National Foods Milk Limited v McMahon Milk Pty Ltd (No 2)
[2009] VSC 150
•23 April 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
F5887
No. 2098 of 2005
| NATIONAL FOODS MILK LIMITED (ACN 051 195 272) | Plaintiff |
| v | |
| McMAHON MILK PTY LTD (ACN 094 395 874) & ORS | Defendants |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2 April 2009 | |
DATE OF JUDGMENT: | 23 April 2009 | |
CASE MAY BE CITED AS: | National Foods Milk Ltd v McMahon Milk Pty Ltd (No 2) | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 150 | |
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DAMAGES – Restraint of trade - Breach of non‑competition provisions of licensed distributor agreement – Intentional interference with contractual relations – Assessment of damages – Extent of further evidence admissible on assessment – Whether evidence relevant to causation is admissible - Relevant principles discussed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N J O’Bryan, SC with Mr C E Shaw | Deacons |
| For the Second and Third Defendants | Mr P J Bick, QC | Settle Legal |
TABLE OF CONTENTS
I PARTIES AND INTRODUCTION
II RELEVANT LIABILITY FINDINGS
III APPLICABLE LAW
IV SUMMARY OF DAMAGES CLAIMED BY NATIONAL FOODS
V THE MITIGATION EXPENSES CLAIM
VI THE LOST PROFIT CLAIM
VII CONCLUSION
HIS HONOUR:
I PARTIES AND INTRODUCTION
The plaintiff, National Foods Milk Ltd, produces and manufactures “Pura” milk products. The defendants are Anthony (Tony) McMahon and companies associated with him, his sons and his wider family (collectively “the McMahons”).
MP McMahon Pty Ltd is the original family company. It was established by Tony McMahon’s father, John McMahon, in 1951 and successfully traded as a milk distributor from that time until in or about December 2002. From about 1985, Tony McMahon had day-to-day control of its operations.
McMahons Dairy Pty Ltd was incorporated on 15 November 2002 to take over the milk distribution business of MP McMahon. It did so from 31 December 2002. It is and was at all relevant times owned and controlled by Tony McMahon.
McMahon’s Dairy Products Pty Ltd was incorporated on 9 August 2005 to take over the milk distribution business of McMahons Dairy. It did so from 15 August 2005. It is owned by Tony McMahon’s sons, Patrick and Nicholas. Nicholas was a director of McMahon’s Dairy Products for a few weeks only. He resigned on 31 August 2005, and the McMahon’s Dairy Products business has since been managed by Patrick.
Until 2000, National Foods distributed its milk in Melbourne, Geelong and the Mornington Peninsula either directly or through many distributors who competed with each other. After an internal review, National Foods concluded that this was an inefficient milk distribution system. Accordingly, National Foods sought to increase the efficiency of its milk distribution. In broad summary, increased efficiency was to be achieved by dividing Melbourne, Geelong and the Mornington Peninsula into a number of geographical zones or territories, and licensing one distributor to be the exclusive licensed distributor in that territory. A licence fee was to be payable by licensed distributors.
For many years prior to the year 2000, the McMahons had successfully distributed National Foods milk products in the north‑western suburbs of Melbourne. Following negotiations, Tony McMahon agreed to become a licensed distributor for National Foods in two geographical territories (‘the McMahon territories’). There was a separate licensed distributor agreement for each of the McMahon territories.
National Foods made a number of claims in the proceeding. First, it sought to recover debts due to it in respect of unpaid license fees and for milk products sold and delivered by it to the relevant McMahon company. Second, National Foods sought damages for alleged breaches of certain non‑competition provisions of the licensed distributor agreements. Third, National Foods made a claim against McMahon’s Dairy Products in tort for intentionally inducing McMahons Dairy to breach the non‑competition obligations upon it under the licensed distributor agreements.
Following a trial of some ten days duration (the ‘liability trial’), liability issues in the proceeding were determined in separate reasons for judgment (the ‘liability reasons’). National Foods was largely successful in its claims.[1]
[1]National Foods Milk Ltd v McMahon Milk Pty Ltd & Ors [2008] VSC 208.
There was a dispute at the liability trial as to whether the quantification of the debts claimed would be determined. For reasons then given, quantification of the debt claims was found not to be part of that trial. Subsequently, at a separate hearing, the debt claims were quantified and judgment was entered accordingly.
National Foods also succeeded in its claims based on breach of the non‑competition provisions of the licensed distributor agreements, and in respect of its claims in tort against McMahon’s Dairy Products for intentionally inducing McMahons Dairy to breach its non‑competition obligations. Judgment for damages to be assessed was entered in respect of these matters. In accordance with ordinary Commercial List practice, all questions concerning the assessment of damages were separated from the liability. Subsequently, following adjournment at the request of the McMahons, the Court finally heard a trial as to the assessment of these damages. These reasons concern those issues.
These reasons should be read in conjunction with the liability reasons. The terminology adopted in the liability reasons is also adopted in these reasons.
II RELEVANT LIABILITY FINDINGS
In order to understand these reasons concerning assessment of damages, it is necessary to summarize and set out some of the findings made in the liability reasons.
The term of the licensed distributor agreements was due to expire on 20 August 2005. By September 2004, the relationship between Tony McMahon and National Foods was deteriorating rapidly. Notwithstanding this, there were negotiations for the extension of the licensed distributor agreements beyond 20 August 2005. In these negotiations, as the expiry of the agreements approached, there was misleading conduct by both National Foods and Tony McMahon. The misleading conduct on the part of National Foods is not relevant to the issues concerning assessment of its damages. The relevant conduct is that of Tony McMahon, viewed in context as described in the liability reasons. For convenience, I will set out the relevant parts of the liability reasons below:
153By letter dated 5 July 2005 from National Foods to Tony McMahon, National Foods referred to the negotiations for a new distributorship agreement, the fact that no agreement had been reached and noted that the licensed distributor agreements would expire at midnight on 20 August 2005. In this context, National Foods withdrew its then current offer for a new distributorship agreement and proposed three options to Tony McMahon. First, that he enter into a new, revised form of distributorship agreement, which differed from that previously under discussion. Second, National Foods proposed that the current licensed distributor agreements be extended for a period of 12 months, presumably to allow time for further negotiations towards a longer term agreement. Third, National Foods proposed that if McMahons did not accept either of the first two proposals by close of business on 25 July 2005, that McMahons would cease to be entitled to distribute Pura milk products from midnight on 20 August 2005 “or such other date from which it is clear that you will not be entering into [a new distributorship agreement] (as the case may be)”. In these circumstances, National Foods informed Tony McMahon that:
National Foods will commence approaching the customers you are currently supplying with National Foods’ products regarding alternative arrangements for the supply of National Foods’ products effective from 21 August 2005.
National Foods reminds you that, despite the Current Agreement coming to an end, you will continue to be bound by the terms of clause 23.16 (“No Competition”) of the Current Agreement.
154Tony McMahon responded to the National Foods’ letter on 15 July 2005. In his letter, Tony McMahon stated “I have not yet made up my mind regarding the new contract” and further, “I am still considering my options, and will decide prior to the expiry date what my options will be”. This time, it was Tony McMahon who was engaging in misleading conduct. He agreed that, by this time, he had commenced assisting his children to establish their own milk distribution business for the purposes of distributing Warrnambool Cheese & Butter Factory milk products (“Sungold”) in competition with Pura milk products in the McMahon territories. For his own part, it appears that Tony McMahon intended to effectively retire from the milk distribution business and limit his involvement to assisting his children in their new venture.
155Next, Tony McMahon wrote a further letter to National Foods which, in all the circumstances, I find was deliberately misleading as to his intentions. The letter is dated 22 July 2005. In it, Tony McMahon stated that he was “still not fully convinced that [he could] sign a new agreement”, referred to poor treatment by National Foods received by him over the past three years, said that “all is not lost” and said “I think that perhaps a 12 month extension of the current agreement could be possible if you are able to agree to the following conditions”. Some of the conditions which were listed were unrealistic and I do not accept that Tony McMahon had any genuine belief that National Foods would ever agree to them. For example, Tony McMahon demanded a refund of all licence fees. I find that Tony McMahon was simply trying to string National Foods along whilst he assisted his children to establish a business to compete with distributors of Pura milk products when the licensed distributor agreement expired. In this context, Tony McMahon stated that, if all of his proposed conditions were agreed to, he would give National Foods “an answer either way by August 15th 2005”.
156On 25 July 2005, Tony McMahon made application to The Warrnambool Cheese & Butter Factory Co Ltd for a credit account to purchase its milk products for distribution. The application was for a $1,000,000 credit limit and was made in the name of McMahons Dairy. Tony McMahon nominated himself as the “primary contact” for all dealings with Warrnambool Cheese & Butter, as the person authorized to bind McMahons Dairy and signed a guarantee of the credit account. Although Tony McMahon said that this application was made by him in the name of McMahons Dairy because his children had not yet incorporated McMahon’s Dairy Products Pty Ltd, and was thus an application made on their behalf, the making of this application demonstrates Tony McMahon’s high level of involvement in assisting his children to set up a business to compete with National Foods in the McMahon territories.
157Tony McMahon met with Mr Wooller of National Foods on 27 July 2005. They discussed the recent correspondence. Tony McMahon repeated the statement in his letter of 22 July that he would communicate his decision to National Foods on or before 15 August 2005. As I have said, I am satisfied that Tony McMahon had made up his mind before this meeting that he would not enter into any new or extended distributorship contract with National Foods. Indeed, Tony McMahon acknowledged this in his evidence. He said that he made up his mind not to continue as a National Foods’ distributor when he received the letters of 5 July 2005 from Mr Wooller and agreed that, thereafter, he acted “in effect to string them along”.
158For its part, National Foods was obviously suspicious that Tony McMahon was considering “defecting”. On 29 July 2005, National Foods’ representatives met and considered the development of “a defection contingency plan for McMahon”. The contingency plan which was discussed involved a number of elements, including “surveillance” of the McMahon operations in the period leading up to 15 August, being the date that Tony McMahon had indicated he would provide a final answer as to whether he would continue as a distributor of Pura milk products.
159By 8 August 2005, McMahons was three weeks overdue in paying for milk deliveries, in a sum of $233,812.95. Mr Wooller then organised a “field operation”. The field operation involved sending National Foods’ employees into the market place to ascertain whether McMahons had already commenced distributing products other than those of National Foods.
160On 11 August 2005, Mr Wooller instructed the field operation team to hand out a letter to McMahons customers for Pura milk products. Their letter stated:
PURA MILK
11th August 2005
Dear Valued Customer
DELIVERY ARRANGEMENTS FOR PURA MILK & OTHER NATIONAL FOODS PRODUCTS
As a current stockist of National Food’s branded products such as Pura Milk, Pura Light Start, Pura Tone, Big M & Pura Classic (Pura products) I would like to advise you of the “potential” for a change in the manner by which we deliver our products to you, the valued customer.
Pura products are currently purchased by McMahon’s Dairy Pty Ltd (McMahon’s) from National Foods under a Distributor Agreement and are subsequently on sold to you by McMahon’s. This Distributor Agreement is due to expire later this month.
National Foods and McMahon’s are currently in negotiations over the renewal or extension of the Distributor Agreement and National Foods is hopeful of a successful outcome by which McMahon’s will continue[2] to deliver Pura products to you. If this is the outcome National Foods will advise you accordingly in writing and you can simply disregard this communication.
[2]Original emphasis.
However, in the unlikely event that National Foods and McMahon’s fail to renew or extend the Distributor Agreement, McMahon’s will be unable[3] to continue purchasing Pura products and National Foods will need to make other arrangements by which to deliver Pura products to you.
[3]Original emphasis.
In such an unlikely event a representative of National Food’s will be in contact with you at the earliest opportunity to determine your current delivery, pricing and billing arrangements so that alternate arrangements can be immediately established. National Foods’ objective will be to make any such transition as seamless as possible in order to minimise inconvenience to our valued customers.
We thank you for your loyal support of the Pura brands and advise that you can speak to a representative of National Foods on this or any related matter by phoning us on ….
Yours sincerely
Greg Wooller
Greg Wooller
State Sales Manager Victoria
161Tony McMahon was irate when this circular letter was brought to his attention. He telephoned Mr Wooller and threatened to commence legal action. He did not tell Mr Wooller that he had decided to cease distributing Pura milk products or that he was assisting his sons to set up a competing business. Nor did Tony McMahon tell Mr Wooller this during further conversations during that week, when Mr Wooller called him about declining milk orders from McMahons.
162On 12 August 2005, Mr Wooller received feedback from a member of the field operation team that Tony McMahon had been involved in approaches to his existing customers for Pura milk products and had sought to have them purchase “Sungold” milk products, which are manufactured by Warrnambool Cheese & Butter Factory. As a result, a more detailed field operation was conducted on 13 August 2005, during which it was discovered that a number of McMahons’ customers for Pura milk products had been approached with a view to having them supplied with Sungold milk products. Although much of the evidence was hearsay, and some was disputed by Tony McMahon, Tony McMahon did admit being involved in some of the approaches. It was put to Tony McMahon that he was actively involved in canvassing his Pura milk customers “to swing them across to Sungold milk on the weekend commencing on Friday 11 August and concluding on Sunday the 13th”. Tony McMahon acknowledged attending some of these customers’ premises. He disputed that he was “actively involved” but conceded that he “had limited involvement”. It is unnecessary, at this stage, to determine the extent of Tony McMahon’s involvement. For present purposes, it is sufficient that he was involved in the approaches to his existing customers for Pura milk products for the purpose of encouraging those customers to order Sungold milk products.
163National Foods treated the conduct of Tony McMahon in being involved in the promotion of Sungold milk products to his customers as a breach of the licensed distributor agreements, entitling it to terminate those agreements forthwith. By letter dated 15 August 2005, National Foods informed Tony McMahon that it considered his conduct to be an abandonment of the licensed distributorship agreements, conduct in breach of clause 23.2 of those agreements (which prohibits a licensed distributor from delivering the products of a competitor) and conduct in breach of clause 23.16(a) (which prohibits a licensed distributor from being involved in any way in the purchase, sale, distribution or marketing of any products which are similar to Pura milk products). Accordingly, National Foods terminated the licensed distributor agreement forthwith.
164Further, in its letter National Foods reminded Tony McMahon of his obligations under clause 23.16(b) of the licensed distributor agreement, which prohibits a licensed distributor from being involved in any capacity in a competing business for a period of six months after the termination of the licensed distributor agreement.
165Finally, in its letter, National Foods demanded payment from McMahons of $1,003,900.50, in respect of unpaid licence fees and milk products sold and delivered. This amount was stated to be subject to further adjustment.
166Also on 15 August 2005, the McMahons prepared a circular letter for delivery to their customers. The letter is in the following form:
McMAHON’S DAIRY PRODUCTS PTY LTD
…
Dear Valued Customer,
After 60 years of distributing Pura Milk, (formerly National Foods, now San Miguel an overseas company), our family company has been forced in to making a change.[4] San Miguel/National Foods have failed to supply us with a satisfactory long term contract, therefore we feel that we do not have a future with this company.
[4]Emphasis in liability reasons but not in original letter.
We have decided to join forces with an Australian owned and operated company, Warrnambool Cheese and Butter, who manufacture Sungold Milk Products. Warrnambool Cheese and Butter is the oldest surviving Australian Dairy Company having been established for over 117 years. They have been providing employment and support for many employees, distributors and farmers during this period.
Sungold Milk guarantee us competitive prices & better use by dates with their range of award winning products.
By changing our supplier to Sungold Milk, we are able to pass onto you, the customer, the benefit of better pricing and better codes.
As an incentive to our loyal customers, we are offering a further 5cpl off the already low price for the next three months.
Credits will be given for ALL milk returned for the next three months.
Personalized service is guaranteed.
Special Promotions for the Sungold BrandSponsorships.
Any problems please do not hesitate to call the office on […] and we will either answer your queries or arrange for someone to come out and visit you
Regards
FAMILY & STAFF AT McMAHON’S DAIRY
167The letter is written on the basis that the customers will be continuing to deal with the same organisation they had previously dealt with. The fact that a new company, McMahon’s Dairy Products Pty Ltd, had been formed to replace McMahons Dairy Pty Ltd is not referred to. The customers are left under the impression that they will be dealing with Tony McMahon and his family, as in the past.
(7) Conduct of McMahons following termination
168Following the termination of the licensed distributor agreement, McMahons commenced distributing Sungold milk products in competition with Pura milk products. An issue arises as to the extent of the involvement of Tony McMahon in this business. Mr McMahon adopted the position in his evidence that the new business was conducted by his sons through the new company McMahon’s Dairy Products Pty Ltd. However, I find that Tony McMahon was involved in the setting up and operation of the McMahon’s Dairy Products business. I make this finding for the following reasons.
169First, as appears above, it was Tony McMahon who made the application to Warrnambool Cheese & Butter for a credit limit to enable his sons to commence purchasing and distributing Sungold milk products in competition with the Pura Milk products of National Foods. In that application, Tony McMahon nominated himself as the primary contact, and warranted that he had authority to bind “the Customer” in all dealings with Warrnambool Cheese & Butter. Tony McMahon also guaranteed the account. During the six month period following termination of the licensed distributor agreement, and beyond, the account name under which Tony McMahon’s sons traded with Warrnambool Cheese & Butter remained as McMahons Dairy Pty Ltd. In these circumstances, I infer that Tony McMahon’s guarantee remains in place.
170Second, there is the continuing effect of the circular letter delivered by the McMahons to their customers on 15 August 2005 which is signed “FAMILY & STAFF AT McMAHON’S DAIRY”. As I have said, that letter was obviously written in an endeavour to persuade customers to continue dealing with the McMahons, on the assumption that they will be dealing with Tony McMahon and his family.
171Third, Tony McMahon admits that he attended at the Royal Deli Café and the Wattle Valley Convenience Store on 20 August 2005, after termination of the licensed distributor agreement, and supplied free samples of Sungold milk to customers outside those premises. Further, Tony McMahon attended at the Grange Convenience Store accompanied by Paul Pino on 29 August 2005, and offered Sungold milk products to the proprietors of that store.
172Fourth, on 16 August 2005, the day following the termination of the licensed distributor agreement, a full page advertisement appeared in the “Hume Moreland Leader”, a newspaper circulating in the McMahon territories, advertising Sungold milk products. The full page advertisement was in colour depicting a wide range of Sungold milk products, with bold type taking half the page stating:
C’MON,
ASK
FOR
Sungold
BY NAME!
The full page advertisement directs trade enquiries to McMahons Dairy in the following terms:
For deliveries of Australian owned Sungold call …
McMAHONS DAIRY [phone number]
173Tony McMahon sought to explain his involvement in his sons’ business of distributing Sungold milk products in competition to Pura milk products, and in that regard allowing them to use the “McMahons Dairy” name, as no more or less than assisting his children because “they didn’t have any trading history”.[5]
[5]Liability reasons, [153]-[173] (emphasis added unless otherwise noted).
In the liability reasons, it was determined that McMahons Dairy, through the actions of Tony McMahon referred to in the above quoted passage, breached the non‑competition provisions of the licensed distributor agreements during the term of those agreements.[6] As a result, it was determined that National Foods was justified in terminating the licensed distributor agreements on 15 August 2005. National Foods does not seek any damages in respect of breaches occurring before this time, which involve only a few days of competition. It was also determined in the liability reasons that McMahons Dairy breached the non‑competition provisions of the licensed distributor agreements by involvement in the business of McMahon’s Dairy Products in the six month period following the termination of the licensed distributor agreements.[7] The conduct of Tony McMahon before and after termination of the licensed distributor agreements also formed the basis of a finding in the liability reasons that McMahon’s Dairy Products intentionally interfered with the contractual relations between National Foods and McMahons Dairy by inducing or procuring McMahons Dairy to breach the non‑competition provisions.[8]
III APPLICABLE LAW
[6]Ibid [244]-[249].
[7]Ibid [250]-[255].
[8]Ibid [273]-[281].
In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd the High Court stated:
The “ruling principle”, confirmed in this Court on numerous occasions, with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman:
“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”[9]
[9][2009] HCA 8 at [13] per French CJ, Gummow, Heydon, Crennan and Kiefel JJ (citations omitted).
Although damage is not an element of the cause of action for breach of contract, a plaintiff will be limited to nominal damages only unless, on the balance of probabilities, the plaintiff has affirmatively established that the breach has caused ‘assessable damage … which is capable of being measured in monetary terms’.[10] In this regard, senior counsel for National Foods submitted that the onus of proof had shifted in this case; thus requiring the McMahons to prove that aspects of the loss claimed were not caused by the breaches which have been established. Reliance was placed upon the following statement by Jagot J in Haviv Holdings Pty Limited v Howards Storage World Pty Ltd:[11]
(8)It has also been said that, while the plaintiff has the onus of showing loss caused by the breach, “if the loss in question is the apparent or likely result of the breach, the onus shifts to the contract-breaker to prove that it was not” (Seddon and Ellinghaus at [23.34] citing Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd [1968] HCA 64; (1968) 120 CLR 516). Further, in Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [148] McHugh J said (albeit in a trade practices context) “(a)rguably, once a plaintiff demonstrates that a breach of duty has occurred that is closely followed by damage, a prima facie causal connection will be established. It is then for the defendant to show that the plaintiff should not recover damages. In the words of Dixon CJ in Watts v Rake[1960] HCA 58; [(1960) 108 CLR 158 at 160], it is the defendant who must disentangle, so far as possible, the various contributing factors”.
[10]The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 118.
[11][2009] FCA 242 at [27].
As appears below, it is unnecessary for the disposition of this case to decide whether the statement by Seddon and Ellinghaus which is quoted in the above passage represents a correct statement of legal principle. For my part, I do not think that the suggested principle is supported by the authority of Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd which is referred to.[12] In that case, the majority adopted the trial judge’s factual findings concerning causation.[13] No statement of general principle to the effect contended for by Seddon and Ellinghaus appears in the majority judgment. With respect, I do not accept that the other authorities referred to by Jagot J in the passage quoted, which concern a trade practices context and the question of disentangling various contributing factors to damages claimed in negligence, support the principle contended for by Seddon and Ellinghaus in a breach of contract setting.
[12](1968) 120 CLR 516.
[13]Ibid at 523.
Once a causal link is proved, the plaintiff must also establish that the damages claimed are not too remote. In Hadley v Baxendale it was stated that a loss caused by a breach of contract is not too remote if it:
… may fairly and reasonably be considered either [as] arising naturally, that is, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. [14]
[14](1854) 9 Exch 341 at 354; 156 ER 145 at 151.
The ruling principle is also qualified by the need for a successful plaintiff to establish that reasonable steps have been taken to mitigate the damage caused by the breach of contract. Where such steps are taken, the plaintiff can recover money which was reasonably spent in mitigating or attempting to mitigate the effects of the breach of contract.[15]
[15]Lloyds & Scottish Finance Ltd v Modern Cars & Caravans (Kingston) Ltd [1966] 1 QB 764 at 782; Whitehouse Hotels Pty Ltd v Lido Savoy Pty Ltd (1975) 49 ALJR 93 at 99.
Finally, difficulty in the calculation of damages is not a bar to recovery, unless it is impossible to say that there is an assessable loss resulting from the breach.[16]
[16]Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83; Fink v Fink (1946) 74 CLR 127 at 143.
On the specific issue of the appropriate measure of damages for breach of a promise not to compete, senior counsel for National Foods submitted that the task of the Court was to assess the amount of profit which National Foods would have earned in the relevant period from the sale of milk and milk products in the McMahon territories in the absence of a breach of the non‑competition provisions. Reliance was placed upon cases where the Court has adopted this approach.
In Griffiths & Beerens Pty Ltd and Ors v Duggan and Ors,[17] a very recent case in this Court, Pagone J considered the assessment of damages for breach of a restraint of trade promise. Pagone J referred to the ruling principle and stated:
The measure of damages, in other words, is that amount that will place the party in the same position as if the contract had been performed. This involves a comparison between a hypothetical situation (that is, the situation that would have existed had the contract been performed) and the actual position in which the plaintiffs found themselves by reason of the breach.[18]
[17][2008] VSC 201; (2008) 66 ACSR 472.
[18]Ibid at [171] (citations omitted).
In that case, the successful plaintiffs put forward two alternative bases for the assessment of their loss. Pagone J accepted the first basis as having merit and assessed damages on that basis. He described the first basis in the following terms:
The first was based upon what the plaintiffs referred to as the quantum of global loss basis said to be found in the observations of Mayo J in Winkie Meat Works Ltd v Ballard. In that case it was held that the court was entitled to look at the sales made by the defendant when considering the loss which had been suffered by the plaintiff. In this case the plaintiffs contended that there is evidence before me both of the sales made by the defendants and of the sales lost by the plaintiffs. In calculating the loss suffered by reason of the breaches, I am therefore asked to compare the plaintiffs’ actual position with a hypothetical position that the plaintiff would have been in but for the breach.[19]
[19]Ibid at [173] (citations omitted).
Pagone J assessed the global loss of the plaintiffs by making an assumption as to the amount of sales lost by the plaintiffs during the relevant period as a result of the breach and calculating the likely net profit which the plaintiffs would have made on sales of that amount. In that case, there were many other suggested causes for the plaintiffs’ lost sales. These included matters wholly unrelated to the wrongful conduct of the defendants in breach of the restraint of trade clause, including matters such as drought conditions in Australia and the change of a major supplier’s practice of selling its product into Australia. In all the circumstances, acting on what he described as ‘largely a matter of impression … on the material available to me’, Pagone J adopted an assumption that the plaintiffs would only have retained approximately 45% of the sales which were in fact made by the defendants. An assessment of the likely net profit on sales of this amount was then calculated and damages awarded.[20]
[20]Ibid at [200].
A similar approach was adopted by the Court of Appeal in New South Wales in Stanton v Reibelt,[21] a case involving breach of a non‑competition promise made by partners selling their interest in a fruiterer’s business to the other partners. The trial judge assessed the plaintiffs’ damages on a global basis, by reference to the decline in the profitability of their business during the relevant period.[22]
[21][1998] NSWCA 214.
[22]Ibid at 9.
Next, senior counsel for National Foods contended that, although the judgment against McMahon’s Dairy Products is based upon the tort of wrongful interference with contractual relations, the same measure of damages should apply in the circumstances of this case. Reliance was placed upon the decision of the Court of Appeal in New South Wales in Fightvision Pty Ltd v Onisforou and Ors.[23] In that case, like here, the Court was concerned with the assessment of damages for both breach of contract and wrongful interference with contractual relations; with each cause of action arising from the same circumstances and events.[24] The Court proceeded on the basis that the same damages, subject to the limitation on double recovery, were recoverable against both the contract breaker and the tortfeasor liable for inducing the breach. I was invited to adopt the same approach here, and senior counsel for the McMahons did not submit to the contrary.
[23](1999) 47 NSWLR 473.
[24]Ibid at [273] - [276].
There was an issue in that case, as here, arising from the fact that the evidence disclosed that the contract breaker, in this case McMahons Dairy through Tony McMahon, would in any event and without the inducement have breached the contract. In Fightvision, the Court of Appeal dealt with this argument in the following way:
277It was then submitted that damages for inducing breach of contract cannot be recovered if the contract breaker would in any event, and without the inducement, not have performed the contract. Jones Bros (Hunstanton) Limited v Stevens was cited.
278In that case the defendant had employed a waiter formerly employed by the plaintiff. It had not induced him to leave his original employment, but continued to employ him after notice that he had broken his contract with the plaintiff. It was held that, where the servant would not in any case have returned to the plaintiff, no loss had been suffered for which the defendant was liable.
279It does not follow, however, that there is no recoverable loss when the defendant induced the breach of contract. Jones Bros (Hunstanton) Limited v Stevens itself drew the distinction - see at 283:
"No doubt at the present day if a servant, domestic or otherwise, breaks his contract of service he or she may put his employer to the greatest inconvenience and may cause him actual pecuniary loss. For so doing the servant is liable to an action for damages, and if a third party has enticed the breach, he too is liable. But if, not having enticed the breach a person employs that servant who would not in any case have returned to the first employer, while the servant remains liable the second employer is not, for his action has caused no injury to the original master."
280There is a loss, and where the defendant induced the breach of contract the finding of inducement means that it was caused by the defendant inducing the breach of contract. The loss flowing from the breach of contract was caused by the inducing even if a contributing cause of the loss was the contract breaker's disinclination to perform the contract.
281In our view, any question is one of causation. A finding of inducing breach of contract carries with it a finding that the defendant's actions caused the breach of contract and the loss which flowed. It does not matter that the contract breaker yields readily or before the inducement was willing to break the contract: Woolley v Dunford (1972) 3 SASR 243 at 290-1; Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (1991) 1 VR 637 at 659. But it may be possible for the defendant to establish, according to the common sense notion of causation in March v E & M H Stramare Pty Limited [1991] HCA 12; (1991) 171 CLR 506, that inducing the breach of contract was not the cause of the loss because the loss would have been suffered in any event. [25]
[25]Ibid at [277] – [281].
In this case, as appears below, there is no evidence that Tony McMahon intended to breach the non‑competition provisions of the licensed distributor agreements by any means other than those adopted by him. It is the attribution of those means to McMahon’s Dairy Products which constituted the commission by it of the tort of wrongful interference with contractual relations. In these circumstances, the loss by National Foods would not have been suffered in the absence of the conduct of Tony McMahon on behalf of both McMahons Dairy and McMahon’s Dairy Products.
IV SUMMARY OF DAMAGES CLAIMED BY NATIONAL FOODS
National Foods claims damages totalling $475,875.76 plus interest. The claim is comprised of two elements.
First, lost profit of $238,796. This claim is based upon the profit which National Foods alleges it would have made on sales of milk and milk products by McMahon’s Dairy Products in the McMahon territories during the six month period following termination of the licensed distributor agreements (the ‘lost profit claim’).
Second, $237,079.76 in respect of costs incurred by National Foods in endeavouring to retain customers for its milk and milk products in the McMahon territories during that six month period. The result of this expenditure was that National Foods was able to retain approximately 75% of customers for National Foods milk and milk products who were previously serviced by McMahons Dairy. This retention of customers had the effect of substantially mitigating the losses suffered by National Foods as a result of the breaches of the non‑competition provisions. For convenience, I will call these the ‘mitigation expenses’.
The lost profit claim is based upon the following elements:
(1) A calculation of the litres of milk and milk products sold by McMahon’s Dairy Products during the six month period. Where sales by McMahon’s Dairy Products relate to milk products with no equivalent National Foods product, that litreage has been excluded. In some cases, National Foods has adopted some licence in determining that a product sold by McMahon’s Dairy Products was, although not identical, equivalent to a National Foods milk product. The total litreage which has been calculated is 520,260 litres (‘lost volume’). Apart from noting that some of this litreage is in respect of products sold by McMahon’s Dairy Products where there is no identical, as opposed to comparable, National Foods Product, the McMahons do not dispute the amount of the lost volume calculation. I am satisfied as to the reasonableness of the calculation and will adopt it. However, the McMahons challenge the premise or assumption underlying the lost profit calculation that all of the lost volume would have been retained by National Foods in the absence of competition from McMahon’s Dairy Products. For the reasons appearing below, I reject that challenge.
(2) National Foods has calculated its lost profit by determining the total of the wholesale prices for which it would have sold the lost volume and deducting from that gross sales figure:
(a) an amount for cost of goods sold. There is no dispute as to this calculation;
(b) an amount for the average discounts which it would, in the ordinary course of its trading, have provided to its customers. The calculation of the allowance made for these discounts was not challenged by the McMahons;
(c) an amount for freight costs in respect of the transport of the lost volume from its manufacturing site at Chelsea ‘to the McMahons Dairy depot in Sunbury’. There was a challenge to this amount which, for the reasons appearing below, I reject.
It was submitted on behalf of the McMahons that the allowance in respect of freight costs which is made in the lost profit calculation was understated. The calculation by National Foods assumes that the litres comprising the lost volume would, if retained by it, have been transported together with the other 75% of litreage which was retained. This assumption was challenged on the basis that a calculation should have been made of the individual cost of transporting the lost volume. Given the lesser volume, it was submitted that the cost per litre would have been higher. I reject this challenge. The assumption underlying National Foods’ calculation is obviously justified. If National Foods had retained all of the lost volume it would no doubt have added that volume to its deliveries of milk and milk products into the McMahon territories.
This aspect of the lost profit claim was also challenged on the basis that National Foods calculated its transport costs on the assumption that the lost volume would have been delivered ‘to the McMahons Dairy depot in Sunbury’. In fact, the nearest National Foods depot is in Preston, and that is where the retained volume was delivered for distribution by National Foods within the McMahon territories. Although there is no evidence as to the likely difference in transport costs between Chelsea and Sunbury on the one hand and Chelsea and Preston on the other, it is likely that the freight costs from Chelsea to Sunbury would be greater, as this is a further distance. Accordingly, the freight costs assumed in the lost profit calculation are more likely to have been overstated than understated. No adjustment to the lost profit calculation is therefore necessary.
Accordingly, putting issues of causation to one side, I accept the lost profit calculation put forward by National Foods.
V THE MITIGATION EXPENSES CLAIM
The McMahons challenge the mitigation expenses claimed by National Foods on some general grounds and some specific grounds. I will first consider the general challenges.
First, it was submitted that some of the claimed mitigation expenses related, in whole or in part, to matters which National Foods needed to address in the absence of any breach of the non‑competition provisions, in order to make appropriate transition arrangements arising from the expiry and non‑renewal of the licensed distributor agreements. Reliance was placed upon evidence given by the National Channel Manager of National Foods, Justin Edwards, concerning the planning of the operation.
It was put to Mr Edwards that the ‘defection contingency plan for McMahon’ included the taking of action by National Foods which it would in any event have been required to undertake in the absence of a breach of the non‑competition provisions. Mr Edwards acknowledged that there were a number of aspects of the defection contingency plan which needed to be undertaken purely because of the risk that the licensed distributor agreements would not be renewed and in order to ensure no loss of customers to pre‑existing competitors in the McMahon territories, in particular Parmalat. For example, Mr Edwards acknowledged that, in the absence of any breach of the non‑competition provisions, National Foods would in any event have needed to plan for possible competition from other milk distributors for customers in the McMahon territories. Mr Edwards said that this aspect in fact formed part of the actions taken by National Foods, but he downplayed this aspect as representing only a ‘minor element’ of National Foods planning. He said that the possibility of a breach by the McMahons of the non‑competition provisions was ‘the primary threat’. I accept this evidence. The evidence established that Pura milk products dominated in the McMahon territories, to varying degrees depending upon suburbs, and that this dominance was of long historical standing. There was no evidence that any competitor other than McMahon’s Dairy Products sought to increase competition with Pura products within the McMahon territories during the relevant six month period. However, having regard to Mr Edwards’ frank acknowledgment, I will reduce the claimed mitigation expenses to take account of this factor.
Second, Mr Edwards was cross-examined about the possibility that National Foods would have in any event had to incur other costs which are the subject of the mitigation expenses claimed. The general tenor of Mr Edwards’ evidence, which I accept, was that the steps taken by National Foods in order to retain its market share would not generally have been undertaken, and would certainly not have been undertaken with such urgency, were it not for the perceived threat (which turned out to be justified) that the McMahons would breach the non‑competition provisions of the licensed distributor agreements. It was the fact that National Foods apprehended such a breach that led it to ‘prepare for the worst’ and to need to act urgently.
Although I accept the general tenor of Mr Edwards’ evidence in this regard, the largest aspect of the mitigation expenses claim comprises discounts and free product given to customers for the purpose of persuading them to continue purchasing Pura products in preference to the cheaper Sungold products being sold by McMahon’s Dairy Products. This claim was challenged on the ground that discounts and free product would have been provided in any event as part of an orderly transition process and in order to ensure customers did not defect to other competitors such as Parmalat. Mr Edwards denied that this was so. He contrasted the steps which National Foods would ordinarily take in an orderly transition process to protect itself against competition from its main competitor, Parmalat, where National Foods would focus upon ‘brand loyalty and service issues’ in its dealings with customers. In this case, he said that National Foods was required to compete with Sungold milk, which was not an established brand and accordingly relied upon ‘a very cheap price’ to win market share. In these circumstances, National Foods was required to take the unusual approach of preparing and implementing a plan ‘for a price fight as opposed to a brand and service fight’. I accept this evidence. However, it appears to me that it is likely that some discounting and free product would in any event have been provided by National Foods as part of its endeavours to retain all customers following the expiration of the licensed distributor agreements with McMahons Dairy. The mitigation expenses based upon discounts should accordingly be reduced to take account of this likelihood.
Third, it was submitted on behalf of McMahons Milk that the mitigation expenses claimed by National Foods should be reduced to take account of the fact that National Foods started its planning for the expiry of the licensed distributor agreements, a matter which was obviously on the cards from late 2004 when the relationship between the parties was deteriorating rapidly, far too late. It was submitted that this late planning was a cause of the need to urgently ‘flick the switch’ on the defection contingency plan and the field operation and, as a result, incur exceptionally high and unusual costs, including giving quick and substantial discounts and free product, bringing in employees from interstate and paying third party contractors. It was submitted that at least some of these extra costs would not have been necessary if National Foods had acted reasonably to protect its own interests when it became likely, or at least possible, that the licensed distributor agreements would not be renewed. It was submitted that the McMahons should not have to pay for any aspects of the mitigation expenses which relate to the failure of National Foods to prepare for an orderly handover using only local staff. I accept that the mitigation expenses claim should be discounted to take account of this factor.
It is largely a matter of impression based on all the evidence as to what adjustment should be made to the mitigation expenses claim to take account of these general factors. Doing the best that I can, and accepting the general tenor of the evidence given by Mr Edwards, I will discount the mitigation expenses claim by 35% to take account of these matters.
I turn to consider the specific grounds of challenge to the mitigation expenses claim.
The mitigation expenses claimed by National Foods have a number of elements. The McMahons challenge the reasonableness of many of them. However, the fact that mitigation expenses totalling $237,079.76 were in fact incurred by National Foods is not in dispute. The elements of the claim for mitigation expenses, and the specific grounds of challenge by the McMahons to the reasonableness of those expenses, are set out below.
First, $6,051.67 is claimed for the cost of providing customers with cartons of free ‘Big M’ product. I have allowed a reduction of this amount for the reasons given above.
Second, $75,749 is claimed for the cost of providing discounts to customers by way of free milk deliveries. I have allowed a reduction of this amount for the reasons given above.
Third, $111,681 is claimed for the cost of providing price discounts to customers. I have allowed a reduction of this amount for the reasons given above.
Fourth, $43,598.09 is claimed for payments made to third parties in connection with its ‘defection contingency plan’ and the ‘field operation’ referred to in the passages from the liability reasons quoted above (collectively ‘the operation’). The operation was designed and conducted by National Foods in an endeavour to prevent customers in the McMahon territories from purchasing Sungold milk and milk products from McMahon’s Dairy Products in lieu of continuing to purchase Pura milk and milk products. As appears above, the operation was largely successful, with 75% of the customers being retained by National Foods, and only 25% being won by McMahon’s Dairy Products in the relevant six month period. I have already allowed a 35% discount to the whole of the claimed mitigation expenses. However, some specific challenges were made to aspects of the third party payments. For completeness, I will set out all of the third party payments and the specific challenges to them:
(1) $1,854.50 in connection with the production and distribution of promotional ‘flyers’ designed to discourage customers in the McMahon territories from entering into exclusive arrangements with McMahon’s Dairy Products. Mr Edwards said that ‘flyers’ would not ordinarily be used for an orderly transition at the expiry of a licensed distributor agreement. I accept that evidence.
(2) $23,427.18 paid to a third party merchandising company for the supply of temporary staff to perform the ordinary duties of National Foods employees who were required to work full‑time in the operation. Mr Edwards said that temporary staff were necessary due to the urgency arising from the fact that National Foods did not discover that the McMahons intended to flout the non‑competition provisions until very late. This necessitated ‘flicking the switch’ on a range of unusual steps necessary for National Foods to protect its market share in the McMahon territories. I accept this evidence. The costs were in my view reasonably incurred.
(3) $4,704.67 in respect of airfares. The airfares were to transport National Foods employees from other states to assist in the operation. Given the urgency of the situation, as described above, I find that it was reasonable for National Foods to fly in interstate employees to assist in the operation.
(4) $7,286 in respect of accommodation, food and beverage costs for the interstate employees and some other local employees who lived a long distance from the McMahon territories and who were required to work full‑time for unusually long days during the period of the operation. The challenge to this item was based upon the allegation that the amount claimed includes personal expenses of the employees, such as for unnecessary and unrelated telephone calls, excess alcohol and food consumption and the like. Mr Edwards gave a detailed explanation as to why the costs were necessary and reasonable. I accept that explanation.
(5) $5,245.35 in respect of security guards to accompany National Foods employees in field visits during the course of the operation. These costs were the result of ‘threats by people associated with McMahons Dairy and/or Warrnambool Cheese & Butter’. In particular, it was thought that these threats should be taken seriously in respect of female employees. I accept Mr Edwards’ explanation as to the need to incur these expenses. They were not in an unreasonable amount.
(6) $725.97 paid to a ‘telesales’ company to telephone all customers in the McMahon territories and communicate delivery arrangements for the continued supply of Pura milk products to those customers. Given the urgency of the situation, I accept the reasonableness of this amount.
(7) $354.42 paid to a recruitment company for the supply of temporary support personnel in connection with the operation. Given the urgency of the situation, I accept the reasonableness of this amount.
For the reasons given, the mitigation expenses claim, totalling $237,079.76 will be reduced by the amount of 35%. I will allow recovery of $154,000 in respect of mitigation expenses.[26]
VI THE LOST PROFIT CLAIM
[26]This is a round figure adjusted to the nearest thousand dollars
The lost profit claim made by National Foods depends upon acceptance of a fundamental premise or assumption. It was submitted on behalf of National Foods that the Court should find that Tony McMahon’s sons, through McMahon’s Dairy Products, could not have competed with National Foods at all in the absence of Tony McMahon’s conduct in establishing a trading account with Warrnambool Cheese & Butter in the name of McMahons Dairy, nominating himself as the ‘primary contact’ in connection with that account, guaranteeing that account and permitting his sons, through McMahon’s Dairy Products, to utilise that account for their trading purposes. Accordingly, it was submitted that its lost profit claim should be assessed on the basis that it would, in the absence of the breach by McMahons Dairy and resulting competition from McMahon’s Dairy Products, have retained for itself all of the customers previously serviced by McMahons Dairy in the McMahon territories.
The McMahons challenge the premise or assumption underlying the basis of the lost profit claim. It was submitted on behalf of the McMahons that the sole remaining task of the Court at this stage of the proceeding is to assess the loss to National Foods which was caused by the precise conduct of Tony McMahon which is identified in the liability reasons as constituting:
(1) the breach by McMahons Dairy of the non‑competition obligations in the licensed distributor agreement;
(2) the breach by Tony McMahon of his guarantee of those obligations; and
(3) the conduct of McMahon’s Dairy Products which induced or procured the breach by McMahon’s Dairy.
Senior counsel for the McMahons submitted that the full nature and extent of the conduct by Tony McMahon in this regard was determined, once and for all, in the liability reasons. Accordingly, so he submitted, it was not now open for the Court to go beyond the precise terms of the findings recorded in the liability reasons. In particular, it was submitted that it was not open to the Court to now draw any inferences from those factual findings, or from other evidence at the liability trial, concerning issues of causation. On this basis, it was submitted that it was not now open for the Court to find that Tony McMahon’s sons, through McMahon’s Dairy Products, could not have commenced or continued their business of distributing Sungold Milk and milk products in competition to National Foods in the McMahon territories in the absence of the conduct of Tony McMahon which is the subject of findings in the liability reasons. For the reasons appearing below, I do not accept this submission. I find that the sons, through McMahon’s Dairy Products, were only able to compete against National Foods because Tony McMahon established the trading account with Warrnambool Cheese & Butter, put himself forward as the ‘primary contact’ for that account, provided a guarantee of those trading arrangements and allowed his sons to trade using that account.
First, Tony McMahon established the trading account through direct contact with Bill Slater. Mr Slater gave evidence at the liability trial that he was the National Retail Dairy Manager for Warrnambool Cheese & Butter at relevant times, that he had been a personal friend of Tony McMahon for 25 or 26 years, that he approved the credit application put forward by Tony McMahon on behalf of McMahons Dairy (based upon Tony McMahon being nominated as ‘primary contact’ and Tony McMahon providing a guarantee), that he had known the sons since ‘they were babies’ and that, in these circumstances, he approved the credit application because he ‘wanted to get it through’.
Mr Slater said that he approved the credit application in circumstances where he had discussions with Tony McMahon to the effect that he was exiting the milk distribution business and ‘handing it over to his children’. Notwithstanding that Mr Slater may have been prepared to assist the sons to establish their business, there is no evidence that he would have done so in the absence of Tony McMahon putting forward his guarantee of the trading arrangements. I find that he would not have done so. He was granting credit of $1 million and he is not likely to have done so without any proper security or trade references. In this regard, I accept that the position was correctly stated by Tony McMahon himself. When asked why he put forward the credit application in the name of his company, McMahons Dairy, he frankly answered that this was because ‘the kids were setting up their – getting set up for their own company but they didn’t have any trading history’ (emphasis added).
Second, the evidence given by Patrick McMahon indicates that he had no real experience in the milk distribution business which was likely to engender sufficient confidence in Warrnambool Cheese & Butter to grant him and his brother, through McMahon’s Dairy Products, a credit account in the amount of $1 million. Patrick McMahon said that he is qualified as a ‘piping designer’, only worked part‑time in the family milk distribution business ‘on and off’ until December 2004 and that he had no contact with Mr Slater in connection with the establishment of a supply agreement. He said that the trading relationship between himself and his brother, through McMahon’s Dairy Products, was the result of his idea to distribute milk for Warrnambool Cheese & Butter based upon his long relationship with Mr Slater and that his father was not involved in the arrangements to form McMahon’s Dairy Products. I reject this evidence as improbable. I find that Tony McMahon was involved throughout in the plans to transfer the McMahons Dairy business to his sons, including as to the arrangements (made through his brother Daniel who is the family accountant) to establish a new company for this purpose. Indeed, Tony McMahon said that he established the trading account in the name of McMahons Dairy because his sons’ company had not then been established.
Third, Patrick McMahon denied all knowledge of the existence of the establishment of a credit account with Warrnambool Cheese & Butter. He said that no such account existed for McMahon’s Dairy Products, and said that he was unaware of McMahons Dairy having ever established such an account. When he was shown the credit application form made by Tony McMahon for the establishment of a trading account in the name of McMahons Dairy, he said that he had only seen that document for the first time about two weeks before he gave evidence.
It is obvious that Patrick McMahon, and I infer his brother Nicholas who did not give evidence, left the formal matters relating to the establishment of the trading account to their father. Further, Patrick McMahon acknowledged that all accounts from Warrnambool Cheese & Butter were addressed to his father’s company, McMahons Dairy, but had no explanation as to why this was so. He said only that he treated the bills as ‘mine’ and paid them.
Fourth, it was submitted on behalf of the McMahons that it was not put to any witness at the liability trial that the sons could not have commenced or carried on their business without the guarantee or other involvement of Tony McMahon as found by the Court. It is true that this was not directly put. However, that does not, in all the circumstances, prevent the Court from drawing an inference that this was so. Directions were made for the filing of evidence in connection with the assessment of damages hearing. The McMahons elected to call no evidence. It was open to them to call evidence to contradict the assumption underlying the lost profit claim made by National Foods, which was articulated in written submission filed well before the hearing, but they chose not to do so. I infer that their evidence could not have assisted their case. Further, at the liability hearing, it was open to the McMahons to call evidence to this effect. Again, they chose not to do so. Although Tony McMahon, Patrick McMahon and Bill Slater gave evidence, they were asked no questions in chief concerning this issue. It is, of course, an issue upon which only they could give evidence. In these circumstances, I infer that the witnesses called on behalf of the McMahons were not asked questions on this topic because their evidence would have exposed facts unfavourable to them.[27]
[27]For example, Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-9; Ta Ho Ma Pty Ltd v Allen (1999) 47 NSWLR 1 at 4; R v GEC (2001) 3 VR 334 at [40]; Berrigan Shire Council v Ballerini & Anor (2005) 13 VR 111 at [64]-[66].
Fifth, although the liability trial has taken place, and the liability reasons delivered, the assessment of damages hearing raised issues of causation and not just quantification. On both issues, the Court may make inferences from the findings contained in the liability reasons, from the evidence led at the liability trial and may receive further evidence. This is especially so in the Commercial List, where cost and efficiency are paramount. At a liability trial, it is only necessary for the plaintiff to establish some damage at a prima facie level. That is enough to entitle a plaintiff to judgment for damages to be assessed if the cause of action is otherwise made out.[28]
[28]For example, Frank Davies Pty Ltd v Container Haulage Group Pty Ltd (No 2) (1989) 98 FLR 324 at 325.
It was also submitted on behalf of the McMahons that there are other possibilities which should be taken into account in assessing the claims for lost profit. Reference was made to the possible ‘leakage’ to other competitors which may have arisen in any event, to the fact that the McMahons had a long established business in the McMahon territories which Tony McMahon’s sons were legitimately entitled to exploit if they could so without any breach of the non‑competition provisions of the licensed distributor agreements and to the fact that it was possible that McMahons Dairy was entitled to sell its ‘round’ to a third party and it was possible it may do so. I do not accept this submission. There is no evidence of leakage of customers to competitors other than McMahon’s Dairy Products. As appears below, I find that Tony McMahon’s sons could not have established and maintained McMahon’s Dairy Products in the absence of conduct by Tony McMahon in breach of the non‑competition provisions. There is no evidence to suggest that it was ever contemplated that Tony McMahon would sell the family goodwill associated with the milk round in the McMahon territories to a third party. He considered only handing over that round to his sons and providing them with assistance to establish their new business. That conduct constituted a breach of the non‑competition provisions.
Accordingly, I conclude that the lost profit claim has been established.
VII CONCLUSION
For the reasons given, there will be judgment for National Foods against the second, third and fourth defendants (Tony McMahon, McMahons Dairy and McMahon’s Dairy Products)[29] for damages of $154,000 for mitigation expenses and $238,796 for lost profit, making a total of $392,796. I will hear the parties as to interest and costs.
[29]McMahon’s Dairy Products is now known as Forty-fourth Ample Pty Ltd (under deed of company arrangement and formally McMahon’s Dairy Products Pty Ltd).
SCHEDULE OF PARTIES
| F5887 No. 2098 of 2005 | |
| BETWEEN: | |
| NATIONAL FOODS MILK LIMITED (ACN 051 195 272) | Plaintiff |
| - and - | |
| MCMAHON MILK PTY LTD | Firstnamed Defendant |
| ANTHONY JOHN MCMAHON | Secondnamed Defendant |
| MCMAHONS DAIRY PTY LTD (ACN 102 840 773) | Thirdnamed Defendant |
| MCMAHON'S DAIRY PRODUCTS PTY LTD (ACN 115 673 106) | Fourthnamed Defendant |
| MP MCMAHON PTY LTD (ACN 004 293 430) | Fifthnamed Defendant |
| AND BETWEEN: | |
| MCMAHON MILK PTY LTD | Firstnamed Plaintiff by Counterclaim |
| MP MCMAHON PTY LTD (ACN 004 293 430) | Secondnamed Plaintiff by Counterclaim |
| - and - | |
| NATIONAL FOODS MILK LIMITED (ACN 051 192 272) | Defendant by Counterclaim |
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