Milicevic v Ferrari East Pty Ltd (No 3)

[2023] NSWSC 1116

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Milicevic & Anor v Ferrari East Pty Ltd & Ors (No 3) [2023] NSWSC 1116

Hearing dates:

1, 2, 3, 4, 7 and 8 March 2022. Further evidence and submissions 20 May and 10 June 2022

Date of orders:

14 September 2023

Decision date:

14 September 2023

Jurisdiction:

Equity

Before:

Henry J

Decision:

See [616]–[621]

Catchwords:

CONTRACTS — partly oral and partly written contract — ascertainment of terms — where parties accept existence of agreement — whether agreement provided for a transfer to defendants of the plaintiffs’ shares and units in a joint venture vehicle or transfer of unencumbered legal title to 60% of assets or some other term — terms contended for by plaintiffs and defendants not established — parties’ claims for contractual relief fail

CONTRACTS — misleading conduct under statute — misleading or deceptive conduct — representation with respect to a future matter — whether representations were misleading or deceptive — whether evidence of reasonable grounds for representations — whether counterfactual is the continued operation of the joint venture — whether appropriate approach to calculation of damages — plaintiffs entitled to relief under Australian Consumer Law

Legislation Cited:

Australian Consumer Law and Fair Trading Act 2012 (Vic)

Competition and Consumer Act 2010 (Cth)

Corporations Act2001 (Cth)

Fair Trading Act 1987 (NSW)

Frustrated Contracts Act 1978 (NSW)

Sale of Goods Act1923 (NSW)

Cases Cited:

Arktos Pty Ltd v Idyllic Nominees Pty Ltd (2004) ATPR 42-005; [2004] FCAFC 119

Australian Competition and Consumer Commission (ACCC) v Woolworths Group Ltd (formerly called Woolworths Ltd) (2020) 281 FCR 108; [2020] FCAFC 162

Baltic Shipping Co v Dillon (1993) 176 CLR 344; [1993] HCA 4

Berry v CCL Secure Pty Ltd (2020) 271 CLR 151; [2020] HCA 27

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833

Calleby Pty Ltd v Leros Pty Ltd (Unreported, Supreme Court of Western Australia, Steytler J, 30 May 1997)

CH Real Estate Pty Ltd v Jainran Pty Ltd; Boyana Pty Ltd v Jainran Pty Ltd (2010) 14 BPR 27,361; [2010] NSWCA 37

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 41 ALR 367; [1982] HCA 51

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; (1991) 104 ALR 1

Consolo Ltd v Bennett (2012) 207 FCR 127; [2012] FCAFC 120

County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193

Creen v Wright (1876) 1 CPD 591; [1874-80] All ER Rep 747

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1

Cummings v Lewis (1993) 41 FCR 559

Davinski Nominees Pty Ltd v I & A Bowler Holdings Pty Ltd [2011] VSC 220

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31

Digi-Tech v Brand (Australia) Ltd v Brand (2004) 62 IPR 184; [2004] NSWCA 58

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Gould v Vaggelas (1984) 157 CLR 215; (1984) 56 ALR 31

Henville v Walker (2001) 206 CLR 459; [2001] HCA 52

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26

Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59

Houghton v Immer (1997) 44 NSWLR 46

J Lauritzen AS v Wijsmuller BV [1990] 1 Lloyd’s Rep 1

Jireh International Pty Ltd v Western Export Services Inc [2011] NSWCA 137

Jones v Dunkel (1959) 101 CLR 298

King v Adams [2016] NSWSC 1798

Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72

Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234

Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97

Miller & Associates Insurance Broking Pty Ltd v BMW Australia Financial Ltd (2010) 241 CLR 357; [2010] HCA 31

Moratic Pty Ltd v Lawrence James Gordon (2007) 13 BPR 24,713; [2007] NSWSC 5

National Australia Bank Ltd v Dionys [2016] NSWCA 242

O’Connor v O’Connor [2021] NSWSC 1056

Pennington v Norris (1956) 96 CLR 10; [1956] HCA 26

Perreira v Director of Public Prosecutions (1988) 82 ALR 217; [1988] HCA 57

Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567

Re Continental C&G Rubber Co Pty Ltd (1919) 27 CLR 194

Realestate.com.au Pty Ltd v Hardingham (2022) 406 ALR 678; [2022] HCA 39

Roxborough v Rothmans (2001) 208 CLR 516; [2001] HCA 68

Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169

Sykes v Reserve Bank of Australia 88 FCR 511; [1998] FCA 1405

Taylor v Johnson (1983) 151 CLR 422; [1983] HCA 5

Ting v Blanche (1993) 118 ALR 543

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52

Troulis v Vamvoukakis [1998] NSWCA 237

Urusoglu v MSU Management Pty Ltd [2011] NSWSC 54

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; (1992) 109 ALR 247

Watson v Foxman (1995) 49 NSWLR 315

Willett v Thomas [2012] NSWCA 97

Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373; [2019] FCAC 167

Texts Cited:

J D Heydon, Heydon on Contract (2019, Thomson Reuters)

N Seddon, Cheshire and Fifoot – Law of Contract (11th ed, 2017, LexisNexis)

Category:

Principal judgment

Parties:

Haris Milicevic (First Plaintiff/First Cross-Defendant)
Jasmine Milicevic (Second Plaintiff/Second Cross-Defendant)
Ferrari East Pty Ltd (First Defendant/Cross-Claimant)
Gerard Ferrari (Second Defendant)
Bevan Ferrari (Third Defendant)

Representation:

Counsel:
R Clark (Plaintiffs/Cross-Defendants)
J Young with A Lim (Defendants/Cross-Claimant)

Solicitors:
Mitry Lawyers (Plaintiffs/Cross-Defendants)
Gilchrist Connell (Defendants/Cross-Claimant)

File Number(s):

2018/384221

Publication restriction:

Nil

JUDGMENT

1. These proceedings involve competing claims arising out of events in 2013 in relation to the plaintiffs’ interest in a joint venture that operated a group of formalwear concessions located in Myer and a formalwear store at Bondi Junction (Myer JV).

2. The Myer JV was established in 2010 by the first plaintiff, Haris Milicevic, and Longstaff Trading Pty Ltd (formerly trading as Belgravia Formalwear Pty Ltd) (Belgravia). It was conducted through an incorporated entity, Dynamic Platinum Group Pty Ltd (Dynamic), as the trustee for the Spurling JV Unit Trust (JV Trust).

3. Mr Milicevic was a director and equal shareholder of Dynamic, and the day-to-day manager of the Myer JV business. The second plaintiff, Jasmine Milicevic (who is Mr Milicevic’s wife), and Belgravia held the units in the JV Trust.

4. On 1 October 2013, the first defendant, Ferrari East Pty Ltd (Ferrari East), took control of the Myer JV business and possession of the stores and assets used to conduct that business, including the stock and fit-out. It did so having completed a Business Sale Agreement (BSA) with Belgravia, pursuant to which Ferrari East acquired Belgravia’s formalwear “Business”, “Assets” and its stake in the Myer JV, and having agreed a separate deal with Mr Milicevic in relation to his “60% of the Myer JV”.

5. The agreement in relation to Mr Milicevic’s interest in the Myer JV was negotiated by the second and third defendants, Gerard Ferrari and Bevan Ferrari, and was not documented. Dynamic was not a party to that agreement nor to the BSA.

6. Shortly after Ferrari East took over the Myer JV business, Belgravia claimed it was owed money for stock and store fit-outs, and disputes arose as to whether Ferrari East had acquired unencumbered Myer JV assets under the BSA.

7. Belgravia’s claims remained unresolved for some years. During that period, Ferrari East maintained that it had acquired the Myer JV assets from Belgravia and Mr Milicevic, and made monthly interest payments to Mr Milicevic on a shareholder loan of $250,000 and payments for his contracted role as New South Wales State Manager that reflected the terms of their agreement. However, Ferrari East refused to transfer 5% of its shares to Mr Milicevic until the issues in relation to the Myer JV assets were resolved.

8. Ferrari East’s position changed in early 2017 after a liquidator appointed to Dynamic sued Ferrari East claiming that the stock and fit-out associated with the Myer JV business were the property of Dynamic for which Ferrari East had not paid any consideration. Ferrari East settled that claim by making a payment to the liquidator of $260,000.

9. On 22 February 2017, Ferrari East notified Mr Milicevic that it was terminating any negotiations and arrangements between them due to Mr Milicevic’s failure to transfer clear title to 60% of the Myer JV assets, made a demand for repayment of the monthly interest payments he had received and gave him 30 days’ notice of termination of his position as State Manager.

10. In these proceedings, Mr and Mrs Milicevic (Plaintiffs) seek to recover damages from Ferrari East and Gerard and Bevan Ferrari (Defendants) for breach of the agreement made on 1 October 2013 or, alternatively, for misleading or deceptive conduct pursuant to s 236 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth) (CCA)) (ACL), the Fair Trading Act 1987 (NSW) (NSW ACL) or the Australian Consumer Law and Fair Trading Act 2012 (Vic) (Victorian ACL).

11. The Defendants deny liability and Ferrari East has filed a cross-claim against Mr Milicevic that seeks declaratory relief that the agreement made on 1 October 2013 is void and unenforceable and/or damages for breach of contract and for misleading or deceptive conduct pursuant to s 236 of the ACL.

Overview of claims and issues in dispute

12. It is common ground that an agreement was made on 1 October 2013 and that Ferrari East used the Myer JV assets to conduct its business from that date.

13. The disputes concern the terms of the agreement. The central issues are whether the agreement provided for a transfer to Ferrari East of the Plaintiffs’ share and unit holdings in Dynamic and the JV Trust (as the Plaintiffs contend) or a transfer by Mr Milicevic of 60% of the Myer JV assets (as the Defendants contend), and whether it gave rise to implied terms and conditions.

14. The other disputes are whether the agreement has been breached or repudiated and, if so, by which party; whether the Plaintiffs or the Defendants engaged in misleading or deceptive conduct in contravention of s 18 of the ACL; and what relief (if any) the parties are entitled to, including the quantum of any damages.

15. The Plaintiffs’ case, as pleaded in their Amended Statement of Claim filed on 16 August 2019, is that an agreement was made on 1 October 2013 which was partly written and partly oral. They claim the agreement contained terms that the Plaintiffs would immediately transfer their 60% beneficial holding in the Myer JV agreement dated 1 February 2010, Dynamic and the JV Trust to Ferrari East by effecting a transfer of their share in Dynamic and units in the JV Trust in consideration for which Ferrari East would:

1. issue 5% of its paid up share capital to the Plaintiffs, which was to be held by the Milicevic Family Trust (MF Trust);

2. create a $250,000 loan in favour of Mr Milicevic (Shareholder Loan) which would be repaid to him proportionately with other shareholders;

3. pay to Mr Milicevic (or his nominee) interest on the Shareholder Loan in the sum of 8% per annum (paid monthly) until the Shareholder Loan was repaid in full; and

4. contract Mr Milicevic to be its State Manager and pay him (or his nominee) $150,000 per annum plus GST (Consultancy), which could be determined on reasonable notice but was to be until such time as the agreement with Myer ended.

16. The Plaintiffs claim that the parties acted in a manner that was consistent with the transfer having occurred or, alternatively, that they were ready, willing and able to perform the transfer but were told not to take steps to effect the transfer by the Defendants. They claim that Ferrari East repudiated the agreement by its letter dated 22 February 2017, they accepted that repudiation and have suffered loss as a result, including that arising from the termination of the Consultancy without reasonable notice.

17. The Plaintiffs seek damages in respect of the Shareholder Loan, interest not paid on the Shareholder Loan, damages in lieu of a reasonable period of notice in respect of the termination of the Consultancy and damages in respect of the failure to transfer a 5% shareholding in Ferrari East to the Plaintiffs. They had also included a claim for specific performance of the agreement in respect of the 5% shareholding which was not pressed at the hearing.

18. In the alternative, the Plaintiffs claim that the Defendants made various misleading or deceptive representations which they relied on and seek damages on a “no transaction” basis, contending that but for the representations they would not have entered into the agreement. The representations fall into three categories.

19. In their Amended Defence, the Defendants deny that the agreement made on 1 October 2013 provided for the transfer of Mr Milicevic’s share in Dynamic and Mrs Milicevic’s units in the JV Trust and say they were unaware of Dynamic and the JV Trust at that time. They plead an oral agreement on different terms of particular relevance, that:

1. Mr Milicevic would transfer unencumbered legal title to 60% of the assets the subject of the Myer JV (Myer JV Assets); and

2. Ferrari East would take over the Myer JV Assets (including stock, work in progress and staff entitlements), the stores included in the Myer JV and the administration of those stores as at 1 October 2013.

20. The Defendants plead other terms of the agreement, some of which reflect terms pleaded by the Plaintiffs. They accept that Mr Milicevic was to be offered 5% of Ferrari East’s shares (to be owned by the MF Trust), that he was to receive the Shareholder Loan and be paid interest on the Shareholder Loan. However, the Defendants contend that the 8% per annum interest entitlement was to accrue in line with Ferrari East’s other shareholders, the Consultancy was with Mr Milicevic’s company, Sales Momentum Pty Ltd (Sales Momentum), and not Mr Milicevic, and that the Consultancy was terminated with reasonable notice.

21. The Defendants also plead additional implied conditions and warranties that Mr Milicevic had a right to sell the Myer JV Assets, Ferrari East would have quiet enjoyment of them and they would be free from any charge or encumbrance in favour of a third party not known or declared to Ferrari East before the agreement was entered into, by reason of the Sale of Goods Act1923 (NSW) (Sale of Goods Act).

22. The Defendants claim that Mr Milicevic breached the agreement because he did not transfer the Myer JV Assets as they were owned by Dynamic. They also say that the agreement is voidable, unenforceable and/or Ferrari East is discharged from its obligations under it by reason of mistake, frustration, total failure of consideration, breach of the alleged implied terms and warranties and/or misleading conduct on the part of Mr Milicevic.

23. In light of the possibility that the Court finds the agreement to be on the terms pleaded by the Plaintiffs, the Defendants plead further terms which include a condition precedent to the issue of shares in Ferrari East and/or to crediting the Plaintiffs with the Shareholder Loan and making the interest payments, namely, that the Plaintiffs successfully transfer to Ferrari East clear title to their 60% interest in the stock of the Myer JV possessing a certain value and a warranty that the Plaintiffs were capable of and/or would successfully transfer that stock to Ferrari East. The Defendants say that the Plaintiffs are not entitled to any relief because they breached those terms as they did not and were not capable of transferring clear title in the stock to Ferrari East.

24. The Defendants deny that they engaged in misleading or deceptive conduct but say that, if they are found to be liable, then any damages would be reduced to nil by reason of the Plaintiffs’ own failure to take reasonable care to inform themselves in relation to the subject matter of the alleged representations, under s 137B of the CCA.

25. Ferrari East’s Second Amended Cross-Claim repeats and relies on the matters pleaded in the Amended Defence. It claims that Mr Milicevic breached the agreement by failing to transfer the assets, that the agreement made on 1 October 2013 is voidable, unenforceable and liable to be set aside, and the Plaintiffs are not entitled to any damages by reason of mistake, frustration and/or total lack of consideration.

26. Ferrari East also contends that Mr Milicevic engaged in misleading or deceptive conduct by silence and by making a range of representations which are not the subject of the Amended Defence.

27. Ferrari East’s case is that Mr Milicevic’s conduct in breach of the agreement and his misleading or deceptive conduct in breach of s 18 of the ACL has occasioned loss and damage to Ferrari East, namely, the liability to repay the Shareholder Loan, the amount of the interest payments made to date and the costs of obtaining the Myer JV Assets from Dynamic’s liquidator.

28. Ferrari East seeks declaratory relief that the agreement is void and unenforceable, for the interest payments made to Mr Milicevic to be repaid to Ferrari East pursuant to s 12 of the Frustrated Contracts Act 1978 (NSW) (Frustrated Contracts Act) and damages for breach of contract and pursuant to s 236 of the ACL for misleading or deceptive conduct.

29. In the alternative and in the event the agreement made on 1 October 2013 provided for the transfer of the Plaintiffs’ 60% beneficial holding in the Myer JV, JV Trust and Dynamic (as contended for by the Plaintiffs), Ferrari East seeks damages for breach of warranty and/or under the ACL for misleading or deceptive conduct by Mr Milicevic and recovery of the amount of $60,000 from Mr Milicevic for breach of an implied term, breach of duty to the Myer JV or breach of trust arising from Mr Milicevic’s transfer of $100,000 from Dynamic’s accounts.

30. In his Defence to Ferrari East’s Cross-Claim, Mr Milicevic denies that he engaged in misleading or deceptive conduct, relies on the agreement he pleads and the terms of the BSA, and contends that the Defendants had actual or constructive knowledge of Dynamic, the JV Trust and the conduct of the Myer JV business through those entities by at least 1 October 2013. He again relies on s 137B of the CCA and claims that any damages would be reduced to nil by reason of Ferrari East’s failure to take reasonable care to inform itself in relation to the subject matter of the alleged representations.

31. Mr Milicevic also says that the Defendants are not entitled to the amount of $60,000 as the claim is barred by reason of mutual releases given in settlement deeds entered into in 2017 as part of the proceedings brought by Dynamic’s liquidator against Ferrari East and Mr Milicevic. Mr Milicevic had also raised defences of unconscionable conduct and unjust enrichment that were abandoned at the hearing.

The evidence and witnesses

32. The Plaintiffs read five affidavits sworn by Mr Milicevic.

33. The Defendants read three affidavits from Gerard Ferrari, two affidavits from Bevan Ferrari and an affidavit from Sonia Timperio, an accountant for Ferrari East.

34. Expert evidence was adduced from two forensic accountants: Alex Bell (by the Plaintiffs) and Michelle Jennings-Jones (by the Defendants). They prepared individual reports and a joint report on the quantification of loss in respect of the Plaintiffs’ misleading or deceptive conduct claim and gave concurrent evidence at the hearing. Following an application made by the Plaintiffs to reopen their case after the hearing, the parties were given leave to rely on supplementary expert reports and further written closing submissions: Milicevic & Anor v Ferrari East Pty Limited & Ors [2022] NSWSC 585. Those reports have been read and have been marked as Exhibits H and I respectively.

35. The parties relied on detailed written submissions that were supplemented by oral submissions at the hearing. I have had regard to all of the facts contended for and arguments advanced but have not dealt with allegations that were not addressed by the parties’ submissions or were not pressed at the hearing. Nor have I referred to every detail of the submissions in these reasons.

32. Mr Milicevic and Gerard and Bevan Ferrari were each cross-examined at some length, and submissions were made concerning the credit and reliability of their evidence. My assessment of their evidence was based on my notes taken during the hearing as well as reviewing the transcript, affidavits, documentary evidence and submissions of the parties; my findings of fact are set out later in these reasons.

33. In general, I have approached the witnesses’ evidence having regard to the well-known statement in Watson v Foxman (1995) 49 NSWLR 315 at 319:

“… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.”

38. As a result, in assessing the witnesses’ evidence about what they knew at the time, what was said and what was or was not agreed orally, I have tended to place more weight on the contemporaneous documents, the objective surrounding facts and the inherent probabilities and improbabilities of events: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [28]–[31].

39. In the context where the agreement and the representations are, in part, based on undocumented conversations, the observations of Hammerschlag J (as his Honour then was) in O’Connor v O’Connor [2021] NSWSC 1056 at [108]–[109] (citations omitted) are also apt in this case:

“Where a party seeks to rely upon spoken words as a foundation for a cause of action the conversation must be proved to the reasonable satisfaction of the Court. This means that the Court must feel an actual persuasion of its occurrence or its existence. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences.

The sensation of feeling an actual persuasion, after a contest, that an event has happened or that something exists is one which is well known and recognised by experienced trial judges for what it is.”

40. I make no findings that any of the principal witnesses gave knowingly false evidence. However, they each have a personal interest in the dispute and their memory has inevitably been affected by hindsight analysis, conscious or unconscious perceptions of self-interest and reconstruction based on what could or should have been said. An example of this was the evidence given by Gerard Ferrari and Mr Milicevic about what was discussed at a key meeting on 25 September 2013, with Mr Ferrari referring in his third affidavit for the first time to Mr Milicevic talking about selling “my 60% interest in the stock of the Myer Joint Venture”, and Mr Milicevic’s responsive evidence in his fifth affidavit referring to, for the first time, his purported statement that “Dynamic has stock”.

41. To this I add a more general observation from the documentary and oral evidence that Mr Milicevic and Gerard and Bevan Ferrari appeared to be persons who did not pay a great deal of attention to matters of both form and substance. By way of example, Mr Milicevic did not know that he personally owned one share in Dynamic instead thinking it was “either the family trust or my wife” (T161.30); Gerard Ferrari was unconcerned to ask Mr Milicevic or Belgravia about the structure of Dynamic, even though he knew of its existence since 2010 and that it owned the Myer JV, because there was no need and it was “none of my business at the time” (T252.28–9); and Bevan Ferrari received documents that he accepted he did not read carefully and authorised Ferrari East’s lawyers to send letters that he said did not reflect his instructions at the time and contained assertions that he accepted were factually incorrect (see, for example, at [108] and [290] below).

42. As to Mr Milicevic, as the Defendants submitted, his memory in respect of dates and events was shown to be unreliable on many occasions. For example, his evidence of the timing of his discussions with Ron Peck, a director of Belgravia, about the future of the Myer JV and when he first spoke to Gerard Ferrari about the possible Belgravia deal and his involvement (as referred to at [93] below) was shown to be incorrect. He appeared unwilling to commit to answers, including about matters that were seemingly uncontroversial, such as when asked whether he signed off on the financial statements of his company, Sydney Formalwear Pty Ltd, whether he described himself as CEO of another of his companies, Prime Telecom Pty Ltd, and his evidence that he could not recall whether Jessica Yun, an employee of Sales Momentum, wrote to the liquidator of Dynamic in accordance with her duties at Sales Momentum in 2015 although he was able to recall advice he received at that time about the preparation of invoices by Sales Momentum. While I would attribute some of Mr Milicevic’s answers to a lack of genuine recollection, his evidence in cross-examination gave the impression that he was unwilling to make reasonable concessions and was somewhat evasive and defensive.

43. There were other aspects of Mr Milicevic’s evidence that, in my view, undermined the reliability of his testimony.

44. For the reasons explained at [223] below, Mr Milicevic’s evidence regarding his withdrawal of $100,000 did not satisfactorily explain the events that had occurred. Nor did I find his evidence about the submission of invoices for management fees to Dynamic’s liquidator to be convincing, as referred to at [277] below.

45. In cross-examination, Mr Milicevic accepted that he wrote things in emails that did not reflect what he thought or intended to do, and that there were instances when his oral evidence contradicted his affidavit evidence, such as in relation to whether he read the terms of the deed establishing the JV Trust for the purposes of the proceedings. Mr Milicevic also had a tendency to make self-serving references to “shares” irrespective of whether it was responsive to the question put, such as when asked about discussions involving the stock of the Myer JV (see, for example, T130.26–131.27 and T132.4–15), and there were aspects of Mr Milicevic’s evidence that were difficult to reconcile with the contemporaneous documents, including his own emails, as referred to at [89] below.

46. Overall, while I make no finding that Mr Milicevic was an untruthful witness, I did not consider Mr Milicevic’s recollection of events to be sufficiently clear or detailed to be reliable and have placed little weight on his version of conversations with Gerard and Bevan Ferrari unless it is corroborated by the other witnesses or the documentary evidence.

47. The Plaintiffs submitted that Gerard Ferrari was a poor witness who was prone to frequently giving self-serving, false and highly implausible evidence. They refer to Gerard Ferrari’s evidence that he was told by Myer that they intended to cancel the agreement for the Myer concession stores in October 2013 and his evidence that, prior to 1 October 2013, he was unaware of whether Dynamic was a company.

48. For the reasons set out at [226] below, I did not find Gerard Ferrari’s evidence about his meeting with Myer in October 2013 to be convincing. I have also found that he was aware that Dynamic was the Myer JV entity and was a company, at [350] below. His evidence that he was unconcerned whether the Myer JV entity was a company, trust, joint venture, partnership or something else, and that he did not consider references to an entity and shares to signify a company was, in my view, implausible.

49. There were also occasions when Gerard Ferrari did not respond to questions in a direct manner and gave evidence that appeared more likely to be matters of reconstruction to assist his case, such as his evidence that Mr Milicevic referred in conversation to his “60% interest in the stock of the Myer Joint Venture” or that he referred to Mr Milicevic as the “60% owner of the assets” in the Myer JV, as referred to at [165] and [174] below.

50. That said, Gerard Ferrari was candid about having made mistakes and he made appropriate concessions, such as his evidence that the values he attributed to Ferrari East and the stock were based on assumptions, that he should have done more, asked about the JV Trust and questioned Mr Milicevic as to his ability to transfer 60% of the stock holdings, and that he had made a mistake in preparing the nine month budget for Ferrari East.

51. Bevan Ferrari gave evidence in a more straightforward and considered manner. He made no attempt to exaggerate the quality of his memory and firmly rejected propositions with which he disagreed. In cross-examination, he made concessions where appropriate, accepting, for example, that after receiving Mr Peck’s 6 August email he understood it to be the case that the agreement between the parties with Myer had been finalised but was just awaiting documentation (T350.22), that the Myer JV agreement dated 1 February 2010 said that the joint venture entity will act as trustee of a unit trust (T352.6) and that, at any point before 1 October 2013, he could have asked Mr Peck, Mr Lord or anyone else involved in the deal for details about the joint venture entity and the trust (T355.42).

52. Bevan Ferrari’s evidence was undermined by the fact that he was content to give instructions to his lawyers to make allegations in letters which were not correct, as explained at [290] below. The stance adopted in various letters sent by Ferrari East’s lawyers, to the effect that Mr Milicevic had transferred title to 60% of the Myer JV Assets to Ferrari East, was seemingly at odds with Bevan Ferrari’s evidence that he knew by 13 October 2013 that Mr Milicevic did not have good title to those assets and that Ferrari East had to deal with Dynamic to achieve that outcome.

53. As with Mr Milicevic, I make no findings that Gerard or Bevan Ferrari gave false evidence. Overall, I treated their evidence with caution and have carefully considered it against the other evidence, the objective facts and the logic of events.

54. The Plaintiffs and the Defendants also submitted that the Court should draw inferences pursuant to Jones v Dunkel (1959) 101 CLR 298 (Jones v Dunkel) from the failure to call various witnesses. For the Plaintiffs, it was their failure to call Mrs Milicevic and Ludmilla Golovchenko, an employee of Dynamic who attended a meeting with Mr Milicevic on 25 September 2013. For the Defendants, it was their failure to call Christos Tsonis, a lawyer for Ferrari East. I deal with Ms Golovchenko and Mr Tsonis at [178] and [239] below.

55. The rule in Jones v Dunkel provides that an inference may (not must) be drawn where there is an unexpected failure to call evidence from a person where a party is required to explain or contradict something: National Australia Bank Ltd v Dionys [2016] NSWCA 242 at [138].

56. The Defendants submit that a Jones v Dunkel inference should be drawn from the unexplained absence of evidence from Mrs Milicevic in relation to the negotiation of the oral agreement, the question of reliance and the post-contractual events, and from Ms Golovchenko in relation to the 25 September meeting.

57. I do not consider that a Jones v Dunkel inference should be drawn in relation to Mrs Milicevic. Mr Milicevic’s evidence that Mrs Milicevic deferred to his decisions and the fact that she was not a party to any of the conversations, meetings and correspondence with Gerard and Bevan Ferrari satisfies me that evidence from her was not required in relation to the negotiation of the oral agreement, the question of reliance and the post-contractual events.

Facts

58. The following is a narrative of the relevant facts based on the affidavit, oral and documentary evidence. Unless otherwise indicated, I am satisfied of the following matters.

Parties

59. Gerard and Bevan Ferrari have been involved in businesses that operate retail stores which sell and hire formalwear and bridalwear for many years, including through a family business known as Ferrari Formalwear. Gerard Ferrari is Bevan Ferrari’s uncle and the brother of Bevan Ferrari’s father, Brian Ferrari.

60. Gerard Ferrari first met Mr Milicevic in the early 1990s when Gerard Ferrari was the managing director of National Formalwear Group and had dealings with Mr Milicevic through his company, Sales Momentum.

61. National Formalwear Group was purchased by Belgravia in 1997, following which Gerard Ferrari stayed on as a consultant in the role of National Sales Manager.

62. Belgravia operated a retail and wholesale formalwear business under several brands, including the Spurling brand. Some of Belgravia’s retail operations were designated formalwear concessions within Myer stores that stocked Spurling branded products.

63. Prior to 2010, Belgravia had a licence from Myer to operate formalwear concessions within eight Myer department stores across Adelaide, Brisbane, Chatswood, Macquarie, Melbourne, Parramatta, Sydney City and Roselands. Gerard Ferrari, Mr Milicevic and Herbert Trakal operated seven of those formalwear concessions through their company, Sydney Formalwear Pty Ltd, as franchisee of Belgravia.

64. From 2010 until November 2013 when an administrator was appointed, Belgravia was run by its two directors, Mr Peck and Geoff Lord.

February 2010 – 30 September 2013: Myer JV Agreement and its operations

65. From 2009 to early 2010, Mr Milicevic negotiated with Belgravia to enter into a joint venture in respect of the operation of the Myer concession stores save for the Roselands store.

66. Following those negotiations, on or about 1 February 2010, Mr Milicevic and Belgravia entered into a written agreement entitled “Myer Joint Venture” in relation to the ownership and ongoing management of the Myer concession stores (Myer JV Agreement).

67. The Myer JV Agreement refers to Belgravia’s right to conduct concessions in Myer stores under the Spurling brand for the period ending 31 January 2010 and Belgravia’s intention to extend the arrangement with Myer for a further term of three years. The Myer JV Agreement relevantly provides:

“IT IS AGREED:

That subject to the extension of the Agreement the ownership and management of the Businesses will be in accordance the (sic) following:

•   A new joint venture entity (JV) is to be set up to be owned 60% by HM or nominee and 40% by BF or nominee to conduct the Businesses as Franchisee;

•   The JV entity will act as Trustee of a Unit Trust where the voting rights of the parties will be equal;

•   This agreement will be for a term of three (3) years (Term) being the expected length of a renewed Agreement with Myer (such agreement may or may not be renewed and generally has a three month termination clause at Myer option included);

•   This Agreement may be renewed for an additional term if both parties agree to do so;

•   Commencement date will be 1 February 2010 (Commencement Date);

•   The parties will enter into individual Franchise Agreements for the Myer stores situated at:

Myer Adelaide

Myer Brisbane

Myer Chatswood

Myer Macquarie

Myer Melbourne

Myer Parramatta

Myer Sydney

…

•   Day to day management including all accounting services will be responsibility of HM;

•   The fee for such management and accounting fee payable to HM will be $140,000 per annum to be charged against the JV and paid fortnightly;

…

•   HM shall only with BF’s CEO or BF’s Men's Retail General Manager in respect of legal issues and in the general running of the business;

•   Subject to the JV conducting the Businesses in a satisfactory manner the JV shall have an option to renew the Franchises at the end of the Term;

•   Both parties will act reasonably towards each other in the implementation and operation of this agreement; and

•   This agreement shall be terminated in the event that:

(i)    Myer terminate the Agreement with BF; or

(ii)    Either party is dissatisfied with the performance of the other party in the conduct of this agreement and or operation of the Business in which case the party that is dissatisfied shall notify the other party in writing (Complaint Notice) of its intention to terminate the agreement and the grounds for such termination. The parties shall then have 14 days to remedy the matters raised in the Complaint Notice. If a remedy is not agreed upon then the party issuing the Complaint Notice may give 7 days notice to conclude the agreement”

68. It is common ground that the JV entity through which the Myer JV operated was not a newly established entity but was Dynamic, a company that Mr Milicevic had established in 2008. Mr Milicevic was a director of Dynamic and Mrs Milicevic was its secretary.

69. In accordance with the Myer JV Agreement, Dynamic acted as the trustee for the JV Trust. The JV Trust was established on 1 February 2010 by a fixed unit trust deed between Dynamic as trustee and Mrs Milicevic (as trustee for the MF Trust) and Belgravia as subscribers (JV Trust Deed). Mr and Mrs Milicevic were the beneficiaries of the MF Trust.

70. Pursuant to the JV Trust Deed:

1. Mrs Milicevic (as trustee for the MF Trust) was issued 60 A-class units and Belgravia was issued 40 A-class units. The A-class units provided unitholders with a right to vote and to a share of the income and capital of the JV Trust (sch, item 6);

2. Mrs Milicevic (as trustee for the MF Trust) was issued 100 B-class units, which gave her a preferential right to $140,000 per annum in profit of the JV Trust, representing the management and accounting fee that was payable to Mr Milicevic in accordance with the Myer JV Agreement. The B-class units did not provide her with the right to vote or to a share of the capital (sch, item 6);

3. units could not be transferred to third parties without first being offered to other unitholders, although the procedure for transfer could be waived by the consent of all unitholders (cl 6);

4. unitholders were not entitled to any particular asset comprised in the “Trust Fund” (being the sum of the subscription amounts, the accumulations of income and any further amounts or property received by the trustee), with each unit entitling a unitholder equally with all other unitholders to the beneficial interest in the Trust Fund as an entirety (cll 1.26 and 4.2);

5. Dynamic as trustee was obliged to distribute the income of the fund but not its assets and had full power to deal with both income and assets as if it were the full beneficial owner (cl 8); and

6. Dynamic, as trustee, was deemed to have retired if it went into liquidation or an administrator, receiver or official manager was appointed (cl 20.3).

71. In early 2010, Mr Milicevic told Gerard Ferrari that Belgravia wanted to take control of the Myer concession stores and partner with Mr Milicevic, the business would run through a company in the same way that the stores had been run through Sydney Formalwear Pty Ltd prior to 2010 and Mr Milicevic and Belgravia had formed a company called Dynamic which was to be 60% owned by Mr Milicevic and 40% owned by Belgravia (T230.49–T231.16; T240.1–29).

72. On 4 February 2010, Mr Peck and Mr Lord were appointed directors of Dynamic and Mr Peck replaced Mrs Milicevic as secretary. As of 2010, two shares were issued by Dynamic: one to Mr Milicevic and one to Belgravia.

71. According to Dynamic’s constitution:

1. shareholders were given the pre-emptive right to purchase any shares intended to be sold by a shareholder, although the procedure for share transfer could be avoided by means of the consent of all shareholders (cll 32 and 33); and

2. a director or committee resolution had to be passed by a majority of votes of the directors entitled to vote on the resolution but, in the case of an equality of votes, the chair had a casting or second vote (cl 94).

74. Mr Milicevic deposed that prior to the proceedings and during the events of 2013 he was not familiar with the terms of Dynamic’s constitution or the terms of the JV Trust Deed other than the general ownership structure of the JV Trust, and he became aware of the matters at [73(a)] and [73(b)] above upon reading the JV Trust Deed for the purposes of these proceedings.

75. Mr Milicevic gave evidence that he understood that he and Mrs Milicevic both had a vote in Dynamic such that the voting rights as between them and Belgravia in relation to the Myer JV were equal (T109.22–34). He said that he did not find out that they did not have equal voting rights with Belgravia until 2014, when Mr Peck and Mr Lord called a directors’ meeting in the context of the liquidation of Dynamic (T104.44–105.1), as described further below.

76. On 22 December 2010, Myer and Belgravia entered into a new licence agreement pursuant to which Belgravia was granted a licence to conduct its business in seven Myer stores (Melbourne City, Sydney City, Parramatta, Chatswood, Macquarie, Roselands and Brisbane City) for a duration of three years with effect from 1 August 2010 to 31 July 2013. It is common ground that the Roselands store did not form part of the Myer JV.

77. From 2010 to 2013, Mr Milicevic undertook the day-to-day management of the Myer JV stores in accordance with the Myer JV Agreement although individual franchise agreements were not made for each Myer store.

78. It was the practice of Mr Milicevic and Belgravia to cause Dynamic to pay out the profits from running the stores each year through the JV Trust to the unitholders. According to Mr Milicevic, he received 60% of the profits from the Myer JV through the MF Trust and the Myer JV was profitable. During this period, it appears that the management fee payable to Mr Milicevic was accounted for as an expense of the JV Trust, rather than as a distribution of profit in accordance with the JV Trust Deed, and was paid to Mr Milicevic’s company, Sales Momentum, rather than as a trust distribution to Mrs Milicevic (CB2124/2136; T113.29–42).

79. During the period from 2010 to 2013, the Myer JV Agreement was varied as follows: the management fee payable to Mr Milicevic was increased to $150,000 excluding GST; from early 2012, Belgravia paid the fit-out costs for the stores; the Adelaide store ceased to be subject to the Myer JV; and a Spurling store located at Bondi Junction, which was not a Myer store, became subject to the Myer JV.

2011: Clarence St store Heads of Agreement

80. In addition to the Myer JV stores, Mr Milicevic and Belgravia were involved in running a Spurling Formalwear Men’s Business located at Clarence Street, Sydney (Clarence St store).

81. On 7 February 2011, Belgravia, Mr Milicevic and Salem Dib entered into a Heads of Agreement in relation to the business arrangement for the Clarence St store which stated that the business would no longer be operated by Dynamic and Belgravia but would be operated by a “New Entity” comprising Belgravia, Mr Milicevic (replacing Dynamic) and Mr Dib as a franchisee of Belgravia with effect from 3 January 2011 to 29 November 2012. Each party was to be an equal one-third owner of the business with profits and losses to be split equally, and Mr Milicevic was to act as the appointed manager.

82. Although the Heads of Agreement provided that the Clarence St store business would no longer be operated by Dynamic, it appears that the parties continued to treat Dynamic as the operating and franchise entity, and included sales, income, expense and profit figures of that business as part of the JV Trust’s financials (see, for example, profit and loss statements for the period July 2011 to June 2013 at CB2099–100 and CB2103–4). The Defendants submit that this is a matter of some significance, for reasons to which I will come.

2013: Discussions about the future of the Myer JV and purchase of Belgravia’s business by the Defendants

83. From 2009 to early 2013, Bevan Ferrari had occasional discussions with Mr Peck regarding the potential purchase of Belgravia’s business. Those discussions became more serious sometime in early 2013, although it is not clear precisely when those serious discussions commenced.

84. By May 2013, Mr Peck and Mr Milicevic were discussing the future of the Myer JV; whether it would continue in its current form or whether, as Mr Peck wanted, Belgravia would take over and run the Myer JV stores as company owned stores (referred to in the correspondence as the “vertical” option).

85. On 17 May 2013, Mr Milicevic sent an email to Mr Peck, with the subject line “Moving forward”, in which he agreed that “some changes need to take place” in relation to the Myer JV and also proposed two options. The first option involved a “direct Vertical” whereby Belgravia would take over “the entire Myer Spurling business”, pay Mr Milicevic $400,000 for the 60% shareholding along with all the stock (“literally a walk in walk out effective 1st of July 2013”) and contract Mr Milicevic to manage the “Myer Vertical” for the life of the Myer relationship at a rate of $200,000 per annum plus an incentive bonus based on turnover. The second option involved the Myer JV continuing as it was with the current stores and Belgravia opening more Myer stores as direct verticals with an option for Belgravia to contract with Mr Milicevic to manage those stores at $18,000 per year per store. Subsequently, Mr Peck put Mr Milicevic’s proposal into a spreadsheet and sent it to him on 31 May 2013 for discussion (that spreadsheet is not in evidence).

86. At this time, Mr Peck was also considering whether there were ways to terminate the Myer JV Agreement with Mr Milicevic. On 21 May 2013, he received an internal email from Ross Malcomson which noted that the Myer JV Agreement term ended on 31 July 2013 (along with the Myer licence agreement term), there were two provisions that referred to renewal beyond the current term (referred to at [67] above), the Myer JV Agreement was “not written as clear as ideal” and it could be argued that it could end on 31 July 2013 or that Mr Milicevic had an option to renew.

87. On 5 June 2013, Mr Milicevic sent an email to Mr Peck (copied to Michael Boutin, who worked for Belgravia) which raised concerns about the proposal to convert the Myer JV to a “vertical exercise”. Mr Milicevic’s email refers to a reworked spreadsheet (which is not in evidence) which indicated that “if we hit $6,000,000 we can make an additional $209,900 profit… If we hit $8,000,000 which we all think this is achievable we can grow our profit by $504,035” and that Mr Milicevic could not agree to relinquish his “60% shareholding” as he would not receive 60% of the growth.

88. In an email sent to Mr Milicevic on 14 June 2013, Mr Peck outlined what he considered to be the benefits for Mr Milicevic in changing the model. He said that Mr Milicevic would be paid cash from the accumulated profits in the Myer JV (“60% of say about $250,000”) and all current stock would be valued at “JV cost for transition” with no stock debited against Mr Milicevic’s share, and he urged Mr Milicevic to cooperate to make a better deal for both of them. On 5 July 2013, Mr Peck sent a follow up email to Mr Milicevic noting that he had not responded and that they were “getting closer to d day” (which I infer to be a reference to 31 July 2013, being the expiry of the term of the Myer JV Agreement).

89. In cross-examination, Mr Milicevic disagreed that Mr Peck was interested in shutting down and terminating the Myer JV, and gave evidence that his statement in the 17 May email that he agreed “that some changes need to take place” with the Myer JV was not correct and did not reflect what he thought. Mr Milicevic explained that he was prepared to write that at the time as he was in dialogue with Gerard Ferrari about the future of the Belgravia business, he was suspicious about Mr Peck knowing what Belgravia was doing with Ferrari East prior to that email, he wrote it to buy time and he had no intentions of following through on it at any stage (T117.23; T117.50–118.49). Mr Milicevic’s evidence about Mr Peck was not convincing. It is apparent from the emails at [86] and [88] above that Mr Peck was interested in shutting down the Myer JV.

90. As to Mr Milicevic’s evidence about his knowledge of the potential deal between Belgravia and the Defendants, Mr Milicevic deposed that Gerard Ferrari called him in early 2013 and told him by way of a “heads up” that Bevan Ferrari was considering whether to buy Belgravia, there was a possibility for Mr Milicevic to get involved in the deal but he had to keep it secret because it was a condition of the deal that Gerard Ferrari was not involved.

91. Mr Milicevic also gave evidence that, sometime later in 2013, Gerard Ferrari told him that they had been provided with the financial figures for Belgravia, the deal was “getting serious”, they needed to get Mr Milicevic involved to run the business in New South Wales and they were going to inform Mr Peck and Mr Lord that Gerard Ferrari had to be involved as part of any deal.

92. Gerard Ferrari says he did not have those conversations with Mr Milicevic. He gave evidence that he did not speak to Mr Milicevic about the proposal for Ferrari East to purchase Belgravia’s business until September 2013 due to confidentiality and conflict of interest reasons and at Bevan Ferrari and Mr Peck’s request.

93. I prefer Gerard Ferrari’s evidence to that of Mr Milicevic. Gerard Ferrari’s evidence that they did not speak until sometime in September 2013 is more consistent with the contemporaneous documents, in particular the emails at [129], [131] and [134] below. I also have doubts about the reliability of Mr Milicevic’s memory as he was shown to be incorrect about the timing of his discussions with Mr Peck about the future of the Myer JV when he gave oral evidence that the discussions occurred after the Myer licence expired (T117.11–5) and gave affidavit evidence that they first happened in August 2013.

94. Gerard Ferrari deposes to a discussion with Mr Peck regarding the possible purchase of Belgravia’s assets in June 2013. However, it is apparent that Bevan Ferrari was the person who dealt directly with Mr Peck leading up to the entry into the BSA, with Gerard Ferrari being involved in considering aspects of the potential deal and as the primary driver of the idea to bring the Myer JV business back into Ferrari East and doing a deal with Mr Milicevic (T234.13–7; T236.3–6).

95. On 1 July 2013, Mr Peck sent an email to Bevan Ferrari that attached the group financials for Belgravia Formalwear for May 2013. The “Profit & Loss” summary page refers to “Company Stores” and “Joint Ventures”. The entries under “Company Stores” provide figures for the adjusted profit/loss by reference to each of the following categories: Sales, Cost of Sales (COS), Gross Profit, Royalty, Direct Costs, Overheads, Rent, Wages, Total Overheads, Total Profit (Loss), Profit (Loss) and COS Rebates. In contrast, under “Joint Ventures”, the entries refer to “Profit Share” by reference to “Myer JV” and “Clarence St Mens”. In relation to the Myer JV, the entries record a May 2013 YTD actual profit share of $8,639 and actual loss of $4,534 for May 2013.

96. In cross-examination, Gerard Ferrari accepted that he had seen Belgravia’s financials and gave evidence that: he would have assumed when he looked at the entries for “joint ventures” that the Myer JV was not a “100% company owned store” because Mr Milicevic had 60%; the profit that Belgravia was receiving from the business was less the fit-out costs which it was not charging; and there was a separation between the entries relating to the Myer JV and the Clarence St store (T278.31–4; T279.41–280.6).

97. On 17 July 2013, Gerard Ferrari sent an email to Bevan Ferrari that described taking back the Myer JV (which had a turnover of around $4 million) as the “kicker” to the Belgravia deal and asked Bevan Ferrari to request a “breakdown of the JV” as he believed that it was formulated like the company owned stores’ profits and losses (“i.e. by stores then total”).

98. On 22 July 2013, Bevan Ferrari sent an email to Mr Peck requesting an updated budget for the Myer JV, “last years actuals” and an “outline of how the JV is structured, shareholding, F & F leases etc”, noting that Mr Peck had mentioned that “Haris manages & administers this entity”, the “F & F leases were not being met by the JV” and, if that was so, asking where they appeared in the budget.

99. The Plaintiffs submit that the Court should find that before Bevan Ferrari sent his 22 July email to Mr Peck they had a conversation during which Mr Peck told Bevan Ferrari that Dynamic was the company through which the Myer JV was run. In support of that finding, the Plaintiffs point to the references in the 22 July email to “entity” and “shareholding”, Bevan Ferrari’s evidence in cross-examination that he could not recall the conversation and the fact that there was no reason for Mr Peck to fail to disclose that information to him.

100. I accept that a conversation occurred between Mr Peck and Bevan Ferrari prior to the 22 July email in which Mr Peck said that Mr Milicevic managed and administered the joint Myer JV entity but I am not persuaded that the evidence supports a finding that Mr Peck told Bevan Ferrari that Dynamic was the company through which the Myer JV was run at this time. The 22 July email makes no reference to “Dynamic” as the relevant corporate entity, something which I would expect to have been referred to in Bevan Ferrari’s email if Mr Peck had mentioned Dynamic by name during their call. However, I agree that the word “shareholding” suggests that Mr Peck mentioned that the “entity” managed by Mr Milicevic was a company given the natural meaning of the expression “shareholding” as signifying shares in a company. The email may have been written in a shorthand way and by a lay person, but Bevan Ferrari was an experienced company director. Considered in that context, while Bevan Ferrari’s evidence in cross-examination, to the effect that he did not accept that Mr Peck had told him that the entity that the Myer JV was run through was Dynamic, was not implausible, I do not accept his evidence that Mr Peck did not refer to a company and that he understood the word “shareholding” to be a general term referring to the Myer JV entity rather than a company (T345.38–46).

101. On 23 July 2013, Gerard Ferrari sent an email to Bevan Ferrari referring to the benefit in negotiating Mr Milicevic’s stores back into the new venture “at very keen prices”, which he described as “probably a % value of stock only”, and that he thought the “value of the company [Ferrari East] as of October 1^st, could be around $6m”. In relation to the valuation of Mr Milicevic’s stores, Gerard Ferrari stated:

“The same could be done with Haris, I’m guessing, but lets (sic) say the JV has $600k in stock, Haris’ share is $360k, which we may value at $200k, the same applies…”

102. In cross-examination, Gerard Ferrari agreed that he did not have access to the financial records of the Myer JV at this time, he was content to refer in the email to figures he did not know to be correct and make conclusions about predicted revenue from those figures, and the value of the stock was a “guestimate on my behalf” knowing how much stock a formalwear store would need to operate based on experience (T253.5–24).

103. On 24 July 2013, Bevan Ferrari sent an email to Mr Peck seeking details in relation to the Myer JV, asking “how it is structured, does it pay its F & F leases” and requesting the “June 30th BS, Profit & Loss & 13-14 budget”, details about the future of the arrangement (such as when any new Myer concessions were on the drawing board), a list of franchisees and the “expiry date of [the] agreement”.

104. On 6 August 2013, Mr Peck sent Bevan Ferrari three emails in response.

105. The first email attached a document headed “Belgravia Formalwear – Full Property listing of locations, lease and franchise expiry dates” (Property and Franchise Report). The Property and Franchise Report is a spreadsheet of 52 items. Relevantly, in relation to the Myer stores at Brisbane, Macquarie, Melbourne, Parramatta, Sydney City, Castle Hill and Chatswood and the Bondi Junction store, the Property and Franchise Report identifies “Dynamic Platinum Group” as the franchisee entity, Sales Momentum’s address as the entity address, Mr Milicevic as the franchisee name and 31 July 2013 as the franchise agreement term expiry date. In relation to the Clarence St store, the Property and Franchise Report identifies “Dynamic Platinum Group Pty Ltd” as the franchisee entity, Sales Momentum’s address as the entity address, Mr Milicevic as the franchisee name and 30 June 2013 as the franchise agreement term expiry date.

106. Gerard Ferrari gave evidence in cross-examination, which I accept, that he did not recall seeing the Property and Franchise Report before 1 October 2013, explaining that he was more interested in the numbers (T238.46–50).

107. The second email from Mr Peck attached a copy of the “current Myer JV agreement” (outlined at [67] above). In the email, Mr Peck indicated that they had negotiated a new agreement with Myer and were awaiting the document, he was trying to get Mr Milicevic to agree to a “new arrangement on the JV” and would send through what they had been discussing in the next email, Mr Milicevic was being “reluctant” but Mr Peck thought “going vertical” would get more product through and they were looking at extending the current seven stores.

108. In cross-examination, Bevan Ferrari accepted that the Property and Franchise Report disclosed that the franchisee entity of the Myer stores was Dynamic. He said that he did not review the information contained in the Property and Franchise Report in any detail, he just looked at the store listings that were part of the Myer JV, he did not read or comprehend that Dynamic was the particular franchisee entity and he rejected that he knew from the Property and Franchise Report that Dynamic was the franchisee that owned the assets of the Myer JV business at the time (T348.29–349.39; T388.46–389.32).

109. Bevan Ferrari accepted that he would have read the Myer JV Agreement at the time but said he did not understand the reference to “[a] new joint venture entity (JV) is to be set up to be owned 60% by [Mr Milicevic]… and 40% by [Belgravia]” as saying that a company was going to be set up to run the Myer JV business as a franchisee or that the new entity would act as a trustee of a trust although he acknowledged that was what the document said, and he did not understand that the entity was not Belgravia or Mr Milicevic (T351.31–3; T352.1–41). He also rejected that he was aware from reading the Myer JV Agreement and the Property and Franchise Report that the entity referred to in the Myer JV Agreement was a company called Dynamic or that he understood that whoever owned the assets of the Myer JV business was not Mr Milicevic or Belgravia (T353.17).

110. Mr Peck’s third email attached the “new Myer plan”, which was described as the “basis of [the] new agreement being discussed” with Mr Milicevic. The new Myer plan is a one page document that relevantly states as follows:

“Upon receiving new contract from MYER current agreement expires

Renew JV agreement on a different basis

BF is the operator and runs as a vertical owns the stock

Haris employs and pays all staff and manages business including chasing up credits etc.

for fee of $140000 per annum plus profit share which is payable

provided wages targets met

Profit share is that previously advised 10% first $400000

15% next $100000 and 20% balance

HOWEVER BF will guarntee (sic) that it will be at least average of three years under JV provided wages targets met

BF    1. banks all takings

2. pays all bills

3. provides weekly wages cash plus m/ment fee

4. prepares monthly profit reports

5. provides weekly sales report sand (sic) whatever stock reports needed.

6. installs POS for control and stock purposes

7. prepares and maintains stock and sales programme

re current JV

to be concluded as end of contract

A stocktake will be required immediately

All creditrs (sic) and outstandings should be paid first

BF fitouts outstandings to be paid next

Haris can be paid out his share of accumulated profits before BF

Because stock will be higher than accumulated profits at worst bF will pay HARls balance his share monthly over twelve months

re Clarence St

can operate indepently (sic) as a franchissee (sic) same % as now however BF will prepare accounts

should operate out of its own bank account

BONDI    happy to put in with Clarence leave in Myer deal or take out completely... each party contributes to shortfall. Haris can decide preference.”

111. Bevan Ferrari forwarded Mr Peck’s email attaching the “new Myer plan” to Gerard Ferrari the following morning, who responded by making comments in an attachment (which is not in evidence). Gerard Ferrari’s email states:

“Hopefully BF reach agreement with Haris prior to Oct 1^st, would be great if we get back stores & he takes over the role of NSW manager with his team! – But he is a stubborn boy!”

112. On 7 August 2013, Mr Peck sent a further email to Bevan Ferrari in relation to the Myer JV which stated that the “Myer JV in three years made about $120k $108k and about $80k est this year”, Belgravia received about 40% of this plus a margin and, by going vertical, they think they can increase their return and that of Mr Milicevic by pushing sales up more aggressively.

113. On 15 August 2013, Mr Tsonis of Kain Corporate + Commercial Lawyers (Kain Lawyers), acting on behalf of the Defendants, sent an email to John Kain of Kain Lawyers, acting on behalf of Belgravia, attaching a due diligence document which included a query as to whether the Myer JV Agreement required third party consents given it referenced Myer. There is no response to this email in evidence.

114. On 16 August 2013, Phillipa Hogg, a Concessions Manager at Myer, sent an email to Mr Boutin (who forwarded the email to Mr Peck) headed “Confirmation of Licence Agreement” which advised that Myer was redrafting the document to distribute and execute, Myer had agreed and enacted on all new commercial terms, and they were “trading as business as usual”.

115. On 19 August 2013, Mr Milicevic sent an email to Mr Peck that documented their discussions about the future of the Myer JV. His email refers to: a new approach to dissolving the current JV; their agreement that “by going to a direct vertical that neither party would be any worse off”; and a request by Mr Milicevic for confirmation from Mr Peck that he agreed that Mr Milicevic would continue to receive the current management fee, the new approach would be based on “current spreadsheet percentages unless both parties agree otherwise” and that profits would be divided with 60% going to Mr Milicevic and 40% going to Belgravia.

116. Mr Peck and Mr Milicevic exchanged further emails on 20 and 21 August 2013 in relation to the “new Myer plan” which indicated that Mr Peck did not agree to some of the matters referred to in Mr Milicevic’s 19 August email and Mr Milicevic’s position was that, unless Mr Peck agreed to the 60/40 split over and above current profits, he saw no reason to change the current partnership agreement and suggested that they leave things the way they were.

117. On 22 August 2013, Mr Boutin sent an email to Mr Peck requesting his approval to submit to Myer plans for construction in relation to Knox City. Mr Boutin’s email asserts that the Myer concessions are the “SINGLE most income producing venture we do” and that any new store should be a “no-brainer approval”. By email sent that same day, Mr Peck approved Mr Boutin’s submission to Myer of a plan to open a new store at Knox City.

118. On 28 August 2013, Ferrari East was registered as an Australian proprietary company limited by shares. Gerard, Bevan and Brian Ferrari were appointed as directors and Bevan Ferrari as secretary. Clause 79 of Ferrari East’s constitution provided for seed member loans on terms which allowed for a loan to be made to Ferrari East by a member for which the principal was repayable at the discretion of the board and interest was payable at a rate of 8% per annum.

5 September 2013: Entry into the BSA

119. On 5 September 2013, Belgravia, as vendor, and Ferrari East, as purchaser, entered into the BSA.

120. The BSA provided for Ferrari East to buy Belgravia’s “Business” and “Assets” for a purchase price of $4 million and with a completion date of 1 October 2013. The purchase price was reduced to $3,750,000 by a deed of variation dated 23 September 2013.

121. The BSA relevantly provides:

“2.    Sale and purchase

2.1   Sale of Business and Assets

The Vendor as beneficial owner agrees to sell to the Purchaser and the Purchaser agrees to buy from the Vendor the Business and the Assets:

(a)   for the Purchase Price;

(b)   free from Encumbrances;

(c)   with all rights attached or accrued by or after the date of this document; and

(d)   with effect from Completion.

…

7.2   Vendor's obligations

At or before Completion, subject to the Purchaser complying with clause 7.3, the Vendor must deliver to the Purchaser:

…

(g)   original JV Agreement (and if not available, a copy of the JV Agreements), evidence of the joint venture party's (and any applicable third party's) consent to the assignment of the JV Agreement and an executed assignment of that agreement;

…

11.2   Assignment

Subject to clause 11.5 and subject to the Vendor using reasonable endeavours to obtain all necessary third party consents (of which the Vendor agrees to procure), the Vendor assigns and the Purchaser accepts an assignment of the benefit and assumes the burden of the Business Contracts, Franchise Agreements, Equipment Leases, Intellectual Property Licences, JV Agreement and Property Leases which are not Material Contracts (Standard Contracts) with effect from Completion.

…

11.4   Vendor to obtain consent

(a)   The Vendor must use its reasonable endeavours to obtain all necessary consents to the transfer of the benefit of each Standard Contract and Material Contract to the Purchaser.

…

11.6   No recourse

Other than the Material Contracts which are to be transferred to the Purchaser as a Condition to Completion, if the Vendor fails to obtain the consents required for the novation or assignment of any of the Standard Contracts, the Purchaser will not be entitled to:

(a)   recourse against, or indemnification by, the Vendor for any loss or damage suffered by the Purchaser; or

(b)   any refund or reduction of the Purchase Price.”

122. Clause 26, which deals with definitions, includes the following:

“Assets means:

(a)   Goodwill;

(b)   Plant and Equipment;

(c)   Intellectual Property and the Intellectual Property Licences;

(d)   Stock;

(e)   Lay-By Stock;

(f)    the Business Contracts;

(g)    the Franchise Agreements;

(h)    the Equipment Leases;

(i)    the Property Leases;

G)    the JV Agreement;

(k)    permits, licences and authorisations;

(l)    Information and know-how;

(m)    Pre-payments,

but not the Excluded Assets;

…

Business means the formal wear business carried on by the Vendor under the Business Names from the Premises using the Assets;

…

Excluded Assets mean[s]:

(a)   the Vendor's cash and cash equivalents;

(b)   all amounts owing under any loans to the Vendor or its related bodies corporate, including under any inter-company loans and amounts owing from current and/or former franchisees of the Business to the Vendor or its related bodies corporate;

(c)   Trade Receivables;

(d)   insurance policies owned by the Vendor and the benefit of any claims under those policies; and

(e)   sundry debtors;

…

JV Agreement means the agreement of that name and known as the "Myer Joint Venture Agreement" entered into between the Vendor and Harris Milicevic dated 1 February 2010 including any amendments, modifications or variations to that agreement;

…

Premises mean the premises from which the Vendor conducts the Business, as set out in Schedule 4;

…

Stock means all materials used in manufacture, packaging materials, finished goods, goods under manufacture, work in progress and other stock in trade owned by the Vendor in the conduct of the Business, including Display Stock, company owned store stock and stock held at the Premises but excluding Lay-By Stock;”

123. Schedule 4 to the BSA relates to property leases and includes information about the seven Myer JV stores and the Clarence St store in the same format as the Property and Franchise Report, referred to at [105] above.

124. Dynamic was not a party to the BSA. It may also be observed that the BSA seeks to implement the sale to Ferrari East of Belgravia’s “Assets”, which are defined to include the Myer JV Agreement and “Stock”, which is in turn defined to mean “stock in trade owned by [Belgravia] in the conduct of the Business”. The BSA also provides that the benefit and burden of the Myer JV Agreement is to be assigned to Ferrari East but it does not specify the mechanism for that assignment other than obliging Belgravia to use reasonable endeavours to obtain all necessary consents.

125. Mr Milicevic gives evidence, which I accept, that he was not told about the BSA at the time it was entered into and was not aware of the terms nor how it was structured. He relied upon what he was told about it by Mr Peck and Gerard and Bevan Ferrari.

126. Gerard Ferrari deposes that at the time the BSA was entered into he was aware that Mr Milicevic was in a joint venture that was owned 60% by him and 40% by Belgravia, but he was not aware of the legal structure of that joint venture. He says that he knew it was Belgravia, not the joint venture, who had the agreement with Myer to operate its stores and he understood that, pursuant to the BSA, Ferrari East would acquire assets owned by Belgravia including “stock, its franchise system and the right to operate the business within the Myer stores” and 40% of the assets owned by the Myer JV.

127. Bevan Ferrari deposes that at this time he understood that Ferrari East was purchasing the assets of Belgravia which included stock, fixtures and fittings, work in progress, leases (property and finance), contingent liabilities to the value of $1 million including for fixtures and fittings, leases for warehouses, computer leases and other assets of Belgravia.

128. As will become apparent, issues arose between Belgravia and Ferrari East as to whether the BSA provided for Ferrari East to acquire 40% of the Myer JV Assets.

5 – 18 September 2013: Plan to take control of the Myer JV and initial discussions with Mr Milicevic

129. On 5 September 2013, Gerard Ferrari sent an email to potential shareholders of Ferrari East advising that the BSA had been signed and they were aiming to finalise the deal by 1 October 2013. Gerard Ferrari’s email refers to the Myer JV as the main post-settlement acquisition/buy-back which is described as being 60% owned by Mr Milicevic and 40% owned by Belgravia, having a stock holding of $700,000 and a turnover of over $4 million, looking like it would be coming back to the Ferrari East group for “cost of stock only” of “around 60% of the $700k = around $400K” and the strategy being to contract Mr Milicevic as the group’s State Manager.

130. In cross-examination, Gerard Ferrari accepted that he did not have any financial figures in respect of the Myer JV at this time and the figure of $700,000 was a guess on the basis of no information whatsoever other than the amount of stock he believed the stores needed to carry to be viable (T254.30–48).

131. On 7 September 2013, Gerard Ferrari sent an email to Bevan Ferrari about preparing for settlement of the Belgravia deal and agreeing on the valuation of the business, which he believed should be at $6 million but could be wound back to $5 million if the others disagreed. One of Gerard’s stated reasons for his valuation was the “post settlement store buy backs”, referring to the “Haris JV, being the major one” and it being “paramount [that] we regain control of this $4m turnover business”. Gerard Ferrari’s email goes on to state:

“… With your permission I would like to open confidential talks with Haris now, to get a genuine feel where he is at, I would not commit FE to anything but need to know “where Haris is at”, he is an ex business partner of mine as well as a friend and confidant, so I do not see any “breach of confidentiality”, if I have informal discussions.

What I would suggest is FE take back the JV in its entirety, for that we pay Haris stock at Val, (60% of approx. $700k = around $400k – definitely no more!), we pay Haris his current salary, ($140k pa), to be our NSW State Manager & Myer liaison person, our perfect scenario would be to pay the $400k over 12 months, meaning he had no equity in FE, but would be put on a “profit share” of the Myer store business, last year the JV made $180k, so perhaps something like 10% of the first $100k profit, 20% of the second $100k, 30% of the third & 50% above that – Haris’ wage would come out of the Myer store profit as it does now.

The alternative is we pay no cash, but convert the $400k to shares in the JV, (definitely at the $6m Val, no matter what else we decide with our partners), i.e. 6.66% - we could even just offer a straight 5% equity, under this scenario, no bonus for the Myer stores as he is an overall partner in the group!

I know you both think playing really hard ball with him is the way to go – “tread carefully”, I have said before Sydney & Myer are quite different animals to Adelaide & Perth!”

132. On 12 September 2013, Gerard Ferrari sent an email to Bevan and Brian Ferrari that referred to regaining control of the Myer JV as the “big variable” over the first few months (with it being described as “$4m turnover, $180k profit & improves cash flow dramatically”) as it would generate around “$1m turnover during that opening 10 week period” which “run under our control the entire $1m flows into our account” but if run under the current conditions they would only see “about half”. Gerard Ferrari’s email records that he intended to phone Mr Milicevic on his return to the country the following Tuesday although he was sure that Mr Milicevic knew “what is “possibly” going on”, stating that he would not be jeopardizing “our confidentiality agreement” thanks to Mr Peck’s “lack of confidentiality”.

133. On 17 September 2013, Kain Lawyers sent an email to Gerard Ferrari attaching a draft scope of work in relation to the BSA which indicated that it was outside the scope of Kain Lawyers’ work to confirm the contracts which Ferrari East sought to novate or assign and to liaise with third parties to ensure effective novation or assignment but, by 1 October 2013, Kain Lawyers was to clear title to the relevant business assets. Gerard Ferrari forwarded that email to Bevan Ferrari.

134. On 18 September 2013, Mr Peck sent an email to Mr Milicevic attaching a draft “Myer Deed of Management Arrangement” which included the following terms: the agreement would replace the previous Myer JV Agreement provided that stocktakes occurred, final accounts for the Myer JV were prepared, all credits and outstanding payments were paid by the Myer JV and both Mr Milicevic and Belgravia were paid out their share of the accumulated profits and net capital; Mr Milicevic would provide management services to Belgravia; the Clarence St, Bondi Junction and Roselands stores would not be included in the agreement; and Belgravia intended to seek a new licence agreement with Myer for a three year term.

135. Mr Milicevic says that he did not seriously consider this agreement because he understood from his discussions with Gerard Ferrari that Belgravia was in the process of finalising the sale of its business to the Defendants. Based on the emails referred to at [101], [129] and [139], I find that Gerard Ferrari spoke to Mr Milicevic about the Defendants acquiring Belgravia’s business prior to Mr Milicevic’s receipt of the 18 September email and I accept Mr Milicevic’s evidence that he did not pursue the option of the new management agreement with Mr Peck at this time for that reason.

136. Gerard Ferrari deposes that sometime in mid-September 2013 he called Mr Milicevic and they had a conversation in words to the following effect:

Gerard:   Haris, for the past few weeks, Bevan has been negotiating with Ron for us to purchase the assets of Belgravia. That sale is going ahead and will settle on 1 October. At that time, we will become business partners of the Myer JV.

Milicevic:   I can’t believe Belgravia sold without first coming to me.

Gerard:   That’s between you and Ron. The Myer JV is not making money at the moment, and in its current format, it won’t make any money moving forward. Also, moving forward, we are taking on the leases from Belgravia and we will need the JV to contribute to the cost of those. We are establishing a new company to purchase the assets from Belgravia and we want to call it Ferrari East. What we want to offer you is 5% shares in Ferrari East in return for you transferring your 60% ownership of the assets of the Myer JV. We will pay you interest on your investment and we also want you to come on as State Manager of all stores in NSW.

Milicevic:   Why should I do this? What if I don't do it?

Gerard:   You don't have to do it, but if you don't, you may own 60% of nothing because the Myer JV isn't profitable.

Milicevic:   I need to think about this, and you need to send me something in writing.

137. Mr Milicevic denied having a discussion with Gerard Ferrari to that effect in his affidavit evidence, stating that at the time he understood that the Myer JV was profitable based on the business records to which he had access and he would never have accepted an assertion that it was not. However, in cross-examination, Mr Milicevic accepted that Gerard Ferrari insinuated that the Myer JV was not making money and portrayed to him that the joint venture was doomed. He accepted that at some stage Gerard Ferrari had told him that they were establishing a new company to purchase the assets from Belgravia which would be called Ferrari East but disagreed that Gerard Ferrari told him that Ferrari East was taking on the leases from Belgravia and would need the joint venture to contribute to the cost of them, that they wanted to offer him 5% of the shares in Ferrari East in return for transferring his 60% ownership of the Myer JV Assets or that they would pay interest on his investment at this time (T124.39–40; T125.22–43; T126.4–10).

138. Based on the contents of the email referred to at [139] below, I find that there was a discussion between Gerard Ferrari and Mr Milicevic along the lines of what was deposed to by Gerard Ferrari save for two matters. Firstly, I am not satisfied that Gerard Ferrari said that Ferrari East would pay “interest on his investment” during this conversation; it appears that the issue of interest was not raised until a meeting held on 25 September 2013 (T267.6–269.30). Secondly, I am unpersuaded by Gerard Ferrari’s evidence that during this conversation he referred to a transfer of Mr Milicevic’s “60% ownership of the assets of the Myer JV” given his email to Mr Milicevic on 18 September refers to “stock” and other emails he sent around that time also do not refer to a transfer of “60% ownership of the assets” but refer to the Myer JV coming back to Ferrari East and taking control of the Myer JV (see, for example, the emails referred to at [146] and [154]).

139. On 18 September 2013 at 7.32pm, Gerard Ferrari sent a lengthy email to Mr Milicevic with the subject line “Belgravia Deal” which outlined in broad terms the nature of the deal and a proposal for Mr Milicevic that would have the Myer JV return under the control of Ferrari East.

500. I cannot exclude the possibility that Ferrari East would have terminated the Myer JV at some point in time. However, I do not consider that the evidence supports a finding that Ferrari East would have terminated the Myer JV Agreement if (and when) the agreement made on 1 October 2013 had not occurred. This is for the following reasons.

501. First, for the reasons set out at [226] above, I place no reliance on Gerard Ferrari’s evidence that Myer refused to grant a licence, it was in the process of giving Ferrari East a notice to vacate and there was a real risk in 2013 that it was going to terminate the arrangement for the Myer JV stores.

502. Second, although the contemporaneous documents indicate that Ferrari East’s preference was to “buy back” the Myer JV stores and go “vertical”, it was made clear to Mr Milicevic that if he chose for the arrangement to stay “as is” his decision would be respected and one option was to leave the Myer JV operating as per the current arrangements with Ferrari East as the Myer JV partner (see, for example, Gerard Ferrari’s 28 September email at [181] above and the 1 October document at [188] above). There is no suggestion in any of those documents that Ferrari East would have terminated the Myer JV and attempted to employ Mr Milicevic as State Manager under terms similar to the draft management agreement that Belgravia had proposed.

503. Third, I do not accept that the matters raised in the Defendants’ submissions regarding discrepancies within the Myer JV accounts warrant a finding that Ferrari East had good cause to terminate the Myer JV. The contention that cash discrepancies would have drawn suspicion that a term of the Myer JV Agreement was breached is simply speculation and the fact that Mr Milicevic asked why Ferrari East’s lawyers wanted to see the accounts does not, in my view, necessarily indicate his reluctance to provide them.

504. Accordingly, I accept that the Plaintiffs’ loss should be calculated based on their counterfactual, that is, by reference to what would have happened if Dynamic as trustee for the JV Trust continued to operate the Myer JV stores as it had in the period from 2010 through to October 2013, although with Ferrari East owning 40% and the Plaintiffs continuing to own 60%.

505. My findings in relation to the calculation of damages and the expert accounting evidence are set out at [557]–[615] below.

s 137B of the CCA

512. The Defendants plead that, if they are found liable for loss and damage (which is denied), then the Plaintiffs suffered that loss and damage by reason of their own failure to take reasonable care in failing to take reasonable steps to inform themselves in relation to the subject matter of the Representations such that any amount payable would be reduced to nil or such other amount as the Court considers appropriate, pursuant to s 137B of the CCA.

513. Section 137B of the CCA allows a representor to reduce damages for misleading or deceptive conduct as appropriate based on the representee’s failure to take reasonable care. It imports into the calculation of damages similar principles to those in respect of contributory negligence: Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97 at [138]–[139].

514. The Court is to arrive at a “just and equitable” apportionment as between the Plaintiffs and the Defendants of the “responsibility” for the damage which necessarily involves a comparison of culpability by reference to the standard of care of the reasonable person: Pennington v Norris [1956] HCA 26; (1956) 96 CLR 10 at 16.

515. The Defendants did not address this issue in their submissions.

516. The Plaintiffs submit that Mr Milicevic did not fail to take reasonable care of his interests arising from his reliance on the Representations. They say that each of the Representations related to matters in respect of which Mr Milicevic was reliant on what he was told and he was not in a position to conduct due diligence. I agree. I see no basis on which to reduce the Plaintiffs’ damages under s 137B of the CCA and decline to do so.

Ferrari East’s misleading or deceptive conduct claims

517. Ferrari East allege that Mr Milicevic engaged in misleading or deceptive conduct in contravention of s 18 of the ACL in three ways.

518. First, by making the Ownership and Structure Representations. Second, by silence, in that he failed to disclose certain matters to Ferrari East (Misleading Silence). Third, by making the Stock Representation (together, the Cross-Claim Representations).

519. It is common ground that the Cross-Claim Representations were made in trade or commerce within the meaning of s 18 of the ACL to the extent that they were made.

Ownership and Structure Representations

520. The Ownership and Structure Representations alleged are that Mr Milicevic represented that:

1. he had unencumbered legal and beneficial title to 60% of the Myer JV Assets;

2. the Myer JV was an unincorporated joint venture; and

3. on 1 October 2013, he had the power and capacity to, and did, transfer the legal and beneficial title to the Myer JV Assets to Ferrari East pursuant to their agreement.

521. Ferrari East’s particulars refer to the following matters:

1. during conversations between Mr Milicevic and Gerard Ferrari between September 2013 and 1 October 2013, Mr Milicevic informed Gerard Ferrari that he owned 60% of the Myer JV Assets;

2. at no time during the discussions referred to at [521(a)] above did Mr Milicevic inform Gerard Ferrari that the Myer JV Assets were operated through an incorporated entity or trust structure, that the JV Trust existed or that he did not hold unencumbered legal and beneficial title to the Myer JV Assets; and

3. on or around 1 October 2013, Mr Milicevic delivered possession and control of 60% of the Myer JV Assets to Ferrari East, Ferrari East took over responsibility of the management of the Myer JV stores and Mr Milicevic gave Ferrari East unfettered access and control of the Myer JV Assets.

522. On the facts that I have found, I am not persuaded that Mr Milicevic represented to Gerard Ferrari during conversations in September and on 1 October 2013 that he owned 60% of the Myer JV Assets. In my view, an objective reading of the evidence suggests that it was more likely that Gerard Ferrari used that expression (noting he gave evidence to that effect, see [138] and [164] above) than Mr Milicevic.

523. Further, in my view, Mr Milicevic’s references to 60% in the context of the joint venture (such as to “60% of nothing”, “60% stock holding value” and “60% share”) is insufficiently specific to convey a representation that Mr Milicevic had unencumbered legal and beneficial title to 60% of the Myer JV Assets.

524. As to the second Ownership and Structure Representation at [520(b)], there is no evidence that Mr Milicevic said to the Defendants that the Myer JV was an unincorporated joint venture. I also do not accept that Mr Milicevic not informing Gerard Ferrari of the matters referred to at [521(b)] gives rise to the Ownership and Structure Representation alleged.

525. In any event, as I have found, as at 1 October 2013, Ferrari East was aware of the existence of Dynamic as the Myer JV entity and the fact it was a company, and the existence of the JV Trust and the fact the business of the Myer JV was conducted through it.

526. Similarly, I do not accept that Mr Milicevic made the third Ownership and Structure Representation at [520(c)] by delivering possession and control of the Myer JV Assets to Ferrari East on 1 October 2013 in the context where the parties agree it was a term of their agreement that Ferrari East would take over the day-to-day control and administration of the stores as at 1 October 2013. In my view, Mr Milicevic’s actions would not convey a representation that he personally had the power and legal and beneficial capacity to transfer title to the Myer JV Assets to Ferrari East pursuant to “their agreement”. A further issue with Ferrari East’s claim is that, even if the agreement was made, it is difficult to see how but for the representation Ferrari East would not have entered into the agreement given the representation itself is predicated on the agreement having already been made.

527. For these reasons, I find that Mr Milicevic did not make the Ownership and Structure Representations.

Misleading Silence

528. Ferrari East alleges that, in the alternative, Mr Milicevic did not disclose at any time prior to entry into the agreement:

1. the capacity in which he held his interest in the Myer JV;

2. that the Myer JV was operated through an incorporated joint venture or trust structure; or

3. the existence of the JV Trust,

in circumstances where Ferrari East had a reasonable expectation that each of these matters would be disclosed.

529. As described in their submissions, Mr Milicevic failed to avert to the existence of Dynamic and the JV Trust. Ferrari East submits that Mr Milicevic should be found to have engaged in misleading silence as he expressly denied staying silent about those matters, referring to his evidence that he assumed that Ferrari East had known about Dynamic and the JV Trust, and assumed that Belgravia had transferred its share and units to Ferrari East. It was submitted that it was in Mr Milicevic’s commercial interest to tell the Defendants that they were buying the Stock to maximise the sale price.

530. The Plaintiffs deny that Mr Milicevic engaged in misleading or deceptive conduct by silence as to the capacity in which the Myer JV Assets were held. They contend that Ferrari East could have had no reasonable expectation that the matters set out at [528(a)]–[528(c)] would be disclosed by Mr Milicevic for two reasons. First, because Gerard and Bevan Ferrari knew the true position of the ownership of the Myer JV Assets as they knew the identity of the JV entity and had the balance sheet for the business. Second, even if that was not so, the conduct complained of occurred in the context of pre-existing negotiations between the Defendants and Belgravia from which they would have been able to satisfy themselves as to the structure of the Myer JV.

531. The question in a case of alleged misleading or deceptive conduct as a result of non-disclosure is whether, in light of all the relevant circumstances, there has been conduct which is misleading or deceptive: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 (Demagogue v Ramensky) at 41, per Gummow J.

532. The circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined. Unless the circumstances give rise to a reasonable expectation that if some relevant fact exists then it will be disclosed, mere silence will not support the inference that the fact does exist: Demagogue v Ramensky at 41; Miller & Associates Insurance Broking Pty Ltd v BMW Australia finance Limited (2010) 241 CLR 357; [2010] HCA 31 (Miller v BMW) at [18].

533. In commercial dealings between individual entities, the characterisation of the conduct must be undertaken by reference to the circumstances and context of the case. The relevant circumstances include the knowledge of the person who claims to have been misled and any common assumptions or practices established between the parties or in the particular activity or business in which they are engaged. The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive. The test of whether there is such a reasonable expectation is objective: Miller v BMW at [19]–[20].

534. The prohibition on misleading or deceptive conduct does not impose an obligation on a party to commercial negotiations to volunteer information which will be of assistance to the decision-making of another party or to avoid the consequences of the careless disregard, for its own interests, of another party of equal bargaining power and competence: Miller v BMW at [22].

535. I am satisfied, as a matter of fact, that Mr Milicevic did not disclose to Ferrari East that the Myer JV operated through an incorporated joint venture, trust structure or the JV Trust. As I have found at [356] above, Mr Milicevic did not refer in any written communications with Gerard and Bevan Ferrari to Dynamic, the Myer JV Assets being owned by Dynamic or that Dynamic acted as trustee for the JV Trust.

536. However, before Mr Milicevic could be found to have engaged in misleading or deceptive conduct by silence, the factual findings of non-disclosure need to be assessed by reference to the circumstances of this case which requires consideration of the Defendants’ existing knowledge, their commercial character, the course of their dealings with Belgravia and Mr Milicevic and the risks that they were prepared to voluntarily assume.

537. As I have found at [350] above, the Defendants were aware when Gerard Ferrari first dealt with Mr Milicevic in mid-September 2013 that the Myer JV was operated through an entity that was acting as a trustee of a unit trust and that the Myer JV entity was a company called Dynamic. It follows, in my view, that the Defendants could have no reasonable expectation that Mr Milicevic would disclose those matters to them.

538. The Defendants were also aware from the Myer JV Agreement that the JV entity was owned 60% by Mr Milicevic, he was the day-to-day manager of the JV and he had disclosed to them that he had a “JV share holding” which he proposed to “trade in” for a shareholding in Ferrari East.

539. Mr Milicevic’s conduct is also to be considered in the context where there had been negotiations between the Defendants and Belgravia during which the Defendants had an opportunity to undertake due diligence in relation to the BSA and the structure of the Myer JV. It is difficult to see how the Defendants could reasonably expect Mr Milicevic to disclose information that it could be expected would have been made available to them by Belgravia or that they could have ascertained themselves, such as through the BSA due diligence process.

540. Having regard to these matters, I accept the Plaintiffs’ submission that, in all the circumstances, the communications between Mr Milicevic and the Defendants did not give rise to a reasonable expectation of disclosure of the matters set out at [528] above and that the Defendants have not established that Mr Milicevic’s silence was misleading or deceptive as alleged.

541. The Plaintiffs also submitted, and I accept, that even if Mr Milicevic engaged in misleading or deceptive conduct by silence as alleged, there could not have been reliance upon that conduct that caused Ferrari East loss given what it already knew.

Stock Representation

542. Ferrari East’s last pleaded representation, the Stock Representation, is that the Plaintiffs were capable of and/or would successfully transfer to Ferrari East clear title to their 60% interest in the Stock of the Myer JV, possessing a value in the hands of Ferrari East of $215,710.73 or $282,213.00 or such other value as it was then estimated to possess in the balance sheet of the Myer JV.

543. The Defendants submit that the clearest evidence of the Stock Representation is in Mr Milicevic’s 21 November 2013 email (at [233] above). They also rely on what he wrote in the 1 October document, that the “current 60% stock holding value of $282,213 to be treated as a cash loan to FE”, and his raising of the “stock issue” at the 25 September meeting.

544. The Plaintiffs submit that Ferrari East’s claim for misleading or deceptive conduct in respect of the alleged Stock Representation should be rejected for three reasons.

545. First, they say that no representation in the form pleaded was ever made by Mr Milicevic to Ferrari East.

546. Second, even if such a representation was made, it was made with reasonable grounds and was not misleading or deceptive. The Plaintiffs submit that merely because a prediction is made as to future affairs which does not happen, this does not make the prediction false unless there was never an intention to comply with it, referring to Consolo Ltd v Bennett (2012) 207 FCR 127; [2012] FCAFC 120 at 36. They submit that the Plaintiffs controlled the share and units in Dynamic and the JV Trust, there is no basis to think that they did not intend by way of the agreement to transfer them to Ferrari East and the fact that they would have had to obtain permission from Belgravia to do so does not mean there was not a reasonable basis to make the Stock Representation. They say there was no basis for Belgravia to oppose the transfer because it had entered into the BSA with Ferrari East and had agreed to give control of the other share and units in Dynamic and the JV Trust.

547. Third, even if those two matters are not correct, any loss which has arisen has been caused by means of Dynamic being put into liquidation, which occurred because Ferrari East refused the transfer of the shares and units in Dynamic and the JV Trust from Belgravia and the Plaintiffs. They submit that Ferrari East was the author of its own misfortune and, to the extent any damages are payable, they should be reduced pursuant to s 137B of the CCA.

548. As with the other representations, Ferrari East’s case is that it would not have entered into the agreement but for the Stock Representation. It follows, in my view, that whatever Mr Milicevic said in his 21 November 2013 email cannot have been a contributing factor to Ferrari East entering into the agreement with Mr Milicevic on 1 October 2013. In any event, by the time of the 21 November email, the Defendants were well aware of the position of Dynamic as the owner of legal title to the Myer JV Assets, having learned about that matter in the circumstances set out at [220] above. It follows that the 21 November email does not, in my view, assist Ferrari East’s claim.

549. As to the 1 October document, I do not consider that the words written by Mr Milicevic would convey to a reasonable businessperson that the Plaintiffs were capable of and/or would successfully transfer to Ferrari East clear title to a 60% interest in the Stock of the Myer JV possessing a certain value in the hands of Ferrari East. The words used by Mr Milicevic may have conveyed that he wanted the amount of the Shareholder Loan to reflect the value of a proportion of the Stock holding of the Myer JV. However, those words were not, in my view, sufficiently specific to support a representation that either of the Plaintiffs had capacity to and would transfer clear title to the Stock of the Myer JV to Ferrari East.

550. Similarly, the fact that Mr Milicevic raised the issue of Stock at the 25 September meeting does not give rise to a representation about the transfer of title in Stock in the particular terms pleaded.

551. Thus, I conclude that Ferrari East has not established that the Stock Representation was made.

Causation and loss

552. As Ferrari East has not established that the pleaded representations were made or that Mr Milicevic engaged in misleading conduct by silence, the issues relating to causation and loss do not arise.

553. I should record that Ferrari East claimed that but for the Cross-Claim Representations it would not have entered into the agreement with Mr Milicevic on 1 October 2013 and instead would have contracted with Dynamic to buy the Myer JV Assets, and sought damages on a “no transaction” case on the basis that Ferrari East would have terminated the Myer JV Agreement. It claimed that Mr Milicevic’s misleading or deceptive conduct had occasioned loss and damage, which was quantified as the liability to repay the Shareholder Loan, being $58,166.44 (the amount of the interest payments made pursuant to the agreement to date) and $35,783.10 (the costs excluding purchase price of obtaining the Myer JV Stock from Dynamic’s liquidator).

554. Mr Milicevic submitted that, if there was misleading or deceptive conduct, no reliance could have been placed upon the Cross-Claim Representations by Ferrari East because it knew the true position and that any loss or damage occasioned was as a direct result of Ferrari East’s actions such that s 236 of the ACL is not satisfied and the loss or damage cannot be said to have arisen “because of” the misleading or deceptive conduct. He also submitted that Ferrari East became aware of the “offending conduct” by no later than early October 2013 and elected to affirm the agreement by paying interest and accepting the existence of the Shareholder Loan and the obligation to transfer shares. As to the losses said to arise from the liquidation of Dynamic, Mr Milicevic argued that they arose not because of his conduct but from Ferrari East failing to accept the transfer of shares of Dynamic from the Plaintiffs and Belgravia which would have prevented the liquidation from occurring.

552. Mr Milicevic also submits that the above matters provide a powerful basis for the Court to reduce any award of damages to nil pursuant to s 137B of the CCA. They also submit that there is no evidence that Mr Milicevic intended to cause the loss or damage or otherwise fraudulently caused such loss.

553. In my view, there is force to Mr Milicevic’s submissions. It is difficult to see what loss Ferrari East suffered by entering into an agreement with Mr Milicevic in circumstances where Ferrari East has not given him the 5% shareholding, chose not to deal with Dynamic despite knowing that it had legal title to the Myer JV Assets by 11 October 2013 and had the means and opportunity to obtain information relating to the Myer JV Assets prior to completion of the BSA.

Plaintiffs’ damages: Quantum

557. The Plaintiffs’ claim for damages is comprised of three elements:

1. the lost profits generated by the Myer JV stores as at 1 October 2013 and which the Plaintiffs usually paid out to themselves through Dynamic as trustee for the JV Trust (Lost Profits);

2. the lost management fee payable to Mr Milicevic under the Myer JV Agreement each year (Lost Management Fee); and

3. the costs incurred by the Plaintiffs personally associated with Dynamic being put into liquidation, including costs of and damages arising from the liquidation proceedings which they say would not have been paid on the counterfactual because, if the agreement had not been entered into, Dynamic would not have been put into liquidation (Liquidation Costs).

558. The Plaintiffs’ independent expert accountant, Mr Bell, was instructed to calculate the loss or damage suffered by the Plaintiffs in respect of the Lost Profits, Lost Management Fee and Liquidation Costs on the counterfactual scenario where the agreement was not made and the Myer JV continued to be operated by the JV Trust. The loss was then reduced by the amounts the Plaintiffs received by way of the agreement having occurred, which relevantly included the management fees and the interest on the Shareholder Loan that was actually paid by Ferrari East to the Plaintiffs.

559. The Defendants’ independent expert accountant, Ms Jennings-Jones, was instructed to review Mr Bell’s report and express her opinion on his calculations of loss or damage, including on whether the methodology applied in arriving at the total “Loss Calculation” was correct, and, if it was not correct, she was to calculate the Plaintiffs’ alleged loss or damage for each claimed head of loss.

560. The experts were asked to assume different matters, some of which impacted their calculations and an example of which is dealt with below.

561. In addition to their individual reports, as already noted, the experts prepared a joint report and gave concurrent evidence at the hearing by reference to an agreed list of issues that identified what was agreed and not. Supplementary expert reports and written submissions on Lost Profits were received after the hearing. The reports, and the calculations contained within, are necessarily detailed and these reasons do not purport to refer to all the matters dealt with by the experts. Rather, they focus on the areas of disagreement between the experts in order to enable the parties to produce an updated damages calculation that reflects the Court’s determination of the matters in dispute.

562. I deal with each of the three elements of the damages claim in turn and start by setting out the agreed aspects before dealing with each of the disputed items.

Lost Profits

563. Mr Bell calculates Lost Profits as the estimated cash flows from 1 October 2013 to 30 June 2024 plus a terminal value discounted back to 1 October 2013. He then calculates interest at pre-judgment Court rates.

564. The methodology adopted by Mr Bell to calculate the cash flows that the JV Trust would have earned had the agreement not occurred on 1 October 2013 involves:

1. calculating the net profit that the JV Trust would have earned based on Ferrari East’s actual sales up to 30 June 2020;

2. calculating the net profit that the JV Trust would have earned in the period 1 July 2020 to 30 June 2024;

3. calculating a terminal value which attributes a value to the net profits beyond 1 July 2024;

4. making adjustments as necessary so that the results reflect estimated cash flows;

5. calculating the net present value (NPV) of the estimated cash flows back to 1 October 2013;

6. calculating the Plaintiffs’ 60% interest of the distributions from the NPV; and

7. calculating the interest at Court rates from 1 October 2013 to 31 March 2020 as well as a daily interest rate.

565. The loss of profits calculated by Mr Bell is on a pre-tax basis.

566. Mr Bell’s supplementary report filed 20 May 2022 (AB3) sets out his Lost Profits calculation as follows:

Summary
Total NPV of Cash Flows	$467,169
NPV of Terminal Value	$55,028
Total NPV	$522,198
Plaintiffs 60% interest	$313,319
Court Interest to 31 July 2021	$136,626
Total including Court Interest	$449,944

567. Ms Jennings-Jones’ supplementary report filed 10 June 2022 does not include a summary of her Lost Profits calculation.

Discounted cash flow methodology

568. The experts agree that Mr Bell’s discounted cash flow methodology is the appropriate way to calculate damages.

Gross profit margin

569. In their joint report, the experts agreed on the gross profit margin adopted by Mr Bell of 58.6%.

570. An issue arose following Mr Bell’s recalculation of Lost Profits in AB3 (that excluded the income and expenses associated with the Clarence St store and the sales data from the Roselands store) which increased the gross profit margin to 59%.

571. Ms Jennings-Jones considers 57.63% to be a more appropriate gross profit margin to adopt. In her opinion, the gross profit margin was impacted by inaccurate figures for opening and closing stock, and Mr Bell’s gross profit margin calculation at each relevant date and the FY13 percentage he adopts makes no allowance for the exclusion of the Clarence St stock.

572. The difference in approach between Mr Bell and Ms Jennings-Jones is that Mr Bell calculated his gross profit margin based on FY13 only (consistent with the methodology used in his second report (AB2) and the joint report), whereas Ms Jennings-Jones takes an average for all periods from FY11 to September 2013 which, irrespective of what stores are included, ranges from 57.33% to 57.68%.

573. I am not persuaded by Ms Jennings-Jones’ view that the methodology that was initially agreed between the experts, which adopted a gross profit percentage of 58.6% based on the FY13 margin, should be changed. Ms Jennings-Jones’ principal reasons for initially concurring with Mr Bell’s approach, namely, that the improvement in the gross profit percentages in FY12 and FY13 compared to the respective prior years and the gross profit percentages in FY11 to FY13 were in a relatively narrow range of 1.5%, appear to remain apt and I see no reason why the exclusion of the Clarence St store warrants a change from what had been an accepted methodology.

574. It follows that the recalculation of the gross profit percentage based on the FY13 margin of 59% should be applied.

Rent

575. In their joint report, the experts agreed on the rent expense as a percentage of sales to be 23.7%, which was based on the level recorded for FY13 (consistent with the approach in AB2 and Mr Bell’s first report).

576. In AB3, Mr Bell’s calculation of rent as a percentage of sales increased the average of FY12/FY13 rent from 23.3% of sales to 24.5% of sales. This was because Clarence St had a much lower rent as a percentage of sales, being an average of 13.6% in FY12/FY13.

577. The Defendants submit that Mr Bell’s approach in AB3 of averaging FY12/FY13 is not the approach he used in previous reports and is more advantageous to the Plaintiffs than his previous approach.

578. No explanation has been provided by Mr Bell as to why he changed his approach and adopted an average of FY12/FY13.

579. The Defendants also submit that the lower rent as a percentage of sales for the Clarence St store appears to be because it was not a Myer store and not subject to the cost structure in the Myer licence agreement which charged rent as a percentage of sales. Ms Jennings-Jones states that rent should be calculated based on the licence fee percentage provided by the Myer licence agreement, which requires 18% of hire gross sales and 27% of retail gross sales to be remitted for the Myer concession stores. I am not persuaded that rent as a percentage of sales should be recalculated based on the licence agreement. However, I accept that rent as a percentage of sales should be recalculated to reflect FY13, consistent with the previously agreed approach.

Wages

580. The experts agree that wages are to be calculated as a percentage of sales.

581. Mr Bell’s methodology for the calculation of wages in AB3 adopts the same approach as in the joint report (which includes the expense item “contract work”), save for one matter. In the joint report, Mr Bell averages the wages cost from FY12 and FY13 but in AB3 he uses only the FY13 figures because, he says, the FY12 amount for the Clarence St store did not appear correct as it was identified as being only 1.9% of sales. Using the FY13 data, Mr Bell’s recalculation for wages is 20.2%, compared to the 20% figure arrived at in the joint report.

582. Ms Jennings-Jones adopted a wages percentage based on the financial records in the period from July to September 2013.

583. I accept the Plaintiffs’ submission that the period used by Ms Jennings-Jones is too short to be relied on given the seasonal nature of the business. I agree that a period of at least one year is appropriate to ensure an accurate base of data from which to smooth out seasonal variations.

584. Mr Bell’s methodology is to be preferred to that of Ms Jennings-Jones because it is based on a more expansive period of data. Wages as a percentage of sales should be calculated in a manner consistent with the other expense inputs, using FY13, resulting in the figure of 20.2%.

Sales

585. The experts agreed that actual historical sales should be adopted but there is an issue in respect of forecasts for FY22 to FY24. That issue relates to the discount rate, with Ms Jennings-Jones’ view being that the rate should be adjusted to take into account any uncertainty in respect of forecast sales, and I deal with it below.

Other expenses

586. The experts agree that other expenses are a variable cost and should be calculated as a percentage of sales and to the exclusion of management fees.

587. Ms Jennings-Jones adopts 14.7% as the rate for other expenses. In the joint report, Mr Bell revises his calculation of other expenses to exclude the expense line item “contract work” as it is included in his wages calculations and, on this basis, he reduces his “other expenses” as a percentage of sales from 13.51% to 6.62%.

588. In AB3, Mr Bell makes some adjustments to the other expenses based on being able to more properly allocate expenses arising from the data in the general ledger. This has the effect of slightly reducing the other expenses percentage from 6.6% to 6.2%. That reduction is consistent with the removal of management fees which are associated with the Clarence St store and workers compensation expenses being moved to the wages percentage calculation. No issue is raised in relation to that approach by Ms Jennings-Jones.

589. The Defendants note that Mr Bell’s use of the average of FY12/FY13 (6.2%) instead of FY13 (6.6%) results in a higher Lost Profits figure and is inconsistent with the approach for other expenses. Other expenses should be recalculated as a percentage of sales based on FY13.

Capital expenditure

590. Mr Bell calculates capital expenditure (CAPEX) as a percentage of wages based on the IBIS Report as to capital costs in the industry.

591. While Mr Bell’s approach in respect of wages and expenses looks at historical data, he relies on instructions that CAPEX for fixtures and fittings would be minimal as Myer provided all fixtures and fittings including lighting, cash registers and hanging racks as part of the lease arrangement. This reflects Mr Milicevic’s evidence that CAPEX is not an ongoing expense. Mr Bell assumed 15% of wages based on the industry average.

592. In Ms Jennings-Jones’ opinion, Mr Bell’s CAPEX is understated; it is significantly lower than the CAPEX historically incurred by the JV Trust and what has been required to be incurred post-acquisition in order to maintain the seven Myer JV stores, and it assumes no fit-outs and minimal capital expenditure will be required in the future.

593. Ms Jennings-Jones calculates CAPEX having regard to the JV Trust historical data and CAPEX incurred subsequent to the sale.

594. A difference between the respective approaches of the experts arises from the different instructions and assumptions relied on in respect of the level of CAPEX required.

595. An issue with Ms Jennings-Jones’ use of historical data is that it includes data which reflects actual costs incurred by Ferrari East, a significant expense of which was the de-fit and re-fit of the Clarence St store, as Ms Jennings-Jones accepted in cross-examination.

596. I prefer Mr Bell’s use of the 15% industry average to Ms Jennings-Jones’ approach of using actual historical data that includes the Clarence St store re-fit and de-fit costs and other expenses which Mr Milicevic gave evidence that he would not have agreed to incur. As Mr Bell explained in cross-examination, calculating CAPEX based on the industry standard avoids the risk that historical data could relate to upfront setup or establishment expenses which would not be incurred on an ongoing basis.

Discount rate

597. The experts substantially agreed as to the appropriate discount rate save for two specific risk premiums identified by Ms Jennings-Jones. Based on that difference, Ms Jennings-Jones adopted a discount rate of 24% while Mr Bell adopted an 18.74% rate.

598. The first risk premium relates to the risk of the Myer JV Agreement not being renewed. In generating this additional specific risk premium, Ms Jennings-Jones relied on Gerard Ferrari’s evidence that there was a risk of non-renewal of the Myer JV Agreement. Mr Bell based his approach on instructions that the risk of non-renewal of the Myer JV Agreement would not affect the specific risk premium.

599. Mr Bell’s risk premium rate should be adopted rather than that of Ms Jennings-Jones. For the reasons set out at [226] above, no weight should be placed on Gerard Ferrari’s evidence that there was a risk that the Myer JV Agreement would not be renewed. The Defendants have not established a significant risk of non-renewal in respect of which an additional specific risk premium should be allocated.

600. The second risk identified by Ms Jennings-Jones concerns uncertainty in respect of recovery from the COVID-19 pandemic. I prefer Mr Bell’s approach which is to account for that risk in the forecast cash flows rather than as a general discount rate.

601. For these reasons, the discount rate proffered by Mr Bell of 18.74% based on a specific risk premium of 8% should be applied.

Lost Management Fee

602. The experts agree:

1. the methodology for calculating the Lost Management Fee is comparing the “but for” level of management fees with actual management fees and discounting to a present value;

2. the amount of the actual management fee; and

3. the discount rate adopted by Mr Bell of 5%.

603. There was an issue between the experts as to whether the management fee of $150,000 was exclusive or inclusive of GST. As I have found, the management fee of $150,000 is exclusive of GST (at [297] above).

604. The next issue is whether the management fee is a loss suffered by the Plaintiffs or Sales Momentum. This raises a factual and legal issue; not an issue for the experts. The loss is that of the Plaintiffs.

605. Another issue is whether the management fee would be paid if the Myer JV stores made a loss. It is agreed that the management fee could be paid if there were profits. The JV Trust Deed provides that the management fee is to be paid out of profits only. The recalculation of damages should be undertaken on the assumption that management fees can only be funded on that basis.

606. Ms Jennings-Jones’ conclusion that there would be a loss in FY14 (and no profits from which to pay a management fee) is based on her model that needs to be updated in respect of various inputs to reflect the Court’s findings.

607. Her calculations based on the reduction in Mr Milicevic’s management fee to $80,000 followed by $0 after 22 February 2017 are not relevant because they assume the existence of an agreement with Ferrari East, which is inconsistent with the approach under the counterfactual that the agreement had not been made.

608. As to the calculation of amounts paid by Ferrari East to date, that amount should be exclusive of GST, consistent with the management fee of $150,000 per annum being exclusive of GST.

Liquidation Costs

609. The agreed value of the claim is $67,474.

610. The only difference between the experts as to the Liquidation Costs relates to whether GST should be included or not, based on whether an input tax credit could be claimed. In my view, the calculation should be made on the basis that an input tax credit could not be claimed. The amounts were paid by the Plaintiffs (as defendants in the proceedings brought by Dynamic’s liquidator).

611. The Defendants contend that as Dynamic continued to trade for a period of years after October 2013 with Mr Milicevic as a director, there has been no causative link between any breach by Ferrari East and the liquidation of Dynamic and, therefore, any losses incurred by the Plaintiffs cannot be linked to that breach.

612. The Plaintiffs submit that, if the agreement had not occurred, Dynamic would not have been put into liquidation. I am not persuaded by that submission in circumstances where Belgravia was the creditor that sought the appointment of the liquidator and part of the liquidator’s claim against the Plaintiffs related to the $100,000 transfer by Mr Milicevic out of an account of Dynamic.

Amounts paid by Ferrari East

613. It is agreed that Ferrari East has already paid Mr Milicevic $462,244 (exclusive of GST).

614. It is agreed that Ferrari East has paid interest of $52,575.

Statutory interest

615. Interest should be calculated on all losses from 1 October 2013.

Conclusion

616. For these reasons, I have found that neither the Plaintiffs nor the Defendants have established the key term of the agreement for which they contend. It follows that the claims and relief sought by the parties based on breach of contract and the defences and cross-claims that raise mistake, frustration and total failure of consideration do not arise.

617. I have concluded that the Plaintiffs are entitled to relief under the ACL in respect of the Financial Representations made by Ferrari East and Gerard Ferrari which I have found to be misleading or deceptive and made without reasonable grounds. The Defendants have not succeeded on their misleading or deceptive conduct case.

618. It follows that Ferrari’s East’s cross-claim should be dismissed.

619. Given the outcome, in principle, I see no reason why the usual order that costs follow the event should not apply.

620. There may be further issues concerning the calculation of damages that will need to be dealt with to take into account my decision on the matters arising from the expert evidence.

621. The parties should consider these reasons for judgment and consult about whether appropriate short minutes of order can be agreed. Alternatively, the parties are to approach my Associate by Tuesday, 3 October 2023, for the purpose of listing the proceedings for directions in order to determine what should be done to enable the Court to make orders that dispose of the proceedings.

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Amendments

11 December 2023 - [584] - amendment to percentage figure

Decision last updated: 11 December 2023