Apple Computer Australia Pty Ltd v Mekrizis - [2003] NSWSC 126

No judgment structure available for this case.

Reported Decision:
(2003) 44 ACSR 518

Supreme Court

CITATION: Apple Computer Australia Pty Ltd v George Mekrizis and Ors [2003] NSWSC 126 revised - 11/03/2003

HEARING DATE(S): 24, 26, 27 and 28 June 2002
1, 2, 3, 4, 5 and 9 July 2002
26 and 30 August 2002
20 September 2002
17, 22 and 25 October 2002
15, 22, 25, 26, 27 and 29 November 2002

JUDGMENT DATE:
11 March 2003

JURISDICTION:
Equity Division
Commercial List

JUDGMENT OF: Bergin J

DECISION: See par [410].

CATCHWORDS: [GUARANTEE] - Whether the Guarantee was unjust within the meaning of that term in the Contracts Review Act 1980 (NSW) - Substantive and procedural injustice - Whether the Guarantors are entitled to a reduction in amount guaranteed by reason of: (a) receipts from other guarantors - (b) alleged prejudicial conduct by creditor - and (c) by reason of provisions of A New Tax System (Goods and Services Tax) Act 1999 (Cth) - [FRANCHISE] - Whether agreements were franchise agreements - Definition of franchise agreement under Franchising Code of Conduct - Duty of disclosure - Consideration of section 51AC of the Trade Practices Act 1974 (Cth) - [MISLEADING OR DECEPTIVE CONDUCT] - Whether the plaintiff made certain representations or whether representations should be implied - Whether representations were misleading or deceptive - Whether reliance was placed on representations to enter into Merger

LEGISLATION CITED: A New Tax System (Goods and Services Tax) Act 1999 (Cth)
Contracts Review Act 1980 (NSW)
Conveyancing Act 1919 (NSW)
Fair Trading Act 1987 (NSW)
Trade Practices Act 1974 (Cth)

CASES CITED: Agro Holdings Ltd v Flexi-Coil (Australia) Pty Ltd [1999] FCA 1658, unreported, Nicholson J, 26/11/1999
Ankar Proprietary Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549
Apple Computer Australia Pty Ltd v George Mekrizis and Ors [2002] NSWSC 982, unreported, Bergin J, 22/10/2002
Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253
Behan v Obelon Pty Ltd [1984] 2 NSWLR 637
Black v The Ottoman Bank (1862) 15 Moo PCC 472; 15 ER 573
BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 180 CLR 266
Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337
Commercial Bank of Australia Limited v Amadio & Anor (1983) 151 CLR 447
Comptroller of Stamps (Victoria) v Howard-Smith (1936) 54 CLR 614
Dobbs v National Bank of Australasia Limited (1935) 53 CLR 643
Federal Wharf Company Limited v The Deputy Federal Commissioner of Taxation (1930) 44 CLR 24
Fitzwood v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 566
Holder & Anor v Commissioners of Inland Revenue [1932] AC 624
Hurley v McDonald's Australia Ltd (2000) ATPR 41-741
Je Maintiendrai Pty Ltd v Australia and New Zealand Banking Group (1985) 38 SASR 70
Riches v Westminster Bank Limited [1947] AC 390
Subway Systems Australia Pty Ltd v Thorpe [2000] QSC 099, unreported, Muir J, 28/4/2000
West v AGC (Advances) Ltd & Ors (1986) 5 NSWLR 610
William Brandt's Sons & Co v Dunlop Rubber Company, Limited [1905] AC 454

PARTIES :
Apple Computer Australia Pty Ltd (Plaintiff/First Cross-Defendant)
Donald Hartono (Sixth Defendant/First Cross-Claimant)
Tjipto Hartono (Seventh Defendant/Second Cross-Claimant)
Wing Nin Liu (Thirteenth Defendant/First Cross-Claimant)
Aircent Pty Ltd (First Cross-Claimant)
Kevin McElduff (Second Cross-Defendant)
James Likidis (Third Cross-Defendant)

FILE NUMBER(S): SC 50054/01

COUNSEL: Mr TEF Hughes QC leading Mr CRC Newlinds on 20 September 2002 and 17 October 2002; Mr CRC Newlinds on all other dates (Plaintiff/First, Second and Third Cross-Defendants)
Mr P Hayes QC, Mr J Hyde and Mr A Paterson on 24 June 2002, Mr RG Forster SC on 26 and 30 August 2002, Dr C Birch SC on 9 July and 20 September 2002 and Mr A Davis on 22, 25, 26, 27 and 29 November 2002 (Seventh Defendant/Second Cross-Claimant)
Mr P Hayes QC leading Messrs J Hyde and A Paterson (Thirteenth Defendant/First Cross-Claimants)

SOLICITORS: Clayton Utz (Plaintiff/Cross-Defendant)
John A Bush Solicitor (Sixth Defendant and Seventh Defendant/Second Cross-Claimant)
Wright Pavuk Lawyers (Thirteenth Defendant/First Cross-Claimant)

- 151 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BERGIN J

11 March 2003

50054/01 APPLE COMPUTER AUSTRALIA PTY LTD v GEORGE MEKRIZIS & ORS

JUDGMENT

Index [par]

Introduction [1]

The history of the proceedings [4]

Background to Merger Plan [12]

Hartono/Liu Meetings July 2000 [21]

Liu Meets with Arthur Andersen [28]

Liu Meets with Mac’s Place [30]

Mac’s Place Due Diligence [31]

Liu’s Meeting with the Plaintiff on 21 August 2000 [36]

Purchase of Mac’s Place [49]

8 September 2000 – The Merger Guarantee is signed [61]

13 September 2000 – the Merger Documents are signed [72]

Buzzle’s problems [76]

De-merger proposal [82]

Receivers appointed [85]

Proceedings commenced [88]

The Merger Documents [89]

The Merger Deed [90]

The Payments Deed [98]

The Guarantee [104]

An Oral Agreement [112]

The Guarantee claim [116]

The Defendants’ Claims [117]

Defences to the Guarantee Claim [125]

Form of Certificate [126]

$7,186,729.37 for Stock [138]

$4,799,916.35 of Apple Debt [180]

Unauthorised Reversal of $1,090,226.90 [190]

Money received from other guarantors [195]

GST Adjustments [201]

The Seventh Defendant’s position [209]

The CRA Claim [229]

The Code Claim [237]

The Code [240]

Was there a single agreement? [252]

The Reseller Agreement [253]

The Agency Addendum [267]

The Centre Addendum [271]

The Education Addendum [274]

The Manual [276]

Was the Reseller Agreement a franchise agreement? [287]

Was the K-12 Agreement a franchise agreement? [316]

Was the Service Provider Agreement a franchise agreement? [322]

Was the Associate Reseller Program Agreement a franchise agreement? [331]

Was the Supplemental Agreement a franchise agreement? [334]

Misleading conduct case [345]

The 21 August Representations [350]

The Implied Representations [393]

The Sixth Defendant [409]

Orders [410]

Introduction

1 These proceedings relate to the failed merged business operated by Buzzle Operations Pty Ltd (Buzzle) as a reseller of computer products of the plaintiff, Apple Computer Australia Pty Ltd (Apple). Receivers were appointed to Buzzle in March 2001. The plaintiff sues various defendants for amounts allegedly owing under guarantees given by the defendants in which they guaranteed moneys owing by Buzzle to the plaintiff.

2 The proceedings were commenced by way of Summons filed on 26 April 2001. As originally constituted, the plaintiff sought entry of judgment against thirteen defendants for moneys due and owing under their respective guarantees. A number of the defendants brought Cross-Claims against the plaintiff seeking to avoid liability under the guarantees on the basis, inter alia, of unconscionability and misleading or deceptive conduct.

3 By the time the matter came on for trial, the proceedings had been settled except as against the sixth, seventh, eighth, ninth and thirteenth defendants. They are respectively Donald Hartono, Tjipto Hartono, Stephen Ong, Eva Seok Gin Ong and Wing Nin Liu (Liu).

The history of the proceedings

4 As these proceedings took a rather unusual route to conclusion it is appropriate to set out a short history of what occurred. The matter was originally listed for hearing in April 2002, however on the application of the defendants and over opposition by the plaintiff the hearing dates were vacated and the matter was re-listed for three weeks commencing on 24 June 2002. The reasons for the vacation of the trial date are dealt with in my judgment delivered on 11 April 2002.

5 The trial commenced on 24 June 2002 when Mr CRC Newlinds, of counsel, appeared for the plaintiff, Mr P Hayes QC leading Mr J Hyde, of counsel, and Mr A Paterson, of counsel, appeared for the sixth, seventh and thirteenth defendants, and the eighth and ninth defendants appeared in person. On the first day of the trial, Mr Hayes QC sought an adjournment of the commencement of the proceedings until 27 June 2002. That application was supported by the eighth and ninth defendants and opposed by the plaintiff. I allowed the plaintiff to commence its case on 24 June 2002. The Deeds of Guarantee and Indemnity (the Guarantees) and demands upon each of the defendants together with a certificate under the Guarantees were admitted into evidence (Ex. A) and the plaintiff closed its case. I then adjourned the proceedings part heard to 26 June 2002 when the defendants’ cases were to commence.

6 On 26 June 2002, Mr Hayes QC advised that his instructions from the sixth and seventh defendants had been withdrawn. Mr J Bush, solicitor, announced his appearance for the sixth and seventh defendants and informed the court that at least the sixth defendant had executed a debtor’s petition to be filed that day and that Mr Max Donnelly had consented to act as trustee. Mr Bush also advised that Mr Donnelly had indicated that he would not be taking any further part in the proceedings. The position in respect of the seventh defendant, Tjipto Hartono, was that he took no part in the proceedings from that date until 9 July 2002.

7 On 4 July 2002 the plaintiff and the eighth and ninth defendants settled the proceedings. The trial between the plaintiff and Liu continued on 5 and 9 July 2002. On 9 July 2002, Dr C Birch SC sought leave to appear for the seventh defendant in relation to a matter that had arisen in respect of the amount allegedly owing under the Guarantees. The final submissions continued and on the application of Dr Birch, I stood the matter over for further final submissions on 26 August 2002.

8 On 26 August 2002 Mr RG Forster SC appeared for the seventh defendant. Mr Hayes QC sought leave to rely upon further written submissions filed on 21 August 2002 together with an affidavit of his instructing solicitor. These dealt with new areas not previously the subject of submissions. Over opposition by the plaintiff I allowed reliance on the submissions, however, on the plaintiff’s application, I allowed further time to respond to the submissions and to call additional evidence if necessary.

9 On 30 August 2002 it became apparent that the seventh defendant and Liu were seeking to amend their pleadings beyond what had been contemplated on 26 August 2002. I directed the seventh defendant and Liu to file Motions seeking leave to amend their pleadings and call further evidence. I also directed that any evidence in support of the Motion together with all additional evidence proposed to be called, if leave were to be granted, be filed prior to the hearing of the Motion on 20 September 2002.

10 Motions were filed seeking to amend their Defences and Cross-Claims. I heard those Motions on 20 September 2002 and a further application to call further evidence on the Motions on 17 October 2002. I allowed some of the amendments sought, the detail of which is contained in my judgment delivered on 22 October 2002: Apple Computer Australia Pty Limited v George Mekrizis & Ors [2002] NSWSC 982. Although the seventh defendant did not take part in the trial, I allowed him to defend the guarantee claim and to rely upon part of an amended Cross-Claim seeking to set the Guarantee aside under the Contracts Review Act 1987 (NSW) (the CRA).

11 Further hearing of the matter continued on 25, 26, 27 and 29 November 2002 when Mr AA Davis, of counsel, appeared for the seventh defendant and representation for the other parties remained the same. Further evidence was called, final submissions were made and I reserved my judgment on 29 November 2002.

Background to Merger Plan

12 The plaintiff’s principal activity is the importation and distribution of computer equipment. The immediate parent entity of the plaintiff is Apple Computer Inc. Ltd, a company incorporated in Ireland, and the ultimate parent entity is Apple Computer Inc., a company listed and incorporated in the United States of America. The plaintiff distributes computer equipment through entities known as Resellers that on-sell it and may provide maintenance and/or repair services.

13 In early to mid 2000, seven of the plaintiff’s Resellers, who were conducting businesses in what are referred to as “AppleCentres”, decided to merge their businesses into a proposed business to be operated by a newly incorporated company. That company was referred to in the planning stages as “Newco” and was ultimately incorporated and named Buzzle with the aim of floating Buzzle Ltd on the Australian Stock Exchange (ASX). An information brochure prepared in mid 2000 (Ex. K; p. 98) described the plan as follows:

The Channel Merger
Apple Australia’s leading channel partners are planning to consolidate operations and merge as a single entity with the announcement planned for July 3, 2000 and possible listing on the ASX some time later in 2000.

What It Means
The merger involves seven of the largest and most established channel partners in Australia. These include: Choice Connections, GM, Nextbyte, Mac’s Place, Designwyse, Status Graph and Manning Computers.

· the creation of one entity allowing consortium members to consolidate and streamline businesses;

· better negotiation when purchasing volume stock;

· increased synergy of operations;

· the ability to expand in areas currently lacking an Apple presence;

· new and revitalised AppleCentres;

· enhanced branding for the consortium and Apple.

Extra benefits to Apple include:

· the likelihood of increased retail coverage;

· ability to continue funding strong growth.

The Current Situation
The consortium is currently working in conjunction with leading Marketing company “Love” to create the new branding and marketing plan that will drive the new company forward.

Arthur Andersen Corporate Finance has been appointed to advise the consortium on the merger details and the potential listing on the Australian Stock Exchange.

14 On 5 July 2000 an article entitled “Apple Retailers Plan Merger” appeared in the Financial Review (Ex. K; p. 57). It included the following:

Seven of Apple Computer’s Australian retailers have decided to band together into a single corporate entity which plans to list on the Australian Stock Exchange.

The seven companies have thirty-one retail outlets between them and combined annual revenues of $200 million.

The companies (named) sell product under the Apple Centre banner and see their merger as an opportunity to shed costs by sharing technical resources and pooling funding for new AppleCentres.

Apple Australia’s Managing Director, Ms Diana Ryall, said the deal may draw flack from Apple’s other resellers.

The combined group is working on a name for the new entity and expects to lodge a prospectus for an IPO by the end of the year.

“Apple has seen stupendous growth over the last couple of years, and we intend to float to prepare for further strong growth” said Mr Craig Rispin, spokesman for the group.

“We expect to have everything done and ready for Christmas.”

Apple has applied a single wholesale price to its products regardless of volumes ordered, so the merger would result in lower prices on third-party computer products only, said Mr Rispin. He said the planned merger took the successful Apple Centre model a step further.

15 On 15 June 2000, a number of the representatives of the plaintiff attended a meeting with the Resellers. The representatives of the plaintiff were the Managing Director, Ms Diana Ryall, the Manager responsible for Apple’s channel partners, Kevin McElduff (McElduff), the Director of the Finance and Business Operations, James Likidis (Likidis) and amongst others, Ms Naomi Law, legal counsel for the plaintiff. It was at this meeting that Mr Rispin, speaking on behalf of the Resellers, outlined to the representatives of the plaintiff the advantages to the plaintiff in supporting the Merger. It was Mr Rispin who had developed the idea of consolidating and merging the Resellers.

16 The Resellers and the plaintiff’s representatives had a number of meetings throughout June. In the main, those meetings were held between Mr Bright from Arthur Andersen Corporate Finance (Arthur Andersen) and Mr Rispin for the Resellers and Likidis and Ms Law from the plaintiff. On 28 June 2000, Likidis informed Mr Rispin and Mr Bright that from the plaintiff’s perspective it would require as a minimum security a floating charge over the assets of the Newco as well as directors’ guarantees. He said that would be reviewed after the Newco went public. Likidis also informed Mr Bright and Mr Rispin that other requirements included 100% of non-services revenue to be Apple exclusive or Apple associated product. He said that performance targets would be set and a new reseller agreement had to be signed. Likidis also said that the plaintiff would require financial forecasts for the new entity including revenue, profit and cash. He said that there was to be no change in the margin structure of the financial terms and he asked whether the announcement could be delayed for one week to allow the plaintiff to prepare for a press comment.

17 On 30 June 2000, Mr Bright wrote to Likidis in terms which included the following:

· No changes to the existing arrangements are sought prior to the IPO except that the existing principals’ exposures should be linked in some way to their ownership interests and should not increase in relation to the operations of the overall merged entity;

· After the IPO, as a public company, with its own capital base and the separation of shareholder and employee roles, all Director’s guarantees should be released; and

· Without detracting from Apple’s security position, Newco should be able to introduce prudent debt levels into its capital structure.

18 On 5 July 2000 Likidis sent an email to Mr Crawford Giles, the principal of Nextbyte, in which he wrote:

(Ex. K; p. 109)

19 Mr Crawford responded to Likidis’ email, agreeing or stating “OK” to all the propositions and concluded: “in essence I am happy with this. As the documentation comes through we will have our lawyers review the paperwork”. It is apparent from the evidence that Nextbyte planned to merge with Mac’s Place for the purpose of the merger.

20 The sixth defendant, Donald Hartono, attended a meeting at Apple’s offices on about 21 July 2000. Present at the meeting were Likidis, McElduff, Ms Law, Mr Paul Shearer, the then Financial Services Manager, Mr Crawford and Mr Adam Steinhardt from Nextbyte. At this meeting, Mr Hartono informed those present that “we are all aware of Mac’s Place negative equity on the balance sheet and want to discuss the financial position of Mac’s Place and the level of short fall and debt owed to Apple”. Mr Crawford informed the meeting that there was “negative $3 million” and said, “there is a big hole in the Mac’s Place accounts in the amount of $3 million”. Likidis suggested that the plaintiff may have to appoint a receiver to Mac’s Place. Mr Hartono asked Likidis not to do that as he was interested in buying Mac’s Place and would inject capital into it as a wholly owned subsidiary of Choice Connections, the business of which he was the principal. Likidis asked to see the balance sheet and advised the group that the plaintiff would also need the “financials” for each of the businesses intending to merge for the purposes of identifying whether any of the others in the planned merger were in financial trouble.

Hartono/Liu Meetings July 2000

21 Donald Hartono had met Liu in about 1997. Liu was born in Hong Kong and came to Australia in November 1985. In 1991 he obtained a Bachelor of Commerce degree from the University of New South Wales and after graduation he completed two years of work experience with a chartered accounting firm, Watson Easton & Co, where he worked mainly in the area of taxation. He is eligible for admission as a Certified Practising Accountant (CPA) but has not been admitted.

22 During the period 1993 to 1997, Liu was the Financial Controller of Bayview Country Club Pty Ltd which was involved in residential land subdivision projects in Queensland. His family had an interest in that company and his principal role was to oversee project finance. In July 2000 Liu was the general manager of First Scope Development Pty Ltd, in which his family has an interest. That company developed and managed a joint venture investment project with a number of overseas based companies in the Capitol Square building in George Street, Sydney. Liu’s principal role was to oversee project finance and manage the leasing and marketing of the project. In about late 1999, Mr Hartono’s computer business, Choice Connections, leased premises in the Capitol Square building to set up an AppleCentre.

23 In late July 2000, Mr Hartono telephoned Liu and asked to see him about a business opportunity. Liu met with Mr Hartono at the ANA Hotel for dinner at which time Mr Hartono informed Liu that over the previous two months he had been involved with the plaintiff and “the seven largest Apple resellers” looking at merging the Resellers and floating the merged company on the ASX. Mr Hartono informed Liu that one of the Resellers, Nextbyte, that had planned to merge with Mac’s Place, had pulled out because “there is a hole in Mac’s Place balance sheet”. He also informed him that there had been disagreement about the share allocation that Nextbyte was going to have in the merged company.

24 Mr Hartono then informed Liu that a rescue plan for Mac’s Place had been suggested by the plaintiff and that it “may create an ideal opportunity” for Liu to be involved with the group. Mr Hartono informed Liu that: (1) the merged company would be the largest Apple Reseller in Australia; (2) that he would be investing in a business that would float on the ASX in November 2000; (3) that Arthur Andersen was acting for the merger partners and a lot of work had already been done; and (4) the merger partners had the plaintiff’s full support for the Merger.

25 Mr Hartono also informed Liu that representatives of the plaintiff wished to meet with him to “discuss the deal” and that it would be “good for them and good for you”. He said: “all the hard work has been done and all you have to do, Wing, is to walk into the deal” and “trust me this would be a good opportunity to be involved”.

26 Liu informed Mr Hartono that he was “of course” interested but that he would like to see more details. He asked for any financial statements for Mac’s Place and Mr Hartono informed him that he was waiting for more details but would provide him with what he had. Liu said: “I am happy to assist and look into the matter”. During this meeting Mr Hartono showed Liu a number of newspaper articles including the Financial Review article referred to earlier. At or shortly after the meeting Mr Hartono also provided Liu with a copy of the information brochure to which reference has already been made.

27 On 30 July 2000, Mr Hartono provided Liu with a copy of Mac’s Place’s fixed asset valuation that referred to the total value of the assets and leasehold improvements as $485,390. On 4 August 2000, Mr Hartono informed Liu that the plaintiff had engaged Mr Lee Wong of Moore Stephens, accountants, to conduct a due diligence report on Mac’s Place and that he was still awaiting more information.

Liu Meets with Arthur Andersen

28 In early August 2000, Liu attended a meeting with Mr Hartono and Mr Bright at Arthur Andersen’s office. The following conversation took place:

Bright: Unless Mac’s Place is sold very soon the entire merger will not proceed. I have spoken to Apple who have told me that the merger cannot proceed without Mac’s Place because it is a very important Channel partner. Apple wants an investor to fix up Mac’s Place and reinstate its balance sheet before the merger.

Liu: Can I invest in the merger company directly, rather than buying Mac’s Place’s business?

Hartono: Arthur Andersen has approached Apple on that type of proposal and Arthur Andersen believes the merger group requires operating cash flow to commence the business and about $2 million investment would be helpful to clear Mac’s Place existing debts and liabilities. Those debts and liabilities would not be transferred over to the new entity.

Bright: Jim Likidis of Apple has already rejected such a proposal. Apple wants to fix up Mac’s Place first, so as to keep it in the merger group.

29 A proposed structure for the sale of Mac’s Place that was provided to Liu suggested the establishment of a new company, a contribution of equity capital of $2.6 million, a purchase of the fixed assets from Mac’s Place for $3 million and the on-selling of them to Buzzle for $400,000. It was suggested that the $400,000 would be funded by way of loan from Choice Connections with a sale of the shares in the new company to Buzzle in exchange for the issue of shares in Buzzle.

Liu Meets with Mac’s Place

30 In early August 2000, Liu met with the owner of Mac’s Place, Mr Scott Thompson, and Mr Hartono. During the conversation, Mr Thompson said:

Mac’s Place Due Diligence

31 On 18 August 2000, Liu received a copy of the due diligence report for Mac’s Place prepared by Moore Stephens. After analysing this report, Liu understood that Mac’s Place had a deficiency of assets over liabilities of about $3 million and trade creditors of about $5 million. After reading the report Liu telephoned Mr Hartono and the following conversation took place:

Liu: I am not interested to proceed. Shit, the deficit is enormous and I can’t buy this if the deficit is $3 million. I still do not know what I am buying. Don, I can only trust your judgment on this matter at best. The deal is off. I can’t afford it.

Hartono: If we can’t fix Mac’s Place, there will be no merger. This is a good opportunity to revive an Apple business and be part of the merger. Everything has been done for the merger.

Liu: Donald, it is too much. I can’t afford it.

32 That evening Mr Hartono telephoned Liu and said:

33 In a subsequent telephone call that evening, Mr Hartono informed Liu that he had spoken to Likidis who would call Liu direct. Mr Hartono informed Liu that Likidis wanted “to make the deal more attractive”. He suggested a meeting in Melbourne on Monday, 21 August 2000 and Liu agreed to attend.

34 On 19 August 2000, Likidis telephoned Liu and the following conversation took place:

Likidis: I hear that you are having second thoughts about Mac’s Place?

Liu: Where did you hear that from?

Likidis: We want to make sure you’ll be coming down to Melbourne on Monday because we have a proposal to make the deal more attractive for you.
Liu: I’ll be there.

(Liu’s aff. 4/6/02; par 29)

35 Also on 19 August, Mr Hartono and Liu met at Mr Hartono’s home. The following conversation took place:

Hartono: Look, Apple told me that they could sweeten the deal and they would make it more attractive by transferring the actual two properties held by Scott Thompson over to you. This would mean a $1 million discount on the purchase price!

Liu: Is that right? What did Scott say about it?

Hartono: It’s up to Jim. He will talk to Scott and try to make you reconsider your decision. Jim wants me to take you down to Melbourne on Monday so that he can negotiate the deal with you directly. I can arrange to buy the airfare tickets.
Liu: Okay, we will go and see what Jim wants to say.
(Liu’s aff. 4/6/02; par 30)

Liu’s Meeting with the Plaintiff on 21 August 2000

36 Liu and Mr Hartono met with Likidis, Mr Shearer, Mr Thompson, McElduff and Mr Wong at the offices of Choice Connections in West Melbourne on 21 August 2000. Liu claimed in evidence that Likidis said that he and McElduff had an earlier meeting that day with Mr Thompson about Mac’s Place’s financial troubles, the appointment of a receiver and the rescue attempts for Mac’s Place.

37 There is conflicting evidence of what was said at the 21 August meeting, however Liu gave the following version in his affidavit evidence. Likidis said:

(Liu’s aff. 8/3/02; par 37)

38 Liu claimed that after he looked at the due diligence report from Mr Wong he informed Mr Hartono that there was no way he could go ahead. Liu then took what he described as a “toilet break”. On his return to the meeting room he noticed that Likidis appeared to be chatting intensely with Mr Hartono. Likidis said:

(Liu’s aff. 8/3/02; par 40)

39 The conversation continued:

Likidis: How much did Mac’s Place turn over last year?

Hartono: $27 million.

Likidis: Wing, you know you are buying an Apple business with annual sales turnover of $27 million and Mac’s Place is a very important Apple Channel partner.

Hartono: Mac’s Place sales turnover of $27 million is very critical to the merger group and its retail strategy. Mac’s Place has very good retail exposure in New South Wales, Queensland and Victoria. Mac’s Place business is very important to the float and market valuation.

Likidis: Don, how much percentage of shareholding is Wing going to get in Newco?

Hartono: About 18.5%.

Likidis: Well, look Wing, Mac’s Place business will entitle you to get roughly 18.5% shares in Newco. Do you have a copy of the valuation report for Newco?

Hartono: Yes, I have a copy of the valuation report here. The report is in my bag.

Likidis: Wing, have you seen the valuation report?

Liu: Yes, Jim. Donald showed it to me a week ago and he also gave me a copy of the proposed share allocation sheet.

Likidis: Can you tell me again, what is the valuation of Newco?

Mac’s Place is good value and you will achieve a profit of $18.4 million. That’s not a bad return for six months, huh?

Liu: I have no knowledge of the Apple business and business risk associated to it, so my investment decision will be based on representations made by Apple for the reasoning to rescue Mac’s Place. Does Apple give its full support to the merger and the float?

Likidis: Mac’s Place business is critical to my decision to let the merger go ahead. Apple Computers Australia is in full support of the proposed merger of the six largest Apple businesses, of which Mac’s Place is most certainly one. Of course, Apple is giving its full support to the merger. It is in Apple’s interest to see the merger and subsequent float happen. Your success is Apple’s success. Wing, how can we close the deal?

Liu: Well, I am not willing to pay $2.6 million to buy the business. It is still too expensive.

Likidis: I was wondering, how much are you willing to pay for the business?

Liu: $2.6 million is still too much to pay.

Likidis: How can I make the deal more attractive to you? What if I ask Scott to transfer two of his commercial properties to you? Will you do the deal?

Liu: What do you mean, Jim?

Likidis: If I throw in two of Scott’s commercial properties at 172 Lennox Street, Richmond and 546-548 Whitehorse Road, Mont Albert, worth about $900,000 together as part of the deal. What do you think?

Liu: What does Scott say about that?

Likidis: It’s not up to him. Can we close the deal?

40 In his affidavits Likidis denied much of this conversation including the statements in italics. After this conversation the meeting then resumed with Mr Shearer, Mr Thompson and McElduff. Mr Hartono and Liu were asked to leave the meeting room for ten minutes and were then invited to return. On their return Liu claims the following conversation took place:

Likidis: How much are your two commercial properties worth?

Thompson: I rang the agent, and the agent gave me an over the phone valuation of $600,000 for Richmond and $300,000 for Mont Albert. A total value of $900,000 for the two properties.

Likidis: Do you have any mortgages on the properties?

Thompson: Yes, about $375,000 with the Commonwealth Bank.

(Liu’s aff. 8/3/02; par 51)

41 Liu observed Mr Thompson leave the room in what he thought was an emotionally upset state. Likidis denied that Thompson displayed any unhappiness during the meeting. Liu said that he had earlier observed Likidis threaten the appointment of a receiver to Mac’s Place with a possible bankrupting of Mr Thompson if the deal did not happen. In his affidavit sworn on 7 April 2002 Likidis gave evidence that he did not direct Mr Thompson to sell the properties as part of the deal and stated that: “Scott made the offer on 19 August 2000 of his own volition”. Likidis was cross-examined on this matter as follows:

Q. And it was that, (Wong confirming the $3 million hole in Mac’s Place) that caused you to ring up Mr Thompson and suggest that he should make the two properties available, to sweeten the deal?

A. Yes.

…

….

42 Liu claimed that McElduff suggested that Liu’s company, Aircent Pty Ltd (Aircent), transfer 500,000 shares to Mr Thompson on the float. McElduff said:

(Liu’s aff. 8/3/02; par 53)

43 McElduff then left the room and Likidis said:

Think about it this way, Wing, you will reap a reward of an $18.4 million return on your Mac’s Place investment. Now, can we close the deal?

(Liu’s aff. 8/3/02; par 53)

44 Likidis denies that he said this. Mr Hartono and Liu were then asked to leave the room again and return in ten minutes. On return Liu observed that Mr Thompson looked very much happier.

45 Liu also gave evidence in his affidavits that during the meeting Likidis asked him what the structure of the transaction was and Liu informed him that it was better to acquire Mac’s Place Group. Likidis disagreed and said, “I think it is better not to acquire the company but to acquire the assets and accepted liabilities, just leave the mess behind and then sell it to Buzzle”. Liu also gave evidence that the following conversation took place at the meeting:

Liu: I still cannot afford the deal if it means paying liabilities to Apple in full.

Likidis: Don’t worry, once the merger will happen in a few weeks, I will let Aircent transfer all Apple Computer/hardware/software stock to Buzzle Operations and I will allow you a credit on all Apple outstanding debt from Buzzle Operations.

Liu: This means all debt owing to Apple by Mac’s Place will be transferred to Buzzle.

Likidis: But I want my money now. I want you to fix up the Apple debt and pay me the overdue sum by Mac’s Place for a sum of $2 million on settlement of Aircent’s purchase of Mac’s Place.

Thompson: What about the other unsecured third party creditors?

Likidis: Fuck them. I decide who’s to be paid from the settlement sum.

Thompson: Some of the debts are very urgent, like other Apple third party suppliers, telephone bills and electricity bills. I need some money to pay them too.

Likidis: Well, on settlement I want at least $1.5 million paid to Apple. I will then extend the payment term to Wing until the end of September 2000 for the balance. Now, we’ve fixed the hole, you can start buying more products in order to meet the pre-determined sales target set for Mac’s Place for Q4. Of course, that means I can give you more credit.

Liu: What is Q4?

Hartono: Apple’s financial year starts from the first of October. Q4 is the last quarter.

Likidis: Wing, I know you have no experience in Apple businesses and you should ask Donald to manage the business for you until the merger is complete because CCA has an accounting/management system in place. It is only a matter of a few weeks. Everything is done for you. This is a good deal. Can we now close the deal?

Liu: What about Mac’s Place profit and loss statement and cashflow? I could not see it from the due diligence report.

(Liu’s aff. 8/3/02; pars 61-64)

46 Likidis denied the majority of this conversation in his affidavit and claimed that he found it “offensive” that it had been suggested that he said the words in italics. He claimed that Liu and Mr Hartono informed the meeting that the sale was now to include Mr Thompson’s properties. He also stated that Liu had suggested that Mr Thompson should receive a share issue in the merged company upon the float and that the conversation included the following:

Likidis: So Wing you’re paying $3 million for this. You know this company is virtually worth nothing at the moment?

(Likidis aff. 21/11/01; par 35)

47 Liu was cross-examined about the portion of the conversation he alleged occurred on 21 August in which he claimed he said to Likidis:

I have no knowledge of the Apple business and business risk associated to it, so my investment decision will be based on representations made by Apple for the reasoning to rescue Mac’s Place. Does Apple give its full support to the merger and the float?

(Liu’s aff. 8/3/02; par 46)

48 Mr Newlinds put the terms of the conversation to Liu and suggested that he did not say those words. Liu asked for the question to be repeated and the following was his evidence:

Q. You didn’t say those words or anything like those words

…

Q. Did you say anything else?

Q. You didn’t make up the rest of those words for the purpose of this case?

Q. Did you say the words or not?

Q. Don’t repeat yourself, answer Mr Newlinds. Did you say

them or not?

A. No.

(tr. 334-335)

Purchase of Mac’s Place

49 In August 2000 Mr Thompson forwarded to Likidis, with a copy to Mr Hartono and Liu, “Mac’s Place P&L and cash flow forecast for FY 2001”. On 24 August 2000 Likidis sent an e-mail to Mr Thompson (Ex. K; p. 306):

Thanks for this.

I have a very basic question however that I would like Lee to look at.

How can the business cashflow $4.4M when the profit is only $786K. This can happen if you had such events as sale of assets or a reduction of inventory or debtors or non-payment of creditors. I don’t think any of this is happening.

I have not studied this document properly but it seems to be over-stated.

50 Mr Thompson responded (Ex. K; p. 307):

The answer here is very simple. Because we are starting with no creditors to pay and are generating sales every day, and because Apple provide 60 days terms, we will have massive positive cashflow in the first 2 months.

If you scroll down you can see the end position of the balance sheet, which shows creditors and debtors as they would appear at the end of the year.
Simon is ringing Lee now to make sure he is comfortable with the way the cashflow has been prepared.

51 Between 22 and 24 August 2000 Liu attended a meeting at Arthur Andersen and reviewed the draft Mac’s Place Assets Sale Agreement that had been prepared by Andersen Legal. Liu claimed in his affidavit evidence that he did not receive advice from Andersen Legal about the proposed purchase transaction or about the contents of the Sale Agreements. He was unaware for whom Andersen Legal was acting in relation to the sale and at no time did he or his company Aircent receive any invoices from Andersen Legal for acting in relation to the purchase. However Aircent paid $5,392.47 for part of the plaintiff’s legal costs associated with the purchase of the Mac’s Place business.

52 The Merger partners had met a number of times at Arthur Andersen’s offices between 29 May 2000 and 22 August 2000. The first meeting that Liu attended was the tenth such meeting which occurred on 22 August 2000. Minutes of the meetings were kept (Ex. L) and at the commencement of the 22 August meeting the minutes of the previous meeting of 15 August 2000 were tabled. Mr Bright suggested that it may be in Newco’s best interest to postpone the float until early 2001 for a number of reasons including obtaining greater comfort in forecasts, implementing some of the identified strategies and giving the CEO time to settle in. Mr Bright stressed the need for principals to submit due diligence documentation so that the current Merger timetable could be achieved.

53 The minutes of the meeting also noted that Mr Thompson of Mac’s Place “reported that Mac’s Place Pty Ltd has concluded a transaction with Wing Liu which is expected to be completed on Friday 25 August” (Ex. L). The minutes also noted that Mr Max of Arthur Andersen “described the refinements to the transaction mechanism to effect the transfer of businesses” (Ex. L).

54 On 25 August 2000, Liu received a telephone call from Ms Naomi Law while he was with Mr Hartono at his North Sydney office. The following conversation took place:

Law: Have you received the documents from Clayton Utz for the settlement?
Liu: Yes.

Law: You need to take the documents down to Melbourne. Also, Jim told me that you don’t have a lawyer to represent you. Scott Thompson has Coadys representing him. Clayton Utz represent Apple. Who is your solicitor?

Liu: I don’t have a solicitor. Everything has been done by Apple and Andersen Legal.

Law: You must have your own legal representative on Monday.

(Liu’s aff. 4/6/02; par 46)

55 Shortly after that conversation Likidis telephoned Liu and said: “it is up to you to get a lawyer in Melbourne”. Subsequently Mr Hartono advised Liu that he had also received a call from Likidis who had asked him to find Liu a lawyer in Melbourne.

56 On 28 August 2000 Mr Hartono and Liu flew to Melbourne and met with Mr Issac Brott, solicitor, who arranged for a solicitor from his office, Mr Bruce McNab, to provide legal advice to Liu. Liu said he spent some time with Mr McNab and explained the transaction to Mr McNab who looked through the documents and asked where the other documents were. Liu advised Mr McNab that he did not have any other documents.

57 At about 5:30pm on 28 August 2000 Mr Hartono, Mr McNab and Liu attended a meeting at Andersen Legal’s office in Melbourne. Ms Cox of Andersen Legal, Ms Law, Mr Shearer and Mr Thompson and his solicitor were also present. Liu said that he still had not received the profit and loss statement for Mac’s Place. Ms Law then telephoned Likidis and handed the telephone to Liu. The following conversation took place:

Liu: I still have not received the profit and loss statement for Mac’s Place.

Likidis: You already have a profit and loss statement from Scott Thompson.

Liu: No, that was not a proper profit and loss statement only projections.

Likidis: I have seen it and it is good enough. Anyway, you already have a due diligence for Mac’s Place and that is enough to attach to the contract.

Liu: What about the need for independent financial advice?

Likidis: You don’t need financial advice because you already have the due diligence. We can’t delay the settlement of Mac’s Place. If there is any delay the merger will not happen. You should waive your right to get financial advice.

Liu: I’m only a passive investor, why do I need to sign a guarantee? And why are they asking my mum to sign one?

(Liu’s aff. 4/6/02; par 54)

58 Liu’s affidavit evidence was that during the meeting Mr McNab advised him that changes were needed to the documents but that Ms Law informed them that the plaintiff would not agree to any changes and that the documents needed to be signed as they were. There was no evidence as to what the changes were that Mr McNab suggested. Although the parties stayed at Andersen Legal’s office until 8:00 or 8:30 pm that evening, Ms Cox advised that she had to leave and the settlement was postponed until 29 August 2000.

59 On 29 August 2000 Liu attended a meeting at the Mac’s Place premises in Richmond, Victoria. Also present were Messrs Hartono, Shearer, Wong and Thompson. During that meeting there were further telephone conversations between Likidis and Liu which included the following:

Liu: We have been looking at the list of accepted liabilities.

Likidis: I have already decided who is going to be paid, Paul Shearer has the agreed list. All you need do is to prepare the cheques and hand them over at settlement this afternoon.

Likidis: Apple will help you clean up Mac’s Place, collect the receivables and the creditors. It won’t take very long, we will give you a time extension to do it. We should engage Mr Wong for about three weeks. We need a strong finance man to clean out Mac’s Place.

Liu: What about Simon? Can he do it?

Likidis: He is no fucking good.

Liu: We will do what you say, Jim. But, who will pay for Mr Wong?
Likidis: Apple will contribute to the expenses of cleaning up Mac’s Place. We will work it out later.

…

Liu: I have not arranged finance to pay out the mortgages of the properties that Scott is transferring. How can we settle today? How can I take over the mortgage? I don’t have all the finance to buy Mac’s Place and settle the properties.
Likidis: We can do the transfers later after you get the Bank’s approval.

(Liu’s aff. 4/6/02; pars 60-61)

60 The settlement occurred on 29 August 2000 at Andersen Legal’s premises in Melbourne. Mr McNab attended the settlement and gave Liu advice about the effect of the guarantee. Aircent paid $2 million in cheques payable to the plaintiff and various other Mac’s Place creditors. Aircent paid a further $500,000 to the plaintiff as part of the purchase price on 29 September 2000. Mr Hartono and Choice Connections managed Mac’s Place business from 30 August 2000 until 13 September 2000.

8 September 2000 - The Merger Guarantee is signed

61 On 1 September 2000 Ms Law wrote to Arthur Andersen with copies to the plaintiff requesting details of the Resellers who were to merge and the most current version of the shareholders sell-down positions at the Merger date. Ms Law advised that the percentages were required because “the personal guarantees are to be limited to those percentages” (Ex. K; p. 651). The e-mail continued:

(Ex. K; p. 651)

62 Mr Bright advised Ms Law that the final shareholding positions had been provided to Likidis the previous day (Ex. K; p. 652). Later that day, Ms Law once again informed the plaintiff and its solicitors, Clayton Utz, that personal guarantees from the shareholders of Buzzle, limited to their shareholding percentage, would be required and that they should be prepared as soon as possible so that they could obtain their independent legal and financial advice before 11 September (Ex. K; p. 653). At that stage the settlement of the Merger was planned for 11 September 2000.

63 At a meeting of the Merger partners on 5 September 2000 the proposed CEO of Buzzle, Mr Greg Lloyd, advised that stock takes were to take place on 8 September 2000 and that stores were to e-mail all counts by 12:00 am that night (Ex. L). A new accounting system known as “Navision” was to be installed by Deloittes to be used across the network with existing systems kept in the background as backup. At this meeting it was agreed that GM Computer’s lawyer, Mr Andrew Ford, would act as “independent legal adviser” to the Sydney-based principals “with respect to the personal guarantees to Apple” (Ex. L).

64 On 8 September 2000 at about 11:15 am, Liu received a telephone call from Mr Max of Arthur Andersen who informed him that a meeting was going to be held at about midday at Andersen Legal’s office for the guarantors to sign the “Apple guarantee” and the Buzzle Merger documents. Mr Max informed Liu that he would need to obtain financial advice about the transaction and to arrange for an accountant to attend the meeting. Mr Hartono called Liu and asked him if he knew an accountant that could attend the meeting. Liu telephoned Mr John Scott Pascoe who had been the accountant for a number of his family’s companies over the previous five years, and asked him to attend the meeting with him. At this time Liu had not seen the guarantee document or the final Merger documents.

65 This meeting was videoed by Puzzle Media Pty Ltd for the purposes of producing a documentary about the proposed float. All the parties involved in the Merger except the seventh defendant, Tjipto Hartono, Stephen and Eva Ong, and Rosalee Young were present in the room. Also present were Andrew Ford, who was the solicitor retained by the first defendant, Mr George Mekrizis, and Mr Pascoe. The meeting apparently continued for approximately three hours. The video excerpts from the meeting are contained in exhibit 3, which also includes a transcript of the financial advice given by Mr Pascoe to the persons present.

66 Mr Pascoe gave advice about the “financial risk involved in signing the guarantee”. He advised that it was fairly self-evident that the reason for the provision of the guarantee was to protect the interests of the plaintiff. He said:

So if Apple feels the – isn’t paid out all their full dues you’re individually going to be responsible for that to the extent as shown in the agreement.

(Ex. 3; tr. 8)

67 After confirming that the persons present felt confident that Buzzle was able to operate as a going concern and would be able to pay its debts when they fell due, Mr Pascoe said:

Buzzle is being given this financial obligation, being this big, fat trade agreement and you understand that agreement, you understand the financial implications of that and your obligations and Buzzle’s obligations to Apple and consequently, your obligations … You’re aware of those risks that Buzzle may not be able to pay those obligations to Apple and so you personally may become liable to pay them.

(Ex. 3; tr. 9)

68 Liu gave evidence that Mr Andrew Ford explained that each person was required to sign the guarantee and that by signing the guarantee each person was guaranteeing Buzzle’s liability to the plaintiff under the Reseller Agreement. He also said that Mr Ford had a copy of the Reseller Agreement but did not discuss it except to say that payment terms were forty-five days. Mr Ford advised the group that the guarantee document was a one-sided document in favour of the plaintiff. Liu read the guarantee and asked particular questions about clauses 6.4 and 7.1, relating to interest and expenses.

69 Mr Ford advised that the plaintiff had informed him that it would release the guarantees at the time of the public float, provided Buzzle’s accounts were up to date. After Mr Ford and Mr Pascoe had spoken, Liu signed the Deed of Guarantee and Indemnity (the Guarantee). Mr Ford completed three or four other documents and witnessed Liu’s signature.

70 Liu’s affidavit evidence was that at the time that he signed the Guarantee he did not have financial information about the various companies participating in the Merger or the level of the debt owed to the plaintiff. However, on 5 September 2000 Liu had attended a further meeting at Arthur Andersen’s offices with the Merger partners and Arthur Andersen. The minutes of that meeting record the following:

10. There were no objections to Apple’s request that each principal have a copy of all other principal’s Profit and Loss Statement and Balance Sheet as at 30 June 2000 as well as the due diligence reports. These were distributed to all principals, with the exception of GM Computer due diligence report which is being finalised. (This report has been subsequently distributed).

(Ex. L)

71 When Liu was shown this minute in cross-examination he firstly said that the due diligence reports “could have” been provided. He then accepted that according to the minutes that is what had happened and that he could not deny that was what had happened (tr. 299).

13 September 2000 – the Merger Documents are signed

72 On 13 September Liu attended Andersen Legal’s offices in Sydney for the purpose of signing the Merger documents. He described the meeting as long and that it “started in the evening and went for about five hours until past midnight”. The meeting was attended by all the Merger partners.

73 At that meeting the partners signed the Merger Deed and the Shareholders Deed. Liu gave evidence that the solicitors from Andersen Legal spent a few hours negotiating with the plaintiff’s solicitors the terms of the Payments Deed which was not finalised and signed until the early hours of the following morning, 14 September 2000. Liu’s evidence was that the documents signed at the meeting on 13/14 September were: a Deed of Charge between Buzzle and the plaintiff; a Deed of Charge between WT Clean Pty Ltd and the plaintiff; a Deed of Guarantee and Indemnity in favour of the plaintiff from Buzzle and WT Clean; various authorities and statutory declarations; an Apple Reseller Agreement dated 14 September 2000; the Merger Deed; a letter dated 13 September 2000 relating to the effective date of the transaction, being 11 September 2000; a Shareholder’s Deed; a Consent to Act as Director and the Payments Deed.

74 During the meeting Liu signed a document the contents of which were as follows:

Confirmation of Receipt of Financial Information

· Profit and loss statement of the Merging Businesses for the year ended 30 June 2000;

· Balance sheet of the Merging Businesses as at 30 June 2000; and

· Due diligence report of the Merging Businesses as prepared by Douglas & Harrison.

(Ex. K; p. 782)

75 During cross-examination, Liu denied that his signature on the confirmation document was inconsistent with the aspects of his case that claim he did not receive the due diligence reports, the profit and loss statement and the balance sheets of the merging businesses. When pressed as to why he had signed the confirmation if, as he claimed, he had not received the materials referred to therein, Liu said:

… I can’t recall and the information might have been available in a bundle at the time of signing on the document but I cannot recall and I have tried to attempt to look into the video tapes of that date and I cannot recall the information was given to me on the spot or that day to give it to me and I don’t have some of them.

(tr. 343)

Buzzle’s problems

76 By 19 September 2000 Buzzle was experiencing difficulties. The Navision computer system was a problem and there were very many complaints from the Resellers in respect of its operation or lack thereof. At a meeting of the Resellers on 19 September 2000 the CEO of Buzzle, Mr Lloyd, said:

What we do know is that sales are well under forecast. Seriously under forecast. The September budget sales for the three weeks commencing 11th were 7.9 million and for October we have had to do 13.3. Based on achieving those sales levels, forecast sales levels, we would only have, the budget shows, we would only have approximately 2 million in cash at the end of October surplus after paying all our creditors, including all the dealers. If sales remain poor through to the end of September, we potentially could have a solvency problem for the end of October.

(Ex. 3; tr 18)

77 Later in the year Likidis met with Liu and showed him a presentation on software known as Power Point. Likidis informed Liu that because he had invested so much money in Mac’s Place he wanted to help him. The presentation referred to steps that Likidis suggested should be taken including the centralisation of Buzzle’s financial records, the sale of the finance and administration division and review of the people within the organisation. Likidis gave Liu an organisational chart and suggested that he take over the role of Finance Director. Liu resisted that suggestion and advised Likidis that he did not have the qualifications or experience.

78 It was in early 2001 that Likidis made a threat to Lui that he would not want his family’s name ruined by the plaintiff making him bankrupt. Likidis gave the following evidence:

Q. You were intending to convey a threat that it would
embarrass his family if he was made bankrupt, didn’t you?
A. Bankruptcy, could have.

Q. That was meant to be a threat, wasn’t it?
A. Um, maybe implied, yes.

(tr. 543)

79 Likidis and Liu worked together trying to prepare the profit and loss and balance sheets. This proved very difficult and in January 2001 they both flew to Melbourne and spent two to three weeks working very hard trying to ascertain the true position (tr. 304-305). The profit and loss statements were produced and Liu entered the information into a spreadsheet. Liu claimed that it was not until this time that he became aware of lease costs of between $2.2 million and $2.5 million, as against something like $1.2 million in the due diligence reports (tr. 305). By this stage Liu claimed that he understood that Buzzle had real problems.

80 On 22 January 2001 the plaintiff wrote to Buzzle in the following terms (Ex. K; p. 1683):

We write further to our recent meetings and to confirm our understanding of the present position. In view of Buzzle’s status as a significant reseller of Apple products in the Australian market, it has been agreed that Apple will provide Buzzle with advice and assistance in a proposed internal re-organization aimed at improving Buzzle’s commercial performance. In particular, Buzzle wishes to avail itself of Apple’s knowledge and experience, gained from its position as a subsidiary of a major international corporation, in order to help Buzzle to operate its business more efficiently and to maximise profitability.

For the avoidance of doubt, and to define unambiguously the role that Apple intends to play, Apple wishes to set out the terms on which it offers such assistance:

1. Apple does not wish to become involved in any corporate decision making, either at managerial or directorship level. Whilst Apple is willing to share its expertise and offer practical guidance, it is the Buzzle directors who have the ultimate responsibility for all decisions and they are, of course, at liberty to adopt or reject any advice as they see fit. Accordingly, if Apple is invited to attend any meetings at which corporate decisions are made, for example, a director’s meeting it will only do so as an observer and/or adviser;

2. Buzzle will not represent to any third party that Apple’s assistance represents any involvement in the management of Buzzle’s business.

Apple is conscious, that as Buzzle’s secured creditor, its interests may not always coincide with those of Buzzle. In the circumstances, Apple strongly recommends that Buzzle gives consideration to retaining professional accounting and/or financial advisers of its own to advise it on the re-organisation.

Please arrange for two Buzzle directors to countersign the bottom of this letter to indicate the Board’s acceptance of this document. In the meantime, we sincerely hope that Apple’s assistance will facilitate Buzzle’s commercial development and that our two companies will continue to work successfully together in the future.

81 This letter was countersigned by Mr Hartono and Liu as directors of Buzzle on 9 February 2001.

De-merger proposal

82 Liu claimed that in March 2001 the plaintiff proposed a de-merger plan to the six Merger partners. Mr Hartono and Lui intended to set up a new business, Mac’s Choice, with a plan to buy back the old business (tr. 306). Mr Andrew Charles Mason, a business consultant, was briefed to assist with the plan. An approach was made to the Bank of China for finance and a document entitled “Mac’s Choice Summary Business Plan” dated 16 March 2001 (Ex. C) was used to support the application. It included the following:

As a result of the plan outlined within this Business Summary, Mac’s Choice expects to generate A$98 million p.a. revenues within 2 years whilst providing high rates of return for investors. The requirement has been established at A$6 million by way of equity finance in order to re-establish the company and to fulfil its stated objectives. Of this total, A$2 million has already been committed.

83 The document then described the retailing skills of Mac’s Place and stated:

In July 2000, Choice Connections and Mac’s Place decided to combine with up to five other Apple resellers. This was designed to represent a further broadening of the capabilities and capacities by incorporating smaller, regional players into a new entity which became known as Buzzle Ltd.

As frequently occurs in many larger mergers, differences in corporate culture, systems integration, business philosophy, skill levels, work ethic, commitment and growth strategies can fracture them before completion. This was certainly the case following the decision by Choice Connections and Mac’s Place to extend the merger to others.

One of the indicators of the unworkability of the proposed mergers was that efficiencies that should be expected to be inherent in such a merger simply did not occur. This was exacerbated by a number of entities bringing to the proposed new operation an unacceptable level of debt. Once the level and impact of this debt became known to the principals of Choice Connections and Mac’s Place they immediately set in motion their exit strategy.

The difficulties experienced in Buzzle Ltd have depressed the revenue expectation of Mac’s Choice for FY 00/01 to A$61 million. Negotiations have now been completed between Mac’s Choice and Apple Computers to formally de-merge Choice Connections and Mac’s Place from Buzzle.

84 The document then referred to the proposed structure of the group and to the personnel proposed to be involved in the venture. In referring to Liu the document stated:

Wing Liu is the Chief Financial Officer for Mac’s Choice. Prior to owning Mac’s Place Wing was an executive in Choice Connections, responsible for establishing the eCommerce division-Choicenet. He has been Managing Director of a Sydney-based property development company owned jointly by Ipoh Limited, Bank of China and Australian Investment Group since 1993. Wing is a graduate of University of NSW (BComm) and he is a CPA. He was born in Hong Kong and has lived in Australia as a citizen for over 15 years.

Receivers appointed

85 On 30 March 2001 Receivers were appointed to Buzzle by the plaintiff. Liu agreed that the plaintiff appointed Receivers because Buzzle owed it $22 million and was not paying the debts owed to the plaintiff (tr. 316). The Receivers’ report of 6 April 2001 stated:

As you know, Buzzle are trading very poorly and there is a lack of reliable management information systems. Buzzle’s financial position and trading performance has deteriorated at an accelerated rate since our Investigating Accountant’s report. This is primarily due to the limited ability to source inventory leading to a run-down in inventory levels from which to trade. This position is exacerbated by the directors’ and management’s attention focused on “demerger” rather than Buzzle’s business.

(Ex. 4; p 1)

86 Opinions have been expressed about the financial position of Buzzle at the date of the Merger and subsequently. Anthony P Gellert, an expert called by Liu, expressed the view that it was “possible” that the requirement upon Buzzle to “meet repayments of the balance of the debt owing by the Resellers to Apple, may have resulted in management focus being directed to the collection of past debtors, rather than on the urgent need for focus on establishing proper trading systems and procedures for the newly merged entity” (Ex. 10; p. 15-16). It is understandable that Mr Gellert expressed himself in this way because he was not given copies of the Merger Deed or the Payments Deed for the purpose of preparing his report.

87 KPMG noted a number of preliminary observations as to why the Merger was not successful including: (1) failure to plan for the implementation of the Merger, including contingency planning in the event of trading suffering a downturn; (2) poor co-ordination of activities including the absence of centralised purchasing or rationalisation of the service centres and a failure to adequately distribute marketing and sales information on a national basis; (3) absence of appropriate controls, especially financial controls, including: (a) basing the financial and administration team in Melbourne while the financial controller was based in Sydney resulting in a lack of financial leadership and controls; (b) the ineffective and expensive implementation of a new management information system (Navision) that had failed to provide any meaningful or timely management accounts; and (c) the absence of validation of receipt allocation between pre and post Merger debtors; and (4) failure of the management and directors to act cohesively including: (a) individual stores’ self interest taking precedence over Buzzle’s interests in relation to logistics, stock usage and transfers, purchasing power, treasury and cash requirements; (b) the failure of the group to re-brand its operations with the majority of stores continuing with signage of the Reseller and the employees and customers identifying with the Reseller rather than Buzzle; and (c) directors being reluctant to terminate surplus staff (Ex. 10; p. 33-34).

Proceedings commenced

88 The plaintiff made demand under the Guarantee upon Liu and the other defendants on 16 April 2001 and proceedings were commenced by Summons on 26 April 2001.

The Merger Documents

89 By reason of the competing claims and submissions, it is necessary to analyse the relevant Deeds that were signed or executed to effect the Buzzle merger.

The Merger Deed

90 There were a number of Merger Deeds in identical form except for the names of the parties. In Liu’s case the parties to the Deed were Aircent as Vendor, Liu and his company, Cabby Investments Pty Ltd (CIPL), as principals, and Buzzle Ltd and Buzzle as Purchasers. There was also a subsidiary company referred to as Subco. All the Merger Deeds were executed on the same day and provided for the transfer of each of the Reseller’s businesses to Buzzle. The businesses were described as the distribution and servicing of computer equipment and related products and the provision of IT related consulting, ISP and web site hosting services.

91 The Merger Deed provided for a cash component and a non-cash component of the purchase price to be paid for the stock, plant and equipment and the shares in Subco. In respect of the non-cash component each of the principals was obliged to subscribe for shares in Subco and to deliver to Buzzle share transfers for those shares in consideration of which each was issued shares in Buzzle. The Deed provided that CIPL was to be issued 12,916,000 shares in Buzzle.

92 Part of the cash component of the purchase price was for stock. The principals and the Resellers were required to conduct a stocktake on or about completion. Stock was defined as stock in trade relating to the businesses owned by the Resellers at completion and included, without further definition, stock-in-transit, raw materials, components, work-in-progress, packaging materials, stationery, advertising material and catalogues. Clause 7 also set out some valuation guidelines by which the stock was to be valued. The Resellers were required to provide the results of the stocktake to Buzzle within two days of completion and Buzzle was required to determine the stock value within five business days of completion.

93 The cash component of the purchase price also included the value of the plant and equipment, which the parties agreed Hyman Asset Management Group would value. The parties agreed that as soon as practicable but, in any event within 12 business days after completion, the Purchasers were to determine the Economic Value and notify the Resellers of that amount. The Deed provided a mechanism for resolution of any disputes about the Economic Value.

94 Clause 6.5 of the Merger Deed is significant to a number of the submissions put on Liu’s behalf and it is appropriate to set it out in full. It provided as follows:

6.5 Obligations of the Purchaser

The Purchaser must pay the Cash Component as follows:

(a) Payment of the portion of the Cash Component attributable (in accordance with the determination made under clause 7) to Stock by Buzzle Operations to the Vendors will be deferred until such time as the directors of Buzzle form the view (on reasonable grounds) that Buzzle Operations has adequate cash flows to pay amounts owing to all Vendors on a pro-rata basis, or in accordance with the requirements of that Vendor to pay its creditors, provided that such payment is made no later than 31 October 2000; and

(b) Payment of the remaining amount of the Cash Component by Buzzle Operations to the Vendors will be deferred until the earlier of:

(i) the float of Buzzle on ASX; or

(ii) the directors of Buzzle forming the view on reasonable grounds that Buzzle Operations has adequate cash flows to pay amounts owing to all Vendors on a pro-rata basis or in accordance with the requirements of that Vendor to pay its creditors.

95 Under clause 3.4 of the Deed the purchaser assumed no Liabilities, except to the extent expressly provided by the Deed, and each Reseller remained solely responsible for the payment, satisfaction and discharge of all Liabilities. “Liabilities” was defined as “liabilities (including obligations) of each (Reseller) connected with the Business or the Assets (or any part of the Business or the Assets) known or unknown and whether actual, contingent or prospective” (cl 1.1). The assets included the business names, the business records, the commercial contracts, the chattel leases, the leases, the goodwill, the intellectual property rights, the licences, the permits, the plant and equipment and the stock. Excluded from the assets were the existing Reseller Agreements between the Resellers and the plaintiff, cash used in the business, the receivables and business records which any vendors were required by law to retain.

96 Clause 6.2 of the Merger Deed set out the steps in a particular order that the parties were required to follow at completion to confer on Buzzle title to, and place Buzzle in the effective possession and control of, the businesses, stock, plant and equipment and the Subco shares. One of the steps required was the execution of the New Reseller Agreement, defined as the reseller agreement between the plaintiff and Buzzle and/or the Subco (cl 1.1 & 2.1). Other documents required to be executed to effect completion were the Infrastructure Provision Agreement and certain securities.

381 This paragraph deals with the argument in relation to the construction of the Deeds dealt with earlier in this judgment. It has never been suggested by Liu, or his counsel, that he has abandoned the allegation that this representation was made and that it was misleading or deceptive. Although Likidis denied the terms of the conversation and the context in which it was alleged to have been said, I will assume for the moment that the representation was made. The findings that I have made in relation to the defences earlier deal with this alleged representation. There is nothing about this statement that was misleading or deceptive.

382 (f) Buzzle would be publicly listed on the ASX within a short period of time

This alleged representation is very much entwined with representations (a) and (h) referred to above. Likidis gave evidence that he was of the view that it was highly likely that the float of Buzzle would not occur in 2000. Liu’s evidence, in relation to the calculation that was performed in respect of the $18.4 million, stated that Likidis said that it was not a bad return in “six months”. I am of the view that the discussions about this period were, as Mr Shearer pointed out in his evidence, reliant upon the Arthur Andersen timetable.

383 It was the Resellers, through Mr Rispin, who promoted the Merger to the plaintiff and it was Arthur Andersen who advised the Resellers as to the viability of the Merger and possible float. It was Arthur Andersen together with the Resellers who were deciding on the timetable. This is made abundantly clear from the minutes of the meetings of the Resellers with Arthur Andersen (Ex. L). It was Mr Hartono who informed Liu in their meeting in late July 2000 that Buzzle “will float on the ASX in November 2000”. I am not satisfied that Likidis said Buzzle “would be publicly listed” within a short period of time. The timeframe was that provided by Arthur Andersen and according to Liu, Likidis was mentioning the term six months within the timeframe proposed by Arthur Andersen. I am not satisfied that the plaintiff made this alleged representation. Even if such a statement was made by Likidis in relation to the return in “six months” in the context alleged by Liu, I am not satisfied that such a statement was misleading or deceptive in the circumstances referred to above.

384 (g) Even if the float of Buzzle did not proceed, Aircent would be part of a strong business and that everything would still work out

Liu: What will happen if the float doesn’t go ahead?

Likidis: Apple is supporting the float and it will proceed. However, even if it does not, you will be a part of a strong business that will be the biggest Apple reseller in Australia and that is still growing. You will be in the hands of very successful resellers and everything will still work out.

(par 31)

385 Part of Liu’s oral evidence, extracted earlier, included:

386 There is no doubt that Buzzle was a large business. It is also the fact that Buzzle was the largest Apple reseller in Australia. The term “the business still growing” is consistent with what the Resellers were aiming for in their plans made with Arthur Andersen to float Buzzle. It is difficult to know what the words “everything will still work out” could have been understood to have meant. There is a range of possibilities, including that Buzzle would still be able to deal with the plaintiff as a reseller. It could hardly have been understood to mean that notwithstanding a lack of public listing, there would still be millions of dollars to be returned.

387 Liu’s evidence was that he described himself to Likidis as a “passive investor”. He also asked Mr Bright of Arthur Andersen whether he could invest in the merger company directly rather than buying Mac’s Place. He had no interest in operating a business as an Apple Reseller. His preference was to invest and to rely upon Mr Hartono to operate the business. He had little or no interest in investing in a reseller business that did not float. Mr Shearer gave evidence that Liu said to him at the 21 August meeting: “it is not my business, its Donald’s and that’s why I am getting Donald to run it for me”.

388 Likidis denied that he made the representation. There is no corroborative evidence that this representation was made at the meeting on 21 August and it is an instance in which I have to decide whether such a representation was made and relied upon by Liu to make his investment.

389 There were aspects to both Liu’s and Likidis’ evidence that were unsatisfactory. Likidis’ denials that he made threats to Mr Thompson and Liu were unimpressive in the light of his later admissions that they were meant to be threats. This gave an insight into Likidis’ personality, in that he obviously threatened to bankrupt debtors in order to secure the plaintiff’s position, either by an offer of money or some other consideration. It was submitted that this should not be held against Likidis because it was his role to ensure that the plaintiff received the moneys that were owed to it and one of the options available to the plaintiff was to commence bankruptcy proceedings. That is so and such a role could hardly be held against him, and it will not be held against him. However it is his pretence that they were not threats that Liu relied upon to submit that his denial that the alleged representation occurred should be rejected.

390 Liu’s false affidavit evidence that he said certain things to Likidis about relying upon Apple’s representations and his later admissions that he did not say those words were equally unimpressive. But there was more to Liu’s evidence that was unsatisfactory. His manner of giving evidence and effectively stalling for time, as I saw it, as the cross-examiner quite properly persisted in seeking an answer was very unimpressive. His repeated answers that he “signed” a document, when being asked why he would do so if it was false, referred to later in this judgment, did not impress me at all. He was stuck for an answer and simply stonewalled. The delays in answering other questions and the claims that he did not see the due diligence reports, to which I refer in detail below, when combined with Liu’s lack of interest in Buzzle if the Merger did not happen, lead me to the conclusion that I should accept Likidis’ denial that this representation was made.

391 Even if it had been made I am not satisfied that Liu relied upon it. He had an armoury of advisers and I am satisfied that he relied upon them but more to the point he relied very heavily on Mr Hartono who informed him that (Liu aff. 4/6/02; par 17):

The merged company will be Australia’s largest Apple reseller. You will be investing in a business that will float on the Australian Stock Exchange in November 2000. A lot of work has been done already. Arthur Andersen is acting for the merger partners. We have Apple’s full support for the merger. Apple would like to set up a meeting with you to discuss a deal. It’s good for them and good for you. I will organise this when the time is right.

All the hard work has been done and all you have to do, Wing, is to walk into the deal. Are you interested in being involved and assisting me and Apple to rescue Mac’s Place and the subsequent merger? Trust me, this would be a good opportunity to be involved, however I am waiting for more details. Are you interested?

392 Mr Hartono was obviously a good friend of Liu and I am satisfied that it would have been within Liu’s capacity to call him to give evidence about whether such a representation was made at the meeting of 21 August. Although it was submitted that the plaintiff could have called Mr Hartono in respect of this meeting, I am of the view that the appropriate expectation is that he would have been called by Liu. Mr Hartono was not called to give evidence. Although this is only a minor factor, it is one that I have taken into account in forming the views that I have expressed above, both in relation to whether the representation was made and the extent of any reliance.

The Implied Representations

393 My decision as to whether the implied representations (a) to (d) and (f) to (h) were made will very much depend upon whether I accept the defendant’s evidence about what he was not told in respect of the financial position of the other Resellers. Liu’s affidavit evidence (4 June 2002) was that the plaintiff did not disclose to him certain financial circumstances of the other Resellers. In paragraph 129 of that affidavit, Liu claimed that the plaintiff had failed to disclose to him the following matters:

(1) With respect to Choice Connections Australia – (a) that it had accumulated losses on its balance sheet; (b) that it had negative liquidity ratios in the 1999 and 2000 financial years of more than $2 million in each year; (c) that it had a net profit before tax of only 0.5% of turnover; and (d) that there should have been a provision for obsolete stock of $172,000 to $194,000 in its books.

(2) With respect to Status Graph Pty Ltd – (a) that there were concerns about the accuracy of its financial statements; (b) that it had at least $150,000 worth of obsolete stock; (c) that it had not paid the payroll tax in past years; (d) that its profit margins were too low at 0.8% in 1998-99 and -1.3% in 1999-2000; (e) that the past three years’ business performance had not been satisfactory; (f) that its management was not satisfactory; and (g) that it had made a loss of $209,379 in the year ended 30 June 2000.

(3) With respect to Jetocopic Pty Ltd trading as Manning Computers - (a) that it did not keep records of obsolete stock; (b) that it made a loss of $136,219 in the 1999-2000 financial year; (c) that it had a negative cash position of at least $374,369, which would be increased by the value of any obsolete stock; and (d) that its profit margin in the year 1998-99 was 0.3% and in year 1999-2000 was –1.6%.

(4) With respect to Designwyse Pty Ltd – (a) that it had obsolete stock to the value of about $70,000; (b) that it had positive assets of only $133,542; (c) that it had a liquidity ratio in the 1998-99 year of –0.43%, and in the 1999-2000 year of –0.74%; and (d) that its net profit in the year 1998-99 was only $35,123 and in the year 1999-2000 was only $107,471.

(5) With respect to GM Computers Pty Ltd – (a) that it had obsolete stock to the value of between $100,000 and $200,000; (b) that there were concerns about the reliability of its accounting system and internal procedures; (c) that there were significant errors in the valuation of stock; (d) that no payroll tax had been paid; (e) that it had a negative liquidity ratio of –1.2% in the year 1999-2000; and (f) it had net assets of only $94,000.

394 His affidavit also noted (par 129) that all of these matters were contained in the due diligence reports with the inference that had he had access to them, he would have become aware of these facts. In supplementing his affidavit evidence, Mr Hayes QC asked Liu in evidence-in-chief when he first saw the due diligence reports. Liu gave evidence that he first saw them in about November or December 2000 (tr. 292-293). He was then asked: “was there any earlier time when you were told of their existence?” and he answered: “yes, they were. I actually request a number of times from Donald about, Mr Donald Hartono, about those due diligence” (tr. 293). He said he first requested them in about September/October and that prior to 8 September, when he signed the Guarantee, he had heard from Mr Bright of Arthur Andersen at a meeting on 31 August 2000 that the due diligence reports would be “coming through”, but that he did not see them until much later in the year (tr. 293). It was at the Resellers’ meeting at Arthur Andersen’s premises on 30 (as opposed to 31) August 2000 that Mr Stuart Bright is noted as having informed the Resellers, including Liu, that: “on Apple’s request each due diligence report would be provided to Apple as well as to all other principals” (Ex. L).

395 Prima facie, these are fairly significant matters to have known about at that time when Liu was considering becoming part of the Merger. It was established in cross-examination that Liu was present at the Resellers’ meeting at Arthur Andersen’s premises on 5 September 2000 when the due diligence reports were distributed to the Resellers. I have already referred to the concessions made by Liu in his cross-examination when this Minute was drawn to his attention. He ultimately could not deny that the due diligence reports were distributed at the meeting (tr. 299) and distributed to him (tr. 301).

396 The Minutes of the Resellers’ meetings on 31 August 2000 and 5 September 2000 were prepared by Arthur Andersen, the advisers to the Resellers. The plaintiff had no part to play in preparation of those Minutes and was not present at the meetings. These were meetings between the Resellers and their advisers in preparation for the Merger and future float of Buzzle. Also of relevance is the document signed by Liu on 13 September 2000 entitled “Confirmation of Receipt of Financial Information”, in which he confirmed that he had received the profit and loss statements ended 30 June 2000, the balance sheets ended 30 June 2000 and the due diligence reports of the merging businesses. Liu’s evidence in relation to why he would sign this document if it was the case that he had not received the due diligence reports and other documents, was as follows:

(tr. 342-343)

397 In the light of the Minutes, Liu’s concession that he could not deny that the due diligence reports were distributed to him at the 5 September 2000 meeting, the fact that he signed the “Confirmation of Receipt of Financial Information” document and his rather unhelpful evidence in relation to the signing of that document, I am satisfied that not only were they distributed to Liu on 5 September but also that Liu had the opportunity to read them and did read them and that is why he signed the “Confirmation” document. In those circumstances I am not satisfied that the implied representations (a) to (c) and (f) to (h) were made.

398 Implied representation (d) as pleaded was that the plaintiff had agreed to and intended to do all things reasonably necessary to cause Buzzle to trade profitably, and to assist the float of Buzzle. It was not the plaintiff’s responsibility to cause Buzzle to trade profitably and there is nothing in the evidence from which such a representation could be implied. This implied representation has not been established.

399 Implied representation (e) as pleaded was that the plaintiff did not intend to call up or enforce any securities held by it in respect of the indebtedness of Buzzle. Having regard to the portion of Liu’s evidence extracted above in relation to representation (d) alleged to have been made at the 21 August meeting (tr. 315-317), there is no doubt that this representation should have been abandoned. This representation has not been established.

400 Implied representation (j) pleaded that Arthur Andersen’s valuation report as to the financial position of Buzzle, the prospect for a public float of Buzzle and the value of the businesses was correct in the plaintiff’s opinion, was based upon correct factual assumption to the plaintiff’s knowledge and the plaintiff knew of no fact, matter or circumstance which would render it inaccurate or unreliable.

401 I accept Likidis’ and Mr Shearer’s evidence that they did not see the Arthur Andersen valuation. Any calculation performed as claimed by Liu at the meeting of 21 August could not give rise to the implied representation as pleaded. There was no discussion of the contents of the report and there was no suggestion made to Liu by Likidis or Mr Shearer that they had ever read the report. Liu relied upon Arthur Andersen in relation to the valuation report and did not rely upon the plaintiff. This implied representation has not been established.

402 Other matters of significance of which it is submitted Likidis had knowledge but did not inform Liu were: (1) that he was of the view that Liu had virtually no chance of making $18 million on his investment; (2) that as at 13 September 2000 he was of the view that two of the six Resellers could not afford to pay their Apple debt and he had real concerns about them; and (3) that Apple intended to sell online directly to the education market.

403 There is no doubt that Likidis thought that the quick return of $18 million was “pie in the sky” and that the float of Buzzle would not occur in the year 2000. He said that he did not think he was obliged to express those opinions to Liu because he was being advised by professionals who had experience with the public listing of companies and because he had both legal and financial advice in respect of the purchase of Mac’s Place and the Buzzle merger.

404 Liu relied upon some documents, referred to as the “Q & A” document, produced by the plaintiff’s public relations department. It is apparent that some of the statements made in the document were statements with which Likidis disagreed. Having regard to the fact, as I have found it, that Liu did receive the due diligence reports of the other Resellers, this document, in my view, does not assist Liu. These were statements contained in a document, which Liu did not see prior to this litigation.

405 As to Likidis’ opinion of the two Resellers about which he had his doubts, Likidis gave evidence in re-examination that the shortfall in Manning Computers and Status Graph was the topic of discussion at a meeting at Frenchs Forest at which Liu was present prior to the Merger. That meeting was in two parts. Likidis was present at the first part at which he raised with those present the question of how the shortfall was going to be addressed. The Resellers then asked to meet separately from Likidis (tr. 695). I accept that this matter was raised with Liu and in any event he had access to the due diligence reports.

406 As to the decision to sell online to the education market, Likidis gave evidence that although an intention was present prior to the date of the Merger, it was the plaintiff’s practice to notify all resellers of decisions such as this at the same time and in this instance it was not practicable to do so until October 2000. There is nothing in the evidence that demonstrates that this conduct had any particular impact upon the operation of Buzzle. There is nothing in the evidence about the amount of sales made by the Resellers prior to the Merger to the education market, nor any figures relating to sales or attempted sales to the education market after the Merger. It was always known to the Resellers prior to the Merger that the plaintiff could sell directly to any person. Indeed each of the resellers had agreed to such conduct by the plaintiff in their reseller agreements and Buzzle also agreed to the plaintiff selling directly to any person in its Reseller Agreement (cl 2.2 (c)).

407 There was detailed cross-examination of Liu as to when it was that he formed the view that he had been misled by Likidis. It was certainly no later than early 2001 that Liu formed that view. The plaintiff highlighted the absence of any complaint to the plaintiff by Liu prior to the commencement of this litigation and his willingness to enter into further agreements with the plaintiff in a de-merged status. These matters are in my view further support for the conclusions I have reached.

408 The misleading conduct claim fails and is dismissed.

The Sixth Defendant

409 As can be seen from the history of the proceedings referred to at the commencement of this judgment, the sixth defendant did not appear after 26 June 2002. No submissions were made on his behalf and no evidence has been led to establish the status of the sixth defendant vis-a-vis the Bankruptcy Act 1966 (Cth). The plaintiff’s case against Liu under the Guarantee is identical to that against the sixth defendant and having regard to the findings that I have made in the plaintiff’s case against Liu I am satisfied that the plaintiff has proved that the sixth defendant is liable under the Guarantee for 22.1% of $13,571,496.10 being $2,999,300.64.

Orders

410 The plaintiff is entitled to judgment in its favour against the thirteenth defendant for 18.5% of $13,571,496.10, being $2,510,726.79. I will hear the plaintiff further in relation to the status of the sixth defendant and any further steps it wishes to take.

411 The plaintiff’s claim against the seventh defendant is dismissed. The Cross-Claim brought by the thirteenth defendant and Aircent is dismissed.

412 The matter is listed for mention at 9.30am on 17 March 2003 for Short Minutes to be handed up for the entry of judgment with interest and entry of the other orders. If the parties are unable to agree on costs orders I will give directions for any argument on costs on a date to be fixed.

***********************

Last Modified: 03/12/2003

Actions

Download as PDF Download as Word Document

Citations

Apple Computer Australia Pty Ltd v Mekrizis [2003] NSWSC 126

Most Recent Citation

Bank of Western Australia Ltd v Abdul [2012] VSC 222

Cases Citing This Decision

9

Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2010] NSWSC 233

Alpha Centauri Enterprises Pty Ltd v Mortgage House of Australia Pty Ltd [2009] NSWSC 333

Cases Cited

11

Statutory Material Cited

5

Apple Computer Australia Pty Ltd v George Mekrizis [2002] NSWSC 982

Agro Holdings Ltd v Flexi-Coil (Australia) Pty Ltd [1999] FCA 1658

Bowes v Chaleyer [1923] HCA 15

CITATION:	Apple Computer Australia Pty Ltd v George Mekrizis and Ors [2003] NSWSC 126 revised - 11/03/2003
HEARING DATE(S):	24, 26, 27 and 28 June 2002 1, 2, 3, 4, 5 and 9 July 2002 26 and 30 August 2002 20 September 2002 17, 22 and 25 October 2002 15, 22, 25, 26, 27 and 29 November 2002
JUDGMENT DATE:	11 March 2003
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Bergin J
DECISION:	See par [410].
CATCHWORDS:	[GUARANTEE] - Whether the Guarantee was unjust within the meaning of that term in the Contracts Review Act 1980 (NSW) - Substantive and procedural injustice - Whether the Guarantors are entitled to a reduction in amount guaranteed by reason of: (a) receipts from other guarantors - (b) alleged prejudicial conduct by creditor - and (c) by reason of provisions of A New Tax System (Goods and Services Tax) Act 1999 (Cth) - [FRANCHISE] - Whether agreements were franchise agreements - Definition of franchise agreement under Franchising Code of Conduct - Duty of disclosure - Consideration of section 51AC of the Trade Practices Act 1974 (Cth) - [MISLEADING OR DECEPTIVE CONDUCT] - Whether the plaintiff made certain representations or whether representations should be implied - Whether representations were misleading or deceptive - Whether reliance was placed on representations to enter into Merger
LEGISLATION CITED:	A New Tax System (Goods and Services Tax) Act 1999 (Cth) Contracts Review Act 1980 (NSW) Conveyancing Act 1919 (NSW) Fair Trading Act 1987 (NSW) Trade Practices Act 1974 (Cth)
CASES CITED:	Agro Holdings Ltd v Flexi-Coil (Australia) Pty Ltd [1999] FCA 1658, unreported, Nicholson J, 26/11/1999 Ankar Proprietary Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 Apple Computer Australia Pty Ltd v George Mekrizis and Ors [2002] NSWSC 982, unreported, Bergin J, 22/10/2002 Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 Behan v Obelon Pty Ltd [1984] 2 NSWLR 637 Black v The Ottoman Bank (1862) 15 Moo PCC 472; 15 ER 573 BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 180 CLR 266 Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 Commercial Bank of Australia Limited v Amadio & Anor (1983) 151 CLR 447 Comptroller of Stamps (Victoria) v Howard-Smith (1936) 54 CLR 614 Dobbs v National Bank of Australasia Limited (1935) 53 CLR 643 Federal Wharf Company Limited v The Deputy Federal Commissioner of Taxation (1930) 44 CLR 24 Fitzwood v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 566 Holder & Anor v Commissioners of Inland Revenue [1932] AC 624 Hurley v McDonald's Australia Ltd (2000) ATPR 41-741 Je Maintiendrai Pty Ltd v Australia and New Zealand Banking Group (1985) 38 SASR 70 Riches v Westminster Bank Limited [1947] AC 390 Subway Systems Australia Pty Ltd v Thorpe [2000] QSC 099, unreported, Muir J, 28/4/2000 West v AGC (Advances) Ltd & Ors (1986) 5 NSWLR 610 William Brandt's Sons & Co v Dunlop Rubber Company, Limited [1905] AC 454
PARTIES :	Apple Computer Australia Pty Ltd (Plaintiff/First Cross-Defendant) Donald Hartono (Sixth Defendant/First Cross-Claimant) Tjipto Hartono (Seventh Defendant/Second Cross-Claimant) Wing Nin Liu (Thirteenth Defendant/First Cross-Claimant) Aircent Pty Ltd (First Cross-Claimant) Kevin McElduff (Second Cross-Defendant) James Likidis (Third Cross-Defendant)
FILE NUMBER(S):	SC 50054/01
COUNSEL:	Mr TEF Hughes QC leading Mr CRC Newlinds on 20 September 2002 and 17 October 2002; Mr CRC Newlinds on all other dates (Plaintiff/First, Second and Third Cross-Defendants) Mr P Hayes QC, Mr J Hyde and Mr A Paterson on 24 June 2002, Mr RG Forster SC on 26 and 30 August 2002, Dr C Birch SC on 9 July and 20 September 2002 and Mr A Davis on 22, 25, 26, 27 and 29 November 2002 (Seventh Defendant/Second Cross-Claimant) Mr P Hayes QC leading Messrs J Hyde and A Paterson (Thirteenth Defendant/First Cross-Claimants)
SOLICITORS:	Clayton Utz (Plaintiff/Cross-Defendant) John A Bush Solicitor (Sixth Defendant and Seventh Defendant/Second Cross-Claimant) Wright Pavuk Lawyers (Thirteenth Defendant/First Cross-Claimant)

Index	[par]
Introduction	[1]
The history of the proceedings	[4]
Background to Merger Plan	[12]
Hartono/Liu Meetings July 2000	[21]
Liu Meets with Arthur Andersen	[28]
Liu Meets with Mac’s Place	[30]
Mac’s Place Due Diligence	[31]
Liu’s Meeting with the Plaintiff on 21 August 2000	[36]
Purchase of Mac’s Place	[49]
8 September 2000 – The Merger Guarantee is signed	[61]
13 September 2000 – the Merger Documents are signed	[72]
Buzzle’s problems	[76]
De-merger proposal	[82]
Receivers appointed	[85]
Proceedings commenced	[88]
The Merger Documents	[89]
The Merger Deed	[90]
The Payments Deed	[98]
The Guarantee	[104]
An Oral Agreement	[112]
The Guarantee claim	[116]
The Defendants’ Claims	[117]
Defences to the Guarantee Claim	[125]
Form of Certificate	[126]
$7,186,729.37 for Stock	[138]
$4,799,916.35 of Apple Debt	[180]
Unauthorised Reversal of $1,090,226.90	[190]
Money received from other guarantors	[195]
GST Adjustments	[201]
The Seventh Defendant’s position	[209]
The CRA Claim	[229]
The Code Claim	[237]
The Code	[240]
Was there a single agreement?	[252]
The Reseller Agreement	[253]
The Agency Addendum	[267]
The Centre Addendum	[271]
The Education Addendum	[274]
The Manual	[276]
Was the Reseller Agreement a franchise agreement?	[287]
Was the K-12 Agreement a franchise agreement?	[316]
Was the Service Provider Agreement a franchise agreement?	[322]
Was the Associate Reseller Program Agreement a franchise agreement?	[331]
Was the Supplemental Agreement a franchise agreement?	[334]
Misleading conduct case	[345]
The 21 August Representations	[350]
The Implied Representations	[393]
The Sixth Defendant	[409]
Orders	[410]