The matter before the Court for determination is an application by the plaintiff, Jewelsnloo Pty Ltd, made by notice of motion filed on 15 August 2014, for leave to reopen its case to rely upon an affidavit of Mr Julian Facer sworn on 15 August 2014 together with the documents exhibited to that affidavit. Mr Facer is a director and the secretary of the plaintiff.
Jewelsnloo Pty Ltd v Sengos [2015] NSWSC 80 | Case summary | Zoe
These proceedings are part heard. On 11 March 2014, the matter was listed by the Chief Judge in Equity to be heard over four days commencing on 4 August 2014. The hearing commenced on that date and was adjourned part heard on the fifth day of the hearing on Friday, 8 August 2014. By that stage of the hearing, Mr Facer's affidavits in chief had been read, and Mr Facer had been cross-examined by the legal representatives of the defendants. The case for the first defendant, Mr Paul Sengos, was in the course of presentation but had not been completed.
The Court was able to give the parties part of the fifth day to continue the hearing, but it was not in a position at that time to devote further time to the hearing of this case. In any event, it became clear from the plaintiff's foreshadowed application for leave to reopen its case and rely upon additional evidence that had not yet been prepared that an adjournment would be necessary.
The plaintiff's notice of motion and the evidence in support of the application were filed in accordance with directions that were made by the Court on the morning of 8 August 2014.
The application was heard on 28 August 2014. The plaintiff's application is opposed by all of the defendants.
This matter exemplifies the importance of the need for the legal representatives of parties to ensure that the advice that is given to the Court when matters are set down for hearing that the case is ready to be heard is accurate. As is plain, the Court is very busy, and a consequence of the effort made by the Court to ensure that all parties' cases are heard as early as possible is that those cases are listed sequentially, in a timeframe that does not make allowance for the Court conveniently to deal with cases that are in fact not ready for hearing as represented, and which accordingly require the Court unexpectedly to have to deal with applications such as the present. It is unfortunate that it has taken the Court some time to deal with the present application. That outcome has resulted from the tortuous course taken by the plaintiff's case and the need that the present application has imposed upon the Court to engage in a substantial review of the pleadings and the evidence in order to deal properly with an interlocutory application that ought not to have been necessary. It is a fact of life that, where applications such as the present one impose upon the Court the need to deal with the competing needs of parties whose hearing has not finished in the agreed and allotted time, and all of the other parties whose cases have been presented to the Court in a proper and timely manner, the Court may not practicably be able to respond to the unexpected needs of dealing with the former case promptly because that would unfairly displace the more deserving requirements of the other parties. I should record that I regard the outcome as being extremely regrettable, particularly in so far as it has impinged upon the entitlement of the defendants to have the claim against them determined in a timely manner. The defendants are entirely innocent of any responsibility for the course that this matter has taken.
As the matter is part heard, and the evidence is not in any event complete, the Court has not received submissions from the parties on any of the matters at issue between them. Accordingly, it will be necessary for me in dealing with the present application to avoid expressing any conclusions concerning the evidence or the significance of the evidence in relation to the matters in issue.
It will be necessary to consider some aspects of the plaintiff's pleadings in a little detail, but it will first be convenient to provide the following outline to explain the parties and the issues raised by the proceedings.
In essence, the claim arises out of a contract between the plaintiff and the second and third defendants dated 18 October 2012 by which the latter agreed to sell to the former a business that traded under the name "Amazing Water Australasia". The business involved the sale of domestic water cooling and filtration appliances and the associated filters via a web page. Upon completion of the contract, the plaintiff paid a price of $210,000 plus the cost of stock that was included in the sale. The second and third defendants, Mr and Mrs Kotsiapoulos, had purchased the business at an earlier date from the first defendant, Mr Sengos. Although the first defendant sold the business to the second and third defendants, with their agreement he continued to have an involvement in the running of the business. The first defendant also became involved in the negotiations for the sale of the business by the second and third defendants to the plaintiff.
Broadly, the case has two parts. The first, which is relevant to the present application, involves allegations made by the plaintiff that the first defendant, and the second and third defendants, separately made misleading and deceptive representations that induced the plaintiff to enter into, and complete, the contract of sale.
The second part of the case is a claim by the plaintiff that, after completion of the contract of sale, the first defendant and the fourth and fifth defendants engaged in passing off in that they sold water coolers and filters using a name that was deceptively similar to "Amazing Water". The passing off claim is for a closed period, as the plaintiff obtained relief early in these proceedings against the first, fourth and fifth defendants, which prevented them from continuing to sell products in competition with the plaintiff. It will not be necessary to give any detailed consideration to the passing off case for the purpose of dealing with the present application.
The first, fourth and fifth defendants on the one hand, and the second and third defendants on the other, have separately been represented in the proceedings.
The plaintiff commenced these proceedings by summons filed on 20 December 2012. They have therefore been on foot for some two years.
The plaintiff primarily sought relief against passing off, although the summons is confusing as it claims relief against "the defendant" in the singular even though all five of the defendants were joined in the proceedings. The plaintiff also sought damages for breach of s 42 of the Fair Trading Act 1987 (NSW) and Sch 2, s 18 of the Competition and Consumer Act 2010 (Cth), which foreshadowed the claim subsequently pleaded concerning the alleged misleading and deceptive conduct of the first, second and third defendants. Orders made by the Court on 20 December 2012 and 30 January 2013 had the effect of restraining the first, fourth and fifth defendants from selling water filtration equipment and dispensers, subject to a proviso that permitted them to sell certain identified existing stock. As the injunction was made until further order, and that order still subsists, once the first, fourth and fifth defendants had sold the identified stock, any alleged passing off is likely to have ceased sometime early in 2013.
The plaintiff filed a statement of claim on 21 February 2013. The plaintiff alleged that the first defendant on the one hand, and the second and third defendants on the other, made representations to the plaintiff, both before the contract was entered into, and after the contract and before completion, that respectively induced the plaintiff to enter into the contract and then complete it. Some of those representations concerned the intention of the first defendant not to re-enter the water cooler and filtration business, and the existence of a restraint of trade enforceable by the second and third defendants against the first defendant, and the entitlement of the plaintiff after completion of the contract to enforce that restraint against the first defendant. It is not necessary to consider the pleading of those representations in any detail for the purpose of dealing with the plaintiff's present application. It is sufficient to note that this aspect of the plaintiff's case has a factual connection to the passing off case. The plaintiff alleged that the first defendant misled it concerning his intention to continue in the water cooling and filtration business, which is reflected in the subsequent conduct upon which the plaintiff's passing off case is based. The plaintiffs also alleged that the second and third defendants represented that the plaintiff would have the benefit of the restraint of trade, but they then released the restraint before completion of the contract.
Relevantly, the plaintiff alleged against the first defendant that he represented during the course of negotiations that led to the contract that "the trading figures of the business were true and correct" (par 5(b) of the statement of claim). The statement of claim did not identify the relevant trading figures. The plaintiff did not allege that the second and third defendants made any representations to the plaintiff before the contract and did not allege that those defendants made any representations at all at any time concerning the correctness of the trading figures.
The only relevant remedy sought by the plaintiff concerning the trading figures representation was damages. The plaintiff gave particulars of the damages as being the $210,000 purchase price of the business. The statement of claim made provision for the subsequent addition of a claim for interest payments, cash contributions to the business and legal fees and disbursements. The plaintiff has not pursued these additional components of its damages claim. The plaintiff did not allege that it had rescinded the contract of sale, and indeed in par 15 it alleged that, from 28 October 2012, it carried on and still carried on the business. If the plaintiff had rescinded the contract of sale, that would have been inconsistent with the maintenance of its passing off claim.
The plaintiff filed an amended statement of claim on 24 July 2013. Relevantly, in par 5, the plaintiff added a claim against the second and third defendants that they also made representations to the plaintiff before it entered into the contract in relation to the trading figures of the business. In particular, the plaintiff alleged that a representation was made to it that "The business had an income from sales in the period February 2012 to June 2012 in the sum of $166,375.65". The plaintiff also alleged that the second and third defendants made a representation that the trading figures of the business were true and correct. Other amendments were made that do not require detailed consideration. The plaintiff continued to seek damages (although it added a claim for exemplary damages).
The plaintiff made additional amendments to its claim by means of a further amended statement of claim filed on 10 December 2013. Relevantly, for present purposes, the plaintiff added a claim for an order declaring the contract of sale void ab initio pursuant to s 243(a) of Sch 2 of the Competition and Consumer Act, and an order for rescission of the contract. The plaintiff did not allege that it had taken any steps to rescind the contract itself or to offer to return the business to the second and third defendants. It maintained its earlier allegation (now in par 21) that it continued to carry on the business.
The plaintiff filed a second further amended statement of claim on 18 July 2014. The changes were primarily concerned with the claim that was based upon the alleged continuation by the first defendant of his involvement in the water cooler and filtration business. However, the plaintiff also added a claim for damages on the basis that the conduct by all of the defendants alleged in the pleading constituted unconscionable conduct within the meaning of the unwritten law in contravention of Sch 2, s 20 of the Competition and Consumer Act.
On the first day of the hearing, the plaintiff made an application to file a third further amended statement of claim, which contained an amendment concerning the plaintiff's claim in relation to the deed of restraint. That application had not finally been dealt with by the time the proceedings were adjourned. The amendments sought are not relevant to the present application.
The aspect of the plaintiff's claim that is relevant to the present application is the claim first raised in the amended statement of claim that the second and third defendants represented that the business had an income from sales in the period February 2012 to June 2012 in the sum of $166,375.65. While the plaintiff did not give particulars of why this representation was false, it subsequently sought to introduce evidence at the hearing that in fact in the period the turnover of the business was about $58,000.
It is necessary to refer briefly to aspects of the case management of these proceedings for hearing. On 19 June 2012, the plaintiff was ordered to file lay and expert evidence by 17 July 2013. On 24 July 2013, an order to the same effect was made to be complied with by 14 August 2013. The plaintiff served a number of affidavits, but it did not serve any expert evidence to support its damages claim. The plaintiff was also ordered on 25 September 2013 to file any lay or expert evidence in reply by 23 October 2013. On 3 December 2012, a further order was made that the plaintiff serve any lay and expert evidence by 4 February 2014, and again, on 11 February 2014, an order to similar effect was made that was to be complied with by 4 March 2014. The plaintiff served additional lay evidence but no expert evidence.
The matter was listed before the Chief Judge in Equity on 11 March 2014 for the purpose of giving the matter a hearing date. The Chief Judge was informed that the matter was ready to proceed and that the plaintiff would not be relying upon any expert evidence. A period of four days for the hearing of the matter was allotted by the Chief Judge on that basis.
It is with some irony that I record that the first thing that happened when the proceedings were called on for hearing was that I asked the legal representatives who appeared for the parties to confirm that they were confident that the hearing would be completed in four days. That confirmation was given, and counsel for the plaintiff remained mute when the legal representatives of the defendants advised the Court of their belief that the matter would finish in three days. I accepted the assurances given on behalf of the parties and, consequently, did not impose any case management regime to control the course of the hearing.
As I have noted, the principal relevant allegation made by the plaintiff was that it entered into the contract to purchase the business on the faith of a false representation concerning the income of the business for a period of five months that ended some three months before the date the contract was entered into. The plaintiff did not allege any representation concerning the profit generated by the business during that period. At first blush, it might be thought that a prospective purchaser of a business would be more interested in its profit performance than its income alone. Knowledge of income without knowledge of costs and expenses, and thus profit, might tell the purchaser little of use about the value of the business and the price that was appropriate. That is not to say, however, that a false representation concerning income will not be misleading and deceptive. It may be that, if the representation made and relied upon by the plaintiff is limited to income, there may be significant forensic consequences concerning, at least, the assessment of any damages that the plaintiff may have suffered as a result of entering into and completing the contract. It is not necessary to give any further consideration to this issue. It is sufficient to note that the plaintiff's case is relevantly confined to an allegation that the plaintiff was misled concerning the income of the business during the relevant period.
At the hearing, the plaintiff maintained its claim for an order avoiding the contract of sale notwithstanding that it has never taken any steps to invite the second and third defendants to accept the return of the business and it has not purported to rescind the contract. As I understand it, the plaintiff will primarily rely upon the statutory power to make an order that avoids the contract. As the proceedings have not reached the stage of submissions, the plaintiff has not yet had the opportunity to explain why the Court should order that the contract is void. As the plaintiff has not itself purported to rescind the contract, it is not clear how the plaintiff proposes to support its alternative claim for rescission in equity.
The plaintiff has also maintained its claim in the alternative for damages equal to the full purchase price of $210,000. The plaintiff has accepted that it is bound by its assurance given to the Chief Judge that it would not rely upon any expert evidence. Accordingly, there is not, and will not be, any evidence from an expert business valuer concerning the value of the business at the date the price of $210,000 was paid or at any other time. The forensic course that the plaintiff has taken therefore excludes any entitlement to damages being assessed on the basis of the difference between the value of the business at the date the price was paid and the amount of the price, at least in so far as a claim to that effect could be sustained by evidence of value.
It is not necessary or appropriate for the Court for the purposes of this application to consider in any detail the basis upon which the plaintiff's claim for damages is put. Broadly, as I understand it, the plaintiff in due course will submit that the principles that govern the power of the Court to award damages under the relevant statutes to remedy the consequences of misleading and deceptive conduct will justify the Court ordering the defendants to pay damages equal to the whole of the purchase price paid by the plaintiff on the ground that the plaintiff has not enjoyed any net return from its operation of the business since the time of its purchase. As noted, the plaintiff has not yet had an opportunity to support this claim with any comprehensive submissions.
The issue is, however, crucial to the present application, at least as I understand it at this stage of the proceedings. As will be seen, in essence, the new evidence that the plaintiff seeks leave to reopen to lead consists of substantially the entirety of its trading records, both as to income and costs and expenses, from the time of completion of the contract of sale to very shortly before the commencement of the hearing. As I understand it, the plaintiff will seek to rely upon this evidence in support of its claim that it has not received any net benefit from the contract, which is an essential step in its argument that its damages should be equal to the whole of the purchase price, notwithstanding that there is no evidence as to the value of the business at any time.
The genesis of the plaintiff's evidentiary problem, which has apparently led to the present application, can be traced to certain aspects of the evidence that the plaintiff sought to lead in its evidence in chief. The first two aspects of that evidence were contained in Mr Facer's affidavit sworn on 26 August 2013 (which has been called "Mr Facer's second affidavit" in these proceedings).
In pars 14 and 15 of his second affidavit, Mr Facer swore that exhibits JF5 and JF6 respectively to his affidavit were documents printed out from an MYOB file, which he said was given to him by the first defendant before he entered into the contract, and which listed the amounts of all tax invoices for the business of Amazing Water for the periods 1 February 2012 to 30 June 2012 and 1 July 2012 to 25 October 2012. The first of these periods is the same as the period in respect of which the plaintiff has alleged that the second and third defendants represented that the income of the business was $166,375.65.
It is sufficient to note that, when the plaintiff sought to read these paragraphs of Mr Facer's second affidavit and to tender the two exhibits, the defendants objected, basically on the ground that the exhibits were in effect mere assertions by Mr Facer concerning the contents of the MYOB files. The defendants had not foreshadowed to the plaintiff that they would take this objection. Consequently, I permitted a course to be taken whereby during the course of the hearing the plaintiff might be able to provide more strict proof of the provenance of the two exhibits.
It is not necessary to recount the events that followed in detail. Mr Facer was able to produce a flash drive from his records, and he gave evidence that he had transferred to that flash drive the information contained in a flash drive that was given to him by the first defendant before the date of the contract. Mr Facer said that he had misplaced the original flash drive but that he had transferred all of the information contained on it to the flash drive that he was able to produce. Mr Facer said that he had been unable to print out information from the original flash drive, and it was necessary for him to obtain some technical assistance to be able to do so, and that involved in part a transfer of the information to the flash drive that was available. On the third day of the hearing, after the defendants' legal representatives had had an opportunity to inspect the contents of the flash drive that had been produced, I made an order that exhibits JF5 and JF6 be added to the court bundle that had been admitted into evidence as Exhibit B. Ultimately, the defendants did not oppose that course.
It is sufficient to record that the evidence contained in exhibits JF5 and JF6 is capable of supporting a submission that in fact in the period from February to June 2012 the total of the tax invoices issued by the second and third defendants in the operation of the Amazing Water business was in the order of $58,000 rather than the $166,375.65 that was represented to be the case. However, at this stage of the proceedings, I make no finding on this issue.
If there was an evidentiary problem with the way in which the plaintiff sought to support the admission of exhibits JF5 and JF6 into evidence, that problem was ultimately fixed. The problem therefore disappeared as a forensic issue and, as a result, is not directly linked to the need apparently perceived by the plaintiff to make the present application. It is relevant in so far as it tends to show that the plaintiff did not give adequate attention to the technical requirements that had to be satisfied before it successfully could tender the evidence essential to prove that the income representation was false. The plaintiff was nonetheless given an opportunity to rectify any evidentiary deficiency as the case was running. Ultimately, the plaintiff was given an opportunity during the course of the cross-examination of Mr Facer by counsel for the second and third defendants to reopen to give the evidence that was necessary to enable exhibits JF5 and JF6 to be received into evidence.
The second evidentiary problem that the plaintiff faced concerned par 23 of Mr Facer's second affidavit. Mr Facer stated: "The Plaintiff's sales figures to date for each month since he [sic] purchased the business are as follows…". There followed a table that set out precise figures for the months of November 2012 to June 2013. The total amount was $40,101.43. The plaintiff did not tender any documentary records to substantiate the amounts asserted by Mr Facer.
If the evidence otherwise satisfied the Court that, after completion of the contract of sale, the plaintiff conducted the business in substantially the same way as the second and third defendants had conducted it before the sale, then this evidence might support a submission that it was improbable that the business had enjoyed sales of $166,375.65 in the five months to 30 June 2012. Obviously, the evidence did not cover the whole of the period up to the beginning of the hearing, and in the absence of any evidence concerning the costs and expenses of operating the business, it could not establish whether or not the plaintiff earned profit from conducting the business during the period.
The defendants objected to the admission into evidence of par 23 of Mr Facer's second affidavit, essentially on the ground that it was unsubstantiated hearsay evidence of totals of invoices issued by the plaintiff. I ruled that the evidence was not admissible in the form in which it was sought to be given. However, I also noted that the defendants were on notice from the time of service of Mr Facer's second affidavit that the plaintiff would seek to prove the matters contained in par 23 by reliance upon that paragraph, and the defendants had not notified their proposed objection or taken any steps to verify the information using the plaintiff's financial records. Again, I gave the plaintiff an opportunity to support the admission of par 23 by providing substantiating evidence to the defendants.
The third aspect of the plaintiff's proposed evidence that caused it difficulty was the tender that was made towards the end of the first day of the hearing of the plaintiff's income tax return for the year ended 30 June 2013. The document contained information to the effect that the plaintiff's total income for the period was $40,239, its cost of sales was $31,487, its total expenses were $69,855, and it made a loss of $29,616. The lodgement declaration had been signed by Mr Facer on 2 July 2014. The document was first given to the defendants on about the day that it was produced by the plaintiff to the Court for tender. The defendants objected to the admission of the document on the ground that they had not been given proper notice of the plaintiff's intention to tender it and had not been given access to the financial records of the plaintiff upon the basis of which the document had been prepared. As the document was potentially relevant to matters in issue, I again gave the plaintiff an opportunity to take steps to make the document admissible in a manner that was fair to the defendants.
The plaintiff faced the related problems of the admissibility of par 23 and the plaintiff's tax return during the course of the second day of the hearing. At one stage, the plaintiff's counsel indicated that the plaintiff may abandon the tenders. I counselled the plaintiff to take care when making a decision to abandon any of the evidence upon which it had intended to rely (T 66 and 67). I rejected an impromptu application made by the plaintiff to continue the hearing only on liability and then to deal with damages as a separate question (T 80).
Late on the second day of the hearing, the plaintiff made an application for an adjournment. I declined to adjourn the proceedings. I decided that it was in the interests of all of the parties that the Court use as much of the available four days hearing time as could usefully be used. I decided that I should case manage the problems that had emerged in the plaintiff's case, if necessary by giving it leave to reopen before the hearing finished. The cross-examination of Mr Facer proceeded, and ultimately, a significant part of the evidence in the case of the first, fourth and fifth defendants was able to be taken.
Ultimately, the plaintiff was able to put together, on the run as it were, a bundle of all of its tax invoices issued in the period up to 30 June 2013. The defendants were given little time to review the bundle of tax invoices, but overnight they were able to conduct a review of sorts of the new evidence and to put the bundle into a more orderly form. This aspect of the matter was dealt with during the course of the third hearing day. The plaintiff elected not to rely upon par 23 of Mr Facer's second affidavit, as the information contained in it was inconsistent in some respects with the documents contained in the new bundle. I therefore rejected par 23, but I admitted the documents in the new bundle, together with a schedule summarising the contents of the bundle, into evidence as Exhibit C. As it happened, the bundle that became Exhibit C was created and improved and provided to the Court by the defendants.
As I have noted, the bundle that became Exhibit C contained tax invoices issued by the plaintiff. If one started with the assumption that the plaintiff issued all of its tax invoices sequentially in numerical order, then it appeared that Exhibit C might be incomplete because there were invoice numbers in numerical sequence that were not included in the bundle. As the purpose of the tender of the exhibit was to prove the income received by the plaintiff over the period, the appearance that invoices may have been omitted tended to jeopardise the purpose for which the exhibit was tendered in the first place.
Overnight, before the fourth day of the hearing, Mr Facer prepared an affidavit that he swore on 7 August 2014. I allowed the affidavit to be filed in court. In the affidavit, Mr Facer tried to explain the apparently missing invoices in Exhibit C. He said that some apparently missing invoices had been found, he identified invoices that he asserted had been cancelled, and he claimed that some apparently missing invoices had never been issued. This evidence was largely given on the basis of Mr Facer's assertion, and there was no way that the defendants could properly investigate Mr Facer's claims or conduct a proper cross-examination of him on the new evidence. They objected to the whole of the evidence being admitted, and by separate judgment, I rejected the evidence.
The plaintiff had therefore reached the point by the fourth day of the hearing that it had replaced par 23 of Mr Facer's second affidavit with Exhibit C, although that evidence might be open to attack in submissions on the basis that it might not be complete.
Therefore, in the manner I have outlined, the plaintiff was given considerable leeway to rectify the deficiencies in its evidence. The plaintiff was permitted to reopen its evidence on a number of occasions, including during the course of Mr Facer's cross-examination. A significant amount of time was wasted in this process, including, I should say, by reason of the Court's involvement in trying to manage the process. The presentation of the defendants' case was delayed, and they were subjected to substantial inconvenience. They bore these unwonted travails stoically.
Following the Court's rejection of Mr Facer's 7 August 2014 affidavit, the plaintiff renewed its application for an adjournment. The plaintiff sought the adjournment on the basis that it wished to put into evidence further financial material in terms of profit and loss statements, and primary financial source documents in relation to the period from when it started trading to the present, including bank statements, tax invoices, sales expenses, profit and loss statements, balance sheets and the like (T 204). Counsel for the plaintiff said that the financial information would relate to the business of Amazing Water, "and also documents in respect of Aussie Water Pty Ltd". I will return to the subject of Aussie Water below.
I ruled that I would not deal with an application by the plaintiff to reopen to tender further evidence until after the plaintiff had actually prepared the evidence, served it in draft form upon the defendants, and provided it to the Court (T 217). I was not prepared to entertain giving the plaintiff an open-ended leave to tender new evidence, as that would be unfair to the defendants. I also hoped, wrongly as it turned out, that, if the parties got on with the proceedings, it would be possible to complete the evidence in the case of the first, fourth and fifth defendants in the hearing time that remained available.
As I have mentioned above, on the morning of the fifth day of the hearing, I gave directions concerning any application that the plaintiff may wish to make for leave to reopen and rely upon new evidence. The directions required the plaintiff to prepare the new evidence and to put it before the defendants and the Court.
The new evidence takes the form of an affidavit sworn by Mr Facer on 15 August 2014. Mr Facer exhibited four folders marked exhibit JF-1 that contain for each month from November 2012 to July 2014 inclusive a schedule that sets out the plaintiff's income, its cost of sales, its gross profit, its other income, its operating expenses, and its net profit. The schedule for each month is supported by the tax invoices issued by the plaintiff as well as invoices issued to the plaintiff by its suppliers of goods and services. Mr Facer also exhibited a folder marked exhibit JF-2, which appears to contain the plaintiff's bank records.
According to my calculations (made by adding up all of the monthly profits and losses shown in the monthly schedules in exhibit JF-1, which is a calculation that the parties have not confirmed), over the period 11 November 2012 to July 2014 inclusive, the plaintiff suffered a net loss of $10,408.13 from conducting the Amazing Water business. If that figure is accurate and reliable, it would at least support a submission that the plaintiff had not earned any profit from operating the business.
This evidence is new for a number of reasons. First, for the first time, the plaintiff seeks to tender evidence to prove its costs and expenses, and accordingly its profit and loss, whereas previously the plaintiff had only tendered evidence of its income. Secondly, the new evidence covers the period after 30 June 2013.
There is an aspect of the proposed new evidence that is of particular significance. I mentioned in passing above the existence of Aussie Water Pty Ltd. The business that the second and third defendants sold to the plaintiff traded under the name "Amazing Water". Over the period in which these proceedings have been on foot, evidence has emerged about the existence of a business and a company whose names contain the words "Aussie Water". As the second and third defendants' solicitor, Mr Adams, deposed in his affidavit of 22 August 2014 in opposition to the present application by the plaintiff, the first reference to "Aussie Water Coolers" is in par 22 of Mr Facer's affidavit sworn on 26 August 2013. Mr Facer simply said that he had registered a business name containing those words. In an affidavit sworn on 29 May 2014, Mr Facer said that the plaintiff paid a sum of $4,000 to establish a website called Aussie Water Coolers. Ultimately, this caused the second and third defendants to ascertain that a company called Aussie Water Coolers Pty Ltd was registered on 10 May 2013. The second and third defendants tendered an ASIC search of that company, which became Exhibit 2. It establishes that Mr Facer and his wife, and apparently another two persons, are the directors and shareholders of that company. That company is the registered owner of the trademark "Aussie Water Coolers". Mr Adams said that, in the consideration that he was able to give overnight to the bundle of documents that became Exhibit C, he had noticed that some of the tax invoices that were said to have been issued to customers of the plaintiff had been issued under the name Aussie Water Coolers. In the time available, Mr Adams had not attributed great significance to this issue. However, a review of the documents in the new exhibit JF-1 shows that there are a significant number of invoices issued by and to Aussie Water Coolers. Mr Adams observed that the issue of the business conducted by Aussie Water Coolers "has assumed substantially more importance in the business of the plaintiff than was apparent to me based on the evidence served prior to Day 2 of the hearing".
In his 15 August 2014 affidavit, Mr Facer simply says that the plaintiff attempted to increase sales by registering a new business name Aussie Water Coolers on 15 January 2013 and that the plaintiff continued to trade under the business name Aussie Water Coolers until about 8 May 2013. Thereafter, it traded only in the business of Amazing Water.
In submissions on this application on 28 August 2014, counsel for the plaintiff gave an explanation from the bar table of why invoices issued or received by Aussie Water Coolers had been included in exhibit JF-1. As I understand this and other evidence, the plaintiff says that it started trading under the business name Aussie Water Coolers in about January 2013, as a reaction to its discovery of the low level of income earned by the Amazing Water business, in order to improve its prospects, in addition to carrying on the Amazing Water business. In May 2013, Aussie Water Coolers Pty Ltd was incorporated and became owned by another couple as well as Mr Facer and his wife. Thereafter, Aussie Water Coolers Pty Ltd conducted the business of Aussie Water Coolers as a separate business. However, as in the period up to May 2013, the plaintiff operated under the name Aussie Water Coolers as well as Amazing Water, and for completeness, it was necessary to include invoices issued by and received by the plaintiff under the name Aussie Water Coolers in exhibit JF-1.
So far as it goes, the explanation given by counsel for the plaintiff may be valid. However, it tends to obscure the significance to the proceedings of the fact of the establishment of the new Aussie Water Coolers business and the operation of that business by the new company in the period from May 2013 to the present.
Because of the way that the issue of the new business by the new company has seeped into the proceedings, the evidence on the issue is limited and incomplete. Counsel for the second and third defendants asked Mr Facer some questions on the subject in cross-examination, part of which is as follows (T 149 - 152):
Q. Can I show you a document, Mr Facer, which is the web page of Aussie Water Coolers (shown). Do you recognise that as the Aussie Water Coolers website page?
A. The current ones, yes…
Q. Aussie Water Coolers offers for sale bench top water coolers and filters; doesn't it?
A. Are you talking about the brand Aussie Water Coolers that I had for five months, or the current company Aussie Water Coolers?
Q. The current company?
A. Current company. Does it offer?
Q. Bench top water coolers?
A. It does.
Q. And it offers filters for sale?
A. It doesn't offer 5 stage filters. It offers filters, yes.
Q. At an earlier stage last year it did offer 5 stage filters for sale?
A. Aussie Water Coolers the brand, no, it didn't…
Q. Have you got page 6 of 10 of Exhibit 5?
A. Yes.
Q. If you turn to the page which is bench top water filter?
A. Yes.
Q. Have a look that. Do you agree with me that Amazing Water bench top water filter is essentially the same item as the Aussie Water Coolers water filter?
A. No.
Q. It looks similar?
A. In the photos, yes.
Q. Somebody comparing them on‑line couldn't tell the difference?
A. No, you wouldn't be able to.
Q. And the principal difference if you are looking on‑line is the price isn't it?
A. Yes.
Q. Amazing Water, the plaintiff in this case, offers its product for sale for $199?
A. Yes.
Q. And Aussie Water Coolers offers its product for $129?
A. Yes.
Q. And the Aussie Water Coolers product is a more attractive price proposition than the plaintiffs, isn't it?
A. Yes.
Q. There is no question that Aussie Water Coolers is currently trading in the water cooler filter market?
A. Correct.
Q. And the website is set up so people can place orders through it?
A. They can place orders through it, yes.
Q. It must follow, Mr Facer, that if the plaintiff gives funds to a new entity to set up a website to compete against the plaintiff that there will be a reduction in sales for the plaintiff?
A. If it gave funds, yes…
Q. Sorry, there is no evidence in your affidavit about Aussie Water Coolers affairs?
A. That's correct.
Q. And if you get a sale from Aussie Water Coolers bench top purifier, that might be cannibalising the sale from the plaintiff?
A. I don't see it that way.
Q. Well, they are both in the market?
A. Yes.
Q. The water filter market, the bench top purifier market, and they look visually the same, and the person can choose between one or the other; can't they?
A. Yes. They have got different filters. One is a 5 stage and one is 8. It doesn't say it there.
Q. It doesn't say that?
A. No.
Q. It's not something that would come to the attention of a purchaser? ‑
A. If someone just clicked that button that's correct.
Q. If they read the Aussie Water Coolers web page?
A. If they read the Aussie Water Coolers web page?
Q. Yes. They look there, and it doesn't say anything about an 8 stage water filter?
A. That's correct. They would have to drill down and find the 8 stage.
Q. So they look the same, and the difference is price?
A. Yes.
Q. So if a purchaser was buying looking at those two products the logical thing to do is to purchase the cheaper product, isn't it?
A. Yes.
Q. Would you agree that his Honour doesn't know what effect Aussie Water Coolers has had on the plaintiff's sales, because there is no evidence as to the sales for Aussie Water Coolers?
A. Yes.
The evidence, albeit incomplete, shows that not only did the plaintiff not act to rescind the contract for the sale of the Amazing Water business but continued to operate that business, it also established a new business under the name Aussie Water Coolers. For a period from early 2013 to about May 2013, the plaintiff itself conducted the new business. From the latter time, the new business was conducted by a different company in which Mr Facer and his wife, and another couple, owned the shares and of which they were the directors. The plaintiff contributed some funds to establish the new business. There is a vague suggestion in the evidence that additional funding, some of which may have come from Mr Facer, was invested into the new company. It seems clear that the plaintiff and the new company conduct their business in the same market and using the same business model, being the advertisement and sale of their products through a web page. The two companies sell product of the same general description, although perhaps different in specification. The transcript of the cross-examination suggests that the plaintiff sells products with 8 stage filters and the new company sells products with 5 stage filters. There is a price differential that favours the new company, although it might be inferred that an 8 stage filter is a better product than 5 stage filter. The competing products look similar. It is necessary for a member of the public viewing the two webpages to "drill down" into the pages to ascertain the technical differences between the products and to discover the benefits of deciding to pay the higher price for the plaintiff's products.
In principle, it is at least possible that the establishment of the Aussie Water Cooler business, and its subsequent transfer to the new company, might have decreased the sales that the plaintiff was able to make over the period since the beginning of 2013. That may have occurred because the new company's products have been more favourably priced than the plaintiff's or because Mr Facer has split his management time between the two businesses. For present purposes, the point is not whether or not the evidence does establish the reality of this proposition, but rather that as a forensic issue it is a possibility.
More specifically, the point is that the proposed new exhibit JF-1 contains some sales and costs records concerning transactions in the name of Aussie Water Coolers, but that is only for the period in which the plaintiff traded under that business name. As Mr Facer agreed during cross-examination, there is no evidence concerning the trading activities of the new company under the business name Aussie Water Coolers. As I understand it, the proposed exhibit JF-2 contains the plaintiff's banking and related records. It does not contain the equivalent records for the new company.
Although the point has not yet been developed, it appears that it is the plaintiff's case that the trading activities of the new company are entirely irrelevant. That proposition may or may not be true. There is no reason why the defendants should accept the truth of the proposition based solely upon the plaintiff's assertion.
It clearly will not be possible for the defendants even to begin an investigation of the question unless they have available the whole of the trading records of the new company in so far as it sells products under the name Aussie Water Coolers.
It is important to put this issue in context. I will say no more than that it is the conventional approach for parties in the position of the plaintiff to prove they have suffered damage by showing that the value of the business they purchased was at the time of purchase less than the price paid. I do not pre-judge the case on damages that the plaintiff propounds, but it does not necessarily follow that, if in the period up to the trial the plaintiff has not earned any net profit from the business, that the plaintiff has suffered damage equal to the whole of the purchase price. That may, at least logically, be true in some cases, but many extraneous events may make it untrue. The profits earned from the operation of the business may be affected by commercial incompetence on the plaintiff's part, by unforeseen changes in the market, and by unanticipated competition from new entrants to the market.
In the present case, the plaintiff itself created a new competitor, but it has not taken steps to provide the defendants or the Court with any evidence that may enable the significance of the business activities of the new company to be assessed in relation to the assessment of any damages to which the plaintiff may be entitled.
One consequence is that, if I were to grant the plaintiff's application now before the Court, the forensic effect on the future of the proceedings would not be limited to the need for the defendants to analyse the contents of the exhibits JF-1 and JF-2 to determine whether, and if so what sort of, a case can be mounted to challenge the plaintiff's claim that it has not enjoyed any profits in a manner caused solely by the consequences of the misrepresentation that it alleges. On the contrary, if the new evidence is introduced, it will follow in my opinion that an additional complex issue will also arise concerning the business operations of the new company and the extent to which any profits earned by that company should notionally be attributed to the original business for the purpose of these proceedings. I do not rule out the possibility that this observation significantly understates the effect on the present proceedings of the introduction of the new evidence.
As I have said above, the plaintiff before trial committed itself to a damages case that was not based upon expert valuation evidence and which was dependent upon an alleged misrepresentation as to the income of the business and the actual income after completion of the purchase. After a number of evidentiary travails, the plaintiff secured the outcome that Exhibit C was admitted, which contained evidence of its income up to 30 June 2013 (albeit possibly incomplete). Accordingly, the effect of the indulgences given by the Court to the plaintiff during the hearing was that it was substantially able to tender the evidence that it wanted to tender in support of the case that it informed the Chief Judge that it was ready to present when the matter was fixed for hearing.
I accept the submissions made by counsel for the defendants, particularly the second and third defendants, that their cases were prepared tactically in response to the manner in which the plaintiff had elected to put its case. It is entirely plausible that defendants would limit the nature of their preparation if faced with a damages claim devoid of valuation evidence and based solely on income and not profits. The need to review minutely the whole of the trading records of the business for relevant periods would be obviated.
The question therefore arises as to whether at this stage of the proceedings the Court should give to the plaintiff leave to reopen to tender the new evidence. In my judgment, it should not, and an order should be made dismissing the plaintiff's notice of motion.
The question whether the Court should permit a party to reopen its case after the completion of its evidence in chief is a discretionary one that must be answered taking into account the considerations enshrined in Pt 6, Div 1 of the Civil Procedure Act 2005 (NSW), particularly the overriding purpose in s 56 to facilitate the just, quick and cheap resolution of the real issues in the proceedings.
The proper approach to take will depend upon all of the circumstances of the case and, in particular, the time and circumstances in which the application to reopen is made. In the present case, the application has been made after the plaintiff has completed the evidence that it had prepared to tender in support of the case that it propounded at the commencement of the hearing. It is also made after the case had been adjourned because the allotted hearing dates have proved to be insufficient to enable the proceedings to be completed. The fact that the hearing could not be completed in the time allowed was substantially the result of deficiencies in the plaintiff's evidence that were required to be rectified in a way that prevented the efficient conduct of the hearing. However, the fact is that in any event further hearing days will have to be set aside to complete the hearing. The real question is whether it would be fair to the defendants at this stage and in these circumstances to permit the plaintiff to tender the new evidence, given whatever consequences will practically follow that event.
In my judgment, to permit the plaintiff to rely upon the new evidence will allow it to make a fundamental change in the basis of its case. It will have the effect that much of the preparation undertaken by the defendants for the hearing will be wasted. The defendants will be required, as it were, largely to go back to scratch. They will be required to investigate the plaintiff's trading records over the period from its acquisition of the business. They will also, as I have suggested above, have to obtain the equivalent trading records of Aussie Water Coolers Pty Ltd and investigate those records. It is most likely that it will be necessary for the defendants to conduct a new and complex cross-examination of Mr Facer. It is impossible to anticipate whether significant additional evidence will have to be introduced by the defendants following the completion of their investigations. In substantial measure, the plaintiff would be permitted to recommence its action. At the least substantial additional preparation will be required by the defendants. A significant number of additional days will probably be required to complete the hearing, above those that will be required in any event because the case was not completed in the time that was set aside. The need for the additional days will most likely have the effect that the date that the Court can give to recommence the hearing will be delayed significantly compared to the completion of the hearing on the basis of the evidence that has been tendered to dat, or has been served prior to the hearing.
The second defendant, Mr Kotsiopolous, swore an affidavit on 22 August 2014 in which he related the financial circumstances of the second and third defendants and the travails that have been brought upon them by their involvement in these proceedings. I will not set out the evidence in detail, but I will take it into account. In particular, I note that the business in which the second and third defendants engage is not profitable, their four children live at home, they are required to provide significant material support to their children, and these proceedings have caused significant strain on their relationship and jeopardised their health. While it will be little comfort for me to observe that participation as a party to proceedings may sometimes be an unavoidable travail of commercial life, it is highly relevant to the present application that, by rights, the proceedings should have been completed in the allotted time, and the second and third defendants should now be free to go about their lives. The obvious fact that granting the plaintiff's application will subject the defendants to significantly more cost, delay, anxiety and other grief is a very significant factor. That is particularly so because, so far as I can tell, the defendants have conducted themselves in the proceedings in an entirely proper way, even extending to accommodating with some grace the consequences of the inadequate preparation of the plaintiff's case for hearing that I have described above.
It is also significant that the plaintiff has a paid-up capital of $100, and the available evidence suggests that it does not own any property. The same is apparently true for Mr Facer and his wife. The evidence concerning the financial circumstances of the plaintiff and its principals is very limited, but such evidence as there is justifies a strong concern that the plaintiff will not be able to compensate the defendants for the financial consequences of its being given leave to reopen to the extent that it would be ordered to compensate the defendants for those consequences.
In Samsung Electronics Co Ltd v Apple Inc [2013] FCA 1142, one of the issues before Bennett J was whether a party should be permitted to serve evidence significantly after the time fixed by the court's directions for the service of evidence. Her Honour said:
CASE MANAGEMENT PRINCIPLES
The Aon principles
[140] The principles set out by the High Court in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 (Aon) are directly applicable to the present application by Samsung for leave to file and rely upon the Proposed Statements and to its foreshadowed application to amend its pleadings to particularise settlement correspondence and negotiations beyond those presently particularised.
[141] In Aon, the plurality (at [111]), when considering the issue of granting leave to amend, said that the court's discretion should:
… not be approached on the basis that a party is entitled to raise an arguable claim, subject to the payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend.
[142] The plurality also emphasised (at [112]) that although parties have a right to bring proceedings and make choices as to how they frame their case, limits will be placed upon their ability to effect changes in their pleadings, particularly when, as in the case here, the proceedings are advanced. The plurality also raised the issue of the effect of the vacation of trial dates on the court and other litigants seeking a resolution of their cases, which is also an issue here.
[143] The court also stressed the importance of an explanation by the party seeking to support the exercise of the court's discretion. The plurality said (at [103]):
Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules.
[144] The need for a satisfactory explanation has been emphasised in cases applying Aon. In Solahart Industries Pty Ltd v Solar Shop Pty Ltd (No 1) (2010) 88 IPR 337, Perram J refused an amendment application largely on the basis of the lack of any evidence of a satisfactory explanation.
Her Honour's observations provide, with respect, useful guidance in the present case. Provided always that all relevant discretionary considerations are given due weight, the principles considered by the High Court in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 are relevant to an application to reopen.
The plaintiff did not offer any evidence to explain why it did not prepare the evidence that it now wishes to tender during the extended period it was allowed to serve its evidence, in which it was given the benefit of many extensions of time. Counsel for the plaintiff offered from the bar table that the plaintiff's position was due to "inadvertence" in the way its case had been conducted (T 7 on 28 August 2014). With respect, I interpret counsel's observation as a concession that the plaintiff's legal representatives may have made errors in their determination of how the plaintiff's case should be conducted.
It is relatively obvious that the appreciation on the part of the plaintiff's legal representatives that the additional evidence may be necessary was a consequence of the travails that the plaintiff experienced in securing the admission into evidence of important parts of the evidence (as I have discussed above) and the submissions and discussion that consequently took place during the course of the hearing, including observations that I made.
It is clear that the need for the plaintiff to seek leave to tender additional evidence has not been the result of any new or unanticipated developments and that all of the additional evidence was available to the plaintiff in the period up to the commencement of the hearing.
In truth, the position is that the plaintiff and its legal advisers made judgments as to how its case should be conducted and the evidence upon which it should rely. The plaintiff was given more than ample time to serve the evidence upon which it wished to rely. During the course of the hearing, the plaintiff was given considerable indulgence to enable it to put into evidence the material that it had served before the hearing, notwithstanding technical deficiencies in the admissibility of the material, and indeed was allowed to improve its evidence. It is not unfair to conclude that during the hearing it dawned on the plaintiff and its legal representatives that it might be necessary for the plaintiff to adopt a conscious change of position concerning the evidence necessary to support its case.
That is not a good reason or a proper explanation in the circumstances of the present case to provide justification for the plaintiff being allowed to reopen its case to tender the additional evidence. To permit that course would be entirely unfair to the defendants.
I have reached my conclusion as to the proper orders to be made on this application for all of the reasons set out above, but I should add that in my view one of the reasons is fatal to the application. That is that to permit the plaintiff to tender the additional evidence would not be the end of the matter because it would neither address nor cure the tactical position adopted by the plaintiff that the financial affairs of Aussie Water Coolers Pty Ltd are entirely irrelevant to the present case. They are not in principle irrelevant, particularly from the perspective of the defendants. It is not sufficient for the plaintiff to assert that the affairs of the new company have no implications for its own affairs. In my view, it is clear that, if the additional evidence is led, that will open up a major and complex new issue and, so to speak, breathe entirely new life into the case. For the Court to allow that to happen would be to oppress the defendants.
I order that the plaintiff's motion be dismissed and that the plaintiff pay the defendants' costs of the motion.
I will give the parties time to consider the effect of these orders on the future conduct of these proceedings. I will also fix a directions hearing before me, principally for the purpose of determining what will be necessary to ensure that the hearing can be completed in any additional time that may be made available and to make appropriate directions. It is likely that it will be necessary for the parties to approach the Registrar to get further hearing dates.
[2]
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Decision last updated: 25 February 2015