Eastlings Pty Ltd v Calidu Import Export Pty Ltd (No 2)

Case •

[2021] NSWSC 316

•

01 April 2021

No judgment structure available for this case.

Supreme Court


New South Wales

  • Summary available
Medium Neutral Citation: Eastlings Pty Ltd v Calidu Import Export Pty Ltd (No 2) [2021] NSWSC 316
Hearing dates: 15, 16, 17, 18, 21, 24, 25 September 2020
Date of orders: 1 April 2021
Decision date: 01 April 2021
Jurisdiction:Common Law
Before: Ward CJ in Eq
Decision:

1.   Judgment for the plaintiff as against the second and third defendants in the amount of $67,594.49 plus interest (from the date of the relevant breaches) for breach of the covenant contained in the Restraint Deed by virtue of the importation in or about August 2014 and April 2015 of wine from Portugal for on-sale and the exportation of alcohol in 2015.

2.   Otherwise dismiss the plaintiff’s claims.

3.   Reserve the question of costs to be dealt with on the papers if possible.

Catchwords:

CONSUMER LAW — Misleading or deceptive conduct

COMMERCE — Restraint of trade — Enforcement and remedies — Compensation

Legislation Cited:

Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law, s 18

Crimes Act 1900 (NSW), s 136

Customs Act 1901 (Cth)

Evidence Act 1995 (NSW), ss 67, 122, 138, 140

Liquor Act 2007 (NSW), Div 6

Trade Practices Act 1974 (Cth)

Cases Cited:

Berry v CCL Secure Pty Ltd (2020) 381 ALR 427; [2020] HCA 27

Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1

Briginshaw v Briginshaw (1938) 60 CLR 336

Butt v Long (1953) 88 CLR 476; [1953] HCA 76

Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297

Eastlings Pty Ltd v Calidu Import Export Pty Ltd [2020] NSWSC 1041

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 630; [2014] HCA 7

Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 303 ALR 199; [2013] HCA 46

GR Capital Group Pty Ltd v Xinfeng Australia International Investment Pty Ltd [2020] NSWCA 266

HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54

Jones v Dunkel (1959) 101 CLR 298

Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66

Mirus v Gage [2017] NSWSC 1046

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Potts v Miller (1940) 64 CLR 282

Re Kissane (1977) 15 ALR 683

Richard Evans & Co Ltd v Astley [1911] AC 674

Sun v He (No 2) [2020] NSWSC 1298

Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23

Way v Bishop [1928] Ch 647

Wu v Ling [2016] NSWCA 322

Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 373 ALR 79; [2019 FCAFC 167

Texts Cited:

Heydon, Cross on Evidence (7th Australian ed, 2004, LexisNexis Butterworths)

Category:Principal judgment
Parties: Eastlings Pty Ltd (Plaintiff)
Calidu Import Export Pty Ltd (First Defendant)
Joseph Merlo (Second Defendant)
Grace Christine Merlo (Third Defendant)
Calidu Pty Ltd (Fourth Defendant)
Representation:

Counsel:
CP O’Neill (Plaintiff)
A Fernon SC (Defendants)

Solicitors:
Company Giles (Plaintiff)
Otto Stichter & Associates (Defendants)
File Number(s): 2015/129691
Publication restriction: Nil

Judgment

  1. HER HONOUR: In this matter, the plaintiff, Eastlings Pty Ltd (Eastlings), seeks damages as against the first defendant, Calidu Import Export Pty Ltd (Calidu Import Export), and its two directors, Joseph (known as Joe) Merlo and his wife, Grace Merlo (the second and third defendants, respectively), for alleged breach of contract (the Breach of Covenant claims). Additionally, Eastlings seeks damages from Joe, Grace and the fourth defendant, another company with which Joe and Grace are associated, Calidu Pty Ltd (Calidu), for alleged misleading or deceptive conduct (the Misleading or Deceptive Conduct claims). Calidu was formerly known as J&J Wholesale Distributors Pty Ltd (J&J Wholesale Distributors). Both sets of claims arise out of the sale to Eastlings of a liquor wholesale business formerly operated by Joe and Grace through Calidu (the Business) in which they had engaged in parallel importing of alcohol (primarily beer) over a number of years.

  2. In essence, the Misleading or Deceptive Conduct claims arise out of a number of representations (and, significantly, an alleged omission) allegedly made by the second to fourth defendants when they marketed the Business for sale to Eastlings. The Breach of Covenant claims arise out of post-sale conduct on the part of the first to third defendants that is alleged to amount to a breach of a deed of restraint entered into by each of them on completion of the sale of the Business to Eastlings (the Restraint Deed). The actual conduct the subject of the Breach of Covenant claims is not broadly in dispute. What is in dispute is whether, on the proper construction of the Restraint Deed, that conduct was in fact in breach of the restraint and, second, whether one of Eastlings’ directors (Mr Angus Hamilton), consented to at least part of that conduct (namely, the importation of what has been referred to as the cheap Spanish wine).

  3. The matter was first listed for hearing to commence on 20 July 2020. However, on that occasion Eastlings sought leave to file two further affidavits of its principal witnesses (its directors, Graham Thomas Hamilton and his son, Angus James Hamilton) sworn 19 July 2020, which responded to an affidavit which had only been served by the defendants in June 2020 but which had been sworn much earlier, on 29 January 2020 (that being an affidavit of a deponent who is outside the jurisdiction, Mr Song Hock Kee, who is also known as Johnny Song). Mr Song, as will be seen, is a central figure in Eastlings’ allegation of illegal importation of alcohol by Calidu, Joe and Grace. Leave to rely on the July 2020 affidavits was opposed by the defendants, on the basis that the evidence therein had been obtained unlawfully, in that it was evidence of the commission by Eastlings of illegal acts in breach of the Customs Act 1901 (Cth) (see s 138 of the Evidence Act 1995 (NSW)). Eastlings sought to rely on that evidence for the purpose of establishing that illegal conduct of the kind here alleged against the second to fourth defendants (the importation of undeclared liquor on which no excise was paid) could feasibly have occurred.

  4. After argument on that issue (on 20 and 21 July 2020), I gave leave for the affidavits to be filed (though not admitting all of the evidence in those affidavits) and vacated the hearing dates to permit the defendants an opportunity to respond to that evidence. The hearing did not, therefore, finally commence in earnest until mid-September 2020. My reasons for the admission of that affidavit evidence (and a brief account of the background to the dispute) were the subject of my first judgment in this matter (Eastlings Pty Ltd v Calidu Import Export Pty Ltd [2020] NSWSC 1041).

Background

The parties

  1. As adverted to above, the plaintiff, Eastlings, operates a liquor wholesale business (the Business) that it acquired in 2013 from the fourth defendant, Calidu, which was then known as J&J Wholesale Distributors. From 19 August 2015, Eastlings has operated the Business under the name “Australian Liquor Enterprises”.

  2. The directors of Eastlings are Graham Hamilton, a former solicitor and now company director, and Graham’s son, Angus Hamilton. (In general, I will refer to the individuals involved in the proceeding, on both sides, by his or her first name, without intending any disrespect). Angus was formerly a manager of Eastlings and is now a director of the company.

  3. The first defendant, Calidu Import Export, is a company that was incorporated on 25 September 2013, some four months after the completion of the sale of the Business by Calidu to Eastlings. The second defendant (Joe) and his wife (Grace), the third defendant, are the directors and shareholders of Calidu Import Export. Joe is the sole director and one of the shareholders of the earlier company, Calidu, which was incorporated on 16 November 2005. Grace is also a shareholder of Calidu.

Chronology of events

Parallel importing

  1. From approximately 1995, Joe (who was formerly a fruiterer – back in the 1980s, a fact seemingly relied upon by Eastlings to show his knowledge of what might be described as “loss leader” retail practices or “specials” to incentivise customers) had carried on a wholesale liquor business. His evidence is that, from about 2004, he engaged in the parallel importing of liquor products, primarily beer (T 150.50) (although, relevantly, the evidence disclosed that from time to time in the relevant period Calidu also imported some wine, spirits and mineral water).

  2. I interpose here to note that parallel importing is the business of importing products into Australia without the permission of the intellectual property owner (see Angus’ affidavit sworn 30 April 2015 at [4]); i.e., outside the formal manufacturer distribution channels. Where there is parallel importing of alcohol, there are (among other things) applicable package labelling requirements (relevant here to note because the evidence is that at least some of the package labelling while Joe conducted the Business was carried out by one or more of his Singapore supplier(s) including Johnny Song’s company Windemac Pte Ltd (Windemac)).

  3. Joe was primarily responsible for dealing with the overseas suppliers and local customers of the Business (and, indeed, his relationship with overseas suppliers and with local purchasers – and hence the personal goodwill associated with Joe in respect of the Business - was a feature of the evidence in this matter). Grace, on the other hand, was primarily responsible for the administrative side of the Business (with the assistance of their daughter, Amanda, the company’s bookkeeper, John Conroy, and the company’s accountant, Geoff Power).

  4. Grace’s evidence (T 209-210) was that she oversaw the accounts and had access to MYOB but that she did not input data into MYOB (Grace said that her daughter, Amanda, did most of the input data in relation to invoices issued to customs and that Mr Conroy also had a role in inputting data to MYOB). Grace prepared some invoices but said that it was mainly Amanda who was in charge of invoicing.

Direction by Calidu in around mid-2012 to limit weight of containers

  1. It is of some relevance to one of the issues considered by the experts (namely, as to what spare capacity, if any, there was in containers shipped to Calidu in the relevant period i.e., the 18 months or so leading up to the sale of the Business; particularly capacity in shipments from the two suppliers in Singapore – Windemac, and J&E Winery, the latter being a business associated with Mr James Tan and Mr Eddy Tan but with some connection to Windemac insofar as it made use of Windemac’s warehouse premises to export products) to note that, in about March 2012, Grace gave instructions to at least one of Calidu’s suppliers, Mr Pedro Vidal of 99 Overseas Solutions LDA (99 Overseas Solutions) in Portugal, to limit the weight of containers. It appears that this was related to road safety issues in relation to the transportation of containers out of the wharf at Port Botany.

  2. I refer in due course to the expert evidence on this issue from the transport and management logistics consultants who gave evidence at the hearing – Mr James Preston, Mr Charles Gallagher and Mr David Jones; as well as the lay evidence of Ms Josephine Lia, a director of Truckspeed Pty Ltd (Truckspeed), the transport company which formerly collected and delivered containers on Calidu’s behalf.

Sale by Calidu of its wholesale liquor business

  1. In 2012, the Business was advertised for sale through a business broker, Ian Salter, from Benchmark Business Sales Pty Ltd (Benchmark).

  2. In November 2012, Angus (who has a degree in commerce from the University of Wollongong but who at that time had no experience in parallel importing or, other than working as a barman, in the liquor industry) contacted Benchmark in relation to the advertisement. Angus completed a buyer registration form in which, inter alia, he indicated that he was interested in acquiring a business that was in a price range of “>$1.5M” and had desired earnings of “>$200K”.

  3. Unsurprisingly, it appears that Joe was keen to protect his business relationships and goodwill in the Business (Graham’s evidence, for example, is that Joe was very protective of his suppliers and customer list – see at T 131.25-30); and Angus was required to enter into a confidentiality agreement before the provision of certain information relating to the goodwill of the Business. On 6 November 2012, Angus executed a Confidentiality Deed in relation to the information to be provided by Benchmark to him.

The Information Memorandum

  1. On 6 November 2012, Angus received from Mr Salter a confidential information memorandum for the Business (the Information Memorandum), which recorded that it had been prepared based on information supplied by the owners of the business.

  2. Eastlings points to statements in the Information Memorandum as to, among other things: (i) the sales turnover of the Business for the years 2010-2012 (the Turnover Representation); (ii) proprietors’ earnings before interest, tax, depreciation and amortisation (PEBITDA) for those years (the PEBITDA Representation); (iii) the profit and loss before income tax for those years (the Profit Representation); and (iv) the endorsement statement that the information in the memorandum was, to the seller’s knowledge, correct and a fair indication of the proposal to sell and its offerings (the Endorsement Representation) (see amended statement of claim at [41](b)-(e); Ex A at 25).

  3. Eastlings alleges that, during the negotiations for the sale of the Business, Joe, Grace and Calidu expressly represented that the Turnover Representation, the PEBITDA Representation, the Profit Representation and the Endorsement Representation were accurate (this representation as to accuracy being referred to in the pleading as the Negotiation Representations) (see [44] of the amended statement of claim).

  4. The Information Memorandum listed the business purchase price as $2.5 million plus stock (of approximately $1.2 million). Graham has also deposed to a discussion with Joe in relation to the working capital required for the Business, to the effect that $1 million to $1.2 million was tied up paying stock and to operate the Business (see Graham’s affidavit sworn 7 December 2018 at [30]).

Due Diligence

  1. Eastlings then conducted a due diligence process confirming the information set out in the Information Memorandum by reference to the records of the business. Eastlings’ accountant, Mr Bartlett, with the assistance of an employee, Mr Balatti, reviewed the financial information provided in the course of due diligence. The due diligence process was conducted at the office of Calidu’s accounting firm, Prime Partners (of which Geoff Power was a principal).

  2. Mr Bartlett inspected sales, purchases, wages and general ledgers for the period from 1 July 2011 to 31 December 2012, bank statements for 2011 and 2012, sales summaries for the period from 1 July 2009 to 30 June 2012, stock valuation reports, lists of bank deposits, receivables and payables.

  3. Following that due diligence, Mr Bartlett provided a report in which he concluded that his review did not disclose any material errors in the financial information made available to him (Ex F at 45). Graham’s evidence was that Mr Bartlett did find that there was a discrepancy in that there was more money banked than recorded as sales but Graham’s evidence was that Angus raised this with Grace and she explained that that had to do with the timing of their payment for stock through their overseas account “so they’d banked more than they’d sold” (see at T 130.35; and see his affidavit sworn 7 December 2018 at [38]). In cross-examination, Grace agreed that in the due diligence there was found to be a difference of $114,437 between the recorded BAS sales and financial statement sales (T 261). Grace cannot recall how it was that the due diligence items were explained but believes that to answer those questions she would have needed to speak to Mr Conroy and Mr Power and to the best of her knowledge the queries were answered (see T 261).

  4. As part of the due diligence process, Angus spent about two weeks with Joe prior to the sale, observing his conduct of the Business and meeting at least one of the customers (Mr Giuseppe Calipari, who gave evidence in the proceeding).

  5. Angus also travelled to Singapore with Joe in that period and met with one of the Business’ suppliers (Johnny Song) (at T 83.45-50; T 131.40-45). Angus’ observation as to how Joe conducted the Business was that Joe operated his business largely verbally (see T 31.31, for example). This accords with the evidence of both Joe (T 145) and Grace. For example, see at T 212, where Grace: (i) agreed that Joe’s computer skills are less than poor and that from time to time he would get her or their daughter to type out emails; and (ii) said that she did not see Joe making written records of sales, that “[g]enerally Joe verbalised what was in his head” and that he was not in the “practice of writing things down”. Further, see Joe’s evidence that he had no involvement in the office, that he was often or mostly “on the road”, that he memorised everything and that he had all the relevant pricing and stock information in his head (T 165, 166, 201).

  6. As to the warehouse activities, Joe’s evidence was that he did not unpack stock; rather, he said that the staff would unpack and palletise the stock (T 160-161). Joe’s evidence (presumably as to when he was not “on the road”) was that he “lived in that warehouse, my desk was in the warehouse, amongst all [his] stock, [he] had memorised every line, how many pallets [he] had, [he] didn’t sit in an office looking at graphs like some people, [his] desk was in the warehouse, so [he] had memorised everything within you know pretty close to what [he] had” (T 165.5-10).

  7. Angus’ observation of Joe’s business practice being one that was largely conducted verbally is also consistent with Grace (and their daughter, Amanda) largely performing the administrative roles in the Business.

  8. However, it seems to have been clearly understood that Joe was in charge of the supply and sales chains in respect of the Business. Grace said (at T 211.5-15) that it was mainly Joe who monitored the profitability of business; and that Joe was in charge of setting the price for sale and the price at which product was acquired. There was evidence of weekly reconciliation meetings to reconcile stock movements or costings (see T 211).

Exchange of contracts – 5 April 2013

  1. On 5 April 2013, Eastlings exchanged contracts for the purchase of the Business with Calidu (the Sale Agreement). Joe executed the Sale Agreement on behalf of Calidu. Graham and Angus guaranteed the purchase by Eastlings. The Purchase Price was agreed at $2.5 million plus stock to the limit of $1.5 million. The Completion Date was specified in the Sale Agreement as 17 May 2013 (though completion ultimately occurred about a week later).

Alleged conversation with Anthony Soubris in May 2013

  1. Graham has deposed that, in or around early May 2013 (and hence prior to completion of the sale), Joe’s solicitor, Mr Soubris, attended the Business premises to arrange for the transfer of the liquor licence relating to the Business (Graham’s affidavit affirmed on 11 July 2016 at [5]). Graham has deposed that, during that meeting, Mr Soubris told him (see at [6]) that he would “do well” from the Business and that there was “plenty of cash in it”. Graham understood from this that Mr Soubris was referring to “cash-in-hand” payments that were not reported to the Australian Taxation Office (see at [7]) and expressed his surprise that a solicitor would make such a statement. Mr Soubris adamantly denies that conversation occurred and he takes no little umbrage at this (on the basis that it would involve breach of his obligations as a solicitor – by which I understood him to mean obligations of confidentiality). However, Graham is equally adamant that the conversation did occur, saying (with some emphasis) “I’ll go to my grave, knowing he said that” (T 133.39).

  1. Graham, in the same affidavit, has deposed that Joe said to him words to the effect that he would get a few thousand dollars in cash each week and that “Gracie gets angry with me when I do too much cash” (at [10]-[11]). Graham deposes that he understood this to mean that Joe was carrying out “unrecorded ‘cash-in-hand’ business” (at [13]). Joe denies any such conversation (and Grace similarly denies the sentiment there attributed to her.)

Completion of sale – 24 May 2013

  1. Completion of the sale ultimately took place on 24 May 2013. Shortly prior to completion (on 21 May 2013), J&J Wholesale Distributors changed its name to Calidu. As part of the handover of the Business, I understand that Eastlings took access to Calidu’s then business email address (a “j&j” email address (see Grace’s evidence at T 213.20). This is relevant, as I will come to in due course, to the admissibility of a document referred to as the Soubris Advice.

Restraint Deed – 24 May 2013

  1. On the date of completion of the sale, a deed of restraint (the Restraint Deed) was executed by each of Calidu, Eastlings, Joe and Grace (Ex A at 26-34). Pursuant to the Restraint Deed, Calidu was restrained from carrying on or being concerned in, and Joe and Grace were restrained from being involved directly or indirectly as, inter alia, a shareholder or director in, any business substantially similar to the Business the subject of the sale for three years within New South Wales and Queensland (see cll 2(a) and (b) of the Restraint Deed).

  2. Under the Restraint Deed, “Business” is defined to mean a liquor wholesale business at the date of the Deed conducted at the Leasehold Premises with the benefit of a liquor licence (cl 1(a)(i)). “Liquor Licence” means, inter alia, a Liquor Licence issued pursuant to the Liquor Act2007 (NSW) and described as “Licence Type Liquor - Producer/Wholesaler Licence” (cl 1(a)(vii)). Pursuant to Division 6 of the Liquor Act in force as at 23 May 2013, Producer/Wholesaler licences authorised, inter alia, the sale of liquor by wholesale.

  3. In the Restraint Deed, each of Joe, Grace and Calidu acknowledged in effect that, without limiting the generality of the phrase “any business substantially similar to the Business” any business holding a liquor licence having substantially the same attributes and benefits as the liquor licence held by the Business and involving the same or substantially the same stock in trade used in the operation of the Business constituted a business substantially similar to the Business (cl 2(c)). It is pertinent here to note that the restraint covenant was not in terms limited to a business primarily involving beer (as opposed to wine or other alcoholic products); nor was it specific as to whether the business involved both the importation and exportation of alcohol under such a licence.

Incorporation of Calidu Import Export

  1. As noted above, Calidu Import Export (the first defendant) was incorporated on 25 September 2013, with Joe and Grace as its shareholders and directors.

Performance of business post completion

  1. Eastlings’ complaint is that, almost immediately after the purchase of the Business, the sales figures decreased by comparison to the Information Memorandum and previous figures. Graham was adamant in cross-examination that the turnover halved in the first week that Eastlings took over the Business and that this was not explicable simply as a “seasonal” drop in business (see at T 132.35-45).

  2. Following its purchase of the Business, Eastlings’ relationship with various of the major customers of the Business also changed. It ceased supplying some Porters stores in October 2013; and, later, it ceased supplying Valore Cellars in May 2015; and it ceased supplying “Mr Liquor” (Mr Prapas) in April 2015. Later still, Eastlings’ sales to Chambers Cellars (which had already been reduced) ceased in 2017.

  3. For the 12 months from 1 July 2013 to 30 June 2014: total sales were $9,818,524.79 (a reduction in volume from the 2012 financial year of some 25% ($13,027,118.47)); the cost of sales was $8,994,997.27 (a reduction in volume from the 2012 financial year of some 22% ($11,501,751.19) (which is said to indicate an increased comparative cost differential of approximately 3%); and gross profit was $783,527.52 (a reduction from the 2012 financial year of some 50% ($1,525,535.28)).

Alleged conversations with Nenard Miravic – June 2013-early 2014

  1. Angus has deposed in his affidavit sworn 27 April 2008 to a number of conversations he had with Mr Nenard (Nick) Miravic (see [40]-[43]), who worked in the Business both before and after the sale. Angus’ evidence is that Nick returned to Serbia in July 2016 and that he does not have any way to contact him. A hearsay notice pursuant to s 67 of the Evidence Act was served in relation to this evidence.

  2. In essence, Angus says that, in around late 2013 or early 2014, Nick told him that Joe “brought in” alcohol “off the books”; that “containers labelled as beer would come in that had cases of Jack Daniels whiskey or Mumm Champagne in the middle of them”; that the “extra stock” was stored in a place in the back of the warehouse indicated by Nick; and that, for certain customers, he would sell some stock “on the books” and some stock “off the books” for cash to lower the price”; and that this helped “move the stock quick” (Angus’ affidavit sworn 27 April 2008 at [42]). Angus has also deposed that Nick told him that there was an occasion when Joe had a container of beer arrive in which there was “extra stock” and that customs arrived to watch the stock unloaded but that “Joe just got us to keep forklifts and pallets moving everywhere so as they never realised what was happening under their noses”; that Joe would bring in “pallets and pallets of champagne from Malaysia and Singapore that he wouldn’t declare”; and that, before customs began to “crack down” Joe even managed to get whole containers of spirits marketed as beer but filled with Jack Daniels whiskey delivered (at [43]).

  3. Joe adamantly denies any such conduct. Joe’s evidence was that Nick’s role was to make up the loads, palletise the stock, shrink wrap the stock and load the van, and then to deliver loads to the smaller customers (see T 145.10-20). He said that Nick was a hard worker but added that Nick could not read or write well (T 145.30). It did not appear that there was any animosity on Joe’s part towards Nick; nor did Joe appear in cross-examination to be particularly defensive about Nick’s role in the warehouse.

August 2013 – Graham’s trip to Singapore

  1. In his affidavit affirmed 30 April 2018, Graham deposes that he travelled to Singapore in August 2013 to meet with Johnny Song (see at [10]); the purpose of the visit being to discuss the prices of liquor products that the Business was purchasing and to see if he could negotiate a lower price ([11]).

  2. Graham deposes to a conversation he had with Johnny Song at Mr Song’s bonded warehouse in Singapore in which he says Johnny Song told him that he (Mr Song) could not supply the stock any cheaper than he was already; that Joe’s overheads were lower than his competitors; that he (as I understand it, Graham) could look at reducing the costs of some products to help maintain turnover in Johnny Song’s business and increase Eastlings’ sales ([18]); and that he (Johnny Song) could do the labelling cheaper than Eastlings could in Australia ([19]). Graham says that Johnny Song also suggested mixed container loads of different products ([19]).

  3. Graham’s evidence (at [25]) is that, on the third day of his trip, while Johnny Song was driving him back to the airport, there was a conversation in which Johnny Song said to him words to the effect that “Joe had a system to minimise his costs” and that:

Joe used the excuse of cheaper labelling through Singapore as the reason a high proportion of his purchases were being shipped from here. The real reason was Joe regularly asked me to load extra cartons of beer, spirits and champagne in containers labelled as beer only, so the extra cartons would not show up on the shipping documents. Joe and I referred to this stock as “Corona Extra”, and whenever we spoke about it Joe called me on a different mobile number I have that is not in my name.

  1. Graham also deposes that Johnny Song told him that he would load “Corona Extra” into most containers going to J&J Wholesale Distributors (now known as Calidu) ([25]).

  2. Graham’s evidence is that Johnny Song also told him that he and Joe agreed to keep the quantities of “non-declared” stock at no more than 10% of a full container; that sometimes when Joe had a large number of containers in one shipment he would ask for lot of “Corona Extra” to be loaded (usually when the ports were very busy around Christmas); and that Johnny Song agreed with Joe that if Australian Customs ever found extra non-declared cartons, he (Johnny Song) would simply write a letter saying that there was a mistake at his warehouse in Singapore and that the staff had incorrectly loaded the wrong cartons (at [26]). (I interpose here to note that there is a letter in evidence to very similar effect, albeit in the reverse context, written by Joe in December 2014 to another Singaporean supplier, Mr Lim of Botillion Enterprise, that conveys a very similar message – see below – which lends some credence to Graham’s account of the conversation with Johnny Song.) Graham has further deposed (at [26]) that Johnny Song said:

That’s how Joe kept his margins high and had a lot of turnover. Joe told me he could offer his customers fully declared stock at good margins, but the overall average cost was less because Joe sold the non-declared stock at cheaper prices for cash.

  1. Graham has deposed (at [28]) that, after he returned to Sydney, he decided that Eastlings should cease using Mr Song as a supplier and diversify its supplier sources over time when new suppliers could be found. (As it transpired, however, it is clear from the evidence that Eastlings in fact did continue to have dealings with Johnny Song – see below; a discrepancy to which Graham was taken in cross-examination.)

2013-2014 – emails re supply from Windemac

  1. In evidence (Ex 5) are various emails from August 2013 through to July 2014 which indicate that, throughout that period, Eastlings was continuing to deal with Johnny Song and ordering a range of spirits, beers and cider from him (and enquiring as to San Pellegrino as well).

March 2014 dinner at Spanish restaurant in Glebe

  1. In March 2014, during a visit to Sydney by one of Calidu’s suppliers (Pedro Vidal of 99 Overseas Solutions), Angus, Joe and two others (Pedro Vidal and Joseph Bavaro – each of whom gave evidence in the proceeding) had dinner together at a Spanish restaurant in Glebe. There is a dispute as to what transpired at this dinner.

  2. Eastlings says that an arrangement was struck between Joe and Angus over two meetings (one being at this dinner at Glebe in March 2014) that Joe, through Mr Vidal, would assist Angus (or Eastlings) to import Spanish wine for Eastlings to sell to its customers. There was, however, no reference to any such arrangement in the affidavits first sworn in support of the Breach of Covenant claims. Rather, in his 30 April 2015 affidavit, Angus deposed that, at the March 2014 meeting, Joe showed him some wines. Angus deposed that following that meeting he called Joe twice over the following couple of months asking when the wine would be arriving to which Joe responded “I haven’t heard yet. I will let you know” (at [30]-[31]).

  3. Angus’ evidence in cross-examination was that, at the March 2014 dinner in Glebe, there was discussion about some cheap wine that Pedro Vidal was considering supplying from Spain and Portugal (T 99). Angus says that no agreement was made at the dinner but that Joe offered to help import the wine on Eastlings’ behalf (T 100.10-20). Angus further said in cross-examination that Pedro Vidal “most likely” provided samples to Joe and that Joe showed them to him but that Joe refused to leave them with him (T 100.50-101.15).

  4. Joe’s evidence, to the contrary, is that there was discussion at the dinner as to the importation of Spanish wine and that Angus did not object to it. Joe’s position is that Angus gave his permission to the importation at the dinner with Pedro Vidal and Joseph Bavaro (T 188.45-50). He says that he mentioned it to Angus both before and after the importation and that he dropped off samples to Angus (T 189). (Joe denies that he told Angus he would help bring the wine in for Eastlings (T 190). Joe was adamant that Angus agreed that he (Joe) should bring the wine in (T 187.50); and he says that he thought Angus was communicating with Pedro Vidal at the time (T 189.30; 190.15-20) (apparently suggesting that Angus would have been aware of the importation through these communications).

  5. I set out in due course the accounts given by the other attendees (Pedro Vidal and Joseph Bavaro) at this dinner as to what was said about the importation of the Spanish wine. It is relevant here, for the purposes of the chronology, simply to note that this meeting occurred some two months before Joe imported the first two containers of the Spanish wine about which complaint is here made (in about June/July 2014), that wine being delivered in early August 2014, and about one month before the liquor licensing advice (the Soubris Advice) was obtained by Joe from Mr Soubris.

  6. (Pausing here, on whichever version of the March 2014 dinner conversation be correct, it is at least clear that, from March 2014, Angus was aware of the proposed importation by Joe of cheap Spanish wine from Pedro Vidal in Portugal.)

Concerns by Eastlings re breach of restraint covenant

  1. The evidence of the Hamiltons is that, from April 2014, they began to have concerns that Joe and Grace had breached their restraint obligations under the Restraint Deed. Their evidence is that those concerns arose in the first place from the receipt by them (at the “J&J email address to which Eastlings the had access) of solicitors’ correspondence (the Soubris Advice, to which I refer below). The letter in question was addressed to Joe as director of “J&J Wholesale Distributors” and, broadly, related to the steps involved in applying for a wholesale liquor licence to set up a new liquor import business (an action that Eastlings maintains is prohibited by the Restraint Deed) (Angus’ affidavit sworn 30 April 2015 at [33]-[35]).

  2. As adverted to above, the defendants objected to the admission into evidence of the Soubris Advice. I provisionally admitted it (and the evidence taken on the voir dire in relation to it) subject to ruling in due course on whether there was an implied waiver in respect of the advice. For the reasons set out below, I have concluded that there has been no implied waiver of privilege and that the Soubris Advice (and the evidence on the voir dire concerning it) should not be admitted.

May 2014 email re Spanish wines

  1. On 14 May 2014, Angus sent an email to Pedro Vidal, among other things enquiring as to the estimated time of arrival of the wines that “Joe was organising” (see Pedro’s affidavit affirmed 3 November 2016 at Annexure A):

Pedro

How are things going with the Koppervieck and the Cintra Long Necks?

Also do you have an ETA of when the wines Joe was organising will be arriving?

  1. Angus’ evidence as to the 14 May 2014 email that he sent to Pedro Vidal asking for the estimated arrival time of the wines Joe was organising is that he understood that Joe was going to import the wine on his behalf (T 101.15-19). Angus’s evidence is that Joe told him that this would enable him to get business back from Chambers Cellars (which had apparently ceased ordering from Calidu almost immediately after the sale) (Angus’ affidavit sworn 30 April 2015 at [27]). As adverted to above, there was no reference in Angus’ 30 April 2015 affidavit to any conversation with Pedro Vidal about an agreement or arrangement with Joe for him to import wines on Eastlings’ behalf (see at [24]-[27]).

  2. Pausing here, the 14 May 2014 email is certainly consistent with Angus having an understanding at that stage of an arrangement whereby Joe would arrange the importation of the Spanish wines from Pedro Vidal on Eastlings’ behalf (or that the wines so imported would be acquired by Eastlings from Joe), since otherwise it makes little sense for Angus to be enquiring as to the likely time of arrival of the wines unless that was by way of some general query (and that seems unlikely since there is no evidence of personal communications between the two that were unconnected to the Business at around this time). However, that does not establish the terms of any such arrangement. That said, Eastlings’ complaint in this proceeding, as I understand it, is not that Joe (or, more precisely, Calidu Import Export) imported the wines at all but that he did so and then on-sold them to customers of Calidu Import Export (see T 562-563) – this being alleged to be a breach of the Restraint Deed. I deal with this in due course.

  3. Taken in cross-examination to the email of 14 May 2014 between Angus and Pedro Vidal, Joe maintained his denial that he was assisting Angus to organise wines for him (T 193-195). Joe’s position is that it would make no sense for him to do so as Angus was already in communication with Pedro Vidal and could have arranged this himself, i.e., he did not need Joe’s assistance.

Importation of wine by Calidu Import Export in or around July/August 2014

  1. In August 2014, Calidu Import Export imported into Australia a number (the exact number was disputed but nothing here turns on this) of cases of Spanish wine (in two containers) from 99 Overseas Solutions.

  2. This is the first of the liquor transactions the subject of the Breach of Covenant claims (see below). Eastlings, alleges that the importation occurred on or about 6 August 2014 (amended statement of claim at [52]). The defendants admit the importation in or about June/July 2014 (defence at [52]; Joe’s affidavit sworn 20 May 2015 at [5]). The difference seems to have arisen between the dates shown on the packing declaration and bill of lading (June and July dates, respectively) and the dates of invoice to the customers who purchased the wine from Calidu Import Export (19 and 26 August 2014, respectively), those customers being Valore Cellars and 21st Century Beverages.

  3. Grace’s evidence is that she was not involved in the ordering of the wine (and she was not present at the dinner where that was discussed); rather, that Joe told her what was to be delivered. Grace believed that Angus knew that the “wine was coming” and said that “he was presumably supposed to be taking it” but she made clear that she was not involved in the arrangements in this regard (T 248). Grace’s recollection of events is that Angus had not “got back to” Joe so that “Joe had to make a decision” and he sold it (T 248). Grace believes that one container went to “Mr Liquor” (T 249), the trading name of the entity with which Mr Jim Prapas was involved; and the other to Valore Cellars.

Suspicions as to illegal importation of “undeclared product” by Joe

  1. As noted above, each of Graham and Angus has given evidence of one or more conversations in which reference was made by others to a practice of Joe (through Calidu) of: (i) importing alcohol into Australia without the payment of excise (referred to in submissions as “undeclared product”); and (ii) that the importation occurred in the same containers that contained declared product. Those conversations are: Graham’s conversations with Johnny Song in Singapore in August 2013; and Angus’ conversations with Nick at the warehouse in around late 2013 or early 2014. It appears that from this time there were suspicions harboured by Graham and Angus as to the manner in which the liquor import business had been conducted by Joe (and its potential impact on the profitability of the Business).

  1. In his affidavit sworn 19 July 2020, Graham has deposed that, after he reviewed the trading figures for Eastlings’ business for the financial year ended 30 June 2014, which he says showed a significant reduction in turnover and profit when compared to the pre-acquisition figures, Graham decided that Eastlings needed to try to determine whether it was possible that Calidu, Joe and Grace had imported undeclared liquor from Windemac (Johnny Song’s company) (see Graham’s affidavit sworn 19 July 2020 at [3]).

Alleged conversations with Johnny Song about “Corona Extra” in August/October 2014

  1. Graham has deposed to a telephone conversation with Johnny Song in about August 2014, in which he says that he told Johnny that “we’re interested in getting some of that “Corona Extra” you told me about” (Graham’s affidavit sworn 19 July 2020 at [4]) and that Johnny Song said that he would speak to Angus and make some arrangements.

  2. Graham has deposed that he spoke to Johnny Song about “Corona Extra” on a further occasion in about late August 2014 or September 2014 (at [6]) and that Johnny Song said words to the effect that, if Windemac arranged the “Corona Extra”, he (Johnny Song) would have to be paid for his involvement; and also that he (Johnny Song) would give a good price to “get started”.

  3. Graham has deposed that he personally made payments to Windemac in Singapore through telegraphic transfers using the National Australia Bank (on 29 September 2014 in the sum of AU $4,000; on 7 October 2014 in the sum of SGP 4,254; and on 11 November 2014 in the sum of SGP 2,581.76) (at [8]). His recollection is that the payments were both for Johnny Song facilitating the shipment of “Corona Extra” and for the discounted stock. Graham also recalls Johnny Song saying that he did not want the payment to be processed through Eastlings’ usual payment procedure and that Joe had made similar payments, never in the same amount, using family and friends through Western Union and by cash in Singapore (at [10]). (Eastlings relies on the fact that payments were made in these miscellaneous amounts by Graham, rather than through Eastlings’ normal payment methods as corroborative of Graham’s evidence of his conversation with Johnny Song. Graham further recalls Johnny Song saying in about October 2014 that Christmas was a good time to do this as the port was very busy ([13]).

  4. In cross-examination, Graham confirmed that there were two or three conversations with Johnny Song in relation to the “Corona Extra”. He said he asked Johnny Song to do for Eastlings “exactly what he had done for Joe” (T 113). Graham accepted that he had no discussion with Johnny Song as to how the importation was to be organised and that he left this to Johnny Song and Angus to organise. Indeed, Graham accepted in cross-examination that, in relation to the later letter of voluntary disclosure, which referred to a request for five consignments, he had no idea how many consignments there would be (see T 121).

Prapas/Mr Liquor - short term loan – 27 August 2014

  1. In Angus’ affidavit sworn on 12 July 2016 (at [40], [32], [34]), at which time the proceeding related solely to the Breach of Covenant claims, reference is made to various monetary payments between Calidu Import Export and the trading entity known as Mr Liquor (who Joe accepted was a very significant customer of Calidu – see Joe’s evidence at T 201). Mr Prapas was the owner of the business associated with Mr Liquor and a friend of Joe and Grace.

  2. The case theory of Eastlings, at least as I understand it, at the time this evidence was included in the plaintiffs’ affidavits, was that these transactions were evidence of a broader business of importation of alcohol than the limited number of transactions about which the Breach of Covenant claims now concern. However, no such claim is now pressed. Therefore, the only relevance of these transactions (and the documentation of them as alleged short term loans) now goes to issues to credit.

  3. The first of these transactions about which there is evidence was a payment of $200,000 by cheque drawn on 27 August 2014 by Calidu Import Export payable to Mr Liquor (Ex C at 46). In evidence there was a document, on the letterhead of Calidu, that purported to record a short term loan agreement between Calidu (not Calidu Import Export) and Mr Prapas (not the entity, Mr Liquor) (see Joe’s affidavit sworn 3 November 2016 at Annexure A) in respect of a loan in the sum of $200,000 repayable in 60 days with 10% interest (T 202).

  4. Joe and Grace were cross-examined as to this transaction. Grace denied that the payment was to facilitate the importation of alcohol; her evidence was that it was on account of a short term loan (T 254). Grace also denied that she drafted that document after receiving Angus’ 12 July 2016 affidavit in the proceeding (T 255.10). Grace accepted that the cheque was made out to Mr Liquor whereas the money was repaid by Mr Prapas. Grace said that Mr Prapas was a friend; that he asked for a loan for building his home; and that “we” (she and Joe as I understand her evidence) could help him (T 255; 257). Joe, for his part, did not agree that it was a lot of interest for a short term loan nor did he agree that this was done to validate large sums of money being transferred – see T 203.

  5. There was another alleged short term loan of $400,000 repayable, within 5  months at an interest rate of 6%. A second cheque in the sum of $400,000 was drawn on 23 February 2015 by Calidu Import Export payable to Mr Liquor (Ex C at 49; T 258). As above, the loan document, however, was on letterhead of Calidu. Grace accepted that the cheque was paid from a different entity to that which was named in the short term loan agreement (and that the cheque was made payable to a different entity than named in the loan agreement). Grace again denied that this was payment for the importation of alcohol (T 259). Her evidence was that Calidu gave the money as a loan to Mr Prapas; and that there was no other payment. Joe again denied that this loan was fabricated to hide the fact that he was continuing to import beer and spirits after the sale (see T 203-204).

September 2014 email from Pedro Vidal to Joe re wine sales

  1. Meanwhile, on 9 September 2014, Pedro Vidal sent an email to Joe (at Grace’s email address, which is not surprising since the evidence is that Joe was not particularly computer literate and did not send emails himself), (see Pedro’s affidavit affirmed 3 November 2016 at Annexure B):

Dear Joe,

How are you?

I just spoke with Gus about beers and he asked if I knew about wine status! I said that you just received the container and for sure you will contact him!

By the way any news about your wine sales of Baron de Capel and Tio de la Bota?

Any ideas for Gran Vega?

  1. Again, that Angus was apparently asking Pedro Vidal for information as to the “wine status” is consistent with Angus having the understanding that the importation of Spanish wines from Pedro Vidal was for Eastlings’ business purposes. However, again, it does not say anything as to the terms of any such arrangement.

  2. In Joe’s affidavit sworn 25 May 2015 (at [24]) he deposes to a conversation with Angus to the following effect; which in terms is consistent with Angus understand that the importation was for Joe’s purposes not for Eastlings.

Angus:     How are the wines going?

Joe:      Hopefully they’re on their way.

Angus:    Have you any idea how much it will cost you all up?

Joe:      Not at the moment mate.

  1. Joe has deposed (at [25]) to there being no further conversation with Angus about the wines. In his oral evidence, Joe at first said that, once the container landed, he had a conversation with Angus, but then he corrected that to say that there was no conversation; and that he just dropped off some samples or took some samples to Angus (T 196-197). (Angus denies that any samples were left with him but he agrees that he was probably shown some samples.)

  2. Joe says that when he imported the wine from Pedro Vidal in June/July 2014 he understood that the importation of wine was something Calidu had done (in a small way) prior to the sale (T 187) but he maintained that it was not something substantially similar to the Business. Further, Joe’s evidence was that Mr Parisi (the solicitor who drafted the Restraint Deed) said he could import wine and that the importation of wine did not breach the deed (Joe said that this was something said around the time – see T 187.45-50 which I understood to mean at around the time of entry into the Restraint Deed).

Exportation of alcohol by Calidu Import Export in October and November 2014

  1. In or about October 2014, Calidu Import Export exported: 820 cases of Iron Mark Whiskey (or, as the defendants say it is correctly named, Ironmask Whiskey), 130 cases of Prince Napoleon Brandy; and 191 cases of Confederate Bourbon Whiskey to an entity associated with Johnny Song’s brother-in-law, Mr Lim (Botillion Enterprise). This is the first exportation of alcohol about which complaint is made (amended statement of claim at [53]). Calidu Import Export invoiced Botillion Enterprise the sum of $75,306. Eastlings says that it appears that Calidu Import Export paid $56,826.75 for the stock, so Eastlings contends that the best evidence of profit was the difference of $18,479.25.

  2. The second exportation of alcohol about which complaint is here made was in about 28 November 2014, again to Botillion Enterprise, consisting of 2,128 cases of Black Scot Whiskey; and 604 cases of Baron de Capel wine (that being a portion of the Spanish wine imported from Pedro Vidal) (amended statement of claim at [54]). Calidu Import Export invoiced Botillion Enterprise the sum of $64,048. Eastlings says that Calidu Import Export appears to have paid D’Aquino Brother $32,771.20 for the stock, so Eastlings contends that the best evidence of profit is the difference of $31,278.80.

  3. In substance, the defendants admit the export of alcohol from Australia on 30 October 2014 and 28 November 2014 (see [53]; [54] of the defence). However, they deny that this was in breach of the Restraint Deed and that the Business of Calidu was involved in the export of liquor from Australia (see [75](a) and (b) of the defence).

Alleged importation of undeclared product by Eastlings – November 2014-January 2015

  1. Graham has deposed in his 19 July 2020 affidavit that Eastlings received five shipments between November 2014 and January 2015 from Johnny Song (or Windemac) which contained a total of 1,000 extra (non-disclosed) cartons of beer ([12]). He has deposed (at [15]) that, after the fifth shipment, he said to Angus that they now knew it was possible to import undisclosed items. Graham’s explanation as to why he did not just import one container to establish the feasibility of such illegal importation is that Johnny Song would probably have raised a query – see T 121).

  2. Angus has similarly deposed that five shipments arrived from Windemac with “Corona Extra” from between December 2014 and January 2015 (Angus’ affidavit sworn 19 July 2020 at [7]). Annexed to Angus’ affidavit sworn 19 July 2020 are copies of the bills of lading for four of the five shipments and the Paul’s Customs & Forwarding Solutions Pty Ltd (Paul’s Customs) tax disbursement invoice for the fifth of those shipments (there being no bill of lading for the fifth shipment).

  3. Pausing here, it should be noted that there was no disclosure of this conduct in the affidavits initially sworn by Angus and Graham in the proceeding (it will be recalled that when the proceeding commenced in May 2015 it concerned only the alleged breach of the Restraint Deed – see below). The first evidence going to any allegation of illegal activity carried out between Joe and Johnny Song was in the April 2018 affidavits filed in the proceeding (and even then there was nothing in those affidavits to suggest that Eastlings had engaged in similar conduct). It is difficult to avoid the conclusion that (if the illegal importation in fact occurred) Eastlings was keeping this evidence “up its sleeve” so to speak, perhaps with the hope that it might not ultimately be necessary to disclose any such illegal conduct on its part. Indeed, that would also perhaps explain why there was only limited documentation apparently kept of the transactions (thought this is mere supposition on my part).

30 December 2014 letter from Joe to Botillion Enterprise

  1. Returning to the chronology of events, there is in evidence a copy of a letter dated 30 December 2014 on Calidu Import Export letterhead, signed by Joe, addressed to Mr Lim of Botillion Enterprise, informing Mr Lim of, and apologising for, a mistake that it was said had been made in relation to the invoicing and packing of a shipment of alcohol to Mr Lim. The letter referred to a shipment of Black Scot and De Capel red wine. The mistake was explained on the basis that the company (presumably Calida Import Export) was very busy, new staff were in training, and there were a large number of containers. (That is not consistent with Joe and Grace’s evidence that Calidu Import Export was only involved in the importation of a small quantity of Spanish wine.) Joe wrote that he was very regretful and that he would be travelling to Singapore to rectify the error (though it is entirely unclear as to what any such rectification would involve).

  2. Eastlings says that this is a letter of the very kind that Johnny Song told Graham would be sent by him (i.e., Johnny Song) if there were to be a discovery by customs of the “Corona Extra” in a shipment to Australia – see above; and it no doubt fuelled the suspicions that Graham and Angus already held by this stage about the importation of undeclared product involving Joe and Johnny Song. Joe, however, denied in cross-examination that this letter was written because customs in Singapore was “tipped off” that some of the products described in the invoice and packing slip were not declared and denied that this was an attempt not to pay duty (T 200).

Further importation of Spanish wine – April 2015

  1. A further container of Spanish wine was imported by Calidu Import Export from Pedro Vidal on or about 29 April 2015. Joe accepts that he did not check with Angus in relation to this third wine importation in March/April 2015. Joe cannot recall if he spoke to Angus about the third container (T 197).

Commencement of proceedings by summons filed 1 May 2015

  1. This proceeding was commenced by Eastlings by way of summons filed 1 May 2015. As already noted, the original pleadings concerned only the Breach of Covenant Claims; and the relief sought was to enforce the Restraint Deed. The matter in due course proceeded by way of pleadings (see below), in which the additional allegations of misleading and deceptive conduct were made.

Subpoena to Paul’s Customs – 2016

  1. In April 2016, Eastlings caused a subpoena to be issued to Paul’s Customs, the local shipping agent used by Calidu prior to the sale. In around November 2016, there was production of a large volume of documents in answer to that subpoena (the Paul’s subpoena documents). Graham reviewed those documents and Eastlings then retained an expert, Dr Ian Fargher, to review them. Eastlings says that those documents revealed significant freight anomalies, in particular from J&E Winery and Windemac. Dr Fargher produced a preliminary report (dated 23 March 2017) which was served on the defendants in April 2017 (see Graham’s affidavit sworn 20 July 2021 at [10]). (The defendants submit that this was, in effect, to place pressure on them to settle the proceedings.)

Pleadings

  1. On 7 July 2017, Eastlings filed its statement of claim, pleading for the first time its allegations of misleading or deceptive conduct (the final iteration of the pleadings being the amended statement of claim filed in court on 20 July 2020).

April 2018 affidavits

  1. In April 2018 each of Graham and Angus filed an affidavit deposing to matters related to the misleading or deceptive conduct allegations (and raising for the first time the disputed conversations as to the alleged illegal importation). On 30 April 2018, Eastlings served the expert report of Dr Fargher. Graham has deposed to his belief that, because the report contained serious matters of potentially unlawful conduct (on, I interpose to note, the part of one or more of the defendants but not Eastlings as well), he believed that the defendants (and any experts engaged by them) should have the opportunity to respond thereto prior to Graham making a disclosure (that he considered he would or might be obliged to make) pursuant to s 316 of the Crimes Act 1900 (NSW) in relation to conduct of the Joe, Grace and Calidu (see Graham’s affidavit sworn 20 July 2020 at [7]; [12]). Following this, the defendants served their expert evidence and Eastlings then served expert evidence in reply.

Voluntary disclosure by Eastlings to Australian Border Force

  1. Graham has deposed that in around late November 2019 or early December 2019 Eastlings engaged a solicitor at VoxLaw Solicitors (VoxLaw) (see Graham’s affidavit sworn 20 July 2020 at [15]). Graham has deposed that by this time he believed his obligations pursuant to s 316 of the Crimes Act were enlivened (see [15]) and that he could not see a way that he could make disclosure of Eastlings’ actions without explaining his concerns in relation to the potentially unlawful conduct in which he believed Joe, Grace and Calidu had engaged (see at [16]). He also gave evidence in cross-examination in effect that he had waited to see the defendants’ response to those allegations.

  2. By letter dated 16 December 2019, on behalf of Eastlings, VoxLaw disclosed to the Voluntary Disclosure Unit of Australian Border Force a short payment of duty across five Full Import Declarations (Graham’s affidavit sworn 20 July 2020, Annexure A). Following email communication from the Senior Border Force Officer (Mr Ian Moodie), by letter dated 31 January 2020 VoxLaw made voluntary disclosure on behalf of Eastlings of underpayments of customs duty and GST as a result of additional goods being placed in shipping containers while not declared on the shipping documents and subsequently not declared across five separate Full Import Declarations (Graham’s affidavit sworn 19 July 2020, Annexure B). The letter identified the shipments and calculated the duty payable at $13,665.38 plus GST of $1,366.54.

  3. The disclosure letter made reference to various matters, including: (i) that Johnny Song had been charged with what were referred to as unrelated but similar criminal offences (to which he had pleaded guilty): (ii) that Mr Song had been sentenced to a total fine of SGP $3,984,000 on 10 March 2016; and (iii) the allegation that Calidu Import Export had imported and exported certain goods “in clear breach of the restraint deed”.

  4. As at the date of the hearing, Angus confirmed that the Australian Border Force had not taken any steps to impose duty on Eastlings for the five shipments the subject of the disclosure.

Particular discrepancies in relation to shipments from Windemac

  1. It is useful at this point to note two of the discrepancies about which there was no little time spent in the course of the evidence from various witnesses.

  2. First, a shipment from Windemac in Singapore (see Ex G), where the N10 form and tax invoice from Paul’s Customs recorded that the shipment contained 3,597 packages but the invoice dated 5 September 2012 from Windemac recorded only 3,447 cartons (a discrepancy of 150 packages between what was invoiced by Windemac and what arrived as per the customs N10 document). Joe’s evidence was that he would have paid duty on 3,597 packages (the experts disagree with this – see below). The suggestion put to Joe was that this was intended for him not to pay duty on 150 cases and that a mistake occurred. Joe did not accept that. He maintained that he would have paid duty on 150 cases (T 181) i.e., the amount that actually arrived.

  1. Second, another shipment from Windemac (see Ex H) where there was a discrepancy as between 1,400 and 1,500 cases. Calidu sent a single container load through to Griffith (invoice 133) containing 1,500 packages (of Becks beer) whereas the packing list recorded 1,400. Calidu charged 21 Century Beverages for 1,500 cases but the packing list noted 1,400. Joe’s evidence was that this was a typographical error and he said “I remember this distinctively” (T 183.15). Joe was adamant that whatever was on bill of lading was what he ordered; that while it was all “in his head”; the independent record of what he sold was the invoice (T 183.30-40). Similarly, Grace’s evidence was that this was a typographical error (at T 270). The suggestion for Eastlings is that the shipment contained 1,500 and was understated on the packing list.

  2. It was pointed out that if there were only 1,400 cases in the container then (i.e., 1,400 x the product price of 10.8 = 15,120), Calidu had significantly overcharged 21 Century Beverages (cf 1,500 x 10.8 = 16,200). Grace denied that the invoiced amount was paid by the purchaser and that the extra amount was paid in cash.

Pleaded claims

  1. As pleaded in the amended statement of claim, Eastlings brings two distinct sets of claims.

Misleading or deceptive conduct

  1. First, Eastlings alleges (see [9]-[48], [56]-[70] of the amended statement of claim) that Joe, Grace and Calidu engaged in misleading or deceptive conduct in breach of s 18 of the Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law by the making of a number of misleading or deceptive representations defined as the Turnover Representation, the PEBITDA Representation, the Profit Representation, the Endorsement Representation, and the Negotiation Representation (see above) and by the Undeclared Units Omission (see below).

  2. The Undeclared Units Omission (see [44] of the amended statement of claim) is defined as the omission to inform Eastlings during the negotiations for the sale of the business of the importation and sale by Calidu of what are defined as: the 2011 Undeclared Units and 2011 Undeclared Weights (see at [11], [13]); the 2012 Undeclared Units and 2012 Undeclared Weights (see at [21], [23]); the 2013 Undeclared Units and 2013 Undeclared Weights (see at [31], [33]).

  3. Relevantly, it is alleged that the Undeclared Units and/or Undeclared Weights were sold by the Business to its customers at a significantly lower price than other products as an inducement to those clients to purchase the Business’ other alcohol products at full price (see at [16], [26], [36]); that the customers of the Business paid for the Undeclared Units and/or Undeclared Weights in cash (see [17], [27], [37]); and that the sale of the Undeclared Units and/or Undeclared Weights was not recorded in the financial records of the Business ([18], [28], [38]).

  4. It is alleged that, by reason of the conduct pleaded at [9]-[38]: (i) the Turnover, PEBITDA and Profit Representations did not accurately reflect the turnover, PEBITDA and profit of the Business; (ii) the Endorsement Representation was misleading at the time it was made; and (iii) that Joe, Grace and Calidu knew those matters and knew that the Negotiation Representations were misleading at the time they were made (see [56]-[61]). It is further alleged that Joe, Grace and Calidu knew or ought to have known that the Undeclared Units Omission would mislead Eastlings as to the matters pleaded at [57]-[61] and further as to the legality of the Business operations ([62]).

  5. It is alleged that each of the Representations and the Undeclared Omission was misleading or deceptive, or likely to mislead or deceive, giving rise to the contraventions of the Australian Consumer Law (see [63]-[65]) and, further or in the alternative, that Joe and Grace have accessorial liability for the contravention by Calidu (see [65A]).

  6. Eastlings alleges that it relied on the Representations when deciding to purchase the Business ([66]); that, as a matter of fact, as at the sale the true value of the Business was $1,696,104 ([67] as orally amended in the course submissions) and that, had Eastlings become aware at any time up to completion of the sale of the facts of which it was not informed by reason of the Undeclared Omission or of the true state of the Business, it would not have purchased the Business or dealt with Joe, Grace and Calidu at all ([68]). (In other words, this is pleaded in effect a “no transaction” case).

  7. The loss and damage alleged to have been suffered as a result of the alleged misleading or deceptive conduct is particularised at [69] to include the primary purchase price, damage to goodwill and loss of income.

Relief claimed

  1. In essence, Eastlings contends that the practice of importing “undeclared product” into Australia enabled Calidu to sell cartons of alcohol to its customers at a significantly lower cash price “off the books” (as it had avoided the payment of excise) and that this practice was used to incentivise those customers to buy other more expensive and less competitive products from Calidu. Eastlings says that the practice meant that the profit margins of the business were artificially inflated (and unsustainable) and that Calidu’s books were therefore misleading. Eastlings says that this also meant that the Information Memorandum, and the material said to support it, did not reveal the true financial position of the business, which was artificially inflated by the off the books conduct; and that this explained why the Business underperformed almost immediately after the sale (when the practice was stopped).

  2. It is said that, had Eastlings known that the Calidu business profit margins were artificially inflated and that Calidu was involved in a systemic practice of under-declaring stock to avoid the payment of excise and to incentivise the recorded sales, Eastlings would not have purchased the Business.

Breach of the Restraint Deed

  1. Second, (see [49]-[55], [71]-[73] of the amended statement of claim) is the allegation of breach of the Restraint Deed by reason of Joe and Grace engaging in business substantially similar to the Business, by reference to: (i) the importation and sale by Calidu Import Export on or about 6 August 2014 of a quantity of Spanish wine; (ii) the export by Calidu Import Export on or about 30 October 2014 of a quantity of whiskey and brandy; (iii) the export by Calidu Import Export on or about 28 November 2014 of a quantity of Scotch whisky and wine; and (iv) the import by Calidu Import Export on or about 29 April 2015 of a further quantity of Spanish wine. The loss or damage alleged to have been suffered as a result of the alleged breach of the Restraint Deed is particularised (at [73]) to include damage to goodwill and loss of income.

  2. In its pleaded claim, Eastlings claims damages for misleading or deceptive conduct in the amount of $2.5 million and for an inquiry to be held to determine the nature and extent of the loss and damage for breach of the Restraint Deed or alternatively, an account of profits. However, by the time of the hearing, the relief sought as to the Breach of Covenant claims was restricted to the profit said to have been made on the particular instances of importation and exportation said to have been in breach of the restraint covenants of $67,594.49 which is said to represent the loss suffered by Eastlings consequent upon the breach.

Defence filed 7 September 2017

  1. As to the misleading or deceptive conduct claims, relevantly, there is an admission that certain of the alleged representations were contained in the Information Memorandum or by reference to the financial records as defined in Eastlings’ answers to particulars dated 29 August 2017 (see at [41]; [42]) (but not the PEBITDA Representations); a denial that Joe and Grace were the owners of the Business; a denial that any representations were made by Joe and Grace (see at [43]); a denial of the existence of the alleged Undeclared Units and Undeclared Weights (at [44]); and, broadly, a denial of most of the other allegations that found the claims.

  2. As to the Breach of the Restraint Deed, the defendants deny that the Business was involved in the export of liquor from Australia and deny that the importation of wine into Australia was part of the Business or substantially similar to the Business prior to 24 May 2013 ([75](a)-(b) of the defence). The defendants admit that Calidu Import Export imported wine into Australia on or about June/July 2014 (though denying the amounts alleged ([52]); deny that Iron Mark Whiskey was exported, though they say the product Ironmask Whiskey was exported, and otherwise admit the allegations at [53]; and admit the export and import alleged at [54]-[55].

  3. Relevantly, the defendants say that first the importation of wine into Australia by Calidu Import Export (in or about June/July 2014 and again in 2015) was expressly permitted by Eastlings (through Angus) in or about March 2014 ([75](c) of the defence). Second, the defendants say, further or in the alternative, that Angus represented to them that Eastlings consented to or did not oppose the importation of wine by Joe and/or Grace or an entity associated with them, that the defendants relied to their detriment on that representation in importing the said wine and subsequently, Eastlings is estopped from denying the permission given to the importation of such wine (see [75](d)-(h) of the defence). The particulars to [75](c) and (d) of the defence refer to a conversation at the March 2014 dinner in this regard (see above). The defence also pleads, by reference to the alleged representation, a waiver of any prohibition under the Restraint Deed in relation to the importation of wine (see [75](e)) and that Eastlings varied the Restraint Deed to permit the importation of the said wine (see [75](f)).

  4. The defendants adamantly deny any involvement in illegal activity of the kind that is here alleged.

Ruling as to Soubris Advice

  1. Before turning to the evidence of the lay witnesses, it is convenient first to deal with the objection to the admission of what I refer to as the Soubris Advice (that being a letter of advice dated 4 April 2014 from Mr Soubris of Soubris & Associates).

  2. In terms of the chronology set out above, it is relevant to note that the Soubris Advice was obtained in April 2014, just after the 28 March 2014 meeting at the Spanish restaurant in Glebe at which the importation of cheap Spanish wine was discussed and only some two to three months before the importation of that wine by Joe in August 2014 (pursuant to shipping documents dated June/July 2014). Eastlings says that in that importation, Joe used the same methodology that he had indicated to Mr Soubris, as set out in the background of the Soubris Advice; and that, therefore, the document is relevant. It is accepted that, on its face, the Soubris Advice is privileged but Eastlings says that that privilege has been waived for the following reasons: first, that the issue as to whether the conduct of a wine import business was, or would be, substantially similar to that conducted by Eastlings is an issue that arises on the pleadings; and, second, by way of a knowing involuntary disclosure pursuant to s 122(3) of the Evidence Act.

  3. As noted above, Eastlings received the Soubris Advice when it was sent to the old J&J Wholesale Distributors email address (see Angus’ explanation at [33] of his affidavit sworn 30 April 2015). The advice was addressed to Joe, as director of “J&J Wholesale Distributors”, and sent by hard copy to a residential address but (as indicated above) it was also sent by email to the company’s old email address and to the attention there of Grace (as Mr Soubris confirmed in his oral evidence). The letter referred to a “catch up” with Grace and Joe on 1 April 2014. It is not clear precisely who was Mr Soubris’ client (i.e., the company and/or one or both of its directors) but nothing ultimately turns on this. Eastlings seeks to rely on the Soubris Advice (as part of the relevant factual matrix) to show that Joe and Grace were seeking advice in relation to the establishment of a new business

  4. The defendants say that there has been no waiver of privilege because the letter of advice was inadvertently sent to the old email address (i.e. that this was inadvertent disclosure). However, insofar as this was said to raise the principles discussed by the High Court decision in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 303 ALR 199; [2013] HCA 46, Eastlings points to the emphasis there placed (at [49]) on the need for a prompt request for recovery of the document that had been inadvertently discovered; i.e., that courts will normally only permit an error to be corrected if a party acts promptly. Eastlings points out that the defendants have known about Eastlings being in possession of the Soubris Advice since at least as early as the service of Angus’ 30 April 2015 affidavit; that they have responded to that evidence; and that there is no evidence of any attempt to have the Soubris Advice retracted or returned (see Mr Soubris’ evidence in this regard). It is said that a delay of over five years to raise this issue is too long; and that privilege has been waived and/or lost by consent. It is therefore submitted that the document, and the oral evidence relating to it, should be admitted.

  5. Further, Eastlings maintains that the principles of issue waiver here apply; reliance being placed on the fact that advice was being sought for the establishment of a new business. In particular, reference is made to the allegations contained in the pleading (at [51]-[55]), and denied by the defendants, that Joe and Grace engaged in business substantially similar in the premises to the Business. It is submitted for Eastlings that the denial of breach of that covenant puts in issue the relevant facts and circumstances such as the establishment of a new business and the steps that were being undertaken in that regard. Insofar as one of the covenants was the holding of a liquor licence having substantially the same attributes and benefits as the liquor licence held by the Business, it is said that this was precisely what was being sought from Mr Soubris (see cl 2(c) of the Restraint Deed; T 547). There is, however, no dispute as to the fact that Calidu Import Export was incorporated when it was and that it acquired a liquor licence as it did.

  6. The defendants argue that there was no pleading as to the receipt of advice in relation to this issue (nor any denial thereof); and that the denial that there had been a breach of the relevant covenant in the Restraint Deed did not put in issue anything in relation to any legal advice sought or obtained in that regard.

  7. The applicable authorities in relation to implied waiver were considered by the Court of Appeal in GR Capital Group Pty Ltd v XinfengAustralia International Investment Pty Ltd [2020] NSWCA 266 at [21]-[51] per Macfarlan JA (with whom McCallum JA and Simpson AJA agreed) (GR Capital Group). The test is one of inconsistency between the privilege holder’s conduct and its maintenance of privilege (not one of general fairness or relevance to an issue in the proceeding) (see GR Capital Group at [57]; Mann v Carnell (1999) 201 CLR 1; [1999] HCA 66 at [29] per Gleeson CJ, Gaudron, Gummow and Callinan JJ; Chen v City Convenience Leasing Pty Ltd [2005] NSWCA 297 at [39] per Gzell J (with whom Bryson JA and Windeyer J agreed)). In GR Capital Group, at [57], Macfarlan JA drew from the authorities, inter alia, the propositions that:

57.   …

(4)   The determination of whether there has been an express or implied assertion about the contents of privileged communications giving rise to a relevant inconsistency is an evaluative decision to be made after consideration of the whole of the circumstances of the case. No hard and fast rules can be formulated. Those circumstances will include the degree of relevance of any advice to the issues in the proceedings, the centrality of the relevant issues in the proceedings and the likelihood of advice having been given, informed, as the High Court said in Mann v Carnell , by considerations of fairness.

(5)   Having considered all those circumstances, the court must decide whether it would be inconsistent with the privilege holder’s conduct for it to maintain privilege. The line between relevance to an issue and inconsistency in this context may be very fine and therefore one on which views might well differ.

  1. In the present case, the defendants have not directly put in issue their state of mind as to any legal advice they sought at or around the time of incorporation of Calidu Import Export. As to whether the substance of communications in which that advice was sought or provided has been provided, in Joe’s affidavit sworn 26 October 2015 at [6], he refers to his earlier affidavit sworn 20 May 2015 (at [4]) in which he says that he acknowledges and documents the importation of three containers of wine “carried out only after we obtained legal advice that such an importation was not in breach of the restraints which limited our ability to engage in activities ‘substantially similar’ to that of the business sold, which was the sale of beer”. (Paragraph 4 of the earlier affidavit acknowledges the importation of the said wine but it does not refer to any legal advice obtained in that regard.)

  2. On one view it might have been thought that Joe’s 26 October 2015 affidavit contained a disclosure of the substance of that legal advice insofar as it refers to legal advice “that such an importation [i.e., the three containers of wine] was not in breach of the restraints which limited our ability to engage in activities ‘substantially similar’ to that of the business sold, which was the sale of beer”. However, in the course of oral evidence, it became clear that Joe was likely to be there speaking about advice from Mr Parisi (at or about the time of the Restraint Deed) about the content of the Restraint Deed and specifically about the restraint covenant in question (see, for example, T 187). That advice must have been oral (since there was no written advice produced in answer to the call). Mr Parisi did not recall invoicing for such an advice but did recall that he had advised on the restraint.

  3. The sending of the Soubris Advice to an old “J&J” email address was clearly an inadvertent disclosure on the part of Mr Soubris. True it is, that the defendants did not seek to have that advice returned or the email retracted once it became apparent that Eastlings was in possession of the letter. However, what seems to me to be more relevant is the question whether anything has been put in issue that is inconsistent with maintenance of the claim for privilege.

  4. The fact that the defendants deny that their conduct is in breach of the Restraint Deed does not in my opinion put in issue such advice as Joe and Grace may have sought and obtained at the time (not least because the question is what was done; not what they might have contemplated at one stage doing or what they might have been advised to do or not to do; and there is no state of mind in issue as to the conduct said to have been in breach of the Restraint Deed). Nor is such a denial in my opinion inconsistent with the maintenance of privilege over the content of any such advice (or instructions given at the time the advice was sought).

  5. The fact that the defendants may have sought advice as to the operation of a new business or as to how they might intend to conduct any such new business in the future to my mind says nothing about whether or not the incorporation of Calidu Import Export and its obtaining of a liquor licence to permit the importation of liquor, or indeed, the subsequent importation or exportation of liquor through or by that company, amounts to conduct in breach of the Restraint Deed. (Indeed, on one view, as Eastlings accepts, seeking advice as to whether a particular business operation would contravene the restraint covenant in the Restraint Deed would be a responsible course for a party bound by such a restraint to adopt. However, Eastlings says that this was not the advice sought from or provided by Mr Soubris.) Furthermore, whether any advice that was given was correct (or whether the instructions were sufficiently comprehensive to enable the giving of a considered advice) or, indeed, whether that advice was followed, is not to the point.

  1. In any event, it is said that the importation of wine by Calidu Import Export was agreed to by Angus. It is said that Mr Vidal (at T 362.48; T 363.27-47; T 364.7-12; T 366.28-367.15; T 368.14-20) was clear in his evidence that Angus did not wish to partake in the importation of wine (and preferred to focus on beers); and that it was suggested that Angus might acquire the wines from Joe, but it was Joe who was to incur the risk of importing the product.

  2. The defendants say that the assertion that Joe was acquiring the stock on behalf of Eastlings makes no sense. It is said that Eastlings did not require Joe to import the stock; rather, Eastlings had an existing relationship with Mr Vidal. It is noted that Eastlings leads no evidence of the terms of this alleged relationship, such as price or when and how payments were to be made, or when and how the stock was to be provided.

  3. The defendants say that, despite knowing of the arrival of the wine in about August/September 2014, Eastlings made no attempt to recover that stock according to the alleged relationship or arrangement; rather, it sent a solicitor’s letter on 21 April 2015, which made no reference to any alleged arrangement to acquire the wine on Eastlings’ behalf (Ex 1 at p 80). Further, it is noted that in respect of the wine importation, Angus’ original affidavit sworn on 30 April 2015 makes no reference to an alleged arrangement or discussions with Mr Vidal made at a dinner party. The defendants say that the evidence of Joe is consistent with this position; namely, that he delivered samples to Eastlings but heard nothing more (Joe’s affidavit sworn 20 May 2015 at [19]-[20]).

Determination

Misleading or deceptive conduct claims

  1. The primary focus of the proceeding ultimately was the claim for damages for alleged misleading or deceptive conduct and so I propose to address this first. It is predicated on the allegation that Joe (through Calidu) engaged in the practice of the illegal importation of liquor (and that Grace knew or was a part of that conduct); which meant that the Representations made prior to the sale of the Business were misleading or deceptive (to their knowledge). It is accepted by Eastlings that the allegation of illegal conduct is a serious allegation and that it must be proved having regard to the Briginshaw principles referred to above and s 140 of the Evidence Act, which require an actual persuasion having regard not only to the seriousness of the allegation but to the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding.

  2. As the defendants point out, such allegations cannot be established by inexact proofs, indefinite testimony or indirect inferences; the defendants citing s 140(2) of the Evidence Act and Heydon, Cross on Evidence (7th Australian ed, 2004, LexisNexis Butterworths) at [9050]; and referring to Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 for the proposition that inferences must do more than give rise to conflicting inferences of equal degrees of probability such that the choice between them is a mere matter of conjecture (referring to what was said by Lord Robson in Richard Evans & Co Ltd v Astley [1911] AC 674 at 687).

  3. The defendants say that the evidence of Angus in relation to the alleged illegal importation was limited to annexing relevant bills of lading; and that the evidence of Graham was limited to two to three conversations. It is noted that no evidence was given of conversations or arrangements made between Angus and Mr Song, although it is alleged such conversations occurred; and that no evidence is given of how arrangements were made for the five shipments or how the price was determined.

  4. Further, it is said that the evidence given in respect of payments made was contradictory. Graham gave evidence of three payments between 29 September and 11 November 2014 for the five shipments. It is noted that the payments were made prior to any shipment occurring or any extra stock being apparently identified; that the payments made totalled $10,440 and that all the payments were made from an NAB account in Graham’s name to Windemac; and that, subsequently, Angus gave evidence (it is noted that this was for the first time under cross-examination), that payments were made from the CBA in respect of invoices for warehousing and logistics (Ex 2; Ex 6; T 45-46; T 78-80). The defendants point out that the issue of payments had been the subject of communications between the parties following the issue of a Notice to Produce (see Angus’ evidence at T 80.4-20). Part of the difficulty in relation to the evidence of payments to Singapore said to be for the “Corona Extra” stock is that the response given by Eastlings to a request for particulars in this regard was that the payments for the “Corona Extra” stock were made out of Graham’s NAB account (T 79) and there was no reference to any payments made out of a CBA account whereas Angus’ evidence now seems to be that the payment for the first invoice was from the CBA account (see on 6 November 2014).

  5. As to the alleged illegal importation by Eastlings, Angus accepted that he had been advised he could be liable for additional duties of approximately $15,000 (T 35). He said that he had not yet been the subject of any additional duties and that, since 2020 there had been no further communications with the Australian Border Force (T 36). Angus was adamant in his denial that the disclosure was false as a means to bolster the case; and was adamant that Johnny Song was involved in the smuggling operation (T 36). Angus accepted that engaging in four further shipments of “Corona Extra” stock after the first increased the risk that Eastlings would be caught; and he accepted that there could have been serious consequences of the conduct in which he says Eastlings engaged (T 60). However, he did not accept that it made no sense to risk its liquor licence by engaging in illegal activity (see T 60-61).

  6. As to the warehousing and logistics invoices provided by Johnny Song (Ex 2), Angus’ evidence was that these were to do with the extra stock (T 78). That is consistent with Mr Song’s evidence in cross-examination that he did not provide warehousing or logistics services and that the warehouse was for his own use (T 334.1-5). However, Mr Song later appeared to resile from this evidence (T 343.1-10; T 344-345).

  7. Angus’ evidence was that, at the time, he did identify the customers who received “extra stock” when the Business was operated by Joe (T 72.40-45). He accepted that the legal representatives had been given instructions not to make enquiries of customers in this regard (T 72).

  8. Angus agreed that there was no reference in the stock lists or inventory lists to any additional stock in the containers the subject of the five shipments in question by comparison with the level of stock recorded in the bills of lading for the five shipments (see Ex 7; T 81-82).

  9. Eastlings says that the fact that there is documentary evidence to support the transfer of money from Graham directly to Windemac, in different currencies, over a period of time, provides contemporaneous support for Graham’s evidence. The plaintiffs say that the invoicing in Exhibit 2 (invoices of Windemac to Eastlings in amounts that did not match the transfers) was a fiction in any event – “a complete manufacture in order to cover up the cash transfers and the transfers for legitimate transfers which were in concert with the cash transfers for the stock” (see T 554).

  10. I am not satisfied to the requisite standard of persuasion that it has been established that Joe (with Grace’s knowledge and/or assistance) engaged in such conduct. I quite understand the suspicion that the Hamiltons harbour as to that conduct, not least because I accept their evidence that they established for themselves that there was a way to import extra stock without declaring it to customs for duty and excise purposes, by engaging in such conduct with the assistance of Johnny Song. While I accept that the documentary evidence of the particular shipments through which Eastlings illegally imported undeclared product is not complete (and indeed there was conflicting information provided as to the accounts through which payments for those goods were made), I consider that it would be extraordinary for the Hamiltons to expose themselves to criminal liability simply to “bolster” their case by disclosing such conduct to the Australian Border Force (even though that disclosure came under a regime by which it might be expected that their liability might be limited to the imposition of additional duties). I accept that the Hamiltons engaged in that conduct for the purpose of testing their suspicion (based on what they understood from Nick and from Johnny Song himself) that such illegal importation was possible (misguided as I consider it was to have done so and as the VoxLaw letter seems to acknowledge).

  11. The letter of voluntary disclosure of illegal importation made to the Australian Border Force was inaccurate to some extent. For example, Angus accepted that the letter stated that there was no documentary evidence to support the fact that understated stock had been imported whereas, at least by the time of Angus’ July 2020 affidavit, he had located a number of bills of lading and another record from Paul’s Customs (see T 33); and Graham accepted that he had not requested any particular number of shipments to be made in his conversations with Johnny Song. Further, the letter might well be criticised for including seemingly pejorative information not strictly relevant to the disclosure (such as the alleged breach of the restraint covenant and Johnny Song’s conviction for other offences). However, I do not regard these issues as detracting from the substance of the disclosure of illegal importation.

  12. Angus accepted in cross-examination that there was no evidence in his affidavits of conversations with Johnny Song as to the importation of the undeclared stock nor of receipt of it; and no evidence of receipts to customers in relation to the stock. That seems inconsistent with an intent at the outset to use this evidence to bolster the plaintiffs’ case (since surely if that had been the case records of this kind would have been kept). It seems to me more likely that Angus and Graham were hoping that matters would not get to the point where use of the evidence and disclosure of wrongdoing became necessary, though this is speculation on my part.

  13. I accept that both Angus and Graham were aware that there could be liability for additional duties and were aware of the seriousness of that which was being disclosed and I consider that it would be extraordinary for them to have gone to the lengths of (falsely) disclosing a criminal offence simply to “bolster” a claim of the kind here made. I accept that the disclosure was genuine.

  14. The difficulty I have is that I am not satisfied, on the basis of the statistical analyses that have been carried out by Dr Fargher and Mr Preston, that in fact such conduct did occur under the ownership of Joe and Grace (whether at all or on a sufficiently regular basis to render the alleged representations and omission misleading). I accept that there were anomalies shown in particular shipments (such as the 1,500 v 1,400 shipment (No 26) and the 3,597 v 3,447 shipment (No 160) – see above). In particular, I note that the experts appear to agree that, in relation to shipment number 160, excise could not have been paid on some 150 cartons or packages of product (since that product was not disclosed in the commercial invoice used to calculate the excise). I also accept that, statistically, the anomalies in the amount and weight of product in the shipments from Windemac (and J&E Winery) were more prevalent than anomalies in other suppliers’ shipments.

  15. However, I am troubled by the inconsistency between the conclusions reached in relation to weight and those reached in relation to volume by Dr Fargher and Mr Preston, respectively. I am also concerned that much of the statistical analysis turns on an acceptance that the gross weight recorded in the shipping documents was correctly recorded at the Singapore end of the import/export transactions; and there is simply insufficient evidence for me to conclude that that was the case. While I did not find Mr Song’s denials particularly credible (and, indeed, the assertion that the placement of extra cartons could not occur because his was a bonded warehouse seems to me to be belied by the fact that such conduct, or conduct akin to it, has apparently taken place in the past, since Mr Song pleaded guilty to such conduct), the possibility of human error in the weighing or recording of the product cannot be discounted. It is relevant that, prior to 2016, there was apparently a worldwide concern with the misrecording of container weights (which the experts accept was something that was the subject of the 2016 SOLAS Marine Order 42). The fact that Windemac staff may have been able to weigh products correctly 30% of the time does not lead me to conclude that there was deliberate illegal conduct the remaining 70% of the time. Nor does the fact that the “outliers” were the two Singapore companies assist me in this regard, without knowing more of the way in which product was weighed and loaded in the warehouses in Singapore.

  16. Mr Preston, for example, did not correlate his weight calculations with his volume calculations and he made it clear that he was simply carrying out an arithmetical exercise based on assumptions as to the weight and volume of the products. The response to my concern in this regard was that Eastlings made clear that reliance was placed on Mr Preston’s Report more for the proposition that, as a former customs officer and now compliance officer, his calculations would give rise to a concern and would ring alarm bells. However, I am not convinced that one can say that, simply because some of the statistical analysis does not make sense or gives rise to some concern, it should be concluded that the explanation was that there was illegal activity.

  17. In response to the issues raised in the course of debate as to the volume and weight calculations, Counsel for Eastlings placed weight on the analysis of payload deviation. Eastlings argued that if other suppliers were able consistently to achieve, say, 1,071 cartons of Corona per container but Windemac’s container loads of Corona varied from, say, 940 to 1,080; and if the variance from the mean was some 12% or 13% for Windemac and J&E Winery (compared to 2% or 3% for other suppliers), then this indicated that those two suppliers were engaged by Joe and Grace in the conduct which allowed for the illegal importation of undeclared stock (see at T 556). Eastlings’ position in this regard was that Dr Fargher’s analysis was persuasive because his analysis looked at declared payload against a known pattern across a data set which enabled Dr Fargher to conclude that there was something else in the containers when they entered Australia than what was disclosed on the N10 document.

  18. Reference was made to the summary in Dr Fargher’s 2019 Report at [43]:

(a)   If a container has a stated weight of X and stated product of Y packages then the container weight should agree with the aggregate weight of the packages (x times Y) where x is the known weight of each package. The hypothesis is that, if the aggregated weight is less than the stated (documented weight), then there must be something else in the container adding to the weight.

(b)   If it is feasible to fit X number of packages into a container and this has been verified by both volume capacity analysis and by verifying that other containers have actually been documented as containing that number of similar packages, then, under the maximum load capacity assumption there is room in the container for further product.

(c)   If Calidu and Eastlings are conducting the same type of importations, from the same or similar sources, then the load variations should be consistent for the same type of imports. If the loads show an unexplained variance then something different must be happening to the loads.

  1. It was made clear that Eastlings was unable to know what extra stock was placed in the containers – rather, that it simply takes the position that there was stock that was not disclosed on the N10 form and hence stock on which excise was not paid (T 559.15).

  2. Ultimately, however, I accept Mr Goodyer’s criticisms of the statistical analysis that was carried out. In particular, I accept that the disparity in the data sets between the Calidu imports and the Eastlings imports impacted on the results. I do not suggest that there was a selective approach adopted in the provision of shipping records for review. Nevertheless, I cannot rely on the completeness or reliability of the data set that has been examined. Moreover, the analysis by Mr Preston of the additional cartons that he has calculated could have been placed in containers simply does not accord with reality in a number of instances – and he quite fairly accepted this in the course of his cross-examination. It seems to me that this is a perfect example of the aphorism as to “lies, damned lies and statistics”. Even adopting a 33 cubic metre capacity for the containers in question (which seems to be the outer limit other than for the, conceded to be anomalous, 38 cubic metre example), I place weight on the caution expressed by the logistics consultants (Mr Jones and Mr Gallagher) that this must be placed in context, including that there may be anomalies as to the way in which containers are packed; and I simply do not accept that one can safely assume that every minute centimetre of space could have been utilised (as the arithmetical calculations appear to assume).

  3. There is also no evidence as to amounts having been paid in cash for the products imported by Calidu; and no evidence (for understandable reasons) of customers being incentivised to buy more (or more expensive) product by reason of lower prices for “off the books” product. The only witness to whom the issue of “specials” was directly put, Mr Calipari, denied outright that he ever paid for “specials” in cash (T 301).

  4. Ultimately, Eastlings’ case rests on the evidence of the conversations to which Angus and Graham have deposed (with Nick and with Johnny Song) from which they say they discovered what was happening and the criticism made by them as to the evidence of Joe and Grace (and Johnny Song).

  5. In that regard, I accept that Angus and Graham have honestly given their best recollection of the relevant conversations; and that the fact that they took such extraordinary steps to verify the information that they were given corroborates their evidence as to those conversations (since otherwise the steps they took seem to me not to accord with common sense). Further, I accept that there are matters of concern in relation to some of the evidence (such as the documents purporting to record short term loans at astronomical annualised interest rates but with the incorrect entities there named; and the uncorroborated evidence by Joe of the payments to Ms Valore or her company said to be for the purchase of boats that she does not recall); and I have already concluded that little credence can be placed on Johnny Song’s denials of the conduct that Angus and Graham have confessed to engaging in; but I cannot conclude from that (to the requisite degree of satisfaction and bearing in mind the seriousness of the allegation) that Joe, through Calidu, was engaged in illegal importation of alcohol. Nor is there sufficient evidence to persuade me that Joe, through Calidu, had a practice of engaging in “off-the books” cash transactions.

  6. Therefore, I do not accept that the misleading or deceptive conduct allegations have been made good. Had I been persuaded that Joe, through Calidu, had engaged in the practice of illegal importation then I would have been prepared to infer that this was done to prop up the turnover of the company and that it had the effect of artificially inflating profits (since there would be no reason otherwise for such conduct). In those circumstances, and notwithstanding that there was no evidence from customers as to the incentivisation aspects of the case theory put forward (the second and third of the pleaded elements to which the defendants refer and which they say have not been proved), then I would have concluded that the misleading or deceptive conduct was established as against them. However, I would still have been left with sufficient doubt as to Grace’s involvement in, or knowledge of, any such activity as to dismiss the claim for misleading or deceptive conduct against her (or for accessorial liability in respect of Joe and Calidu’s misleading or deceptive conduct).

  1. As to the question of reliance and causation, I accept Angus’ evidence as to reliance. It is said for Eastlings (and I accept) that Angus was not tested in respect of his evidence that, had he known that the Business was undertaking illegal activity prior to its purchase, he would not have purchased it (and hence, it is submitted, that it can safely be assumed that this is the case).

  2. Had liability been established, I would have concluded that this was a “no transaction” case. True it is, that there may have been other causes for the downturn of the Business, (although it seems inherently unlikely that they would have manifested themselves so quickly) such as the increase in prices to some customers in 2013, the fact that much of the business revolved around the personal goodwill associated with Joe, and issues as to changes in credit terms. Nevertheless, for the reasons given by Mr Samuel, I would have accepted his expert evidence as to the true value of the Business. Thus, in those circumstances, I would have concluded that the loss claimed by Eastlings was established.

  3. As it is, however, and notwithstanding that I understand that there is room for suspicion as to the shipments imported from Windemac and J&E Winery and the conduct of the importation of alcohol from those suppliers, I am not persuaded to the requisite degree of satisfaction that illegal importation of alcohol occurred when the business was owned by Grace and Joe (or that, if any did occur, it was on a sufficiently required basis to affect the accuracy of the figures in the financial statements relied upon); and hence I find against Eastlings on the misleading or deceptive conduct claims.

Breach of Covenant Claims

  1. As to the Breach of Covenant Claims, read in isolation I would not have construed the restraint covenant as precluding the exportation of liquor, on the basis that there is no suggestion that the exportation of liquor was part of the business carried on by Calidu prior to the sale. As noted above, Calidu was restrained from carrying on or being concerned in, and Joe and Grace were restrained from being involved directly or indirectly as, inter alia, a shareholder or director in, any business “substantially similar” to the Business the subject of the sale for three years within New South Wales and Queensland (see cll 2(a) and (b) of the Restraint Deed).

  2. In Butt v Long (1953) 88 CLR 476 at 487, Dixon CJ observed that “an agreement in restraint of trade, like every other agreement, is to be construed with reference to its subject matter and descriptive words may be restricted in their operation by reference to the circumstances in which the parties contract”. In circumstances where there is ambiguity, restraint of trade clauses are narrowly construed (Way v Bishop [1928] Ch 647 at 660; Re Kissane (1977) 15 ALR 683 at 687-688; Butt v Long (1953) 88 CLR 476; [1953] HCA 76 at 487). In Way v Bishop at 660, Russell LJ was of the opinion that a clause in restraint of trade should not “be unduly stretched so as to be generous to the person in whose favour the covenant is entered into. It is a clause which should be looked at, if anything, narrowly”. I do not consider it could have been the parties’ intention for the Restraint Deed to encompass the exportation of liquor as “any business substantially similar to the Business” when there is no evidence the Business ever exported liquor prior to the sale (and so it was not part of the Business’ operation). See also the relevant principles applicable to the construction of commercial contracts as considered in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 630; [2014] HCA 7; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37.

  3. The argument for Eastlings is that what was being protected by the covenant (relevantly in this context) was the custom of the Business (i.e., as I understand it, the loyalty of its customers) and Eastlings noted that Botillion Enterprise (to whom the alcohol was exported) was also a supplier. However, there is no basis in my opinion for assuming that the export by Calidu Import Export of alcohol to a supplier of the Business would impact upon the business relationship as between the Business and that supplier in its capacity as a supplier of alcohol to the Business. Thus, I would not conclude that the exportation of alcohol is substantially the same business as the importation of alcohol, although obviously they concern the same product.

  4. However, one must also take into account the express acknowledgement contained in cl 2(c) of the Restraint Deed, namely that “any business holding a liquor licence having substantially the same attributes and benefits as the Liquor Licence and involving the same or substantially the same stock in trade used in the operation of the Business constitutes a business substantially similar to the Business”. The evidence establishes that Calidu Import Export held a liquor licence at the relevant times and that its licence had substantially the same attributes as the Liquor Licence. The goods the subject of the exportation (and, for that matter, importation) were goods the same or substantially the same as the stock in trade used in the operation of the Business (namely, alcohol).

  5. On a literal reading of cl 2(c), the parties have in my opinion acknowledged that conduct of the kind engaged in by Calidu Import Export amounts to the carrying on or conduct of a business substantially similar to that of the Business and hence is conduct that gives rise to a breach by Joe and Grace (they having been restrained from being involved directly or indirectly as, inter alia, a shareholder or director of such a business). It was open to the parties in exercise of their freedom of contract, in effect to define the term “business substantially similar to the Business” in a particular way so as to bring the exportation of wines or spirits as a practical matter within the operation of the restraint; and I consider that they have done so. I see no reason not to hold the parties to their agreement in that regard.

  6. Therefore, I have concluded that the two instances of exportation of wines (though not on their face the conduct of a substantially similar business to the Business) do constitute a breach of the Restraint Deed.

  7. As to the importation of the Spanish wine, it is not necessary to rely on the acknowledgment to reach the same conclusion (i.e., that it falls within the restraint). The evidence made clear that, before the sale, the Business imported a variety of alcohol and other products (albeit primarily beer) and that the products imported were in different price brackets (compare San Pellegrino mineral water to Mumm Champagne or the various kinds of spirits that were imported from time to time). The fact that in the period from 2013 to 2014 Eastlings did not import wine (see Angus’ evidence at T 99) is not to my mind to the point.

  8. I do not accept that the fact that the amounts of wine imported might have been minor in the scheme of things detracts from the fact that it was part of Calidu’s business to import and on-sell such products through its Product Wholesaler Licence. That is precisely what the importation of the Spanish wine was. Nor do I consider that the fact that it was “entry level” Spanish wine (rather than premium wine, such as the Mumm Champagne) means that it does not fall within the restraint. That seems to me to be too fine a distinction. To my mind, the fact that Calidu had from time to time imported wine from overseas means that the importation of the Spanish wine (cheap or “entry level” as it may have been) falls within the restraint as being conduct substantially similar to that carried on by the Business prior to the sale.

  9. I do not accept that a breach of the Restraint Deed has been established by reference solely to the importation of the containers of wine in August 2014. This is because, on Angus’ evidence, he understood that Joe was proposing to import that product and he conveyed as much to Joe. I accept that Angus understood (albeit that there may have been a misunderstanding as between he and Joe in that regard) that Joe would then sell the product to him and that it was intended by Angus at least to be an additional product for sale by Eastlings. I am not satisfied that there is sufficient evidence of a contractual agreement to that effect (and the complaint here made is not as to breach of that arrangement as such); rather, the complaint here made is as to the on-sale of that wine itself amounting to a breach of the Restraint Deed. I have concluded that there was a breach of the Restraint Deed by reason of the on-sale of the imported product. That is because I am satisfied that there was no consent by Eastlings to the on-sale to others of wines that Angus thought (mistakenly or otherwise) were being imported on Eastlings’ behalf.

  10. Further, I consider that there was a breach in relation to the third container of wine which was imported in March/April 2015. No consent was sought for that importation (even leaving aside the requirement that under the Restraint Deed any consent was to be in writing) and I am not persuaded that Joe could rely on the conversation back in March 2014 as amounting to consent to all future importations of wine.

  11. As to the loss sustained by reason of those breaches, I accept that it may be measured by the profits that Calidu Import Export appears to have made from the sales in question, those being the sales the opportunity for which was lost by the Business.

Costs

  1. Eastlings sought to be heard on costs if it were to be successful. It has succeeded on only a limited part of the claim. Ordinarily, costs would follow the event. In the present case, it seems to me that there is more than one relevant “event” and this is a case where there has been mixed success. Accordingly, when these reasons are published I will make directions for the filing of submissions if either party wishes to make further submissions as to costs.

Orders

  1. For the above reasons, I make the following orders:

  1. Judgment for the plaintiff as against the second and third defendants in the amount of $67,594.49 plus interest (from the date of the relevant breaches)for breach of the covenant contained in the Restraint Deed by virtue of the importation in or about August 2014 and April 2015 of wine from Portugal for on-sale and the exportation of alcohol in 2015.

  2. Otherwise dismiss the plaintiff’s claims.

  3. Reserve the question of costs to be dealt with on the papers if possible.

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Decision last updated: 01 April 2021

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Cases Citing This Decision

1

Eastlings Pty Ltd v Calidu Import Export Pty Ltd (No 3) [2021] NSWSC 466
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