Creative Smiles Pty Ltd & Anor v Ekera Dental Pty Ltd & Anor [2022] VCC 2281

1. Ekera did not make detailed submissions on this aspect of the case. As I understood Ekera, it sought to examine the reasons for decision on the question of contraventions of the FWA before dealing with the issue of any applicable penalties in a subsequent hearing. I agree that this approach is appropriate.
2. For the reasons which follow I do not consider that Coulepis has accessorial liability for any contravention of the FWA by Ekera.

1. The case law is clear that a party pursuing an accessory must plead that the accessory had actual knowledge of each element of the principal's contravening conduct and elected to engage in that conduct. The pleading must also assert as material facts that the accessory was sufficiently aware of all the relevant facts going to the contravention.[237] The plea is akin to one of dishonesty. To be involved in the contravention, a defendant must associate himself or herself with the offending conduct and be linked in purpose with the principal wrongdoer.
2. The situation under section 550 (2)(a) is that the plaintiffs must prove intent. A person like Coulepis can aid and abet, counsel or procure a contravention only if he intentionally participates in the contravention. This means showing that Coulepis intended to participate in the contravention in the sense that he knew the essential matters going to the offence, whether or not he knew that it amounted to a contravention of the FWA. In one case where there was underpayment of money contrary to an award, the court said that an applicant must establish the alleged accessory had actual knowledge that:

(a) the applicant performed work or services for them; > > (b) the applicant did so as an employee; > > (c) the work was governed by an industrial award, whether or not the accessory knew the exact name of the award; > > (d) the award stipulated minimum rates of pay; and > > (e) the amounts paid by Ekera were less than the minimum stipulated in the award.[238]

3. Here, there was no evidence that Coulepis knew the matters referred to in subparagraphs (b) - (e) . These matters were not raised when Coulepis gave evidence. Of these matters, the most important is possibly (c). Unless Coulepis knew that the work which Goodman performed for Ekera under the Services Agreement was subject to an award, he could not be an accessory.[239]
4. To be knowingly concerned in, or party to a contravention, a person must have engaged in some conduct which implicates or involves him or her in the contravention so that there is a practical connection between the person and the contravention. It seems to me that, in the present context, this requires Coulepis to know at least that the work which Goodman performed for Ekera between July 2016 and February 2018 was governed by an industrial award. There was no evidence to this effect. Goodman did not raise the matter with Coulepis when he gave evidence. A couple of cases suggest that in the context of underpayment of wages, it is enough for the alleged accessory to know the rate of pay being paid without knowing that this rate is below what is required in the award.[240]

Issue 14: If yes to issue 12, does the amount payable to Goodman or any penalty affect the EBITDA calculation and/or the award of damages pursuant to contract or the ACL?

1. The plaintiffs argued that this issue will be determined by the interpretation of clause 4.5(b) of the Acquisition Agreement and by factual findings as to whether Goodman performed administrative services as the practice principal and practice manager. The plaintiff accepted that, if the Court ruled that any wages payable to Goodman did not fall within the capped amount of administrative costs referred to in clause 4.5(b) of the Acquisition Agreement, the amounts Ekera paid as wages would fall within the EBITDA and hence, be taken into account when calculating the 2018 earn-out instalment.
2. The plaintiffs argued that the Acquisition Agreement defined "Administrative Charges" by reference to what Creative Smiles "previously charged as expenses to the Practice charges for providing administrative services to the Practice (including but not limited to accounting, bookkeeping, management, insurance and services)". The clause stipulated that the amount of Administrative Charges to be included in the calculation of EBITDA is to be capped at the level of Administrative Charges which Creative Smiles invoiced the practice in the financial year 30 June 2015. The parties agreed that this capped figure was $6,000. So, to the extent that Administrative Charges exceeded that amount, the excess was not taken into account when calculating the EBITDA.
3. The plaintiffs contended that when not acting as a dentist in his own right performing work with wisdom teeth, the work performed by Goodman at Creative Smiles was all administrative in nature. The work included bookkeeping, management, and other services such as organising staff, ordering dental supplies, checking invoices and arranging payments.
4. Ekera relied upon Ferrier's opinion at paragraph 7.7 of his report where he said that there would be an adjustment to the assessment of EBITDA for the calculation of the earn-out payments in 2017 and 2018 because of the wages and on-costs paid to or on behalf of Goodman. Ekera argued that the FWA amount was not an administrative charge within clause 4.5(b) of the Acquisition Agreement. It said that the definition of Administrative Charges in that clause were for amounts which the vendor had previously charged as expenses to the practice or provided administrative services to the practice, including but not limited to management. They submitted that:
   • the plain meaning of those words meant that for charges in respect of management to be included in the definition of Administrative Charges they had to comprise amounts Creative smiles had previously charged as expenses to the practice for management;
   • there was no evidence that Creative Smiles before executing the Acquisition Agreement charged amounts to the practice for management. The due diligence report prepared by Grant Thornton showed various overheads and expenses charged to the practice including bookkeeping fees, computer expenses, insurance, postage and stationary and telephone. However, there was no category called "management expenses". Hence, Creative Smiles did not charge the practice for management in the 2013 - 2015 financial years; and
   • because there was no charge in 2015 before the acquisition of the practice, any management charges in the form of wages and entitlements to Goodman should be excluded from the EBITDA calculation.
5. Assuming the Court adopted that view, Ekera relied upon paragraphs 7.11 - 7.16 of Ferrier's report to contend that:
   • any such payments to Goodman would be included in the EBITDA calculation;
   • the letter of instruction to Ferrier said the defendants claimed the wages and on-costs would reduce the EBITDA by $105,801 for the 2017 and 2018 financial years; and
   • Ferrier assessed the reduction in earn-out payments payable to Creative Smiles for the 2017 financial year as $64,539 and the reduction for the 2018 financial year as $41,262.

1. In my opinion, the services which Goodman provided in his capacity as practice manager managing the practice were primarily, if not wholly, administrative in nature. It was a managerial role. To that extent, payments to him in that capacity can fairly be regarded as Administrative Charges.
2. It seems that in an exchange of emails in July 2017, Ekera and Creative Smiles agreed that accounting and bookkeeping constituted a minimum charge of $6,000.[241]
3. Ekera's contention appears to be that, because there was no specific item in the due diligence report "management expenses", all amounts associated with the wages and on-costs of Goodman must be taken into account in assessing the EBITDA. While factually, the proposition about headings is correct, I consider that the point is not directly relevant. Rather, the Court needs to consider whether the costs associated with Goodman's work in his capacity as practice manager can be fairly categorised as "Administrative Charges". If so, then only $6,000 is to be included in the EBITDA calculation and the balance ignored.
4. In my view, when not acting as a dentist, Goodman was effectively a manger performing administrative tasks and so the costs associated with that work can be categorised as Administrative Charges. In the circumstances, if the Court ordered Ekera to pay wages and related costs to Goodman, they could be taken into account when assessing EBITDA, but only to the extent of $6,000.

1. I direct that the parties confer and try to frame orders giving effect to these reasons for judgment. If they cannot agree, then by 12:00pm on 16 January 2023, each party is to file with my chambers and serve a written submission setting out the orders sought and the reasons therefor. The submissions are not to exceed eight A4 pages, a minimum 12 point typeface, and 40mm margins on either side of the page. By 12:00pm on 19 January 2023, each party may file a reply submission limited to no more than three A4 pages. If, in addition to the filing of written submissions, the parties wish to be heard on the matter, they must notify the Court by 12:00pm on 19 January 2023, setting out why an oral hearing is required. In this event, the judge will determine whether or not a hearing takes place.

[1] The Australian Consumer Law is set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth)

[2] [1959] HCA 8; 101 CLR 298

[3] See Plaintiffs' Further Amended Statement of Claim, [24]; transcript, 377 and court book, 1103

[13] Defendants' Outline of Closing Submissions, [272]

[16] There was no suggestion from Goodman that Hughes had undergone drug rehabilitation treatment to overcome her drug problems.

[21] [2004] HCA 60; (2004) 218 CLR 592, [109]

[22] [2013] VSC 534, [107]

[23] Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60; (2004) 218 CLR 592

[24] (1992) 35 FCR 335

[26] Delaney v Delaney [2021] VSC 365, [440]

[27] Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191, 198

[30] Ibid and Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; (1978) 140 CLR 216, 228

[31] Plaintiffs' Further Amended Statement of Claim, 1087

[32] McGrath v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2, [198]

[33] Cummings v Lewis [1993] FCA 190; (1993) 41 FCR 559, 565

[34] [2014] VSCA 338, [540]

[35] Trade Practices Act 1974 (Cth)

[36] Toteff v Antonas [1952] HCA 16; (1952) 87 CLR 647, 650

[37] Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, 525, referring to March v Stramare (E & MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506

[38] Toteff v Antonas [1952] HCA 16; (1952) 87 CLR 647, 650; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 12; Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494, 512-3 [41]-[42], 514-15 [48]-[52]; Henville v Walker [2001] HCA 52; (2001) 206 CLR 459, 470-1 [19]-[21], 509 [162]

[39] Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494, 512-13 [41]-[42]

[40] Travel Compensation Fund v Tambree [2005] HCA 69; (2005) 224 CLR 627, 639 [30]

[41] Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 14-15

[42] Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494, 512 [41]-[42]; Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, 533; Chappel v Hart (1998) 195 CLR 232, 255-6 [62]; Travel Compensation Fund v Tambree [2005] HCA 69; (2005) 224 CLR 627, 642-3 [45]; Abigroup Contractors Pty Ltd v Sydney Catchment Authority [No 3] [2006] NSWCA 282; (2006) 67 NSWLR 341

[43] Henville v Walker [2001] HCA 52; (2001) 206 CLR 459, 509 [163]

[44] Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 13

[45] See BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Services GmbH & Co KG [2014] VSCA 338

[46] Henville v Walker [2001] HCA 52; (2001) 206 CLR 459; Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413

[47] Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494

[48] Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494, 514 [48]-[49]

[49] Abigroup Contractors Pty Ltd v Sydney Catchment Authority [No 3] [2006] NSWCA 282; (2006) 67 NSWLR 341, 354-5 [59]-[61]

[50] Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494, 503 [15], 510 [38], 529 [102]-[103]

[51] Henville v Walker [2001] HCA 52; (2001) 206 CLR 459, 493 [105]-[106]

[53] Schedule 2 of the Competition and Consumer Act 2010 (Cth), section 243

[54] Plaintiffs' Further Amended Statement of Claim, [7(c)]

[58] Defendants' Outline of Closing Submissions, [349]

[59] County Court Civil Procedure Rules 2018 (Vic)

[60] Defendants' Outline of Closing submissions, [344]

[62] There were six drafts of the Services Agreement prepared and sent to Goodman between 12 February 2016 and 14 June 2016. The final version of the agreement was executed on 30 June 2016. Clause 2.1 referred to 30 June 2018 only in the first draft. All later versions of the agreement in the court book referred to 30 April 2018.

[65] Goodman gave evidence over about five days.

[72] See the draft Services Agreement commencing at court book, 1465

[82] Coulepis said that he was aware of the change to the April date in the second draft of the Services Agreement (T 652). He did not want the process of reaching an agreement to drag on.

[87] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

[89] Plaintiffs' Further Amended Statement of Claim, [8]

[90] See ACCC v ACM Group Ltd (No. 2) 2018 FCA 1115 [173]; ACCC v Woolworths Ltd 2019 FCA 1039 [129 - 131]

[91] Draft four was not in the court book but I infer it too contained the April date.

[92] I infer that the June date appeared in the sixth draft sent to Goodman on about 14 June 2016, but there was no copy in the court book.

[94] See Plaintiffs' Outline of Closing Submissions, 17 - 25

[101] Transcript, 566 - 568 and court book, 2332 - 2335

[104] I note that in his evidence-in-chief, Goodman acknowledged that he understood that once the terms of the acquisition agreement and services agreement were finalised and signed, those documents would govern the relationship which he had with Ekera - Transcript, 187.

[105] See court book, 886, 982, 1000, 2352 and 2410

[107] Plaintiffs' Further Amended Statement of Claim, [8(c)]

1. [108] 2018 EBITDA target is defined in the FASOC as "$770,895.00 on or before 31 August 2018 which would be paid in full if the Practice's EBITDA for the financial year ending on 30 June 2018 was not less than $926,000.00. (clause 4.3(d)(ii))".

[109] The particulars of loss are the same. But Goodman's claim refers in the body of the pleading to three specific matters including reputational loss - Plaintiffs' Further Amended Statement of Claim, [29].

[114] See for example BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Services GmbH & Co KG [2014] VSCA 338

[115] Transcript, 1784 and Plaintiffs' Outline of Closing Submissions, [45]

[117] [2009] NSWCA 407; (2009) 76 NSWLR 603

[119] Perpetual Ltd v Myer Pty Ltd [2018] VSC 2, [101]

[120] Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 260 CLR 85, [104]

[122] MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152

[123] Pukallus v Cameron [1982] HCA 63; (1982) 180 CLR 447, 452

[124] J D Heydon, Heydon on Contract, (Thomas Reuters, 2019) paragraph 30.420

[125] Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603, [459] - [460]

[126] J D Heydon, Heydon on Contract, (Thomas Reuters, 2019) 30.320

[127] In any event, the terms sheet was subject to due diligence and contract.

[128] The payment was said to be subject to clause 4.3(j). There was no such clause in the agreement. But clause 4.3(h) provided that Ekera's obligations to make the payments under clause 4.3 (except for those in clause 4.3(a) and (b)) was subject to there being no material or serious breach of clause 15 and the practice principal continuing to be contracted to the vendor under the Services Agreement and there being no material breach by the practice principal of his obligations under the Services Agreement at or prior to the due date for payment.

[129] A fourth draft of the Acquisition Agreement was sent to Goodman on about 2 May 2016 but there was no copy included in the Court Book. Nor did the Court Book contain a copy of the sixth draft agreement sent on about 14 June 2016.

[130] Ekera, through Coulepis, said that maintaining the April date was intentional - transcript, 654.

[137] Transcript, 326 and court book, 1016

[143] See further details at paragraph 333 and following

[144] [2015] FCAFC 20

[147] Plaintiffs' Outline of Closing Submissions, [78]

[150] Goodman used to keep supplies of stock at home as well and the supply of some items at the practice ran out from time to time.

[151] Further, see the points raised in paragraph 76 above

[152] See for example court book, 1000 - 1001

[156] See transcript, 266 where Goodman says that the co-op was "a couple of dentists up in Queensland"

[163] Plaintiffs' Outline of Closing Submissions, [78(g)]

[168] In his report dated 4 August 2021 at paragraph 7.92, Ferrier comments upon the 14 matters raised by the plaintiffs in paragraph 20 of the FASOC. The paragraph identified ways in which Ekera had allegedly interfered with Goodman's right to manage the practice and had adversely affected the EBITDA.

[169] Paragraphs 20(e)(f)(g)(i)(j)(k)(l)(m) of the Plaintiffs' Further Amended Statement of Claim

[170] Paragraphs 20(a)(b)(h) of the Plaintiffs' Further Amended Statement of Claim

[172] Court book, 910 - 911 and 937 - 940

[173] Plaintiff's Further Amended Statement of Claim, [14]

[175] Other terms concerning Goodman as practice principal related to the continuity of the business before completion of the sale (clause 5), payments of apportionable outgoings and purchase price (clause 7), the warranty about awareness (clause 13.5) and some acknowledgements by the vendor and practice principal (clause 15.6).

[177] Court book, 3108 - Ferrier's report, [7.23]

[180] Compare Jones's evidence at court book, 1623 and Ferrier's report, [7.20]

[181] See for example Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd & Ors [2015] HCA 37; (2015) 256 CLR 104, Woodside Energy Ltd v Electricity Generation Corporation [2014] HCA 7; (2014) 251 CLR 640; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451; Codelfa Construction Pty Ltd v State Railway Authority (1982) 149 CLR 33 and Toll v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

[182] I note that an insurance claim for the missing monies was rejected. Ekera made no counterclaim against Goodman in this case for negligence, breach of contract or restitution regarding the missing cash and his responsibilities as practice manager, including his role in banking the cash.

[185] Plaintiffs' Outline of Closing Submissions, [115] - [118]

[190] Calculated at court book, 2643 - 2644

[192] Defendants' Responsive Submissions, [86]

[193] This amount appears at paragraph 137(a)(i) of the Plaintiffs' Outline of Closing Submissions. The figure is incorrect and should be $237,903.

[194] Plaintiffs' Outline of Closing Submissions, [137(c)]

[195] Plaintiffs' Outline of Closing Submissions, [134]

[196] [1994] HCA 4; (1994) 179 CLR 332

[197] [2016] HCA 18; (2016) 257 CLR 440

[198] [2018] VCC 526 [265] - [276]. This judgment was upheld on appeal at [2019] VSCA 46 where the court commented on the loss of opportunity claim at [65] - [74] and [95] - [113].

[199] [2017] VSCA 88

[201] Plaintiffs' Further Amended Statement of Claim, [40(d)]

[206] Dental Corporation Pty Ltd v Moffet (2020) 297 IR 183

[208] [2020] FCAFC 119

[209] [2022] HCA 1

[211] [2004] WASCA 312; [2004] 141 IR 31

[212] [2022] HCA 2

[213] See for example Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119, [41]

[214] Defendants' Outline of Closing Submissions, [9]

[215] [2022] HCA 2

[216] [2022] HCA 1

[217] As opposed to the situation where he is performing dental work at the practice.

[219] Plaintiffs' Further Amended Statement of Claim, [72]

[226] I note that Goodman complained that Ekera in effect forced out of the practice the bookkeeper whom Goodman used to employ. Goodman said that he wanted the bookkeeper to remain at the practice. Goodman said that after the acquisition, the bookkeeper felt her job was insecure and she chose to leave.

[227] [2019] FCA 344. The decision of the trial judge was upheld on appeal (2020) 297 IR 183.

[228] (2020) 297 IR 183, at [14]

[229] Moffet v Dental Corporation Pty Ltd [2019] FCA 344, [10 - 20]

[230] See CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and Jamsek v ZG Operations Australia Pty Ltd [ 2022] HCA 2

[231] Moffet v Dental Corporation Pty Ltd [2019] FCA 344, [74] - [75]

[232] Ibid, see [54], [56], [69] and [38]

[234] (2020) 297 IR 183, [82]

[237] M Byrnes, J Catanzariti, B Dudley, I Latham and E Young, Annotated Fair Work Act & Related Legislation 2021 (2021 Lexis Nexis), 932

[238] Fair Work Ombudsman v Devine Marine Group Pty Ltd [2014] FCA 1365, [191]

[239] See Fair Work Ombudsman v Devine Marine Group Pty Ltd [2014] FCA 1365, [187]; Potter v Fair Work Ombudsman [2014] FCA 187, [81]; Fair Work Ombudsman v Nobrace Centre Pty Ltd [2018] FCCA 378, [341]

[240] See Fair Work Ombudsman v Grouped Property Venues Pty Ltd [2016] FCA 1034 and Fair Work Ombudsman v A to Z Catering Solution Pty Ltd & Anor (No 2) [2018] FCCA 2299