Euromark & Limited v Smash Enterprise Pty Ltd & Ors [2021] VSC 97

Euromark & Limited v Smash Enterprise Pty Ltd & Ors [2021] VSC 97 | Case summary | Zoe

[387]

In our showroom after discussions you said 'give me your prices and I will give you the orders'quote! Gave you my prices, Still no orders. Don't know what you were thinking when you made that statement but I am a man of words and I took that on face value.

You said you would provide me with All of your selling prices, still to receive, your explanation you have been too busy and they mean nothing anyway.

My points about your landed cost are valid because the only workings you have shown me and were the basis of your discussions with me were those calculations!!!! Why are they on YOUR sheet. It is just as easy to have the right ones. I am happy you have others. Again as I pointed out doesn't really have much bearing on me but the distribution is important to evaluate by sku level and when every cent is important then it could be significant to you.

[...]

Tesco has been our customer from day one. We handed Tesco to Recreation and it was Tesco that wanted us to change it because of service. Euromark was put forward as there was no time and your [sic] were an existing supplier. First year we had two bags. Second year we had six. This year we have six. John Lewis, WHS and Tesco all came via the Brand and we value that connection.

[...]

My discussions with Tesco is ensuring we keep Tesco whether they move forward or not. We can only perform as good as our distributor and vice versa. I just wanted to explain to them where we are at who knows they may be able to come up with a solution. Wouldn't think of having those discussions without you but we are in a strange place.

Don't know about hard ball more like desperate ball. Tesco seems like a house of cards. Like I said in Melbourne happy to share the blame but there has been a lot of liberties taken on both sides with this account...

... what I think I do in a desperate attempt to resurrect our relationship is put forward for the last and final time our prices for Tesco for the BTS event.

No discussions as I think any discussions we have had although the with the right intentions have been destructive because there has been too many movements and everyone has been hanging on to the past which has been wrong.

We just want a quick answer then we can get onto even bigger things or move into the mad scramble.

I understand email not the best format and you probably read this thinking what an arsehole Not my intention or even to point score. I genuinely what [sic] this to work. Need to get this somewhere then bury the hatchet and start fresh.

[1910]

Euromark submitted that the Affirmation Representations were false because, at the time of making them, Smash was not performing, and did not intend to be bound by, the Agreement as Smash continued to engage in the Solicitation Conduct at and after those times. Euromark submitted that, to the extent the Affirmation Representations were representations as to Smash's future performance or intentions, there were no reasonable grounds for such future performance or intentions, relying upon s 4 of the ACL.
Euromark submitted that in a material non-disclosure case such as this, reliance takes on a different complexion: causation is found where it is established that disclosure would have caused action different from the action that was in fact taken.[156] Euromark submitted that, in reliance upon the Affirmation Representations, Euromark continued to perform its obligations under the Agreement, and did not take any steps either to terminate the Agreement earlier than it did or to mitigate its loss resulting from the Solicitation Conduct. Euromark submitted that it would have transferred its resources in sales to focus on non-Smash products in sufficient time for Euromark to generate sales revenue in a critical time of the sales cycle.
Euromark acknowledged, consistent with the evidence of Mr Harrison, that if the Agreement had been terminated in early December 2012, it was likely to have been too late to save Euromark. However, Euromark submitted that it was not impossible to save the business of Euromark. Euromark submitted that Mr Harrison and Euromark would have been trying 'with every ounce of our strength'[157] to secure orders for the 2013 BTS season. In this regard, Euromark noted that in mid-December 2010 Tesco selected Smash products for the 2011 BTS season, relying by way of example on the email from Ms Chopra of Tesco to Mr Malone dated 15 December 2010. In any event, Euromark submitted that it was entitled to loss of goodwill as assessed in Mr Blashki's third report.
As to the liability of Mr Harbinson and Mr Malone, Euromark submitted that they:

[1925]

Smash submitted that the evidence establishes that Mr Malone and Mr Harbinson were genuine in their intention that Smash intended to be bound by the Agreement.
Smash noted that Euromark contended that the Affirmation Representations were false because Smash continued to engage in the Solicitation Conduct after the Affirmation Representations were made. Smash submitted that it ceased soliciting all retailers by 3 December 2012 other than Tesco and Sainsbury's. It submitted that the position of these retailers was complicated because, by early December 2012, those retailers had informed Smash they no longer wished to deal with Euromark.
As to Tesco, as noted above, Smash submitted that on or about 13 December 2012, Ms Hill told Mr Malone she was unwilling to deal with Euromark moving forward. Ms Hill also conveyed this to Mr Harrison on 12 December 2012. From this point, Smash negotiated with Tesco for the direct supply of Smash products on the basis that it was permitted to do so by cl 3.1 the Agreement. Smash submitted that this was a bona fide belief that Euromark indicated to Smash and Tesco that it shared. Smash submitted that, rather than establishing the falsity of the Affirmation Representations, this conduct established their truth.
In respect of Sainsbury's, Smash relied upon the conversation between Mr Malone and Ms Wang on 14 December 2012, in which she told him that she did not wish to deal with Euromark and then he told her there was a clause in the Agreement that allowed for UK retailers to obtain Smash products directly from Smash. Smash submitted that, at this time, Mr Malone believed that Mr Harbinson was negotiating with Euromark in respect of the percentage of sales to be paid to Euromark in respect of any direct sales by Smash to UK retailers. Once again, it submitted this conduct established the truth of the Affirmation Representations, rather than the falsity.
Further, Smash submitted that Euromark did not rely upon any representations in the 3 December 2012 letters. Smash noted that Euromark responded to these letters with scathing attack on the conduct and moral character of Smash and its officers and employees. It submitted that, in the face of these letters, the Court should not accept Mr Harrison's evidence that Smash relied upon either of the Affirmation Representations. In this context, Smash submitted that the contemporaneous documents did not indicate that Euromark delayed its decision to terminate the Agreement by reason of Smash having made either of the Affirmation Representations.
Finally, Smash submitted that, even if Euromark had delayed its decision to terminate as a result of the Affirmation Representations, on Mr Harrison's own evidence, Euromark's position would not have improved if it had terminated the Agreement either immediately on or after 3 December or 11 December 2012.
As to any alleged misleading and deceptive conduct by Mr Harbinson and Mr Malone, or involvement by them in Smash's misleading or deceptive conduct, Smash submitted it is necessary for Euromark to prove its allegations in respect of each individual. It submitted that Euromark had not done so.

[1953]

I have concluded that, in the all the circumstances, the Affirmation Representations were misleading or deceptive or likely to mislead or deceive. This is because they conveyed that Smash was performing and intended to be bound by the terms of the Agreement. For the reasons that follow, that was false.
Of course, the fact that a promise turns out to be false or a statement of intention subsequently changes does not mean that conduct is misleading and deceptive or likely to mislead or deceive. However, it is important to consider the context in which the Affirmation Representations were made, namely the conduct of Smash since 22 October 2012. Relevantly, that included the purported termination of the Agreement and Euromark's response thereto, and the direct contact made by Smash with UK retailers in an attempt to encourage or procure them to purchase Smash products directly from Smash.
Based on my findings in sections 11.1 and 11.2, at the time of sending the 3 December 2012 letter and the 11 December 2012 letter, Smash was taking steps to secure orders for products directly from Tesco without informing Euromark, including by encouraging or procuring them to purchase Smash products directly and/or to be unwilling to conduct business with Euromark. I refer in particular to the conduct referred to at [893(1)] and [893(2)] above. Indeed, on the day that the 11 December 2012 letter was sent, Smash was pursuing further details from Tesco to enable direct supply by the 11 December 2012 EDI email. As set out in section 16.5.2, I have concluded that by reason of this conduct in relation to Tesco, Smash breached cl 3.1 or the good faith obligation in cl 8.2 of the Agreement.
In my view, this conduct rendered the Affirmation Representations, in so far as they conveyed that Smash was performing the Agreement, misleading or deceptive or likely to mislead or deceive. Further, as set out in sections 11.1 and 11.2, I do not accept the evidence of Mr Harbinson or Mr Malone that each intended to be bound by the terms of the Agreement at the time the December 2012 letters were sent. Smash's conduct from 3 December 2012 to 23 December 2012 reveals that, at the time of sending the December 2012 letters, Smash did not intend to be bound by the terms of the Agreement. I refer to the conduct set out at [893(3)-(5)] above. Further, as set out at [610], Mr Harbinson agreed that he did not intend to stop arranging direct supplies between Smash and those retailers which had been and were being arranged by Mr Malone under his direction at the time the 3 December 2012 letter was sent. In these circumstances, I am also satisfied that the Affirmation Representations, in so far as they represented that Smash intended to be bound by the terms of the Agreement, were also misleading or deceptive or likely to mislead or deceive.
Smash took steps to secure orders for products from Sainsbury's without informing Euromark at the time of and after sending the December 2012 letters. I refer to [894] above. While I have not found this conduct to be in breach of the Agreement for the reasons set out at [974]-[976] above, I consider that this conduct is relevant to the falsity of the Affirmation Representations. It reinforces that Smash was taking steps to secure orders for products directly from Euromark's retail accounts without informing Euromark. Indeed, the meeting between Smash and Sainsbury's for 14 December 2012 was proposed on the day the 11 December 2012 letter was sent, and before Smash sent the email to Sainsbury's which attached the 10 December 2012 customer letter referred to at [894(1)] above.
To the extent that I have found the Affirmation Representations convey representations of future intention, as noted above, Euromark relied upon s 4 of the ACL. That defence was not raised by Smash in its defence. However, as noted above, Smash submitted that those representations were true as the evidence of Mr Harbinson and Mr Malone and the contemporaneous documents demonstrate that, by 3 December 2012, Smash had determined that it would need to continue to use Euromark as its exclusive distributor pursuant to the terms of the Agreement. Further, it submitted that Smash was entitled to deal with Tesco and Sainsbury's as it did pursuant to cl 3.1 of the Agreement after that time, or that Smash had a bona fide belief that it was entitled to do so.
Smash relied upon Mr Harbinson's email dated 3 December 2012. However, as set out at [613], both the email and Mr Harbinson's evidence about it were far from clear. Mr Harbinson said he was trying to reach an agreement with Mr Harrison (option A), but that if no agreement could be reached he would proceed with supplying UK retailers directly (option B). Further, I refer to my comments at [610]-[618] above. In these circumstances, I am not satisfied that the email supports the conclusion that Smash was or would be intending to comply with the terms of the Agreement as they then were.
Smash also relied upon the fact that Smash continued to deal with Tesco and Sainsbury's on the basis that cl 3.1 of the Agreement permitted them to do so, or that Smash had a bona fide belief that it was entitled to do so. I understood this to be on the basis that there was thus reasonable grounds for Smash to form the opinion that cl 3.1 permitted them to do so. First, I have concluded that cl 3.1 or cl 8.2 did not entitle Smash to encourage or solicit retail accounts to be unwilling to conduct business with Euromark, or to take steps to distribute Products in the UK to a retail account who was unwilling to conduct business with Euromark without consulting Euromark, including by soliciting or encouraging Euromark's customers to obtain direct supply. Second, for the reasons set out at [977]-[989], the bona fide belief was not established on the evidence before me.
For completeness, I am also conscious that I have found that Smash knew of Tesco's decision prior to making the Affirmation Representations. I have considered whether it is appropriate that I should have regard to this fact in dealing with the falsity of the Affirmation Representations. On balance, substantially for the reasons set out in [1274] above, I have concluded that I should not. However, I will consider further Smash's failure to disclose Tesco's decision in the context of issues 24 and 25.
As a result of this analysis, the answer to Issue 21 is 'Yes'.

[1955]

This issue was framed in light of the allegations in the statement of claim that 'induced by and in reliance on' each of the Affirmation Representations, Euromark did not terminate the Agreement in early December 2012 and did not take steps it would have taken in early December 2012, but for those representations, to mitigate Euromark's loss. However, as refined in argument, Euromark submitted that in cases of material non-disclosure, the requirement of causation may be met if 'disclosure would have caused inaction or action other than that which was taken'.[173]
As set out above, the relevant question is whether there is a sufficient connection between the relevant conduct and the damage suffered for the latter to be regarded as 'because of' the former. Given that its claim involved non-disclosure, the relevant issue then is whether Euromark has satisfied me that, if Smash had disclosed that it did not intend to be bound by the Agreement and was continuing to contact Euromark's customers directly, Euromark would have taken other action, namely to terminate the Agreement in early December 2012.
I have found the determination of this issue a difficult one. I have had regard to the fact that on 6 December 2012, Michael Harrison of Euromark sent a letter to Tesco noting that he was 'pleased to say that Smash's lawyers have finally written to us ... withdrawing all of Smash's claims against Euromark'. That letter also stated that Euromark had written back 'seeking clarification of the terms on which [Euromark] can continue to supply Smash products' and Euromark was doing 'everything we can to re-instigate the supply arrangements'. There is also the letter from Euromark to EKM dated 18 December 2012 referred to at [660], which referred to the 'shared objective of both parties'.
Further, there is the oral evidence of Mr Harrison that he was relieved to receive the 3 December 2012 and the 11 December 2012 letters and in fact relied upon them. However, Mr Harrison also gave evidence that once he found out that Tesco had not received the 10 December 2012 customer letter, he became suspicious of Smash. This documentary and oral evidence would suggest that Euromark in fact relied upon the 3 December 2012 letter and the 11 December 2012 letter, and did not terminate the Agreement as a consequence.
However, the tone of the majority of the correspondence of Euromark after the 3 December 2012 and the 11 December 2012 letters causes me to doubt that Euromark would have acted in that way. I am conscious however that, as noted above, I do not have all correspondence passing between EKM and Euromark after the 3 December 2012 letter, in particular, Euromark's letter dated 10 December 2012.
Euromark's 12 December 2012 letter in response to the 11 December 2012 letter is inconsistent with any suggestion that Euromark was accepting or acting upon any statements in the 11 December 2012 letter to the effect that Smash would continue to honour its obligations under the Agreement. Indeed, as set out in section 11.2, Euromark:

[1960]

In addition, there is the evidence, contained in Michael Harrison's email to Tesco dated 14 December 2012, that Ms Hill informed Mr Harrison that Tesco and Smash remained in direct discussions and that Tesco intended to purchase Smash products directly from Smash. It is significant that this information did not cause Euromark to terminate the Agreement at that time.
On balance, I have concluded that Euromark would not have terminated the Agreement in early December 2012 had it been informed that Smash was not performing the Agreement by continuing to deal directly with UK retailers to encourage or solicit them to purchase Smash products from Smash directly on and from 3 December 2012.
This is because I have formed the view that, during this period, Euromark, and Mr Harrison in particular, had lost faith in Smash and considered that Smash had 'abused the terms of [the Agreement], and it continue[d] to do so'. This is most evident from the 12 December 2012 letter. However, notwithstanding this, Euromark chose not to terminate the Agreement at this time.
Further, as set out above, Euromark was aware of this direct contact in October and November 2012, but chose not to terminate the Agreement. Further, even when Euromark was informed by Tesco on 12 December 2012 that Smash was continuing to deal with Tesco directly, and that Tesco intended to purchase Smash products directly from Smash, Euromark did not terminate the Agreement. Rather, Euromark attempted in the 14 December 2012 letter to re-establish relations with Tesco. No doubt this was for commercial reasons given that Tesco was Euromark's major customer.
However, it would appear that when Tesco informed Euromark again on 18 December 2012 that Tesco intended to purchase Smash products directly from Smash, Euromark adopted a different position with Tesco. This is evident from the letter from Michael Harrison to Mr Finch of Tesco dated 19 December 2012 set out at [661] above. Further, Tesco replied on that date noting that Tesco's legal advice was that Euromark could not stop Tesco dealing with Smash directly. Based upon my review of the evidence it would appear that, in light of this emphatic rejection of any limitation of Tesco's rights to deal with Smash directly, Euromark determined to rely upon the breaches by Smash to terminate the Agreement shortly after this time.
For completeness, I am not satisfied that, if Euromark was aware at the time of each of the December 2012 letters that Smash was continuing to deal with UK retailers directly, Euromark would have terminated the Agreement. Euromark was aware this conduct was continuing on 12 December 2012, but chose not to terminate the Agreement.
By contrast, I am conscious that, if Euromark had been informed of the full nature and extent of the Solicitation Conduct up to 3 December 2012 in early December 2012 and in particular Tesco's decision, it would have terminated the Agreement at about that time. Indeed, Mr Harrison gave evidence, which I accept, that he would have terminated the Agreement if he had been aware that Smash and Tesco had been discussing pricing. On the evidence before me, Tesco and Smash were discussing pricing by mid-November 2012, as set out at [562] above. However, as noted at [1274] above, the failure to inform Euromark of the Solicitation Conduct up to 3 December 2012 is not an element of the Affirmation Representation allegations. As a result, I have not had regard to it in determining whether the Affirmation Representations were misleading, or whether Euromark relied upon them.
In all these circumstances, Euromark has not satisfied me that, even if Smash's direct dealings with Tesco and Sainsbury's on and after 3 December 2012 had been disclosed, Euromark would have terminated the Agreement earlier than it did.
As a result of this analysis, the answer to Issue 22 is 'No'.

[2015]

In our view, putting aside the differing views as to the facts of the case, the issue of principle as to the content of the statutory standard to be applied in assessing whether conduct is, in all the circumstances, unconscionable within the meaning of s 12CB(1) of the ASIC Act is that stated by Gageler, Nettle, Gordon and Edelman JJ. In summary, although only Gageler J was in the majority - and thus the consistent statements of the four judges represent obiter dicta - it is dicta which has obviously been seriously considered and should be followed and applied by this Court until the High Court says otherwise. The applicable standard is a normative one involving the evaluation of whether the conduct in question is 'so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience'; in the sense that a court should only take the serious step of denouncing conduct as unconscionable when it is satisfied that the conduct is 'offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society'. The evaluation exercise is informed by the non-exhaustive list of factors in s 12CC.

As previously noted, before the decision in Kobelt, intermediate appellate authority was to the effect that there could be no statutory unconscionable conduct within the meaning of legislation such as s 12CB unless a 'high level of moral obloquy' or other 'moral taint' was established. Further, before rejecting this terminology, Gageler J himself had accepted it as a governing criterion in Paciocco. ... we accept that the effect of Kobelt is that the previously accepted arcane terminology of 'moral obloquy' should no longer be used. But the requirement that the conduct in question be 'so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience' should still be understood as requiring an evaluative judgment as to the morality of the allegedly unconscionable behaviour.

[...]

However, it is important to note the statement of this Court in Schmidt that:

little is to be gained by a close factual analysis of the myriad of cases that have considered whether particular conduct was unconscionable. Whilst there are sometimes factual similarities between the cases, inevitably there are differences. Similarly, we do not find it of assistance to consider whether conduct is unconscionable simply because of the type of lending that is involved, for example, asset based lending. Rather, the task requires a more synthesised approach which takes into account all of the facts relevant to the impugned conduct and determines whether, in all the circumstances, that particular conduct is unconscionable. [184]

[2022]

There are a number of factors to take into account in relation to these findings relevant to the determination of Issue 24.
First, I have concluded that Smash decided to unilaterally terminate the Agreement from about mid-October 2012. It knew on 22 October 2012 that Euromark did not agree to a mutual termination of the Agreement. It nevertheless sent the 26 October 2012 letter purporting to terminate the Agreement unilaterally. I refer to my comments at [446]-[449] above. In these circumstances, I have concluded that Smash purported to terminate the Agreement without regard to Euromark's contractual rights.
Second, and related to the first point, Smash's purported termination was not withdrawn until 3 December 2012. While the 11 December 2012 letter stated that Smash believed that it was 'legally able to terminate the Agreement' in October 2012, the basis for that belief was not made plain in that letter or in the evidence before me. Further, as set out at [450]-[451] above, I have concluded that a motivating factor in Smash's purported termination was that Smash thought it could make more money from its own direct sales of Smash products in the UK.
Third, and as a consequence of the purported termination, Smash asserted to Euromark's customers from late October 2012 that its Agreement and relationship with Euromark was at end. This gave Smash the opportunity to encourage or procure them to deal directly with Smash, i.e. to engage in the Solicitation Conduct. Smash continued to do so at least until the 3 December 2012 letter. Smash did so notwithstanding the requested undertakings until at least 3 December 2012.
Fourth, there is the nature and extent of the direct contact with Euromark's UK customers. That contact was extensive. I refer to sections 10.2, 10.4, 10.6, 10.9 and 15.2.1 above. As summarised in section 15.2.1, Smash contacted many UK customers of Euromark during the period to 3 December 2012, including Tesco, ASDA, Sainsbury's, Wilkinsons, Morrisons and others, asserting that the relationship with Euromark was at an end and took steps to secure direct supply from them.
In particular, Smash pursued Tesco. Tesco was, to Smash's knowledge, the major customer at the time of both Euromark and of Smash products in the UK. Indeed, the significance of the Tesco account to Smash is evident from the number and nature of the communications between Smash and Tesco in late October and November 2012. I refer by way of example to the preparation and provision of the three November 2012 presentations provided by Smash to Tesco in November 2012. This is quite apart from the internal Smash communications during this period seeking to secure the supply of products directly to Tesco. In addition, there was the desire of Smash to obtain the new supplier form details from Tesco and related information to become a direct supplier to Tesco.
Fifth, Smash did inform Euromark in late October 2012 that it would be 'taking steps to make our own appointments with customers' in light of its purported termination. Indeed, in his 29 October 2012 email referred to at [457]-[458] above, Mr Harbinson made plain that, regardless how the Agreement was to be terminated, Smash would be contacting customers direct and that 'Euromark can no longer sell the Smash or related Brands'.
However, Smash did not disclose the nature and extent of its direct contacts to Euromark in November 2012, or at the time of the December 2012 letters when it withdrew its purported termination of the Agreement (including its dealings at that time with Tesco and Sainsbury's as set out at [893]-[894]). Further, as set out in section 15.2.2, I have formed the viewed that, as a result of the dealings between Smash and Tesco in November 2012, Smash was informed of Tesco's decision before the December 2012 letters were sent, and most likely by mid-November 2012. Indeed, as set out at [906] above, I have formed the view that Smash's withdrawal of its purported termination was likely to have been a result of Tesco's decision. On the evidence before me, the failure to disclose the nature and extent of these contacts was a deliberate and conscious decision on the part of Smash. I refer to my comments at [1049] and [1053] above.
Sixth, and related to the fifth point, by the December 2012 letters, Smash conveyed that it was performing and intended to be bound by the Agreement. For the reasons set out at [1287], to the knowledge of Smash that was false. Further, by the 11 December 2012 letter, Smash enclosed the 10 December 2012 customer letters (including to Tesco) and noted, consistent with the Affirmation Representations, that the 10 December 2012 customer letters 'confirms that Euromark remains the exclusive UK distributor of Smash products' and that those customers were directed 'to ensure that future orders of Smash products are placed directly with Euromark'. I have concluded that these statements, relevantly in the context of the 10 December 2012 customer letter to Tesco, conveyed that Tesco would continue to place orders with Euromark. To Smash's knowledge, based on Tesco's decision, that was not true or at the very least was deliberately misleading.
Even if Smash was not informed of Tesco's decision in unequivocal terms by this time, Smash firmly believed before sending the December 2012 letters that Tesco would be unwilling to conduct business with Euromark and there was no real prospect that Tesco would change its mind. Nevertheless, Smash sent the December 2012 letters without disclosing this belief or the full nature and extent of its direct contacts with Euromark's customers (including Tesco and Sainsbury's) up to the time those letters were sent.
Seventh, Smash was aware of the consequence and impact of Smash making direct approaches to UK retail accounts and, in particular, Euromark customers. As Mr Harbinson conceded, Smash's conduct put Euromark in an impossible situation where it could not arrange Smash sales for the 2013 BTS season. Further, he conceded that direct approaches would have the effect of cementing Smash's relationship with UK retailers so that there was no way for Euromark to recover. I refer to [459]-[460] and [958]-[959] above. Indeed, I have concluded that this result was the intended consequence of Smash's conduct. Further, and in any event, it was a foreseeable consequence of that conduct.
Of course, the intended consequence in fact materialised, at least in the case of Tesco and Sainsbury's.
The conduct of Smash that I have referred to in this section in contacting customers directly from late October to 3 December 2012, and after 3 December 2012 in the case of Tesco, is also conduct which constituted a breach of cl 3.1 and/or the good faith obligation in cl 8.2 of the Agreement. I refer to section 16.3 above.
In all these circumstances, I have formed the view that Smash engaged in unconscionable conduct within s 21 of the ACL. In short, I consider the conduct of Smash was against conscience: it was 'far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience'.
This is because both the purported termination and the plan for direct contact by means of the Solicitation Conduct was undertaken intentionally and without regard to Euromark's rights. This conduct was undertaken with the intended consequence that the customers Smash had contacted directly would not return to Euromark. It was deliberately not disclosed by Smash to Euromark at the time.
Further, when Smash withdrew its purported termination, it failed to disclose the full nature and extent of its direct dealings with Euromark's customers, in particular Tesco's decision. I have concluded that it did so deliberately, consistent with its attitude since late October 2012. Further, and in this context, Smash sent the 11 December 2012 letter attaching the 10 December 2012 customer letters which, at least in the case of Tesco, conveyed that Tesco would continue to place orders with Euromark. To Smash's knowledge, based on Tesco's decision, that was not true or at the very least was deliberately misleading.
I wish to emphasise the significant disadvantage under which Euromark was labouring during this period because Smash did not disclose the full nature and extent of Smash's dealing with its customers, coupled with representations that Smash would perform its obligations under the Agreement and that it was directing Euromark's customers to order direct from Smash. I acknowledge that it is not generally unconscionable for a party not to disclose the full extent of its breaches of contract. However, it is a different matter when there is non-disclosure of key matters and positive statements are made regarding present or future conduct under the contract which are knowingly false or deliberately misleading. In this case, Smash's conduct deliberately affected Euromark's ability to make informed decisions about its contractual rights.
In my view, this conduct was not consistent with the requirements of honest and fair dealing: it was unethical and fell outside societal norms of acceptable commercial behaviour.
Further, I have concluded that Smash's conduct after the 11 December 2012 letter was sent, in failing to disclose the full nature and extent of its continued dealings with Tesco and Sainsbury's, was also not consistent with the requirements of honest and fair dealing. For the reasons set out at [1288], I consider it is appropriate to have regard to Smash's dealings with Sainsbury's in my consideration of whether Smash contravened s 21 of the ACL notwithstanding that I have found this conduct not to be in breach of the Agreement. In this regard, I have concluded that Smash continued to contact Tesco and Sainsbury's, taking steps to secure orders for Smash products directly from Smash without informing Euromark, including by offering an indemnity to each of Tesco and Sainsbury's. I refer to my comments in section 15.2.2 above, in particular at [893]-[894]. This conduct is particularly egregious in light of the Affirmation Representations in the December 2012 letters.
For completeness, in reaching my conclusion that Smash engaged in conduct that was, in all the circumstances, unconscionable I have also considered the various factors in s 22 the ACL. Many of them do not have direct application to these circumstances. However, some of those factors appear relevant in the circumstances set out above. They include:

[2080]

Euromark submitted that, following Smash's purported termination of the Agreement, Tesco refused to take stock ordered by Euromark from Smash for the 2012 A/W season. Subsequently, in early 2013, Tesco agreed to take some of the stock and the balance was sold at a loss to third parties. It submitted that the loss on this stock was a result of Smash's repudiatory breaches of the Agreement.
Smash submitted that Euromark had not proved that Tesco did not take up the stock because of any breach by Smash of the Agreement. This is in circumstances where Mr Harrison accepted that there were a range of reasons why a retailer might not accept stock.[193] Further, it submitted that Tesco's reluctance to take up the stock may have been caused by the manner in which Euromark treated Tesco in November and December 2012. As a result, the Court cannot infer any loss suffered was causally related to any breach.
There was limited oral evidence about this claim from Mr Harrison, in particular, he did not give evidence as to the reason why Tesco would not agree to accept delivery of all of the stock which had been ordered. However, based on the documentary evidence referred to in section 12.2 above and, in particular, at [738], and the time at which Tesco's unwillingness to agree to accept delivery took place in light of the dealings between Smash, Euromark and Tesco, I infer that Tesco's unwillingness to take part of the stock it had ordered was a result of Smash's purported termination of the Agreement and/or its failure to guarantee ongoing supply of Smash products, i.e. to provide the requested undertakings. Both were clear breaches of the Agreement.
As to the loss suffered by Euromark, I refer to section 12.2 above and, in particular, at [740]. As noted in that paragraph, the stock that Tesco did not purchase was sold to TK Maxx, a clearance house, and a company called Clear at prices that were substantially less than Tesco had agreed to pay. Mr Harrison calculated the lost sales value at £15,552 with warehousing and financing costs of approximately £4,000.
I have concluded that the lost profit suffered by Euromark is the loss calculated by Mr Blashki in his first report in the sum of £9,877. This comprises:

[2088]

Euromark submitted that it was entitled to damages under s 236 of the ACL on the basis that, if Smash had disclosed the conduct that was the subject of the contraventions of the ACL, Euromark would have terminated the Agreement earlier than it did. As a result, Euromark would have transferred its resources and sales focus to non-Smash products in sufficient time for Euromark to generate sales revenue in the critical time of the presentation or selling stage for the 2013 BTS season.
As is evident, Euromark's counterfactual depends upon the nature and timing of the contraventions in fact found. In evidence and in submissions, Euromark focused on what would have happened if the Planning Conduct (which was the first in time) had not occurred. I will deal with the significance of this further below.
Euromark relied upon Mr Blashki's third report, which considered Euromark's loss of profit and loss of goodwill given that Euromark ceased trading. He assessed Euromark's loss of profit for FY 2013 as between £152,000 and £157,000, and for FY 2014 as between £612,000 and £673,000. He assessed Euromark's loss of goodwill as between £640,000 and £890,000.
These assessments were based upon a number of assumptions, many of which were challenged by Smash. Most relevantly, Mr Blashki's assessment proceeded on the basis that all of the alleged contraventions were established, including the Planning Conduct. In addition, it took into account Mr Harrison's estimated range of projected sales revenue of Euromark for FY 2013 and FY 2014 on a worst or 'base case', 'mid case' and 'best case' scenario. It also took into account Mr Harrison's estimated projected expenses for those years (collectively, the 'Harrison projections'). Euromark submitted that Mr Harrison's experience in the industry meant that there was a proper basis for the Harrison projections.
As to goodwill, Euromark submitted that it operated as a viable business until sales dramatically fell as a consequence of Smash's contraventions of the ACL. Euromark submitted in relation to Tesco that Smash's contraventions caused Tesco to cease dealing with Euromark. It submitted that this occurred in late October 2012 when the Solicitation Conduct commenced.
Smash disputed that Euromark had established its entitlement to damages under the ACL. First, Smash noted that Euromark's claim was based on the Planning Conduct being established. It submitted that the later the contravention found, the less likely it was for Euromark to generate sales revenue for FY 2013 given the time of the presentation or selling stage for the BTS season.
Second, Smash submitted that there was no proper evidential basis for the Harrison projections relied upon by Mr Blashki at paragraphs [2.1.5]-[2.1.7] of his third report. Smash noted that the Harrison projections were a summary prepared by Mr Harrison for the purpose of this proceeding. It submitted that:

[2098]

Thus, it is clear that an inability to quantify precisely the loss or damage incurred is not a bar to damages being awarded, provided the quantification is given with as much certainty as is reasonable in the circumstances.
Third, as noted above, Smash submitted that the factual assumptions upon which Mr Blashki based his report were not proved at trial and that, as a result, Mr Blashki's opinion is not admissible.[199] This was not the subject of detailed submission from Euromark.
There has been some controversy in relation to what is called the basis rule: where the bases or assumptions or the expert's opinion are not proved to the satisfaction of the Court. The issue is whether the expert evidence is inadmissible or whether it goes to weight.
The relevant assumption may relate to a factual matter (the 'factual basis rule') or a matter relating to the expert's specialised knowledge (the 'expertise basis rule'). The latter case was the subject of the analysis of the High Court in Dasreef Pty Limited v Hawchar ('Dasreef')[200]. The majority (French CJ, Hayne, Crennan, Keifel and Bell JJ) concluded that the question of whether the basis rule formed part of the common law did not need to be determined.[201] The majority determined the issue by reference to s 79 of the Evidence Act 1995 (NSW) ('NSW Evidence Act'). By contrast, Heydon J determined that the basis rule (including the factual basis rule) was part of the common law, that unless it was satisfied the expert evidence was inadmissible, and that it continued to apply notwithstanding s 79 of the NSW Evidence Act.
The effect of Dasreef was considered in this Court by Dixon J in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3) ('Dura')'.[202] His Honour concluded that the majority in Dasreef did not consider the factual basis rule, and that the dicta of Heydon J in relation to the factual basis rule was still relevant to determining admissibility under s 79 of the Act. His Honour concluded that if the expert opinion is based upon facts which must be otherwise proved by the party calling the expert, the court must ask 'is there evidence admitted, or to be admitted before the end of the tendering party's case, capable of proving matters sufficiently similar to the assumptions made by the expert'.[203] With respect, I agree with his Honour's analysis.

[2099]

Before turning to the quantification of loss, it is necessary to consider whether Euromark has suffered loss as a result of the ACL contraventions that I have found, and the basis upon which any such loss is to be determined.
Mr Harrison gave evidence to the effect that, if he had been aware of the alleged breaches of the Agreement or the alleged conduct in breach of the ACL, Euromark would have terminated the Agreement earlier, and would have made arrangements for the sale of alternative products instead of Smash products.
Further, Mr Harrison said he would have focussed on the top six customers of Euromark, the key customer being Tesco which accounted for 40% of Euromark's sales. He said that he would have tried to focus on the business that Euromark let go in 2011 and 2012, namely baby products. As noted in sections 4.1, 4.3, 5.1 and 5.2, I have concluded that Euromark was involved in the sale of a variety of houseware consumer products at about the time of entering into the Agreement, including tableware products, baby feeding products and BTS products. Mr Harrison did not give evidence about how he would have re-focused the business in that way or how long this would have taken.
Given that the alleged breaches and contraventions occurred over a period of time, Mr Harrison gave evidence about the effect of termination of the Agreement at different times in 2012. Indeed, he set out three different scenarios in the Cycle chart. The first scenario assumed termination in May or June 2012 ('scenario 1'). The second scenario assumed termination in July or August 2012 ('scenario 2'). The third scenario assumed termination between September and December 2012 ('scenario 3').
Each scenario was premised on the basis that, if Euromark as aware of the relevant alleged breaches or contraventions, Euromark would have terminated the Agreement at about that time. For example, and relevantly, scenarios 1 and 2 proceeded on the assumption that the Planning Conduct occurred. Scenario 3 proceeded on the assumption that all the relevant contraventions of the ACL took place. Of course, different aspects of the alleged contraventions took place at different times. This was also the subject of some evidence. In light of my findings on the ACL contravention issues, the relevant evidence relates to scenario 3.
Scenario 3 assumes that the Agreement was terminated in September, October, November or December 2012. This would include termination of the Agreement based on disclosure of the Planning Conduct and the Solicitation Conduct, and the falsity of the Performance Representation and the Affirmation Representations. Mr Harrison acknowledged in his evidence that termination during this scenario 3 period would have covered the presentation phase for the 2013 BTS season. As a result, he said that the effect of the time at which the Agreement was terminated within the scenario 3 period was like a 'sliding scale'. He continued:

[2103]

In cross-examination, he was asked if he stood by this answer. He replied: 'Almost certainly, but not impossible. We were trying with every ounce of our strength'.[206]
As noted in section 4.4, I have concluded that the presentation phase of the BTS season ran for two months, and started as early as September or as late as early to mid-October. Thus, for the 2013 BTS season, the presentation phase would have been completed, at the latest, by mid-December 2012. Further, as noted in the Cycle chart, approximately 80% of all BTS sales for the year were made during the BTS season.
As set out above, I have concluded that if Euromark had been informed of the full nature and extent of the Solicitation Conduct, Euromark would have terminated the Agreement. In particular, I accept that if Euromark had been aware that Smash and Tesco had discussed pricing in mid-November 2012, it would have terminated the Agreement. However, that conduct by itself is not the conduct that I have concluded is unconscionable. Rather, and relevantly, the unconscionable conduct took place over a period of time culminating in Smash sending the 11 December 2012 letter. As a result, I consider that it is only appropriate that I have regard to what Euromark would have done had it been informed of the full nature and extent of Smash's dealings with UK customers at about this time, namely 11 December 2012.
By this time, based on the evidence of Mr Harrison, I have formed the view that it was almost impossible for Euromark to redirect the focus of the business from Smash products, including to baby products, in order to make sales, other than the sales Euromark in fact made for the 2013 BTS season after Euromark terminated the Agreement on 23 December 2012. That is to say, I do not think that it would have been realistically possible for Euromark to have done anything different for FY 2013 if it had been informed of the last element of the unconscionable conduct on or about 11 December 2012.
In making this finding, I am aware that Euromark referred to the fact that Euromark arranged sales of Smash products to Tesco after mid-December 2010. I refer to section 5.1 above. However, I do not accept that this is a proper comparison. Smash already had a relationship with Tesco and had a range of products in Tesco stores. More significantly, Smash had a range of products ready to offer at that time. By contrast, the evidence of Mr Harrison was that he would have to re-focus the products offered by Euromark at the time of termination. Further, to the extent that it might have been suggested that Zoom products could have been sold in the BTS category, as set out at [553], Tesco indicated in mid-November 2012 that it did not wish to take up the Zoom products as they 'are new to our business and do not have proven sales history to date compared to the Smash range'. I have no reason to doubt the accuracy of that statement.
Further, in making this finding, it is significant that Euromark did not make any submission as to the percentage chance of achieving greater sales in FY 2013 if the decision to terminate had been made in early or mid-December 2012.
Finally, I note that this finding is consistent with the conclusion of Mr Blashki in paragraph [2.1.4] of his third report, where he noted that, having regard to the fact that over 80% of the BTS sales were undertaken during the BTS season, he considered that Euromark's projected FY 2013 sales revenue should be based on the actual FY 2013 sales revenue.
As to what would have occurred in FY 2014, Euromark's ACL damages claim proceeds on the basis that there would have been increased sales revenue. However, Euromark did not submit that, in the event I was not satisfied that Euromark could have re-focussed its business in sufficient time for the 2013 BTS season if it had been informed of the unconscionable conduct in early to mid-December 2012, Euromark would nonetheless have been able to re-focus its business for FY 2014. Rather, Euromark submitted that, if I formed the view that the contravention of the ACL took place in early to mid-December 2012, Euromark's damages was the loss of its business as a result of which it was entitled to loss of goodwill.[207] In light of my finding at [1440] and the submissions of Euromark, it is therefore not necessary to determine what would have occurred in FY 2014.
However, there is one further issue I wish to address at this time: Euromark's relationship with Tesco.
Mr Harrison gave evidence, in substance, that by reason of the conduct of Smash from mid-October 2012, Euromark's relationship with Tesco (for some time Euromark's largest client) came to an end by late 2012. Indeed, he gave evidence that Tesco's unwillingness to buy from Euromark was catastrophic. Further, he said that Tesco's unwillingness to buy from Euromark undermined its credibility with its other major customers as a result of which the business of Euromark was wound up.
These statements are consistent with the financial statements of Euromark for FY 2013 and FY 2014. They record a significant reduction in sales between FY 2013 and FY 2014. They also record a net profit of £106,290 in FY 2013 compared to a net loss of £177,719 in FY 2014. The relevant details are:

[2120]

These documents were tendered on the basis that they were a record of the information provided to Mr Blashki, not of the truth of their content. However, I am satisfied that, in so far as these documents contain information relating to actual performance of Euromark in the relevant years, that information is fairly drawn from the financial statements of Euromark. Further, notwithstanding the submissions of Smash, I consider that Mr Harrison prepared these documents using his experience and skill in the marketing and sale of BTS and related products. I will deal with this issue further below.
I note that Mr Blashki was informed for the first time in cross-examination that these projections were prepared for the purpose of this proceeding. Mr Blashki acknowledged that it is appropriate to place less weight on projections prepared after the fact. When asked whether, assuming that the projections were prepared for the purpose of Euromark's claim against Smash, Mr Blashki should have placed any weight on them, Mr Blashki agreed he should not have.[208] However, I have only had regard to Mr Blashki's third report in so far as it relies upon the actual figures for FY 2011 and the 'base case' projected increase for FY 2014, which I will explain further below. In these circumstances, I have admitted Mr Blashki's report into evidence.
Further, as is evident from the preceding paragraphs, Mr Blashki had regard to the FY 2013 and FY 2014 year for the purposes of calculating future maintainable earnings. I have considered whether it is appropriate for Mr Blashki to have had regard to both these years in light of the matters set out at [1451] above. I note that this issue was not raised with Mr Blashki in cross-examination or by Smash in the course of submissions. In these circumstances, and notwithstanding that I have some reservations, I have determined to consider the valuation of goodwill having regard to FY 2013 and FY 2014. However, I will address the consequence of doing so later in these reasons.

[2121]

As to the Harrison sales projection, Mr Harrison gave evidence that he used the actual FY 2011 sales revenue (£2,329,000) as the base case for the FY 2013 projected sales. He said this was because it was the most recent year in which Euromark sold only non-Smash products. I consider that was an appropriate basis upon which to assess the FY 2013 projected sales in the event that Euromark could re-focus its business. However, my conclusion in section 24.3 is inconsistent with this premise. I will address this further below.
The Harrison sales projection then set out the projected sales revenue for FY 2013 and FY 2014 on a worst or 'base case', 'mid case' and 'best case' scenario. As noted above, for the projected FY 2013 sales revenue, he used as his base case the actual sales revenue for FY 2011. He increased the base case by 10% to calculate the mid case, and increased the base case by 20% to calculate the best case. He gave evidence that these percentages were based upon an 'assumed improvement in projected sales as a result of better performance'.[209]
For the projected sales revenue for FY 2014, he used as his base case the projected FY 2013 base case and then increased it by 10%. For his mid case scenario, he took the projected FY 2013 mid case and then increased it by 10%. For his best case scenario, he took the projected FY 2013 best case and then increased it by 20%. He made these increases for the same reasons set out in the previous paragraph.
Given the limited evidence of Mr Harrison in relation to the assumed improvement which forms the basis of the mid case and the best case, I will proceed on the basis of the base case only. For completeness, I have formed the view that Mr Harrison used his expertise and skill in marketing and the sale of BTS and related products in determining his base case increase of 10% for the projected sales revenues for FY 2014. I am satisfied that there is a proper basis for this conservative increase, notwithstanding that Mr Harrison did not give detailed evidence of the steps Euromark would have taken to achieve the projected increases. I am prepared to infer that steps would have been taken by Euromark to re-focus its business, which would result in a projected increase of at least 10%.
The Harrison sales projection also contains projections of the gross margin to be applied in respect of the projected sales revenue for FY 2013 and FY 2014. The Harrison sales projection records, based upon the actual financials of Euromark, that the actual gross margin for FY 2011 was 23.2% and FY 2012 was 32.3%.
In order to determine the projected gross margin for FY 2013 and FY 2014, the Harrison sales projection used, as a base, the actual gross margin for FY 2012, and adjusted it for foreign currency movement in FY 2013 and FY 2014. Thus:

[2125]

It was also necessary to calculate the projected costs of Euromark for FY 2013 and FY 2014 adjusted to take into account projected sales revenues.
The Harrison costs projection projected adjustments in costs for FY 2013 and FY 2014 as a result of the projected sales for those years. Once again, Mr Harrison used as a base case the actual costs of Euromark for FY 2011 and, for the most part, adjusted them either for CPI or pro rata to the projected sales increase for FY 2013 and FY 2014. There were some additional adjustments for increases in wages and salaries, and directors remuneration.
In his third report, Mr Blashki obtained the actual costs from Euromark's financial statements for FY 2011 and FY 2012. Using the actual costs for FY 2011 as a base, he increased most of those costs by CPI to project costs for FY 2013 and FY 2014. In the case of bank charges, insurance and travel expenses, he increased them in proportion to the projected sales increases. I accept this was an appropriate basis upon which to calculate these expenses.
In relation to employee costs, Mr Blashki did not accept Euromark's additional increases for the projected FY 2013 and the projected FY 2014 base cases. He stated in paragraph [2.1.13] of his third report that he increased the projected employee costs for the FY 2013 and FY 2014 base cases in proportion to the projected sales for FY 2013 and FY 2014. I accept this was an appropriate basis upon which to calculate these increases.
In relation to directors remuneration, Mr Blashki appears to have accepted Mr Harrison's estimate of market remuneration and adjusted it for CPI. I note that in Appendix 5 to his third report, the actual figure for directors remuneration, directors pension costs and directors health insurance for FY 2011 totals approximately £55,000. Mr Blashki has adopted a projected total in relation to these costs of £71,000 for FY 2103 and £73,000 for FY 2014. I accept this was an appropriate basis upon which to calculate these costs.
This equates with the figures for the nominal managing director in the director projections prepared by Mr Harrison. Mr Harrison gave evidence that this related to the costs of hiring a third party managing director, rather than the managing director being a shareholder or other director of Euromark. Mr Harrison was not cross-examined on this evidence or his calculation referred to in the director projections. Further, Mr Blashki was not directly challenged on these figures. In these circumstances, and given the limited amounts involved, I accept Mr Harrison's evidence as to the basis for these costs and I will accept Mr Blashki's calculation of these cost projections.
In light of the projected sales revenue, projected gross profit margins and projected adjusted costs for FY 2103 and FY 2104, Mr Blashki calculated the adjusted EBIT for the base case as £379,000 for FY 2013 and £451,000 for FY 2014.

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Judgment (2275 paragraphs)

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Legislation Cited (9)

Cases Cited (52)