Milicevic & Anor v Ferrari East Pty Ltd & Ors

ing Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 Houghton v Immer (1997) 44 NSWLR 46 J Lauritzen AS v Wijsmuller BV [1990] 1 Lloyd's Rep 1 Jireh International Pty Ltd v Western Export Services Inc [2011] NSWCA 137 Jones v Dunkel (1959) 101 CLR 298 King v Adams [2016] NSWSC 1798 Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72 Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234 Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Financial Ltd (2010) 241 CLR 357; [2010] HCA 31 Moratic Pty Ltd v Lawrence James Gordon (2007) 13 BPR 24,713; [2007] NSWSC 5 National Australia Bank Ltd v Dionys [2016] NSWCA 242 O'Connor v O'Connor [2021] NSWSC 1056 Pennington v Norris (1956) 96 CLR 10; [1956] HCA 26 Perreira v Director of Public Prosecutions (1988) 82 ALR 217; [1988] HCA 57 Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 Re Continental C&G Rubber Co Pty Ltd (1919) 27 CLR 194 Realestate.com.au Pty Ltd v Hardingham (2022) 406 ALR 678; [2022] HCA 39 Roxborough v Rothmans (2001) 208 CLR 516; [2001] HCA 68 Scanlan's New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 Sykes v Reserve Bank of Australia 88 FCR 511; [1998] FCA 1405 Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5 Ting v Blanche (1993) 118 ALR 543 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 Troulis v Vamvoukakis [1998] NSWCA 237 Urusoglu v MSU Management Pty Ltd [2011] NSWSC 54 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; (1992) 109 ALR 247 Watson v Foxman (1995) 49 NSWLR 315 Willett v Thomas [2012] NSWCA 97 Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373; [2019] FCAC 167 Texts Cited: J D Heydon, Heydon on Contract (2019, Thomson Reuters) N Seddon, Cheshire and Fifoot - Law of Contract (11th ed, 2017, LexisNexis) Category: Principal judgment Parties: Haris Milicevic (First Plaintiff/First Cross-Defendant) Jasmine Milicevic (Second Plaintiff/Second Cross-Defendant) Ferrari East Pty Ltd (First Defendant/Cross-Claimant) Gerard Ferrari (Second Defendant) Bevan Ferrari (Third Defendant) Representation: Counsel: R Clark (Plaintiffs/Cross-Defendants) J Young with A Lim (Defendants/Cross-Claimant)

Solicitors: Mitry Lawyers (Plaintiffs/Cross-Defendants) Gilchrist Connell (Defendants/Cross-Claimant) File Number(s): 2018/384221 Publication restriction: Nil

JUDGMENT

1. These proceedings involve competing claims arising out of events in 2013 in relation to the plaintiffs' interest in a joint venture that operated a group of formalwear concessions located in Myer and a formalwear store at Bondi Junction (Myer JV).
2. The Myer JV was established in 2010 by the first plaintiff, Haris Milicevic, and Longstaff Trading Pty Ltd (formerly trading as Belgravia Formalwear Pty Ltd) (Belgravia). It was conducted through an incorporated entity, Dynamic Platinum Group Pty Ltd (Dynamic), as the trustee for the Spurling JV Unit Trust (JV Trust).
3. Mr Milicevic was a director and equal shareholder of Dynamic, and the day-to-day manager of the Myer JV business. The second plaintiff, Jasmine Milicevic (who is Mr Milicevic's wife), and Belgravia held the units in the JV Trust.
4. On 1 October 2013, the first defendant, Ferrari East Pty Ltd (Ferrari East), took control of the Myer JV business and possession of the stores and assets used to conduct that business, including the stock and fit-out. It did so having completed a Business Sale Agreement (BSA) with Belgravia, pursuant to which Ferrari East acquired Belgravia's formalwear "Business", "Assets" and its stake in the Myer JV, and having agreed a separate deal with Mr Milicevic in relation to his "60% of the Myer JV".
5. The agreement in relation to Mr Milicevic's interest in the Myer JV was negotiated by the second and third defendants, Gerard Ferrari and Bevan Ferrari, and was not documented. Dynamic was not a party to that agreement nor to the BSA.
6. Shortly after Ferrari East took over the Myer JV business, Belgravia claimed it was owed money for stock and store fit-outs, and disputes arose as to whether Ferrari East had acquired unencumbered Myer JV assets under the BSA.
7. Belgravia's claims remained unresolved for some years. During that period, Ferrari East maintained that it had acquired the Myer JV assets from Belgravia and Mr Milicevic, and made monthly interest payments to Mr Milicevic on a shareholder loan of $250,000 and payments for his contracted role as New South Wales State Manager that reflected the terms of their agreement. However, Ferrari East refused to transfer 5% of its shares to Mr Milicevic until the issues in relation to the Myer JV assets were resolved.
8. Ferrari East's position changed in early 2017 after a liquidator appointed to Dynamic sued Ferrari East claiming that the stock and fit-out associated with the Myer JV business were the property of Dynamic for which Ferrari East had not paid any consideration. Ferrari East settled that claim by making a payment to the liquidator of $260,000.

Overview of claims and issues in dispute

1. It is common ground that an agreement was made on 1 October 2013 and that Ferrari East used the Myer JV assets to conduct its business from that date.
2. The disputes concern the terms of the agreement. The central issues are whether the agreement provided for a transfer to Ferrari East of the Plaintiffs' share and unit holdings in Dynamic and the JV Trust (as the Plaintiffs contend) or a transfer by Mr Milicevic of 60% of the Myer JV assets (as the Defendants contend), and whether it gave rise to implied terms and conditions.
3. The other disputes are whether the agreement has been breached or repudiated and, if so, by which party; whether the Plaintiffs or the Defendants engaged in misleading or deceptive conduct in contravention of s 18 of the ACL; and what relief (if any) the parties are entitled to, including the quantum of any damages.
4. The Plaintiffs' case, as pleaded in their Amended Statement of Claim filed on 16 August 2019, is that an agreement was made on 1 October 2013 which was partly written and partly oral. They claim the agreement contained terms that the Plaintiffs would immediately transfer their 60% beneficial holding in the Myer JV agreement dated 1 February 2010, Dynamic and the JV Trust to Ferrari East by effecting a transfer of their share in Dynamic and units in the JV Trust in consideration for which Ferrari East would: 1. issue 5% of its paid up share capital to the Plaintiffs, which was to be held by the Milicevic Family Trust (MF Trust); 2. create a $250,000 loan in favour of Mr Milicevic (Shareholder Loan) which would be repaid to him proportionately with other shareholders; 3. pay to Mr Milicevic (or his nominee) interest on the Shareholder Loan in the sum of 8% per annum (paid monthly) until the Shareholder Loan was repaid in full; and 4. contract Mr Milicevic to be its State Manager and pay him (or his nominee) $150,000 per annum plus GST (Consultancy), which could be determined on reasonable notice but was to be until such time as the agreement with Myer ended.
5. The Plaintiffs claim that the parties acted in a manner that was consistent with the transfer having occurred or, alternatively, that they were ready, willing and able to perform the transfer but were told not to take steps to effect the transfer by the Defendants. They claim that Ferrari East repudiated the agreement by its letter dated 22 February 2017, they accepted that repudiation and have suffered loss as a result, including that arising from the termination of the Consultancy without reasonable notice.

The evidence and witnesses

1. The Plaintiffs read five affidavits sworn by Mr Milicevic.
2. The Defendants read three affidavits from Gerard Ferrari, two affidavits from Bevan Ferrari and an affidavit from Sonia Timperio, an accountant for Ferrari East.
3. Expert evidence was adduced from two forensic accountants: Alex Bell (by the Plaintiffs) and Michelle Jennings-Jones (by the Defendants). They prepared individual reports and a joint report on the quantification of loss in respect of the Plaintiffs' misleading or deceptive conduct claim and gave concurrent evidence at the hearing. Following an application made by the Plaintiffs to reopen their case after the hearing, the parties were given leave to rely on supplementary expert reports and further written closing submissions: Milicevic & Anor v Ferrari East Pty Limited & Ors [2022] NSWSC 585. Those reports have been read and have been marked as Exhibits H and I respectively.
4. The parties relied on detailed written submissions that were supplemented by oral submissions at the hearing. I have had regard to all of the facts contended for and arguments advanced but have not dealt with allegations that were not addressed by the parties' submissions or were not pressed at the hearing. Nor have I referred to every detail of the submissions in these reasons.
5. Mr Milicevic and Gerard and Bevan Ferrari were each cross-examined at some length, and submissions were made concerning the credit and reliability of their evidence. My assessment of their evidence was based on my notes taken during the hearing as well as reviewing the transcript, affidavits, documentary evidence and submissions of the parties; my findings of fact are set out later in these reasons.
6. In general, I have approached the witnesses' evidence having regard to the well-known statement in Watson v Foxman (1995) 49 NSWLR 315 at 319: "… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."

Facts

1. The following is a narrative of the relevant facts based on the affidavit, oral and documentary evidence. Unless otherwise indicated, I am satisfied of the following matters.

Parties

1. Gerard and Bevan Ferrari have been involved in businesses that operate retail stores which sell and hire formalwear and bridalwear for many years, including through a family business known as Ferrari Formalwear. Gerard Ferrari is Bevan Ferrari's uncle and the brother of Bevan Ferrari's father, Brian Ferrari.
2. Gerard Ferrari first met Mr Milicevic in the early 1990s when Gerard Ferrari was the managing director of National Formalwear Group and had dealings with Mr Milicevic through his company, Sales Momentum.
3. National Formalwear Group was purchased by Belgravia in 1997, following which Gerard Ferrari stayed on as a consultant in the role of National Sales Manager.
4. Belgravia operated a retail and wholesale formalwear business under several brands, including the Spurling brand. Some of Belgravia's retail operations were designated formalwear concessions within Myer stores that stocked Spurling branded products.
5. Prior to 2010, Belgravia had a licence from Myer to operate formalwear concessions within eight Myer department stores across Adelaide, Brisbane, Chatswood, Macquarie, Melbourne, Parramatta, Sydney City and Roselands. Gerard Ferrari, Mr Milicevic and Herbert Trakal operated seven of those formalwear concessions through their company, Sydney Formalwear Pty Ltd, as franchisee of Belgravia.
6. From 2010 until November 2013 when an administrator was appointed, Belgravia was run by its two directors, Mr Peck and Geoff Lord.

February 2010 - 30 September 2013: Myer JV Agreement and its operations

1. From 2009 to early 2010, Mr Milicevic negotiated with Belgravia to enter into a joint venture in respect of the operation of the Myer concession stores save for the Roselands store.
2. Following those negotiations, on or about 1 February 2010, Mr Milicevic and Belgravia entered into a written agreement entitled "Myer Joint Venture" in relation to the ownership and ongoing management of the Myer concession stores (Myer JV Agreement).
3. The Myer JV Agreement refers to Belgravia's right to conduct concessions in Myer stores under the Spurling brand for the period ending 31 January 2010 and Belgravia's intention to extend the arrangement with Myer for a further term of three years. The Myer JV Agreement relevantly provides: "IT IS AGREED: That subject to the extension of the Agreement the ownership and management of the Businesses will be in accordance the (sic) following: • A new joint venture entity (JV) is to be set up to be owned 60% by HM or nominee and 40% by BF or nominee to conduct the Businesses as Franchisee; • The JV entity will act as Trustee of a Unit Trust where the voting rights of the parties will be equal; • This agreement will be for a term of three (3) years (Term) being the expected length of a renewed Agreement with Myer (such agreement may or may not be renewed and generally has a three month termination clause at Myer option included); • This Agreement may be renewed for an additional term if both parties agree to do so; • Commencement date will be 1 February 2010 (Commencement Date); • The parties will enter into individual Franchise Agreements for the Myer stores situated at: Myer Adelaide Myer Brisbane Myer Chatswood Myer Macquarie Myer Melbourne Myer Parramatta Myer Sydney … • Day to day management including all accounting services will be responsibility of HM; • The fee for such management and accounting fee payable to HM will be $140,000 per annum to be charged against the JV and paid fortnightly; … • HM shall only with BF's CEO or BF's Men's Retail General Manager in respect of legal issues and in the general running of the business; • Subject to the JV conducting the Businesses in a satisfactory manner the JV shall have an option to renew the Franchises at the end of the Term; • Both parties will act reasonably towards each other in the implementation and operation of this agreement; and • This agreement shall be terminated in the event that: (i) Myer terminate the Agreement with BF; or (ii) Either party is dissatisfied with the performance of the other party in the conduct of this agreement and or operation of the Business in which case the party that is dissatisfied shall notify the other party in writing (Complaint Notice) of its intention to terminate the agreement and the grounds for such termination. The parties shall then have 14 days to remedy the matters raised in the Complaint Notice. If a remedy is not agreed upon then the party issuing the Complaint Notice may give 7 days notice to conclude the agreement"

2011: Clarence St store Heads of Agreement

1. In addition to the Myer JV stores, Mr Milicevic and Belgravia were involved in running a Spurling Formalwear Men's Business located at Clarence Street, Sydney (Clarence St store).
2. On 7 February 2011, Belgravia, Mr Milicevic and Salem Dib entered into a Heads of Agreement in relation to the business arrangement for the Clarence St store which stated that the business would no longer be operated by Dynamic and Belgravia but would be operated by a "New Entity" comprising Belgravia, Mr Milicevic (replacing Dynamic) and Mr Dib as a franchisee of Belgravia with effect from 3 January 2011 to 29 November 2012. Each party was to be an equal one-third owner of the business with profits and losses to be split equally, and Mr Milicevic was to act as the appointed manager.
3. Although the Heads of Agreement provided that the Clarence St store business would no longer be operated by Dynamic, it appears that the parties continued to treat Dynamic as the operating and franchise entity, and included sales, income, expense and profit figures of that business as part of the JV Trust's financials (see, for example, profit and loss statements for the period July 2011 to June 2013 at CB2099-100 and CB2103-4). The Defendants submit that this is a matter of some significance, for reasons to which I will come.

2013: Discussions about the future of the Myer JV and purchase of Belgravia's business by the Defendants

1. From 2009 to early 2013, Bevan Ferrari had occasional discussions with Mr Peck regarding the potential purchase of Belgravia's business. Those discussions became more serious sometime in early 2013, although it is not clear precisely when those serious discussions commenced.
2. By May 2013, Mr Peck and Mr Milicevic were discussing the future of the Myer JV; whether it would continue in its current form or whether, as Mr Peck wanted, Belgravia would take over and run the Myer JV stores as company owned stores (referred to in the correspondence as the "vertical" option).
3. On 17 May 2013, Mr Milicevic sent an email to Mr Peck, with the subject line "Moving forward", in which he agreed that "some changes need to take place" in relation to the Myer JV and also proposed two options. The first option involved a "direct Vertical" whereby Belgravia would take over "the entire Myer Spurling business", pay Mr Milicevic $400,000 for the 60% shareholding along with all the stock ("literally a walk in walk out effective 1st of July 2013") and contract Mr Milicevic to manage the "Myer Vertical" for the life of the Myer relationship at a rate of $200,000 per annum plus an incentive bonus based on turnover. The second option involved the Myer JV continuing as it was with the current stores and Belgravia opening more Myer stores as direct verticals with an option for Belgravia to contract with Mr Milicevic to manage those stores at $18,000 per year per store. Subsequently, Mr Peck put Mr Milicevic's proposal into a spreadsheet and sent it to him on 31 May 2013 for discussion (that spreadsheet is not in evidence).
4. At this time, Mr Peck was also considering whether there were ways to terminate the Myer JV Agreement with Mr Milicevic. On 21 May 2013, he received an internal email from Ross Malcomson which noted that the Myer JV Agreement term ended on 31 July 2013 (along with the Myer licence agreement term), there were two provisions that referred to renewal beyond the current term (referred to at [67] above), the Myer JV Agreement was "not written as clear as ideal" and it could be argued that it could end on 31 July 2013 or that Mr Milicevic had an option to renew.
5. On 5 June 2013, Mr Milicevic sent an email to Mr Peck (copied to Michael Boutin, who worked for Belgravia) which raised concerns about the proposal to convert the Myer JV to a "vertical exercise". Mr Milicevic's email refers to a reworked spreadsheet (which is not in evidence) which indicated that "if we hit $6,000,000 we can make an additional $209,900 profit… If we hit $8,000,000 which we all think this is achievable we can grow our profit by $504,035" and that Mr Milicevic could not agree to relinquish his "60% shareholding" as he would not receive 60% of the growth.

5 September 2013: Entry into the BSA

1. On 5 September 2013, Belgravia, as vendor, and Ferrari East, as purchaser, entered into the BSA.
2. The BSA provided for Ferrari East to buy Belgravia's "Business" and "Assets" for a purchase price of $4 million and with a completion date of 1 October 2013. The purchase price was reduced to $3,750,000 by a deed of variation dated 23 September 2013.
3. The BSA relevantly provides: "2. Sale and purchase 2.1 Sale of Business and Assets The Vendor as beneficial owner agrees to sell to the Purchaser and the Purchaser agrees to buy from the Vendor the Business and the Assets: (a) for the Purchase Price; (b) free from Encumbrances; (c) with all rights attached or accrued by or after the date of this document; and (d) with effect from Completion. … 7.2 Vendor's obligations At or before Completion, subject to the Purchaser complying with clause 7.3, the Vendor must deliver to the Purchaser: … (g) original JV Agreement (and if not available, a copy of the JV Agreements), evidence of the joint venture party's (and any applicable third party's) consent to the assignment of the JV Agreement and an executed assignment of that agreement; … 11.2 Assignment Subject to clause 11.5 and subject to the Vendor using reasonable endeavours to obtain all necessary third party consents (of which the Vendor agrees to procure), the Vendor assigns and the Purchaser accepts an assignment of the benefit and assumes the burden of the Business Contracts, Franchise Agreements, Equipment Leases, Intellectual Property Licences, JV Agreement and Property Leases which are not Material Contracts (Standard Contracts) with effect from Completion. … 11.4 Vendor to obtain consent (a) The Vendor must use its reasonable endeavours to obtain all necessary consents to the transfer of the benefit of each Standard Contract and Material Contract to the Purchaser. … 11.6 No recourse Other than the Material Contracts which are to be transferred to the Purchaser as a Condition to Completion, if the Vendor fails to obtain the consents required for the novation or assignment of any of the Standard Contracts, the Purchaser will not be entitled to: (a) recourse against, or indemnification by, the Vendor for any loss or damage suffered by the Purchaser; or (b) any refund or reduction of the Purchase Price."
4. Clause 26, which deals with definitions, includes the following: "Assets means: (a) Goodwill; (b) Plant and Equipment; (c) Intellectual Property and the Intellectual Property Licences; (d) Stock; (e) Lay-By Stock; (f) the Business Contracts; (g) the Franchise Agreements; (h) the Equipment Leases; (i) the Property Leases; G) the JV Agreement; (k) permits, licences and authorisations; (l) Information and know-how; (m) Pre-payments, but not the Excluded Assets; … Business means the formal wear business carried on by the Vendor under the Business Names from the Premises using the Assets; … Excluded Assets mean[s]: (a) the Vendor's cash and cash equivalents; (b) all amounts owing under any loans to the Vendor or its related bodies corporate, including under any inter-company loans and amounts owing from current and/or former franchisees of the Business to the Vendor or its related bodies corporate; (c) Trade Receivables; (d) insurance policies owned by the Vendor and the benefit of any claims under those policies; and (e) sundry debtors; … JV Agreement means the agreement of that name and known as the "Myer Joint Venture Agreement" entered into between the Vendor and Harris Milicevic dated 1 February 2010 including any amendments, modifications or variations to that agreement; … Premises mean the premises from which the Vendor conducts the Business, as set out in Schedule 4; … Stock means all materials used in manufacture, packaging materials, finished goods, goods under manufacture, work in progress and other stock in trade owned by the Vendor in the conduct of the Business, including Display Stock, company owned store stock and stock held at the Premises but excluding Lay-By Stock;"

5 - 18 September 2013: Plan to take control of the Myer JV and initial discussions with Mr Milicevic

1. On 5 September 2013, Gerard Ferrari sent an email to potential shareholders of Ferrari East advising that the BSA had been signed and they were aiming to finalise the deal by 1 October 2013. Gerard Ferrari's email refers to the Myer JV as the main post-settlement acquisition/buy-back which is described as being 60% owned by Mr Milicevic and 40% owned by Belgravia, having a stock holding of $700,000 and a turnover of over $4 million, looking like it would be coming back to the Ferrari East group for "cost of stock only" of "around 60% of the $700k = around $400K" and the strategy being to contract Mr Milicevic as the group's State Manager.
2. In cross-examination, Gerard Ferrari accepted that he did not have any financial figures in respect of the Myer JV at this time and the figure of $700,000 was a guess on the basis of no information whatsoever other than the amount of stock he believed the stores needed to carry to be viable (T254.30-48).
3. On 7 September 2013, Gerard Ferrari sent an email to Bevan Ferrari about preparing for settlement of the Belgravia deal and agreeing on the valuation of the business, which he believed should be at $6 million but could be wound back to $5 million if the others disagreed. One of Gerard's stated reasons for his valuation was the "post settlement store buy backs", referring to the "Haris JV, being the major one" and it being "paramount [that] we regain control of this $4m turnover business". Gerard Ferrari's email goes on to state: "… With your permission I would like to open confidential talks with Haris now, to get a genuine feel where he is at, I would not commit FE to anything but need to know "where Haris is at", he is an ex business partner of mine as well as a friend and confidant, so I do not see any "breach of confidentiality", if I have informal discussions. What I would suggest is FE take back the JV in its entirety, for that we pay Haris stock at Val, (60% of approx. $700k = around $400k - definitely no more!), we pay Haris his current salary, ($140k pa), to be our NSW State Manager & Myer liaison person, our perfect scenario would be to pay the $400k over 12 months, meaning he had no equity in FE, but would be put on a "profit share" of the Myer store business, last year the JV made $180k, so perhaps something like 10% of the first $100k profit, 20% of the second $100k, 30% of the third & 50% above that - Haris' wage would come out of the Myer store profit as it does now. The alternative is we pay no cash, but convert the $400k to shares in the JV, (definitely at the $6m Val, no matter what else we decide with our partners), i.e. 6.66% - we could even just offer a straight 5% equity, under this scenario, no bonus for the Myer stores as he is an overall partner in the group! I know you both think playing really hard ball with him is the way to go - "tread carefully", I have said before Sydney & Myer are quite different animals to Adelaide & Perth!"

19 September: Defendants receive financial information relating to the Myer JV

1. On 19 September 2013, Mr Peck sent three emails to Bevan Ferrari attaching financial records relating to the Myer JV.
2. The first email attached a "Balance Sheet" as of June 2013 and a "Profit & Loss Statement" from July 2012 to June 2013, which are both headed "Spurling JV Trust" and were referred to by Mr Peck in his email as relating to the "Myer JV" and as "probably requir[ing] explanation" (Myer JV Financials).
3. The Balance Sheet sets out the sale, asset and liability figures as separate line items for the Myer concession stores (the six Myer stores), the Bondi Junction store (the subject of the Myer JV) and the Clarence St store. It records total equity of $155,445.62 which comprises the following: share capital of $25,000 (for "Milicevic Trust" and Belgravia of $15,000 and $10,000 respectively); beneficiary distributions to "BF JV" and "HM JV" of $40,000 and $50,000 respectively (which appear to be distributions under the Myer JV based on a 60/40 split) and to "BF", "HM" and "SD" of $33,000 each (which appear to be a reference to the parties to the Heads of Agreement in respect of the Clarence St store); retained earnings of $213,620.08; and current year earnings of $105,825.54. The Profit and Loss Statement records income, cost of sales and expenses as separate line items for the six Myer stores, the Bondi Junction store and the Clarence St store, and a net profit of $105,825.54.
4. In cross-examination, Bevan and Gerard Ferrari both accepted that they were aware of and read the Myer JV Financials at this time.
5. Bevan Ferrari accepted that when he read the Myer JV Financials he understood, consistent with what he read in the Myer JV Agreement, that a trust was involved but said he did not know what type of trust it was. He accepted that the assets of the Myer JV were "sitting on the… JV financials" but rejected that he knew from this that the assets of the Myer JV were not owned by Belgravia or Mr Milicevic (T356.34-48; T388.22-8).
6. Gerard Ferrari accepted that he would have seen the words "Spurling JV Trust" as the heading of the Balance Sheet but said he "didn't question it". He gave evidence that, in hindsight, he should have been aware that there was a trust related to the Myer JV but he was occupied with the figures and did not ask the question or ask about the trust (T273.40-50). He also accepted that he was aware there was an entity involved from the reference to "Share Capital" and that an entity called Dynamic Platinum owned the Myer JV (T246.27-8; T273.42-274.36), and he gave evidence as follows (T274.33-6): "… there was an entity involved. That's - the entity involved, correct, it was 60/40 which the 15,000 and ten would confirm. Whatever that entity was, it was no real business of ours because we weren't dealing with Dynamic Platinum, we were dealing with Belgravia Formalwear."

25 September 2013: Negotiations with Mr Milicevic continue

1. On 25 September 2013, Gerard Ferrari sent an email to Mr Milicevic concerning the "JV/Ferrari East Proposal" that attached the first nine month budget (1 October 2013 to 30 June 2014) for the new "Ferrari East P/L company that has purchased the assets of [Belgravia]". The email describes how the budget was prepared and sets out a proposal for Mr Milicevic to consider, as follows: "For this exercise I have included the profit of the JV in the budget, based on last financial years profit of $105,825.54, (for the 9 months), of $82,210.00, if the JV was not included this would reduce by 60% = $33,684.00. For the first 9 months we are confident of hitting our budgeted target of a $1,481,436.00 bottom line, Bevan & I are still finalizing the years 2 & 3 budgets, but at this stage look like showing around a $2.5million & $3.0million profit respectably. … If you would like to leave the JV in its current form, we have no problem and hopefully will prove to be better partners than BF, (not hard to do!), but as you & I have discussed for many years the JV is undercapitalized in the fact it cannot expand further into the Myer network, without a sizeable cash injection from both parties. … The proposal we would like you to consider and discuss further tonight over dinner, or ring me today if you require any explanations is: - Your company to be offered 5% shareholding in the new… [Ferrari East] company. - Take on the role of NSW State Manager, responsible for all COS, Franchisees in NSW & the Myer Concession Stores Nationally - You will be remunerated $140K pa for this role. In return the JV would return to the ownership & control of FE. It would be expected this change occurs in line with the settlement of BF, next Tuesday October 1st, 2013. We realize you are out of the country a lot as well as run your own businesses and could not be expected to undertake the role of NSW State Manager 100% yourself, the proposal would be that Ludmilla remain on as your "2IC" and is either paid through your company, or alternatively, FE pay her and deduct the amount from your $140k pa management fee. Putting a value on the FE business day one is very subjective, once settlement occurs, we will be taking stock in all departments, (Hire, Men's & Ladies retail, both at Bayswater, Parramatta & all COS), I believe the Balance Sheet will show an asset value of between $10million - $15million, which will only increase once the new Head Office/Showroom/Warehouse is finished. … With these and, no doubt, other franchise stores coming back to FE in the near future, I envisage the business becoming a $30million plus turnover company very quickly!"

28 September 2013: Mr Milicevic voices concern about the proposal

1. On 28 September 2013, Mr Milicevic left a voicemail for Gerard Ferrari about the proposed deal.
2. Later that day, Gerard Ferrari sent a lengthy email to Mr Milicevic stating at the outset that he was "rapt that one way or another we are partners again". In the email, Gerard Ferrari expressed the view that Mr Milicevic should make his decision from a business and financial perspective and not an operational one. He stated that the stores in New South Wales that Mr Milicevic would be overseeing would have a lot more resources than simply Mr Milicevic and Ms Golovchenko, and that he saw Mr Milicevic's role as being "very strategic, dealing with landlords re leases, dealing with Myer re current & future stores and dealing with the few remaining franchisees only on major things".
3. In the email, Gerard Ferrari expressed the view that "the Franchise system is dying" and "things must change if we are to be successful", and went on to state: "As far as financially, you "hit the nail on the head" the other night, when you said, you currently "own 60% of nothing", the JV is & always will be at the mercy of Myer and although the relationship has been going for over 13 years, there is no guarantee it will continue for another 13! In my opinion 5% of Ferrari East, is a fantastic investment, to value the business is very subjective, but based on the fact that we are taking over around $8m worth of stock, (hire & retail), Fixtures & Fittings in over 30 stores, plant & equipment at both Bayswater & Parramatta warehouses, coupled with a $23m turnover, with a budgeted profit of around $1.4m for the next 9 months, and although not finalized yet, but our years 2 & 3 budgets look like coming in at around $2.5m & $3m respectably. Forget the $3.75m acquisition cost, I reckon the "real" val, is closer to $6m. (that is prior to the JV or any other stores coming back to FE). If you went ahead with the proposal, FE would immediately have a turnover of $27.5m, with $1m in the bank, Cheltenham Men's & the Frankston store are coming back Dec 1st, they do around $800k between them, if we are successful in getting Parramatta ladies back, ($800k turnover), plus open three more Myer stores, (say $400k turnover each) as well as open a new Ferrari Ladies store at Bevan's Head Office in Clovelly Park, SA., it won't be long before the business is over the $30m mark! I could see a "fair & reasonable" value of closer to $8m by 30th June next year and hopefully $10m, by [the] end of year three, throw on top of this the Property acquisition that sits around the relocation of the Bayswater warehouse and you have shares in a company that is significant! … Finally Bev & I discussed the stock issue that you raised on Wed[nesday] and we agree that it should be treated in the same way as the "cash" injected by the other partners, so based on the JV balance sheet of 30th June, you would be receive (sic) 60% of the $359,517.89 stock valuation = $215,710.73, to allow for a further 3 months depreciation & to fit into an opening FE loan accounts, we would discount that figure to $200k, giving you your 5% shareholding, as well as 8% interest on the $200k = $16k pa, until the "loan" is repaid, I would hope all loan accounts would be repaid in 2 - 3 years' time, giving you back your investment in cash and a 5% share in a debt free company, worth close to $10m! I hope this helps in your decision making, I understand the timeline is a bit pressured and although hoping & advising you to go with it, will appreciate & respect your decision if you choose to stay "as is"!"

1 October 2013: Agreement reached with Mr Milicevic

1. On 1 October 2013 at 4.25am, Mr Milicevic sent an email to Gerard Ferrari, copying in Bevan Ferrari, which attached a document that set out three proposals for their future relationship. At 6.48am, Gerard Ferrari responded by email, copying in Bevan Ferrari and attaching a copy of Mr Milicevic's document with his comments. For ease of comprehension, the following paragraphs set out various elements of Mr Milicevic's document with Gerard Ferrari's comments in italics.
2. In the document, Mr Milicevic introduced the proposals and Gerard Ferrari commented on them (in italics) in the following terms: "As per our last discussion we really have only 2 options (a) Leave current JV arrangement as is or (b) Trade in current JV share holding towards an agreed share holding of the new FE entity… option (c) which is a hybrid of (a) and (b). I think we need to stick with (a) or (b), "(c)" would be a conflict of interest that is best left aside"
3. The document then noted that Mr Milicevic was assured that no matter how they moved forward he would be no worse off than he currently was; Gerard Ferrari agreed.
4. Option (A) along with Gerard Ferrari's comments (in italics) is set out as follows: "OPTION (A) LEAVE JV OPERATING AS PER CURRENT ARRANGEMENTS: 1) Current JV is owned 60% by HM Family Trust and 40% by BF - Understand 2) Stores in JV are as follows: Myer Sydney, Myer Melbourne, Myer Brisbane, Myer Chatswood, Myer Castle Hill, Myer Parramatta and Spurling Bondi Junction - OK 3) JV pays HM $150K plus gst to manage and run financials for all the stores - OK 4) All current fit outs are funded by BF - Not what Ron tells us, but up for renegotiation 5) JV receives a 5% discount on all wholesale prices - OK 6) Ludmilla's salary comes out of JV operational costs and not HM management fee - OK 7) JV agreed to BF keeping a percentage of weekly remittances to assist with BF cash flow issues and was to stop some time ago but to this date we have not stopped it. - Again up for renegotiation."
5. Mr Milicevic's email then set out a number of matters, which he asked to be kept in mind "in order for you to understand our thinking on Option (B)", which are set out below with Gerard Ferrari's response (in italics): "a) If FE was to take back the financials moving forward we would have to let go of a member of our team that has no less than 3 years with our company. This would save us around $40K. - Understand, there may also be a role throughout the vast Sydney based COS network & Parramatta NSW Head Office. b) My finance team advised me today that as of the end of June 2013 we had some $470,355 ex gst or current stock in our stores and 60% of this represents $282,213 - The balance sheet suggests otherwise, but we can do a stock take if required, I think it important for you to focus on the "big picture", i.e. "what you are getting for what you are giving", the BF business has over $8m in "hire stock", depreciated in the balance sheet to just over $3m + $6m in new men's & ladies retail stock, that is arguably worth more like $4m, add to that the Fixtures & Fittings, Plant & Equipment, Brand Names & Intellectual Property that FE own vs. what the JV own & control, and I think you will find there is no comparison. c) Currently we manage 7 stores and moving forward you want us to manage over 20 I imagine as well as sit on the board - as I said in one of our conversations yesterday, the JV has only Haris + team running the 7 stores, FE have a support infrastructure for you to resource as required, (Bevan, Gerard, Terry, Jo, Rob Wehl, Geoff Wells, Michelle Parascos etc. etc.) d) Every time we renew our agreements with Myer we have a 3 year assurance in our management position - OK"

1 - 30 October 2013: Ferrari East take over the Myer JV, Belgravia claims money from the Myer JV and Ferrari East's lawyers learn about the Myer JV structure

1. It is common ground that on 1 October 2013 Ferrari East took possession and control of the seven stores and the assets used to conduct the Myer JV business (including the stock, work in progress, staff entitlements and fit-out), and took over responsibility for the employees and the administration of the business in a financial and managerial sense. In other words, with effect from 1 October 2013, Dynamic as trustee for the JV Trust ceased operating the six Myer concessions and the Bondi Junction store that had been the subject of the Myer JV and they began to be operated by Ferrari East as "company owned stores".
2. This is reflected in an email sent by Gerard Ferrari to Mr Milicevic and Bevan Ferrari on 2 October 2013 which set out the key administrative issues in relation to the transition of the Myer JV to Ferrari East. The email stated that: the Myer payment, which was to be received by Ferrari East that Thursday, was to be forwarded onto the Myer JV in the normal manner but the payment for the following weeks would be retained by Ferrari East with an adjustment for Monday, 30 September; the Myer JV would need to pay staff and superannuation up to 30 September, with Ferrari East to do its first pay run on 15 October for the period from 1 to 13 October; settlement for the Bondi Junction store would be arranged once the EFTPOS terminal was installed; and Ferrari East would take over all staff entitlements pertaining to holiday pay and long service leave. The email also noted that the Clarence St store would continue to conduct its own administration and payroll, pending further negotiations.
3. It is also common ground that in the next day or so Ferrari East agreed to pay Mr Milicevic $150,000 per annum, rather than $110,000 per annum, for his role as State Manager.
4. It appears that around this time Dynamic changed its ABN to signify a change in the business, namely, that only the Clarence St store remained trading. According to a letter dated 10 September 2015 from Ms Yun, an employee of Sales Momentum, to the liquidator of Dynamic, Dynamic's ABN was changed upon the sale of the Myer stores on the instruction of Mr Peck which was confirmed by external accountants. The evidence indicates that Dynamic continued to operate after 1 October; it paid wages in relation to the Clarence St store and the income and expenses in relation to that business continued to be included in Dynamic's accounts.

November 2013: Attempts to resolve issues with Belgravia

1. On 15 November 2013, Mr Milicevic met with Mr Peck to discuss the debts alleged to be owed by the Myer JV. According to Mr Milicevic, Mr Peck said that the "Ferraris have screwed up. They don't know what they purchased. They did not buy the assets of the JV Trust".
2. In an email Mr Milicevic sent to Gerard and Bevan Ferrari reporting on the meeting, Mr Milicevic expressed concern about Mr Peck's agenda and noted that Mr Peck was going to invoice Ferrari East for 40% of the stock holding of the Myer JV as Ferrari East "didn't read the contract properly and he sold his shareholding and not the stock". Bevan Ferrari responded by email which stated: "He can invoice us all he wants, as he has said we bought the assets of Belgravia, not the JV, just because he wants us to buy it doesn't mean we have to, we can send it back to him."
3. On 20 November 2013, an administrator was appointed to Belgravia.
4. On 21 November 2013, Bevan Ferrari sent an email to Mr Tsonis seeking clarification regarding the Myer JV in the context of the BSA as follows: "We were under the impression that we acquired the assets of Belgravia, Ron is stating that we purchased the equity in the JV but not the assets, can you please confirm. We would like to conclude the 5% share transfer in Ferrari East to Haris ASAP but cannot unless we have clear title to the balance of the JV shares. I have cc'd Haris into this email, I assume you have the relevant financial accounts so perhaps you can discuss directly with him. Ron is suggesting he can come after Ferrari East for some form for compensation regarding the stock/loans a/c's, we would like to clear our position up."
5. In cross-examination, Bevan Ferrari gave evidence that his reference to the balance of the "JV shares" did not mean shares in a company, it was a mistake and he meant to refer to assets (T379.26-33).
6. On 21 November, Mr Tsonis sent an email to Bevan Ferrari in response to his query which stated: 1. Kain Lawyers had discovered that the Myer JV was not a contract based unincorporated JV but an incorporated JV entity which meant that the shares in the Myer JV company and the units in the JV Trust were required to be transferred to Ferrari East at completion of the BSA; 2. Kain Lawyers had prepared the joint venture sale agreement under which Mr Milicevic was required to transfer his remaining interest in the Myer JV to Ferrari East; and 3. Mr Peck's understanding was incorrect as the Myer JV formed part of the business assets transferred to Ferrari East such that Ferrari East purchased Belgravia's interests in the Myer JV and the underlying assets of the Myer JV.

December 2013: Further issues with Belgravia

1. On 16 December 2013, Mr Peck sent an email to Mr Milicevic demanding payment on account of Belgravia's debt which, according to the schedule attached to his email, was $437,556.20 comprised of fit-out costs, profits and trade debtor for the Myer/Bondi and Clarence St stores. Mr Milicevic responded by stating that he would come up with a fair and reasonable proposal, and suggested that Ferrari East should not be dragged into the dispute as it was "a matter for the old JV and the Clarence Street partnership to sort out".
2. On 18 December 2013, Mr Milicevic sent a without prejudice proposal to Mr Peck for the Myer JV to pay $80,000 to settle the Belgravia account and release Belgravia from any further liabilities, for the Myer JV to pay all tax and superannuation liabilities and for a firm to be appointed to "wind down the company". Mr Milicevic had discussed the offer with Mr Tsonis and Bevan Ferrari before he sent the email.
3. On 19 December 2013, Mr Milicevic sent an email to Gerard and Bevan Ferrari expressing his disappointment with Ferrari East's position that it would not assign the shares in Ferrari East unless he could get closure with Belgravia and that if he chose to put the "company" into voluntary administration it would create problems in releasing the shares per their agreement. Mr Milicevic noted that he had proposed a "Jan 1 change over" to resolve matters with the Myer JV but they insisted on 1 October 2013, and he understood that he needed to sort out his issues with Belgravia independently as it had nothing to do with Ferrari East.
4. In response, Bevan Ferrari sent an email which stated that he thought that they had agreed that Mr Milicevic would settle with Belgravia with an offer of $80,000 for which Belgravia would "give clear title" to the Myer JV and that, unless Ferrari East could get clear title, "we cannot complete the share transfer, however, we have paid the interest component on your loan account & all management fees as per our agreement & will continue to until this is resolved". His email also noted that Mr Tsonis had advised that it was in all of their best interests to complete the deal but it was a call for Mr Milicevic as Ferrari East had no involvement or influence over the Myer JV, and that Mr Milicevic was not exposed as he was "our business partner & we have your back".

2014: Dispute with Belgravia continues

1. Throughout 2014, further attempts were made by Mr Milicevic and Ferrari East to resolve the claims made by Belgravia.
2. On 22 January 2014, Mr Peck sent an email to Mr Milicevic, copied to Gerard and Bevan Ferrari, about the "Myer JV debt" that Mr Peck claimed was owing to Belgravia. Mr Peck's email stated that the liabilities of the "JV" were represented in the main by JV stock and that he did not know that Mr Milicevic had done a deal with the Defendants "involving the only tangible non cash asset of the JV… the stock". Mr Peck claimed that the "stock on hand in the JV at 30th September 2013 belonged to the JV a separate entity" which had been bought on credit from Belgravia, he did not know what had been received in exchange for the stock that had been given to Ferrari East, someone owed the Myer JV for "the COST value of the stock" and he believed Mr Milicevic had to work it out with the Defendants.
3. Mr Tsonis was instructed by Bevan Ferrari to review Mr Peck's email and the material provided by Mr Milicevic, which included the without prejudice proposal Mr Milicevic had sent to Mr Peck on 18 December 2013. In an email sent to Mr Tsonis on 29 January 2014, Mr Milicevic referred to his legal team insisting that he "put the JV in to voluntary admin as well" which he did not do due to the request from Mr Tsonis and Bevan Ferrari to sort the matter out amicably with Belgravia so that the shares could be transferred to Mr Milicevic in a smoother fashion. In his email, Mr Milicevic asked Mr Tsonis to ensure that his "Family Trust and [himself] are well protected from any [Belgravia] backlash".
4. On 13 February 2014, Kain Lawyers, on behalf of Ferrari East, sent a letter dated 11 February 2014 to Mr Peck, Mr Milicevic and Dynamic as trustee of the JV Trust which stated that: 1. the Myer JV Assets had been physically and legally transferred to Ferrari East pursuant to the BSA, Mr Milicevic had also confirmed the transfer of his interest in the Myer JV Assets and Belgravia had no basis to assert that the transfer of its interest in the Myer JV Assets to Ferrari East had not been validly effected; 2. Ferrari East had not been transferred (nor had it accepted the transfer of) any shares or units in the Myer JV entities; 3. it was for Belgravia and Mr Milicevic to reconcile their respective interests in the Myer JV (including amounts received by them respectively and any claims either had against Dynamic being the trustee of the Myer JV); 4. prior to completion of the BSA, Ferrari East had relied on representations from Mr Peck and Belgravia that "the Myer JV was an unincorporated joint venture between Belgravia and Milicevic with no other entity involved in that joint venture" and that, by virtue of the Myer JV Agreement being defined as an asset under the BSA, Belgravia's interest in the Myer JV Assets was to transfer unencumbered to Ferrari East, noting that the "only assets under the Myer JV to transfer to Ferrari East comprised stock and employees of that entity"; 5. shortly after the completion of the BSA, Ferrari East became aware that the Myer JV was actually an incorporated joint venture structured as a unit trust and entitled "Spurling JV Trust" and that Ferrari East had never contemplated (nor was the BSA structured to achieve) acquiring shares and units of Belgravia (and any obligation attaching to those shares or units) or any liabilities in connection with the Myer JV; 6. the BSA was structured as an asset sale agreement and required Belgravia to obtain the necessary consents to procure the transfer and assignment of the Myer JV Assets and Dynamic would have had to have been a party to the BSA if the equity was to be transferred; and 7. possession of the Myer JV Assets was provided to Ferrari East by the knowledge, consent and through the conduct of Belgravia and Mr Milicevic, and consideration was provided under the BSA and to Mr Milicevic through shares in Ferrari East.

2015: Agreement with Myer and liquidation of Dynamic

1. In early 2015, Ferrari East and Myer entered into a new licence agreement for the Myer concessions called the "Services and Support Agreement". The Services and Support Agreement was for a five year term commencing on 31 January 2015 but included a termination clause that provided each party with the right to terminate by giving three months' written notice at any time after the third anniversary of the commencement date, being 31 January 2018.
2. On 5 January 2015, Mrs Milicevic resigned as the secretary of Dynamic.
3. On 13 July 2015, Mr Milicevic received from Mr Peck and Mr Lord a notice of board meeting for Dynamic for 20 July 2015 that proposed the appointment of an administrator on the basis of insolvency.
4. The meeting was held on 23 July 2015. Mr Milicevic attended by telephone. Mr Peck was appointed chairman. The meeting resolved that Dynamic was or was likely to become insolvent and for the appointment of Anthony Cant as the administrator of Dynamic, with Mr Peck and Mr Lord voting for and Mr Milicevic against.
5. In a report prepared by Mr Cant pursuant to s 439A(4)(a) of the Corporations Act 2001 (Cth) (Corporations Act) and dated 19 August 2015, Mr Cant referred to: the BSA providing for a sale of Belgravia's equity interest in the JV Trust to Ferrari East; Mr Milicevic reaching an agreement to transfer all of his interest in the Myer JV to Ferrari East and, as part of that agreement, agreeing to transfer all of the stock of the JV Trust to Ferrari East; Dynamic not being a party to the sale documentation; and there appearing to be no legally supportable basis for Ferrari East to claim that they are not liable to the company for the stock taken over. The report identified that unsecured creditor claims had been admitted for Belgravia in the amount of $437,556.20 and Mrs Milicevic as trustee for the MF Trust in the amount of $176,723.20 but that claims made by Sales Momentum (of $268,180), Platinum Sales Group (of $11,402.94) and Ferrari East (of $44,839.30) had not been admitted.
6. Mr Cant did not accept Ferrari East as a creditor as he considered that "the business [of Dynamic] ceased trading" on 30 September 2013.
7. On 27 August 2015, Dynamic was placed into liquidation.
8. Around the time of the liquidation of Dynamic, Mr Milicevic signed a report as to its affairs and a statement verifying the report in his capacity as a director of that company. The statement refers to unsecured creditors' claims by three of Mr Milicevic's companies: Sales Momentum, Platinum Sales Group and Prime Telecom.

2016: Negotiations with Dynamic's liquidator, reduction in Mr Milicevic's management fee and liquidator commences proceedings

1. On 12 May 2016, Gerard Ferrari sent an email to Mr Milicevic and Bevan Ferrari advising that due to "a tough cash flow period ahead" they were going to cease giving interest payments to the shareholders for June, July and August, noting that it was intended that later payments would top up the missed payments. There is no evidence that Mr Milicevic responded to that email.
2. On 23 May 2016, Kain Lawyers, on behalf of Ferrari East, wrote to Mr Milicevic's solicitors, O'Neill McDonald Lawyers, in relation to the proceedings threatened by the liquidator of Dynamic against Ferrari East. The letter denied the allegations made by Dynamic's liquidator in respect of the transactions pursuant to which Belgravia and Mr Milicevic agreed to transfer the Myer JV Assets to Ferrari East, and indicated that they proposed to meet with the liquidator to negotiate a resolution. Amongst other things, Kain Lawyers' letter stated that, prior to entry into the BSA, the directors of Belgravia and Mr Milicevic (in his own capacity) made representations to Ferrari East that Belgravia and Mr Milicevic either had good title to the Myer JV Assets or would acquire good title prior to completion, that Ferrari East was purchasing the Myer JV Assets, that any right by Dynamic to immediate possession to the Myer JV Assets was impugned by Belgravia and Mr Milicevic having moved certain assets out of the Myer JV, and that Ferrari East was not a party to the agreements between Dynamic, Belgravia and Mr Milicevic regarding the transfer of the assets out of the Myer JV.
3. Two comments can be made about the allegations in this letter. First, as Mr Milicevic was not speaking to Ferrari East in relation to the transactions before the BSA was signed on 5 September 2013, the claim that he made representations to Ferrari East that he had good title to the Myer JV Assets or would acquire good title prior to entry into the BSA is incorrect. Second, I have seen no evidence to suggest that Belgravia and Mr Milicevic moved assets out of the Myer JV by agreement with Dynamic.
4. On 23 May 2016, Bevan Ferrari sent an email to Mr Milicevic as a follow up to the 23 May letter from Kain Lawyers which described the issue as Ferrari East having "entered into a transaction with both Belgravia and Mr Milicevic to purchase certain assets of Dynamic Platinum for which we provided valuable consideration in both cash & scrip; it appears that neither party had good title to these assets". He also stated that Mr Milicevic had been asked to sort out the Myer JV issue with Belgravia (an issue arising from an agreement which Ferrari East was not a party to), that it seemed unlikely that the issues would be resolved simply and that this would affect "the 5% shareholding as agreed due to your inability to provide [Ferrari East] with clear title".

What were the terms of the agreement made on 1 October 2013?

1. The first issue for determination, which is relevant to both the Plaintiffs' claim and Ferrari East's cross-claim for relief alleging breach of contract, is the ascertainment of the terms of the agreement which the parties agree was made on 1 October 2013.
2. As already noted, the Plaintiffs and the Defendants each plead an agreement was made on 1 October 2013, following which Ferrari East began to operate the Myer JV stores, but on different terms.
3. It is common ground that the agreement included the following terms: Ferrari East would give a 5% shareholding in itself to Mr Milicevic; there would be a notional Shareholder Loan of $250,000 made to Mr Milicevic which would be paid proportionately with other shareholders of Ferrari East; monthly interest would be paid (at least initially) on the Shareholder Loan of 8%; Mr Milicevic would provide services to Ferrari East as State Manager for which Ferrari East would pay $150,000 per annum excluding GST; the Consultancy could be terminated on reasonable notice; and the agreement would be recorded in writing.
4. It is also common ground that it was agreed that Ferrari East would take over the administration and day-to-day control of the Myer JV stores and their revenue from 1 October 2013.
5. The disputes concern: 1. what was agreed to be sold to Ferrari East; was it the Plaintiffs' share in Dynamic and units in the JV Trust or Mr Milicevic's 60% interest in the Myer JV Assets; 2. whether Mr Milicevic's interest entitlement on the Shareholder Loan would remain at 8% or change and accrue in line with Ferrari East's other shareholders; 3. whether the Consultancy was a term of the agreement or a collateral contract between Ferrari East and Sales Momentum; 4. whether (as the Defendants contend) there: 1. were implied conditions and warranties arising from the Sale of Goods Act that Mr Milicevic had a right to sell the Myer JV Assets (referred to at [19] above), would be able to have and enjoy quite possession of the Myer JV Assets, and they would be free from any charge or encumbrance; 2. was a warranty that the Plaintiffs were capable of transferring, and would successfully transfer, "clear title" to their 60% interest in the stock of the Myer JV so that such stock would have a value in the hands of Ferrari East of $215,710.73 or $282,213 or such other value in the hands of Ferrari East as it was then estimated to possess on the balance sheet of the Myer JV (Stock); and 1. whether (as the Defendants contend) there was an express or implied condition precedent that prior to the issue of shares in Ferrari East and/or an obligation to repay the Shareholder Loan and/or interest payments arising, the Plaintiffs would successfully transfer "clear title" to their interest in the Stock of the Myer JV so that the Stock would have a value in the hands of Ferrari East as set out at [299(d)(ii)] above.

Legal principles

1. The principles applicable to ascertaining the terms of an informal oral contract also apply to contracts which are partly written and partly oral: Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234 at [90], per Campbell JA (with whom Allsop P, as his Honour then was, and Basten JA agreed).
2. The guiding principles are set out by Sackar J in King v Adams [2016] NSWSC 1798 at [65]-[69], which I respectfully adopt: "Ascertaining the existence and terms of an oral contract is a question of fact: Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at [90] (per Campbell JA, Allsop P and Basten JA agreeing); Gardiner v Grigg (1938) 38 SR (NSW) 524 at 532 (per Jordan CJ, Nicholas J agreeing); Maggs v Marsh [2006] EWCA Civ 1058 at [26] (per Smith LJ, Moses and Hallett LJJ agreeing). Consideration of surrounding circumstances and post contractual conduct is permissible when the existence or terms of an oral contract are in issue: County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [20] (per Spigelman CJ, Beazley and McColl JJA); Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457 at [47]; King v Benecke [2013] NSWSC 568 at [186]. Spigelman CJ explained in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [7]: "The subject matter and the concomitant terms of the [oral] contract must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provide a definitive form of words. The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the parties agree?" In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, Heydon JA (as his Honour then was) observed: "…a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words … The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement … The conduct of the parties, however, must be capable of proving all the essential elements of an express contract … Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances … Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed." In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, Allsop J (as he then was) similarly explained: "[Contracts] can also arise when business people speak and act and order their affairs in a way without necessarily stopping for the formalities of dotting ''s and crossing ''s or where they think they have done so … Sometimes this failure occurs because, having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation. In such circumstances, even in the absence of clear offer and acceptance, and even without being able (as one can here) to identify precisely when a contract arose, if it can be stated with confidence that by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding, the court will recognise the existence of a contract. Sometimes this is said to be a process of inference or implication. For my part, I would see it as the inferring of a real intention expressed through, or to be found in, a body of conduct, including, sometimes, communications, even if it be the case that the parties did not consciously advert to, or discuss, some aspect of the relationship and say: 'and we hereby agree to be bound/ in this or that respect. The essential question in such cases is whether the parties' conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract."" (citations omitted)

Plaintiffs

1. The Plaintiffs submit that, having regard to the pre-contractual correspondence and conversations and the commercial background and context, the terms of agreement made on 1 October 2013 were as follows.
2. The agreement was between Mr Milicevic for himself, and as an agent for Mrs Milicevic, and Ferrari East. They submit that this must have been the case given Mrs Milicevic's control of the units in the JV Trust and the evidence that she deferred to Mr Milicevic in respect of matters associated with the Myer JV and would have agreed to sign whatever paperwork was necessary to transfer their interest to Ferrari East.
3. The Plaintiffs submit that the terms of the agreement meant that they were obliged to: 1. effect a transfer of their shareholding in Dynamic and unitholding in the JV Trust to Ferrari East so that, with Belgravia's share, Ferrari East assumed control of Dynamic and the JV Trust. The Plaintiffs submit that this would not give Ferrari East control of the business or assets of the Clarence St store because the assets of that business were not owned by Dynamic or, in the alternative, if the property of that business was the property of Dynamic, there must have been a term of the agreement that such property would be transferred out of the hands of Dynamic prior to the transfer to the owners of that business (being Mr Milicevic, Mr Dib and Ferrari East for one-third each) subject to the potential negotiation referred to on 2 October 2013 (at [208] above); 2. allow Ferrari East to take day-to-day control of the Myer JV stores and their revenue from 1 October 2013; and 3. in respect of Mr Milicevic only, provide services to Ferrari East on an ongoing basis as State Manager, at least until such time as the agreement with Myer ended, subject only to a right to terminate his position due to a failure of performance.
4. As already noted, the Plaintiffs contend that in exchange Ferrari East was obliged to: provide a 5% shareholding to the Plaintiffs, which was to be held by the MF Trust; create the Shareholder Loan, which was to be repaid proportionately with the other shareholders; pay 8% interest per annum to the Plaintiffs on the Shareholder Loan; and pay Mr Milicevic $150,000 plus GST for his services as State Manager.
5. The Plaintiffs submit that the following contextual matters support a finding that the agreement included the terms for which they contend.

Defendants

1. The Defendants accept that the parties acted as though there had been a binding contract and submit that both the agreements pleaded by the Plaintiffs and themselves were of the first category in Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72 (Masters v Cameron), namely, that the parties agreed on certain terms, treated themselves as bound by those terms on 1 October 2013 and left the recording of those terms to a later formal contract. While acknowledging that Ferrari East's 22 February 2017 letter appeared to treat the contract as falling within the third category in Masters v Cameron, they submit that this was not the intention when written, referring to Bevan Ferrari's evidence in cross-examination that the letter contained mistakes.
2. The Defendants dispute the Plaintiffs' characterisation of the contract as partly written and partly oral. They say that the email from Gerard Ferrari to Mr Milicevic dated 1 October 2013 and the preceding email chain were preliminary and non-contractual. While accepting that some of the words used in those emails may have been subsequently incorporated, they contend that the contract was wholly oral.
3. The Defendants submit that the parties to the agreement are clear by description but not necessarily by name, noting that Mr Milicevic refers to his 60% interest being owned by the "HM Family Trust", later identifies Mrs Milicevic as the trustee for the MF Trust and never properly identifies his own interest.
4. The Defendants submit that the term of the agreement pleaded by the Plaintiffs, namely, that the Plaintiffs would immediately transfer their 60% beneficial holding in the Myer JV Agreement, Dynamic and the JV Trust, is imprecise as it is not clear whether the 60% beneficial holding simply applies to the Myer JV Agreement or whether it is intended to mean that the Plaintiffs also hold a 60% interest in Dynamic and/or the JV Trust, noting that Mr Milicevic held a 50% interest in Dynamic (as equal shareholder) and that it is difficult to quantify Mrs Milicevic's interest given she held 60 of a total of 100 A-class units and a 100 of a total of 100 B-class units. They submit that the property alleged to have been sold under the Plaintiffs' agreement is also inconsistent with the correspondence exchanged between the parties, noting that Mr Milicevic did not mention Dynamic in any of his emails or his affidavit evidence; they submit that Mr Milicevic's evidence to the effect that he assumed certain matters is the product of reconstruction, not of memory, and is irrelevant regardless.

Consideration and determination

1. As already noted, the parties plead that an agreement was made on 1 October 2013 and it is common ground that they reached consensus on a number of terms. Thus, the principal task of the Court is not to determine whether a binding agreement was entered into but whether the parties agreed to the particular terms that are in dispute.
2. The legal principles referred to at [300]-[305] above recognise that ascertaining terms of an informal agreement which have not been fully articulated or documented by the parties is a question of fact, the Court must ask: what did the parties agree? The answer to that question is to be determined objectively by reference to what a reasonable person would draw from the conduct of the parties and the language they used, having regard to the object and purpose of the agreement, and the surrounding circumstances.
3. The primary dispute concerns the subject matter of the agreement, namely, what property was to be sold to Ferrari East. That issue is presented to the Court in these proceedings as a binary choice between a term that provided for the transfer to Ferrari East of the Plaintiffs' shareholding in Dynamic and units in the JV Trust, and a term that provided for the transfer to Ferrari East of Mr Milicevic's unencumbered legal title to 60% of the Myer JV Assets. At this point, it is appropriate to record that, considered objectively, the obvious dichotomy in the parties' positions might be seen as tending to suggest that the parties did not reach agreement and were not ad idem as to what was to be sold, as the Defendants' counsel observed in closing submissions (T556.5-9).
4. Applying the relevant principles to this case, I find that the oral agreement between Mr Milicevic and Ferrari East did not include a term that provided for the transfer to Ferrari East of the Plaintiffs' shareholding in Dynamic and units in the JV Trust, as the Plaintiffs contend. In my view, when regard is had to the surrounding circumstances, including conversations, documents and the conduct of the parties, a reasonable person would not have understood that the terms of the bargain provided for Ferrari East to acquire the Plaintiffs' equity in Dynamic and the JV Trust. There is some force to the Plaintiffs' contention that, as they did not own the Myer JV Assets, the only property that they could have transferred to Ferrari East was their one share in Dynamic and the units in the JV Trust. However, as Mr Milicevic remained a party to the Myer JV Agreement, there was something of value that he could give to Ferrari East; that is, Mr Milicevic could agree to treat the Myer JV as at an end and give up his rights under the Myer JV Agreement, thereby providing Ferrari East with administrative control and the right to operate the Myer JV stores directly, and allowing it to take profits that it would not otherwise have been entitled to as a Myer JV partner.

Conclusion

1. For the above reasons, I have concluded that the Plaintiffs and the Defendants have not established the essential term of the agreement that they each plead. It follows, in my view, that the issues raised by the parties' claims for relief based on breach of contract, the Defendants' defences and Ferrari East's cross-claim in respect of mistake, frustration and total failure of consideration do not arise, and those claims should be dismissed.
2. However, as these matters were the subject of debate and in case I am wrong, the following sections set out my views on the parties' principal claims (but not their alternative claims) and responses to the submissions made.

Plaintiffs' contract claims: Relief

1. There was no dispute that if the Court accepted the Plaintiffs' characterisation of the agreement as correct, that agreement was repudiated by means of the 22 February 2017 letter (at [289] above) and had terminated (T541.15).
2. The Plaintiffs claim that, as they had accepted the repudiation and terminated the agreement, at least nominal damages are payable by Ferrari East. However, they say they can establish substantial damages on the basis that Ferrari East breached the agreement as it terminated Mr Milicevic's Consultancy without reasonable notice, refused to transfer 5% of the shares in Ferrari East to the Plaintiffs, refused to repay the Shareholder Loan and has not paid any interest on the Shareholder Loan since 2017.

Damages as to shareholding

1. The Plaintiffs seek damages for Ferrari East's breach by failure to transfer the 5% shareholding. They submit that damages should not be assessed based on the value of the shares presently or in 2017, as such a calculation would reward Ferrari East for failing to transfer the shareholding within a relatively short period of time after 1 October 2013 in accordance with the agreement, and contend that the Court should value damages for non-payment of the shareholding, doing the best it can, referring to 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"."
2. The Plaintiffs submit that, at completion, Gerard Ferrari offered a fair means of valuation, being $6 million. On this basis, the Plaintiffs seek damages of $300,000 for non-payment of the shares.
3. The Defendants contest this claim on the basis of mistake and frustration, which I deal with at [409]-[435] below. As to the quantum of damages, they submit that the Plaintiffs have not proven the loss associated with the failure to receive 5% of the share capital in Ferrari East. They contend that the Plaintiffs' reliance on Gerard Ferrari's valuation should not be accepted as he is not an expert business valuer and because he agreed in cross-examination that he was content to refer to figures he did not know to be correct (see [130] above).
4. Based on the evidence, I accept that a finding is available that the Plaintiffs had lost something of value by reason of Ferrari East's failure to transfer a 5% shareholding to them in accordance with the agreement. In those circumstances, the Court is required to do the best it can in assessing that value. Mere difficulty in estimating damages does not relieve the Court from the responsibility of embarking on that task: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; (1991) 104 ALR 1 at 11.
5. However, the authorities also recognise that there is a limit to the lengths to which a Court may go in doing the best it can to assess damages. In Troulis v Vamvoukakis [1998] NSWCA 237 at 29, Gleeson CJ said: "As Deane J observed in The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at [118] - [119], the limitations of the curial process, or the nature of the subject matter in question, often mean that the task of assessing damages involves a pragmatic exercise of a kind traditionally left to the good sense of a jury. Where, however, what is involved is the valuation of goodwill of a business, and the plaintiff fails to adduce either reliable evidence of the trading results of the business, or evidence as to how one goes about valuing such a business, then there is an absence of the raw material to which good sense may be applied. Justice does not dictate that, in such a case, a figure should be plucked out of the air."

Consultancy

1. The issues raised by the Plaintiffs' claim for damages in relation to the Consultancy are: 1. whether the Consultancy fee was reduced by agreement from $150,000 excluding GST to $80,000 by 2017; 2. what the period of reasonable notice is for termination of the Consultancy; and 3. what damages, if any, are payable as a result of the termination of Mr Milicevic's Consultancy under the agreement.
2. As to the first issue, I accept the Plaintiffs' submission that the Consultancy fee had not been reduced to $80,000 by way of an agreed variation to the parties' agreement. The evidence satisfies me that Mr Milicevic, as the relevant counterparty, did not agree to the change and it was in effect forced on him unilaterally. Mr Milicevic maintained in cross-examination that he did not accept the change or agree with Gerard Ferrari's suggestion that the reduction of the management fee was entirely appropriate (T211.43-412.20).
3. Further, no consideration was provided for the variation. As the Plaintiffs submit, it was exclusively to Ferrari East's benefit and Mr Milicevic's detriment, with the expectation that Mr Milicevic would provide the same services for less money, such that no legally binding agreement could have been made: Moratic Pty Ltd v Lawrence James Gordon (2007) 13 BPR 24,713; [2007] NSWSC 5 at [20]-[25].
4. As to what is reasonable notice in respect of terminating the Consultancy, the Plaintiffs contend that a "very lengthy period" of notice is appropriate in the circumstances of this case. They submit that three years would be a suitable period of notice, referring to the following matters: in the 1 October document, Mr Milicevic stated "[e]very time we renew our agreements with Myer we have a 3 year assurance in our management position" to which Gerard Ferrari responded "OK"; the Services and Support Agreement ran from January 2015 to January 2020, which meant that it had three years left to run as of February 2017; Mr Milicevic had given up very valuable rights, such as a role of indefinite duration for as long as the Myer concessions continued to operate, in order to enter into the Consultancy; Gerard Ferrari had agreed on 1 October that Mr Milicevic would not be worse off under their agreement than he was prior; Gerard Ferrari had said that even if the arrangement with Myer ended, Ferrari East would still need a State Manager; Mr Milicevic did not obtain the benefit of the shareholding in Ferrari East that he expected to receive; Mr Milicevic occupied a senior position at Ferrari East, received a significant salary, was involved in strategic discussions and was referred to as a "partner" in the business; and there is no evidence that termination was based on unsatisfactory performance.

Shareholder Loan

1. The Plaintiffs accept that it was an express term of the agreement that the Shareholder Loan would be repaid pro rata with other shareholders.
2. However, they seek damages in the amount of $250,000 on the basis that Ferrari East created the Shareholder Loan of $250,000 owing to them which, by means of repudiation of the agreement, Ferrari East has indicated it does not intend to ever repay.
3. The Defendants submit that the Plaintiffs are only entitled to demand payment of the Shareholder Loan if that right accrued prior to termination of the agreement. They submit that the right did not accrue: 1. due to the failure of the Plaintiffs to complete the condition precedent of the agreement, being the conveyance of the property; or 2. because the right to payment of the Shareholder Loan had not accrued in accordance with Ferrari East's constitution.
4. I am not persuaded by that submission. The existence of the condition precedent relied on in [404(a)] above has not been established by the Defendants. Further, the Court is not ordering repayment of the loan but damages in lieu of performance. As the Plaintiffs submit, the Shareholder Loan was a debt owing which has now been denied and sounds in damages.

Interest on Shareholder Loan

1. The Plaintiffs claim damages for the Defendants' failure to make interest payments of 8% per annum during the period from May 2016 to 21 February 2017 in the sum of $10,166.62, and then from 22 February 2017 until judgment for the unpaid Shareholder Loan. The claim in the first period is based on the "pause" on interest payments for June, July and August 2017, as referred to at [279] above.
2. As with the Consultancy, the evidence does not satisfy me that Mr Milicevic agreed to a pause on his interest payments for June, July and August 2017 at the time such that those amounts remain owing and payable.
3. As to the second period, the Defendants refer to Gerard Ferrari's "understanding" that the 8% interest rate was varied by agreement to 5% from September 2017 and that interest payments made to shareholders were sporadic and ceased from February 2020. As the Plaintiffs' submissions note, those variations to increase payments were not agreed by the Plaintiffs because they occurred after the 22 February 2017 letter.

Ferrari East's contract claims: Defences and relief

1. Ferrari East alleges that Mr Milicevic breached the terms of the agreement it propounds as he did not transfer legal title to 60% of the Myer JV Assets to Ferrari East and there has been a total failure of consideration pursuant to that agreement.
2. Ferrari East claims that, as a result, it is not obliged to fulfil any of its obligations under the agreement and is entitled to be refunded for the interest payments it has made to Mr Milicevic.
3. Ferrari East also claims that its obligations under the agreement arose from a mistake as to the true position regarding the ownership of the Myer JV Assets, in that the assets of the business were owned by Dynamic as trustee for the JV Trust, not Mr Milicevic, and thus Mr Milicevic was not in a position to transfer those assets.
4. Ferrari East also seeks repayment of the interest paid out of the Shareholder Loan under the Frustrated Contracts Act on the basis that the agreement was frustrated as Mr Milicevic was not in a position to transfer the Myer JV Assets.
5. The Defendants' written submissions also raise the principles of mistake, frustration and total failure of consideration in response to the Plaintiffs' contractual claims. It was submitted that the Plaintiffs' agreement was frustrated prior to the purported repudiation and so there was no breach of contract by the Defendants.
6. The Defendants also submit that, if the Court finds that the agreement was for the transfer of a single share in Dynamic and units in the JV Trust, they were mistaken as to the subject matter of the agreement and are entitled to an order rescinding or setting the agreement aside. This is because, they say, they would not have been willing to pay more than $250,000 for property worth less than $200, which they assert is the real value of the share in Dynamic and units in the JV Trust based on the financial records in evidence. They also submit that, as Mr Milicevic was involved in the preparation of the financial statements, he can be taken to have known what the units were worth and if he intended to sell the units for more than 100-times what they were worth then that was to engage in unconscionable conduct to exploit the mistake and the agreement should be rescinded, referring to Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 (Taylor v Johnson).

Legal principles

1. A contract may be voidable in equity because of a unilateral mistake as to a fundamental term of the contract if it would be unconscionable to uphold the bargain: Taylor v Johnson; and N Seddon, Cheshire and Fifoot - Law of Contract (11th ed, 2017, LexisNexis) at [12.50].
2. In Taylor v Johnson, a case in which a party had not carefully read a written contract for sale before signing and was mistaken in her belief as to the amount of the purchase price, the High Court said (at 432-3): "The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or the subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of the mistake or misapprehension."
3. Frustration occurs when, without default of either party, a contractual obligation becomes incapable of being performed because the circumstances in which performance is called for renders it a thing radically different from that which was undertaken by the contract. The task of the Court is to determine, on the true construction of the contract read in light of its nature and the relevant surrounding circumstances, whether the contract the parties entered into is wide enough to apply to the new situation such that, if it is not, then the contract is at an end: Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 720 and 729, per Lord Reid and Lord Radcliffe respectively; adopted in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 51; (1982) 41 ALR 367 at 378-9, per Mason J (as his Honour then was).
4. The effect of frustration is to automatically discharge the parties from the obligation to perform their contractual obligations from the time of the frustrating event. Termination is prospective from the time of frustration; the contract is not invalid ab initio: J D Heydon, Heydon on Contract (2019, Thomson Reuters) (Heydon on Contract) at [23.100]-[23.110]; and Re Continental C&G Rubber Co Pty Ltd (1919) 27 CLR 194 at 201.

Consideration and determination

1. Applying those principles in this case, I would have rejected the Defendants and Ferrari East's cross-claim and defences based on unilateral mistake, frustration and total failure of consideration. This is for the following reasons.
2. Payment can be recovered only if there has been a total, or at least substantial, failure of consideration. Proportionate recovery of a payment is not allowed unless the consideration is severable: Baltic Shipping Co v Dillon (1993) 176 CLR 344; [1993] HCA 4; and Roxborough v Rothmans (2001) 208 CLR 516; [2001] HCA 68 at [16]-[104].
3. Thus, to establish an entitlement to the relief they seek, the failure of consideration must have been total or substantial such that it can be said that Ferrari East did not receive any benefit that it had bargained for under the agreement. Regardless of whether the agreement was for an asset sale or a transfer of equity, Ferrari East has received some benefit.
4. As the Plaintiffs submit, Ferrari East bargained for control of the seven Myer JV stores, obtained the right to operate the businesses as company owned stores from 1 October 2013 and to make revenues and receive profits from them, and continues to do so to the present day. The Defendants may have had to pay Dynamic's liquidator for Stock but what they received under the agreement went beyond those goods as it enabled them to operate the Myer JV business in a manner that they would not otherwise have been able to in the absence of that agreement.
5. In addition, Ferrari East received the benefit of Mr Milicevic's services from 2013 to 2017, which was a core part of the agreement. As put by the Plaintiffs, the Consultancy was part of a "package deal", together with the shareholding and Shareholder Loan, in which Ferrari East would take control of the Myer JV business and have Mr Milicevic run it.
6. As to mistake, even if I were to assume that the Defendants were labouring under a mistake as to the subject matter of the agreement (in that they were mistaken that it provided for the transfer of a share in Dynamic and units in the JV Trust and/or that Mr Milicevic was not in a position to transfer the Myer JV Assets as they were owned by Dynamic as trustee of the JV Trust), the Defendants were aware of the correct position by 11 October 2013, shortly after the agreement was made. At that time, Ferrari East took no steps to rescind or void the agreement and instead affirmed it.

Misleading or deceptive conduct claims

1. During closing submissions, the Defendants' counsel noted that the Plaintiffs plead reliance upon each of the representations when entering into the particular "Agreement" for which they contend. He submitted that, if the Court were to find against the Plaintiffs in relation to their "Agreement", there was no room in the Plaintiffs' pleading for any entitlement to damages under the ACL, and the Defendants had defended the case on that basis.
2. In reply, the Plaintiffs' counsel acknowledged that they had pleaded a particular "Agreement" that was entered into by the Plaintiffs having relied upon the particular representations pleaded. He submitted that every potential universe of agreement could not be pleaded and, in the event that the Plaintiffs did not establish their "Agreement", the Court should approach the misleading or deceptive conduct claims on the basis that some agreement was entered into (as agreed by both parties) and, if the Defendants were right about their characterisation of the agreement, the Plaintiffs' claim in respect of misleading or deceptive conduct would also apply in respect of that agreement.
3. Given my conclusion that neither the Plaintiffs nor the Defendants have established the terms of the agreement for which they contend but the parties are agreed, and I accept, that some agreement was entered into, I have approached both the Plaintiffs and the Defendants' misleading or deceptive conduct claims on the basis that they each claim to have entered into "an agreement" (in addition to their pleaded "Agreements") on 1 October 2013 reliant upon the representations for which they contend.

Plaintiffs' misleading or deceptive conduct claims

1. The Plaintiffs allege that the Defendants engaged in misleading or deceptive conduct in contravention of s 18 of the ACL and/or s 8(1) of the Victorian ACL and/or s 28(1) of the NSW ACL by making three sets of representations: the Belgravia Administration Representation, the Compensation Representation and the Profit, Revenue and Balance Sheet Representations (together, the Representations).
2. There is no dispute that, if the Representations were made, they were made in trade or commerce within the meaning of s 18 of the ACL.
3. The Representations are particularised by the Plaintiffs as being partly written and partly oral. Insofar as they were written, they comprise the emails from Gerard Ferrari to Mr Milicevic on 18, 25 and 28 September 2013, and the email and attached document on 1 October 2013. Insofar as they were oral, they comprise words used by Gerard and Bevan Ferrari at the meeting on 25 September and by Gerard Ferrari in numerous phone discussions with Mr Milicevic during September 2013 and on 1 October 2013. The particulars do not identify which parts of the emails or which particular phone discussions are relied on.
4. The Plaintiffs contend that, although the correspondence originated from Gerard Ferrari, the Representations must have been made with and on behalf of Bevan Ferrari as he was copied in on the correspondence and involved in formulating the strategy in relation to the deal with Mr Milicevic. They also submit that the Representations were made by Ferrari East as they were made by Gerard and Bevan Ferrari as directors acting with apparent authority, referring to s 84(2) of the CCA.
5. The Defendants accept that, if the Representations were made, they were made by Ferrari East but deny they were made by Gerard and Bevan Ferrari.
6. The Plaintiffs' misleading or deceptive conduct case raises the following issues: 1. were the Representations made and, if so, by whom? 2. in respect of any Representations that were made, were they misleading or deceptive? 3. to the extent that the Representations were in respect of future matters, did the Defendants have reasonable grounds to make them? 4. did the Plaintiffs rely on the Representations and suffer loss as a result?

Belgravia Administration Representation

1. The Belgravia Administration Representation alleged is that the Defendants represented that: 1. Ferrari East had entered into an agreement with Belgravia to buy Belgravia's business, including the Myer JV, which was to settle on 1 October 2013 and, by means of that agreement, Ferrari East had acquired all the Myer JV Assets; 2. the Plaintiffs could not stop or prevent Belgravia transferring its 40% interest in the Myer JV to Ferrari East; 3. Ferrari East wished to purchase the Plaintiffs' interests in the Myer JV; 4. if the Plaintiffs did not transfer those interests in the Myer JV to Ferrari East on 1 October 2013, Ferrari East would not or could not complete the purchase of Belgravia's business, including the 40% of the Myer JV owned by Belgravia, and, if Ferrari East did not purchase Belgravia's business, Belgravia would be put into administration due to debts owed by it or its directors to ANZ Bank, and therefore the Myer JV business would collapse; and 5. because of this, the Plaintiffs would either have to transfer their ownership in the Myer JV to Ferrari East or risk losing all value associated with that business.
2. The Amended Statement of Claim refers to the above matters as "each a Belgravia Administration Representation". At the hearing, the Plaintiffs' case was that all of the above matters would be read together as the Belgravia Administration Representation as a "joint one", rather than each matter comprising a separate representation that is alleged to be misleading or deceptive. The Plaintiffs accepted that if, for example, the Court finds that the Defendants did not make the representation at [445(c)] above, then the Belgravia Administration Representation was not made (T543.31-544.5). I have approached the claim on that basis.
3. The Defendants admit that the representations referred to at [445(a)] and [445(c)] above were made in substantially the terms alleged but deny making the balance of the Belgravia Administration Representation.
4. They also contend that, if made, the Belgravia Administration Representation was substantially true in a material respect as Belgravia went into administration not long after the relevant events and therefore the representation to that effect was not misleading or deceptive.
5. The Plaintiffs described the Belgravia Administration Representation in their closing submissions as follows: that if Mr Milicevic failed to transfer the Plaintiffs' interest in the business of the Myer JV to Ferrari East, it would cause Ferrari East's agreement with Belgravia to fail, which in turn would cause the business of the Myer JV to collapse because Belgravia would be put into administration. This reflects those parts of the Belgravia Administration Representation outlined at [445(d)] and [445(e)] above.

Compensation Representation

1. The Compensation Representation alleged is that the Defendants represented to the Plaintiffs that if they transferred their beneficial ownership in the Myer JV to Ferrari East: 1. it would secure their otherwise dire financial prospects; 2. they would be guaranteed by Ferrari East at least the equivalent financial compensation as they received under the Myer JV; 3. Mr Milicevic would be retained as a consultant but would not have to work the same hours for the Myer JV as he was previously accustomed to and would be secured for his lifetime; 4. Ferrari East would make purchases of marketing products from Sales Momentum in the same volume as was at that time occurring (which averaged approximately $30,000 per annum gross); and 5. the Plaintiffs would become part owners of Ferrari East which would be a valuable asset based on the Profit, Revenue and Balance Sheet Representations referred to below.
2. Like the Belgravia Administration Representation, the Amended Statement of Claim refers to the above matters as "each a Compensation Representation" but the Plaintiffs' case, as advanced at the hearing, was that the Compensation Representation should be read together as a "joint one" rather than the above matters each comprising a separate Compensation Representation (T543.31-544.5).
3. As described by the Plaintiffs in their closing submissions, the Compensation Representation is as follows: if Mr Milicevic entered into an agreement with Ferrari East, he would be put in a secure financial position as part-owner of a valuable and profitable asset and would have less onerous working hours than he had in respect of his previous role running the Myer JV business.
4. Having considered the evidence, I am not satisfied that the Plaintiffs have established that the Compensation Representation was made in the terms alleged. This is for the following reasons.
5. First, I have rejected Mr Milicevic's evidence in cross-examination of what he claims Gerard Ferrari said at the 25 September meeting about the role being "minimal… No more than what - less than what you are doing now" (at [177] above) and his evidence of the conversation with Gerard Ferrari on 1 October 2013 in which he claims that Gerard Ferrari mentioned that the deal would give him income guaranteed for life (at [201] above).
6. Second, in my view, the contents of the emails sent by Gerard Ferrari to Mr Milicevic do not give rise to a representation that Mr Milicevic would be working less hours than what he had been working solely for the Myer JV business. Rather, they clarify that his future role would be different, in that he would have responsibilities over the current and future Myer stores as well as franchisees and company owned stores in Sydney and New South Wales. It is true that they acknowledged that Mr Milicevic would not be as "hands on" as an Interstate Manager or be expected to undertake the State Manager role 100% himself as he already had an existing significant business of his own but those statements do not, in my view, express that Mr Milicevic's role would involve less onerous hours than his previous role.

Profit, Revenue and Balance Sheet Representations and the Valuation Representation

1. The Profit, Revenue and Balance Sheet Representations alleged are that Ferrari East (of which the Plaintiffs would own 5%) would: 1. within the first year of owning the Belgravia business, have a revenue of more than $30 million; 2. within the first year of owning the Belgravia business, be profitable; 3. make a profit of approximately $1 million or $1.5 million in the first year of owning the Belgravia business, approximately $2 million or $2.5 million in the second year and approximately $2.5 million or $3 million in the third year; 4. have no debt, a balance sheet of $15 million, a profit of $3 million per annum and own property worth $5 million with a $2 million mortgage after purchase; and 5. have no debt and be worth $10 million within two to three years following its acquisition of Belgravia's business.
2. In closing submissions, the Plaintiffs also alleged that Gerard Ferrari made a further representation about the value of the Ferrari East business in his 28 September email (Valuation Representation) in the following terms: "Forget the $3.75m acquisition cost, I reckon the "real" val is closer to $6m. (that is prior to the JV or any other stores coming back to FE)."
3. The Plaintiffs contend that the Profit, Revenue and Balance Sheet Representations and the Valuation Representation (together, the Financial Representations) are each separate representations that, in summary, represent that Ferrari East would be likely to make certain revenue and profits in the first three years, and the business would have a certain value on and from 1 October 2013 and in subsequent financial years.
4. The Plaintiffs contend that the Financial Representations were representations as to future matters as each of them were predictions of what would occur and the Defendants did not have reasonable grounds for making them, within the meaning of ss 4(1)(a) and 4(1)(b) of the ACL.
5. The Plaintiffs also submit that the Defendants have not satisfied their onus as representors to show that they had reasonable grounds for making the Financial Representations.
6. The Defendants accept that the Financial Representations were representations as to future events. However, they submit that none of them were misleading or deceptive as Gerard Ferrari had a reasonable basis for making them and they were his opinions. The Defendants refer to Gerard Ferrari's evidence in cross-examination, where he stated that the Financial Representations were his opinion based on what he had access to (T302.28-31), and the contents of his emails, referring to the 25 September email where he said "I reckon the "real" val, is closer to $6m", which they say made it clear that it was a matter of his opinion and the basis on which it was made was provided.

Causation and loss

1. The Plaintiffs submit that Mr Milicevic relied upon the Representations made to him in entering into the agreement for himself and on behalf of Mrs Milicevic. They submit that his evidence to that effect should be believed because it accords with common sense as the Representations were clearly intended to induce Mr Milicevic to enter into the agreement.
2. The Plaintiffs also point to the following matters as indicative of reliance on the part of Mr Milicevic: the Representations were made to him by a friend, not a commercial adversary; Mr Milicevic had not been provided with the BSA nor the financial records of Belgravia and, as such, he had no means of going behind the numbers; and there was no reason for him to doubt what he was told as he was aware that Dynamic was a profitable entity.
3. The Plaintiffs seek damages calculated on a "no transaction basis", with the relevant counterfactual clear from the 1 October proposal, namely, that the Myer JV would have remained as it was although Ferrari East would have been substituted for Belgravia.
4. The Defendants submit that the Financial Representations were not causative of the Plaintiffs' loss. They submit that Mr Milicevic's evidence of reliance in his affidavit was a reconstruction in light of litigation rather than a record of his true memory of reliance at that time and it is necessary to consider what a reasonable person in Mr Milicevic's position would have done in light of his knowledge at the time.
5. The Defendants submit that the Court should find that Mr Milicevic treated the dissolution of the Myer JV as inevitable and did not rely on any of the Representations when entering into the agreement with Ferrari East. They say that the evidence shows that Mr Milicevic knew that both Mr Peck and Gerard Ferrari did not accept that there was a future to the franchise model, Mr Milicevic was unable to prevent Belgravia from unilaterally imposing a new contract on him and he "could already see the writing on the wall" and wanted to maximise his return on the agreement.
6. The Defendants also submit that: 1. Dynamic would not have continued to operate the Myer JV stores as Ferrari East would have tried to make them into "vertical" stores to improve its balance sheet and cash flow; 2. Gerard Ferrari believed that Myer did not want franchises in the Myer stores and he would have terminated the Myer JV to protect that relationship (relying on his evidence at [225] above); 3. if the agreement had not occurred, Ferrari East would have terminated the Myer JV and attempted to employ Mr Milicevic as State Manager under terms similar to the draft management agreement; and 4. Ferrari East would have had good cause to terminate the Myer JV given "the inaccuracies" in the accounts of the Myer JV for which Mr Milicevic was responsible.

Legal principles

1. In Gould v Vaggelas (1984) 157 CLR 215; (1984) 56 ALR 31, Wilson J stated at 46: "1. Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case. 2. If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation. 3. The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation. 4. The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract."
2. What must be established is a causal connection between the alleged representations and the loss for which the representee seeks compensation: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; (1992) 109 ALR 247 (Wardley v Western Australia) at 253; and Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 (Henville v Walker) at [17] (Gleeson CJ), [61] (Gaudron J), [94] (McHugh J with whom Gummow J agreed) and [159]-[160] (Hayne J with whom Gummow J agreed). In a claim for misleading or deceptive conduct constituted by representations, acts done by the representee in reliance upon the misrepresentation will "constitute a sufficient connection to satisfy the concept of causation": Wardley v Western Australia at 253.
3. A representation need not be the sole cause of the loss, it need only be a material contributor. A representation that is "objectively likely" to act as an inducement to act in a particular way will be a cause of the relevant loss or damage if it contributed to the loss or damage in some way even if "other factors or conditions… played an even more significant role in producing the loss or damage": Henville v Walker at [106] (McHugh J, with whom Gummow J agreed) and [163] (Hayne J, with whom Gummow J agreed).
4. In Berry v CCL Secure, Bell, Keane and Nettle JJ stated at [31]: "Potts v Miller and Gould v Vaggelas relevantly stand as authority that, where a claimant is induced by deceit to enter into a transaction, the claimant is entitled to recover by way of damages the actual damage "directly" flowing from the fraudulent inducement - including losses flowing from causes "inherent" in the transaction - but is not entitled to recover losses of which the cause is "independent", "extrinsic", "supervening" or "accidental" such that those losses cannot rationally be regarded as caused by the deceit."

Consideration and determination

1. Applying the above principles, I am satisfied that causation is established in respect of the Financial Representations. This is primarily because they were of a nature and communicated in a manner that was seemingly calculated to induce Mr Milicevic into giving up management of the Myer JV (through Dynamic and the JV Trust) pursuant to the terms of the Myer JV Agreement for a new agreement with Ferrari East and, in my view, they would likely have that effect.
2. I do not accept the Defendants' submission that I should reject Mr Milicevic's evidence on reliance. He gave direct evidence that he relied upon the matters Gerard Ferrari included in his emails regarding the likely revenue, profitability, balance sheet and business valuation of Ferrari East, and maintained that position during cross-examination (T147.28-148.47). Mr Milicevic's evidence was not without blemish but, in my view, his testimony on this issue was entirely plausible, and I accept it.
3. The Financial Representations were persuasive, repeated and couched in terms that were designed to encourage Mr Milicevic to do a deal that would give him an ongoing senior role at and equity in Ferrari East. Mr Milicevic did not have access to Belgravia's financial records or the BSA which would have enabled him to verify what he was told. The Financial Representations were made by a former business colleague who, it is to be expected, could be trusted and relied upon to provide Mr Milicevic with information that was reasonably based about the future performance of a company he was being encouraged to contract with such that it was not unreasonable for Mr Milicevic to rely on those representations.
4. I accept that there were other factors at play that also likely motivated Mr Milicevic's decision making at the time, such as his prior discussions about the possible dissolution of the Myer JV with Mr Peck and the indications from Mr Peck and Gerard Ferrari that the franchise model was not the way of the future. However, I do not accept that Mr Milicevic had no alternative option other than entering into a new deal with Ferrari East. In my view, the evidence makes plain that Mr Milicevic had the choice to remain "as is" and stick with "Option (A)". Overall, I am satisfied that the Financial Representations had the intended effect and were a substantial and not minimal cause in inducing Mr Milicevic to pursue "Option (B)", changing the Plaintiffs' position by their giving up of rights under the Myer JV Agreement and bringing about their entry into a new agreement with Ferrari East on 1 October 2013 albeit on different terms to the agreements pleaded by the Plaintiffs and the Defendants in this case.

s 137B of the CCA

1. The Defendants plead that, if they are found liable for loss and damage (which is denied), then the Plaintiffs suffered that loss and damage by reason of their own failure to take reasonable care in failing to take reasonable steps to inform themselves in relation to the subject matter of the Representations such that any amount payable would be reduced to nil or such other amount as the Court considers appropriate, pursuant to s 137B of the CCA.
2. Section 137B of the CCA allows a representor to reduce damages for misleading or deceptive conduct as appropriate based on the representee's failure to take reasonable care. It imports into the calculation of damages similar principles to those in respect of contributory negligence: Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97 at [138]-[139].
3. The Court is to arrive at a "just and equitable" apportionment as between the Plaintiffs and the Defendants of the "responsibility" for the damage which necessarily involves a comparison of culpability by reference to the standard of care of the reasonable person: Pennington v Norris [1956] HCA 26; (1956) 96 CLR 10 at 16.
4. The Defendants did not address this issue in their submissions.
5. The Plaintiffs submit that Mr Milicevic did not fail to take reasonable care of his interests arising from his reliance on the Representations. They say that each of the Representations related to matters in respect of which Mr Milicevic was reliant on what he was told and he was not in a position to conduct due diligence. I agree. I see no basis on which to reduce the Plaintiffs' damages under s 137B of the CCA and decline to do so.

Ferrari East's misleading or deceptive conduct claims

1. Ferrari East allege that Mr Milicevic engaged in misleading or deceptive conduct in contravention of s 18 of the ACL in three ways.
2. First, by making the Ownership and Structure Representations. Second, by silence, in that he failed to disclose certain matters to Ferrari East (Misleading Silence). Third, by making the Stock Representation (together, the Cross-Claim Representations).
3. It is common ground that the Cross-Claim Representations were made in trade or commerce within the meaning of s 18 of the ACL to the extent that they were made.

Ownership and Structure Representations

1. The Ownership and Structure Representations alleged are that Mr Milicevic represented that: 1. he had unencumbered legal and beneficial title to 60% of the Myer JV Assets; 2. the Myer JV was an unincorporated joint venture; and 3. on 1 October 2013, he had the power and capacity to, and did, transfer the legal and beneficial title to the Myer JV Assets to Ferrari East pursuant to their agreement.
2. Ferrari East's particulars refer to the following matters: 1. during conversations between Mr Milicevic and Gerard Ferrari between September 2013 and 1 October 2013, Mr Milicevic informed Gerard Ferrari that he owned 60% of the Myer JV Assets; 2. at no time during the discussions referred to at [521(a)] above did Mr Milicevic inform Gerard Ferrari that the Myer JV Assets were operated through an incorporated entity or trust structure, that the JV Trust existed or that he did not hold unencumbered legal and beneficial title to the Myer JV Assets; and 3. on or around 1 October 2013, Mr Milicevic delivered possession and control of 60% of the Myer JV Assets to Ferrari East, Ferrari East took over responsibility of the management of the Myer JV stores and Mr Milicevic gave Ferrari East unfettered access and control of the Myer JV Assets.
3. On the facts that I have found, I am not persuaded that Mr Milicevic represented to Gerard Ferrari during conversations in September and on 1 October 2013 that he owned 60% of the Myer JV Assets. In my view, an objective reading of the evidence suggests that it was more likely that Gerard Ferrari used that expression (noting he gave evidence to that effect, see [138] and [164] above) than Mr Milicevic.
4. Further, in my view, Mr Milicevic's references to 60% in the context of the joint venture (such as to "60% of nothing", "60% stock holding value" and "60% share") is insufficiently specific to convey a representation that Mr Milicevic had unencumbered legal and beneficial title to 60% of the Myer JV Assets.
5. As to the second Ownership and Structure Representation at [520(b)], there is no evidence that Mr Milicevic said to the Defendants that the Myer JV was an unincorporated joint venture. I also do not accept that Mr Milicevic not informing Gerard Ferrari of the matters referred to at [521(b)] gives rise to the Ownership and Structure Representation alleged.

Misleading Silence

1. Ferrari East alleges that, in the alternative, Mr Milicevic did not disclose at any time prior to entry into the agreement: 1. the capacity in which he held his interest in the Myer JV; 2. that the Myer JV was operated through an incorporated joint venture or trust structure; or 3. the existence of the JV Trust, in circumstances where Ferrari East had a reasonable expectation that each of these matters would be disclosed.
2. As described in their submissions, Mr Milicevic failed to avert to the existence of Dynamic and the JV Trust. Ferrari East submits that Mr Milicevic should be found to have engaged in misleading silence as he expressly denied staying silent about those matters, referring to his evidence that he assumed that Ferrari East had known about Dynamic and the JV Trust, and assumed that Belgravia had transferred its share and units to Ferrari East. It was submitted that it was in Mr Milicevic's commercial interest to tell the Defendants that they were buying the Stock to maximise the sale price.
3. The Plaintiffs deny that Mr Milicevic engaged in misleading or deceptive conduct by silence as to the capacity in which the Myer JV Assets were held. They contend that Ferrari East could have had no reasonable expectation that the matters set out at [528(a)]-[528(c)] would be disclosed by Mr Milicevic for two reasons. First, because Gerard and Bevan Ferrari knew the true position of the ownership of the Myer JV Assets as they knew the identity of the JV entity and had the balance sheet for the business. Second, even if that was not so, the conduct complained of occurred in the context of pre-existing negotiations between the Defendants and Belgravia from which they would have been able to satisfy themselves as to the structure of the Myer JV.
4. The question in a case of alleged misleading or deceptive conduct as a result of non-disclosure is whether, in light of all the relevant circumstances, there has been conduct which is misleading or deceptive: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 (Demagogue v Ramensky) at 41, per Gummow J.
5. The circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined. Unless the circumstances give rise to a reasonable expectation that if some relevant fact exists then it will be disclosed, mere silence will not support the inference that the fact does exist: Demagogue v Ramensky at 41; Miller & Associates Insurance Broking Pty Ltd v BMW Australia finance Limited (2010) 241 CLR 357; [2010] HCA 31 (Miller v BMW) at [18].

Stock Representation

1. Ferrari East's last pleaded representation, the Stock Representation, is that the Plaintiffs were capable of and/or would successfully transfer to Ferrari East clear title to their 60% interest in the Stock of the Myer JV, possessing a value in the hands of Ferrari East of $215,710.73 or $282,213.00 or such other value as it was then estimated to possess in the balance sheet of the Myer JV.
2. The Defendants submit that the clearest evidence of the Stock Representation is in Mr Milicevic's 21 November 2013 email (at [233] above). They also rely on what he wrote in the 1 October document, that the "current 60% stock holding value of $282,213 to be treated as a cash loan to FE", and his raising of the "stock issue" at the 25 September meeting.
3. The Plaintiffs submit that Ferrari East's claim for misleading or deceptive conduct in respect of the alleged Stock Representation should be rejected for three reasons.
4. First, they say that no representation in the form pleaded was ever made by Mr Milicevic to Ferrari East.
5. Second, even if such a representation was made, it was made with reasonable grounds and was not misleading or deceptive. The Plaintiffs submit that merely because a prediction is made as to future affairs which does not happen, this does not make the prediction false unless there was never an intention to comply with it, referring to Consolo Ltd v Bennett (2012) 207 FCR 127; [2012] FCAFC 120 at 36. They submit that the Plaintiffs controlled the share and units in Dynamic and the JV Trust, there is no basis to think that they did not intend by way of the agreement to transfer them to Ferrari East and the fact that they would have had to obtain permission from Belgravia to do so does not mean there was not a reasonable basis to make the Stock Representation. They say there was no basis for Belgravia to oppose the transfer because it had entered into the BSA with Ferrari East and had agreed to give control of the other share and units in Dynamic and the JV Trust.
6. Third, even if those two matters are not correct, any loss which has arisen has been caused by means of Dynamic being put into liquidation, which occurred because Ferrari East refused the transfer of the shares and units in Dynamic and the JV Trust from Belgravia and the Plaintiffs. They submit that Ferrari East was the author of its own misfortune and, to the extent any damages are payable, they should be reduced pursuant to s 137B of the CCA.

Causation and loss

1. As Ferrari East has not established that the pleaded representations were made or that Mr Milicevic engaged in misleading conduct by silence, the issues relating to causation and loss do not arise.
2. I should record that Ferrari East claimed that but for the Cross-Claim Representations it would not have entered into the agreement with Mr Milicevic on 1 October 2013 and instead would have contracted with Dynamic to buy the Myer JV Assets, and sought damages on a "no transaction" case on the basis that Ferrari East would have terminated the Myer JV Agreement. It claimed that Mr Milicevic's misleading or deceptive conduct had occasioned loss and damage, which was quantified as the liability to repay the Shareholder Loan, being $58,166.44 (the amount of the interest payments made pursuant to the agreement to date) and $35,783.10 (the costs excluding purchase price of obtaining the Myer JV Stock from Dynamic's liquidator).
3. Mr Milicevic submitted that, if there was misleading or deceptive conduct, no reliance could have been placed upon the Cross-Claim Representations by Ferrari East because it knew the true position and that any loss or damage occasioned was as a direct result of Ferrari East's actions such that s 236 of the ACL is not satisfied and the loss or damage cannot be said to have arisen "because of" the misleading or deceptive conduct. He also submitted that Ferrari East became aware of the "offending conduct" by no later than early October 2013 and elected to affirm the agreement by paying interest and accepting the existence of the Shareholder Loan and the obligation to transfer shares. As to the losses said to arise from the liquidation of Dynamic, Mr Milicevic argued that they arose not because of his conduct but from Ferrari East failing to accept the transfer of shares of Dynamic from the Plaintiffs and Belgravia which would have prevented the liquidation from occurring.
4. Mr Milicevic also submits that the above matters provide a powerful basis for the Court to reduce any award of damages to nil pursuant to s 137B of the CCA. They also submit that there is no evidence that Mr Milicevic intended to cause the loss or damage or otherwise fraudulently caused such loss.
5. In my view, there is force to Mr Milicevic's submissions. It is difficult to see what loss Ferrari East suffered by entering into an agreement with Mr Milicevic in circumstances where Ferrari East has not given him the 5% shareholding, chose not to deal with Dynamic despite knowing that it had legal title to the Myer JV Assets by 11 October 2013 and had the means and opportunity to obtain information relating to the Myer JV Assets prior to completion of the BSA.

Plaintiffs' damages: Quantum

1. The Plaintiffs' claim for damages is comprised of three elements: 1. the lost profits generated by the Myer JV stores as at 1 October 2013 and which the Plaintiffs usually paid out to themselves through Dynamic as trustee for the JV Trust (Lost Profits); 2. the lost management fee payable to Mr Milicevic under the Myer JV Agreement each year (Lost Management Fee); and 3. the costs incurred by the Plaintiffs personally associated with Dynamic being put into liquidation, including costs of and damages arising from the liquidation proceedings which they say would not have been paid on the counterfactual because, if the agreement had not been entered into, Dynamic would not have been put into liquidation (Liquidation Costs).
2. The Plaintiffs' independent expert accountant, Mr Bell, was instructed to calculate the loss or damage suffered by the Plaintiffs in respect of the Lost Profits, Lost Management Fee and Liquidation Costs on the counterfactual scenario where the agreement was not made and the Myer JV continued to be operated by the JV Trust. The loss was then reduced by the amounts the Plaintiffs received by way of the agreement having occurred, which relevantly included the management fees and the interest on the Shareholder Loan that was actually paid by Ferrari East to the Plaintiffs.
3. The Defendants' independent expert accountant, Ms Jennings-Jones, was instructed to review Mr Bell's report and express her opinion on his calculations of loss or damage, including on whether the methodology applied in arriving at the total "Loss Calculation" was correct, and, if it was not correct, she was to calculate the Plaintiffs' alleged loss or damage for each claimed head of loss.
4. The experts were asked to assume different matters, some of which impacted their calculations and an example of which is dealt with below.
5. In addition to their individual reports, as already noted, the experts prepared a joint report and gave concurrent evidence at the hearing by reference to an agreed list of issues that identified what was agreed and not. Supplementary expert reports and written submissions on Lost Profits were received after the hearing. The reports, and the calculations contained within, are necessarily detailed and these reasons do not purport to refer to all the matters dealt with by the experts. Rather, they focus on the areas of disagreement between the experts in order to enable the parties to produce an updated damages calculation that reflects the Court's determination of the matters in dispute.

Lost Profits

1. Mr Bell calculates Lost Profits as the estimated cash flows from 1 October 2013 to 30 June 2024 plus a terminal value discounted back to 1 October 2013. He then calculates interest at pre-judgment Court rates.
2. The methodology adopted by Mr Bell to calculate the cash flows that the JV Trust would have earned had the agreement not occurred on 1 October 2013 involves: 1. calculating the net profit that the JV Trust would have earned based on Ferrari East's actual sales up to 30 June 2020; 2. calculating the net profit that the JV Trust would have earned in the period 1 July 2020 to 30 June 2024; 3. calculating a terminal value which attributes a value to the net profits beyond 1 July 2024; 4. making adjustments as necessary so that the results reflect estimated cash flows; 5. calculating the net present value (NPV) of the estimated cash flows back to 1 October 2013; 6. calculating the Plaintiffs' 60% interest of the distributions from the NPV; and 7. calculating the interest at Court rates from 1 October 2013 to 31 March 2020 as well as a daily interest rate.
3. The loss of profits calculated by Mr Bell is on a pre-tax basis.
4. Mr Bell's supplementary report filed 20 May 2022 (AB3) sets out his Lost Profits calculation as follows: Summary Total NPV of Cash Flows $467,169 NPV of Terminal Value $55,028 Total NPV $522,198

Plaintiffs 60% interest $313,319 Court Interest to 31 July 2021 $136,626 Total including Court Interest $449,944

1. Ms Jennings-Jones' supplementary report filed 10 June 2022 does not include a summary of her Lost Profits calculation.

Discounted cash flow methodology

1. The experts agree that Mr Bell's discounted cash flow methodology is the appropriate way to calculate damages.

Gross profit margin

1. In their joint report, the experts agreed on the gross profit margin adopted by Mr Bell of 58.6%.
2. An issue arose following Mr Bell's recalculation of Lost Profits in AB3 (that excluded the income and expenses associated with the Clarence St store and the sales data from the Roselands store) which increased the gross profit margin to 59%.
3. Ms Jennings-Jones considers 57.63% to be a more appropriate gross profit margin to adopt. In her opinion, the gross profit margin was impacted by inaccurate figures for opening and closing stock, and Mr Bell's gross profit margin calculation at each relevant date and the FY13 percentage he adopts makes no allowance for the exclusion of the Clarence St stock.
4. The difference in approach between Mr Bell and Ms Jennings-Jones is that Mr Bell calculated his gross profit margin based on FY13 only (consistent with the methodology used in his second report (AB2) and the joint report), whereas Ms Jennings-Jones takes an average for all periods from FY11 to September 2013 which, irrespective of what stores are included, ranges from 57.33% to 57.68%.
5. I am not persuaded by Ms Jennings-Jones' view that the methodology that was initially agreed between the experts, which adopted a gross profit percentage of 58.6% based on the FY13 margin, should be changed. Ms Jennings-Jones' principal reasons for initially concurring with Mr Bell's approach, namely, that the improvement in the gross profit percentages in FY12 and FY13 compared to the respective prior years and the gross profit percentages in FY11 to FY13 were in a relatively narrow range of 1.5%, appear to remain apt and I see no reason why the exclusion of the Clarence St store warrants a change from what had been an accepted methodology.
6. It follows that the recalculation of the gross profit percentage based on the FY13 margin of 59% should be applied.

Rent

1. In their joint report, the experts agreed on the rent expense as a percentage of sales to be 23.7%, which was based on the level recorded for FY13 (consistent with the approach in AB2 and Mr Bell's first report).
2. In AB3, Mr Bell's calculation of rent as a percentage of sales increased the average of FY12/FY13 rent from 23.3% of sales to 24.5% of sales. This was because Clarence St had a much lower rent as a percentage of sales, being an average of 13.6% in FY12/FY13.
3. The Defendants submit that Mr Bell's approach in AB3 of averaging FY12/FY13 is not the approach he used in previous reports and is more advantageous to the Plaintiffs than his previous approach.
4. No explanation has been provided by Mr Bell as to why he changed his approach and adopted an average of FY12/FY13.
5. The Defendants also submit that the lower rent as a percentage of sales for the Clarence St store appears to be because it was not a Myer store and not subject to the cost structure in the Myer licence agreement which charged rent as a percentage of sales. Ms Jennings-Jones states that rent should be calculated based on the licence fee percentage provided by the Myer licence agreement, which requires 18% of hire gross sales and 27% of retail gross sales to be remitted for the Myer concession stores. I am not persuaded that rent as a percentage of sales should be recalculated based on the licence agreement. However, I accept that rent as a percentage of sales should be recalculated to reflect FY13, consistent with the previously agreed approach.

Wages

1. The experts agree that wages are to be calculated as a percentage of sales.
2. Mr Bell's methodology for the calculation of wages in AB3 adopts the same approach as in the joint report (which includes the expense item "contract work"), save for one matter. In the joint report, Mr Bell averages the wages cost from FY12 and FY13 but in AB3 he uses only the FY13 figures because, he says, the FY12 amount for the Clarence St store did not appear correct as it was identified as being only 1.9% of sales. Using the FY13 data, Mr Bell's recalculation for wages is 20.2%, compared to the 20% figure arrived at in the joint report.
3. Ms Jennings-Jones adopted a wages percentage based on the financial records in the period from July to September 2013.
4. I accept the Plaintiffs' submission that the period used by Ms Jennings-Jones is too short to be relied on given the seasonal nature of the business. I agree that a period of at least one year is appropriate to ensure an accurate base of data from which to smooth out seasonal variations.
5. Mr Bell's methodology is to be preferred to that of Ms Jennings-Jones because it is based on a more expansive period of data. Wages as a percentage of sales should be calculated in a manner consistent with the other expense inputs, using FY13, resulting in the figure of 20.2%.

Sales

1. The experts agreed that actual historical sales should be adopted but there is an issue in respect of forecasts for FY22 to FY24. That issue relates to the discount rate, with Ms Jennings-Jones' view being that the rate should be adjusted to take into account any uncertainty in respect of forecast sales, and I deal with it below.

Other expenses

1. The experts agree that other expenses are a variable cost and should be calculated as a percentage of sales and to the exclusion of management fees.
2. Ms Jennings-Jones adopts 14.7% as the rate for other expenses. In the joint report, Mr Bell revises his calculation of other expenses to exclude the expense line item "contract work" as it is included in his wages calculations and, on this basis, he reduces his "other expenses" as a percentage of sales from 13.51% to 6.62%.
3. In AB3, Mr Bell makes some adjustments to the other expenses based on being able to more properly allocate expenses arising from the data in the general ledger. This has the effect of slightly reducing the other expenses percentage from 6.6% to 6.2%. That reduction is consistent with the removal of management fees which are associated with the Clarence St store and workers compensation expenses being moved to the wages percentage calculation. No issue is raised in relation to that approach by Ms Jennings-Jones.
4. The Defendants note that Mr Bell's use of the average of FY12/FY13 (6.2%) instead of FY13 (6.6%) results in a higher Lost Profits figure and is inconsistent with the approach for other expenses. Other expenses should be recalculated as a percentage of sales based on FY13.

Capital expenditure

1. Mr Bell calculates capital expenditure (CAPEX) as a percentage of wages based on the IBIS Report as to capital costs in the industry.
2. While Mr Bell's approach in respect of wages and expenses looks at historical data, he relies on instructions that CAPEX for fixtures and fittings would be minimal as Myer provided all fixtures and fittings including lighting, cash registers and hanging racks as part of the lease arrangement. This reflects Mr Milicevic's evidence that CAPEX is not an ongoing expense. Mr Bell assumed 15% of wages based on the industry average.
3. In Ms Jennings-Jones' opinion, Mr Bell's CAPEX is understated; it is significantly lower than the CAPEX historically incurred by the JV Trust and what has been required to be incurred post-acquisition in order to maintain the seven Myer JV stores, and it assumes no fit-outs and minimal capital expenditure will be required in the future.
4. Ms Jennings-Jones calculates CAPEX having regard to the JV Trust historical data and CAPEX incurred subsequent to the sale.
5. A difference between the respective approaches of the experts arises from the different instructions and assumptions relied on in respect of the level of CAPEX required.
6. An issue with Ms Jennings-Jones' use of historical data is that it includes data which reflects actual costs incurred by Ferrari East, a significant expense of which was the de-fit and re-fit of the Clarence St store, as Ms Jennings-Jones accepted in cross-examination.
7. I prefer Mr Bell's use of the 15% industry average to Ms Jennings-Jones' approach of using actual historical data that includes the Clarence St store re-fit and de-fit costs and other expenses which Mr Milicevic gave evidence that he would not have agreed to incur. As Mr Bell explained in cross-examination, calculating CAPEX based on the industry standard avoids the risk that historical data could relate to upfront setup or establishment expenses which would not be incurred on an ongoing basis.

Discount rate

1. The experts substantially agreed as to the appropriate discount rate save for two specific risk premiums identified by Ms Jennings-Jones. Based on that difference, Ms Jennings-Jones adopted a discount rate of 24% while Mr Bell adopted an 18.74% rate.
2. The first risk premium relates to the risk of the Myer JV Agreement not being renewed. In generating this additional specific risk premium, Ms Jennings-Jones relied on Gerard Ferrari's evidence that there was a risk of non-renewal of the Myer JV Agreement. Mr Bell based his approach on instructions that the risk of non-renewal of the Myer JV Agreement would not affect the specific risk premium.
3. Mr Bell's risk premium rate should be adopted rather than that of Ms Jennings-Jones. For the reasons set out at [226] above, no weight should be placed on Gerard Ferrari's evidence that there was a risk that the Myer JV Agreement would not be renewed. The Defendants have not established a significant risk of non-renewal in respect of which an additional specific risk premium should be allocated.
4. The second risk identified by Ms Jennings-Jones concerns uncertainty in respect of recovery from the COVID-19 pandemic. I prefer Mr Bell's approach which is to account for that risk in the forecast cash flows rather than as a general discount rate.
5. For these reasons, the discount rate proffered by Mr Bell of 18.74% based on a specific risk premium of 8% should be applied.

Lost Management Fee

1. The experts agree: 1. the methodology for calculating the Lost Management Fee is comparing the "but for" level of management fees with actual management fees and discounting to a present value; 2. the amount of the actual management fee; and 3. the discount rate adopted by Mr Bell of 5%.
2. There was an issue between the experts as to whether the management fee of $150,000 was exclusive or inclusive of GST. As I have found, the management fee of $150,000 is exclusive of GST (at [297] above).
3. The next issue is whether the management fee is a loss suffered by the Plaintiffs or Sales Momentum. This raises a factual and legal issue; not an issue for the experts. The loss is that of the Plaintiffs.
4. Another issue is whether the management fee would be paid if the Myer JV stores made a loss. It is agreed that the management fee could be paid if there were profits. The JV Trust Deed provides that the management fee is to be paid out of profits only. The recalculation of damages should be undertaken on the assumption that management fees can only be funded on that basis.
5. Ms Jennings-Jones' conclusion that there would be a loss in FY14 (and no profits from which to pay a management fee) is based on her model that needs to be updated in respect of various inputs to reflect the Court's findings.
6. Her calculations based on the reduction in Mr Milicevic's management fee to $80,000 followed by $0 after 22 February 2017 are not relevant because they assume the existence of an agreement with Ferrari East, which is inconsistent with the approach under the counterfactual that the agreement had not been made.
7. As to the calculation of amounts paid by Ferrari East to date, that amount should be exclusive of GST, consistent with the management fee of $150,000 per annum being exclusive of GST.

Liquidation Costs

1. The agreed value of the claim is $67,474.
2. The only difference between the experts as to the Liquidation Costs relates to whether GST should be included or not, based on whether an input tax credit could be claimed. In my view, the calculation should be made on the basis that an input tax credit could not be claimed. The amounts were paid by the Plaintiffs (as defendants in the proceedings brought by Dynamic's liquidator).
3. The Defendants contend that as Dynamic continued to trade for a period of years after October 2013 with Mr Milicevic as a director, there has been no causative link between any breach by Ferrari East and the liquidation of Dynamic and, therefore, any losses incurred by the Plaintiffs cannot be linked to that breach.
4. The Plaintiffs submit that, if the agreement had not occurred, Dynamic would not have been put into liquidation. I am not persuaded by that submission in circumstances where Belgravia was the creditor that sought the appointment of the liquidator and part of the liquidator's claim against the Plaintiffs related to the $100,000 transfer by Mr Milicevic out of an account of Dynamic.

Amounts paid by Ferrari East

1. It is agreed that Ferrari East has already paid Mr Milicevic $462,244 (exclusive of GST).
2. It is agreed that Ferrari East has paid interest of $52,575.

Statutory interest

1. Interest should be calculated on all losses from 1 October 2013.

Conclusion

1. For these reasons, I have found that neither the Plaintiffs nor the Defendants have established the key term of the agreement for which they contend. It follows that the claims and relief sought by the parties based on breach of contract and the defences and cross-claims that raise mistake, frustration and total failure of consideration do not arise.
2. I have concluded that the Plaintiffs are entitled to relief under the ACL in respect of the Financial Representations made by Ferrari East and Gerard Ferrari which I have found to be misleading or deceptive and made without reasonable grounds. The Defendants have not succeeded on their misleading or deceptive conduct case.
3. It follows that Ferrari's East's cross-claim should be dismissed.
4. Given the outcome, in principle, I see no reason why the usual order that costs follow the event should not apply.
5. There may be further issues concerning the calculation of damages that will need to be dealt with to take into account my decision on the matters arising from the expert evidence.
6. The parties should consider these reasons for judgment and consult about whether appropriate short minutes of order can be agreed. Alternatively, the parties are to approach my Associate by Tuesday, 3 October 2023, for the purpose of listing the proceedings for directions in order to determine what should be done to enable the Court to make orders that dispose of the proceedings.

Amendments 11 December 2023 - [584] - amendment to percentage figure 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: 11 December 2023