Milicevic & Anor v Ferrari East Pty Ltd & Ors

Supreme Court of NSW|2023-12-11|Before: Henry J

JUDGMENT

On 14 September 2023, I delivered reasons for judgment on liability and issues relating to damages in these proceedings: Milicevic & Anor v Ferrari East Pty Ltd & Ors (No 3) [2023] NSWSC 1116 (Principal Judgment). These reasons deal with issues relating to the quantification of damages and final orders (other than costs). They assume familiarity with the facts and issues in the Principal Judgment and adopt the same terms.
As recorded in the Principal Judgment, I determined that the Plaintiffs were entitled to relief in relation to their misleading or deceptive conduct claim against Ferrari East and Gerard Ferrari, that the parties' claims and cross-claims based on breach of contract did not succeed and that the Defendants' misleading or deceptive conduct claims failed: [616]-[617]. I also stated, at [620]-[621]: 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. 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.

Overview of Plaintiffs' damages claim and relevant findings

It is appropriate to start by setting out an overview of the Plaintiffs' misleading or deceptive conduct claim and the way in which the parties' cases on damages were put, and the Court's findings on those matters.
In the Principal Judgment, I found that Ferrari East and Gerard Ferrari made the Financial Representations, they did not have reasonable grounds for making them at the time they were made and they were misleading or deceptive contrary to s 18 of the ACL, s 8(1) of the Victorian ACL and/or s 28(1) of the NSW ACL: at [468] and [486].
The Court also found that Mr Milicevic, and Mrs Milicevic through Mr Milicevic, relied on the Financial Representations when entering into an agreement on 1 October 2013 (1 October Agreement) and causation was established, although noting that the 1 October Agreement was comprised of different terms to the agreements pleaded by the Plaintiffs and Defendants: at [438] and [500]-[504].
The parties agreed that this was a "no transaction" case. The dispute concerned whether the relevant counterfactual in the "no transaction" case was that, absent the 1 October Agreement: the Myer JV arrangement would have remained as it was although with Ferrari East substituted for Belgravia, as the Plaintiffs contended; or, as the Defendants contended, Ferrari East would have terminated the Myer JV Agreement with the consequence being that the Plaintiffs' loss was referrable to their outcome after termination: at [505].
On that issue, I could not exclude the possibility that Ferrari East would have terminated the Myer JV at some point in time but did not find, as the Defendants had sought, that Ferrari East would have terminated the Myer JV Agreement if the 1 October Agreement had not occurred. I accepted that the Plaintiffs' loss should be calculated based on their counterfactual by reference to what would have happened if Dynamic as trustee for the JV Trust continued to operate the Myer JV stores as it had in the past from 2010 to October 2013, although with Ferrari East owning 40% and the Plaintiffs continuing to own 60%: at [506]-[510].
I also found that, if the 1 October Agreement had not occurred, Dynamic would have been put into liquidation (which occurred on 27 August 2015) in circumstances where Belgravia, a creditor in the amount of $437,556.20, sought the liquidator's appointment and part of the liquidator's claim against the Plaintiffs related to a transfer of $100,000 by Mr Milicevic out of an account of Dynamic: at [272], [274] and [612].
The Principal Judgment considered the Plaintiffs' claim for damages for its misleading or deceptive conduct claim, made findings in relation to the expert accounting evidence focusing on the areas of disagreement between the experts and recorded that the damages claim comprised three elements: at [557] and [561].
The first element is a claim of Lost Profits generated by the Myer JV stores as at 1 October 2013 which the Plaintiffs usually paid out to themselves through Dynamic as trustee for the JV Trust. The Plaintiffs relied on Mr Bell's evidence which calculated the amount of Lost Profits by assuming that profits would be payable under the Myer JV Agreement on an ongoing and indefinite basis (Lost Profits Assumption) by estimating cash flows from 1 October 2013 to 30 June 2024 (based on Ferrari East's actual sales to 30 June 2020 and estimated future sales to 30 June 2024), applying a terminal value (that attributed a value to the net profits beyond 1 July 2024) and calculating the Plaintiffs' 60% interest of the distributions from the NPV of the cash flows back to 1 October 2013. Mr Bell then calculated interest on that amount at pre-judgment Court rates.
There was no dispute between the experts that Mr Bell's discounted cash flow methodology was an appropriate methodology for calculating Lost Profits. The disputes related to expense inputs (including in respect of rent, wages and CAPEX percentages) and whether, applying those inputs, the calculations identified any loss at all. The Court made findings on the disputed input items of gross profit margin, rent, wages, sales, other expenses, CAPEX and discount rate (at [563]-[601]) but made no findings in respect of the Lost Profits Assumption applied by Mr Bell.
Second, a claim in relation to Lost Management Fees payable to Mr Milicevic under the Myer JV Agreement each year. The Plaintiffs relied on Mr Bell's Lost Management Fees calculation, which assumed that Mr Milicevic would have continued to earn management fees in the amount of $150,000 per annum up to and including the end of the 2030 financial year (FY2030) or the 2025 financial year (FY2025).
The experts agreed that the methodology for calculating Lost Management Fees should be a comparison of the "but for" level of management fees with actual management fees and discounting to a present value, the amount of the actual management fee and the discount rate adopted by Mr Bell of 5%. They disagreed on whether the management fee of $150,000 was exclusive of GST, whether it was loss suffered by Sales Momentum and whether the calculations should be based on the reduction of Mr Milicevic's management fee to $80,000 followed by $0 after 22 February 2017, and the Court made findings in relation to those matters: at [602]-[608]. Ms Jennings-Jones did not agree with Mr Bell's calculations to FY2025 or FY2030, noting in the Joint Report that there was a legal issue as to whether the management fees would have ceased: Joint Report at [101]. The Court made no finding as to whether the management fees would have ceased as at FY2025 or FY2030 (or some earlier time after 1 October 2013) as the parties' submissions did not address that issue.
Third, a claim for Liquidation Costs, the value of which was agreed by the experts but not accepted as a loss suffered in circumstances where I rejected the Plaintiffs' submission that, if the 1 October Agreement had not occurred, Dynamic would not have been put into liquidation: at [612].
Thus, the Principal Judgment rejected one element of the Plaintiffs' claim for damages, namely Liquidation Costs, and made findings in respect of disputes between the experts in relation to elements of the Plaintiffs' damages claim, namely disputes in respect of inputs into the calculations for quantifying the Lost Profits and Lost Management Fees claims. This was in the context where the parties would need to produce updated damages calculations that reflected the Court's determination of matters in dispute and where there may have been further issues concerning the calculation of damages that needed to be dealt with to take into account the Court's decision: at [561] and [620].

Plaintiffs

The Plaintiffs submitted that the Court should accept that Lost Profits should be calculated on the basis of the Lost Profits Assumption and Lost Management Fees should be awarded until FY2030, and accepted and relied on the calculations of those claims undertaken in the Jennings-Jones Nov Report (in Annexure D), together with her calculation of statutory interest, as follows: Figure 1: Summary of Loss, Jennings-Jones Nov Report: Annexure D, Appendix B (see also Table 7 at page 13).
The Plaintiffs submitted that the only uncertainty affecting the figures was the length of time one assumed that Mr Milicevic would have received management fees, with the Plaintiffs' position being that they should be calculated until FY2030 rather than FY2025 for the following reasons: 1. the Myer JV stores were valuable stores in the Belgravia business and there is no reason why they would not have continued operating; 2. Mr Milicevic is 55 years old, could work until FY2030 and gave evidence that, had the 1 October Agreement not been made, he would have sought to continue his management role in the business on an ongoing basis indefinitely; and 3. as the Ferraris valued Mr Milicevic's contribution to the Myer JV business and wanted him to run it as part of any agreement with them, they would have wanted him to continue to do so had the 1 October Agreement not been made with there being no reason to think that the Defendants would have sought to remove Mr Milicevic from his management role, noting that the Myer JV Agreement included a right to renew at the end of the term. It was submitted that, if the Defendants were willing to keep the Myer JV running as at 1 October 2013 (as the Court found), there is no evidence that establishes a reason for the Defendants to have stopped running it at some later point in time.

Defendants

The Defendants' position is that the Plaintiffs have not established any financial loss, relying on Ms Jennings-Jones' calculations (in the table below) that assume that profits and Mr Milicevic's engagement as State Manager and payment of his management fees would have ceased when Dynamic went into liquidation on 27 August 2015: Figure 2: Summary of Loss, Jennings-Jones Nov Report: Annexure M, Table 1 (see also Table 8 at page 14).
The Defendants contend that the Plaintiffs had not discharged their onus of demonstrating any loss, submitting as follows: 1. the Plaintiffs did not plead the basis upon or the period over which the management fees should be paid by way of damages and their written submissions on the topic were limited; 2. the Plaintiffs sought to address the question of the period in relation to management fees for the first time in their submissions dated 9 November 2023 by reference to the continuation of the Myer JV and the Myer JV Agreement (as set out at [20] above) but failed to address the Court's findings as to the winding up of Dynamic, which is central to the counterfactual; 3. based on the counterfactual and the facts as found by the Court (particularly at [67], [271], [274], [506] and [612]), the Plaintiffs have not discharged their onus of establishing loss as they have not demonstrated that the Myer JV would have survived after 27 August 2015 when Dynamic was put into liquidation, not sought to identify why Mr Milicevic would be entitled to damages for lost income after that date (such as by way of Lost Management Fees) and have not established that Mr Milicevic has suffered loss of income from February 2017. In relation to the latter point, the Defendants submitted that the Plaintiffs have not established that Mr Milicevic's income from February 2017 together with his likely future income to 2030 is less than the amount he would have received under the counterfactual by way of Lost Management Fees; 4. it is inevitable that the Myer JV would have come to an end around the time Dynamic went into liquidation as: there was no right to renew the Myer JV Agreement; upon the administration of Dynamic on 23 July 2015, Dynamic was removed as trustee of the trust; the balance sheets at the time of liquidation show that Dynamic would have been in a net negative asset position if the debt to Belgravia was taken into account; and the Plaintiffs had not sought to show that Ferrari East would have been likely to renew the Myer JV Agreement or agree to the appointment of a new trustee after Dynamic went into liquidation, that the trustee would have continued to pay management fees to Mr Milicevic or the terms of any alternative agreement under which such fees would have been payable; and 5. if Mr Milicevic's entitlement to the management fees ended with Dynamic's liquidation, the entitlement to Lost Profits must also end on that date.
The Defendants also submitted that, in the event the Court considers Mr Milicevic to be entitled to damages for loss of income from the loss of management fees from February 2017 and following, the loss must be offset against the income that Mr Milicevic otherwise could, or did, earn as a consequence of not having to manage the Myer JV business. It was submitted that, as the Plaintiffs have not adduced any evidence of what Mr Milicevic earned after February 2017 and he gave evidence that he had been continuing to work in the fashion industry, inferences should be drawn that his evidence would not have assisted the Plaintiffs' case and that his income was greater than the management fee with the consequence that he has not suffered any loss.

Plaintiffs' reply

In reply, the Plaintiffs contended that it was not open for the Defendants to advance a case that the profits and management fees under the Myer JV Agreement would have ceased as at the liquidation date of Dynamic as it amounted to the Defendants recasting and running a new case on damages. They submitted that the Defendants' case at trial, that Ferrari East would have terminated the Myer JV Agreement and wound up the JV shortly after 1 October 2013, was rejected by the Court and, as such, they failed at trial to discharge the evidentiary onus imposed upon them by the way they had joined issue with the Plaintiffs' counterfactual in respect of the loss they claimed to have suffered, referring to Berry v CCL Secure Pty Ltd (2020) 271 CLR 151; (2020) 381 ALR 427; [2020] HCA 27 (Berry v CCL) at [62] per Gageler J (as his Honour then was) and Edelman J.
The Plaintiffs also submitted that there was much agreement between the experts on damages, the Principal Judgment (which included a series of findings resolving the differences between the experts) did not give a general invitation for the experts to redo calculations on a completely different set of assumptions to that argued at trial, the Court referred without criticism to Mr Bell's methodology and did not find that the calculations for Lost Profits or Lost Management Fees should end at the date of liquidation of Dynamic.
The Plaintiffs submitted that, if the parties are held to their existing cases, the question is simply how long to pay Mr Milicevic a management fee and profits, and the Plaintiffs' position is that it at least should be assumed that the Myer JV arrangement would have continued to FY2025. At the hearing, the Plaintiffs did not press for the Lost Management Fees to be calculated through to FY2030 and accepted that a more appropriate end date would be the end of FY2024.
The Plaintiffs submitted that, once it was accepted that the Myer JV Agreement would not have been cancelled from the inception of the relationship with Ferrari East, there was no evidentiary basis to think that the arrangements pursuant to which the Plaintiffs received profits and Mr Milicevic received a management fee would have come to an end at any particular point of time, as the Myer JV was profitable (relying on the Jennings-Jones Nov Report at Annexure D, Appendix C, which shows a net profit every year except FY2021 and FY2022) and the Defendants valued Mr Milicevic's contribution to the business.
The Plaintiffs relied, by analogy, to the reasoning of Mason CJ and Dawson J in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 93-4; (1991) 104 ALR 1; [1991] HCA 54 where their Honours observed that, in assessing damages, the Court is necessarily engaging in a hypothetical exercise of ascertaining how a contract would have turned out had it not been brought to an end and held that, in that case, there was a strong prospect of renewal if the contract had proceeded to completion (rather than being repudiated) as it would have been to the Commonwealth's advantage to renew rather than to negotiate a fresh contract with a third party and start from scratch and it would be wrong to conclude that the Commonwealth would have refused to renew simply because that outcome would reduce the Commonwealth's liability in damages to Amann Aviation.
The Plaintiffs also submitted that, if the Defendants are allowed to argue a new case by reference to the liquidation of Dynamic, the Plaintiffs' position is that even if the liquidation of Dynamic meant the Myer JV business would have ceased to run through that entity, it would not have brought an end to the business run through the Myer JV stores which Mr Milicevic had been managing nor the balance of the Myer JV Agreement as the parties would have entered into a new arrangement on similar terms with Mr Milicevic managing the stores, being paid a management fee of the same amount and the Plaintiffs taking 60% of the profits through whatever entity or structure they wished. They contended that there was an evidentiary basis for such a finding, referring to the terms of the Myer JV Agreement that provided that it could be renewed for an additional term if both parties agreed to do so. The Plaintiffs argued that, as the Myer JV Agreement was still on foot at 1 October 2013 and had been assigned to Ferrari East, it must have been renewed for another three year term ending in February or July 2016, which was after Dynamic had gone into liquidation, there was no basis to think that Ferrari East had any power to bring the arrangements to an end before that time and it would not have done so in 2016 as by that stage a new agreement with Myer had been made through to at least 2020 and the JV business was profitable.
The Plaintiffs submitted that, even if that is not correct, the Defendants submissions (at [22(d)] above) ignored the fact that, on the counterfactual, the business of the Myer JV would have continued to be run through Dynamic, the revenue and profits of that business would have continued to flow through Dynamic and, as the expert evidence shows that the business would have been profitable, there is no reason to think that such business would not have continued.
The Plaintiffs also: 1. took issue with the Defendants' submission that Mr Milicevic had not proven any loss in relation to management fees after 22 February 2017 because he had not led evidence as to what work he had undertaken after that date, alleging that Mr Milicevic's evidence that he generally worked one day a week in the Myer JV business, that he had a significant business of his own (including Sales Momentum) and that he delegated work to his team, which included Ms Golovchenko, would satisfy the Court of that matter; 2. accepted that, if their submissions are not accepted and Lost Profits cannot be claimed after 27 August 2015, they would suffer no loss with respect to management fees because they were paid an equivalent amount of money during that period of time; and 3. rejected the Defendants' submission (and calculation) that, if they are not able to claim Lost Profits and Lost Management Fees after 27 August 2015, any Lost Profits that they did suffer prior to that time should be offset by the management fees paid by Ferrari East from 27 August 2015 until 2017 on the basis that Mr Milicevic provided valuable labour to benefit Ferrari East in exchange for those payments until his position was terminated in February 2017.

Consideration and determination

The principles applied by the High Court in Berry v CCL recognise that the Plaintiffs bear the legal burden of establishing that they have suffered the identified loss or damage by reason of Ferrari East and Gerard Ferrari's misleading or deceptive conduct and the amount of that loss and damage, and that they may claim loss on a "no transaction" basis by pleading and proving a counterfactual about what would have happened if the contravening conduct had not occurred.
As Gageler J (as his Honour then was) and Edelman J stated in Berry v CCL, at [65]-[66] and [72] (footnotes omitted): "Economic loss may take a variety of forms" all of which involve the identification of some "prejudice or disadvantage" that has occurred. Plaintiffs pursuing the statutory action are initially responsible for formulating how such loss or damage as they claim to have suffered is to be identified. The initial question must always be: "what loss or damage does the plaintiff allege"? The plaintiff then bears the legal onus of proving that the identified loss or damage has been suffered by the contravention of which they complain and of establishing the amount of that loss or damage. The plaintiff bears, in other words, the ultimate burden of establishing both the required connection with the contravention and quantum by inferences drawn from the whole of the evidence. That legal onus is constant. The practical burden of introducing evidence - the so-called "evidentiary onus" - is a different matter. In the pre-trial and trial processes that lead up to a court ultimately having to determine whether a plaintiff has discharged the legal onus of proof by inferences drawn from the whole of the evidence, the practical burden of introducing evidence can and often does shift. Whether, and if so how and to what extent, an evidentiary onus might shift from a plaintiff during the conduct of an action depends in large measure on how the plaintiff chooses to formulate the loss or damage claimed to have been suffered, and on how the parties thereafter choose to join issue on the questions of connection with the contravention and quantum that arise in respect of the chosen formulation. Much, in other words, depends on the pleadings. … "The function of pleadings is to state with sufficient clarity the case that must be met" and thereby to "ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and … to define the issues for decision". A plaintiff should be expected to plead all material facts on which the plaintiff relies to constitute the statutory cause of action, including any counterfactual on which that plaintiff relies to establish the requisite causal link between identified loss or damage and identified misleading or deceptive conduct. In the same way, a defendant resisting the statutory action should be expected to plead any different counterfactual on which that party might rely to deny the causal link. Unless and to the extent that the parties choose to depart from the pleadings in the way they go on to conduct the trial, choice between the competing pleaded counterfactuals on the balance of probabilities should then exhaust the fact-finding that is required to be undertaken by the court on the issue of causation.
In this case, the Plaintiffs pleaded a counterfactual about what would have happened and the loss and damage they claimed to have suffered as a result, which relevantly asserted that: 1. if the 1 October Agreement had not been made: Mr Milicevic would have continued to manage the Myer JV through Dynamic and the JV Trust pursuant to the terms of the Myer JV Agreement; Mr Milicevic would have continued to receive a management fee; the Plaintiffs would have continued to receive 60% of the profits of the Myer JV through Dynamic and the JV Trust; and Dynamic would not have been put into liquidation: Amended Statement of Claim at [22]; and 2. the Plaintiffs' loss and damage included Lost Profits generated by stores which are part of the Myer JV as at 1 October 2013, Lost Management Fees payable to Mr Milicevic and losses suffered by reason of Dynamic being put into liquidation: Amended Statement of Claim at [23].
The Defendants denied the pleaded counterfactual and that loss was suffered as a result and said, in further answer, that as at 1 October 2013 the terms of the Myer JV Agreement and the licence agreement between Myer and Belgravia had expired, the licence agreement between Myer and Belgravia had been assigned to Ferrari East and there was little or no prospect of the continuation or expansion of the Myer JV: Amended Defence at [22] and [23].
As already noted, the Court: 1. rejected the Defendants' contention that Ferrari East would have terminated the Myer JV Agreement if and when the 1 October Agreement had not been made although it could not exclude the possibility that Ferrari East would have terminated the Myer JV Agreement at some other point in time (at [505] and [506]); 2. accepted that the Plaintiffs' loss should be calculated based on their counterfactual, that is, by reference to what would have happened if Dynamic as trustee for the JV Trust continued to operate the Myer JV stores as it had in the period from 2010 through to October 2013, although with Ferrari East owning 40% and the Plaintiffs continuing to own 60%; and 3. rejected an element of the Plaintiffs' counterfactual, namely that Dynamic would not have been put into liquidation.
In that context, I accept the Plaintiffs' submission that the Defendants did not run a case at trial of an alternative counterfactual that the profits and management fees would have ceased to be payable as at 27 August 2015 based on the liquidation of Dynamic and the likely dissolution of the Myer JV Agreement.
However, I am not persuaded that there is a fundamental unfairness in the way in which the Defendants are now presenting their submissions on damages in circumstances where the Plaintiffs had the onus of establishing their loss and the Court rejected an element of their pleaded counterfactual, namely that Dynamic would not have gone into liquidation if the 1 October Agreement had not been entered into. In other words, the Plaintiffs have not established their counterfactual that, if the 1 October Agreement had not been made, Dynamic would not have been put into liquidation or that Mr Milicevic would have continued to manage the Myer JV through Dynamic and the JV Trust pursuant to the terms of the Myer JV Agreement and received profits and management fees on that basis indefinitely.
The Plaintiffs accepted at the hearing that their case on damages and the counterfactual is different to the way in which it was pleaded and presented at trial, with their case at trial premised on the Myer JV continuing to be run indefinitely through Dynamic, which could not have occurred because of the Court's finding that Dynamic went into liquidation. In light of that concession, I am not persuaded by the Plaintiffs' submission that the Defendants should not be allowed to make their submissions on the Plaintiffs' counterfactual and quantification of damages that takes into account the Court's findings about those matters.
As to the Plaintiffs' submissions referred to at [25] above, I do not consider that the Court approved or accepted the factual assumptions on which the Plaintiffs' Lost Profits and Lost Management Fees were calculated by the experts. To the extent that it is not clear from the Principal Judgment, the only findings made in relation to the Plaintiffs' counterfactual and the expert evidence were those set out in the Principal Judgment at [506]-[510] and [557]-[612]. The Court did not make findings that the Plaintiffs had established that the Myer JV Agreement would continue on an ongoing basis indefinitely or the key factual assumptions upon which the Plaintiffs' Lost Profits and Loss Management Fees claims had been calculated, namely that the Myer JV Agreement would have continued indefinitely beyond the end of the 2024 financial year (FY2024) or that Mr Milicevic would have continued to receive management fees until the end of FY2030 or FY2025. Rather, in the Principal Judgment, the possibility that the Myer JV Agreement may have come to an end at some point in time other than on or about 1 October 2013 was acknowledged.
In my view, having regard to the Plaintiffs' pleaded counterfactual (as described at [34] above), there is merit in the Defendants' submissions that the Plaintiffs' pleadings did not set out the material facts in support of the key assumptions upon which they calculate Lost Profits and Lost Management Fees, namely the basis upon or the period over which the management fees and profits would continue to be payable under the counterfactual. The Plaintiffs' closing submissions on that topic were limited to submitting that there was no evidence that the Myer JV Agreement could or would be terminated by Ferrari East, making a submission on the "no transaction" case that the Myer JV Agreement would have continued on an ongoing basis but not identifying the period over which the losses should be paid and then referencing the expert evidence in Annexure A, which did not deal with that issue but focused on the areas of dispute between the experts in relation to the inputs into the calculations. It is only in their recent submissions on damages that the Plaintiffs have addressed those matters, including by reference to the Court's finding about the liquidation of Dynamic.
Mr Milicevic's evidence on these issues was also limited, comprising of assertions that, had the 1 October Agreement not been made and Ferrari East taken over Belgravia's 40% interest in the JV Trust, he would have sought to continue to cause Dynamic to pay out through the JV Trust the profits that it made to himself and Belgravia and for Mrs Milicevic to exercise her power to distribute those profits to herself, and he would be paid a management fee of at least what he was paid before that time and continue his management role on an ongoing basis indefinitely (affidavit of Mr Milicevic dated 1 March 2021 at [4]-[5] and [7]).
Mr Bell's instructions did not include any assumptions about the period over which Mr Milicevic would have continued to manage the Myer JV through Dynamic and the JV Trust pursuant to the terms of the Myer JV Agreement, the period over which profits would have been payable or that Dynamic would have gone into liquidation on 27 August 2015. Mr Bell was instructed to assume that, had the Plaintiffs not entered into the sale of the Myer JV, it would have continued to operate (though with Ferrari East taking over Belgravia's share) and the Plaintiffs would have continued to draw 60% of the profits and Mr Milicevic's management fee from the JV Trust through the MF Trust as they had prior to 1 October 2013. As Mr Bell noted, it was difficult to estimate how long the management fee would have been payable to Mr Milicevic as it was likely dependant on how long he would have continued to provide day to day management of the Myer JV as set out in the Myer JV Agreement, with Mr Bell calculating Lost Management Fees over a range of periods assuming that he continued to earn such fees up to FY2025 or FY2030. His calculation of Lost Profits assumed that the Myer JV would have continued to operate under Dynamic indefinitely.
I also do not accept the Plaintiffs' submissions that the only uncertainty with the damages calculations is the length of time one assumed that Mr Milicevic would have received management fees or that, as the Court found that the Myer JV Agreement would not have been terminated by Ferrari East if the 1 October Agreement had not been made, there is no evidentiary basis to think that the arrangement pursuant to which the Plaintiffs received profits and Mr Milicevic received a management fee would have come to an end at any particular point of time. The uncertainty arises because the Court found (contrary to the Plaintiffs' contention) that Dynamic, the company running the Myer JV, was placed into liquidation, with the result being that there is some uncertainty that Mr Milicevic would have continued to manage the Myer JV through Dynamic and received management fees and profits through the JV Trust pursuant to the terms of the Myer JV Agreement after that time. As the Plaintiffs accepted at the hearing, the assessment of the counterfactual and quantification of damages requires the Court to make a practical determination of how long the Myer JV Agreement would run, in respect of which no finding has been made other than it would continue after 1 October 2013. In my view, the finding that Dynamic would have been placed into liquidation on 27 August 2015 is a relevant fact in making a determination about that matter and assessing the Plaintiffs' counterfactual in the circumstances of this case.
Accordingly, I have proceeded on the basis that it was open to and not inappropriate for the Defendants' (and the Plaintiffs') submissions to deal with the quantification of damages by reference to the Court's finding about the liquidation of Dynamic on 27 August 2015. The Court's task is to assess the quantification of the Plaintiffs' claims for Lost Profits and Lost Management Fees based on the counterfactual as found by the Court, namely, by reference to what would have happened if: the Myer JV Agreement was not terminated upon the making of the 1 October Agreement; Dynamic, as trustee for the JV Trust, continued to operate the Myer JV stores as it had in the period from 2010 through to October 2013, although with Ferrari East owning 40% and the Plaintiffs continuing to own 60%; and Dynamic was placed into liquidation on 27 August 2015.
In that context, having regard to the parties' submissions, I am not persuaded that the Plaintiffs have established that the Myer JV Agreement or the Myer JV in some other form would have continued indefinitely, with Ferrari East owning 40% and the Plaintiffs continuing to own 60%, that the Plaintiffs would have continued to receive profits on that basis or that Mr Milicevic would have continued to be paid management fees by Ferrari East in the amount of $150,000 in respect of the Myer JV business up until FY2024 (or FY2025 or FY2030).
This is primarily for the reason that I do not accept the Plaintiffs' contention that there is no evidentiary basis for the Court to find that the arrangement would have come to an end. In my view, the liquidation of the company through which the Myer JV had been run and, on the Plaintiffs' counterfactual, was to be run indefinitely is, to my mind, a sufficient basis for such a finding. It was an event that would have adversely impacted the running of the Myer JV business in accordance with the terms of the Myer JV Agreement and the parties' ongoing relationship, as evidenced by what, in fact, occurred on 22 February 2017 when Ferrari East sought to bring its relationship with Mr Milicevic to an end.
As the Defendants submitted, upon its liquidation on 27 August 2015, Dynamic was deemed to have retired as trustee of the JV Trust: JV Trust Deed at cl 20.3. The trustee may have been obliged upon its retirement to convene a meeting of the unitholders for the purposes of appointing a new trustee and causing the trust fund and assets to be vested in any remaining or substitute trustee (JV Trust Deed at cll 20.4-20.6) but to conclude that this would have occurred and to make findings about the extent to which the assets owned by Dynamic, as trustee of the JV Trust, would have been available to be vested in the substitute trustee seems to involve a level of conjecture given the existence of the claims by Belgravia, the position of Dynamic's liquidator and a trustee's right of indemnity against and lien over trust assets: see, for example, Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; (2019) 368 ALR 390; [2019] HCA 20 at [24]-[33] and [83].
The Defendants may have valued Mr Milicevic's history, knowledge and business acumen in October 2013 and the expert evidence might show that the Myer JV business was profitable in the years up to FY2021, however, in circumstances where Mr Milicevic was responsible for the "day to day management including all accounting services" in relation to the failed JV company and the evidence demonstrates that Ferrari East's overall commercial objective and preference was to "buy back" the Myer JV stores and "go vertical" because it considered there were financial benefits in doing so, I am persuaded by the Defendants' submission that it is inherently improbable that Ferrari East would have renewed the Myer JV Agreement (or agreed to the appointment of a new trustee) after Dynamic went into liquidation. There is also a question as to how profitable the Myer JV business would have been after August 2015, having regard to the financial records in evidence which indicate that Dynamic would have been in a net negative asset position if the debt claimed by Belgravia and accepted by Dynamic's liquidator (in the amount of $437,556.20) was taken into account.
I do not accept the Plaintiffs' position that, if the liquidation resulted in the Myer JV ceasing to run through Dynamic, the parties would have entered into a new arrangement on similar terms to the Myer JV Agreement. For the reasons set out at [49] above, in my view, the inferences to be drawn from the evidence do not support the Plaintiffs' hypothesis and it involves speculation. While acknowledging that the Court is necessarily engaged in a hypothetical exercise in assessing what would have happened in relation to the Myer JV Agreement and the arrangements between the parties, no principle or policy justifies the Court (or the parties) simply speculating about what might have been: Westpac Banking Corp v Jamieson [2016] 1 Qd R 495; [2015] QCA 050 at [147]; cited with approval in Wyzenbeek v Australasian Marine Imports Pty Ltd (In Liq) (2019) 272 FCR 373; [2019] FCAFC 167 at [77].
As to the Plaintiffs' submissions regarding the terms of the Myer JV Agreement, as the Defendants' submissions noted, unlike the position in Berry v CCL, in this case there was no automatic right to renew. In the absence of evidence that, in 2013, Mr Milicevic or Belgravia exercised the right to renew the Myer JV Agreement for a three year term, I am also unpersuaded by the Plaintiffs' submissions that they must have agreed by conduct to renew for another three year term ending in February or July 2016 or that Ferrari East had no power to terminate on or around 27 August 2015. As highlighted by the advice given by Belgravia's lawyers and conceded by the parties at the hearing, the terms of the Myer JV Agreement in respect of renewal and termination are unclear.
In any event, even assuming that the Myer JV Agreement was extended to February 2016, I do not accept that the Plaintiffs have established that the arrangements pursuant to which Mr Milicevic managed the Myer JV would have continued on an ongoing basis past that point, whether indefinitely or to FY2024. Mr Milicevic may have wished to keep the arrangements on foot because it was a good deal for him but, for the reasons already noted, I consider it more likely that Ferrari East would not have continued to consider the Myer JV Agreement to be valuable to it and would have sought to terminate the Myer JV at or around that time in order to enable it to run the Myer JV stores vertically.
Where, as here, the Court has made a finding of misleading or deceptive conduct by Ferrari East and Gerard Ferrari that caused the Plaintiffs to lose the commercial opportunity to continue the Myer JV arrangements under the terms of the Myer JV Agreement through Dynamic, the value of that loss is to be determined by reference to the Court's determination of how long the Myer JV Agreement would run after 1 October 2013 and how long profits and a management fee would have been paid to the Plaintiffs. Though the calculation of loss itself is somewhat speculative and not capable of proof on the balance of probabilities, it is to be evaluated as a matter of informed estimation: Berry v CCL at [32] and the cases there cited.
For the reasons set out above, I am persuaded that it is highly improbable that the Myer JV Agreement and the arrangements between the parties in relation to the Myer JV would have continued on the same terms following the liquidation of Dynamic on 27 August 2015. I am satisfied, on the balance of probabilities, that the existing arrangements and the Myer JV Agreement would likely have come to an end following the liquidation of Dynamic, with profits ceasing to be paid from the JV Trust from around the date of liquidation, namely on 27 August 2015, and so find.
As to the management fees, as the reality is that Mr Milicevic did continue a relationship with Ferrari East in some form after the liquidation of Dynamic, I consider it likely that the arrangements in respect of the payment of Mr Milicevic's management fees of $150,000 per annum would have continued for a further period. In my view, the date on which Ferrari East gave notice of its intention to end the relationship, namely 22 February 2017, is an appropriate proxy for estimating the Plaintiffs' loss in relation to that claim.
Accordingly, I find that the Plaintiffs' damages should be assessed on the basis that Lost Profits were payable to 27 August 2015 and Lost Management Fees were payable to 22 February 2017.

Inputs to the Lost Profits calculation

The Plaintiffs accepted that the Jennings-Jones Nov Report corrected some errors in the revised calculations of damages by Mr Bell, with the inputs into the calculations of Lost Profits agreed subject to issues regarding the percentages to be applied in relation to rent expense, wages expense and CAPEX. Those issues were resolved at the hearing, the outcomes of which are recorded below.
Rent percentage: The Plaintiffs contended that the Principal Judgment (at [575]) provided for 23.7% to be applied for the rent expense as a percentage of sales, adopting the percentage Mr Bell used in the Joint Report. I accepted the Defendants' submission that the Lost Profits calculation should be undertaken based on the figure of 24.6%, which was the percentage in respect of rent expense recalculated by Mr Bell to reflect the FY2013 figures and excluding the Clarence St Store (as identified in AB3, Appendix C at cell D36).
Wages percentage: I accepted the Defendants' submission that the figure of 20% (at [584]) should be 20.2%, reflecting Mr Bell's recalculation using the FY2013 data, as noted at [581]. The Principal Judgment at [584] has now been amended to reflect the correct figure of 20.2%.
CAPEX percentage: The dispute between the experts as to CAPEX concerned the methodology adopted by the experts. I accepted the Plaintiffs' submission that the calculation of Lost Profits should be undertaken based on Mr Bell's approach in the Joint Report, which applied the 15% to the industry average of 15% of wages (Joint Report at [77]-[79]), on the basis that the Principal Judgment records that the Court preferred Mr Bell's approach (which used the 15% industry average) to Ms Jennings-Jones' approach (which used historical data based on costs actually incurred by Ferrari East including in relation to the Clarence St store): at [590]-[596].

Calculation of Lost Profits and Lost Management Fees

Based on the Court's conclusion that Lost Profits should be calculated to 27 August 2015 and Lost Management Fees (at $150,000 p.a.) to 22 February 2017, I assess the damages to which the Plaintiffs are entitled to be $85,536. That figure is based on $96,258 for Lost Profits and $41,853 for Lost Management Fees (which takes into account Ferrari East having already paid Mr Milicevic $462,244 in management fees over that period), less the amount of $52,575 that Ferrari East has paid in interest, as set out in Tables 2, 3 and 4 of Annexure N to the Jennings-Jones Nov Report.
In addition, I calculate that the Plaintiffs are entitled to statutory interest in the amount of $48,876, which is based on an update of Ms Jennings-Jones' interest calculation at Table 5 of Annexure N to the Jennings-Jones Nov Report to 19 December 2023, being the date on which orders for judgment will be made.
A summary of the Plaintiffs' loss, as assessed by the Court, is set out in the following table: Figure 3: Summary of Plaintiffs' Loss, Jennings-Jones Nov Report: Annexure N at Table 1 (updated to calculate interest to 19 December 2023).
The parties agreed that the judgment to be entered should not be split as between Mr and Mrs Milicevic or Lost Profits and Lost Management Fees. It follows that I will make an order for judgment for the Plaintiffs against Ferrari East and Gerard Ferrari in the amount of $134,412.

Declaratory relief

The Plaintiffs also seek a declaration that Ferrari East and Gerard Ferrari engaged in conduct which was misleading or deceptive, or likely to mislead or deceive, within the meaning of s 18 of the ACL, by means of making the Financial Representations.
I am not persuaded by the Plaintiffs' submission that the Court should exercise its discretion to make a declaration as the Plaintiffs "wish to be vindicated" and decline to do so. In my view, the Principal Judgment and judgment to be entered are sufficient vindication for the Plaintiffs. There seems to be no utility in making a declaration by way of additional relief to record the Court's determination of the conduct that was in breach of the ACL in the context where there is no suggestion that such relief is needed to clarify the rights and obligations of the parties or to assist in respect of any future enforcement.

Costs and orders

As to costs, in the Principal Judgment I indicated that, given the outcome, in principle I could see no reason why the usual order that costs should follow the event should not apply: at [619]. However, the parties have indicated that they want costs to be dealt with after this decision is handed down as the Court's determination on damages may impact the issue of what costs order should be made.
Accordingly, I will set a timetable for short written submissions and any evidence on costs, with that issue to be determined on the papers.
For these reasons, I make the following orders: 1. Judgment for the plaintiffs against the first and second defendants in the sum of $134,412, comprising: 1. $85,536 in respect of damages; and 2. $48,876 in respect of Court interest up to and including 19 December 2023. 1. The plaintiffs' claims against the third defendant be dismissed. 2. The first defendant's cross-claim against the plaintiffs be dismissed. 3. Costs to be determined on the papers.

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: 19 December 2023

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