Ennis Paint Australia Holding Pty Ltd & Anor v Jimmy Poh Wing Lei & Ors

Supreme Court of NSW|2015-12-03|Before: Sackar J

Judgment

On 26 August 2014 the plaintiff filed a summons and a commercial list statement seeking injunctive relief and damages as a consequence of alleged breaches of a Share Sale and Purchase Agreement (SSPA) dated 9 December 2009.
A commercial list response was filed by the defendants on 15 October 2014. An amended summons and an amended commercial list statement were filed by the plaintiff on 23 March 2015, and the defendants filed a response on 10 April 2015. A further amended commercial list statement was filed on 7 October 2015 by the plaintiff, and the defendants filed their response on 14 October 2015.
On the sixth day of the trial, counsel for the defendants indicated that liability was admitted. A document was prepared, using the further amended commercial list statement as a basis, to record the precise nature of the admissions by the defendants. No major factual issue remains in dispute between the parties on liability.
As a consequence of the admission of liability, as of 30 November 2015 the only remaining issue in this matter was effectively one of damages.
As part of the admission of liability the first defendant (Mr Lei) proffered undertakings to the Court in the following terms: The first Defendant gives undertakings to the Plaintiffs and the Court as follows: a. That he will not: i. Directly or indirectly engage in any act or conduct which would constitute or amount to a further breach of any or all of the Restraints; nor ii. Aid or abet any act or conduct which would constitute or amount to a further breach of any or all of the Restraints. b. Without derogating in any way from the undertaking referred to in sub-paragraph (a) above, an undertaking that Mr Lei will not any time prior to 29 March 2018: i. Be directly or indirectly concerned with the business of GT Roadtech and GT Roadtech Manufacturing; or ii. Be directly or indirectly concerned with the distribution arm of the business of Allstate Linemarking.

Background facts

Mr Lei and the second defendant (Ms W Lei) were the owners and controllers of an Australian business engaged in the manufacture and distribution (in Australia) of roadmarking products through the third defendant (PCCL) as trustee of the GT Industries Unit Trust. The operating entity, the second plaintiff, was then called GT Industries Pty Ltd. It is now called Ennis Traffic Safety Solutions Pty Ltd (ETSS). For convenience, the company will be referred to as ETSS even in the period where it was called GT Industries Pty Ltd.
ETSS was founded in 1994 by Mr and Ms W Lei. Its business was and is in manufacturing and selling traffic paint, plural component paints for road marking, hot melt thermoplastics, performed thermoplastics, thermoplastics blocks, methacrylates, friction coatings, road and sidewalk markers and decorative road and sidewalk markings. It also imports glass beads. A central element of ETSS' business was, and remains, strong customer relationships. Its business is dependent on these relationships. Over the period of Mr Lei's involvement with ETSS he developed strong positive relationships with its customers. Another important component of the business was, as is dealt with in more detail below, its proprietary formulas.
Mr Lei was the Managing Director of ETSS and is a graduate in industrial chemistry from the University of Canterbury, New Zealand. One of his roles involved developing formulas for roadmarking materials, including thermoplastics and cold applied plastics. As well as his interest in ETSS he formerly (at least) held an interest in two Malaysian entities. The entities, GT Roadtech Sdn Bhd and GT Roadtech Manufacturing Sdn Bhd (collectively known as "GT Roadtech" were engaged in the production and distribution of road marking materials in Malaysia. Mr and Ms W Lei have also, for many years, held an interest in Allstate Linemarking Services Pty Ltd (Allstate), which is predominantly engaged in the business of road line removal and road marking.
A characteristic of ETSS' business was that it was party to several long-term arrangements. Allstate had been a customer of ETSS for many years. It ceased to be a customer in mid-2014.
In 2009 ETSS had an 8 year contract with Oz Linemarking Pty Ltd (Oz Linemarking) and multi-year contracts with the Department of Main Roads in Queensland and the Roads Corporation. At this time, ETSS distributed products in all states except Tasmania, and since January 2010 it has distributed Australia-wise.
The market in which ETSS operates has historically been a concentrated one. ETSS has had only a few competitors. The size of the market for thermoplastics in Australia is around 6,000-8,000 metric tonnes per annum, and the size of the market for waterborne paint in Australia is around 9.2 million litres per annum.
The Ennis Group (among other things) manufactures and distributes pavement marking materials. In the late 2000s the Ennis Group decided to enter the Australian road marking industry. In 2009 PCCL agreed to sell the business to ETSS, a subsidiary of Ennis Paint Inc. The Ennis Group selected ETSS because of its reputation in the thermoplastic market. At the time ETSS was owned by PCCL, which was in turn owned by Mr Lei and Ms W Lei, or their daughter Pamela.
As described above, ETSS' business was dependent on goodwill. ETSS had long-term arrangements with a small group of customers. One of these customers was Allstate. Many of these customers had developed a strong relationship with Mr Lei over the years of his involvement with the business. ETSS' business was also dependent on trade secrets, namely the confidential product formulae used to produce and sell the thermoplastic paint used to create white line markings on Australian roads.
ETSS, Mr Lei, Ms W Lei and PCCL were aware of these features of the business. Accordingly the sale documentation included mechanisms to protect the efficacy of the sale and the ongoing value of the business. These included a period during which Mr Lei's liberty, upon ETSS acquiring the business and Mr Lei ceasing to manage the business, to assist competitors, solicit clients, or otherwise adversely affect ETSS' business, was to be restrained.
Following due diligence, a suite of documents was executed on 9 December 2009. These included: 1. A Share Sale and Purchase Agreement (SSPA) between PCCL (both in its own capacity and in its capacity as trustee of the GT Industries Unit Trust), Summit Research Pty Ltd, Mr Lei, Ms W Lei, Ms Pamela Lei, and EP Australia; 2. A Shareholders' Agreement (Shareholders' Agreement) between Ennis Paint Cooporateif U.A. (a Dutch company and part of the Ennis Group) (EP Cooperatief), PCCL and EP Australia; and 3. An employment agreement between Mr Lei and ETSS (Lei Employment Agreement).
The agreement was structured so that EP Australia bought the entirety of the shares in ETSS and EP Australia was owned 80% by EP Cooperatief and 20% by PCCL. PCCL had a put option to compel EP Cooperatief to buy it out.
In 2009 and 2010 $8.5 million was paid to PCCL and in 2013 a further $6 million was paid to PCCL when it exercised its put option.
The agreements provided for Mr Lei to remain involved in ETSS for some time. Mr Lei remained as managing director until 31 December 2012 and as director until 2 April 2013. On 29 March 2013 PCCL sold its final indirect holding in ETSS. From that point, Mr Lei ceased to have an economic interest in ETSS' business. It was also at this point that the restraint to which the parties had agreed began operating. The restraint period is the period from 29 March 2013 to 29 March 2018 (Restraint Period).
The clause of the SSPA that governs the restraint of Mr Lei is cl 15. It provides as follows: 15. Restraint 15.1 In this clause 15: (1) Restraint area means: (a) the Commonwealth of Australia, but if that is not enforceable, then (b) the States of New South Wales, Victoria and Queensland, but if that is not enforceable, then (c) the State of New South Wales, but if that is not enforceable, then (d) the City of Sydney and surrounding metropolitan areas to a distance of 150 kilometres from the GPO. (2) Restraint period means, with respect to each person subject to this clause 15, the period commencing on the last day any member of the Seller Group, directly or through any Related Body Corporate, any Holdco Shares continuing for a period of: (a) 5 years thereafter, but if that is not enforceable, then (b) 4 years thereafter, but if that is not enforceable, then (c) 3 years thereafter, but if that is not enforceable, then (d) 2 years thereafter, but if that is not enforceable, then (e) 1 year thereafter. (3) Restrained Business means any business that engaged, directly or indirectly, in the business of the production and/or distribution of road marking materials such as traffic paint, plural component paints for road marking, thermoplastics, performer thermoplastics, road marking epoxy, methacrylates, truncated dome warning mats, friction coatings, road and sidewalk markers, decorative road and sidewalk marking or other horizontal markings and coatings. 15.2 During the Restraint Period in the Restraint Area, no member of the Seller Group may either directly or indirectly, for itself or in conjunction with any other person: (1) Operate, participate in, or engage in any capacity, whether as a manager, member, shareholder, owner, partner (limited or general) or joint venturer, or in any managerial or advisory capacity, whether as an employee, independent contractor, consultant or advisor or sale representative, or otherwise have any kind of interest in, or be concerned with, any Restrained Business; (2) hire, solicit, or attempt to induce any person who is, at that time, or who has been, within one year prior to that time, an employee or consultant of any member of the Purchaser Group to become an employee of or consultant to any person other than a member of the Purchaser Group; or (3) call upon any person who is, at that time, or who has been, within one year prior to that time, a customer or supplier of any member of the Purchaser Group in connection with producing, soliciting or selling the products or services of a Restrained Business or for the purpose of damaging, diverting, interfering with, or in a manner that could reasonably be expected to damage, divert or interfere with, such customer's or supplier's relationship with the Purchaser Group; (4) represent itself as being in any way connected with the Business; (5) use a logo, mark or name substantially the same or as deceptively similar to any Intellectual Property Rights; or (6) disclose the name of any customer of the Business or use that name to the Seller's advantage or to the Purchaser's disadvantage. During the Restraint Period, no member of the Seller Group may disparage any member of the Purchaser Group or knowingly do anything that adversely affects the business or the goodwill of any member of the Purchaser Group and must ensure that none of its Related Bodies Corporate or Associates does so. 15.3 The restraint in clause 15.2 applies to each member of the Seller Group acting: (1) either alone or in partnership or association with another person; (2) as principal, agent, representative, director, officer or employee; (3) as member, shareholder, debenture holder, note holder or holder of any other security; (4) as trustee of or as a consultant or adviser to any person (other than the Purchaser or any Related Body Corporate of the Purchaser); or (5) in any other capacity. 15.4 Each: (1) covenant in the subclauses and paragraphs of this clause 15; (2) paragraph of the Restraint Period definition; and (3) paragraph of the Restraint Area definition, is a separate and independent covenant by the Seller Group. They can be combined, and each combination is a separate restraint. If a restraint is illegal, void or unenforceable, this agreement is to be interpreted as if that restraint was omitted, but that does not affect the other restraints. 15.5 Despite clause 15.2, after Completion each member or the Seller Group may hold shares of a body corporate or units in a unit trust that, in each case, is: (1) listed on a stock market of the ASX (or its subsidiaries); and (2) involved (even directly) in the Restrained Business, as long as the member of the Seller Group (or Associate) does not own greater than 1% of the body corporate or unit trust or take part in its management. This is the only exception to the restraint of trade the Purchaser accept under this clause 15. 15.6 The Seller Group agrees that, given the interests of the parties, each restraint in this clause 15 is necessary to protect the goodwill of the Purchaser Group and imposes a reasonable restraint on each member of the Seller Group. … 15.8 Notwithstanding the forgoing, nothing herein shall limit Jimmy Lei's ability to perform the services on behalf of the Company and the Purchaser as contemplated under the Lei Employment Agreement for the benefit of the Company and the Purchaser.
Clause 15.2(1) is referred to as the "Non-Compete Duty", cl 15.2(2) is referred to as the "Non-Solicitation Duty" and cl 15.2(3) is referred to as the "No Harm Duty".
Clause 12 of the Shareholders' Agreement is in almost identical terms and includes the same content in relation to restraint. Similarly, cl 8 of the Lei Employment Agreement is headed "non-competition" and includes provisions to the same effect.
Between 9 December 2009 and 2 April 2013 ETSS' business remained profitable. During this period, Mr Lei continued to have some involvement as a director and shareholder of GT Roadtech. He apparently resigned as a director on 15 August 2010 and sold his shareholding on 25 May 2012.
During this period, ETSS and GT Roadtech engaged in some negotiations as to a possible joint venture for the supply and distribution of thermoplastics. Mr Lei was involved in these negotiations. In the end, however, no arrangement was reached, and Mr Lei's involvement with ETSS was severed by the sale of PCCL's residual 20% interest on 29 March 2013 and then by Mr Lei's retirement as a director on 2 April 2013.
Mr Lei commenced working as a paid consultant with GT Roadtech around the time he ceased to be Managing Director of ETSS. The documentary evidence shows Mr Lei was in contact with and assisting GT Roadtech no later than 21 January 2014, and that he was in regular communication with GT Roadtech in the months that followed. Mr Lei's initial position was that his assistance to GT Roadtech was "temporary" and that he was a "consultant". Mr Lei now accepts that he worked as a consultant until at least 19 December 2014.
The nature and extent of Mr Lei's role in GT Roadtech need not be explored in detail following Mr Lei's admission of liability.
Products manufactured by GT Roadtech, predominantly thermoplastics, entered the Australian market shortly after the commencement of the Restraint Period. GT Roadtech has been selling products to a competitor of ETSS, Asian Paints (Queensland) Pty Ltd (APCO), which has in turn been on-selling products manufactured by GT Roadtech to customers of ETSS. APCO has been offering products at prices below those of ETSS. GT Roadtech has also been supplying another competitor of ETSS, Reflective Road Safety Products Pty Ltd (RRSP), which has in turn been supplying or offering to supply customers of ETSS.
On 30 January 2014, Mr Shetty (managing director of APCO) sent an SMS to Mr Lei (Exhibit P4) stating "I am now in Malaysia and spend most of my time here". Mr Shetty telephoned Mr Lei at GT Roadtech's office and spoke to Mr Lei and Mr Alvin Chan (executive director of GT Roadtech) on speakerphone (T186.35-190.10; 191.10; 250.30). The discussion concerned GT Roadtech supplying thermoplastics to APCO, and APCO selling paint to Allstate.
On 1 February 2014 Mr Shetty emailed Mr Lei saying "nice talking to you the other day" and referring to the possible supply of thermoplastics from Malaysia. He added "I can also supply you waterborne paint and chlorinated paint at an extremely low price in Australia". Mr Lei forwarded this email to Mr Chan (CB 2/681; T186.25; 189.25).
On 3 February 2014 Mr Lei emailed APCO, copying the email to Mr Chan, in relation to the supply of thermoplastics from Malaysia (CB 2/682). Mr Lei said "[a]s indicated over the phone concerning the supply of paint (WB and chlorinated rubber) to Allstate…".
On 17 February 2014 Mr Chan, Mr Lei and Mr Shetty met in Malaysia at the Le Meridien Hotel. This meeting was the subject of a substantial amount of cross examination. The Toll Manufacturing Agreement between GT Roadtech and APCO is also dated 17 February 2014.
The following day GT Roadtech emailed Mr Lei an "OEM Quotation to supply Thermoplastic and Cold Applied Plastic". Mr Shetty, Mr Chan and Mr Lei exchanged a number of emails concerning costings and other matters pertaining to the thermoplastic products.
On 13 March 2014 APCO placed its first order with GT Roadtech for thermoplastics.
On 24 March 2014 Mr Andersen received an email from APCO offering waterborne paint for $2850/1000L. Mr Andersen forwarded that email to Mr Cocoran the following day.
On 29 March 2014 Mr Lei arrived in Australia and on 1-2 April 2014 there was an Allstate management meeting. There was cross examination concerning what was said at this meeting. The minutes record that "Jimmy also asked whether Allstate will consider ordering material from overseas."
On 3 April 2014 Mr Lei sent a text message to Mr Shetty saying "Allan and I would like to pay you a visit".
On 4 April 2014 Mr Lei and Mr Andersen met with Mr Shetty at APCO's premises at Mt Druitt. The meeting concerned the supply of waterborne paint by APCO to Allstate.
On 7 April 2014 Mr Lei telephoned Mr Shetty twice. On 8 April 2014 Mr Lei again telephoned Mr Shetty. Mr Andersen also contacted Mr Shetty. Mr Shetty subsequently emailed to Mr Andersen a "best" price list, copying Mr Lei, and adding "we can also supply you Thermoplastic at a very competitive price".
On 15 April 2015 Mr Lei telephoned Mr Shetty early in the afternoon. Mr Shetty emailed Mr Andersen a copy of APCO's thermoplastics price list at 6.50pm.
On 16 April 2014 Mr Lei and Mr Andersen spoke in the morning. Mr Lei telephoned Mr Shetty at 9.45am asking him to quote a price for thermoplastics to Allstate and "not to price it too high".
Mr Lei emailed Mr Andersen at 10.29am on the same day in relation to the prices to be charged by APCO to Allstate. He also forwarded an email from Mr Babic of Roadmarking Solutions Pty Ltd to Mr Shetty.
On 22 April 2014 Mr Andersen and Mr Cocoran met. There was a substantial amount of evidence given concerning Mr Andersen's state of knowledge at that time, which is irrelevant now that liability has been admitted. In brief, Mr Cocoran told Mr Andersen that Mr Lei was importing road marking products into Australia from Malaysia. Mr Andersen subsequently relayed these accusations to Mr Lei. Mr Lei said "tell Ian to get his facts straight."
Later on the same day, Mr Lei emailed Mr Shetty and CCd Mr Andersen: I took a call from Allan this afternoon. Ennis (Ian Corcoran) is onto what you are doing in so far as thermoplastic is concerned unfortunately my name is being implicated. No doubt I will be receiving an email from Ennis regarding this. In view of this development, Allan is now not keen to do anything to jeopardise his existing supply relationship with Ennis…"
The plaintiffs say that the entry of GT Roadtech's thermoplastics into the market has had a significant effect. They say there is a direct correlation between Mr Lei's facilitation of supply between GT Roadtech an APCO, and APCO's on-supply to Australian customers. Critically, the plaintiffs say, Mr Lei played an active role in ensuring that Allstate directed most of its business from ETSS to APCO.
On 8 May 2014 Mr Chan emailed Mr Shetty and Mr Lei to advise Mr Shetty that GT Roadtech would be able to supply CAP, glass beads, thermoplastic alkyd and thermo hydrocarbon. The email stated "[o]ur melt ons or preform would require a few more months to fine tune, but we are very close."
On 25 June 2014 Mr Lei telephoned Mr Shetty twice. Allstate subsequently purchased waterborne paint from APCO for the purpose of trialling its quality.
On 4 July 2014 Mr Chan emailed Mr Shetty in relation to arrangements for shipping, copying Mr Lei. Mr Shetty advised that he had received an order from Allstate.
On 11 August 2014 there was an Allstate management meeting. Mr Andersen advised that he was "happy" with the APCO paint, and trial thermoplastic. The issue of whether Allstate should acquire product from a supplier other than ETSS was discussed, and all members agreed that it should. Mr Andersen's evidence is that the decision was made to switch to APCO after the trial.
The consequence of the entry into the Australian market of large volumes of low-cost, imported thermoplastics has been damage to ETSS' margins. ETSS' customers have demanded it reduce its prices, which it has done, at a time when the cost of production has otherwise been increasing.

Admissions

As referred to above, in the course of the hearing the defendants admitted liability. A document dated 2 December 2015 was prepared, which makes reference to the further amended commercial list statement and the defendants' position on each matter pleaded is noted.
Importantly, the first defendant admits that at all relevant times he was a consultant to GT Roadtech ([14]). He admits that he breached, and continued to breach, the restraint in cl 15 of the SSPA and cl 12 of the Shareholders' Agreement. He admits that he breached, and continued to breach, the restraint in cl 8 of the Lei Employment Agreement up to March 2015.
Mr Lei admits that, since no later than March 2013, he knowingly took steps which adversely affected the plaintiffs' business and failed to ensure that his associates did not take such steps.
The allegations in [32]-[35] of the further amended commercial list statement are not admitted. These allegations, which relate to s 183 of the Corporations Act 2001 (Cth), are no longer pressed by the plaintiffs.
The second to fifth defendants admit that they must indemnify the plaintiffs in respect of the losses suffered by the plaintiffs by reason of the breaches of the restraint clauses in the SSPA, the Shareholders' Agreement and the Lei Employment Agreement.
The defendants admit that they are liable to pay the plaintiffs' costs of the proceedings on the ordinary basis up to and including 11 November 2015, and on an indemnity basis thereafter, and to pay interest calculated at the rate prescribed for s 101 of the Civil Procedure Act 2005 (NSW).
To particularise the matters admitted in more detail, the defendants admit that from no later than March 2013 until at least December 2014 Mr Lei provided consulting services to GT Roadtech including, but not limited to, developing formulae for high-end thermoplastics, supervising the building of a preform thermoplastic production line, sourcing ingredients for the manufacturing of road line marking products and acting as GT Roadtech and/or GT Roadtech Manufacturing's representative during discussions with participants in the road marking industry in Australia.
The defendants admit that in February 2014 Mr Lei had discussions with Mr Shetty in relation to supplying APCO with thermoplastics produced by GT Roadtech and/or GT Roadtech Manufacturing.
The defendants admit that from about February 2014, Mr Lei participated in discussions between APCO and Allstate in relation to the supply of road marking materials from APCO to Allstate, including thermoplastics which had been or were to be manufactured by GT Roadtech and/or GT Roadtech Manufacturing.
The defendants admit that in mid-2014 Mr Lei took steps to ensure that, or acquiesced in, Allstate stopping, or scaling back, the purchase of road marking materials from ETSS and instead purchasing road marking materials from APCO and other suppliers.
The defendants also admit that Mr Lei participated in discussions with other participants in the road marking industry in Australia, including but not limited to RRSP, concerning the purchase of road marking materials manufactured in Malaysia by GT Roadtech and/or GT Roadtech Manufacturing.
The defendants admit that Mr Lei and his associates, on the basis of these admissions, have therefore breached and continue to breach the restraints in cl 15 of the SSPA, cl 12 of the Shareholders' Agreement and cl 8 of the Lei Employment Agreement.
In addition to these matters, the plaintiffs submit that the Court should make the following findings: 1. Mr Lei assisted GT Roadtech in adjusting formulae for products for the express purpose of supply to Australia; 2. Mr Lei introduced Mr Shetty to GT Roadtech; 3. Mr Lei facilitated a meeting between Mr Shetty and Mr Chan for the purpose of discussing the supply of thermoplastics by GT Roadtech to APCO; 4. Mr Lei assisted Mr Chan with the resolution of commercial issues with Mr Shetty, after which GT Roadtech and APCO formalised a supply agreement; 5. Mr Lei was heavily involved in the events which led to the GT Roadtech-APCO arrangement, including by arranging costings, drawing quotations and adjusting formulae; 6. Mr Lei facilitated a meeting between Mr Lei, Mr Chan and Mr Clutterbuck (of RRSP) for the purposes of Mr Clutterbuck obtaining supply from GT Roadtech; 7. Mr Lei assisted GT Roadtech in the establishment of a production line for preform thermoplastic; 8. GT Roadtech is able, once it makes space and sets up a system, to manufacture preform thermoplastic; 9. The reason it has not yet started manufacturing preform thermoplastic is that it has been otherwise "too busy making thermoplastics to supply to the Australian market"' 10. GT Roadtech has had discussions with Mr Clutterbuck regarding the potential future supply of preform thermoplastics.
The plaintiffs further submit that the Court should find that these steps constitute breaches of the Non-Compete Duty, the Non-Solicitation Duty and the No Harm Duty. The defendants accept that the Court should make these findings and that they constituted breaches of the various duties.
At [38]-[40] of their outline of closing submissions, the plaintiffs articulate what is said to be the causal relationship between Mr Lei's conduct and the entry of GT Roadtech into Australia. The plaintiffs submit that without Mr Lei's breaches GT Roadtech would not have entered into the Australian market. The defendants make no response to these submissions.
The defendants admit, in relation to the Allstate loss, that during the Restraint Period Mr Lei called upon Allstate in connection with producing, soliciting or selling the products or services of a Restrained Business, namely the business of GT Roadtech or GT Roadtech Manufacturing, and that during the Restraint Period Mr Lei knowingly took steps that adversely affected the business of ETSS and/or the goodwill of ETSS, and failed to ensure that his associates, GT Roadtech and GT Roadtech Manufacturing, did not take such steps.
The defendants also make the following admissions concerning ETSS: 1. Before Mr Lei's admitted breaches, ETSS was "the major supplier of road marking materials for Allstate"; 2. Over the last 10-14 years, and until about mid-2014, Allstate purchased between 95% and 100% of its supplies from ETSS; 3. Allstate purchased in those proportions from ETSS even though it received offers from other suppliers (including APCO) around twice per year; 4. Allstate did so even though, sometimes, those offers involved prices cheaper than those offered to Allstate by ETSS; 5. In around mid-2014 Mr Andersen decided that Allstate should not, as a matter of principle, buy products from ETSS if there was an available alternative; 6. Allstate's total purchases in the 2015 financial year exceeded its total purchases in the 2014 financial year.
Additionally, the defendants admit that: 1. Before mid-2014, issues arose in relation to ETSS's supply on a number of occasions, but Allstate had not ceased dealings with ETSS; 2. Mr Andersen's practice was to consult with Mr Lei on key financial decisions; and 3. The course of events leading up to Allstate's decision to switch away from ETSS included a visit by Mr Andersen to APCO's factory, which was orchestrated by Mr Lei after Mr Lei had already facilitated APCO's supply of products from GT Roadtech. It was after that visit (where Mr Lei accompanied Mr Andersen) that APCO offered to sell Allstate thermoplastics.

Loss of opportunity

In Maritime Union of Australia v Fair Work Ombudsman [2015] FCAFC 120 Allsop CJ, Mansfield and Siopsis JJ considered: 28 The task of the primary judge, having found the relevant contraventions, was to assess the compensation, if any, that was causally related to those contraventions. That involved not an examination of what did happen, but an assessment of what would or might have occurred, but which could no longer occur (because of the contraventions). Subject to any statutory requirement to the contrary, questions of the future or hypothetical effects of a wrong in determining compensation or damages are not to be decided on the balance of probability that they would or would not have happened. Rather, the assessment is by way of the degree of probability of the effects - the probabilities and the possibilities: Malec v JC Hutton Pty Ltd [1990] HCA 20; 169 CLR 625 at 642-643; Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 at 352-356. The above proposition must be qualified by the recognition that, where the fact of injury or loss is part of the cause of action or wrong, it must be proved on the balance of probability. Compensation is generally awarded for loss or damage actually caused or incurred, not potential or likely damage: Tabet v Gett [2010] HCA 12; 240 CLR 537; Sellars at 348; Wardley Australia Ltd v Western Australia [1992] HCA 55; 175 CLR 514 at 526; that is equally so here under ss 807(1)(b) and 545(2)(b). 29 Difficulties sometimes arise in relation to the distinction between these two principles: see Sydney South West Area Health Service v Stamoulis [2009] NSWCA 153, discussed in Evans v Queanbeyan City Council [2011] NSWCA 230 at [54] per Allsop P, [59]-[61] per Hodgson JA, and [100]-[103] per Basten JA. Here, the statutes provide for an order requiring the defendant to pay an amount "as compensation for damage suffered by the other person as a result of the contravention": s 807(1)(b) of the WR Act; and an order "awarding compensation for loss that a person has suffered because of the contravention": s 545(2)(b) of the FW Act (emphasis added). Thus, there must be proved, on the balance of probability, to have been some "damage suffered…as a result of the contravention" and some "loss…suffered because of the contravention." The wording is not dissimilar to the wording and structure of s 82(1) of the Trade Practices Act 1974 (Cth), which was dealt with by the High Court in Sellars: "A person who suffers loss or damage by conduct of another person that was done in contravention of a provision…may recover the amount of the loss or damage." 30 What such damage or loss is (in the present context) that must be proved on the balance of probability will be governed by an understanding of the statute. Given the evident protective purpose of provisions such as s 792 of the WR Act and s 346 of the FW Act, there would be no sensible statutory purpose in denying a proposition that the damage or loss in relation to prospective employment can be constituted by the loss of an opportunity or chance to be considered for employment as a result of, or because of, the contravention (which then has to be given a value to inform the order for compensation); and there would be no sensible statutory purpose in limiting the compensation to damage or loss proved by reference to the proof of events that would, on the balance of probability, have or have not occurred. Thus, if the relevant contravention by a party has prejudiced a person in prospective employment, it would conform entirely with the statutory purpose to identify the damage or loss by reference to, indeed as, that prejudice. Depending on the circumstances, such prejudice may best be seen as the loss of the chance or opportunity of particular employment. That certainly was the relevant prejudice here, and it can be seen to have been proved on the balance of probability - indeed, to the point of demonstration. … 34 The assessment of the value of the loss of an opportunity may involve an evaluative judgment that calls for restraint in appellate review: McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 at [126]-[127]; Horne v Cranney [2011] QCA 149 at [9]; Hammond Worthington v Da Silva [2006] WASCA 180 at [128]; Nigam v Harm (No 2) [2011] WASCA 221 at [259]; Falkingham v Hoffmans (a firm) [2014] WASCA 140 at [47]-[49]; Wainwright v Barrick Gold of Australia Ltd [2014] WASCA 15 at [88]-[90]. It may also involve factual analysis and findings of a non-evaluative character, and it will almost necessarily involve a degree of speculation. Thus, how (that is, by what methodology), and with what ultimate result, an evaluation is made may involve questions of choice, and judgments about which reasonable minds may differ. 35 It is also relevant to recall that all evidence is weighed according to the proof which it is in the power of one side to have produced and in the power of the other side to have contradicted: Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970; Hampton Court Ltd v Crooks [1957] HCA 28; 97 CLR 367 at 371-372; Cullen v Welsbach Light Company of Australasia [1907] HCA 3; 4 CLR 990 at 1013-1014; see also JD Heydon Cross on Evidence (10th Australian Edition) at 312-313 [7160] and the cases at footnote 132.
The plaintiffs cite a number of cases where claims were made for lost profits as a consequence of a defendant's breach of restrictive covenants on the basis of the principles articulated in Malec v JC Hutton Pty Ltd (1990) 159 CLR 638 and Poseidon Ltd & Sellars v Adelaide Petroleum (1994) 179 CLR 332, including Orica Investments Pty Ltd v McCartney [2010] NSWSC 488 at [18] and [26]-[38] (Orica). At [26] of that case, Ball J said: The parties agree that this issue is to be determined in accordance with the principles set out in cases such as Malec v JC Hutton Pty Ltd (1990) 159 CLR 638 and Poseidon Ltd & Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 -that is, the parties accept that the Plaintiff's damages are to be reduced to the extent that there was a chance that the Clos Distributorship would have been terminated irrespective of the Defendants' breaches. It is relevant to observe that in applying this principle the question is not whether there were causes other than the Defendants' breaches of Clos's decision to terminate the Distributorship Agreement. The fact that there were other causes of Clos's decision to terminate that agreement is not a reason for reducing the damages payable by the Defendants flowing from that event: Heskell v Continental Express Ltd [1950 1 All ER 1033 at 1048 per Devlin J; Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322 at 346 per Samuels JA with whom Moffitt P and Reynolds JA agreed on the point; Wylie v The ANI Corporation Limited [2002] 1 Qd R 320 at [27] per McMurdo P and at [48] per Thomas JA. Rather, the question is, assuming that the Defendants were not in breach of their obligations, what was the risk that Clos would terminate the Distributorship Agreement following the acquisition of Bronson & Jacobs by Orica Investments?
Orica was reversed on appeal, but no issue was taken concerning Ball J's statement of the applicable law: McCartney v Orica Investments Pty Ltd [2011] NSWCA 387.
In Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46, Handley JA (with whom Mason P and Beazley JA, as her Honour then was, agreed) said at 59: In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party "whose actions have made an accurate determination so problematic": see LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 at 508.

Causation

In March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 the following was said concerning causation at 515 (per Mason CJ) and 523 (per Deane J) (footnotes omitted): The common law tradition is that what was the cause of a particular occurrence is a question of fact which "must be determined by applying common sense to the facts of each particular case", in the words of Lord Reid: Stapley. That proposition is supported by a long line of authority in the United Kingdom: Leyland Shipping Co.; Admiralty Commissioners v. S.S. Volute; Yorkshire Dale Steamship Co.; Alphacell Ltd. v. Woodward; McGhee v. National Coal Board. It is supported also by this Court's decision in Fitzgerald v. Penn. It is beyond question that in many situations the question whether Y is a consequence of X is a question of fact. And, prior to the introduction of the legislation providing for apportionment of liability, the need to identify what was the "effective cause" of the relevant damage reinforced the notion that a question of causation was one of fact and, as such, to be resolved by the application of common sense. … …the clear weight of authority is against the substitution of such a formularized test of causation for a "common sense idea of what is meant by saying that one fact is a cause of another":

Failure to cross examine

As the Lord Chancellor, Lord Herschell, famously said in Browne v Dunn (1893) 6 R 67 HL (Browne v Dunn): Now, my Lords, I cannot help saying that it seems to me to be absolutely essential to the proper conduct of a cause, where it is intended to suggest that a witness is not speaking the truth on a particular point, to direct his attention to the fact by some questions put in cross-examination showing that that imputation is intended to be made, and not to take his evidence and pass it by as a matter altogether unchallenged, and then, when it is impossible for him to explain, as perhaps he might have been able to do if such questions had been put to him, the circumstances which it is suggested indicate that the story he tells ought not to be believed, to argue that he is a witness unworthy of credit. Mr Lords, I have always understood that if you intend to impeach a witness you are bound, whilst he is in the box, to give him an opportunity of making any explanation which is open to him: and, as it seems to me, that is not only a rule of professional practice in the conduct of a case, but is essential to fair play and fair dealing with witnesses. Sometimes reflections have been made upon excessive cross-examination of witnesses, and it has been complained of as undue: but it seems to me that a cross-examination of a witness which errs in the direction of excess may be far more fair to him than to leave him without cross-examination, and afterwards to suggest that he is not a witness of truth, I mean upon a point on which it is not otherwise perfectly clear that he has had full notice beforehand that there is an intention to impeach the credibility of the story which he is telling. Of course I do not deny for a moment that there are cases in which that notice has been so distinctly and unmistakeably given, and the point upon which he is impeached, and is to be impeached, is so manifest, that it is not necessary to waste time in putting questions to him upon it. All I am saying is that it will not do to impeach the credibility of a witness upon a matter on which he has not had any opportunity of giving an explanation by reason of there having been no suggestion whatever in the course of the case that his story is not accepted.
Lord Halsbury made the following remarks at 76-77: My Lords, with regard to the manner in which the evidence was given in this case, I cannot too heartily express my concurrence with the Lord Chancellor as to the mode in which a trial should be conducted. To my mind nothing would be more absolutely unjust than not to cross-examine witnesses upon evidence which they have given, so as to give them notice, and to give them an opportunity of explanation, and an opportunity very often to defend their own character, and, not having given them such an opportunity, to ask the jury afterwards to disbelieve what they have said, although not one question has been directed either to their credit or to the accuracy of the facts they have deposed to.
Lord Morris made some additional comments at 79: My Lords, there is another point upon which I would wish to guard myself, namely with respect to laying down and hard-and-fast rule as regards cross-examining a witness as a necessary preliminary to impeaching his credit. In this case, I am clearly of opinion that the witnesses, having given their testimony, and not having been cross-examined, having deposed to a state of facts which is quite reconcilable with the rest of the case, and with the fact of the retainer having been given, it was impossible for the plaintiff to ask the jury at the trial, and it is impossible for him to ask any legal tribunal, to say that those witnesses are not to be credited. But I can quite understand a case in which a story told by a witness may have been of so incredible and romancing a character that the most effective cross-examination would be to ask him to leave the box. I therefore wish it to be understood that I would not concur in ruling that it was necessary, in order to impeach a witness's credit, that you should take him through the story which he had told, giving him notice by the questions that you impeached his credit.
In this jurisdiction Hunt J subjected the decision of the House of Lords to his typically lucid analysis in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (Cth) [1983] 1 NSWLR 1 (Allied Pastoral) and concluded at 26: I remain of the opinion that, unless notice has already clearly been given of the cross-examiner's intention to rely upon such matters, it is necessary to put to an opponent's witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings
In Markem Corp v Zipher Ltd [2005] RPC 31 the Court of Appeal in the United Kingdom (comprising Kennedy, Mummery and Jacob LJJ) reemphasised the principle articulated in Browne v Dunn and approved Hunt J's analysis in Allied Pastoral and said at 785-786: 56 …But there is a second ground which we consider first, namely that procedural fairness not only to the parties but to the witnesses requires that if their evidence were to be disbelieved they must be given a fair opportunity to deal with the allegation. 57 Prior to the hearing before us, we drew the attention of the parties to the decisions of the House of Lords in Browne v Dunn (1894) 6 R 67 and the Australian case of Allied Pastoral Holdings v Federal Commissioner of Taxation (1983) 44 ALR 607. One member of the court was aware that Australian practitioners were very alive to the rule in Browne v Dunn (so also, he has ascertained, are Canadian practitioners). The case reference and the Pastoral Holdings decision were supplied to him through the helpfulness of Justice Heerey of the Australian Federal Court. 58 Browne v Dunn is only reported in a very obscure set of reports. Probably for that reason it is not as well-known to practitioners here as it should be although it is cited in Halsbury for the following proposition: "Where the court is to be asked to disbelieve a witness, the witness should be cross-examined; and failure to cross-examine a witness on some material part of his evidence or at all, may be treated as an acceptance of the truth of that part or the whole of his evidence."
I should also note, however, that a trial judge is in no way restricted in his or her assessment of a witness; he or she is not bound to accept any of that which the witness attests to or indeed may only accept part thereof: Cubillo v Commonwealth of Australia [2000] FCA 1084 at [188]-[123]. The court is not necessarily obliged to accept evidence, even in the absence of cross-examination. In Ali v Nationwide News Pty Ltd [2008] NSWCA 183 Tobias and McColl JJA observed at [112]: There can be no doubt that where factual evidence is not cross-examined upon, prima facie it should be accepted. However, it ought not necessarily be accepted where, as Tobias JA said in Multiplex, there is a credible body of evidence of a substantial character in direct contradiction of the non cross-examined evidence. In the present case there is no such body of evidence.

Contentions of the parties

In summary, the plaintiffs submit that the Court should find that: 1. The plaintiffs' claim on quantum can be divided into two categories: 1. "thermoplastic loss" comprising damage because of the impairment of ETSS's thermoplastics business; and 2. "Allstate loss", comprising the damage because of Allstate's switch of business away from ETSS. 1. The thermoplastic loss is $4,174,390, reflecting a 10% price increase in the financial years 2014 and 2015, with 10% volume growth, applying the "alternate loss" methodology, and calculating loss to 29 March 2018. 2. In the alternative, that the thermoplastic loss is $3,813,512, reflecting an 8% increase in financial years 2014 and 2015, with 10% volume growth, applying the "alternate loss" methodology and calculating loss only to 29 March 2015; 3. The Allstate loss is $2,082,898, reflecting 10% price increase for financial years 2015 and 2016, applying the "alternate loss" methodology and calculating loss only to 29 March 2018; 4. In the alternative, the Allstate loss is $1,954,545, based on an 8% price increase in financial years 2015 and 2016; 5. On the basis of the 10% price increase calculations, a total loss of $6,433,0034; 6. In the alternative, on the basis of the 8% price increase calculations, a total loss of $5,768,057; 7. Pre-judgment interest in respect of past loss should be included, calculated at court rates of 6.5% on an amount of $1,062,567 of that total figure from 1 July 2015 on the plaintiffs primary case, or $975,843 on the plaintiffs alternate case; 8. In accordance with the agreed position of the parties, a costs order should be made in ETSS' favour.
The plaintiffs contend that the assessment of both the thermoplastic loss and the Allstate loss is inherently conservative, for reasons including that the plaintiffs' expert was briefed, and calculated the loss, on the basis of a limited data set, namely 84% of the historical sales made of thermoplastics, and only 77% of the historical sales to Allstate.
The plaintiffs further contend that even if their lay and expert evidence is rejected and the evidence of Mr Sefton accepted, the thermoplastic loss would amount to $2,254,000 and the Allstate loss $1,506,000.
In relation to causation, the following exchange took place on the final day of the hearing: VAN AALST: One has to be certain about what I'm trying to address on. We do not deny, of course, that Ennis is entitled to compensation, hence there's a causation link in that admission. Secondly, the question in respect of causation goes to the probability on the evidence as to the flow on, if I may put it that way, from the cause or to the cause of the damage, and the next question is, what was the damage? The next question in respect of that is, how is one to assess that damage? I did make the submission that the issue of credibility when it comes to assessment of damages, in our submission, is not a relevant issue, because with the admission of liability one, as your Honour has done, made observations of the conduct of Mr Lei. What the plaintiffs are seeking is compensatory damage not for the conduct of Mr Lei, but for the loss. HIS HONOUR: No, what I put to you is not meant to criticise him personally, except to say that his deliberate conduct is appropriately taken into account when one looks at causation, that's all. Especially with Allstate. VAN AALST: But if it's taken into account, your Honour, it depends at what stage. So if I can just continue and see if I can assist your Honour. HIS HONOUR: Your opponent only has to show that he was a cause of loss, not that he was the total cause. She doesn't have to carve out of the equation things that might be serendipitous. But all I'm saying is - but anyway, you seem to accept the causal link, or am I wrong in assuming that? VAN AALST: No, your Honour is correct. Your Honour, I think having regard to my submissions in respect of the eight to 10%, I intend to move on. Unless there is something further there, I think I've covered it, and together with the --
As a consequence, as I have said, the primary issue that remains between the parties is assessment of the lost opportunity and whether the plaintiffs' claim allows appropriately for risk and vicissitudes.

The thermoplastic loss

The plaintiffs' primary claim is based on price increases of 10% in financial years 2015 and 2016, with further increases of 5%. Their alternative claim is based on increases of 8% followed by 5%.
The plaintiffs submit that the arrival of a new entrant into the Australian thermoplastic market, providing cut-price foreign thermoplastic, has been to put downward pressure on the market price of thermoplastic. The plaintiffs say that the unchallenged evidence of Mr Cocoran is that: 1. ETSS had a practice of raising prices once a year; 2. Mr Cocoran intended to raise prices for thermoplastics by 10% on 1 July 2014 and 1 July 2015 and, save for the presence of GT Roadtech product, had he sought to raise prices he would have been able to do so; 3. He received strong resistance from customers to proposed price increases in circumstances where those customers referred to cheaper thermoplastic product available ultimately from GT Roadtech; 4. He therefore resolved not to increase prices by his desired amount.
The plaintiffs submit at [45] of their closing submissions that Mr Cocoran's evidence concerning price increases, in addition to being unchallenged, fits comfortably with the objective evidence. They say that none of the defendants' witnesses gave evidence inconsistent with Mr Cocoran's evidence that he believed he could have increased prices by 10% or, alternatively, 8%, and that those price increases would have been accepted.
The plaintiffs say that Appendix H to Mr Sefton's first report does not furnish a basis for rejecting Mr Cocoran's evidence. The report, the plaintiffs submit, should not be used for its hearsay purpose. In any event, the plaintiffs say that the report does not address the relevant topic - that is, what Mr Cocoran would have sought to do, and been able to do, in order to maintain margin in the face of increasing costs pressures. Historic pricing practices, the plaintiffs say, do not determine that question.
The plaintiffs say, in relation to the cost calculation made by Ms Planinic, her calculations in relation to historic sales were derived directly from costs schedules prepared by an internal ETSS expert and for future periods she calculated cost increases by reference to current costs adjusted for inflation and forward curves for exchange rates. Subject to unexpressed reservations, the plaintiffs say, Mr Sefton accepted that this was appropriate. The plaintiffs say that all the factors identified in Mr Sefton's first report were either included in Ms Planinic's calculations or immaterial. The plaintiffs submit that Mr Sefton, in oral evidence, was unable to make any meaningful criticism of the cost calculations undertaken by ETSS' staff.
In relation to volume, the assumption of a 10% annual volume increase is accepted by the defendants.

Allstate loss

The Allstate loss incorporates loss to ETSS from Allstate's decision as a matter of principle not to buy road marking material from ETSS where there is an available alternative. At [63]-[67] of their closing submissions the plaintiffs' highlight what they say to be the causal link between Mr Lei's breaches of the restraints and Allstate's move away from ETSS.
These include the relationship between Mr Lei and Mr Andersen and Mr Andersen's indignation concerning Mr Cocoran's accusations against Mr Lei, Mr Lei's status as a director and major lender of Allstate, and Mr Lei's failure to discharge his duty by taking steps to prevent Allstate from adversely affecting ETSS' business.
The plaintiffs say the evidence does not support the proposition that the decision to switch away from Allstate can solely be attributed to Mr Andersen. They say the evidence demonstrates a clear connection between ETSS' loss of profits and the switch away of Allstate's business: see the closing submissions at [67].
In relation to the three integers that go to calculating loss, namely price, volume and cost, the plaintiffs make the following submissions. Once again, the plaintiffs' primary claim is based upon a price increase of 10% in financial years 2015 and 2016 and then subsequently a price increase of 5%. This claim, the plaintiffs say, is consistent with Mr Cocoran's evidence and the objective evidence. The plaintiffs accept that Mr Cocoran's evidence does not address glass beads and preform thermoplastic. The plaintiffs therefore accept that the Court should only find a 2.5% price increase for those products in 2014 and 2015.
The volume growth in relation to the Allstate loss is 2.5%. The plaintiffs say that this can appropriately be described as conservative. As to cost, the plaintiffs say that Mr O'Flanagan (financial controller and accountant at ETSS) was not cross examined about the information he provided, and there is no reason his evidence should not be accepted. Further, the plaintiffs say, Ms Planinic was not cross examined concerning the methodology she adopted with respect to future costs. As indicated above, Mr Sefton indicated that her methodology was generally appropriate.
The plaintiffs say Ms Planinic's calculations displayed an inherent conservatism: see [75] of the closing submissions.
The effect of this is, the plaintiffs say, that, as with the thermoplastic loss, there is already a vicissitudes or risk-based discount built into Ms Planinic's assessment. For these reasons, and accepting that it is not possible to discount a hypothetical chance that Allstate would have withdrawn its custom irrespective of Mr Lei's breaches, the Court can still properly award, the plaintiffs say, the whole of the amount claimed in respect of the Allstate loss. Alternatively, the plaintiffs say, if a further discount is applied, it should be low.

Defendant's contentions on loss

The defendants' arguments are primarily directed to whether there was the potential for an annual price increase in the range of 8-10%. The defendants say that the evidence shows ETSS did not have such a policy. The defendants submit that the only witness called concerning the price increase was Mr Cocoran. They say that Mr Cocoran could not remember by what percentage the price was increased in 2011 and that, although he did raise prices in July 2010, it was not his practice to set a particular price increase such as 10%.
The defendants submit that Mr John Sanford, the sales director, was not called despite the fact he was involved in price increases along with Mr Cocoran.
The defendants say that there are emails from Mr Cocoran, particularly from 2013, which tend against the conclusion that there was a policy of raising prices by 8-10%. The defendants attack the basis of Ms Planinic's calculations, saying that the Court ruled in relation to parts of Mr Cocoran's affidavit evidence that restrictions under s 136 of the Evidence Act 1995 (NSW) applied.
The defendants contend that there is no evidence in support of an 8-10% price increase and that in the contemporaneous email communications the price increases for the financial years from 2011 to 2015 were not in the range of 5%.
It is submitted that Part B of Ms Planinic's September report demonstrates the volatility of the market in respect to Allstate. This volatility is said to be accepted in relation to the 2015 financial year, the year where APCO commenced importing thermoplastic products. This volatility is further demonstrated, the defendants say, by the summary of purchases of road marking material by Allstate from July 2014 to June 2015.
The defendants say that Mr Sefton's alternative assumption of a 2.5% price increase is appropriate.
The defendants also point to a series of emails said to demonstrate negotiations concerning special prices for large customers. The defendants say that the objective and contemporaneous evidence permits the Court to infer that the same or similar processes would be followed or adopted by ETSS. The defendants similarly submit that a special rebate structure for thermoplastic materials should be taken into account.
In a supplementary note, the defendants made submissions concerning the principles of law applicable to the defendants' final submissions. The argument, as I understand it, proceeds as follows.
In relation to s 76(1) of the Evidence Act, the defendants observe that evidence of an opinion is not admissible to prove the existence of the facts on which the opinion is based. Concerning s 79(1), it is accepted by the defendants that both Ms Planinic and Mr Sefton have the necessary experience to provide opinion evidence within their training, study and experience. However, the defendants say, s 76(1) nevertheless applies. The defendants say that the assumption identification common law rule applies in this case, which means that unless the facts upon which Ms Planinic and Mr Sefton's opinions are based can be proved independently, the opinion either of them expresses has no value. So much cannot be gainsaid.
In this case, therefore, the defendants say the issue is whether there is independent evidence to support the assumption that ETSS had a policy to annually increase prices in the range of 8-10%. As already observed above, the defendants content that the contemporary objective evidence does not support that proposition.
The defendants submit that it is conceded that the evidence suggests that for large customers such as Allstate, prices were subject to negotiations between the parties and that since around 2012 there was also a rebate allowance provided by way of the issuing of credit notes which, at times, would set off the price increase.
The defendants say there are no credit issues relevant to the assessment to be made by the Court in respect of compensatory damages. It is contended that the principles outlined by Young J in Plessey Components Pty Ltd v Cant (unreported, NSWSC, 26 July 1996) are applicable.
In relation to the alternate loss referred to in the schedule to [14] of Ms Planinic's November report, the defendants at [4] of their final submissions identify a number of matters said to be of concern. It is submitted that the calculations fail to address the sensitivity of past and present customers to price increases and past changes in turnover and profitability.
In relation to the schedule in [52] of Ms Planinic's September report, in so far as budgets and forecasts are concerned, it is submitted that there is no evidence of ETSS' budgets, and no evidence of any discussions with management to assess the profitability of the business going forward. In these circumstances, the defendants contend that the evidence illustrates that the plaintiffs are applying the highest figure for the calculation of "alternate loss" and that little, if any, weight should be given to the plaintiffs' alternate calculations of losses from the inability to increase thermoplastic prices.
Finally, the defendants say that the following issues should be considered by the Court in determining the appropriate discount for vicissitudes: 1. The loss of Allstate retail customers being supplied by ETSS; 2. Allstate's current financial position; 3. The effect of rebates and discounts in the future and the end of the restraint period; 4. Other competitors (local or foreign) who may enter the road marking, manufacturing or supply market; and 5. Economic conditions.
It is submitted by the defendants that where a claim such as this claim is for a loss of profits depending on competition in the market maintaining the status quo, a high rate of discount should be applied.

The Browne v Dunn issue

An issue arose concerning the decision by Counsel for the defendants not to cross examine Mr Cocoran concerning some of his evidence in chief. The defendants say that the evidence of Mr Cocoran as to his belief or submissions admitted under s 136 of the Evidence Act stand in quite a different position to evidence such as that referred to by Hunt J in Allied Pastoral.
The defendants submit that s 136 empowers the Court to limit the use to be made of evidence if there is a danger that "particular use" of the evidence might be unfairly prejudicial to a party, or might be misleading or confusing.
The defendants submit that the Browne v Dunn rule does not apply to evidence otherwise inadmissible, but which is admitted for a limited purpose during the course of a trial. As I understand the defendants' submission, they say that this proposition can be demonstrated where the section limits proposed evidence to opinion, submission or relevance.
The practice to which Browne v Dunn applies, it is said by the defendants, is to circumstances which deal with "other evidence" from the opposing party which may contradict the witness's evidence.
In this case, it is said by the defendants, it is a question of belief allowed under s 136 where that belief is inconsistent with the plaintiffs' documentary evidence. The contention of the defendants is that there is no unfairness occasioned to Mr Cocoran by the failure to cross examine him about the price rise policy in his company's records. It is Mr Cocoran, the defendants say, who exposed himself to criticism. Nothing was hidden from him.
In response, the plaintiffs say that the submission that Browne v Dunn does not apply where a witness' evidence, though not the subject of cross examination, was limited under s 136, is unsound, and point out that no authority is cited in support of it. The plaintiffs say that the contention finds no support in s 136, which is concerned with limiting the use to which evidence can be put by the finder of fact, and has nothing to say about the requirements of fairness.
Further, the plaintiffs say that the proposition is not supported by Browne v Dunn, the ultimate rationale of which is the courts' concern with "common fairness and the proper administration of justice": see Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 at 345. Nothing in that rationale, the plaintiffs say, suggests that the principle does not apply when a s 136 limitation has been made. For instance, the plaintiffs submit that it is just as unfair to a witness to suggest that his evidence on oath that a conversation occurred should be disbelieved if that evidence has been limited to its non-hearsay use than if it has not been limited.
The plaintiffs say that the contention that Browne v Dunn does not apply to a submission that a witness' evidence should be disbelieved if the basis of that submission is inferences from business records of the party that called the witness is not supported by authority. The plaintiffs say there is nothing in Allied Pastoral to limit Browne v Dunn to inferences from evidence filed by the opposing party, as opposed to "other evidence" generally.
Also, the plaintiffs say that the defendants' submission is contrary to principle: Browne v Dunn, the plaintiffs say, exists in part in fairness to the witness, not to the party which called the witness, and the plaintiffs say there is no reason why the witness should be taken to have ceded his or her right to procedural fairness because of information in the business records of the party which called him or her. The plaintiffs say that if it is said inferences from business records are contrary to a witness' evidence, that should be put to the witness. The source of the business records is said by the plaintiffs to be irrelevant.
In relation to the suggestion Mr Cocoran "exposed himself to criticism", the plaintiffs say that no explanation had been given by the defendants as to what is meant by this. The plaintiffs say that this submission in any event misses the point - even assuming Mr Corcoran had exposed himself to criticism, the plaintiffs say that criticism should have been put to him in cross examination. Mr Corcoran, the plaintiffs say, has been denied the opportunity of responding to the criticism, and the court has been denied the opportunity of receiving and considering his response to that criticism.
The plaintiffs say that the defendants, having elected not to challenge Mr Corcoran as to the existence or genuineness of his beliefs in respect of the price increases, are precluded from challenging them.
I agree with the plaintiffs' submissions on this point. It accords with principle and common sense. A failure to cross examine or adequately cross examine has a number of consequences. Apart from effectively preventing a witness from exercising an opportunity to respond to criticism or explaining and/or qualifying his or her evidence, it denies a judge the opportunity of assessing the plausibility or adequacy of that response etc. As a practical matter, unless the evidence is objectively incredible or fanciful, for example, although not bound to do so a judge is likely to accept the evidence, and that is the forensic risk the cross examiner takes.

Causation

Causation is undoubtedly a question of fact which has been the subject of a concession.
However, I propose in any event to consider causation in relation to both the thermoplastic claim as well as the Allstate claim in some detail.
I must say, I would have had no doubt about the issue even had there not been the concession, as the admissions made on liability virtually compel a conclusion of causation in respect of both losses.
There is, in my view, more than a sufficient causal condition between Mr Lei's breaches, especially his beach of the Non-Compete Duty and No Harm Duty, and ETSS's loss of profits arising from the entry of GT Roadtech's products into the Australian market. Mr Lei was intimately involved in facilitating GT Roadtech's products making their way into the market.
Whilst it may have been theoretically possible for APCO to have approached GT Roadtech without Mr Lei's intervention, I regard such a possibility as remote in the extreme. There is not the slightest suggestion from any relevant witness such a matter would have been considered save for Mr Lei's intervention. I am satisfied, in fact, that GT Roadtech would not have done any business in Australia without Mr Lei facilitating it. I am fortified in that view in part by the failure on the defendant's part to call, for example Mr Shetty and/or Mr Clutterbuck.
As I have said, I am satisfied that in absence of Mr Lei's breaches, it is highly probable GT Roadtech would not have entered the market with its inevitable downward effect on the market price of thermoplastics, and the loss thereby caused to ETSS because of the deprivation of business.
Equally, again in the light of Mr Lei's conduct and admitted breaches, Mr Lei could not reasonably deny that those breaches caused Allstate to move away from purchasing product from ETSS.
Mr Lei admitted to taking positive steps and, I am satisfied, encouraged Allstate to scale back its purchases from ETSS and placed it in direct contact with GT Roadtech. On any view, he knowingly took steps which I am satisfied he fully appreciated would adversely affect ETSS's business, and actively encouraged GT Roadtech to do likewise.
Mr Anderson gave as part of his reason for changing his allegiance that he believed Mr Cocoran had wrongly accused Mr Lei, Mr Andersen's trusted business partner, of importing thermoplastic product into Australia. Mr Lei had, of course, provoked the accusation by his own wrongful behaviour. On any view of it, Mr Lei's breaches can be seen as a material cause of Mr Andersen's decision to change to GT Roadtech.
Mr Lei was in a powerful position with Allstate. Mr Andersen trusted him completely. Mr Lei owned 50% of Allstate at the time. He was a director and its major lender. I am entirely satisfied that he could have effortlessly taken steps to prevent ETSS from losing Allstate's business. If he had not intervened in the way he did I am satisfied Mr Andersen would not have moved to GT Roadtech.
I am satisfied Mr Andersen would, if Mr Lei had requested it, remained with ETSS.
It is clear, however, on the facts, that the decision for Allstate to move away from ETSS was not solely attributable to Mr Andersen. Mr Lei asserted the decision to move was a consensus position of the Allstate management committee. Mr Andersen purported to corroborate that evidence. I am satisfied Mr Lei likely manipulated that situation by withholding the truth from Mr Andersen about Mr Lei's involvement with Mr Shetty and the supply of product from GT Roadtech to APCO (T286/36 - T287/5-50).
I am therefore satisfied that there is more than a sufficient connection between Mr Lei's breaches and ETSS's loss of profits from the move away of Allstate's business.
Had Mr Lei honoured his contractual obligations pursuant to his No Harm Duty he should have ensured that Allstate did not withdraw its business from ETSS. Had he not breached that duty I am satisfied, given the historical relationship between ETSS and Allstate, that Allstate would not have moved away from ETSS.
In addition, had Mr Lei not induced Allstate to investigate alternative suppliers, it is highly likely Allstate would not have withdrawn its custom from ETSS. In other words I am satisfied had Mr Lei not breached the Non-Solicitation Duty, Allstate would not have moved in all likelihood away from ETSS.
By facilitating GT Roadtech's move into the Australian market Mr Lei also breached his Non-Compete Duty. Again, Allstate would in my view not have moved, save for that breach.
I am also satisfied that save for Mr Lei's breaches Allstate would have likely continued to trade with ETSS virtually indefinitely.

Quantification

The central focus of this exercise is whether and if so to what extent the court should accept the evidence of Mr Cocoran and his prognostication about price increases going forward. That has an obvious and direct impact on what the appropriate level of compensation should be. The defendants unsurprisingly accept the plaintiffs are entitled to some compensation, but of a very different order to that suggested by the plaintiffs.
Mr Cocoran has been managing director of ETSS since 2010. He has an MBA (1999) in marketing from the Buckinghamshire Business School. Since the mid-nineties to the present he has held senior management positions across diverse industries. For example, in the period 2000-2005 (spending the last two years as a managing director) he worked for Univor Group, which is UK's largest chemical distribution and service business.
As managing director of ETSS Mr Cocoran managed relationships with key customers in the Asia Pacific Region, and the large customers Oz Linemarking and Allstate. He oversaw and monitored the financial performance of the Ennis Group in the Asia Pacific and made key strategic decisions.
He said that historically a significant proportion of ETSS's annual revenue came from long term contracts.
A glance at the gross revenues for 2010, 2011, 2012 and 2013 shows an increase in those revenues commensurate with an increase in the number of customers (see affidavit 9 January 2015 (January Affidavit) at [18], [19] and [20]).
He said 95% of ETSS's sales were from extrusion thermoplastic and profile thermoplastic: January Affidavit [24].
Mr Cocoran also said the market for thermoplastics (hot melt) in Australia and New Zealand comprised some 6000-8000 metric tonnes per year, and has for some years been stable in that range: January Affidavit [41(a)].
So far as ETSS was concerned Mr Cocoran stated that it had 50% of the thermoplastic market. He stated that a company called Dura Products had 40% and another company, Crystalite, had a 10% market share.
In the waterborne paints market Mr Cocoran expressed the view it involved 10 million litres per year. ETSS, he said had 45% of the market, APCO 25%, Dulux about 10%, and a company called Damar (which entered the market in 2013) had 15%.
There is no evidence to contradict the above assertions as to market and market share, nor was it suggested to Mr Cocoran in cross examination that his assertions were inaccurate.
Mr Cocoran also said as a result of GT Roadtech importing product into Australia he has had conversations with a number of people in the market and thereafter felt he had to reduce prices to maintain ETSS's level of sales.
Mr Cocoran also asserted, uncontroversially, that until October 2014 Allstate was a major customer of ETSS. Allstate is not a manufacturer. It distributes product to line markers and Councils, for example, in all states of Australia: see affidavit of 19 March 2015 (March Affidavit) at [13].
In his affidavit of 23 September 2015 (September Affidavit), Mr Cocoran gave evidence about pricing.
He accepted ETSS had different price lists for contractors, councils, distributors and something called a standard price list: September Affidavit [67]. He kept separate price lists for Allstate and Oz Linemarking.
He stated that from no later than 2011 he had a practice of increasing ETSS's prices annually. He stated he did have a special price for high volume customers. He also stated ETSS gave rebates and/or special prices for particular jobs: September Affidavit [10] and [11]
He stated he reduced prices for Allstate in October 2011 by 5% in an attempt to ensure ETSS retained Allstate as a customer. He also said he believed ETSS's market share in thermoplastics had decreased since January 2015: September Affidavit [38].
Mr Cocoran also stated that there had been an erosion of ETSS's margins since mid-2014: September Affidavit [50]. As explained by Mr O'Flanagan at [119] of his affidavit of 16 June 2015, the margin is calculated by subtracting sales value from total cost of material.
There were two reasons, according to Mr Corcoran, why he believed margins had eroded. First, manufacturing costs had gone up, largely because of a drop in the exchange rate. He was, however, determined not to increase prices to cover these increased costs and in some cases he had reduced prices: September Affidavit [51]-[52].
The second reason, however, was in his view because GT Roadtech had made its thermoplastic products available in the Australian markets, and that had put downward pressure on prices.
He expressed the view that the average margin ETSS achieved on sales of thermoplastics in 2014 was 31% (profile) and 36% (extrusion and extrusion premium). From 1 January 2015 to August 2015 the margin for extrusion was 19%, extrusion premium was 26%, and profile was 21%: September Affidavit [54].
Until mid-2014 he said he had a practice of increasing prices in the face of declining margins: September Affidavit [55]. He also expressed the view that revenue was substantially down for both thermoplastics and waterborne paints: [57].
In passing, I should also observe that Mr O'Flanagan and Mr Suzor (operations manager and chemist at ETSS) had performed analyses of the underlying sales records and records dealing with the cost of raw materials. Neither of these witnesses was required for cross examination and their evidence was not otherwise challenged. I have no difficulty in accepting their workings and analyses.
In his 5 June 2015 affidavit (June Affidavit) Mr Cocoran made a number of statements about pricing policy. First, since approximately 2011 ETSS had a policy of increasing prices once per year from 1 July. Final pricing decisions were made by Mr Cocoran (and the price increase varied amongst customers) but were usually in the order of 5 - 10%: see [27]. There is material in Confidential Exhibit IMC-4 to support this assertion.
Mr Cocoran said he implemented price increases in accordance with his practice in the years 2011, 2012 and 2013. He says he did not implement the practice in 2014 and would not in 2015 because he formed the belief that ETSS customers are and have been unwilling to accept price increases in the face of increased competition from products imported by GT Roadtech. That belief is based largely upon conversations with various customers. Leaving the content of those conversations to one side I am satisfied they occurred: January Affidavit [65]- [67].
Mr Cocoran went on to state that had he not held that belief he would have implemented the practice of price increases in 2014 and 2015 and increased the price of standard extrusion, premium extrusion and profile thermoplastic and waterborne paint by approximately 10%, and I infer he believed he would likely have achieved that increase. He also said that he had formed the view, no doubt after soundings, that if he could not have achieved 10% he would have sought 8% (January Affidavit [30]), and by inference would have alternatively achieved that increase.
He then went on to express the view that, save for the presence in the market of products from GT Roadtech, he considered that customers would have accepted a 10% or 8% increase in prices for a number of reasons. He asserted he had increased prices routinely at it were in 2011, 2012 and 2013: January Affidavit [31(a)].
Based on his experience in the business of manufacturing and distributing thermoplastics, in his opinion the particular products were price inelastic. In other words, his experience had been that price increases had not lead to a drop in the volume supplied. Dropping prices did not, alternatively, in his experience lead to a change in volume of sales. Unsurprisingly, he stated that this was because governments, as an example, need to build and maintain roads irrespective of the price of road marking and/or road marking materials. It cannot be gainsaid that a significant portion of the demand for product would, directly or indirectly, come from state and/or federal entities or Councils who require application of marking and/or maintenance of roads, car parks, buildings of various sorts.
He also stated that, based on his experience in thermoplastics, if one supplier varies its price for a product the other suppliers tended to vary their prices accordingly. In his experience this phenomena occurred because as the demand for the thermoplastics is price inelastic and price moves normally spread across the market, a price increase by ETSS did not normally effect ETSS' market share or volume of product sold: January Affidavit [31(c)].
Part of his hesitancy concerning raising prices in 2014 and 2015 was because he was as at June 2015 yet to understand precisely the full extent of GT Roadtech's involvement in the Australian market. In addition, he said his caution was driven by the changed role of APCO in marketing itself now as a distributor of all manner of thermoplastic paint: June Affidavit [32].
On the other hand, Mr Lei in his affidavit of 10 July said he also believed price variations were governed by many factors including exchange rate fluctuations, the quantities and type and specification of the product to be ordered, and the history of customer relationship when the proposed order was being discussed with it: [12]. He also asserted that in negotiating price he would look at a whole range of these factors. I do not consider any of that evidence is controversial.
However, at [21] of Mr Lei's July affidavit Mr Lei stated that during his period as managing director, prices were not annually increased for any of the products by 8% or 10%. That of, course, is not what Mr Cocoran had said in any event, a matter to which I shall return. Mr Cocoran said price increases on his watch were in the order of 5%-10%.
Mr Cocoran, in reply to this particular point (in the September Affidavit), says having reviewed "further materials" he accepted with high volume customers the annual price increases implemented in 2011 were not always in the range of 5-10%. In some instances prices were increased between 2-4% and in some instances up to 12%. In some instances in 2011 Mr Cocoran acknowledged he reduced prices and more generally he had reduced prices since GT Roadtech started importing thermoplastics into Australia in mid-2014: [19].
Mr Cocoran also accepted that he reduced prices for Allstate for thermoplastics by approximately 5% in October 2011, because of the strong relationship ETSS had had with Allstate and in order to permit Allstate to generate extra business which he anticipated would flow back to ETSS: [23].
Mr Cocoran also stated that he increased Allstate's prices for glass beads by approximately 4% and for thermoplastic profile blocks by approximately 9%. He also stated he put the prices ETSS charged Allstate for thermoplastics up by between 4% and 7% in mid-2012.
Neither Mr Lei nor Mr Anderson said anything in the evidence about Mr Cocoran's belief he would have been able to increase prices in 2014 and 2015 by 10%, or alternatively 8%. They said nothing, in my view, to cast doubt upon his prediction.
Mr Cocoran was cross examined. He stated that he implemented a price increase on 1 July 2010 (T61/20-21). He did not know, however, what the policy was prior to him joining in 2010 (T61/41).
He stated he did not have a policy of setting a particular price increase of, for example, 10% (T62/26-27). For every price increase Mr Cocoran said there would be a number of variables, but his policy was to move once per year, although not all customers got exactly the same price or price increase (T63/10-30).
It is also common ground that some customers would be given rebates. He agreed, for example, that he introduced a system of rebates in 2013 for the purposes of retaining Allstate's business (T64/10-11). He did this somewhat prophylactically, as I understand it, when Mr Lei left the business.
However, it was put to Mr Cocoran that, given his recollection "now", it was not his company's policy to have a fixed price increase of 8-10% in 2011. Mr Cocoran rejected that notion (T65/20-25). I must say, as I understand his evidence he never said that in any event. Mr Corcoran did agree he could not remember the precise increases for 2011 (T64/41).
When asked about Allstate, Mr Cocoran would not agree he would have to necessarily negotiate a price with it different from what he would charge others, except occasionally. He stated in any event that margin on sales he thought was more important than volume, and it was a combination of the margin applicable to that customer "aligned" with the volume that would be important in terms of his negotiations (T85/10-19).
Mr Cocoran was also cross examined in confidential session. He was cross examined about a limited number of emails and asked about a number of specific events from 2011 to 2014.
What I regard as significant, however, as far as the cross examination went, is that at no time was it put to him that his belief and expectation about his ability to extract price increases of at least 10% or 8% was in any was flawed or lacking in plausibility. For example, it was not put to him that given historical price movements 10% or 8% was unrealistic. Further, if it was to be suggested that his evidence about past practice of increases ranging from 5%-10% was unsupported in history I would have expected that to be put to him, but it was not.
There is no doubt that in expressing his views about the future Mr Cocoran was providing an estimate and prognosis based on experience which necessarily involved an evaluation on his part of a number of variables.
Whilst he was not cross examined on what I regard to be a crucial evaluation undertaken by him, the Court is not necessarily obliged to accept his evidence. However, given his background, experience with ETSS, and his explanation of the thermoplastics market (which likewise not challenged), I am satisfied I should accept what he said about how and why he thought he would be able to extract either a 10% or 8% increase in the years 2014 and 2015, and more to the point that he would have achieved that outcome, as I say. Given his background and the reasons he advanced for his belief I do not find his evidence incredible, let alone glaringly improbable or, to use a familiar expression, of a "romancing a character", as described by Lord Morris in Browne v Dunn.
In this context it is necessary to consider the evidence of the experts. Ms Planinic, the plaintiffs expert had no problem (proceeding upon relevant assumptions) and performing calculation of losses based on a 10% or 8% scenario. I do not mean to convey that she agreed with them as opposed to accepting them as assumptions.
Mr Sefton, the defendants' expert, in his first report (11 August 2015) stated at [39] that in his view the most accurate guide to future level of sales by ETSS to Allstate, for example, "must" be the history of such sales. He expressed the view that his understanding was that in the past five or six years the value of product sold to Allstate varied considerably and that, contrary to Ms Planinic, the best approach in his view was to take an average approach and calculate average monthly volumes for, say, the previous three years: see [40].
He then said in the light of sales records "provided" he did not detect they demonstrated historically either a 8% or 10% increase of prices. Tedious though it is to repeat it, Mr Cocoran never stated that he had achieved those increases routinely.
Mr Sefton said that following his examination of the records he discerned no pattern of price increases. Again that is not, in my view, quite to the point.
Mr Sefton expressed the view in his second report of 13 November 2015 at [9] that in his experience there set out, "repetitive price increases" in the order of 8% or 10% per year "on year" would be strongly resisted, leading to loss of sales. He also stated that in his view the "historic pattern" detected by him would make it impossible for ETSS to implement the 8% or 10% increases. As I have said, of course, this proposition was not put to Mr Cocoran in cross examination. In addition, Mr Sefton conceded in his own cross examination, importantly, that he had never had any experience in working with participants in the road marking materials industry (T338/31-34), nor had he had any experience in undertaking accounting or auditing work for companies or entities who are participants in the road marking industry in Australia.
Mr Sefton's evidence, such as it is, especially given his background and experience, and even taken at its highest, does not provide, in my view, a basis for rejecting Mr Cocoran's prognostication in relation to price increases for 2014 and 2015.

The calculation of the loss

As I have already stated there are two types of loss claimed. First, the thermoplastic loss and, secondly, the Allstate loss.
For the reasons which follow, it seems to me the price increase which I consider the most realistic was an 8% increase in the financial years 2014 and 2015. I note in both cases it is accepted there would have been a 10% volume growth (T372).
Although the primary case of 10% is by reason of various factors said to be calculated in a conservative environment, the figure of 8% I consider to more appropriate. I consider it leads to a result which is fair and reasonable in all the circumstances, albeit slightly more conservative again.
In general terms I have no difficulty accepting Mr Cocoran's prognosis. He is relevantly experienced and is intimately familiar with the market. Importantly, he was not challenged in any meaningful way on those predictions or, more importantly, his reasons, which included a detailed explanation of the dynamics of the particular market.
ETSS was, I consider it fair to say, the dominant player in both the thermoplastics and waterborne paint market. So far as Allstate is concerned I am satisfied it would have remained with ETSS were it not for the conduct of Mr Lei. In other words, ETSS was previously in a strong position in the market place.
I am not persuaded I should reject Mr Cocoran's evidence that he reviewed prices annually. The various emails referred to by the defendants do not detract from his evidence, and I accept his assertions.
The fact that he agreed to price increases sometimes of the order of 2% but sometimes of the order of 12%, for example, does not in my view negate his opinion as to what he believed he would have achieved going forward, nor does the existence of rebates.
His assertion about the inelastic nature of the market is an important observation by him which again was simply not challenged. Mr Sefton did not, nor was he able to offer any relevant insight into the particular market.
The fact that ETSS had different prices for different products and/or different prices for different customers again simply does not detract from Mr Cocoran's confidence as to the ability to obtain future price increases.
I also accept the plaintiffs' submissions that the thermoplastic and Allstate loss has been calculated on the basis of a limited data set, namely 84% of the historical sales made of thermoplastic paint and only 77% of historical sales to Allstate, and is therefore inherently conservative in any event.
As far as the actual calculations go, the plaintiffs largely rely on the report of Ms Planinic of 20 November 2015, although to a limited degree they also rely upon her earlier report of 24 September 2015.
Obviously there are a number of factors which underpin the calculation of the losses.
In respect of the losses in relation to thermoplastics, the claim is for lost profits because of the entry into the market of the GT Roadtech product. The loss is broken down into excluding "Allstate Sales" and including "Allstate Sales". This is to ensure that if ETSS is successful on the claim for the loss of gross margin on sales to Allstate, then in so far as that loss includes lost margin on thermoplastics it should not be double counted.
The Allstate loss identifies lost profits because of Allstate's decision to scale back purchases of products from ETSS.
There are three main variables to consider generally in the thermoplastics loss: price, cost and volume. Ms Planinic gave that evidence and she was not challenged (T305/40-43).
Ms Planinic did two loss calculations. In the first place (28 May 2015) Ms Planinic assessed no increase in sales volumes. Mr Sefton criticised Ms Planinic's methodology and indicated that future sales volumes should be estimated by reference to average monthly values for previous years. Ms Planinic then performed calculations on that basis.
Ms Planinic explained in her evidence (at T308/48-T309/7) that she looked at the average monthly volume of sales for the three relevant products and made an assessment of the "but for" sales in 2015 to see if the monthly sales had been maintained. She then applied the sales volume price increases based on average sales prices obtained in the financial year 2014, and 2015 and 2016, 2017 and 2018, applying an 8% or 10% increase to sale prices. She then did the calculations based on 2.5% and 5%. Importantly, Mr Sefton accepted this as an appropriate methodology (T329/6-27).
Ms Planinic also calculated past losses and future losses. Past loss was to the end of the financial year 2014. Future loss was from 1 July 2015 to 29 March 2018. It should be noted the plaintiffs claim pre-judgment interest on the past loss. Ms Planinic had also applied a 17.5% discount to a future loss.
She explained her choice of 17.5% on the basis that she had regard to the purchase transaction in the shares in ETSS. She looked at the multiple that was applied for the purchase and it had, on her calculation, "implied" a discount rate of 17.5% post tax.
The claim for past losses to 30 June 2015 based on a 10% growth in sales volumes is calculated in Appendix C/2.
As a further explanation for the 17.5%, she thought the risk free rate would be 4%. On the other hand, if there was an investment in the equities market in a well balanced portfolio she would expect an average return of 6%. She stated there would have been an allowance for specific risk factors for the business, including the market, barriers to entry, level of growth, volatility in terms of economic cycle, and how earnings might vary. On the basis that a 10% return was available, the extra 7.5% would be attributable those particular risks associated with ETSS (T307).
The plaintiffs' claim for future loss based on an 8% increase from 1 July 2015 through 29 March 2018 and based on 10% growth in sales and volumes is calculated in appendix D/6.
On the 5% price increase scenario, the gross amount to 30 June 2015 is $717,933 and after tax $502,553 for past loss. The further amounts net of tax and discounting are $814,387 (FY16), $732,364 (FY17) and $620,155 (FY18 to 29 March 2018). This results in a total of $2,669,459 which is then grossed up for tax to $3,813,512.
Appendix F to Ms Planinic's 20 November report calculates the Allstate loss to 31 March 2018, for price increases of 8% and 10% for FY15 and FY16 and 5% thereafter. It is also based on a 2.5% growth in sales volume for all products.
Again for past loss based on an 8% price increase for FY15, the calculations appear in Appendix D/1 of her September report and result in a gross figure of $257,910 and a net figure of $180,537.
The claim for future loss based on 8% price increase for FY16 is calculated at Appendices F/1 (FY16), F/2 (FY17) and F/3 (FY18) of the November report and yields a gross figure of $907,462.
This leads to the total for the Allstate claim based on an 8% price increase is $1,954,545. It is accepted by the plaintiffs that so far as glass beads and pre form thermoplastic product is concerned the Court should find only a 2.5% price increase for those products in 2014 and 2015.
I should observe Ms Planinic's evidence was largely unchallenged. Mr Sefton agreed in general terms with her methodology. I accept both her methodology and her calculations.
Partly due to his not having checked source documents himself, Mr Sefton's criticisms of Ms Planinic were necessarily somewhat generalised. He could make no real criticism of her cost assumptions and her methodology in calculating future costs. Those underlying costs, of course, come from Messrs Flanagan and Suzor, who were not cross examined in any event.
Mr Sefton articulated some criticisms of Ms Planinic for the first time in the witness box (T321-322). There is an issue of fairness which necessarily arises. For an expert ultimately to assist the court, opinions should be clear and most importantly produced in a timely way. It should provoke little surprise if belatedly expressed, ad hoc opinions are given little, if any, weight. I found Mr Sefton an unsatisfactory witness for that reason.
Apart from some obvious observations about the volatility of markets, as an example, I was not really assisted by his evidence. On risk, for example, he said (T318/17-19): "I have no real firm conviction as to what the vicissitudes should be or what percentages will be adopted, but I point out that these series of reports do not really take into account volume losses except for the discount factor. Now the discount factor seems reasonable but it would be up to the court to decide whether or not its appropriate"
There are a number of problems with these sentiments. First, Mr Sefton has had no involvement in or experience of the thermoplastic paint market and, secondly, his comments about volume loss are inappropriate. Ms Planinic did take into account past year volume losses when assessing the compound growth rate in volume. In addition, Mr Sefton did not proffer any discount rate himself to reflect volatility. I presume, as he hinted, he simply felt unable to express any view, or at least any view contrary to Ms Planinic.

Thermoplastics loss

As I have already observed the three main variables, again, to be considered in drawing a conclusion regarding the thermoplastic loss are price, cost and volume.
The evidence of Mr Cocoran which I accept is that the arrival of GT Roadtech into the market put downward pressure on price because GT Roadtech offered lower prices. I also accept his evidence, that, but for the presence of the GT Roadtech product in the market, he would have raised prices from 1 July 2014 and 1 July 2015.
Mr Cocoran's evidence is to the effect that he is confident he would have been able to raise prices by at least 8%. I accept that evidence. As I have said, I regard this as more appropriate than 10%.
Apart, however, from Mr Cocoran's belief, there is I am satisfied material to support such a contention. There is nothing surprising in an approach of a company seeking to recoup lost margins by increasing prices. That is a perfectly sensible commercial decision to take (contemporaneous support for this proposition may be found at CB486). Motivation to one side, I am satisfied he likely would have achieved at least an 8% increase.
The materials suggest that the margins for thermoplastic were in the financial years ending 1 June 2011 through to 1 June 2014 in the order of 30% to 39.2% (standard extrusion), 32% to 38.2% (extrusion premium), and 26% to 31.2% (standard profile). An increase of 8% would place margins at 31.4% to 33.2% (standard extrusion), 32/5% to 34.4% (extrusion premium), and 28.6% and 41.3% (standard profile). Hence, without price increases margins would be well below historical levels. They would be 7.5% to 9.3% (standard extrusion), 8.4% to 20% (extrusion premium), and 11.2% to 12.5% (standard profile). This is apparent from Ms Planinic's November report at Appendix D/6.
Neither Mr Lei nor Mr Andersen gave any evidence contrary to that of Mr Cocoran in so far as he said he would have increased prices by 8%, and that that increase would have likely been accepted. I can find nothing in Mr Sefton's evidence that would lead me to reject Mr Cocoran's prediction. Whilst I do consider historical practices and prices have some relevance, history cannot, in my view, determine the question of whether Mr Cocoran's evidence should be accepted. The question is whether his prediction is, for example, a realistic one. Given his knowledge and experience of the market I think it is.
Cost, of course, can be viewed historically, and future increases in costs can be calculated by reference to current costs adjusted for inflation and forward curves for the exchange rate. That is what Ms Planinic has done.
I have already observed that the various materials on costs which come from Messrs O'Flanagan and Suzor were not challenged, and I accept their evidence. The provenance of the materials and their methodology are transparent and credible. Further, Ms Planinic's methodology of her calculation of future costs was not challenged either and I accept them.
Messrs O'Flanagan and Suzor, as employees of ETSS, have an intimate familiarity with its internal costings, and Mr Sefton was not in a position to really challenge what they had done. In any event, he had not reviewed the underlying documents. Indeed, he could not articulate any meaningful criticism of what Messrs O'Flanagan and Suzor had done.
As to volume, there is no issue that annual volume increase of 10% was an appropriate assumption for Ms Planinic to make. Indeed, on the historical data the 10% is somewhat conservative (T331/1-3).
In addition, I accept Mr Cocoran's evidence that the market for thermoplastics is price inelastic. I have already referred to this aspect of the matter.
Ms Planinic included a discount of effectively 7.5% for risk (T307/23- T307/23) and again, as I have already observed, on a subset of data. In addition, given Mr Lei's profile and what I consider to be his influence in the industry, it cannot as a matter of practical reality be accepted that 29 March 2018 will miraculously see losses caused by his breaches simply evaporate at that point.
I accept the above arguments in support of the proposition that there has already been sufficient allowance for vicissitudes or loss of a chance built into Ms Planinic's assessment. However, doing the best I can, in my view a further discount should be applied of a modest amount and that is why I have chosen an 8% figure as opposed to 10% on the question of the price increases likely attainable.

The Allstate loss

As with the thermoplastics loss, the three factors of price, volume and cost need to be considered.
Again, I am disposed to accept the 8% in 2015 and 2016 with subsequent price measures of 5% for reasons I have given. Again, Mr Cocoran's unchallenged evidence supports this. As Mr Cocoran does not address glass beads and preform thermoplastic, the plaintiffs accept a conservative 2.5% increase for those products should be awarded. I consider that to be fair and reasonable.
There has been no meaningful criticism of Ms Planinic's assumptions or methodology and no contrary evidence from Mr Lei or Mr Andersen of relevance.
As to volume, the plaintiffs' claim is based on volume growth of 2.5%. That would reflect CPI increases and is modest to say the least.
For example, as is pointed out, the historical compound annual growth rate for sales volumes by ETSS of the relevant products for the three years to FY14 was well above 2.5%. The range over the various products went from 4.7% (preform thermoplastics) to 41.2% (waterborne paint): Financial Court Book at 553.
There seems little doubt Allstate's business is growing. In round terms it has risen from approximately $11.5m in 2013 to $17.5m in 2014. It has been able to make substantial monthly repayments in the order of $90,000 to $150,000 per month in its debt to Mr Lei.
As to cost, Ms Planinic's calculations are derived from Mr O'Flanagan's summary. These are set out in appendix E/13 to the November Report.
Again Ms Planinic essentially calculated the cost increases for FY16 to FY18 for non-thermoplastic and thermoplastic paint by reference to current costs from the workings of Mr O'Flanagan and Mr Suzor and adjusted for inflation and forward curves of the exchange rate for future costs, having first, in the case of non-thermoplastics, assumed above inflation cost increases. She also assessed an additional 2.5% of costs to "cover unallocated overheads".
Again, there was no cross examination of Mr O'Flanagan or relevantly Ms Planinic on this evidence. In my view, there is no reason in logic or fairness why this evidence should not be accepted and I do accept it.
Again, for similar reasons, as previously stated Ms Planinic's calculations are conservative. Although she included an additional 2.5% over and above the figures sourced from Mr O'Flanagan, this is a figure well below the compound annual growth rate for the relevant products.
Ms Planinic also assumed a 10% reduction in gross margin for ad hoc sales to Allstate. Given Allstate's stated policy of not buying from ETSS the 10% deduction would appear to me to be overly generous to the defendants. The calculations for this loss is, as I have already observed, based on only 77% of ETSS's Allstate business in any event.
Although these factors are, on one view, more than adequate to allow for vicissitudes or risk, I have again decided 8% is the more appropriate figure to use for the lost opportunity.

Interest

The plaintiffs' claim for past loss, assumed to have crystallised on 1 July 2015, on the plaintiffs' alternate claim (based on an 8% price increase), is therefore $502,533 (thermoplastic loss) plus $180,537 (Allstate loss) grossed up for tax to $975,843.
The plaintiffs submit, and I accept, that the court should include interest on the whole of that sum under s 100(1) of the Civil Procedure Act 2005 (NSW). The plaintiffs say ETSS has been out of pocket for that amount since no later than 1 July 2015 and should be compensated. They say Interest should be calculated on the basis of Practice Note SC Gen 16. I agree.
I would direct the parties to bring in short minutes reflecting these reasons.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 December 2015

Trade Practices Act 1974(Cth)

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Judgment (18 paragraphs)

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Legislation Cited (4)

Cases Cited (26)