Blackmores Ltd v Jestins Enterprises Pty Ltd

[2020] NSWSC 1177

Supreme Court

New South Wales

Medium Neutral Citation:

Blackmores Ltd v Jestins Enterprises Pty Ltd [2020] NSWSC 1177

Hearing dates:

10 to 13 August 2020

Decision date:

02 September 2020

Jurisdiction:

Equity - Commercial List

Before:

Ball J

Decision:

1. Judgment for the plaintiff against the defendants in the sum of $1,750,096.76;

2. The cross-claim be dismissed;

3. The defendants pay the plaintiff’s costs of the proceedings (including the cross-claim);

4. Liberty to apply to vary order (3) within 21 days’ of the date of this judgment; and

5. Liberty to apply to the defendants to seek an order in relation to Mr Shulman’s costs of appearing at the hearing within 21 days’ of the date of this judgment.

Catchwords:

CONTRACTS - Where amount claimed not disputed – Cross claim - Whether alleged oral representation changed terms of agreement – Whether alleged representations misleading and deceptive under Australian Consumer Law, s 18 – Whether alleged conduct unconscionable under Australian Consumer Law, s 21 – Interpretation of deed of release and discharge – Whether deed effective to release claim under Australian Consumer Law, s 18

EVIDENCE – Expert evidence – Where expert report based on unproven assumptions – Remarks on the importance of a degree of formality in the Court processes

Legislation Cited:

Australian Consumer Law

Evidence Act 1995 (NSW)

Trade Practices Act 1974 (Cth)

Cases Cited:

Firstmac Fiduciary Services Pty Ltd v HSBC Bank of Australia Ltd [2012] NSWSC 1122

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, [1998] HCA 69

Omega Air Inc v CAE Australia Pty Ltd [2015] NSWSC 802

Owners SP 62930 v Kell & Rigby Pty Ltd [2009] NSWSC 1342

Williams v Pisano (2015) 90 NSWLR 342, [2015] NSWCA 177

Category:

Principal judgment

Parties:

Blackmores Limited (ACN 009 713 437) (Plaintiff/Cross Defendant)
Jestins Enterprises Pty Ltd (ACN 153 624 509) (First Defendant/First Cross-Claimant)
Alex Puthenpurackal (Second Defendant/Second Cross-Claimant)
Pharmadeal International Pty Ltd (ACN 615 201 338) (Third Cross-Claimant)

Representation:

Counsel:
A d’Arville (Plaintiff/Cross Defendant)
M Baroni (Defendants/Cross Claimants)

Solicitors:
Johnson Winter & Slattery (Plaintiff/Cross Defendant)
SGM Legal (Defendants/Cross-Claimants)

File Number(s):

2018/363757

Publication restriction:

Nil

Judgment

Introduction

1. The plaintiff, Blackmores Ltd, is a manufacturer and supplier of vitamin, mineral and nutritional supplements. The first defendant, Jestins Enterprises Pty Ltd (Jestins), operated a pharmacy located in Ascot Vale, Victoria. Its sole director is Mr Alex Puthenpurackal.

2. On 14 November 2014, Jestins opened an account (the Pharmacy Account) with Blackmores, which permitted it to order and to obtain product on credit from Blackmores. On 11 August 2016, it opened a second account (the Export Account) for the purpose of acquiring Blackmores products in bulk for export, principally to China. Under the terms governing both accounts, Mr Puthenpurackal agreed to guarantee Jestins’ obligations to Blackmores. Shortly after opening the Export Account, Mr Puthenpurackal began to trade through the third cross-claimant, Pharmadeal International Pty Ltd.

3. From late 2017, Jestins ran into payment difficulties. On 14 June 2018, Blackmores and Jestins entered into a Settlement Deed in relation to the outstanding payments. The effect of the Settlement Deed is in dispute. However, what is not in dispute is that under it Jestins agreed to pay $800,000 on execution of the deed and the balance owing of $1,193,813.53 no later than 12 working days after the date of execution. In return, on payment of the $800,000, Blackmores agreed to supply future products “valued approximately $400,000 … subject to availability”. Jestins paid the $800,000 and ordered products to the value of $409,142.02, which were supplied and invoiced by Blackmores on 21 June 2018. On or around 17 July 2018, Blackmores applied a volume rebate of $23,143.45 to that invoice, so that the outstanding amount became $380,992.02.

4. Jestins made no further payments. In these proceedings Blackmores seeks to recover the amount owing to it totalling $1,574,805.55, plus interest and costs.

5. Jestins does not dispute the amount claimed by Blackmores. However, by a cross-claim, it and Pharmadeal contend that they have suffered loss as a consequence of Blackmores’ conduct which exceeds the amount claimed. Various allegations are made in the cross-claim, but as finally put, the cross-claimants’ case has three limbs. First, it is said that there was a variation of the initial Trading Terms to permit Jestins and subsequently Pharmadeal to pay invoices 30 days from the end of the month in which the goods were delivered. Second, it is said that the contractual arrangements were varied so that Pharmadeal was substituted for Jestins in relation to the Export Account. Third, it is said that Blackmores made a number of misleading and deceptive representations in contravention of s 18 of the Australian Consumer Law (ACL), or engaged in unconscionable conduct in contravention of s 21 of the ACL, that caused Jestins and Pharmadeal to act in ways that meant that they were unable to pay Blackmores, leading to a termination of supply by it. Relying on a report prepared by Mr Michael Shulman, an expert accountant, they say that the value of the business they derived from the sale of Blackmores products was $7 million, which they claim as damages for breach of the contractual term extending the time for payment or under s 236 of the ACL for breach of ss 18 or 21.

Background facts

6. As I have said, the Pharmacy Account was opened on 14 November 2014. For the purpose of opening the account, Mr Puthenpurackal completed and signed a “Retail Account Application Form”. The form as completed by Mr Puthenpurackal states the “Applicant/Store Name” and “Trading Name” to be “Ascot Vale Discount Pharmacy” and the “Company Name” to be “Jestins Enterprises Pty Ltd ATF Jestins Family Trust”. “Jestin” is Mr Puthenpurackal’s middle name. The form contains a section headed “Statement by Applicant(s) For Credit” which is signed and dated by Mr Puthenpurackal as “Director”. Above Mr Puthenpurackal’s signature are a number of statements, including the following: “I have read and understand Blackmores Terms and Conditions”. The form also attaches a Guarantee and Indemnity signed by Mr Puthenpurackal by which he guaranteed the payment “of each and all sums of money interest and damages in which the Customer may now or hereafter be indebted or liable to you on any account whatever”.

7. Clause 5 of the Blackmores Trading Terms as they existed at the time Mr Puthenpurackal signed the form state:

Credit Terms are 30 days from end of month of invoice. Orders placed when account is out of credit terms may result in orders being placed on hold. Statements will be issued at the discretion of Blackmores.

8. Under cl 16, Blackmores reserved the right to amend the conditions at any time. The clause provided that any amendment must be notified to the customer not less than 30 days prior to the date on which the amendment becomes effective. In about May 2016, an initial credit limit of $1.5 million was agreed.

9. On 2 August 2016, Blackmores wrote to Mr Puthenpurackal varying the Trading Terms to provide for an “Off Invoice Trading Term Discount” of 10 percent and a “Growth Incentive” providing for further discounts where growth in orders exceeded a fixed percentage of orders in the previous financial year. Mr Puthenpurackal signed an acknowledgement at the end of the letter accepting those terms on 10 August 2016.

10. On 11 August 2016, Mr Puthenpurackal opened the Export Account with Blackmores. The application form for that account stated that the “Applicant/Store Name” and “Trading Name” was “Pharmadeal Ascot Vale Discount Pharmacy” and that the “Company Name” was “Jestins Enterprises Pty Ltd ATF Jestins Family Trust”. It also stated that by signing the statement “you”, meaning Mr Puthenpurackal on behalf of Jestins, “agree that you have read and understand the Blackmores Collection Statement and the Blackmores Trading Terms”.

11. Clause 10 of the then current Trading Terms relevantly provided:

(i)   The Customer must pay Blackmores the purchase price indicated on each invoice for the goods it orders from Blackmores within 30 days from end of month of invoice. Invoices shall be issued on the day the Products are despatched.

(ii)   Orders placed when any invoice is overdue may result in orders being placed on hold.

12. There appears to be some dispute whether the Trading Terms were attached to the application form. Mr Shaun Rutherford, who has worked for Blackmores in various positions since 2006, says that it was standard practice to provide prospective customers with Retail Application Forms that included a copy of the Blackmores standard terms and conditions. Mr Jason Snell, who was Mr Puthenpurackal’s primary contact at Blackmores for the export business, gives evidence to similar effect. The defendants point to the fact that the Trading Terms are not attached to the copy of the application form retained by Blackmores. But that can be explained by the fact that it is to be expected that the copy of the Trading Terms given to Mr Puthenpurackal would be kept by him. There is no reason to doubt the evidence given by Mr Rutherford and Mr Snell. In any event, the issue seems to go nowhere. Mr Puthenpurackal signed a declaration accepting that he had read and understood the Trading Terms; and there does not appear to be any dispute that they were the terms that applied.

13. After opening the second account, Mr Puthenpurackal (on behalf of Jestins) placed a number of substantial orders with Blackmores. On occasions, the outstanding orders exceeded Jestins’ credit limit of $1.5 million, which was, following the opening of the second account, applied to both accounts. According to Mr Puthenpurackal, one difficulty that arose was with invoices issued at the end of the month. Those invoices had to be paid by the end of the following month, which gave Jestins inadequate time to sell the product before payment was due. Mr Puthenpurackal, in his affidavit evidence, gives as a particular example two invoices issued on 30 and 31 May 2016, where the product was not delivered until mid-June, giving Jestins only two weeks to sell and pay for the product. In that case, Blackmores allowed Jestins an additional month to pay the invoices.

14. Mr Puthenpurackal says the issue came up in a conversation he had with Mr Michael Hennessey (a credit executive with Blackmores at the time) in late February 2017. According to Mr Puthenpurackal, they had a conversation to the following effect:

Me:      How much do I need to pay this month?

Hennessey:   You need to pay [a large number that I no longer recall]

Me:      Does this include all my volume discounts and rebates?

Hennessey:   Yes, it includes all your discounts and doesn’t include the invoices from the end of January. We don’t consider those end of month invoices until the end of next, that gives you extra time to pay.

15. Mr Puthenpurackal says that, following that conversation, Blackmores did not press for payment of invoices issued at the end of the month until the end of the second month after the invoice was issued. So, for example, he pointed to invoices issued on 30 and 31 March 2017, where the first demand for payment was not made until 29 May 2017. Similarly, Mr Puthenpurackal says that on 29 June 2017, Mr Hennessey sought payment of invoices up to 24 May 2017 but did not demand payment for goods ordered at the end of May 2017. Likewise, in an email dated 1 September 2017, Mr Hennessey did not seek payment of an invoice dated 31 July 2017 and in an email dated 31 October 2017 Mr Hennessey did not seek payment of invoices dated 29 September 2017.

16. Mr Hennessey, who swore an affidavit but who died before the hearing, said that he cannot recall the conversation referred to by Mr Puthenpurackal. He said that from time to time Mr Puthenpurackal would say to him that “The products I ordered last month were delivered this month. Please can I have an extra month to pay the invoice” and in those cases he would typically allow an additional month for payment.

17. The growth in Jestins’ business and its delay in paying some invoices was the subject of a number of internal emails at Blackmores in June 2017, the upshot of which was that Jestins’ credit limit was increased to $3.5 million “to get more sales” (to quote from an email dated 22 June 2017 sent by Mr Krzysztof Kuczynski, the Head of Finance – Australia and NZ at Blackmores). In supporting the increase, Mr David Fenlon, the Managing Director of Blackmores for Australia and New Zealand, said in an email dated 22 June 2017 in response to Mr Kuczynski’s email that “This is without doubt with some risk but as we all know they are up to date on payments and we have orders in hand”.

18. Mr Puthenpurackal says in his affidavit evidence that he had “several conversations with Blackmores employees regarding the corporate entities which were trading with Blackmores” and that, in particular, in the middle of August in 2017 he met with Mr Snell at a café in Ascot Vale during which he told Mr Snell that he had changed the structure of his business and that “Jestins will operate the Pharmacy only going forward. The export and online businesses are operated by Pharmadeal”, to which Mr Snell replied “Ok”. Mr Snell accepts that Mr Puthenpurackal occasionally mentioned the name ‘Pharmadeal’ and told him that he was thinking about restructuring his business to include Pharmadeal. However, Mr Snell says that he has no recollection of being told that that had happened and says that Mr Puthenpurackal never asked him to transfer either account.

19. On 12 October 2017, Blackmores sent a letter addressed to “Alex Jestin Ascotvale Discount Pharmacy” varying the Trading Terms for the Export Account so as to provide for a “Volume Discount”, the amount of which was specified for individual items in a schedule, and a “Marketing Rebate” of up to four percent. In relation to the Marketing Rebate, the letter said:

Ascotvale Discount Pharmacy will receive reimbursement from Blackmores in relation to any expenses incurred by Ascotvale Discount Pharmacy in marketing, promoting or advertising Blackmores products, to a limit of up to 4% of Ascotvale Discount Pharmacy aggregate value of net invoiced purchases from Blackmores in the quarter as outlined in Appendix B (enclosed) subject to:

1.   Ascotvale Discount Pharmacy aggregate value of net invoiced purchases from Blackmores reaching $3,000,000, as outlined in Appendix B (enclosed); and

2.   Ascotvale Discount Pharmacy presenting Blackmores with the relevant invoices in relation to expenses incurred to market, promote or advertise Blackmores products.

The Rebate is set at 4% of the value of your net invoiced purchases from Blackmores and will be paid to you quarterly. Ascotvale Discount Pharmacy shall raise a valid tax invoice for the relevant amount payable by Blackmores and Blackmores shall process and pay the relevant amount under the invoice within 30 days of end of month of receipt of such invoice.

As the Marketing Rebate is subject to Ascotvale Discount Pharmacy achieving $3,000,000 or greater in net invoiced purchases per quarter as outlined in Appendix B (enclosed), Blackmores and the Ascotvale Discount Pharmacy shall verify and confirm whether such requirement has been satisfied at the end of each quarter. If Ascotvale Discount Pharmacy has been found to have failed to satisfy such requirements for the relevant quarter, Blackmores shall raise an invoice against Ascotvale Discount Pharmacy for an amount equivalent paid to the Ascotvale Discount Pharmacy for the relevant quarter.

The agreement set out in the letter was expressed to expire on 30 June 2018. Mr Puthenpurackal signed an acknowledgement at the end of the letter accepting its terms on the day the letter was provided to him (that is, 12 October 2017).

20. On 18 October 2017, shortly after the revised terms were agreed, Pharmadeal provided Blackmores with an invoice for $92,805.00 for “Business Building Fund Blackmores” in respect of Jestins’ account. It appears from a text message that Mr Puthenpurackal sent Mr William Li that Mr Puthenpurackal gave that invoice to Mr Snell, who arranged for the amount of the invoice to be credited to the Export Account shortly after he received it.

21. The defendants contend that the invoice and credit provides evidence that the Export Account had been moved to Pharmadeal. In my opinion, however, little can be concluded from the fact that the invoice was in the name of “Pharmadeal”. “Pharmadeal” did form part of the business name of Jestins as disclosed on the application form to open the Export Account. Mr Snell says that he did not notice that the invoice was issued in the name of Pharmadeal. That evidence strikes me as plausible and I accept it. The likelihood is that Mr Snell did not focus on the name of the company issuing the invoice but instead simply accepted it as an invoice from Mr Puthenpurackal.

22. More significantly, in cross-examination, Mr Puthenpurackal conceded that he never took steps to transfer the accounts with Blackmores to Pharmadeal and that Jestins remained Blackmores’ customer. He gave this evidence:

Q.   I think you said a moment ago that PharmaDeal was now Blackmores’ customer, so far as you’re concerned?

A.   Yep.

Q.   So that if money was owing to Blackmores on the export account?

A.   Yep.

Q.   PharmaDeal was the one who was legally obliged to pay that money. Is that right?

A.   In papers, no.

Q.   In any other sense?

A.   In other sense, in commercial sense, yes.

Q.   What I want to suggest is that you might have run your business so that PharmaDeal had to pay Jestins, but so far as Blackmores was concerned, their customer was Jestins. Correct?

A.   Yes.

Q.   Nothing in the conversations that you had with Mr Snell, Mr Li or Mr Rutherford changed that position, did it?

A.   My, the idea was for when I informed, it was a gradual process that PharmaDeal was ..(not transcribable).. because Jestins were, I kept Jestins as the pharmacy holding, and..(not transcribable).. PharmaDeal International as a [sic] export and online customer.

Q.   Yes.

A.   I was in the process of changing everything at PharmaDeal; it's not - doesn't happen overnight. I needed some time to set everything. So in due course that would have happened, that PharmaDeal would have become ..(not transcribable)..

Q.   But at no point did it happen?

A.   It didn't happen because we didn't have time. The time ..(not transcribable).. gone.

And later:

Q.   Yes. What about the other way around? What if Blackmores had promised some vitamins and didn't deliver them, who is going to sue them, PharmaDeal or Jestins?

A.   It has to be PharmaDeal has to sue Jestins and Jestins has to sue Blackmores.

Q.   I understand, thank you.

A.   I'm not a lawyer but I assume as a layman this would be my idea.

Q.   No, don't worry about the formalities of the legal contracts. I'm trying to understand, so far as you understood it, who the customer of Blackmores was.

A.   The customer of Blackmores in legal term I say is Jestins; as a commercial term it is PharmaDeal.

23. The concessions made by Mr Puthenpurackal were properly made. There is no evidence that Mr Puthenpurackal ever took any steps to substitute Pharmadeal for Jestins as the contracting party. In the light of Mr Puthenpurackal’s concessions, there can be no question that Blackmores is entitled to look to Jestins and Mr Puthenpurackal for payment.

24. In about November 2017, due to the considerable growth of Mr Puthenpurackal’s orders, a decision was made within Blackmores to transfer the Export Account from Blackmores’ domestic sales team to the export sales team. As a result, the Export Account began to be managed by Mr Shaun Rutherford (Blackmores’ head of export sales) and Mr William Li (Blackmores’ national account manager within the export team). Mr Puthenpurackal gives evidence in his affidavit that at a meeting with Mr Li and Mr Rutherford on 12 November 2017 he explained the structure of his businesses, which involved Pharmadeal operating the export and online businesses. Both Mr Rutherford and Mr Li deny that conversation. Particularly in light of Mr Puthenpurackal’s concessions in cross-examination, I accept their evidence.

23. On 11 December 2017, Mr Puthenpurackal met with Mr Rutherford and Mr Li at a café in Ascot Vale. During the course of that meeting, Mr Puthenpurackal says that they had a conversation to the following effect:

Li:   How much can you order in December? Will you be able to make a large order?

Me:   I have some good orders to place for Vitamin E Cream, Glucosamine, Odourless Fish Oil, and I will order around 20 pallets of EPO (Evening Primrose Oil)

Li:      Excellent

Rutherford:   Chemist Warehouse is going to have a big promotion on Boxing Day and they are going to be promoting Vitamin E Cream but, we will support you if you take the Vitamin E Cream

26. Mr Puthenpurackal says that he understood that the reference to “support” was a reference to the release of the marketing rebate, since that was the only support Blackmores could give him. Having regard to Jestins’ sales, Mr Puthenpurackal submits that as at the end of December 2017 the marketing rebate was worth approximately $500,000. Mr Rutherford denies that he said the words attributed to him. He says that his normal practice when offering “support” was to identify a specific discount on the relevant product. Mr Li says he cannot recall the conversation recorded by Mr Puthenpurackal. According to him, during the meeting, he asked Mr Puthenpurackal whether he was going to place an order in December.

27. Even accepting Mr Puthenpurackal’s version of the conversation, no reasonable person could have understood the words spoken by Mr Rutherford to carry with them the implication Mr Puthenpurackal says they had. I accept Mr Rutherford’s evidence to the effect that support for a particular product would normally be given in the form of a discount on the purchase price of that product. That evidence strikes me as plausible. There was no mention of the marketing rebate in the conversation. It is plain from the terms of the letter dated 12 October 2017 that the marketing rebate involved the reimbursement of actual costs incurred in promoting Blackmores products and that Jestins would need to substantiate those costs. Moreover, shortly after the amended terms set out in that letter had been agreed, Jestins (or perhaps more accurately, Pharmadeal on its behalf) issued an invoice to Blackmores for a marketing rebate. Against that background, Mr Puthenpurackal could not reasonably have understood that Blackmores was offering to pay an additional rebate that was simply calculated by reference to the total value of goods purchased by Jestins.

28. On 15 December 2017, Mr Li and Mr Puthenpurackal exchanged text messages in the following terms (deleting emojis):

Mr P:   Thanks Will, can you please let me know if you are happy to give me 120k of vitamin e cream? Can you please let me know if any products have been released. Regards Alex

Mr L:    Hi mate, would you be able to do $4m this month without any cash flow issue? Thanks

Need to build you up to become No. 1 customer

Enjoy the weekend

Mr P:    I am trying my friend.

I have got some good orders. Have a good weekend. Regards Alex

Mr L:    Do $1m more order? Without cash flow challenge?

Also next month, we are moving warehouse, support will be short, you can bring some Jan order forward.

29. Following that text exchange, Mr Puthenpurackal placed a large number of orders over the following days to the total value of $3,955,286.76. During that time, Mr Li confirmed in a text message that the marketing rebate that Mr Puthenpurackal had claimed had been credited to the Export Account.

30. According to Mr Puthenpurackal, on or around 20 December 2017, he received a telephone call from Mr Li asking if he could increase his order for Evening Primrose Oil (EPO) to 50 pallets. Mr Li is alleged to have said “If you do, you will be the only one to get this product”. On that basis Mr Puthenpurackal agreed to take 50 pallets. Mr Puthenpurackal says that he agreed because, as the sole customer, he would be able to sell EPO at a better margin. He says that that agreement increased the value of the December orders on the Export Account by around $420,000.

31. Mr Li denies the conversation. He says that it is not his normal practice to offer exclusivity to any customer.

32. On 22 December 2017, Mr Rutherford sent a text message to Mr Puthenpurackal asking if he would be paying $1 million that day. Mr Puthenpurackal responded that he would. However, it appears that Jestins did not pay that amount and on 28 and 29 December 2017, Mr Rutherford sent a series of text messages asking for payment of “the whole amount”, although it is not clear what that is a reference to. The first message in the series added “Please send us receipt of deposit so we can release your stock? We are getting very nervous and stressed mate!!”.

33. Mr Puthenpurackal did not respond to any of those messages. However, in his affidavit evidence he said that around 25 December 2017 Chemist Warehouse started marketing vitamin E cream to some of Jestins’ export customers at a lower price than Jestins was offering. He says that some of his customers started calling him saying that they wanted to cancel their orders because of the price available from Chemist Warehouse. In light of those calls, Mr Puthenpurackal says that on 28 December 2017 he had a telephone conversation with Mr Li to the following effect:

Me:   William, my customers say that my prices are too expensive and that they can get better prices by buying from Chemist Warehouse.

Li:   If you take all of the stock, I can arrange for all of rebates up to November to be paid to you in January.

34. Mr Puthenpurackal says that he would not have agreed to the release of the December 2017 order with Mr Li if Mr Li had not told him that his liability would be reduced by around $500,000 as a result of the release of the marketing rebate. Mr Li, on the other hand, denies the conversation. He says that he would not have agreed to payment of the whole of the marketing rebate except in accordance with the terms set out in the letter dated 12 October 2017.

35. I accept Mr Li’s evidence on this point. It strikes me as improbable that Mr Li would agree to such a significant departure from the terms on which the marketing rebate was payable without, for example, discussing it with anyone. Moreover, Mr Puthenpurackal’s account of what happened on 28 December 2017 makes little sense. Plainly, on that day and the following day, Mr Rutherford was pressing for payment and threatening to withhold delivery unless payment was made. Mr Puthenpurackal appears to have ignored those demands. At the same time, according to him he reached agreement with Mr Li in the terms alleged. That seems improbable.

36. During December 2017 and January 2018, Blackmores delivered some product and Jestins made some payments. On 25 January 2018, Mr Hennessey sent Mr Puthenpurackal an email recording the fact that some payments had been made and stating that an invoice issued in late November 2017 for $665,105.04 was due on 31 December 2017 and asking for it to be paid “today”. Mr Hennessey sent Mr Puthenpurackal a further email on 25 January 2018 saying:

Thanks for your latest payments. Your accounts stand at a total of $3.6M

We have $2.4M inc GST in orders on the system.

Could you advise on further payments to allow release of these orders

37. On 30 January 2018, Mr Puthenpurackal sent an email to Mr Rutherford, apparently in response to an email Mr Rutherford sent him, although that email is not in evidence. Mr Puthenpurackal’s email relevantly said:

First of all I needed to explain to you that I only received stock for the following invoices in Dec 2017 which are

2276789

2275798 and

2277809.

The stock for the remaining 6 invoices billed to me in Dec 2017 were received only in January 2018.

I would therefore like to request that the payment of the invoices for them to be extended till 28th of February 2018.

I understand your concern about the late payment but it is also due to the current scenario of invoicing which is as per the example I have quoted above due to which I get only 20-22 days to make payments against invoices and my stock cannot even be sold out for me to get payments from my customers due to this time frame.

I need to get this cycle revised to help me to streamline my buying and selling and making payments correctly and it would certainly happen if the current payment is extended till the end of February 2018 but I can definitely make payments for the same in the 2nd week and 3rd week of February.

To carry forward this system I also need to be able to pay the invoices at the end of January 2018 at the end of March 2018 .This will systematically help me to counter the situation that I am facing now due to the invoicing at the end of the month wherein the stock received is only the next month.

I would really appreciate you looking into this matter and helping me to streamline this situation .This will ease out the matters effectively moving ahead as most of the overdue accounts are due to the invoicing at the end of the month for which the time frame for payments gets reduced to 20-22 days and makes matters difficult.

38. There were then apparently discussions between Mr Rutherford and Mr Puthenpurackal, following which Mr Rutherford sent Mr Puthenpurackal an email which relevantly said:

Solution

•  Blackmores to allow Ascot Vale the month of Feb to “reset” and catch up with the view of starting a fresh on 1^st March

•  Ascot Vale agrees to the below payment plan:

1.   $831k by Friday 9th Feb (December invoice delivered in December)

2.   $1.05M due by 15th Feb (December invoice delivered in January)

3.   $1.05M due 22nd Feb (December invoice delivered in January)

We believe that the above is a fair solution for both parties and looking forward we agree to:

•  Ascot Vale to place orders in first 3 days of the month

•  Blackmores to deliver stock within 3-5 days of receiving order

•  Ascot Vale to be up to date with ALL payments and have nothing outstanding moving forward

•  Ascot Vale to be within credit limit, otherwise pre-paying as per current process

Should the above agreement not take place then Blackmores shall move towards a 100% pre-payment arrangement from March.

We would also like to remind you that contractually the 4% marketing funds are now at risk due to your overdue situation.

39. Mr Puthenpurackal replied on 6 February 2018 saying that he agreed to the plan.

40. On 8 February 2018, Mr Puthenpurackal sent an email to Mr Rutherford and Mr Li saying:

I would like to request to have some of the stock released as per my orders before mid Feb rather than the beginning of March due to my customers [sic] requirements. It would be necessary as these are my valuable and regular customers.

I am proceeding to make payments already and would be making ongoing payments before the prescribed dates.

41. Mr Rutherford replied the same day asking whether Mr Puthenpurackal’s customers could pre pay for the stock if they needed it badly.

42. On 9 February 2018, Mr Hennessey asked for the receipts for the payment of the $831,000 due on that day.

43. On 14 February 2018, Mr Puthenpurackal sent Mr Rutherford and Mr Li an email in which he said:

Hope you both are doing well. Just needed to intimate you that the payments to be made will not be possible on the 15th and 22nd of Feb but need to be extended till the end of Feb.

In regards to being placed in a pre paid account as stated by yourself as per your company policy I think that it is definitely not going to further the business but just place it in a difficult situation.

44. Mr Rutherford replied to that email the same day asking Mr Puthenpurackal when he expected to pay and stating “In terms of working together moving forward we need to assess this internally as this current relationship is not commercially viable …”.

45. On 20 February 2018, Mr Hennessey sent Mr Puthenpurackal an email following up on the payment of the $831,000. The email stated that nothing had been received since 12 February 2018. Mr Puthenpurackal responded the same day saying that he would pay “$900k by this Friday 23/02, 900k by Tuesday 27/02 and 600k by 01/03”.

46. There was further correspondence between the parties in relation to payment and Jestins made some payments, but not the amounts set out in Mr Puthenpurackal’s email of 20 February 2018. On 14 March 2018, Mr Puthenpurackal sent Mr Rutherford an email in which he relevantly said:

I wanted to intimate you that there may be a slight delay in fulfilling the total payment due for Blackmores due to the unforeseen circumstances in China as spoken with you yesterday. The matters there are still not totally resolved due to which payments are just trickling in a very slow manner.

I am trying to get the finances arranged as quickly as can be possible but at this stage I think the complete payment can be possible latest by the 23rd of this month and I assure you that it may be even earlier but that would be the latest that it could extended [sic] till.

I thought I would let you know about this development soon so that you are kept informed while I am trying to complete the payments systematically.

Thank you and Blackmores for understanding this situation and I will keep you updated as usual.

47. That email led to further correspondence between the parties and ultimately a telephone discussion between Mr Puthenpurackal and Mr Fenlon on 18 April 2018. Following that discussion, Mr Puthenpurackal sent Mr Fenlon an email in which he said:

As per our conversation over the phone.

I am proposing a proposal which I feel would benefit me and Blackmores.

My main financial constraint was that I had to pay Penalties and Deposits back to my customers so this caused short term cash flow crisis.

If I can get some stock and some time in the total payment I would be able to get out of this situation.

I am happy to pay $800000.00 towards my overdue account and get the following stock released so that the business can start running again and I can then finish off the remaining overdue account in a short span of time.

The email went on to list stock to the value $1,026,575.44.

48. That email led to negotiations which resulted in the Settlement Deed.

49. The parties to the Deed are stated to be Blackmores and “The Trustee for Jestins Family Trust trading as Ascot Vale Discount Pharmacy”, which is plainly a reference to Jestins. Under cl 2.1 of the Deed, Jestins agreed to pay the “Settlement Sum” to Blackmores in the manner described in Schedule 2, which, as I have said, provided for a payment of $800,000 on execution and of the balance owing of $1,193,813.53 within 12 working days. On payment of the Settlement Sum in full, Blackmores agreed to release Jestins and its director from all “Claims”.

50. Clause 3.2 of the Deed provides:

Release and discharge by [Jestins]

[Jestins] releases and discharges Blackmores, its directors, employees and former employees of all Claims which [Jestins]:

(a)   now has;

(b)   at any time had;

(c)   may have; or

(d)   but for this Deed, could or might have had,

against Blackmores, its employees and former employees relating to the subject matter of this Deed including without limitation the Products (including any claim or right which [Jestins] may have to return any Product for credit or otherwise), Blackmores, Claims and Trade Accounts.

51. “Claims” is defined to include:

all sums of money, actions, suits, causes of action, proceedings, accounts, liability, losses, assessments, demands, costs, expenses, notices, demands for works or any other type of claim however arising and whether past, present or future, fixed or unascertained, actual or contingent as detailed in Schedule 1 of this Deed.

Schedule 1 of the Deed sets out the invoices that remained unpaid as at the date of the Deed.

52. “Trade Accounts” is defined to mean:

those commercial credit accounts between [Jestins] and Blackmores, to which the Blackmores Claim relates.

53. Clause 9 of the Deed provides:

Both parties acknowledge and separate to the terms of this Deed that Blackmores shall supply future products valued approximately $400,000 to [Jestins] subject to availability. The sale of the future products is conditional upon the execution of this Deed by [Jestins] and the immediate payment of $800,000 as referenced in Schedule 2 upon the execution of this Deed. Both parties to this Deed acknowledge that the remainder of the Settlement Sum will be paid under the terms of this Deed.

54. Jestins made the first payment and ordered and received product worth $409,142.02, which were supplied and invoiced by Blackmores on 21 June 2018. After the application of volume rebates, the total amount payable in respect of that invoice was $380,992.02. Jestins has made no further payments since it paid the $800,000 on the date of the Deed.

Jestins’ case

55. As I have said, the cross-claimants’ case has three limbs. First, it is said that the terms of trade were varied so that invoices were payable 30 days from the end of the month in which the goods were delivered. Second, it is said that Pharmadeal was substituted for Jestins as the contracting party in relation to the Export Account. Third, the cross-claimants advance a case that Blackmores contravened ss 18 and 21 of the ACL.

56. For reasons I have already explained, the second of these claims must fail. The first depends on a representation said to have been made by Mr Hennessey in February 2017 that also forms part of the cross-claimants’ case based on breaches of ss 18 and 21 of the ACL. It is convenient to deal with it in that context.

57. The cross-claimants’ case based on contraventions of ss 18 and 21 of the ACL is that they, relying on a number of representations made by Blackmores, placed a large order for product in December 2017. They claim that Blackmores then resiled from those representations putting Pharmadeal and Jestins in a position where they could not pay the invoices issued by Blackmores, were refused additional stock and consequentially could not supply additional product to their clients, thus destroying their business. According to the cross-claimants, the making of the representations and the failure to make good on them was misleading and deceptive within the meaning of s 18 of the ACL and resiling from the representations was unconscionable conduct within the meaning of s 21 of the ACL.

58. A number of representations are identified:

1. A representation impliedly made by Mr Hennessey in February 2017 that any orders placed by Jestins towards the end of a trading month would be treated as invoices raised in the following month and thereby not due and payable until 30 days after the end of the following month (Varied Trading Term Representation);

2. A representation made by Mr Rutherford on 11 December 2017 that if Jestins placed an order for vitamin E cream Blackmores would release the Marketing Rebate of approximately $500,000 (Marketing Rebate Representation);

3. A representation made by Mr Li on 20 December 2017 that if Jestins placed an additional order for EPO, it would be the only customer of Blackmores to receive EPO for sale (EPO Representation);

4. A representation made by Mr Li on 28 December 2017 that if Jestins arranged to have all of the remaining vitamin E cream released Mr Li would arrange to have all of the Marketing Rebate accrued up until November 2017 brought forward and paid in January 2018 (Second Marketing Rebate Representation).

Were the representations made?

The Varied Trading Term Representation

59. As I have said, the Varied Trading Term Representation forms the basis of the cross-claimants’ case that the contract was varied. It is also one of the representations that form the basis of the claims under the ACL.

60. The Varied Trading Term Representation is alleged to have been made by Mr Hennessey when he said in February 2017 “We don’t consider those end of month invoices until the end of next, that gives you extra time to pay”. The difficulty with this representation is that it is not possible to know precisely what words were used by Mr Hennessey and consequently precisely what was conveyed by what he said. Mr Hennessey accepted in his affidavit evidence that, from time to time, he would give Jestins additional time to pay, particularly in relation to invoices that were issued at the end of a month. However, the cross-claimants seek to attribute two somewhat different meanings to the words attributed to Mr Hennessey. Their contractual case is that Mr Hennessey must be understood as having said that the terms would be varied so that payment was not due until 30 days after the end of the month in which the goods were delivered. Their representation case is that which Mr Hennessey said conveyed the impression that Blackmores would not seek payment of invoices issued at the end of the month until the end of the second month after the invoice was issued.

59. The words attributed to Mr Hennessey are not consistent with the cross-claimants’ contractual case. The contractual case is that Mr Hennessey agreed to vary the terms of trade so that the date for payment was, in the future, to be calculated by reference to the date of delivery rather than the date of invoice. But the words attributed to Mr Hennessey say nothing about the date of delivery. Moreover, it is improbable that any words spoken by Mr Hennessey conveyed the impression that he was intending on behalf of Blackmores to vary the terms of trade. The terms of trade were in writing and, as Mr Puthenpurackal knew, it was Blackmores’ practice to record variations in those terms in writing and to ask Mr Puthenpurackal to sign the varied terms, even when the variations were to Jestins’ benefit. Mr Puthenpurackal could not have understood that Mr Hennessey was seeking to depart from that practice and to vary the terms of trade in what appears to be an informal conversation. In addition, the language attributed to Mr Hennessey does not appear to be directed to the terms of the contract. As I will explain, they appear to be directed to Blackmores’ attitude to particular orders.

60. In their contractual variation case, the cross-claimants also rely on an email from Mr Hennessey to Mr Puthenpurackal dated 3 March 2017 in which Mr Hennessey states “Invoice 2104529 [dated 31 January 2017] will be treated as February”. But two points may be made about this email. The first is that it says nothing about the date of delivery. The second is that it is concerned with a particular invoice. It says nothing about the treatment of other invoices. It is consistent with Mr Hennessey’s evidence that, from time to time, he granted indulgences to Jestins.

61. The cross-claimants’ representation case is that the words used by Mr Hennessey conveyed the impression that Blackmores would not in the future seek to apply the terms of trade strictly where orders were placed at the end of the month. I am not satisfied that Mr Hennessey used words that conveyed that impression. It is highly doubtful that Mr Puthenpurackal could recall the precise words used by Mr Hennessey; and particularly in this context the precise words are important.

62. Even accepting that the words Mr Puthenpurackal attributes to Mr Hennessey were the words used, I do not think that they conveyed the impression that Blackmores would never seek payment in accordance with its contractual rights. According to Mr Puthenpurackal, Mr Hennessey referred to those end of month invoices, suggesting that his statement was addressed to the particular invoices under discussion and not to “end of month invoices” generally. The difficulty in identifying what is to count as an end of month invoice and what is not reinforces that conclusion. Mr Puthenpurackal accepted in cross-examination that the conversation was limited to the payment due that month. He gave this evidence:

Q.   My question to you was, the conversation as you set out there doesn’t contain any suggestion that your discussion was to relate in way wider than that month’s payments. Correct?

A.   Yes, that's true.

65. In addition, when in December 2017 and January 2018 Mr Puthenpurackal was being pressed for payment, he never once asserted that Blackmores was departing from a representation that Mr Hennessey had made or, for that matter, an agreed variation to the terms of trade. On the contrary, his correspondence on the subject recognises that he was seeking indulgences from Blackmores. In cross-examination, Mr Puthenpurackal sought to explain this fact by saying that he was wary of antagonising Blackmores and was simply trying to find a way forward. But it is far from clear how it would have antagonised Blackmores further for Mr Puthenpurackal to say that he was acting in accordance with what Mr Hennessey had said to him. It appears from the correspondence that what was antagonising Blackmores was the fact that Jestins was not paying the invoices sent to it in accordance with the agreed terms of trade. In my opinion, the true explanation for why Mr Puthenpurackal never said anything is that he understood that he was required to pay invoices in accordance with those terms.

66. Mr Puthenpurackal also points to what is said to be a practice that Blackmores adopted following his conversation with Mr Hennessey of not demanding payment of end of month invoices by the end of the following month. But the examples referred to by Mr Puthenpurackal are equally consistent with Blackmores granting indulgences from time to time.

The Marketing Rebate Representation

67. I have already concluded that the Marketing Rebate Representation was not made.

The EPO Representation

68. The EPO Representation is said to have been made on or around 20 December 2018 in a context in which Mr Li asked Mr Puthenpurackal whether he could increase his order to 50 pallets and offered as an inducement that “If you do, you will be the only one to get this product”. In my opinion, it is highly improbable that Mr Li offered that inducement. Mr Li denies that he did, and says that he would not have offered an inducement of that sort. That strikes me as plausible. It is difficult to see how the inducement could have been offered. Presumably, other customers had placed orders for EPO during December which they would expect to be delivered over the December and January period. How in those circumstances, it might be asked, could Mr Li have offered exclusivity? And for what period was exclusivity intended to last? Mr Li did not come across as someone who would make such a reckless statement. Until these proceedings were commenced, Mr Puthenpurackal never complained to Blackmores that it had departed from the representation said to have been made by Mr Li. If Mr Li had made the representation, it is to be expected that Mr Puthenpurackal would have done so.

The Second Marketing Rebate Representation

69. The Second Marketing Rebate Representation is similar to the Marketing Rebate Representation. The representation is alleged to have been made in a context where Mr Puthenpurackal was expressing some reservations about proceeding with the order because he was losing customers to Chemist Warehouse, which was charging a lower price for the same product. It is not plausible that in response Mr Li offered that Blackmores would pay the marketing rebate. It is not likely that Mr Li would depart from the terms of the contract, at least without seeking authority to do so. It is not clear how payment of the marketing rebate would assist with the problem said to be the subject of Mr Puthenpurackal’s complaint. The marketing rebate was largely unrelated to the sale of vitamin E cream. Given that, it is difficult to make sense of Mr Puthenpurackal’s case. Was he happy to buy vitamin E cream that he could not sell in order to get the marketing rebate? Or is the idea that with the marketing rebate he could reduce the price at which Jestins or Pharmadeal sold vitamin E cream to match Chemist Warehouse’s price, even though the two are largely unconnected? Mr Puthenpurackal does not offer any context or explanation which explains why the representation made sense given his concern. In my opinion, the conversation did not occur.

70. Once again, until these proceedings were commenced Mr Puthenpurackal never alleged that Blackmores was seeking to depart from the representation allegedly made by Mr Li. If the representation had been made he would have done so.

Were the representations misleading or deceptive or did departure from them involve unconscionable conduct?

71. If the representations were made in the terms alleged, I accept that they were misleading and deceptive or that departure from the terms of the representations after the orders were placed was unconscionable conduct.

72. So far as the misleading and deceptive conduct case is concerned, the four representations appear to be representations concerning the future. They will be taken to be misleading if Blackmores did not have reasonable grounds for making them: ACL, s 4(1). Under ACL s 4(2), Blackmores is “taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary”.

73. In this case, Blackmores, understandably, has not sought to adduce evidence to the contrary because it does not accept that the representations were made.

74. Similarly, I accept that if the representations were made, then it was unconscionable for Blackmores to permit Jestins to place a large order in the expectation that Blackmores would do the things represented and for it then to seek to resile from what it had said.

Loss and damage

75. The cross-claimants’ case in relation to the breach of contract case appears to be that, if they had not been required to pay for products until the end of the month after the month in which they were delivered, then Blackmores would not have been entitled to withhold the product it did, with the result that they would have been able to continue to operate their export business.

76. I have already concluded that Pharmadeal was not a party to the contract with Blackmores. Consequently, any claim for damages for breach of contract is a claim that could only be brought by Jestins.

77. The cross-claimants led no evidence and provided no analysis of the invoices in evidence from which it is possible to conclude that had Jestins been given additional time to pay, it or Pharmadeal could have continued to operate the export business. There were two constraints on Jestins’ ability to obtain product. First, it could not obtain product that exceeded its credit limit. Second, under cl 10(ii) of the Trading Terms, Blackmores had a right to place orders on hold when any invoice was overdue.

78. Set out below is a table for the Export Account showing the orders placed in December 2017. Column 1 gives the invoice number, column 2 the date of the invoice, column 3 the amount of the order, column 4 the date of delivery, column 5 the date of payment and column 6 the balance of the account as at each date. The information has been extracted from a spreadsheet attached to Mr Hennessey’s affidavit and information contained in Mr Puthenpurackal’s affidavit:

Invoice	Date	Amount	Delivered	Paid	Balance
2276789	20/12/17	409,649.01	21/12/17	12/02/18	2,536,792.97
2276798	20/12/17	661,620.95	21/12/17	01/03/18	3,198,413,92
2277809	21/12/17	187,359.47	27/12/17	05/03/18	3,120,234.47
2278906	22/12/17	409,649.01	04/01/18	07/03/18	3,374,883.48
2278907	22/12/17	619,775.97	04/01/18	16/05/18	3,994,659.45
2278908	22/12/17	118,872.60	02/01/18	22/05/18	4,113,532.05
2278909	22/12/17	260,958.31	02/01/18	08/06/18	4,374,490.36
2279734	28/12/17	775,082.39	04/01/18	-	4,653,072.75
2280475	29/12/17	79,406.90	04/01/18	-	4,187,479.65
2280659	29/12/17	78,653.19	03/01/18	-	4,266,132.84

79. Two things are apparent from this table. First, from 22 December 2017, the amount owing on the Export Account alone exceeded Jestins’ credit limit. Notwithstanding that, Blackmores continued to deliver product. The evidence is that the amount owing on the Export Account did not fall below the credit limit until 23 January 2018, after Jestins made a number of payments. Second, and more importantly, even if the contract was varied as Jestins claims, not one of the invoices issued in December 2017 was paid on time. The only invoice that came close was Invoice 2278906 for $409,649.01. On Jestins’ case, that invoice was due for payment on 28 February 2018 (the end of the month following delivery). In fact, it was paid on 7 March 2018. The last three invoices have still not been paid in full. It therefore seems plain that on Jestins’ own case, Blackmores was entitled to withhold further deliveries.

80. The cross-claimants’ case in relation to breach of the ACL is put in the same way. Their case is that as a consequence of the representations that were made, they have lost the benefit of their export business. Again, the claim brought by Pharmadeal is premised on the contention that it was the contracting party in relation to the Export Account. No separate claim is advanced by it even if, as I have concluded, the contracting party was Jestins. Consequently, any claim for damages under s 236 of the ACL must be a claim of Jestins.

81. In the case of the Varied Trading Term Representation, Jestins’ case appears to be that it is entitled to recover damages on the basis that the representation was true, so that its damages are the same as the damages it claims for breach of contract. But why that is so is unclear. The normal method of assessing damages for a contravention of ss 18 and 21 of the ACL is to ask what would have happened if the contravening conduct had not occurred and to seek to put the innocent party in the position that it would have been in in that event: Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, [1998] HCA 69 at [42] per McHugh, Hayne and Callinan JJ (decided under s 82 of the Trade Practices Act 1974 (Cth)); Williams v Pisano (2015) 90 NSWLR 342, [2015] NSWCA 177 at [99]-[101] Per Emmett JA, with whom Bathurst CJ and McColl JA agreed.

82. Jestins offers no explanation of what it says would have happened if the Varied Trading Term Representation had not been made. Presumably, Jestins would have placed orders at different times or for different quantities. But how, if it had done so, that would have enabled the export business to continue remains a mystery.

83. Even if Jestins is entitled to recover damages on the basis that the representation was true, for the reasons I have given in relation to the contractual case, I am not satisfied that it has suffered any damages. The analysis is similar to the analysis in relation to the contractual case. Although the trigger for additional time to pay is the date of the invoice rather than the date of delivery, none of the invoices issued at the end of December 2017 was paid within time even if Jestins had been entitled to the extended time to pay. Consequently, on Jestins’ case, Blackmores was still entitled to withhold supply.

84. The position in relation to the other representations is no clearer. In relation to the Second Marketing Rebate Representation, Mr Puthenpurackal specifically says “I would not have agreed to the release of the December order with Li if he did not told me [sic] that my liability would be reduced by around $500,000 as a result of the release of the marketing rebate”. In other words, Mr Puthenpurackal’s complaint is that if Blackmores had not made the representation it is alleged to have made, he would have taken less stock. Although Mr Puthenpurackal does not specifically say what he would have done if the other representations had not been made, the same must be true of the Marketing Rebate Representation (which was in similar terms to the Second Marketing Rebate Representation). It also must be true of the EPO Representation. Jestins does not seek to advance a case that it was entitled to proceed on the basis that it had an exclusive right to acquire EPO and to demonstrate how that exclusivity would have assisted their business. Rather, the case seems to be that Jestins would not have placed such a large order for EPO had the representation not been made. But again, there is no evidence of what would have happened in that case. Certainly, without some analysis of the money that would have been saved if Jestins had not placed the orders that it did, it is not possible to say that it could have continued with the export business absent those orders.

The Settlement Deed

85. Blackmores submits that even if Jestins could otherwise make out its case, that case must fail because it is barred by the Settlement Deed.

86. I accept that submission. Jestins points out that the release is in respect of all “Claims”. “Claims” is defined so that it “includes” all sums of money, actions, etc “as detailed in Schedule 1 of this Deed”. Its case appears to be that the word “includes” is intended to qualify the words “all sums of money, actions, …” rather than the words “as detailed in Schedule 1 of this Deed”. In other words, according to it, the release is intended to operate as widely as possible, but it is intended to operate in relation to particular invoices, and not to the relationship between the parties as a whole. If the latter were intended, there would be no reason to identify specific invoices. Jestins’ cross-claim is not a claim in relation to those invoices. Jestins does not assert, for example, that it is entitled to a discount that was not given on those invoices, or that the product that was the subject of those invoices was not supplied or that it was defective. All of those claims would be covered by the release. Rather, Jestins’ claim relates to conduct unrelated to the invoices themselves or the product the subject of the invoices and the damages it claims are unconnected to those invoices or that product.

87. It might be said that the conclusion of the previous paragraph is reinforced by the terms of the release itself. The release is in respect of all Claims Jestins has against Blackmores (and others) “relating to the subject matter of this Deed”. At the time the Deed was executed, Jestins had not made any assertions that Blackmores had engaged in misleading or deceptive conduct or acted unconscionably. The subject-matter of the Deed was the particular invoices; and Jestins makes no claim in relation to those.

88. In my opinion, the difficulty with Jestins’ argument is that it is not correct to say that its claim is unrelated to the invoices the subject of the Deed. As I have explained, Jestins’ principal claim appears to be that it was entitled to longer than it was given to pay the invoices in question and that because it was not given that additional time it was prevented from ordering further product. Under the terms of the Deed, Jestins released any claim that related to the invoices. That must include a claim that it was entitled to more time to pay those invoices. That is particularly so when the Deed itself sets out when Jestins was entitled to place an order for further product and the value of the product that it could order. The fact that that claim is framed in terms of contraventions of the ACL as well as breach of contract does not make any difference. The claim still has the relevant character.

89. There is a question whether the parties can exclude by agreement liability under ss 18 and 21 of the ACL: see Omega Air Inc v CAE Australia Pty Ltd [2015] NSWSC 802; Firstmac Fiduciary Services Pty Ltd v HSBC Bank of Australia Ltd [2012] NSWSC 1122; Owners SP 62930 v Kell & Rigby Pty Ltd [2009] NSWSC 1342. But there can be no question that the parties are entitled to settle an existing claim for a contravention of those provisions. In my opinion, that principle should not be limited to cases where a claim under those provisions has been raised expressly. It should extend to cases such as the present one where the parties have settled an existing dispute and a claim is then sought to be raised under ss 18 and 21 that is connected to the subject-matter of that dispute. Such an approach does not undermine the policy of the ACL. On the other hand, it is consistent with the policy that encourages parties to resolve their disputes without recourse to court proceedings.

Quantum

90. Even if Jestins otherwise made out its case, I would have concluded that it had failed to prove the quantum it claims – or, indeed, that it has suffered any loss.

91. As I have said, the cross-claimants claim $7 million as the value of the business they derived from Blackmores. That claim is based on an expert report prepared by Mr Shulman.

92. There are, however, a number of difficulties with Mr Shulman’s evidence.

93. Mr Shulman purports to value that part of the business carried on by Jestins and Pharmadeal relating to the sale of Blackmores products. However, as I have explained, it is difficult to see how Pharmadeal is entitled to claim any loss. The basis on which Pharmadeal was joined as a cross-claimant is that it was alleged that it became a party to the contract in place of Jestins so far as the Export Account is concerned. I have rejected that contention. No other basis was advanced for why Pharmadeal is entitled to recover the loss it is alleged to have suffered. Mr Shulman does not express an opinion on Jestins’ loss. For that reason alone, no weight can be placed on his evidence.

90. Mr Shulman valued the relevant part of the business using a discounted cash flow methodology. He started with amounts earned from the sale of Blackmores products by Jestins (the pharmacy business) and Pharmadeal (the export business) for the period 2017 to 2019 and then deducted the costs of sales. The amounts earned by Pharmadeal were obtained from a spreadsheet supplied to Mr Shulman by Mr Puthenpurackal. There is a similar spreadsheet in evidence purporting to disclose the amounts earned by Jestins. However, the figures used by Mr Shulman were not obtained from that spreadsheet; and the source of those figures is not known and is not in evidence. No explanation is given by Mr Puthenpurackal of the source of the spreadsheets that were in evidence. Blackmores accepted that they were business records of some sort of Pharmadeal and Jestins, but submitted that without some explanation, the Court should not accept that they are reliable. In my opinion, without some explanation of how the records were prepared or obtained, they are not admissible as business records under s 69 of the Evidence Act 1995 (NSW).

91. This problem is symptomatic of a more general one. In performing the calculations he did, Mr Shulman relied on information given to him by Mr Puthenpurackal, which is attached to his report and presented in the form of emails answering specific questions, spreadsheets and other documents. However, Jestins made no attempt to prove the source of those documents or the various facts asserted in the emails. For that reason, many of the assumptions of which Mr Shulman’s report is based were unproven. In one case at least, Mr Shulman asked Mr Puthenpurackal to provide an explanation of an adjustment of $5.5 million for stock in the Jestins accounts for 2018 which he never got. Mr Shulman dealt with that problem by excluding the 2018 results for Jestins from his analysis. But without understanding the nature of the adjustment, it is not possible to know what effect it had on Mr Shulman’s analysis.

92. It is not clear how Mr Shulman arrived at his figures for the costs of sale. He appears only to have taken variable costs and to have assumed that they should be apportioned between that part of the business involved in the sale of Blackmores products and the rest of the business in the proportion that the value of the sales from Blackmores products bears to the total value of sales. He made no allowance for fixed costs, on the basis that costs would be primarily variable in nature. However, as Mr Alex Bell, an expert accountant who prepared a report on behalf of Blackmores, pointed out, according to the figures used by Mr Shulman, the result was that the Pharmadeal/Jestins business earned EBIT (earnings before interest and tax) margins of 11 percent in 2017 and 18 percent in 2018 on the sale of Blackmores products but negative 14 percent in 2017 and negative 12 percent in 2018 on the sale of non-Blackmores products. Mr Shulman all but accepted when giving oral evidence that that made no sense. To add to the problem, Mr Shulman assumed that the businesses would maintain a gross profit margin of 17.5 percent. As Mr Bell pointed out, that margin is well in excess of the margin earned by other businesses in the same sector and does not sit easily with Mr Puthenpurackal’s complaint to Blackmores that his prices were being undercut by Chemist Warehouse.

93. In my opinion, these considerations alone provide a sufficient basis to reject the conclusions of Mr Shulman’s report, with the result that Jestins has failed to prove that it suffered any loss.

94. It is, I think, necessary to make one other comment about Mr Shulman’s evidence. Mr Shulman, as is usual these days, gave his evidence by videolink. He was wearing a sweatshirt. More significantly, when he was not giving evidence himself he appeared on occasions to be attending to text messages or emails on his mobile telephone. No doubt, as hearings by videolink have become standard practice in response to the pandemic a degree of informality has crept into the processes followed by the Court and it has become easier for witnesses to overlook the fact that they are still giving evidence in Court proceedings. Nonetheless, a degree of formality remains important. It is one mechanism by which all participants are reminded of the importance of the proceedings both to the community as a whole as a manifestation of the rule of law and to the individual litigants and witnesses, for whom the outcome of the proceedings can have major financial and reputational ramifications. Mr Shulman’s conduct was not what I would have expected of an expert witness; and there may be a question whether it is appropriate for him to charge for the time he spent giving evidence when he used some of that time to attend to other tasks as well.

Conclusions and orders

99. It follows from what I have said that there must be judgment for Blackmores in the sum of $1,574,805.55. Blackmores should be entitled to interest on that amount from the date the amount was payable to the date of judgment. In the case of $1,193,813.53, that amount was payable in accordance with the Settlement Deed 12 working days after the deed was executed – that is, on 2 July 2018. In the case of $380,992.02, that amount was payable on 31 July 2018 in accordance with Blackmores’ standard terms. On that basis, interest is $175,291.21. The cross-claim should be dismissed.

100. There is no apparent reason why Jestins and Mr Puthenpurackal should not pay Blackmores’ costs. However, the parties did not make any submissions in relation to costs and I should give them an opportunity to do so. In addition, in the light of what I have said about Mr Shulman’s evidence, I should give the defendants an opportunity to make an application in relation to his costs of giving evidence if they are minded to do so. Obviously, Mr Shulman would need to be given notice of any such application.

101. The orders of the Court, therefore, are:

1. Judgment for the plaintiff against the defendants in the sum of $1,750,096.76;

2. The cross-claim be dismissed;

3. The defendants pay the plaintiff’s costs of the proceedings (including the cross-claim);

4. Liberty to apply to vary order (3) within 21 days’ of the date of this judgment; and

5. Liberty to apply to the defendants to seek an order in relation to Mr Shulman’s costs of appearing at the hearing within 21 days’ of the date of this judgment.

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Decision last updated: 02 September 2020