Trampoline Enterprises Pty Ltd v Fresh Retailing Pty Ltd and Burra Foods Pty Ltd [2018] VCC 399

1 Fresh Retailing Pty Ltd (Fresh Retailing) owned the Trampoline franchise business, selling gelato and ice cream products. By an agreement dated 4 September 2013 Trampoline Enterprises Pty Ltd (Trampoline Enterprises) agreed to purchase the assets and business of the Trampoline franchise business from Fresh Retailing (the Asset sale and purchase agreement).[1] Pursuant to the Asset sale and purchase agreement the plaintiff took over a business with 12 existing Trampoline stores. Of those, six were 'company owned' stores (Brighton, Chadstone, Fitzroy, Knox, Southgate and St Kilda). The 'plant and equipment' sold under the Asset sale and purchase agreement comprised the plant and equipment at these company-owned stores.[2] The remaining six stores were franchised to third parties (Camberwell, Darwin, Darwin Waterfront, Doncaster, Malvern and Royal Children's Hospital).[3] Settlement of the sale of the business was to occur on the completion date, 30 September 2013 (the completion date).[4] A number of disputes have arisen between the parties in connection with the sale of the Trampoline franchise business by Fresh Retailing to Trampoline Enterprises.

2 Burra Foods Pty Ltd (Burra) is a milk processor. It buys milk from the farm gate and supplies ice cream pre-mix base for use in the Trampoline franchise business. Burra and Fresh Retailing are related parties. They have a common director, Grant Crothers (Crothers), and common ownership.

3 Burra collected milk off farm and pasteurised it. Burra added flavours and additives to the milk. The flavours came from half a dozen suppliers. The major supplier was PreGel. Burra purchased the additives from PreGel and PreGel would give Burra a rebate. Burra processed the milk and additives through its ESL plant (Extended Shelf Life) plant and packed it into 8.5 kilogram bladders which it put in a box. Burra would supply the finished, flavoured and coloured product to the Trampoline stores and Burra would pay a rebate to Trampoline Enterprises.[5]

4 The sole director of Trampoline Enterprises is Stan Gordon (Gordon). Gordon and Ryan Alain Maletsky (Maletsky) are the directors of Franchised Food Company Pty Ltd (Franchised Food Company). Franchised Food Company is a multi-brand franchisor which owns various brands including Cold Rock, Mr Whippy and Pretzel World. The Cold Rock franchise sells ice cream products from retail stores. Franchised Food Company now owns Trampoline Enterprises.[6] Maletsky is the chief financial officer of Trampoline Enterprises and Franchised Food Company.

5 Cold Rock and Trampoline are both in the ice cream business. Cold Rock sells ice-cream with confectionary mixed in. Trampoline sold a high end gelato which was a consistent product across the entire network of Trampoline stores.[7]

6 The Cold Rock franchise has about 110 stores across Australia. It has two stores in Vietnam and is about to open a further two businesses overseas.[8] Cold Rock has one supplier, Bulla Dairy Foods (Bulla), for its base mix.[9] Bulla supplies the base mix to five factories in four states who manufacture flavoured ice cream and deliver it to stores.[10] The franchisees then open up the ice cream and add confectionary to it in front of customers.[11] The franchisees pay royalties to Cold Rock of about six per cent. They pay a marketing levy of two per cent. Cold Rock also receives rebates from Bulla.

7 Crothers approached Gordon in mid-2013 with a proposal for Burra to supply the Cold Rock base mix.[12] Gordon had previously met Crothers in 2008 or 2009 when Gordon was trying to raise funds to purchase Cold Rock.[13]

8 In the course of those discussions, Gordon raised a different proposal, namely a proposal to buy the Trampoline franchise from Fresh Retailing.

9 Negotiations for the sale of the Trampoline franchise business were primarily conducted by:

(a) Amanda Walton (Walton) and her husband, Crothers, on behalf of Fresh Retailing as vendor; and

(b) Gordon on behalf of Trampoline Enterprises as purchaser. Maletsky, an accountant, became involved in some of the due diligence financial work.

10 The purchase price was $797,677 plus the Completion Net Working Capital.[14] The Asset sale and purchase agreement recorded the parties' agreement that the price of $797,677 was apportioned as follows: $503,650 for Plant and Equipment, $293,027 for Recipes and Goodwill, and $1000 for the balance of the Assets.[15] The purchase price was to be paid to Fresh Retailing in four instalments as set out in Schedule 12 of the Asset sale and purchase agreement. The final instalment of $200,000 was due on 28 February 2015.[16]

11 The "Completion Net Working Capital" was to be ascertained via the "Completion Statement". Under clause 11 of the Asset sale and purchase agreement the purchase price could be adjusted after completion (30 September 2013) depending primarily on the value of stock. Any disputes concerning the Completion Statement were to be determined by an Independent Accountant.[17]

12 The Asset sale and purchase agreement referred to the opening of a new franchised store in Craigieburn.[18] One of the Annexures to the Asset sale and purchase agreement was the "Earn Out Deed".[19] At one point the parties had been contemplating a purchase price of around $1 million, including the Craigieburn store, but at Gordon's request Craigieburn was separated out and 'sold' via the Earn Out Deed.[20]

13 At the same time Burra and Cold Rock entered into a "best endeavours" letter regarding potential future supply by Burra to Cold Rock.[21]

14 Disputes arose immediately after completion.

15 In February 2015 Trampoline Enterprises was due to pay Fresh Retailing $200,000 in respect of the final instalment of the purchase price. Trampoline Enterprises did not make that payment. Prior to this due date in November 2014, Trampoline Enterprises commenced this proceeding against Fresh Retailing and sought to set off various claims against that liability. The defendants contend that Trampoline Enterprises commenced this proceeding in November 2014 as a pre-emptive tactical manoeuvre to avoid paying the final instalment of the purchase price of $200,000 which, by then, was almost due.

16 The first trial date was vacated after an application by the plaintiff on the eve of trial to join Burra to the proceeding. The defendants filed a Further Amended Defence and Counterclaim in December 2015 (FADC). The plaintiff filed an Amended Reply and Defence to Counterclaim in January 2016 (ARD).

17 The second trial date was also vacated after an application made by Trampoline Enterprises for orders regarding the defendants' discovery which it alleged threatened to delay the plaintiff's expert report. The Court ordered both parties to make further discovery.

18 The trial was listed to commence on 8 May 2017. A few days before the trial, Trampoline Enterprises conceded Fresh Retailing's counterclaim for the final instalment payment (subject to a defence of set-off).

19 On day 8 of the trial, the plaintiff served a new expert report from its expert, Russell Munday (Munday). This led to the trial being adjourned part-heard.

20 Both sides agree that Gordon and Franchised Food Company have guaranteed the obligations of Trampoline Enterprises under the Asset sale and purchase agreement and the Earn Out Deed.

First claim - the plaintiff's challenge to the determination made by the Independent Accountant

21 The first dispute in time concerned the Completion Statement issued by Fresh Retailing on 7 October 2013.[22] The effect of the Completion Statement was to increase the purchase price by $102,765.78.

22 Clause 11 of the agreement contains a dispute resolution procedure. The key provisions are:

1. Completion Statement and Net Working Capital

11.1 The Seller must arrange for the preparation and delivery to the Purchaser of the Completion Statement as soon as possible and in any event within 5 Business Days after the Completion Date.

11.2 The Completion Statement must be prepared in the same format as the pro forma completion statement set out in Schedule 8.

...

11.4 For the purpose of the Completion Statement:

(1) the Stock Value is to be calculated in accordance with clause 5; and

(2) Prepayments are to be valued at their face value (including GST).

11.5 The Purchaser has 5 Business Days to review the Completion Statement after it has been delivered to the Purchaser in accordance with clause 11.1 (Review Period).

11.6 If the Purchaser disputes any aspect of the Completion Statement, it must give the Seller a written notice within the Review Period, specifying:

(1) each item in the Completion Statement that it disputes;

(2) the grounds on which it disputes the item; and

(3) the proposed adjustment to the item.

...

11.10 The Purchaser must not dispute any item or the calculation of any single item in the Completion Statement unless the sum in dispute exceeds $500.

11.11 If the Seller and the Purchaser fail to resolve any dispute within 5 Business Days after the Purchaser notifies the Seller under clause 11.6 or any longer period which may be agreed between the Seller and the Purchaser, the dispute may be submitted for determination by the Independent Accountants on the reference of either the Seller or the Purchaser (with notice of reference to the other).

11.12 The Independent Accountants must be appointed to act on the following basis:

(1) the Independent Accountants must act as experts and not as arbitrators;

(2) the Independent Accountants must determine the matter in dispute as soon as possible and in any event within 10 Business Days after their appointment;

(3) the Purchaser and the Seller:

(a) must provide the Independent Accountants with all information the Independent Accountants reasonably require;

(b) are entitled to make written submissions to the Independent Accountants; and

(c) must provide the other with a copy of all information provided and submissions made to the Independent Accountants;

(4) the Independent Accountants are entitled (to the extent they consider it appropriate) to base their opinion on the information provided and submissions made by the Purchaser and the Seller and on the Business Records;

...

(6) the determination of the Independent Accountants is (in the absence of manifest error) conclusive and binding on the Seller and the Purchaser, and the Completion Statement adjusted to reflect the determination of the Independent Accountants is final and conclusive of all matters stated in it;

... .

(a) The Completion Date under the Asset sale and purchase agreement was 30 September 2013.[23]

(b) On 7 October 2013, Fresh Retailing delivered the Completion Statement.[24]

(c) On 11 October 2013 the plaintiff gave written notice to Fresh Retailing of disputed items in the Completion Statement.[25]

(d) On 8 November 2013, the dispute was submitted to the Independent Accountant, Piera Murone of Pitcher Partners (Ms Murone) for expert determination.[26] Ms Murone's letter of engagement stated:

Our procedures and enquiries will not include verification work nor constitute an audit or a review in accordance with generally accepted auditing standards or statements on standards for accounting and review services, respectively.[27]

24 Each of Fresh Retailing and Trampoline Enterprises provided submissions to Ms Murone.[28]

25 On 21 November 2013, Ms Murone delivered a draft report for confirmation of facts.[29]

26 Each of Trampoline Enterprises and Fresh Retailing provided responses to Ms Murone.[30]

27 Ms Murone delivered her determination for the purpose of clause 11.12(2) of the Asset sale and purchase agreement on 25 November 2013.[31] The effect of Ms Murone's determination (the Determination) was that Trampoline Enterprises was required to pay Fresh Retailing $93,981.23.

28 On 2 December 2013 Trampoline Enterprises paid Fresh Retailing the sum of $93,981.23 under protest.[32]

29 On 23 December 2013 Trampoline Enterprises demanded repayment of part of that sum, namely $83,878.76.[33]

30 In Australian Broadcasting Commission v Australasian Performing Right Association Ltd Gibbs J stated:

It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another.[34]

31 In interpreting commercial documents, a common sense approach is taken. It is presumed that the parties did not intend their contract to operate in an unreasonable way.[35]

32 In Legal & General Life of Australia Ltd v A Hudson Pty Ltd[36] the New South Wales Court of Appeal considered a term in a rental revision clause in a commercial lease which provided that where the lessor and lessee were unable to agree, a qualified valuer acting as an expert should determine the "amount of the current annual open market value of the demised premises". McHugh JA stated:

...the question whether a valuation is binding upon the parties depends in the first instance upon the terms of the contract, express or implied. ... a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract.

33 In Email Ltd v Robert Bray (Langwarrin) Pty Ltd[37] the Full Court of Victoria held that a valuation could not be attacked upon the ground that relevant matters had been disregarded or irrelevant matters considered. The Court was of the opinion that the parties were bound by the valuation "unless the assessment is vitiated by fraud, collusion or mistake."

34 In this case, the Asset sale and purchase agreement provides that a determination is conclusive and binding absent "manifest error". In Funtastic Ltd v Madman Film and Media Pty Ltd (Funtastic)[38] Almond J considered a clause in a share sale agreement which provided that the decision of the Independent Accountant "is, in the absence of manifest error, conclusive and binding on the parties." Almond J set out the following principles in relation to 'manifest error':

1. The term 'manifest error' is not defined in the SSA (share sale agreement). Its meaning is to be determined following established principles of contractual interpretation. In the present context, the term must be given its ordinary commercial meaning, shaped by reference to what a reasonable business person would understand it to mean, having regard to the background, context and commercial purpose or objects of the contract.
2. The Oxford English Dictionary defines 'manifest' as 'clear or obvious to the eye or mind'. The Macquarie Dictionary similarly defines 'manifest' as 'readily perceived by the eye or the understanding; evident; obvious; apparent; plain'. A 'manifest error' in the context of arbitral awards liable to be set aside for 'manifest error of law on the face of the award' has been variously described as an error that is 'apparent to the understanding of the reader', 'obvious rather than arguable', 'easily demonstrable without extensive investigation', 'an oversight [or] blunder so obvious as to admit no difference in opinion' or 'apparent to the judge upon a mere perusal of the reasoned award'. It is clear that an error that is 'abstruse, obscure or inconsequential' will not fall within the definition of 'manifest error'.
3. The object and context of the Independent Accountant's appointment also informs the meaning of 'manifest error'. Here, the Independent Accountant was appointed as an expert, not an arbitrator, in order to provide an expeditious and cost-effective means of resolving disagreements with respect to the draft Completion Accounts. For this confined purpose, the parties eschewed the more formal rules and procedures of arbitration or curial process. Instead, they agreed to rely on the expertise and skill of the Independent Accountant, a highly experienced person in the field. The parties granted to the Independent Accountant a wide discretion to decide matters of procedure for determination of the draft Completion Accounts and were required to give all reasonable assistance requested by the Independent Accountant. The SSA contained a tight timetable for the provision of submissions and preparation of the Independent Accountant's report. The parties were required to instruct the Independent Accountant to make a decision on the disagreement as soon as practicable after receiving any submissions from the parties. It is evident that there was an emphasis on expedition and prompt resolution of disagreements regarding the draft Completion Accounts. I am satisfied that in the present context, having regard to the evident objectives and the limited subject matter to be addressed by the Independent Accountant, 'manifest error' in the SSA is confined to clear and obvious errors.[39] (citations omitted)(emphasis mine)

35 Similarly in this case the Asset sale and purchase agreement provides that the Independent Accountants were appointed as experts and must determine the matter in dispute as soon as possible and in any event within 10 Business Days after their appointment.

Admissibility of Ms Murone's statement dated 2 November 2016

36 Ms Murone made a statement dated 2 November 2016 (Ms Murone's statement) in response to an invitation from Fresh Retailing to reply to the allegations made in this proceeding by Trampoline Enterprises. The plaintiff objected to the tender of Ms Murone's statement. Ms Murone's statement was marked for identification. Trampoline Enterprises submits that the report is not admissible.

37 The defence submits that Ms Murone's statement ought be seen as a supplement to the determination she issued in 2013 and received into evidence.

38 In my view Ms Murone's statement is not admissible. In TX Australia Pty Limited v Broadcast Australia Pty Limited[40] Brereton J said that the key requirement is that the error be apparent "upon the face of the Expert's determination and accompanying reasons." Clause 1.12(6) of the Asset Sale and purchase agreement provides that the determination of the Independent Accountant is final and conclusive in the absence of manifest error. These words have been used to avoid the need for the Court to consider further material which was not part of the Independent Accountants' determination and accompanying reasons.

Did the Independent Accountant make a manifest error?

39 Trampoline Enterprises challenges Ms Murone's Determination in part. Trampoline Enterprises contends that Ms Murone's determination "contained a manifest error" in relation to valuation of stock, marketing material and employee entitlements.

40 Trampoline Enterprises disputed the following items in relation to stock:

"(i) The vendor spent $9,915.54 on product purchased from a related party just prior to settlement. This product had not been paid for prior to settlement and title had not passed at that time. Accordingly, it was not "owned" by the vendor for the purposes of preparing the completion statement. This was the subject of paragraph 3.1.1(b) of the Determination.

(ii) $3,486.40 for obsolete stock that was not of merchantable quality. This was the subject of paragraph 3.1.1(c) of the Determination. The manifest error relates to part of the $10,986.57 referred to in that part of the Determination.

(iii) The corporate stores were overstocked with product worth $9,781 prior to settlement with product that was not "owned' by the Vendor for the purposes of preparing the Completion Statement. This was the subject of paragraph 3.1.1(d) of the Determination.[41]

41 In relation to the stock referred to in paragraphs (i) and (iii), the plaintiff submits that Ms Murone had to consider whether the stock was in fact owned by the vendor. The plaintiff submits that the ownership items were the subject of a retention of title clause, had not been paid for and were not owned by the vendor as a matter of law. The plaintiff also submitted that Ms Murone incorrectly referred to the provisions made for creditors in the accounts.

42 In the Asset sale and purchase agreement, "stock" is defined in clause 1.1(77) to mean:[42]

All inventory used or intended for use in connection with the Business which is owned by the Seller (including raw materials, components, work-in-progress, finished goods, packaging, advertising and marketing materials, catalogues, stationery and spare parts and including items in transit from a supplier)

43 Clause 5 of the Asset sale and purchase agreement[43] provides:

5 Stocktake and Stock valuation

5.1 For the purposes of calculating the Completion Net Working Capital, Stock will be valued in accordance with this clause 5.

5.2 The Seller must carry out a full physical stocktake of Stock immediately after the close of business on the last Business Day prior to the Completion Date in the presence of representatives of the Purchaser and compile a complete list of Stock (Stock List) ascribing values to each item of Stock listed in the Stock List in accordance with clause 5.4.

5.3 The Seller must provide a copy of the Stock List to the Purchaser on its completion (within 5 Business Days of the Completion Date) together with the Seller's calculation of the value of Stock with reference to clause 5.4 (Stock Value).

5.4 All Stock must be valued as follows:

(1) raw materials, components, packaging, advertising and marketing materials, catalogues, stationery and spare parts must be valued at invoice cost (including freight and cartage and any taxes and duties on it as specified in the invoice);

(2) ice cream mix and finished goods must be valued at invoice cost (including freight and cartage and any taxes and duties on it as specified in the invoice) plus the cost of manufacture of these goods. If this cannot be easily determined, the parties agree that the cost per litre of finished ice cream or ice cream mix is $8.00 per litre; and

(3) out of date and obsolete stock will be given nil value; and

(4) packaging, advertising and marketing materials, catalogues and stationery that are unusable will be given nil value.

5.5 The Seller and the Purchaser must use their reasonable endeavours to ensure that the stocktake of Stock is completed and the Stock List is settled prior to Completion.

44 I do not accept the plaintiff's submission in relation to the ownership items. The plaintiff pleads that Ms Murone erred in that she took into account irrelevant matters[44] and ignored other matters which she was required to take into account.[45] As stated by McHugh JA in Legal & General Life of Australia Ltd v A Hudson Pty Ltd,[46] these are not relevant grounds of challenge.

45 In Funtastic Almond J stated that having regard to the evident objectives of the Asset sale and purchase agreement, manifest error in is confined to "clear and obvious errors".[47] The onus is on the plaintiff to demonstrate "manifest error". The plaintiff has not pointed to any specific paragraph or sentence in the Determination which reveals "manifest error". Ms Murone's Determination includes an explanation of her reasons for rejecting the plaintiff's complaint in relation to the ownership items.

46 Ms Murone stated in the Determination that the stock was physically present during the stocktake. The plaintiff did not dispute the stocktakes. The plaintiff submitted that the Completion Statement contained allegedly unverified assertions as to ownership of the stock present at the physical stocktake.

47 I do not accept the plaintiff's submission that Ms Murone should look behind the Completion Statement and seek verification of the allegedly unverified assertions and that in the absence of such verification she was required to exclude the ownership items from the Completion Statement. Clause 11.12(4) of the Asset sale and purchase agreement provides that the Independent Accountant was "entitled (to the extent they consider it appropriate) to base their opinion on the information provided and submissions made by the Purchaser and the Seller and on the Business Records".

48 An engagement letter dated 8 November 2013 was signed by Ms Murone and accepted by Gordon on behalf of Trampoline Enterprises.[48] In that letter Ms Murone stated that "you have requested Pitcher Partners Transaction Services Pty Ltd (Pitcher Partners Transaction Services) act as the independent Accountant in this matter. In doing so, Pitcher Partners Transaction Services will act as an expert and not an arbitrator." The letter of engagement stated that "our procedures and enquiries will not include verification work nor constitute an audit or a review in accordance with generally accepted auditing standards or statements on standards for accounting and review services, respectively."[49]

49 I am not satisfied that the Determination contained a clear and obvious error in relation to the ownership items.[50]

50 In paragraph 3.3.1(c) of the Determination[51] Ms Murone stated:

In opining on the item of obsolete stock and counting discrepancies, I had regard to the following:

- The Purchaser identified obsolete stock in the dispute notice and therefore this item is categorised as a dispute item.

- Clause 11.10 provides that the Purchaser must not dispute an item or a calculation of any single item in the Completion Statement unless the sum in dispute exceeds $500.

With the exception of an amount of $2,191.97 in relation to Southgate conceded by the Seller, all other items were below $500.

While I accept that clause 5.4(3) of the Agreement states that "out of date stock will be given nil value", the question of whether the items are obsolete is a disputed item and therefore falls under clause 11.10. As such, I am of the opinion that the items cannot be disputed and therefore should remain within the Completion Statement.

In any event, I have not been provided with any evidence that the items identified by the Purchaser as being obsolete were identified and agreed upon by the parties at the stock take.

51 Ms Murone was entitled to take into account the terms of the Asset sale and purchase agreement which included clause 11.10 that "The Purchaser must not dispute an item or the calculation of any single item in the Completion Statement unless the sum in dispute exceeds $500." I accept the first defendant's submission that the plaintiff is required to overcome this finding by Ms Murone for its claim to be successful and that the plaintiff has not purported to do so. I am not satisfied that the Determination by Ms Murone contains a manifest error in relation to obsolete stock.

52 In relation to marketing material, the plaintiff made submissions to Ms Murone that stock should be reduced because:

i. certain marketing material was not in fact owned by Fresh Retailing (valued at $20,263) (ownership items);

ii. certain other marketing material had been destroyed by Fresh Retailing (valued at $16,516.45) (destroyed items).[52]

53 In Section 4 of the Determination,[53] Ms Murone addressed each of the ownership items and the destroyed items. In each instance Ms Murone rejected the plaintiff's complaints and did not reduce the stock after considering the plaintiff's complaints.

54 Ms Murone explained her reasons for rejecting the plaintiff's complaints. The Determination does not reveal a clear and obvious error. I am not satisfied that the Determination contains a "manifest error" in relation to the marketing material.

55 Ms Murone deals with employee entitlements in section 6 of the Determination.

6.1.1 The Purchaser is claiming that the purchase price should be reduced for amounts relating to employee entitlements.

6.1.2 The Purchaser has submitted that agreement was reached to include Employee Entitlements in the Completion Statement and referred the Independent Accountant to email correspondence in section 15.1 of the Purchaser's submission.

6.1.3 However, my review of the Agreement indicates that the Completion Statement refers only to Stock and Prepayments. Items relating to employees are separately dealt with in clause 14 of the Agreement.

6.1.4 Therefore I have not provided an opinion on this matter as it falls outside the scope of the Independent Accountant.

56 The plaintiff submits that the parties varied the Asset sale and purchase agreement in respect of two employees, Katie Malempre and David Moore. The plaintiff submits that there should have been an adjustment for these two employees because although Fresh Retailing paid them in lieu of leave, they still received their holidays. The plaintiff submits that there should have been an adjustment for these two employees as part of the clause 11 process.

57 During its closing address, the plaintiff referred to the emails passing between Gordon and Walton on 23 - 24 September 2013 regarding employee entitlements and contended that they gave rise to a variation of the Asset sale and purchase agreement. The legal characterisation of these emails was not pleaded. The plaintiff submits that Ms Murone's refusal to do so because it was not what was in the original Asset sale and purchase agreement was a manifest error because the Asset sale and purchase agreement had been relevantly varied. The allegation that the Asset sale and purchase agreement had been varied was not pleaded. In any event, clause 25.8 of the Asset sale and purchase agreement provides that an "amendment or variation to this Agreement is not effective unless it is in writing and signed by the parties."

58 In its written submissions, the plaintiff repeated the submissions it made to Ms Murone. In my view the Determination by Ms Murone in relation to employee entitlements does not contain a "manifest error".

59 The plaintiff claims that the Determination contained a manifest error in that it included $5,308.20 for Fro Yo Yoghurt soft serve powder cost which was unmarketable and obsolete.

60 In paragraph 3.1.1(c) of the Determination[54] Ms Murone stated:

Stock not fit for purpose. The Purchaser is claiming that the frozen yoghurt product is not fit for purpose and should therefore be removed from Stock. The Purchaser is also questioning whether the product has been paid for as at the date of settlement and therefore "owned".

61 Ms Murone addressed the Fro Yo Yoghurt dispute in Section 3 of the Determination. Ms Murone rejected the plaintiff's complaint and did not reduce the Stock value.

62 Ms Murone's findings in relation to the Fro Yo Yoghurt soft serve powder are contained in paragraph 3.3.1(c) of the Determination. Ms Murone stated:

In opining on the frozen yoghurt product, I had regard to the definition of Stock in the Agreement as previously defined. The frozen yoghurt was physically present during the stock take and it was for use or intended use within the Business. Furthermore, as stated previously, as the Seller has retained the liability pertaining to this product, I am of the opinion that the product is owned and should be incorporated in the definition of Stock.

Furthermore, I had regard to findings of J L Lennard in their report dated 11 November 2013. J L Lennard tested the frozen yoghurt machine and opined as follows:

"checked machine components and re-set visc. Replaced damaged scraper blades. Due to viscosity of the raw product, feed tubes can't be used to allow correct operation. Final product temp -7.3°C@visc of 3.6, product consistency good. Advised maintenance procedures and care for scraper blades."

In addition, J L Lennard checked electrical, manual handling and slips, trips and falls and rated each of these at a 3, which was defined as moderate.

As such, I consider it appropriate that the frozen yoghurt be included in Stock in the Completion Statement.

63 The plaintiff pleads that Ms Murone erred in that she failed to take into account relevant considerations which she was required to address, relevantly that the Fro Yo Yoghurt powder was stock that was "unmarketable" and "obsolete".[55] These are not valid grounds of challenge.[56] In any event the findings made by Ms Murone in the determination indicate that Ms Murone did take into account the plaintiff's complaint that the Fro Yo Yoghurt powder was not fit for purpose. This was not a "manifest error".

64 In my view the plaintiff has not demonstrated a "manifest error" in relation to Fro Yo Yoghurt powder.

65 I refuse the plaintiff's application for an order setting aside the Independent Accountant's Determination. Having regard to the matters set out in the above paragraphs 22-64, the plaintiff's claim for payment of the sum of $83,878.76 for moneys had and received is dismissed.

Second Claim - the plaintiff's claim for damages for defective Fro Yo Yoghurt soft serve powder

66 In paragraph 20 of the ASC the plaintiff pleads that there were express and implied terms of the Asset sale and purchase agreement that the Fro Yo Yoghurt soft serve powder would be fit for purpose and of merchantable quality.

67 As discussed in the above paragraphs 59 - 63, one of the complaints made by the plaintiff to Ms Murone was that the Fro Yo Yoghurt soft serve powder was defective and not fit for purpose.

68 It is clear from the emails passing between the plaintiff and the defendant that the parties referred the dispute about the Fro Yo Yoghurt soft serve powder to Ms Murone for determination. On 31 October 2013 Gordon advised Walton that "we will rely on this email chain with respect to the Completion Statement".[57] On 11 November 2013 Walton forwarded an email to Gordon which states:

We trialled the yoghurt powder from Maltra Foods this morning with Josh and JL Lennard.

The JL Lennard representative possibly was not made aware of the unique nature of the product when it was last trialled, but the product performed perfectly today with very slightly modified settings suited to the product viscosity and ingredients. His assessment was that the product consistency was good and there were no issues with freezing. He commented that the flavour and texture were very good.

We therefore consider the product to be 'useable' and this assessment will be submitted to Piera. (emphasis mine)[58]

69 On 11 November 2013 Walton forwarded an email to Ms Murone stating:

Please find attached the additional report (which I referred to in our submission) relating to stock of yoghurt mix - an item disputed by FFCo/Trampoline Enterprises with a value of $5,308.20 in the stocktake line. Could you please add this report to our submission.

JL Lennard is the authorised service representative for the Soft Serve machine located in the Brighton store and in which the soft serve yoghurt is made.

There were no issues with the product trialled today at the Brighton store, so viewed in conjunction with the report from the supplier, Maltra foods, it can be concluded that this product is not faulty as claimed by FFCo/Trampoline Enterprises, and is not out of date or obsolete (as per Clause 5.4(3) of the SPA). The same serviceman compiled the report which will be submitted by Trampoline Enterprises, but he has acknowledged that due to the unique nature of the product the machine may not have been calibrated correctly when he conducted his first trial.

A FFCo representative (Josh Raatz) was present at the trial today and has signed off the attached report stating that the product consistency was good.

I will add this report and copy this email to Stan when I send our submission to him. Please let me know if you require clarification in relation to this matter.[59]

70 As clause 11.12(6) of the Asset sale and purchase agreement provides that the determination of the Independent Accountant is conclusive and binding on the seller and the purchaser, the first question to be determined is whether Ms Murone's determination precludes the plaintiff from advancing this claim in a different form as a claim for damages for breach.

71 In my view the plaintiff's claim in relation to the Fro Yo Yoghurt soft serve powder has been determined by the Independent Accountant. Ms Murone's determination is "conclusive and binding" and precludes the plaintiff from raising that dispute in these proceedings as a claim for damages for breach of contract.

72 The plaintiff alleges that "the term in respect of the Fro Yo Yoghurt soft serve powder is express and is contained in Clause 5.1 of the Seller's Warranties set out in Schedule 1 to the Agreement and which are the subject of the express warranty in Clause 19 thereof."[60]

73 Clause 19 of the Asset sale and purchase agreement provides:

19.1 The Seller represents and warrants to the Purchaser that each Seller Warranty is true and accurate on the date of this Agreement (except that a [sic] Seller Warranty which states it is made as at the date specified). Each Seller Warranty is a separate warranty in no way limited by any other Seller Warranty.

19.2 The Seller acknowledges that the Purchaser has entered into this agreement and will complete this agreement in reliance on the Seller Warranties.

19.3 The Seller indemnifies the Purchaser against all Loss or Claim arising from or connected with a breach of any Seller Warranty. The Seller's liability under this indemnity is limited in the same manner as its liability is limited under clause 20.

74 The Seller Warranties are contained in Schedule 1 of the Asset sale and purchase agreement.[61] Clause 5 states:

5.1 The Stock (including its packaging) is of merchantable quality and fit for its intended purpose.

75 The Asset sale and purchase agreement contains the following provisions governing any claims made by the purchaser under the Seller Warranties:

20.6 The Purchaser must give notice of a claim under the Seller Warranties setting out details then known to the Purchaser, including:

(1) details of the facts, matters and circumstance giving rise to the breach;

(2) the nature of the breach; and

(3) to the extent it is reasonably able to do so, the Purchaser's estimate of the Loss suffered;

within 20 Business Days of first becoming aware of the facts, matters or circumstance giving rise to the claim.

20.7 Despite any other provision of this Agreement:

(1) the Seller is not liable for any breach of any Seller Warranty unless:

(a) notice of a claim against the Seller is given by the Purchaser to the Seller before the Claims Expiry Date.

(b) within 6 months after the Seller has received the notice, the claim has either been:

(i) admitted or satisfied by the Seller;

(ii) withdrawn by the Purchaser;

(iii) settled between the Seller and the Purchaser; or

(iv) referred to a court of competent jurisdiction by the Purchaser properly issuing and validly serving legal proceedings against the Seller in relation to the claim.

Otherwise, the claim is taken to be waived or withdrawn and is barred and unenforceable.

(2) The maximum aggregate amount that the Purchaser may recover from the Seller (whether by way of damages or otherwise) for all breaches of the Seller Warranties is an amount equal to $250,000.

(3) The Seller is not liable for any breach of any Seller Warranty:

(a) unless the amount Finally Adjudicated against or agreed by the Seller in respect of the breach exceeds $10,000 (Qualifying Claim); and

(b) until the total of all amounts Finally Adjudicated against or agreed by the Seller in respect of all Qualifying Claims exceeds $25,000.

76 Clause 1.1(12) defines Claims Expiry Date to mean 29 August 2015.[62]

77 The plaintiff bears the onus of proof. The plaintiff did not refer to clauses 20.6 and 20.7 in its pleadings or in its oral or written submissions. The Court has not been assisted by submissions as to whether these provisions have been satisfied.

78 Even if it can be said that the preconditions set out in clauses 20.6 and 20.7 of the Asset sale and purchase agreement have been satisfied, the plaintiff pleaded in the ASC:

1. By reason of Fresh Retailing's breaches of the Agreement relating to the Fro Yo Yoghurt soft serve powder, the plaintiff has suffered loss and damage.

PARTICULARS

Cost of Fro Yo Yoghurt soft serve powder is $5,308.20.

79 The plaintiff's claim was denied by the defendant in paragraph 23 of the FADC. In these circumstances it does not appear that the amount "finally adjudicated against or agreed by the Seller in respect of the breach exceeds $10,000."

80 Having regard to the matters set out in the above paragraphs 72-79, Fresh Retailing is not liable for any breach of the Seller Warranties.

81 As alleged by the plaintiff in the particulars to paragraph 20, the term contained in Clause 5.1 of the Seller Warranties is an express agreement between the parties. As Clause 5.1 incorporates the implied conditions as to quality and fitness, it is not necessary for me to consider whether the conditions set out in s19(a) and (b) of the Goods Act 1958 (Goods Act) should in this context be implied in the Asset sale and purchase agreement.

82 In any event, I am not satisfied that the Fro Yo Yoghurt powder was defective and not fit for purpose.

83 Before the Asset sale and purchase agreement, Fresh Retailing sold a yoghurt product from its Brighton Trampoline store.[63]

84 About four months before Fresh Retailing entered into the Asset sale and purchase agreement, the original supplier told Fresh Retailing that they would no longer manufacture the product.[64] Fresh Retailing engaged Ramela Pty Ltd trading as Maltra Foods (Maltra Foods) to supply the product. On 16 September 2013 Maltra Foods issued an invoice and the yoghurt powder was delivered and paid for on 30 September 2013.[65]

85 On 3 October 2013 Trampoline Enterprises reported that the product was used in the soft serve machine which caused the machine to malfunction.[66]

86 Emails regarding the yoghurt powder were exchanged between Gordon, Kaisey Rizk (Rizk) and Walton between 23 - 31 October 2013.[67] Ms Walton was trying to organise testing of the yoghurt powder off-site at Maltra Foods.

87 On 11 November 2013 JL Lennard, the company responsible for selling and servicing the machine, attended the Brighton store to test the yoghurt powder in the presence of Walton and Josh Raatz (Raatz), a member of the operations team working for Rizk at Franchised Food Company[68]. JL Lennard's findings are referred to in the above paragraph 62.

88 Mr Gordon said that he was not able to use the product at all.[69]

89 Walton gave evidence that the Fro Yo Yoghurt was a good product and that the machine worked.[70] She referred to the statement by JL Lennard which was signed by Raatz who attended the inspection. The statement said that the product consistency was good.[71]

I... asked that I could meet the JL Lennard, which was the equipment supplier's representative in store personally with a member of the Franchised Food Company team, an operations person - I believe it was Josh Raatz - and so that we could verify for ourselves whether or not it worked, so the steps that I took was - because I was told it didn't work but I didn't believe it didn't work because I knew that it worked, so we were in store and Josh signed off on a statement from JL Lennard which basically said it's an ice product and you may need - maybe you need to take the air intake hose out.[72]

91 The plaintiff submits that the air intake hose is used to aerate the ice cream product. This "solution" meant that there was no longer air being injected into the product and it was too dense.

92 I prefer the evidence of Walton to Gordon. Walton's evidence is supported by the statement by JL Lennard that the product consistency was good. The plaintiff did not call expert evidence or Raatz. In these circumstances I am able to draw the inference that that evidence would not have assisted the plaintiff's case. Having considered the whole of the evidence, I am not satisfied on a balance of probabilities that the Fro Yo Yoghurt soft serve powder was defective.

93 In view of the matters set out in the above paragraphs 66 to 92, the plaintiff's claim that the Fro Yo Yoghurt soft serve powder was not fit for purpose or of merchantable quality is dismissed.

Third claim - Fresh Retailing's counterclaim for damages regarding the St Kilda store bank guarantee

94 The next dispute in time concerned the premises at 85 Acland Street St Kilda (the St Kilda store). The St Kilda store was a corporate store conducted by Fresh Retailing and transferred to Trampoline Enterprises pursuant to the terms of the Asset sale and purchase agreement.

95 The landlords of the St Kilda store were Godel Nominees Pty Ltd and Sreca Investments Pty Ltd (the landlord).[73] In April 2005 a lease of the St Kilda store was entered into by the landlords and the original tenant (Multi Ausindo Trading Pty Ltd) for a five year period commencing on 6 September 2004 (the 2005 lease).[74]

96 By Deed of Assignment (the Deed of Assignment) dated 29 July 2005 Multi Ausindo Trading Pty Ltd assigned the lease of the St Kilda store to Fresh Retailing.[75] The assignment of the 2005 lease was referred to in clause 11 of Schedule 5 of the Asset sale and purchase agreement. Clause 7 of the Deed of Assignment provides:

The Assignee hereby agrees to provide to the Landlord on the date hereof a Bank Guarantee in a form acceptable to the Landlord for the amount of $18,000.00 to be held by the Landlord as a security deposit. The Landlord may use the security deposit or any part of the security deposit to make good the cost of remedying breaches of the Assignee's obligations under the Lease. After the Lease has ended and the Assignee has vacated the premises, the Landlord must return to the Assignee within seven days the Bank Guarantee for the unused part of the security deposit.

97 Westpac Banking Corporation provided a bank guarantee in the sum of $18,000 to the landlord at the request of GWCB Holdings Pty Ltd. (a company related to Fresh Retailing) to secure Fresh Retailing's obligations to the landlords under the St Kilda lease.[76] GWCB Holdings Pty Ltd made that request pursuant to an agreement with Fresh Retailing.

98 Fresh Retailing claims that Trampoline Enterprises has failed and/or refused to provide a substitute for the bank guarantee in breach of Trampoline Enterprises' obligation under clause 6.3 of the Asset sale and purchase agreement.

99 The relevant provisions relating to this dispute in the Asset sale and purchase agreement are:

1.1(50) Landlord Approval means obtaining advice or confirmation in writing from each of the Landlords and the Landlord's Mortgagee(s)(if any) that the relevant Landlord consents to the assignment of each Property Lease from the Seller to the Purchaser or the Purchaser's nominee;

1.1(51) Landlord Approval Date means 28 February 2014;

...

1.1(53) Lease Securities means the bank guarantees, security deposits, parent company guarantees and personal guarantees or other form of security provided to secure the obligations of the Seller under the Property Leases, including the securities specified in Schedule 11.

Schedule 11 - Lease Securities

Clause 1.1(53)

Bank guarantees

1.1(65) Property Leases means:

(a) the leases described in Schedule 5.

Schedule 5 - Property Leases

Clause 1.1(65)

(a) Lease Agreement between Multi Ausindo Trading Pty Ltd, Godel Nominees Pty Ltd and Sreca Investments Pty Ltd commencing 6 September 2004;

(b) Assignment of Lease between Fresh Retailing Pty Ltd, Multi Ausindo Trading Pty Ltd, Godel Nominees Pty Ltd and Sreca Investments Pty Ltd dated 29 July 2005.

6.1 The Seller and the Purchaser must each use reasonable endeavours to procure:

(1) each Landlord Approval; and

(2) the return or release of all Lease Securities back to the Seller;

as soon as possible and in any event prior to the Landlord Approval Date.

6.2 The Purchaser, when requested to do so, must:

(1) provide any bank guarantee, security deposit, personal guarantees by its directors or other form of security;

(2) provide all information in relation to the Purchaser, the Purchaser's nominee and the directors of the Purchaser and the Purchaser's nominee; and

(3) sign and deliver to the Seller all documents and agreements;

required, or which may be required, to obtain each Landlord Approval. The obligation to provide personal guarantees by its directors is limited to where such guarantees have been provided by directors of the Seller.

6.3 If the conditions in clause 6.1 have not been satisfied on or prior to the Landlord Approval Date, the Purchaser must at the Seller's election either:

(1) provide to the Seller on the Landlord Approval Date with substitute bank guarantees in the name of, and on terms acceptable to, the Seller for the same amount as any bank guarantees or security deposits provided by the Seller that have not been returned or released on the Landlord Approval Date (Substitute Bank Guarantees). The Seller may draw down on any Substitute Bank Guarantee to satisfy any claim or drawdown by a Landlord under a Property Lease or a Lease Security. The Seller must return any Substitute Bank Guarantees to the Purchaser within 2 Business Days of the last Lease Security being returned or released; or

(2) provide to the Seller on the Landlord Approval Date with substitute bank guarantees in the name of, and on terms acceptable to, the Landlords for the same amount as any bank guarantees or security deposits provided by the Seller that have not been returned or released on the Landlord Approval Date.

100 In September 2009 the 2005 lease was renewed for another five year term (the 2009 lease).[77] Gordon accepted that the September 2009 lease was entered into in the exercise of the option under the 2005 lease.[78]

101 Item 20 of the Schedule to the 2009 lease refers to security deposit. Item 20 refers to clause 13. Clause 13 of the 2009 lease provides:

13.1 The tenant must pay a security deposit to the landlord of the amount stated in item 20 and must maintain the deposit at that amount.

13.2 Where the security deposit is invested in an interest bearing deposit, all interest accruing on it is treated as a supplementary payment of security deposit. ...

...

13.5 The tenant may, and if the landlord requires must, provide the security deposit by means of a guarantee by an ADI within the meaning of the Banking Act 1959 (Cth).

102 The landlord did not return the bank guarantee provided by Westpac Banking Corporation. Fresh Retailing sent a letter to Gordon on 7 March 2014 requesting substitute bank guarantees.[79] Between 11-13 March 2014, Maletsky and Walton exchanged emails regarding the substitute bank guarantees.[80] On 19 May 2014, Walton and Gordon exchanged emails regarding the St Kilda store bank guarantee.[81] On 4 June 2014 Walton received a rent invoice from the landlord's agent (Beller Commercial), which she forwarded to Gordon on 5 June 2014, asking him again to expedite the bank guarantee.[82] Gordon conceded in cross-examination that Trampoline Enterprises did not provide a substitute bank guarantee by 28 February 2014 (the landlord approval date) or at all.[83]

103 On 11 July 2014 Gordon notified Beller Commercial that Trampoline Enterprises had decided not to take up the option to renew the lease for the St Kilda store.[84] In September 2014 the lease expired and the St Kilda store closed.

104 On 18 September 2014, Walton received a final rent invoice from Beller Commercial, which she forwarded to Franchised Food Company on 19 September 2014.[85] The invoice was for the sum of $11,603.55.[86] That invoice was not paid. Between 15 and 16 October 2014 Walton and Gordon exchanged emails regarding the unpaid rent.[87] On 21 October 2014 Gordon sent Walton an email regarding the St Kilda store, in which he alleged that the 2009 lease did not appear to him to contain the quantum of any bank guarantee.[88]

105 The plaintiff submitted that a lease of the St Kilda store had expired in 2009, many years before the agreement. The plaintiff submitted that the new lease on foot at the time of the agreement commenced on 9 September 2009 and superseded any previous lease, which was supported by the guarantee. The plaintiff submitted that as the new lease did not provide for any such security, the first defendant's remedy (if any) is against the landlord or its bank, not the plaintiff.

106 I do not accept the plaintiff's submission. The assignment of the 2005 lease was expressly referred in clause 11 of the Schedule 5 of the Asset sale and purchase agreement. A bank guarantee had been provided to the landlord pursuant to clause 7 of the Deed of Assignment.[89] I do not accept the plaintiff's submission that the 2009 lease did not provide for any security. The 2009 lease states that the tenant must pay a security deposit to the landlord and that the tenant may provide the security deposit by means of a guarantee. In this case Fresh Retailing had previously provided a bank guarantee by Westpac Banking Corporation to the landlord.[90] The lease contains an express reference to the bank guarantee in clause 1.1(53) and Schedule 11 of the Asset sale and purchase agreement.[91]

107 On 22 December 2014 Adriana Lark (on behalf of the landlord) forwarded an email to Walton in the following terms: [92]

Good Afternoon Amanda,

Please note that we have made a demand on the Bank Guarantee held for $18,000.00.

Please provide us with you [sic] bank details so any additional monies past the dent [sic] owed can be refunded to you.

108 The tax invoice dated 22 December 2014 provides that Fresh Retailing remained indebted to the landlord in the amount of $11,603.55.[93]

109 On 23 December 2014 the landlord called on the bank guarantee of $18,000.[94] The Westpac Business Account statement of GWCB Holdings Pty Ltd indicates that on 23 December 2014 the amount of $18,000 was withdrawn from that account.[95] On 8 January 2015 Fresh Retailing transferred the amount of $18,132.12 to GWCB Holdings Pty Ltd.(being a reimbursement of the amount secured by the bank guarantee).[96] This transfer is reflected in the entry dated 8 January 2015 Westpac Business Account statement of GWCB Holdings Pty Ltd.[97]

110 The first defendant submits that Fresh Retailing's position on this issue has remained constant throughout. In contrast, the plaintiff's position has changed significantly. In the emails passing between the parties between March to May 2014, Maletsky and Gordon described steps they had taken, and would continue to take, to procure a substitute bank guarantee.[98] They did not assert that the plaintiff had no obligation to procure a substitute bank guarantee for the St Kilda store.

111 On 15 October 2014 Gordon changed his position. He said he could not arrange for payment of the final rent invoice because it was made out to Fresh Retailing.[99] When cross-examined Gordon stated:

Your response then on 15 October at the top of the page, again within the hour was, "Firstly to make a point about who the invoice was made out to" - do you see that?...Yes.

"I cannot begin to process an invoice made out to Grant's company." What does that mean; you had been paying rent, hadn't you, for months?...I was probably being pedantic.

Do you think you were being a little cheeky?...Not sure.

Do you think you were being a little obstructionist?...Absolutely not.

Had you paid in the vicinity of 12 rental invoices made out to Grant's company prior to this?...Possibly.

Try a bit harder. Have you paid approximately 12 invoices made out to Grant's company?...I - I can check. I believe we probably did, but I could not say that for certain.

So it was just a nonsense point you were making?...If you say so.

No I am asking you. Do you agree now in this court...?...Yes.

We have spent all afternoon over this $11,000 point, do you agree that it's a nonsense point?...Probably. (emphasis mine)[100]

112 On the second day of the trial, and prior to the answers he gave in the above cross-examination, Gordon proffered an entirely new 'defence' of the claim in response to some leading questions in evidence in chief. The evidence was:

My friend referred yesterday to the failure by your company to reimburse the vendor for a month's rent. Did you not pay your last month's rent?...We did pay our last month's rent. [101]

113 The plaintiff had not previously made this allegation. The plaintiff had not discovered any documents to support it. In response to a call for production of documents which indicated proof of payment, Maletsky produced the following documents:

(1) a bank statement showing two payments of $6,185 (total $12,370) made by Franchised Food Company on 20 November 2015 (but the bank statement contained no description of the payee or the reason for the transactions);[102] and

(2) a ledger printout from Franchised Food Company's internal accounting system purporting to show journal entries reflecting those payments but the cheque numbers were different from those shown on the bank statement. The journal entries only contained one reference to the amount of $6,185 (not two). The printout reveals no reason for the transactions and no connection to the St Kilda Store.[103]

114 Maletsky gave evidence about these documents and was cross-examined.[104] His evidence was unsatisfactory. The transactions evidenced by these documents took place almost 12 months after the landlord made a call on the bank guarantee to satisfy the unpaid invoice.

115 In response to these documents, Fresh Retailing procured a statement from Beller Commercial dated 9 May 2017. The statement makes no reference to the receipt of any payments after December 2014.[105] The statement makes no reference to any payments received from Franchised Food Company in November 2015.

116 Having regard to the matters referred to in paragraphs 94 to 115, I find that the plaintiff has breached its obligation to provide a substitute guarantee in accordance with clause 6.3 of the Asset sale and purchase agreement. I do not accept the plaintiff's submission that it paid the last month's rent for the St Kilda store. Fresh Retailing's net loss was $11,603.55. Although the landlord called on the bank guarantee in full ($18,000), the landlord later refunded a portion of the Drawn Down Amount (being the sum of $6,443.40) to Fresh Retailing, leaving a net loss of $11,603.55. Accordingly Fresh Retailing is entitled to judgment against the plaintiff in the amount of $11,603.55.

Fourth Claim - Fresh Retailing's counterclaim for Earn Out Amounts regarding the Craigieburn store

117 This dispute arose in connection with the opening of a new Trampoline store at Craigieburn. Under an Earn Out Deed dated 4 September 2013 (the Earn Out Deed)[106] Trampoline Enterprises was obliged to pay $140,000 to Fresh Retailing if the Craigieburn store opened by 29 March 2014 being 180 days after the completion date. The Craigieburn store opened 2 days after that date on 31 March 2014. Fresh Retailing claims that Trampoline Enterprises breached its obligation to act in good faith and not unreasonably or intentionally delay the performance of any act to open the Craigieburn store.

118 Under the Earn Out Deed Trampoline Enterprises agreed:

to provide the Seller [Fresh Retailing] with an earn out incentive on the completion of, and according to the terms of, the Asset Sale and Purchase Agreement.[107]

(5) First Earn Out Amount means the sum of $140,000 (less any deposit received by the Seller from a new franchisee in respect of which the First Earn Out Amount is payable);

(8) Second Earn Out Amount means the sum of $40,000.

2.1 The Purchaser must pay the First Earn out Amount to the Seller if:

(1) a prospective franchisee is identified by the Seller that is not specified in Schedule 1 and who enters into a franchise agreement with the Seller or the Purchaser to operate a new Trampoline store within 90 days ot the Completion Date, and the store commences to operate within 180 days of the Completion Date;

(2) a prospective franchisee identified by the Seller commences to operate a new Trampoline store in any premises other than those specified in Schedule 2, whether or not under a formal licence or franchise agreement has been signed with the Purchaser, within 180 days of the Completion Date.

The reference to a prospective franchisee includes an existing Trampoline franchisee that enters into a franchise agreement, or commences to operate, a new Trampoline store.

2.2 The First Earn Out amount must be paid as follows:

(1) $40,000 (plus any legal fees or recruitment costs incurred by the Seller which are recoverable pursuant to the Franchise Agreement entered into by the prospective franchisee), but less any deposit received by the Seller from a new franchisee in respect of which the First Earn Out Amount is payable, within 30 days of the earlier of:

(a) the person paying a non-refundable franchise fee in full (subject to the franchisee fee being capped at $40,000 plus GST); or

(b) the new Trampoline store commencing to operate; and

(2) $100,000 on 31 August 2015.

2.3 The Purchaser must pay the Second Earn Out Amount to the Seller if a subsequent prospective franchisee commences to operate a new Trampoline store (excluding a store in respect of which the First Earn Out Amount was paid and excluding at any premises specified in Schedule 2), whether or not a formal written licence or franchise agreement has been signed with the Purchaser, on or prior to 31 August 2015.

2.4 The Second Earn Out Amount must be paid by the earlier of:

(1) 5 Business Days of the Purchaser receiving a non-refundable franchise fee in respect of a subsequent prospective franchisee of a new Trampoline store; and

(2) 5 Business Days of a subsequent prospective franchisee of the new Trampoline store commencing to operate.

2.5 The Purchaser must and is only required for the purpose of this Deed to:

...

(4) enter into any lease for new premises for the operation of Trampoline store that has been identified by the Seller (acting reasonably) prior to the Completion Date;

(5) offer to enter into a franchise agreement with any prospective Trampoline franchisee that has been identified by the Seller (acting reasonably) prior to the Completion Date; and

(6) act in good faith and not unreasonably or intentionally delay the signing of documentation or the performance of any other act required to recruit a new franchisee or open a new Trampoline store.

121 On 2 August 2013 the landlord at Craigieburn (Lend Lease) sent a letter to Fresh Retailing regarding an offer to lease premises for a Trampoline store, with approximate dates for handover of 3 October 2013 and lease commencement of 31 October 2013.[108]

122 On 4 September 2013 the parties entered into the Asset sale and purchase agreement[109] and the Earn Out Deed.[110] The Asset sale and purchase agreement referred to the Earn Out Deed and acknowledged the proposed new franchised store in Craigieburn.[111]

123 On 12 September 2013, Gordon notified Lend Lease that he was to be copied into communications regarding Craigieburn, and that he would ensure that Walton was provided with a copy of all pertinent information.[112]

124 On 24 September 2013, Walton sought an update in relation to the Craigieburn store, and Gordon responded.[113] There is no evidence that Gordon provided Walton with any further updates.

125 During the relevant period Phillip Anthony Tucker (Tucker) worked for Franchised Food Company and was the head of business development. His role included lease site selection, franchise recruitment and the building of stores.[114]

126 Between 11 and 20 December 2013, Tucker corresponded with Lend Lease to obtain handover of the store so that fit out could commence.[115] Ultimately, handover was scheduled for 22 January 2014 with a fitout period estimated to take 5 weeks.[116]

127 Darren Turner (Turner), the project manager for the shopfitter, TU Projects, communicated with Lend Lease between 17 and 21 January 2014 to send them the building permit and approved drawings and to arrange a handover inspection for 22 January 2014.[117] The program was for Turner to carry out a 4-6 week build which was standard for that type of tenancy.[118]

128 On 19 January 2014 the Facebook page for Trampoline stated that the Craigieburn store was "due to open mid Feb".[119]

129 On 3 February 2014 Gordon sent a letter to the solicitors for Lend Lease with executed lease documents and asked for the documents to be executed and returned "as soon as possible".[120]

130 On 14 February 2014 David Moore, business support manager for Franchised Food Company, made a stock order for the new store at Craigieburn and said "We will require this for Friday the 21st of Feb."[121]

131 Between 14 and 24 February 2014, various third party certificates were issued to Lend Lease (e.g. electrical, air conditioning)[122] and TU Projects (electrical, roller shutter, flooring, plumbing and tiling).[123] These certificates were required by the building surveyor as part of the application for an Occupancy Permit.[124]

132 The Occupancy Permit Application for the Craigieburn store is dated 18 February 2014.[125] On that day Turner communicated with the building surveyor to arrange a building inspection for Thursday 20 February because "Trampoline is handing over on Friday [21 February]".[126]

133 Turner gave the following evidence about the date of the occupancy permit:

The occupancy permit that I took you to earlier ultimately was dated 21 March, so that's about four weeks later? Yes?...Yes.

Now why did it take four weeks to actually get the occupancy permit?...We were asked to put the occupancy on hold.

Well, when you say, "We were asked", who asked who?...Mr Tucker asked us to put the occupancy certificate on hold.

When did he do this?...That week after the original handover date, during the phone calls.

To who?...To myself. To myself.

Do you recall what he - do you recall any words he used?...Oh, not really, just to hold the occupancy certificate.

Did he say why?...Ah no, I assumed it was to do with the issue with taking handover.

In that period, and just to be precise, it's in the period between the handover day, the handover inspection day, which I took you to earlier, was 21 Feb?...Yes.

In the period between 21 Feb and 21 March, when the occupancy permit ultimately was issued, do you recall ever being chased by anyone for the occupancy permit?...No.[127] (emphasis mine)

134 Turner's evidence is supported by an email dated 19 March 2014 by Con Kery on behalf of the landlord to Tucker which stated: [128]

Could you please provide me with an accurate update on the status of opening.

Suzanne Painter from our team has circulated an email advising us that your shop fitter has indicated you have asked him to withhold the Occupancy Certificate.

I was of the understanding that you were waiting for some certificates from us and that you were finalising a legal matter on the sale of the business and it would be resolved late last week.

I just need to report back what the actual situation is please. They have started the rent clock and I want to try and stall that for you if I can justify why.

135 On 18 February 2014 the shopfitter, TU Projects, forwarded an email to the franchisee, Vikramjeet Singh (Singh), attaching a "handover invoice" for $29,652.21. The email asked that payment be received "before handover on Friday 21st February 2014 to avoid any delays with handover"[129].

136 The first defendant refers to the period between 20 February 2014 and 18 March 2014 (the date on which the plaintiff announced that the store would open on 31 March 2014) as the third stage of the chronology.

137 Friday 21 February 2014 was the date scheduled for the handover from the shopfitter to Trampoline Enterprises.[130] Turner gave evidence that he and Tucker met at the shopping centre and spoke on that day and that Tucker told him that he was not able to take handover that day.[131]

138 On 21 February 2014 Burra arranged for delivery of the stock ordered for the Craigieburn store on 14 February 2014.[132] The Facebook page for Trampoline stated that the Craigieburn store would be "coming very, very soon!"[133]

139 On 24 February 2014 Turner asked Tucker for an update, and Tucker said he would "update later today re Craigieburn situation".[134]

140 Turner gave evidence that Tucker contacted him by phone and said there was "a legal issue that they couldn't take handover due to ... purchasing of the Trampoline from previous owners, so they weren't able to... operate the store until a certain date" about a month later.[135] Turner also gave evidence that a week after the handover, Tucker asked him to prepare a file note about delays.[136] Turner agreed that the letter did not contain any reference to legal issues because that was not an issue of which he was aware.[137] Tucker had no recollection of any discussions with Turner in the period from late February 2014 to early March 2014 about the opening of the store at Craigieburn.[138]

141 26 February 2014 was the lease commencement date under the lease with Lend Lease, and there was a three month rent-free period.[139] Tucker agreed that it would have been a matter of some importance to get the store open "soon" when the rent clock was ticking.[140] Tucker could not recall any steps taken to get the store opened in that period. He could not recall anything that might have held up the opening of the store during that period.[141]

142 On 3 March 2014 TU Projects issued a Practical Completion Certificate to Turner signed by Rizk.[142] In signing the certificate, Trampoline Enterprises "acknowledges that the Contractor has duly performed the contract to the Purchaser's satisfaction" and "agrees that the works have reached practical completion and are in good order except for the following...". There was then a list of 20 items. Item 19 on the certificate was "final clean".

143 When cross-examined about the 20 or so items listed as defects in the Practical Completion Certificate, Turner said that the reason why the store did not open until later had nothing to do with delays in fitting the shop out.[143] Turner said:

Oh, we had a little bit to tidy up but we also - a defect period, we have a two week whether they are trading or not and we arrange to come in after hours to fix those defects.[144]

144 On 10 March 2014 the shopfitter made arrangements for a "final clean" scheduled for the following day.[145]

145 On 18 March 2014 Trampoline Enterprises announced internally (including to Gordon and Maletsky) that the intended opening for the Craigieburn store would be 31 March 2014.[146]

146 On Tuesday 25 March 2014 Susan Ryan from Lend Lease forwarded an email to Tucker asking "Can someone please confirm when they want to open. As I will need to have the hoarding removed." On the same day Tucker told Lend Lease that "We are opening 31st March (Next Monday)."[147]

147 Saturday 29 March 2014 was the 180-day cut-off date under the Earn Out Deed.[148]

148 The Craigieburn store opened for trade on Monday 31 March 2014, two days after the 180-day cut-off date.

149 On 7 April 2014 Trampoline Enterprises entered into a franchise agreement with Trampoline CB Pty Ltd in relation to the Craigieburn store.[149] Trampoline CB Pty Ltd was the company set up by Singh to operate the Craigieburn store.

150 Trampoline Enterprises submits that it did not delay the opening of the Craigieburn store. Trampoline Enterprises submits that it could not open the store before 31 March 2014. Trampoline Enterprises referred to the following matters which took place after it made its internal announcement on 18 March 2014.

(a) Trampoline Enterprises relied on the provisions of the Building Act 1993 and submitted that the store could not open without an Occupancy Permit. Trampoline Enterprises submitted that the application was lodged on 18 February 2014 and issued on 21 March 2014.

(b) Trampoline Enterprises submitted that the Craigieburn store could not open without registration under the Food Act 1984. However this did not stop the store from operating. The Craigieburn store opened on Monday 31 March 2014.

(c) As at 20 March 2014, Mr Singh had not signed and returned documentation required under the Francising Code made pursuant to the Competition and Consumer (Industry Codes-Franchising) Regulation 2014.

(d) Mr Singh did not pay the franchise fee or the landlord's bank guarantee until 28 March 2014. Maletsky said he had no recollection about what efforts were made to obtain payment of the franchise fee.[150]

(e) As at 25 March 2014 Mr Singh was in dispute with TU Projects in relation to defects.

(f) The hoardings were not removed. However the email from Susan Ryan dated 25 March 2014 on behalf of Lend Lease to Tucker indicates that the hoardings would be removed when Tucker confirmed the date when "they want to open".[151]

151 The plaintiff referred to Gordon's evidence. Gordon categorically denied that he delayed the opening of the Craigieburn store.

152 Having considered the whole of the evidence, I have formed the view that Gordon was a witness who, in effect, would say what he thought would assist the case of Trampoline Enterprises, as opposed to a witness who was endeavouring at all times to give a truthful and accurate account of the facts. Gordon gave contradictory and evasive answers to questions put to him in cross-examination. For example when asked in cross-examination about his knowledge that his company would have to pay $140,000 if the Craigieburn store opened within 180 days, Gordon gave the following answers:

You knew full well that there was a $140,000 payment swinging on when this store opened, didn't you?...Not necessarily.

Did you know - and I am suggesting you did know?... Yeah, I did know. I - I know the contents of the agreements.

At that time, in early 2014?...Yes.

You well knew that the amount of $140,000 swung on when the store opened?...I think the $140,000 was due if the store opened. That's correct.

You knew that at the time?...Yes I did.

Why did you say, "Not necessarily"?...Well...

30 seconds ago?...Well, it didn't - it didn't come to mind. It wasn't atop of mind for me.[152] (emphasis mine).

153 Gordon said that he did not open the store on 29 March 2014 because it was a Saturday and Rizk, a member of his operations team, had told him not to. When cross-examined, Gordon stated:

You could have opened it [Craigieburn] on the Saturday, couldn't you?...The operation team said no.

Who, someone told you did they?...My head of operations would have told me the store cannot be opened on that Saturday.

Again, did you just say "told" you or "would have" told you?...I can't remember three years ago.

What did you say 15 seconds ago?...He would have told me or he told me, I don't recall it accurately.

Who was your head of operations?...Kaisey Rizk.

Is that the same Kaisey Rizk that we've heard all about in multiple instances in this case, still an employee of yours?...Only have one Kaisey Rizk who works for me.[153]

154 Rizk gave evidence that he could not recall having a conversation with Gordon about the opening of the Craigieburn store.[154] Rizk also gave evidence that he knew nothing about the cut-off date.

I take it then that within the four walls of your office so far as you were aware it was just another opening?...Correct.

No extra speed or pressure involved in its opening?...No.

Just another opening?...Yeah.

No one keeping tabs on what needed to be done?...Not that I was aware of, no.

No following up third parties about getting things done?...No, not that I was aware of, no.

Did you have a conversation with Mr Gordon about the opening of the Craigieburn store at all, ever?...Not that I can recall, no.

It has been suggested that someone in his operations team, and for your sins he dobbed you in, was probably the person who told him the actual day of opening. Does that sound right?...I couldn't recall that.

You don't recall being party of any particular discussion as to whether the store was ready or not to start opening?...No, not that I recall, no.[155]

155 Maletsky said that he knew nothing about the cut off date and the risk of paying $140,000 if the Craigieburn store did not open within a particular date.

What role did you have, if any, in respect of the opening of the Craigieburn store?...No role at all, other than trying to collect the money.

Yes, and that's because your cash flow is your responsibility?...Correct.

And you would have been fully aware, wouldn't you, that there was a risk that you would have to come up with between $40,000 and $140,000 of cash if the store opened by a particular date?...No.

You were not aware of that, at all?...I'm not part of the legal department.

Were you aware, as the person in charge of cash flow, which is cash in and out...?...Yes.

In early 2014 that there was a looming liability of between $40,000 and $140,000?...I'll be honest , I wasn't.[156]

156 Mr Upjohn, counsel for Trampoline Enterprises, submitted in oral closing submissions that Trampoline Enterprises was in fact being accused of acting "mala fides, that is equitable fraud."[157] Mr Upjohn went on to state that this allegation requires that the plaintiff by counterclaim show that Trampoline Enterprises "acted in bad faith and unreasonably delayed or intentionally delayed the store from opening."[158] Mr Upjohn submitted that a Briginshaw v Briginshaw (Briginshaw)[159] standard of proof is required.

157 There are no references in the pleadings or the submissions made by Fresh Retailing that what is in fact alleged is something akin to equitable fraud. In paragraph 51 of the FADC, Fresh Retailing alleges nothing more than a breach of clause 2.5(6) of the Earn Out Deed. The same allegation was made by Fresh Retailing in its closing submissions. Trampoline Enterprises did not allege mala fides or equitable fraud in its reply.

158 The task before me is one of contractual construction, namely to construe clause 2.5(6) of the Earn Out Deed so as to give content to the "good faith" requirement, having regard to the contractual documents as a whole (the Earn Out Deed and the Asset sale and purchase agreement). Clause 2.5(6) is an express term of the Earn Out Deed.

159 The relevant standard governing "good faith" is set out in s140 of the Evidence Act 2008 (Evidence Act). Subsection (1) sets out the standard of proof for civil proceedings, being the balance of probabilities. Subsection (2) sets out matters the Court must take into account (amongst others) in deciding whether the standard is met. Subsection (2)(c) provides that the Court must take into account the gravity of the matters alleged.

160 The salient features emerging from Briginshaw are encapsulated in s140(2) of the Evidence Act. In Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v Australian Competition & Consumer Commission[160] Weinberg, Bennett and Rares JJ observed that Dixon J's classic discussion in Briginshaw of how the civil standard of proof operates "appositely expresses the considerations which s140(2) of the Evidence Act now requires a court to take into account."

161 In considering whether the burden of proof has been met in this case, I have had regard to the three subsections referred to in s140(2) of the Evidence Act. I also take into account the principle stated by Dixon J in Briginshaw that in seeking to establish their claims to the reasonable satisfaction of the Court, Fresh Retailing cannot rely on "inexact proofs, indefinite testimony or indirect references".[161]

162 Trampoline Enterprises referred to the Occupancy Permit Application[162] which was lodged on 18 February 2014 and was eventually issued on 21 March 2014. Mr Upjohn, in oral closing submissions, submitted that the delay in obtaining the Occupancy Certificate did not delay the opening of the Craigieburn store. Mr Upjohn further submitted that the Craigieburn store could have opened on 28 March 2014 with an occupancy permit that was by then a week old. However in its written closing written submissions Trampoline Enterprises referred to the Building Act 1993 and submitted that one of the reasons why the store could not open by 29 March 2014 was that the store could not open without an Occupancy Permit. Trampoline Enterprises referred to the Occupancy Permit Application[163] which indicates that the application was lodged on 18 February 2014 and issued on 21 March 2014.

163 Having regard to the matters referred to in the above paragraphs 132 -140, I am satisfied, to the degree required, that Tucker asked Turner to put the Occupancy Certificate on hold. I prefer the evidence of Turner to Tucker about this matter. I regard Turner to be a truthful and honest witness who attempted to give an accurate account of the work conducted by TU Projects at the Craigieburn store. He was prepared to make concessions. Turner's evidence on this point is more reliable than the evidence given by Tucker. Turner's evidence is supported by the fact that the building surveyor's inspection took place on 20 February 2014[164] and "was all good".[165] Turner's evidence is also supported by the external email dated 19 March 2014 by Con Kery of Lend Lease to Tucker.[166] A feature of Tucker's evidence was his inability to recall any detail about the opening of the Craigieburn store. He had opened over 200 stores in his professional life.[167] Mr Upjohn conceded that Tucker did not have any particular memories of steps taken in relation to this Craigieburn store.[168] Tucker admitted in cross-examination that he could not recall doing anything in the period between 26 February to 19 March 2014 to get the store opened. Tucker was asked in cross-examination:

You can't recall these things?...No.

There could be a million or a hundred things that might have held up the opening of the store?...Yes.

You can't recall any from that period?...No.[169]

164 Clause 2.5(6) is an express term of the Earn Out Deed. I am satisfied that Trampoline Enterprises did not act in good faith and intentionally delayed the performance of an act required to open a new Trampoline store. A party acting in good faith does not tell the shopfitter to put a brake on the Occupancy Certificate.

165 Clause 4 of the Asset sale and purchase agreement[170] provides:

4.4 The parties must execute the Earn Out Deed simultaneously with the execution of this Agreement.

4.5 If the Purchaser does not pay an amount under this Agreement or the Earn Out Deed by the due date for payment:

(1) all amounts under the Earn Out Deed are deemed to be payable in full, even if the conditions on payment have not been satisfied; and

(2) the balance of the Purchase Price and all other amounts payable by the Purchaser under any of the Transaction Documents become immediately due and payable.

166 Accordingly Trampoline Enterprises is liable to pay the First Earn Out Amount being $140,000 to Fresh Retailing.

167 Clause 2.3 of the Earn Out Agreement provides that Trampoline Enterprises must pay the Second Earn Out Amount to Fresh Retailing if a subsequent prospective franchisee commences to operate a new Trampoline store on or prior to 31 August 2015.

168 Fresh Retailing submits that if Fresh Retailing is not entitled to the First Earn Out Amount because the Craigieburn store opened after the 180 day cut-off date, it necessarily follows that Craigieburn franchisee was a "subsequent" prospective franchisee for the purpose of clause 2.3 of the Earn Out Deed and that Fresh Retailing is therefore entitled to the Second Earn Out Amount.

169 I do not accept Fresh Retailing's submission. Clause 2.1 of the Earn Out Deed provides that the prospective franchisee must be identified by the Seller. Singh was so identified. Clause 2.3 provides that the Second Earn Out Amount is payable if a subsequent prospective franchisee commences to operate a new Trampoline store. The use of the word "subsequent" must be given some meaning. In my view it means a franchisee who has not been identified as a prospective franchisee pursuant to clause 2.1 of the Earn Out Deed.

170 On 12 May 2014 Norton Rose Fulbright (the former solicitors for Fresh Retailing) sent a letter to Mr Singh (the solicitor's letter) regarding the opening of the Craigieburn store.[171] The plaintiff alleges that this letter constituted a breach by Fresh Retailing of clause 23.1 of the Asset sale and purchase agreement. The plaintiff seeks damages in the sum of $84,650 for breach of confidential information.[172]

171 Clause 23 of the Asset sale and purchase agreement provides:

23.1 Each party must keep confidential the existence and terms of:

(1) this Agreement (and any draft of this Agreement); and

(2) all negotiations in connection with it,

and must ensure that their respective Personnel do likewise.

23.2 A party may disclose information:

(1) on a confidential basis to its advisers (including bankers) to enable them to advise in connection with this Agreement (including its administration or enforcement);

(2) to a person whose consent is needed in connection with this Agreement if the party seeking consent uses reasonable endeavours to get the consenting person to agree to keep the information confidential (and then only to the extent that the consenting person needs to know the information in order to decide whether to consent);

(3) to any of its employees who need to know the information;

(4) if that information is in the public domain (other than because the party has disclosed it);

(5) if the party lawfully had the information before it was disclosed to them in connection with this Agreement;

(6) with the consent of each other party;

(7) in connection with legal or other proceedings relating to this Agreement;

(8) if compelled by law or by any Government Agency, including any stock exchange; or

(9) if this Agreement expressly requires or permits a party to disclose information.

A party disclosing under clause 23.2(7) must, as far as practical, consult with each other party beforehand as to the content and timing of the disclosure.

23.3 The parties must in good faith agree at or before Completion on the form of any press announcement or public statement that they will each make concerning this Agreement. Unless otherwise agreed no announcement shall be made publicly or in any form of media including social media until Completion. No announcement may disclose the terms of this Agreement without the prior written approval of the Seller.

23.4 This clause continues to bind the parties after Completion and after the parties' other obligations under this agreement terminate.

We act on behalf of Fresh Retailing Pty Ltd (FR).

We understand that you are a franchisee of a Trampoline store located at the Craigieburn Central Shopping Centre.

1. Agreement between FR, Trampoline Enterprises and Stan Gordon

1.1 As you know, FR was previously the franchisor of the network of Trampoline ice cream parlour stores. In or about September 2013, FR sold the Trampoline business to Trampoline Enterprises Pty Ltd (TE), an entity controlled by Stan Gordon.

1.2 As part of the transaction, the parties entered into an earn out deed pursuant to which TE was to pay to FR a specified amount if a prospective franchisee identified by FR commenced to operate a new Trampoline store, whether or not a formal licence or franchise agreement had been signed with TE, within 180 days of 30 September 2013 (that is before 30 March 2014). In this regard, TE was required to act in good faith and not unreasonably or intentionally delay the process of opening the new store.[173]

173 The specific allegation made by the plaintiff is that the solicitor's letter:

disclosed the existence of the [Sale Agreement] and various terms in it described as an "Earn Out Deed" pursuant to which the plaintiff was to pay to Fresh Retailing a specified amount if a prospective franchisee commenced to operate a new trampoline store within 180 days of 30 September 2013, ie 30 March 2014.[174]

174 The first defendant submits that the solicitor's letter was forwarded in connection with legal or other proceedings relating to the Asset sale and purchase agreement and accordingly fell within clause 23.2(7) of the Asset sale and purchase agreement. The first defendant submitted that by 12 May 2014 the parties had already adverted to legal action and the 12 May 2014 legal letter was obviously another step in that direction. The defendant referred to a letter by Crothers to Gordon dated 7 March 2014 (Crothers' letter dated 7 March 2014).[175]

175 I do not accept the first defendant's submission. Having regard to the terms of clause 23 as a whole, in my view clause 23.2(7) only applies if legal or other proceedings have been initiated and are on foot. Legal proceedings had not been initiated by May 2014. In Crother's letter dated 7 March 2014 Crothers stated that "forcing Fresh Retailing to issue legal proceedings against you and your companies may be the only way to get you to honour the terms of the SPA."[176]

176 Fresh Retailing breached the confidentiality clause of the agreement by disclosing to Singh the term in the Earn Out Agreement pursuant to which Trampoline Enterprises was to pay a specified amount if a prospective franchisee commenced to operate a new Trampoline store within 180 days.

Has the plaintiff suffered loss and damage by reason of such breach?

177 The plaintiff submitted that it suffered loss and damage as a result of the defendant's breach of confidentiality. The plaintiff alleges in paragraph 40(c) of the ASC:

(c) The Plaintiff incurred loss and expenses in an attempt to mitigate the damage resulting from Fresh Retailing's wrongdoing.

The Plaintiff sought to mend the commercial relationship and dispel any concern Singh may have as to the ability of the Plaintiff to meet its contractual obligations or act in good faith in relation to its commercial relations and contracts including the franchise agreement it has with Trampoline CB Pty Ltd. The Plaintiff and Trampoline CB Pty Ltd agreed to enter into a deed to remove any discord between the parties and permit the commercial relationship to continue unhindered by the assertions and the allegations made in the Letter [the solicitor's letter].

The Plaintiff to confirm its position as a significant franchisor within a group of franchise companies agreed to transfer certain assets to Trampoline CB Pty Ltd at a nominal value and at less than the market value of the same in order to re-establish its reputation and goodwill and to remove any suggestion that it does not act in good faith. The agreement is in writing and set out in a deed with a commencement date of 4th August 2014 between the Plaintiff and Trampoline CB Pty Ltd (the "Deed"). A copy of the Deed may be inspected at the offices of the Plaintiff's solicitors by prior appointment.

(d) The Plaintiff would not have entered into the Deed if it were not for the Letter.

(e) The value of the assets for the Brunswick store transferred, as at 1 September 2013 was $381,067 as set out in Fresh Retailing's Schedule for the period 1 September 2009 to 30 June 2013. The market value to these assets is only $84,650.00, as set out in the Plaintiff's Schedule of Assets for the Brunswick store (Schedule A attached), see column 1 thereof.

178 The plaintiff claims damages in the sum of $84,650.00 for breach of confidential information.[177]

179 The Deed between Trampoline Enterprises Pty Ltd and Trampoline CB Pty Ltd is dated 24 February 2015 (Asset Transfer Deed.)[178] The settlement date was defined to mean 4 August 2014.

180 The following Recitals are contained in the Asset Transfer Deed:

1. The Vendor is the owner of the Assets.
2. The Purchaser is the franchisee of a Trampoline store at the Craigieburn Central Shopping Centre.

1. By letter dated 12 May 2014, ("the Letter") Norton Rose Fulbright solicitors on behalf of Fresh Retailing Pty Ltd ("Fresh Retailing") made a request for information from the Purchaser that was confidential and private to the parties. In doing so Fresh Retailing asserted that the Vendor had acted improperly and in breach of obligations under an agreement with Fresh Retailing.

1. The Letter has embarrassed the Vendor in that it suggests that it did not act in good faith or reasonably and deliberately sought to delay the opening of a new store. The Letter caused unnecessary inconvenience and cost to the Vendor.
2. The Parties wish to mend the commercial relationship and the Vendor wishes to dispel any concern the Purchaser may have as to the ability to meet its contractual obligations or act in good faith in relation to its commercial relations and contracts including the franchise agreement it has with the Purchaser.
3. The Parties have agreed to enter into this Deed in confirmation of their wish to remove any discord between the Parties and permit the commercial relationship to continue unhindered by the assertions and the allegations made in the Letter.
4. In order for the Vendor to confirm its position as a significant franchisor within a group of franchisor companies, the Vendor has agreed to transfer certain assets to the Purchaser at a nominal value and at less than the market value of the same in order to re-establish its reputation and good will and to remove any suggestion that it does not act in good faith.

181 In relation to each Recital and the schedule, the Asset Transfer Deed provides:

1.7 Each Recital and schedule to this Deed is incorporated into the Deed, provided that if there is any inconsistency between any schedule and the provisions of this Deed, the provisions of this Deed shall prevail.

182 When questioned about the effect of Crothers' letter dated 7 March 2014, Gordon stated:

I was horrified, because basically it said that I was, or it inferred that I was being dishonest and caused problems on his store...I think Mr Singh thought what has he got involved with.[179]

183 Singh had a different understanding with regard to how he came to operate the Fitzroy store as a franchise store. The Fitzroy store was formerly owned by Trampoline Enterprises as a corporate store. Singh initially wanted to open an ice cream franchise store in the city, but ultimately he and Walton settled on a tenancy at Craigieburn.[180] Singh said that Trampoline was a brand which was taken over by Gordon's company. In relation to his decision to operate the Fitzroy store, Singh stated:

...Fitzroy is a very good suburb in the sense of being closer to the city and all the restaurant areas and everything and the store was quite out-dated. It needed a lot of work on it, equipment and decore and everything which I was happy to spend. That's how we got that store for very cheap.

...

Did you pay for the store?...I paid not as much because it wasn't making much money on the books and we paid a bit for the equipment and the stock on hand but nothing really for the goodwill because -

Do you recall how much you paid?...It wasn't that much, less than $20,000, stock and equipment and all that.[181]

184 Singh identified a tax invoice dated 5 August 2014 as the invoice for stock and equipment and everything that was kept at the Fitzroy store.[182] That invoice is addressed to "tr Fitzroy - Fitz Foods Pty Ltd ATF Fitz Foods Unit Trust". Singh set up this company to operate the Fitzroy store.[183]

185 Singh said that most of the equipment kept at the Fitzroy store was probably ten years old.

Two of them needed replacement, there was no keg freezer, it was front display where we serve the ice cream from and holding freezer at the back and an ice cream maker which they call a (indistinct) freezer, yes. And some other of course bits and pieces.

You were taking over a second hand store, an existing store?...Yes.

Did you just buy whatever equipment was there?...Yes, because as I said, the plan was to basically just, you know - that's how we agreed on that. There will be a new decor available which could be rebranding or could be anything, and I will have to come up with the funds to, you know, that's why I got it like just for very good price he gave it to me.[184]

186 Singh started operating the Fitzroy store in August 2014.[185] The date of the Franchise Agreement between Trampoline Enterprises and Fitz Foods Pty Ltd is 24 February 2015.[186]

187 In this case there is some inconsistency between the timing of the date of the Asset Transfer Deed and the date when Fitz Foods Pty Ltd started operating the Fitzroy store. Singh said that the taking over of the Fitzroy store had nothing to do with any grievance with the Craigieburn store.[187]

188 Singh was taken to Recitals C, D, E and F in the Asset Transfer Deed and rejected them as untrue. He said "To be honest, I didn't even read all of this". He denied that there was any discord with Trampoline Enterprises at that time.[188]

189 I regarded Singh as a witness of truth who attempted at all times to give an accurate account of his dealings with Trampoline Enterprises. Mr Upjohn conceded that Singh is a witness of truth who has no financial interest in the matters the subject of these proceedings.[189]

190 Although Singh is stated to be a party to the Asset Transfer Deed, Singh did not sign the Asset Transfer Deed. However Singh did sign the Asset Transfer Deed on behalf of Trampoline CB Pty Ltd, in accordance with s127 of the Corporations Act 2001. In Toll (FGCT) Pty Limited v Alphapharm Pty Limited[190](Alphapharm) the High Court held:

The general rule, which applies in the present case, is that where there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document.

191 The first defendant submitted that the plaintiff has not made out its case on causation, as it has relied on the Recitals which Singh has since rejected as being untrue. The first defendant further submitted that Fresh Retailing is not a party to the Asset Transfer Deed and not bound by it. However as stated by the High Court in Alphapharm the High Court also held:

Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the efficacy of the instrument. To undermine that assumption would cause serious mischief.[191]

192 It would appear that Trampoline CB Pty Ltd is bound by the statement in the Recitals to the Asset Transfer Deed that the parties entered into the Deed to re-establish the reputation of Trampoline Enterprises and good will and to remove any suggestion that Trampoline Enterprises does not act in good faith.

193 However, although Recital G recites that Trampoline Enterprises has agreed to transfer the assets referred to in Schedule 2 of that Deed at "less than the market value of the same," the Asset Transfer Deed does not state what that market value was.

194 I accept Singh's evidence that most of the equipment was ten years old and that some of the items needed replacement.[192] I accept Singh's evidence that he paid less than $20,000 for the stock and equipment at the Fitzroy store. The invoice dated 5 August 2014 indicates that Singh paid $5,000 for the

195 The plaintiff bears the onus of proof. The plaintiff contends that the value of the stock and equipment it transferred to Singh was $84,650. The plaintiff pleaded that this was a market value, but the plaintiff adduced no evidence of market value. Instead that amount corresponded with the amount of the purchase price that the plaintiff apportioned for plant and equipment at the Fitzroy store under the Asset sale and purchase agreement.[193]

196 Maletsky said that an accurate value was not attributed to the assets set out in the plaintiff's schedule of assets for the Fitzroy store.

In respect of what is said to be the Brunswick store?...Yes.

Which is the same thing as the Fitzroy store?...Yes.

And the bottom line so to speak is the very last number on page 28, $84,650, do you see that?...Yes.

Which was your company's assessment of the value of the plant and equipment you were buying in the Fitzroy store?...We recorded a value yes, to allocate for the Sale and purchase agreement.

Was that an accurate value?...Probably not.

It was probably an over value, wasn't it?...Correct.[194] (emphasis mine)

197 By 24 February 2015 the plant and equipment would have depreciated in value even further.

198 I have not been provided with any assistance concerning the market value attributed to the assets as at 24 February 2015. I accept Singh's evidence that he paid $5,000 for the equipment at the Fitzroy store.[195] Deducting that sum from $84,650 brings the amount claimed to $79,650. The financial document for the corporate stores FY13 shows that the sum of $16,410 was claimed for depreciation for that year.[196] This is 19.3% of the sum of $84,650 Allowing for further depreciation at 19.3% for the 12 month period to 1 September 2014 and 9.6% for the 6 month period from 1 September 2014 to 25 February 2015, brings the amount claimed to $58,107.

199 Given that the assets were overvalued and Mr Singh's evidence that the equipment was old and doing the best that I can,[197] I have further discounted this sum by a further 20%. I assess the plaintiff's damages at $46,485.00.

Sixth Claim - The plaintiff's claim for loss and damage for faulty Plant and Equipment

200 The plaintiff claims loss and damage due to faulty items of Plant and Equipment sold as part of the Asset sale and purchase agreement.[198] The faulty items are detailed in Annexure A to the ASC.[199] The plaintiff originally claimed loss and damage totalling $27,285.09. The plaintiff's claim was for the sum of $8,786.09 for actual cost to rectify and the sum of $18,499 for estimated cost to rectify. [200] The amount of the plaintiff's claim was orally amended before the Court on 30 January 2018. Counsel for the plaintiff abandoned claims for estimated rectification costs save for the items described as "Air con: damage to air con too far gone due to birds. Cannot be repaired, needs to be replaced" (a claim for $8,448) and "Fitzroy: cake display" (originally a claim for $6,223, which was revised to $5,000).[201] This reduced the loss and damage claimed to $22,234.09. The claim for loss and damage is made on two bases: a claim under s19 of the Goods Act and a claim under s18 of the Australian Consumer Law.

201 The issue of whether the Plant and Equipment were "defective" can be considered at the outset. The plaintiff claims that the items of Plant and Equipment in Annexure A were defective and that no evidence was given by the defendant to suggest otherwise. The first defendant submits that the plaintiff has not proved that any of the items of Plant and Equipment listed in Annexure A were defective as at the date of the Asset sale and purchase agreement, being 4 September 2013, and that there was no evidence adduced in support of the allegations of the defects listed in column 3 of Annexure A.[202]

202 The first defendant submits that the evidence shows that the first defendant spent "tens of thousands of dollars on routine repairs and maintenance" in the years prior to the business being sold to the plaintiff and that Maletsky, who prepared the table constituting Annexure A, gave "ambivalent" evidence regarding the basis for claiming any defects listed in Annexure A. [203] The first defendant submits that in these circumstances the appropriate inference is that the amounts spent by the plaintiff as referred to in Annexure A were spent on routine repairs and maintenance and not defective Plant and Equipment.

203 The plaintiff must prove that it has suffered actual loss or damage for its claim to be successful. The plaintiff claims $22,234.09 in loss and damages, which is broken down in Annexure A. The items claimed under "Actual Cost to Rectify"[204] are, for the most part, supported by invoices tendered by the plaintiff.[205] I disagree, however, with the total amount noted at the end of the "Actual Cost to Rectify" column. The invoices tendered as part of exhibits 33 and 60 add up to $6,929.01. The invoices at Court Book pages 966-967 were not tendered but are listed in the "Court Book ref" column in Annexure A. If these amounts are included, the total comes to $7,813.39. No invoice has been provided for the $665.50 claimed for a faulty door at Knox, so this has not been included in my total. It therefore appears that the plaintiff has incurred costs costs of $7,813.39 for repairing and maintaining items of Plant and Equipment (regardless of whether these costs were routine or not).

204 Maletsky did not conduct the inspection that led to the amounts and matters presented in Annexure A. The plaintiff's business support manager, Raatz, attended Trampoline stores before settlement to "physically verify the assets were there and to check they were working."[206] Raatz was not called to give evidence at the trial. The evidence in relation to faulty Plant and Equipment came from Maletsky. Maletsky said the plaintiff spent approximately 2% of its total sales in the first financial year post-settlement (2013/14) on "repairs and maintenance" of Plant and Equipment.[207] This evidence was not supported by any documentation.

205 The profit and loss statements for Fresh Retailing tendered by the plaintiff show that the defendant spent 1.91% and 1.21% of its total sales profit on repairs and maintenance in 2011/12 and 2012/13 respectively.[208] Maletsky's estimate (and it is unclear how accurate the estimate is due to the lack of corroborating evidence from the plaintiff) of 2% of sales profits being spent on repairs and maintenance in 2013/14 is not substantially different from the amounts shown to have been spent by the defendants. There is no evidence that the costs incurred by the plaintiff were not simply routine repairs and maintenance, as alleged by the first defendant. The list of defects provided in Annexure A, the only allegations as to the existence of defects in the Plant and Equipment, does not provide evidence to the contrary. The plaintiff tendered invoices to support their claim,[209] but these only provide proof that the plaintiff spent money repairing equipment, not that the repairs were more than routine maintenance. I agree with the first defendant's submissions that it is appropriate to infer that the amount claimed was incurred by the plaintiff carrying out routine repairs and maintenance.

Loss and damage claimed for estimated rectification costs

206 The plaintiff also claims $13,448 in estimated rectification costs. The plaintiff claims $8,448 for the "Aircon" unit at St Kilda, which "Cannot be repaired needs to be replaced" and $5,000 for the "Cake display" at Fitzroy, which was also "irreparable" due to a "Faulty compressor".[210]

207 In an email dated 3 February 2014, Shane Doggett from d-air gave a quote of $7,680 plus GST (totalling $8,448) for the works required to replace the air conditioning unit at St Kilda.[211] In cross-examination, Maletsky agreed with counsel for the first defendant that the amounts listed for the St Kilda store defects were all "just quotes"[212] or costs determined through "some sort of internal calculation".[213] When it was suggested by Mr Whelen, counsel for the defendants, that "the work was never done before the store was closed", Maletsky said that was "correct."[214] The plaintiff has produced no evidence to show that the cost of repairing the air conditioning unit was ever incurred. The plaintiff has thus been unable to prove any loss or damage in relation to this item.

208 At the commencement of the trial, the plaintiff claimed $6,223 for the defective cake display at the Fitzroy store, but was unable to produce any invoice to prove that this amount had been paid, or indeed, quoted. On day 11 of the proceedings, this figure was revised to $5,000.[215] The plaintiff claimed that this $5,000 was the "price that was paid by Mr Singh" for "Sale of Equipment" when he became the owner of the Fitzroy franchise.[216]

209 Singh gave evidence in evidence in chief regarding the equipment purchased for the Fitzroy store:

Did you pay for the store?...I paid not as much because it wasn't making much money on the books and we paid a bit for the equipment and the stock on hand but nothing really for the goodwill because -

Do you recall how much you paid?...It wasn't that much, less than $20,000, stock and equipment and all that.

...

And what equipment did you buy?...Well, there was - most of the equipment was probably ten years old as I can remember it. Two of them needed replacement, there was no keg freezer, it was front display where we serve the ice cream and holding freezer at the back and an ice cream maker which they call a (indistinct) freezer, yes. And some other bits and pieces.

...

Did you just buy whatever equipment was there?...Yes, because as I said, the plan was to basically just, you know - that's how we agreed on that.[217]

210 This evidence suggests that there were multiple items included in the $5,000 paid for line item "Sale of Equipment at tr Fitzroy" on the invoice paid by Singh's company for the Fitzroy store.[218]

211 Maletsky gave contradictory evidence stating that the "Sale of equipment would have been the freezer" only, even though the word "freezer" was not listed on the invoice[219] and that "it is my recollection that we sold him a freezer and that [referring to "Sale of Equipment at tr Fitzroy" in exhibit 42] is the line item."[220] In further cross-examination, Maletsky stated:

So you expect Her Honour to believe your recall of events in respect of a store that you didn't actually operate yourself in respect of one invoice among tens of thousands is that you recall precisely what it was for even though the invoice doesn't say that? ... That is my recollection.[221]

212 Mr Upjohn redirected Maletsky to this point once again in further re-examination:

How could you identify it now after all those tens of thousands of invoices was the point of his [Mr Whelen] question; is there any particular reason why you recall this invoice and this equipment? ...Only because it's been relevant to all the dealings we have had over the last four years with Mr Singh with Craigieburn, with him as a franchisee, that's my recollection.[222]

213 When asked whether this was the first time he had seen the invoice again or whether he had looked at it more recently, Maletsky responded "First time this morning."[223]

214 Maletsky had, however, previously given evidence about this invoice. On the fourth day of the trial, Maletsky was directed to the invoice and asked to identify the various line items. Maletsky gave the following evidence:

The first item, do you know what that is for?... Probably the sale and purchase agreement.

You have no recollection - sorry, you say probably, do you have any recollection one way or the other? ... No, just looking at the round numbers it's usually the legal fees.[224]

215 The invoice was not tendered at this point and was only referred to as "a tax invoice dated 5 August 2014."[225] The first item on the invoice, referred to above, is the "Sale of Equipment at tr Fitzroy."[226] The evidence given by Maletsky on the eleventh day of proceedings clearly contradicts his previous evidence.

He [Maletsky] gave evidence back in May about the same document [exhibit 42], gave sworn evidence in front of Your Honour back in May, he had the most vague description of it, things that were obvious from the face of the document, he turns up now eight months later professing to have a photographic recall of the invoice and saying to Your Honour completely at odds with the evidence he's already given that the first time he looked at it was this morning, totally unbelievable, he has literally contradicted his own evidence.[227]

217 Mr Whelen submitted that the significance of the contradictions in Maletsky's evidence is that the Court should prefer and accept Singh's evidence about exhibit 42 to Maletsky's evidence. I accept this submission.

218 Rizk also gave evidence regarding this disputed line item. Rizk said "I believe that was a cake display freezer, an upright cake display freezer" that would have come from storage "to replace the one that was at the store."[228] While this does support the second version of the evidence given by Maletsky, this is not evidence of any loss or damage stemming from the provision of faulty Plant and Equipment by the first defendant. If the cake display freezer came from storage, the plaintiff has not established that it has suffered any loss in providing that freezer to Singh. The plaintiff has not provided evidence that resolves this conflict in the evidence.

219 The claim for $5,000 in relation to the cake display at Fitzroy is thus unsubstantiated, as it is unclear whether the plaintiff has suffered this loss.

220 Despite these findings, it is still appropriate to address the bases upon which the plaintiff claims loss and damage, as if these findings had not been made.

Breach of warranties implied by s19 of the Goods Act

221 The plaintiff claims damages for breaches of warranties said to have been implied in the Asset sale and purchase agreement by s19 of the Goods Act, as the Plant and Equipment provided by the defendant were allegedly not fit for purpose, nor of merchantable quality.[229] According to the plaintiff, the Plant and Equipment were "defective." In closing submissions, the plaintiff did not rely on any evidence adduced at trial, claiming instead that the claim is made out as "No evidence was given to rebut the evidence given that these items were defective or the amount claimed."[230]

222 In the absence of any assistance from the plaintiff as to how the fitness for purpose and merchantable quality of the Plant and Equipment are to be determined, it is reasonable to rely on the principles that enliven these terms under ss19(a) and (b) of the Goods Act. By basing its claim on the Goods Act, the plaintiff has indicated its intention to be bound by these principles and have its case evaluated against them, despite not addressing these principles in the pleadings nor in submissions.

223 The requirement that goods be fit for purpose[231] is enlivened when a buyer makes known to the seller (whether expressly or by implication) the particular purpose for which the goods are required, which demonstrates that the buyer relies on the seller's skill or judgment and that the goods are of a description which it is in the course of the seller's business to supply.[232] Whether the goods are fit for purpose must be determined with reference to the circumstances of the case.[233]

224 While the plaintiff did not explicitly present any evidence at trial to prove that the plaintiff made known to the defendant the particular purpose for which the goods were required, the purpose can be argued to have been implied by reason of the terms of the Asset sale and purchase agreement. It would have been clear to the defendant that the plaintiff intended to use the Plant and Equipment for the same business that the Trampoline stores had been engaged in prior to the sale of the business. The plaintiff did not, however, produce any evidence to show that this purpose was communicated to the defendant in a way that showed that the plaintiff relied on the seller's skill or judgment. This is not automatically demonstrated where a particular purpose is made known to a seller and reliance is not "readily inferred in circumstances where commercial parties are transacting".[234] In the absence of such evidence, it cannot be found that the plaintiff relied on the first defendant's skill or judgment.

225 There was also no evidence that the Plant and Equipment listed in Annexure A were items that were supplied in the course of the first defendant's business. For a seller to be considered to be dealing "in goods of the description supplied", the seller's business must be such that the seller is willing to accept orders for goods of that description.[235] There was no evidence presented at trial that Fresh Retailing is regularly involved in selling these items of Plant and Equipment.

226 An implied warranty that goods are of merchantable quality applies "where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not)".[236] For the plaintiff to succeed in their claim that there was such an implied warranty, they must demonstrate that the goods were bought by description from a seller who deals in goods of that description. This is subject to a proviso that if the buyer has examined the goods there is no implied condition in relation to defects that should have been noted during such an examination.[237] Defects must be related to the quality or condition of the goods having regard to their description in contract.[238]

227 Goods will be considered to have been "bought by description" when the purchaser has not seen the goods prior to purchase and relies on their description alone.[239] Schedule 9 to the Asset sale and purchase agreement sets out short descriptions of each item of Plant and Equipment. The plaintiff, however, conducted an inspection of all items of Plant and Equipment prior to settlement. Raatz attended Trampoline stores before settlement to "physically verify the assets were there and to check they were working."[240] This transaction therefore cannot be considered to be a sale by description.

228 As stated above, for a seller to be considered to be dealing "in goods of the description supplied", the seller's business must be such that the seller is willing to accept orders for goods of that description.[241] There is no evidence that Fresh Retailing is involved in selling these items of Plant and Equipment.[242]

229 In light of the above, the requirement that the goods be of merchantable quality does not apply to Fresh Retailing's sale of Plant and Equipment. I therefore agree with the first defendant's submission that there is no evidence that the plant and equipment was bought by description from Fresh Retailing or that Fresh Retailing dealt with goods of that description.

230 The plaintiff has not presented any argument capable of proving that the Plant and Equipment were provided by the defendant in circumstances where these items should have been fit for purpose or of merchantable quality as provided for by the Goods Act.

The effect of clause 20.1 of the Asset sale and purchase agreement

231 The defendant submitted that the claim relating to the Goods Act falls within the limitation of liability clause in the Asset sale and purchase agreement.[243] Clause 20 provides:

20.1 To the maximum extent permitted by law:

(1) all terms, conditions and statements (whether express, implied, written, oral, collateral, statutory or otherwise) in connection with the transactions contemplated by this Agreement which are not expressly set out in this Agreement are excluded and, to the extent they cannot be excluded, the Seller disclaims all liability that it may have in relation to them; and

(2) the Purchaser must not make any Claim under or in connection with this Agreement unless it is based solely on and limited to the express provisions of this Agreement and irrevocably waives all rights that it may have to make any Claim against the Seller or any of its Personnel other than under the express provisions of this Agreement or the Transaction Documents.

232 The defendant further submitted that the plaintiff has not suggested any basis for refuting this defence.[244] The onus of proof, however, lies with the first defendant, as the party seeking to rely on the clause.[245] No additional submissions were made by the defendant regarding the applicability of the Goods Act in light of clause 20.1.

233 Section 61 of the Goods Act provides:

Exclusion of implied terms and conditions

Where any right duty or liability would arise under a contract of sale by implication of law it may be negatived or varied by express agreement or by the course of dealing between the parties or by usage if the usage be such as to bind both parties to the contract.

234 Parties are therefore able to contract out of liability arising under the Goods Act. The issue that must be considered is whether clause 20.1 of the Asset sale and purchase agreement is sufficient to exclude the application of the Goods Act to the transaction that is the subject matter of these proceedings. It is thus necessary to consider basic principles of the construction and interpretation of such clauses.

235 The court has "a tendency... to look carefully at the precise terms of a document which limit, restrict or release rights".[246] However, the court "will not interpret a limiting term so as to pervert the meaning of clear language".[247] The High Court has previously held that the meaning of a limiting term:

... is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.[248]

236 This is a situation where a restrictive view of the exclusion clause is unwarranted. In Photo Production Ltd v Securicor Transport Ltd, it was held that: [249]

In commercial matters generally, when the parties are not of unequal bargaining power, and when risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said... for leaving the parties free to apportion the risks as they think fit and for respecting their decisions.

In commercial contracts negotiated between business-men capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can be most economically borne (generally by insurance), it is, in my view, wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only even after due allowance has been made for the presumption in favour of the implied primary and secondary obligations.

237 The parties in this case are commercially experienced business entities and operators of equivalent bargaining power. A narrow view of the exclusion clause is therefore not appropriate.

238 Clause 20.1 refers to "terms" that may be "statutory" or "implied".[251] I interpret this as the parties understanding that they are held to obligations outside of the contract into which they are entering, which would be implied into the contract in the absence of a properly-worded exclusion clause.

239 While this issue has already been dealt with, further weight is lent to the parties intending to exclude the Goods Act and other implied obligations when considering the way that the Stock was dealt with in the Asset sale and purchase agreement. The parties used wording that repeats "the terms that are implied by section 19 of the Goods Act."[252] Clause 5.1 of Schedule 1 to the Asset sale and purchase agreement refers to there being a warranty that the Stock will be of merchantable quality and fit for purpose. This express warranty indicates an intention to provide a warranty within the confines of the Asset sale and purchase agreement, thus providing a remedy for breach within the agreement and excluding the liability otherwise implied by the Goods Act. No such express warranty was included in the Asset sale and purchase agreement in relation to the Plant and Equipment.

240 I do not find that there is sufficient ambiguity to read the term contra proferentum. The language in the clause is clear and has been drafted broadly by parties experienced in commercial transactions. The clause should therefore be given its "natural and ordinary meaning".[253]

241 I find that there is sufficient weight to the argument that the parties turned their minds to terms implied by the Goods Act and other statutes and drafted clause 20.1 in an effort to exclude such obligations where permitted by law. The Goods Act specifically permits such exclusion. The Goods Act therefore is not implied in relation to the Plant and Equipment, and the allegedly implied warranties that the Plant and Equipment are fit for purpose and of merchantable quality are not applicable.

Contravention of s18 of the Australian Consumer Law

242 Should the claim not succeed under s19 of the Goods Act, the plaintiff claims that the first defendant contravened s18 of the Australian Consumer Law by way of oral representations made by Walton prior to the plaintiff entering into the Asset sale and purchase agreement.[254]

243 At the outset of the trial, the plaintiff claimed that the first defendant breached this provision through oral representations made by Walton during conversations with Gordon, where Walton assured Gordon that "all of the Plant and Equipment sold pursuant to the Agreement was in good, working order and had been regularly maintained."[255]

244 Section 18 of the Australian Consumer Law provides that:

(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

245 The plaintiff has since abandoned its claim that Walton made an express representation regarding the Plant and Equipment being in "good working order".[256]

246 Whether Walton made representations about the Plant and Equipment being regularly maintained is not in dispute.[257]

247 While no other evidence was relied on in closing submissions, further evidence on this point was given at trial. Maletsky, when asked how much the plaintiff spent on repairs and maintenance in 2013/14 after settlement, said it was "approximately 2 per cent" of sales for that year.[258] No documentation was provided to attest to the accuracy of this statement. Gordon, when asked about claims made by Walton, stated "She said it had been regularly maintained, which means if you maintain it, my logic says it works otherwise you wouldn't maintain it."[259]

248 I am not satisfied on a balance of probabilities that the Plant and Equipment had not been regularly maintained. In closing submissions, the plaintiff relied on the profit and loss statements provided by Fresh Retailing, which show the amounts spent on repairs and maintenance in the financial years 2011/12 and 2012/13.[260] In 2011/12, the defendant spent $48,275.34 on repairs and maintenance, which equated to 1.91% of sales over the financial year. The plaintiff noted that this was reduced to $33,043.18 in 2012/13, which equated to 1.21% of sales. The plaintiff has not shown that Walton's statements were misleading or deceptive.

249 Should Walton's statement be found to be misleading or deceptive, I turn now to the question of reliance on the impugned conduct. The plaintiff claimed that it entered into the Asset sale and purchase agreement in reliance upon the representations made by Walton.[261] The first defendant submits that the plaintiff's case is therefore a "no transaction" case - that, "but for the representation/s, the plaintiff would not have entered into any deal at all."[262] The first defendant submits that "it is not believable to think that the entire transaction might have fallen over"[263] on the basis of the allegedly misleading statements on which this claim is based. There was no evidence given by the plaintiff at trial to contradict this submission or to show the alternate path the plaintiff would have chosen should the representation not have been made. Reliance on Walton's representations has thus not been proven by the plaintiff.

250 If, contrary to the above, the statements made by Walton were found to be misleading or deceptive, the Court is required to determine whether there is a sufficient nexus between the impugned conduct and the loss and damage claimed by the plaintiff before damages can be awarded.[264] As stated in the above paragraphs 201 - 205, the expenditure detailed in Annexure A has been determined to be attributable to routine repairs and maintenance, rather than being exceptional. Further as stated in the above paragraphs 206 - 219, I am not satisfied on a balance of probabilities that the plaintiff has incurred a loss of $13,448 for rectification costs of the "Aircon unit" at St Kilda and the "cake display" at Fitzroy. By this reasoning, there is no nexus between the representations made by Walton and the loss claimed, as the loss has not occurred.

251 The plaintiff has failed to substantiate any claim for loss and damage for faulty Plant and Equipment. The plaintiff's attempt to rely on the defendant's lack of evidence to disprove their claims is not sufficient, as the defendant is unable to present evidence to refute a claim for which little to no evidence is relied upon by the plaintiff.

252 The plaintiff's claim against the first defendant for damages for defective Plant and Equipment[265] is dismissed.

Seventh Claim - False and misleading representations and conduct

253 In paragraph 26 of the ASC the plaintiff claims that Fresh Retailing and Burra each represented to the plaintiff that Burra:

1. would supply gelato and sorbet both flavoured as per agreed recipes ("Ice cream Pre mix Base") for a period of 5 years with an option of a further 5 years commencing January 2014 [the five plus five representation]; and

b. the price for Ice cream Pre mix Base was set to be reviewed annually on a rise and fall basis, dependant on the costs of raw material (the 'rise and fall basis").

254 The plaintiff alleges that the representations were partly in writing and partly oral.[266] Insofar as they were written "they are contained in the email from Grant Crothers, the Chief Executive Officer and director of Burra Foods and director of Fresh Retailing on behalf of the Defendants to Stan Gordon of the Plaintiff dated 12 August 2013 and email from Amanda Walton the Chief Executive Officer of Fresh Retailing to Stan Gordon of the Plaintiff dated 3 September 2013". In the email by Crothers dated 12 August 2013 Crothers stated that "opportunity for a rise and fall clause to be explored".[267]

255 Crothers gave the following evidence about that opportunity:

After that email, so from 12 August 2013 onwards - sorry I will start again - was that offer ever accepted by Mr Gordon?...No, definitely not.

After this email was sent and in the period leading up to signing of the contracts do you recall any verbal discussions with Mr Gordon about rise and fall pricing?...No there was no discussions.[268]

256 The plaintiff pleads that in so far as the representations were oral:

...it was constituted by conversations to the effect between Mr Crothers and Ms Walton on behalf of Fresh Retailing and Burra Foods and with Stan Gordon of the Plaintiff in or about September 2013 at the offices of the Plaintiff and the Defendants.[269]

257 The matter was previously listed for trial in November 2016. On the eve of that trial on 23 November 2016 the defendants' solicitors sought particulars and asked the plaintiff to "state whether the alleged conversations took place in September 2013 before or after the signing of the contract." The response came six months later on 21 April 2017 after the November trial date had been vacated. Paragraph 3 of the letter by Comlaw provides:

As per paragraph number 3 of your letter we object to answering this as per your request is an interrogatory and is not a proper request for particulars. Under cover of such objection, it is clear from the pleading that the representations were made before the execution of the Agreement... They were made in the first week of September 2013.[270]

258 However Gordon gave evidence that the conversation that he was relying on occurred on the day of signing, not during the week leading up to the signing, but at the signing.[271]

259 In relation to the oral representation, the plaintiff relies on the oral evidence given by Gordon. Gordon said that a meeting was held in Burra's meeting room on 4 September 2013. When asked whether anything was said at that meeting about the supply by Burra to Trampoline, Gordon stated:

Absolutely. Grant wanted the - we talked about the ongoing supply, which we agreed to, and I said, I remember it quite clearly, because I said, "Obviously, we can set a price, and it be the normal price in clearances based on raw material". And he said words to the effect is, "Absolutely, that would be normal". Which has been normal within our industry.[272]

260 Gordon did not say that the words rise and fall were used. Further when cross-examined Gordon was not sure whether the rise and fall representation was made before or after the Asset sale and purchase agreement was signed.

I am just saying the following day there was the signing. 4 September?...Yes.

Do you accept that?...Yes

As the right date?...Yes

You say some important things, your evidence yesterday was some important things were said to you at that meeting?...That - that's correct.

They were said to you by Mr Crothers?...That's correct.

You cannot remember if it was before signing or after signing?...I don't remember.

It could have been before signing?...It could have been concurrent with signing the documents...

Could have been after signing?...Could have been before, after or together. I have no - I - no. I don't know.[273]

261 As previously stated, the parties entered into the Asset sale and purchase agreement on 4 September 2013. On 19 September 2013 Desmond John Reilly (Reilly) forwarded an email to Gordon stating that "we are currently in the process of drafting a supply agreement covering operations and trading terms to apply for Trampoline from 1st October. We hope to have the draft available for review by early next week."[274] Reilly is the sales manager for food ingredients for Burra.[275] On the same day Gordon replied to Reilly stating that "at this stage I will not be entertaining supply agreements."[276]

262 On 25 September 2013 Reilly sent an email to Gordon attaching a letter outlining the trading terms to apply for deliveries to Trampoline Gelato stores with effect from 1 October 2013.[277] On the same day, Gordon replied that these were not the terms represented by Walton and Crothers. Gordon asked Reilly to send the document in MS word so that he could mark it up urgently.[278] Reilly forwarded the document dated 25 September 2013 to Gordon. Gordon revised the Trading Terms.[279]

263 The parties entered into the Trading Terms as revised by Gordon on 25 September 2013.[280] The Trading Terms provide that Burra agreed to sell to Trampoline Enterprises the products required to run the Trampoline stores for a nine month period at a fixed price. That ended on 30 June 2014. Gordon had been given the opportunity to edit that document. As indicated in the letter revised by Gordon on 25 September 2013, Gordon did not add anything to the proposed Trading Terms about the rise and fall clause. He did however make some amendments to the rebate levels. [281]

Validity

The above Trading Terms apply until 30th June, 2014 by which time they will be reviewed and transitioned to a Supply Agreement.

265 The representations are alleged to have been made before the Trading Terms were entered into on 25 September 2013. When cross-examined Gordon was asked why there is no mention of rise and fall, given that he had an opportunity to edit the document in Word.

There is no mention there of rise and fall, is there?...No, there isn't.

Why not?...Didn't think it was important. Price - price reviews from my experience of 17-odd years in the retail reviews from my experience of 17-odd years in the retail ice cream business is price - when there's a price review it's based on normal raw ingredients costs going up and down.[282]

266 The alleged representations were made before Gordon told Burra that he would not be entertaining supply agreements.[283]

267 In May 2014, two months before the expiration of the nine month period, Burra notified the plaintiff that effective from 1 July 2014 there would be a 25 per cent increase in prices.[284]

268 It was not until final written submissions were exchanged that the plaintiff withdrew the five plus five representation. The withdrawal is contained in paragraph 29 of the plaintiff's outline of closing submissions. The defendants submit that this was a material withdrawal because it was the only basis on the pleaded case that the defendants had ever said or done anything that might have given Gordon any expectation that supply was going to extend beyond 30 June 2014, being the date stated in the Trading Terms.

269 I regarded Crothers as a reliable and honest witness. Gordon said in evidence that Crothers was an honest businessman.[285] Crothers conceded that he could not recall what was said on the signing day. However he also said that there were no discussions with Mr Gordon about the rise and fall clause.[286]

270 Walton did recall the meeting on 4 September 2014 which was held at the defendant's office on the day the documents were signed. She said that a person called Mike Heinz (Heinz) was present at the meeting on that day. She said that there were no discussions in her presence at the signing or in the lead up to signing regarding rise and fall.[287] When asked whether anything was said at the meeting on the signing day about the supply by Burra to Trampline post-sale, Walton said:

No, it wasn't. In fact, I commented to Grant after the meeting that I was shocked that Mr Gordon had not raised the topic of supply and was querying what his motive might have been in that regard, because I found it amazing that he'd signed a sales and purchase agreement without actually securing supply.[288]

271 In its written submissions, the plaintiff submitted that it is surprising that the defendants chose not to call Heinz to give evidence. Counsel for the defendants, Mr Whelen, submitted that the plaintiff's particulars state that the oral representation was made in a conversation between Crothers and Walton on behalf of Fresh Retailing and Burra Foods. The date of that conversation was not given. It was not until the seventh day of the trial that Walton said that Heinz was present at the meeting on 4 September 2013. I am however prepared to draw an inference that his evidence would not have assisted the defendants' case. I am not prepared to draw the inference submitted in the plaintiff's written submissions that Heinz' evidence would have corroborated the evidence given by Gordon that the representations were made.

272 In a letter dated 23 May 2014 Reilly wrote to Rizk, head of operations for Franchised Food and Trampoline Enterprises, stating that "Based on prevailing higher milk prices and without additional volume a 25% increase in prices is to apply."[289]

273 Gordon responded by letter dated 27 May 2014 in the following terms: [290]

Although not great news, I was indeed presently surprised to receive your note. I had believed that, based on Amanda's rehetoric vile the relationship was irreparably damaged...and perhaps it was just that reason that the Cold Rock project stalled.

Arguably, your communication has reopened this opportunity for both parties to obtain benefit and therefore, on your conformation [sic] I would like to explore this further.

However, both Kasey and I go away for some 3 weeks in June.

Therefore I ask if you would consider retaining current pricing for a further 6 months (until 30 December 14) so that we can either explore a resolution on volume; alternatively look to reformulate the Trampoline product so that there is a business case so as to ensure operationally it all works.

274 In that letter Gordon did not dispute that milk prices had gone up. There is no mention of a rise and fall arrangement.

275 In Watson v Foxman[291] McLelland CJ said:

Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously describe as "misleading") within the meaning of s52 of the Trade Practices Act 1974 (Cth)(or s42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not...attained or established independently of the nature and consequence of the fact or facts to be proved" including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences from a particular finding." Helton v Allen [1940] HCA 20; (1940) 63 CLR 691 at 712.

Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a cause of action based on s52 of the Trade Practices Act 1974 (Cth) (or s42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration. That is the position in the present case. There is no contemporaneous document in evidence which supports the making of any such promise or representation as is relied on and no other satisfactory corroboration.

276 Having considered the whole of the evidence, I find that Crothers did not make the alleged representation as to rise and fall. The particulars that were given two weeks before the trial were that the alleged representations occurred a week before signing. In the witness box Gordon said that the representation was made on the day of signing and in cross-examination Gordon said that the representation might have happened after signing. Gordon's evidence falls short of the representation alleged in the particulars. In his oral evidence, Gordon did not say that the price for Ice cream Pre mix Base was set to be reviewed annually.

277 Further in the particulars to paragraph 26 of the ASC the plaintiff alleged that the five plus five representation between Crothers and Gordon was made during the same conversation as the rise and fall representation. This allegation was withdrawn by the plaintiff in its written submissions after the evidence had concluded. This withdrawal indicates that there was some uncertainty about what was said during the alleged conversation between Crothers and Gordon.

278 I prefer Walton's evidence to Gordon's evidence as to whether the rise and fall representation was made. Walton's evidence is clear. She was shocked that supply was not mentioned.[292]

279 I do not accept Gordon's evidence that the rise and fall representation was made.

280 Even if the rise and fall representation was made, (which was not established on the evidence), I am not satisfied that the plaintiff relied on the representation. In my view there was no relevant connection between the alleged conduct and the plaintiff's loss because the plaintiff would have entered into the Asset sale and purchase agreement regardless. Gordon in cross-examination stated that he was not sure whether the alleged representation was made before or after he signed the Asset sale and purchase agreement. Accordingly paragraph 29 of the ASC that "In reliance upon the representations referred to in paragraph 24 and 26 herein, the Plaintiff entered into the Agreement" has not been made out.

281 When questioned about his reliance on the alleged representation, Gordon stated:

Your conduct after the deal was done demonstrates you placed no reliance whatsoever on the proposition that price would only rise and fall according to raw ingredients. You had multiple opportunities, didn't you, to lock that in, in writing?...I had multiple opportunities to do lots of things.

You had multiple opportunities to lock in, in writing, a commitment about rise and fall?...I don't know how to answer the question.

It's simple, you had lots of opportunities, didn't you; we have been through all the evidence of the various offers that were made and various overtures that were made?...There were opportunities to enter into an agreement, yes, correct, fixed agreement.

That would have provided you that?...Yes, correct.

And you didn't take up any of those opportunities?...I didn't - I didn't not take up any opportunities, I didn't initiate any opportunities.

And when they were offered to you, you didn't take them up?...No, that's not correct. I didn't take it up at that period, ten days before settlement.

What about after settlement?...As I said I didn't initiate anything further. The note to me said there would be a supply agreement that would be sent to me before the end of December.

So when the price rise came through did you go back to them and say, well what about the supply agreement that you had flagged?...No, I didn't.

And the reason you didn't is because all along you had made a choice, a simple choice to move to Bulla?...That's not correct.

The price that Burra was offering you up to a point in time, the price that Burra was going to offer you after that point in time was of no relevance to you, because you knew you were moving to Bulla?...Not correct.

And that's why you didn't at any point either insist on a rise and fall clause being put into the various documentation you signed?...Is that a question? No, that's not correct.

And it's why you never raised it after the proposed price increase was notified to you?...I did raise it. I think I did, maybe not in those words, but I did raise it, if I can explain, if Your Honour will let me.

Rather than having an extensive answer, you did not pick up the phone or send an email or letter to Grant Crothers saying, "What is going on? You gave me this commitment"?...No, I didn't.[293]

282 Mr Whelen also submitted that besides the claim not being made out, the parties were bound by the Asset sale and purchase agreement which includes a "no reliance" clause limiting the effect of extra-contractual representations[294] as well as an extensive "Limitation of Liability" clause[295] and an "entire agreement" clause.[296]

283 The cases establish that a disclaimer or exclusion clause in a contract cannot be relied upon to exclude liability for misleading or deceptive conduct.[297] However the clause is part of the surrounding circumstances which must be considered in order to determine the question of whether or not conduct is misleading or deceptive.[298]

284 An exclusion clause may however be relevant to the question of causation. As the Full Federal Court explained in IOOF Australia Trustees (NSW) Ltd v Tantipech :[299]

Although an exculpatory clause cannot be relied on to answer a claim based on s52, the fact that an applicant states that he was not induced to enter into an agreement in reliance on representations may bear upon the question whether he should be believed when he asserts that the representations were an inducement....

285 The plaintiff claims that Crothers made an express misrepresentation that the price for the Ice cream Pre mix Base was to be varied on a rise and fall basis. Should the claim regarding the express misrepresentation fail, the plaintiff claims that there was a misrepresentation by silence.[300]

286 The plaintiff alleges that the defendants were aware that Burra was losing money on the production of the Ice cream Pre mix Base and could not sustain the supply of it at the set prices with a rise and fall dependant only on the costs of raw materials.[301] The plaintiff pleads that the defendants' silence on such subject was misleading and deceptive.[302]

287 The plaintiff pleads that the failure by the defendants to disclose that Burra could not sustain the supply of the Ice cream Pre mix Base at the set prices with a rise and fall dependant only on the costs of raw materials[303] was false and misleading in contravention of s29(1)(a) of the Australian Consumer Law.[304]

288 Section 29(1)(a) of the Australian Consumer Law provides:

29 False or misleading representations about goods or services

(1) A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:

(a) make a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular use.

289 In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd[305] (Miller) French CJ and Kiefel J stated that a pleading of misleading or deceptive conduct requires consideration of the words of the relevant statute.

The cause of action for contravention of statutory prohibitions against conduct in trade or commerce that is misleading or deceptive or is likely to mislead or deceive has become a staple of civil litigation in Australian courts at all levels. Its frequent invocation, in cases to which it is applicable, reflects its simplicity relative to the torts of negligence, deceit and passing off. Its pleading, however, requires consideration of the words of the relevant statute and their judicial exposition since the cause of action first entered Australian law in 1974. It requires a clear identification of the conduct said to be misleading or deceptive.

290 The conduct alleged by the plaintiff does not give rise to a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or use and does not fall within the ambit of s29(1)(a) of the Australian Consumer Law. Accordingly the plaintiff's claim that the defendants' silence that it was losing money and could not sustain supply is false and misleading contrary to s29(1)(a) of the Australian Consumer Law is dismissed.

291 In any event, the alleged representation by silence concerns the future supply of Ice cream Pre mix base by Burra. In relation to representations with respect to future matters, s4 of the Australian Consumer Law relevantly provides:

4 Misleading representations with respect to future matters

(1) If:

(a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b) the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of this Schedule, to be misleading.

292 The plaintiff has withdrawn the five plus five representation. Accordingly the defendants did not make a representation that Burra would supply the ice cream base after the 9 month period stated in the Trading Terms. The fact is that the parties contracted to supply the Ice cream Pre mix base for a period of 9 months at set prices. The Trading Terms did not refer to future supply and Gordon refused to discuss future supply at that stage. The plaintiff does not make any allegation that Burra failed to supply the Ice cream Pre mix base in accordance with theTrading Terms. Accordingly there does not appear to be a basis for the plaintiff's allegation that it has suffered loss and damage by reason of the defendants' failure to disclose that Burra could not sustain the supply of the Ice cream Pre mix Base.

293 I am not satisfied that Burra could not sustain the supply of the Ice cream Pre mix Base at the set prices with a rise and fall dependant only on the cost of raw materials.

294 The plaintiff submits that Burra's inability to sustain the supply of the Ice cream Pre mix base is demonstrated by the financial year summary for Burra which shows the extent of the losses that were being sustained by Burra in its ESL division.[306]

295 In his evidence Crothers confirmed that the EBITDA (earnings before interest tax depreciation and amortisation) shows that at the time the parties were negotiating the Asset sale and purchase agreement (August/Septmber 2013), Burra was not losing money on the production of Ice cream Pre mix Base.[307] Later by the end of the 2014 financial year, Burra was losing money on the production of Ice cream Pre mix base, but this was because there had been a surge in milk prices.[308] I accept Crothers' evidence that the loss of $114,782 for the 2014 financial year makes sense "knowing that there was a $145,000 increase in our ingredients that sort of trades it off for me."[309] At that time Burra could not pass those increases on the plaintiff because Burra was locked into supplying the plaintiff at prices that had been set by the Trading Terms on 25 September 2013.[310]

296 The plaintiff referred to a White Base Costings document prepared by Burra in May 2013 (White Base Costings document).[311] The plaintiff submits that this is a tabular comparison of the Burra ESL division's profitability, with and without Cold Rock as a new customer. Exhibit 48 indicates that if Burra secured (a) 50% of the Cold Rock business requirements, the gross margin would be 22% (b) 100% of the Cold Rock business, the gross margin would be 31% and (c) if Burra secures 0% of the Cold Rock business, the gross margin would be -34%. The plaintiff submits that the document confirms that as early as May 2013, Burra knew that its ESL division could not be profitable at its current pricing levels unless it could secure substantially more volume.

297 Crothers was cross-examined about the White Base Costings document. He said that he was confused because the volumes stated in that document are "spectacularly low"[312]. The White Base Costings document only referred to white base, not flavoured semi-finished product. I accept Crother's evidence that white base base mix is a very small portion of Trampoline's demand.[313]

298 The plaintiff also submits that Burra's Executive meetings in November 2013 recorded consideration of closing the ESL divison. The plaintiff did not allege that Burra closed the ESL division during the 9 month period set out in the Trading Terms. Burra kept producing the Ice cream Pre mix Base until after July-August 2014 when the plaintiff stopped placing orders.[314]

299 Insofar as the alleged representation by silence was a future representation, s4(1)(b) of the Australian Consumer Law provides that the representation is misleading if the person does not have reasonable grounds for making the representation.

300 The defendants' case is that it had reasonable grounds for maintaining that it could sustain the supply of the Ice cream Pre mix Base at set prices with a rise and fall dependent only on the costs of raw materials even though it was not contractually bound to do so.

301 Crothers referred to the Financial Year Summary for Burra in the years 2012, 2013 and 2014.[315] Crothers referred to the EBITDA for each of those years and said that the EBITDA of $1,306 for the 2013 year was at breakeven point. I accept Crothers' evidence that Burra was not losing money at the time of the negotiations and that the loss in the 2014 year was as a result of the increased cost of raw materials, being a surge in farmgate milk prices between October 2013 and May 2014.[316]

302 In September 2013, at the time of these negotiations, Gordon was entertaining a change in his Cold Rock business by permitting Burra to start supplying Ice cream Pre mix Base to Cold Rock. On 4 September 2013 Gordon signed a best endeavours letter.[317] The letter states:

Using the table below as a guide the Parties agree to use their best endeavours to have Burra established as an Accredited Supplier within 12 months of this letter being executed.

Establish acceptable taste profile with CRM and selected franchisees

Production trial on selected batch freezer (evaluation includes Yield and mix vicosity)

Final approval by manufacturing franchisees (typically Vic x 1, NSW x 1, Qld x 2)

Final approval by CRM/Franchise Food Company Pty Ltd

As franchisor, CRM is not able to assure uptake of the Burra-produced accredited ICM by franchisees. However, upon Burra achieving Accredited Supplier status, CRM agrees to use its best endeavors [sic] to assist Burra in seeking to achieve uptake post-accreditation.

303 Burra designed and hand delivered a product that it felt matched the existing Cold Rock base and hand delivered it to the plaintiff.[318] There was some initial interest and encouragement to do trials and some taste profiling but then it went "very cold."[319]

304 Having considered the whole of the evidence, I am satisfied that the defendants had reasonable grounds for maintaining that Burra could sustain the supply of the Ice cream Pre mix Base at the set prices with a rise and fall dependant only on the costs of raw materials.

305 The plaintiff relies on the above misrepresentations allegedly made by the defendants to support claims that the defendants engaged in unconscionable conduct. In addition to claiming that the defendants silence was misleading and deceptive conduct in breach of s29(1)(a) of the Australian Consumer Law, the plaintiff claims that the same conduct amounts to unconscionable conduct contrary to ss 20 and 21 of the Australian Consumer Law. The plaintiff alleges that the defendants were aware that Burra was losing money on the production of the Ice cream Pre mix Base and could not sustain the supply at the set prices with a rise and fall dependant only on the costs of raw materials.[320]

306 The plaintiff claims that Burra, Trampoline's "sister company", had been losing money on the production of Ice cream Pre mix Base but it was not disclosed to the purchaser prior to the execution of the Asset sale and purchase agreement in September 2013. In addition to the support given by Burra by favourable pricing of pre-mix base, Crothers injected in excess of $300,000 to ensure the survival of Trampoline which continued to incur losses.[321]

307 As indicated by exhibit 49, this matter was the subject of email correspondence between Walton and Maletsky. Crothers was taken to exhibit 49 and was asked whether it showed that Trampoline was running at a loss and needed to be propped up by its owners. Crothers said it looked like money to fund the opening of a new store.[322] Walton said that the net cash injection was $318,015.42. I accept Walton's evidence that the money was advanced for the purpose of opening a new store in Queensland (Sunshine Plaza).[323]

308 The plaintiff claims that having sold Trampoline to an unwitting and independent purchaser, Burra increased the price for Ice cream Pre mix Base by 25% just eight months after the Asset sale and purchase agreement was signed, even before the third instalment of the purchase price was payable.

309 The plaintiff submits that the defendants' conduct was unconscionable contrary to ss20 and 21 of the Australian Consumer Law[324] as there was a reasonable expectation on the part of the plaintiff that the defendants would disclose that Burra could not sustain even in short term the supply of Ice cream Pre mix Base to Trampoline at its current price level, even with increases based on rise and fall.

310 As stated in the above paragraphs 293 to 304, I do not accept the plaintiff's submission that Burra could not sustain the supply of Ice cream Pre mix Base to Trampoline at its current price level, even with increases based on rise and fall.

311 Section 20(1) of the Australian Consumer Law provides:

A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time.

312 The plaintiff relies on evidence from Walton that she was "shocked" that Gordon had not raised the topic of supply during the meeting when the Asset sale and purchase agreement was signed and that she "found it amazing that he had signed a sales and purchase agreement without actually securing supply".[325] Walton was asked the following questions in cross-examination:

...Whilst Burra was supplying Trampoline when it was a Crothers family concern, there was no risk of an out of proportion to raw materials increases for the supply of premix, all right. But once he's dealing with you, as opposed to an internal customer which is what, I think, Mr Reilly called it, an internal customer, once it became an external customer Trampoline was vulnerable to price increases without having some kind of supply agreement or at least supply discussion having taken place?...He obviously didn't think that he was vulnerable because we didn't discuss it and that's why I commented that... I was surprised. That's why I commented that I was surprised, after the meeting, that I was very surprised that he didn't raise it and that made me think that he was either going to seek an alternative supplier or that he was very sloppy. Now, I know that he has reasonable attention to detail, so I concluded with no information apart from the fact that he hadn't actually asked for a supply agreement, that he had alternative plans for supply.[326]

313 The plaintiff submits that Walton's evidence indicates that the defendants had knowledge of the plaintiff's position of disadvantage. The plaintiff submits that Trampoline Enterprises was vulnerable to a change in policy by Burra to no longer subsidise its "internal customer" through unsustainable volume at unsustainable pricing. The plaintiff submits that in not disclosing this knowledge to the plaintiff, the defendants unconscionably exploited the plaintiff's position of disadvantage.

314 In Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Limited[327] (Berbatis) Gleeson CJ discussed the meaning of "disadvantage" in circumstances where it is alleged that the unconscionable conduct in question was "the knowing exploitation by one party of the special disadvantage of another". At paragraphs 11-13 Gleeson CJ stated:

One thing is clear, and is illustrated by the decision in Samton Holdings itself. A person is not in a position of relevant disadvantage, constitutional, situational, or otherwise, simply because of inequality of bargaining power. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests.

In Amadio, Mason J said that the point of using the qualifying word "special" before "disadvantage" in this context is "to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasise that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests". It was the inability of a party to judge his or her own best interests that was said by McTiernan J in Blomley v Ryan, and again by Deane J in Amadio, to be the essence of the relevant weakness.

The adjective "special" was also used by Kitto J in Blomley v Ryan when he referred to the "well-known head of equity" invoked in that case. He said:

"It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands."

315 In Berbatis Gleeson CJ held that all the people involved in the transaction were business people, concerned to advance or protect their own financial interests. Although the lessees in that case were at a distinct disadvantage, there was nothing "special" about it.[328]

316 I am not satisfied that the plaintiff was at a special disadvantage in this case. Gordon is an experienced businessman. Gordon is one of the directors of Franchised Food Company which owns various brands including Cold Rock, Mr Whippy, Pretzel World and other businesses.[329] Cold Rock is in the ice cream business. Cold Rock has about 110 stores across Australia. Bulla supplies Cold Rock with its Ice cream Pre mix Base.[330] Bulla supplies the base mix to five factories in four states who manufacture flavoured ice cream and deliver it to Cold Rock stores.[331] Gordon is familiar with, and has knowledge of, the ice cream business. Gordon is familiar with ice cream supply and ice cream suppliers.

317 The defendants offered to enter into a supply agreement with the plaintiff.[332] Gordon rejected the defendants' offer. As set out in the above paragraphs 262-263, the plaintiff was given the opportunity to edit the Trading Terms in relation to a supply agreement and did not do so. The plaintiff chose not to lock himself into a long-term supply agreement. As the plaintiff has withdrawn the five plus five allegation, the plaintiff knew that Burra did not have an obligation to continue to supply the ice cream base to the plaintiff after 30 June 2014.

318 Section 21 of the Australian Consumer Law deals with unconscionable conduct in connection with goods or services. Section 21 relevantly provides:

(1) A person must not, in trade or commerce, in connection with:

(a) the supply or possible supply of goods or services to a person (other than a listed public company); or

(b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company);

engage in conduct that is, in all the circumstances, unconscionable.

...

(3) For the purpose of determining whether a person has contravened subsection (1):

(a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; ...

319 Section 22 of the Australian Consumer Law provides:

(1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to:

(a) the relative strengths of the bargaining positions of the supplier and the customer; and

...

(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and

...

(g) the requirements of any applicable industry code; and

...

(i) the extent to which the supplier unreasonably failed to disclose to the customer:

(i) any intended conduct of the supplier that might affect the interests of the customer; and

(ii) any risks to the customer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer);

(j) if there is a contract between the supplier and the customer for the supply of the goods or services:

(i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and

(ii) the terms and conditions of the contract; and

(iii) the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and

(iv) any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and

(k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and

(l) the extent to which the supplier and the customer acted in good faith.

320 When considering whether the conduct of the defendant has been unconscionable I have considered the matters referred to in s22(1) of the Australian Consumer Law. These matters include the relative strengths of the bargaining positions of the supplier and the customer.

321 Gordon, as director of the Cold Rock franchise and other franchisors, was an experienced businessman and had considerable experience in negotiating the purchase and sale of franchise businesses.

322 The plaintiff submits that the Trampoline business was dependent on Burra and the close relationship between the defendants. The plaintiff submits that Burra was used to support the businesses under the Trampoline brand. In particular both the Trampoline business and Burra were owned by Crothers or his family and controlled by Crothers or his family. Crothers and his wife Walton were responsible for negotiating the Asset sale and purchase agreement.

323 The plaintiff submits that at the time of negotiating the sale of the Trampoline business, Crothers and Walton knew or ought to have known that the price and volumes at which Burra was selling Ice cream Pre mix Base was unsustainable.

324 The plaintiff's case is that Crothers was not transparent and chose to withhold from Gordon that the ESL division was in trouble financially and would have to close without a massive increase in volume (i.e. Cold Rock becoming a customer) or a massive increase in price for Trampoline. The plaintiff submits that the common assumption was that prices would increase on a rise and fall basis dependent on the costs of raw material.

325 I do not accept the plaintiff's submission that Burra would have had to close its ESL division without a massive increase in volume (i.e. Cold Rock becoming a customer) or a massive increase in price for Trampoline.

326 I accept Crothers' evidence that Burra would have been able to maintain supply to the plaintiff with a rise and fall dependent on the costs of raw materials. Crothers gave evidence that in the financial year 2014 Burra experienced a plus/minus 38% increase of the Farmgate milk cost, meaning they paid an extra 38 percent to their farmers for the same amount of milk fat and protein.[333] Crothers gave evidence that the price increase proposed in the letter by Burra dated 23 May 2014 reflected the increased price in Farmgate milk.

327 I also accept Crothers' evidence that the 25% increase referred to in the letter by Burra and dated 23 May 2014[334] was set as a starting point in negotiations.[335]

328 When the parties were negotiating the terms of the Asset sale and purchase agreement, Gordon was entertaining a change in the Cold Rock business by permitting Burra to start supplying Ice cream Pre mix Base to Cold Rock. On the date the Asset sale and purchase agreement was signed, Gordon signed a best endeavours letter to assist Burra to become an accredited supplier of ice cream mix to Cold Rock.[336] Gordon knew that Burra was hoping that it might get Cold Rock business and Gordon on behalf of Cold Rock Management Pty Ltd was prepared to assist Burra to have Burra established as an accredited supplier.

What were your reasons, or what was the science behind the 25 per cent number?...We had milk costs going up, plus or minus 40 per cent, with the trajectory to continue and we'd just come out of that year. We had a best endeavours sort of agreement that was getting very stale, to work together to increase the volume, and so I wanted to give the customer an opportunity to mitigate the price increase driven by ingredients, with volume. Where the volume came from, I actually didn't care. And whether it was all of Cold Rock, or half of Cold Rock or one state, or - I didn't care. But it reflects the real world of ingredients increase and economies if scale, if volume comes.

Did the price increase, the milk, farm gate price increase that you gave evidence about, does that account for the full 25 per cent of proposed price increase?...

You said that there was a 38 or 40 per cent increase in farm gate milk prices?...Yes.

Did that wash through to explain the full amount of the 20?...Oh, one for one, right, no, no, not to - no.

Well explain then the?...Well, I had a recalcitrant customer who didn't want to talk. This was a conversation, I thought it would get his attention and I was expecting a tough negotiation. He's proven to me that he was a very fine negotiator and I was expecting that engagement so this was to get a conversation going.

And what proportion of the 25 per cent is explained then, by the increase in the milk prices?...Between 15 and 20.

And the rest was explained by?...An opportunity to increase margin and claw back some of the loss that had been incurred in 14 where we'd seen that extraordinary escalation of price.

So this wasn't telling Mr Gordon he was locked into a 25 per cent price increase, this was - was this negotiable in your mind?...Yes.

Did Mr Gordon pick up the phone and negotiate with you?...No.[337]

330 In response to the letter dated 23 May 2014, Gordon did not attempt to negotiate the proposed price rise. Gordon merely requested to delay the price rise for a period of six months.[338] At that time Gordon was negotiating with Bulla to have the substitute product available by 1 July 2014 and as soon as possible.[339]

331 Burra was able to continue supply the Ice cream Pre mix Base for the 9 month period from 1 October 2013 to 30 June 2014. The ESL division was only closed when Trampoline Enterprises stopped placing orders.

332 Having considered the whole of the evidence, I am not satisfied that the defendants' conduct was unconscionable. In September 2013 Gordon knew that Trampoline did not manufacture the Ice cream Pre mix Base. Gordon knew that Trampoline bought the Ice cream Pre mix Base from Burra. Gordon had the option of entering into a supply agreement with Burra but refused to do so. Gordon entered into the Trading Terms which did not secure supply after 30 June 2014. Gordon deliberately left his options open. This indicates that the defendants' conduct was not unconscionable because the plaintiff by its conduct indicated that it was not relying on the future supply of the Ice cream Pre mix Base by Burra.

333 I am satisfied that the first defendant did not make the alleged representations, that the defendants' conduct was not false and misleading as alleged by the plaintiff and that the defendants' conduct was not unconscionable. Although it is not strictly necessary in the light of my findings against the plaintiff, I turn to consider the question of whether the plaintiff suffered the alleged loss and damage. The plaintiff pleads that it entered into the Asset sale and purchase agreement in reliance upon the representations alleged in paragraph 26 of the ASC and that it suffered loss and damage by reason of the following matters:

a. There should have been a 2% price rise for gelato and sorbet on a rise and fall basis.[340] Instead Burra announced a 25% price rise on 23 May 2014.[341]

b. A 25% price increase would have resulted in a 19.2% increase of the Cost of Goods Sold at store level.[342]

c. The plaintiff looked for an alternative supplier of identical finished product. The plaintiff ended up buying unfinished product elsewhere, which meant the product needed to be finished in-store. This was a change of modus operandi at the store level.[343]

d. This change of modus operandi increased labour costs at the store level by 25% from about July/August 2014.[344]

e. As a counterbalance, the plaintiff decided to give its franchisees some relief for a 6 month period between September 2014 to February 2015 by dropping royalties by 1% (thus dropping costs at the store level by 1%) ($20,809)[345] and by dropping advertising contributions by 1%.[346]

f. The increased labour costs caused three stores to close (Chadstone, Brighton and St Kilda). The plaintiff received less royalties once each store closed.

(a) What was the price rise for gelato and sorbet on a rise and fall basis?

334 Expert Reports were prepared by Russell Munday (Munday) at the request of the plaintiff's solicitors, Comlaw. Munday annexed a report dated August 2015 on Ice Cream Stores in Australia by IBISWorld Industry Report (the IBIS report) to his first report dated 29 August 2016.[347] The IBIS report contains the following information about milk and input pricing.[348]

Milk is the main raw material in ice cream making, accounting for up to two thirds of the industry's raw material inputs. Therefore, milk pricing and production volumes can have a significant effect on industry revenue and profit. After two years of declines, higher milk prices in 2010-11 contributed to higher costs for ice cream stores, with industry revenue declining for the year and profit weakening. Following moderate price declines in 2011-2012 and 2012-13, prices surged again in 2013-14 as milk demand increased across Australia.

335 The plaintiff also tendered a report by Dairy Australia in relation to Australian Dairy Farmgate Milk Prices, which indicates that the price of milk solids in Victoria rose from $5.05 per kilogram in 2012/2013 to $6.81 per kilogram in 2013/2014. This represents a 35% increase in the price of Farmgate milk in the 2013/2014 year.[349]

336 Munday was instructed to assume that there would have been a 2% price rise under a rise and fall arrangement.[350] There was no factual basis for that assumption, and Munday did not seek to defend it. In opening the plaintiff said that Maletsky would give evidence that milk prices fell during the relevant period. Neither Gordon nor Maletsky gave evidence to that effect. Maletsky said that he had no knowledge of the milk price changing and deferred to Crothers as the expert on what was happening in the milk market.[351] Gordon said that he had no knowledge whether milk prices increased.[352]

337 I accept Crothers' evidence that every region is different and every litre of milk is different because there is a different fat to protein ratio.[353] I accept Crothers' evidence that in the financial year 2014 Burra experienced a 38% increase of their milk cost due to increasing Farmgate milk prices.[354] This flowed through to an 18.5% increase in the costs to Burra of making the Ice cream Pre mix Base.[355]

338 Crothers said that the difference (an additional 6.5%) was an attempt to cover the costs carried since October 2013 during the surge in milk prices[356] and in part an attempt to get Gordon's attention to start a conversation about ongoing supply and price from 1 July 2014 onwards.[357]

(b) Did the plaintiff look for an alternative supplier as a consequence of Burra's May 2014 price rise announcement?

339 The evidence is that from at least October 2013 the plaintiff was investigating changing supplier from Burra to Bulla. On 18 December 2013 Rizk as head of operations of Franchised Food Company forwarded an email to David Sloan (Sloan) of Bulla. The relevant paragraph provides:

Following the acquisition of Trampoline, I requested in October that we work towards moving the Trampoline product to Bulla. I provided access to one of our making facilities, was able to provide samples of the base mix upon request, and was able to provide volumes. I also communicated the urgency of this project as we were having issues with the current supplier. Some two and a half months later we have still not made any progress.[358] (emphasis mine).

340 On 19 December 2013 Sloan forwarded a reply stating that he would provide "clarity on next steps for Trampoline base mix development."[359]

341 On 20 April 2014 Gordon forwarded an email to Sloan to express his "dissatisfaction with [his] team in developing the TR Base Mix."[360] Sloan replied that he would investigate "with the project team to ensure that our expectations and deadlines are being met."[361] On 13 May 2014 further emails were exchanged between Rizk and Simon Perotta on behalf of Bulla.[362]

342 The correspondence indicates that the project for Bulla to supply the Ice cream Pre mix Base was well advanced before the price rise announcement by Burra. It was not a project that started after, or because of, the May 2014 price rise. Rizk was responsible for the day to day operations of the project with Bulla. He said that they were 65 or 70% of the way towards having a substituted finished product from Bulla by the time of the announcement by Burra.[363]

343 None of the documents concerning the Bulla project were discovered by the plaintiff. The documents were produced in response to a subpoena issued to Bulla.

344 In an undiscovered document dated 30 May 2014 Gordon forwarded an email to Sloan in the following terms:

I believe Kaisey has spoken to Simon regarding the Trampoline Base Mix but I thought it would be best to contact you so as to ensure your team understand the importance of getting this project off the ground, the deadline for the Base Mix to be ready for distribution to stores is 1 July 2014. (sorry this is it).

I understand your and my team have a time booked in for our last 'churn sample' early next week from which we should have a product ready for 'factory trial'.

I ask that you to please ensure that your team "pulls out all the stops" to meet this deadline.[364]

345 When cross-examined, Gordon agreed that the base product was almost ready by 30 May 2014.[365]

(c) The change of modus operandi increased labour costs at store level by 25% from about July/August 2014 onwards.

346 This element was not pleaded but emerged as a central assumption on which Munday's reports were based.

347 Gordon gave evidence that under the old regime the franchisee received a ten kilogram bladder of frozen Ice cream Pre mix Base which was pre-flavoured. All the franchisee had to do was to thaw it out, put it into a churn, push a button and six minutes later the gelato came out.[366] After Burra stopped supplying the premix, the stores received a plastic carton filled with a plain white base mix and the stores had to measure out all the additives to give the ice cream the various flavours. They then poured it into the batch freezer and the ice cream came out the other side.[367]

348 Gordon said that when Trampoline changed supplier from Burra to Bulla, the pricing came down because Bulla only supplied base product without the flavourings. Because the stores had to add the flavourings, their labour component went up.[368]

349 The plaintiff's case is that the change of modus operandi increased labour costs at the store level by 25% from about July/August 2014.

350 There is no evidence that the change of modus operandi increased labour costs at the store level. The only evidence is that labour as a percentage of sales increased by 25%.

351 Expert evidence was given by Dawna Kathleen Wright (Wright). In her report dated 19 June 2017[369] (Wright's second report) Wright commented on Munday's assumption that the change in operating losses from Financial Year 2014 to Financial Year 2015 is wholly attributable to the defendants' conduct. In her opinion:

Mr Munday's opinion of loss relies on the assumption that the increase in operating losses in FY2015 is caused by a 25% increase on wages, which is in turn caused by the change in operating modus. The evidence is contrary to this assumption, in particular:

• Per Appendix I attached to the Third Munday Report, the reason for the increase in wages as a percentage of revenue was largely attributable to a decrease in revenue of $1.3 million, and not due to an increase in wage costs; and
• Chadstone did not experience a permanent or immediate 25% increase in wages as a percentage of sales following the change in modus in August 2014.[370]

352 The assumption that wages to turnover increased 25% under the new system was an assumption Munday was asked to make, not a conclusion he drew.[371] In an email dated 28 April 2016 from Munday to Comlaw, Munday stated:

No details of additional labour cost at store level regarding mixing own flavours has been provided on a store by store comparison basis. Wages to Sales % increased in FY2015 but sales are much lower making year on year comparisons difficult.[372]

353 Munday asked for more information about the "additional labour costs due to mix at store."[373] In her report Wright notes that the information that Munday requested has not been provided.[374]

354 Wright disagreed with Munday's assumption that the change in operating losses from Financial Year 2014 to Financial Year 2015 is wholly attributable to increased labour costs of 25% due to the change in modus operandi. I accept the following opinion stated in paragraph 4.3.2 of Wright's second report:[375]

(a) Appendix 1 attached to the Third Munday Report attempts to prove that the change in operating modus resulted in an increase in wages of 25%. In fact, Mr Munday's analysis illustrates that wages increased by 25% as a percentage of revenue between FY2014 (35%) and FY2015 (61%).

This is an increase in 25 percentage points, and not a 25% increase in wage costs, which Mr Munday's analysis fails to acknowledge. A 25% increase in wages would increase FY2014 wages to $697,275 in FY 2015, which did not occur. Total wages in FY2015 decreased to $161,762, c.$395,000 lower than FY2014.

The reason wages increased by 25% as a percentage of revenue is because revenue decreased by $1.3m compared with a wages decrease of almost $400,000. This significant drop in revenue, rather than a change in modus, caused the 25% increase in wages as a percentage of revenue. Further to this point, wages actually decreased by 71% in FY 2015...

355 In her second report Wright states further that Chadstone was the only closed store with several months of trading following the change in operating modus. She analysed wages as a percentage of revenue for FY2015 and stated:

This analysis indicates that the change in modus (which occurred in August 2014) did not create a systematic increase in wages as a percentage of revenue for Chadstone. In fact, wage costs decreased in the month following the change and on average was similar before and after the change in modus. Mr Munday has not undertaken any analysis, despite the fact he requested the information in document 12 of the Plaintiff Expert Correspondence File (Annexure H).[376]

356 The defendants submit that the plaintiff could have called franchisees to give evidence about whether the change in modus operandi increased labour costs at the store level. I accept the defendants' submission that the court is entitled to draw an inference that the evidence of the franchisees would not have assisted the plaintiff's case.

(d) As a counterbalance, the plaintiff decided to give its franchisees some relief by dropping royalties by 1% (thus dropping costs at the store level by 1%) and by dropping advertising contributions by 1%.__[377]

357 In a memorandum dated 12 August 2014 Gordon told the franchise owners and corporate store managers:

After the completely unforeseen price from Burra, (the previous ultimate owners of the Trampoline brand) we approached Bulla Dairy Foods (Bulla). Bulla has long been a partner of the Cold Rock brand, and is a dairy specialist, producing a wide range of high quality products for the market in general.

After a great deal of work by our team, I am pleased to announce an alternate solution to the current pricing issues.

Bulla has developed a Trampoline Base Milk Product.

This will result in a new manufacturing process, and that will bring down the overall cost of goods (COGS) by between 27% and 62%.

...

We recognise that there may be a short period of unease until the new Trampoline manufacturing process is more familiar, therefore, as a gesture of goodwill, Trampoline Enterprise, the Franchisor, effective from the week ending 31 August 2014, will reduce the Royalties to be paid by 1% and the Marketing Levy by 1%. This will be reviewed after six months.[378]

358 The defendant submitted that dropping royalties by 1% had no impact on the plaintiff's corporate stores (because the 1% "saving" at the store level accrued to the benefit of the plaintiff at the franchisor level, thus cancelling out the impact). Dropping advertising contributions by 1% had no impact on the plaintiff because any such contributions from stores did not belong to the plaintiff in any event.

(e) The plaintiff's claim that the increased costs caused three company owned stores to close (Chadstone, Brighton and St. Kilda)

359 Chadstone was a company owned store. When the Asset Sale and Purchase Agreement was entered into in September 2013, Chadstone was facing inevitable closure because of the redevelopment of the Chadstone Shopping Centre.[379] Gordon said that at the end of March 2014 he had not procured a transfer of the lease for Chadstone. Gordon said that at that time he had made a decision that the plaintiff was not going to continue to operate the Chadstone store.[380] Gordon gave the following answers in cross-examination:

That the decision to close Chadstone had nothing to do with the 25 per cent price rise?...Yeah.

It was made some months before the 25 per cent price rise?...That's correct.

If your expert - known or unbeknownst to you - was told to assume that the Chadstone store was closed because of the 25 per cent price rise, that would be wrong, wouldn't it?...Probably.

Beg your pardon?...Probably.

If your expert was told that Chadstone closed because of the forced change in modus operandi, that would be wrong too, wouldn't it?...That would be wrong.[381]

360 I accept Wright's evidence that St Kilda, Chadstone and Brighton stores experienced a decline in sales from Financial Year 2012 onwards.[382]

361 St Kilda was a company owned store. I am not satisfied on a balance of probabilities that the St Kilda store closed as a result of increased costs.

362 I accept Wright's evidence that there is evidence in the weekly turnover Excel file supplied with Munday's Third Report dated 1 December 2017 (Munday's third report)[383] which indicates that both Brighton and St Kilda may have been experiencing poor performance prior to the change in operating modus.

In particular:

(i) The Brighton store was closed Monday, Tuesday and Wednesday each week from the week ended 15 June 2014 until approximately August 2014; and

(ii) The St Kilda store was closed Monday and/or Tuesday in June 2014, and from the week ended 27 July 2014 was closed Monday to Thursday.

363 The St Kilda store had been making a loss prior to the Asset sale and purchase agreement.[384] Gordon agreed that his primary aim in respect of company owned stores was to franchise them out.[385] Tucker gave evidence that he was asked to sell St Kilda but did not get a buyer.[386] The lease for the premises at St Kilda was due to expire in September 2014. Gordon agreed that the rents for the St Kilda store were at the higher level.[387] Gordon said that the plaintiff's intention was to use the store as a corporate store if they could not get a buyer.[388] I do not accept Gordon's evidence. Gordon did not procure a transfer of the lease at any time between February 2014 and September 2014.

364 The Brighton store closed on 3 August 2014. This was before the Memorandum dated 12 August 2014 from the plaintiff outlining the new operating modus.[389]

365 I am not satisfied on a balance of probabilities that the Brighton store closed as a result of increased costs. Brighton had been making a loss before the parties entered into the Asset sale and purchase agreement.[390] Tucker was asked to sell Brighton but was unsuccessful.[391]

366 St Kilda would manufacture the product and sell it to Brighton because Brighton was a relatively small store which did not have its own churning equipment. Gordon agreed that once a decision was made to close St Kilda, Brighton followed.[392]

367 The defendants submit that the basis of the plaintiff's claim for damages is that the forced change of modus operandi caused an increase in costs at a store level which had a broader flow-on effect to the franchise group as a whole. On the plaintiff's own case, the change from Burra to Bulla resulted in a drop in cost of goods sold.[393] That leaves wage costs. I accept the defendants' submission that the allegation of increased wage costs at a store level has not been established.

368 On 13 April 2016 the solicitors for the plaintiff, Comlaw, retained Munday to prepare an assessment of loss and damage suffered by the plaintiff in relation to the matters alleged in paragraphs 26 to 37C of the ASC as further particularised in Schedule B to the ASC.[394] A letter addressed to Munday and dated 13 April 2016 by Comlaw as solicitors for the plaintiff states:

We would like you to provide your independent opinion on the amount of loss and damage that has been suffered by Trampoline as a result of the misleading and deceptive conduct.[395]

369 In effect Munday was asked to assist with the calculation and identification of loss and damage. Munday gave the following evidence:

And you recommend that the methodology that you had been presented with ought to be done away with and that the client should redefine its loss in a particular way?...Yes

And you did that, you helped reshape it in that way?...Yes.

...

Well, the point I want to make is this is not one of those cases where you were presented with a position and asked to opine on it, you were part of coming up with this methodology and theory?...I guess that's why I was engaged.[396]

370 Munday's initial response to that request was that there was no loss. On 29 April 2016 Munday forwarded an email to Maletsky which stated:

I understand that the impact of the Burra price rise meant the whole modus of the business and had it been known at the time the price offered would have been less. It is just that it is difficult expressing this in a loss assessment.

The labour impact of stores doing the mixing is therefore important.

I look forward to the supporting documentation as to what additional labour costs were incurred by the continuing stores (company owned and franchised).[397]

371 Munday's second response was that the plaintiff had incurred a loss of $30,416. On 28 April 2016 Munday forwarded the following email[398] to Charles Leonidas:

I was drafting my report all esterday [sic] and come [sic] across the memo from Stan Gordon to franchise owners and corporate store managers (see items 11 to 13 attached) regarding the new supplier of the gelato, sorbet and white base being effective from 24 August 2014.

I requested Ryan Maletsky to provide the COGS comparison spread sheet referred to at item 12 of the documents they provided me.

Per the COGS comparison (copy above) Ryan Maletsky provided last evening, the supply prices offered by Bulla Dairy Foods, the new supplier of gelato, sorbet and white base replacing Burra Foods Pty Ltd, from 24 August 2014 is offering supply prices lower than that of Burra Foods (post 1 July 14). Admittedly there is some extra in-store mixing required but the cost of which would not be significant.

Accordingly, the way the statement of claim is pitched is in my view is incorrect, as it assumes a permanent loss of company store gross margin of $121,276 (see A2 attached). This restates EBITDA to $136,607 (rather than $247,883) and revalues Trampoline at $423,779 when capitalised on a multiple of 3.1 times, being $376,221 less than $800,000 paid for the Trampoline business (see A1 attached).

Clearly Trampoline Enterprises mitigated its loss by obtaining a new supplier.

The statement of claim assumes the loss of gross margin to be permanent but it was only for a period of about 2 months.

Therefore, the loss incurred would in my view relates to:

• Loss of gross margin for 23 months ($121,276x2/12) =

• Reduction in royalty fee of 1% royalty fee for six months (when it was to be reviewed and provided to placate store owners for unease with the new Trampoline manufacturing base)

$2,040,595 (6 franchised stores sales FY2013) x 1% x 0.5 years =

This is substantially less than the statement of claim.

Due to issues of legal privilege I have forwarded this email to you rather than Ryan Maletsky and Stan Gordon.

Could you kindly provide your client's feedback on this and instruct me as to their response?

I await your further instructions. (emphasis mine)

372 On 27 April 2016 at 12.53 pm Maletsky forwarded to Munday a Position Statement headed "Trampoline Acquisition ex Fresh Retailing" (the Position Statement).[399]

373 At 1.16 pm on the same day Munday forwarded an email to Charles Leonidas from Comlaw: [400]

I sent you my email early today before reading the further email from Ryan Maletsky (copy below).

The difficulty with his email below is:

• The basis of the calculations in the statement of claim are still incorrect (per my earlier email)
• Unless additional staff were employed, the head office staff additional time has no extra cost in developing the new system.
• Details of Other costs (re development of new system) have not been provided.
• The management account comparison does not agree with the financial accounts of Trampoline Engerprises Pty Ltd for FY2015 - explanation required.
• Details of stores sold or closed are not provided. If a former company store is now operated by a franchisee, the gross profit comparison between FY2014 and FY 2015 should be provided. Which shops closed and were not sold? The website shows there now 10 Trampoline stores operated. New stores at Doncaster East and Craigieburn. Closed stores at St Kilda, Brighton and Chadstone. Leases periods may have ended and new rental been unattractive.
• No details of additional labour cost at store level regarding mixing own flavours has been provided on a store by store comparison basis. Wages to Sales% increased in FY2015 but sales are much lower making year on year comparisons difficult.

...

The client needs to redefine the basis of its loss - change of way business operated - more labour cost due to mixing at store, impact on corporate stores, impact on royalty income from franchised stores.

I will need to obtain more information and spend more time on this matter than initially envisaged. Particularly in regard to:

• Additional labour costs due to mix at store (the claim can only relate to corporate store increased costs and deduction in royalty income).
• GP% comparison FY2014 and FY2015 by store.
• Reason for store closures/ analysis of those stores and ascertain whether due to change in supplier costing/mixing at stores.

...

I am also concerned as to whether the client can provide additional information to enable completion of my report by 6 May 2016. (emphasis mine)

374 The defendants referred to the following passage in the judgment of Chief Justice Gleeson in Trau v The University of Sydney; The University of Sydney v Trau: [401]

Even under the modern system of pleading, considerations of form and substance are often closely intertwined. If one sees that a plaintiff's lawyers are experiencing extreme difficulty in formulating with clarity and particularity their client's cause of action then that is often a very good indication that there is no cause of action. The history of the present matter creates the strong impression that such a problem exists, compounded by an additional difficulty created by a need to manoeuvre around problems concerning periods of limitation.

375 The defendants submitted that a similar comment can be made in this case. The plaintiff's expert and lawyers were experiencing difficulty in formulating with clarity and particularity the loss and damage allegedly suffered by the plaintiff. The defendants submit that Munday was very much involved in helping the plaintiff to recalibrate its loss.

376 Three reports by Munday have been filed in these proceedings. The first report is dated 29 August 2016 (Munday's first report).[402] Wright was instructed to provide a responsive critique to Munday's first report. Wright's report is dated 23 November 2016 (Wright's first report).[403] The plaintiff filed a supplementary report by Munday dated 15 February 2017 (Munday's second report).[404] The parties prepared a statement of Joint Expert Evidence dated 10 March 2017 (the joint expert report). [405] The plaintiff then produced a report by Munday dated 16 May 2017 (Munday's third report) [406] on 17 May 2017 which was the eighth day after the trial of the hearing had commenced (with a hearing estimate of 7 days) which resulted in an adjournment on the ninth day of the trial. A report by Wright dated 19 June 2017 (Wright's second report)[407] was filed pursuant to the orders made by the Court on 18 May 2017.

377 Munday attempted to formulate the claim in three different reports; each of which has shortcomings.

378 I regarded Munday as an unreliable witness. He gave non-responsive answers and was evasive when answering questions put to him in cross-examination. By way of contrast, Wright gave her evidence in a clear and forthright manner. She was prepared to make concessions and answered each question directly.

379 In paragraph 2.1 of Munday's first report he listed the documents that he reviewed and considered.[408] Munday did not list the Position Statement as a document he had reviewed and considered. When cross-examined Munday said that although the Position Statement was a fundamental part of his instructions, he did not include that document in his report as something he relied upon. In oral evidence Munday said this was an oversight.[409] I do not accept Munday's evidence. The emails passing between Comlaw and Munday indicate that Munday instructed Comlaw not to include that working paper as one of the documents he relied upon when preparing his report. By email dated 21 October 2016,[410] the solicitor for the plaintiff, Charles Leonidas forwarded the following email to Munday:

Dear Russell,

In rereading your report, we need to ask you about your last bullet point on page 10 of the Report.

We attach working paper we believe is the "working paper A1" to which you refer in the bullet point.

If it is, please confirm that we can insert it into your report and let the other side know that it has been omitted in the copy provided.

You may wish to mark it in the top right hand corner as you have done on other attachments.

We thank you in anticipation.

380 On 21 October 2016 Munday forwarded the following response:

The contents of the client's A1 working paper that I wanted to highlight are effectively set out at the bottom of page 6 and top of page 7 of my report.

Attachment A1, I referred to as Attachment 3 to show the impact of (bullet points in 4.16 of my report) on EBITDA of $108,602, and therefore the value of the business (at 3.1 times) or $333,666.

As this is different to the client's A1 working paper, I didn't want it to be part of my report.

I still prefer not to show that working paper in my report as it confuses things.

381 Later that afternoon Charles Leonidas replied:

Thanks, Russell,

You have cleared up my confusion.[411]

382 The above email exchange indicates that Munday's failure to refer to the Position Statement was not inadvertent but deliberate. The above email exchange indicates that Munday's oral evidence was false.

383 The Expert Witness Code of Conduct provides:

1. An expert witness is not an advocate for a party and has a paramount duty, overriding any duty to the party to the proceedings or other person retaining the expert witness, to assist the Court impartially on matters relevant to the area of expertise of the witness.

1. 3. Every report prepared by an expert witness for use in Court shall clearly state the opinion or opinions of the expert and shall state, specify or provide:

...

(e) the reasons for and any literature or other materials utilised in support of each such opinion;

...

(h) to the extent to which any opinion which the expert has expressed involves the acceptance of another person's opinion, the identification of that other person and opinion expressed by that other person.

384 By failing to refer to and attach a copy of the Position Statement to Munday's first report, Munday has breached the provisions of the Expert Witness Code of Conduct and his overarching obligations under the Civil Procedure Act 2010.

385 The failure to disclose the Position Statement is significant. The figures set out in paragraph 4.6 of Munday's first report are extracted from the Position Statement. As indicated in the table below, Munday transposed the EBITDA multiple of 3.1 from below the purchase price to above the purchase price. This creates the impression that the EBITDA multiple was used to arrive at the purchase price of $800,000.

386 Munday agreed that the Position Statement is not a contemporaneous document from mid 2013 because it is trying to quantify the loss that by then had long since occurred.[412] Munday agreed that the document had probably been prepared in the financial year ending 30 June 2015. Munday agreed that it was that document alone that formed the basis of his opinion that the multiple of 3.1 was in the contemplation of the plaintiff in 2013.

387 Munday's first report is also based on an incorrect assumption of fact that "the estimated increase in of the price of Gelato and Sorbet on a rise and fall basis should have been 2.0%."[413] When cross-examined Munday agreed that the assertion of a 2% increase in price as stated in paragraph 4.13 of his first report was based on the plaintiff's statement of claim.[414] Munday agreed that he was not provided with any empirical basis at all for the assumption that the rise and fall would have been 2 per cent.[415] Munday agreed that the IBIS report made it clear that there was a surge in milk prices in 2013/2014 which was the period Munday was referring to in the report.[416]

388 Paragraph 4.15 of Munday's first report refers to the memorandum dated 12 August 2014 which Gordon sent to all franchise owners and corporate store managers. Munday omitted a reference to the advice contained in the email that Bulla had developed a Trampoline Base Milk Product which "will result in a new manufacturing process, and that will bring down the overall cost of goods (COGS) by between 27% and 62%."[417]

389 Munday states that "To compensate for the unease of the new Trampoline manufacturing process is more familiar, Trampoline Enterprises reduced the royalties to be paid by 1% of sales and the Marketing levy by 1%. This was to be reviewed in 6 months... The 1% Royalty reduction was 6 months from 25- Aug-14 to 1-Mar-15."[418]

Increase in operating loss corporate stores ($105,731 - third report)

390 In Munday's third report Munday calculates the increase in operating loss for corporate stores as follows: [419]

391 The claim for increase in operating loss is based on the assumption that the increased labour cost meant corporate stores at St Kilda, Brighton and Chadstone could not become franchised stores and needed to be closed. Brighton's closure date was 3 August 2014, St Kilda's closure date was 14 September 2014 and the Chadstone closure date was 29 January 2015.

392 Munday's first report also assumed that the Darwin Central store closed due to the higher labour costs.[420] I accept Wright's opinion that "this is an unsupported assumption to make given there is no information available to support this view or to indicate that it is a reasonable assumption."[421]

393 Munday stated that he was instructed that "a Craigieburn store opened on 31 March 2014 but this franchisee was sourced before any change to the system. As a result of the massive changes to the system the Fitzroy store was sold to the Craigieburn franchisee at a significant discount."[422] Munday's instructions contradict the plaintiff's claim that it sold the Fitzroy store to Singh as a result of Fresh Retailing's breach of confidentiality.[423]

394 In paragraph 5.6 Munday stated that "we consider the increase in operating loss of $96,819 is entirely due to the change in operating modus imposed on the business".[424] When cross-examined Munday accepted that it is a question for the court to determine what was the cause of the modus operandi change. He agreed that if that cause cannot be levelled at defendant, that would impact on the assessment.[425]

395 Munday states that he was instructed that "Wages to turnover increased 25% under the new system."[426] When cross-examined, Munday agreed that if it was the case that sales went down and everything else remained equal including wages, the ratio of wages to turnover would increase.[427]

396 In paragraph 4 of the joint report Munday stated:

We assume that representatives of the Plaintiff will in due cause [sic] provide the evidence that the change in operating profit was due to the change in modus operandi.[428]

397 Wright analysed the information referred to in the Munday's first report. Wright tabled the EBITDA of all company owned stores in financial year 2013. This analysis indicated that the EBITDA for St Kilda was $-32,396, Brighton $-31424 and Chadstone $-42,558.[429] I accept Wright's evidence that the closed corporate stores were unprofitable prior to the plaintiff purchasing the Trampoline franchise from the defendants.

398 I accept Wright's opinion that as the closed corporate stores were unprofitable prior to the plaintiff purchasing the Trampoline franchise from the first defendant, the assumption that the closed corporate stores would have been converted to franchise stores is unsupported by their historical financial performance.[430]

399 I accept Wright's opinion that based on that information, the plaintiff would save cash flow of approximately $100,000 if the corporate stores were closed and that "by closing the Closed Company Stores, the Plaintiff is improving overall cash flow by reducing its operating losses (and resulting cash outflows). This amount would offset any losses claimed."[431]

400 The Southgate, Fitzroy and Knox City stores became franchisee stores on 7 March 2014, 4 August 2014 and 28 March 2014.[432] Southgate sold for $130,000 plus GST.[433] Knox sold for $65,000 plus GST.[434]

401 Munday was not told how much these stores were sold for. He was not instructed to take the proceeds from those sales into account in his calculations.[435] That would have been reflected in the "corporate store EBITDA" shown in Munday's third report which is reflected as nil.[436]

You didn't factor into your calculations proceeds from sale of those stores? I hadn't, no.[437]

...

But you accept it should have been factored into your calculations and would have made a difference?...Yes, the after tax capital gain, yes.[438]

402 In Wright's opinion an essential component of an assessment of economic loss caused by the conduct is a comparable analysis of the closed corporate stores' financial performance prior to and after the defendants' alleged conduct and the changed "operating modus" in July and August 2014. In Wright's opinion an opinion of any loss caused by the defendants' conduct cannot be formed in the absence of such analysis.[439]

403 I accept Wright's opinion that a loss of income by comparing the operating losses in Financial Year 2014 and Financial Year 2015 is not a like-for-like analysis.

404 I accept Wright's opinion that the revised operating loss calculation set out in Munday's third report remains inconsistent and is not a like for like analysis.[440] I also accept Wright's opinion that Munday's third report has still not addressed the issue of seasonality between the data he took into account in Financial Year 2014 and in the Financial Year 2015. Munday's third report analyses Brighton's profitability in two winter months in Financial Year 2015, compared with all of spring, summer, autumn and one month of winter in Financial Year 2014. The analysis in Munday's third report compares the coldest months of the year in Financial Year 2015, where ice cream is less likely to be purchased with warmer periods in the prior year, Financial Year 2014.[441]

405 I also accept Wright's opinion that in Munday's third report, Munday assessed the loss in value of the business by comparing the EBITDA of $257,883 at acquisition to the prospective EBITDA of $176,546 as at 30 June 2015. In structuring the loss in this way, all differences between the financial position at the date of purchase compared to two years later in June 2015 are attributed to the defendants. That methodology does not account for changes in that period which have nothing to do with the defendants.[442]

406 I accept Wright's opinion that the analysis of operating losses in Munday's third report remains an inconsistent analysis and cannot be relied upon in assessing any alleged loss suffered by the plaintiff due to the change in operating modus.[443]

407 Munday agreed that the figure of $231,378 stated in Munday's first report for loss in value of franchise due to store closure was based on an assumption that "the increased labour cost meant corporate stores at St Kilda, Brighton and Chadstone could not become franchisees and needed to be closed."[444] Munday agreed that the question of whether the stores closed because of the change in modus operandi or because of some other reason was a matter for the court.[445] Munday agreed that he based his assessment of loss of business value on the assumption that the stores closed because of the change in modus operandi. Munday agreed that if the Court finds that even one store closed for other reasons, that would impact on his calculations and, if for example, the Chadstone store closed for other reasons, the sum of $231,378 would automatically be reduced.[446]

408 In Munday's third report, Munday did not take into account the fact that rebate revenues were materially higher after the change in modus operandi compared to before the change in modus operandi.[447] Maletsky conceded that he did not ask Munday to consider the actual increased rebate streams.[448]

409 Under the September 2013 trading terms Burra received a rebate from Pre Gel of 35% and passed on 25% to the plaintiff retaining the other 10%.[449] Under the new system, the plaintiff received a rebate from Pre Gel of 38%.[450] The plaintiff passed on 15% to franchisees which meant that the plaintiff retained the other 23%.

410 The plaintiff's financial records for 2014/2015 suggest that sales were relatively stable. But they also show a material increase in supplier rebate revenue (from $69,946 in 2013/2014 to $115,209 in 2014/2015).[451] The actual supplier rebates are higher in Financial Year 2014 than the expected rebates indicated in Munday's third report which would offset any losses allegedly suffered by the plaintiff.[452]

411 In oral evidence Munday stated that he adopted the following method to identify the loss and damage:

Well, they paid a price of $800,000 for the business assets and I looked at the basis of how that was - the client's workings on how that was arrived at. I then looked at other factors including what was the value of the business after the alleged misrepresentation which I did at 30 June 2015. I then factored in the fact there was a six month loss of royalty income due to the (indistinct) of the franchise, all the other franchise stores. And then I looked at the impact of the misrepresentation when it applied which was during the 2015 financial year.[453]

412 Munday gave oral evidence that he valued the business on the following basis:

I really reviewed the valuation the way the plaintiff valued it originally when they paid $800,000 and that was based on an EBITDA times a multiple.

What was the multiple you were instructed?...Well, it was 3.1 pursuant to the purchaser and I considered that reasonable at that time which was September 2013 and then I revalued at June 2015 based on a multiple of 2.625 due to the impact of the change in who supplied the business and the premixing at the store level et cetera, you know, gross prosects of the franchise would be much less. So a lower multiple would be applicable.[454]

413 Clause 4.2 of the Asset sale and purchase agreement provides:

4.2 The Purchase Price is apportioned as follows:

Plant and Equipment $503,650.00

Recipes and Goodwill $293,027.00

Balance of the Assets $ 1,000.00

414 Clause 4.2 of the Asset sale and purchase agreement sets out the apportionment of the purchase price for the sale and purchase of assets. It has not been suggested that the price attributed for plant and equipment is a sham. If this suggestion were made, it would be contrary to the provisions of Part IVA of the Income Tax Assessment Act 1936.

415 Maletsky gave evidence that the purchase price of $503,650 for plant and equipment as set out in clause 4.2 of the Asset sale and purchase agreement was apportioned in accordance with a document prepared by the plaintiff.[455] The following figures are set out in that document:

416 Gordon himself gave evidence about how at least one part of that apportionment was done. That is, how he personally ascribed values to items of plant and equipment which line by line added up to the amount of $84,650 that appears in the fourth column of the Brunswick (Fitzroy) store. Accordingly, far from being some kind of tax-driven afterthought, Gordon's evidence is that the apportionment of the purchase price set out in clause 4.2 of the Asset sale and purchase agreement was a considered calculated number.

417 In Munday's second report, Munday offers by way of explanation:

The actual split between plant and equipment, goodwill and other assets per the Agreement would not necessarily reflect each component's value but reflect what each party would prefer. The higher the ascribed plant and equipment value, the more a purchaser can depreciate such for tax purposes, whereas it cannot claim any amortisation of goodwill. Therefore purchasers of assets typically prefer to ascribe a higher value to plant and equipment.[456]

418 Munday's explanation is contrary to the terms of the Asset sale and purchase agreement and, in particular, clause 4.2. Further, clause 25.6 provides that the Asset sale and purchase agreement:

(1) contains the entire agreement, arrangement and understanding between the parties on everything connected with the subject matter of this Agreement, including the sale and purchase of the Shares.

419 As stated in paragraph 4.5.3 of Wright's first report.[457]

Based on the above and our review of the Agreement, we note the following:

(a) The Agreement is an asset sale and purchase agreement;

(b) Based on clause 4 of the Asset Sale and Purchase Agreement dated 4 September 2013, the purchase price was based on the value of the assets sold to the Plaintiff, and not based on a business valuation using an FME [future maintainable earnings valuation methodology] approach.

(c) The definition of the Purchase Price in the Agreement does not refer to future maintainable earnings; and

(d) There are no specific warranties on the financial information disclosed per Schedule 1 of the Agreement. In particular, there are no warranties regarding future earnings or revenue of the business being purchased.

Consequently, the Agreement does not appear to contemplate future maintainable earnings as a basis for the purchase price.

420 I accept Wright's opinion that the purchase price was based on the assets sold to the plaintiff and not based on a business valuation using an FME (Future maintainable earnings valuation methodology) approach. Consequently the defendants' alleged misrepresentations and conduct would not have had an impact on the value of the assets purchased by the plaintiff.

Did you when calculating the purchase price based on an EBITDA of $257,000-odd and a multiple of 3.1, did you take off any amount for plant and equipment?...No, we didn't.

Why not?...Well, for us we felt it was irrelevant. The book value of the plant in the books that were disclosed to us was $186,000 for the written down value.

Yes?...So we felt that if we could sell the stores, the corporate stores as franchises then we could make a little bit extra money. So that was how we justified the higher multiple of 3 as opposed to 2. [458]

422 I do not accept Maletsky's evidence that the purchase price was based on an EBITDA of a multiple of 3.1. His evidence is contrary to the terms of the Asset sale and purchase agreement. The plaintiff was asked to discover and produce contemporaneous working documents and failed to do so. The Position Statement[459] was marked as confidential and only produced as an exhibit on 11 May 2017 (the fourth day of the trial).

423 The Position Statement was clearly not a contemporaneous working document. The Position Statement was clearly drafted after the price rise and some time after the settlement date in September 2013. Munday gave the following evidence in cross-examination:

...just to be clear [the Position Statement] is a document that obviously is not a contemporaneous document from middle of 2013, is it, because it is trying to quantify the loss that by then has long since occurred, isn't it?...Yes.

This is a document that's been prepared probably in financial year ending probably in 30 June 2015?...The date of the preparation, yes.

But it is this document and this document alone, is it, that forms the basis of your opinion that in fact back in 2013 the multiple of 3.1 was actually what was in the contemplation of the decision-makers within your client?...That's how I construed it.[460]

424 I do not accept Munday's opinion that the price paid for the business was based on an EBITDA multiple of 3.1 for the following reasons.

(1) The terms of the clause 4.2 of the Asset sale and purchase agreement.[461]

(2) Munday omitted to state that he relied on the Position Statement as a basis of ascertaining the business value of the franchise.

(3) Munday deliberately did not refer to the Position Statement as a document he relied upon in the preparation of his report.[462]

(4) Munday's version of the calculations set out in the Position Statement conveys the impression that the multiple of 3.1 was reverse engineered from the purchase. Contrary to the calculations set out in the Position Statement, Munday reversed the basis of calculating the purchase price as set out in clause 4.6 of Munday's first report[463] and clause 3 of Munday's third report.[464] Munday's presentation of changing the order suggests that the purchase price was derived from a contemporaneous assessment of the multiple.

As franchisees are making less EBITDA due to additional pre-mix costs we consider there would be a slowing in the overall growth of the franchise (number of stores). This has been the case.

This would lose growth in the franchise overall and suggest overall EBITDA multiple may need to be reduced from 3.1 times to 2.5 to 2.75, say 2.625.[465]

426 There is no evidence to support Munday's assumption that the franchisees are making less EBITDA due to additional pre-mix costs. Munday provides no analysis of the revised multiple of 2.625. For the reasons stated above, I do not accept Munday's analysis that the plaintiff has suffered a loss of $336,500. I am not satisfied that the plaintiff has suffered loss and damage on the basis claimed in Munday's third report.

427 The plaintiff also submitted a further alternative basis of calculating its loss in paragraph 163 of its written submissions after the evidence had concluded. The defendants objected to the plaintiff running this new quantum analysis. I refused to admit the plaintiff's further alternative claim because of the circumstances of this case, the obvious prejudice to the defendants and the overarching obligations of the plaintiff under the Civil Procedure Act 2010.

428 I refuse the plaintiff's application for an order setting aside the Independent Accountant's Determination. The plaintiff's claim for payment of the sum of $83,878.76 for moneys had and received is dismissed.

429 The plaintiff's claim that the Fro Yo Yoghurt soft serve powder was not fit for purpose or of merchantable quality is dismissed.

430 Having regard to the matters referred to in the above paragraphs 94-116, the first defendant is entitled to judgment on its counterclaim for damages regarding the St. Kilda bank guarantee in the amount of $11,603.55.

431 Having regard to the matters referred to in the above paragraphs 117-166, Trampoline Enterprises is liable to pay the sum of $140,000 to the first defendant on its counterclaim for the First Earn Out Amount.

432 There be judgment for the plaintiff against the first defendant for breach of confidentiality in the sum of $40,807.

433 The plaintiff's claim for damages for defective Plant and Equipment is dismissed.

434 The plaintiff's claim for damages for false and misleading representations and conduct is dismissed.

435 The plaintiff's claim that the defendants' conduct was unconscionable is dismissed.

1 There be judgment for the first defendant against the plaintiff in the amounts of:

2. There be judgment for the first defendant against Stanley Gordon and Franchised Food Company Pty Ltd in the amounts of:

3. There be judgment for the plaintiff against the first defendant for breach of confidentiality in the sum of $46,485.00.

(a) for payment of the sum of $83,878.76 for moneys had and received is dismissed.

(b) that the Fro Yo Yoghurt soft serve powder was not fit for purpose or of merchantable quality is dismissed.

(c) for damages for defective Plant and Equipment is dismissed.

(d) for damages for false and misleading representations and conduct is dismissed.

(e) that the defendants' conduct was unconscionable is dismissed.

437 I will hear counsel on the question of costs, interest and the terms of the order.

[2] Exhibit 1, clause 1.1(61) which refers to an "indicative list" at Schedule 9.

[16] Exhibit 1, clauses 4.1, 4.3 and Schedule 12.

[18] Exhibit 1 definition of "franchise agreements" at clause 1.1(34(b) and definition of "franchisee" at clause 1.1(35(b).

[20] Transcript p 611, exhibit 1 definition of "agreement" at clause 1.1(1), "earn out deed" at clause 1.1(28), "franchise agreements" at clause 1.1(34)(b) and franchisee at clause 1.1(35).

[23] Paragraph 4.1 of the Amended Statement of Claim amended pursuant to orders made 29 October 2015and dated 5 November 2015 (ASC); admitted in paragraph 4 of the Further Amended Defence and Counterclaim (FADC).

[24] Exhibit 26. ASC,[5]; admitted in FADC,[5].

[25] Exhibit 3. ASC,[6]; admitted in FADC,[6].

[28] Exhibit BL (Fresh Retailing); Exhibit BM (Trampoline Enterprises).

[30] On 21 - 22 November 2013, the parties provided Ms Murone with responses regarding marketing material (exhibit BO). On 25 November 2013, Trampoline Enterprises provided a further response as to factual accuracy (exhibit BP).

[34] [1973] HCA 36; (1973) 129 CLR 99, 109.

[35] Gollin & Co Ltd v Karenlee Nominees Pty Ltd [1983] HCA 38; (1983) 153 CLR 455, 464.

[36] (1985) 1 NSWLR 314, 335-336.

[37] [1984] VicRp 2; [1984] VR 16, 21.

[38] [2016] VSC 708.

[39] Funtastic [2016] VSC 708, [52] - [54].

[40] [2012] NSWSC 4, [20].

[46] (1985) 1 NSWLR 314.

[47] [2016] VSC 708, [54].

[56] Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, 336.

[96] Transcript p 440; exhibit AS p 1102.3.

[104] Transcript pp 334 -339; pp 372-374.

[107] Exhibit 2, Introduction paragraph A.

[111] Exhibit 1, clauses 1.1 (34)(b)(c) and 1.1(35)(b) of the Asset sale and purchase agreement.

[120] Exhibit 29. No enclosures were discovered by the plaintiff.

[136] Exhibit 54, transcript pp 728-729.

[159] [1938] HCA 34; (1938) 60 CLR 336.

[160] [2007] FCAFC 132; (2007) 162 FCR 466, [31].

[172] ASC, prayer for relief paragraph H.

[197] JLW (Vic) Pty Ltd v Tsiloglou [1994] VicRp 16; [1994] 1 VR 237 at 241.

[198] ASC [19] - [21], [24] - [25], [27] - [29], [31] - [32], [37A] and [37C].

[201] Transcript pp 842 - 843 lines 23 - 3. Note that the amount claimed by the plaintiff varies between oral and written closing submissions (compare Transcript p 1126 lines 15 - 17 to Plaintiff's Outline of Closing Submissions, [186(b)]), but it is assumed here that this variation was an oversight.

[216] Transcript p 843, lines 5 - 9; exhibit 42.

[217] Transcript pp 796 - 797, lines 23 - 30.

[219] Transcript p 850, lines 14 - 17.

[222] Transcript p 863, lines 20 - 26.

[223] Transcript p 863, lines 27 - 30.

[224] Transcript p 377, lines 10 - 14.

[225] Transcript p 376, lines 25 - 26.

[230] Plaintiff's Outline of Closing Submissions, [187].

[231] Section 19(a) of the Goods Act.

[232] Halsbury's Laws of Australia, [375-490].

[233] Halsbury's Laws of Australia, [375-490].

[234] Halsbury's Laws of Australia, [375-500].

[235] Halsbury's Laws of Australia, [375-520].

[236] Sale of Goods Act 1958 s19(b).

[237] Halsbury's Laws of Australia, [375-515].

[238] Halsbury's Laws of Australia, [375-515].

[239] Halsbury's Laws of Australia, [375-475].

[240] Transcript p 330, lines 11 - 31.

[241] Halsbury's Laws of Australia, [375-520].

[242] Defendant's Outline of Closing Submissions, [142].

[243] Defendant's Outline of Closing Submissions, [145].

[244] Defendant's Outline of Closing Submissions, [145].

[245] Victorian Alps Wine Co Pty Ltd v All Saints Estate Pty Ltd [2012] VSCA 81; (2012) 34 VR 397 (Hansen JA, with whom Warren CJ agreed), [58] (Bell AJA), as cited by Elliot J in Hogan v Bpw Transpec [2013] VSC 249, [192].

[246] John Dorahy's Fitness Centre Pty Ltd v Buchanan [1996] NSWSC 628.

[247] N C Seddon and R A Bigwood, Cheshire and Fifoot Law of Contract Australian Edition, (LexisNexis Butterworths, 11th ed, 2017), p 534.

[248] Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500, 510.

[249] [1980] UKHL 2; [1980] AC 827, 843 per Lord Wilberforce.

[250] Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827, per Lord Diplock.

[252] Plaintiff Outline of Opening Submissions dated 7 May 2017, [18].

[253] As held in Hogan v BPW Transpec Pty Ltd [2013] VSC 249, [193].

[256] Plaintiff's Outline of Closing Submissions, [182].

[259] Transcript p 138, lines 14 - 17.

[262] Defendant's Outline of Closing Submissions, [137(b)].

[263] Defendant's Outline of Closing Submissions, [137(b)].

[264] Wardley Australia Lt v Western Australia [1992] HCA 55; (1992) 175 CLR 514, 525 pet Mason CJ, Dawson, Gaudron and McHugh JJ.

[266] Particulars to paragraph 26 of the ASC.

[269] Particulars to paragraph 26 of the ASC.

[291] (1995) 49 NSWLR 315, 318 - 319.

[297] Armstrong Strategic Management and Marketing Pty Limited v Expense Reduction Analysts Group Pty Ltd (No 9) [2016] NSWSC 1005, [88].

[298] Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592,[39] per Gleeson CJ, Hayne and Heydon JJ.

[299] [1998] FCA 924; (1998) 156 ALR 470, 480; cited with approval in Armstrong Strategic Management and Marketing Pty Limited v Expense Reduction Analysts Group Pty Ltd (No 9) [2016] NSWSC 1005, [88].

[300] Plaintiff's Outline of Closing Submissions, [30].

[305][2010] HCA 31; (2010) 241 CLR 357, [5].

[318] Exhibits A and B, transcript p 414.

[324] Plaintiff's Outline of Closing Submissions, [32].

[327] [2003] HCA 18; (2003) 214 CLR 51, [5].

[328] [2003] HCA 18; (2003) 214 CLR 51, [15].

[344] This element was not pleaded, but it emerged as an assumption on which Mr Munday's reports were based (see exhibit 73).

[370] Exhibit CU, [2.3.2(b)] and [4.3.2 (a)-(b)].

[423] ASC, [38]-[40]; also see above paragraphs 177-192 and exhibit 15.

[431] Exhibit DK, [4.5.19], [4.5.21].

[440] Exhibit CU, [4.5.3]-[4.5.5].

[444] Exhibit 73 [4.16], transcript p 934.