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[2011] NSWCA 337
Court of Appeal (NSW)
2011-08-17
Giles JA, Macfarlan JA, Young JA
Original judgment source is linked above.
Hammersmith & City Railway Company v Brand (1869) LR 4 HL 171; Harper v Bangalow Motors (CA, 24 July 2990, unreported); Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46; Indian Oil Corporation Ltd v Greenstone Shipping SA (Panama) [1988] QB 345; Lavender View Pty Ltd v North Sydney Council [1999] NSWSC 255; (1999) 104 LGERA 255; Lawton v Sweeney (1844) 8 Jurist 964; LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 2) (1989) 24 NSWLR 499; LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74; Lujans v Yarrabee Coal Company Pty Ltd [2008] HCA 51; (2008) 249 ALR 663; Lupton v White (1808) 15 Ves Jun 432; 33 ER 817; Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268; (2010) 15 BPR 28,563; Malec v J C Hutton Pty Ltd (1990) 169 CLR 638; Moran v McMahon (1985) 3 NSWLR 700; Murphy v Mark (1977) VR 316; Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388; Norbis v Norbis (1986) 161 CLR 513; The Ophelia [1916] 2 AC 206; Roper v Johnson (1873) LR 8 CP 167; Rosebanner Pty Ltd v EnergyAustralia [2009] NSWSC 43; 223 FLR 406; Shimokawa v Lewis [2009] NSWCA 266; Singer v Berghouse (1994) 181 CLR 201; Sherwood v Guneser (1992) 110 FLR 459; State of New South Wales v Moss [2000] NSWCA 133; (2000) 54 NSWLR 536; TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130; Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333; White v Lady Lincoln (1803) 8 Ves Jun 363; 32 ER 395; Yarrabee Coal Company Pty Ltd v Lujans [2009] NSWCA 85; (2009) 53 MVR 187; Category: Principal judgment Parties: William Thomson Venables McCartney - First Appellant Ingredients Plus Pty Ltd - Second Appellant Graeme Bruce Love - Third Appellant Orica Investments Pty Ltd - First Respondent Bronson & Jacobs Pty Ltd - Second Respondent Orica Australia Pty Ltd - Third Respondent Representation: A J Sullivan QC & J Zerelli - Appellants I M Jackman SC, J Stoljar SC and J K Taylor - Respondents Hassett Dixon - Appellants Mallesons Stephen Jaques - Respondents File Number(s): CA 260399/05 Decision under appeal Citation: Orica Investments Pty Ltd & Ors v William McCartney & Ors [2007] NSWSC 645; Orica Investments v McCartney [2010] NSWSC 488 Before: White J - 25/6/07 Ball J - 28/5/10 File Number(s): SC 3895/05
4.1 Mr Bontoux' evidence in summary 39Mr Bontoux gave evidence again before the primary judge. 40In his affidavit read before the primary judge Mr Bontoux said that, although White J had found that he was influenced by his relationships with Mr McCartney and Ms Nguyen to move his business away from B & J, "the fact remains that I was unhappy with them and I say I would have moved my business away from them even if Ingredients Plus Pty Ltd had never existed". He said that he did not like the persons with whom he dealt at B & J after the Orica takeover; that he did not think B & J "were doing a good job for me"; and that he "did not trust the Orica/B & J management and by late February 2005 ... resented them". Fairly detailed, indeed discursive, explanations were given of each of these matters, and in the case of B & J not doing a good job four particular reasons were given which will later be fully considered. 41Mr Bontoux went on to refer to the 17 February 2005 e-mail, and said that if Mr McCartney had stayed at B & J he "would have left B & J just as I have said in my email", and that "[t]heir poor sales performance was bad for my business and I thought there had to be 'a different way' as I likewise said in my email". He said that "events took a different course with the sacking of Bill by Orica just a week later", that he resented Orica for what it had done to his close friend, and he did not trust Orica because it had been represented that nothing would change in the way B & J did business but "a lot of things did change". Mr Bontoux said - "19. On account of all these matters, by early March 2005, I was finished with Orica and B & J. I did not like them, I did not trust them, and they were bad for my business. Had I not gone with Ingredients Plus, I would have gone another 'different' way." 42Mr Bontoux was cross-examined at some length. It will be necessary to go in more detail to his affidavit, including comparison with what he had said in his affidavit read before White J (which was in evidence before the primary judge as an exhibit tendered by the appellants).
4.2 A preliminary matter 43The primary judge began his explanation for declining to accept Mr Bontoux' evidence - "28. White J found that Mr Bontoux was not a reliable witness and I do not think that Mr Bontoux fared any better in the hearing before me, for three main reasons." 44White J had found Mr Bontoux an unreliable witness, and had not accepted his denial of any inducement or enticement by Mr McCartney to appoint Ingredients Plus as Clos' distributor. A question arose whether the primary judge had wrongly taken into account White J's assessment of Mr Bontoux' reliability as a witness, when he should have acted only upon his own assessment. 45The appellants did not take the question up. In my view they correctly understood the reference to White J's assessment of Mr Bontoux' reliability as a witness as a prefatory aside. The primary judge independently made his own assessment of how Mr Bontoux fared.
4.3 The appellants' challenges: general 46The primary judge gave "three main reasons" (at [28], see [43] above) for declining to accept Mr Bontoux' evidence. The first was that the reasons Mr Bontoux gave for saying that he would have terminated the B & J distributorship were not credible, with identification of three reasons of the four particular reasons given by Mr Bontoux and explanation of their difficulties. The second was the absence of contemporaneous evidence suggesting that Mr Bontoux had approached other distributors. The third was that Mr Bontoux had contradicted in cross-examination evidence in his affidavit concerning substitutes for Clos' products. The appellants submitted that each of his Honour's three main reasons was not soundly based in the evidence. They further submitted that his Honour had not dealt with other matters to which Mr Bontoux had referred in his evidence or which otherwise supported that he would have terminated the distributorship in any event. 47The parties' submissions were detailed, and a rather lengthy judgment can not be avoided. Two related matters should be foreshadowed; I will return to them. The first is the part to be played in the present case by the constraints on appellate review of a credibility-based finding, see Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 and many other discussions. The second is whether, if it be held that the primary judge's reasons for declining to accept Mr Bontoux's evidence are unsound, there can be a finding in this Court that he would have terminated the Clos distributorship in any event, or whether there must be a new trial. Both those matters are best addressed, if they arise, after the appellants' challenges have been considered.
4.4 The first main reason 48The primary judge said - "29 First, I do not think that the reasons Mr Bontoux gave for saying that he would have terminated the Distributorship Agreement with Bronson & Jacobs were credible. One reason he gave was that he had experienced poor sales figures to Bronson & Jacobs shortly before he terminated the Distributorship Agreement. However, none of the contemporaneous records record that as a reason for termination given by him. Mr Bontoux did not mention it as a reason in the evidence he gave in connection with the liability hearing. He offered no sales figures to support the claim. On the other hand, Bronson & Jacobs' own sales figures to its customers suggested that sales had not dropped off. Mr Bontoux says that he was concerned by the fact that he was receiving enquiries from third parties which specified Bronson & Jacobs' codes for Clos's products. Mr Bontoux gave the impression that those enquiries suggested to him that customers were dissatisfied with the service that they were getting from Bronson & Jacobs and consequently were seeking to acquire product directly from Clos. In fact, Mr Bontoux knew that those enquiries were coming from a competitor of Bronson & Jacobs. Mr Bontoux said that Bronson & Jacobs had created a conflict of interest by acquiring Keith Harris Ltd which had ties to Charabot, a competitor of Clos's. Again, however, this reason was not raised by Mr Bontoux in any of the contemporaneous correspondence. In fact, Bronson & Jacobs only acquired the flavouring manufacturing and fragrance manufacturing businesses of Keith Harris. Mr Bontoux accepted when cross-examined that those acquisitions would not have created a conflict of interest. Although there is no evidence to suggest that Mr Bontoux was aware that the acquisition was limited to those divisions, it is hard to believe that someone as experienced and knowledgeable in the industry as Mr Bontoux would not have made enquiries concerning the acquisition if he had been genuinely concerned about it." 49This identified three of the four particular reasons given by Mr Bontoux for thinking that B & J were not "doing a good job for me", and found each wanting: namely, poor B & J sales figures; customer dissatisfaction with B & J service perceived from direct third party inquiries; and creation of a conflict of interest. 50What Mr Bontoux said was - "9. There are four reasons I say I did not think B & J were doing a good job for me post the Orica acquisition. (a) the fall in sales of my product to B & J in the latter part of 2004 and early part of 2005; (b) the fact that I was receiving the kind of enquiries which Justice White referred to at 186 of his Judgment set out above. These enquiries contained specific B & J codes for our product. These codes are known only to B & J and B & J customers. So the fact that I was receiving enquiries from, for example, persons in Paris quoting me B & J code numbers and trying to acquire this product from me told me that customers in Australia who were buying my product through B & J were now trying to source the same product from persons other than B & J. The question I had was: why were these persons not going through B & J in the usual way? This had not happened before. The only answer was: these people were unhappy with B & J and were cutting them out of the loop. There was no other explanation as far as I was concerned, and this reflected poorly on B & J. It told me B & J were losing their customers. That of course impacted directly on me, and meant my sales to B & J would fall, which they were doing as set out in (a) above. (c) They had managed to lose, for whatever reason, the people with the expertise required to sell my products. I refer principally to Nguyet Nguyen and Tracy Lynam, and the expertise required to sell my products which I set out more fully below. I appreciate from reading the Judgment that Justice White has found that there was a plan involving Bill McCartney, Graeme Love, Nguyet Nguyen and Tracy Lynam to leave B & J and start up a competitive company in the event Orica did not do what they said they would do (ie not change the B & J business). However, I was not a party to any such plan. All I knew in February 2005 was that both these women did not like working for Orica. When I heard from Cavanagh, by email on 16 February 2005, that Nguyet Nguyen was leaving B & J, this fact combined with the falling sales and complaints caused me to decide to leave B & J and move my products elsewhere; and (d) they had created a conflict of interest by acquiring Keith Harris Ltd. I explain the difficulties caused by this below."
4.4.1 Poor B & J sales figures 51This was Mr Bontoux' particular reason (a). 52The primary judge's first observation was that none of the contemporaneous records recorded it as a reason given by Mr Bontoux for terminating the distributorship. It is not entirely clear what his Honour meant by the contemporaneous records, but it must have been the e-mails Mr Bontoux sent to Mr McCartney in February/March 2005. It was put to Mr Bontoux in cross-examination that it was "not a matter you stated in any correspondence in early 2005 with Mr McCartney", to which he replied, "I cannot be one hundred per cent sure"; it was put that it was "not a reason at all" and he said, "It was a factor". 53The e-mail of 17 February 2005 expressed concern "about what is going on in the Australian market for our products", and included that "with all the changes at B & J I have strong doubts about the future for our sales in Australia". This was concern for future sales, and although not expressed to be because of a known fall in sales it was consistent with a belief that sales had fallen in late 2004 and early 2005. Mr Bontoux did not in this or the other e-mails purport to explain his concerns in detail, or to explain to Orica why he was changing distributors. His e-mail to Mr McCann was curt, no more than advising that Ingredients Plus was Clos' "representative agent". With respect, I do not think there is great significance in the absence of specific reference to a current fall in sales, and a current fall in sales can readily enough be seen as the occasion for the concern for future sales. 54The primary judge's second observation was that Mr Bontoux had not mentioned the fall in sales as a reason for terminating the distributorship in his evidence before White J. That is correct, in that there was not specific reference in the affidavit read before White J to concern over a fall in sales, nor indeed reference to concern for future sales. However, although it was not referred to in his affidavit it was known that Mr Bontoux had sent the 17 February 2005 e-mail with its doubts about the future for sales in Australia. In determining whether a belief that sales had fallen in late 2004 and early 2005 was a factor, this would appropriately be added to what he said in his affidavit, and he did say in cross-examination that it was a factor. With respect, the primary judge's observation was not entirely accurate; that reference to concern over sales became part of the evidence before White J, available as a true reflection of Mr Bontoux' concerns. 55The primary judge's third observation was that Mr Bontoux "offered no sales figures to support the claim". There were none in his affidavit. In cross-examination, Mr Bontoux said that he was referring to sales by Clos, that he was able to monitor sales of lavender essence (which was Clos' major commodity) to B & J, but that he did not recall figures and only that he "was not selling lavender any more at that time in big volumes like in the past" and "definitely the volumes of lavender was down a lot". He said, "It was big enough to make me thinking it was going bad and it means it was over 20 per cent". 56No doubt Mr Bontoux' evidence could have been bolstered by sales figures from Clos' records or the records of B & J as purchaser; it could also have been impugned by the respondents through B & J's records of its purchases. Taken by itself, failure of Mr Bontoux (in reality, the appellants' lawyers) to proffer sales figures does not seem to me to be of great significance. The respondents did not impugn it through B & J's records of its purchases, and for what it is worth see at [58]-[59] below as to B & J's sales in late 2004 and early 2005. 57The primary judge's fourth observation was that the figures for B & J's sales to its customers "suggested that sales had not dropped off"; in context, meaning that the B & J sales figures suggested that sales from Clos to B & J had not dropped off. There are two difficulties with this. One difficulty is that sales by B & J for a relatively confined period are a doubtful guide to sales to B & J for that period, since the timing of transactions and stocks held may distort a comparison. The more important difficulty is that B & J's sales figures did fall. 58The primary judge does not appear to have been assisted in this regard. His Honour may have had in mind cross-examination in which Mr Bontoux was taken to sales for the two periods October 2003-February 2004 and October 2004-February 2005, which were similar. Mr Bontoux was speaking of sales over the latter period. Comparison with the former period said nothing as to a fall in sales over the latter period. Mr John O'Connor of B & J provided a spreadsheet of its sales of Clos products, and the respondent's expert accountant Mr Wayne Lonergan, produced a graph as to which he said, that "subsequent to the acquisition of the Bronson and Jacobs business by Orica and prior to the date of the complaint of conduct (March 2005), sales by Bronson & Jacobs of products supplied by Clos d'Aguzon were in decline". The graph was on a small scale, but showed a marked decline (from about $180,000 as at October 2004 to about $80,000 as at February 2005; precision in amount and date is not feasible). 59The respondents submitted that material in one of Mr Potter's reports "called into question" that there was a decline in sales in the period October 2004-February 2005. I do not think it does. It also provides comparisons with earlier periods, rather than information as to a sales trend over the period abovementioned or an extended period which includes it. The respondent's reliance on a sales spike in May 2004, apparently because sales personnel were directed to book as many sales as possible before 31 May 2004 in order to bring a more favourable price in the acquisition by Orica, does not detract from the marked decline. 60In my respectful opinion, the four observations conveying the primary judge's rejection of this reason did not warrant its rejection.
4.4.2 Customer dissatisfaction 61This was Mr Bontoux' particular reason (b). 62Requests for direct purchase from Clos, causing belief that B & J was not providing a good service to customers, had been part of Mr Bontoux' evidence before White J, see para [24] at [29] above. White J had accepted that Mr Bontoux was concerned because the direct inquiries indicated that Australian customers were not sourcing products through B & J, see [186] at [38] above, although in the manner the hearing was conducted that did not bind the primary judge if other evidence led to a different conclusion. 63The primary judge did not find this reason credible because Mr Bontoux "knew that those inquiries were coming from a competitor of Bronson & Jacobs". His Honour's reasoning is not entirely clear and, with respect, the evidence to which he must have been referring did not properly lead to rejection of the reason. 64In cross-examination Mr Bontoux said that the persons in Paris and the United Kingdom who made the direct inquiries of him were regularly in contact with Sydney Essential Oils, and that he deduced that the inquiries were being made on its behalf. There was evidence that Sydney Essential Oils was both a purchaser from B & J of Clos products, and a competitor of B & J. Its position was left rather unclear, but Mr Bontoux said that he believed that it was being prompted by one of its customers to try to obtain products directly. It is difficult to see why this would not credibly have led Mr Bontoux to the view that B & J was not giving satisfaction to some of its customers, and that the customers were seeking to obtain Clos products through Sydney Essential Oils. Even if Clos still sold its product to a customer of Sydney Essential Oils, B & J was not doing a good job and other of B & J's customers might buy essential oils products elsewhere.
4.4.3 Conflict of interest 65This was Mr Bontoux' particular reason (d). 66The explanation in Mr Bontoux' affidavit of "the difficulties caused by" the acquisition of Keith Harris Ltd was - "35. In this area, in early 2005, B & J created yet another problem with their acquisition of Keith Harris. Keith Harris Ltd was a little bit like B & J in that [it] had a wide chemicals distribution business essential oils as a small part of that business. This company had ties to Charabot, and had traditionally pushed Charabot in the market, just as B & J pushed my products. But now Keith Harris became part of B & J. The question was, now whose products would B & J push - mine or Charabot's? I was certainly not going to tolerate a preference for Charabot and become the second string product to that company. I do not know who the essential oil marketers were at Keith Harris, but my impression was they were seasoned campaigners given the success of Keith Harris generally and of Charabot's penetration in the Australian market as I perceived it. In my view, it wouldn't have been hard for them to get the better of Sarah Dalzeil [sic], who as I say, was a newcomer in the business. Had they done so, my product would have become the second string product. 36. In any event, I did [not?] wait around to see what would happen. This question was never resolved because of the events that happened, described above. 37. In my view, it was just another reason to leave B & J." 67The primary judge observed that this was "not raised by Mr Bontoux in any of the contemporaneous correspondence". It was not specifically raised, although Mr Bontoux' point was that as a second string product sales of Clos products would suffer and loss of sales was part of the e-mail of 17 February 2005. It can also be said with some force that, as "just another reason to leave B & J", in the skimpy correspondence there was no particular reason to refer to it, and in cross-examination Mr Bontoux said - "Q. And if this had been a genuine concern of yours, that is the Keith Harris acquisition, it's a point that you would have raised with Bronson & Jacobs, correct? A. By the time I knew that, the relation went wrong already, so the communication about those strategy things was kind of over already, you know. Q. So you didn't bother raising it with Bronson & Jacobs, is that right? A. Exactly. I didn't trust them enough to enter into strategies at that time." 68The primary judge then appears to have thought that Mr Bontoux can not have been concerned about the acquisition of Keith Harris Ltd because he had not made enquiries about it, which inquiries would have told him that his concern was misplaced. This was not raised with Mr Bontoux in cross-examination - he said that he thought the entire business of Keith Harris Ltd had been taken over, and the relevant challenge to him having a genuine concern was in, and was responded to in, the passage last set out. Again, as "just another reason to leave B & J" arising in early 2005 it is readily understandable that Mr Bontoux may not have enquired further. 69The primary judge's grounds for finding Mr Bontoux' reason not credible are, with respect, far from persuasive.
4.5 The second main reason 70The primary judge said - "30 Secondly, Mr Bontoux gave evidence that, because of his concerns about Bronson & Jacobs following Orica's takeover, he had decided that Clos should terminate the Distributorship Agreement and that the only question for him was whether to go to Ingredients Plus or some other distributor. However, there is no contemporaneous evidence suggesting that Mr Bontoux approached other distributors. He said in his affidavit that he could have looked up David Burke who had previously worked for Bronson & Jacobs, who had left by 2005 and who he regarded as another friend and knowledgeable in the area. However, he knew nothing about the business carried on by Mr Burke. In addition, Mr McCartney, when asked to list the competitors of Ingredients Plus and Bronson & Jacobs, did not include Mr Burke's business in his list. It is hard in the light of that evidence to believe that Mr Bontoux regarded Mr Burke's business as a genuine alternative." 71The affidavit evidence concerning Mr Burke to which the primary judge referred is not accurately reflected in this passage. It was - "20. From time to time I receive offers from various people offering to become distributors of the Clos D'Aguzon range of products in various parts of the world. Had there been no Bill McCartney, Graeme Love or Ingredients Plus, I believe I could easily have found another distributor to replace B & J. For example, I could have looked up David Burke, who used to work for B & J in essential oils for many years but had left by 2005. David was another friend, knowledgeable in this area, to whom I could have turned. He knows the Australian market well, and all the industry participants. It would not have been difficult for me to find another distributor who could give me what I wanted in terms of knowledge and skill in essential oil distribution." 72Mr Bontoux did not say that Mr Burke was a potential distributor, or even that Mr Burke had a relevant business, although in cross-examination he said that he thought that Mr Burke was the owner of Scott Aromatics, a distributor of essential oils in Australia in 2005 and "has been pressing me over the years to restart the business with him, so that's the one which was easy for me to go, you know". Mr Bontoux' point was that Mr Burke was knowledgeable of the Australian market "and all the industry participants". He was saying that Mr Burke could provide information and guidance in finding another distributor. With respect, the judge's criticism of Mr Bontoux' evidence in this respect was not justified. 73Nor was there any particular reason for Mr Bontoux to approach other distributors, or to enquire into other distributors, when he had been solicited to appoint Ingredients Plus. It was not necessary for Mr Bontoux to appoint someone else or inquire into appointing someone else, and his failure to inquire can not count against his evidence of what he would have done had he not "gone with Ingredients Plus". Again, with respect, the primary judge's basis for his second main reason is not persuasive.
4.6 The third main reason 74The primary judge said - "31 Thirdly, Mr Bontoux was cross-examined about substitutes for Clos's products. Mr Bontoux no doubt appreciated that this cross-examination was relevant to the question whether Bronson & Jacobs had taken reasonable steps to mitigate its loss. In cross-examination, Mr Bontoux denied that Clos promoted its products as being special and distinctive and denied that it did a certain amount of blending of its own to try to distinguish its product from those of others. However, those denials contradicted evidence given by Mr Bontoux in his affidavit. That evidence was given to explain why Ms Dalziel (a Bronson & Jacobs' employee engaged following the Orica takeover) did not have the necessary knowledge or experience to sell Clos's products." 75In his affidavit Mr Bontoux went into some detail in explaining the desired marketing skills for Clos' essential oils, leading to adverse comparison of Ms Dalziel's skills with those of Ms Nguyen and others. He explained how marketing and service were the key to Clos' essential oils being preferred by end-users, and the explanation included - "27. Firstly, one tries to promote the Clos d'Aguzon brand as something special, even though essential oils have set chemical specifications. We do a certain amount of blending of our own to try to distinguish ourselves, but in the main we are constrained by the specifications we have to meet. The 'brand' is more style than substance." 76The cross-examination of Mr Bontoux included - "Q. Your company promotes its products as having special and distinctive qualities, correct? A. My company is promoting essential oil. Dot. Q. And you promote those products as being special and distinctive, correct? A. No. Q. You promote your brand as something special, correct? A. No. Q. Turn to page 1471, paragraph 27. Just read paragraph 27 to yourself? A. Yes. Q. You agree you promote your brand as something special? A. I mean, what is special with us is the reliability and the service. The long term things. Q. It's important from your perspective that customers trust your product, correct? A. Of course. Q. It's important that they like your product and prefer it to your competitors, correct? A. Yes, of course it's important I get the sale instead of my competitor. Q. And you do a certain amount of blending of your own to try and distinguish your product from those of others? A. No. What we are doing is to blend material we purchase from the farmers to meet the specification. Like, doing all our competitors. Q. Do you do a certain amount of blending of your own to try and distinguish yourselves? A. No. Q. Go back to paragraph 27, please. Look at the second sentence, 'We do a certain amount of blending of our own to try to distinguish' - I think it says 'ourselves'. Do you agree? A. Yes. But what I am answering you, when it comes to lavender, the kind of lavender we sell, you have out of 200 tonnes 100 tonnes will enter the same specification which is the requirement of the customer. So, is that really special? Q. I'm asking you, do you do a certain amount of blending of your own to try and distinguish yourselves. True or false? A. We make blendings to please the customer according to their specification. Q. And to distinguish yourselves, correct? A. I don't know to which extent that is true, so I am in difficulties to answer you." (italics added) 77The primary judge must have been referring to the italicised passages. There is apparent contradiction, but correction and explanation, and the thrust of Mr Bontoux' evidence was at all times that promotion was constrained by the specifications, and marketing and service were the important things. The significance to his appreciation concerning mitigation of loss is not obvious. The degree of contradiction is a material matter in the assessment of Mr Bontoux' evidence, but of itself not a weighty one.
4.6 Mr Bontoux' other reasons 78After giving the three main reasons, the primary judge without more said that "[t]he fact that I do not accept Mr Bontoux's evidence is not the end of the matter" (at [32]), and went on to consider what is now the second issue on appeal. 79His Honour did not deal with Mr Bontoux' particular reason (c) for thinking that B & J was not doing a good job for Clos, namely, that B & J had lost the expertise, principally that of Ms Nguyen and Ms Lynam, thought necessary for sale of Clos' products. Nor did his Honour deal with the related matter that he did not like the persons with whom he dealt at B & J under its new management and did not trust Orica and the new management. 80Failure to deal with particular reason (c) may have been because at a later point his Honour found that it was unlikely that Ms Nguyen and Ms Lynam would have left B & J and gone to Ingredients Plus if the appellants had not breached their duties to the respondents, see [37] at [138] below; and so he excluded that occurrence from consideration of what would have occurred in any event. (I conclude that his Honour was in error in this respect, but that is not to the present point.) Not liking replacements with whom Mr Bontoux dealt could be in the same position. However, the distrust of Orica and B & J's new management described by Mr Bontoux was a different matter, and one which could well have operated on Mr Bontoux' mind. 81The primary judge did not deal with another matter to which Mr Bontoux referred. Mr Bontoux said that B & J after its acquisition by Orica ceased to be "customer focused and responsive to customer's [sic] needs ... fast in terms of processing orders ... generally a nimble smallish boutique chemical company"; that it was "compress[ed] within the Orica mould", with different departments in different states and a new computer system. It was "being turned into a big bureaucracy" which "did not suit my needs". This also could well have operated on Mr Bontoux' mind. 82A further matter was of some significance in deciding whether Mr Bontoux' evidence should be accepted, but was not mentioned. The 17 February 2005 e-mail included, as well as strong doubt about the future for Clos' sales in Australia, that customers were starting to complain "and I may have regretfully to decide to protect my company interest in a different way". If this was a true reflection of Mr Bontoux' views, it deserved consideration. 83In relation to all these matters, it should not be overlooked that White J had found that Mr Bontoux "was unhappy with the Bronson & Jacobs distributorship" (at [186]), see [38] above), and that knowledge that Mr McCartney had an involvement with Ingredients Plus (which on White J's findings was not a breach) would be likely to have disposed him to take Clos' business to where his old friend, experienced in the essential oils business, had gone. The primary judge recognised the relevance of the friendship in considering what on appeal is the second issue, see at [101] below, but not in relation to acceptance of Mr Bontoux' evidence. With respect, the scope of the primary judge's reasoning to rejection of Mr Bontoux' evidence was unduly confined.
4.7 Conclusion as to the first issue 84It was not submitted that White J's finding that Mr McCartney's solicitation of Mr Bontoux was a material cause of Clos changing its distribution arrangements precluded a finding, from Mr Bontoux' evidence, that Clos would have terminated the distributorship in any event. 85This Court's "real review" of the hearing before the primary judge and his Honour's reasons ( Fox v Percy at [25]; see also Lujans v Yarrabee Coal Company Pty Ltd [2008] HCA 51; (2008) 249 ALR 663 at [2], [31]-[32]) is subject to the Fox v Percy constraints, which need not be yet again described. The respondents submitted in particular that they include "the subtle influence of [a witness'] demeanour on [the judge's] determination" and that absence of express reference to demeanour does not mean that it played no part ( Abalos v Australian Postal Commission (1990) 171 CLR 167 at 179), and that it was necessary to be satisfied that the primary judge's advantage in seeing and hearing Mr Bontoux "could not be sufficient to explain or justify [the primary judge's] conclusion" (ibid at 178). 86However, the real review must address the primary judge's reasons. While a subtle influence can not be excluded, they did not refer to any impression received from seeing and hearing Mr Bontoux give evidence. Rather, his Honour gave "main reasons" involving a collection of objective factors leading to the view that Mr Bontoux's reasons for saying he would have terminated the Clos distributorship in any event were not credible and his evidence was not reliable. They were "main reasons", which suggests subsidiary reasons, but the subsidiary reasons were not indicated and must be taken to have been subservient to the validity of the main reasons. 87This Court has an appellate court's advantage, which can be a counter to a trial judge's advantage of the unfolding of the evidence over time, of careful assistance in examination of the evidence free of distraction by other trial issues: see Yarrabee Coal Company Pty Ltd v Lujans [2009] NSWCA 85; (2009) 53 MVR 187 at [3] per Allsop P referring to the court's "capacity for appellate synthesis and perspective". If on examination the objective reasons given by a trial judge for a conclusion as to credibility and a credibility based finding are unsound, the finding is unsound. Thus it was said in Shimokawa v Lewis [2009] NSWCA 266 - " [181] The constraints brought by the trial judge's advantages to the appellate court's review of fact-finding do not exclude recognition of error in the process of fact-finding in other respects. In Abalos v Australian Postal Commission (1990) 171 CLR 167, one of the trilogy of cases said in Fox v Percy at [26] to remind of the limits under which appellate judges typically operate when compared with trial judges, McHugh J (with whom Mason CJ and Deane, Dawson and Gaudron JJ agreed) took from the speech of Lord Sumner in SS Hontestroom v SS Sagaporack (1927) AC 37 at 47 that appellate judges are in a position of disadvantage against the trial judge "unless it can be shown that [the trial judge] has failed to use or has palpably misused his advantage". These words, which have achieved mantra-like status, encompass where the trial judge has made credibility based findings (even expressly by regard to demeanour) for reasons which in whole or in part do not truly go to the reliability or veracity of the relevant evidence, or without taking account of an important consideration or considerations material to evaluation of the credibility or veracity. [182] In those circumstances there comes to the fore the appellate court's advantage of the more mature assessment of the evidence than the pressures of decision-making at trial permitted, or which sometimes comes simply because second thoughts are better thoughts. Credibility determined from or with regard to demeanour is seldom the only basis for fact-finding, and commonly (and in the present case) there must be an evaluation of credibility together with other matters which weigh for or against the ultimate factual findings." 88See also Davis v Veigel [2011] NSWCA 170 at [42], pointing out that "for the finding to be vitiated the error that the primary judge made must be an important one which was material to evaluation of the reliability or veracity of the relevant evidence". 89As to the primary judge's first main reason, for the reasons I have given his Honour's four observations conveying rejection of Mr Bontoux' particular reason (a) did not warrant its rejection; nor was his Honour's rejection of Mr Bontoux's particular reason (b) well founded; nor are his grounds for finding Mr Bontoux' particular reason (d) incredible persuasive. The basis for his Honour's second main reason is also not persuasive and, while there is a basis for the third main reason, it does not in my view make up for the unsoundness of the other main reasons. His Honour did not fully deal with Mr Bontoux' explanation of why he would have terminated the Clos distributorship in any event, or with the e-mail of 17 February 2005, for the light they might shed on whether Mr Bontoux' evidence should be accepted. 90As well, his Honour did not (at least expressly) take into consideration the probabilities. Of course, it may be that Mr Bontoux gave evidence that he would have terminated the Clos distributorship in any event in order to help his old friend Mr McCartney avoid payment of substantial damages. But it could also be said with some force that, as a matter of probability, he might have been caused to terminate the distributorship because he was unhappy with the B & J distributorship and concerned about the direct inquiries (as found by White J at [186], see [38] above), because of his distrust of Orica and B & J's new management and distaste for the new B & J as a cog in the Orica wheel, and because he thought Mr McCartney had been treated badly. There is nothing improbable in what Mr Bontoux said in these respects. These matters deserved consideration in deciding whether Mr Bontoux' evidence should be accepted, and with them would be considered whether Ms Nguyen would have stayed with B & J and the effect of a move to Ingredients Plus on the probabilities. And on the evidence, there were a number of distributors apart from Ingredients Plus, in a competitive market, to which Mr Bontoux could have changed Clos' distributorship. 91In my opinion, it is open to this Court to uphold the appellants' challenge to the primary judge's refusal to accept Mr Bontoux' evidence, and I would do so. That does not mean that Mr Bontoux' evidence should be accepted and a finding made that Clos would have terminated the distributorship in any event. The challenge as upheld is destructive of the primary judge's reasoning to his conclusion, but leaves open whether or not the opposite conclusion should be come to and if not what conclusion should be come to.
4.8 What to do 92We have not seen and heard Mr Bontoux give evidence. Although we can consider the persuasiveness of the reasons he gave in saying that he would have terminated the Clos distributorship in any event, and any matters which detract from their acceptance and their persuasiveness, and while we can have regard to other relevant matters and the probabilities, we lack that important part of fact-finding. It is very material in the present case, when Mr Bontoux' reliability and credibility are put in issue by the respondents. In my opinion, there must be a new trial on the question of whether, through acceptance of his evidence, the Clos distributorship would have been terminated in any event. 93The appellants submitted that this Court could decide the question for itself, while accepting that a new trial would be necessary if that were not accepted. They referred to Beech v Advanced Management Consulting Pty Lt d [2002] NSWCA 311, Murphy v Mark (1977) VR 316 and Backwell v AAA (1997) 1 VR 182. The respondents also did not wish a new trial, and asked that this Court decide for itself if we felt able to do so. 94In Beech v Advanced Management Consulting Pty Lt d it was said at [31] that a new trial was necessary because "[t]he reasons why [the trial judge's finding cannot stand do not lead inevitably to a preference for the evidence of Mr Beech". The appellants submitted that, whereas in that case there was a conflict of evidence between two witnesses, there was no such conflict in the present case and it is "a question of measuring what [Mr Bontoux] said against the background circumstances and inherent probability". However, in the present case the reasons why the primary judge's refusal to accept Mr Bontoux' evidence can not stand do not lead inevitably to acceptance of his evidence, and the cold print of the transcript is inadequate for an assessment of his reliability and credibility. That is so even if there is no conflicting testimony. 95In Murphy v Mark the court reassessed damages, but expressly when "no question of the credit of the medical witnesses was raised" (at 321). That is not this case. In Backwell v AAA both parties asked that the court reassess damages after a jury trial, and a majority in the court was prepared to do so because of that joint request and on the basis of inferred facts which the jury must have accepted. That is also not this case. 96No one would wish a new trial on the parties. However, I remain of the view that there must be a new trial as to the question abovementioned. 97The appellants submitted that, in that event, it should be ordered that the judgment sum and costs paid by them to B & J be returned pending the outcome of the new trial. This appears to have been overlooked in the respondent's submissions. The parties should have the opportunity to make further submissions on the point.
Second issue: the likelihood of termination 98A new trial on whether the Clos distributorship would have been terminated in any event would appropriately, and in my view necessarily, extend to the likelihood of termination. The evidence given by Mr Bontoux expresses relevant considerations, and if repeated its acceptance, even if in part, would be material to the likelihood of termination. In truth, his evidence went and would go to whether the likelihood of termination of the Clos distributorship in any event was a 100 per cent likelihood or something very close to it, and the two questions of acceptance of his evidence, and some lesser likelihood of termination can not sensibly be separated. 99On one view, that makes consideration of the second issue of no utility. However, I propose to deal with the second issue as the evidence now stands, that is, on the assumption that Mr Bontoux' evidence that he would have terminated the Clos distributorship in any event is not accepted (although that leaves rather uncertain what may be acted upon within his evidence such as general dissatisfaction, dislike and distrust). The parties may be assisted in the future course of the proceedings, perhaps even assisted to come to an accommodation.
5.1 The primary judge's reasons 100The primary judge described at [33]-[37] the "context" for determining the likelihood that Clos would have terminated the distributorship at some time following the acquisition of B & J by Orica. The intention was to describe relevant circumstances absent Mr McCartney's breaches contributing to termination of the distributorship as found by White J. 101In summary, the context was - (a) Clos was at liberty to terminate the distributorship at will; (b) Mr Bontoux remained good friends with Mr McCartney, but Mr McCartney did nothing to encourage Mr Bontoux to change distributors; (c) Ingredients Plus would still have been established by Mr Love but, in order to exclude that Mr McCartney had provided working capital in breach of the consultancy agreement, that would not have happened until after the termination of Mr McCartney's consultancy agreement on 26 February 2005; (d) There was some disruption of B & J's business from restructuring and administrative changes, including that some employees were made redundant and the role of others was changed, which "would have caused annoyance to suppliers (including Clos), customers and staff" (at [37]); (e) Ms Nguyen and Ms Lynam were likely, in the sense of more probable than not, to remain with B & J rather than move to Ingredients Plus: his Honour's conclusion in this respect was explained in some detail. 102Matters (a) and (b) were not contentious, but the remaining matters received attention on appeal. 103The primary judge declined to give any weight to the fact that a number of other suppliers terminated their distributorships with B & J following the acquisition by Orica; this was not challenged on appeal. His Honour said also that "the principle derived from Armory v Delamirie (1722) 1 Stra 505; 93 ER 664 is relevant in this context", whereby any uncertainty in deciding whether the distributorship would have been terminated in the absence of the appellants' conduct "should not be allowed to operate in [the appellants'] favour" (at [39]). This also received attention on appeal. 104The primary judge's reasons after describing the context were quite brief. His Honour said - "40 Taking these matters into account, in my opinion, the acquisition of Bronson & Jacobs by Orica increased the risk that Clos would terminate its Distributorship Agreement. Ingredients Plus would have been set up some time after 26 February 2005. Mr Bontoux had a close relationship with Mr McCartney and Mr Bontoux would have known that Mr McCartney had some connection with Ingredients Plus, although Mr McCartney would have said nothing to Mr Bontoux to encourage him to change distributors. The likelihood, however, is that key employees - Ms Nguyen, in particular - would have remained at Bronson & Jacobs. That would have been an important consideration to Mr Bontoux. I deal later in this judgment with the question of precisely what reduction should be made to Orica Investments' damages to take account of these facts." 105When his Honour came to the reduction, he first dealt with the period to 31 May 2009. He said - "52 ... The business that is to be valued for the purpose of calculating damages is the business that Bronson & Jacobs was likely to have had as a result of the Clos Distributorship. That business has two important features. First, it was dependent on retaining the Clos Distributorship. For the reasons I have already given, I think that there was a significant risk that it would not have done so. Secondly, the business was heavily dependent on retaining TP Health as a customer since approximately 60% of the sale of Clos's products was to that customer. In fact, Ingredients Plus did lose TP Health as a customer for lavender oil recently. 53 There is no science to the determination of an appropriate discount. For the reasons I have already given, I think that there was a significant risk that Clos would have left Bronson & Jacobs in any event. But I do not think that it was greater than 50% or anything like it. I also think that some allowance should be made for the risks associated with the loss of TP Health as a customer. Taking these matters into account, I think that Bronson & Jacobs' claim for damages in respect of the initial period should be reduced by a further 20%." 106The loss of T P Health as a customer was not more specifically dealt with in the primary judge's reasons; I come to it below at [145]. Because of the allowance for the loss of T P Health, his Honour's assessment of the likelihood that the Clos distributorship would have been terminated in any event must have been materially less than a 20 per cent likelihood. 107The primary judge then separately addressed the discount for the period after 31 May 2009. His Honour said - "54 Mr Lonergan [the expert accountant for the respondents] argued in his report that Bronson & Jacobs should recover nothing after 31 May 2009 on the basis that at that time Mr McCartney was no longer bound by the restraints in the Share Sale Agreement. I do not accept this argument. By then Clos would have been with Bronson & Jacobs without Mr McCartney for a period of 5 years. The likelihood that Mr McCartney would still be keen to entice Clos away from Bronson & Jacobs and the likelihood of him successfully doing so by that stage would have been small. In those circumstances, I think that I should discount the damages claimed by Bronson & Jacobs in this period by a further 10% (that is, by a total of 30%) to allow for that fact that the application of the discount rate calculated by Mr Potter in this period does not involve the possibility of double counting of the type I referred to earlier and to allow for the fact that there was some small chance that Mr McCartney would, at some time after 31 May 2009, seek to persuade Mr Bontoux to leave Bronson & Jacobs and would succeed in doing so." 108The possibility of double counting to which his Honour referred was part of the discount rate used by Mr Potter for the period to 31 May 2009. Double counting was perceived because it was "intended in part to reflect a risk that [the actual cash flows] would not be earned" (at [51]). The additional 10 per cent partly allowed for the fact that that risk had not been taken into account for the period after 31 May 2009. The assessment of the increased likelihood that the Clos distributorship would have been terminated in any event must have been materially less than a 10 per cent increased likelihood - the primary judge described it as "some small chance". 109The discounts were additional to the discount built in through Mr Potter's use of a 13.4 per cent discount rate to take account of general commercial risk (but not risk peculiar to the B & J essential oils business). Mr Potter thought it a conservative discount rate.
5.2 Appellate review of the discounts 110The appellants accepted that this Court should regard the primary judge's assessment of the discounts as analogous to a discretionary decision, and that it was necessary that they persuade the Court that his Honour had acted on a wrong principle of law, misapprehended the facts or made a wholly erroneous estimation. Unsurprisingly, that was also the respondent's position. Both parties provided helpful submissions, and it is appropriate to explain why I consider that they were correct. 111The likelihood that Clos would have terminated the distributorship quite apart from Mr McCartney's wrongful conduct is a past hypothetical. Speaking of assessment of damages, the court "must form an estimate of the likelihood that the hypothetical situation would have occurred"; it "assesses the degree of probability that [the] event would have occurred": Malec v J C Hutton Pty Ltd (1990) 169 CLR 638 at 639 per Brennan and Dawson JJ; at 643 per Deane, Gaudron and McHugh JJ. This is a necessarily evaluative determination. So also is determining the likelihood of termination of the distributorship necessarily evaluative, and it is the same so far as there is a future element in the period after 31 May 2009. 112There are many such evaluative tasks in the law, in assessing damages and otherwise. Even if they are not properly described as the exercise of a discretion, itself a term with varied use ( Dwyer v Calco Timbers Pty Ltd [2008] HCA 13; (2008) 234 CLR 124 at [37]-[39]), they may attract the principles governing appellate review of discretionary decisions. 113An illustration outside the area of assessment of damages is Singer v Berghouse (1994) 181 CLR 201, where the determination of whether an applicant for provision under the Family Provison Act 1982 had been left without adequate provision for his or her proper maintenance, education and advancement in life was described as strictly a question of fact, albeit with the making of value judgments, but one to which the principles governing appellate review of discretionary decisions should apply (at 210-12 per Mason CJ and Deane and McHugh JJ). Their Honours expressed agreement with the comments of Kirby P in Golosky v Golosky (CA, 5 October 1983, unreported), whose holding to that effect was endorsed - "Unless appellate courts show restraint in disturbing the evaluative determinations of primary decision-makers they will inevitably invite appeals to a different evaluation which, objectively speaking, may be no better than the first. Second opinions in such cases would be bought at the cost of diminishing the finality of litigation in a troublesome area and, sometimes at least, with a burden of costs upon the estate which should not be encouraged." 114Looked at in another way, in Norbis v Norbis (1986) 161 CLR 513 at 518 Mason and Deane JJ described an order as discretionary - " ... because it depends on the application of a very general standard - what is "just and equitable" - which calls for an overall assessment in the light of the factors mentioned in s 79(4) [of the Family Law Act 1975 (C'th)], each of which in turn calls for an assessment of circumstances. Because these assessments call for value judgments in respect of which there is room for reasonable differences of opinion, no particular opinion being uniquely right, the making of the order involves the exercise of a judicial discretion. The contrast is with an order the making of which is dictated by the application of a fixed rule to the facts on which its operation depends. The principles enunciated in House v R were fashioned with a close eye on the characteristics of a discretionary order in the sense which we have outlined. If the questions involved lend themselves to differences of opinion which, within a given range, are legitimate and reasonable answers to the questions, it would be wrong to allow a court of appeal to set aside a judgment at first instance merely because there exists just such a difference of opinion between the judges on appeal and the judge at first instance." 115Returning to the assessment of damages, regard has been had to the nature of the particular task. In Moran v McMahon (1985) 3 NSWLR 700 at 723 Priestley JA regarded the assessment of damages for non-economic loss as akin to the exercise of a discretion, but questioned whether assessment of damages for lost earning capacity was of the same kind - "There does not seem to me to be anything discretionary or quasi- discretionary in the calculation of the amount of money lost by a plaintiff between the date of his injury and the date of the hearing of his claim for damages. Difficult questions of fact may be involved particularly when consideration is being given to the extent to which the plaintiff's injuries restricted his capacity to work but these questions are answered by the trial judge's evaluation of the facts. I do not know that it has ever been suggested that once he comes to a conclusion on the factual material before him he has any discretion to act on any other but that conclusion. Similarly, in regard to the plaintiff's loss of earning capacity from the date of judgment in his case into the future the trial judge is often faced with a difficult question of evaluation. Obviously different minds may evaluate differently the conclusion to be drawn from the factual material. Once again, this type of evaluation seems to me to be of a different kind from the evaluation made of the amount of money appropriate in the circumstances of the plaintiff's case to be included in his damages for the completely non-pecuniary element in his damages of pain, suffering and loss of the amenities of life. Here, the uniqueness of each plaintiff's position, the incommensurability of what it is that has to be valued with ordinary money figures, the lack of any kind of approximate guidance to the trial judge of what are appropriate money figures, the continuing fall in the value of money at inconstant rates and the necessarily differing perceptions of all these matters taken together in the mind of individual judges all seem to me to make this aspect of the assessment of damages different in kind from the other items I have mentioned and to be the basis for the discretionary approach which has for such a considerable time been approved by the authorities." 116In Fuller v Galvin [1995] NSWCA 157 Kirby P drew from Priestley JA's observations a distinction between "pure quasi-discretionary evaluation of quantum of damages" and "reconsideration of the foundation inferences which may be essential to the calculation of damages, eg in cases of economic loss". Mahoney JA declined to intervene in relation to economic loss, as to future economic loss stating that he saw "no reason why another estimate would have intellectual cogency greater than that which the judge adopted". Powell JA said that the questions in assessing economic loss involved "value judgments ... as to what was likely to have happened in the future", and - " That such value judgments are involved to my mind dictates the approach which one must adopt to a case such as this, for, in making of such judgments, there is room for a great variation of approach, and the fact that one may differ from the judgment under appeal does not demonstrate error - error will only be demonstrated if the judgment under appeal is shown to contain one or other of the features referred to in the well-known Judgment of Dixon, Evatt and McTiernan JJ in House v The King ." 117There can be seen some inroad into the suggestion in Moran v McMahon that assessment of damages for past or future economic loss does not attract the discretionary approach. In Burden v Rath (1986) Aust Torts Rep 80-050 Kirby P and Priestley JA found it unnecessary to decide upon the approaches to review of damages for the future for loss earning capacity, but Glass JA said at 67,950 that "an assessment of damages for impaired earning capacity, although it may depend upon some findings of fact, will necessarily be discretionary in nature so far as concerns those elements which lie in the future". In principle, it is the same for the past hypothetical. 118A body of cases has favoured the view of Glass JA. I do not suggest that what follows is exhaustive. 119At an earlier time, in Government Insurance Office of New South Wales v Case (1976) 9 ALR 194 damages for economic loss in proceedings under the Compensation to Relatives Act 1977 were approached by Gibbs J, Stephen J agreeing, by asking whether the trial judge had acted on a wrong principle of law, had misapprehended the facts or had made a wholly erroneous estimate. Jacobs J applied a test of whether the damages were wholly disproportionate. 120In Sherwood v Guneser (1992) 110 FLR 459 the ACT Full Court said at 465, after consideration of Moran v McMahon and with particular reference to Malec v J C Hutton Pty Ltd - "The judgment of Glass JA in Burden v Rath (supra) is consistent with the decision in Malec (supra), as the above passages indicate. Those passages support the view that, where the assessment of economic loss, whether past or future, depends, as it does in this case, upon comparing a factual finding as to what has happened with an established hypothesis as to what might have happened, a substantial element of discretionary judgment is contained in the ultimate assessment." 121In Calder v Boyne Smelters Lt d (1991) 1 Qd R 325 the Queensland Full Court held, after a full consideration including of Moran v McMahon - (a) per Shepherdson J at 341, Kneipp J agreeing, that - "[a]n appellate court will not disturb a primary judge's award of damages for personal injury unless it is convinced that he has acted on a wrong principle of law or that he has misapprehended the facts or that the amount of damages awarded is so low or so high as to be a wholly erroneous estimate of the damage suffered."; (b) per Cooper J at 352, Kneipp J also agreeing, that - "(a) an appellate court will not interfere with an assessment of damages simply because it would have awarded a different figure had it tried the case at first instance; (b) an appellate court will not interfere unless there is shown error in the reasoning of the court at first instance which has led to an award of damages which is beyond the limits of what a sound discretionary judgment could reasonably adopt; (c) the error may be either an error of principle or the misapprehension of the facts; (d) where no apparent error can be shown, error will be inferred if the court is satisfied that the trial judge has made a wholly erroneous estimate of the damages;" 122In State of New South Wales v Moss [2000] NSWCA 133; (2000) 54 NSWLR 536, an appeal from a jury's assessment of damages, Heydon JA (with whom Mason P and Handley JA relevantly agreed) gave full consideration to assessment of damages for lost earning capacity. With reference to Malec v J C Hutton Pty Ltd and other cases, his Honour emphasised at [70]-[71] the imprecision of the process of estimation. His Honour held that the trial judge had satisfactorily explained to the jury the aspects of its task, saying - "87. ... The task of the trier of fact is to form a discretionary judgment by reference to not wholly determinate criteria within fairly wide parameters. Though the trier of fact in arriving at the discretionary judgment must achieve satisfaction that a fair reward is being made, since what is involved is not the finding of historical facts on a balance of probabilities, but the assessment of the value of a chance, it is appropriate to take into account a range of possible outcomes even though the likelihood of any particular outcome being achieved may be no more than a real possibility." 123In Diamond v Simpson (No 1) [2003] NSWCA 67; (2003) Aust Torts Rep 81-695 at [15]-[18] this Court's observations and references to authority were in substance that, in an appeal from an assessment of damages in a personal injuries action where the trial judge's conclusion was based on a high degree of speculation, it was necessary that the court be convinced that the judge acted on a wrong principle or that the amount awarded was an entirely erroneous estimate of the damages to which the party was entitled. 124In Donald v McKeown [2004] NSWCA 285 at [38] Santow JA, with whom Mason P agreed, said that in the "necessarily ... imprecise matter of estimation, carried out within broad parameters" in the assessment of damages by reference to future or hypothetical events, there was "only limited scope for interfering with a trial judge's assessment of loss of earning capacity". 125In Bosebe Pty Ltd v Bakavgas [2009] NSWCA 117 at [83] Hodgson JA declined to interfere with damages for lost earning capacity because "this is not a case where the primary judge has been shown to have applied a wrong principal of law, misapprehended the facts or made a wholly erroneous estimate of the damage suffered." Basten JA dissented in the result, saying at [156] that "[a]though the assessment of contingencies involves an evaluative judgment of the kind with which this Court would not normally interfere", interference was justified because "the figure adopted by the trial judge ... is not one which can be justified on the evidence". 126These cases take up the estimation in, and the need for appellate restraint in review of, the past and future hypotheticals of damages for lost earning capacity. The restraint is in accord with review of a discretionary decision. The cases are in line with like restraint in other areas where there is necessary imprecision and evaluation in determining the likelihood that a past hypothetical event would have occurred or a future hypothetical event will occur. That will, of course, not always be the case: the likelihood may turn on a finding of fact or otherwise not be particularly evaluative. But, as was said in Harper v Bangalow Motors (CA, 24 July 2990, unreported), in an expression of relevant principles endorsed in Diamond v Simpson (No 1) at [15]-[16, the approach of appellate restraint applies "[i]f ... the decision reflects a degree of judicial prophesy [sic] or speculation". 127These cases also accord with the basis for restraint endorsed in Singer v Berghouse , namely, that a different evaluation may be no better and will come at undue expense and detraction from the finality of litigation. That basis for restraint has been applied more broadly. In Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66, involving the discretion to give judicial advice to a trustee, Gummow ACJ and Hayne and Heydon JJ said at [190] that the proceedings - " ... illustrate the particular care that must be taken by appellate courts, in such circumstances, in disturbing the conclusions of a trial judge in arriving at such decisions, except in the limited circumstances explained by this Court in House v R . Unless restraint is employed in cases of the present kind, in disturbing the orders of trial judges, the risk is run that escalating litigation is encouraged; the resolution of the substantive dispute is delayed; legal costs are incurred in disproportion to the value of assets at stake; and other public and private costs are improvidently incurred. Against such outcomes, this Court has frequently expressed, and reasserted, the need for particular appellate restraint." 128The assessment of the likelihood that Clos would have terminated the distributorship in any event had a high degree of judicial prophecy or speculation. In my opinion, the parties were correct in their common position that the primary judge's determination of the discounts for that likelihood should be reviewed on appeal in accordance with the principles governing review of a discretionary decision.
5.3 Review of the primary judge's determination 129The appellants submitted that the judge had misapprehended material facts in arriving at the respective discounts of 20 per cent and 30 per cent, and that the discounts were wholly erroneous estimates of the likelihood that the Clos distributorship would have been terminated in any event. They submitted, in summary, that - It was erroneous to assume that Ingredients Plus would not have been established until after 26 February 2005 (see context matter (c) at [101] above), when it had in fact been established in January 2005, a month before Mr McCartney provided working capital; It was erroneous to proceed on the basis of disruption to B & J's business that "would have caused annoyance to suppliers, including Clos, customers and staff" (see context matter (d) at [101] above), when on Mr Bontoux' evidence, corroborated by others, it was a more grave situation: not just annoyance, but B & J was indeed not doing a good job; It was erroneous to proceed on the basis that Ms Nguyen and Ms Lynam were likely to remain with B & J rather than move to Ingredients Plus (see context matter (e) at [101] above), when the likelihood was that they would not have remained, whereby Mr Bontoux was all the more likely to have terminated the distributorship; The loss of T P Health as a customer of B & J had not been given sufficient weight having regard to the impact on Ingredients Plus' sales. 130The appellants also submitted that the judge had taken the principle derived from Armory v Delamirie beyond its proper scope, and had misapplied it.
5.3.1 Establishing Ingredients Plus 131It is not clear that a month or so in the assumed establishment of Ingredients Plus would matter. In any event, in the past hypothetical Mr McCartney's breach of the consultancy agreement by provision of working capital, found by White J to have been "an indirect contributing factor to Bontoux' decision to cease to use Bronson and Jacobs as a distributor" (at [186], see [38] above), had to be excluded. The primary judge did not err in this respect.
5.3.2 Disruption to B & J's business 132The primary judge did not detail, or even make known, the evidence on which he came to express a finding in terms of annoyance. White J had made a finding in the rather stronger terms, referring only to the new operating system, of "many complaints" from customers and suppliers (at [12], see [26] above). White J had also found that Mr Bontoux "was unhappy with the Bronson & Jacobs distributorship", and was concerned about direct inquiries indicating that customers were bypassing B & J (at [186], see [38] above), and that Clos "was dissatisfied with service provided by Bronson & Jacobs after the Orica takeover" (at [200], see [38] above). This was more than annoyance. White J found also that other suppliers to B & J, not essential oils suppliers, left because of dissatisfaction with B & J's performance: for example, Dow Corning, which went to Ingredients Plus but his Honour found would have left even if Ingredients Plus had not been established (at [241]-[242]) and Tasmanian Alkaloids, ditto (at [245]). 133Apart from Mr Bontoux' evidence, there was evidence from -
5.3.3 Ms Nguyen and Ms Lynam staying on 137This was an important matter, since if Ms Nguyen and Ms Lynam had stayed on Mr Bontoux may have remained with B & J because of his association with and confidence in them; also, if they had stayed on there may not have been the same supplier and customer dissatisfaction. However, much of the dissatisfaction came from the altered procedures and level of service, and Ms Nguyen had been replaced as the customer contact by Ms Dalziel in January 2005 so that the latter's lack of familiarity with the essential oils business which influenced Mr Reece and Mr Gobert, and which Mr Bontoux quite strongly said influenced him, would have been an important source of dissatisfaction even if Mr McCartney had not enticed Clos away. 138The primary judge said as to Ms Nguyen and Ms Lynam staying on - "37 Fifthly, however, I think that the context is one in which Ms Nguyen and Ms Lynam were likely (in the sense of more probable than not) to remain with Bronson & Jacobs rather than move to Ingredients Plus. Ms Nguyen was particularly important to the essential oils business. Mr McCartney, in his affidavit evidence, said that as a result of her 12 years experience at Bronson & Jacobs she had come to know the essential oils business "very well". He also said that Ms Lynam knew the business "well". White J found that Ms Nguyen was dissatisfied with changes made by Orica including the fact that her role was changed so that she no longer dealt with customers. However, His Honour also found (at [48]) that this change was consistent with Orica's well founded concern that Mr McCartney might breach the restraints imposed on him. Orica recognised that Ms Nguyen was a key employee and it was natural in those circumstances that it would seek to protect its business by limiting her role in case she was enticed to leave. It is unlikely that that change would have been made if the Defendants had not breached their duties to the Plaintiff. In addition, White J found (at [73] - [74]) that both Ms Nguyen and Ms Lynam were encouraged to leave Orica by Mr McCartney's promise of support to Ingredients Plus. Finally, Ms Nguyen did not give evidence although it seems clear that she was available to do so. It can be more readily inferred from that fact that she was likely to have stayed with Bronson & Jacobs but for Mr McCartney's breaches of the restraints imposed on him. The departure of Ms Nguyen was the principal reason Mr Bontoux gave in his affidavit in the liability hearing (but not at the hearing before me) for terminating the Distributorship Agreement." 139The appellants disclaimed any submission that, in defining the likelihood of Ms Nguyen and Ms Lynam remaining in terms of more probable than not, the primary judge erroneously applied a balance of probabilities test rather than a degree of probability test to that element of the past hypothetical. 140The principal reason for the primary judge's conclusion as to Ms Nguyen staying on was that her change of role was unlikely to have occurred if the respondents had not breached their duties to B & J. There is force in the appellant's submission that that was not well founded, because the decision to change Ms Nguyen's role was made by Mr Timothy McCann, the General Manager of Orica's Australian operations, and he said that he made it to take Ms Nguyen away from day to day business so she "could concentrate on growing the business". Putting that aside the primary judge's reasoning is astray. 141There was an implicit finding by White J that Mr Denis Monahan, the Orica-appointed General Manager of B & J, told his superiors in Orica that Mr McCartney had in March-April 2004 told him that he (Mr McCartney) might go out on his own and take B & J people with him, and that Orica changed Ms Nguyen's role "apprehending that there were such plans" (at [48]; presumably so that Ms Nguyen's customer contacts would be less valuable to a competing business, or her loss less detrimental to B & J). But there was no breach by Mr McCartney in such talk in March-April 2004. If Orica was concerned that Mr McCartney still had the plans in late 2004 and therefore changed Ms Nguyen's role so that she no longer dealt with customers, that was a matter for it, and its anticipation did not make the change in role a consequence of the breachs later found against Mr McCartney. The change in role, and the dissatisfaction it brought, were to be taken into account as matters contributing to and important in Ms Nguyen leaving B & J in any event. 142The primary judge then referred to White J's finding of encouragement of Ms Nguyen and Ms Lynam to leave B & J by Mr McCartney's promise of support to Ingredients Plus. White J had added "although I also accept Petros' evidence that [Ms Nguyen] was dissatisfied with changes made by Orica" (at [74]). It is clear enough that White J also found that Ms Lynam was dissatisfied, since he reconciled her evidence of significant dissatisfaction with the enticement playing a part. There was breach of cl 15.1(b)(iii) of the share sale agreement in enticing Ms Nguyen and Ms Lynam from their employment with B & J, and the departure of Ms Nguyen was listed by White J amongst the material causes of Clos changing its distribution arrangements (at [200], see [38] above), but the departure of Ms Lynam was not. Even if the enticement of Ms Nguyen and Ms Lynam away be excluded from the past hypothetical, the likelihood of significantly dissatisfied employees leaving to join a new business conducted by one of their former associates, Mr Love, would in my opinion be quite high. 143The primary judge was entitled to have regard to the failure of Ms Nguyen to give evidence. Even so, and recognising that it also involves evaluation, in my opinion the primary judge was in error in concluding that it was more probable than not that Ms Nguyen and Ms Lynam would have remained with B & J but for Mr McCartney's breaches of the share sale agreement. In my opinion, it is more probable than not that they would still have left B & J. I would rate the likelihood in the order of 60-70 per cent, although giving a figure should not mislead that there is any mathematical accuracy. 144This leads to another consideration. On Mr Potter's second approach, Ingredients Plus' sales of Clos products were in large part the basis for the sales B & J would have made. Ingredients Plux sales are likely to have been enhanced by their expertise, and correspondingly the B & J sales are likely to have been adversely affected by their departure; see again the customer dissatisfaction abovementioned. In adopting Mr Potter's second approach the primary judge said that the likelihood was that "key staff" would remain with B & J and that "they would have retained most of the customers who became customers of Ingredients Plus" (at [44]). That is not so, in my view, if Ms Nguyen and Ms Lynam left, and in arriving at a discount regard should be had to the possible inflation of the value of the income stream through the use of Ingredients Plus' sales.
5.3.4 The loss of T P Health as a customer 145T P Health can be seen as a particular instance of the lastmentioned consideration. I have referred at [133] to Mr Flower's evidence. T P Health was a significant purchaser of lavender oil from B & J, about 50 per cent of its sales of that essential oil prior to the acquisition by Orica. It was approached by Ingredients Plus, and went to it: Mr Flower said that it did so because it liked Clos oils and had long used them and "we knew the people at the new Ingredients Plus and preferred to deal with them to the new Orica regime which had been installed at B & J"; he said that "it was difficult to keep dealing with B & J". 146But he also said that in early 2010 T P Health changed to a different supplier; that is, it no longer bought Clos essential oils. 147The appellants submitted that insufficient weight was given to the loss in fact of T P Health, to B & J and then as a purchaser of Clos products at all, or to the risk of loss indicated by the loss in fact. However, the primary judge specifically paid regard to it, and any insufficiency in the weight given is revealed in the discounts at which his Honour arrived.
5.3.5 Armory v Delamirie 148It is appropriate to set out what the primary judge said - "39 Lastly, I think that the principle derived from Armory v Delamirie (1722) 1 Stra 505; 93 ER 664 is relevant in this context. That principle was stated in these terms by Handley JA (with whom Mason P and Beazley JA agreed) in Houghton v Immer (1997) 44 NSWLR 46 at 59: '[T]he Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party "whose actions have made an accurate determination so problematic." (quoting Hodgson J in Investments Pty Ltd v Howard Chia Investments Pty Ltd (1989) 24 NSWLR 499 at 508)' I do not think that I should readily infer that it was likely that Clos would have left Bronson & Jacobs in the absence of the Defendants' conduct when that conduct was directed at achieving that very goal. One might well ask why the Defendants did what they did if they thought that Clos would have changed distributors in any event. Mr Sullivan's answer to that question was to say that their conduct should be seen as an example of abundant caution. But it is clear that they went to considerable lengths to attract Clos away from Bronson & Jacobs. As a consequence of their conduct, it is impossible to know now with any certainty what Clos would have done. That uncertainty should not be allowed to operate in the Defendants' favour." 149The appellants submitted that Armory v Delamirie was misapplied by his Honour, because the principle for which it stood was confined to reduction in the need for proof when the relevant evidence was in the control of the opposite party. They said that it was an instance of the Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 proposition that "all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted" (per Lord Mansfield at [65]; 970), and that the assessment in a robust manner spoken of in Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 was only where accurate determination was problematic because the opposite party was in control of the relevant evidence. They said that the primary judge was incorrect in resolving uncertainty against them because they were wrongdoers and their conduct was directed at Clos leaving B & J. 150In Armory v Delamirie the defendant had taken and kept a jewel from its finder, and the jury was directed that "unless the defendant did produce the jewel, and show it not to be of the finest water, they should presume the strongest against him, and make the value of the best jewels the measure of their damages". But it is necessary to look beyond these few lines in 1722. 151In LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 2) (1989) 24 NSWLR 499 the defendant had trespassed on the plaintiff's land, putting up scaffolding which it used in construction of a building on its own adjacent land. The assessment of damages involved what the defendant would otherwise have done, that is, the value to it of using the plaintiff's air space. Hodgson J (as his Honour then was) said at 508 - "It is impossible to be certain which course Chia would have taken, if it had refrained from trespassing: Chia's own unlawful act in trespassing, plus the absence of any of Chia's decision-makers from the witness box, have made such a decision highly problematic. I think in these circumstances, the Court is justified in taking the course taken in Armory v Delamirie (1722) 1 Stra 505; 93 ER 664, and resolving the question of value against the party whose actions have made an accurate determination so problematic." 152This was not limited to the absence of the defendant's decision-makers from the witness box. The defendant's "own unlawful act in trespassing" had created the need for a finding on an uncertain matter, which the absence from the witness box did not ameliorate. And his Honour did not equate the circumstances with those in Armory v Delamirie , but considered that he was justified in "taking the course in that case": that is, taking the upper limit of the value of the air space to the defendant. 153In Houghton v Immer (No 155) Pty Ltd at 59 Handley JA also founded the robust assessment on the defendants' wrongdoing, as well as their failure to keep records: the passage is more full than that cited by the primary judge - "The defendants, having improved common property without lawful authority, and attempted to effect a fraud on the minority, are wrongdoers, and their failure to keep and produce proper accounts of their actual expenditure on the common property has made it difficult to assess the compensation due to the plaintiff: compare Armory v Delamirie (1722) 1 Stra 505; 93 ER 664. In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party 'whose actions have made an accurate determination so problematic': see LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 at 508." 154Mason P and Beazley JA agreed with his Honour. Handley JA also did not equate the circumstances with those in Armory v Delamirie . His Honour took the course taken in Armory v Delamirie because of the defendant's wrongdoing, not only because the defendants failed to keep proper records, and endorsed L J P Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 2). 155Albeit without reference to L J P Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 2) or Houghton v Immer (No 155) Pty Ltd, in Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 I said - "246 Tyco was a wrongdoer, and on the questions of fact involved in valuing the benefit to Optus of keeping the equivalent leftover equipment could not insist on an unrealistic level of proof. The presumption against the wrongdoer in Armory v Delamirie (1722) 1 Sta 505; 93 ER 664 goes beyond where the wrong has positively made it difficult for the victim to prove its damages, and extends to where the wrong has thrust the victim into a difficult task of proving a past hypothetical: see generally Waddams, " Damages: Assessment and Uncertainties ", (1998) 13 JCL 5L5, and in particular at 58 the dictum of Learned Hand J in L Albert & Son v Armstrong Rubber Co 178 F 2 d 182 (1949) at 189, speaking of proof of what would have been earned had a contract been performed, that 'it is a common expedient, and a just one, in such situations to put the peril of the answer upon that party who by his wrong has made the issue relevant to the rights of the other'." 156Armory v Delamirie , L J P Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 2) and Houghton v Immer (No 155) Pty Ltd were footnoted in the reasons of Gleeson CJ and McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ in Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388 at [74] for the proposition that the trial judge on remitter "may think it proper to draw inferences in favour of [the plaintiffs] if it is concluded that the respondent's wrong itself made quantification difficult". The quantification was of loss or damage through undertaking financial obligations, by no means involving the defendant's control of relevant evidence. 157In State of New South Wales v Burton [2008] NSWCA 319 the principal issue was the chance of a better outcome if the plaintiff had been provided with early counselling and appropriate psychological or psychiatric care. Basten JA, with whom Allsop P and Handley AJA agreed, cited L J P Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 2) and Houghton v Immer (No 155) Pty Ltd and said that "[t]he appropriateness of drawing inferences in favour of a plaintiff in such circumstances" was approved in Murphy v Overton Investments Pty Ltd (at [107]-[108]). His Honour identified a range from 16 per cent to 20 per cent for the lost chance, and said (at [110]) - "Although the onus is on the plaintiff to identify the value of the lost chance, in accordance with the authorities referred to above, it is reasonable to err on the side of generosity, to avoid the negligent defendant obtaining too great a benefit of the doubt from uncertainty as to the causes and treatment of psychiatric conditions. Taking these factors into account, I would assess the value of the lost chance at 20%." 158Such a course is not a substitute for proof of loss, or an invitation to punishment rather than compensation. It need not be taken, but may be; many assessments of future economic loss from impairment of earning capacity, for example, involve uncertainty, but an approach of resolving the uncertainty against the wrongdoer is generally not taken. Where within the proved case there is a range, however, the wrongdoer can hardly complain if the loss is found at the upper end of the range. 159L J P Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 2) and Houghton v Immer (No 155) Pty Ltd were distinguished by Rolfe J in Lavender View Pty Ltd v North Sydney Council [1999] NSWSC 255; (1999) 104 LGERA 255. His Honour regarded Armory v Delamirie as a different case from the case before him, and did not think that any conduct on the defendant's part had caused the plaintiff difficulty in quantifying its damages; he applied the "the fundamental proposition that the onus is on the plaintiff ... to prove the amount of damages" (at [23]). A robust approach against a defendant whose wrongdoing has required the plaintiff to prove its damages, where proof of the damages involves uncertainty, is not inconsistent with that proposition. Indeed, the proposition does not always hold good, see the particular situation of a claim for reliance loss caused by breach of contract described by Hodgson JA (Allsop P and Macfarlan JA agreeing) in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268; (2010) 15 BPR 28,563 at [163] - "In those cases where it is not possible for a plaintiff to prove whether or to what extent performance of a contract would have been profitable, it can seek to recover expenses reasonably incurred and wasted on the contract, albeit that it cannot recover more than would have been recovered by performance of the contract. However, in those cases where a contract has been rescinded for breach, making it impossible for the plaintiff to prove that it would have recovered those expenses from performance of the contract, the onus shifts to the defendant to prove that it would not have done so: Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64." 160By "the principle derived from" Armory v Delamirie the primary judge meant the course taken in that case: his Honour was not confining himself to difficulties in proof because an opposite party controlled relevant evidence. The course in the present case was one of not readily inferring that Clos would have terminated the distributorship in any event. His Honour considered that taking that course was appropriate because the appellants' wrongdoing had required resolution of the uncertainty of the likelihood of it doing so. That was open on the authorities to which I have referred, and there was no error. 161As will appear, it does not matter. I consider that the primary judge's percentage discounts should be displaced, and in my replacement estimations I do not think it necessary to resolve uncertainty against the appellants.
5.3.6 Conclusion as to the second issue 162I have concluded that the primary judge's description of the disruption to B & J's business was not adequate, and that the likelihood of Ms Nguyen and Ms Lynam leaving B & J was greater than that at which his Honour arrived. In these respects I consider that, allowing for their elements of evaluation, his Honour misapprehended the facts. Put another way, I consider that the discounts to which his Honour came were appeallably erroneous; that is likely to have been because of misapprehension of the level of disruption and consequent dissatisfaction which would have operated on Mr Bontoux' mind and the influence towards termination of the distributorship of departure of Ms Nguyen and Ms Lynam from B & J. In my opinion, when approached as a discretionary decision his Honour's percentage discounts can and should be displaced. 163The primary judge correctly said that there is no science in arriving at an appropriate discount, and that goes for the replacement percentage discounts. In my opinion, it was more probable than not that Clos would have terminated the distributorship in any event in early 2005. I would assess it as a 65 per cent probability. Allowing also for the likelihood of loss of T P Health as a customer, the damages for the period to 31 May 2009 should be reduced by 65 per cent. For the period after 31 May 2009, which received little separate attention on appeal, I see no reason to depart from the 10 per cent increment, meaning a reduction by 75 per cent. Again, the figures should not be taken to mean mathematical accuracy. 164On my calculation, this would reduce the damages to $612,917 plus interest.
Third issue: the 30 per cent profit margin 165The trial judge said - "46 Mr Potter obtained his figures for Bronson & Jacobs' gross margin from a spreadsheet prepared by Mr O'Connor. That spreadsheet contains a complete list of Clos products sold by Bronson & Jacobs and, for each item on that list, specifies the costs of sale. Mr Sullivan pointed out that, in some cases, the figures recorded in that spreadsheet seemed to be absurd. For example, there were entries for significant sales where no costs were recorded against those sales. There were others where the costs of sale were equal to or greater than the cost of the product. Mr Sullivan cross-examined both Mr O'Connor and Mr Potter about these discrepancies. Both witnesses said that they were unable to give an explanation of them without investigating each sale. Mr O'Connor suggested that, in some cases, the discrepancies could have arisen as a consequence of a stocktake which revealed the presence of un-recorded stock or the absence of recorded stock. Mr Potter said that there were a number of possible explanations and that it was not unusual in his experience to find anomalies of that sort in large data sets. Mr Potter also pointed out that the margin he used (32%) was consistent with the margin achieved by Ingredients Plus. 47 I do not accept Mr Sullivan's submissions that the figures used by Mr Potter for Bronson & Jacobs' gross margin were unreliable. The critical figures are the total figure for sales and the total figure for the costs associated with those sales. I do not think that the points raised by Mr Sullivan cast doubt on the reliability of those figures. It is possible that mistakes were made in recording amounts against particular sales. It is possible that, on some occasions, the costs of sale were apportioned unequally against a group of sales for one reason or another. Similarly, it is possible, as Mr O'Connor said, that some of the discrepancies arise from adjustments following a stocktake. But I do not think that it follows from that the figures as a whole are unreliable. That is particularly so in circumstances where the gross margin achieved by Bronson & Jacobs does not seem unreasonable when compared with the gross margin achieved by Ingredients Plus." 166The appellants submitted, in summary, that the discrepancies in the figures recorded in the spreadsheet made it so unreliable that the gross profit margin derived by Mr Potter could not be supported; and further, that the gross margin achieved by Ingredients Plus was not consistent with that margin. They submitted that uncertainty due to absence of evidence should generally be resolved against the party which could and should have called the evidence (see LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 at [12]. They pointed to an affidavit of Ms Nicole Pearce, the Financial Controller of Ingredients Plus, with figures for sales of Clos products in 2008/9, for a gross profit margin of 24.7 per cent, and submitted that Mr Potter's calculations should have used that gross profit margin. 167There were discrepancies in the spreadsheet, of which the primary judge gave examples. They were not explained in the evidence; indeed, Mr O'Connor said that he could not explain them, although he gave possible explanations. The possible explanations were unremarkable occasions of slips in primary record-keeping. 168Mr Potter did not regard the discrepancies as significant to the overall reliability of the derived gross profit margin. He said that it was not unusual to see "anomalies" in a "large data set of sales", and that they were small amounts relative to the sales of the business; he said that he "did not think they were anomalies of note". He gave instances from his experience, and said that "I have seen that in a lot of data sets and it didn't raise concerns for me". It did not affect his opinion as to gross margins or otherwise. 169Primary record-keeping, and compilations such as the spreadsheet, are not always free of discrepancies, nor are the discrepancies always fully explained. The ideal in record keeping and in the presentation of evidence is seldom achieved, and the tribunal of fact is not obliged to reject a claim or one of its components when it is not attained. It was well open to the primary judge to conclude that the total figures for sales and costs of sales were sufficiently reliable, in the light of the evidence of Mr O'Connor and Mr Potter, to support Mr Potter's gross profit margin. I do not think error has been shown in his Honour doing so. 170The primary judge's reference to the gross profit margin achieved by Ingredients Plus was no more than confirmatory. Further, it was not in terms of consistency, but was that the B & J gross profit margin "does not seem unreasonable when compared with" the Ingredients Plus gross profit margin. 171We were not referred to any evidence which would have assisted the primary judge to compare the gross profit margins of 30 per cent and 24.7 per cent. In particular, we were not referred to evidence of Mr Lonergan or cross-examination of Mr Potter to the effect that the difference was so great as to cast doubt on the B & J gross profit margin, and Mr Potter considered that the two figures were consistent. The primary judge tested the 30 per cent gross profit margin by considering unreasonableness through comparison. I do not think it has been shown that he was in error in failing to see unreasonableness. 172The appellants' challenge to the 30 per cent gross profit margin should not succeed.
Fourth issue: deduction for overheads 173The primary judge said that B & J had very substantial overheads whether or not it retained the Clos distributorship, and that following its acquisition by Orica a number of the overheads were absorbed by Orica. His Honour asked himself what incremental costs B & J would have incurred if it had retained the Clos distributorship. He referred to a general statement by Mr Lonergan that "if you lose a couple of million dollars of sales you cut overheads no matter who you are", and observed that Mr Lonergan "did not attempt to identify what those costs might be in this case" (at [49]). 174The primary judge continued - "50 Despite [counsel's criticism of Mr Potter's decision to make no allowance for overheads], I think the approach taken by Mr Potter was reasonable. Mr Potter accepted that there would be some overheads associated with the Clos Distributorship. However, he thought that those overheads were likely to be negligible. In his view, given the size of Bronson & Jacobs and of Orica, in particular, it was reasonable to assume that most overheads associated with the Clos Distributorship would be absorbed by the existing business. In addition, he took the same approach to the additional costs incurred by Bronson & Jacobs in seeking to find a substitute supplier to Clos. He assumed that those costs would be absorbed as part of the business and he did not include those costs in calculating Bronson and Jacob's loss, although, subject to any failure to mitigate on the part of Bronson & Jacobs, they were clearly recoverable. Consequently, to some extent at least, any incremental costs that Bronson & Jacobs might have incurred in keeping the Clos Distributorship were offset by the costs incurred by Bronson & Jacobs in searching for an alternative for which Mr Potter made no allowance at all. In my opinion that was a reasonable approach and I do not think any adjustment needs to be made to Mr Potter's calculations to take account of these matters." 175A precise mathematical analysis was not possible. The appellants pointed to net profit figures for Ingredients Plus in Ms Pearce's affidavit, in the range of 4 to 11 per cent, and to estimates by Mr McCartney and Ms Pearce of B & J net profit figures of around 5-8 per cent on Clos products prior to the acquisition by Orica. They said that direct costs such as packaging and consumables relating to Clos products would not be absorbed into B & J's business, and referred to evidence of Mr Mario Licciardi that under Orica's system the costs of warehousing and administration were attributed to products according to standard formulae. They submitted that there were substantial costs, including the costs of the significant time spent by Ms Nguyen and Ms Lynam selling Clos products, which could not be ignored as overheads. 176The appellants accepted that Clos products would have been "a very tiny fraction" of Orica's turnover. The Ingredients Plus figures were not a clear or particularly useful guide to B & J's operations as part of Orica. The earlier B & J net profit figures were not of great significance after its acquisition by Orica, nor was the internal attribution of overheads to products according to formulae. 177No doubt there were some overheads incurred solely in relation to Clos products, as the primary judge accepted, but Mr Potter fully explained why he considered that most of B & J's operating expenses would be shared with other product lines and other divisions within Orica and would be "materially fixed rather than variable in respect of the sale of Clos and substitute product" (First Report, paras 4.18-4.32; see also Reply Report paras 8.1-8.9). The cross-examination of Mr Potter made no headway. Mr Lonergan said in his report that it was "not reasonable to expect that no overhead or other costs of any description and of any amount were incurred" in relation to the sale of Clos products, in context, meaning costs additional to Orica's operating costs. In the cross-examination of Mr Lonergan he gave the general evidence abovementioned and agreed that he had not quantified the incremental difference in overheads. 178Mr Potter did not say that there would be no incremental overhead costs at all, but that they were likely to be small. He gave them recognition by offsetting the B & J costs of seeking to find a substitute supplier; those costs were quantified by Mr Potter at approximately $180,000. The primary judge had divergent opinions of two experienced accountants; Mr Potter's opinion was reasoned and not unreasonable, and Mr Lonergan's opinion did not command acceptance. It was open to the primary judge to prefer Mr Potter's opinion, and no error has been shown in his Honour's acceptance of Mr Potter's approach.
Fifth issue: mitigation of loss 179With the termination of the Clos distributorship, B & J set about finding alternative suppliers of the essential oils which Clos had supplied and marketing those essential oils to its customers in place of the Clos products. This involved persuading the customers that they were appropriate substitutes. The task was given to Ms Dalziel, who had available the assistance of (amongst others) Mr Barry Clark. Although Ms Dalziel was inexperienced in the essential oils business, Mr Clark had extensive experience and had been a consultant to B & J since 2000. 180The appellants submitted to the primary judge that B & J had failed to mitigate its loss because alternative suppliers were readily available and at least one alternative supplier of every product was noted on stock cards part of its records, and because of criticisms of what Ms Dalziel had done. 181The primary judge did not accept the submissions, for reasons appearing in the following paragraphs - "56 In my opinion, Bronson & Jacobs did not fail to mitigate its loss. The question is not so much what Bronson & Jacobs might have done to mitigate its loss as what it did do and whether, in all the circumstances, that was reasonable. As Lord MacMillan said in Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452 at 506: '[The] law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.' That passage was quoted with approval by Yeldham J in Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 at 9. One way of testing whether what the plaintiff did was reasonable is to look at the alternative courses available to it. But ultimately the question is not whether there was a better way of doing things but whether what the plaintiff did was reasonable. 57 Bronson & Jacobs was placed in a difficult position as a consequence of the Defendants' conduct. It lost key personnel who had established relations with customers. The Distributorship Agreement with Clos was terminated with little warning. In response to these events Bronson & Jacobs gave to Ms Dalziel the task of finding alternative suppliers. Ms Dalziel had been engaged by Bronson & Jacobs in December 2004 as the Product Manager - Essential Oils and Aromatic Chemicals. She did not have experience of the essential oils business at that time. However, Mr Clark had worked as a consultant for Bronson & Jacobs since 2000 following the acquisition by Bronson & Jacobs of the fragrance manufacturing part of Quest International's business (where Mr Clark had worked for approximately 37 years). He had extensive experience in the industry and was available to assist Ms Dalziel. Ms Dalziel gave evidence and she struck me as a competent and intelligent person. 58 Ms Dalziel gave evidence of the extensive steps she took to find alternative suppliers. She put in place a committee to assist her. She searched for suppliers of alternative products, prepared samples of Clos's products to send to those suppliers and asked them to prepare samples of substitute products to those supplied by Clos. She then evaluated those samples and sought to convince customers that they were appropriate substitutes. Mr McCartney, Mr Love and Mr Clark were critical of this process. Mr McCartney said that it was a "rather enormous exercise" that it was unnecessary to carry out. Mr Clark says that it is not what he would have done, although he did not say that to Ms Dalziel at the time. In addition, he conceded in cross-examination that he thought that her actions were reasonable. 59 It may be that someone with the experience of Mr McCartney's [sic] would have approached the task confronting Ms Dalziel differently. Whether that would have made any difference is far from clear. Clos undoubtedly had a good reputation and produced products of a high quality. Many of Bronson & Jacobs' customers were used to those products. It is one thing to say that they would have accepted a substitute if Clos's products had become unavailable. It is another thing to say that they could have been persuaded to accept an alternative when they could acquire the product that they were used to from people with whom they were used to dealing simply be swapping suppliers. In any event, the question is not whether Bronson & Jacobs could have done a better job than it did to keep the customers it had in the difficult circumstances it found itself in. Rather, the question is whether it took reasonable steps to keep those customers. In my opinion it did." 182The appellants did not dispute his Honour's formulation of the question for his determination. They challenged the answer to the question. 183The appellants submitted that alternative suppliers could readily have been sourced from the stock cards and could and should immediately have been approached, and that the evidence showed that customers had already approved the alternative suppliers. Thus, they submitted, it was easy for B & J to obtain and provide to its customers acceptable substitute products shortly after March 2005, whereby it would not have suffered any loss. Their submissions on appeal did not take up the criticisms of Ms Dalziel, save so far as she did not resort to the stock cards. 184Even if this be correct, it is not clear that B & J would not have suffered any loss at all in coping with the sudden loss of the distributorship. However, I do not think that the appellants, on whom the burden of proof rested (eg Roper v Johnson (1873) LR 8 CP 167; TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130), established that B & J acted unreasonably. 185The evidence was rather confused and incomplete and, with respect, could have been more fully explained by the judge. Mr McCartney gave evidence of stock cards on which approved alternative suppliers were recorded. Mr Clark confirmed their existence, and said that the alternative supplier for each customer was also entered on the Berger computer system. It appears that the stock cards were lost when B & J moved premises in late 2006. The Berger computer record was not further explained (although it seems that it was replaced by the SAP system at some point; perhaps the record was lost, but there was no evidence). Ms Dalziel was aware of the stock cards, but was not aware that they recorded alternative suppliers for each customer. She could have enquired of others, Ms Francis Leung and Ms Sue Rennie, purchasing officers for essential oils, being identified, although she was unable to say whether or not she had done so; whoever she asked, she said she was directed to the Berger computer system. Ms Leung and Ms Rennie did not give evidence, and what would have been learnt from the computer system was not further explained. Ms Dalziel was not told, by Mr Clark or anyone else, that substitute products were already identified or were stated on the stock cards. 186The primary judge made no findings as to this evidence, although he referred at [55] to Mr McCartney's evidence of a "policy" to keep the stock cards and may have found that they were kept. There is no reason not to calculate that they were. 187The absence of findings may have been because his Honour's conclusion appears to have rested on evidence of Mr Clark in cross-examination. Part of Mr Clarke's job at the time was sourcing and evaluating alternative supply, and he said - "Q. And you knew that Ms Dalziel and others were relying on you to fulfil your obligations under your consultancy agreement, correct? A. Yes. Q. And I take it, conformably with the answers that you've just given, if Ms Dalziel had been doing anything unreasonable or inappropriate you would have felt yourself duty bound to point that out, correct? A. Correct. Q. So it's fair to say this, isn't it, there's no definitive right or wrong way of locating alternative suppliers? A. There's no difference. Q. I'm sorry. There may be no single right way of finding an alternative supplier? You might have to adopt various strategies? A. Correct. Q. And consistently with that, there was a range of strategies which Ms Dalziel could have deployed to find an alternative supply, correct? A. Yes. Q. And what she was doing was within that range of reasonable strategies, correct? A. Yes. Q. Now, in paragraph 20 of your affidavit you say that the 'the course Sarah embarked upon is not what I would have done'. Do you see that? A. Yes. Q. And you say you didn't question the wisdom of her actions at the time? A. She was the boss so -- Q. That's because you regarded her actions as reasonable, even if not precisely what you might have done in the circumstances? A. I thought her actions were reasonable, yes." 188It may be that the stock cards or the computer system provided a convenient means of identifying alternative suppliers, and that Ms Dalziel failed to resort to them. But Mr Clark, who knew of the stock cards with their record of alternative suppliers, did not cause resort to them. His criticism of Ms Dalziel ("not what I would have done"), not communicated at the time, was in relation to sending samples of Clos products to international suppliers for evaluation of replacement essential oils, not in relation to failing to resort to the stock cards or the computer system. He as an experienced person and consultant to B & J thought Ms Dalziel acted reasonably. 189This evidence was all but fatal to the discharge by B & J of its burden of proof. No error has been shown in the primary judge's conclusion that B & J acted reasonably.
The result 190The primary judge's assessment of damages can not stand, and the judgment must be set aside. It may be that the parties, more particularly the appellants, are content to proceed on the basis that Mr Bontoux' evidence is not accepted and the damages are $612,917 plus interest. If not, there must be the limited new trial. 191The parties should have the opportunity to verify my calculation, and also to consider the future course of the proceedings including whether they can now come to an accommodation. Because the disposition of costs could depend on the detail of our decision, and having in mind the offer(s) presently not known to us which brought the element of indemnity costs in the primary judge's orders, we were asked to defer consideration of costs. I propose that the only orders at the present time be -
Amendments 01 December 2011 - Internal cross reference added. Amended paragraphs: Para [106] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 November 2011
McCartney & Ors
Orica Investments Pty Ltd & Ors
(1990) 171 CLR 167
(1997) 1 VR 182
(1991) 1 Qd R 325
(2008) 234 CLR 124
(2003) 214 CLR 118
(1976) 9 ALR 194
(1997) 44 NSWLR 46
(1999) 104 LGERA 255
(1989) 24 NSWLR 499
(2008) 249 ALR 663
(2008) 237 CLR 66
(1990) 169 CLR 638
(1985) 3 NSWLR 700
(2004) 216 CLR 388
(1986) 161 CLR 513
(1994) 181 CLR 201
(1992) 110 FLR 459
(2000) 54 NSWLR 536
(1989) 16 NSWLR 130
(2009) 53 MVR 187
(1990) 24 NSWLR 499
(1991) 174 CLR 64
(1990) 24 NSWLR 499
[2008] HCA 42
[2003] HCA 22
[2008] HCA 51