Plaintiff v Defendants

2 Issues relating to contractual damages comprised issues 26 and 27 at trial. Relevantly, I am determining part of issue 26, namely, the damages to which Euromark is entitled for:

(1) expectation loss/damages for loss of bargain for Years 2 and 3 of the Agreement; and

(2) expectation loss/damages for loss of bargain for Year 4 of the Agreement on a loss of opportunity (or other) basis.

3 I wish to note that I heard all the evidence and submissions in relation to the assessment of Euromark's damages in contract for loss of bargain. In the Reasons, I concluded that:

(1) Smash committed repudiatory breaches of the Agreement between 22 October and 23 December 2012;

(2) as a result, Euromark was entitled to terminate the Agreement on 23 December 2012; and

(3) Euromark was unready, unwilling and/or unable to perform its obligations under the Agreement at the time of its termination of the Agreement.

4 As a result of my finding in [3](3) above, it was not necessary for me to assess Euromark's claim for loss of bargain damages. It was this finding that was successfully challenged in the cross-appeal with the result that I must now assess Euromark's loss of bargain damages.

5 Given the passage of time between the trial and the decision of the Court of Appeal, I listed the matter for hearing on 6 April 2023 in order that counsel could familiarise me again with the evidence and submissions of the parties at trial, subject to any finding in the Reasons and the Appeal Reasons (the remitter hearing). Revised written submissions (revised from those filed at trial to take into account the findings in the Reasons and Appeal Reasons) were also filed for this purpose.

6 In summary, Euromark submitted that it is entitled to the loss of profits that Euromark would have earned if Smash had performed the Agreement without breach and if there had been a one year extension to the Agreement. Smash disputed any such entitlement because Euromark had failed to prove any such loss to the requisite standard, in particular, the volume of purchases/sales of Smash products in each year and the chance of there being an extension of the Agreement.

7 There are two things to note at this stage. First, on the remitter, Euromark sought to recalculate its claim for loss (originally calculated and verified by its expert Mr Blashki, a forensic accountant) by reference to [1406] and [1410] of the Reasons. Those recalculations were set out as an attachment to Euromark's remitter submissions. In oral argument, I suggested that the recalculation attachment might require further expert consideration and/or evidence by Mr Blashki. Smash objected to the recalculation of Euromark's loss of bargain damages and Euromark chose not to rely upon the recalculation attachment. As a result, Euromark filed updated loss of bargain submissions dated 24 April 2023, but in fact provided to the Court on 27 April 2023.

8 Second, on the remitter, Euromark submitted for the first time that it was entitled to the sum of £148,359 for 'unnecessary staff and redundancy costs'. In summary, this item was referred to in the expert reports of Mr Blashki but was not the subject of Euromark's claim, submissions or argument at trial. Smash submitted that Euromark was not entitled to raise this claim on the remitter. Further, in the course of the remitter hearing, counsel for Smash submitted (and I accept) that if he had been aware of this specific claim, he might have asked further questions in cross-examination. In these circumstances, I do not propose to grant leave for Euromark to now seek such a sum on the remitter. In this context, I note that this Court has devoted significant time and resources in determining Euromark's claim since these proceedings were first issued in 2015.

9 In summary, for the reasons that follow, I consider that Euromark has established its claim for loss of bargain damages arising from Smash's wrongful termination of the agreement. I have assessed Euromark's loss of profit in the sum of £448,003 for each of the two remaining years of the Agreement totalling £896,006. I will hear the parties on interest and costs.

2.1 Basis of Euromark's claim for loss of bargain damages

10 Before addressing the basis of Euromark's claim for loss of bargain damages and its assessment, it is important to note that the Agreement provided:

(1) for a three-year Term commencing on 5 July 2011 (cl 4.1);

(2) the minimum purchase levels (MPLs) for each year of the Term (sch A);

(3) that the MPL for Year 1 (5 July 2011 to 4 July 2012) was USD1,250,000 with the MPLs for Year 2 and Year 3 to be agreed at the anniversary of the Agreement but the MPL could not be less than the actual purchases for the preceding year (cl 2.4 and sch A); and

(4) that the Agreement was to be reviewed annually and, should Euromark not achieve the MPL for the relevant years, Smash was entitled to terminate the Agreement in accordance with cl 14 and/or appoint an alternative or additional distributor in the Region (cl 2.4).

11 As to the loss of bargain damages, Euromark claimed loss of profit for:

(1) each remaining year of the Agreement: namely, 5 July 2012 to 4 July 2013 (Year 2) and 5 July 2013 to 4 July 2014 (Year 3); and

(2) the lost opportunity to make profit if the Agreement had been extended for another year being 5 July 2014 to 4 July 2015 (Year 4).

12 Euromark's claimed loss of profit for each year was calculated by subtracting the costs associated with Euromark's estimated purchases from Smash (including saved costs such as import duty, freight and warehousing, and overheads) from the estimated likely sales of Smash products in those years.

13 Euromark acknowledged it was unable to produce precise evidence of what has been lost, in particular, the volume of purchases of Smash products it would have made and on-sold to customers. However, it submitted that the assessment of damages may proceed on estimation relying upon Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (Placer).[1] Euromark submitted that any uncertainty should be resolved by making reasonable assumptions which are on the side of generosity to Euromark, given that the uncertainties were created by the termination of Agreement as a result of Smash's breach. In this regard, Euromark relied upon the principle derived from Armory v Delamirie (Armory)[2] and subsequent cases including in the New South Wales Court of Appeal and the Full Court of the Federal Court.[3]

14 It is appropriate that I now set out the principles to be applied in assessing the damages for loss of bargain and Euromark's submissions as to the principle derived from Armory. First, the onus of proving and quantifying loss lies with the plaintiff. As Hayne J said in Placer, the plaintiff 'must prove these matters [of loss and damage] on the balance on probabilities and with as much precision as the subject matter reasonable permitted'.[4]

15 However, as Sloss J noted in Amcor Ltd v Barnes:[5] 'it is well established that something short of certainty may suffice': the court must do the best it can and, where the evidence is uncertain, is entitled to take a 'broad brush' approach. In reaching these conclusions, her Honour relied upon a number of authorities including the comments of Mason CJ and Dawson J in Commonwealth of Australia v Amman Aviation Pty Ltd[6] that when assessing damages:

... mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can. Indeed, in Jones v Schiffman, Menzies J went so far as to say that the "assessment of damages... does sometimes, of necessity involve what is guesswork rather than estimation". Where precise evidence is not available, the court must do the best it can. And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages.

16 I would add that the determination of loss of bargain damages involves a degree of uncertainty given that the plaintiff is trying to quantify its loss on the basis of what would have happened in the event that the Agreement had not been terminated (ie, a counterfactual). Indeed many of the comments in the authorities relating to the principles of the assessment of damages referred to above were made in such cases. That does not mean that a plaintiff is relieved from proving the loss by producing relevant evidence as best it can as to the nature and extent of that loss.[7] However, if the Court is satisfied that a loss has been suffered, the Court will do its best to estimate that loss on a broad brush approach in light of the evidence able to be led by the plaintiff.

17 Counsel for Euromark relied upon the 'principle in Armory' asserting that any uncertainty should be recovered by making reasonable assumptions which err on the side of generosity to Euromark given that those uncertainties were created by Smash's termination of the agreement.

18 As to the 'principle in Armory' I would make three observations. First, Armory involved the unlawful detention of jewel by the defendant. As a result, the Court directed the jury that, unless the defendant produced the jewel, the jury should presume that the jewel was the highest quality for the purpose of assessing the loss in fact suffered. Second, presumptions adverse to the defendant when assessing the plaintiffs' damages, consistent with Armory, have been applied in a variety of different circumstances or contexts. A number of cases are discussed by the New South Wales Court of Appeal in McCartney[8] and in the High Court judgment of Bell, Keane and Nettle JJ in Berry v CCL Secure Pty Ltd (Berry)[9] (which was not the subject of argument before me). However, the circumstances in which such presumptions have been applied are far from clear.

19 Third, in Pitcher Partners, the Full Federal Court concluded, after reviewing many of these authorities, that 'the general proposition that the claimant has the onus to prove its damages is qualified in circumstances where the (deliberate) wrong has caused the position of uncertainty or difficulty of proof'.[10] Counsel for Euromark did not submit that I ought apply this passage. In this context, I note that in Berry, Bell, Keane and Nettle JJ considered some applications of Armory.[11] Their Honours found it unnecessary to determine whether the Full Court in Pitcher Partners was correct in concluding that the onus of proof was qualified in circumstances where the defendant brought about the position of uncertainty of proof.

20 Based upon my review, there is some uncertainty as to the true extent of the 'principle in Armory'. This was not the subject of detailed submissions by counsel before me. Nevertheless, I am prepared to accept that, consistent with Armory, there may arise a presumption against the wrongdoer relating to the nature and extent of damages not only in cases where the wrongdoer has prevented the relevant evidence being called. Such a presumption may also arise where the nature of the wrongdoing makes it impossible for the claimant to prove the precise amount of damage suffered or where the nature of the wrongdoing results in the claimant having to undertake the difficult task of proving a past hypothetical.[12]

21 However, the application of the presumption will depend on the circumstances of the particular case. Relevantly, I consider that, if the Court is satisfied that a loss has been suffered due to a defendant's wrongdoing, the Court will do the best that it can to estimate that loss in light of evidence able to be led on a broad brush approach, and, where appropriate, the Court will draw inferences or make presumptions in favour of the plaintiff where the defendant's wrongdoing itself has made the assessment impossible or difficult.

22 As to the evidence, Euromark relied upon the expert evidence of Mr Greg Blashki, a forensic accountant, and the evidence of Mr Harrison.

23 Mr Blashki prepared three relevant reports: dated 5 September 2016 (the first Blashki report), 9 May 2018 (the second Blashki report) and 3 April 2020 (the fourth Blashki report). In substance, Mr Blashki assessed the net profit that Euromark would have made for Year 2 and Year 3 if the Agreement had not been terminated and for Year 4 if the Agreement had been extended. Mr Blashki's final calculations were set out in the first table in Appendix 2 to the fourth Blashki Report (the revised calculation table) which I will address further below. In summary, he concluded that:

(1) for Year 2, Euromark's lost net profit was estimated at £448,003;

(2) for Year 3, Euromark's lost net profit was estimated at £760,602; and

(3) for Year 4 Euromark's lost net profit was estimated at £877,223.

24 Mr Blashki's evidence was premised on two main assumptions:

(1) that the Agreement would have been extended for a further year (ie Year 4); and

(2) that Euromark would have purchased from Smash products to a certain value in Years 2 to 4 and that Euromark would have been able to sell all those products to customers (the purchase/sale assumption).

25 Further, there were also other assumptions as to relevant overheads and costs in Year 2 to Year 4. Euromark contended that there was a reasonable and proper basis for each of these assumptions, relying upon the evidence of Mr Harrison and Mr Blashki.

26 Smash disputed that these assumptions had been made good. Smash submitted that for the most part, these assumptions were based upon the oral evidence of Mr Harrison or documents created by him only after proceedings against Smash had been issued. Smash relied upon my findings about Mr Harrison in the Reasons at [55] and [56] to the effect that Mr Harrison at times overstated the position of Euromark with the result that I had been careful to assess and consider Mr Harrison's evidence in light of contemporaneous documents and other evidence. Smash submitted that these comments applied with particular force to damages issues.

27 In light of this overview of Euromark's claim for loss and bargain damages it is appropriate that I now deal with the evidence and submissions concerning these assumptions. I will first deal with the purchase/sales assumption.

28 Euromark submitted that it would have purchased from Smash (and on sell to its customers) (the estimated purchases) as follows:

(1) in Year 2, Smash products to the value of USD2.5 million (the Year 2 estimated purchases);

(2) in Year 3, Smash products to the value of USD3.5 million( the Year 3 estimated purchases); and

(3) in Year 4, Smash products to the value of USD4.5 million (the Year 4 estimated purchases).

(1) the MPL for Year 1 was USD1.25 million with total purchases from Smash of USD1.266 million (and adding the sales in the first half of 2011, total sales were USD1.7 million);

(2) the MPL for Year 2 was USD2 million; and

(3) the MPL was not agreed for Year 3 .

30 For the most part, Euromark relied upon the evidence of Mr Harrison for the estimated purchases. Euromark submitted that the Court should accept the estimated purchases given:

(1) Mr Harrison's experience in the homewares industry;

(2) that Mr Harrison was not challenged on any of these estimates; and

(3) Mr Blashki considered that these forecasts to have been reasonably determined.[13]

31 Euromark also relied upon email exchanges between Euromark and Smash in mid-2011 and mid-2012 in relation to the MPL and other targets for Year 2 and Year 3.

32 Mr Harrison produced a summary document which set out how the loss of profits was calculated. The summary document was headed (Appendix 1). Appendix 1, relevantly, set out the Year 2 to Year 4 estimated purchases and converted each of them into Great British Pounds to calculate the estimated cost of goods that would be purchased from Smash in each of those years. On this basis, Appendix 1 then sought to calculate Euromark's lost profit. Mr Harrison gave evidence that he was involved in the preparation of Appendix 1, together with Euromark's auditor and finance manager, and it was based upon source documents and other 'summary' documents (which he was also involved in preparing or collating) which summarised purchases, expenses and the like for Euromark.

33 Further, although there was no evidence of when Appendix 1 was prepared, it is tolerably clear that Appendix 1 was prepared in order to assist in assessing Euromark's claim for loss of bargain damages and was reviewed by Mr Blashki. Appendix 1 was admitted on the basis that it records the information provided to Mr Blashki for the purpose of preparing his report (with the need for Euromark to prove the information contained in it). Indeed, it formed an appendix to the original statement of claim in this proceeding dated 22 December 2015.

34 Mr Harrison prepared another document in 2015 headed (Sales Projections) for Year 2, Year 3 and Year 4. That document records that in Year 2, Mr Harrison estimated (in 2015) that Euromark would have sold Smash products valued between £2.758 million and £3.385 million. It listed each likely customer and the likely sales to those customers. Euromark relied upon Mr Harrison's evidence in the Sales Projections that he expected Euromark to sell Smash products to:

(1) Tesco, valued at £900,000, or the higher figure of £1,500,000 if Euromark received brand support from Tesco (with the additional amount being Tesco brand support); and

(2) other retailers, most of whom were existing customers of Euromark, except Argos.

35 As to the retailers in the Sales Projections, Mr Harrison gave evidence that:

(1) Tesco, Wilkinson's, Morrison's, Lakeland and Toys 'R' Us had purchased Smash products from Euromark;

(2) Asda confirmed it would purchase Smash products but was not an existing Smash customer as at 2012; and

(3) as to the other customers listed, such as Matalan and Next, whilst they were not existing customers of Smash products from Euromark, they were also included as Mr Harrison anticipated some modest sales to them.

36 The total estimated sales in the Sales Projections for Year 2 was £2.785 million and £3.385 million (one with and one without Tesco brand support).

37 The total estimated sales in the Sales Projections (one with and one without Tesco brand support):

(1) for Year 3, was £4.125 million or £5.175 million; and

(2) for Year 4 was £5.315 million or £6.815 million.

38 Mr Harrison gave evidence, in substance, that he expected the sales to each of these retailers to increase 'steadily' in Years 3 and 4.

39 Euromark submitted it was common ground that Euromark was expected to have sold all Smash products that it purchased, relying on Mr Malone's expectation based upon his email to Mr Harrison dated 5 May 2011, in which he proposed MPLs of USD2.5 million in Year 2 and USD3.5 million in Year 3 (the 5 May 2011 email). Further, Euromark noted the totals in the Sales Projections (without the assumption of Tesco brand support) corresponded approximately with the projected sales figures shown in Appendix 1.

40 Euromark submitted that, while Mr Harrison's estimated purchases and sales projections were made with the benefit of hindsight, that is not a reason to reject them, especially given they are not less than the sales projections calculated by Mr Blashki using the Year 2 and Year 3 purchase numbers which were the subject of the exchange of emails between Euromark and Smash.

41 Euromark submitted that Appendix 1 and the Sales Projections are relevant to the assessment of what profits would have been made if the Agreement had continued into Years 2 to 4 even if, as Mr Blashki said in cross-examination, they would be given less weight than contemporaneous forecasts. Euromark noted the instructions provided to Mr Blashki stated that Appendix 1 was dated 2015 and that Mr Blashki had prepared his reports on this basis; it was not put to Mr Blashki that his assessment of damages were wrong, nor did he make such a concession.

42 Euromark also submitted that, to the extent that there was any uncertainty in relation to the Sales Projections, any such uncertainty should be resolved by making reasonable assumptions on the side of generosity to Euromark relying upon the principle in Armory set out in [13] above.

43 Alternatively, Euromark submitted that, if the Court did not accept increases in purchases in Years 2 and 3, then, at least a figure of USD2 million should be used representing the Year 2 MPL. However, in oral argument, I noted that Mr Blashki had not assessed loss of profit based on purchases of Smash products at USD2 million. Counsel did not pursue this submission further.

44 Finally, and although it was not entirely clear, Euromark appeared to submit that, if the Court did not accept the projections on either of the Sales Projections, the starting point for assessing the sales in Year 2 and Year 3 is the Smash purchases and sales in fact made in Year 1, which should be presumed as a minimum to continue under the 'presumption of continuance', relying upon Associated Grocers Co-operative Ltd v Hubbard Properties Pty Ltd (No 2) (Associated Grocers).[14] In light of my analysis below, it is not necessary to address this submission further. However, for completeness, and with respect, I am not much assisted by the decision in Associated Grocers. Without the benefit of detailed argument, it appears to me that the 'presumption of continuance' is more appropriately described as a process of reasoning or logic involving the drawing of inferences from established facts, rather than a presumption.[15] The utility of the 'presumption of continuance' appears dubious where there the established facts demonstrate factors which may have varied in future years.

45 As noted above, Smash submitted that Euromark has failed to make good the 'foundational' assumption as to the purchase of Smash products (i.e. the Year 2, Year 3 and Year 4 estimated purchases) and that all of those products would have been on sold to customers. This was particularly so in circumstances where the Court found the evidence of Mr Harrison required careful assessment and consideration in light of the contemporaneous documents before being accepted.[16] Further, Smash disputed that the purchase/sale assumption was 'common ground', submitting that Mr Malone's expectation was subject to Mr Harrison's evidence that there were a range of reasons why a retailer might decide not to purchase products from a distributor.

46 Smash submitted that the primary documents relied upon by Euromark in support of Mr Blashki's assumption as to purchases of Smash products are not contemporaneous, namely:

(1) Appendix 1 which was Euromark's own forecast, prepared at an unidentified time, by an unnamed 'auditor and finance manager' engaged by Euromark and annexed to Euromark's statement of claim; and

(2) the Sales Projections which were prepared in May 2015 by Mr Harrison after the commencement of proceedings.

47 Smash submitted that the Court should attach no weight to this evidence given:

(1) both of these documents were admitted into evidence for a limited purpose and not as evidence of the truth of the contents;

(2) Mr Blashki disavowed having undertaken any assessment of the underlying basis for the forecasts in the Sales Projections or the likelihood that Euromark would achieve those sales; and

(3) Mr Blashki also accepted that, if he had known that the forecasts in the Sales Projections relied upon at [4.2.4] of the first Blashki report had not been prepared until after proceedings were commenced, he would not have attached any weight to them.

48 Smash submitted that the only contemporaneous forecast relied upon by Euromark was the attachment to an email dated 21 April 2012 sent by Mr Harrison to Mr Malone and Mr Harbinson (the 21 April 2012 email). Smash submitted that this was not reliable given Mr Harrison gave evidence that it contained 'very general projections' that were 'early days' and Mr Harrison accepted that Euromark would need to undertake significant further work in order to achieve these forecasts including developing individual strategies tailored for each retailer. Smash noted that Euromark failed to produce such evidence or to establish that it had the resources, capabilities and willingness required to properly undertake that work.

49 Further, Smash submitted, as to the customers listed in the 21 April 2012 email (and the Sales Projections), that:

(1) Sainsbury's was among potential purchasers despite Mr Harrison repeatedly emphasising that Sainsbury's would be unlikely ever to purchase Smash products; and

(2) the forecast included increased sales to Tesco when Tesco told Mr Harrison in March 2012 that the Smash business would not grow in the future.

50 In addition, Smash submitted that Euromark has not put forward any evidence of:

(1) the market conditions in the United Kingdom between 2013 and 2015 including the competitive BTS products available at that time and their prices relative to Smash products;

(2) the steps Euromark would have taken to achieve forecast sales, including how Euromark would fund purchases, noting that Mr Harrison's only evidence was that Euromark would have relied upon 'factoring'.

51 Further, Smash submitted that the forecast purchases/sales relied upon by Euromark did not seek to take into account the likely reduction in sales of Smash products that would result from Euromark offering its competing Zoom products to retailers in preference to Smash products both before and after termination of the Agreement.

52 As to the mid-2012 emails relied upon by Euromark to justify the sales projections, Smash relied upon the uncontested evidence of Mr Malone that his sales projections were based on the assumption that Euromark would devote the requisite time and effort to achieve those sales and would not be promoting its competing Zoom products at the same time. I note in passing that Mr Malone's evidence in the passage referred to in Smash's written submissions to support this submission only refers to 'a bit of luck' and 'a lot of effort' being required to achieve those sales.[17]

53 In oral argument, counsel referred to Mr Malone's report to Smash dated 22 August 2012 (referred to at [338] of the Reasons) in which Mr Malone expressed the view that Euromark did not appear to make any efforts to promote Smash products other than turning up at customer meetings with catalogues and some samples and that Euromark was focusing on non-Smash products. Counsel also referred to Mr Malone's further email dated 22 August 2012 (referred to at [349] of the Reasons) in which Mr Malone expressed his belief that Euromark had breached the Agreement 'various times' including by selling competing products.

54 As a result, Smash submitted that, although the Court may accept that it is likely that Euromark would have achieved at least some sales through the course of the Agreement, it has failed to provide the Court with evidence to establish a rational foundation from which the Court can quantify any such sales.

2.2.3 The purchase/sale assumption: Consideration

55 In summary, I have concluded that Euromark has established that it is more likely than not that it would have purchased Smash products to a value of USD2.5 million in Year 2 (i.e. the Year 2 estimated purchases) and that Euromark would have been able to sell those products to customers. This is based upon:

(1) the email exchanges between Smash and Euromark in 2011 and 2012 as to projected purchases in Year 2;

(2) the closeness in time of those emails (in particular the 2012 emails) to the start of Year 2; and

(3) Mr Harrison's understanding and knowledge of the BTS market at that time used for the purpose of determining Euromark's estimated purchases and sales of Smash products in these emails.

56 First, I have had regard to the email exchanges between Euromark and Smash in mid-2011 and mid-2012 referred to at [183], [184], [279], [286], [307] and [315] of the Reasons. Relevantly, I have relied upon the fact that:

(1) the agreed MPL for Year 2 was USD2 million;

(2) in the previous Year (i.e. Year 1), Euromark's Smash purchases exceeded the MPL;

(3) by the 5 May 2011 email, Mr Malone suggested that the MPL in Year 2 should be USD2.5 million and Year 3 should be USD3.5 million;[18] and

(4) by email dated 8 May 2011, Mr Harrison replied suggesting in Year 2 an MPL of USD1.5 million, a 'base case' of USD2.5 million (with a 2% rebate or discount) and a best case of USD3 million (with a 4% rebate or discount).[19]

(1) in the 21 April 2012 email, Mr Harrison proposed a MPL in Year 2 of USD 2 million;[20]

(2) by email dated 24 May 2012, Mr Malone expressed the view that the Euromark proposed target of USD2 million for year 2 was 'selling yourself short' and stated that he considered Euromark's projections only projected 'slight growth' and it was 'too conservative';[21]

(3) by email dated 27 June 2012, Mr Malone informed Mr Harrison that he agreed to a MPL for Year 2 of USD2 million but that he wanted to set a target of USD3 million;[22] and

(4) by email dated 8 July 2012, Mr Harrison confirmed agreement to the MPL for Year 2 of USD2 million and agreed to a higher stretch target of USD3 million (which was confirmed by an email from Mr Malone on 9 July 2012).[23]

58 In this context, I note that Smash suggested a target for Year 2 of USD3 million with which Mr Harrison agreed.

59 Second, I have taken into account the evidence of Mr Harrison in relation to the 21 April 2012 email, in particular, that the estimates given were made quickly and there was a continuing need to promote (and have the resources to promote) Smash products to reach those estimates. However, those estimates were made close in time to Year 2 and Smash did not challenge them at the time.

60 It goes without saying that in all these emails, the MPLs and targets for the purchase of Smash products by Euromark were premised on the likely demand and sales of those same products by Euromark to its customers.

61 Third, I accept that Mr Harrison used his skill and expertise in the marketing and sale of BTS and related products in determining the Year 2 estimated purchases and sales of Smash products.

62 I am conscious of the circumstances in which Appendix 1 and the Sales Projections were prepared, namely, by or with the assistance of Mr Harrison after Year 2 and after the proceeding had been commenced. However, for the reasons set out above, that is not reason alone to disregard them in assessing damages. However, I have had regard to the circumstances in which these documents were prepared, particularly for the period beyond Year 2.

63 It is significant that the estimates in Appendix 1 for Year 2 are consistent with:

(1) the broad estimates in the Sales Projections (without Tesco brand support); and

(2) the mid-2012 emails referred to in [57], prepared and sent a few months before the start of Year 2. In my view, both Euromark and Smash were able to accurately assess the likely purchases of Smash products (and likely sales) for Year 2 at that time.

64 Mr Malone's evidence as to his expectation of sales of Smash products was given in the context of his estimated MPLs for Year 2 and Year 3 in the 5 May 2011 email. I acknowledge that those expectations may be subject to change as submitted by Smash and accepted by Mr Harrison in his evidence. Nevertheless, Euromark and Smash expressed (different) but consistent views and expectations from May 2011 until mid-2012 on the MPLs and targets that Euromark should be able to achieve in Years 2 and 3. I infer that these views and expectations took into account the risks with securing orders from a particular retailer.

65 In all these circumstances, especially the emails between Euromark and Smash between mid-2011 and mid-2012 referred to above, I have concluded that I can have regard to and place some weight on Appendix 1 and the Sales Projections in forming a view on the likely purchase of Smash products that would be on-sold to Euromark customers, in particular, in Year 2.

66 I am conscious too that Mr Blashki did not independently consider the basis of the estimated purchases of Smash products in Appendix 1. Reading his evidence as a whole (and notwithstanding the answer relied upon by Smash), I have formed the view that Mr Blashki:

(1) considered it is 'appropriate to place less weight on forecasts prepared sometime after the events in question than on contemporaneous forecasts prepared in advance [of] the years in question'; and

(2) acknowledged, in substance, that he had not undertaken any assessment of the underlying bases for the forecast sales or the likelihood that Euromark would achieve them, but that he did not find anything to lead him to believe that they were unreasonable.

67 Further, in his calculations relating to forecast purchases and sales, Mr Blashki accepted the estimates in the Sales Projections for Tesco but without Tesco brand support, thereby adopting a more conservative figure for the basis of his calculation of the lost net profit.

68 For completeness, in [4.3] of the first Blashki report, Mr Blashki calculated the 'forecast costs of purchases' based on Mr Harrison's estimated purchases of Smash Products for Year 2 to Year 4 (less actual purchases in Year 2) and converted those purchases from USD to GBP. He concluded that 'the forecast cost of purchases appears reasonably determined'.

69 Further and for completeness, consistent with the Reasons, I am unable to conclude that, absent the breaches of the Agreement by Smash, the development of the Zoom products would have had any impact on Smash sales or the extent of that impact. That submission was not pursued in any detail on the remitter. In this context, I note that by about August 2012 Euromark had determined not to pursue sales of Zoom products. Further, consistent with the Reasons, I have concluded that Euromark's conduct from 26 October 2012 to 3 December 2012 in seeking to offer alternative products to Tesco and Wilkinsons was made in reliance upon Smash's purported termination of the Agreement.[24]

70 Further, I do not find Smash's belief that Euromark was in breach of the Agreement to be of any relevance as to whether I should adopt the Year 2 estimated purchases. If I am wrong and it is of relevance, I would give it little weight. However, I consider it has relevance to whether Smash would agree to extend the Agreement into a fourth year. I will address this further below.

71 Finally and for completeness, Mr Harrison gave evidence that Euromark would have funded the estimated purchases using invoice discounting (i.e. factoring) pursuant to which banks provide funding against the value of invoices to customers which Euromark used to purchase stock from Smash. Smash submitted that this evidence ought not be accepted. However, Smash did not challenge this evidence in Mr Harrison's cross-examination. In these circumstances, and given that the evidence was only tangential to the counterfactual, I accept Mr Harrison's evidence in this regard. Further, in my view, it would be unnecessarily onerous to require a plaintiff in the position of Euromark to call such evidence.

72 In light of all of this evidence, I have concluded that Euromark has established that it is more likely than not that it would have purchased Smash products to a value of USD2.5 million in Year 2 (i.e. the Year 2 estimated purchases) and would have sold those product to customers.

73 As to Year 3, I am satisfied it is likely that there may have been some increase in purchases from Smash and sales to Euromark customers in Year 3 in excess of those in Year 2. This is in light of the evidence as to the success of Smash product sales in the UK market until October 2012. However, on the evidence before me, I am unable to assess the extent of that increase. In particular, Euromark has not established that it is more likely than not that it would have purchased Smash products to a value of USD3.5 million in Year 3 i.e. the Year 3 estimated purchases. This is for a number of reasons.

74 First, I am conscious that by the 5 May 2011 email, Mr Malone suggested an MPL for Year 3 of USD3.5 million and that Mr Harrison replied on 8 May 2011 suggesting a 'Base Case' of USD3.5 million and a 'Best Case' of USD4 million. But those emails were prepared over two years before the commencement of Year 3.

75 Second, while I accept that Mr Harrison also used his skill and expertise in the marketing and sale of BTS and related products in determining the Year 3 estimated purchases in Appendix 1 and the Sales Projections, there was no evidence from Mr Harrison as to the market conditions in the United Kingdom in Year 3 or as to the competitive BTS products available at that time and their prices relative to Smash products, which would likely influence the Year 3 estimated purchases. Of course, that was evidence of a kind that Euromark could have led through Mr Harrison or an expert in BTS products. It did not do so.

76 Third, the estimated purchases of USD3.5 million in Year 3 constituted a 40% increase in purchases from Year 2. This is far from the modest increase suggested by Euromark. In my view, any increase of that magnitude was not explained, or at the very least, not adequately explained. On the evidence before me, consistent with my findings at [55] and [56] of the Reasons, I must be careful to consider Mr Harrison's evidence in light of contemporaneous documents and other relevant evidence (or the absence thereof).

77 In my view, these findings are not inconsistent with my conclusions in respect of how the Court will estimate loss or make appropriate presumptions where the defendant's wrongdoing has made quantification of damages difficult. This is because, in my view, Euromark was in a position to call additional evidence in relation to these matters but failed to do so.

78 Further and related to my comments at [72] above, I am satisfied to a reasonable degree of satisfaction that Euromark would have complied with all of its obligations under the Agreement in Year 3 in order to achieve sales of USD2.5 million, including by compliance with cl 7.2 of the Agreement.

79 While I am satisfied that there may have been some increase in purchases from Smash and sales to Euromark customers in Year 3, on the evidence before me, I am unable to assess the extent of that increase. However, I am satisfied that Euromark would have purchased and on sold in Year 3 at least the estimated volume of Smash products purchased and sold in Year 2. This is in light of the purchases and sales of Smash products since the commencement of the Agreement, including the success of the Smash product in the UK market until October 2012. As a result, I consider that it is appropriate I apply the Year 2 estimated purchases in Year 3.

80 I note that Mr Blashki's assessment for Year 2 took into account purchases and sales in fact made in Year 2. Those purchases and sales had the effect of reducing the net profit for Year 2. As there were no sales made in Year 3, I am conscious using Mr Blashki's Year 2 assessment has the effect of underestimating Euromark's estimated net profit for Year 3. However, given that Mr Blashki was not asked to assess the lost net profit based on purchases of Smash products of USD2.5 million in Year 3, on the evidence before me, I consider it is appropriate to adopt the Year 2 assessment in Year 3.

81 For the reasons set out in the next section, I have concluded that Euromark has not established that there was a commercial opportunity of some value, i.e. there is no loss of opportunity of an extension of the Agreement for a further year (Year 4). However, in the event that I were to conclude there was such a loss of opportunity, I would apply the Year 2 estimated purchases and sales also for Year 4. This is for the same reasons that I adopted the Year 2 estimated purchases and sales in Year 3.

82 Euromark claims the lost opportunity of earning profits on the sales of Smash products if the Agreement, which was for an initial term of three years, was extended for a further year i.e. Year 4. In doing so, it relies upon the decision of the Victorian Court of Appeal in Masters Home Improvement Pty Ltd v North East Solution Pty Ltd[25] (Masters) where the Court stated:

In considering damages for loss of a commercial opportunity, the court asks first whether there was a commercial opportunity of some value (which is more than speculative or negligible); that is, was there a chance? Secondly, the court looks to whether that opportunity has been lost; that is, with the plaintiff have pursued the opportunity? The third step is to consider what amount should be awarded having regard to the prospects of success if the opportunity had been pursued. In taking this third step, the courts' task is to apply a discount which reflects the prospects of success. This is sometimes referred to as a Sellars discount.[26]

(1) Mr Harrison's evidence was that given Euromark's success in selling Smash products, Mr Harrison would have thought there was at least a small chance that the Agreement would have been extended into a fourth year and Euromark would have been flexible in negotiating a profit share for that year;

(2) Mr Malone's evidence was that if the Agreement got to three years potentially it could have got to a fourth year; and

(3) in cross-examination, Mr Harbinson's evidence was that, if he understood that Euromark's gross profit margin was 7% and Euromark offered to take Year 4, and if Smash was hitting its numbers, then it would be a great discussion to have about extending to a fourth year.

84 Euromark acknowledged that, in re-examination Mr Harbison said that his actual assessment as at December 2012 was that Smash would not have entered into discussions about a fourth year. However, Euromark submitted, in substance that Smash's view should be considered as at mid-October 2012 and before Smash's breaches of the Agreement, i.e. the Court should not take into account circumstances which were brought about by Smash's wrongful conduct.

85 As a result, Euromark submitted the Court should allocate some percentage for the chance that an Agreement would have been extended into a fourth year if it had not been terminated. Euromark emphasised that it is not essential for the trial judge to nominate a particular percentage of probability to be attributed to the prospect of the chance being realised: rather, a global approach is acceptable, relying upon Searle v Commonwealth (Searle).[27] Euromark suggest that between 10% and 20% can be used as an appropriate percentage.

86 Smash submitted that the prospect of Smash agreeing to extend the Agreement for one further year was non-existent. This was because Euromark's alleged loss of opportunity depended upon Smash agreeing to extend the Agreement for a further year. Smash submitted that, in light of the dealings between Euromark and Smash up to 23 December 2012, Smash demonstrated a reluctance to see out the original term of the Agreement and the Court should find that Euromark did not have any real opportunity of obtaining an extension of the Agreement.

87 Smash submitted that any other result is inconsistent with the evidence of Mr Harbison and Mr Malone to the effect they would not agree to such an extension. In any event, it would be impossible to quantify the value of that opportunity.

88 Consistent with Masters, in considering damages for loss of commercial opportunity, the first question is whether 'there was a commercial opportunity of some value (which is more than speculative or negligible); that is, was there a chance?'[28]

89 In summary, I have formed the view that Euromark has not established that there was a commercial opportunity of some value that the Agreement would be extended for another year. That is to say, I have formed the view that the prospect of Smash agreeing to extend the Agreement into Year 4 is speculative and/or negligible.

90 First, the Agreement itself did not provide for any extension.

91 Second and relatedly, an agreement to extend the Agreement for a further year required the agreement of Smash.

92 Third, the relationship between the parties progressively deteriorated in the course of 2012. By mid-October 2012, there had been a complete breakdown of the relationship between the parties which led to the decision to terminate the Agreement by Smash after that time.

93 I am conscious that, in considering this issue, I must not have regard to the conduct of Smash in breach of the Agreement (that is the purported termination of the Agreement on 26 October 2012 and other conduct of Smash after that time which I concluded in the Reasons was in breach of the Agreement). I am also conscious that it is always possible that the relationship between the parties may have improved prior to when any one year extension of the Agreement may have been discussed.

94 However, in my view, the breakdown of relationship between the parties by mid-October 2012, made the chance of Smash agreeing to a one year extension so negligible as to be disregarded. This is in a context where I found that:

(1) by February 2012, Mr Harbinson and the Smash executives were very concerned about the conduct of Mr Harrison and his attempts to maximise sales of Smash products in the UK;[29]

(2) by February 2012, Mr Harbinson had lost much trust and confidence in Mr Harrison for good reasons; [30]

(3) by about late May or early June 2012, Smash had determined to send Mr Malone to open an office in the UK; [31]

(4) in August 2012, Smash became aware that Euromark was selling BTS products which appeared to be copies of Smash products in breach of the Agreement,[32] and, as a result, Smash formed the view that Euromark was not fully performing its obligation to promote Smash products; [33] and

(5) by mid-October, Smash determined to end its relationship with Euromark with a motivating factor being that Euromark did not suit Smash commercially as Smash thought it could do a better job itself and make more money from UK sales without the involvement of Euromark.[34]

95 The breakdown of the relationship and the lack of trust which Smash had in Euromark is evident in the language of internal Smash emails, particularly in early October 2012, in which Mr Harrison was referred to as a 'dick'.[35] Further, in his email dated 10 October 2012, Mr Malone, while in the UK wrote to Smash referring to Mr Harrison as 'mad' and stating he was 'glad there won't be a third next year'.[36]

96 In my view, the lack of trust and confidence which commenced by February 2012 continued throughout 2012 until about mid-October with the result that there was simply no possibility or prospect of Smash agreeing to a one year extension of the Agreement. In short, Smash wanted Euromark out as soon as possible.

97 This was also in light of Smash's belief that Euromark was not fully performing its obligation to promote Smash products in breach of key provisions of the Agreement and that the Agreement was not working well for Smash. Such a belief could not be determinative of whether the Agreement could be terminated for breach. However, in my view, such a belief is very relevant to whether Smash would be willing to agree to extend the Agreement after it expired when it had no legal obligation to do so. It contributed to the breakdown of the relationship between Smash and Euromark.

98 By any objective measure, I consider that there was no prospect that Smash would have agreed to a one year extension in light of the breakdown of the relationship between Smash and Euromark between February 2012 and mid-October 2012.

99 Further, I can put no real weight on the excerpts from the self-serving evidence of Mr Harrison relied upon by Euromark as to the prospects of Smash agreeing to a one year extension of the Agreement. It is important to reiterate that any extension of the Agreement beyond its three year term required the agreement of both Euromark and Smash.

100 In this regard, Mr Malone's consistent evidence was that, in light of the performance of Euromark and the relationship between Smash and Euromark by late August 2012 and certainly by mid-October 2012, there was simply no possibility of extending the Agreement for a fourth year.

101 The evidence of Mr Harbinson was not given in the context of the relationship between the parties by that time. He gave consistent evidence that by December 2012 Smash would never have entered into discussion with Euromark for an additional year of the Agreement. In my view, this evidence is not directly relevant given that the answer related to the period when Smash was in breach of the Agreement. In any event, I have formed the view that this was his opinion by mid-October 2012. That view formed the basis of the decision of Smash to terminate the Agreement on 26 October 2012.

102 In light of my findings in section 2, it is now necessary to consider whether Euromark has established its claim to loss of bargain damages based upon my conclusions that:

(1) it is more likely than not that it would have purchased Smash products to a value of USD2.5 million in Year 2 and in Year 3; and

(2) there was no commercial opportunity of some value (which was more than speculative or negligible) that the Agreement would be extended for another year (ie, Year 4).

103 As noted above, Mr Blashki assessed Euromark's net profit based on purchase of Smash products valued at USD2.5 million in Year 2 would be £448,003. Given that I have concluded that I should adopt the estimated purchase of USD2.5 million in Year 2 and Year 3, I will consider in detail Mr Blashki's analysis for Year 2. I note that Mr Blashki for the most part adopted the same methodology in Year 3 and Year 4 as he adopted in Year 2.

104 At the outset it is important to note that, in preparing the first, second and fourth Blashki reports and in giving his oral evidence, Mr Blashki had the benefit of actual figures for revenue received, and for costs and overheads incurred, in respect of purchases of Smash products and sales of Smash products to Euromark customers for the period from at least February 2011 and which included all of Year 1. In assessing the estimated net profit lost from Smash sales in each of Year 2 to Year 4, Mr Blashki opined on whether and how those costs and overheads should be treated in those years when there were few or no purchases and sales of Smash products by Euromark.

105 Further, I note that the financial year relevant to Euromark's business commenced on 1 May and finished on 30 April of the following calendar year. Euromark tendered financial statements including for the financial years ending 30 April 2010 (FY2009/2010), 30 April 2011 (FY2010/2011), 30 April 2012 (FY2011/2012), 30 April 2013 (FY2012/2013), 30 April 2014 (FY2013/2014) and 30 April 2015 (FY2014/2015).

106 At this point, it is appropriate to note that the financial years did not entirely correspond with the contractual years under the Agreement. As a result, there has not been a direct coincidence of periods for the purposes of assessing Euromark's loss of bargain damages. Nevertheless, as set out above, in the assessment of damages as a result of a defendant's wrongdoing, particularly loss of bargain damages, the court will do the best it can to assess that loss in light of the evidence able to be led on a broad brush approach.

107 As to the methodology adopted by Mr Blashki, Mr Blashki first determined the gross profit in each of Years 2 to 4, being the revenue from the sale of Smash products for each of those years less the costs of purchase of those Smash products.

108 First, Mr Blashki determined the estimated purchases of Smash products in USD for each of Years 2 to 4 and converted these amounts into Great British Pounds using the average value of the exchange rate for each of those years (cost of Smash products purchased).[37] For year 2, Mr Blashki used an exchange rate of 1.57 GBP:USD resulting in the cost of Smash products purchased being £1,504,341.

109 Mr Blashki then calculated an average mark-up on those purchases (the mark-up). He calculated the mark-up figure of 1.702 based on historic sales data by comparing the purchase price of Smash products and the sales price of Smash products by Euromark to customers.[38] Mr Blashki then applied that mark-up to the cost of Smash products purchased to produce an estimated total sales price of products purchased (ie, a revenue figure) (total sales of Smash products purchased). For Year 2, Mr Blashki calculated total sales of Smash products purchased at £2,512,382.[39]

110 Second, Mr Blashki calculated the total costs of Smash products purchased for each of Years 2 to 4, adjusting the costs of Smash products purchased for each of those years by adding additional costs which Euromark would have incurred in respect of those Smash purchases (total cost of Smash products purchased). The relevant additional costs were:

(1) duty[40] and freight/warehousing,[41] both calculated as a percentage of the cost of Smash products purchased figure; and

(2) the discount provided to Tesco by Euromark for Smash goods sold to Tesco (calculated as a percentage of the total sales of Smash products purchased, Tesco settlement discount).[42]

(collectively, the additional costs). These additional costs identified by Mr Blashki were based upon expense information provided from Euromark for actual sales from February 2011. For Year 2, Mr Blashki calculated the total cost of Smash products purchased at £1,879,728.

111 Third, Mr Blashki deducted the total costs of Smash products purchased from the total sales of Smash products purchased for each of Years 2 to 4 to calculate gross profit lost on sales of Smash products for each of those years. For Year 2, Mr Blashki calculated gross profit at £632,653.

112 In order to assess the net profit in each of Years 2 to 4, Mr Blashki then reduced the gross profit for each of those years by the overheads that should have varied with the level of Smash sales in each of those years. The variable overheads identified by Mr Blashki were for couriers, testing, salaries, National Insurance/Pension (NIP), travel, office, insurance and bank charges. The variable overheads identified by Mr Blashki were based upon actual expense information provided by Euromark to 4 July 2012,[43] together with Euromark's own estimates.[44] Mr Blashki calculated those variable overheads as a percentage of the total sales of Smash products purchased for each of Years 2 to 4. For Year 2, Mr Blashki calculated the percentage of variable overheads at 7.35%. This resulted in variable overheads totalling £184,651. This was then deducted from the gross profit of £632,653 to produce a net profit of £448,003. This methodology is reflected in the revised calculation table (Appendix 2 to the fourth Blashki report).

113 Euromark, in substance, submitted that Mr Blashki's methodology was both orthodox and substantively unchallenged by Smash.

114 As to the assessment of gross profit, Euromark submitted that Mr Blashki's calculations implied a gross profit margin for Year 2 and Year 3 of 25.2% and 27.7% respectively. Euromark noted that:

(1) these percentages were slightly below Mr Malone's expectation of a 30% gross margin which Euromark would make as a distributor;

(2) these percentages are supported by Euromark's actual gross margin in 2012 of 32.3% and in 2013 of 26% (despite the termination of the Agreement); and

(3) in the context of the ACL damages claimed, Mr Harrison projected a gross margin on sales of 31.7% and 32.9% for FY2012/2013 and FY2013/2014, respectively, which Mr Blashki accepted as reasonable: this approach was also accepted by the primary judge and the Court of Appeal.[45]

115 As to the assessment of variable overheads for the purpose of determining the net profit, Euromark relied upon two documents. First, they relied upon the document headed 'Euromark Overheads Analysis' (Euromark Overheads Analysis). Second, they relied upon a summary of this document (with some amendments) in a further document titled 'Estimated Overheads' (Euromark's Estimated Overheads) which forms an annexure to the first Blashki report. Both documents were prepared by Mr Harrison and were provided to Mr Blashki. At the trial of this proceeding, they were admitted for the limited purpose as being documents which record the information which was provided to Mr Blashki for the purposes of preparing his report.

116 Euromark relied upon the evidence of Mr Harrison and Mr Blashki to the effect that the Euromark Overheads Analysis records the actual overheads in FY2010/2011 to FY2014/2015 based on the actual financial statements of Euromark (in evidence before me) and that Mr Harrison then estimated the overheads that might be saved in each of Years 2 to 4 (informed by the actual overheads in Year 1). In the Euromark Overheads Analysis, the relevant saved overheads identified by Mr Harrison included courier, testing, salaries, NIP, travel and office expenses. Euromark relied on Mr Harrison's evidence that part of those expenses were expected to be allocated to the 'Smash part' of Euromark's business (Euromark's Smash business). He gave evidence that up to 4 July 2012 (including all of Year 1) sales of Smash products made up about 55% of Euromark sales. Euromark also relied upon Mr Blashki's review of the Euromark Overheads Analysis and Euromark's Estimated Overheads in the first and second Blashki reports.

117 Euromark submitted that Mr Blashki considered it appropriate to deduct the portion of the overheads attributable to Euromark's Smash business in determining Euromark's lost profit, but performed his own analysis of these items in his first report.[46] He determined that overheads for insurance and bank charges should also be included from Year 2. He also increased the amount of NIP overheads from Year 2. He considered that the unnecessary staff costs and redundancies identified above (of £148,359) should be shown separately to overheads.[47]

118 Euromark submitted that there was a proper basis for the Court to accept the apportionment between Euromark's Smash and non-Smash business. As noted above, Euromark relied upon the evidence of Mr Harrison to the effect that the Smash sales made up approximately 55% of all Euromark sales to July 2012. Euromark also relied upon the summary of sales of Smash products and non-Smash products in particular for FY2010/2011 to FY2012/2013.[48] The overall sales were based upon the Euromark profit and loss statements and the Smash sales were based upon actual sales of Smash products which formed Appendix 4 to the first Blashki report. This table recorded that for FY2012/2013, the Smash sales made up approximately 54% of all Euromark sales_._

119 Finally, Euromark submitted that, to the extent that there was any uncertainty in the precise calculation of Euromark's damages, any such uncertainty should be resolved by making reasonable assumptions which err on the side of generosity to Euromark, relying upon the principle in Armory set out in [13] above.

120 On the remitter, Smash did not dispute many aspects of Euromark's assessment of its claim for loss of bargain damages. For example, Smash did not contend that Mr Blashki's methodology was flawed in estimating Euromark's lost net profit on the sale of Smash products or that his assessment in the revised calculation table was inaccurate. Rather, Smash took issue with two matters: first, the assumption that all Smash products purchased by Euromark would be sold by Euromark; and second, Euromark's allocation of overheads to its forecast sales of Smash products in Years 2 to 4.

121 The first issue directly relates to, and overlaps with, Smash's submission that Euromark has failed to make good the 'foundational' assumption, being the purchase/sale assumption set out above.

122 As to the second issue, Smash submitted that Mr Blashki largely adopted Euromark's identification and allocation overheads which were variable and thus related to the Smash business. This is in circumstances where Smash submitted that by late 2012, Euromark had reduced much of its non-Smash business lines and decided not to renew certain product licences.

123 Smash submitted that Euromark did not put forward any detailed evidence of:

(1) what (if any) other aspects of Euromark's non-Smash business would have been in operation between 2013 and 2015, or the likely value of sales that would have been generated by that part of its business; or

(2) the proportion of overheads that could reasonably be allocated to those aspects of its non-Smash business.

124 As a result, Smash submitted that Mr Blashki's assessment largely adopted and applied Euromark's own allocation of overheads which in FY2011/2012 resulted in just 30% of Euromark's total overheads being allocated to its Smash business, despite the fact that the Smash business accounted for over 90% of Euromark's gross profit.

125 Smash submitted that there is no available means for the Court to arrive at its own conclusion with respect to the allocation of overheads. Smash submitted that the relatively small proportion of overheads allocated to the Smash business resulted in the level of Euromark's profit in respect of its forecast sales of Smash products being substantially higher than the level of profits that Euromark had ever achieved. In these circumstances, Smash submitted the Court should not accept Mr Blashki's opinion that certain fixed costs ought not be factored into the assessment of Euromark's lost profit.

126 In summary, I have formed the view that Euromark has met the onus of proving and quantifying its claim for loss of bargain damages for Years 2 and 3 based upon estimated net lost profit on the sales of Smash products in Year 2 of USD2.5 million (i.e. the Year 2 estimated purchases).

127 Before addressing the submissions of Smash, there are some issues I wish to note.

128 First, consistent with the views I formed in the Reasons at [1455], I have concluded that Mr Blashki has the necessary expertise to express views in relation to gross profit, net profit, the additional costs and the allocation of overheads for the purpose of estimating and calculating the loss of bargain damages of Euromark.

129 Second, Mr Blashki reviewed key aspects of the estimates provided by Euromark including for additional costs and overheads. He did not just accept them: rather, he undertook his own analysis with his expertise and made the necessary adjustments to determine his own assessment of the lost net profit. I will address these adjustments further below_._

130 In light of these matters, I accept the general methodology used by Mr Blashki in estimating and assessing the loss of bargain damages of Euromark by reason of the inability to sell Smash products. This is in a context where Smash did not really dispute that methodology. It chose not to rely upon the expert accounting report it filed.

131 I will first address in more detail the assessment of lost gross profit. It is appropriate that in this context I address Smash's submission that the Court ought not accept the assumption that all Smash stock purchased by Euromark would be sold by Euromark (i.e. the purchase/sale assumption). This issue is directly related to Smash's submission that Euromark has failed to make good the 'foundational' assumption as to the sale of Smash products set out in section 2.2.2. For the reasons set out in section 2.2.3, I am satisfied that Euromark has established that it is more likely than not that:

(1) in Year 2, Euromark would have purchased Smash products to the value of USD2.5 million and that Euromark would have been able to sell those products; and

(2) in Year 3, Euromark would have purchased and on sold at least the estimated volume of Smash products purchased and sold in Year 2.

132 I refer to my comments in section 2.2.3 and, in particular, [72]. As a result, I accept that Mr Blashki was entitled to assess the loss of net profit in Year 2 on the basis that Euromark would have purchased Smash product to the value of USD2.5 million and that Euromark would have been able to sell all those products.

133 I generally accept Mr Blashki's assessment of the additional costs which Euromark would have incurred in respect of those Smash purchases. Mr Blashki's assessment of the additional costs were based upon the costs in fact incurred by Euromark for actual sales between February 2011 and August 2012 which are set out in Appendix 3 to the third Blashki report. This information recorded the duty and freight/warehousing costs paid on purchases of Smash products in that period.

134 Based on this information, Mr Harrison calculated that the duty costs represented 3.2% of the cost of Smash products purchased and that freight/warehousing costs represented 17.2% of the cost of Smash products purchased. Significantly, as noted above, Mr Blashki did not merely accept Euromark's calculation and undertook his own analysis and came up with different figures for duty costs (changing the percentage from 3.2% to 3.6%) and for freight/warehousing (changing the percentage from 17.2% to 20.4%). In the case of freight/warehousing, Mr Blashki's change related to the fact that Euromark's estimate did not consider certain freight costs referrable to a particular freight company and recalculated the average rate of freight/warehousing. I note that the effect of these changes was to reduce the quantum of Euromark's claim.

135 By contrast, and appropriately, Mr Blashki accepted the Tesco discount settlement of 2.5% of the total sales of Smash products purchased adopting the forecast sales to Tesco in the Sales Projections without Tesco brand support, being £900,000 in Year 2, £950,000 in Year 3 and £1 million in Year 4.[49] Once again, Mr Blashki's use of sales projections without Tesco brand support had the effect of reducing Euromark's damages.

136 In light of Mr Blashki's review and further analysis of the additional costs, I accept Mr Blashki's analysis of them. For completeness, I note that, based upon Mr Blashki's calculations in the revised calculation table, the gross profit on Smash sales in Year 2 was calculated at 25.2%. This compared with the gross profit on actual Smash sales for Year 1 of 25.4%. I also note that these percentages are generally supported by Euromark's actual gross margin for FY2010/2011 of 23.3% and for FY2011/2012 of 32.3%[50] and for FY2012/2013 of 25.8% (despite termination of the Agreement).

137 Second, as to the lost net profit from the sale of Smash products, the main issue between the parties related to the issue of overheads. A deduction of variable overheads from gross profit was necessary because, given the termination of the Agreement by Smash, those costs of selling Smash products were never incurred and thus could not be claimed as part of the loss suffered. Importantly, and unlike the additional costs, overheads were not directly attributable to the Smash component of Euromark's business. As a result, Euromark has sought, with the assistance of Mr Blashki, to estimate the proportion of each of the variable overheads to the estimated purchase and sales of Smash products in each of Years 2 to 4.

138 I set out in [112] above, the overheads considered by Mr Blashki which would have varied with the level of sales of Smash products. Each of these expenses (save for the insurance and bank charges) was initially identified and calculated by Mr Harrison and provided as part of the instructions to Mr Blashki. First, Mr Harrison prepared the Euromark Overhead Analysis referred to in [115] above. That document set out two tables. I note that in both tables Mr Harrison rounded the relevant amount to the nearest thousand pounds.

139 The first table records Euromark's actual overheads for FY2010/2011 to FY2014/2015 based upon the actual financial statements for Euromark for those years (the actual overheads table). Those financial statements were in evidence before me. Based on my review of a number of those financial statements, I accept that the actual overheads table contains an accurate summary of those expenses.

140 The second table records Mr Harrison's then estimated portion of the overheads that would have been incurred in each of Years 2 to 4 and that were attributable to sales of Smash products. This table was generally consistent with the Sales Projections and Appendix 1 (the projected Smash overheads table). In the projected Smash overheads table**,** Mr Harrison identified relevant saved overhead expenses for courier, testing, NIP, travel and office expenses. He also included saved overhead expenses relating to the 'Allocation of Director's Costs'.

141 Mr Harrison summarised this table in Euromark's Estimated Overheads. He made some minor amendments. Most relevantly, Mr Harrison reduced the amount of office expenses for Year 2 by £15,000 and deleted any reference to the 'Allocation of Directors Costs'. This table also contained a breakdown of the salaries overhead item which he attributed to the sale of Smash products.

142 In determining what proportion of each of these saved overheads was referrable to the projected sales of Smash products, Mr Harrison gave evidence that he used his knowledge and experience to estimate the part of those expenses that were expected to be allocated to Euromark's Smash business.

143 In this regard, Mr Harrison gave evidence, in substance, that up to 4 July 2012 (which included all of Year 1), the sales of Smash products made up about 55% of Euromark's sales. As noted above, Mr Harrison's evidence was based upon the actual financial information of Euromark up until 4 July 2012. Mr Harrison then apportioned a number of variable overheads which he identified in Years 2 to 4. That 55% figure is generally consistent with the table at [1.1.9] of the first Blashki report which summarises Euromark's profit and loss statements for FY2010/2011 to FY2014/2015. Most relevantly, for FY2012/2013, that table records that:

(1) Euromark sold Smash products totalling £1,426,570;

(2) Euromark sold non-Smash products totalling £1,206,743; and

(3) Smash products therefore comprised approximately 54% of all products sold by Euromark in that financial year.

144 As a result, I generally accept the evidence of Mr Harrison that Smash products accounted for approximately 55% of all products sold by Euromark up to and including the time of the termination of the Agreement.

145 Further, in light of the evidence of Mr Harrison referred to above (and below) in relation to his apportionment of variable overheads relating to Euromark's Smash business, I have concluded that I can have regard to and place some weight on the Euromark Overheads Analysis and Euromark's Estimated Overheads, notwithstanding they were originally tendered on a limited basis.

146 It is appropriate that I now set out the parts of Euromark's Estimated Overheads relating to Year 1 and Year 2.

147 In the first and second Blashki report, Mr Blashki reviewed the Euromark Overheads Analysis and Euromark's Estimated Overheads. Mr Blashki adopted Euromark's estimation of many of the variable overheads attributable to Euromark's Smash business. However, in light of his own analysis, he amended these estimates in three important ways in calculating damages:

(1) First, he ignored the allocation of directors' costs and of director owned office rent costs given that they were fixed costs;[51]

(2) Second, he included insurance and bank charges (contained in the actual statutory accounts) which Mr Blashki considered would vary with the level of Smash sales;[52] and

(3) Third, he also amended Euromark's estimate of the NIP component of overheads, given that he estimated these comprised 20% of salary costs and not 14%.[53]

148 Further, in the first Blashki report, Mr Blashki was of the opinion that, as salary costs were actually incurred for 2013, there was no saving of £105,000 (which was Mr Harrison's estimate of the salary component of overheads referrable to the Smash business) in that year.[54] As a result, he determined that the overheads should be reduced by this amount in Year 2. However, he accepted Mr Harrison's estimate of salary cost savings in Year 3 and Year 4. He also identified redundancy costs of £43,359 incurred in the 2013 and 2014 financial years and considered that the overheads should be reduced by this amount over those years.[55]

149 However, in the second Blashki report, Mr Blashki determined to show these costs (namely, the salary costs of £105,000 and the redundancy costs of £43,359) as separate costs stemming from the termination of the Agreement, rather than as savings in overheads.[56] In light of my comments in [8] above, I do not intend to address the issue of salaries and redundancies any further. However, it will be necessary to say something further about the apportionment of salaries below, including when considering the allocation of NIP overheads.

150 For completeness, in the first Blashki report, Mr Blashki increased the variable overheads from Euromark's estimate of £151,000 to £207,000 in Year 2 with the increase made up of an increase in NIP allocation of £6,000, insurance costs of £5,000 and bank charges of £45,000.[57] As a result, Mr Blashki calculated that the overheads relating to the sale of Smash products in Year 2 as 7.35% of the total sales of Smash products purchased figure in Year 2. This was the proportion adopted in the revised calculation table. He also adopted the figures of 7.24% and 7.16% in Years 3 and 4 respectively.

151 While Mr Blashki did not expressly opine on the reasonableness of Euromark's estimation of its overheads, in the first and second Blashki reports, it is significant that he reviewed all the claimed overhead savings and made the changes identified in the preceding paragraphs.

152 As noted above, Smash submitted that Mr Blashki largely adopted and applied Euromark's own allocation of overheads which in FY2011/2012 resulted in just 30% of Euromark's total overheads being allocated to the Smash business, despite the fact that Euromark's Smash business accounted for 90% of Euromark's gross profit.

153 This submission was based upon Euromark's FY2011/2012 financial statements which recorded, among other things, that Euromark incurred £485,553 in administrative expenses (i.e. total overheads) and generated £783,624 in gross profit, whereas in Euromark's instructions to Mr Blashki set out in [2.1.2] of the first Blashki report, Euromark only allocated £146,475 in overheads to its Smash business while recording a gross profit of £718,100.

(1) the Smash business accounted for 91.64% of Euromark's gross profit, calculated by taking Smash's attributable gross profit of £718,100 (being the gross profit for the 17-month period to 4 July 2012) as a percentage of Euromark's total gross profit of £783,624 (being the gross profit for FY2011/2021); and

(2) the Smash attributed variable overheads accounted for 30.16% of Euromark's total overheads, calculated by taking Smash's allocated overheads of £146,475 (being Smash's allocated overheads for the 17-month period to 4 July 2012) as a percentage of Euromark's total overheads of £485,553 (being the total overheads for FY2011/2012).

155 First, as is evident from the qualifications in (1) and (2) in the previous paragraph, Smash's calculations use figures from FY2011/2012 and compare them with figures for a 17-month period to 4 July 2012. In short, Smash is comparing apples with something other than apples. Second, Euromark's calculation in [155](2) compared the sum of £146,475 which comprised only the variable Smash related overheads, with the sum of £485,553 which comprised total overheads. As a result, Smash did not seek in this analysis to distinguish between fixed and variable overheads, noting that variable overheads are a smaller subset of fixed overheads. Once again, Smash is comparing apples with something other than apples. In this regard, Smash's analysis does not accord with the evidence of Mr Blashki in cross-examination.

156 Smash also submitted that, by late 2012, Euromark had reduced much of its non-Smash business (by not renewing certain product licenses), with the result that Euromark's non-Smash business was in decline. I am unable to accept this submission on the evidence before me. Mr Harrison gave evidence to the effect that, from July 2011, Euromark decided not to renew certain product licenses, including the Peppa Pig license (by the end of 2011) and the Hello Kitty, Thomas the Tank Engine and Mr Men licenses (in around 2012). However, there is no evidence as to the extent of these decisions on the non-Smash business of Euromark. Most relevantly, the effect of these decisions to terminate certain product licenses on the business of Euromark after termination was not raised with Mr Harrison in the course of his cross-examination.

157 Turning to the particular variable overheads identified by Mr Harrison and accepted by Mr Blashki. First, it is instructive to set out Mr Harrison's evidence as to how he sought to apportion the salaries of Euromark staff in respect of Smash sales. This is because the apportionment of these salaries was relevant both to the appropriateness of the apportionment of variable overheads by Euromark as well as the determination of the NIP overheads.

158 Mr Harrison gave evidence, in substance, that he looked at each individual member of staff and determined the proportion of their time that was required to be devoted to the Smash business. A summary of his analysis is contained in a document annexed to the first Blashki report (the salaries table summary). The salaries table summary sets out the actual salaries and the NIP amounts paid for each of FY2010/2011 to FY2012/2013 (for each employee). It then sets out Mr Harrison's estimate of the proportion of the salary of those employees required to be devoted to the Smash business.

159 I note that the proportion of salaries attributable to the Smash business in total exceeds 55% of salaries. However, Mr Harrison gave evidence that this is because, having looked at each individual member of staff, he determined that a 'Senior Sales' employee(s) (who were paid larger sums) would have been devoted full-time to the sale of Smash products, whereas a smaller proportion of the time of other employees (such as 'Accounts' employees) would have been devoted to the Smash business. I accept this evidence and Mr Harrison's assessment given that it is based upon Mr Harrison's understanding and consideration of the Euromark business. Further, Mr Harrison's evidence in respect of apportioning the salaries of staff within Euromark evidences the way in which Mr Harrison approached the task of allocating variable overheads more generally.

160 The allocation of the salaries component of overheads is also relevant to the allocation of NIP overheads. It is important to note that Mr Harrison's assessment of this amount was not a proportional projection but rather an application of a fixed statutory rate to the salaries component of overheads, as discussed above.[58] However, Mr Blashki reviewed the actual expenses and concluded that these costs represented approximately 20% of salaries and adjusted this figure accordingly.[59] This was not challenged in cross-examination. As a result, based upon this evidence and, in particular, Mr Blashki's evidence, I am satisfied that the allocation of NIP overheads is appropriate in all the circumstances.

161 Mr Harrison estimated the courier, testing and travel overheads as a 'Proportional projection' as recorded in the notes to the projected Smash overheads table. I am conscious that these projections do not correspond with Mr Harrison's evidence that the sale of Smash products up to July 2012 made up 55% of Euromark's sales_._ Doing the best I can (comparing Mr Harrisons projections for Year 2 in the projected Smash overheads table with the actual figures for the equivalent period in the actual overheads table), some seem higher than 55% (eg courier) and some seem lower (eg testing and travel). However, I am conscious of Mr Harrison's evidence, in substance, that he attempted to apportion each of these costs as between Euromark's Smash business and non-Smash business. I accept that evidence. I also accept that, in doing so, he used his knowledge and experience in Euromark's business and in BTS products more generally in respect of each of these costs.

162 As to the office expense overheads in the projected Smash overheads table, the amount allowed for office in Year 2 by Mr Harrison was £25,000. The note to that item records that Mr Harrison included office rental costs for a director's owned office costs. However, the amount allowed for the office expenses in Year 2 of the Euromark Estimated Overheads (which forms an annexure to the first Blashki report) is £10,000, a significant reduction. In [3.7.5] of the first Blashki report, Mr Blashki noted that he had ignored notional office rent for director owned office costs. Further, for the purposes of undertaking his calculations, in the table in 4.7.2, it is notable that Mr Blashki adopted an overheads expenses for office costs of £9,000.

163 Finally, as noted above, Mr Blashki reviewed the overheads identified by Mr Harrison. While he did not expressly opine on the reasonableness of Euromark's estimation of its overheads, nevertheless, in the course of providing his expert opinion, Mr Blashki reviewed all the claimed overhead savings but only had comments in respect of salaries, office costs and NIP costs and included further variable overheads expenses in respect of insurance premiums and bank charges.

164 In all these circumstances, I am satisfied that Euromark has put forward sufficient evidence of the proportion of its overheads that can be reasonably allocated to Euromark's Smash business for Year 2 in order to undertake an assessment of its loss of bargain damages.

165 For the reasons set out above, I consider that Euromark has satisfied the onus of proving its claim for loss of bargain damages arising from Smash's wrongful termination of the Agreement during Year 2. I have assessed Euromark's the loss of profit of Euromark in respect of Year 2 in the sum of £448,003 consistent Mr Blashki's assessment. For the reasons set out section 2.2.3, I consider that it is appropriate to adopt the Year 2 calculations in Year 3.

166 In reaching these conclusions I am conscious of the difficulties faced by Euromark in estimating its loss of bargain damages, including the apportionment of overheads relating to the Smash business. In this regard, I refer to my comments as to the role of the Court in assessing a plaintiff's damages in such circumstances (set out in [20] and [21] above), namely, that the court will do the best it can to assess the that loss in light of the evidence able to be led on a broad brush approach. That is the basis upon which I have proceeded.

167 I will hear the parties on interest and the costs of this proceeding in light of the Reasons and these further reasons.

[1] (2003) 196 ALR 257, 266 [38] (Hayne J) (Placer).

[2] (1722) 1 Strange 505; [1722] EWHC KB J94; 93 ER 664.

[3] Houghton v Immer (No 155) Pty Ltd [1997] NSWSC 608; [1997] 44 NSWLR 46, 59 (Handley JA, Mason P and Beazley JA, agreeing); McCartney v Orica Investments Pty Ltd [2011] NSWCA 337, [148]-[154] (Giles JA, Macfarlan JA agreeing) (McCartney); Pitcher Partners Consulting Pty Ltd v Neville's Bus Service Pty Ltd [2019] FCAFC 119; (2019) 271 FCR 392 (Pitcher Partners), 417 [110] (Allsop CJ, Yates and O'Bryan JJ).

[4] Placer (n 1) 266 [37] (Hayne J).

[5] [2016] VSC 707 [1042]-[1045] (Sloss J).

[6] [1991] HCA 54; (1991) 174 CLR 64, 83 (Mason CJ and Dawson J).

[7] See, eg, Spotlight Pty Ltd v NCON Australia Ltd [2012] VSCA 232; (2012) 46 VR 1, 5 [16] (Harper and Tate JJA and Beach AJA).

[8] McCartney (n 3), [148]-[160] (Giles JA, Macfarlan JA agreeing).

[9] [2020] HCA 27; (2020) 271 CLR 151, 168-9 [28] (Bell, Keane and Nettle JJ) (Berry).

[10] Pitcher Partners (n 3), 418 [116] (Hayne J).

[11] Berry (n 9) 168-70 [28]-[29] (Bell, Keane and Nettle JJ).

[12] Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388, 415-6 [74] (Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ); Berry (n 9) 172 [34] (Bell, Keane and Nettle JJ).

[14] (1986) 45 SASR 57, 67 (Zelling J).

[15] See, eg, Mason v Tritton (1994) 34 NSWLR 572, 586 (Kirby P).

[24] Reasons [1201]. See also section 18.7 of the Reasons.

[25] [2017] VSCA 88; (2017) 372 ALR 440 (Santamaria, Ferguson and Kaye JJA) (Masters).

[26] Masters (n 25) 548 [411] (Santamaria, Ferguson and Kaye JJA) (citations omitted).

[27] [2019] NSWCA 127; (2019) 100 NSWLR 55, 99 [206] (Bell P).

[28] Masters (n 25) 548 [411] (Santamaria, Ferguson and Kaye JJA).

[37] First Blashki report [3.2] and [4.3].

[38] First Blashki report [4.2.1]; Second Blashki report [2.1.1]-[2.1.3].

[40] First Blashki report [3.3] and [4.4]; Second Blashki report [2.7].

[41] First Blashki report [3.4] and [4.5]; Second Blashki report [2.7].

[42] First Blashki report [3.5] and [4.6]; Second Blashki report [2.5].

[44] First Blashki report [3.7] and [4.7]; Second Blashki report [2.6] (re staff costs and redundancies).

[45] Reasons [1473]; Appeal Reasons [248]-[249].

[46] First Blashki report [3.7] and [4.7].

[49] First Blashki report [4.2.4] and [4.6].

[52] First Blashki report [3.7.4] and [4.7.3](c) and (d).

[53] First Blashki report [4.7.3](b).

[54] First Blashki report [4.7.3](a).

[55] First Blashki report [4.7.3](a).

[57] First Blashki report [4.7.4]. See also, Second Blashki report Appendix 2 .

[58] Footnote 5 to the Euromark Overheads Analysis.

[59] First Blashki report [4.7.3](b)].