(i) MIS's loss or damage
230 Mr Wylie submitted on behalf of the SPAR parties that MIS's claim that it suffered a loss in not being able to convert to the IGA banner from 1 September 2011 was based on an assumption of a one-off sales increase in the range of 10 to 30 per cent if MIS converted to IGA. He contended that this was an unproven assumption. It was common ground that the 10 per cent figure in this assumption underpinned the evidence of both Mr Aplin and MIS's independent expert, Mr Stuart Benjamin, in their assessments of MIS's loss or damage. Mr Aplin made clear that he adopted Mr Costanzo's advice that MIS could have that expectation. Mr Benjamin accepted under cross-examination that the level of damages he assessed was "fundamentally dependent on the level of growth in sales on conversion to IGA". He accepted that if a projected increase in sales within that range was not made good, MIS would not suffer any loss at all. Mr Benjamin also accepted under cross-examination that he did not undertake any comparison of the performance of the MIS store as an IGA store as opposed to how it would have performed if it had remained as a SPAR store. Rather he proceeded on the basis of an assumption that conversion to IGA would produce a one-off sales increase in the projected range described above.
231 Mr Wylie referred to, and relied upon, the expert evidence given by SPAR's independent expert, Mr Peter Haley, who concluded that MIS had not established that it suffered any loss or damage if it continued to be supplied by SPAR, save for the asserted one-off increase in gross sales, if MIS switched to IGA, an assertion which Mr Haley also criticised (see further below).
232 Before considering the parties' competing evidence relating to MIS's alleged loss, it is convenient to record that I accept that MIS cannot recover damages under s 82 of the CC Act unless it establishes on the balance of probabilities that it has suffered an actual loss which is attributable to the cross-respondents' conduct (see I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 at [45] per Gaudron, Gummow and Hayne JJ). I also accept that, if the Court finds that an actual loss has occurred, it must then do its best to quantify the loss even if a degree of speculation and guesswork is involved in that subsequent exercise. But that exercise only arises if the Court is satisfied on the balance of probabilities that MIS has suffered loss or damage by reason of the cross-respondents' contravening conduct (see Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 at 182-184 per Sheppard, Morling and Wilcox JJ and Williams and Hodgson Transport Pty Ltd v Castlemaine Tooheys Ltd (1985) 64 ALR 521 at 533 per Wilcox J).
233 For completeness, I should also record that I accept that there is a significant difference between ss 82 and 87 in that, while actual loss or damage has to be established in order to recover damages under the former provision, under the latter various forms of relief may be granted where loss or damage is likely to be suffered (see Wardley Australia at 526-527 per Mason CJ, Dawson, Gaudron and McHugh JJ).
234 I shall now deal with the parties' competing evidence relating to MIS's claim that it suffered loss or damage flowing from its inability to convert to IGA from the period 1 September 2011.
235 Mr Aplin gave evidence in the form of a witness statement dated 25 April 2012 as to that claim and he gave an assessment of the quantum of that loss. In his witness statement, Mr Aplin set out in some detail the methodology he used in quantifying MIS's net loss during the two relevant periods. As to the first period (i.e. 1 September 2011 to 1 December 2011), after allowance was made for MIS's costs of doing business during that period, Mr Aplin assessed its loss as a loss in net profit of $12,715.39. As to the second period, which primarily related to MIS's lost opportunity of participating as an IGA franchisee for the period from 1 December 2011 to 1 February 2016, after allowing for MIS's costs of doing business, Mr Aplin assessed MIS's loss in terms of a lost net profit of $212,808.14.
236 SPAR objected to some aspects of Mr Aplin's witness statement, but did not challenge his methodology. Nor did SPAR raise any general objection to Mr Aplin giving opinion evidence notwithstanding that his witness statement did not comply with the Court's expert protocol. But SPAR took a specific objection to paragraph 5(a) of the witness statement. That paragraph is part of Mr Aplin's calculation of the net profit he assessed would have been made by MIS if it had traded under the IGA banner. Mr Aplin's evidence was that, in undertaking his loss assessment, he relied on what Mr Costanzo had told him when Mr Costanzo was at IGA and sought to persuade Mr Aplin to convert the store to IGA. He said that Mr Costanzo told him that MIS could expect an increase of between 10 to 30 per cent in gross sales if it switched to IGA. Mr Aplin used the figure of 10 per cent i.e. at the bottom of that range, in assessing MIS's loss.
237 SPAR raised two objections to paragraph 5(a) of Mr Aplin's witness statement. The first was a hearsay objection. The second was an opinion objection, which was directed not at Mr Aplin's qualifications or expertise, but rather at Mr Costanzo's opinion (which was embodied in his representation to Mr Aplin that MIS could expect a one-off increase in gross sales in the range of 10 to 30 per cent if it converted to IGA). I understood the reference to Mr Costanzo's opinion to be a reference to the inference which Mr Costanzo drew from observed and communicable data relating to the sales performance of stores which had switched to the IGA banner (on the meaning of "opinion", see Allstate Life Insurance Co v Australia New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73 at 75 per Lindgren J).
238 I disallowed SPAR's hearsay and opinion objections to Mr Aplin's witness statement (save for that part of paragraph 5(a), which made reference to information being provided to Mr Aplin by unidentified former SPAR franchisees who had converted to IGA). I rejected the hearsay objection, relying upon s 64(3) of the Evidence Act 1995 (Cth) in circumstances where the representor, Mr Costanzo, had been called as a witness by SPAR. In my view, as the law stands at present (and in my view it was not demonstrated to be clearly wrong), that exception to the hearsay rule applies where the asserted fact involves a representation in the form of an opinion as to the existence of a fact (see Ringrow Pty Ltd v BP Australia Ltd (2003) 130 FCR 569 at [18] per Hely J; Australian Securities and Investments Commission v Rich (2005) 216 ALR 320 at [206] per Austin J; Connex Group Australia Pty Ltd v Butt [2004] NSWSC 379 at [3] per White J; Investmentsource Corporation Pty Limited v Knox Street Apartments Pty Limited [2007] NSWSC 1128 at [19]-[21] per McDougall J; Australian Competition and Consumer Commission v Cement Australia Pty Ltd (No 3) [2010] FCA 1131 at [96]-[97] per Greenwood J; Land Enviro Corp Pty Limited v HTT Huntley Heritage Pty Limited [2012] NSWSC 177 at [95] per Stevenson J and, see generally, the recent inconclusive doubts expressed as obiter dicta in Lithgow City Council v Jackson (2011) 244 CLR 352 at [17] per French CJ, Heydon and Bell JJ). SPAR had an opportunity to adduce evidence from Mr Costanzo (SPAR's own witness) regarding what Mr Aplin said he told him. SPAR never availed itself of that opportunity. (It might also be noted, for what it is worth, that SPAR never put to Mr Aplin that his evidence concerning what Mr Costanzo had told him was wrong).
239 As to SPAR's opinion objection, SPAR clarified in oral argument that the objection related to Mr Costanzo's opinion which was encapsulated in what he told Mr Aplin about MIS's expectation of a one-off increase in gross sales if it switched to the IGA banner. Mr Kirby (who appeared with Mr Wylie on behalf of the SPAR parties) submitted that Mr Costanzo's opinion was itself hearsay and that, accordingly, "the objection could probably stop there". This submission was made against the background of SPAR's written list of objections to evidence challenging paragraph 5(a) of Mr Aplin's statement on the basis of "hearsay and more remote hearsay of otherwise inadmissible lay opinions".
240 I have set out my reasons above for rejecting the hearsay objection. For completeness, and to the extent that Mr Kirby pressed SPAR's objection to Mr Costanzo's opinion (noting that this objection was not developed any further by him in oral argument), I also reject that objection having regard to Mr Costanzo's lengthy history in the Queensland supermarket industry and his considerable practical and specialised knowledge and experience of the operations of both IGA and SPAR franchised stores, including stores which he had successfully converted from SPAR to IGA during the second half of 2010 (see s 79 of the Evidence Act). I shall now outline the evidence which I consider sufficiently establishes Mr Costanzo's extensive practical knowledge and experience of the Queensland supermarket industry.
241 Mr Costanzo has had a long involvement in the Queensland supermarket industry. He is a fourth generation retailer, having owned and operated his own supermarket in the period around 2000. In April 2000 he took up employment with a company called Australian United Retailers, which later became known as FoodWorks. He worked there for approximately 6 years and, for the last 12 months of his employment there, he held the role of network development manager. In October 2006, Mr Costanzo moved to IGA. He held the position there of external banner manager, with responsibility for IGA's supply to non-IGA bannered stores in Queensland. His "primary" or "major" focus was to grow the IGA network by having stores convert to IGA. That necessarily brought him into contact with many stores, not only within the IGA chain, but also within those two rival chains which he targeted. There was extensive oral and written evidence highlighting Mr Costanzo's heavy involvement in seeking to persuade rival stores to switch to the IGA banner. For the last 12 to 18 months of his employment with IGA, Mr Costanzo was also one of IGA's senior property development managers, whose function was to build new IGA stores and find new retailers to occupy them. During this time he continued his role of converting rival stores to the IGA banner.
242 It is also evident that Mr Costanzo had knowledge of the Macleay Island store, not the least from his involvement during 2010 in seeking to persuade MIS to convert to IGA. He had many discussions with Mr Aplin on that subject and it was Mr Costanzo who signed IGA's letter of offer to MIS dated 13 September 2010 concerning its conversion to IGA.
243 SPAR tendered in evidence a series of emails prepared by Mr Costanzo in August 2010 (while he was at IGA) in which he identified various rival stores whom he targeted for conversion to IGA. In one such email, which included a spreadsheet specifying 20 targeted SPAR stores, Mr Costanzo said that he personally knew all those retailers and had had some dealings with them in the past and that he wished to be involved in the attempts to have them convert to IGA. The main two groups he sought to convert to become IGA bannered stores were stores aligned with SPAR or FoodWorks. It was also evident that Mr Costanzo enjoyed some success in successfully converting SPAR branded stores to IGA. Under cross-examination he said that he had successfully converted a minimum of 6 such stores in the period July to December 2010. He left IGA in December 2010 to take up a position with SPAR Australia as state manager for Queensland.
244 In my view, some significance should also attach to the fact that there was other evidence which supported Mr Costanzo's estimate that stores converting to IGA could expect to experience an increase in gross sales in the range 10 to 30 per cent. SPAR tendered a letter dated 24 August 2010 on IGA's letterhead and signed by IGA's general manager, Peter Love, which contained the following statement:
Stores that have converted to IGA over the past few years have all enjoyed a sales increase of over 15%, with many stores more than doubling this increase.
245 Mr Costanzo was clearly familiar with the contents of that letter. He forwarded a copy of it to Mr Love on 13 September 2010, confirming in the attached email that the letter had been sent to 28 SPAR stores. Mr Costanzo explained to Mr Love (who was his superior) that the letter was part of an entire program adopted by IGA to persuade SPAR stores on the "hit-list" to convert to IGA. The letter was admitted into evidence without objection.
246 In support of its claim for damages, MIS also relied on a report dated 26 April 2012 by Mr Stuart Benjamin, a chartered accountant and director of Lytras & Benjamin. Mr Benjamin gave evidence as an expert quantifying MIS's loss as a result of it being unable to convert to the IGA banner from 1 September 2011. His loss calculations were divided into two periods. The first period was between 1 September 2011 and 30 April 2012 (being the estimated date of the trial). The second period was between 1 May 2012 and 1 February 2016 (being the balance of the term of MIS's franchise agreement with IGA). In estimating MIS's losses during each of those periods, Mr Benjamin used three different figures, each reflecting an assumption made by him that, if MIS had converted to IGA, it would have enjoyed an increase in sales revenue of 10 per cent, 15 per cent or 30 per cent. Those assumptions were based in part upon paragraph 5(a) of Mr Aplin's witness statement dated 25 April 2012, which as noted above was based on what Mr Aplin had been told by Mr Costanzo (the SPAR parties challenged those parts of Mr Benjamin's report which relied on Mr Costanzo's representations to Mr Aplin, but the objection was overruled as described above). Using a figure of a 10 per cent increase in sales revenue, Mr Benjamin estimated that MIS's total net loss for the period from 1 September 2011 to 30 April 2012 was $21,172.00. Using that same figure of 10 per cent, he estimated that MIS's total net loss for the period 1 May 2012 to 31 January 2016 was $73,204.00. Thus Mr Benjamin's opinion was that MIS's total net loss for both periods was $94,376.00.
247 Mr Benjamin said that the basis of his use of the 10 per cent to 30 per cent range was both:
(a) paragraph 5(a) of Mr Aplin's witness statement dated 25 April 2012; and
(b) the statement in IGA's letter dated 24 August 2010, to the effect that stores which had converted to the IGA brand over the past few years had all enjoyed a sales increase of over 15 per cent, with many stores more than doubling that increase.
248 Mr Benjamin adopted a four stage methodology in forming his opinions. First, he set out the background facts to the proceedings. As Mr Perry SC submitted, those facts were largely uncontested except for the benefits which MIS said it expected to enjoy from switching to the IGA brand (including increased sales revenue as a result of higher brand awareness, generic product range and more competitive promotional pricing). Secondly, Mr Benjamin set out the assumptions he had made in forming his opinions, which included adopting that part of Mr Aplin's statement concerning an expectation that converting to the IGA banner would produce an increase in gross sales in the range of 10 to 30 per cent. Thirdly, Mr Benjamin calculated MIS's damages by carrying out a number of steps as described by him in paragraphs 5.1 to 5.18 of his report dated 26 April 2012. Finally, Mr Benjamin set out his detailed calculations leading up to his conclusions concerning MIS's loss and damages.
249 For the purposes of the cross-claim, the SPAR parties relied on a report in reply dated 7 May 2012 by Mr Peter Haley from Vincents Chartered Accountants. Mr Haley primarily responded to Mr Benjamin's report dated 26 April 2012, but he also commented to a lesser extent on Mr Aplin's witness statement. Mr Haley questioned the assumptions made by both Mr Aplin and Mr Benjamin that MIS would enjoy a one-off increase in sales if MIS switched to IGA. Mr Haley said that that assumption should not be made unless there was material identifying which particular stores had experienced such sales growth on converting to IGA. He also said that it was necessary to consider whether the Macleay Island MIS store in particular could have experienced such an increase and whether other factors contributed to the increases achieved by other stores converting to IGA.
250 Mr Haley said that, in his opinion, there was range of possible factors that might operate to increase the sales of any particular store on converting to another banner, including such matters as:
(a) whether the product offering would change and become more attractive;
(b) whether the increased sales would be driven by an increase in sales across the product range or be confined to low margin items;
(c) whether the increased sales would be driven by an increase in prices;
(d) whether the store would become more attractive to customers as a result of lower prices;
(e) whether the store has the demographic and geographical attachment to support such an increase in sales, bearing in mind that the Macleay Island store's catchment was limited to island residents and could not realistically draw on customers outside its immediate catchment area;
(f) whether the customer catchment area is expecting any increase in population;
(g) the history of the particular store, including Mr Haley's view that in the calendar year 2011 the Macleay Island store achieved increase in sales of 14.3 per cent over its sales in 2010 while acquiring its dry groceries from SPAR;
(h) whether the other stores which enjoyed an increase in gross sales upon converting to IGA also undertook a refurbishment or expansion at the time of their conversion, in circumstances where the Macleay Island store recently undertook a refurbishment which may have contributed to its 14.3 per cent increase in sales in 2011; and
(i) whether the other relevant stores contributing to the 10-30 per cent range undertook a "marketing blitz" upon conversion.
251 Mr Haley's evidence was that, based on his experience of valuing supermarkets, sales uplifts do not result from simply a change of banner or name.
252 A Joint Statement of Experts dated 9 May 2012 was also tendered in evidence. It recorded the outcome of a conclave between Mr Benjamin and Mr Haley and identified their points of disagreement. The most material point of disagreement related to Mr Benjamin's assumption that there would be an increase in sales revenue in the range 10 to 30 per cent if MIS converted to IGA. Mr Haley reiterated his criticism of that assumption as set out in paragraph 2.7 of his report in reply dated 7 May 2012. He also added that he doubted that there was any capacity for MIS to increase its sales if it switched to IGA having regard to Macleay Island's socio-economic demographics and his belief that "the vast majority of the immediate population are currently customers thereby suggesting there is little potential to increase sales by attracting more of the local population".
253 In the Joint Statement of Experts, Mr Benjamin accepted that the likelihood of an expected increase in sales revenue was not a matter within his expertise. He described it as "an operational and/or marketing matter". In other words, Mr Benjamin implicitly reiterated that he relied on Mr Aplin's evidence and IGA's letter dated 24 August 2010 in adopting and applying that range of figures.
254 Mr Aplin did not participate in the experts' conclave and, as noted above, the SPAR parties did not challenge his qualifications to express opinions on the quantification of MIS's loss. He was, however, cross-examined by Mr Wylie as to his adoption of Mr Costanzo's range. Mr Aplin rejected the proposition that he personally did not believe that there would be an uplift of sales in that range. He also rejected the proposition that he did not have any basis for a projected increase in sales of 10 to 30 per cent if MIS moved to IGA other than what Mr Costanzo told him. Mr Aplin's response to that proposition was as follows:
Well, I think there's - there's other factors at play, like brand awareness and price perception of consumers in our market. That would, in my view, be other factors that would indicate that I - I could expect an increase to justify the values that were given to me by John Costanzo. Price perception of the supermarket on Russell Island with our residents is quite - quite keen. People think that that store is very competitively priced. So aligning myself with - with the same banner would go a long way in giving people the same perception of price. Therefore, you know, I believe that we would anticipate that - that form of increase.
255 I accept that evidence. As noted above, I found Mr Aplin to be an honest and reliable witness. In attaching particular weight to Mr Aplin's evidence on these matters, I also take into account his extensive knowledge of, and involvement in, the retail supermarket industry in Queensland. Not only was he deeply involved in the operations of the MIS store on Macleay Island for the last few years, but he also had experience in the late 1990s through to 2002 in managing IGA stores in Rockhampton, Bundaberg, Loganholme and Thornlands. In the period 2002 to 2009 he was not directly involved in the operation of any IGA stores because he was then working as a systems consultant for Scanning Systems Australia (a business owned by Metcash which provided software and related services to independent grocery stores), but he gave evidence that, during that period, he had contact day-to-day contact with IGA retailers and provided advice on their retail systems and the technology aspects of their business. Under cross-examination he said that he had "a very good knowledge of how IGA operated at store level". He also said that he had worked as an employee at SPAR supermarkets.
256 In his witness statement dated 25 April 2012, Mr Aplin also described what he saw as the benefits of MIS converting to IGA. Paragraphs 19 and 20 of Mr Aplin's statement were as follows:
One of the benefits that MIS would obtain if converted to an IGA supermarket is the benefit of IGA group buying discounts. Various supplies to IGA known as charge-back suppliers offer more favourable trading conditions than the comparable SPAR suppliers. If MIS was an IGA store it could purchase directly from these charge-back suppliers at these more favourable trading conditions. I did not factor this benefit into the 'Purchase Price Comparison' spreadsheet referred to above.
Another benefit that MIS could obtain if it was an IGA supermarket is the benefit of IGA special promotional buying which because of the volume of purchases that IGA makes, results in lower supply costs to franchisees than are available from SPAR. An example is Bulla ice-cream which has been available from IGA for $2.99 to IGA franchisees but has never been available from SPAR to MIS for less than $3.99 per unit. I did not factor this benefit into the 'Purchase Price Comparison' spreadsheet referred to above.
257 I admitted that evidence over SPAR's objections. The basis for those objections was conclusion and opinion. In rejecting the objections I draw attention to the fact that, apart from it being general industry knowledge, evidence had been led in the proceedings that the larger wholesalers or integrated supermarket chains are able to take advantage of their greater scale and volume in order to provide higher rebates to their customers.
258 I accept Mr Aplin's evidence on these matters, which provides some further support for his acceptance of Mr Costanzo's advice that there would be a one-off increase in sales revenue if MIS switched to IGA and his adoption of the figure at the bottom of that range.
259 As noted above, Mr Wylie submitted that the cross-claimants had failed to establish any actual loss or damage in respect of this limb of their cross-claim concerning Mr Gale's representations. He said that that alone was sufficient to refuse relief under either or both ss 82 or 87 of the CC Act. He further contended that, even if some loss or damage was found, the Court should exercise its discretion under s 87 and not order any relief against his clients in circumstances where MIS "obtained a financially beneficial arrangement from SPAR on the basis of entry into a five year agreement, and continued to trade successfully throughout the period following, and up-following (sic) the representations and to date".
260 Mr Wylie submitted that there was no evidence underpinning the assumptions adopted by both Mr Aplin and Mr Benjamin that there would be an increase of gross sales in the range of 10 to 30 per cent if MIS converted to IGA. Mr Wylie also submitted that I should give no weight to Mr Benjamin's evidence because he failed to make any allowance for the fact that MIS had increased its sales revenue during both 2010 and 2011 while sourcing supplies from SPAR and that his calculations had been made on the basis of a zero base.
261 For the following reasons, I reject those submissions. First, as noted above, I overruled SPAR's objections to that part of Mr Aplin's witness statement which made reference to him taking into account Mr Costanzo's advice to him that MIS could expect an increase in gross sales in the range of 10 to 30 per cent. Mr Aplin was content to adopt and apply the bottom figure in that range in estimating MIS's loss. He concluded that MIS had suffered a net loss of $12,715.39 for the period 1 September 2011 to 1 December 2011. I accept Mr Aplin's evidence. I also accept Mr Benjamin's evidence that MIS suffered a financial loss by not being able to switch to IGA from 1 September 2011 up until 30 April 2012. As noted above in [246] Mr Benjamin quantified that net loss for the longer period as $21,172.00.
262 Secondly, I consider that IGA's letter dated 24 August 2010 provided additional support for Mr Costanzo's advice to Mr Aplin that there would be a one-off increase in gross sales of at least 10 per cent if MIS switched to IGA. That letter was tendered by SPAR. As noted above, that letter (which was sent to 28 SPAR stores whom IGA was targeting), contained a representation from IGA's general manager to the effect that all stores which had converted to IGA over the past few years had enjoyed a sales increase of over 15 per cent, with many such stores more than doubling that increase.
263 Thirdly, I do not accept Mr Wylie's submissions that no weight should attach to Mr Benjamin's evidence, taking into account Mr Haley's criticisms of it. Mr Haley's evidence did not establish that there would be no increase in gross sales in the range of 10 to 30 per cent if MIS switched to IGA. Rather, the burden of Mr Haley's evidence was to the effect that more detailed information was required in order to determine whether the range identified by both Mr Costanzo and also in IGA's letter dated 24 August 2010 was applicable to the Macleay Island store. Among the matters he said should be considered was whether MIS could achieve another large one-off increase in sales in circumstances where it had achieved an increase in sales in both 2010 and 2011 when it was acquiring dry groceries from SPAR. Mr Haley added that Mr Benjamin had also not made any discount for risk that the expected one-off increase in sales would not occur. But while he said that the effect of allowing for such risk "could be substantial", he nevertheless opined that "the risk attaching to the achievement of a 30 per cent increase is certainly greater than the risk attaching to the achievement of a 10 per cent increase in sales".
264 In my view, while there is some force in some of Mr Haley's criticisms, I do not consider that those criticisms warrant rejection of the entire range of the projected one-off increase in sales on conversion to IGA. They do cast doubt, however, on the reliability of the top figures in that range. But I do not regard those criticisms as undermining reliance on the figure which is at the bottom of Mr Costanzo's range. That is particularly the case where that figure is supported by IGA's letter dated 24 August 2010, as well as by Mr Aplin's evidence under cross-examination as to why he personally believed that there would be an uplift of at least 10 per cent if MIS switched to IGA.
265 For all these reasons, therefore, I find that MIS has established on the balance of probabilities that it did suffer an actual financial loss consequential upon its inability to operate as an IGA franchisee from 1 September 2011. As to the quantum of that loss, I accept Mr Aplin's evidence that the net loss was $12,715.39 for the period 1 September 2011 to 1 December 2011. I also accept Mr Benjamin's evidence that MIS's net loss for the period 1 September 2011 to 30 April 2012 was $21,172.00 (based on a one-off 10 per cent increase in sales). For reasons which I set out below, it is unnecessary to make any finding as to MIS's loss outside those periods.