Ahrkalimpa Pty Ltd v Schmidt

2 Issues relating to liability have been determined separately from quantum.[2] Ultimately, the plaintiffs elected to claim equitable compensation, rather than an account of profits. The quantum hearing proceeded on this basis.

3 The 3 key individuals in this case are Haim Bzezinski ("Bzezinski"), Danny Ruschin ("Ruschin") and Schmidt. Schmidt, along with his wife, has been a director of Otway Livestock since its incorporation. Schmidt was also a director of AHRKalimpa from its incorporation, on 27 June 2013, until 25 November 2013.

4 Bzezinski is the sole director and 50 percent shareholder of the second plaintiff, Kalimpa Pty Ltd ("Kalimpa"). He also became a director of AHRKalimpa approximately 2 months after its incorporation, and has remained so. Since Schmidt resigned on 25 November 2013, Bzezinski has been AHRKalimpa's sole director.

5 Ruschin is a business associate of Bzezinski. It was Ruschin, with Bzezinski's financial backing, who was largely responsible for the work required to foster contacts and know-how to establish a live cattle export business into the Israeli market. "Through" his wife, Ruschin holds a 50 percent interest in Kalimpa.

6 AHRKalimpa conducted an export cattle business ("the Business") as a joint venture vehicle up until the time when Schmidt resigned as a director of that company. The joint venturers were originally agreed to be Kalimpa as to "66.6" percent and a company associated with Schmidt as to "33.3" percent.[3]

7 Before 25 November 2013, Otway Livestock, at the direction of Schmidt, and Schmidt himself, in breach of their respective duties, planned and implemented a scheme for Otway Livestock to take over the Business. After 25 November 2013, Otway Livestock, still at the direction of Schmidt, continued to carry on the same Business, including subsequently exporting live sheep to Israel. Equitable compensation is sought by reason of these breaches and on the basis that AHRKalimpa relinquish any ownership in the Business. Otway Livestock will be able to continue to conduct the Business into the future under the management of Schmidt (if he so chooses), who is a very experienced and successful exporter of livestock.[4]

8 For the reasons that follow, the defendants will be ordered to pay equitable compensation in the sum of $2,774,803, together with interest to be calculated from 16 December 2015 (the date of the commencement of the proceeding) to the date of judgment at a rate to be agreed, or, alternatively, to be determined by the court.

9 Only a brief summary of the relevant background is necessary.[5] In the Liability Judgment, it was found that:

(1) The plaintiffs kept certain information confidential only disclosing it after imposing obligations of confidentiality. Some of the information was, in fact, confidential.[6] The information related to a proposal to ship livestock to Israel. (In this judgment, such shipments will also be referred to as "Voyages".)

(2) In November 2012, an organisational chart was signed setting out the basis upon which a joint venture would be negotiated. It provided that Schmidt would take care of the general management of exporting cattle[7] and that a management agreement would be entered into which would provide that if any management agreement were terminated, then the "parties and related entities of AHRKalimpa" would not sell, trade or facilitate delivery of any livestock for a period of 2 years.[8]

(3) The joint venture completed Voyages 1 to 4, despite the fact that no formal joint venture agreement was in place (with 2 shipments agreed to before AHRKalimpa was incorporated).[9]

(4) The contracts for the shipments for Voyages 1 to 4 were not all executed by AHRKalimpa, although each of those Voyages was conducted on its behalf.[10]

(5) Voyages 1 and 2 suffered significant losses. However, Schmidt believed in the second half of 2013 (correctly as it turned out) that if the Business continued those losses could be recovered and the Business would be profitable.[11]

(6) The parties exchanged different versions of proposed restraints in the event an ongoing joint venture agreement could not be finalised. Ultimately, at a board meeting of AHRKalimpa on 16 August 2013, it was resolved that, if a suitable business model could not be agreed, "the parties would exchange mutual non-compete undertakings in relation to their respective clients and markets, and the live export business between the parties would be wound up". The "respective clients and markets" of Kalimpa covered by this resolution were those in Israel with whom AHRKalimpa was then trading.[12]

(7) Despite extensive negotiations, the joint venture relationship broke down in November 2013, without any formal joint venture documentation ever being completed.[13]

(8) Before the joint venture was terminated and Schmidt resigned as a director of AHRKalimpa, he took steps to enable him and Otway Livestock to continue the Business to the exclusion of both AHRKalimpa and Kalimpa.[14]

(9) After November 2013, Schmidt and Otway Livestock continued the Business by causing Otway Livestock to export further shipments of cattle to Israel.[15] In order to be able to maintain the ongoing operations of the Business, on a weekend in December 2013, Schmidt broke into the premises leased by Kalimpa at which the Business was conducted ("the Premises"),[16] and took the computer and hard-copy files located at the Premises without the permission or knowledge of AHRKalimpa or Kalimpa.[17]

(10) As at the end of January 2018, a total of 20 Voyages had been completed.[18]

(11) Schmidt unfairly took advantage of information, which was confidential to the joint venture, in order to continue to conduct the Business through Otway Livestock.[19]

(12) Schmidt breached duties owed as a director of AHRKalimpa by:

(a) planning to divert revenue, and ultimately profits, from AHRKalimpa to himself or his associated entities;[20]

(b) putting in place steps, some covertly, by which he, through Otway Livestock, could take the Business that was then being conducted by AHRKalimpa;[21]

(c) using the joint venture's confidential information for these purposes.[22]

(13) By reason of Schmidt's conduct, Otway Livestock breached fiduciary duties it owed to both AHRKalimpa and Kalimpa.[23]

(14) Otway Livestock is liable, as an accessory, for Schmidt's breaches of his director's duties.[24]

(15) Schmidt is liable, as an accessory, for Otway Livestock's breaches of its fiduciary duties.[25]

(16) By reason of Schmidt and Otway Livestock's conduct in continuing livestock export to Israel, the defendants effectively foreclosed any possibility of the plaintiffs (or Bzezinski and Ruschin) continuing the Business or establishing their own livestock export business into Israel.[26]

10 Before turning to the question of compensation, there are further factual matters that must be addressed.

11 In the Liability Judgment, it was stated that AHRKalimpa obtained an export licence after 2013.[27] In fact, the export licence was issued to Kalimpa Livestock Export Pty Ltd in 2016. This company was a company associated with AHRKalimpa and Kalimpa.[28]

12 Further, for the purposes of matters to be determined below, the following exchange during Bzezinski's cross-examination is significant:

But at the time, I'm going back to post Voyage 4, so that's post January 2014, you didn't have an export licence then, did you?---No.

You didn't have the funds to be able to purchase cattle, did you?---I did have.

You did have?---Yes.

Where were you going to get those funds?---Various investors.

Unidentified investors?---I'm here, it cost me money. I've got - that's not for the (indistinct).

The fact of the matter is that post Voyage 4 you didn't have the skillset or ability to be able to undertake the export of live cattle to Israel?---I never said that I've got the expertise, therefore it was always finding the other guy or the other company that [would] joint venture with us, sharing our information and our records and all of this, to jump on the opportunity. So I never said I would do it on my own and I can do it on my own, that's not what I'm saying.

You could never have done it on your own, you agree with that?---I'm not saying never, I'm saying it's making more sense to me as a businessman to join with another party ... back then.

13 In seeking equitable compensation for the breach of the duties owed by the defendants, the plaintiffs principally relied upon Schmidt's breaches of director's duties, Otway Livestock's breach of fiduciary duties, together with their respective accessorial liability.[29] In this regard, the plaintiffs placed particular focus upon the finding that the defendants misappropriated the Business, including by continuing to export livestock to Israel, and, in so doing, using confidential information and the books and records of AHRKalimpa that were misappropriated.

14 The plaintiffs submitted that the defendants' breaches are continuing, and that, despite Schmidt's acknowledgements that Voyages 1 to 4 were performed on behalf of AHRKalimpa, there has been no attempt to compensate the plaintiffs for the value of the Business and the misappropriated assets.

15 The plaintiffs submitted that they ought to be awarded compensation in order to place themselves in the position, as closely as possible, that they would have occupied had there been no breach of duty. They submitted that the defendants denied them the capital value of the Business, and participation in its management, from November 2013 to the date of judgment. The plaintiffs submitted that they lost a business of value and not a mere opportunity (as contended by the defendants). Reference was also made to evidence given by the defendants' expert that assessing the value of the Business as at November 2013, or, alternatively, November 2015, at nil would result in a windfall for the defendants.

16 In particular, the plaintiffs emphasised the special approach to be taken with respect to equitable compensation payable by defaulting fiduciaries, which is not curtailed by common law concepts of remoteness of damage, foreseeability or causation (as that term is used in the common law).[30] The plaintiffs contended that the correct approach required an assessment of any award to be made as at the date of the quantum hearing,[31] or at least proximate to that date.[32] Further, with respect to Schmidt's breach of his director's duties, it was submitted that he ought to be the subject of the same stringent test applicable to a trustee of a traditional trust exercising the fiduciary power to dispose of property.[33]

17 As to the uncertainty about what the plaintiffs might have done in the absence of any breach of the respective duties owed by Schmidt or Otway Livestock, it was submitted that it is not appropriate for the court to speculate about such things.[34] This was said to include not speculating about whether the plaintiffs decided in November 2013 simply to cease any involvement with the Business.

18 Although an account of profits was not sought, the plaintiffs submitted equitable compensation may be computed by reference to the defendants' gain.[35] Further, it was made clear during closing submissions that the focus should be upon AHRKalimpa as the entity entitled to the award of compensation.[36]

19 In stark contrast to the plaintiffs' submissions, the defendants contended that the plaintiffs should only be compensated for any loss of opportunity they may have suffered by reason of the wrongful conduct of the defendants.[37] In short, the defendants submitted the plaintiffs' loss was strictly limited to the value of that opportunity and was not to be measured by reference to the value of the Business or the defendants' gain in conducting the Business after 25 November 2013. In addition, the defendants emphasised that the court was concerned with a business which was successful because of Schmidt's efforts, skill and financial risk-taking, rather than a specific asset such as property. In these circumstances, it was contended that very different considerations apply when compared with determining the compensation with respect to misappropriated property.[38]

20 In making this submission, the defendants contended that the counter-factual needed to be considered. They relied upon findings that neither of the plaintiffs would have been able to develop or conduct the same business conducted by AHRKalimpa without the involvement of the defendants or someone else with similar experience and expertise.[39] As to the possibility of someone else fulfilling that role, the defendants observed that there was no evidence of any such person, nor that the plaintiffs would have been able to carry on the Business. It was further contended that the court was entitled to take into account what the plaintiffs would have done if the defendants did not export or cause the export of livestock to Israel in breach of their respective duties. It was submitted that, if the court were to find that the plaintiffs would have done nothing, then they have suffered no loss.

21 Further, the defendants highlighted the failure of the joint venture negotiations to culminate in a concluded agreement. They submitted that the cessation of those negotiations by Schmidt did not give rise to any compensable loss, because the parties were free to cease negotiations at any stage and were not compelled to reach any agreement by reason of what had previously transpired. It was submitted that, by reason of this breakdown in the negotiations, AHRKalimpa, the intended joint vehicle, ceased to have a purpose and could not continue to carry on the Business as it had. Accordingly, so it was said, the inability of AHRKalimpa to continue the Business was "unconnected" with the defendants' breaches.

22 Furthermore, the defendants submitted that the fact that the books and records of AHRKalimpa were misappropriated by the defendants was of no moment. They relied on the fact that the letter of demand sent on 24 December 2013[40] did not include any demand for a return of the books and records. Nor were the books and records the subject of a claim in the statement of claim in this proceeding. In these circumstances, it was submitted that the plaintiffs' failure to demand a return of the books and records demonstrated they did not intend to continue with the Business after Schmidt chose to resign as a director of, and relinquish his shares in, AHRKalimpa.

23 On the question of causation, when dealing with equitable compensation, the defendants submitted there should be no difference in approach between a court applying common law or equitable principles.[41] They submitted that any suggestion in the authorities that causation was more readily satisfied by a plaintiff seeking equitable compensation was incorrect.[42]

24 As to the quantity of any compensation, the defendants submitted that to award compensation as claimed by the plaintiffs would be impermissibly to put them in a better position than they would have been if the breach had not occurred.[43] Although such a result might arise within an account of profits, it is contrary to principles of equitable compensation. Further, in circumstances where AHRKalimpa had no long-term contracts and no real assets, it did not have any goodwill and therefore the loss should be assessed as nil even if the value of the Business is entitled to be taken into account.

25 Moreover, it was submitted that any award of compensation must be limited to a period of 2 years after "the diversion" of the Business because, "on any view of the world", Schmidt could have competed with AHRKalimpa 2 years after he resigned.

26 Finally, regardless of the manner by which equitable compensation ought to be assessed, the defendants submitted the relevant date for the assessment (of the lost opportunity, or, alternatively, the value of the Business) is 25 November 2013, alternatively, 25 November 2015,[44] rather than a date proximate to the time of the trial.[45]

C.3 Equitable compensation must be awarded for loss suffered

27 Before returning to the evidence in this case, it is necessary to identify the approach to be taken with respect to equitable compensation. The cases demonstrate that the policy of the law is to uphold the obligations of a fiduciary duty with respect to disloyal non-trustee fiduciaries in cases where loss is occasioned upon a breach arising from conflict between duty and self-interest.[46]

28 On a general level, any relief must be fashioned to fit the facts of the particular case at hand.[47] Further, in contrast to an account of profits, equitable compensation is directed to restoring the claimant to the position it would have been in had the breach of duty not occurred.[48] In order to achieve this, the assessment of loss is to be made at the time of judgment (as opposed to the date of the breach) using hindsight, essentially to ensure that the plaintiff is put into the presently correct position.[49]

29 A fiduciary need not act dishonestly or fraudulently to be liable for a breach of fiduciary duty.[50] But dishonesty or fraud on the part of a fiduciary "is met where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour".[51] In other words, engaging in this standard of misbehaviour may occur even if the fiduciary did not consider the conduct in question dishonest or fraudulent. The "intensity" of the remedies available may be increased for more serious breaches.[52]

30 A person wronged by reason of a fiduciary's breach of duty may elect to seek an account of profits or claim equitable compensation. A party is bound by its election.[53]

31 Unlike an account of profits, it is essential a loss has been suffered for equitable compensation to be awarded. Further, although equitable compensation is concerned with properly compensating the wronged person for loss suffered, profits earned by the wrongdoer may also be relevant to the quantification of loss in some cases.[54]

32 The obligation is on the plaintiff seeking equitable compensation to establish the breach has "caused" the loss.[55] However, "causation" is not to be understood in the same way as that term is used at common law.[56] In order to have a valid claim for loss, arising out of a breach of fiduciary duty, a plaintiff need only establish that the loss was caused "by", "by reason of", or "as a result of" the wrongful conduct.[57] As was stated in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd:[58]

A causal connection between a fiduciary's breach of fiduciary obligation and a benefit or gain sufficient for the fiduciary or knowing participant to be liable to the equitable remedy of account will exist if the benefit or gain to the fiduciary or knowing participant would not have been obtained "but for" the breach, in the same way as a causal connection sufficient for the fiduciary to be liable to the equitable remedy of compensation will exist if a loss to the person to whom the fiduciary obligation is owed would not have been sustained but for the breach. Because the concern of equity is to vindicate the equitable obligation that has been breached, the "but for" connection will be sufficient even though other contributing causes might be in play. That a fiduciary's breach of fiduciary obligation is dishonest and fraudulent is also good reason for treating a sufficient causal connection as existing if the dishonest and fraudulent breach can be concluded to have played a material part in contributing to the benefit or gain of the fiduciary or knowing participant even in circumstances where it cannot be concluded that the benefit or gain would not have been obtained but for the breach.

(Emphasis added, citation omitted.)

33 As for the evidence that must be led by a plaintiff seeking to recover equitable compensation, again generally speaking, the position is not as onerous as that for a plaintiff at common law.[59] Once a causal link to the loss claimed is established, the onus shifts to the defendant.[60] Further, if a defendant has some proper basis for reducing the loss claimed because of the output of its skill, labour, investment and risk, then the onus is on the defendant to establish whether, and, if so, to what extent, these factors ought to be taken into account.[61]

34 Loss claimed is not limited by issues of remoteness[62] or foreseeability[63] of loss. Once the causal link is established, equity does not enquire as to whether the loss was also caused by other acts or omissions.[64] Further, when assessing quantum and considering what would or ought to have happened if no breach had occurred, the court should not speculate against the plaintiff,[65] or assume something might have occurred when, in fact, it did not.[66] Naturally, if there is direct evidence on an issue then that evidence must be taken into account. All of this said, the role of the court is not to penalise the errant fiduciary. Equally, the remedy is to properly compensate a plaintiff, not provide it with a windfall.[67]

35 When dealing with a loss of an opportunity, a court is challenged with placing a monetary value on something that may be elusive and lacking precise measurement. In order to arrive at an appropriate award, the court is entitled to use common sense and general notions of justice and fairness.[68]

36 On the facts of a particular case, a number of approaches to assessing loss may be appropriate.[69] Further, the assessment may involve the balancing of factors, which is not purely a mathematical exercise, or strictly logical. However, at all times the approach to be adopted "should support and fortify the underlying principles being vindicated: fidelity, trust and honesty" to discourage fiduciaries from acting other than in accordance with their fiduciary duties.[70] As to the precise path to be taken, it is possible that reasonable minds may differ on the correct approach.[71]

37 Finally, until an errant fiduciary makes full restitution and pays any appropriate compensation, the fiduciary's breaches are presumed to continue.[72]

C.3.2 Loss of the Business was caused by the defendants

38 Now to turn to the facts relevant to whether or not any loss was suffered.

39 At the direction of Schmidt, the defendants misappropriated the Business. At the time steps were put in place by Schmidt for the misappropriation, the Business (owned by AHRKalimpa, of which Schmidt was a director) was an ongoing operation with real prospects of developing and expanding.[73] Not only did Schmidt lay the foundation for the misappropriation while he was still a director and engaging with various persons (including customers) in relation to the present and future business of AHRKalimpa, after he resigned, both he and Otway Livestock sought to perform,[74] or performed,[75] contracts that were already scheduled to be part of the Business before Schmidt resigned.[76] They then continued to conduct the same Business thereafter.

40 In short, as found in the Liability Judgment, the Business conducted after 25 November 2013 was a continuation of the same Business, rather than Schmidt setting up a new business in competition with the Business.[77] Not only did Schmidt and Otway Livestock continue the Business, but they treated it as their own without paying any valuable consideration to the rightful owner of the Business for the "transfer". Further, it does not lie in the mouth of Schmidt (and Otway Livestock) "to say that they did not want to acquire the [B]usiness, for that is precisely what they did".[78] Equally, it is of little moment that there may not have been many purchasers, or even any purchasers other than the defendants, interested in acquiring the Business; for, in those circumstances, the Business should be valued based on a notional sale to the defendants.[79]

41 Furthermore, although it has been found there was no binding joint venture agreement which required Schmidt or his affiliated companies to remain involved in a joint venture with the plaintiffs beyond Voyage 4 (and Schmidt was free to resign as a director of, and relinquish his shares in, AHRKalimpa), he was not free to treat the Business as his own or use confidential information he had obtained as an employee of Elders (and continued to use as a joint venturer).[80]

42 To elaborate, upon his resignation as a director of AHRKalimpa (whether or not Schmidt had engaged in breaches of duties before that time), if Schmidt had acted in good conscience and consistent with what had been resolved by the board,[81] he would have refrained from conducting the Business, including treating existing prospective shipments as his, or Otway Livestock's, own.[82] As the defendants' submissions properly acknowledged, it "was contemplated by the parties there would be a two-year pause if relations came to an end". Moreover, the board resolution on 16 August 2013 made it plain to Schmidt that, unlike the plaintiffs' interests, he would not be free to export livestock into Israel, or to pursue such a business, immediately upon the joint venturers failing to agree upon the business model.[83]

43 Further, and in any event, no possible ability of Schmidt in the future to set up in competition with AHRKalimpa, by reason of the non-existence of an ongoing joint venture agreement, included the ability to break into the Premises and misappropriate the books and records of AHRKalimpa. Schmidt described getting access to these materials in December 2013 as "an urgent issue". He also frankly described them as "the records of the Business that we had been doing together".[84] This demonstrably wrongful conduct not only allowed Schmidt, and Otway Livestock, to continue the Business, but also deprived AHRKalimpa of any real prospect, at least in the short term, of engaging in the Business.[85] On no view could this conduct sensibly be characterised as Schmidt acting for the benefit of, or consistent with his obligations to, AHRKalimpa.

44 The fact that the letter of demand sent on 24 December 2013 did not include a demand for the books and records of AHRKalimpa is of no moment. The terms of the demand record that Voyage 3 had been in progress from 19 November 2013 and Voyage 4 had still not occurred. In circumstances where the demand also sought two thirds of the profits from Voyages 3 and 4, it would have made little sense to demand the return of all the books and records at that time. While on this topic, the absence of such a demand in the statement of claim takes the matter no further. By December 2015, when this proceeding commenced, the plaintiffs were seeking equitable compensation or an account of profits, rather than any relief involving a return of the Business.

45 In summary, on the facts of this case, it is plain that the conduct of Schmidt and Otway Livestock in misappropriating the Business, including depriving AHRKalimpa of its books and records, caused AHRKalimpa to suffer a loss. In my view, the most appropriate characterisation of this loss is the loss of the Business itself. In order to ensure the remedy is fashioned to compensate for the ongoing breach, the valuation must occur as close as practicable to the date of the trial.

46 The fact that Schmidt was free to resign as a director and cease with the joint venture does not detract from this conclusion. Regardless of what options Schmidt had in early November 2013, he chose to remain a director and, in that position, effectively deprived AHRKalimpa of the Business. He made this decision with the personal incentive to engage in further Voyages in his own right (or, more specifically, in right of Otway Livestock under his control) to seek to recover losses already incurred and to ultimately achieve profits for his own benefit or for those associated with him.[86] He did so to the exclusion of AHRKalimpa and the co-venturer, Kalimpa. Further, with the benefit of hindsight, it may be observed that Schmidt assured the success of the transition arrangements by putting things in place before he resigned.[87]

C.3.3 Loss not properly characterised as a mere loss of opportunity

47 It follows from the above findings that I do not accept the defendants' contentions that loss ought to be assessed on the basis of any lost opportunity of AHRKalimpa or Kalimpa to engage in a livestock export business after 25 November 2013. Because of the defendants' conduct, the ability to take advantage of that opportunity never really crystalised in late 2013.[88] Further, to adopt this approach would be contrary to the facts as found. The opportunity that would have existed if the breaches of duty had not occurred would have been to seek other possible co-venturers in circumstances where neither Schmidt nor Otway Livestock would be competing in the short term. In particular, to adopt the lost opportunity approach would be effectively to ignore the fact that the Business continued uninterrupted because of Schmidt's and Otway Livestock's conduct.

48 In addition, I reject the submissions of the defendants insofar as they sought to have the Business valued as at 25 November 2013, or, alternatively, 25 November 2015.[89] As the authorities referred to above make clear, when assessing the amount of equitable compensation to be awarded, the court is required to look at all the circumstances up to the time of trial in order to ensure that the policy of the law with respect to fiduciary duties is upheld.[90] Naturally, the manner by which to assess equitable compensation must depend on the circumstances of each case. In some cases, to do equity, it may be that the time of misappropriation would be the most appropriate point to value a business.[91] But, in circumstances where the Business has continued to be conducted successfully by reason of the breaches of duty, it would be inappropriate to limit its value by reference to some earlier point in time.

49 Two cases in particular were relied upon by the defendants in seeking to have the Business valued at these earlier dates. In deference to their submissions, they will be addressed briefly.

50 The first case, Mordecai v Mordecai,[92] involved directors of a company misappropriating its business by conducting it under a new company. In that case, the trial judge did value the business in question as at the time of the misappropriation, which approach was approved on appeal. However, a review of the trial judge's decision demonstrates that no alternate argument for a later date was put.[93] Further, the trial judge expressly acknowledged that no claim was made with respect to the profits earned by the recipient company which wrongfully continued to conduct the business after it had been misappropriated.

51 The other case is Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari,[94] which involved directors misappropriating a rent roll from an insolvent company and gifting it to a new company of which they were also directors. The insolvent company was not placed into liquidation for approximately 2 years after this occurred. The rent roll at the time of misappropriation was valued at $150,000, and this was the amount of compensation awarded to the insolvent company. However, there does not appear to have been any argument by the insolvent company that a date other than the misappropriation date was appropriate.[95] On the basis of Mordecai v Mordecai, the insolvent company contended the defaulting directors and the new company ought to pay damages based upon what they would have had to pay for the rent roll at the time of misappropriation. Further, the leading judgment of the majority did not treat the misappropriation of the rent roll as a wrongful acquisition of a business, but rather of an asset of the business.[96]

52 In summary, neither of these cases stand for the proposition that the date at which a business ought to be valued in the circumstances of this case ought to be the date of misappropriation.

53 Another case relied upon by the defendants was Ithaca Ice Works Pty Ltd v Queensland Ice Supplies Pty Ltd.[97] Mindful that equity must be fashioned according to the particular facts at hand, it must be said at once that the facts in this case are very different to the facts before this court. The case involved the theft of a price sheet and a customer list.[98] The defendants did not owe any fiduciary duties to the plaintiff; on the contrary, they were in competition.[99] Further, the case was concerned with assessing loss of business and whether it was by reason of the theft, and not with loss occasioned by the wholesale misappropriation of an entire business.[100] In short, it is of little assistance in determining the present case.

54 Finally, before dealing with quantum, the issue of dishonesty must be addressed. In the Liability Judgment, Schmidt was found to be a credible witness.[101] Further, the advice he received from David Dunn,[102] that Schmidt was entitled to pursue the course he did, was acknowledged.[103] But whatever views Schmidt may have held about his "entitlements" given his predicament in October and November 2013 (including the protracted negotiations and the venture having suffered significant losses to that time), that did not warrant Schmidt taking matters into his own hands and flagrantly breaching his director's duties. A similar observation is made with respect to Otway Livestock's fiduciary duties. In this context, no submission was made that the court ought to grant relief pursuant to s 1318 of the Corporations Act 2001 (Cth) on the basis that Schmidt ought fairly be excused for his breaches of director's duties because he had acted honestly and the circumstances of the case warranted it. No such submission could properly have been put.

D. Basis of claim on misappropriation of the Business

55 The plaintiffs claim two thirds of the value of the Business (based on the underlying ownership of the joint venture), together with an amount of compensation for being excluded from the management and ownership of the Business from November 2013 to date. With respect to the latter of these 2 matters, the plaintiffs seek either a share of two thirds of the net profits up to 31 January 2018, or, alternatively, interest from 25 November 2013, or, alternatively, the commencement of the proceeding, on any amount awarded for the value of the Business up to date of judgment.

56 The parties each engaged their own expert to determine the value of the Business.

57 On 24 July 2017, the expert for the plaintiffs, Greg Meredith ("Meredith"), filed a report ("the Meredith Report").[104] Meredith filed a supplementary report ("the Supplementary Meredith Report") on 30 July 2018. The expert for the defendants, Gary Fettes ("Fettes"), filed a report on 3 October 2018 ("the Fettes Report").[105] In preparing the Fettes Report, and in his later work, Fettes did not speak with Schmidt. However, he did speak to "Schmidt's accountant and a former accountant", as well as the defendants' solicitors.

58 In October 2018, Meredith and Fettes attended a joint experts' conference. A joint expert report ("the Joint Report") was filed on 12 October 2018 which set out, amongst other things, the material matters of agreement and disagreement between them.

E.2 The capitalisation of future maintainable earnings methodology

59 The experts agreed that, in the event the court determined the Business should be valued as at 31 January 2018, the appropriate methodology to estimate the equity value of the Business is the "capitalisation of future maintainable earnings methodology".[106]

60 According to Meredith, this methodology is appropriate in circumstances where there is a lack of forecast financial performance, but the Business is relatively mature and enjoying stable earnings. This method requires an assessment of future maintainable earnings ("Future Earnings") and a capitalisation multiple which takes into account various growth and risk factors, both general and specific to the Business itself, to then give a present value of the Business. The experts agreed this approach is unaffected by their divergent assessment of the accumulated profits[107] or losses[108] of all (or substantially all) Voyages.

61 Future Earnings are calculated by reference to expected earnings before interest, tax, depreciation and amortisation ("EBITDA").

62 The objective of the exercise is to attain the EBITDA multiple (otherwise known as the capitalisation multiple), which is ultimately used to determine the indicative equity value of the Business, by applying it to Future Earnings.

63 There are a series of steps involved in the exercise. These include calculating the weighted average cost of capital ("the Weighted Cost"), the cash flows to firm multiple, the ratio of the EBITDA to cash flows to firm and ultimately arriving at the EBITDA multiple.

64 More particularly, first, the Weighted Cost is calculated by taking into account various matters.

65 Secondly, the cash flows to firm multiple is calculated by dividing 1 by the Weighted Cost figure, minus the growth rate in perpetuity.

66 Thirdly, to calculate the ratio of EBITDA to cash flows to firm, EBITDA is divided by cash flows to firm. Cash flows to firm is calculated by subtracting the 30 percent tax rate on earnings before interest and tax ("EBIT").

67 Fourthly, to calculate the EBITDA multiple, the cash flows to firm multiple figure is then divided by the ratio of EBITDA to cash flows to firm figure.

68 Finally, based on the above, the indicative equity value is obtained by multiplying the EBITDA multiple by Future Earnings.

E.3 Factual assumptions for estimating Future Earnings

69 To calculate Future Earnings, a base year must be adopted. This is used to represent the future financial performance of the Business. The base year figure is an average of a business' previous EBITDA over a selected number of years. After reviewing the profit and loss statements of all Voyages, Meredith selected the average EBITDA for Voyages 17 to 20 as most representative of future Voyages, on the grounds that these Voyages appeared to have operated efficiently, returned a profit, were all in the same financial year and were "relatively consistent in terms of both nature and extent ... and [in] the final result". In the Joint Report, Fettes also accepted the financial performance arising from Voyages 17 to 20 as the basis for calculating a base year.

70 In my view, the experts were right to use these Voyages. Voyage 16 did not proceed, and the cattle were sold domestically.[109] Although Voyage 15 was profitable, 33 percent of its revenues were from domestic sales. Accordingly, Voyage 15 was less than ideal in trying to quantify future maintainable earnings of a live export business. Once the less than ideal Voyages 15 and 16 are excluded, then there is a significant gap between Voyages 17 to 20 and the earlier Voyages, with most of the earlier Voyages conducted on significantly different contractual terms.[110]

71 In short, Voyages 17 to 20 represent the most recent Voyages up to 31 January 2018 and provide the best available financial information for the purposes of ascertaining a base year.

72 With respect to shipping terms, some Voyages were undertaken on a free-on-board basis (where the buyer is responsible for the various shipping and related costs),[111] whilst others were undertaken on a cost, insurance and freight basis (where the seller is responsible for the shipping costs). Meredith was instructed to consider both bases.

73 Despite his instructions, Meredith only conducted his valuation on a free-on-board basis. He did so on the grounds that it was not reasonable to adopt a cost, insurance and freight basis because, of the more recent profitable Voyages, only 2 Voyages were conducted on this basis.[112] Further, the most recent Voyages were conducted on a free-on-board basis. Contrary to Meredith's position, Fettes initially expressed the opinion that there was sufficient evidence available to adopt the cost, insurance and freight basis. This was repeated by him in the Joint Report.

74 However, during cross-examination, Fettes acknowledged the current Israeli importer, which owns its own ship, only wanted to deal with Otway Livestock on a free-on-board basis. Further, he agreed the alternate basis could be put aside as the experts agreed any estimate of future maintainable earnings should be on the free-on-board basis. Given this is the likely manner in which the Business will be conducted going forward, this agreed position is plainly correct.[113]

75 It is also necessary to consider the allocation of corporate overheads. This concerns the corporate overheads incurred by Otway Livestock in actually conducting the Business for a particular financial year.[114] Corporate overheads include expenses such as legal and accountancy fees, wages, rates and taxes, and insurance.

76 In the Joint Report, Meredith allocated the corporate overheads at a rate of 88 percent of the total costs of the Voyages based on the financial years 2013 to 2017, whereas in the Meredith Supplementary Report he had allocated a rate of 72 percent.[115] Fettes considered the rate of 72 percent as too low, and allocated a rate of 84.5 percent based on the financial years 2013 to 2016 in the Fettes Report. These financial years incorporated Voyages 1 to 13, with 84.5 percent of Otway Livestock's operational income coming from these Voyages. Fettes increased this percentage to 92.9 percent in the Joint Report. Not only was there a difference in the financial years upon which overheads were calculated, but Fettes disagreed with Meredith in excluding the overheads for Voyage 16. Fettes described this as "the simple difference" between the 2 experts.

77 When cross-examined, Fettes stated that Meredith's figure of 88 percent was "correct" and "not incorrect", noting that Fettes had chosen financial years 2013 to 2016 "therefore avoiding the issues with Voyage 16". Fettes was of the opinion that, if the 2017 financial year was included, then Voyage 16 could not be excluded because "the overheads just don't go away" and any profit derived was from domestic sales and was not part of the business the subject of the valuation.

78 In my view, Meredith's approach is to be preferred and the 88 percent allocation should be adopted. Obviously, this approach incorporates a greater level of relevant trading results, including more up-to-date information. Further, Meredith was entirely justified in excluding Voyage 16 in circumstances where the defendants have not provided any of the trading details to the plaintiffs. Whether this non-provision of information was appropriate or not,[116] to exclude all operational income from the sale of cattle purchased for Voyage 16 but still include all overheads would, self-evidently, distort the overhead allocation in a manner which would unfairly favour the defendants.[117]

79 With respect to more general matters, the experts agreed that certain growth and risk factors were relevant to Future Earnings of the Business, however they did not agree as to how those factors ought to be included in the calculations. If risk is given too much weight, the multiple to be applied is too low and a business is undervalued. Equally, if not enough weight is given to risk, the multiple will be too high, and a business will be overvalued. Assessing risk is an evaluative process, where reasonable minds may differ.

80 The Weighted Cost is a business cost of capital and is calculated by taking into account, amongst other things, various risk premiums, the ratio of equity to total capital, the post-tax cost of debt and the ratio of debt to total capital. There are a number of steps to be taken to convert the Weighted Cost through to an EBITDA multiple so that a value may be determined.

81 The Weighted Cost is derived from the following formula:

Weighted Cost = Ke x E + Kd (1-tc) x D

D+E D+E

where:

Ke = required return on equity

D = market value of debt capital

E = market value of equity capital

Kd = required return on debt capital

tc = statutory corporate tax rate.

82 Meredith assessed, and Fettes agreed with, the following components:

D 10 percent[118]

E 90 percent

Kd 6.55 percent[119]

Te 30 percent.[120]

83 Further with respect to the component of the required return on equity (Ke) (also referred to as the cost of equity), the following formula was adopted:

Ke = Rf + (Be x EMRP + SP + CSRP)

where:

Rf = risk free rate of return

Be = equity beta[121]

EMRP = equity market risk premium

SP = size premium

CSRP = company specific risk premium.

Each risk is to be allocated to the relevant component and is not to be counted more than once.

84 The experts agreed that the proper allocation for the risk free rate of return (Rf) was 3.42 percent.[122] The experts also agreed that the equity beta (Be) represented the risks of the industry.[123]

85 As to the equity market risk premium (EMRP), that represents the excess return required by an investor for investing in an equity market index over a risk free asset. The experts agreed that 6 percent should be allocated to this component.[124]

86 Accordingly, to determine the required return on equity (Ke) there are 3 components that require further consideration.

E.5 Adjusting for Size and Company Specific Premiums, and the equity beta

87 As already touched upon, the Weighted Cost must be adjusted to account for risks associated with the Business. In this case, the experts made adjustments by calculating: a premium taking into account the size of the company relative to other companies ("the Size Premium"); and a premium specific to the company in the industry in which it operates ("the Company Specific Premium").

88 Both experts agreed the Business was "very risky", however their approach to the actual quantification of that risk differed.

89 Dealing with the Size Premium, smaller companies, like Otway Livestock, require a higher rate of return on their investment when compared to larger companies. This is required to compensate for the risks associated with the small scale of their operation, being part of a specialised economy and having more limited financial resources compared to larger companies. Ordinarily, smaller companies have reduced access to capital markets, higher concentrations of risk due to less diversification, lower liquidity, higher governance risk, less resilience to external threats and less investment for ongoing operations.

90 According to the KPMG Australian Valuation Practices Survey 2017 ("the KPMG Survey"), Australian companies with equity values of less than $50 million would have a risk adjustment of between 1 and 20 percent for Size Premium. The KPMG Survey further suggests that companies with equity values between $51 million and $100 million have a risk adjustment of between nil and 10 percent. Self-evidently, based on these criteria there is substantial overlap in the suggested percentages and considerable scope for a large variance in choosing an appropriate percentage for a particular company.

91 Reference was also made to research in the United States, recorded in the 2013 Ibbotson SBBI Risk Premia Over Time Report ("the Ibbotson Report"), which estimated a Size Premium of 11.65 percent for companies with a market capitalisation of between US$1.139 million and US$96.164 million and 6.03 percent for companies with a market capitalisation of US$1.139 million to US$253.761 million. In short, no size premium in the Ibbotson Report is greater than 11.65 percent.

92 These 2 sources of information concerning a Size Premium were the only independent sources referred to by the experts. Both of them have significant limitations. The Ibbotson Report summarises the results of capital markets for 2012 in the United States of America. Accordingly, it is somewhat out of date and geographically remote. Although the KPMG Survey is more recent and geographically proximate, the width of the percentages given provides little guidance on what Size Premium ultimately should be adopted.

93 Meredith gave evidence that the research with respect to Australian companies in this regard is relatively poor. Accordingly, he said that when using American studies, there was also a significant need for an expert to apply judgment when arriving at a Size Premium.

94 The reasoning of both experts is thin on this topic. Meredith states he adopted a Size Premium of 7 percent, it being in the range of percentages provided for in the Ibbotson Report. Other than listing the various matters he took into account in coming to this percentage, no further reasoning is disclosed as to how he arrived at the precise number.

95 Similarly, Fettes refers to the KPMG Survey and the Ibbotson Report. After making some observations with respect to that information, Fettes simply states that the Business would be valued at the "lower end of the bottom quartile therefore I believe" 12 to 16 percent is reasonable.

96 Both experts also comment on this issue in the Joint Report. That discussion is no more illuminating.

97 Ordinarily, when such scant reasoning is provided for justifying an expert opinion, a court would disregard it or give it very little weight. However, both experts agree that a Size Premium ought to be applied and to disregard the evidence in its entirety or not give due weight to this factor would unduly favour the plaintiffs.

98 If weight is to be given to both the KPMG Survey and the Ibbotson Report, then on no view do the figures referred to support Fettes' Size Premium of 12 to 16 percent. The highest premium referred to in the Ibbotson Report is 11.65 percent with respect to companies with a market capitalisation as low as US$1.139 million. However, an observation by Fettes that companies with a market capitalisation between US$96.483 million and US$165.6 million had an average size premium of 8.9 percent was not the subject of challenge. In these circumstances, given the experts have relied upon this material as part of the process of formulating the appropriate percentage for the Size Premium, I agree with Fettes' observation that 7 percent is too low.

99 Doing the best I can on the information available, and accepting the obvious circularity in the exercise, I propose to apply a Size Premium of 10 percent. In my view, the Business is larger than the very bottom end of the range in the Ibbotson Report, and 10 percent falls squarely within the range suggested in the KPMG Survey for companies with a market capitalisation of less than $50 million.

100 Turning to the Company Specific Premium, the experts took into account the risks associated with the Voyages, the brief trading history, the lack of diversification in the Business and customer base and the volatility of the live cattle export industry.

101 According to Meredith, the Business ought to have a 15 percent Company Specific Premium. In contrast, Fettes was of the view that a Company Specific Premium of 50 percent was reasonable. In response, Meredith said he was "very comfortable" with 15 percent and remained comfortable after reading Fettes' comments.

102 The bases upon which the opinions are expressed on this issue are also thin. In the Supplementary Meredith Report, the relevant extract is as follows:

I have had regard to the following factors when estimating the [Company Specific Premium]:

(a) The risk involved in undertaking the activity of the Voyages;

(b) The vicissitudes of live cattle export activities;

(c) The volatility in the historical financial performance of the ... Business; and

(d) The brief trading history of the ... Business.

I have adopted a [C]ompany [S]pecific [P]remium of 15% in my assessment.

As may be seen, precisely how Meredith arrived at the figure of 15 percent is not disclosed.

103 Equally, although Fettes gives more background before expressing his opinion, in stating that he believed a discount rate of 50 percent was appropriate, he discloses no path of reasoning which demonstrates how he calculated that figure. That said, Fettes listed a large number of matters seeking to demonstrate that the Company Specific Premium should be higher than allowed for by Meredith. It is necessary to address these. Before doing so, as a general comment, numerous factors identified were based on what Fettes had been told. Fettes properly acknowledged that it would be necessary to have evidence from Schmidt or Otway Livestock's accountant to verify some of the assumptions made. Now turning to the matters raised.

104 First, Fettes referred to the fact that only Dabach had engaged Otway Livestock to provide free-on-board exports to Israel. Fettes further asserted that if Dabach stopped using Otway Livestock, then the Business would be worthless.

105 As to the first of these matters, Meredith said he took into account that Otway Livestock had only 1 customer after Voyage 7 in the context of the risks he specifically identified, including that Dabach has its own ship. Further, Meredith pointed out that the loss of Dabach would not necessarily mean there was no business, but obviously there would be a need to find other customers.

106 Secondly, Fettes identified that Otway Livestock previously had 2 customers. Meredith said under cross-examination this was effectively the same factor as the first factor. He was not challenged on this.

107 Thirdly, Fettes referred to instructions that Dabach has also received livestock from "Landmark" by way of 2 free-on-board Voyages in the last 12 months.[125] Although in closing submissions the defendants could not point to any evidence of this specific fact, there was evidence of Dabach being supplied from other sources.[126] Meredith said he was not aware of any dealings with Landmark, but acknowledged competition was something that needed to be taken into account in determining the risk premium.

108 Fourthly, Fettes referred to being told that Otway Livestock had never received a commitment beyond 1 shipment at a time.[127] Meredith responded that this factor did not really go anywhere.[128]

109 Fifthly, Fettes referred to Otway Livestock typically ordering months in advance, meaning that it was exposed to fluctuations in both livestock and currency prices.[129] Further, he referred to the risk that the customer could opt to source its livestock from another source "as happened with Voyage 16". Meredith's response was that these matters were just part of the industry that the Business was involved in.[130]

110 Sixthly, Fettes suggested Otway Livestock not only faced competition from Landmark, but also from other sources as Dabach had "recently started sourcing more livestock from suppliers in Portugal". There was evidence before the court that "Israel" imported from Portugal and a number of other European countries. Meredith accepted that competition from other sources might be a risk factor if the customer was looking for alternative sources of supply.

111 Seventhly, Fettes stated there was currently significant political pressure in Israel to stop the import of live animals, which had been supported by the Israeli prime minister.[131] Fettes also referred to the suspension of a licence of another exporter of livestock from Australia to Israel in June 2018.[132] In response, Meredith said he had not looked at the website referred to and suggested the risk factor was more appropriately in the equity beta,[133] rather than being dealt with as a company risk, because it was a risk factor that affected the whole industry, rather than Otway Livestock specifically. In response, in the Joint Report and at trial, Fettes accepted this risk was industry specific, but suggested the equity beta did not pick up all the risks necessary. He stated that the equity beta for the industry was more applicable to large companies and did not truly apply to Otway Livestock. However, he accepted that when he previously adopted Meredith's figure for the beta in the Fettes Report it was his genuine view, on the basis that a "beta of 1 is a normal market risk for enterprises". Fettes also said he had no information he could rely on to get an appropriate equity beta.

112 Eighthly, Fettes referred to regulations announced in May 2018 to reduce sheep stocking densities by approximately 28 percent for vessels that leave Australia between May and October each year.[134] Fettes suggested this would be likely to have an impact on the profitability of export businesses as less sheep would be able to be stocked for that 6 month period, noting that a total of 36,000 sheep had been exported for Voyages 17 to 20. Cattle exports remained unaffected by the new regulations. Fettes could not say how much of Otway Livestock's business involved sheep, when compared to cattle. There was no evidence led by Fettes (or the defendants) as to the precise carrying capacity of Dabach's vessel or the extent to which the regulations could have an actual impact.

113 Ninthly, Fettes suggested there was significant political pressure in Australia to ban live exports. He suggested that the Australian Veterinary Association had recommended banning live sheep exports to the Middle East between May and October of each year.[135] Fettes acknowledged this was an industry specific risk and that no one knew whether it was going to occur or not. Under cross-examination, he said he believed that between $1.4 billion and $1.6 billion of cattle and sheep was exported out of Australia annually. Further, Fettes accepted he could not judge the risk of whether such a ban would come to fruition.

114 Tenthly, Fettes referred to a bill that he said was passed in the Senate on 10 September 2018 that, if enacted, would ban all live sheep exports between May and October for 5 years, before banning all sheep exports.[136] He also suggested a change of government would significantly increase the risk of a live export ban. Under cross-examination, Fettes acknowledged this risk fell into the same category as the previous factor.

115 Finally, Fettes referred to the possibility of a ban from either Israel or Australia on the live export trade, together with the possibility of increasing animal welfare regulations in Australia which "may make Australian sheep and cattle less competitive worldwide and may result in importers in Israel switching to importing sheep and cattle from other countries with lower welfare requirements". In response to the suggestion that this factor amounted to no more than speculation, Fettes stated that there had been no ban at this stage. Further, he acknowledged he had not made any analysis of the cost of Australian livestock exports compared with other places in the world. He also acknowledged that the risks he referred to had been around for a long time.

116 With respect to the discount rate of 50 percent, Fettes accepted that he had taken into account both industry risks and company specific risks in arriving at that figure. He further acknowledged that he had taken into account matters when he did not know if they were true. Fettes said he had arrived at a discount rate more than 3 times as high as Meredith because he believed it was "an extremely risky business".

117 To reiterate, neither expert made any real attempt to explain the numerical components of the particular figures adopted. This makes it inherently difficult for the court to properly analyse any path of reasoning adopted in arriving at the respective percentages.

118 Having considered all the matters raised, I have decided to adopt Meredith's approach for a number of reasons. Speaking very generally, Fettes treated the Business as a business with risks at a level that was not reflected by the facts. By way of example only, with respect to the cost of equity analysis, Fettes said that with respect to an investment in a start up technology company without any track record, he would be looking for a return of 50 to 70 percent, and yet he adopted a like expectation of return for an investment in the Business. [137] Fettes refused to accept there was any real difference between investing in these 2 types of business when assessing the cost of equity. In my view, there is plainly a substantial difference in risk, including:

(1) A start up technology company may produce a product that the market does not want. There is no real issue about the demand for cattle and sheep in Israel.

(2) Otway Livestock already has a satisfied customer. A start up company may never get a customer.

(3) Otway Livestock has a successful track record, with substantial turnover, over a number of years, which is continuing. The same cannot be said for a start up company.

(4) Technology has an inherent and substantial risk of being superseded by developments by competitors; it can become outdated overnight. Livestock is a product that, broadly speaking, remains constant.

119 Moving to more specific matters, Dabach is a substantial customer of Otway Livestock with its own substantial trading history. There was no evidence to suggest Dabach would not continue to trade with Otway Livestock for the foreseeable future. Further, the available evidence, as opposed to speculation, does not suggest any significant risk of the Australian export livestock industry being shut down in the immediate or more distant future. The export livestock industry has been in existence in Australia for many decades, and it is substantial.[138] Furthermore, history has shown it has been able to withstand tumultuous events in the past.[139]

120 As to the risk factors that clearly exist, which both experts acknowledged, there was no suggestion that those risks were not in existence in 2013 when AHRKalimpa first secured sales in Israel. In other words, the Business has withstood the risks to date and is now in a position where it can be reasonably expected that the Business will continue to produce significant positive EBITDA.

121 In addition, Israel was described by Schmidt in late 2013 as "a captive market", which is unable to breed sufficient cattle internally. Nothing suggests this position has altered or that there will be anything other than a significant demand for live cattle and sheep in Israel in the future.

122 Importantly, Fettes relied upon some matters that were entirely speculative or on sources that were not put before the court to substantiate his assumptions. The extent to which he relied upon such matters in coming to his conclusion is unclear. Further, by combining the industry risks with the company specific risks in arriving at a 50 percent figure for the Company Specific Premium, without identifying the percentages attributed to them separately, the lack of clarity was compounded.

123 As for the equity beta, Fettes provided no compelling reason to alter the beta of 1 to 1.2 that he originally adopted in the Fettes Report.[140] In short, the absence of information does not give a proper basis for any such departure.

124 In summary, much of what Fettes relied upon in order to arrive at 50 percent for Company Specific Premium was not persuasive. In these circumstances, it would be entirely unsafe to adopt his suggested percentage. Further, although Meredith's reasoning is not entirely transparent, he has provided a considered basis for his view, including all matters raised by Fettes. As is apparent from the analysis above, I have found his approach more compelling on this issue.

125 Reverting to the formula above,[141] the cost of equity is to be calculated as follows:[142]

126 The figure for the cost of equity having been calculated, it is now possible to calculate the Weighted Cost, as follows:[143]

34.42% x 90% + 6.55% (1-30%) x 10% = 31.44% (rounded).

10%+90% 10%+90%

127 The experts agreed it was appropriate to consider whether a perpetual growth rate ought to be included in the calculations concerning the value of the Business. Fettes was of the opinion that a nil growth rate was appropriate given the level of exports was restricted by the size of Dabach's vessel. Fettes also referred to new regulations with respect to sheep stock densities,[144] as well as the fluctuations in the price of cattle and sheep being out of the control of Otway Livestock. Meredith was of the view that a growth rate of 2.5 percent in perpetuity, based on the Reserve Bank of Australia's long-term inflation rate, was appropriate. In other words, the growth rate of 2.5 percent applied by Meredith did not assume any underlying growth in the Business, but rather simply made an adjustment for inflation. Further, Meredith noted that the constraints in the size of the vessel and the volatility in commodity values were already accounted for by him in the total risk premium of 22 percent applied to the cost of equity.[145]

128 Paradoxically, although Fettes thought it appropriate to make allowances for inflation with respect to expenses, he did not make the same allowance with respect to income. Further, this was despite acknowledging during cross-examination that any increase and expenses would ordinarily be passed on to the customer. Fettes also acknowledged that he had "no idea how [Schmidt] costs his sales to his customers".

129 There is no apparent reason to exclude inflation when determining Future Earnings. None of the matters put forward by Fettes provide a cogent reason for doing so. Of themselves, each of the matters he has identified does not suggest that if, as the Reserve Bank forecasts, inflationary pressures were to apply that these factors would result in anything other than a flow on to the earnings of the Business.[146]

130 Accordingly, having adopted the figure of 2.5 percent for growth in perpetuity, the conversion to a cash flows to firm multiple may be calculated:

131 Next, it is necessary to establish Future Earnings by arriving at a base year EBITDA.

132 With the exception of Voyage 16, the defendants discovered financial accounts with respect to the Voyages. Meredith formed the view that the nature of costs recorded in the profit and loss statements appeared to be reasonable.[147] Accordingly, both experts proceeded on the basis that the financial statements presented to the court formed the proper basis for them to then express their opinions and provide their assessment of value.[148]

133 On this basis, using Otway Livestock's profit and loss statements prepared with respect to Voyages 17 to 20, the experts were able to agree on a base year with the following amounts:[149]

134 Accordingly, for the purposes of ascertaining a base year, the experts only differed on the amount of some expenses to be allocated before an operating profit could be derived. Despite the differences in approach, numerous expenses were also the subject of agreement.[150] Further, in light of the finding above that 88 percent represents the appropriate allocation of overheads,[151] a number of other items listed by Meredith may be adopted without further analysis.[152]

135 That leaves a small number of items where the experts differed, but these differences are not explained by the overhead allocations.

136 The first of these is equipment purchases. As was explained in the Supplementary Meredith Report, the figure Meredith used was derived from matching expenses in the profit and loss statements for each Voyage.[153] Precisely how Fettes arrived at his figure of $1,191 for both scenarios was unclear.[154] When it was put to him in cross-examination that he had increased the amount of this item without any rational basis, Fettes responded that he thought it was reasonable to allow for "a replacement chair occasionally". Fettes said he did not know whether there was any need to replace furniture and agreed that he had not attended Otway Livestock's principal place of business. In short, no proper justification for the increased amount was given. Thus, Meredith's figure should be applied.

137 The next item is fines, fees and penalties. Again Meredith used the actual figures from Voyages 17 to 20. There was no evidence from Fettes justifying a departure from these actuals. Again, Meredith's figure is to be preferred.

138 With respect to overseas travel, Fettes allowed an increase of $8,000 per Voyage from the amounts allocated by Meredith. That increase was based on instructions that Fettes received from Otway Livestock's accountant, which included the costs of travel relating to Voyages 21 and 22 (the details of which were not before the court). In short, leaving aside that the figures used by Fettes appeared extravagant,[155] the underlying basis upon which Fettes sought to depart from Meredith's figures has not been established. This is because Otway Livestock's accountant was not called and evidence of the alleged expenses for the later Voyages was not before the court.[156] In these circumstances, Fettes' evidence cannot be properly relied upon.[157] Accordingly, Meredith's approach of using the average of actuals for Voyages 17 to 20 ought to be utilised.

139 The next item is miscellaneous expenses. Meredith again used the same averaging approach. Equally, Fettes justified increasing these amounts "with reference to an apportionment of expenses based on the proportion of voyage income to [Otway Livestock] income" and that the "expense line likely contains expenses that were not allocated to any individual revenue stream". For reasons already given,[158] I prefer Meredith's approach. In short, Fettes' alternative lacks a path of reasoning that can be followed to understand how his final figure was derived.

140 The final item is directors' fees. Meredith allocated 88 percent of Fettes' suggested figure of $251,900 for directors' fees,[159] whereas Fettes chose to allocate 100 percent. Fettes considered the whole amount should be allocated on the basis that he said it was a valuation of a stand-alone business, and that anyone retained to run the Business would need to be paid 100 percent. He also suggested the complexities of the Business justified this "market wage".[160] Further, Fettes relied in part upon a published salary guide for a logistics supply chain director in opining that $251,900 represented a market wage.[161] Fettes' view was that Schmidt should earn above the recommended rate because of the complicated nature of the Business, by reason that Schmidt is a director, and also because he did not have any "head office support". He also referred to instructions from Schmidt's solicitors in arriving at this conclusion, but none of these instructions were the subject of evidence and must be disregarded.

141 Meredith accepted the amount for directors' fees put forward by Fettes, without knowing whether it was correct or not. In this regard, Fettes also acknowledged he was not an expert on industry wages for live cattle exporting businesses. Moreover, he acknowledged he had not taken into account any other benefits that Schmidt derived from the Business, such as interest-free loans.

142 Ultimately, the plaintiffs put an alternate position to the experts. The plaintiffs submitted that, as neither expert had expertise on the level of industry wages appropriate, the actual figures in the profit and loss for the 2017 financial year should be used.[162] Further, adopting Meredith's approach to overhead allocation, they submitted that only 88 percent should be utilised for the purposes of Future Earnings. Accordingly, the plaintiffs submitted that $82,720 was the appropriate amount. As part of this exercise, the plaintiffs did not seek to attribute any amount with respect to "other benefits that Schmidt derived from the Business" (as referred to in the previous paragraph).

143 The evidence on this issue is far from perfect. However, it is uncontroversial that it is necessary to attribute a figure for directors' fees and wages in seeking to ascertain Future Earnings. Further, I do not accept that the amount of $82,720 contended for by the plaintiffs represents a fair level of remuneration for an executive director of a business of this nature which the experts agree has Future Earnings of around $1 million (based on 3 Voyages a year) or closer to $2 million (based on 4 Voyages a year).

144 Based on all the evidence, I am willing to accept directors' fees ought to be payable in the amount of $251,900 per annum. In an operation of this size, with the various levels of management and complexity, it appears to be entirely reasonable. Further, the approach adopted is concerned with a notional figure, rather than the actual figures paid or what Schmidt actually did. In these circumstances, having reached this conclusion as to reasonableness, there is no good reason to discount that figure as has been done above with respect to other items dealing with actual expenses in the conduct of Otway Livestock's overall business, including the Business.

145 In summary, I have accepted Meredith's approach to each of the matters in dispute with respect to ascertaining a figure for the base year, except in relation to directors' fees. It follows that Meredith's figures for a base year involving 3 Voyages and 4 Voyages need to be reduced to $1,082,930 and $1,801,820 respectively.[163]

146 The next matter to determine is whether to base future maintainable earnings on 3 or 4 Voyages per year. The evidence strongly suggests 4 Voyages is the more appropriate base.

147 First, the most recent financial year comprised 4 Voyages. Secondly, that financial year could not be properly characterised as exceptional. Four Voyages was also achieved in financial years 2014 and 2016. Further, if Voyage 9 is included in financial year 2015, that year also achieved 4 Voyages.[164] Thirdly, there have been Voyages since Voyage 20 and the defendants led no evidence to suggest the further Voyages were inconsistent with a finding of 4 Voyages per year.

148 To elaborate on the last of these points, and leaving aside the general principle that the defendants ought not receive the benefit of the doubt in such matters,[165] it is telling that Otway Livestock did not seek to lead any evidence by way of a budget or a forecast as to the future trading of the Business. It could be expected that if Schmidt or any other officer of Otway Livestock were in a position to lead probative evidence as to the inappropriateness of calculating Future Earnings based on 4 Voyages a year, then that evidence would have been led. This lack of evidence exists in a context where Schmidt had previously identified the previous dissatisfaction AHRKalimpa's "Israeli customers" had with existing supply chains from Australia and that those customers were seeking alternatives.[166] Although Tnuva is no longer being supplied by Otway Livestock, there was nothing in the evidence to suggest this position had altered with respect to Dabach.[167]

149 Thus, to calculate the ratio of EBITDA to cash flows to firm, the following calculation applies:

EBIT 1,763,521[168]

Less tax (529,056)

Cash flows to firm 1,234,465[169]

Add depreciation and

amortisation to EBIT 106,576[170]

EBITDA 1,870,097

Ratio of EBITDA to

cash flows to firm 1,870,097/1,234,465 = 1.5 (rounded).

150 Next, to calculate the EBITDA multiple, the cash flows to firm multiple is divided by the ratio of EBITDA to cash flows:

151 Finally, the EBITDA multiple is applied to Future Earnings:

2.31 x 1,801,820[172] = $4,162,204.

Two thirds of this amount, being $2,774,803, is the amount of compensation AHRKalimpa is entitled to, representing the plaintiffs' share of the capital value of the Business.[173]

F. Compensation for being excluded from the Business

152 It is now necessary to decide whether to compensate the plaintiffs by ascertaining and apportioning the net profits of the Business up to 31 January 2018, or awarding interest with respect to the value of the Business as found. In the circumstances of this case, I am of the view that an award of interest is the appropriate form of compensation to be awarded. There are a number of reasons for this.

153 First, whatever interest rate is finally landed upon, there will be a certainty about the basis of the components of compensation if the court is required to determine this issue.[174]

154 Secondly, and in contradistinction, there is a great deal of uncertainty with respect to the alternate approach to compensation based on the trading performance of the Business. This uncertainty arises from numerous sources. With respect to the true net profit (or loss) position for each of the financial years, the experts were diametrically opposed on a substantial number of issues.[175] Further, there are particular features which give rise to uncertainty, including: (1) the employment of Schmidt and members of his family in circumstances where it is unclear as to the level of work involved; (2) the intermeddling of other businesses controlled by Otway Livestock with the Business; (3) whether some of the Voyages ought to be excluded for this purpose; and (4) the multi-faceted approach that would need to be taken on a very large number of items before a decision could be arrived at.[176]

155 Thirdly, the defendants have not disclosed the results of Voyage 16.[177] In the circumstances, it is not possible for the court to conclusively determine the true net profit position for the Business for all the relevant years in question.[178]

156 As to the rate of interest that ought to be applied, it is not appropriate to make a determination at this point as the parties have not made submissions on this specific topic. The same position applies to whether simple interest should be awarded or whether it should be compounded. The parties will be invited to agree on an amount for interest, or, alternatively, submissions may be made and, presumably, the matter can be determined on the papers.

157 The remaining issue to determine is from when interest should accrue.

158 On 24 December 2013, a letter of demand was sent to Schmidt.[179] That letter demanded money with respect to Voyages 1 to 4 and that Schmidt and Otway Livestock cease to export cattle to Israel for a period of 2 years. Schmidt responded 3 days later, making it clear he had no intention to desist.[180] Further, after this time, the plaintiffs were aware that the Business continued.

159 The evidence discloses that, in December 2013, the plaintiffs substantially knew the material facts. However, they chose not to commence this proceeding until 16 December 2015. Whatever the motivation,[181] it would not be appropriate for the plaintiffs to receive interest for this period of delay. Whilst there is no suggestion that the defendants were relevantly prejudiced, it would be contrary to equitable principles to reward the plaintiffs with respect to delay that was entirely of their own making.

160 The power to award interest from the commencement of the proceeding is not only within the equitable jurisdiction of the court but is also found in statute.[182] However, nothing further will be said on this issue until the parties have had the opportunity to make submissions.

161 There was a substantial body of expert evidence led at trial which is not the subject of these reasons. Essentially, the evidence relevant to what has been found to be the appropriate approach to compensation has been addressed, but much of the other evidence was not relevant, or only marginally relevant.[183] However, there are some factual findings that ought to be made in the event this matter goes further and other approaches need to be considered.

162 In case I am incorrect in my rejection of the defendants' loss of opportunity submissions, I make the following factual findings relevant to that approach:[184]

(1) The plaintiffs lost a real and substantial opportunity to continue the Business by reason of the defendants' wrongful conduct.[185]

(2) If the defendants had acted in accordance with their respective duties, not only would they have not misappropriated and not continued to operate the Business,[186] but it is probable the plaintiffs would have continued to operate a business of exporting livestock to Israel successfully.[187] In short, I find it highly likely that the plaintiffs would have taken advantage of the opportunity of which they were deprived by the misappropriation of the Business and attracted another investor of substance, with an export licence,[188] who would have agreed with the plaintiffs (or either of them, depending on the structure adopted) to sell cattle to Israel.[189] After all, Kalimpa had successfully sold the business prospect to both Elders and Schmidt. Further, in late 2013 and early 2014, the plaintiffs were in a better position than previously held, as the Business was already established and a more significant track record existed.[190] Furthermore, it is clear the plaintiffs had significant financial resources at their disposal. Their evidence in this regard is corroborated by the fact that they have been able to commence and conduct this proceeding at their own cost.[191]

(3) After November 2013, in the short-term, Schmidt would not have been able to compete with the plaintiffs in relation to the continuation of the Business.[192] By the time Schmidt was lawfully able to compete (if he was still minded to do so in circumstances where the Business remained on foot, about which there is no evidence), it is likely he would have been confronted with the Business still being operated on an ongoing basis by AHRKalimpa.[193]

In light of these findings, it follows that if I had adopted a loss of opportunity approach, the compensation would still have been substantial.

163 Further, I cannot be satisfied that, if Schmidt had been advised in late 2013 that he could not lawfully, with Otway Livestock and to the exclusion of AHRKalimpa, continue the Business, that he would not have stayed as a director of AHRKalimpa in order to recoup the losses incurred to that time. The then difficult financial position created by the losses flowing from Voyages 1 and 2 could have been remedied by the continuation of the Business through AHRKalimpa. Although I make no positive finding that Schmidt would have stayed (as this is unnecessary), in circumstances where there were significant financial incentives for Schmidt and Otway Livestock to continue the Business, I could not be satisfied that Schmidt would not have allowed this to occur with AHRKalimpa given he effectively had no other lawful alternative means of keeping the Business afloat in order to recover the losses.

164 Finally, there are a number of responses to the defendants' submission that, in circumstances where, since November 2013, they performed all of the work and took all the risks, in order for the Business to succeed, requiring the defendants to pay substantial compensation would be inequitable. When Schmidt originally agreed in November 2012 to becoming involved in a joint venture, he agreed at that time that many of the risks would be borne by him, or his companies. This is the basis upon which Voyages 1 to 4 proceeded. In the circumstances of this case, the defendants ought not be compensated for the risks they assumed in doing things that amounted to breaches of fiduciary (and, for Schmidt, director's) duties.[194]

165 Further, Schmidt and Otway Livestock have derived significant benefits from the continuation of the Business that they would not have obtained if they had acted in accordance with their respective duties.[195] Furthermore, upon the completion of this case, it is likely that Schmidt and Otway Livestock will continue to enjoy the substantial benefits of ownership and control of the Business.

166 For the reasons stated, there will be judgment in favour of AHRKalimpa in the amount of $2,774,803, together with interest on that amount to be determined (in default of agreement), calculated from the commencement of this proceeding. It is unnecessary to address what part of the judgment represents any entitlement of Kalimpa. To the extent Kalimpa has a right to the proceeds of the judgment, that is a matter to be resolved between the plaintiffs. The fact that Kalimpa may be entitled to proceeds of the judgment is not relevant to the issues as between AHRKalimpa and the defendants.[196]

[1] AHRKalimpa Pty Ltd v Schmidt [2017] VSC 701.

[2] This was because of previous delays with the plaintiffs' expert evidence. Since the Liability Judgment was delivered, there have been further delays arising from the plaintiffs' financial difficulties, which have resulted in, amongst other things, the need to retain new solicitors. The trial on quantum was originally set down for April 2018. However, the plaintiffs were not in a position to proceed at that time.

[3] The current owners are companies associated with Bzezinski and Ruschin, Bzezinski Pty Ltd and Kalimpac Pty Ltd: see Liability Judgment, [62]. The issues for determination do not directly concern these companies.

[4] According to a finance proposal submitted by Schmidt in November 2013 (see Liability Judgment, [120]-[125]), Schmidt has 40 years of experience in exporting cattle (including 20 years as "principal" of Otway Livestock), at 1 point being the largest exporter of cattle to Japan, before selling that "business to Elders in 2010-11".

[5] For a complete account of the relevant facts, see the Liability Judgment, [10]-[222].

[6] At [29]-[32], [166], [169]-[216].

[7] This included Otway Livestock being required to hold an Australian export licence for cattle, sheep and goats.

[9] At [4]-[5], [44]-[45], [58], [101]. Voyages 3 and 4 were completed after the joint venture had been terminated.

[10] At [46]-[47], [101]-[103], [150].

[11] At 119, fn 49. See also par 46 below.

[12] At [80]-[82]. See also [144].

[13] At [90]-[100], [126]-[138].

[14] At [112]-[125], [130]-[135].

[17] At [142]-[143]. See also par 43 below.

[18] The business continues to be operated by Otway Livestock, and there have been shipments since Voyage 20. No party sought to rely upon the circumstances pertaining to any shipment after Voyage 20, though reference was made to later Voyages: see, for example, par 138 below.

[19] At [211]-[216], [219]-[220].

[21] At [112], [114], [119]-[125], [130]-[135], [242].

[22] At [166], [169]-[175], [177], [184]-[188], [194], [199]-[203], [207]-[208], [246], [267]. But see also [240].

[28] So much is apparent from the evidence of Bzezinski at trial where he stated: "I've got an export licence now" and the evidence of Ruschin that he had an export licence "in 2015 (sic) [under the company name] Kalimpa Livestock Export".

[29] See Liability Judgment, [270]-[274].

[30] Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383, [171] (Sackville AJA, with whom Meagher and Barrett JJA agreed); Talacko v Talacko [2009] VSC 533, [122] (Kyrou J), quoting from Hill v Rose [1990] VicRp 13; [1990] VR 129, 144.4 (Tadgell J).

[31] See, for example, GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd [2005] VSCA 113, [65] (Warren CJ, with whom Chernov JA and Dodds-Streeton AJA agreed), citing Re Dawson (Dec'd) [1966] 2 NSWR 211 (Street J). See also Target Holdings Ltd v Redferns [1995] UKHL 10; [1996] AC 421, 437D (Lord Browne-Wilkinson, with whom Lords Keith, Ackner, Jauncey and Lloyd agreed).

[32] In fact, the date at which the plaintiffs invited the court to assess any award of compensation was 31 January 2018, being the last date upon which the relevant financial information was available for proper consideration. Although the defendants disputed the plaintiffs' position as to when any loss ought to be assessed, if the court were to find that the trial date was the correct date, they had no objection to 31 January 2018 being used for the purposes of any award.

[33] O'Halloran v RT Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262, 277C (Spigelman CJ, with whom Priestley and Meagher JJA agreed).

[34] Relying upon the respondents' submission in Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 471.2 (Brennan CJ, Gaudron, McHugh and Gummow JJ), referring to Brickenden v London Loan & Savings Co of Canada [1934] UKPC 25; [1934] 3 DLR 465, 469 (Privy Council).

[35] Talacko v Talacko [2009] VSC 533, [124]-[131] (Kyrou J), referring to, amongst other cases, McKenzie v McDonald [1927] VicLawRp 19; [1927] VLR 134, 146-147 (Dixon AJ); Hill v Rose [1990] VicRp 13; [1990] VR 129, 143.5 (Tadgell J), also referring to McKenzie v McDonald [1927] VicLawRp 19; [1927] VLR 134.

[36] For completeness, the plaintiffs accepted that if compensation was awarded to AHRKalimpa for deprivation of the Business, it would be unnecessary to consider separately any claims based on breach of confidence.

[37] The defendants' submissions proceeded on the basis of the findings in the Liability Judgment, naturally reserving their rights to challenge those findings on any application for leave to appeal.

[38] Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, 560.9-561.9 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ), the defendants acknowledging that these observations were in the context of an account of profits, but relying upon the distinction identified.

[39] Liability Judgment, [20], [221].

[41] In this regard, reference was made to GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd [2005] VSCA 113, [53] (Warren CJ, with whom Chernov JA and Dodds-Streeton AJA agreed); Target Holdings Ltd v Redferns [1995] UKHL 10; [1996] AC 421, 432E (Lord Browne-Wilkinson, with whom Lords Keith, Ackner, Jauncey and Lloyd agreed).

[42] Cf, for example, Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 25 [88] (Gageler J).

[43] See Barescape Pty Ltd v Bacchus Holdings Pty Ltd (No 9) [2012] NSWSC 984, [237] (Black J); Old v McInnes [2011] NSWCA 410, [97] (Meagher JA, with whom Beazley JA relevantly agreed and Giles JA agreed).

[44] These 2 dates are based on the time of Schmidt's resignation as a director of AHRKalimpa or 2 years after that time, when any contemplated restraint would have lapsed: see Liability Judgment, [40], [70], [92], [144], fn 175.

[46] Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 474.2 (Brennan CJ, Gaudron, McHugh and Gummow JJ).

[47] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 16-17 [54]-[55], 24 [83] (Gageler J), 51 [198] (Nettle J); GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd [2005] VSCA 113, [77] (Warren CJ with whom Chernov JA and Dodds-Streeton AJA agreed); Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, 559.7 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ).

[48] Talacko v Talacko [2009] VSC 533, [119] (Kyrou J); GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd [2005] VSCA 113, [53], [65] and the cases there cited; Hill v Rose [1990] VicRp 13; [1990] VR 129, 143.3 (Tadgell J).

[49] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 25-26 [89] (Gageler J); GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd [2005] VSCA 113, [65], [66]; Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484, 499 [35], 502-504 [45]-[50] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ); Target Holdings Ltd v Redferns [1995] UKHL 10; [1996] AC 421, 439B (Lord Browne-Wilkinson, with whom Lords Keith, Ackner, Jauncey and Lloyd agreed); Re Dawson (Dec'd) [1966] 2 NSWR 211, 216.5 (Street J).

[50] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 20 [70] (Gageler J).

[51] Ibid, [71], citing Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; (2014) 87 NSWLR 609, 636 [124] (Leeming JA, with whom Barrett and Gleeson JJA agreed).

[52] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 20 [70]. See also at 8 [16] (Kiefel CJ, Keane and Edelman JJ).

[53] GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd [2005] VSCA 113, [61]-[62] (Warren CJ, with whom Chernov JA and Dodds-Streeton AJA agreed).

[54] See, for example, Edmonds v Donovan; Disctronics Ltd v Kingston Links Country Club Pty Ltd [2005] VSCA 27; (2005) 12 VR 513, 543-544 [78], 545 [81] (Phillips JA, with whom Winneke P and Charles JA agreed); Hill v Rose [1990] VicRp 13; [1990] VR 129, 143.5 (Tadgell J). See also fn 35 above.

[55] Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 468.3 (Brennan CJ, Gaudron, McHugh and Gummow JJ).

[56] See, for example, with respect to a contract, Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd [1968] HCA 64; (1968) 120 CLR 516, 523.7 (Barwick CJ, McTiernan and Menzies JJ), 524.5 (Windeyer J, dissenting), 528.4 (Owen J, dissenting); and, with respect to a tort, March v E & MH Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506, 515.1-517.2 (Mason CJ), 522.5-524.4 (Deane J), 524.6 (Toohey J), cf 534.3 (McHugh J).

[57] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 6 [9], 24-25 [84]-[88], 45 [179]; Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484, 502 [44] (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ); Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 468.3; Hill v Rose [1990] VicRp 13; [1990] VR 129, 144.4 (Tadgell J); Re Dawson (dec'd) [1966] 2 NSWR 211, 215.8 (Street J).

[58] (2018) 360 ALR 1, 25 [88] (Gageler J). See also 7 [13] (Kiefel CJ, Keane and Edelman JJ).

[59] Cases referred to in the succeeding paragraphs include decisions concerned with an account of profits, but the relevant general principles are germane to the issues at hand.

[60] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 26 [91] (Gageler J); Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, 561.9-562.2 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ); Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384, 398.3 (Isaacs J).

[61] Cf Talacko v Talacko [2009] VSC 533, [130] (Kyrou J).

[62] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, [179] (Nettle J); Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 470.2 (Brennan CJ, Gaudron, McHugh and Gummow JJ); Re Dawson (dec'd) [1966] 2 NSWR 211, 215.3 (Street J).

[63] O'Halloran v RT Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262, 273D (Spigelman CJ, with whom Priestley and Meagher JJA agreed); Re Dawson (dec'd) [1966] 2 NSWR 211, 215.3.

[64] Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383, [175] (Sackville AJA, with whom Meagher and Barrett JJA agreed). See also par 32 above.

[65] GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd [2005] VSCA 113, [66] (Warren CJ, with whom Chernov JA and Dodds-Streeton AJA agreed).

[66] Elder's Trustee and Executor Co Ltd v Higgins [1963] HCA 48; (1963) 113 CLR 426, 472.5 (Dixon CJ, McTiernan and Windeyer JJ).

[67] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 26-27 [92]-[94] (Gageler J), 46 [183] (Nettle J); Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, 561.8 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ).

[68] AMP Services Ltd v Manning [2006] FCA 256, [69] (Finkelstein J), referred to with approval in Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324; (2014) 101 ACSR 415, 437 [123] (Gleeson JA).

[69] See, for example, Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari [1999] QCA 230; [2000] 2 Qd R 359, 368-369 [33], 371372 [42][44] (Thomas JA, with whom Shepherdson J agreed), Mordecai v Mordecai (1988) 12 NSWLR 58, 69B, 70C, 71E (Hope JA, with whom Samuels and Priestley JJA agreed).

[70] Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd [2017] FCAFC 74; (2017) 250 FCR 1, 26 [87] (Allsop CJ, Middleton and Davies JJ), referred to with approval in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 17 [56] (Gageler J), 51 [197] (Nettle J).

[71] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 51 [197].

[72] Talacko v Talacko [2009] VSC 579, [143] (Kyrou J); Maguire v Makonis [1997] HCA 23; (1997) 188 CLR 449, 470.4 (Brennan CJ, Gaudron, McHugh and Gummow JJ).

[73] Liability Judgment, [155]. This conclusion has been borne out by subsequent events.

[76] Ibid, [121], [132], [157], [250]-[251].

[77] At [150], [157], [219], [249]-[252]. A similar analysis was conducted by Cohen J with respect to a business which changed hands, but remained under the control of the errant fiduciaries: Mordecai v Mordecai (unreported, Supreme Court of New South Wales, 11 July 1986), 14.4; approved on appeal in Mordecai v Mordecai (1988) 12 NSWLR 58 (Hope JA, with whom Samuels and Priestley JJA agreed). See also Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari [1999] QCA 230; [2000] 2 Qd R 359 (Thomas JA, with whom Shepherdson J agreed), where the directors misappropriated a rent roll from an insolvent company, and had to pay the full value of that rent roll despite being able, if they had chosen to do so, to resign as directors and compete with the insolvent company after resignation: see esp at 366-367 [26], 368 [31].

[78] Adopting the language in Mordecai v Mordecai (1988) 12 NSWLR 58, 69G.

[79] Mordecai v Mordecai (1998) 12 NSWLR 58, 70A and the cases there cited. See also Cassegrain v Gerard Cassegrain & Co Pty Ltd (in liq) [2015] NSWSC 851, [81] (Bergin CJ in Eq).

[80] Liability Judgment, [24], [28]-[34], [82], [200]-[201], [203], [210]-[213].

[81] See par 9(6) above. See also, for example, Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari [1999] QCA 230; [2000] 2 Qd R 359, 365 [21], 368-369 [33].

[82] See Liability Judgment, [30]-[31], [40], [70], [92], [144].

[83] See par 9(6) above and Liability Judgment, [80].

[84] Katrina Day, the accountant said these records were necessary to complete Voyages 3 and 4.

[86] Liability Judgment, [119], fn 49.

[87] Compare the facts in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 9 [19] (Kiefel CJ, Keane and Edelman JJ).

[88] See also Liability Judgment, [221], which speaks of a lost opportunity in a more general sense.

[89] See pars 15, 25-26 above.

[90] See pars 27-28 above.

[91] See, for example, Cassegrain v Gerard Cassegrain & Co Pty Ltd (in liq) [2015] NSWSC 851, [19] (Bergin CJ in Eq), quoting from a referee's report which referred to Parkinson, The Principles of Equity (2003, 2nd ed), 822-824 [2217].

[92] (1988) 12 NSWLR 58.

[93] Mordecai v Mordecai (unreported, Supreme Court of New South Wales, Cohen J, 11 July 1986), 32.8.

[94] [1999] QCA 230; [2000] 2 Qd R 359.

[95] From a reading of the trial judge's reasons, it appears both experts used "1 July 1997 (the date of the gift)" as the relevant date for valuation, rather than the date of judgment or some other proximate date, and there was no argument with respect to competing dates for the valuation: Ferrari Investments (Townsville) Pty Ltd (in liq) v Ferrari (unreported, Supreme Court of Queensland, Fryberg J, 12 May 1998), 8.7. (It appears that this date is a typographic error as, later in the judgment, it was observed that the rent "roll was abstracted from the plaintiff [when] there was no liquidator": 10.7. The liquidator was appointed in March 1989 and the proceeding commenced on 16 March 1990: 5.8. That the date of the gift was in fact 1 July 1987 is supported by the decision of the Court of Appeal: 365 [16]) (Thomas JA, with whom Shepherdson J agreed), but also see 361 [2] (Pincus JA).

[97] [2002] QSC 222 (Philippides J).

[104] Given the subsequent reports, only some parts of the Meredith Report were ultimately relied upon.

[105] In light of the findings above concerning the appropriate date of the valuation of the Business, it is unnecessary to refer to further expert reports relating to valuations of the Business as at 25 November 2013 and 25 November 2015.

[106] A range of possible valuation methods were referred to by Meredith, but it is unnecessary to discuss these in light of the experts' agreement, and the parties' adoption of that agreement in the event a valuation of the Business was necessary.

[107] Meredith calculated accumulated profits for Voyages 3 to 20 (excluding Voyage 16) at $6,077,275.

[108] Fettes calculated accumulated losses for Voyages 1 to 20 (excluding Voyage 16) at $1,788,707.

[109] Further, with respect to Voyage 16, no trading results were provided to the court.

[110] See pars 72-73 below.

[111] The livestock expert called by the plaintiffs, Stephen Meerwald, explained that free-on-board represented less risk to the exporter because the commercial responsibility for the livestock passed to the buyer once the livestock were loaded onto the vessel.

[112] Voyages 1-4, 6-13 and 15 were conducted on a cost, insurance and freight basis. Meredith did not consider that Voyages 1-13 demonstrated sufficient stability of earnings, but "the performance from Voyage 13 appear[ed] to indicate a growing maturity". Therefore, according to Meredith, Voyage 13 and Voyage 15 were the only 2 relevant Voyages conducted on a cost, insurance and freight basis.

[113] In closing submissions, the defendants' senior counsel accepted that, if the future maintainable earnings approach were adopted, then it was only necessary to conduct the relevant exercise based on the free-on-board basis.

[114] Otway Livestock also derived income from other sources.

[115] The 72 percent was based on the 2017 financial year figures.

[116] The information was withheld on the basis that Voyage 16 did not proceed and the cattle were sold domestically.

[117] For completeness, I do not accept that domestic sales were not an incidental part of the Business. If cattle were purchased for shipping to Israel, but for some unexpected reason the shipment could not go ahead, it is likely in such a scenario that the cattle would need to be sold domestically given the Business does not have facilities in Australia to hold cattle on a long-term basis. Any profits or losses from such domestic sales would necessarily be part of the Business.

[118] This was an estimate of the applicable target level of gearing.

[119] This was the interest rate offered by HSBC to Otway Livestock in May 2014.

[120] This was the corporate tax rate at all relevant times.

[121] The equity beta was calculated by gearing the asset beta range. It is unnecessary to discuss this further in light of the matters set out below: see par 111.

[122] This was adopted based on the yield of a 30 year Australian Government bond as at 31 January 2018.

[123] But see further par 111 below.

[124] According to Meredith, historical studies in Australia assess the range from 5 to 8 percent, however most participants generally adopt a percentage of 6 percent. This was accepted by Fettes.

[125] Being the 12 months leading up to 3 October 2018.

[126] See par 110 below.

[127] Cf fn 168 below.

[128] The next 2 factors in the Fettes Report referred to matters that were not the subject of any evidence at all and, in light of Fettes' appropriate concession (see par 103 above), they may be passed over without further comment: see, for example, Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588, 604 [37], 605 [41][42] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ); 628639 [102][127] (Heydon J); Roach v Page (No 11) [2003] NSWSC 907 [74](j)] (Sperling J).

[129] But also see fn 168 below.

[131] Fettes referred to a website page to support this. It was not tendered.

[132] Again, a website was referred to which was not the subject of evidence.

[133] The Supplementary Meredith Report adopted an equity beta of 1.0 to 1.2, which was accepted in the Fettes Report. Under cross-examination, Fettes said his acceptance of Meredith's beta was not a mistake. Fettes acknowledged that the beta was included in Meredith's calculation of the Weighted Cost, before any adjustments by reason of size or company specific adjustments.

[134] Reference was made to an article published in The Guardian on 17 May 2018, which was tendered without objection.

[135] This suggestion was supported by reference to an article in the Sydney Morning Herald, which was not tendered.

[136] Again, reference was made to an article in The Guardian which was not tendered.

[137] Fettes' cost of equity figure was the equivalent of valuing the Business at an EBITDA multiple of 1, a figure reflective of a highly speculative investment. In other words, according to Fettes, the Business would be expected to deliver a complete return on capital after only 1 year of operation. In forming this view, Fettes referred to the 30 June 2017 Value My Business RMIT Index ("the Index") which showed that some businesses with a turnover of between $1 million and $5 million sold for EBITDA multiples of less than 1.0, and some businesses with a turnover of between $5 million and $15 million sold for EBITDA multiples "as low as 1.24 and 1.25". However, Meredith identified issues with Fettes' use of the Index. Meredith doubted the appropriateness of using the Index - which relates to businesses in multiple sectors with annual turnover of $15 million or less -in assessing a live export business with an annual turnover substantially greater than $15 million. Further, Meredith considered that Fettes emphasised low EBITDA multiples in sectors in which there was in fact a wide range of EBITDA multiples, and in which the mean EBITDA multiples were considerably greater than 1. Meredith's position on this issue is to be preferred as this very general information referred to by Fettes is of little probative value when seeking to ascertain a multiple specific to the size and nature of the Business.

[138] See, for example, Liability Judgment, [23]. Further, exporting livestock to Israel had been occurring since at least the late 1980s or early 1990s.

[140] In fact, Meredith landed upon an equity beta of 1 to 1.2.

[141] See par 83 above.

[142] In light of the authorities on equitable compensation, and the evidence on this issue (see, in particular, par 111 above), it is more appropriate to adopt an equity beta of 1 rather than 1.2.

[143] See par 81 above.

[144] See par 112 above.

[145] See pars 87-124 above.

[146] Noting that the Business has, at times, adopted a costs plus margin approach to pricing.

[147] In addition, the plaintiffs' livestock expert reviewed the expenses for the profit and loss statements for Voyages 3 to 15. Broadly speaking, the expert found that the expenses incurred were appropriate and commensurate with what would be expected. Although not all records were available to this expert (the plaintiffs' solicitors only provided him with 138 documents out of the large volume of materials), he made no request for any missing documents on the basis that there were time pressures and he did not consider he was conducting a forensic investigation. (For completeness, Voyages 6 and 9 were also reviewed separately by a court-appointed expert, who concluded that the transactions in the general ledgers and the line items in the profit and loss statements for these Voyages were supported by the underlying documents. He further stated he had no reason to believe this situation did not apply "to all other Voyages".)

[148] Meredith and Fettes agreed any interest paid by the Business must be deducted, in order to assess EBITDA after voyage funding and before structure funding. The experts agreed that the amount of interest to be deducted was $84,168 for 3 Voyages and $112,224 for 4 Voyages. For completeness, the plaintiffs initially provided a list of items they disputed in Otway Livestock's profit and loss statements. Ultimately, none of these matters were pressed.

[150] Namely, domestic travel, bank fees and charges, consultancy fees, death/stock write-off, interest paid, memberships & associations and legal fees.

[151] See par 78 above.

[152] Namely, insurances, entertainment - AHS (ie Schmidt), postage and freight expenses, stationery and printing, motor vehicle expenses, telephone and internet, SGC - super guarantee, staff training, wages - temporary employees, accountancy fees, advertising and promotion, amortisation, bookkeeping, computer software and repairs, depreciation, donations, filing fees, light and power, rent, subscriptions and workers' insurance.

[153] With respect to Voyages 17 to 20, $95 was expended on equipment purchases. Accordingly, Meredith allocated $72 based on 3 Voyages per year and $95 based on 4 Voyages per year.

[154] Fettes referred to an apportionment of expenses, but no specific calculation was given.

[155] Fettes acted upon the basis that 2 trips to Israel cost approximately $50,000.

[156] Noting further that Fettes qualifies his allowance by stating that some of the travel sought to justify the increase might relate to domestic travel, but "for simplicity" he had made "the full adjustment in overseas travel".

[157] See, for example, Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588, 604 [37], 605 [41][42] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ); 628639 [102][127] (Heydon J); Roach v Page (No 11) [2003] NSWSC 907, [74(j)] (Sperling J).

[158] See pars 136138 above.

[159] Initially, Meredith did not allow anything for directors' fees, but after consultation with Fettes, he agreed there should be an allocation.

[160] The defendants' senior counsel acknowledged there was no difference between directors' fees and directors' wages for this exercise. Further, the directors' fees actually paid for financial years 2016 and 2017 were $60,000 and $24,000 respectively. However, there was no suggestion these figures represented market remuneration.

[161] This was the 2018 Hays Salary Guide, which put the salary range for financial year 2018 between $175,200 and $219,000 per annum, including superannuation.

[162] Directors' fees were recorded as $24,000, together with $70,000 for superannuation, giving a total of $94,000 for this item.

[163] For example, with respect to 4 Voyages per year, subtracting $30,228 from each of Meredith's original figures to represent the increase in directors' fees from his 88 percent figure; that is $1,900,325 EBITDA less $30,228 (and less $112,224 interest: see fn 149 above) and then applying the growth rate of 2.5 per cent.

[164] Voyage 9 was partly in financial year 2015 and partly in financial year 2016. If it is not included in financial year 2015, it means there were 5 Voyages in financial year 2016. 2017 did not achieve 4 Voyages, but this is the exception.

[165] See par 34 above and fn 177 below.

[167] The funding proposal also recorded that Dabach was the largest beef and land livestock processer in Israel, being a vertically integrated business from importing through to retailing. The proposal also stated that the mode of business was to have signed contracts in place before livestock was purchased, with 2 contracts "normally" being negotiated and signed in advance.

[168] Being Meredith's EBIT of $1,793,749 for 4 Voyages, less $30,228: see fn 164 above.

[169] No amounts were allocated for capital expenditure or changes in working capital.

[170] This is the figure used by Meredith in the Joint Report, rather than $86,982 in the Supplementary Meredith Report. There was only a marginal difference between Meredith and Fettes with respect to depreciation and amortisation. Fettes' figure was $112,510. If that figure is chosen, the resultant ratio is still 1.5.

[171] See par 130 above.

[172] See par 145 above.

[173] See further par 165 below.

[174] As to the considerations relevant to what components ought to be adopted see Hagan v Waterhouse (1991) 34 NSWLR 308, 391F-393F (Kearney J), approved in Alemite Lubrequip Pty Ltd v Adams (1997) 41 NSWLR 45, 47E (Handley JA, with whom Gleeson CJ and Shellar JA agreed). See also Heydon and Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016), 542 [22-07]-[22-08].

[175] As reflected in their overall assessment: see fnn 107-108 above.

[176] In making these observations, I have not ignored the cases concerning onus or the approach to adopt with respect to mixed funds: see, for example, Brady v Stapleton [1952] HCA 62; (1952) 88 CLR 322, 336.4 (Dixon CJ and Fullagar J).

[177] See fnn 116, 117 above.

[178] For completeness, the defendants submitted that the plaintiffs were required to account for the losses for Voyages 1 and 2 as part of an accounting exercise for Voyages 1 to 4 while the joint venture remained on foot. In closing submissions, they submitted this had been found in the Liability Judgment. When asked to identify such findings, the defendants were not able to do so. In any event, nothing said in the Liability Judgment or in AHRKalimpa Pty Ltd v Schmidt (No 2) [2018] VSC 68 amounted to any finding or concluded view by the court as to the appropriate approach to compensation (see esp, Liability Judgment, [275]), noting that the plaintiffs did not make their election to seek equitable compensation until shortly before 16 February 2018. Plainly, no such findings could be made until a consideration of all the relevant facts and circumstances, including those the subject of the quantum hearing. Further, when the defendants were asked for any authority that supported the proposition that the plaintiffs would have to account for any losses suffered during Voyages 1 to 4 when there was a joint venture on foot, none was proffered.

[181] The Business had suffered substantial losses as a result of the first 2 Voyages.

[182] Supreme Court Act 1986 (Vic), s 60.

[183] For completeness, the defendants provided a list of court book and transcript references from the liability trial which they submitted were relevant to the issues at hand. I have re-read those parts of the court book and transcript, but have only found it necessary to refer to some of those matters in these reasons.

[184] See par 35 above.

[185] This finding is made subject to the observations in par 47 above.

[186] On the assumption put forward by the defendants that Schmidt would cease to be a director: but see also par 163 below.

[187] In light of the resolution passed on 16 August 2013 (see par 9(6) above), this business may not have been the same as the Business, but nothing really turns on this for the purpose of these further findings.

[188] The expert evidence was that, around the relevant time, there were approximately 50 companies with export licences. Further, the industry includes agents who will act for exporters and deal directly with producers.

[189] Evidence indicated that, apart from a 6 week period in 2011, the live export cattle trade had been operating at between 700,000 and 1.2 million head of cattle per year for the last 30 years. In short, there would have been, in 2013 and 2014, numerous other persons with capability of exporting cattle to Israel with the plaintiffs.

[190] See Liability Judgment, [157], [250]-[252].

[191] This has included paying for expert reports, as well as providing hundreds of thousands of dollars by way of security for costs: see also par 12 above.

[192] See par 9(6) above.

[193] It is not necessary to determine for precisely what period of time Schmidt or Otway Livestock would have been precluded from competing.

[194] Cf Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 30 [114] (Gageler J).

[195] By way of example only, the financial statements of Otway Livestock for the year ended 30 June 2017 indicate: (1) Otway Livestock had $4,642,119 in cash and cash equivalents; (2) in addition to director's fees and superannuation, Schmidt had drawn loans of $968,458 for the financial years 2013 to 2017 (this amount reflects the balance as at 30 June 2017, but it is clear from earlier accounts that larger sums were advanced for the previous years), including the total advance of $785,101 for the 2017 financial year (with nothing in the accounts suggesting any interest was paid on those loans); and (3) motor vehicles of $195,150 (the previous year for this item being $435,326). The accounts also record $5,599,941 as a non-current liability, being income received in advance for the purchase of cattle, but the total equity as at 30 June 2017 was $671,649.

[196] Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102; (2014) 48 WAR 1, 58-63 [302]-[331] (Edelman J) and the cases there cited. See also par 18 above, noting that the court was informed that compensation was sought directly by AHRKalimpa, rather than Kalimpa, by counsel representing both plaintiffs.