors may have breached their duties to the company. As Kenny J observed in Carey v Freehills [2013] FCA 954; (2013) 303 ALR 445 at [312], in Hill v van Erp (1997) 188 CLR 159; [1997] HCA 9, "the High Court emphasised the coincidence of interest between the client and the beneficiaries" in finding such a duty was owed by a solicitor. The directors' contention as to the existence of a duty of care was said to require a radical expansion in the scope of the duty of care solicitors owe in acting for corporate clients. In addition, Maddocks submitted that any damages awarded would be subject to a very significant reduction for contributory negligence on the part of the directors.
4. The starting point is Hill v van Erp, where the High Court held that a solicitor owed a duty of care to the client testatrix's beneficiaries. As Brennan CJ explained at 167: (footnote omitted) Generally speaking, however, a solicitor's duty is owed solely to the client subject to the rules and standards of the profession. That is because the solicitor's duty is to exercise professional knowledge and skill in the lawful protection and advancement of the client's interests in the transaction in which the solicitor is retained and that duty cannot be tempered by the existence of a duty to any third person whose interests in the transaction are not coincident with the interests of the client. But the interests of a client who retains a solicitor to carry out the client's testamentary instructions and the interests of an intended beneficiary are coincident.
5. As the Chief Justice observed, testators seek the assistance of a solicitor to make their intentions effective. There was no reason to refrain from imposing a duty of care on a solicitor to those who may foreseeably be damaged by carelessness in performing the retainer. Where the solicitor failed to use reasonable care in carrying the client's instruction into effect, resulting in a loss of a testamentary gift intended to be given to a beneficiary, it was reasonable that the solicitor was liable in damages to the intended beneficiary: at 167-168.
6. More recently in Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18, the High Court held that a solicitor did not owe a duty of care to the intended beneficiary where the Will gave effect to the client's instructions but made no provision for the client's daughter, of whom the solicitor was unaware. The daughter brought a claim for provision, which depleted the estate. The beneficiary sued the solicitor, alleging the solicitor had failed to advise the client in respect of such a claim. The Court held that no duty was owed as the interests of the client and the intended beneficiary were not coincident. As French CJ, Kiefel and Keane JJ observed, the duty owed by the solicitor to the intended beneficiary in Hill v van Erp "had its source in the solicitor's obligations arising from the retainer between the solicitor and her client … the interests of the testatrix and the intended beneficiary in those intentions being carried into effect were relevantly the same. Recognising a duty to the intended beneficiary would not involve any conflict with the duties owed by the solicitor to her client, the testatrix": at [18].
7. As to whether a solicitor acting for a company may owe a duty of care to its directors, in Brownie Wills v Shrimpton a firm of solicitors acted for a company borrowing money from a bank. The bank required the firm to obtain personal guarantees from the directors of the company. The company defaulted on the loan and the bank obtained judgment against the directors. One of the directors, after settling his liability with the bank, brought a negligence suit against the solicitors for failing to advise him that the liability under the guarantee was joint and several. The Court of Appeal of New Zealand held that the firm did not owe a duty of care to the directors. Gault and Blachard JJ (Tipping J agreeing) explained at 326: In the present case the solicitors' clients had no purpose of benefiting, or even protecting, the guarantors. The bank wanted enforceable securities. The company wanted to give securities in order to obtain the bank's money. And the plaintiff was not totally dependent on Mr Wills. He could easily have taken advice elsewhere or asked Mr Wills to act for him. If such a request revealed a conflict of interest he would no doubt have been referred to his own solicitor.
8. Such a claim was considered arguable in Johnson v Gore Wood & Co [1999] PNLR 426, where the Court of Appeal agreed with the primary judge's assessment, "if the facts alleged in the statement of claim are proved, it may well appear at the end of the day that [the director's] personal affairs and his business dealings were so intimately intertwined that it is quite possible that [a solicitor] … would not distinguish between [the director] and his company. The solicitor would know the advice which he was giving would be relied on for the guidance of the whole since the parts could not sensibly be separated. The incremental development [in the law] is not great, provided that the development is limited to special circumstances of this description": at 440. The special circumstances (assumed to be the facts for the purpose of a strike out application) were that the solicitor had acted for the director in relation to his other businesses, was familiar with the director's personal financial position and had knowledge of both the director's financial position and of the use to which he was putting the advice in the regulation of his own affairs: as summarised by Kenny J in Carey v Freehills at [330].
9. Similarly, albeit in the context of an application to restrain a company's solicitor from acting for the company's sole director and shareholder, Mr Suckling, Riordan J observed that, while the solicitor was retained by the company, he owed duties to Mr Suckling in circumstances where he and the solicitor had become firm friends over many years and Mr Suckling was the alter ego of the company: ACN 092 675 164 Pty Ltd v Suckling (2018) 56 VR 448; [2018] VSC 620, following Macquarie Bank Ltd v Myer [1994] 1 VR 350 at 359 per J D Phillips J (Eames J substantially agreeing).
10. The issue was considered by Kenny J in Carey v Freehills in the context of a claim that a company's solicitor owed a duty of care to the majority shareholder of the company. The general approach in determining whether a solicitor owes a duty of care to a third party was explained at [311]-[317]: (citations omitted) 311 Where a solicitor's conduct demonstrates an assumption of responsibility, with known reliance by the plaintiff, a duty of care may arise by reason of an implied professional retainer agreement … 312 There are, however, circumstances in which a duty of care on the part of a solicitor may arise independently of a retainer. Thus, a duty of care has been said to arise in the context of negligent misstatement causing loss … 313 Where a duty of care is claimed to have a risen in a new circumstance or with respect to a new category of relationships, Australian law now requires a multi-factorial approach in assessing whether a duty of care has indeed arisen. … 314 Caltex has become an exemplar of the multi-factorial approach [where] … Allsop P said (at [100]) that the current approach: … recognises what has been said to be the use of foreseeability at a higher level of generality and the involvement of normative considerations of judgment and policy. This approach requires not only an assessment of foreseeability, but also attention to such considerations as control, vulnerability, assumption of responsibility and nearness or proximity. … … 317 By reference to the factors as mentioned in Caltex and other relevant factors in this case, the Court must assess the circumstances in order to determine whether or not the law will impute a duty of care and, if so, its scope and contents. I interpolate that, generally speaking, where the alleged duty of care owed by a solicitor to a non-client conflicts with a duty of care towards the client, a duty of care to the non-client is unlikely to be established. …
11. Her Honour also observed, as a general proposition, that the law of negligence resisted the extension of a solicitor's duty of care beyond a client company to its shareholders or other related entities, although it could not be said such a duty would never exist: at [323]. Johnson v Gore Wood was distinguished as the majority shareholder had no pre-existing client relationship with the solicitor in his personal capacity. The solicitor did not have any intimate, detailed and long-running knowledge of the shareholder's financial affairs: at [331]. "Rather, whether or not a duty arises will depend on the totality of the circumstances in which the advice was sought and provided": at [336]. On applying the multi-factorial approach, her Honour found there was no duty of care owed by the solicitors to the shareholder.
12. Finally, in Dual Homes Victoria Pty Ltd v Moores Legal Pty Ltd, a company was served with a statutory demand. On the advice of a solicitor, the company applied to set it aside but outside the statutory time limit. The application was withdrawn on the condition that the company pay the creditor's costs. The creditor served a further statutory demand for the same debt. The company failed to comply with the demand and the presumption of insolvency arose. The creditor then applied to have the company wound up. The solicitor did not appear at the hearing and the company was wound up in insolvency, despite the fact that the solicitor was aware that the company had more than $3 million in assets and could have proven the company's solvency at the hearing.
13. The company and shareholders sued the solicitor for the expenses incurred on the company's behalf while the company was in liquidation. Dixon J held it was unnecessary to determine whether the duty of care owed by the solicitor extended to the shareholders as well, as the company was entitled to recover the losses with which it could reimburse the shareholders: at [131]. Obiter, Dixon J held that the solicitor owed a duty of care to the shareholders at [135]: (footnotes omitted) Reasonable foreseeability is not enough to impose a duty in the present case. However, as with the beneficiary in Hill v Van Erp, [the shareholders] were vulnerable in the sense that they were unable to protect themselves from the consequences of [the solicitor]'s want of reasonable care. [The solicitor] was in control of the risk. He assumed responsibility for it. Neither [shareholder] was challenged in cross-examination about their reliance on [the solicitor] to manage, or fix, the demands that were being made against [the company] by the [creditor].
14. Having regard to the case law, the following matters are relevant to whether Maddocks owed a duty of care to About Life's directors in the circumstances of this case.
15. First, Maddocks did not have an intimate, detailed and long-running knowledge of the directors' financial affairs, unlike in Johnson v Gore Wood. Mr McNee had acted for Mr Green and his companies in the past, but the extent of their dealings is not clear. Mr McNee had also worked with Mr Beecroft before on a transaction involving Navis Capital. However, when considering whether the circumstances giving rise to a duty of care, I consider that the focus must be on what Ms Badcock knew about these gentlemen rather than another partner of her firm; Ms Badcock had never dealt with them before. Ms Phillips had not dealt with Maddocks before. A duty of care would not arise by reason of Maddocks' previous dealings with the directors.
16. Second, Maddocks' conduct did not demonstrate an assumption of responsibility, with known reliance, by the directors.
17. Third, the client's interests - which Maddocks was retained to protect and advance - were the same as the client's directors. About Life's interests required that the Contract for Sale of Business be completed, and that the risks to completion be identified and either eliminated or reduced. About Life's interests were receiving the proceeds of sale as soon as possible, undiluted by the effects of delay or expenses caused by unidentified or unmanaged risks to completion. The interests of the company and its directors in the solicitor's instructions being carried into effect were relevantly the same.
18. To the extent that directors may have been negligent by failing to examine the company's records before or during the course of giving instructions to the company's solicitors, both About Life and its directors shared a common interest in expunging such negligence by investigating About Life's right to assign the lease and providing proper instructions before contracts were exchanged. As such, recognising a duty to the directors would not involve any conflict with the duties owed by the solicitor to the company: Badenach v Calvert at [18]. The interests of the company and its directors in the solicitor discharging her obligations by obtaining proper instructions were coincident.
19. True it is that the directors could also have asked Maddocks to act for them on the transaction, although it is not clear why the directors would have thought it necessary to have legal representation. Indeed, if it had occurred to the directors that they may need to retain a solicitor, for example, because the directors may be exposed to a claim for a breach of their duties for failing to ascertain About Life's ability to sell the Double Bay store, then that thought-process would probably itself have elicited Woolworths' Deed of Agreement. The same sequence of events would likely have occurred if Maddocks had suggested that the directors may wish to consider retaining a solicitor to act for them on the transaction in the circumstances.
20. Fourth, as to potential indeterminacy of liability, the directors' potential liability to Harris Farm was the same as the company's potential liability. By its cross claim, Harris Farm sued About Life for breach of contract and representations made by Mr Green and Ms Phillips in the meetings with Mr Harris and in the contract. As against the directors, Harris Farm contended that the directors were knowingly involved in About Life's representations.
21. Harris Farm contended that the directors were liable for representations constituted by the Contract for Sale of Business. Harris Farm pointed to the fact that the contract was signed by Ms Phillips and Mr Beecroft. Further, each of Mr Green, Mr Beecroft and Ms Phillips read and approved the final version of the contract. All knew and intended that the final version of the contract would be provided to Harris Farm for execution. By clause 10 of the contract, About Life was to promise at completion that the business and the lease were not subject to any charge, encumbrance, lease, mortgage, security interest or other liability or security. In those circumstances, Harris Farm contended that Ms Phillips, Mr Green and Mr Beecroft each represented that the lease was able to be assigned, subject to the consent of the Council, and no person had or would have an interest in the lease that would prevent or inhibit the assignment to Harris Farm. Obviously enough, any representations said to have been made by the directors by signing the contract or endorsing its provision to Harris Farm had also squarely been made by About Life.
22. Harris Farm's damages claim was the same against the company and directors. If About Life had paid damages to Harris Farm, then the directors would not have had to pay additional damages; About Life would have been entitled to recover such damages from Maddocks.
23. The fact that the directors settled Harris Farm's claim and could not look to the company to reimburse them is referable to timing issues. About Life went into external administration. Harris Farm could not press its claim against the company and was limited to recovering damages from the directors. But for the fact that About Life was in external administration - a state of affairs to which Maddocks contributed in no small way by its performance of the retainer - the directors could have looked to the company to reimburse them for the settlement monies paid to Harris Farm, and the company could have sued Maddocks for the monies. Recognising a duty of care by Maddocks to the directors does not expose Maddocks to greater or unlimited liability.
24. Having regard to the multi-factorial approach described in Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258, it was foreseeable that About Life's directors may be exposed to a claim by the purchaser if the Contract for Sale of Business made representations which proved incorrect and should not have been made. The directors were vulnerable in the sense that they were unable to protect themselves from the consequences of Maddocks' want of reasonable care in acting for About Life on the transaction. Ms Badcock undertook the task of protecting About Life's interests, including by identifying and managing the risks to completion and thus had control of managing the risks posed by giving warranties which should not have been given, including obtaining proper instructions from About Life's officers (the directors) as to whether About Life could give such warranties. The directors could not choose whether to take on the liability to which they were exposed by the warranties in the contract, unlike Brownie Wills v Shrimpton where the directors could have declined to provide guarantees to the company's bank.
25. As such, I find that Maddocks owed a duty of care to About Life's directors in the circumstances of this case, which duty was breached and led to a claim being made against the directors by Harris Farm. It was not suggested by Maddocks that the directors' settlement of that claim was unreasonable and thus this component of the directors' cross claim against Maddocks succeeds. Any damages payable by Maddocks to the directors must also be reduced by 20% by reason of directors' contributory negligence. Thus, Maddocks is only obliged to pay $344,000.

Misleading and deceptive conduct

1. The directors claim that Maddocks engaged in misleading or deceptive conduct by omitting to advise them directly or via About Life of various matters including what should have been apparent from the Deed of Agreement of Lease, the importance of ensuring that there was no other document which may limit or encumber About Life's capacity or authority to assign the lease, and suggesting lines of enquiry which might be pursued to ascertain the existence of any such impediment.
2. I did not have the benefit of written or oral submissions from the directors on this claim, and am tempted to treat it as not pressed. As Mr Beecroft did not give evidence, I will regard his claim as abandoned, there being no evidence that he relied on any such conduct. Nor is it strictly necessary for me to consider this claim as the directors are already entitled to these damages in negligence.
3. Maddocks denied this claim, submitting that the conduct was not "conduct" for the purposes of section 18 of the Australian Consumer Law. Section 4(2) of the Competition and Consumer Act 2010 (Cth) provides that a reference to "engaging in conduct shall be read as a reference to doing or refusing to do any act", and further that "a reference to refusing to do an act includes a reference to: (i) refraining (otherwise than inadvertently) from doing that act." Mere inadvertence did not invoke section 18 of the Australian Consumer Law. Where Maddocks was ignorant of Woolworths' right of first refusal, the failures relied upon by the directors were not "conduct" in the sense of Maddocks advertently refrained from taking the particular steps. A representation by silence could not succeed unless there was a duty to speak: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. There was no duty to speak to the directors. Even if the directors' claims had substance, they would be subject to a very significant reduction for contributory negligence.
4. Essentially two questions arise for decision. First, the identification of the relevant "conduct". Second, whether that conduct was misleading and deceptive. In Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd [2011] WASCA 76; (2011) 248 FLR 193, McLure P explained at [65]-[66]; [65] A defendant's non-disclosure can, because of common assumptions or established practices or other relevant surrounding circumstances, give rise to an implied representation by the defendant that an undisclosed fact did (or did not, as the case may be) exist. The making of such an implied representation by the defendant is the doing of an act and is thus within s 4(2). The satisfaction of the "reasonable expectation" test can result in the defendant doing an act. [66] The need to establish a deliberate omission will only arise if the defendant's actual conduct together with all the relevant surrounding circumstances are (objectively) incapable of giving rise to the misleading or deceptive contextual conduct complained of. In that event, the circumstances in which deliberate non-disclosure may be misleading or deceptive conduct will be limited; perhaps where the defendant is aware of another's misapprehension in the type of situations where relief is available for unilateral mistake (Taylor v Johnson (1983) 151 CLR 422) or where the plaintiff's misapprehension is caused by, but is not objectively attributable to, the defendant's conduct.
5. This was followed in Johnson v Mackinnon [2021] NSWCA 152, where Brereton JA (Macfarlan JA and Simpson AJA relevantly agreeing) observed at [254]: [N]otwithstanding that to "refrain otherwise than inadvertently" requires a deliberate decision to withhold information, it is necessary to establish a deliberate omission only where the actual conduct together with all the relevant surrounding circumstances are (objectively) incapable of giving rise to the misleading or deceptive contextual conduct complained of. This is because, where the actual conduct in its surrounding circumstances gives rise to the misleading or deceptive contextual conduct, there is an "act" within the definition and it is unnecessary to resort to "refraining otherwise than inadvertently" from acting. However, where the actual conduct in its surrounding circumstances is objectively incapable of giving rise to the misleading or deceptive contextual conduct, there is no "act". In those circumstances, there may nonetheless be misleading or deceptive conduct, by a deliberate non-disclosure - for example, where the person is aware that the other party is under a misapprehension…
6. In the context of a solicitor's advice, in Paltos v Bartier Perry Pty Ltd [2020] NSWSC 705, Rothman J observed, "the Court looks at the whole of the conduct said to be provided purportedly in satisfaction of duties established by the Retainer and determines whether that advice was misleading or deceptive, because, on the claim of the plaintiff, it omitted advice": at [59]. In that case, Mr Paltos, a partner of a law firm, suffered two strokes which impaired his ability to work. The partnership agreement included a put option, entitling a partner to require the other partner to purchase their share of the partnership in limited circumstances relating to ill-heath. Given Mr Paltos' health, he may have been entitled to exercise the put option if, due to his illness, he was unable to work for at least six months.
7. Mr Paltos became involved a dispute with his partner. Mr Paltos engaged solicitors to advise with regard to the partnership and the demands made by his partner. The firm advised Mr Paltos that "the put options do not help [you, Mr Paltos]". When this advice was given, the time for Mr Paltos to be entitled to exercise the put option had not arisen. The partnership was dissolved and receivers appointed without Mr Paltos having exercised the put option.
8. On appeal in Bartier Perry Pty Ltd v Paltos [2021] NSWCA 158, the Court of Appeal affirmed the primary judge's finding that the advice was misleading and deceptive. Payne JA (with whom White and McCallum JA agreed) explained at [90]-[91]: (emphasis added) 90 … Bartier Perry had all of the documents and was being asked to provide advice to Mr Paltos about the appropriate and possible means available to him to transfer on the best terms possible his interest in the Partnership to Mr Milevski, whether immediately, upon termination of the Partnership, or after its dissolution. In that context, it was a dangerously incomplete statement of the rights Mr Paltos enjoyed to advise him that "the Put Options do not help [you, Mr Paltos]" yet or at this time. Whilst literally true, this advice was misleading and deceptive, in that it was apt to mislead Mr Paltos about the nature of his legal rights. 91 The true position was that Mr Paltos arguably enjoyed valuable rights under the Put and Call Option Agreement. If Mr Paltos remained unable to work in the Partnership for a period of six months he would at that time, but for a limited period only, be able to exercise the put option granted by the Put and Call Option Agreement. Non-misleading advice would have been that the exercise of the put option may be financially advantageous to Mr Paltos and that he should seek accounting advice about that question. Acting in a non-misleading way, Bartier Perry should have advised Mr Paltos that the put option arguably survived the dissolution of the Partnership. Bartier Perry failed to give that advice.
9. Here, the relevant conduct was the provision of legal advice, which may have been incomplete as to the rights and obligations of About Life. It was not mere inadvertence. It is only necessary to establish a deliberate omission "where the actual conduct together with all the relevant surrounding circumstances are (objectively) incapable of giving rise to the misleading or deceptive contextual conduct complained of": Johnson v MacKinnon at [254]. Legal advice which is literally correct may be misleading and deceptive if it is apt to mislead the client as to the nature of the client's legal rights.
10. Although Bartier Perry concerned a claim brought by a client against his solicitor, a solicitor may be liable to persons other than the client for misleading and deceptive conduct. For example, in Argy v Blunts (1990) 26 FCR 112, the vendor's solicitors prepared a contract for the sale of land. They omitted to include a page of the planning certificate which would have revealed that a portion of the land was zoned so as to prohibit building within it. Hill J held that the vendor's solicitor was liable to the purchasers in misleading and deceptive conduct. His Honour explained at 132: … the annexation of a certificate to a contract by the person preparing it can be seen to be a representation by that person not only that the certificate is the certificate issued by the council but that it is the whole of that certificate so that where, as here, the certificate is incomplete in that it omits to contain a full description of the significance of the Regional Open Space Reservation, there is a misrepresentation made by the person preparing the contract carrying with it the capacity to deceive.
11. His Honour relevantly concluded at 133: … Gadens were similarly engaged in misleading and deceptive conduct but only in the sense that the contract prepared by Gadens can be seen to be a statement or representation made by them as the persons responsible for the preparation of the contract that the s 149 certificate annexed thereto was, so far as relevant to the land the subject of it, a copy of the complete certificate as issued by the council.
12. Thus, the fact that the directors were not clients of Maddocks does not preclude Maddocks from being liable to the directors in misleading and deceptive conduct.
13. Ms Badcock gave no advice to About Life on the Deed of Agreement for Lease. Ms Badcock did give advice, by her email sent shortly before exchange, including on the warranty in clause 10.1.12 and the matter of side deeds. The problem with Ms Badcock's email advice was not what was said - which was strictly correct - but, given the circumstances in which it was sent, being shortly before exchange, the lack of information about what was being asked (including elaborating on what was meant by a 'side deed'), why it was important, and the need (to borrow a phrase) to "STOP AND THINK". Thus, were it necessary to decide, I would find that Maddocks were liable to Mr Green and Ms Phillips for misleading and deceptive conduct.

ORDERS

1. For these reasons, I make the following orders: Second cross-claim 1. Judgment in favour of the cross-claimant, About Life Pty Ltd, against the cross-defendants in the sum of $12,716,800 together with interest from 1 July 2017. 2. Judgment in favour of About Life Pty Ltd against the cross-defendants in the sum of $280,000, together with interest from 13 December 2017. 3. Cross-defendants to pay the cross-claimants' costs of the second cross-claim. Third to fifth cross-claims 1. Judgment in favour of the cross-claimants, Tammie Phillips, Michael Green and Thomas Beecroft, in the sum of $344,000, together with interest. 2. Cross-defendants to pay the cross-claimants' costs of the third, fourth and fifth cross-claims. 3. Grant liberty to the parties within 14 days to notify any errors or omissions. 4. In the event that any party seeks a variation of costs orders, direct: 1. the parties seeking a variation to file and serve any affidavits and submissions within 28 days; 2. the parties affected by the proposed variation to file any affidavits and submissions in reply within 14 days thereafter; 3. such application to be determined on the papers.

Amendments 23 December 2021 - - Cross-referencing amended

• amendment to cases on coversheet DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 December 2021