Blooms the Chemist Management Services Ltd v Pharmacy Council of NSW - [2025] NSWSC 1211

Supreme Court

New South Wales

Medium Neutral Citation: Blooms the Chemist Management Services Ltd v Pharmacy Council of NSW [2025] NSWSC 1211
Hearing dates: 2, 3, 4, 5, 6 and 13 December 2024
Date of orders: 16 October 2025
Decision date: 16 October 2025
Jurisdiction: Common Law
Before: Rothman J
Decision:
(1)   Judgment for the first defendant.
(2)   Summons dismissed.
(3)   The plaintiff will pay the first defendant’s costs of and incidental to the proceedings.
(4)   Any party seeking a special or different order as to costs may apply within 14 days in writing to the Associate to Justice Rothman with a submission and any accompanying document other than a document already in evidence upon which it relies for that application. Other than the accompanying documents, the submission shall be no more than five pages. Any party adversely affected by the application for a different or special order as to costs may reply. Such reply has the same conditions as those imposed on any applicant.
(5)   Otherwise, the proceedings are dismissed.

Catchwords:
ADMINISTRATIVE LAW — supervisory jurisdiction — judicial review — declaration sought — decision of Pharmacy Council of NSW — whether Blooms has a financial interest in the relevant pharmacy business — Health Practitioner Regulation National Law (NSW) Sch 5F — NCAT appeal pending — statutory construction — construction of contracts — jurisdiction of the Supreme Court — declaratory relief — interest in the relief — exceptional circumstances — where Council decision is extant — declaration not made

Legislation Cited:
Administrative Decisions Review Act 1997 (NSW), ss 53, 63, 64
Civil and Administrative Tribunal Act 2013 (NSW), ss 28, 30, 83
Supreme Court Act 1970 (NSW), ss 69, 75
Health Practitioner Regulation National Law, Sch 5F

Cases Cited:
Ainsworth v Criminal Justice Commission (1992) 175 CLR 564; [1992] HCA 10
Attorney General for the State of NSW v Now.com.au Pty Ltd [2008] NSWSC 276
Attorney-General (NSW) v Quin (1990) 170 CLR 1; [1990] HCA 21
Australasian Oil Exploration Ltd v Lachberg (1958) 101 CLR 119; [1958] HCA 51
Australian Conservation Foundation v Commonwealth (1980) 146 CLR 493
Australian Institute of Marine and Power Engineers v Secretary, Department of Transport (1986) 13 FCR 124; [1986] FCA 443; (1986) 71 ALR 73
Cameron v Human Rights & Equal Opportunity Commission (1993) 46 FCR 509; [1993] FCA 593
Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24
Currabubula & Paola v State Bank of New South Wales [2000] NSWSC 232
Goldsborough Mort & Co Ltd v Carter (1914) 19 CLR 429; [1914] HCA 80
Gouriet v Union of Post Office Workers [1978] AC 435
HDI Global Speciality SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634; [2020] NSWCA 296
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64
Jackson v Slattery [1984] 1 NSWLR 599
Kirk v Industrial Relations Commission (2010) 239 CLR 531; [2010] HCA 1
Mannai Investments v Eagle Star Life Assurance Co Ltd [1997] AC 749
Moschi v Lep Air Services; Lep Air Services v Rolloswin [1973] AC 331
Parisienne Basket Shoes Pty Ltd v Whyte (1938) 59 CLR 369; [1938] HCA 7
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28
QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166
Re The Queensland Electricity Commission and Others; Ex parte The Electrical Trade Union of Australia (1987) 61 ALJR 393; 72 ALR 1 at 12; [1987] HCA 27
Schuler v Wickman Machine Tool Sales Ltd [1974] AC 235
SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Walton v Gardiner (1993) 177 CLR 378; [1993] HCA 77
White v District Court of New South Wales (1998) 45 NSWLR 313; [1999] NSWCA 406

Texts Cited:
Nil

Category: Principal judgment
Parties: Blooms the Chemist Management Services Ltd (Plaintiff)
Pharmacy Council of NSW (First Defendant)
Tran Pharmacy (Cronulla South) Pty Ltd (Second Defendant)
Representation:
Counsel:
S J Free SC / J Davidson (Plaintiff)
K Richardson SC / S Kanagaratnam (First Defendant)
Solicitors:
Ashurst (Plaintiff)
Minter Ellison (First Defendant)

File Number(s): 2023/232861
Publication restriction: Nil

JUDGMENT

HIS HONOUR: The plaintiff, Blooms the Chemist Management Services Ltd, seeks a declaration, purportedly in the supervisory jurisdiction of the Supreme Court, as well as costs.
The declaration that is sought relates to the registration of a pharmacy, Blooms the Chemist Cronulla South (hereinafter “the Pharmacy Business”). The terms of the declaration are as follows:

“The act of registering the second defendant’s [Tran Pharmacy’s (Cronulla South) Pty Ltd] proposed financial interest in the pharmacy business known as Blooms the Chemist Cronulla South (Pharmacy Business), as sought by the second defendant’s amended application dated 8 November 2022, would not thereby cause the plaintiff to obtain, at the same time, a financial interest in the Pharmacy Business for the purposes of schedule 5F to the Health Practitioner Regulation National Law (NSW) (National Law).”

The plaintiff asserts that the relief is sought under ss 69 and 75 of the Supreme Court Act 1970 (NSW), each of which, in the context of this application, relate to judicial review.
On 24 February 2023, the first defendant, the Pharmacy Council of NSW (hereinafter “the Council”), refused the application by the second defendant, Tran Pharmacy (Cronulla South) Pty Ltd (hereinafter “Tran Pharmacy”), to register its interest in the Pharmacy Business thereby acquiring a financial interest in the Pharmacy Business. The Council issued reasons for the decision on 23 March 2023.^[1]
1. Court Book, Vol 1, p 223 and following.
On 20 April 2023, the plaintiff sought an internal review pursuant to the provisions of s 53 of the Administrative Decisions Review Act 1997 (NSW) (“the ADR Act”) and, on 25 May 2023, the reviewer affirmed the decision of 24 February 2023 and provided reasons.^[2]
2. Ibid, p 243 and following.
On 21 June 2023, Tran Pharmacy applied to the NSW Civil and Administrative Tribunal (“NCAT”) for review of the Council’s decision. The appeal is lodged pursuant to subclause 13(1)(b) of Schedule 5F to the Health Practitioner Regulation National Law (NSW) (hereinafter “National Law”). The proceedings before NCAT are adjourned by consent.
The provisions under which the application is made are relevantly in the following terms:

13   Appeals against refusal to approve pharmacy or to register holder of financial interest [NSW]
(1)   A person aggrieved by any of the following decisions of the Council may apply to the Civil and Administrative Tribunal for an administrative review under the Administrative Decisions Review Act 1997 of the decision—
(a)   a decision relating to an application for the approval of premises;
(b)   a decision relating to an application for the approval of the registration of the holder of a financial interest;
(c)   a decision to revoke an approval of premises.^[3]
3. Health Practitioner Regulation National Law (NSW), Sch 5F, cl 13.

Because the decisions of the Council, both its initial decision and on the internal review, were decisions relating to an application for the approval of the registration of the holder of the financial interest, and because Tran Pharmacy, the notifier of the financial interest, was aggrieved by the refusal, it had a right, pursuant to the above provision, to apply to NCAT for an administrative review.
NCAT has the jurisdiction to conduct an administrative review, pursuant to the terms of s 30 of the Civil and Administrative Tribunal Act 2013 (NSW) (hereinafter “CAT Act”). Pursuant to the terms of s 28 of the CAT Act, NCAT has such jurisdiction as may be conferred by the CAT Act.^[4]
4. Civil and Administrative Tribunal Act 2013 (NSW), ss 28(1) and (2)(b).
Pursuant to the terms of s 63 of the ADR Act, NCAT is required to decide “the correct and preferable decision … having regard to the material then before it, including … any relevant factual material, [and] any applicable written or unwritten law”.^[5] In undertaking that task, NCAT is entitled to exercise all of the functions and is provided with all of the jurisdiction conferred or imposed on the Council.^[6]
5. Administrative Decisions Review Act 1997 (NSW), s 63(1).
6. Ibid, s 63(2).
As can be seen from the declaration sought by the plaintiff in these proceedings and extracted above, a fundamental issue sought to be agitated by the plaintiff is the meaning of the term “financial interest” in the National Law. The term is defined in the following terms:

2   Meaning of “financial interest” [NSW]
(1)   A financial interest means a direct or indirect monetary or financial interest and includes—
(a)   a proprietary interest, including a proprietary interest as a sole proprietor, partner, director, member or shareholder, or trustee or beneficiary; and
(b)   an interest, whether proprietary or otherwise, in a pharmacy business that a person has because the person is a member or shareholder of—
(i)   an exempted body corporate; or
(ii)   a holding company, whether a listed corporation or not, of an exempted body corporate that is not a listed corporation; and

(c)   an interest, whether proprietary or otherwise, in a pharmacy business that a person has because the person is a trustee or beneficiary of a trust, the trust property of which includes shares in—
(i)   an exempted body corporate; or
(ii)   a holding company, whether a listed corporation or not, of an exempted body corporate that is not a listed corporation; and

(d) an interest, whether proprietary or otherwise, in a pharmacy business that a person has because the person is a trustee or beneficiary of a trust, being a trust the trustees of which, in their capacity as the trustees of that trust, carry on or have a financial interest in the business.

(2)   However, a financial interest does not include—
(a)   an interest in a pharmacy business that a person has because the person is—
(i)   a member of a friendly or other society that has a financial interest in a pharmacy business permitted by clause 6; or
(ii)   a member of a listed corporation that is an exempted body corporate; or

(b) an interest in a pharmacy business that a person has because the person is a member of an exempted body corporate (other than a listed corporation referred to in subclause (1)(b)(ii)), but only if the person was a member of the body corporate before the commencement of Schedule 7.12 to the Pharmacy Practice Act 2006; or
(c) an interest a person has in the profits of a pharmacy business because the person is an employee employed in that business, other than an interest constituted by legal or beneficial ownership of shares or other securities of a body corporate (issued as part of an employee share scheme or otherwise); or
(d) an interest that is prescribed by the NSW regulations as not constituting a financial interest for the purposes of this Schedule.^[7]
7. Health Practitioner Regulation National Law, Sch 5F, cl 2.

Further, as a result of the provisions of s 64 of the ADR Act, NCAT, in an administrative review, is required to give effect to any relevant Government policy in force, except to the extent that the policy is unlawful or produces an “unjust decision”.
The provisions of clause 3 of Sch 5F of the National Law prohibit the carrying on of a pharmacy business unless the premises have been approved by the Council and all holders of a financial interest in the pharmacy business are registered. Breach of the provision is a criminal offence, carrying a maximum penalty of 50 penalty units.^[8]
8. A penalty unit is $110.
There are qualifications on the requirement to register, and the contravention of the provision is a criminal offence. First, by subclause 3(2) of the Schedule, the pharmacy may be carried on if there is a current approval for the premises, the holder of financial interest in the business is registered, but the application is awaiting the decision of the Council.
Secondly, by subclause 3(3) of the Schedule, a failure to register a financial interest that is “a security interest with respect to a pharmacy business” does not affect the validity or enforceability of the security interest or the agreement relating thereto or otherwise limit the effect of the security interest. Clause 4 of the Schedule prescribes that which must be provided to the Council in writing in order for the financial interest to be registered and requires a person intending to acquire a financial interest in a pharmacy business to give such notice.
It also creates a criminal offence for a failure to give notice within 28 days of acquiring such a financial interest. Similarly, there is a criminal offence for a failure, within 14 days of the event, to notify of the cessation of a financial interest in the pharmacy.
Clause 5 of Schedule 5F to the National Law restricts persons who may have a financial interest in a pharmacy business. It is unnecessary to summarise all those people who may have such a financial interest. It is sufficient, for present purposes, to acknowledge that Blooms, the plaintiff, is not a person who is entitled to have a financial interest in a pharmacy business pursuant to clause 5 of the Schedule. Otherwise, relevantly one may be a registered pharmacist or a corporation of which the pharmacist is the principal.
It is an offence for a corporation to advertise or indicate that it is a pharmacy business except in circumstances where it is a body corporate that is capable of obtaining a financial interest and is registered. Clause 9 restricts the number of pharmacy businesses in which a pharmacist may have a financial interest and clause 11 requires a pharmacist to be in charge of every pharmacy business.
The provisions of clause 12 of Schedule 5F deal with the contents of an application for approval of the registration of financial interest, amongst other things. The application is made to the Executive Officer of the Council on the form approved by the Council and the application is to be made by the owner of the pharmacy business.
The application must be accompanied by a fee, and the Council may require the application to be verified by statutory declaration. By subclause 12(7) of Schedule 5F, the Council, having received an application, may refuse the application or “approve the premises or register the holder of the financial interest”.
By subclause 12(8) of the Schedule, the Council must refuse the application to approve premises if the premises fail to comply with the standard prescribed or are connected to a supermarket, and the public can directly access the pharmacy from within the premises of the supermarket. Clause 13, as earlier indicated, provides for a right of appeal to NCAT by a person aggrieved, amongst other things, by a decision relating to an application for the approval of the registration of the holder of the financial interest.
Clause 15 requires every person who holds a financial interest in a pharmacy business to provide to the Council a declaration specifying the nature of the interest held, the basis upon which the person is entitled to hold the interest under the Schedule and the National Law, the number of pharmacy businesses in which the person has a financial interest, and any other information prescribed by the regulations. Failure to do so on a yearly basis, prior to the declaration date, is a criminal offence punishable by a maximum penalty of 20 penalty units.
Clause 16 permits the Council to give notice to a person requiring the person to provide specified information or a specified document relating to any financial interest the person may have and, on pain of a criminal offence carrying a maximum of 50 penalty units, the person is required to comply with such notice.

Facts and evidence

Much of the background material is uncontentious. Tran Pharmacy is a pharmacist’s body corporate.
It is unnecessary to recite, extract or analyse the provisions that allow Tran Pharmacy, as a body corporate, to own a pharmacy. It is sufficient, for present purposes, to note that it is entitled to own a pharmacy as a consequence of the ownership of the body corporate.
Tran Pharmacy, together with David Tran and Renai Ross, are parties to an agreement with Blooms. The agreement is the Optimised Service and Licence Agreement (hereinafter the “OSL Agreement” or the “OSLA”). It was executed on 24 August 2022. David Tran is the guarantor to a loan agreement between Tran Pharmacy and Blooms. The loan is for the purpose of acquiring and operating the Pharmacy Business.
Because it was acquiring an interest in the Pharmacy Business, in accordance with the National Law, Tran Pharmacy applied for approval from the Council on 29 August 2022. The Pharmacy Business is owned by other corporate entities, each of which is entitled to own a pharmacy.
One of the interests in the Pharmacy Business is an interest held by EV Pharmacy (Cronulla South) Pty Ltd. It is the intention of Tran Pharmacy to purchase the interest held by EV Pharmacy. As earlier stated, the application for registration of that interest was refused by the Council on 23 March 2023.
In short, the Council found that as a result of the relationship between Tran Pharmacy and Blooms, Blooms would obtain a financial interest in the Pharmacy Business, and the Council refused the registration of the interest of Tran Pharmacy. The plaintiff summarised the reasons of the Council in refusing the registration of the financial interest in the following way:

“a.   First, that the OSL Agreement gave Blooms the ability to control the buying functions of the Pharmacy Business, including determining demand and arranging for the acquisition of merchandise from wholesalers and suppliers;
b.   Second, that the provisions of the OSL Agreement concerning the supply of Blooms’ Own Brand Products have the effect of allowing Blooms to control the purchasing function of the Pharmacy Business whenever Blooms’ Own Brand Products are supplied;
c.   Third, Blooms’ capacity to earn rebates or incentive income from suppliers through the provision of the Marketing Services;
d. Fourth, Blooms’ termination rights under clause 13.1(a)(viii) of the OSL Agreement;
e.   Fifth, the Council also considered that the interest payable under the Loan Agreement constituted a financial interest in the Pharmacy Business, because under the Loan Agreement the annual interest rate paid was allowed to ‘vary in accordance with the underlying performance of the business’. The Council noted that the specified interest rate (20%) ‘appears to be high for a loan that is not in fact “limited recourse” but rather is subject to a personal guarantee’. However, the Council indicated that it did not determine the application on this basis.”^[9]
9. Plaintiff’s Outline of Submissions at [9].

The submissions of the parties travelled beyond the circumstances relating exclusively to the Pharmacy Business and dealt with the general arrangement between Blooms and the pharmacies that enter into arrangements with it. Leaving aside some identified exceptions to the arrangement, the arrangements between Blooms and the pharmacies which trade under the name “Blooms the Chemist”, in any particular suburb, are relevantly identical. There are some differences and, to the extent that such differences are relevant, the Court may refer to them.
While some of these arrangements will be the subject of more detailed analysis later in these reasons, it is important to understand the fundamental structure that applies to the business.
First, there is a Working Partner, who, without being precise, runs the business. The Working Partner is required to operate the pharmacy. The Working Partner will own 50% of the equity in the business. Secondly, there is a Consulting Partner who owns the other 50% and is not required, under the agreements giving rise to the structure, to work in the pharmacy. Apart from the share of profits to which, necessarily, there is an entitlement, the Consulting Partner is generally to be paid additionally for work performed, if any.

In the Pharmacy Business, the Working Partner is Renai Ross who is the principal of one or more corporations owning the 50% share in the Pharmacy Business. Directly or indirectly, there are loans obtained from Blooms at various interest rates, ranging from 6.5% (in 2024) to 8.07% (in 2019).
Currently, the Consulting Partner is EV Pharmacy (Cronulla South) Pty Ltd, which owns the other 50% interest in the Pharmacy Business. It is the interest of EV Pharmacy that is sought to be purchased by Tran Pharmacy, and it is that financial interest which was sought to be registered by the application refused by the Council.
The arrangement between Tran Pharmacy and Blooms is that Tran Pharmacy obtains the monies necessary to purchase the 50% interest in the Pharmacy Business from Blooms by way of a loan. The interest rate on the loan is at 20% (the 2019 rate) and was renewed at the same rate (in 2024).
A significant aspect of the evidence relates to whether the interest rate at 20% is a market rate or includes a factor which, at least inferentially, gives Blooms a financial or monetary interest in the Pharmacy Business. It is necessary to provide more detail of the foregoing summary.
A pro forma of the OSLA is in evidence.
Under the OSLA, each of the partners contracts with Blooms the Chemist Management Services Ltd (the plaintiff in these proceedings) to operate a retail pharmacy business at the location specified in the OSLA. The preamble to the agreement specifies that “Blooms, through its Blooms Support Office division (BSO), packages and arranges the supply of Blooms Own Brand Products” to the pharmacy as part of a network of pharmacies from time to time and provides services as an assisted optimised channel to Blooms Network Pharmacies and to other pharmacy businesses.
The agreement pre-emptively acknowledges and consents to Blooms acting as a buying agent for all Blooms Network Pharmacies (of which the pharmacy entering into the agreement becomes a member). According to an express provision of the OSLA, it is not a franchise agreement.
Further, the agreement acknowledges that Blooms is granting the licence on the basis that the Pharmacy Business is a retailer of Blooms Own Brand Products at the Pharmacy Business, has appointed Blooms as its buying agent for goods and services for the Pharmacy Business and has engaged Blooms “to provide the Services”.^[10]
10. Optimised Service and Licence Agreement (“OSLA”), subcl 2.2.
By subclause 4.3 of the OSLA, the partnership acknowledges that Blooms does not have any “proprietary, financial, pecuniary or controlling interest” in the Pharmacy Business “in breach of Pharmacy Laws” and the partnership must place at the business location any notice that Blooms may reasonably require stating that the Pharmacy Business is independently owned and operated by the partnership.
The primary obligations of Blooms are set out in clause 5 of the OSLA. By subclause 5.1, Blooms is required, at the request of the partnership, to provide services to the Pharmacy Business, being:

(a)   on site operations and business development consulting services (including area manager visits for business support, undertaking or managing stock takes as required under [the OSLA], assistance with budgets, support on delivering of community engagement initiatives) (Operational and Business Support Services);
(b)   information technology and communications consulting and support services (including management of licensing for software programs, technical support to PosWorks and Dispense Works programs and Afterpay and ZipPay systems, support to health services booking systems, installation of information security measures and 24/7 support for all IT issues) (IT Support Services);
(c)   financial and administration support services (including payroll, bookkeeping, accounts and budgeting consultancy services and administration of centralised supply payments) (Administration and Finance Services);
(d)   recruitment documents, training and employment advice services (Human Resources Services);
(e)   ethical purchasing and compliance support services and provision of software subscriptions for example, to Appointment Plus and Pharmacy Guild Services) (Pharmacy Professional Services);
(f)   completion and filing of regulatory applications for change of ownership, change of name, relocation and change of size (Regulatory Services); and
(g)    marketing and promotional services (including provision of monthly promotional collateral, local area marketing services and content development of a bi-monthly Health Check Magazine for in-store distribution) (Marketing Services)”.^[11]
11. Ibid, subcl 5.1.

Further, Blooms is required, “at the request of the Partnership from time to time”, to provide products supplied and negotiation services in relation to Core Merchandise and other merchandise for the Pharmacy Business (referred to as “Merchandise Support Services”) which includes:

“(a)   determining the demand from the Blooms Pharmacy for merchandise required for retail sales on a monthly basis;
(b)   negotiating terms of trade agreements with wholesalers and suppliers under which Blooms acts as the Partnership’s agent and as agent for other Blooms Network Pharmacies for the purchase of goods and, in some cases, as an agent of the wholesaler or supplier for the purposes of invoices Blooms Network Pharmacies, including the Partner, on their behalf;
(c)   arranging for the acquisition of merchandise under terms of trade with wholesalers and suppliers;
(d)   managing the Partnership’s entitlements to volume discounts and other benefits under supply agreements with suppliers or wholesalers; and
(e)   administering the e-commerce website and enabling click and collect services for customers to the Blooms Pharmacy.”^[12]
12. Ibid, subcl 5.2.1.

By subclause 5.2.3 of the OSLA, the agreement requires Blooms to pass on to the Pharmacy Business any rebates, incentives or other payments from suppliers and wholesalers of products that relate to volume, orders and sales or the performance of the Pharmacy Business and which are received by Blooms as buying agent. The Pharmacy Business may request the provision of other additional goods and services which are listed in a Schedule.
The provisions of subclause 5.4 of the OSLA require Blooms to make “available to the Partnership the Blooms system, valuable retailing know how and proprietary systems and methodologies for management of floor space, stock and staff…”. By subclause 5.5, Blooms are required to design, source and market Blooms Own Brand Products and, at the request of the Partnership, to arrange for them to be supplied to the Pharmacy Business.
At its election, Blooms will, at no charge, provide the Pharmacy Business with materials, information and services that Blooms considers appropriate to support the Pharmacy Business as a Blooms Network Pharmacy and Quality Care Pharmacy program materials, which is a quality assurance program for community pharmacies operated by the Pharmacy Guild.^[13]
13. Ibid, subcl 5.6.
The Pharmacy Business undertakes that it shall upgrade its information technology hardware as recommended by Blooms from time to time, including personal computers, laptops, servers, switches, wireless access points, scanners, receipt printers and label printers, the cost of which are determined by the individual needs of the Pharmacy Business and the external information technology supplier’s costs, over and above the charges otherwise payable under the OSLA.^[14]
14. Ibid, subcl 5.7.
The primary obligations of the Pharmacy Business include the payment of “the Fees” and the payment of additional fees for any additional goods and services requested by the Pharmacy Business of Blooms. The additional goods and services are not the services outlined in subclauses 5.1 or 5.2.
It seems, therefore, that the fees that are ordinarily payable will cover the provision of services described in subclause 5.1 and the merchandising support services described in subclause 5.2. The fees that are payable may be increased by Blooms on each anniversary “by reference to annual changes in the most recent CPI index”, which it may accumulate in any year where no increase occurs.
Further, the Pharmacy Business agrees that Blooms shall pay, on behalf of the Pharmacy Business, suppliers and wholesalers who require direct bulk payment for the purchase of goods by the Pharmacy Business, third party service providers for the provision of services to the Pharmacy Business, as agreed, and the Pharmacy Business is required to pay Blooms the amounts equal to those charges contained in the Monthly Invoice. All fees must be paid without set off, deduction or counter claim when due.^[15]
15. Ibid, subcll 6.3-6.4.
The Pharmacy Business is responsible for compliance with the quality assurance program for community pharmacies operated by the Pharmacy Guild. The Pharmacy Business is required to notify Blooms of any proposed amendment of any lease of the premises on which the pharmacy is conducted.
The Pharmacy Business must ensure that it is conducted solely on those premises, conducting the business in a professional, lawful and diligent manner, maintaining all licences and qualifications, ordering and maintaining stock and dispensing prescription medicines, and paying all taxes, duties and other amounts payable promptly to any government or regulatory authority.^[16]
16. Ibid, subcl 6.5
By subclause 6.6, the Pharmacy Business is required to “provide Blooms with access to the [Pharmacy Business’] business records, accounts and systems” and the Pharmacy Business authorises “Blooms to use them for the purposes of providing the Services”.^[17] Further, the Pharmacy Business authorises Blooms to use any information provided for the purpose of promotions, marketing, benchmarking and sales.
17. Ibid, subcl 6.6(a).
The Pharmacy Business is also required to “acquire and use equipment from suppliers or wholesalers recommended by Blooms only in circumstances where Blooms reasonably considers that use of equipment from other suppliers and wholesalers would damage the Trade Mark, the Brand or the image of the Blooms Network Pharmacies as a whole”.^[18]
18. Ibid, subcl 6.6(c).
The Pharmacy Business is entitled to acquire and use equipment from other suppliers and wholesalers but only to the extent that such equipment meets “Blooms’ criteria based on reasonable grounds and best practices”.^[19]
19. Ibid, subcl 6.6(d).
The Pharmacy Business is responsible for performing a physical stocktake at its cost during each Financial Year in the manner and time agreed between the Pharmacy Business and Blooms, for which purpose Blooms will provide an experienced member of staff to assist,^[20] and is required to “use reasonable endeavours to support Blooms in the provision of Services by Blooms”.^[21] Further, the members of the partnership are responsible for attending training sessions, conferences, workshops, seminars and meetings arranged by Blooms and for preparing budgets for the Pharmacy Business.
20. Ibid, subcl 6.6(f).
21. Ibid, subcl 6.6(g).
By subclause 6.7 of the OSLA, the Pharmacy Business undertakes not to sell goods and services that are the same or similar to Core Merchandise provided by Blooms, without Blooms’ prior consent. The consent can only be withheld if Blooms reasonably considers that the sale of such merchandise may detrimentally affect the Trade Mark, the Brand or its goodwill. To the extent that Blooms Own Brand Products are requested, they must be purchased, stocked and sold in accordance with the agreement and from approved suppliers.
There are recommendations relating to retail price, which are not binding, and the suppliers of pharmaceutical goods, which are also not binding.
It is not absolutely clear what interest, if any, Blooms has in the arrangement if there is no financial or proprietary right in the pharmacy, but insurance must be taken out with an insurance company recommended by Blooms. Further, each of the members of the partnership must take out public liability and professional indemnity insurance as reasonably required by Blooms.^[22]
22. Ibid, subcl 6.10.
There are some other unusual conditions. For example, subclause 6.11 requires the partnership to undertake a number of steps and/or remain licensed and such as to operate lawfully, which is a requirement of the law but is made, otherwise, a condition of the OSLA. Further, as well as requiring the Pharmacy Business to “comply with all occupational, health and safety laws”, the OSLA also requires the Pharmacy Business to conduct itself “in a manner that maintains the health and safety of the Pharmacists and all employees, agents, contractors and members of the public” and prevents any of the members of the partnership from holding a proprietary, financial or pecuniary interest in any pharmacy that is not a Blooms Pharmacy.^[23]
23. Ibid, subcl 6.11(m).
The Pharmacy Business is required to observe all reasonable directions notified by Blooms regarding the nature, characteristics and quality of any trademark materials, the representation of any trademarks and the manner in which the Pharmacy Business uses the trademarks and tradenames on any materials. The Pharmacy Business is required to display “Blooms the Chemist” on signage at the front of the shop and use their best endeavours to preserve the value and goodwill of Blooms’ trademarks, tradenames and not use them in any way that is likely to harm or prejudice Blooms’ rights.^[24]
24. Ibid, subcl 7.5.1.
The Pharmacy Business partnership is required to use its best endeavours to use and display the marketing material provided by Blooms, which is required to provide the marketing material for point-of-sale promotions, and to do so in the manner recommended by Blooms. Further to the immediately preceding requirement, the Pharmacy Business is required to remove obsolete marketing material.
To the extent that Blooms reviews or refreshes its brand, the Pharmacy Business is required, within a reasonable time, to use its best endeavours to change all representations associated with it. Further, as at the commencement date, “all representations of any pharmacy brands or banner groups other than Blooms the Chemist will be removed” from the premises.^[25]
25. Ibid, subcll 7.5.2-7.5.4.
By subclauses 8.1 and 8.2 of the OSLA, the Pharmacy Business is required to be conducted under the name “Blooms the Chemist” with the addition of the location, and to display the business name and Blooms’ colours and logos in accordance with the requirements of Blooms. It is also required to display a notice that represents that the Pharmacy Business “is independently owned and operated by the proprietor”.
It is unnecessary to summarise each of the terms of the OSLA but the whole of the agreement needs to be read and understood in order for the proper construction of each of the terms otherwise summarised to be reached. While it is, to some extent, an implied obligation, the OSLA expresses a requirement that each party must “refrain from doing all acts and things that could hinder performance by any party of the provisions” of the OSLA.^[26]
26. Ibid, cl 18.

Andrew Crawford

The Chief Financial Officer of Blooms, Andrew Crawford, affirmed four affidavits, dated 21 July 2023, 27 October 2023, 7 June 2024 and 28 November 2024. The affidavit of 21 July 2023 attests to a number of matters that are already obvious from these reasons for judgment.
Mr Crawford attests to the fact that Blooms provides administrative and consulting services to the “Banner Group”, being those pharmacies operating under the title “Blooms the Chemist”. He also attests to the fact that the Banner Group was established in 1995 and consists of a network of pharmacies, each of which are separately owned and operated.
To the extent that Mr Crawford’s testimony goes beyond that which is contained in the OSLA or seeks to qualify it, the Court relies on the OSLA to establish the relationship between Blooms, on the one hand, and the pharmacies in its network on the other. Mr Crawford testifies to the purpose of Blooms in preparing the OSLA and loan agreements being that it desired “to ensure that by entering into them Blooms did not acquire a financial interest in a pharmacy business”.
Mr Crawford also testifies that the pro forma agreements provide the template for the agreements that relate to the Pharmacy Business at Cronulla South. The OSLA and loan agreement relating to the Cronulla South Pharmacy Business are attached and are dated August 2022. In his first affidavit, Mr Crawford testifies that there are other applications for registration of a financial interests which are awaiting the determination of this application.
Mr Crawford’s second affidavit, of 27 October 2023, deals with further applications submitted to the Pharmacy Council and the fees payable under the OSLA, to which earlier reference has been made. The fees are determined by the band in which a particular Pharmacy Business is placed.
There are seven bands and the fee ranges from $70,000 for Band 1 to $160,000 for Band 7. The Pharmacy Business is placed into the relevant band which is determined by a function of the floor space (measured in square metres) and the number of full time equivalent employed staff.
The fourth affidavit dated 28 November 2024 seeks to explain and/or qualify certain aspects of the other affidavits. Referring to an earlier statement, Mr Crawford explains that Blooms does not always lend money to the Senior Partner to finance the acquisition of its interests in the pharmacy, and it is not a condition of joining Blooms’ Network that a loan be taken out. It was not a condition when the loan referrable to the Tran acquisition was agreed on 23 August 2022. There are three pharmacies in the Network that do not have a loan from Blooms.
In many respects, the fourth affidavit explains some aspects of the third affidavit of Mr Crawford dated 7 June 2024. The third affidavit deals with the general structure of the pharmacies in the Blooms’ Network and as recited above, describes it as being one in which there is one partner who works full time in the pharmacy, the Working Partner, and another who does not, the Consulting Partner. Mr Crawford refers to the Consulting Partner as the “Senior Partner” and describes that person as “usually more experienced”, often having interests in more than one pharmacy.
Mr Crawford describes the usual practice, as he understands it, that the Working Partner, to the extent required, borrows money from the bank to secure the interest held, and that loan is “typically secured over all the assets of the pharmacy business” and usually the performance of the obligations of the managing pharmacist is guaranteed by both the Working and Consulting Partners.
Primarily, Blooms lends money to the Consulting Partner to acquire that pharmacist’s 50% interest in the pharmacy. To the extent that the assets of the business are secured against the Working Partner’s loan, the loans to the Consulting Partner are unsecured or secured only as a second mortgage and usually as a limited recourse loan.
Mr Crawford, as the CFO, recommends to the CEO the interest rate to be charged to Consulting Partners. Mr Crawford gives a number of factors that are taken into account, which it is unnecessary to recite.
Mr Crawford then provides the Weighted Average Cost of Capital (“WACC”), which, according to Mr Crawford, represents Blooms’ average after-tax cost of capital from all sources. It is a generally applicable calculation and is in the following terms:

“WACC = (E/V x Re) + ((D/V x Rd) x (1-T))
Where:
E = market value of the firm’s equity (market cap); D = market value of the firm’s debt; V = total value of capital (equity plus debt); E/V = percentage of capital that is equity; D/V = percentage of capital that is debt; Re = cost of equity (required rate of return); Rd = cost of debt (yield to maturity on existing debt); T = tax rate.”^[27]

27. Affidavit of Andrew Peter Crawford dated 7 June 2024 at [12].

According to Mr Crawford in his third affidavit, the WACC provides a benchmark rate of return that “must be exceeded to generate profit for a company” and increase the value for its shareholders. Except as to the term “profit”, there is little controversy with this general proposition. Nor should there be.
Mr Crawford testifies that the WACC for Blooms is approximately 14%. Three quarters of its capital is provided by equity with an expected yield of 17% and the remaining 25% is provided by debt with an approximate cost of 7%. At the time Blooms made the loan to fund 50% of the acquisition of the Pharmacy Business, the cost of debt was approximately 5%.
Initially, Blooms was involved in discussions about the purchase of the Pharmacy Business in 2018. The structure of the Pharmacy Business was that, through corporate entities, Ms Ross would be the managing pharmacist and each of Mr Sidgreaves and Mr Vavoulas would contribute capital. The business name was established in mid to late 2018 and Ms Ross’ corporation owned 25%, Mr Sidgreaves, with some alteration in ownership at various points, owned 25% and Mr Vavoulas’ corporation owned 50%.
The acquisition of the Pharmacy interests was facilitated by Blooms lending to Ms Ross’ corporation the sum of $152,500 which was used for the acquisition of the 25% interest. Blooms also lent to the Sidgreaves’ corporation (albeit at that stage also owned by Ms Ross) a further $152,500 to fund the acquisition of another 25% interest.
Further, on the same date, Blooms lent to Mr Vavoulas’ corporate entity to enable him to fund the acquisition of the 50% interest. The interest charged to Mr Vavoulas was 20% per annum. The term of the loan was five years. The loans to Ms Ross and Sidgreaves’ interests were for two-year terms. Initially, Blooms did not take security.
On 30 June 2021, Mr Vavoulas was appointed Chief Executive Officer of Blooms and considered disposing of his interests in Blooms pharmacies. On 28 July 2021, Mr Vavoulas’ interest in the Pharmacy Business was sold to Tran Pharmacy. On 31 August 2022, Tran Pharmacy submitted a change of ownership application to the Pharmacy Council.
On 5 June 2024, Blooms and Ms Ross entered into an amended and restated loan agreement to finance her corporate interest in the Pharmacy Business through each of the corporate entities. Further detail is given in the affidavit as to the fees and the services provided in relation to those fees. It is unnecessary to summarise them for the purposes of these reasons.
In cross-examination, Mr Crawford accepted that Blooms issued a prospectus in 2021 which raised capital from shareholders. He could not recall how many shares were added to the register but there were approximately 350 shareholders as at December 2024 and, probably, about 100 prior to the capital raising exercise. As a consequence of the raising of the capital, Blooms became a reporting entity and is required to produce general purpose financial reports.
Blooms is the owner of a loan book comprising approximately 100 limited recourse loans according to records, which now approximates 120 limited recourse loans. Such loans are to Consulting Partners.
It is the intention that the loan financing the Tran interests in the Pharmacy Business will be a limited recourse loan. Mr Tran has not drawn down on any money.
The annual report states that the loans are limited recourse in that liabilities under each loan are only required to be discharged from the obligor Consulting Partner’s interest in Blooms pharmacies. The liabilities are limited to so much as is recoverable from the Consulting Partner’s interest in the underlying pharmacy.
All of the loans were at 20% interest. The loans were originally issued to other partners in Blooms Pharmacies through a unit trust which Blooms subsumed in September 2017. Some of the loans are up to 40 years old. About five to eight new loans are issued each year. All of the loans are at the 20% rate.
Blooms promised its bank, NAB, that it would not charge less than 20% on a Consulting Partner’s loan. The Tran Pharmacy loan was for 20%.
At the time that Mr Tran sought to buy 50% interest in the Pharmacy Business, he also made applications in respect of two other Blooms pharmacies to become a Consulting Partner. Those pharmacies were at Windsor and Riverview.
Mr Crawford agreed that the interest rate charged by Blooms did not vary based upon the underlying business. The factors that were outlined in his affidavit were relevant to whether Blooms wanted to provide a loan to the borrower but did not affect the interest rate. The recommendation regarding interest rates to be charged was based on the performance of Blooms’ business, not the pharmacy.
The loan book, being the asset associated with the loan debts owed to Blooms, is the largest asset on Blooms’ balance sheet and each year an expert valuation is obtained of the loan book. The valuation adopted by the board of Blooms was in every instance within the range proffered in the valuation obtained.
Mr Crawford agreed that the financial reports held out to the market that the basis upon which Blooms was valuing the largest asset on its balance sheet was that the valuation was supported by an independent analysis. It also represented to the market that there had been a cross-check and that the Board’s valuation was consistent with the independent analysis.
The valuation of the loans to Consulting Partners is based upon fair value through profit and loss. This is different from loans to Working Partners which is done on an amortised basis (ECL method). Working Partner loans are recognised on the balance sheet.
The marketability discount, which is at 4%, is a key valuation consideration when it comes to the value of the loan. The discount takes into account whether, for example, the underlying loan was in default, historical default and the marketability of the Pharmacy (or the interests in the Pharmacy).
Mr Crawford accepted that he had indicated to the independent expert that there was “strong demand” for pharmacy businesses and that Blooms would be able to sell the Pharmacy Business at value within the relevant timeframe. The value of pharmacies increased at least in part because of the limitations on the number of pharmacies in Australia and the number of pharmacies in any particular area. Thus, even though there is a restricted pool of purchasers, there is an even more restricted pool of pharmacies for sale.
Mr Crawford accepted that, on his experience from the time he was Chief Financial Officer and Chief Executive Officer at Blooms, he would expect that Blooms would get its money back on the loan. His view of marketability has not changed, except for a short time around the 60-day dispensing, which was two years ago, which ultimately has not affected the market and has had no impact on the interest rate charged by Blooms.
In calculating the WACC, the cost of equity was 17% or 18%, not because the company regularly declares dividends of that amount, but because of a historic understanding that shareholders would receive a rate of return of 17%. Blooms obtained this “understanding” from feedback from the shareholders. It is not recorded anywhere.
When the expert valuer, PKF, calculated the WACC, it was not told that the cost of equity should be 17% and the traditional and orthodox method was the approach taken. That method involved benchmarking against comparable companies. The experts came up with the cost of equity of 11.42%.
Mr Crawford accepted that if Blooms charged 14% or above as an interest rate, it could expect to achieve a yield for shareholders of approximately 17% per annum or greater. This assumes no other costs.
He also accepted that the statement about profitability should have stated that the benchmark rate of return provided by the WACC calculation generates a “suitable” profit and the company is profitable at a rate lower than the benchmark rate. This was the earlier-mentioned controversy as to the use of the term “profit” in the affidavit, when referring to the WACC.
Mr Crawford gave evidence that it was not difficult to sell a pharmacy but maintained that it was “difficult to realise the value of a pharmacy’s interest”, about which he was questioned by the Court. In terms of Blooms’ chemists, Blooms controls the market.
In terms of pharmacies more generally, there is a restricted number of pharmacies available for sale at any one time because of the restrictions on opening a pharmacy as a result of statutory and prescriptive limitations. At the same time, the pool of pharmacists increases because more are produced than leave the profession as a result of illness, death and/or retirement. I do not accept Mr Crawford’s opinion that the sale of a pharmacy is “more difficult than other asset classes” as a general comment on the difficulty of selling the pharmacy or any one of the interests in Blooms the Chemist stores.
No evidence was adduced by Blooms to the effect that it had ever lost money as a result of an inability by a borrower to repay the loan on the sale of its interests. Nor was any evidence adduced by Blooms that the sale price of a Consulting Partner’s interest had fallen at any time during the operation of Blooms’ system as earlier described. Further, no evidence was adduced as to the time period needed to sell an interest in a Blooms’ pharmacy. Moreover, there is no evidence that any borrower under the Blooms system had ever defaulted on a loan, by which I refer to a failure to pay that which is required at the termination of the loan.
A discount rate for Consulting Partner loans in the loan book is at 11%. This information was forthcoming during cross examination and is a result of the recommendation by Mr Crawford to the Board of Blooms and the adoption by the Board of the recommendation. The expert valuers from whom Blooms receives reports each year expressed the view that the 20% interest rate charged by Blooms was above market value.
Blooms also charges advertisers to market goods and services in their magazine, in which case Blooms then proposes those products to the underlying Banner Pharmacies. The product is, according to the arrangement, to be available in a certain part of the store usually with promotional signs.
Mr Crawford could not provide details of how many marketing opportunities were sold to advertisers each month and could not deny that there were 500 marketing opportunities available every month. He was prepared to accept that there was a significant number of marketing opportunities.
Mr Crawford accepted that the amount of interest charged is linked to the cost of capital and agreed that the cost of capital refers to his earlier comments about the cost of equity, being the rate of return needed to have persons invest in Blooms. This, Mr Crawford explained, was what he meant by the term “cost”. A different cost is the interest rate at which Blooms can borrow from a lender, being the cost of interest it pays on that debt.
Between 2017 and 2022, there were significant variations in the cost of money borrowed by Blooms but there were no variations in the interest rate charged by Blooms to borrowers. Any interest rate fall was reflected by a higher profit margin.

Lay evidence

Before dealing with the expert reports, it is necessary to refer to other lay evidence. Michael Shane Foran executed an affidavit of 7 June 2024. Mr Foran is the Chief Operations Officer of Blooms. Banner Pharmacies have two categories of stock: front of shop (the non-dispensary items) and dispensary items. The front of shop items fall into two categories: core merchandise and local merchandise.
Blooms negotiates the terms of trade with suppliers for core merchandise on behalf of its pharmacies and seeks to negotiate a discounted price, less than the supplier’s list price. Exhibited to the affidavit is a confidential exhibit MFI1 which provides examples of trading terms with third party suppliers.
Blooms also negotiates an agreement with a primary wholesale provider and a secondary wholesale provider, which provides warehouse and logistics services to many suppliers. The pharmacies in the Blooms Group negotiate the terms of trade for local merchandise themselves.
Blooms also negotiates terms of trade with suppliers and wholesalers of dispensary items. From the records of Blooms, it can be ascertained that there are 138,944 unique products stocked in Blooms’ pharmacies. Of that number, 8,522 are dispensary items and 130,422 are front of shop items. The front of shop items comprise 5,231 which are core merchandise and 125,191 which are local merchandise.
Of the sales conducted in the twelve-month period to May 2024, 70% of the sales in Blooms Pharmacies were dispensary items and 30% were front of shop items. Of the front of shop items sold, 75% were core merchandise and 25% were local merchandise. Mr Foran calculates that on such a basis, Blooms negotiates terms of trade equating with 21.4% of total sales.
The calculation seems to assume that Blooms does not negotiate terms of trade on dispensary items, although, at paragraph [7] of the same affidavit, Mr Foran testifies that Blooms negotiates terms of trade with suppliers and wholesalers of dispensary items. It also calculates percentage sales on the volume of items rather than the amount of sales or the level of profit.
Mr Foran then testifies as to the use of the software program known as the Inventory Management System (IMS). IMS is offered as a service by Blooms and all Blooms Pharmacies except nine use the system.
According to Mr Foran, IMS collects information only about core merchandise. When core merchandise drops below the minimum stock appropriate for the particular pharmacy, the IMS automatically calculates an order to restore the inventory level to its maximum. The minima and maxima vary depending upon the operation of the pharmacy in question.
Blooms Own Brand Products are generic products carrying the Blooms logo. Percentages of non-dispensary items obtained from the IMS are provided by Mr Foran and the arrangements for the ordering of core merchandise are set out. Dispensary items are not ordered via the IMS.
Lastly, Mr Foran states that Blooms provides advice on the layout of a pharmacy and how to display products. According to Mr Foran, many pharmacies do not take the advice provided. Mr Foran was not the subject of cross-examination.
The only other “lay” evidence are the affidavits of solicitors. The first is from Beverley Newbold, a solicitor and partner at MinterEllison, who is the solicitor on the record for the first defendant, the Council. Ms Newbold exhibits a number of documents which speak for themselves. There are three affidavits affirmed by Ms Newbold, the latter two of which are before the Court in evidence in the substantive proceedings. There is also an affidavit by Courtney Tran, a senior associate at MinterEllison (and not to be confused with the Mr Tran involved in the attempt to register the financial interest). Further documents are referred to in that affidavit. Again, the documents speak for themselves.

Expert reports

There are two expert reports from Mr Russell Maisner of Global Treasury Risk Management, which is a financial services consultancy business, dated 8 June 2024 and 15 October 2024, and an expert report from Christine Oliver of 26 September 2024. There is also a joint expert report dated 15 November 2024. Each expert was separately the subject of cross-examination.
Most of the expert evidence dealt with the appropriateness or otherwise of the interest rate payable to Blooms under the loan agreements applicable to Consulting Partner loans.
The joint expert report (hereinafter “the Report”) summarises those matters upon which the experts agree and those on which they disagree. Consequently, these reasons will deal with the Report, rather than the individual expert reports. However, some of the aspects of the Report may be understood far more easily by reference to the individual reports of the experts.
As set out in paragraph 2.2 of the Report, the experts agree that the term of the Tran Loan is seven years, which is longer than a typical small business loan and longer loan terms generally increase the risk to the lender and attract higher interest rates.
The borrower is capable of capitalising up to 50% of the interest if the borrower confirmed to Blooms, the lender, that the capitalisation was not due to insufficient funds, the borrower had paid at least one of the last two interest payments in full and had not deferred interest payments on more than two other occasions in a twelve-month period.
Blooms’ security position is relevant to the rate of interest charged on the loan. Specifically, unsecured loans are higher risk and attract higher interest rates than secured loans. Where there is security, the risk is inversely proportional to the quality of the security. The higher the quality of the security, the lower is the risk of the loan and, ordinarily, that impacts as a lower interest rate.
The quality of security arises from the value and marketability of the assets or other resources such as guarantees covered by the security, the lender’s ability to control the realisation or liquidation of those assets, the extent to which the lender has a priority entitlement; and the lender’s ability to protect that priority.
The last-mentioned aspect was the subject of some significant evidence relating to the risk of subordination of the lender’s position. In this respect, subordination relates to the capacity to prioritise other loans or another facility over the security that may be possessed by Blooms. Subordination creates a higher risk for the lender as to the ultimate realisation of principal (and interest) by providing the lender with less access to the borrower’s assets if the borrower were to default and thereby undermines whatever security may be otherwise possessed by the lender.
The differences between the experts depend significantly on the view one takes of the loan agreement, the requirements of the partnership agreement, the OSLA and the capacity of Blooms to sell the interests in the pharmacy should there be any default. Mr Maisner takes the view that Blooms has no security and his second report sets out the reasons for that.
Ms Oliver’s opinion is that Blooms has security over the investment itself, encompassing interest the borrower may have had in the assets of the pharmacy, the amounts due to the borrower in connection with such an interest, and the debts owed to the borrower by the Pharmacy or other partners as a result of the conduct of the Pharmacy Business.
Mr Maisner also takes the view that Blooms has no capacity, other than the capacity to direct consideration, to control the realisation of any assets to which the loan applies. On the other hand, Ms Oliver expresses the opinion that Blooms has the ability to control the realisation of the assets because it is able to force the borrower to conduct a sale of the borrower’s interests in the event of default and, during the sales process, the borrower is required to consult with Blooms, provide Blooms with the proposed terms for the sale, and obtain Blooms’ consent before completion.
For similar reasons, Mr Maisner takes the view, in relation to security, that Blooms is able to grant a senior secured position to NAB at any time and this, in turn, puts the Tran Loan in a subordinated position, if it were granted, and as such would be unsecured. Ms Oliver recites the circumstance that at the time of the report there were no secured creditors and, therefore, there was no subordination and Blooms’ security was, at least, equal to unsecured creditors.
The experts also deal with the risk of subordination and differ as to its effect. Mr Maisner expresses the view that the risk of subordination is real. He refers to the circumstance that a senior finance facility is available to be taken from NAB at any stage.

Ms Oliver expresses the opinion that the risk of subordination was extremely limited because security could only be granted ahead of Blooms with Blooms’ consent. In Ms Oliver’s understanding, such consent can be reasonably declined by a lender where the provision of security would materially compromise a security position of the lender or could be granted on a conditional basis.
Mr Maisner refers to the circumstance that the consent of Blooms is required, on his understanding, only in relation to a security interest other than a “Permitted Security”. A Permitted Security is defined as a security interest in respect of the assets of the Pharmacy granted in favour of NAB, which is also Blooms’ banker.
There are significant differences between the experts on a number of matters that impact the risk associated with the lending. First, Mr Maisner has assessed the marketability of the Pharmacy Business as being restricted, because of the limited parties who are capable of legally purchasing pharmacy assets. He expresses no opinion about the view expressed by PKF (Blooms’ annual valuer) as to its marketability.
Ms Oliver, on the other hand, treats the Pharmacy Business as capable of being sold based on the PKF opinion that “there is strong demand for pharmacy businesses” and her experience of the sale of pharmacies in Victoria. Otherwise, neither expert has experience of the marketability of pharmacy businesses in New South Wales.
Mr Maisner approaches it from a position of realisation in the event of financial distress and Ms Oliver comments that PKF does not provide detail of the basis of the statement as to marketability.
Essentially, the remainder of the joint report (and the remainder of the individual reports) deal with the appropriateness of the interest rates, which opinion depends upon the attitudes taken to some of the earlier issues already outlined. In relation to the comparability of interest rates, the experts agree on some relatively obvious aspects upon which, with respect, one could take judicial notice.
Nevertheless, the experts do agree that whether another interest rate charged in relation to another loan is comparable for the purposes of determining the appropriateness of the interest rates in the Tran Loan depends upon the comparability of the terms of that loan with the Tran Loan and, in particular, the length of the loan, the cashflows, including the amount and timing of the drawdown of the principal (which is often related to the duration of the loan itself), the payment terms for interest and the timing of the repayment of the principal. It also depends upon the security position of the lender.
Mr Maisner agrees that there are some factors which allow for a degree of comparability between the Tran Loan and the Alluth and Sidgreaves loan agreements (the loans that predated the purchase by Tran), which are set out in clause 4.3.1(b) of Ms Oliver’s report. Those factors are that the loans were used to acquire an interest in the Pharmacy Business and were, together, for a 50% interest in the Pharmacy; interest was payable monthly; the combined principal was drawn entirely at inception; payments under the earlier loans were interest only with no repayment of principal required in the term of the loan; and, although the loans do not provide for security over assets, to the extent that each of those loans is to be secured against the borrower’s interest in the assets and goodwill of the Pharmacy Business, there is security over assets.
However, the earlier loans were for only two years as compared to the Tran Loan which was for seven years. Notwithstanding those factors being comparable, because of the loan term and other factors, the earlier loans were less risky and, for the reasons given in his report (and to a lesser degree summarised above), Mr Maisner considers that earlier loans were provided at an interest rate that was “well below what a reasonable lender in the position of Blooms would charge on a commercial loan”. Further, Mr Maisner, having calculated the cost of funds for Blooms at 14%, considers the earlier loan interest rate, at 8.07%, to be uncommercial for Blooms, as would any loan be if it were below 14%.
Ms Oliver accepts that the earlier loans were less risky than the Tran Loan due to the difference in duration but considers them a relevant benchmark for the interest rate on the Tran Loan. This is particularly the case because they were provided over the same interest (the 50% interest in the Pharmacy Business) and were, but for the loan duration, intended to be on similar terms to the Tran Loan.
The experts then discuss the relevance of the loan book to the interest charged on the Tran Loan. Each of the experts agree that the composition of the loan book, which includes such factors as industry concentration, collective default risk or historical bad debts is relevant when setting the spread between Blooms’ cost of debt and the interest rate charged on the money lent to the Tran interests. Mr Maisner takes the point that the composition of the loan book must take into account the cost of funds, not only the cost of debt, which, as was explained earlier, then translates into the WACC.
Mr Maisner refers to high default rates to which the PKF report refers and the high concentration risk of similar assets and loans and the lack of natural diversification, all of which are likely to place upward pressure on Blooms’ charged interest rates.
Ms Oliver refers to the unusual definition of default for the PKF report and, in particular, to the circumstance that PKF categorised all deferred or capitalised loans as being in default, in circumstances where deferral and capitalisation are permitted conduct under the loan agreements. Ms Oliver also refers to the PKF valuation being supported by a bond yield analysis and comments that the default rates in the loan book are not assessed without considering the lender’s strategy and competition.
The experts then refer to their opinions on the comparability of Reserve Bank of Australia publications on small business lending rates. Mr Maisner takes the view that the RBA small business lending rates are not a relevant benchmark and relies on his experience in ANZ which suggested that all of the small business loans would have some form of security over assets, while the Tran Loan is wholly unsecured and subordinated to the NAB (at least potentially).
Ms Oliver takes the view that the RBA small business lending rates are a relevant benchmark because they are based on a widespread range of data collected from a broad range of banks and non-bank lenders; and are comparable to the Tran Loan because they are for principal amounts less than $1 million, report rates paid by Australian resident businesses, and include private lenders (which are a subset of non-bank lenders) but particularly, private lenders that lend to pharmacists and other health professionals.
However, Ms Oliver accepts that the RBA small business lending rates would not be comparable if, contrary to her understanding, there was a material likelihood of Blooms’ security being subordinated to new senior debt.
There is also a disagreement between the experts as to the comparability of mezzanine loan rates. For the uninitiated, mezzanine lending is lending that is generally unsecured but always takes a lower priority than the senior debt to which it is subordinated.
One of the differences between the experts is the different view each has as to the likelihood of subordination and its impact. Ms Oliver takes the view that there is no senior debt and there could be no senior debt without Blooms’ consent, as explained above.
If, contrary to her understanding, there was a material likelihood that Blooms’ security would be subordinated to new senior debt, then mezzanine lending rates would be relevant, according to Ms Oliver.
Mr Maisner takes the view that the NAB senior facility capacity gives rise to more than a material likelihood that the Blooms’ debt will be subordinated and therefore mezzanine lending rates are an appropriate comparison.
The Report then discusses the cost of capital for Blooms, and the experts agree that it is appropriate to assume that Blooms’ cost of debt was approximately 5% at the time of the Tran Loan and that the WACC is a reasonable method for measuring the cost of funds. Mr Maisner was instructed that Blooms’ WACC was 17% and relies upon that instruction in his report.
Ms Oliver did not receive such an instruction. Ms Oliver estimated Blooms’ cost of equity as reasonably being 15%, as compared to the 17% which Blooms itself asserts and which is a major component of the WACC upon which Mr Maisner relies.
Ms Oliver takes the view that it would be inappropriate to rely upon an instruction of that kind for a report of this kind in circumstances where it is within her expertise to measure the cost of equity and Ms Oliver possesses sufficient information to perform that measurement. In performing the calculation to measure the cost of equity, Ms Oliver utilises the calculation, usually termed CAPM (Capital Asset Pricing Model), which uses the formula:

KE = RF + beta x EMRP + α, where KE is the cost of equity; RF is the risk-free rate; beta is the beta; EMRP is the equity risk premium; and, α is the company specific risk premium.

Mr Maisner accepts that the CAPM is an appropriate measure of the cost of equity but disagrees with the selection of a figure less than 1.0 for “beta”, which was adopted by Ms Oliver. Ms Oliver selected a figure of 0.74 on the basis of a comparison with entities with comparable risks, which she explained in Appendix JC and included, in respect of the time at which the Tran Loan was provided, betas for non-banking lenders of between 0.07 and 0.45, and betas for franchisors between 0.34 and 2.04 and a combination of businesses that are both a franchisor and lender with a beta of between 0.51 and 0.74. Ms Oliver used the upper end of the last-mentioned range.
In the opinion of Ms Oliver, Blooms stated cost of equity is of limited relevance to the interest rates charged on the Tran Loan. Ms Oliver provides reasons, which it is unnecessary to repeat.
Ms Oliver accepts that Blooms’ shareholders desired level of profitability or expected return on equity is not entirely irrelevant but must be qualified by two factors: first, the expected return from the investment in Blooms includes the profitability of both the franchise business (by which Ms Oliver refers to the services and goods provided and the fees charged) and the lending business and is not capable of being calculated solely on the cost of funds or debt in respect to the lending arrangements; and second, desired profitability must be limited by what the market will accept.
If the rates are set too high, because a higher profitability is sought, and those rates are materially in excess of rates available from other lenders, the borrower will not avail itself of the facility. The latter comment, however, must, in turn, be qualified by the closed nature of the Blooms Pharmacies.
Each of the experts agree that the cost of debt is one component of (and therefore relevant to) the interest rate charged on the Tran Loan. Each of the experts agree that the cost of debt is not the sole determinant of the appropriate interest rate charged by Blooms, unless Blooms obtained all its funds for lending to its pharmacies as debt from its lender.
In terms of the cost of capital, Mr Maisner relies upon the instruction given to him that the WACC is 14% and has applied that instruction. Ms Oliver independently calculated the WACC as 12.6% based on a cost of equity of 15% (calculated in accordance with the CAPM) and a capital structure of debt of 22% and equity of 78%. The WACC for Blooms would be 14% only if the cost of equity was, as Mr Maisner was instructed, 17% and the capital structure was debt of 25% and equity of 75%.
Further, the WACC for Blooms would be 12.3% if calculated on an after-tax basis and, even on the instruction to Mr Maisner, would be 13.6% on an after-tax basis. Mr Maisner expresses the opinion that, in his experience, no after-tax assessment has been applied to the pricing of any loan with which he has been associated.
The differences between the two experts on the cost of equity infects their different attitude to the direct relevance of Blooms’ WACC on the rates to be charged in the Tran Loan.
The experts have significant differences in relation to the manner in which the PKF valuation may be treated or utilised. The first point of disagreement is that Mr Maisner takes the view that the PKF analysis, and in particular the PKF analysis of interest rate aspects, is irrelevant because PKF was performing the task of valuing the business, which, for this exercise, has no relevance.
Ms Oliver takes a different view. Ms Oliver sets out PKF’s analysis of the market rate of interest and comparable interest rates and supports, from her experience, the appropriateness of the manner in which that calculation was performed and that opinion expressed. Ms Oliver also expresses the view that the PKF rate is “an appropriate benchmark” for the Tran Loan.
As already stated, PKF in its report expresses the view that “there is strong demand for pharmacy businesses”, which statement was the subject of earlier reference. Mr Maisner states that he has no direct experience on the sale of pharmacy assets but notes that those assets are subject to regulation and the sale is permissible to be sold only to other pharmacists.
It follows, according to Mr Maisner, that there is therefore a limited and restricted group of potential purchasers. Mr Maisner does not refer to the fact that there is also an even more limited pool of pharmacies to be purchased, nor to the rate at which each group grows.
Ms Oliver expresses the opinion that the strong demand for pharmacy businesses to which PKF refers is relevant to the interest charged on the Tran Loan because it is a factor in considering the quality of the security position possessed by Blooms. Further, Ms Oliver expresses the view that the statement of strong demand is consistent with her experience in relation to pharmacies in Victoria but is not otherwise a matter upon which Ms Oliver can express an opinion.
Again, there is a difference between the experts on the relevance of the irrevocable and exclusive call option described in the PKF valuation to the interest rate charged on the Tran Loan. Mr Maisner takes the view that it is irrelevant because it does not apply to the Tran Loan.
Ms Oliver’s view is that the call option described in the PKF valuation is sufficiently comparable to the Tran Loan security. Her reasons for that opinion are that the assets pledged as security over the borrower’s interests are the same; the ranking of the security in the event of default is the same; and the differences between them have a neutral effect on the quality of security. In relation to the last-mentioned aspect, under the Tran Loan, the borrower sells his interest in the Pharmacy Business with Blooms’ consent and under the call option Blooms acquires the interest in the Pharmacy and conducts the sale.
In those circumstances, while there is a difference which gives Blooms slightly less control of the sale, Ms Oliver takes the view that the differences are neutral. Further, in that respect, the marketability of the Pharmacy Business is better under the Tran Loan because Blooms selling would, in Ms Oliver’s experience, be less attractive to a buyer than the borrower selling its interest directly to the buyer, which would occur under the Tran Loan.
There is also a difference between the experts in their opinions as to the relevance and the effect of the loans in default in the Blooms’ loan book on the interest rate to be charged in the Tran Loan. Mr Maisner refers to the circumstance that 75% of the existing loan book is in default, showing that a reasonable lender would come to the view that there is high risk of default which would be an upward pressure on interest rates.
Further, Mr Maisner points out that PKF does not appear to have factored the high rates of historical default into its analysis of whether an interest rate of 20% appropriately reflects the market rate. In Mr Maisner’s opinion, Table 14 of the PKF valuation suggests that the loan is high risk and that the rate of interest needs appropriately to compensate the lender for that risk.
Ms Oliver reiterates her description of the measure of “default” as being unusual in circumstances where a borrower can be in default by taking advantage of options available under the loan. Nevertheless, rates of default are relevant to the interest charged on the Tran Loan but are not the only factor.
As earlier stated, each of the experts was subject to cross-examination. The parties declined the suggestion from the Court to have the experts give evidence in conclave, in part, as a result of the availability of the experts.
In relation to expert evidence, conclave evidence is usually of greater benefit to the Court or the ultimate factfinder as it focuses on the areas of agreement and disagreement and usually narrows them or explains them better. I do not now deal with any part of the cross-examination that has already been summarised by virtue of the joint report and the differences between the experts.
Mr Maisner made clear that his analysis had assumed that bank loans were not available to the borrower because, in ordinary circumstances, the typical borrower would go to a bank as it provides the cheapest cost of debt. Consequently, he had assumed that Mr Tran did not have bank finance available to him.
Notwithstanding the instructions to Mr Maisner that there was no security, Mr Maisner confirmed that his understanding was that, while the pharmacist had an equity interest in the underlying business, the lender Blooms had limited recourse over the assets in the underlying Pharmacy Business. He takes the view that the equity interest is not a liquid asset.
Mr Maisner therefore suggested that the loan agreement should be treated as a limited recourse loan, rather than a wholly unsecured loan. Further, Blooms would have first priority over the sale of assets and any money received from the assets as long as there was no senior creditor.
Mr Maisner was not able to comment on whether the call option conferred greater or lesser protection for Blooms, and he was instructed that the guarantee from Mr Tran, which is personal, extended no further than the limited recourse that Blooms had over the underlying Pharmacy Business assets.
Based on his experience, Mr Maisner took the view that there was a real risk of subordination given that a senior finance facility was available to be taken from the NAB at any stage. This was one of the factors taken into account in the formation of the opinion that Blooms could justify a higher interest rate.
Mr Maisner had assumed and proceeded on the basis that, because the assets could only be sold to another pharmacist, it would be more difficult to sell the assets. This was not an assumption or an instruction given to him from Blooms’ lawyers. This was a significant factor in the reasoning to justify a higher interest rate.
Mr Maisner agreed in an exchange with the Court that the issue of the restricted pool of purchasers was related to whether there was a restricted supply of businesses to purchase. It was a matter of market forces, supply and demand.
Mr Maisner has no experience in the pharmacy sector. He also agreed that the risk in relation to marketability would be reduced, but not eliminated, if Blooms were an experienced lender that had a relationship with a pool of potential buyers and would expect that buyers would be found within a relatively prompt timeframe.
Mr Maisner’s view was that private non-bank loans have a greater relevance to the appropriateness of the interest rate in the Tran loan than bank loans and agreed that loans from Blooms to other pharmacists, if carrying the same risks, would be a better comparator than other private loans or bank loans.

The Court of Appeal (Handley JA, with whom Beazley and Stein JJA agreed) initially declined to issue certiorari against the District Court of New South Wales because, in the circumstances, even though the wrong test was used, no different outcome would have been achieved. The reference to the wrong test is a reference to the circumstance that the District Court relied upon a series of decisions relating to local council and the prohibition on councillors voting when they have a conflict of interest.
Notwithstanding the judgment issued and reported in the New South Wales Law Reports (the first White judgment), the Court of Appeal reconvened and reconsidered its judgment, vacated the orders and quashed the decision of the District Court.^[59] It considered it could do so because the judgment had not been entered.
59. White v District Court of New South Wales [1999] NSWCA 406 (“the second White judgment”).
Whether or not it could do so, the second judgment vacated the orders made in the first judgment and quashed the judgment of the District Court. The Court of Appeal held that the circumstance that the management agreements were, in reality, franchise agreements, did not establish as a matter of law that they gave the management company a pecuniary interest in the pharmacy and that, therefore, the appeal to the District Court was required to be decided.
In other words, the ultimate judgment of the Court of Appeal did not decide whether the franchise agreements before them were or were not sufficient to provide a pecuniary interest in the pharmacy. It only decided, ultimately, that it might or might not. Franchise arrangements did not, as a matter of law, establish that the management company had a pecuniary interest in the pharmacy.
However, the Court of Appeal, as a consequence of the first White judgment, plainly favoured the view that in the circumstances before them the franchise arrangement did provide for the franchisor to have a pecuniary interest.
The Court has thus far examined the relationship between Blooms and the Pharmacy Business while the Pharmacy Business is operating. A financial interest may be possessed by a person or entity in circumstances where the person or entity has no role in the day-to-day conduct of the Pharmacy.
The breadth of the term, as noted by the Court of Appeal in the first White judgment summarised above, makes it clear that the determination of a then pecuniary interest, and the determination of that which is now called a financial interest, is performed on the basis of the real and effective relationship between the parties, not the formal or theoretical relationship.
The National Law itself makes clear that a person may have a financial interest even though the person has no role in the day-to-day management of the pharmacy. A partner or non-executive shareholder in a corporate entity that owns a pharmacy, even when a manager is appointed and has full discretion to run the pharmacy, would still possess a financial interest in the pharmacy.
As already stated, the breadth of the term is significantly expanded by the use of the words “directly or indirectly”. Further, it would seem that the need to exempt an employee receiving profit share suggests that any sharing of profits with a person would be sufficient, prima facie, for the person to have a financial interest in the pharmacy. The terms of clause 3(3) of Schedule 5F suggests that the legislature considered a “security interest” may well amount to a “financial interest”.
Assuming, for example, that a non-pharmacist manager was contracted as an independent contractor to assist in the operation of the pharmacy and was paid, in part, on a profit sharing basis, it would seem, given that the person is not an employee, that the person would, at least prima facie, hold a financial interest in the pharmacy.^[60]
60. The first White judgment, supra, at NSWLR 332.D-G.
There may be many other interests that would qualify as a financial interest, directly or indirectly, where the person holding the interest has no role in the pharmacy itself. One only needs to consider, apart from the partner or shareholder to which the Court referred above, a person who was the beneficiary of a trust operated by a corporate trustee which owned the pharmacy business.
Even if the corporate trustee subleased the pharmacy business to a registered pharmacist for a fixed term, the corporate trustee (and in my view, the beneficiary) would have an indirect financial interest in the pharmacy business because it would have an interest in the business’ increased value and would obtain and retain the profits on the sale of the business. This last aspect brings the Court to the operation of the OSLA and the Loan Agreement together.
As already summarised, the Consulting Partner suffers no risk as a consequence of the Loan Agreement. The Consulting Partner invests no capital in the purchase of the 50% interest. The Consulting Partner borrows the entirety of the purchase money for the 50% interest from Blooms.
The terms of the loan provide for the Consulting Partner to pay interest only and, in some circumstances, to defer and/or to capitalise that interest. No capital is repaid during the term of the loan, although special payments of more than $250,000 may be made after the first two years of the loan.
At the conclusion of the loan, subject to the grant of a loan for a further period, the principal is repayable. However, if the Consulting Partner does not repay the principal, then Blooms is able to force the sale of the interest and may only recover, in relation to the debt of the Consulting Partner in that capacity, that which is owing from the proceeds of the sale. It is a limited recourse loan.
Consequently, the Consulting Partner, in that capacity, suffers no risk on account of the loan or the purchase of the 50% interest. The risk is borne by Blooms. The risk manifests if the value of the interest (i.e. 50% of the value of the Pharmacy Business), on sale, is less than the amount of the loan. Such an eventuality, if it were ever to manifest, is a risk borne entirely by Blooms.
There are complications associated with the proper interpretation of the guarantee, which the principal of the Consulting Partner company executes. The guarantee is a term of the Loan Agreement.
If, on its proper interpretation, the guarantee covers all monies that would be payable notwithstanding the limited recourse aspect of the liability to repay, then the risk would be faced by the guarantor. Each of the parties before the Court submits that the guarantor is liable only to the extent of the limited recourse governing the repayments to Blooms. While I have some doubt that such is the effect of the guarantee, I accept, for the purposes of these proceedings, the uncontested position of each of the parties.
The circumstance that Blooms faces the risk associated with a fall in the value of the Pharmacy Business highlights the impact of the effect of the terms upon which the business or an interest in the business may be sold. As earlier summarised, if the OSLA is in force, then the business or an interest in the business may not be sold otherwise than with the approval of Blooms and to a purchaser of whom Blooms approves. If the OSLA is not renewed or the borrowing pharmacist is retiring, then the loan principal is repayable forthwith and any sale must be at market value and the proceeds of the sale paid to Blooms, which, after calculating the amount owed to it, will pay any remainder to the borrower.
The expert reports are lacking in some respects. This is not a criticism of the experts. Neither of the experts has experience with the pharmacy industry in New South Wales. The Council, on the other hand, is an expert body constituted for that very purpose.
The only evidence as to the capacity to sell pharmacies at an increasing price in New South Wales is the opinion expressed in, or the inference available from, the PKF expert reports. Those reports express the view that Blooms has no difficulty selling pharmacies or interests in pharmacies. Such a statement accords with common sense.
There are legislative restrictions on the number of pharmacies that may be registered in a particular area. There are also restrictions on those that may purchase an interest in a pharmacy. However, every year the universities produce pharmacists. It would be most surprising if, for that reason, the pool of potential purchasers was not increasing at a significantly greater rate than the pool of potential pharmacies. As Mr Maisner points out, the cost of a pharmacy or an interest in a pharmacy is a matter of supply and demand.
The effect of supply and demand has its limits. The limit is imposed by the potential profit from the business purchased.
The renewal of the OSLA is at the absolute discretion of Blooms. Blooms, in turn, controls who may purchase an interest in a Blooms Pharmacy and offers to pharmacists the capacity to purchase a 50% interest in a pharmacy without any capital risk. This explains why the Consulting Partner would borrow from Blooms and not a bank. It undermines totally the view expressed by Mr Maisner that bank loans were not available as the reason a Blooms loan was sought.
The combination of the OSLA and the Loan Agreement as a limited recourse loan results in a huge incentive on pharmacists utilising the arrangement offered by Blooms. That there is such an incentive does not mean that Blooms has a financial interest in the pharmacy.
However, the circumstance that Blooms has a financial interest in the sale price of interests in the Pharmacy suggests that Blooms has an indirect financial interest in the Pharmacy Business. Because the repayment of the loan is dependent upon the increasing price of pharmacies (or a price that is not falling), Blooms has an interest in the value of the Pharmacy Business. Blooms’ interest in the value appears to be financial. Consequently, that is an indirect financial interest in the Pharmacy Business.
Moreover, the value of the pharmacy interest depends, at least in part, on the profitability of the Pharmacy Business. The interest identified above is in many respects greater than the interest that may derive from a share in the profits of the business, which has occasioned the exemption for an employee earning a profit-share and to which earlier reference has been made.
It may be that there is evidence that would contradict some of the inferences drawn or the assumptions made above. However, such evidence has not been adduced.
On the current state of the evidence, the Court is not satisfied that Blooms has no financial interest in the Pharmacy. It is for the plaintiff to establish that it has no financial interest.
In Pham,^[61] Barrett J (as his Honour then was) referred to the Second Reading Speech of the predecessor Act and the purposes of the statutory scheme and cited with approval the stated intention that the provisions, mirrored in the National Law, were implemented to protect pharmacists’ business interests as well as the public.^[62]
61. Pham v Doan (2005) 63 NSWLR 370; [2005] NSWSC 201.
62. Ibid, at NSWLR 378, [89]-[90].
Earlier in these reasons, the Court set out some of the provisions of Schedule 5F of the National Law. The terms of clause 12 of the Schedule mandate or require the application for approval of premises and the application for the registration of a financial interest. They do so by the use of the word “must”. Subclause 12(1) of the Schedule utilises the term “may”. In that respect, it is facultative: it allows a person to make application.
Subclause 12(6) permits the Council to require the application to be verified by statutory declaration. Subclause 12(7) is in the following terms:

(7)   The Council may decide to –
(a)   refuse the application; or
(b)   approve the premises or register the holder of the financial interest.

In the first White judgment, supra, which is unaffected by any comment in the second judgment vacating the original orders, the Court of Appeal determined that the provisions equivalent to subclause 12(7) of Schedule 5F were discretionary and reposed in the Council (or its then equivalent) a discretion as to whether it will refuse or approve the application, namely in this case, the registration of the holder of the financial interest.^[63] The terms of the jurisdiction of the relevant authority have not altered and the terms have been promulgated again.
63. The first White judgment, supra, at NSWLR 316.D-E.
The Court as presently constituted is bound by the judgment of the Court of Appeal. The Council has a discretion to approve or not. This is emphasised by the requirement not to approve in the circumstances prescribed by subclause 12(8) of the Schedule.
Moreover, the legislature’s different use of the term “may” and “must” in the different subclauses discloses that the legislature intended the terms to be used differently. Since the only outcome of an application is to refuse it or approve it, the conclusion of the Court of Appeal, apart from being binding, has significant support.
A court or tribunal adjudicating a matter before it must exercise the jurisdiction conferred unless there are express words that permit the court or tribunal not to exercise the jurisdiction conferred, or words of necessary intendment to that effect.^[64]
64. Re The Queensland Electricity Commission and Others; Ex parte The Electrical Trade Union of Australia (1987) 61 ALJR 393 at 399; 72 ALR 1 at 12; [1987] HCA 27 (Deane J).
The judgment of Deane J in The Electrical Trades Union case, supra, was in dissent, but was cited with approval by a majority of the High Court in this respect.^[65]
65. Walton v Gardiner (1993) 177 CLR 378; [1993] HCA 77 (Mason CJ, Deane and Dawson JJ).
The issue is fundamental. Where a jurisdiction is conferred on a court or tribunal for the public benefit or for the purpose of conferring rights or benefits, an application to the tribunal properly made creates a duty for the tribunal to exercise its jurisdiction, which is not then at liberty to refuse to deal with the matter. In The Queensland Electricity Commission case, supra, Deane J said:

“The right to invoke the jurisdiction of the courts and other public tribunals of the land carries with it a prima facie right to insist upon the exercise of the jurisdiction invoked. That prima facie right to insist upon the exercise of jurisdiction is a concomitant of a basic element of the rule of law, namely, that every person and organisation, regardless of rank, condition or official standing, is ‘amenable to the jurisdiction’ of the courts and other public tribunals… In the rare instances where a particular court or tribunal is given a broad discretionary power to refuse to exercise its jurisdiction on public interest grounds, the necessary starting point of a consideration whether such a refusal would be warranted in the circumstances of a particular case in which its jurisdiction has been duly invoked by a party must ordinarily be the prima facie right of the party who has invoked the jurisdiction to insist upon its exercise.”^[66]
66. Re The Queensland Electricity Commission and Others; Ex parte The Electrical Trades Union of Australia, supra (Deane J). See also Walton v Gardiner, supra at [31] (Mason CJ, Deane and Dawson JJ).

Because the Council does not have the discretionary power simply to ignore an application or refuse to deal with it, the only possible outcomes of an application are the granting of it or refusal of it. Yet, the legislature has utilised the word “may” and should, in those circumstances, be taken to have intended that there be a discretion to grant or to refuse the application, other than in the circumstances outlined in subclause 12(8) of the Schedule which requires the refusal of the application.
So much was the decision of the Court of Appeal to which earlier reference has been made. The Court of Appeal stated:

“It will be convenient to consider the third ground first. Mr Jackson submitted that the judge erred in finding that the Board had jurisdiction to reject the applications because of a prospective breach of s 25(1). His Honour found that the premises were suitable and the applicants qualified, and he submitted the Board and the Court were therefore bound to grant the applications. The provision in s 24A(3) that the Board may grant or reject the application was said to confer a power which in these circumstances must be exercised. In such a case the words of Jarvis CJ, quoted by Windeyer J in Finance Facilities Pty Ltd v Commissioner of Taxation (Cth) (1971) 127 CLR 106 at 134-135, would be applicable:
‘The word ‘may’ is merely used to confer the authority: and the authority must be exercised if the circumstances are such as to call for its exercise.’

If the power was as limited as Mr Jackson contended, there would be little point in providing for an appeal to the District Court. The applicant must already be a registered pharmacist so questions of professional qualifications or character could not arise. The standards required for the premises are prescribed in some detail in the Regulations (s 24A(4) and Pharmacy (General) Regulation 1993, cl 10) and one would expect that applicants would make any adjustments needed to secure approval. Moreover the provision in s 24B(3) that an appeal is to be a new hearing, and the power of the District Court under subs (4) to make such order as it thinks fit suggest that the Board and the District Court have a discretion, and not merely a power to be exercised in a proper case.”^[67]
67. The first White judgment, supra, at 316.C-E.

It is appropriate to reiterate certain principles and admonitions of the High Court in the manner in which courts should deal with judicial review of an administrative decision. While the current proceedings are not strictly reviewing the decision of the Council, it is an approach that is apposite in the circumstances. In Attorney-General NSW v Quin,^[68] Brennan J said:

“The question can be put quite starkly: when an administrative power is conferred by the legislature on the executive and its lawful exercise is apt to disappoint the expectations of an individual, what is the jurisdiction of the Courts to protect the individual's legitimate expectations against adverse exercises of the power? I have no doubt that the answer is none. Judicial review provides no remedies to protect interests, falling short of enforceable rights, which are apt to be affected by the lawful exercise of executive or administrative power. If it were otherwise, the Courts would be asserting a jurisdiction, in protection of individual interests, to override the law by which a power to affect those interests is conferred on the repository.
…
The duty and jurisdiction of the Court to review administrative action do not go beyond the declaration and enforcing of the law which determines the limits and governs the exercise of the repository's power. If, in so doing, the Court avoids administrative injustice or error, so be it; but the Court has no jurisdiction simply to cure administrative injustice or error. The merits of administrative action, to the extent that they can be distinguished from legality, are for the repository of the relevant power and, subject to political control, for the repository alone.
The consequence is that the scope of judicial review must be defined not in terms of the protection of individual interests, but in terms of the extent of power and the legality of its exercise. In Australia, the modern development and expansion of the law of judicial review of administrative action have been achieved by an increasingly sophisticated exposition of implied limitations on the extent or the exercise of statutory power, but those limitations are not calculated to secure a judicial scrutiny of the merits of a particular case.

There is one limitation, ‘Wednesbury unreasonableness' (the nomenclature comes from Associated Provincial Picture Houses Ltd v Wednesbury Corporation), which may appear to open the gate to judicial review of the merits of a decision or action taken within power. Properly applied, Wednesbury unreasonableness leaves the merits of a decision or action unaffected unless the decision or action is such as to amount to an abuse of power…acting on the implied intention of the legislature that a power be exercised reasonably, the court holds invalid a purported exercise of the power which is so unreasonable that no reasonable repository of the power could have taken the impugned decision or action. The limitation is extremely confined.”^[69]
68. Attorney-General (NSW) v Quin, supra.
69. Ibid at 35-36 (Brennan J, as His Honour the Chief Justice then was).

The underpinning assumption of the prayer for relief in the summons is that the legislature has required the objective existence of, relevantly, a financial interest in order for the registration of the interest to be refused. In Parisienne Basket,^[70] the High Court clarified that while the legislature could make the objective existence of a precondition the determinant of the jurisdiction of an inferior court or tribunal, such a result should only be determined if the intention is clearly expressed by the legislature. The High Court said:

“It cannot be denied that, if the legislature see fit to do it, any event or fact or circumstance whatever may be made a condition upon the occurrence or existence of which the jurisdiction of the court shall depend. But, if the legislature does make the jurisdiction of a court contingent upon the actual existence of a state of facts, as distinguished from the court’s opinion or determination that the facts do exist, then the validity of the proceedings and orders must always remain an outstanding question until some other court or tribunal, possessing power to determine that question, decides that the requisite state of facts in truth existed in the proceedings of the court were valid. Conceding the abstract possibility of the legislature adopting such a course, nevertheless it produces so inconvenient a result that no enactment dealing with proceedings in any of the ordinary courts of justice should receive such an interpretation unless the intention is clearly expressed.”^[71]
70. Parisienne Basket Shoes Pty Ltd v Whyte (1938) 59 CLR 369; [1938] HCA 7.
71. Ibid at 391 (Dixon J).

The above issue is inextricably connected with the discretion of the Court not to issue declaratory relief. Where there is a specialist tribunal appointed for its expertise under a statute to deal with matters arising under the provisions of that statute and which is given the jurisdiction to determine disputes concerning the rights and privileges which are wholly dependent upon the statute, then the courts should be careful not to intervene too readily in the jurisdiction conferred.
The Council has the capacity to determine whether, for example, there has been created a market or sub-market in the sale of Blooms Pharmacies. It has the capacity to determine whether the combination of the OSLA and the Loan Agreement and its terms, and the practical application of those terms, results in Blooms having a financial interest in the operation of the Pharmacy or in the Pharmacy itself as a result, in particular, of the restrictions on sale and the process by which it is sold.
If, in accordance with the principles on judicial review, the Council were to bona fide exercise its jurisdiction, not in the process of taking a wrong approach or asking itself the wrong question, and derived an answer which was open to it, the Court might not intervene in that result. Successful judicial review depends upon similar questions to the factors associated with the intervention on appeal from a discretionary judgment. Is there a mistake of law or fact; is there the application of wrong principle; or is there manifest error?
The Court, too, is bound by the principle that where an application is properly made to it and is within its jurisdiction, then jurisdiction should be exercised. However, in the area of declaratory relief and judicial review, there is a discretion not to make orders, the effect of which would be to interfere with the process established by the legislature for the determination of particular rights.
The aforesaid discretion is even more pronounced in these circumstances. The Court would be issuing a declaration, the effect of which would be to declare that there is no financial interest in circumstances where the Council has refused an application for registration and in circumstances where the decision to refuse registration is extant.
The Court has not been requested to quash the decision of the Council. There is in place an appeal, pursuant to the National Law and the CAT Act to NCAT. This application, if it were granted on the merits (or refused on the merits) potentially sets up inconsistent judgments of this Court and NCAT and/or the Council. The Council’s decision has effect under the statute and is binding until it is quashed. Until it is quashed, it would be illegal, i.e. a criminal offence, for Tran Pharmacy to operate or have an interest in the Pharmacy Business, if it continued in the current relationship with Blooms.
Of course, NCAT, if the declaration were to issue, may take the view that it would hear the appeal and quash the decision of the Council. But such a course would be to pre-empt the independent exercise of the jurisdiction conferred on NCAT. The jurisdiction conferred on NCAT is at least as broad as the jurisdiction conferred on the Council and broader than that exercised by the Court. NCAT, like the Council, is required to take account of government policy, its own expertise and that which is “unjust”.
The Court is not entitled to exercise its jurisdiction on the basis of its own knowledge and otherwise than in accordance with the evidence before it. The evidence before it does not establish that there is, even on the balance of probabilities, no financial interest held by Blooms as a consequence of the arrangements for the conduct of the pharmacies under the OSLA together with the conditions imposed in relation to the Loan Agreement, and in particular the sale of any interests that are subject to the loan.
As stated, the Council is entitled to utilise its own expertise and NCAT, likewise, is entitled to exercise any expertise it may have in those areas. Evidence of the sale price and market associated with interests in pharmacies and, in particular, interests in Blooms Pharmacies, is incomplete in these proceedings. Apart from the circumstance that I am not satisfied that Blooms will have no financial interest in the pharmacy if the Tran interest is registered under the terms currently proposed, as a matter of discretion, for the reasons expressed relating to the Court’s discretion not to issue declarations, I will not issue the declaration sought by the plaintiff.
There are other matters that need noting but which have not been the basis of the orders I am to issue. First, the OSLA expresses the independence of the Pharmacy Business and the absence of any right in Blooms to control the Business. However, the absence of the creation of any right to control is qualified by the significant exception “other than for the purpose of Blooms performing its obligations under [the OSLA]”.^[72]
72. OSLA, supra, subcl 4.1.
The parties to the OSLA expressly acknowledge that Blooms does not have a financial interest in the Pharmacy Business in contravention of the Pharmacy Laws.^[73] Such a statement is self-serving and, for the purposes of deciding this judgment, of limited utility.
73. Ibid, subcl 4.3.
As to the differences between the experts, there are a number of aspects. I prefer the opinion of Ms Oliver because she has experience with the pharmacy sector. Even though her experience is in Victoria she is better placed than Mr Maisner. Further, Mr Maisner was instructed on the cost of capital. Such an instruction becomes self-serving. I prefer the opinion independently calculated by Ms Oliver, which accords generally with the view expressed in the PKF Report.
I consider the reasonable rate for the Consulting Partner loan to be at or about 12.6% and the 20% initial interest rate charged is almost double (1.6 times) the said rate. I also consider that the loan to the Working Partner is comparable but such an exception that significant adjustments would be necessary.
Further, the instructed cost of capital seems to have very little basis. I do not consider the Consulting Partner loans to be high risk, given the control over the sale of interests and the evidence as to the ease with which sales may be effected.
A return of 17% on investment in a low-risk area is obviously desirable to an investor but I am not satisfied that it is the real cost of capital. I do accept the CAPM calculation and a cost of capital of 15%, which forms the basis for the WACC calculation of 12.6%. I am not satisfied that the “arrangement” with NAB that Blooms would charge no less than 20% interest is a condition on the loan to Blooms or binding on it. It seems a very informal arrangement.
Next, the issue I do not accept from the evidence of Ms Oliver is the notion that the rate of interest should be as low as 7%. First, I do not consider that responsible management would deliberately operate at a loss in any long-term section of a business’ operation. Secondly, I do not consider that management would undertake a course that would probably result in a change of management. Thirdly, the loans are desirable to the borrower because of the limited recourse aspect, the capacity to borrow the total purchase cost and the absence of any financial risk and, therefore, the competition with other lenders is less relevant.
Lastly, I do not consider subordination to be a significant risk. If NAB were to provide a facility to the Working Partner, it would be for no more than 50% of the Pharmacy Business, which one can infer for present purposes, is $520,000. I ignore, for present purposes, the knowledge that NAB is likely to have an LVR (Loan to Value Ratio) and lend less than the entirety of the value of the interest.
But the sale of the business, as the experience of Blooms discloses, will net more than that which is necessary to satisfy the loan (or so Blooms would infer). Consequently, Blooms would not see a real risk to its security in the subordination of its loan, and it should not impact the loan interest rates.
The Court makes the following orders:

Judgment for the first defendant.

Summons dismissed.

The plaintiff will pay the first defendant’s costs of and incidental to the proceedings.

Any party seeking a special or different order as to costs may apply within 14 days in writing to the Associate to Justice Rothman with a submission and any accompanying document other than a document already in evidence upon which it relies for that application. Other than the accompanying documents, the submission shall be no more than five pages. Any party adversely affected by the application for a different or special order as to costs may reply. Such reply has the same conditions as those imposed on any applicant.

Otherwise, the proceedings are dismissed.

**********

Endnotes

Decision last updated: 16 October 2025

Medium Neutral Citation:	Blooms the Chemist Management Services Ltd v Pharmacy Council of NSW [2025] NSWSC 1211
Hearing dates:	2, 3, 4, 5, 6 and 13 December 2024
Date of orders:	16 October 2025
Decision date:	16 October 2025
Jurisdiction:	Common Law
Before:	Rothman J
Decision:	(1) Judgment for the first defendant. (2) Summons dismissed. (3) The plaintiff will pay the first defendant’s costs of and incidental to the proceedings. (4) Any party seeking a special or different order as to costs may apply within 14 days in writing to the Associate to Justice Rothman with a submission and any accompanying document other than a document already in evidence upon which it relies for that application. Other than the accompanying documents, the submission shall be no more than five pages. Any party adversely affected by the application for a different or special order as to costs may reply. Such reply has the same conditions as those imposed on any applicant. (5) Otherwise, the proceedings are dismissed.
Catchwords:	ADMINISTRATIVE LAW — supervisory jurisdiction — judicial review — declaration sought — decision of Pharmacy Council of NSW — whether Blooms has a financial interest in the relevant pharmacy business — Health Practitioner Regulation National Law (NSW) Sch 5F — NCAT appeal pending — statutory construction — construction of contracts — jurisdiction of the Supreme Court — declaratory relief — interest in the relief — exceptional circumstances — where Council decision is extant — declaration not made
Legislation Cited:	Administrative Decisions Review Act 1997 (NSW), ss 53, 63, 64 Civil and Administrative Tribunal Act 2013 (NSW), ss 28, 30, 83 Supreme Court Act 1970 (NSW), ss 69, 75 Health Practitioner Regulation National Law, Sch 5F
Cases Cited:	Ainsworth v Criminal Justice Commission (1992) 175 CLR 564; [1992] HCA 10 Attorney General for the State of NSW v Now.com.au Pty Ltd [2008] NSWSC 276 Attorney-General (NSW) v Quin (1990) 170 CLR 1; [1990] HCA 21 Australasian Oil Exploration Ltd v Lachberg (1958) 101 CLR 119; [1958] HCA 51 Australian Conservation Foundation v Commonwealth (1980) 146 CLR 493 Australian Institute of Marine and Power Engineers v Secretary, Department of Transport (1986) 13 FCR 124; [1986] FCA 443; (1986) 71 ALR 73 Cameron v Human Rights & Equal Opportunity Commission (1993) 46 FCR 509; [1993] FCA 593 Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24 Currabubula & Paola v State Bank of New South Wales [2000] NSWSC 232 Goldsborough Mort & Co Ltd v Carter (1914) 19 CLR 429; [1914] HCA 80 Gouriet v Union of Post Office Workers [1978] AC 435 HDI Global Speciality SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634; [2020] NSWCA 296 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64 Jackson v Slattery [1984] 1 NSWLR 599 Kirk v Industrial Relations Commission (2010) 239 CLR 531; [2010] HCA 1 Mannai Investments v Eagle Star Life Assurance Co Ltd [1997] AC 749 Moschi v Lep Air Services; Lep Air Services v Rolloswin [1973] AC 331 Parisienne Basket Shoes Pty Ltd v Whyte (1938) 59 CLR 369; [1938] HCA 7 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 QBE Insurance Australia Ltd v Vasic [2010] NSWCA 166 Re The Queensland Electricity Commission and Others; Ex parte The Electrical Trade Union of Australia (1987) 61 ALJR 393; 72 ALR 1 at 12; [1987] HCA 27 Schuler v Wickman Machine Tool Sales Ltd [1974] AC 235 SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 Walton v Gardiner (1993) 177 CLR 378; [1993] HCA 77 White v District Court of New South Wales (1998) 45 NSWLR 313; [1999] NSWCA 406
Texts Cited:	Nil
Category:	Principal judgment
Parties:	Blooms the Chemist Management Services Ltd (Plaintiff) Pharmacy Council of NSW (First Defendant) Tran Pharmacy (Cronulla South) Pty Ltd (Second Defendant)
Representation:	Counsel: S J Free SC / J Davidson (Plaintiff) K Richardson SC / S Kanagaratnam (First Defendant) Solicitors: Ashurst (Plaintiff) Minter Ellison (First Defendant)
File Number(s):	2023/232861
Publication restriction:	Nil