Chaina v Presbyterian Church - [2013] NSWSC 1057 - NSWSC 2013 case summary — Zoe

NSWNSWSC

Chaina v Presbyterian Church

[2013] NSWSC 1057

Supreme Court of NSW|2013-08-08|Before: Davies J, Heydon J

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Source facts

Court

Supreme Court of NSW

Decision date

2013-08-08

Before

Davies J, Heydon J

Source

Original judgment source is linked above.

Judgment (56 paragraphs)

[1]

Judgment 1The Defendants make application under s 192A Evidence Act 1995 to have some of the Plaintiffs' expert evidence disallowed. The basis for this application is that the expert evidence proceeds on particular assumptions and those assumptions are not made out by other evidence put forward by the Plaintiffs. 2I discussed in Chaina v Presbyterian Church (NSW) Property Trust (No 6) [2012] NSWSC 1476 at [7] to [11] my reasons for having made preliminary rulings in relation to witness statements prepared by lay witnesses. The reasons I gave there are apt here. The second tranche of the hearing is almost complete. 3The third tranche of the hearing is fixed for 4-5 weeks commencing 8 October 2013. At that time the various experts retained by the parties will give evidence on issues concerning (a) the formulae said to have been written by Mr Chaina; (b) how the Plaintiffs' products compared with those of competitors; (c) costings associated with the planned launch of the new lines of products; (d) the ability of the Plaintiffs to obtain finance for their venture; (e) the profits that might have been achievable if the new products had been launched; and (f) the losses sustained by the Plaintiffs as a result of the launch not proceeding. 4The Defendants submit that if they are successful in the present application the third tranche of the hearing will be considerably shortened. Further, as many of the Plaintiffs' experts need to travel to Sydney from overseas locations, or appear by videolink, it is in the parties' interest to know now whether and which experts will need to give evidence. 5The Plaintiffs did not oppose my dealing with the application although it should be noted that the Plaintiffs have been self-represented since the commencement of the second tranche of the hearing. 6I accept the Defendants' submissions concerning the utility of determining the admissibility of the expert evidence concerned at this point in the proceedings. 7The Defendants rely particularly on the judgment of Heydon J in Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 to justify the exclusion of the evidence. Heydon J first discussed the common law requirements for expert evidence which he said were not abolished by s 79 Evidence Act 1995. He said that there three common law rules. The first was called "assumption identification" rule. The second is called the "proof of assumption" rule and the third is called the "statement of reasoning" rule. 8In relation to the first of these rules Heydon J said: [65] Function of the assumption identification rule. The rule facilitates the operation of the proof of assumption rule and other rules of admissibility. It helps to distinguish between what the expert has observed and what the expert has been told; to ensure that the expert is basing the opinion only on relevant facts; to ensure that experts do not pick and choose for themselves what aspects of the primary evidence they reject, what they accept, how they interpret it and what the court should find; and to ascertain whether there is substantial correspondence between the facts assumed and the evidence admitted to establish them. 9In relation to the second rule, the "proof of assumption" rule Heydon J said: [66] The authorities. There is also no doubt that the proof of assumption rule exists at common law. An expert opinion is not admissible unless evidence has been, or will be, admitted, whether from the expert or from some other source, which is capable of supporting findings of fact which are sufficiently similar to the factual assumptions on which the opinion was stated to be based to render the opinion of value. There is authority for the rule in this Court; in the Federal Court of Australia; in New South Wales; in Victoria; in Queensland; in South Australia; in Western Australia; in the Australian Capital Territory; in England; in Scotland; in New Zealand; and in Canada. The Victorian Court of Appeal (Ormiston, Vincent and Eames JJA), speaking of a proposition that an expert opinion without any evidentiary basis is inadmissible, said: "The situation requires no elaborate exposition of the legal principles nor is the extensive citation of authority required with respect to such a basic proposition." ... [68] There is no common law rule that expert opinion evidence cannot be received unless there exists already "admitted" evidence. It suffices if it can be seen that the appropriate evidence will be admitted later. Statements suggesting the contrary stem from a time when it was commoner than it is now for a party not to call expert evidence until all the other evidence in that party's case had been called. ... [84] Sometimes the tendering party will fail to ensure sufficient conformity between the assumed and the primary facts because the tendering party never intends to call evidence of the primary facts. Sometimes it will fail because while its tenders, if accepted, would go some distance towards establishing the primary facts, they do not go far enough, even if accepted, to establish their existence. [85] When a party tendering the opinion of an expert contends that all the evidence of the primary facts that could be tendered has already been admitted, the court's task in deciding the admissibility of the opinion is relatively simple. It is to assess whether, assuming the evidence of the primary facts is accepted, it will lead to findings sufficiently similar to the factual assumptions on which the expert opinion was stated to be based to render it of value. That task is easier when carried out in the light of actual evidence as distinct from a perhaps imperfect prediction of what the evidence may turn out to be. If, on the other hand, the evidence of the primary facts already admitted, even if accepted, would not lead to the necessary findings, the admissibility of the expert evidence may depend on the giving of an undertaking by the tendering party to call another witness. It is good practice for counsel opposing tender of the opinion evidence to draw attention, at the time of tender, to any significant gap between the primary facts assumed by the expert and the evidence so far received in an attempt to establish those facts, and to seek rejection of the expert evidence unless an appropriate undertaking to fill the gap is offered. ... [87] Where a tendering party refuses in advance to give an undertaking to attempt to comply with a condition of admissibility, the court should reject the tender. When their Honours in Ramsay v Watson said that the trial judge "could properly refuse to admit evidence of [what the 21 employees told the doctor], it having been made apparent that the men would not be called", they were not referring to a discretion: the trial judge "could properly" refuse to admit the evidence because it is proper to reject inadmissible evidence. ... [90] Function of the proof of assumption rule. The function of the proof of assumption rule is to highlight the irrelevance of expert opinion evidence resting on assumptions not backed by primary evidence. It is irrelevant because it stands in a void, unconnected with the issues thrown up by the evidence and the reasoning processes which the trier of fact may employ to resolve them. If the expert's conclusion does not have some rational relationship with the facts proved, it is irrelevant. That is because in not tending to establish the conclusion asserted, it lacks probative capacity. Opinion evidence is a bridge between data in the form of primary evidence and a conclusion which cannot be reached without the application of expertise. The bridge cannot stand if the primary evidence end of it does not exist. The expert opinion is then only a misleading jumble, uselessly cluttering up the evidentiary scene. 10His Honour then considered whether s 79 affected the common law rule. He said: [108] The ordinary meaning of s 79, taking into account its language, its context in the Act (including ss 55-57), the function of the Act (which is the efficient and rational regulation of trials from an evidentiary point of view), and the unreasonable results which a contrary construction would produce, is that it does not abolish the common law proof of assumption rule. Failure by the tendering party to comply with the proof of assumption rule makes the opinion evidence irrelevant. The court may find the opinion relevant, however, if the evidence already tendered of the primary facts, taken with further evidence to be admitted at a later stage, makes it reasonably open to make a finding that they exist: s 57(1). ... [110] The respondent asked: "Does s 79 provide for the common law proof of assumption rule?" That was not the correct question. The correct question was: "Does s 79 abolish that rule?" The Act is far from being a complete code. It often deals with complex and important subjects, like expert evidence, in very general words. Sometimes the Act changes the previous law. Sometimes it repeats it. At many points it assumes the continuance of the common law. An example is the common law exception to the hearsay rule permitting experts to rely on the writings of others in the relevant area of expertise as a basis for their opinion. Although s 79 says nothing about that rule, the Full Federal Court, correctly, did not approach the issue by asking whether s 79 provided for the permissible reliance of experts on other expert works, but simply held that nothing in s 79 has abolished it. Similarly, s 79 does not in express terms state that experts must articulate the factual assumptions on which their opinions are based. But the vast bulk of authority holds that that principle applies in relation to tenders under s 79. 11His Honour then considered the procedural advantages of this rule and said: [121] Procedural advantages of a proof of assumption rule. A construction of s 79 which does not require establishment at the time of tender that there either has been, or will be, evidence admitted capable of proving the assumed facts permits more expert opinion evidence to be received. It permits postponement of the difficulties by seeking to solve them as questions of weight at a later time - even as late as the end of the trial. But increasing the amount of this type of evidence is not necessarily valuable. It may be unfair to the opposing party. It is indecisive. Its indecisiveness inflicts uncertainties on the parties. The additional evidence received may have a cloud over it for the rest of the trial. [122] In contrast, a proof of assumption rule diminishes the risk of clouds. It encourages early and decisive rulings. Early and decisive rulings are important, both for the party opposing tender and for the tendering party. [123] From the point of view of the party opposing tender, it is vitally important to know what evidence is or is not in, and how much utility expert opinion evidence is likely to have. That knowledge affects decisions about cross-examining the witnesses called by the tendering party; decisions by defendants whether or not to submit that there is no case to answer; decisions whether or not to call particular categories of evidence; and, if rulings are delayed until after the close of the trial, decisions about what is to be said in address. A practice of deciding whether a proof of assumption rule has been complied with at the time when expert opinion evidence is tendered avoids a dilemma for cross-examiners. One horn of the dilemma is that to cross-examine a witness about expert evidence which may later be rejected or treated as useless carries the risk of giving it a foothold in the record which it lacked at the time of the tender. The other horn of the dilemma is that, if the opposing party avoids that danger by not cross-examining on the expert evidence, there is a risk that it will be accepted despite its feebleness. It is a dilemma which cross-examiners should not have to face. [124] From the point of view of the tendering party, it is desirable that the admissibility of expert opinion evidence tendered by that party be clear by the moment when the case for that party closes. It is undesirable that expert opinion evidence admitted in that party's case should later be held - perhaps as late as the time of judgment - to be subject to such doubts about its weight that it lacks utility. It is undesirable that its admissibility be in suspense until a time after the tendering party's case has closed. If the admissibility of expert opinion evidence which is tendered and conditionally admitted is not finally ruled on until after the case for the tendering party is closed, and the evidence is then rejected, or its weight has become so questionable that it is useless, the tendering party may have lost an opportunity to repair the position before its case closed, either by calling further witnesses or tendering further documents, or by recalling witnesses who had already been in the box. The capacity of tendering parties who are the prosecution or the plaintiff to reopen their cases rests on a discretion in the court which may not be favourably exercised; their capacity to tender evidence in reply is constricted by fairly strict rules, particularly in criminal cases. [125] ... [126] And what is to be done with any evidence that was called in relation to that conditionally admitted but inadmissible evidence, whether it was elicited by the cross-examination of the party opposing tender or tendered by that party in its own case? That problem is reduced if decisive rulings about compliance with a proof of assumption rule are made. [127] Conclusion. A construction of s 79 which holds that there is no proof of assumption rule in relation to s 79 tenders is difficult to reconcile with the practical exigencies pursuant to which parties conduct their cases. It is necessary for trials to be conducted in a businesslike and efficient way. That is a matter of context pointing to the view that there is a proof of assumption rule with which those tendering expert opinion evidence must comply by reason of ss 55, 56 and 79 read against the background of the common law. 12What appears in [123] to [124] above provides ample justification for the early determination of this issue. 13Following Heydon J's approach the Defendants pointed to assumptions made in a number of the Plaintiffs' expert reports and then drew attention to evidence in other expert reports served by the Plaintiffs which the Defendants submitted did not provide the necessary evidence to support the assumptions made. I shall now deal with the reports in turn.

[2]

Professor Roger Layton 14Professor Layton has been a professor of marketing at the Faculty of Commerce and Economics at the University of New South Wales since 1967. He is also a director of Marketing Systems Pty Ltd, a strategic marketing consultancy in Sydney. In that role he says he has provided advice on business and marketing issues to major Australian companies and organisations including those in the consumer products, financial services, construction, engineering, industrial, information and communication technology, professional services and public sectors. 15Professor Layton has been asked for his opinion of the likely annual sales volume and/or, if possible, the equivalent market share (in percentage terms) that probably would have been achieved by Proton Technology Pty Ltd for the period 2001 to 2016 had it proceeded with its proposed domestic product launch in the following categories: (a) Laundry (liquids, powders, tablets, capsules); (b) Kitchen products (concentrated dishwashing - hand and machine, oven cleaner); (c) Household general (concentrated window cleaner, concentrated surface cleaners); and (d) Toiletry and cosmetics (liquid hand soap, shampoo, conditioner, shower gel and skin care products). 16Professor Layton has set out the assumptions that he was asked to make relating to those four categories of products as follows: Assumptions 19 By March 1999 Proton Technology had developed a new product range which were listed in the March 1999 "New domestic enzyme products" product list ("Product List"). 20 The chemical composition of the products in the Product List was such that the products were superior at cleaning the goods to which they were applied when compared with products with which they would have been in competition in 2001. 21 Product launch of the following products, as "lead"/first entry products, would have commenced in 200l and continued through 2002 and 2003: (a) laundry: (i) concentrated powder; (ii) concentrated liquid; (iii) micro-capsules; (iv) micro-tablets (each of the above available in light, medium and heavy wash variants, and with or without inbuilt fabric softener); (b) dishwashing: (i) concentrated liquid for hand washing; (ii) liquid concentrate capsule for dishwasher use; (c) household cleaners, in particular, concentrate window cleaner membrane sachets; (d) toiletries and cosmetics (liquid hand soap, shampoo, conditioner, shower gel and skin care products). 22 Proton Technology would obtain sufficient venture capital/other funding to establish requisite plant and equipment facilities and to enable initial and ongoing marketing of the products in the Product List. 23 Proton Technology would have sufficient production facilities and supplies of raw materials to produce the products described at paragraph 21 in 2001 and production of sufficient volumes of those products to meet anticipated sales. 24 The products in the Product List would have been accepted for national distribution by retail grocery (supermarket) outlets and would have continued to be so distributed throughout the period of interest. 25 The products in the Product List would be priced so as to fall within a premium price range, but remain competitive with main competitors in that premium price range. 17I note that during the course of argument Mr Chaina said that it was he who put this assumption to Professor Layton - that he (Mr Chaina) had "said about every product" that it was superior, and that Professor Layton "relied on my assumption". 18It can be seen that the assumption in paragraph 20 is a crucial assumption for the present application. That this assumption was crucial to Professor Layton's opinion is made clear in paragraph 68 of his report where he says this: While negotiations with the buyers for Woolworths, Coles, Franklins and the major independents (through wholesalers such as Metcash) would have been difficult, the major commitment that it appears Proton Technology intended to make to a substantial well supported national launch (including television advertising) for products that were technologically superior and with strong well considered pack design would, in my opinion, have been well regarded, and on this basis, it is, in my opinion, very likely that stage one products range would have been accepted for national distribution. 19Further, at paragraph 100 Professor Layton was discussing the laundry products and said: The product range was superior at cleaning products to which they were applied when compared to the competitor products (assumption number two, as attached to the Mallesons' letter of instructions dated 10 February 2005), offered by a company with an established reputation for outstanding quality in major industrial markets such as hospitals and laundries. 20At paragraph 108 Professor Layton said this: By the time the Proton Technology range was ready to launch it would, in my opinion, have been seen by consumers as a second or perhaps third entry into the enzyme based concentrated tablet, capsule or sachet sector of the laundry detergent market, albeit an entry with strong claims of technological superiority in both delivery systems and performance, backed by high levels of marketing support. However, apart from the assumption I have been given as to superior cleaning ability (Assumption no. 2) and the evidence I have read of the higher concentration (and therefore smaller product size) and environmental and safety benefits envisaged (refer, for example, to Mr Chaina statement, paragraghs 85 and 86, Mrs Chaina statement paragraph 30, and Domestic Business Plan, p8), there is no contemporaneous data available to me that shows how consumers in the target markets would have reacted to these claimed benefits, in particular, to the smaller sizes of products being offered relative to the existing concentrated tablets and sachet products already on the market. 21At paragraph 114 he said: As before, Proton Technology would not have been the pioneer but could, in my opinion, claim an advantage for new micro-capsule formats and environmentally friendly technology with enhanced cleaning power. 22Professor Layton makes a further passing reference to this assumption in paragraph 142 when dealing with the dishwashing market but dismisses it by saying that advertising its superiority would have been perceived by consumers as matching similar claims made by existing entrants to the market. 23In relation to the household cleaner market Professor Layton concludes that Proton would have achieved a market share of about three per cent assuming three matters, one of which was the superior cleaning performance referred to in the relevant assumption (paragraph 164). 24Professor Layton prepared a supplementary report on 10 February 2006 to consider the personal care products referred to in assumption in paragraph 21(d) of his first report (set out in paragraph [16] above). He reiterated that he was providing the report on the basis of the assumptions provided to him in relation to the preparation of the earlier report. 25He prepared a third report on 11 July 2012 and made reference to the assumptions provided for previous reports. One of those was said to be this: 5. The chemical composition of the laundry, dishwashing and household cleaner products in the Product List was such that the products were superior at cleaning the goods to which they were applied when compared with products with which they would have been competition in 2001. 26This third report was prepared after Professor Layton had been provided with various reports of experts who had tested and/or analysed the products devised by the Plaintiffs (such experts will be referred to below). Under the heading "Would the market assessments contained in the first two reports have changed if I had seen the expert reports?" Professor Layton said this: In my opinion the information contained in the documents listed in paragraph 13 provided by Drs Smulders, Fong, Richardt and Lai confirms the initial assumption noted in paragraph: 5 above in regard to the laundry, dishwashing and household cleaning products. The information contained in the documents, provided by Drs Lai and Motitschke confirms a similar assumption of superior or equal performance in comparison with competing products in the toiletries, and cosmetics market. The expert Report provided by Mr. Ben Wheaton confirms that the higher concentrations, specialised packaging, and use of natural resources would have created substantial advantages in terms of reduced costs and increased margins. He went on to note that "the products contain strong environmental features and these would have contributed to increased sales, particularly from 2007 onwards." Taken as a whole, these Reports confirm the initial assumption contained in paragraph 5 above with respect to each of the four markets considered, and the conclusions reached in my first and supplementary reports remain unchanged. (emphasis added) 27It should be noted that the assumption Professor Layton had at all times based his reports on was not that stated in the highlighted passage. I infer that he has changed that assumption because the expert reports (particularly Dr Motitschke) did not support the assumption of superiority as will be seen. 28The conclusions that Professor Layton reached appear in the Executive Summary of his first report concerning laundry products, dishwashing products and household cleaners. Those conclusions are based on the assumptions he has made including the superiority of the Plaintiffs' products. 29His conclusions are these: D. EXECUTIVE SUMMARY 26 Laundry: In my opinion, and for the reasons set out in this Report, there are three possible outcomes for Proton Technology's entry into the national laundry detergent market: (a) overall laundry market share for Proton Technology over the time period 2001-2016 of approximately 7.5% falling to 6% from 2004 onwards; (b) Proton Technology achieves an initial market share in laundry products of around 5%, falling to 4% from 2004 onwards (over the time period 2004-2016); and (c) Proton Technology's share over the relevant time period, despite intensive marketing, does not exceed 1.5%, due largely to poor consumer acceptance of the new product concepts. 27 In my opinion, and based on the discussion and reasons set out in the relevant section of my Report (paragraphs 79 to 122 below and Table 10), option (b) above is the most probable outcome. My opinion as to Proton Technology's probable share of the laundry market results in estimated sales in constant 2005 dollars in the laundry market (in terms of retail sales - ie not ex-factory prices) of a range from $19.8 million in 2001 to $17.6 million in 2016 (see Tables A and 10 below). 28 Dishwashing: Turning to the dishwashing detergent market, in my opinion, based on the discussion and reasons set out in paragraphs 123 to 149 below, if Proton Technology had entered the market with both tablets and liquids, a likely initial market share 'of 4.2% (in the range 3.5% to 5.0%) could have been achieved, falling to 3.4% (in the range of 2.7% to 4.2%) after one to two years. (See Table 18 below) My opinion as to Proton Technology's probable share of the dishwashing market, results in estimated sales in constant 2005 dollars in that market (again in terms of retail sales and not ex-factory prices) ranging from $2.8 million in 2001 to $8.0 million in 2016 (See Tables A and 19 below). 29. Household cleaners: Since it was not possible for me to undertake a detailed analysis of each individual product category in this market, I have considered the position that Proton Technology might have been likely to achieve in the household cleaner market as a whole. In my opinion, and for the reasons set out in paragraphs 150 to 168 below, it is likely that Proton Technology would have achieved a share of about 3% over the period 2002 - 2016. My opinion as to Proton Technology's probable share of the household cleaners market results in estimated retail sales (again, not ex factory prices) in constant 2005 dollars of a range of $6.9 million in 2002 to $5.6 million in 2016 (see Tables A and 32 below). 30In his second report he assesses the market share and sales for toiletries and cosmetics.

[3]

Professor Grahame Dowling 31Professor Dowling has been since 1999 a Professor of Marketing at the Australian Graduate School of Management, a school of the University of New South Wales. He also provides consulting advice to Australian companies on various aspects of marketing. 32He said his opinion was being sought in relation to the following issues: The likely annual sales revenue that would have been achieved by Proton Technology had it proceeded with its proposed business expansion in the industrial market up to the year 2016. The equivalent market share represented by these sales estimates. The likely lost sales revenue up until 2005. 33Professor Dowling does not set out clearly what assumptions he has made. He says he has made a number of assumptions and has stated these at relevant points in the report. 34He briefly discusses the history of the Plaintiffs' businesses and then turns to the February 1999 Business Plan. He said (at paragraph 31): In essence, the goal of the new business was to grow by selling the six brands noted in paragraph 30 to more customers across a broader range of industries. On page 10 the Business Plan states that the principal driver of success (i.e., PROTON's sustainable competitive advantage) was that the products were thought to be more efficient and effective (e.g., by being more environmentally friendly). In terms of the marketing principles stated in paragraph 17, this means that PROTON will seek to use its innovative products and services to offer a better customer value proposition than its competitors.... 35When thereafter dealing with "Likely Sales Scenarios" he sets out a table on page 22 of his report. In that table under the heading of "Products" and alongside the word "Competitors" the following appears: Functionally superior products and customer support. 36Under the same heading and alongside the word "Customers" the following appears: Proton perceived to deliver a better package (product & service) than competitors. 37It is apparent, therefore, that Professor Dowling has assumed, for the purpose of assessing growth and future sales, the superiority of the Plaintiffs' products over those of competitors. 38Professor Dowling prepared a supplementary report in about July 2012 although the report is undated. It relevantly says this: [2] In the light of an additional expert report by Dr Jim Van Dyke in relation to the performance (defined here primarily in terms of quality of cost effectiveness) of the Plaintiffs' industrial cleaning products, the solicitors for the Plaintiffs have asked me to reconsider whether, after reviewing this report the assumptions I made regarding the performance of these products in my original report are still valid. ... [6] Dr Van Dyke's overall conclusion is that the Plaintiffs' "product range as a whole is a better product range than any I have seen around". To support this conclusion he describes the products as - effective, comparing favourably against other competitors; using novel raw materials; complete and large product range; cost effective; value for money; advanced; marketable; environmentally ahead of its time. Opinion [7] The favourable evaluation of the Plaintiffs' products in Dr Van Dyke's report supports the findings in my original report which remain unchanged.

[40]

Formula 93/94A: Floor cleaner 89Dr Smulders' conclusion was this: Based on its composition, the domestic product meets consumer demands 90His conclusion in relation to Formula 93/94B Micro-membrane floor cleaner was the same as for formula 77/78F. 91His conclusion in relation to Formula 97/98: 1 through 5 Micro-membrane air fresheners was the same. 92His conclusion for formula 97/98: 1 through 5 Air fresheners was: All versions of Formula 97/98 are well equipped with active and effective ingredients to have succeeded as air fresheners on the market. 93Dr Smulders' overall conclusions were that some of the formulations used components that were relatively new and innovative in 1999 in the sense that they were not standard in market products. As such, these formulations would have been unique at the time and such would have had an advantage over competing products. He went on: Based upon my experience of formulations and products within the categories identified, the formulations range from being standard to good and very good. There are no poor formulations. 94Overall, none of the formulations were said to be superior than competitors' products although a small number of them, as Dr Smulders said, were innovative and would have been unique at the time. 95Dr Smulders prepared a second report where he reviewed the report of Dr Dennis Fong and the report of Dr Peter Richardt. He then came to some different conclusions about some of the formulae by comparing the results, conclusions and statements from the Fong and Richardt tests with those made in his earlier expert report. 96In relation to formula 43/44, 55/56 and 65/66 he concluded: Based solely on the detergency performance test in accordance with Australian/New Zealand standard AS/NZS 4146-2000 Appendix C single wash this product indicated superiority in performance versus selected brand and market products. 97In relation to formula 69/70 he said: Based on the applied individual cleaning performance test this product indicated superiority to parity performance versus selected brand and market products. 98In relation to formula 81/82 he said: Based on the applied individual cleaning performance test this product is effective and efficient. It indicated comparable performance versus the market leader. 99In relation to formula 91/92 he said: Based on the applied individual cleaning performance test this high performing product indicated superior performance versus selected brand and market products.

[41]

(D) Report of Dr Jim Van Dyke dated 26 January 2010 100This is a long report (99 pages) dealing with a large number of the formulae of the industrial products. 101Although Dr Van Dyke's overall conclusion is that the product range as a whole is the best product range than any he had seen around he does not endorse all of the products or even a majority of them as being superior to comparable products. Whilst acknowledging that Dr Van Dyke is very complimentary about some of the products and assesses some as more advanced than competitors' products neither that nor his general description equates to all of the products, or even many of them, being superior to those of the competitors. 102A recurring comment in his general assessment of many of the categories of products is the expense of them. He describes a number of the products as a typical formulation and he describes others as adequate. In some cases he is critical of some of the components. For example, in the automatic dishwashing powders he says that the addition of a substance called Crodaquat would cause higher than desired foaming in dishwashing machines. He said some of the products would equate to various products available in the market while others would be novel and niche products. He refers to some of the formulae as containing ingredients which were common in the products at the time and described others as standard products. 103Some examples of his views on quality and competitiveness are these: 1.8 Bleach Powders Question is whether these products have been over-specified. The result will be that these products are somewhat more expensive than many industrial bleach powders in the market. 1.9 Acid Washes A general comment would be that the formula's (sic. throughout) are using a multitude of acids and surfactants. This would support the performance claims but may affect the competitiveness. 1.10 Specialty One Shot Liquid Detergents A selection of three specialty liquid laundry detergents are presented. As can be seen from the detailed section, these products demonstrate that these formula's have been put together adequately: lab samples made according to the instructions were compatible, while attempting to mix the ingredients at other temperatures and in a different order of addition failed. These three formula's are still commercially feasible today and would perform well. 2.2 Automatic Dishwashing Liquids A general comment is that most formula's are aimed at a region with relatively low water hardness. Most notably, the chlorinated products have no phosphonates or polyacrylates incorporated which would improve performance in that aspect. It may be that the main market of the company was in a soft water region such as Victoria and New South Wales. 2.3 Automatic Dishwashing Powders The 4 powders in this section is sending mixed messages to the writer: On the one hand they are strong caustic powders with a proper amount of sequestrant to be suitable for commercial dishwashing machines where wash cycles are 30-60 sec. However, the addition of enzymes would be a waste of money for short wash cycles, because they will have very limited effect within that timeframe. ... One concern with all four formula's is the addition of Crodaquat which would cause higher than desired foaming in the dishwashing machines. It would be recommended to simply take out this ingredient from the formulations. 2.4 Rinse Aids The four formula's in this section contain the expected acids, alcohol and surfactants and will perform adequately. Interestingly, polyacrylate dispersants/sequestrants have been added to the formula's to deal with the water hardness and/or to prevent spotting. The effectiveness is questionable in my experience as these rinse aids are used at extreme low dosages and hence a negligible concentration of this will end up in the rinse tank water. On the other hand, these additives would not negatively affect the rinse performance either and in the worst case scenario, may be just a cost in the formula for no real benefit. 2.7 Oven Cleaners These formula's have been made quite expensive through the addition of many expensive surfactants. Although these products will perform undoubtedly, it would be hard to compete on price. 2.10 Floor Cleaning Products The S9C Plus Floor Degreaser Plus Chlorine is an odd formula due to the omission of any surfactant. 2.11 Cutlery Presoaks The two cutlery presoaks are fairly regular type of formula's and are common in the hospitality industry. 2.14 Hand Soaps The formula's are fairly standard for the time but still with relatively upmarket selections of APG (sugar derived and mild) and AOS (very biodegradable and mild) surfactants. The antimicrobial version contains a high percentage of Tridosan and would certainly have good efficacy and a long lasting effect on the skin. But it would also be quite expensive. 2.15 Beerline Cleaners The formula's are at least equivalent to commercially available products but with the one proviso: the use of some foaming surfactants could cause some problems in use. And the addition of the non-foaming surfactant Mlrataine ASC was probably meant to de-foam the product, however in the writer's opinion that is not effective. Section 3 - Housekeeping Products - General 3.8 Cream Cleansers These products are very similar to what is currently in the market. 3.9 Carpet Cleaners They are absolutely not inferior to any product that is on the market; in fact, they would probably at the top end of the market in terms of performance. Section 4 - Guest Amenities Products - General The presented selection of bath and shower products are typical formula's for institutional use. The products for this market are very different from the refinement of retail products manufactured by the cosmetic multinational companies, where there is a never ending race of innovation, natural ingredients, etc. The laundry detergents for Guest Amenities are very much budget formula's as is common for this market. The surfactants used are typical budget surfactants of the previous decade and better alternatives are available now. Section 5 - Brewery Products 5.2 Alkali CIP Cleaners All formulated products in this section are based on Akzo raw materials and follow the general formula suggestions made by Akzo. Four different Alkali CIP Cleaners are in this section plus two alkali products suitable for bulk tank storage (for larger customers). They will all perform in terms of cleaning. The only concern indicated in the detailed discussion is that some products may exhibit some foaming to a degree that could be described as high for CIP cleaning. 5.7 Foam Cleaners Except for the chlorinated foam cleaner (which Is an industry standard formula), these formula's use a novel high performing surfactant blend which will make these products perform better than most commercially available products. 5.9 Conveyor Lubricants Two of the three formula's in this section are based on these Akzo specialty surfactants. These formula's were definitely on the forefront of technology 10 years ago. 5.13 Bottle Washes The formula's are complete and will do an adequate job. 5.14 Floor Cleaners Although there are some odd aspects of some of the formula's (such as no surfactants at all in the caustic based formula, and no disinfectant ingredient in the B Plus formula while having the word 'Sanitiser' in the name), they will perform all well as floor cleaners, 5.16 Hand Cleaner This handcleaner is a typical antimicrobial hand cleaner for food industry: It contains no fragrance because when hands have residual fragrance on them, It could contaminate and taint handled food. Section 6 - Abattoir Products 6.1 CIP Cleaners All three products are products that would perform equally well to any commercial product on the market. 6.4 Multipurpose Degreasers One of the formula's is formulated to produce extra high foam and even has an antistatic additive. All formula's in this section will perform well and compare well with what is currently in the Australia industrial market. 6.8 Floor Cleaners These cleaners do exactly what it says. Because these cleaners are often used through a floor scrubbing machine, these products must not foam too much as this would cause a problem through these machines. Two products are presented here: a powder and a liquid product that do basically a similar job. Both are fairly standard formula's with the one remark that the powder uses disilicates, which were ingredients that were in their infancy 10 years ago but since have become widely used in cleaning products. Section 7 - Dairy Products 7.6 Floor Cleaners The floor cleaner formula's are the same as other floor cleaners for the Brewery industry and for Abattoirs with only minor variations. The same comments apply as for those. 7.9 Quat Sanitisers However, in my opinion this product is too acidic for it to be approved by the APVMA as a cow teat sanitiser. Moreover, it does not contain any emollients to reduce irritation to the skin of the cow teat. Section 8- Food Processing Products 8.1 Alkali CIP Cleaners There are three liquid alkali CIP cleaners in this section. They are again variations of the ones in the Brewery, Abattoir and Dairy sections, It is still surprising to see so many CIP Cleaner formula's in this formulary. Although they will function adequately, it is hard to see that a manufacturing business can sustain so many different products that are so close together in their properties. 8.2 Acid CIP Cleaners The third acid CIP cleaner in this range is designated "Budget". This formula is actually very much like the products in use by many food processing companies. Section 9 - Poultry Products 9.1 Alkali Cleaners Each product will perform adequately. 9.2 Acid Cleaners They are fairly standard style of products for food industry uses, including the Poultry industry. 9.3 Multipurpose Liquid/Powders Each of the products in this range will perform adequately. 9.4 Foam Cleaners Each of the products in this range will perform adequately. 104It may be suggested that this overview of Dr Van Dyke's report unfairly selects the negative assessments and comments. However, when the assumption made is that the products overall are superior to those of the competitors it is necessary to examine the matter from the point of view of seeing how far the evidence detracts from the correctness of that position. Certainly, as I have earlier acknowledged, Dr Van Dyke is very complimentary about some of the Plaintiffs' products but the above selection of comments demonstrates that the overall position is a long way from the Plaintiffs' products generally being found to be superior to others.

[42]

Report of Kuo-Yann Lai dated 2 March 2010 105In respect of formula 43/44 domestic laundry powder Dr Lai said that a performance better than most products in the market in 1999 could be expected. 106In respect of formulas 57/58 laundry tablets and 61/62 powdered laundry capsules Dr Lai said that the product was unique at the time. 107In respect of formula 59/60 liquid laundry capsules he said a good performance could be expected. 108In respect of the following formulae he said that the ingredients and levels were consistent with a typical formulation at 1999 and in some cases a good performance could be expected: Formula 65/66 concentrated liquid laundry detergent, Formula 67/68 fabric softener, Formula 45/46 domestic natural hand dishwashing, Formula 47/48 domestic LAB hand dishwashing detergent, Formula 49/50 domestic hand dishwashing detergent, Formula 69/70 concentrated automatic dishwashing powder Formula 77/78 spray and wipe multipurpose cleaner Formula 81/82 window cleaner spray Formula 83/84 spray and wipe bathroom cleaner Formula 87/88 shower and tile descaler Formula 7/8 standard liquid hand soap Formula 37/38 standard body wash/shower gel Formula 15/16 normal hair shampoo Formula 11/12 fine hair shampoo Formula 19/20 coloured/permed hair shampoo Formula 27/28 oily hair shampoo Formula 29/30 anti-dandruff shampoo Formula 35/36 baby shampoo 109For a few other formulae he said they would have been competitive in the Australian market as well as today: Formula 9/10 fine hair conditioner Formula 13/14 normal hair conditioner Formula 17/18 coloured /permed hair conditioner Formula 21/22 dry/damaged hair conditioner Formula 25/26 oily hair conditioner Formula 31/32 anti-dandruff hair conditioner Formula 37/38 standard body wash/shower gel Formula 41/42 premium body wash/shower gel 110Formula 73/74 automatic dishwashing micro capsules with rinse aid and formula 75/76 automatic dishwashing tablets with rinse aid were said to be new and unique product forms to the Australian market in 1999 whereas formula 91/92 standard toilet bowl cleaner was said to be deficient in disinfecting and cleaning.

[44]

Are the assumptions proved? 113The Plaintiffs submitted that the word "superior", particularly when used by Professor Layton as part of his assumptions, has to be understood in marketing terms. In that way it had neither the ordinary meaning of the word nor the meaning that a scientist might accord it. For that reason, the Plaintiffs submitted, Professor Layton should be allowed to give evidence about what he meant by "superior". 114This submission ignores two things. First, Professor Layton was asked to make the assumption in exactly the terms he stated it by the Plaintiffs' then solicitors. There is no basis for inferring that the word "superior" was used in anything other than its ordinary meaning. The word is a comparative adjective. 115Secondly, if there was any doubt about the meaning of the word in the assumption it is made clear by what follows: "compared with products with which they would have been in competition in 2001". 116The Plaintiffs next submitted that, to the extent that the testing experts found that the products were similar to, or on parity with, competitors' products in 2010 (when the testing was done) it must be inferred that they would have been superior to the competitors' products in 1999-2001. This is because technology advanced in the intervening years, the raw materials improved and the competitors' product itself in each case would be a better one in 2010 than it would have been 10 years earlier. 117The Plaintiffs point, in this regard to a statement of Dr Peter Richardt who said this: It may also be the case that, due to technology improvements, the performance of the new products is better than their older formulations since they have the benefit of 12 years more research. For example, a greater range of surfactant is available in modern times compared to 1999; similarly, the greater research is likely to have been carried out by the key players in the industry with regard to specific carbon chain distributions that may provide better performance. A greater number of polymers are now available and those that were already available are now more cost competitive, aiding with boosting performance, particularly in laundry liquid applications. (emphasis added) 118The submission has a number of problems. First, the support by Dr Richardt is expressed in tentative terms ("it may also be the case"). Secondly, he tested but one formula only (formula F65/66). 119Thirdly, and more significantly, the submission not only finds no positive support in the other testing experts' reports but those experts expressly relate their comparison to 1999 products. Dr Motitschke's conclusion for all the formulae he tested was that The Plaintiffs' formulations were similar in terms of formulation and performance to the high quality and best performing [product] on the European and Australian markets in 1999 and today. (emphasis added) It must be assumed that Dr Motiitschke had regard to this very issue. 120Similarly, Dr Smulders' conclusions for products other than those which he said were unique in 1999 was either that they ranked with other top performers in 1999, or were state-of-the-art in 1999, or were similar to other products in 1999. In some cases (as set out earlier) his assessment was more muted. 121The conclusions of Dr Lai for many of the products were that they were consistent with a typical formulation at 1999. 122None of the testing experts (apart from Dr Richardt) made the point that the Plaintiffs themselves make that it must be inferred that a product which was on parity with a competitor's product in 2010 must have been superior in 1999. 123The Plaintiffs next drew particular attention to Formula 43/44 which was tested by Dr Fong. They said that the product was only intended to compete in the economy segment of the market with products like Surf, Spree and Gows. Dr Fong concluded that it was better than those products. He also concluded that it was as good as Omo and Cold Power. However, they were premium brands and it was never intended to compete with them. 124This formula forms part of Exhibit 103. It is said on the top of the formula that it was intended to compete with Surf, Spree and Gows. All that demonstrates is that this was one of the products which was shown to be superior to the competitors' products. There were others as set out earlier. That was not, however, the assumption that Professor Layton nor Professor Dowling used as the basis for their opinions. 125The conclusions about market share and sales were dependent, as the assumptions they made make clear, on the Plaintiff's products as a whole being superior to those of the competitors. That may allow for a few to fall below the mark but it does not allow for the vast majority only to be on par with, or similar to, the competitors' products. 126The highest point that the evidence of the testing experts reaches for the Plaintiffs is this: (1)Dr Van Dyke (industrial products) considers that it is the best product range that he had seen around; (2)Dr Fong found 3 of the 8 formulae he tested to be superior to the competitors' products; (3)Dr Smulders found that some (a small number) of the products would have been unique in 1999; (4)Dr Richardt found formula F 65/66 to be superior to the competitors' products. (5)Dr Lai said that four of the products would have been unique in 1999 (two of these were those for which Dr Smulders said the same - formulae 73/74 and 75/76). Those findings are to be compared with the assumptions made by Professor Layton and how he applied those assumptions (paragraphs [15] to [30] above), and to the assumptions made by Professor Dowling (paragraphs [34] to [38] above). They fall a long way short of providing support or the assumptions made. 127However, when the following matters are taken into account the matter is made even clearer: (6)Dr Motitscke does not consider that any of the products he examined did better than equal other 1999 high quality and best performing products; (7)Apart from the few products that Dr Smulders found to be unique for 1999 he found that, at best, the remaining products either represented state-of-the-art products for the time or could perform well or had a fair potential to compete with similar products. Significantly (given Dr Richardt's conclusion on F 65/66) Dr Smulders concluded that this formula "had a less pronounced potential to generate a fair market share". However, after he saw Dr Richardt's report he said that the formula "indicated superiority in performance versus selected brand and market products". (8)Despite Dr Van Dyke's general description of the product range his individual analysis of products cannot be said to result in a conclusion other than the Plaintiff's products were in a good position to compete with other brands. Some were better, some much the same and some with deficiencies. Relative expense of the Plaintiffs' products was highlighted a number of times. (9)The majority of the products tested by Dr Fong were found to be no more than comparable with competitors' products. (10)Dr Richardt only tested one product. (11)The overwhelming number of products tested by Dr Lai were on par with other products in 1999 and at the time of testing. 128One of the difficulties about stating an absolute such as the assertion that the Plaintiffs' products were superior is that it only takes a few products to disprove the general statement. The experts have assumed the absolute position. 129The reports from Dr Fong, Dr Motitschke, Dr Smulders, Dr Lai and Dr Van Dyke demonstrate that whilst a small number of the products could be considered unique in the Australian market in 1999 and a few were superior to the competitors' products, the vast majority of the products could not be said to be better than competitive with or on a par with the products of the competitors. The only conclusion that can be drawn from those reports is that on an overall assessment the products were not superior. 130The result is that the proof of assumption rule has not been satisfied in the present case for the reports of Professor Layton and Professor Dowling. This means, as Heydon J made clear in Dasreef at [90] and [108], that the expert opinion is irrelevant and, therefore, inadmissible pursuant to s 56(2) Evidence Act. 131A number of other experts retained by the Plaintiffs to prepare reports on particular areas relevant to the acquisition of market share also provided their reports based upon similar assumptions. It is now necessary to examine their reports. 132In relation to these reports the Plaintiffs submitted that the reports of Ralph Moyle, Rick Millar, Sam Daniel, DAFTA, Pitcher Partners and Wheaton-Beer are stand-alone reports not affected by the assumptions in the reports of Professor Layton and Professor Dowling. The Defendants submitted that they are all integrally and closely tied up with the whole concept of loss of opportunity that the Plaintiffs claim. The Defendants submitted that if the reports of Professor Layton and Professor Dowling are inadmissible there is nothing on which these other reports can be based. In that way they become irrelevant.

[46]

Associate Professor David Trende dated 25 October 2006 139Associate Professor Trende teaches at the Melbourne Business School at the University of Melbourne. He teaches courses in accounting and finance to postgraduate students and executive education course participants. He is also a founding partner of Lewis Trende, a business consultancy dealing in accounting and taxation services, damages assessment, strategic and business planning, technology commercialization, and venture capital raising. 140He was asked to prepare a report containing his opinion on whether or not the Plaintiffs could have obtained finance of up to $25 million in the period from October 1999 to mid 2000 and, if so, the form in which the finance would have been available. 141Associate Professor Trende does not set out the assumptions upon which he based the opinion he provided. However, he annexed to his report his letter of instructions which itself listed the material that was provided to him. Amongst that material was the report of Professor Roger Layton dated 21 October 2005. I have set out above the assumptions that Professor Layton made in his report. 142Associate Professor Trende makes indirect reference to those assumptions in paragraphs 68 and 70 of his report as follows: [68] The Chaina family had already successfully established and run a chemicals business for many years prior to the events of October 1999. Their proposed expansion into the domestic market was a natural next step, particularly in conjunction with the development of a new range of cleaning products particularly suited to the domestic market. This background would be a major advantage in Proton's search for capital. ... ... [70] The track record of successful product development, production and marketing is a major plus in the plaintiffs' search for capital. 143Associate Professor Trende's report was prepared on 25 October 2006. Paragraph 72 says this: ...Mr George Chaina and Mrs Rita Chaina's backgrounds, qualifications and experience are a major asset of the new venture. Of course, by the time this was written it was not known that Mr Chaina had no qualifications. What impact that knowledge would have on Associate Professor Trende's conclusion is not known. 144His conclusion was this: 86 I conclude that if the estimated future returns of Proton were: (i) in excess of about 25% it is almost certain that the necessary equity would have been raised. (ii) around the 18 to 20% figure it is probable (more likely than not) that the capital would have been obtained. (iii) at, or perhaps even a little bit below, 15% it is possible that funds would have been attracted. 145 It is not apparent how any assumptions made by Associate Professor Trende influenced his conclusions. He does not conclude that the business would have had any particular return - he merely provides likelihoods of raising equity depending on returns. The only point may be that his report has ceased to have any relevance because there is no admissible evidence about what returns the business will have. No particular argument was addressed to this report - the problems with Professor Layton's assumptions were simply said to flow through to it. Without further argument I would not be prepared to reach any conclusion about its continuing relevance.

[47]

Ralph Moyle dated 25 July 2012 146Ralph Moyle is the Director of Packaging Solutions with Ralph Moyle Pty Ltd. He is an experienced food packaging consultant. 147He was instructed to provide opinions in relation to the likely packaging system as well as the subsequent costs structure of the packaging materials to be used by the Plaintiffs. 148He was provided with the report of Professor Layton and the report of Professor Dowling amongst other documents. The assumptions both persons made have been set out earlier in this judgment. The letter of instructions also said this: 5.3 The Plaintiffs have emphasised that it is important that any prices that you are able to provide must be tempered by the fact that discounts are commonly given for buying materials in significant volumes should such agreements be negotiated. Furthermore, while more subjective, the experience and negotiation ability of the purchaser may also affect the final purchase price. We expect that these areas may be difficult to comment on with any certainty and, therefore, it is more important to reflect on the way in which these factors would affect purchase prices and to provide a range of costs where appropriate. 5.4 To this effect, the Plaintiffs identify in their business plans for both the Domestic and Industrial launches, and this is reflected in the Expert Reports of Professor Dowling and Professor Layton, that it was their intention to launch their products in such a way that they would achieve a 10% market share. We are therefore instructed that the Plaintiffs would be purchasing their products in bulk where possible, with reference being made to purchases in line with other market leaders at the time. This means that it is necessary for you to provide a scale of likely bulk purchasing costs for the volumes of packaging that would be necessary to achieve a sliding scale of the market share, up to the 10% identified in the Plaintiffs' business plan. This scale should be incremental and reflect the discount that is likely to be expected when purchasing packaging in the volumes required to meet the separate percentages of the market share. (emphasis added) 149The instructions and the report give rise to some problems. First, even if Professor Layton's assumptions were proved he does not conclude the Plaintiffs would achieve a 10% market share or anything like it. Secondly, it is not easy to understand how that assumption or others made by Professor Layton and Professor Dowling have affected Mr Moyle's conclusions. 150At one point Mr Moyle says: All comments of mine relate to the packaging components and I do not make any comment regarding sales volumes and product formulations. A little further on in the report he says: These (?scil. there?) are supply driven areas influencing costs. The demand volumes are dictated by the sales demand and the dynamic of the retail environment on a supplier that is only meeting 10% market share against the retailer home brand products. 151Although the first of those comments might suggest that sales volumes are not relevant to Mr Moyle's assessment the second comment seems to indicate that only having a 10% share is relevant to cost. If that is correct it seems to follow inexorably that having 7.5%, 4.2% and 3% in three parts of the industry would have a greater impact on cost. What is not clear, however, is whether the costs in the table in his report are calculated on the 10% assumption. Until that is clarified it cannot be said that his report is inadmissible.

[48]

Rick Millar dated 27 July 2012 152Mr Millar is the Managing Director and Senior Process Engineer for ME Engineering. He has 32 years experience in the design and construction of process plants in the detergent and related industries. 153Solicitors for the Plaintiffs sought his opinion in relation to the following issues: (a) The equipment and machinery already in place for manufacturing the New Products. (b) The equipment and machinery proposed to be used by the Plaintiffs in manufacturing the New Products. (c) The likelihood that the Plaintiffs would have been able to implement successfully the manufacturing processes outlined in the material provided to Mr Millar. (d) The ability of the Plaintiffs to manufacture successfully the New Products in line with the volume and quality required for the domestic launch and industrial re-launch. 154Mr Millar was provided with the reports of Professor Dowling, Professor Layton, Dr Van Dyke, Dr Lai, Dr Motitschke and Dr Smulders. He was also provided with the formulae for the industrial and domestic products. 155It is not apparent from reading Mr Millar's report that the relative quality of the products compared to those of competitors has any relevance for the opinions that he expressed. His reliance on the various expert reports was chiefly concerned with the ingredients. So, for example, he said in paragraph 6.1 in relation to the laundry products: I understand that the Plaintiffs set out to secure a 10% market share in the laundry industry as a result of the Domestic launch. The Expert Report of Professor Layton outlines that in the period of 2001, when the Plaintiffs were intending to launch their products, this 10% [the market share the Plaintiffs wished to secure] would have equated to nominally 10 million kilograms of laundry powder. Further as the reports of Dr Van Dyke, Dr Lai, Dr Motitschke and Dr Smulders have attested, the Plaintiffs' products were highly concentrated and would have required significantly smaller dosages to achieve the same result as a non-concentrated competitor product. For the purposes of this Report I have ignored this point as a worst case assumption. 156At paragraphs 6.10, 6.17, 6.22, 6.28, 6.31, 6.35, 6.36, 6.42, 6.48, 6.54, 6.61, 6.67, 6.73, 6.78, 6.82, 6.87 and 6.92 Mr Millar relates the 10% share of the market to the amount of product to be produced (litres and tonnes) in the respective categories. He concludes that the production plant at Donald Street was capable of producing the amounts concerned. The 10% assumption here works in the Plaintiffs' favour - if the plant can handle that bulk it could certainly handle lesser market shares. 157Clearly Mr Millar was concerned with the ingredients for the opinion that he was required to express but the quality of the finished product was irrelevant for that opinion - see also his comment at paragraph 6.99. 158The assumptions he has made, and on which he has proceeded, provide a minimum by which he has calculated production capacity. The failure of the evidence to validate the assumptions made does not on its face make his report inadmissible. No particular argument was addressed to the inadmissibility of his report. If it is contended his report is inadmissible I would need to hear further argument.

[50]

DAFTA Pty Ltd (undated) 166DAFTA is a privately owned management consultancy and trading company, run by Mr David Cowie and Dr David Gregory. Mr Cowie has a Bachelor of Science in Pure and Applied Chemistry with a postgraduate diploma in Food and Drug Analysis. Dr Gregory has a Bachelor of Science in Chemistry and a PhD in Polymer Chemistry. 167The Company was engaged by the Plaintiffs' lawyers to provide a report covering the list of raw materials that the Plaintiffs intended to use in the formulation and production of a range of retail products, including; i. Detergents like dish wash and laundry detergents, fabric softeners, hard surface cleaners etc. ii. Personal care products like hair shampoo, body wash, hair conditioners, liquid soaps, various creams and lotions including sunscreens and anti-ageing products etc. 168DAFTA is said to have collectively over 50 years' experience in the management, sales and marketing of raw materials to the detergent and personal care markets as well as experience in formulating household products. DAFTA was also asked to provide pricing history per kilogram for 270 chemical raw materials, for each year from 1999 to 2011 with estimates for 2012 - 2013. It was asked to advise by product and by year what savings could be made if Proton were to import large quantities of these raw materials directly from overseas manufacturers to process them into finished detergent and personal care products. 169Similarly to Mr Daniel DAFTA was informed that the Plaintiffs identified in their business plans for both the domestic and industrial launches (and this was reflected, it was said, in the expert reports Professor Dowling and Professor Layton) that it was their intention to launch these products in such a way that they would achieve a 10% market share. 170It is not entirely clear from the report if the market share had any impact on the conclusions reached. At the beginning of the report in a section headed "Why are we writing this report?" the following appears: We were asked to advise, in Australian dollars (A$/kg), by product, by year, what savings that could be made if proton Technologies were to import large quantities of these raw materials directly from overseas manufacturers to process them into finished detergent and personal care products. (emphasis added) 171On page 19 it was said that the spreadsheet had variables like: 3. Size of individual package eg 210 kg drum. 4. The number of packages to be sent. That suggested bulk was important. Yet in the Conclusion section (on page 21) this appeared: If Proton needs to buy speciality raw materials, which are generally smaller volume and newer technologies, particularly from some Multinational producers, they may have to either buy from a local office of the multinational or from a local trading company who represents the multinational.... Rather than saving the full 50% referred to in Section 7, table 3, they would expect to save 30 - 40% of selling price in $AUS/kg. 172No specific argument was addressed to this report. The conclusions may depend on the assumptions about market share but in the absence of further argument I am not prepared to say the report is inadmissible.

[51]

Pitcher Partners dated 31 August 2012 173Pitcher Partners are a firm of accountants and advisors. The Director who prepared the report, Deborah Cartwright, has 30 years' experience and specialises in providing audit, assurance, valuation, forensic and litigation services. Her specialty areas include the valuation of businesses for dispute resolution purposes including family law, the quantification of damages and losses, fraud investigations and business interruption calculations. She has been involved in the preparation of valuations of businesses and commercial entities for the purpose of providing evidence of value in various proceedings in various courts. 174Ms Cartwright was instructed to assess the following areas of damage in relation to the Plaintiffs' claim: (a) The individual Plaintiffs' claim for economic loss and loss of chance in relation to the existing business; (b) The individual Plaintiffs' claim for economic loss and loss of chance in relation to their prospective income if the launch had proceeded; (c) The corporate Plaintiffs' claim for economic loss as a result of the downturn in the existing business due to the incapacitation of the individual Plaintiffs; and (d) The corporate Plaintiffs' claim for loss of chance in relation to the prospective profits if the launch had proceeded. (e) The devaluation of the individual Plaintiffs shares in the corporate plaintiffs and the loss of dividends that they would have received but for the death. 175Ms Cartwright was provided with a large amount of material including the expert reports of Professor Layton, Professor Dowling, Dr Motitschke, Dr Smulders, Dr Van Dyke, Dr Fong, Dr Richardt, Wheaton Beer Consulting, Dr Matheson, Associate Professor Trende and Mr Daniel. 176Ms Cartwright deals with a number of discrete matters concerning financial loss. She deals with past and future economic loss for each of Mr and Mrs Chaina. Those calculations are based on material completely unrelated to the proposed launch of the new ranges of products that were scheduled for 1999 and 2000. 177She then calculates the loss to Proton of its business at the time of the accident by calculating its profits until 2016 and discounting them to 1999. That calculation is carried out on the assumption of no launch of the new product lines. 178In short, nothing prior to paragraph 120 in the report has any relation to the proposed launch of the new product lines, and, consequently, the assumptions about the quality of the products have not been made to that point in the report. 179Thereafter, Ms Cartwright carries out an assessment of what Proton might have made at 1999 values for the period to 2016 on the basis that the new product lines would have been launched. For that purpose, Ms Cartwright has assumed (in paragraphs 129, 184 and 185) the projected sale figures for the financial years ended 30 June 2000 to 30 June 2016 extracted from Professor Dowling's report of 4 August 2006 and Professor Layton's report of 21 October 2005. In turn, those sale figures were dependent upon their assumptions about the product quality. 180Thereafter Ms Cartwright calculates what the value of the shares in the corporate Plaintiffs held by Mr and Mrs Chaina on the basis that the relaunch of the industrial product range and the launch of the domestic product range would have taken place. Again, that calculation is necessarily dependent upon Professor Dowling and his assumptions about the quality of the products. 181Paragraphs 120 to 242 of Ms Cartwright's report all depend upon the assumptions made by Professor Layton and Professor Dowling and the conclusions those experts reached. Those paragraphs are rejected.

[52]

Wheaton Beer Consulting dated 13 January 2012 182Ben Wheaton is the CEO of Wheaton Beer Consulting Pty Ltd, a boutique climate change and sustainability consultancy. The firm works with major Australian companies helping them to integrate sustainability thinking into all aspects of their businesses. The sustainability focus areas include branding and marketing, products and services, and cost management. 183The letter of instructions relevantly said: We act for the Plaintiffs in the above matter and we write with respect to your engagement for the purpose of creating an expert report in order to assess the benefits and likely market impact resulting from the high concentration of the chemical products which were developed by George Chaina on behalf of proton Technology Pty Ltd and Deluxe Chemicals Pty Ltd. 184It also said: Prior to the products being assessed by the relevant experts, the Plaintiffs have instructed that, based on testing that the Plaintiffs had performed in the lead up to the New product launch, most of the New products had a significantly higher concentration and provided superior performance to competitor products available at that time. (emphasis added) 185Section 4 of the report by Mr Wheaton says this: My instructions are contained in a letter from Berrigan Doube Lawyers dated 7 December 23011. According to those instructions, this Expert Report is designed to particularise and assess the various benefits flowing on from the increase in the New Products' higher concentration and specialised packaging, as well as establishing the effect that this would have on the prospective market share that would have been obtained by the Plaintiffs. 186In paragraph 3.2 of the report Mr Wheaton says that he has been asked to consider the following information by the instructing lawyers: Furthermore it is contended by the Plaintiffs, and supported by the expert reports of Dr Van Dyke, Dr Fong and Dr Richardt, that the New Products provided superior performance to competitor products available at that time. 187Mr Wheaton also makes clear that he has had access to the reports of Professor Dowling and Professor Layton. 188The Executive Summary says this (inter alia): The purpose of this report is to particularise and assess the various benefits flowing on from the increase in the New Products higher concentration, specialised packaging, and use of natural raw materials, as well as establishing the effect that this would have on the prospective market share that would have been obtained by the Plaintiffs. ... The combination of superior performance, higher concentrations, specialised packaging, and high use of natural raw materials is powerful. Whilst I have not specifically considered the impact of superior performance on the market share of the product (noting that this aspect has been considered in detail by other experts), I have nevertheless taken into consideration the superior performance in considering the impacts of higher concentrations, specialised packaging, and high use of raw materials. In my opinion, the existence of superior performance in the products would have created a strong platform on which these other features would have been able to strongly differentiate the products from competing products. My conclusion is that the higher concentrations, specialised packaging, and use of natural raw materials would have created substantial advantages for the Plaintiffs in terms of reduced costs and increased margins throughout the period. 189It is evident that the alleged superior performance of the products formed the basis for Mr Wheaton's conclusions. The way the matter is expressed by him it is the Plaintiffs' products in their entirety that are superior to those of the competitors. For that reason the report is inadmissible.

[53]

Alan Stevenson dated 1 February 2010 190Mr Stevenson is employed by Wilson HTM Investment Group Limited as a director of corporate finance. He is a chartered accountant with a Bachelor of Commerce from the University of Natal. He has approximately 20 years of Corporate Finance and Investment Banking experience. 191His statement is Exhibit FF in the proceedings. In that statement he gives some factual evidence of what he did for and with Mr and Mrs Chaina in August and September 1999 regarding the obtaining of finance for the proposed launch of the products. He also gives expert evidence in respect of which he acknowledges the Expert Witness Code. The evidence is this: 23. I have been asked to give my opinion on the prospects of the venture capital being raised at that time had the project gone forward. In this context, I have been provided with: (a) the witness statements of Professor Roger Layton dated 21 October 2005 and supplementary report dated 10 February 2006 on the marketing aspects of the proposed launch ("the Layton Reports"); (b) the witness statement of Derick William Frere sworn 8 July 2005 ("the Frere report") (c) the witness statement of Rod Alan Morton sworn 22 September 2005 ("the Morton Report"); and (d) the report by John Henry Matheson dated 7 October 2005 ("the Matheson Report"). 24. It is difficult to give such an estimate in light of the limited details we had from Deluxe and that the project was in an early stage when we ceased to have any involvement. However, and on the basis of the following assumptions that: (i) the technology was breakthrough and the products superior to those of the competitors; (ii) the marketing campaign that I understand from my reading of the Layton reports that Deluxe/the Chainas would have implemented; (iii) the top down, national marketing approach that I understand from my reading of the Frere report that Deluxe/the Chainas would have implemented; (iv) the corporate branding and packaging that I understand from my reading of the Morton report that Deluxe/the Chainas would have implemented; (v) the opinion that I have read contained in the Matheson report that Deluxe/the Chainas would have very likely gained national distribution with the major supermarkets; then the Chaina/Deiuxe proposal would have been strengthened. Those reports and information would have enabled me and PWC to prepare a scoping paper and Information Memorandum with which I would have been confident in approaching potential investors. 25. Given: (i) the nature of the venture and its desirability to high net worth individuals and other players then active in the venture capital market: (ii) the level of support to be provided to the venture as detailed in the various reports identified at Paragraph 23 above; I say that the prospects of the Chainas and/or Proton raising private equity venture capital in the range sought, of between $10-25 million, would have been reasonably strong. Certainly I was prepared to offer Chaina / Deluxe a fee structure, as identified in the two Annexures to this statement, which would involve no charge for initial approaches to potential private investors, with a relatively low monthly fixed retainer with a commission structure of 2.5% of funds raised. This reflects my confidence that the proposal was worth pursuing and held good prospects of success, from PWC's perspective 26. In addition to the prospect of raising private equity funding, there was also the option available to the Chainas of seeking funding from the following sources: (i) trade investors from Deluxe's industry segment, as referred to above; (ii) private equity placement to development capitalists and/or strategic investors, (iii) raising debt finance; (iv) raising equity finance from capital markets by floatation, whether marketed on the Australian Stock Exchange or Nasdaq; I say that based on my experience in the general capital investment market at the time, and subsequently, that the Chaina / Deluxe proposal would have been attractive to these alternative investors for the same reasons it would have been likely to attract private equity venture capitalists as set out above. If for some reason the private equity market did not take up the Chaina/Deiuxe investment option, then based on the assumptions referred to at Paragraph 23 above, and the likely range of IRR, it is my opinion that one or more of these options would have been reasonably likely to succeed in providing the level of funding sought by the Chainas. 192The significant matters are that he was provided with Professor Layton's statements of 21 October 2005 and 10 February 2006 and that his opinion proceeded (inter alia) on the assumption that "the technology was breakthrough and the products superior to those of the competitors". On that and the other assumptions he sets out he concluded that the prospects of the Plaintiffs raising private equity venture capital in the range of $10-25 million would have been reasonably strong. 193That conclusion is necessarily infected by the assumption he made about the products in respect of which the finance was to be sought. In those circumstances paragraphs 23 to 26 of his Statement must be rejected.

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Robin Humphreys 194Mr Humphreys is a chartered accountant. He has prepared two reports concerning loss of future income for the Plaintiffs. The first report dated 18 September 2006 concerns the position for Mr and Mrs Chaina only. The loss appears to be calculated using a fairly orthodox approach based on past earnings in the business. 195The second report dated 3 October 2006 deals with Proton on a loss of opportunity basis (page 4). The report is based on the Business Plan which was prepared by the Plaintiffs and which is now Ex 134. 196Mr Humphreys says that he has been instructed that as a result of the accident: ... (iii) because of the injuries suffered by the Second Plaintiff, Proton was unable further to develop and market several new liquid and powder variants of detergent concentrates with active enzymes, that had been planned to be launched into the industrial and Domestic markets; (iv) because of the injuries suffered by the Second Plaintiff, Proton was unable to market the range of hotel guest amenity products (shampoo, conditioner and gel), developed in 1999; ... (vii) because of the injuries suffered by the Second plaintiff, Proton and Deluxe have been unable to research further and to market the micro-enzymes technology products, that enhanced laundry performance and reduced environmental impacts, developed prior to October 1999; 197In the section headed "APPROACH TO QUANTIFICATION OF LOSS" Mr Humphreys notes that the basis of the loss is that Proton was unable to pursue the Business Plan. He then deals with its two parts as follows: Industrial 5.2 The first part was the re-launch and expansion of Proton's range of industrial products, established in the Business Plan document dated February 1999.... This document was relied upon by Professor Graham Dowling in his report dated 4 August 2006 ("the Dowling report"). I have reviewed the Dowling report and taken the figures of "Most likely Sales" from the "Sales Summary Table" at paragraph 51 thereto, in order to prepare a spreadsheet quantifying my opinion of the value of the loss suffered by Proton from the inability to obtain the benefit of the initiatives outline in the Business Plan relating to Industrial products. ... Domestic ... 5.5 The Business Plan is included in the documents relied upon by Professor Roger Layton in his report dated 21 October 2005 and in his Supplementary Report dated 10 February 2006 ("the Layton reports"). In each of the Layton reports there is an "Executive Summary" in which Professor Layton provides a "Summary of Estimates of Proton Technology Sales" ("the Sales"). 5.6 I have reviewed the Layton reports and have extracted figures from the Summaries in order to prepare a spreadsheet quantifying my opinion of the value of the loss suffered by Proton from its inability to obtain the benefit of the initiatives outlined in the Business Plan relating to domestic products. 198Section 6 of his report is headed "ASSUMPTIONS". The relevant assumptions he makes are these: (h) that Proton would be able to arrange finance for a total of $11.7 million, at an interest rate of 9% p.a. from 1 January 2000; ... (l) that the forecasts of Sales in the Dowling report and in the Layton reports are the best estimates available, based on their expertise and the information upon which they relied; 199Section 7 then deals with Industrial products. Paragraph 7.1 says this: 7.1 Professor Dowling has estimated the increased Sales arising from the re-launch of Proton's industrial products in the Table at paragraph 51 of the Dowling report, under the heading "Most likely Sales", and covering a period from 2000 to 2016. These figures are the basis for the item "Most likely sales" included in Schedule 8. 200Schedule 8 is a spreadsheet which ultimately calculates net present value of sales up to the year 2016 at $28.5 million. 201Section 9 deals with Domestic products. The following appears: 8.1 I have reviewed the first report of professor Roger Layton dated 21 October 2005 in which, at paragraph 31, he provides as Table A a summary of Estimates of Proton sales in the National Retail Market. This report covers sales in each of the Laundry, Dishwashing and Household Cleaners Markets. In his Supplementary report dated 13 February 2006, at paragraph 11, he provides information in relation to sales in the Toiletry and Cosmetics markets. It is noted that these are retail sales, not Proton ex factory sales, that is, they include the retailers' mark-up and holding charges. 8.2 In each of the reports, professor Layton provides two different tabulations for the 'Estimated Proton Share' of sales, one at current dollars and the other adjusted to 2005 dollars. For the purposes of this report, I have used the 2005 based information as the results shown in Schedule 9 will be subject to a discount factor that, in part, includes an allowance for the time value of money. The CPI adjustments that Professor Layton uses are not, in my opinion, relevant for the purposes of this report. 8. 3 I have also reviewed the report of Mr John Matheson dated 7 October 2005. Mr Matheson is of the opinion that, based on his assumptions, Proton would have gained national distribution for its domestic products with major supermarkets. ... 8.4 At "Most likely sales" in Schedule 9, I have aggregated the sales estimates made by Professor Layton in his two reports and adjusted the total... 202Schedule 9 is also a spreadsheet which calculates a discounted loss of opportunity figure of $83 million. 203These passages in his second report show how utterly dependent Mr Humphreys is on the reports and calculations of Professor Layton and Professor Dowling to reach his own conclusions. Ultimately, therefore, the validity of Mr Humphreys' opinion is dependent upon the assumptions made by Professor Layton and Professor Dowling on the quality and superiority of the products. 204Mr Humphreys' opinion is further affected by those assumptions because of his reliance on two other matters. First, he has relied on the opinion of Mr Matheson about gaining national distribution with major supermarkets. I have already determined that Mr Matheson's opinion, in that regard, is inadmissible. Secondly, he has assumed that Proton would be able to obtain finance. That assumption is, in part, affected by my rejection of Mr Stevenson's evidence in that regard. 205Accordingly, the second report of Mr Humphreys is also inadmissible. 206Mr Humphreys was provided with further information and further expert reports in June 2012 and was asked to re-visit his earlier reports on the basis of the new material. He provided a third report dated 31 August 2012. In that report he referred to his second report (concerning Proton's loss) and noted that he would review some of the assumptions he had made in that report. The only one of relevance is 6.1(h) concerning the obtaining of finance. He said that it is amended to the extent that the available finance is drawn down as and when required, rather than wholly on 1 January 2000. That amendment does not alter my conclusions concerning the second report. 207The third report varies the conclusions Mr Humphreys reached (inter alia) in his second report. Those varied conclusions are, nevertheless, dependent upon the correctness and validity of the conclusions of Professor Layton and Professor Dowling. The third Report in dealing with the second report concerning Proton is also inadmissible.

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Conclusion 208Notwithstanding that the reports from the testing experts did not bear out the assumptions in crucial reports including those of Professor Layton, Professor Dowling and Pitcher Partners (in part) no attempt has been made by the Plaintiffs during long periods when they were represented by lawyers in the proceedings to put forward revised reports dealing with expected market share, expected sales and resultant losses to the companies. The assumptions made by the Plaintiffs' experts were not proved incorrect by evidence served by the Defendants but by other experts retained by the Plaintiffs for the very purpose, one might have thought, of validating the assumptions. 209I note in this regard that on 17 April 2012 Hoeben J (as his Honour then was) ordered that the Plaintiffs were to serve all expert reports upon which they wish to rely by 31 July 2012. By 17 April the Plaintiffs had the reports of Dr Motitschke dated 18 March 2010, Dr Smulders dated 24 February 2010, a further report from Dr Smulders dated January 2012, Dr Lai dated 2 March 2010, Dr Van Dyke dated 26 January 2010 and Dr Richardt dated 19 December 2011. They received the report of Dr Fong in May 2012. The final report of Professor Layton is dated 11 July 2012. 210On 2 August 2012 Hoeben J extended the time for service of Dr Richardt's report to 10 August 2012 and extended the time for service of the balance of all reports upon which the Plaintiffs sought to rely to 31 August 2012. He ordered that any report that had not been served before that date would only be allowed to be relied upon by leave of the Court. 211It is not, in all the circumstances, appropriate to allow the Plaintiffs to obtain further reports by reason of the exclusion of the reports ruled inadmissible in this judgment. It would be an intolerable prejudice to the Defendants. It would necessarily result in further cost and delay in the finalisation of the case. It would be necessary for the new reports to be forwarded to the Defendants' experts for those person to prepare fresh reports. None of that is consistent with s 56 Civil Procedure Act 2005. 212I am not unmindful of the significance of the effect of this judgment. The Plaintiffs are now seemingly confined to proving losses based only on the historical trading of Proton and Deluxe. There is no evidence to support a loss of opportunity case beyond historical projections. The fault in this lie entirely at the Plaintiffs' feet. 213The Plaintiffs pitched their case too high in the assumptions they provided to their key experts on economic loss. As noted earlier, that appears to be because Mr Chaina maintained that position. When the assumptions were not matched by the further expert evidence no steps were taken to remedy the situation despite the Plaintiffs having years to do so. 214The orders I make are these:

The reports of Professor Roger Layton dated 21 October 2005, 10 February 2006 and 11 July 2012 are inadmissible;
The reports of Professor Grahame Dowling dated 4 August 2006 and July 2012 are inadmissible;
The report of Wheaton Beer Consulting of 13 January 2012 is inadmissible.
In the report of Pitcher Partners dated 31 August 2012 paragraphs 120 to 242 are rejected.
In the Statement of Alan Stevenson dated 1 February 2010 (Exhibit FF) paragraphs 23 to 26 are rejected.
In the report of John Matheson dated 7 October 2005 paragraph 1.3 is rejected.
The report of Robin Humphreys dated 9 October 2006 is inadmissible.
In the report of Robin Humphreys dated 31 August 2012 the following sections are rejected: (a) Section 3.4; (b) Section 3.5; (c) Section 4.1(b); (d) Section 6; (e) Section 7; (f) Schedules 8 and 9.