Positive Endeavour P/L v Madigan (No 2) - [2010] SADC 10

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
POSITIVE ENDEAVOUR P/L v MADIGAN & ORS (No 2)
[2010] SADC 10
Judgment of Her Honour Judge Shaw
27 January 2010
DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT
Plaintiff alleged that defendants had rewritten loans in breach of a restraint clause in a contract for sale of finance broking business - Dispute as to basis of assessment. Assessment of loss of opportunity damages for lost commissions and loss of sale value.
Held: Plaintiff entitled to damages for loss of opportunity to earn commissions as a result of breach of restraint by first and second defendants - First and second defendants used third defendant as agent to breach the restraint - Plaintiff entitled to equitable damages against third defendant - Plaintiff failed to establish its claim in relation to all the customers that were the subject of the claim - Damages assessed - in the sum of $26,000
District Court Act 1991 s 36, referred to.
Positive Endeavour Pty Ltd v Madigan & Ors [2009] SASC 281; Positive Endeavour P/L v Madigan, Lehmann & First Pacific Mortgages P/L [2008] SADC 117; IOOF Building Society PtyLtd v Foxeden Pty Ltd [2009] VSCA 138; Robinson v Harman (1848) 1 Ex 850 at 855 (154 ER 363, 365); The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; Hadley v Baxendale (1854) 9 Ex 341 at 354 (150 ER 145, 151); Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; Mallett v McMonagle [1970] AC 166, 176; Fink v Fink (1946) 74 CLR 127; Jones v Schiffmann (1991) 124 CLR 303; C Czarnikow Ltd v Koufos [1969] 1 AC 350; AMP Services Ltd v Manning (No. 2) [2007] FCA 82, considered.

POSITIVE ENDEAVOUR P/L v MADIGAN & ORS (No 2)
[2010] SADC 10
Introduction

The plaintiff claims loss and damage for breach of a contract entered into on 22 March 2004 between the plaintiff and Michael Wayne Smoker on the one hand, and the first and second defendants and their respective companies, Kopala Pty Ltd and Erimus Pty Ltd on the other hand (“the contract”). Pursuant to the contract, the plaintiff purchased shares in a finance broking business, the Fairway companies, from the first and second defendants and their respective companies. On 30 November 2006, the plaintiff sold the business to Melshar Pty Ltd.
The contract included a restraint of trade clause. The plaintiff alleges that the defendants breached the restraint by rewriting certain loans of customers in the trail book, the subject of the contract. The Full Court of the Supreme Court of South Australia declared that with appropriate severance, the restraint was enforceable[1]. It is necessary to determine whether the loans rewritten by the defendants were in breach of the restraint and, if so, the plaintiff’s loss and damage.
[1] Positive Endeavour Pty Ltd v Madigan & Ors [2009] SASC 281
History of Proceedings
On 11 September 2008, I delivered a judgement in relation to the validity of the restraint clause.[2] I refer to the following factual findings which are relevant to the assessment of damages.
Pursuant to the contract, the first and second defendants and their corporate entities transferred to the plaintiff, the right to commissions generated by the trail book. The value of the trail book depended upon firstly, the income stream derived from continuing commissions and secondly, the customer contact. Customer contact added value to the trail book because of the potential to earn further up-front trailing commissions if customers in the trail book decided to refinance their existing loans.[3]
The finance industry is extremely competitive. The personal relationship between the finance broker or his business and the client is extremely important. A customer wishing to re-finance would usually return to the person who arranged the loan.[4]
It was common knowledge in this industry, and it was the understanding of the parties to the contract, that “the customer” became a customer at the settlement of the loan, and remained a customer until the loan was discharged.[5]
…
The parties to the contract entered into the contract upon the basis that the value of the trail book would be diminished if a loan in the trail book was discharged and not re-financed by the purchaser of the trail book.[6]
Therefore, it was necessary to protect the purchaser by restraining the vendors from diminishing the value of the trail book by dealing with the persons named in it.[7]
It was known to the parties to the contract that the first and second defendants had been using the third defendant as a vehicle for certain business…… (citations omitted) [8]
In my view, at all relevant times, Fairway Securities acted as agent for the plaintiff. After the dissolution of the partnership, Mr Smoker and his wife were the sole “owners”[9] of the plaintiff and of Fairway Securities. The plaintiff was beneficially entitled to the assets held by Fairway Securities. The relationship between Fairway Securities and the plaintiff was comparable to that which existed between Fairway Securities and the partnership prior to dissolution. I find that pursuant to the terms of the contract, the plaintiff was beneficially entitled to the commissions related to the sale of the trail book……. (citations omitted)
[2]    Positive Endeavour P/L v Madigan, Lehmann & First Pacific Mortgages P/L [2008] SADC 117
[3] Ibid at [59]
[4]    At [60]
[5]    At [61]
[6]    At [62]
[7]    At [63]
[8]    At [64]
[9]    Supra at T268
I concluded that the third defendant was not a party to the contract and did not fall within the definition of “associated person” under the contract. Therefore, the third defendant was not bound by the contract or the restraint.[10]
[10] At [112]
In the Full Court judgment, His Honour Justice Gray pointed out that there had been no express finding as to whether the restraint applied to the third defendant “as a company controlled by and an agent for Mr Madigan and Ms Lehmann”.[11] The Full Court explained that there may be equitable remedies available to the plaintiff against the third defendant which have not been pleaded and do not depend on contractual liability.[12]
[11] Ibid Gray J at [136]
[12] Full Court [2009] SASC 281 Bleby J at para 47; Gray J paras [141-156]
A majority of the Full Court[13] concluded that the restraint clause as drawn was unreasonable. However, their Honours found that, with appropriate severance, the contract is enforceable. I reproduce cl 8(1)(a) and Schedule 1 of the contract showing the severance by the Full Court:[14]
Restraint
8. (1) Non-interference
On and from completion, each vendor must not, and must procure that each of its associated persons does not:
(a)solicit, canvass or secure the custom of a person who is at completion~~, or was within twelve months before completion,~~ a customer of a body corporate or the vendors or purchasers in connection with a body corporate, except as set out in schedule 1;
[13] [2009] SASC 281
[14] Ibid [43]
SCHEDULE 1 (clause 8(1)(a))
Restraint
The vendors are permitted to undertake further business with the customers listed below, including re-financing loans already in existence at the time of this agreement, provided however that any lending services provided to these customers relate solely to commercial or business lending. Under no circumstances are the vendors or any of them to provide lending services to any customer included in the terms of clause 8(1)(a) in relation to ~~personal lending or home loans (including loans for the purpose of purchasing investment property) and whether new loans or~~ re-financing of existing loans,
The court ordered by way of declaration that:[15]
(b)Clause 8(1)(a) and Schedule 1 of the said agreement as so amended are valid and enforceable;
[15] Ibid at [49]
His Honour Justice Bleby J (with whom Layton J agreed) determined that the effect of the severance was to provide a necessary and reasonable restraint to protect an asset purchased by the plaintiff. The nature of the restraint was that the vendors had undertaken not to breach a promise by soliciting, canvassing or securing custom from:
2. In respect of the refinancing of existing loans, a person who is at completion a customer.[16]
[16] Bleby J at [42]
His Honour went on to explain:[17]
By deleting the reference to new loans and limiting the class of loans to the refinancing of existing loans by deleting the relevant words in Schedule 1, it means that the restraint is also limited in time to the duration of loans existing at completion. By that means the right to existing trail commission is preserved for the duration of the loan, as is the right to fresh commissions on any refinancing of an existing loan, as the negotiation for or arranging of the refinancing cannot be undertaken by the vendors during the currency of the existing loan without breaching the clause. The severance of those words does not prevent vendors from negotiating and arranging new i.e. additional loans for existing customers. However, that would not prejudice the appellants’ right to continuing trail commissions on the existing loans, which is what the clause was designed to protect.
[17] At [45]
Amendment of Pleadings Following Full Court Judgment
Following delivery of the judgment of the Full Court on the 9 September 2009, the plaintiff filed a Fifth Amended Statement of Claim. The plaintiff amended its claim in relation to the particulars of the loss suffered, to an amount which was described as being “in excess of $136,000”, exclusive of GST.
The plaintiff also amended the Statement of Claim to plead in the alternative to paragraph 6, that the third defendant was the “alter ego” of the first and second defendants. In the further alternative, the plaintiff alleged that the business of the third defendant was carried on as a device by the first and second defendants to enable them to obtain the benefit of transactions in breach of the contract dated 22 March 2004.
The plaintiff claimed, in the alternative, damages for breach of contract and an injunction or, in the alternative, damages pursuant to s 36 of the District Court Act. The defendants filed a ‘Further Further Amended Defence’ in response.
I requested that the parties provide written submissions in relation to the further hearing of the matter in the light of the decision of the Full Court. The plaintiff submitted that its case was summarised in the schedule Exhibit P4 and that the deletions to the restraint clause by the Full Court had no impact on the amount of the plaintiff’s claim.
After hearing further oral submissions, I requested that each of the parties provide a written summary of their respective contentions. The plaintiff provided a handwritten note wherein he identified the claim as $186,594 plus GST. He also provided an alternative calculation of $167,341 plus GST in the event that the three contentious loans relating to the customers Pipikos, Allen and Heusler were deducted. The defendants provided further written submissions to which the plaintiff provided a written response. It was necessary to hear further submissions from the parties because both parties provided submissions based on the calculations in Exhibit P4 that were not reflected in the plaintiff’s Fifth Amended Statement of Claim. In addition, it was necessary to determine whether the plaintiff had any response to the defendants’ submissions in relation to the alleged liability of the third defendant and the determination of the Full Court in relation to the restraint clause. I drew this to the attention of the plaintiff’s counsel and provided him with a further opportunity to consider whether the Statement of Claim needed to be amended. I also specifically drew to his attention a number of matters in the defendants’ submissions and schedules that he had not responded to. I provided him with a further opportunity to respond.
The plaintiff filed a ‘Sixth Amended Statement of Claim’ and provided further submissions. The plaintiff’s loss and damage were particularised in paragraph 7 of the Sixth Amended Statement of Claim as follows:
7.1.The total value of the loans ~~are $16,961,344~~ ~~exceeds 8 million dollars~~ was $8,476,115 (“the loan”) which gives an upfront commission entitlement, which has been foregone due to the activities of the defendants, of ~~$118,729~~ ~~a sum greater than $100,000 $120,000~~ $59,332 and a trailing commission and trailing commission entitlement to November 2006 of $39,958. of ~~$169,613,~~ ~~a sum greater than $16,000 making a total loss of $288,342.in excess of $136,000~~.
~~The above commission entitlements were exclusive of G.S.T.~~
7.2.The actual and potential annual value of the trading (sic) commission derived and could have been derived by the plaintiff was the sum of $21,190.29 (being 0.25% of the total value of the loans). The value of the trailing income as at November 2006 was 4.12 times its annual value, being the sum of $87,304.
7.3.The total of the plaintiff’s claim is $186,594 plus GST of $18,659, making a total of $205,253.
Issues
The plaintiff claimed damages in respect of lost trailing commissions and in respect of loss of up-front commissions.[18] It also claimed damages for the loss of the sale value of the business.
[18] T 507
The plaintiff tendered a book of documents and Exhibit P4 as a summary of its claim. Counsel for the plaintiff informed the court that where there was a conflict between the Statement of Claim and Exhibit P4, the plaintiff’s case was outlined in Exhibit P4. The first question to be determined is whether each of the transactions relating to the twenty customers in Exhibit P4 breached the restraint.
The plaintiff contended that its claim was limited to loans rewritten by the defendants in breach of the restraint and did not include any new loans written by the defendants.
It was submitted that loans relating to the three customers Allen, Pipikos and Heusler, with whom the defendants were entitled to transact business in specified circumstances under schedule 1 of the contract, were loans that did not relate solely to commercial or business lending and therefore were not excluded from the operation of the restraint.
The plaintiff submitted that the third defendant was controlled by the first and second defendants. It was submitted that because the third defendant was owned and managed by the first and second defendants, the first and second defendants were responsible for loss caused by the activities of the third defendant.[19]
[19] The plaintiff relied on Gray J (140)-(142) in the Judgment of the Full Court
The plaintiff submitted that the defendants could not avoid the operation of the restraint clause by using a company, the third defendant, of which they were directors and shareholders, to carry on their business,[20] and the benefits of the custom were received by the corporate vehicle ultimately for their benefit.[21]
[20] T 520
[21] T 520.28
Next, the plaintiff contended that it was entitled to equitable relief against the third defendant for carrying out its activities as the agent or ‘alter ego’ of the first and second defendants in breach of the contract between the plaintiff and the other defendants. Therefore, the third defendant was liable to the plaintiff for the actions of the first and second defendants that breached the restraint.
The plaintiff submitted that the third defendant was liable for equitable damages and that the approach to the assessment of equitable damages was the same as for damages at common law. The plaintiff conceded that GST was not payable in relation to the claim for loss of trail commissions[22].
[22] Email from plaintiff’s solicitor dated 18/1/2010
The plaintiff contended that the defendants dealt with Jackie Aylsebury in breach of the contract in respect of which the plaintiff was entitled to damages or compensation.
The plaintiff submitted that, in the present case, the contingencies were so small that the plaintiff’s damages for loss of a chance ought to be treated as an actual loss across the board.
The plaintiff submitted that interest was payable at a commercial rate up to the present time.
The defendants provided an amended Schedule ‘A’ tendered as Exhibit D5A, which identified the defendant’s contentions in relation to each of the twenty customers and transactions relied upon by the plaintiff. The defendants provided a revised schedule marked Exhibit D39A which set out the defendants’ calculation of trailing commissions in response to the plaintiff’s claims in Exhibit P4.
The defendants submitted that the prohibition arising from the restraint clause did not apply to additional loans written by the defendants. It operated only in relation to the refinancing of existing loans.
The defendants submitted that the plaintiff had made its calculations on the total of the new loan balances that were rewritten by the defendants and not on the original loan balances upon completion of the contract.
The defendants contended that only twelve of the loans that were the subject of the plaintiff’s claim were refinanced through the defendants.
The defendants submitted that Exhibit D5A and Exhibit D39A summarised the correct position.
The defendants submitted that there was no evidence that the first and second defendants set out to use the third defendant as a cloak or device to evade the restraint clause.
The Pleadings
The Particulars of Claim in the plaintiff’s Sixth Amended Statement of Claim provide details of the total amount of the original loans of customers at the time of completion of the contract that are the subject of the claim. On the other hand, Exhibit P4 particularises both the original loans and the rewritten loans of 20 customers. The total of the loan amounts pleaded in the Sixth Amended Statement of Claim namely $8,476,115 is not the total of the original loans identified in the Particulars of the Sixth Amended Statement of Claim. It is the total of the rewritten loan amounts allegedly in breach of the contract, that are identified in Exhibit P4. Further, certain customers and loans in the Particulars of the Sixth Amended Statement of Claim are not included in Exhibit P4. However, the plaintiff conducted its case upon the basis that the loans particularised in Exhibit P4 were rewritten by the defendants in breach of the contract. The defendant responded to Exhibit P4 in the schedules Exhibit D5A and D39A and in evidence. Therefore, I propose to determine liability and the claim for loss and damage upon the basis of the loans identified in Exhibit P4.
Plaintiff’s Case
Mr Smoker’s Evidence
Mr Smoker gave evidence that he was a director of the plaintiff and had been in the finance broking industry for 25 years. Mr Smoker explained that when a loan was rewritten, all of the trailing commission went to the broker who rewrote the loan.
Mr Smoker explained the plaintiff’s case in relation to each of the twenty customers and the loans in question, was summarised in Exhibit P4.
Relying on documents from the defendants’ discovery, Mr Smoker identified the loans allegedly rewritten by the defendants.[23] He calculated an up-front commission for each rewritten loan using the figure of 0.7% without GST, on the basis that this figure was a conservative minimum industry standard.
[23] Exhibit P1, Exhibit P4
He then calculated a loss per client trailing commission from the date of the rewritten loan until the date of sale to Melshar Pty Ltd. He chose a trailing commission of 0.25 % that was said to be the “normal trailing commission” and divided that figure by 12, to arrive at the monthly loss of the trail. Mr Smoker said that in Exhibit P4, he claimed 0.25% of the trailing commissions even if the trailing commission actually received was 0.3%.[24]
[24] T 74

Mr Smoker said that the balance of the loans might vary as the customers repaid the loans. Repayments could mean a change in the amount of loan principal due from time to time.[25]
[25] T 73
Mr Smoker’s computations in Exhibit P4 included claims in respect of new (that is, additional loans) arranged by the defendants.[26]
[26] e.g. T 73.33 and T 76 Mr Koler
He gave evidence that the banks also paid a GST amount which is 10% of the commission entitlement. These transactions attract GST and in the industry, the lender pays the GST.
There were also rewritten loans where the amount borrowed was an additional amount to that previously borrowed.[27]
[27] T 76
He gave evidence that the claim in Exhibit P4 included customers who were excluded from the operation of the restraint in Schedule 1 of the contract, but who were borrowing not exclusively for business purposes, for example, Allen[28], and Pipikos[29].
[28] T 79
[29] T 82
Mr Smoker gave evidence in relation to the sale of the business to Melshar Pty Ltd on 30 November 2006.[30]
[30] T 99
The trail book was sold as part of the sale of the business. He explained that the plaintiff had improved the business before the sale to Melshar.[31]
[31] T 100
Mr Smoker also referred to the commission agreement between Jackie Aylesbury and the third defendant.[32]
[32] T 119
During cross-examination, Mr Smoker agreed that the sum of $120,000 was a reasonable amount to pay for the value of the loan book at the completion of the contract with the defendants.[33]
[33] T 157
He agreed that this sum was paid primarily for the right to receive future commissions generated by the loan book.[34]
[34] T 162
The up-front commissions in relation to those trailing commissions had already been earned and paid at the point when the loan was originally settled.[35]
[35] T 164
He agreed that an up-front commission could only be earned once.[36]
[36] T 164
Mr Smoker agreed that it was a normal part of the business that clients would “drop out” and that the value of the loan book as an asset would dwindle.[37] This could be partly due to loans being paid out or being refinanced.[38]
[37] T 217-218
[38] T 221
Mr Smoker was cross-examined about the particulars of loans included in the Statement of Claim. He said that his wife was the bookkeeper and was in a better position to clarify the loans.[39] She prepared the schedule in the Particulars of the Statement of Claim upon his instructions.
[39] T 244
He was cross-examined about the settlement dates of the loans. He explained that in relation to some loans, there might be “clawbacks”.[40] If a loan was repaid within a time specified by the lender, the broker may be called upon to repay certain of the commissions earned.[41]
[40] T 247
[41] T 247
In relation to Exhibit P4, he explained that the figures under the heading “original loan” are the amounts of the loans that were recorded in the books of the Fairway Group prior to the agreement. The figures in the column headed “new loan balance” referred to the amounts for the rewritten loans in the defendants’ books.
He agreed that most of the rewritten loan amounts are different to the original loan amounts and that the amount of the plaintiff’s claimed loss was based upon the new loan balances.[42]
[42] T 276
Mr Smoker maintained that the plaintiff was entitled to the up-front commissions on the new loan balances because if the defendants had honoured the restraint, the clients who returned to the defendant for the rewrite, would have gone to the plaintiff instead. [43]
[43] T 277
The first part of the plaintiff’s claim is for the loss of upfront commissions in relation to loans rewritten by the defendants. The figure of .7% was chosen to calculate that loss, although higher and lower percentage commissions might be paid by financiers in the industry.
The next part of the plaintiff’s claim is for the loss of the trail commissions up to November 2006. Mr Smoker acknowledged that when commission is paid, it is calculated based on average monthly balances from time to time.[44]
[44] T 282
Mr Smoker agreed that in his calculations, he had made no allowance for the reduction in loan amounts over time, and thereby a reduction in the commission payable.[45]
[45] T 282
He agreed that he had assumed that the customers would stay on the plaintiff’s books until November 2006. Mr Smoker asserted that the defendants had never denied that each of the customers in the plaintiff’s claim had stayed on the defendants’ books.[46]
[46] T 282
Mr Smoker agreed that he had made no allowance for fees that needed to be paid to aggregators through whom loans were written or for the fees payable if a loan is rewritten.[47]
[47] T 283
Mr Smoker said that the plaintiff paid very few $100 fees to aggregators.
In relation to the plaintiff’s claim for the lost value of the business at sale caused by the loss of trails, he was challenged for assuming that the customers and the loan amounts would not have changed by the time of the sale in November 2006.[48]
[48] T 284
He agreed that there was no mention in that sale agreement of the multiplier of 4.12.[49]
[49] T 271 Ex P1
Mr Smoker agreed that if a customer refinances with the same lender, the broker is only entitled to receive commission on the increased amount, or the new money.[50]
[50] T 287.1
Mr Smoker agreed that he had made no allowance for this factor in Exhibit P4. For example, in relation to the loans of the customers Emiliano and Higson, he agreed that up-front commissions could have been earned only on the increase in the balance, namely $202,400 not on the total loan amount of $740,000.[51] He explained that if he had the opportunity to rewrite the loan for a customer, he may not have rewritten it with the same lender.[52]
[51] T 289
[52] T 287
The same approach applied to the determination of the up-front commissions of loans rewritten for the customers Anderson and McMurtrie. In relation to the rewritten loan relating to the customer Saunders, the loan amount had reduced upon the rewrite. Therefore, there was no up-front commission payable.[53]
[53] T 291
Mr Smoker’s evidence in relation to the average life of a loan was confusing. At one stage, he denied that 4.12 was an appropriate figure for the average life of a loan from which to calculate the present value of trailing commissions. He said that he “wouldn’t be able to hazard a guess” as to what the average life of a loan would be.[54]
[54] T 292
He said that the figure of 4.12 did not represent the average life of a loan. The figure of 4.12 related to the price for which he sold his business which represented “just over four times the trail book.[55] He said he did not apply the multiplier of 4.12 to that agreement.[56] Mr Smoker said that his research did not provide him with information about the average life of loans.[57]
[55] T 293
[56] T 320
[57] T301
He was referred to email correspondence between Ms Lehmann and the financier Liberty, where the figures of 20 months and 3.5 years were used as multipliers, depending on the nature of the loan.[58]
[58] Exhibit D29, T 302
Mr Smoker agreed that it is a competitive industry and borrowers will shop around.[59] In addition, customer’s circumstances may change, and they may change lenders or their loans may be paid out.
Defendants’ Submissions
[59] P 315
Mr Madigan’s Evidence
Mr Madigan said that he had been in the finance industry for 35 years.
He said that in arriving at the purchase price of $120,000 in the contract, the vendors estimated their interest in the trail book and used a multiplier between 1.5 and 1.8. That was based upon the estimated life of the loan, discounted to take account of receiving the money up-front. He said that they telephoned different loan book brokers to ascertain what was a fair figure at the time.[60]
[60] T 359
He said that certain clients were specified in schedule 1 of the contract and excluded from the restraint because the defendants were arranging business funding for them at the time. He referred to the customers O’Neill, Clift-Wilson and Allen.[61]
[61] T 360
He explained how the commission structure worked.[62] Generally, the broker would receive an up-front payment calculated on the loan balance at settlement and a trail commission calculated on an ongoing basis monthly. That commission was payable on the balance of the loan at the end of the month. The up-front commission varied between lenders from 0.4% to 1%. The trailing commission was paid during the life of the loan. If the loan was rewritten with a new lender, you would be entitled to a new up-front payment. If the loan was increased, then the new up-front payment would be calculated upon the increased amount.[63]
[62] T 374
[63] T 375
He said that in relation to the plaintiff’s claims in Exhibit P4, a number of assumptions were involved. He said that the schedule did not take into account whether the new loan amount was from a new lender or was an “up-stamp”.
In relation to the plaintiff’s use of the figure of 0.25% in its calculation of the loss of trail, he said that this was an average only but was possibly reasonable.
He said that a multiplier of 4.12 was far in excess of what he would have thought was an industry standard.
Ms Lehmann’s Evidence
Ms Lehmann gave evidence that she began her career in the finance industry in 2001.
She said that the sale price of $120,000 in relation to the contract, was arrived at using a multiplier of 1.5. Because this gave a cash injection up front, it was discounted slightly for that purpose.
Ms Lehmann identified the customers who returned to the defendants but subsequently “dropped off” their books.[64] For example, the customer Merritt discharged his bank loan. She pointed out that while a customer may have been on their books, no commission was received during the period that the loan was not being repaid. For example, the customer Viceban was in arrears for 6 months.
[64] T 423
In relation to the customer Mudge, there was a “clawback” because the customer had not utilised a percentage of the loan. In the matters of E Emiliano and Higson, there was an incorrect coding.[65] This meant that the loans were wrongly recorded by BankSA against Fairways Security’s accreditation instead of that of the third defendant. Exhibit D35 provided confirmation of the various discharges and clawback notifications. Business purpose declarations identified the nature of the loans relating to Pipikos, Heusler[66] and Bishop[67]. This meant that the loans were declared as being wholly or predominately for business purposes. The customer Petraccaro also discharged his loan. The customer Cimarosti discharged the loan rewritten by the defendants in July 2004, only two months later.
[65] T 426 - 427
[66] Exhibit D 37
[67] Exhibit D 38
In relation to the various calculations in Exhibit P4, Ms Lehmann said that where the borrower stays with the same lender, upfront commission is paid only on the introduced loan amount.
Ms Lehmann explained that in relation to the customer Gluyas, the loan was ‘loaded’ as a loan of the third defendant during the transition phase, prior to the completion of the contract.
Ms Lehmann explained that the plaintiff’s claim for loss of trail in Exhibit P4 was calculated on the new loan balance in relation to the rewritten loans, and not on the original loan balance. Further, it was wrong to assume that all customers would return to the plaintiff. In relation to the claim for a loss of sale value based upon the rewritten benefit of loans, she said that the calculation had failed to take into account the monthly reduction of the loan balance, or reduction by reason of a lump sum payment. Therefore, the longer the customer was on the books, the lower the loan amount over time and therefore the lower the commissions received over time.
Once loans were discharged, no more commission was paid.
Ms Lehmann had made inquiries in the industry in relation to the average life of loans. It was a wide and varied figure.
Plaintiff’s Submissions
The plaintiff submitted that as a result of the defendants’ breaches of contract, the defendants earned firstly, up-front commissions and secondly, trailing commission that it would not otherwise have earned. In addition, the plaintiff lost the potential capital value from the income earning stream of those loans.
The plaintiff relied upon Mr Smoker’s evidence and his explanations of the contents of Exhibit P4 as a summary of the plaintiff’s damages claim.[68]
[68] T 47
Exhibit P4 divides the plaintiff’s claim into three components: firstly, the loss of up-front commissions; secondly, the loss of the trail to November 2006, and thirdly, the loss of the sale value of the trail as at November 2006.
In November 2006, the plaintiff capitalised its loss by a direct sale.
The plaintiff submitted that Exhibit P4 showed that the amounts of the rewritten loans totalled $8,476,115. Applying the basic denominator of 0.7%, that resulted in an up-front loss on rewritten amounts of $59,332.
Next, Exhibit P4 showed that the loss of the trail to 30 November 2006, based on the rewritten loan amounts, was $39,958
Finally, there was a loss of the sale value of the business.
The plaintiff submitted that a multiplier of 4.12 was utilised in relation to the subsequent sale of the business to Mr Melshar on 1 December 2006. The plaintiff submitted that this was evidence of the appropriate multiplier. The application of that multiplier to the rewritten loans in Exhibit P4 resulted in a loss of sale value in an amount of $87,304.
The plaintiff contended that Mr Smoker’s calculations represented a reasonable estimate of the profits made by the defendants as a result of the breach of the restraint and hence, a measure of the plaintiff’s loss of opportunity to earn those amounts.
The plaintiff through his counsel Mr Evans, submitted that the Statement of Claim amounted to a claim for damages for loss of opportunity. The plaintiff submitted that it had lost the opportunity for the trail customers who went to the defendants to return to the plaintiff to rewrite their loans.
As a result, the plaintiff had foregone the opportunity to make the same commissions that were subsequently earned by the defendants.[69] Mr Evans submitted that a global award of damages was appropriate, making an appropriate allowance for contingencies, for example that a number of rewrites might not have occurred or that the plaintiff may have rewritten loans for greater amounts than rewritten by the defendants.
[69] T 292
The plaintiff alleged that the first two defendants used the third defendant to breach the restraint and were liable for equitable damages.
The plaintiff submitted that interest ought to be awarded to the plaintiff as at 1 December 2006.
Defendants’ Submissions
It was submitted on behalf of the defendants, that Exhibit P4 was erroneous. It was based on the rewritten amounts for the loans, not upon the basis of the original loan amounts in the trail book at completion of the contract.[70]
[70] T 478.35
The defendants submitted that there was no evidence that the customers identified in Exhibit P4 would have chosen to rewrite loans with the plaintiff if they had not gone to the defendants. Mr Geyer, on behalf of the defendants, submitted that in order to prove the claim for damages for loss of opportunity, the plaintiff needed to lead compelling evidence that the chance was there, that it was capable of being measured and that the chance was more than mere speculation or conjecture. It was submitted that the plaintiff needed to prove that it was likely that the chance would have been fulfilled. It was submitted that there was no evidence that the loans that were the subject of the claim, would have been rewritten with the plaintiff for the amount for which they were rewritten with the defendants. It was submitted that Mr Smoker acknowledged during his evidence that many customers went to third parties to refinance loans, and not to the defendants. Mr Geyer pointed out that the plaintiff conceded that its claim as originally formulated had to be reduced because Mr Smoker wrongly assumed that many of the trails were lost because trail customers went to the defendants, when in fact they had not. It transpired that only a small percentage of trail book customers had gone to the defendants.
Mr Geyer submitted that there were about 600 customers in the loan book as appears in Exhibit P1. However, there were only about 20 of those customers that were the subject of the plaintiff’s claim in Exhibit P4 [71].
[71] T 472
Mr Geyer submitted that this was a significant factor in assessing the plaintiff’s claim for loss of opportunity damages.
The defendants submitted that the plaintiff’s claim for damages for loss of a chance was in the realms of speculation.
The defendants conceded that the plaintiff need only demonstrate a loss of a chance of some value and that it was then a matter for the court to estimate the likelihood of that chance being taken and what benefits it may throw up.[72]
[72] T 538.14
It was submitted that although Mr Smoker asserted that 4.12 was the appropriate rate for capitalisation, that figure did not appear in the contract with Mr Melshar.
The defendants relied upon the evidence of Ms Lehmann that 1.5 or 1.8 was an appropriate multiplier.
Ms Lehmann gave evidence that the figure that they had used privately to arrive at the sale price of the business of $120,000, was a multiplier of 1.5.
Mr Madigan gave evidence that the figure of 1.5 was based on industry standards and said that he had been in the industry for many years.
Legal Principles in Relation to Assessment of Damages
I refer to the following statements of principle in relation to the assessment of damages:[73]
(a) ‘… 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’ (per Parke B in Robinson v Harman)[74];
(b) ‘… the plaintiff is entitled to recover such damages as arise naturally, that is, according to the usual course of things, from the breach, 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’ (per Mason CJ and Dawson J in The Commonwealth v Amann Aviation Pty Ltd[75] restating Alderson B’s ‘renowned formulation’ in Hadley v Baxendale);[76]
(c) ‘The award of damages for breaches of contract protects a plaintiff’s expectation of receiving the defendant’s performance’ (per Mason CJ and Dawson J in Amann);
(d) ‘… a plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed’ (per Mason CJ and Dawson J in Amann) and ‘… the parties to the contract are kept to the benefits and the burdens of the contract they have made: the plaintiff recovers no more than the net benefit he would have received under the contract; the defendant acquires no right to profit by his breach’ (per Brennan J in Amann);
(e) ‘If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high - 99.9% - or very low - 0.1%. But unless the chance is so low as to be regarded as speculative - say less than 1% - or so high as to be practically certain - say over 99% - the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51% probability of occurring, but to ignore altogether a prediction which has a 49% probability of occurring. Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability’ (per Deane, Gaudron and McHugh JJ in Malec v JC Hutton Pty Ltd );[77]
(f) ‘… the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant’s case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable’ (per Mason CJ, Dawson, Toohey and Gaudron JJ in Sellars v Adelaide Petroleum NL);[78]
(g) ‘The role of the court in making an assessment of damages which depends upon its view as to what will be and what would have been is to be contrasted with its ordinary function in civil actions of determining what was. In determining what did happen in the past a court decides on the balance of probabilities. Anything that is more probable than not it treats as certain. But in assessing damages which depend upon its view as to what will happen in the future or would have happened in the future if something had not happened in the past, the court must make an estimate as to what are the chances that a particular thing will or would have happened and reflect those chances, whether they are more or less than even, in the amount of damages which it awards’ (per Lord Diplock in Mallett v McMonagle);[79] and
(h) ‘… mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can,’ sometimes even to the extent of being involved in ‘guess work rather than estimation’ (per Mason CJ and Dawson J in Amann referring to a passage from the judgment of Dixon and McTiernan JJ in Fink v Fink[80] and to a passage from the judgment of Menzies J in Jones v Schiffmann)[81].
[73] IOOF Building Society Pty Ltd v Foxeden Pty Ltd [2009] VSCA 138
[74] (1848) 1 Ex 850 at 855 (154 ER 363, 365)
[75] (1991) 174 CLR 64
[76] (1854) 9 Ex 341 at 354 (150 ER 145, 151)
[77] (1990) 169 CLR 638
[78] (1994) 179 CLR 332
[79] [1970] AC 166, 176
[80] (1946) 74 CLR 127
[81] (1991) 124 CLR 303

In relation to assessing the plaintiff’s claim for the loss of the opportunity to earn further financial planning commissions, I refer to IOOF Building Society v Foxeden:[82]
In our opinion, it is correct to characterise the particular damages claimed by Foxeden as damages for the lost chance of obtaining further financial planning commissions. Then, applying the statement by Lord Reid in C Czarnikow Ltd v Koufos[83] that –
the crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.
[82] [2009] VSCA 138 at [175]
[83] [1969] 1AC 350
Transactions Caught By The Restraint
The transactions to which the restraint applied are identified in the Judgment of the Full Court.[84]
First, Positive Endeavour was effectively purchasing shares in a business which included a right to ongoing income by way of trail commissions from lenders for as long as the loans negotiated by the broker and current at the date of the sale of the business continued. If one of the vendors was to solicit such a customer to refinance their loan, or merely “secure” that customer without any solicitation, the existing loan would be discharged and trail commissions would cease. The existing business, shares in which Positive Endeavour had purchased, would thereby be diminished. It was that right to existing trail commissions which, in part, Positive Endeavour was seeking and was entitled to protect by way of a restraint clause against the vendors. If a borrower merely wished to raise an additional loan without discharging the existing loan, the broker who negotiated the new loan would be entitled to commissions on the new loan, but the trail commissions on the existing loan would continue. In that situation the purchaser in this case would suffer no less.
The second component of commissions to be protected concerned the refinancing of existing borrowings. As already noted, the right to trail commissions will cease where a loan is repaid or is discharged by default. That is a risk which attends the broker upon the negotiation of any loan. However, the evidence showed that a substantial part of a finance broker’s business and entitlement to commissions relates to borrowers returning to the agent to refinance their borrowings in order to consolidate or extend their borrowings. This involves renegotiating the loan with the same or a different lender. It results in the cancellation of the existing trail commissions but also in the payment of an additional up front commission on the negotiation of a fresh loan and the payment of new, or what might be described as replacement, trail commissions on the replacement loan. If the refinancing is done through the same broker, although the existing right to trail commissions ceases, the right to ongoing commissions is effectively protected and possibly enhanced by the renegotiation of the loan. The right to those commissions will not be protected if, while the existing loan continues, another broker is able to negotiate the refinancing of the loan and hence obtain the right to ongoing commissions in respect of the renegotiated loan.
[84] Supra Bleby J at [19] – [20]
It is necessary to consider each of the transactions detailed in Exhibit P4 in order to determine whether the conduct of the defendants breached the restraint.
Loans Introduced by Ms Aylesbury
Mr Aylesbury introduced certain customers in the trail book to the defendants. I found:
Upon a consideration of the evidence, I am not satisfied that Ms Aylesbury solicited the custom of those persons identified in the defendants’ schedule to the amended defence, as an agent for the defendants and introduced them to the defendants.[85]
[85] Ibid at [115]
However, the restraint was intended to have a wide operation in order to protect the asset purchased under the contract. In that respect, the Full Court’s decision in relation to the meaning of ‘secure’ is important.
As Bleby J explained:[86]
What was embargoed by reason of the restraint clause was that from that date the vendors must not “solicit, canvass or secure” the custom of a relevant person. The use of the word “secure” enlarges substantially the scope of the restraint beyond mere soliciting or canvassing. It would include actions which may not have been stimulated by the vendor but which resulted from the initiative of the customer. That breadth of the restraint is also reflected in Schedule 1 which provided that “under no circumstances are the vendors or any of them to provide lending services …”. The use of the words “secure” and “provide” make quite clear that what was prevented was the actual arranging of a loan by a vendor, even where the customer might, of his or her own volition, seek out the vendor and request the vendor to arrange the loan.
[86] Supra at Para 9
The effect of the restraint was to prohibit the mere ‘securing’ of a relevant customer, without any solicitation.[87] It is plain from the evidence, including the documents produced by the defendants, that Jackie Aylesbury had a very close working relationship with the defendants. Insofar as Jackie Aylesbury introduced customers from the trail book to the defendants, I am satisfied that she did so with the agreement of the defendants in breach of the restraint.
[87] Supra Bleby J at [19]
Accordingly, I find that the first and second defendants are liable to the plaintiff for any loss suffered by the plaintiff in relation to customers secured by the defendants to whom lending services were provided in breach of the restraint.
Additional Loans
The restraint clause as amended in accordance with the judgment of the Full Court, applied only to customers in the trail book as at the date of completion of the contract. The restraint does not apply to new (as in, additional) loans entered into between customers in the trail book and the vendors under the contract. [88] It is limited in its application to the refinancing of existing loans at completion of the contract. The restraint is limited in time to the duration of the loans in the trail book existing at completion of the contract. Therefore, the plaintiff remained entitled to receive existing trail commissions as well as the right to fresh commissions, on any refinancing of an existing loan in respect of customers in the trail book. The restraint did not prevent the vendors from arranging additional loans for existing customers.[89]
[88] Supra Bleby J at [45]
[89] [2009] SASC 281, Bleby J at [45]
I find that Exhibit D5A and D39A correctly identified those loans that are new loans. I refer to the loans in Exhibit P4 relating to the customers A & J Saunders, A J Gluyas, Albert Kohler, Teresa Russell and Michael Mudge. I find that the writing of these loans by the defendants was not a breach of the restraint.
Customers Excluded From The Restraint
Schedule 1 to the contract specifically excluded certain customers from the operation of the restraint where the loans related solely to business or commercial purposes. Those customers included Allen, Heusler and Pipikos. The plaintiff alleged that the defendants rewrote loans for the customers Allen, Heusler and Pipikos, contrary to the permission provided in the contract. In relation to Allen, the plaintiff alleged that the rewritten loans included a mortgage to the Commonwealth Bank of Australia, in the sum of $26,000 in respect of one property, and a mortgage to ING in the sum of $26,000 in respect of the other property. Both loans were refinanced to support the purchase of a claim for $92,200 and to pay unpaid tax of $184,000[90]. The plaintiff submitted that the loans were not related “solely” to commercial or business lending. I have regard to the business declaration in relation to this transaction.[91] I am satisfied that the new borrowings were not solely related to commercial or business lending. Therefore, the transaction is not excluded from the operation of the restraint. I find that it is a transaction conducted by the defendants in breach of the restraint.
[90] T 79
[91] Exhibit P1 at p176
In relation to the loan rewritten for the customers Bishop and Heusler, only Heusler was named in the exclusion from the restraint in schedule 1. I have had regard to the contents of Exhibit D38. The exhibit documents indicate that the loan in question related to the refinancing of an owner/occupier residence for business use.[92] I find that this loan does not come within the description of providing lending services related “solely to business and commercial lending”. I find that this loan is subject to the operation of the restraint.
[92] T 429
In relation to the customer Pipikos, an existing loan of $123,250 was increased by $69,000 in order to purchase a pizza bar. Mr Smoker said that this loan was included in the plaintiff’s claim based upon an assumption that part of the borrowing related to personal debt.[93] I have regard to contents of the document and the declaration in Exhibit D27.[94] I find that the plaintiff has not proved on the balance of probabilities that the services provided in relation to this loan related solely to commercial or business lending. Therefore, I find that this transaction was not caught by the restraint.
[93] T 82
[94] T 428
ASSESSMENT OF LOSS
The plaintiff bears the onus of establishing the extent of any loss or damage.
The plaintiff entered into a contract for the purchase of a business which comprised the value of the trail book. Up-front commissions are commissions received on the acceptance of a loan. Trailing commissions are paid against the outstanding loan amount on a daily basis. The trailing commission continues to be paid so long as the client retains the loan with the particular lender. Once the loan is repaid or the client refinances elsewhere, the trailing commission ceases. The trailing commission decreases as the debt decreases and the amount of the trailing commission is paid against the outstanding loan balance.
The Multiplier
It was common ground between the plaintiff and the defendants that in order to place a present value capitalisation on the value of future trailing commissions, it is necessary to use a multiplier based on the average life of a loan. In his evidence, Mr Smoker said that an appropriate rate for capitalisation was 4.12. This was arrived at having regard to his subsequent sale of the business to Mr Melshar.[95] However, he agreed that he did not apply the multiplier of 4.12 to the sale contract with Mr Melshar.[96]
[95] T 292
[96] See Ex P1 p269. Share purchase agreement to Melshar Pty Ltd includes no mention of a trail book or a multiplier
Mr Madigan and Ms Lehmann gave evidence that a multiplier of 1.5 or 1.8 would be more realistic as an average. Ms Lehmann’s evidence was that she used a multiplier of 1.5 to calculate the sale price of $120,000 in the contract. Mr Smoker agreed that the sum of $120,000 was a reasonable amount to pay for the purchase of the loan book.[97] This purchase price was arrived at by Ms Lehmann by determining likely future commission streams from figures in the trail book, applying a multiplier to reflect the present value and making allowance for contingencies.
I note that the plaintiff’s claim in Exhibit P4 calculates the trail commission that it alleges could have been earned on the rewritten amounts of the loans up to the date of sale of the plaintiff. However, I am satisfied that a multiplier of 1.5 ought to be used as a guide in the assessment of damages in relation to the plaintiff’s loss of opportunity to earn trail commissions and the loss of opportunity to increase its sale value in respect of those trails.
The Total Amount of the Loans
In its Sixth Amended Statement of Claim, the plaintiff pleaded that the total value of the loans rewritten by the defendants in breach of the restraint was $8,476,115.
Exhibit P4 identifies the loans and the twenty customers that are the subject of the plaintiff’s claim.
The defendants’ schedules Exhibit D5A and Exhibit D39A identify the areas of dispute with the plaintiff’s claim in Exhibit P4. The defendants’ schedules identify eleven customers and the loans that the defendants acknowledge re-writing.
In my view, there are a number of gaps in the proof of loss in the plaintiff’s case that are identified in the defendants’ schedules.
I am satisfied that the plaintiff has not established that loans relating to the customers Kohler and Russell, Gluyas, Saunders and Mudge in Exhibit P4, did not relate to new loans that are not caught by the restraint. I am satisfied on the balance of probabilities that the loans relating to the customers Emiliano and Higson and Syme in Exhibit P4, were loans that had been incorrectly coded by the Bank and were not customers of the Fairway Group at the completion of the contract. Therefore, the loans are not subject to the operation of the restraint. I am satisfied that the defendants’ schedule Exhibit 39A correctly addresses the entitlement to commission that arises from an ‘up-stamp’ of a loan, or the refinancing of an existing loan.
Except for the exclusion of loans relating to Allen and Heusler, I am satisfied that the defendants’ calculations in their schedules are more likely to be correct than the plaintiff’s claim in Exhibit P4. I am satisfied that the plaintiff has failed to establish that the total value of rewritten loans in breach of the restraint was $8,476,115.
By adding the rewritten loan amounts for Heusler and Allen in Exhibit P4 to those acknowledged by the defendants in D39A totalling $3,907,200.00, I am satisfied that the total value of the rewritten loans in breach of the restraint is $4,533,200. That is, I am satisfied that what is in issue is the loss of the opportunity to earn commissions and increase the sale value of the business in respect of loans that were rewritten in the total sum of $4,533,200, subject to various contingencies that I will come to later in these reasons.
Loss of Trailing Commissions
The plaintiff claimed a trailing commission and a commission entitlement to November 2006 of $39,958. This claim was based on a total of rewritten loan amounts of $8,476,115.
The defendants submitted that the plaintiff is only entitled to calculate the loss of trail in respect of the original loan balances that were the subject of the sale. The defendants assert that the total of the original loan balances is $2,110.54[98]. Using a multiplier of 1.5 and having regard to the actual trail rate paid by the original lenders, the defendants’ contended that the maximum liability for loss of trail is $6,678.00.[99]
[98] Exhibit D39A
[99] See Defendants Quantum Amended Submissions filed 23.12.09
Findings
It is plain that the plaintiff’s calculations as to loss of trail in Exhibit P4 are based on the loans rewritten by the defendants and not the loans that were the subject of trails at the completion of the contract. The plaintiff did not attempt to provide a calculation for the loss of trail commissions based on the commissions that it would have continued to earn if the loans had not been rewritten by the defendants. Therefore, the plaintiff’s calculation can only be a claim for the loss of opportunity to rewrite the loans in question. The plaintiff bears the onus of establishing the probability of the event that it relies upon. Although the defendants admit rewriting a number of the loans in question, it does not follow that if the defendants had not rewritten those loans, the customers would have returned to the plaintiff. They may have gone to a third party or adopted an alternative course. There are other contingencies that need to be considered. The restraint did not prohibit the defendants from writing new or additional loans for customers of the plaintiff upon completion of the contract.
Trail commission rates vary from lender to lender. They are not paid if the loan falls into arrears. Loans drop off for a variety of reasons such as the repayment of the loan, refinancing, or the sale of property. Sometimes there are claw backs.[100] Customers in the finance industry often change their financiers and/or refinance from time to time of their own free will.
[100] See Ex D5A – claw back in relation to K Anderson in the sum of $2169.44. The loan was discharged in February 2005 and the sum of $2169.44 was refunded to the lender in respect of the commission.
Commissions are paid on the monthly balance over time, and as the loan reduces, so does that commission. On the other hand, if the customers had not gone to the defendants but had stayed with the plaintiff, there may have been additional planning opportunities for the plaintiff. If the plaintiff had been given the opportunity to rewrite the loan in question, a greater up-front and trailing commission may have been achieved. There are both positive and negative contingencies to take into account.
In my view, the defendants’ calculation of the actual original loan balance total of $2,270,354 and the calculation of the amount of the loans rewritten by the defendants in breach of the restraint in the total sum of $4,533,200 (including the rewritten loan amounts for Allen and Heusler), provide useful information to assist the court in the determination of damages for loss of opportunity to earn the trail commissions that it may have earned if the defendants had not breached the contract. Although it is difficult to achieve precision, I will do the best I can. I have regard to the figure of 0.25% as a reasonable figure to provide guidance as to the loss of trailing commissions and to the multiplier of 1.5. However, the plaintiff’s claim is a claim for loss of opportunity and I must have regard to significant contingencies. Therefore, adopting a broad axe approach and doing the best I can, I find that the defendants are liable to pay the plaintiff the sum of $15,000 in respect of loss of opportunity to earn trail commissions.
Loss in relation to Up-front Commissions
The plaintiff claimed an up-front commission entitlement which had been foregone due to the activities of the defendants, in the sum of $59,332.
I am satisfied that the appropriate rate to apply in a consideration of the plaintiff’s loss in relation to the loss of opportunity to earn upfront commissions, is 0.7%. Having regard to the evidence of Mr Madigan, Mr Smoker and Ms Lehmann, I am satisfied that up-front commissions had already been paid in relation to the loans in existence at the completion of the contract. The plaintiff’s claim under this heading is in essence, a claim for the loss of the opportunity to rewrite the loans that were rewritten by the defendants and to earn extra up-front commission on the rewrite. I am satisfied that where loans are rewritten with the same lender, commission is payable only in respect of the increased portion of the loan rewritten by the defendants. Further, if a loan is increased, extra commission is paid only on the ‘up-stamp’ amount of the loan. This distinction was made clearly in Mr Madigan’s evidence and not disputed by Mr Smoker. Exhibit P4 fails to reflect this evidence. The defendants’ schedules Exhibit D5A and D39A do. In this respect, I find that the defendants’ schedules are more accurate, save and except for the non inclusion of loans relating to Heusler and Allen.
The total of the rewritten loan amounts, in respect of which up-front commissions were payable, as identified in Exhibit D39A and D5A, is $2,845,200. Adopting the rate of .7%, this gives a potential to earn up-front commission of $19,916.40. The plaintiff claims that as a result of rewriting the loan for Allen, it lost the opportunity to earn up-front commission of $3,668. In relation to Heusler, the plaintiff claimed that it lost the opportunity to earn an up-front commission of $714. I take into account these re-writes in my assessment of the plaintiff’s claim for loss of opportunity to earn up-front commissions. I note that up-front commissions are subject to clawbacks and that there are other contingencies that must be considered. I propose to adopt a broad axe approach, and doing the best I can, I award damages for the loss of opportunity to earn up-front commissions of $11,000.
The Loss of Sale Value

The plaintiff claimed that the actual and potential value of the trailing commission derived, and that could have been derived by the plaintiff, was the sum of $21,190.29. This was based on 0.25% of the total value of the loan. The plaintiff adopted a multiplier of 4.12 and contended that the value of the trailing income as at November 2006 was $87,304. Although I accept that Mr Smoker was an honest witness, I am not satisfied that the evidence of the sale price to Melshar Pty Ltd supports the adoption of a multiplier of 4.12.
I was not assisted by any evidence from an expert as to the appropriate way to measure the impact on capital value of loss of an income stream in the circumstances of this case.[101]
[101] cf. AMP Services Ltd v Manning (No. 2) [2007] FCA 82
I am not satisfied that the plaintiff has made out its claim for loss of the sale value using a multiplier of 4.12.
In the assessment of damages for the loss of the opportunity to increase the sale value of the business, I am satisfied that the multiplier of 1.5 provides some assistance.
I note that the plaintiff’s sale of the business occurred 2.5 years after the contract became the subject of litigation. Having regard to the evidence of the average life of the loans that are the subject of the breach, and other unknowns that I have already referred to, I am not satisfied that the plaintiff has established any loss or any measurable loss of capital value or loss of opportunity in relation to the sale value of the business, as a result of the loss of the customers to the defendants in breach of the contract.
Liability of the Third Defendant
It was plain from the evidence that Mr Madigan and Ms Lehmann were directors and shareholders of the third defendant. Mr Madigan gave evidence that the third defendant was incorporated in 2002.
It traded for a few months as a mortgage manager. After March 2003, it traded as a finance broker.
After that date, it was the vehicle for Mr Madigan and Mr Lehmann to transact business.[102]
[102] T 397
I have regard to the evidence in relation to the conduct of the first and second defendants in transacting their business as finance brokers. The documents in the exhibits tendered during the hearing, in particular Exhibit P1 and Exhibit D5, indicate that the first and second defendants transacted their business through First Pacific Mortgages trading as All Capital. I am satisfied that the first and second defendants used the third defendant as their agent to conduct their finance broking business.
The first and second defendants controlled the third defendant. I am satisfied that the first and second defendants used the third defendant as a vehicle to breach the restraint.
Indeed, I am satisfied that the third defendant was used as a ‘cloak’ or ‘device’ to evade the restraint and / or in breach of the restraint. I have regard to the statements of principle in the judgement of the Full Court in relation to the plaintiff’s claim for equitable damages.[103] I find that the third defendant is liable for equitable damages in relation to the breaches of the restraint by the first and second defendants.
[103] Supra Bleby J at [47]; Gray J at [134] - [150]
Conclusions
I find that the plaintiff is entitled to an order for damages calculated so as to put the plaintiff in the position it would have been in, had there been compliance with the contractual obligations imposed by the restraint. Those damages include the plaintiff’s loss of the opportunity to earn the up-front commissions and the commissions that it would likely have earned from the trails of customers that were lost as a result of the defendants’ breaches of contract. It was necessary to determine whether there was a breach of the restraint in relation to each customer and each loan in Exhibit P4.[104]
[104] See plaintiff’s outline of submissions received 25/3/08 paragraphs 4.3 – 4.5 and T 528 – 530, 549
Mr Smoker admitted during evidence that the plaintiff’s claim was largely dependent on the defendants’ discovery. The defendants produced the necessary documents to substantiate the status of the various loans referred to in the plaintiff’s schedule Ex P4. The defendants identified those customers who were not caught by the restraint for various reasons. The defendants relied on records to identify the customers who had been incorrectly coded by the Bank, those who were not customers of the defendants, the new loans, those that refinanced an existing debt, and those that it contended were expressly excluded from the restraint.[105]
[105] Under schedule 1, clause 8(1)(a) of the contract
The defendants provided a schedule setting out the remaining clients that the defendants acknowledged rewriting or who were part of the defendants’ discovery items. I decided that the rewritten loans in relation to Heusler and Allen were also in breach of the restraint.
Doing the best I can, I conclude that the appropriate award for damages for loss of opportunity to earn trail commissions and up-front commissions is in the total sum of $26,000.
GST
The plaintiff concedes that GST is not payable in relation to any award for lost trailing commission entitlements. I note that the contract provided that it was an agreement for the supply of a going concern and that the purchase price would not be increased on account of GST. I have determined that it is appropriate to award damages for loss of opportunity. I am of the view that GST is not payable in respect of damages awarded in the present case.
Order
Judgement for the plaintiff against the defendants, in the sum of $26,000.00. I will hear the parties in relation to interest and costs.