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[2009] FCA 1000
plaintiff. The respondents’ motion was allowed: leave was granted under s 471B, J H Lever & Co Pty Ltd was ordered to pay $30,000 to the extent met by the bank guarantee, and there was no order as to costs.
1 cited instrument linked from this judgment.
The respondents sought $30,000 after an injunction had prevented them from dealing with certain fragrances and recipes. A bank guarantee had been provided to support the applicant's promise to compensate for loss caused by the injunction. Although the judge found that the evidence of the claimed losses was poorly explained and had important gaps, the judge accepted that some loss had occurred. Because the company was in liquidation, leave was required to pursue the limited application. The judge granted that leave and ordered payment of $30,000 only to the extent covered by the guarantee. No costs order was made.
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J H Lever & Co Pty Ltd had brought proceedings against Con Maniotis, Taste Master Pty Ltd, Andrew Fotheringham and Brett Copping. Those proceedings were dismissed by an order made on 21 March 2005. The reasons for the 2009 decision record that questions about costs had previously been considered at first instance and on appeal, citing J H Lever & Co Pty Ltd v Maniotis [2005] FCA 252 and Maniotis v J H Lever & Co Pty Ltd [2006] FCAFC 7 at [1]. The 2009 reasons do not set out the substance of those earlier decisions.
While the original matter was proceeding to trial, Mansfield J made an injunction on 10 November 2004 restraining the respondents from dealing with certain fragrances or recipes, including fragrances derived from 32 specified recipes. The injunction was given on the applicant's usual undertaking as to damages. A $30,000 bank guarantee provided by the Commonwealth Bank of Australia supported that undertaking [2].
The injunction was later discharged when the proceedings were dismissed. The applicant subsequently went into liquidation [3]. In July 2009, the respondents moved for an order requiring payment of $30,000 under the guarantee [4]. The guarantee named the respondents collectively as the “Favouree” and J H Lever & Co as the “Customer”. It required a written demand and an original sealed court order requiring the Customer to pay the amount demanded [5]-[6]. The guarantee capped the aggregate payment at $30,000.
The respondents relied on an accountant's report dated 22 April 2009. It assessed the second respondent's losses at $75,951, spread across five categories: replacement fragrances; trading foregone during the injunction; potential profits foregone; losses attributed to Mor Cosmetics; and losses attributed to fragrances no longer sold [10]. The judge examined the supporting material in detail and considered it deficient in several respects [11]-[15].
Because J H Lever & Co was in liquidation, the respondents also needed leave under s 471B of the Corporations Act 2001 (Cth) to proceed with the application. The liquidator did not participate, the bank made no submissions, and the bank indicated that it was willing to honour the guarantee [7]. On 4 September 2009, Mansfield J granted leave, limited to the relief sought on the motion, and ordered the applicant to pay $30,000 to the respondents only to the extent that the guarantee met that sum. There was no order as to costs [7], [16]-[17].
There were two connected questions: whether leave should be given to proceed against a company in liquidation, and whether the Court should make an order for $30,000 on the undertaking as to damages.
On leave, the judge focused on the limited character and practical effect of the application. The proposed payment was to come from the bank under its guarantee, rather than from the company's available assets. The bank was willing to honour the guarantee, and the liquidator did not object. The judge considered that the company's funds available to creditors would not be diminished. Any expense the company had incurred in procuring the guarantee had already been incurred and would not be recoverable in the liquidation [7]. In those circumstances, the judge granted leave, but expressly limited it to the relief sought on the motion [7].
The second question was more difficult because the guarantee required a sealed court order directing the applicant to pay. The judge therefore considered whether the applicant should be ordered to pay at least $30,000 under the undertaking as to damages [8]-[9]. The guarantee was not, by itself, treated as a substitute for the court order specified in its terms.
The judge was reluctant to rely on the accountant's report without further information [10]. The report put the claimed loss at $75,951, but the court's analysis was not that every item had been proved. Rather, the judge identified uncertainties about whether some costs were incurred, how sales and profits had been calculated, whether products could later be marketed, and whether the alleged customer losses continued after the injunction ended.
For example, the $9,058 claimed for replacement fragrances related to six fragrances that were already being sold. The report did not show why replacement fragrances had to be developed or why the original fragrances could not again be marketed after the injunction was discharged. Some inputs, including consumables, were not verified [11]. The $7,671 claimed for trading foregone covered five fragrances, but the evidence did not explain why only five were counted, how the calculations worked, or why the claim extended beyond the injunction period [12]. The claimed $9,930 for potential profits on fragrances not developed depended on assumptions about which products might have been developed, and when. The judge observed that the injunction might have delayed their introduction, but the material did not establish that they could not have been developed later [13].
The two remaining claims also had shortcomings. As to Mor Cosmetics, the judge considered that sales and gross profit did not, without more, measure the respondents' loss. The evidence did not establish what trading continued after the injunction, why the customer relationship ultimately reduced or ended, or whether other customers replaced the sales [14]. The claim for fragrances no longer sold used a similar method, and the judge found the same weakness in that method [15].
Despite those concerns, the judge accepted that some loss had been incurred because of the injunction [16]. The decision was also made in the particular procedural setting: the applicant made no submissions, the bank was willing to honour the guarantee, and the potentially interested parties did not oppose or seek to prevent the order. The reasons describe those parties as either acquiescent or not treating their interests as inconsistent with the relief sought [16]. The result was a $30,000 order, but only to the extent that the guarantee covered it.
The reasoning should be read narrowly. The decision does not say that an inadequately supported damages assessment will ordinarily justify an order for the amount claimed. It records material evidentiary concerns and explains why the order was made in light of the particular parties' positions and the existence of the guarantee.
The reasons do not announce a change in the law or set out a general new test for assessing claims under an undertaking as to damages. They apply the stated requirement for leave under s 471B of the Corporations Act 2001 (Cth) to this motion [7]. They also address the particular wording of the bank guarantee, which required a sealed order of the Court directing payment before a demand could be made [6], [8].
The judgment's contribution is therefore best understood as an example of how those procedural and evidentiary matters were handled together on the facts before Mansfield J. The Court did not treat the bank guarantee as automatically producing payment. It made an order against the applicant, limited to $30,000 and expressly conditional on the guarantee meeting that amount [16]. Nor did it give leave for unrestricted proceedings against the company. Leave was confined to the relief sought on the motion [7].
The reasons distinguish, in practical terms, between accepting that some loss occurred and being satisfied by the respondents' detailed quantification of that loss. The judge criticised the report's methods and assumptions, but concluded that some loss had plainly resulted from the injunction [10]-[16]. The judgment does not articulate a general evidentiary standard for future cases, nor does it state that acquiescence by an interested party is sufficient by itself to establish a damages claim.
Accordingly, the “before” and “after” position shown by this judgment is not a doctrinal reversal. It is a fact-specific order made in an existing proceeding, against the background of liquidation, an undertaking, and a guarantee with a court-order condition.
At [7], the judge states: “As the applicant is in liquidation, it is necessary for the respondents to be given leave to proceed: s 471B of the Corporations Act 2001 (Cth) (the Act).” In plain English, the respondents needed the Court's permission to pursue this limited application because the company was in liquidation. The passage identifies the statutory basis the judge relied on, rather than setting out a wider explanation of how s 471B applies in other circumstances.
At [8], the judge explains that a bank payment under the guarantee had to be accompanied by “an original sealed order of the Court” requiring the applicant to pay the amount demanded. In plain English, the guarantee's wording made a court order a required part of the payment mechanism. The respondents could not rely only on the guarantee's existence.
At [10], the judge says, “I am reluctant to act on that report without further information.” This signals a real reservation about the evidence. The report's total estimate was $75,951, but the judgment then examines whether its constituent claims were adequately explained and supported.
At [14], the judge states, “Gross profit is not a measure of loss. The net profit is not disclosed. Sales are not a measure of loss.” The immediate context is the claim concerning Mor Cosmetics. In plain English, the court was not satisfied that the reported sales or gross-profit figures, without adequate evidence about costs and what would otherwise have happened, showed the amount actually lost.
At [16], the judge says: “Clearly, there has been some loss incurred by the respondents as a result of the injunction.” This is the key factual conclusion supporting an order despite the concerns about quantification. The same paragraph explains that the applicant had not made submissions and the bank was willing to honour the guarantee. The ultimate order was limited to $30,000 and to the amount covered by the guarantee.
At [17], the judge explains that there would be no costs order because the applicant was in liquidation and the leave granted did not extend to recovery of any amount directly from it. In plain English, the order was framed around the guarantee and did not grant permission to pursue the company directly for additional recovery.
The decision is most relevant as a factual comparison where a party seeks to proceed with a limited application against a company in liquidation, and the requested relief is connected to a third-party guarantee. The features that mattered here included the company's liquidation, the limited scope of the motion, the bank's willingness to honour its guarantee, and the judge's view that payment would not reduce funds available to the company's creditors [7].
It may also be relevant where a guarantee supporting an undertaking as to damages specifies that payment requires a sealed court order directing the customer to pay. The wording of this guarantee made the court order a condition of a demand under the instrument [6], [8]. The judgment's result depended on that guarantee and the particular order the respondents sought.
For claims under an undertaking as to damages, the reasons may be useful when considering whether evidence distinguishes sales, gross profit, net profit, costs, mitigation and the period for which loss is claimed. The judge scrutinised these matters, particularly where the evidence relied on estimates or assumptions [11]-[15]. But the decision should not be treated as holding that the evidence criticised in this case would ordinarily be enough. The judge's conclusion followed both the finding that some loss had occurred and the unusual procedural circumstances, including the absence of opposition from the applicant and the bank [16].
The judgment is less directly informative where the company opposes leave, where payment would reduce funds available to creditors, where no guarantee exists, or where the guarantee has different conditions. It does not determine the outcome of those different situations. A careful comparison would need to examine the instrument's wording, the order sought, the evidence of loss, and the positions of affected parties.
The supplied judgment identifies two earlier decisions concerning the same parties and proceeding: J H Lever & Co Pty Ltd v Maniotis [2005] FCA 252 and Maniotis v J H Lever & Co Pty Ltd [2006] FCAFC 7. Mansfield J says those decisions addressed costs at first instance and on appeal [1]. The reasons do not describe them as authorities governing the issues decided on the 2009 motion.
The text supplied here contains no later decisions discussing or applying J H Lever & Co Pty Ltd v Maniotis (No 3) [2009] FCA 1000. It would therefore be unsupported to say how subsequent courts have treated it, or to attribute a broader precedential status to it. The available material shows a short, fact-specific decision dealing with leave in liquidation, a bank guarantee, and the evidence supporting a claim on an undertaking as to damages.
The judgment does not decide whether a different body of evidence would have justified a larger award, or how each head of loss should be quantified in another case. It identifies weaknesses in the report but does not undertake a complete reassessment of each category to calculate a different figure [10]-[15].
It also does not set out a general test for granting leave under s 471B. Its explanation is confined to the circumstances before it: the applicant's liquidation, the limited relief sought, the bank's position, and the perceived absence of disadvantage to the company's creditors [7]. The reasons do not address how the analysis would change if the liquidator opposed, if payment came directly from company assets, or if the guarantee were disputed.
The decision also leaves unanswered how the undertaking's damages should be assessed where loss is established in general terms but detailed evidence is inadequate. The judge found some loss had occurred and made the order in the context of non-opposition and the bank's willingness to pay [16]. That does not resolve how a contested claim should be determined when the amount, causation, duration, or mitigation of the alleged loss remains disputed.
Finally, the reasons do not report any subsequent judicial treatment of the decision. Its use in later work would therefore require checking whether later authorities have explained or limited its approach.
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REASONS FOR JUDGMENT 1 This matter was resolved by order made on 21 March 2005, that the proceedings be dismissed. Issues as to the cost of the proceedings were subsequently addressed, both at first instance: J H Lever & Co Pty Ltd v Maniotis [2005] FCA 252 and on appeal: Maniotis v J H Lever & Co Pty Ltd [2006] FCAFC 7. 2 In the course of the matter proceeding to trial, on 10 November 2004 an order was made restraining the respondents from dealing with certain fragrances or recipes for any fragrances, including in particular the fragrances derived from 32 specified recipes. That injunctive order was granted upon the undertaking of the applicant as to damages in the usual terms, and was supported by a bank guarantee in the sum of $30,000 proffered to the respondents by the applicant. 3 The applicant subsequently went into liquidation. 4 The respondents have now applied by motion for an order that the applicant pay to the respondents $30,000 pursuant to the bank guarantee provided by the Commonwealth Bank of Australia (the bank) No G00209000 dated 3 December 2004, in support of the undertaking as to damages for the injunction which was subsequently discharged. 5 The guarantee given by the bank is proffered to the respondents collectively (called "Favouree" in the guarantee) and is headed Bank Guarantee, Security Deposit Guarantee. It refers to a security deposit by the applicant (called "Customer" in the guarantee). 6 The guarantee then reads: At the request of the abovementioned Customer and in consideration of the abovementioned Favouree (which term shall mean all of the parties named above as Favouree collectively or any one or more of them, as the case may be, in favour of whom an order for payment is made in the Proceedings) dispensing with the lodgement by the Customer of the Security Deposit pursuant to the orders made by Justice Mansfield on 10 and 12 November 2004 ("the Orders") in Federal Court of Australia Action Number S803 of 2003 ("the Proceedings") the Commonwealth Bank of Australia ABN 48 123 123 124 ("Bank") undertakes to pay to the Favouree on written demand any sum which may from time to time be demanded by the Favouree to a maximum aggregate sum of Thirty thousand dollars only ($30,000.00) (Amount of Security Deposit). Any demand made under this guarantee must be accompanied by an original sealed order of the Court made in the Proceedings requiring the Customer to pay the amount demanded to the Favouree. 7 As the applicant is in liquidation, it is necessary for the respondents to be given leave to proceed: s 471B of the Corporations Act 2001 (Cth) (the Act). An oral application for leave to proceed was made. The liquidator of the applicant has elected not to participate in the proceedings, either to oppose the granting of leave to proceed against the applicant, or as to the substantial order which is sought. As the order sought would require payment of the sum of $30,000 by the bank, rather than by the applicant, and the bank has elected to make no submissions, and is of the view that it should honour the guarantee in full and will otherwise comply with its obligations in respect of the amount of the guarantee, it seems to me to be appropriate to grant leave to maintain the present application against the applicant. The funds the applicant has available to its creditors will not be diminished by the bank giving effect to the guarantee. To the extent to which the applicant incurred cost in procuring the guarantee, that cost has already been incurred and would not be recoverable in the liquidation. There is, therefore, no disadvantage to the applicant in granting the leave sought. 8 As is apparent from the guarantee, the payment by the bank to the respondents on the guarantee must be accompanied by a sealed order of the Court in the proceeding requiring the applicant to pay the amount demanded to the respondents (the Favouree). The guarantee provides that it is to continue until one of several things occur, in essence, indicating that the guarantee to support the undertaking for security in respect of the injunction is no longer necessary. I am satisfied that none of those things have occurred so that the guarantee continues to be in force. 9 It is, however, necessary to be satisfied that the applicant should be ordered to pay on the undertaking as to damages a sum of not less than $30,000. The respondents, I assume, are otherwise prepared to undertake not to prove in the winding up of the applicant for that indebtedness even though it is quantifying an indebtedness which occurred as a result of an injunction which was in force between 10 November 2004 and 21 March 2005. 10 The evidence as to the loss of the respondents by reason of the injunction is contained in the report of Ms Hillary Orr, a chartered accountant, dated 22 April 2009. I am reluctant to act on that report without further information. The second respondent has assessed its losses as a result of the injunction at $75,951. Ms Orr has had access to its workings in support of that assessment. She has expressed the view that its estimates are fair and reasonable, and well in excess of $30,000. She says the losses are based on the level of trading of the second respondent at November 2004 "in the preliminary stages of establishing a new business", and that its turnover has increased substantially since then so that the estimates of losses are most likely understated. She has accepted explanations provided to her in relation to the operations of the business and the manner in which the losses arise. The documentary material she has referred to is a schedule prepared by the second respondent summarising its losses. It is a one page document. She has also had access to documents recording sales and gross profit on sales made in respect of fragrances and recipes for fragrances prior to and subsequent to the injunction. The second respondent started a new division manufacturing fragrances and recipes only in 2003. She has also had discussions with Mr Mark Pitcher of the second respondent in relation to the assessment of damages. There is a brief discussion on each of the five heads of loss making up a total of $75,951. They are as follows: Cost of replacement of fragrances $ 9,058 Loss of profits from trading foregone during injunction $ 7,671 Profits foregone $ 9,930 Loss of profits from Mor Cosmetics $17,790 Loss from fragrances no longer sold $31,502 Grand total $75,951 11 The cost of replacement of fragrances ($9,058) relates to six of the 32 fragrances referred to in the injunction because they were "live", that is, had been developed and were being sold. Ms Orr says that sales at the time were not significant as the fragrance division of Taste Master had only just been established and was at the start of the growth period. She said Taste Master had to develop new products to replace the live fragrances already in production. It is implicit that six new fragrances were developed. She has applied an hourly rate based upon its records both in the perfumery hours and for the "GCMS" operations to reach a cost for each of the fragrances. She has taken the number of hours involved in researching a new product to develop a fragrance as a mid-range between 22 and 30 hours, said to be the appropriate hours. She has not seen records indicating that the specified hours were required. There is an additional "consumables" cost which I assume is an estimate as it is a rounded figure. It is not verified. It is not clear why the six new fragrances had to be developed. Nor is it clear why, after the injunction was lifted, the six "live" fragrances could not again be marketed, so the loss would be the loss in them being withheld from the market for a time. 12 The loss of profits from trading foregone during the injunction is quantified at $7,671. It relates to only five fragrances. It is not explained why there are only five fragrances. The fragrances from which sales could not be made do not clearly reconcile to the fragrances which were required to be replaced. Only two of those five fragrances were sold again after the injunction was discharged. It is not explained why. The claims for loss of trading extend well beyond the period of the injunction. It is not explained why. There is no accounting for the sale of the replacement fragrances developed apparently from the time of the injunction, and which presumably were able to be sold, and continued to be sold, after the injunction was discharged. The formula by which the proceeds were calculated as into profits is not apparent. 13 The third item is profits foregone ($9,930). It refers to "potential profits foregone from the fragrances that had not been developed, or may have been developed but for the injunction". It assumes a loss of profits of $1,300 for eight fragrances (out of a total of 26 injuncted), presumably apart from the six which were "live", discounted to represent an 80% success rate. Ms Orr says that, as the estimate only makes provision for eight of the 26 fragrances and the loss per fragrance is consistent with the loss per fragrance of the fragrances developed, the estimate is modest. The claim includes expenses rather than profit foregone. It is not clear that any of those fragrances would have been developed during the period of the injunction, and whether they were subsequently developed. There is no apparent reason why they could not have been subsequently developed. In that event, the injunction may have delayed their introduction to the market. It is not clear that other fragrances were not developed during that time. At most, it would seem that losses of net profit on fragrances not developed, in the period of 130 days during which the injunction ran, would have been incurred. 14 The final two claims are for loss of profits from Mor Cosmetics ($17,790) and loss of profits from fragrances no longer sold ($31,502). The information provided to Ms Orr was that, prior to the injunction, Mor Cosmetics purchased the live fragrances that were subject to the injunction (presumably six). Once the injunction was in place, Mor Cosmetics then sourced those fragrances from other suppliers. After the injunction was lifted, Ms Orr was told that Mor Cosmetics continued to deal with the second respondent on a reduced scale and last did so on 24 October 2005. She has accepted as reasonable the averaging of two ways of assessing loss of profits. One is to estimate the loss as a factor of sales and the other as a factor of gross profit. She has had regard to the sales and gross profits of fragrances used by Mor Cosmetics in the 12 months prior to the injunction. The gross profit over that period was apparently $6,804, and the "average life" three years to produce a total of $20,412. The annual sales to that entity over that same period were $10,113, multiplied by 1.5. The loss is the average of those two figures. I do not regard that as a measure of loss. It may be a means of quantifying value for sale purposes. Gross profit is not a measure of loss. The net profit is not disclosed. Sales are not a measure of loss. Clearly, if Mor Cosmetics transfers its business to another entity by reason of the injunction (there is no evidence from Mor Cosmetics on the topic), the injunction would have led to some losses. It is not clear that that is the case, and at least not significantly so, after the injunction was lifted. It is not clear what trading there was after the injunction was lifted, or why ultimately there was a loss of business of that customer. It is not clear whether some other customer was able to replace the sales to that customer, and the extent to which costs were otherwise wasted or utilised. 15 The final claim is for loss of profits from fragrances no longer sold ($31,502). There is a loss of products, sales and gross profit on sales, during the period 5 November 2003 to 4 November 2004 for fragrances sold to customers, excluding Mor Cosmetics, that were no longer sold after the injunction was granted. Ms Orr says those fragrances are different from those in respect of which there is a loss of profits from trading foregone during the injunction. It is not clear how that can be. In any event, the methodology used is the same as the loss for Mor Cosmetics with the same weakness. 16 Clearly, there has been some loss incurred by the respondents as a result of the injunction which was in force between 10 November 2004 and 21 March 2005. In circumstances where the applicant has elected to make no submissions on the respondents' application, and the bank is willing to honour the guarantee, it seems appropriate to allow the application notwithstanding the concerns I have expressed about the quality of the evidence otherwise adduced on the motion. In effect, the potentially interested parties are either acquiescent in the order sought or do not regard their potential interests as inconsistent with the orders sought. The respondents' application of 20 July 2009 is allowed and the applicant is to pay to the respondents $30,000 to the extent that the guarantee meets that sum. 17 There should be no order for costs of the motion as the applicant is in liquidation, and the leave given does not extend to recover any amount directly from it. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.
Associate: Dated: 4 September 2009 Counsel for the Applicant: No appearance
Solicitor for the Respondents: Rosey Batt & Associates
J H Lever & Co Pty Ltd
Maniotis
The respondents’ motion was allowed: leave was granted under s 471B, J H Lever & Co Pty Ltd was ordered to pay $30,000 to the extent met by the bank guarantee, and there was no order as to costs.