Jewelsnloo Pty Ltd v Sengos (No 2)

The present dispute arises out of the sale of a business that trades under the name “Amazing Water” and involves the sale through the Internet of water coolers, filters and benchtop filters.

The business was founded by the first defendant, Mr Paul Sengos, who after a number of years trading sold the business to the second and third defendants, Mr Stan and Ms Kalyopy (Poppy) Kotsiopoulos, who in turn by contract dated 18 October 2012 agreed to sell the business to the plaintiff, Jewelsnloo Pty Ltd (Jewelsnloo). Mr Julian Facer is a director and the secretary of Jewelsnloo.

Jewelsnloo complains that it was induced to enter into and complete the contract of sale by misleading and deceptive conduct engaged in by Mr Sengos and Mr and Ms Kotsiopoulos, and seeks an order avoiding the sale, or damages in the alternative. Jewelsnloo also complains that for a period after the completion of the contract of sale Mr Sengos, through his companies the fourth and fifth defendants, engaged in passing off in selling water coolers and related products as if they were engaged in the business that had been acquired by Jewelsnloo. Jewelsnloo seeks damages for that alleged breach, including exemplary damages.

The operative pleadings in this matter are Jewelsnloo’s second further amended statement of claim filed on 18 July 2014, and the defences respectively filed by Mr and Ms Kotsiopoulos on 25 July 2014, and Mr Sengos and his two companies on 28 July 2014.

A number of the interlocutory steps taken in these proceedings before the filing of these pleadings are relevant; in particular to the claim made by Jewelsnloo that it entered into the contract of sale on the basis of a misrepresentation as to the recent turnover of the business made by Mr and Ms Kotsiopoulos; Jewelsnloo’s claim that the sale should be avoided by reason of the making of that representation; and also its claim for damages against Mr Sengos and his companies for passing off.

The following outline of those interlocutory steps is taken from a judgment that I have given in these proceedings in which I refused an application by Jewelsnloo to be allowed to reopen its case after its case had been closed: see Jewelsnloo Pty Ltd v Sengos [2015] NSWSC 80 at [9] to [23].

Jewelsnloo commenced these proceedings by summons filed on 20 December 2012 by leave of the duty judge.

On the same date an affidavit by Mr Facer sworn on 20 December 2012 was filed.

The summons, confusingly, sought relief against “the defendant”, although the present five defendants were named as defendants. By orders 1 and 2 Jewelsnloo sought an injunction restraining passing off and consequential relief. That relief must have been sought against Mr Sengos and his companies. By order 3 Jewelsnloo sought damages for breach of s 42 of the Fair Trading Act 1987 (NSW) and Schedule 2, s 18 Competition and Consumer Act 2010 (Cth). Jewelsnloo sought by order 4 damages for passing off in the alternative. It sought an order for an accounting by order 5, and “restitution” by order 6.

Jewelsnloo did not seek any order avoiding the sale of the business. It sought relief against passing off and damages, it appears primarily for passing off. It must be accepted that the summons was probably drawn with some haste in order to support Jewelsnloo’s claim for interlocutory relief. It must be recognised that Mr and Ms Kotsiopoulos were joined as defendants, and it seems unlikely that Jewelsnloo was alleging that those defendants were parties to the passing off. It is not clear that Jewelsnloo’s claim for damages for breach of the statutory provisions was limited to the alleged passing off, and it may have extended to a claim for damages for the misleading and deceptive conduct by Mr and Ms Kotsiopoulos now made by Jewelsnloo. The basis of the claim for restitution is unclear.

Mr Facer’s affidavit appears primarily to support Jewelsnloo’s claim for interlocutory relief in relation to the alleged passing off. It includes the primary evidence concerning the making of the alleged representation by Mr and Ms Kotsiopoulos concerning the recent turnover of the business, although it does not appear to contain evidence that the representation was false. That may be because Jewelsnloo did not by 20 December 2012 appreciate that the turnover representation might have been false.

It is sufficient to note that by 20 December 2012 Jewelsnloo did not clearly claim an order avoiding the sale of the business. Mr Facer’s affidavit did not assert that any turnover representation was false. Mr Facer did not say that Jewelsnloo had acted to rescind the contract, or offer to redeliver the business to Mr and Ms Kotsiopoulos. In practical terms Jewelsnloo’s application for passing off relief against Mr Sengos and his companies was consistent with Jewelsnloo’s continuing to conduct the business, as it would not have title to the relief if it had rescinded the sale.

The duty judge on 20 December 2012 made an order that until 30 January 2013 Mr Sengos and his companies be restrained from selling, promoting for sale or distributing water filtration equipment and dispensers, with liberty on reasonable notice for the duty judge to vary or dissolve the order.

On 30 January 2013 an order was made confirming the interlocutory injunction made on 20 December 2012 until further order, subject to orders 2, 3 and 4 made on 30 January 2013. The effect of the proviso orders was that Mr Sengos and his companies were permitted to sell certain identified stock on the basis that they would keep accounts of the transactions and provide evidence to Jewelsnloo of those transactions.

The relevance of these orders for present purposes is that Mr Sengos and his companies have not sought to vary or dissolve the interlocutory injunction. Accordingly, Jewelsnloo’s passing off case must be limited to the products that may have been sold before the injunction granted on 20 December 2012, assuming that the products permitted to be sold by the proviso to the 30 January 2013 order were not passed off as the products of Jewelsnloo. Any pass off must have occurred over a closed period.

In accordance with an order that the matter proceed on pleadings, Jewelsnloo filed a statement of claim on 21 February 2013.

Jewelsnloo claimed damages and an order restraining Mr Sengos and his companies from passing off their business as the business of Jewelsnloo.

It alleged in par 5 that, during the negotiations that preceded the contract for the sale of the business, Mr Sengos represented to Jewelsnloo that he had no intention of getting back into the water cooler business, and that the trading figures of the business were true and correct. The particulars given for the making of the representations were a telephone conversation between Mr Facer and Mr Sengos on 25 September 2012, and an email sent to Mr Facer by Mr Sengos on 1 October 2012. Jewelsnloo did not identify the trading figures that were the subject of the alleged representation. Jewelsnloo continued to press its passing off claim against Mr Sengos and his companies. The claim for restitution that had been made in the summons was omitted.

The only claim pleaded against Mr and Ms Kotsiopoulos was the claim in par 7 that on 24 October 2014 (which was after the date on which Jewelsnloo had entered into the contract to purchase the business on 18 October 2012) they had represented to Jewelsnloo that they had obtained the benefit of a restraint of trade against Mr Sengos for a period of two years commencing on 15 February 2012.

No allegation was made against Mr and Ms Kotsiopoulos that they had engaged in any misleading and deceptive conduct concerning the turnover of the business. Jewelsnloo did not seek any order avoiding the sale. It alleged in par 15 that from 28 October 2012 it carried on and still carried on the business.

As the contract of sale was completed on 28 October 2012, it may be noted that Jewelsnloo had operated the business for some four months before the statement of claim was filed. Nothing in the statement of claim indicated that by the date of its filing Jewelsnloo had come to believe that Mr and Ms Kotsiopoulos had made any misrepresentation concerning the turnover of the business.

An amended statement of claim was filed in court on 24 July 2013. Relevantly, in par 5, Jewelsnloo added a claim against Mr and Ms Kotsiopoulos that they also made misrepresentations in relation to the turnover of the business. It also added a claim for exemplary damages, but did not seek any order avoiding the sale. Jewelsnloo again pleaded that it continued to carry on the business (now in par 21).

Jewelsnloo alleged against Mr and Ms Kotsiopoulos that they represented (a) that the business had an income from sales in the period February 2012 to June 2012 in the sum of $166,375.65; and (b) that the trading figures of the business were true and correct. The particulars given for the representations were that they were made in an attachment to an email dated 21 September 2012 from the business broker who acted for Mr and Ms Kotsiopoulos, and that they were “implied as a matter of law from the facts and circumstances”.

Jewelsnloo continued the allegation against Mr Sengos that he had represented that the trading figures of the business were true and correct (now par 6).

The only allegation of falsity of the turnover representation was the allegation in par 10(c) that the trading figures were not true and correct for the business.

Jewelsnloo filed a further amended statement of claim on 10 December 2013, some 13 or so months after completion of the contract for the sale of the business. For the first time it sought an order pursuant to s 243(a) of the Australian Consumer Law declaring the contract void ab initio. It also sought “an order for rescission of the contract”. Jewelsnloo did not plead that it had at any earlier time acted to rescind the contract, or that it had offered to return the business to Mr and Ms Kotsiopoulos in return for repayment of the purchase price.

As noted above, the current version of the statement of claim is the second further amended statement of claim that was filed on 18 July 2014. By this pleading Jewelsnloo made a number of further amendments that need not be considered for the purposes of this brief history of the proceedings.

In summary, Jewelsnloo did not make any allegation that Mr and Ms Kotsiopoulos had acted in any misleading and deceptive way concerning representations as to the turnover of the business until 24 July 2013. It did not seek an order avoiding the sale until 10 December 2013. Subject to the effect of Jewelsnloo making that claim, it has never asserted that it has itself rescinded the contract of sale or offered to return the business. Jewelsnloo’s passing off claim is now limited to damages for a closed period, subject to Jewelsnloo’s claim for exemplary damages. Mr Sengos and his companies have never contested the making of orders restraining them from selling products in competition with Jewelsnloo (save in respect of the orders made as a proviso to 30 January 2013 order).

I will limit references to the allegations in the current pleadings to those that are necessary to understand the issues that require decision.

It will be convenient to consider Jewelsnloo’s claim against Mr and Ms Kotsiopoulos first.

Jewelsnloo alleges (par 5) that, during the course of the negotiations that preceded its entry into the contract for sale, Mr and Ms Kotsiopoulos represented (a) that the business had an income from sales in the period February 2012 to June 2012 in the sum of $163,375.65 (the “turnover representation”); and (b) that the trading figures of the business were true and correct.

In response to these allegations Mr and Ms Kotsiopoulos alleged (par 5): (a) that Jewelsnloo did not exist as a legal entity at the time of the representations as it was registered on about 27 September 2012; and (b) that Jewelsnloo had agreed to certain terms and conditions in consideration of receiving a copy of the information memorandum upon which Jewelsnloo relies to assert the making of the turnover representation.

As I understand the defence as prosecuted by Mr and Ms Kotsiopoulos, they have not sought to pursue or rely upon the defence pleaded in par 5(a).

Further, although the defence pleaded in par 5(b) has not featured prominently in the submissions made on behalf of Mr and Ms Kotsiopoulos, I have proceeded on the basis that they maintain it. In substance the defence is that on 21 September 2012 Jewelsnloo agreed that in consideration of it receiving the information memorandum, which was a necessary step in its pursuing the purchase of the business, it agreed, as pleaded:

Mr and Ms Kotsiopoulos did not admit the allegation that the trading figures were not true and correct for the business. (I will proceed upon this basis although Jewelsnloo’s second further amended statement of claim is confusing in that par 10 contains two sub-pars (c)).

It is not unreasonable for Mr and Ms Kotsiopoulos to have declined to admit an allegation of falsity of representation pleaded as vaguely as par 10(c) of the second further amended statement of claim. As I understand the way in which they have conducted their defence, primarily as reflected in their final written submissions, their position is as follows. They accept that the information memorandum contained a statement to the effect of that alleged in par 5(a) of the second further amended statement of claim. They have not contended, or attempted to prove, that the turnover for the period February to June 2012 was in fact $166,375.65. However, for reasons that I will consider when dealing with the evidence, they contend that their conduct was not misleading and deceptive, or if it was, Jewelsnloo did not rely upon it in entering into the contract of sale; and even if they fail in that respect, Jewelsnloo is not entitled to an order avoiding the sale, and it is not entitled to the damages it claims, being the entire amount of the purchase price of $210,000. I will deal with these matters more fully below.

As to the second part of the turnover representation alleged by Jewelsnloo, that in par 5(b), as I understand Jewelsnloo’s case it has made no attempt to prove that the entirety of the trading figures that were provided to it before it entered into the contract of sale were not true and correct. As will be seen, the trading figures covered a number of years, including the period in which the business was operated by Mr Sengos, in addition to the period between February and June 2012. Jewelsnloo has made no attempt at all to prove that any trading figures for the period before February 2012 were false, or in any other way misleading or deceptive. Its final written submissions only assert (par 31) that the representation that the turnover in the five month period was $166,375 was incorrect because the true figure was $58,000.

Jewelsnloo has made further allegations against Mr and Ms Kotsiopoulos of misleading and deceptive conduct, but it must be noted that in par 7 it alleges that it entered into a contract for the purchase of the business on 18 October 2012. The other allegations of misleading and deceptive conduct are in respect of times after Jewelsnloo became bound by the contract to purchase the business. Accordingly, Jewelsnloo faces the difficulty of showing how any of the later conduct could have caused it to suffer any damage, if it was already bound by the contract to complete the purchase, and the later conduct could not have the effect of vitiating the contract.

Jewelsnloo alleged in par 8 that on 24 October 2012 Mr and Ms Kotsiopoulos made the following further representations to it:

The particulars given for this representation were par 16(b) of answers to requisitions on title dated 24 October 2012, and the deed of restraint dated 15 January 2012. There is also an assertion that the representations were implied as a matter of law.

Jewelsnloo alleged in par 9 that all of the representations were made in trade or commerce. As I understand par 9 of their defence, Mr and Ms Kotsiopoulos admit that the documents given to Jewelsnloo on which it relies were provided in trade or commerce.

These further representations (as they were called in the defence) were relevantly claimed to be false because on 12 October 2012 Mr and Ms Kotsiopoulos executed a deed of release in favour of Mr Sengos, and on about 9 October 2012 they agreed to waive or otherwise release the restraint of trade, and finally they did not have the benefit of the restraint of trade.

In substance, the response of Mr and Ms Kotsiopoulos to Jewelsnloo’s allegations in par 8 of the second further amended statement of claim was that they did not admit the allegations, and they further said that Jewelsnloo took no, or no effective, steps to obtain the benefit of an assignment of the deed of restraint.

Jewelsnloo pleaded in par 12 that, by reason of the matters earlier pleaded, it had a reasonable expectation of being apprised by Mr and Ms Kotsiopoulos of the deed of release and all matters in connection with the deed of release. It pleaded in par 12A a similar reasonable expectation in relation to any waiver or release of Mr Sengos from his obligations in the restraint of trade. It pleaded in par 15 that the failure by Mr and Ms Kotsiopoulos to apprise Jewelsnloo of these matters involved conduct which was misleading and deceptive.

Mr and Ms Kotsiopoulos did not admit these allegations.

Jewelsnloo pleaded a further claim in par 15A that Mr and Ms Kotsiopoulos’ conduct involved a derogation from its right to obtain the full benefit of the goodwill in breach of clause 17.3 of the contract for the sale of business.

Mr and Ms Kotsiopoulos do not appear to have responded expressly to this allegation in their defences. Jewelsnloo said nothing in its final submissions in support of this claim. It is not a claim capable of being made out without explanation, and in the circumstances I have proceeded upon the basis that the claim has been abandoned.

Jewelsnloo alleged in par 16 that it completed the settlement of the purchase of the business on 26 October 2012 in reliance upon all of the representations alleged, including the post-contract representations.

Jewelsnloo made its damages claim in par 17; being for the purchase price of the business of $210,000. It also foreshadowed a claim for interest payments, cash contributions to the business, and legal fees and disbursements to be advised. As I understand the evidence, Jewelsnloo has not provided evidence of these additional amounts.

By its second further amended statement of claim Jewelsnloo added a further claim in par 18A that “the above matters constituted unconscionable conduct within the meaning of the unwritten law in contravention of schedule 2, s 18 of the Competition and Consumer Act.

Neither in its pleadings nor in its submissions has Jewelsnloo grappled properly with the issues involved in making out this claim of unconscionable conduct, and its treatment has been peripheral. It appears from par 139 of Jewelsnloo’s final written submissions that it claims that the signing of the deed of release by Mr and Mrs Kotsiopoulos was the only conduct claimed to have been unconscionable.

I should note for completeness that Jewelsnloo applied for leave to file a third further amended statement of claim. It initially made an application to file such a pleading on the first day of the hearing, 4 August 2014. I gave leave in respect of one amendment sought, and deferred ruling on the other. Later, on 18 August 2015, Jewelsnloo sought leave to file a revised version of its draft third further amended statement of claim, by which it sought to amend par 5 to add sub-par (c), to allege an additional representation by Mr and Mrs Kotsiopoulos before the contract of sale was entered into, that Jewelsnloo would have the benefit of the deed of restraint against Mr Sengos after it purchased the business. I rejected that application on 18 August 2015 on the basis of reasons given in a separate ex tempore judgment on that date. .

Mr and Ms Kotsiopoulos raised an apportionment defence in par 19 of their defences on the basis that Mr Sengos and his companies would be concurrent wrongdoers for the purposes of s 87CD of the Competition and Consumer Act. In view of the conclusions that I have reached as expressed below, this issue will not require consideration.

In further answer to the whole of the second further amended statement of claim Mr and Ms Kotsiopoulos pleaded in par 20 that in entering into the contract for the sale of the business Jewelsnloo warranted that it had made its own enquiries in accordance with clause 5.2.2; it had obtained independent advice in accordance with clause 5.2.4; and that it did not rely on any statement or representation other than those expressly contained in the contract in accordance with clause 5.2.5.

I will now turn to the claim that Jewelsnloo has pleaded against Mr Sengos and his two companies.

Jewelsnloo alleged against Mr Sengos in par 6 that, during the course of negotiations before the contract of sale was entered into, he made the following representations to Jewelsnloo:

Mr Sengos admitted that he made the representation in sub-par (c) but denied or did not admit making the other representations.

It is appropriate at this point to consider the significance of the admission that Mr Sengos made the representation in sub-par (c). As will be seen, the information memorandum provided to Jewelsnloo contained trading figures for the business for both the period it was conducted by Mr Sengos and the later period during which it was conducted by Mr and Ms Kotsiopoulos. There was no evidence that Mr Sengos was responsible for the inclusion in the information memorandum of the trading figures concerning the later period. Nor was there any evidence that Mr Sengos was aware of those figures, or of what was said about them in the information memorandum. Mr Facer’s own evidence as to what Mr Sengos said to him concerning the trading figures (par 17 of his 20 December 2012 affidavit) was that, in response to a statement by Mr Facer to Mr Sengos that the broker had sent to him “the trading figures for when you had the company”, and a question whether those figures were right, Mr Sengos replied: “My figures are right Julian, I don’t know what Stan or [the broker] sent to you but I banked all of the money that I made in that business because I did not want to have any troubles with the tax man”. Thus, on Jewelsnloo’s own evidence, the only representation made by Mr Sengos was that the figures for the period in which he had operated the business were right.

As I have observed above, Jewelsnloo made no attempt to prove that any of the trading figures for the business contained in any representations made to it for the period when Mr Sengos was managing the business were false, or misleading or deceptive in any way. There are no grounds for such a finding to be made. Jewelsnloo did not submit that such a finding should be made in its final submissions.

Mr Sengos’ admission that he made the representation in sub-par (c), when properly understood, is of no significance. It is not necessary to give further consideration to any claim that Mr Sengos engaged in misleading and deceptive conduct by making any misrepresentation to Jewelsnloo concerning the trading figures of the business.

The truth of this proposition appears to be recognised by Jewelsnloo in par 6(c) of its draft third further amended statement of claim. While it is true that Jewelsnloo was not given leave to file that draft, it must be noted that it had deleted the allegation now found in par 6(c) of the second further amended statement of claim.

Mr Sengos pleaded in par 6 of his defence a positive response to the allegations in par 6 of the second further amended statement of claim. In summary, Mr Sengos referred to the 1 October 2012 email he sent to Mr Facer upon which Jewelsnloo relies. He said that prior to that date he had a business relationship with Mr and Ms Kotsiopoulos in relation to the sale of the business’ products. He wished to continue that arrangement with Jewelsnloo after its purchase of the business. The statement in the email was true at the time it was sent. Mr Facer lead Mr Sengos to believe his arrangements with Mr and Ms Kotsiopoulos were likely to continue into the future. Mr Sengos was not bound to comply in perpetuity or at all with the content of his email, as that would be an unreasonable restraint of trade. As appeared during the course of the hearing, in substance Mr Sengos’ position is that he made relevant statements in the 1 October 2012 email in the belief, induced by statements made by Mr Facer, that his relationship with the business would continue, and only after Mr Facer disabused him of that expectation did he make a decision to continue to participate in a limited way on his own behalf in the same market as the business.

Jewelsnloo claimed in par 12 that it had the same reasonable expectation of being apprised by Mr Sengos of the deed of release of the restraint deed and the waving and release of his obligations under that restraint, as it pleaded against Mr and Ms Kotsiopoulos.

In pars 20 to 27 of its second further amended statement of claim Jewelsnloo pleaded a claim of passing off against Mr Sengos and his companies. It is not necessary to analyse the pleadings concerning the passing off claim at this point.

It is sufficient to note in practical terms that Mr Sengos and his companies otherwise denied or did not admit the allegations made against them.

As an analysis of the pleadings shows, there are in substance three separate claims in this matter. The first is the claim against Mr and Ms Kotsiopoulos that they induced Jewelsnloo to enter into the contract for the purchase of the business by making a misleading or deceptive representation concerning the turnover of the business in the period from February to June 2012. The second is the claim made by Jewelsnloo against Mr Sengos as well as Mr and Ms Kotsiopoulos that they mislead and deceived Jewelsnloo by making misrepresentations concerning Mr Sengos’ intention to remain in the water cooler and filtration business, and as to the existence and continuing validity of the deed of restraint, and Jewelsnloo’s entitlement to the benefit of it. The third claim is the passing off claim. It will be convenient to deal with each of these claims separately.

The court is required to address the following questions. First, has Jewelsnloo established that Mr and Ms Kotsiopoulos engaged in the conduct, in this case the making of the turnover representation, which is said to have constituted the misleading or deceptive conduct? Secondly, if so, was the representation misleading or deceptive, or likely to mislead or deceive? Thirdly, if so, did the representation cause Jewelsnloo to suffer loss or damage because it had been made? Fourthly, if so, what is the appropriate relief, and in particular should the court make an order avoiding the sale and grant consequential relief, or make an order for the payment of damages? Fifthly, if an order for the payment of damages should be made, what should the amount of the damages be?

It will be convenient to address these questions after a consideration of the relevant facts has been undertaken.

Mr Sengos established the Amazing Water business in 2008, primarily for the purpose of it being operated by his children. The children lost interest and Mr Sengos commenced to operate the business himself on a part-time basis through the fourth defendant, which was then known as Amazing Water Australasia Pty Ltd.

The fourth defendant sold the business to Mr and Ms Kotsiopoulos on 1 February 2012. Thereafter the fourth defendant’s name was changed to its present name.

Neither Mr nor Ms Kotsiopoulos had had experience operating businesses such as the Amazing Water business. They had primarily operated or worked in cafes, and Mr Kotsiopoulos had worked for Bunnings. They had some difficulties in operating the business.

Mr Sengos formed a friendship with Mr Kotsiopoulos that led him to assist the couple in managing various aspects of the business, and in due course an arrangement was formed whereby Mr Sengos would procure sales of the products sold by the business on the basis of a commission of 10% on net sales plus 40% of the profit made. A short written agreement was entered into between Mr Sengos, the fourth defendant, Mr Kotsiopoulos and his company, then called Amazing Water Australasia Pty Ltd, on 15 March 2012 to record this arrangement. It was to stay in force until 27 January 2014. The explanation for Mr Kotsiopoulos being the party to the agreement is apparently that Ms Kotsiopoulos acted as a silent partner. At a later point in time, in late August or early September 2012, according to Mr Sengos, the arrangement was simplified, and it was agreed orally that products would be sold to Mr Sengos or his company for on-sale at a price that would yield him about the same return as the earlier agreement.

The business had a website that advertised its products. Products were also sold to independent distributors who purchased stock from the business. A significant aspect of the business was that product was sold through intermediaries who operated websites which offered ‘daily deals’ to potential purchasers. According to Mr Kotsiopoulos, the ‘daily deals’ concept allows a product supplier to offer a product for sale on the website at a discount to the recommended retail price. The idea is to achieve bulk sales of product at a discount. The two principal websites involved appear to have been operated by businesses called Scoopon and Groupon. Mr Kotsiopoulos gave evidence that, during the course of 2012, he experienced difficulties in maintaining satisfactory arrangements with these group buying businesses. In August 2012 he approached Mr Sengos to give him assistance on the basis of Mr Sengos’ longer experience in managing this aspect of the business. On about 17 September 2012 Mr Sengos agreed to help Mr Kotsiopoulos, and he achieved some success with Groupon in October 2013. There could be a delay of several months between a proposal being made for a daily deal arrangement and the deal actually being featured on the website.

By July 2012, Mr and Ms Kotsiopoulos had decided that they would sell the business. Mr Kotsiopoulos had reached the conclusion that his experience did not provide him with the skills necessary to succeed in the Internet sales industry. He felt out of his depth.

In July 2012 Mr Phil Lyons of BCI Business Brokers was appointed to sell the business.

Mr and Ms Kotsiopoulos hoped to sell the business for the same price for which they had bought it, which was $300,000.

Mr Lyons asked Mr Kotsiopoulos for BAS and tax returns. He also asked for trading figures. Mr Kotsiopoulos said that, as they had only been trading for four months, they had not done an income tax return or any BAS.

Mr Facer and his wife were looking to buy an Internet style business for their future. They wanted to acquire a business that they could run from a storage warehouse and from home. They wanted a low-cost business and wanted most of the transactions to be done over the Internet through PayPal and other merchant facilities.

Mr Facer discovered that the business was available for purchase in September 2012. He telephoned Mr Lyons, and was told that he could not be provided with details of the business for sale until he had accepted a confidentiality agreement. He received a confidentiality agreement from Mr Lyons on 21 September 2012. On 21 September 2012 he accepted the terms of the confidentiality agreement by email.

Clause 2.1 of the confidentiality agreement, which was expressed to be for the benefit of both the agent and the vendor, provided:

Following Mr Facer’s agreement to the terms of the confidentiality agreement, Mr Lyons sent an information memorandum to Mr Facer on 21 September 2012. The information memorandum is a 21 page document, and contained considerable background information concerning the business, its products, and the market. The price sought was $350,000.

The information memorandum contained the following primary statements concerning the financial performance of the business and the justification for the price:

This information was in substance repeated in a bullet point in the executive summary (page 5) together with a statement that the sale price of $350,000 for the business represented a multiple of owner’s return of 1.76 times based upon 2012 profits. Page 6 added that the return was 1.90 times on the average of 2011 and 2012 profits.

Page 6 also contained a table which set out the owner’s return in dollars for the years 2009 to 2012.

The following statement is made on page 17 concerning “Financials – Detailed Profit and Loss”:

A detailed profit and loss table is set out on page 19 for the years 2009 to 2012.

Page 20 is a profit and loss statement for the business for the period 1 February 2012 to 30 June 2012. Total sales are given as $166,375.65. Total cost of sales is $48,792.59, giving a gross profit of $117,583.06. Expenses are listed individually with a total of $42,054.14. The net profit is $75,528.92.

Although most of the financial information provided in the information memorandum relates to the period before 1 February 2012, there is the profit and loss statement for the period in which the business was operated by Mr and Ms Kotsiopoulos referred to immediately above. Additionally, the statements made on page 17, particularly those that have been emphasised, claim that there had been a seamless transition in ownership, that the current sales and margins were the more accurate reflection of expected profit margins, and that the stated sales of $166,376 in the five month period could be extrapolated to 12 months sales of $399,300, which would give an owner’s return of $233,635.

After he received the information memorandum Mr Facer entered into a series of email communications with Mr Lyons over the period up to 28 September 2012. Mr Facer included those email communications as exhibits to his affidavit, with virtually no elaboration concerning the meaning and effect of, or his understanding of, those emails.

Mr Facer then said that on about 25 September 2012 he had a telephone conversation with Mr Lyons in which he said that he was not prepared to pay $350,000 for the business, but he might be prepared to pay $220,000 including stock. Mr Facer said that he said to Mr Lyons: “The banking records are not conclusive”.

It is significant that Mr Facer has not given any consideration to the detail of the email communications that he had with Mr Lyons in his affidavit. It is also significant that Mr Facer omitted to deal with important aspects of the circumstances that led Mr Facer to offer to purchase the business for $220,000 including stock.

The evidence of the email communications that was exhibited to Mr Facer’s 20 December 2012 affidavit as Exhibits JF-4 and JF-5 amount to 137 pages. The pages are to some extent jumbled and difficult to follow. The court does not have the benefit of any submissions from the parties as to the significance of this evidence. That may be understandable so far as the defendants are concerned, because Mr Facer has put the evidence forward without any elaboration, and the defendants have made it clear that they have conducted their defences tactically in response to the way that Jewelsnloo has put its case, and given the relatively small amounts of money at issue in this case, it is reasonable that the defendants have conducted their defences conservatively. It is much less understandable why Jewelsnloo has not addressed the significance of this evidence.

In the circumstances it will only be safe for the court to have regard to the aspects of this evidence whose significance is relatively clear. Given the way that the evidence is ordered, it is a difficult matter to ensure that the following commentary is undertaken in chronological order. It appears that Mr Facer had discussions with Mr Lyons in the period before he made an offer to purchase the business. Mr Facer has generally not given evidence of the discussions. The significance of the documentary exchanges must be assessed having regard to the absence of that evidence. It will be convenient to refer to the source of relevant findings by giving the page number in the exhibits to Mr Facer’s affidavit. I have read all of the evidence and done my best to give it due weight, but will not attempt to set out all relevant parts of the evidence.

Mr Facer asked Mr Lyons to answer a number of questions set out in an email dated 21 September 2012. Mr Lyons did so by interlining his responses in that email (page 32).

On 21 September 2012 Mr Facer asked Mr Lyons concerning the $350,000 asking price what the “bottom price” was (page 32). Mr Lyons replied: “There’s probably only room for a small amount of negotiation in the price”.

Also on 21 September 2012, Mr Facer asked Mr Lyons for more “granular” figures (page 31). If “GL” stands for general ledger, Mr Facer asked for an historical general ledger for the 2011 and 2012 years, and appears to have requested MYOB records. Mr Lyons replied on the same day saying: “Stan does not run MYOB – he does not run the business in a sophisticated manner”.

Mr Lyons’ reply email (page 31) also stated that he had attached the monthly sales figures plus some FAQ. The monthly sales figures (page 40) are a breakdown of the $166,375.65 income into separate amounts for each month for the five month period into floor, bench and filters showing the total number sold plus the total receipts for each type of product.

The FAQ takes the form of a series of questions in black print and responses in red print. They contain a relatively detailed description of the way the business operated. For example, the FAQ explained (page 37) that Harvey Norman was the largest customer who bought by the container load, but was not expected to purchase again until 2013. There was a discussion of the way in which the business made sales through organisations such as Groupon and Scoopon (page 37).

It will be convenient to note at this stage (although it relates only to the issue of the restraint of trade against Mr Sengos), that the FAQ included the following:

While this answer informed Mr Facer that a non-competition agreement existed that bound Mr Sengos (or the relevant company), it made it clear that only Mr and Mrs Kotsiopoulos had the benefit of that agreement.

On 25 September 2012 Mr Facer by email asked Mr Lyons for monthly sales figures going back further than the five months (page 47). He said that another 19 months would be ideal if possible. Mr Lyons replied on the same day, saying: “I have attached some additional information for your reference. I don’t have any monthly figures for prior periods”. It is difficult to tell with confidence from the way that the email chains are organised in the evidence what the additional information was.

Doing the best I can from the structure of the exhibit, it appears that the additional information included financial reports by the companies who operated the business while it was controlled by Mr Sengos for the years ended 30 June 2010 to 30 June 2012. In some cases taxation returns were also included. At least one of the financial reports was signed by Mr Sengos. The parts of the financial reports at pages 65, 89 and 98 contain profit and loss reports for the years 2009 to 2012. The figures for revenue, gross profit and net profit match the figures for the profit and loss account for Amazing Water in the table on page 19 of the information memorandum.

The financial reports are in the conventional form; appear to have been properly prepared; and each appears to have been prepared by a named professional accountant.

The information (at page 97) included another copy of the profit and loss statement for Amazing Water for the period 1 February 2012 to 30 June 2012 that is included at page 20 of the information memorandum.

On 27 September 2012 Mr Facer sent a further email to Mr Lyons (page 115 and 116) in which he said, among other things: “I would like to have sight of the last 12 months bank statements regardless of how inaccurate they are”. This email is hard to interpret because it has responses interpolated after the text of Mr Facer’s email. The responses are in two separate colours. I do not know the meaning of colours. The response was apparently: “See attached – Stan’s and Paul’s from prior period. (This response is in blue). This response was followed by: “attached is a downloaded statement, I haven’t got it yet…” (This response is in red). The response was apparently included in an email from Mr Lyons to Mr Facer (page 115), which had an attachment part of the title of which was “3 months bank statements Amazing Water”.

It appears that the attachment included copies of bank statements for times when the business was operated by Mr Sengos and other times when it was operated by Mr and Mrs Kotsiopoulos. The bank statements for the latter period appear mainly at pages 144 to 165. There were two Westpac bank accounts, which had numbers 032-076 37-2050 and 732-076 63-0598. According to my calculations, the total banked to the credit of the first account between early February and the end of June 2012 was $17,107.89. The total credited to the second account over the period 25 January 2012 to 26 July 2012 was $37,044.82. The total is $54,152.71.

The bank statements for the second account have had withdrawals and deposits redacted. In the absence of any contrary explanation it would be reasonable to infer that, before copies of these bank accounts were provided to Mr Facer, someone had redacted the transactions referred to in the bank statements that were not related to the business of Amazing Water.

It is instructive to note at this point that, as I have observed above, in its final written submissions Jewelsnloo asserted that the representation that the turnover was $166,375 for the five month period was incorrect because the true figure was $58,000. That latter figure is very close to the sum of $54,152.71 disclosed by the bank statements for the two accounts of Mr and Ms Kotsiopoulos.

Mr Facer also asked in his 27 September 2012 email to Mr Lyons (page 115) for a breakdown of the 2012 sales number in product lines and quantity of each product line sold. The title to the attachment to Mr Lyons’ response includes the words “Monthly Sales Figures.xls”. It appears that one of the documents in the attachment (page 166) is another copy of the monthly sales figures that were provided by Mr Lyons to Mr Facer on 21 September 2012.

Mr Facer’s email to Mr Lyons on 28 September 2012 (page 112) includes the statement: “Please let Stan know – I am buying the business. I am just doing as much as I can before buying it. I am not trying to do anything but that”.

Mr Lyons gave evidence that he reviewed the bank statements provided to him by Mr Kotsiopoulos (at pages 117 and 144 to 165 of the exhibits to Mr Facer’s first affidavit) and also the consolidated monthly sales figures for the business (at page 166 of that affidavit). He noted that the deposits appeared to be less than the stated monthly income in the Excel document. Mr Lyons then gave the following evidence of conversations that he had on or around 25 and 26 September 2012:

If these conversations took place, they would establish that Mr Lyons told Mr Facer specifically that the vendors could not provide any other documents verifying the income for the period in which they had operated the business. That was such a serious situation to Mr Lyons and the vendors that they proposed to withdraw the business from sale. Had Mr Facer permitted Mr and Ms Kotsiopoulos to withdraw the business from sale, they would have avoided the risk of becoming involved in the present litigation. Mr Facer himself offered in response to go ahead but at a lesser price if the figures could not be verified. Mr Facer, therefore, in substance offered to take the risk of the turnover figures being unverifiable in order to achieve a discount on the asking price. Mr Lyons expressly stated that he did not want Mr Facer to rely upon the figures, and required as a condition of proceeding that Mr Facer sign a waiver confirming that he was not relying upon the figures. Mr Facer agreed. Mr Facer then offered a price that was a 43% discount on the asking price. Mr Kotsiopoulos then agreed to accept the offer on the basis that he could not establish that the turnover figures for the business were correct.

Mr Lyons then, on 26 September 2012, sent a letter to Mr Facer, which said:

The letter included a provision for signing by Mr Facer. Mr Facer signed the letter on 26 September 2012, and added a proviso that the agreement was subject to contract.

In his affidavit in reply to the evidence given by Mr Lyons on this issue Mr Facer swore:

I have taken into account the fact that Mr Kotsiopoulos in his affidavit does not deal with these conversations, and does not corroborate Mr Lyons’ evidence.

I prefer the evidence given by Mr Lyons to that given by Mr Facer on this issue. Mr Lyons was an independent witness, who gave his evidence when cross-examined in a forthright and persuasive manner. On the other hand, I did not always find Mr Facer’s responses in cross-examination to be persuasive. I accept the submission made on behalf of Mr and Ms Kotsiopoulos that Mr Facer often appeared to be apprehensive in giving his evidence, and was sometimes unwilling to make reasonable concessions regarding seemingly uncontentious issues. For example, in respect of the reduction in the sale price of the business, the following exchange took place in cross-examination (T p 130):

Mr Facer was unable to make the obvious concession that he offered to pay a price for the business that involved a discount on the asking price.

Mr Facer’s evidence appears to be intended to achieve a number of results. One was to establish his understanding that Mr and Ms Kotsiopoulos were unable to provide any further documentation to verify the turnover figures, not that the figures were incorrect, inaccurate or misleading. This aspect of Mr Facer’s evidence may be accepted. All that Mr Lyons claimed to have informed Mr Facer was that the figures could not be verified and that was a problem that was sufficiently serious to justify taking the business off the market. Mr Lyons did not say that he positively advised Mr Facer that the figures were wrong. It does, however, follow from what he claims he said that he professionally thought the absence of verification was sufficiently serious that he would not have Mr Facer rely upon the figures. Mr Facer said that he was never informed that the figures “could not be relied on or that they were inaccurate”. It is true that he was not told they were inaccurate. It follows from the evidence given by Mr Lyons that he was informed that the figures were not reliable.

Secondly, Mr Facer makes the claim that Mr Lyons positively informed him that the turnover figures were correct, and the explanation for the deficiency in the documentary proof was that Mr and Ms Kotsiopoulos had not banked all of the receipts from the business. Further, Mr Facer insinuates that Mr Lyons really only required that the waiver be signed as a pretence to enable the sale to go ahead.

I do not accept the claim by Mr Facer that Mr Lyons so far departed from his professional obligations as to make a positive suggestion that the sales figures were correct notwithstanding the clear inadequacy of the documentary evidence in support.

I have taken into account the fact that the detailed monthly breakup of sales figures for the various products sold by the business appeared to verify the $166,375.69 turnover for the five months period exists, and was provided to Mr Facer (page 40 of the exhibit to Mr Facer’s first affidavit). It is difficult to conceive of how that document was prepared except from records that contained the information necessary to enable further calculations of the various subtotals to be made, unless it was a complete fabrication. The same may be said for the profit and loss statement for the business for the five month period that may be found at page 20 of the information memorandum.

It is arguable that, if those documents were prepared from financial records, it is probable that in some unexplained way the bank statements did not record all of the receipts of the business. If that were true then the probability that Mr Lyons informed Mr Facer that not all of the receipts had been banked might logically be increased. However, as I observe below, the business was not a cash business, and it is unclear how Mr and Ms Kotsiopoulos could have received the revenue generated by the business without banking or other records being created. Jewelsnloo’s case is inconsistent with their being more revenue than about $58,000, and Mr and Ms Kotsiopoulos did not contest that issue. Neither Mr Lyons nor Mr Kotsiopoulos was cross-examined concerning the provenance of the profit and loss account or the statement of monthly sales data. In the circumstances, the existence of the two documents is not a proper foundation for drawing any inference about the probability that Mr Lyons made a positive assertion to Mr Facer that the turnover representation was true, because not all of the receipts had been banked. Furthermore, it should be noted that Jewelsnloo did not plead that such a representation was made.

Mr Facer denied the conversation given by Mr Lyons in par 13 of his affidavit. That conversation involved no more than Mr Facer offering to pay $200,000 for the business, and Mr Lyons saying that he would seek instructions. It is inherently likely that that conversation took place. If it did not, there was no basis for Mr Lyons writing his 26 September 2012 letter to Mr Facer. Mr Facer did not offer any alternative evidence as to how Mr Lyons could have known what Mr Facer’s offer was.

In my view the terms of the 26 September 2012 letter are substantially more consistent with Mr Lyons’ version of the conversation than they are with Mr Facer’s version. The letter states that a discount in the sale price had been negotiated to reflect the situation that the vendor could not offer verification of the sales data. Mr Facer specifically confirmed that understanding. He said nothing in his hand written proviso about any qualification to that confirmation.

Given that Mr and Ms Kotsiopoulos had paid $300,000 when they purchased the business, and that is the price they wanted to receive on its sale, it is unlikely that they would have discounted that price by one third if their position was that the turnover figures were correct notwithstanding the deficiency in the documentary proof. It is more likely that they would have offered to warrant the validity of the turnover representation. Instead, they very readily agreed to substantially discount their asking price. That suggests that Mr Lyons had taken the stance that the business should not be sold for a price that assumed the truth of the turnover representation.

Mr and Ms Kotsiopoulos entered into a contract to sell the business to Jewelsnloo on 18 October 2012. The price was $200,000 plus trading stock, to a maximum of $20,000. The contract included the following terms:

Completion of the contract of sale took place on 26 October 2012.

I find that Mr and Ms Kotsiopoulos represented to Jewelsnloo before it entered into the contract of sale that the turnover of the business for the period 1 February 2012 to 30 June 2012 was $166,375.65.

Mr and Ms Kotsiopoulos accepted in their final written submissions that they made this representation (par 27).

The representation was made at page 17 of the information memorandum and in the profit and loss statement at page 20. It was repeated in the record of monthly sales figures for the business that Jewelsnloo was provided on two occasions.

I find that the turnover representation was on the balance of probabilities and the manner in which this issue was addressed by the parties false, and accordingly it was misleading and deceptive.

The evidence on this issue was not decisive, but as I understand the final written submissions of Mr and Ms Kotsiopoulos, it was not contested. The thrust of their defence on the turnover representation issue was that Jewelsnloo did not place any reliance on the turnover figures in the information memorandum (par 35).

Mr Facer gave evidence that he was initially told by Mr Lyons that Mr and Ms Kotsiopoulos did not maintain comprehensive financial records of the business by using a program such as MYOB. That appears to be the effect of Mr Lyons’ 21 September 2012 email to Mr Facer. Mr Facer said that shortly before settlement of the contract of sale he found out that Mr and Ms Kotsiopoulos did maintain MYOB records. Mr Kotsiopoulos told him that the records were not complete or accurate, and not all of the invoices issued by the business were in that MYOB file. Mr Facer send an email to Mr Kotsiopoulos on 25 October 2012 in which he asked to see evidence “of those 500 odd invoices you told me you had (and not just the totals) – please. You said you had them all in Excel”. Mr Lyons responded to this request by email dated 25 October 2012 in which he said on this subject: “Stan advises these are in the MYOB file which he will email after settlement, MYOB is up-to-date as at end of September”. Shortly after Mr Facer received this email he had a telephone conversation with Mr Lyons in which Mr Lyons told him that he would get all of the information he wanted after settlement, and that Mr Kotsiopoulos was not prepared to give it to him until after he had settled.

Mr Facer said that a few days after settlement he was given a flash drive by Mr Kotsiopoulos, who said that all of the information that Mr Facer had sought was on the flash drive.

Mr Facer had some difficulties in gaining access to the information on the flash drive, which he explained in his affidavit of 26 August 2013. I ultimately received into evidence printouts of information contained in the flash drive entitled “Sale Register Detail (all sales)” and the tax invoices for the business of Amazing Water for the period 1 February 2012 to 30 June 2012. I also received into evidence information of the same description for the period 1 July 2012 to 25 October 2012. This information was contained in Exhibits JF5 and JF6 to Mr Facer’s 26 August 2013 affidavit. I dealt with the manner in which these exhibits were received into evidence in pars 32 to 34 of my judgment given on 20 February 2015.

Exhibit JF5, which covered substantially the same period as the turnover representation, showed that sales of the business for the period from 4 February 2012 to 30 June 2012 were $58,730.03.

Jewelsnloo relied upon this evidence on the basis that the circumstances in which the flash drive was given to Mr Facer, and the statements made to him at the time as to the nature of its contents, as well as the apparent meaning of the titles to the files that were printed out and became Exhibit JF5 and Exhibit JF6, justified the court in relying upon the information as being evidence of all of the turnover of the business for the period the subject of the turnover representation. In my view that reliance was justified. It may be that the contents of the flash drive and the meaning and significance of the information printed out from it have not been fully and completely explained by the evidence. There is evidence of Mr Kotsiopoulos claiming that the information in the files on the flash drive was not complete. However, if that were true Mr Kotsiopoulos is the only person in a position to give evidence to substantiate that claim. He did not attempt to do so. In the circumstances the appropriate course is for the court to accept on the balance of probabilities that the turnover for the relevant period was an amount of or close to $58,730.03.

Accordingly, the turnover representation was false. It was misleading and deceptive notwithstanding all of the information given to Mr Facer concerning the unreliability of the turnover figures and the fact that the bank statements for the period only showed that $54,152.71 had been banked into the business’ bank accounts. Mr and Ms Kotsiopoulos did not withdraw the turnover representation. It was repeated by their agent, Mr Lyons, in the attachment to his 25 September 2012 email, which included the profit and loss statement for the period 1 February 2012 to 30 June 2012. The provision by a representor to the representee of information that casts doubt on or is inconsistent with an explicit representation, which is not formally withdrawn or qualified, will not ordinarily have the effect that the representation is not misleading or deceptive, when it is ultimately proved to be false. The maintenance of the representation in the face of the inconsistent information will create the risk that the representee will believe it and act upon it, which is the source of the representation being misleading or deceptive.

The combined effect of the following factors justifies the conclusion that Jewelsnloo did not rely upon the truth of the turnover representation in deciding to enter into the contract for the sale of the business.

To put the effect of the turnover representation into proper context, it must be remembered that the information memorandum informed Jewelsnloo that the Amazing Water business had been commenced in 2008, and that the information memorandum contained comprehensive profit and loss accounts for the business for the years 2009 to 2012 while the business was operated by Mr Sengos. The figures in the profit and loss accounts were corroborated by the financial reports and tax returns provided to Mr Facer by Mr Lyons. Jewelsnloo did not challenge the accuracy of the information memorandum in relation to those years. Mr Facer in his evidence said nothing about that period. In those circumstances the court should infer that Jewelsnloo decided to acquire the business on the basis that the financial information available for the period from its inception to about February 2012 supported the claims made about the business in respect of that period in the information memorandum.

I infer that Jewelsnloo regarded the business as being viable and worthwhile over the period to February 2012 in which the business was managed by Mr Sengos, and the significance of the turnover representation was its relevance to the effectiveness of the operation of the business after it was sold to Mr and Mrs Kotsiopoulos. The turnover representation was not crucial to the inherent viability of the business, as that had been established by the trading results for the first four years of its existence. The turnover representation was nonetheless important, as a purchaser in Jewelsnloo’s position would wish to be confident that the initial viability of the business was continuing. However, variations from the historical trends in turnover would more likely go to Mr and Ms Kotsiopoulos’ effectiveness as managers of the business, rather than its inherent viability, and any reductions in turnover experienced by Mr and Ms Kotsiopoulos in their short tenure could probably be turned around by competent management. That would be so provided everything else said in the information memorandum remained valid concerning the operation of the business.

Mr Facer was not permitted to enter into negotiations for the purchase of the business unless he first formally acknowledged, as he did on 21 September 2012, the matters set out in clause 2.1 of the confidentiality agreement. That provision, the terms of which have been set out at par 80 above, required Mr Facer to check representations made to him independently for accuracy and truth.

At the end of the process of negotiations Jewelsnloo signed a contract of sale in which it warranted that it had made its own enquiries regarding any financial return or income which may be derived from the business (clause 5.2.2), and that it did not rely on any representation whether oral or in writing made by the vendor in respect of the subject matter of the agreement other than those expressly contained in it (clause 5.2.5).

It may be that the existence of acknowledgements and warranties such as those contained in the confidentiality agreement and the contract of sale are not always absolutely effective to prevent a purchaser relying upon a false representation that has induced it to enter into the contract of sale: see for example Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592.

However, in my view it would be wrong for the court lightly to ignore the effect of such provisions in arm’s length commercial transactions in which the parties are professionally represented. Terms of this nature should not be treated as mere verbiage. If a potential purchaser does not want its rights to be governed by such terms, it may insist upon a variation to the agreement, or decline to proceed with it. Terms of this nature are important to the way that the parties have agreed to divide between them the risk of error being made by one party or the other. Vendors are likely implicitly to conduct the negotiations on the basis that the purchaser has accepted the obligation to make its own enquiries, and to judge the risks of the transaction on the basis that the provisions govern the distribution of risk between the parties; and the vendor is likely to provide information to the purchaser without taking the care to protect the vendor’s own interests that would be necessary if the vendor could not rely upon the provisions. As the present case to some extent demonstrates, not all matters relevant to the operation of the business are black and white and capable of absolute demonstration. It is a perfectly sensible commercial arrangement that the agreements apportion the obligation to make enquiries about the operation of the business and the risk of error as between the parties.

In the present case Jewelsnloo has ignored the significance of these provisions. Mr Facer did not give any evidence concerning the attention that he paid to these provisions, notwithstanding that they were specifically raised by the defences of Mr and Ms Kotsiopoulos. Jewelsnloo did not put forward any circumstances that would justify the court in not giving effect to the provisions in this case. In particular, Jewelsnloo has not provided a foundation for a finding that it was misled or deceived by the turnover representation notwithstanding the acknowledgement given by Mr Facer in the confidentiality agreement, and the warranty that it gave in the contract of sale. It would therefore be unfair for the court not to give effect to these provisions, as there is too great a risk that Mr and Ms Kotsiopoulos, through Mr Lyons, were themselves induced to leave the turnover representation as it stood, and not go to greater lengths to substantiate it or withdraw it, because they relied upon the positions adopted by Mr Facer and Jewelsnloo in the confidentiality agreement and the contract of sale.

Further, Mr Facer did pursue his own enquiries as required of him by the confidentiality agreement, and that led him to the position where he was told that Mr and Ms Kotsiopoulos did not have financial records that justified the turnover representation, and moreover when he was provided with all of the bank statements available to the vendors, they only established that over the five month period the subject of the turnover representation $54,152.71 had been banked from the turnover of the business. All Mr Facer said on this subject, in his 10 March 2014 affidavit, was that Mr Lyons had informed him that not all of the cash received by the business had been banked; that he was never informed that the trading figures could not be relied upon or that they were inaccurate; and that he signed the 26 September 2012 letter sent to him by Mr Lyons on the understanding that the vendors were unable to provide any further documentation to verify the income figures. I have not accepted Mr Facer’s evidence that Mr Lyons told him that much of the income of the business had not been banked. However, whether or not Mr Lyons made that statement, Mr Facer’s evidence goes no further than to baldly assert that he was not told that the turnover representation was wrong, and he believed it, and the only problem was that the vendors could not substantiate it.

Mr Facer ignored in his evidence the fact that he had been given evidence that established that apparently only $54,152.71 had been banked. That is such a large disparity from the amount of $166,376 (in fact, a disparity of $112,223) that the court could not rationally accept that Mr Facer continued to believe that the turnover representation was true without some explanation from Mr Facer that justified that acceptance. The disparity is so great that rational behaviour would cause a purchaser in the position of Mr Facer who learned of it, and who thought that the truth of the turnover representation was crucial to proceeding with the transaction, to take relatively extensive steps to require that the representation be verified. Even if such a purchaser understood that the vendors had not banked some two thirds of the cash received, the purchaser would have insisted upon other information being provided to establish the turnover. This was an Internet business. Its operation would have generated Internet records and invoices. It was not a cash business. The proposition that two thirds of the receipts of the business were not banked is inherently improbable, as the vendors would almost invariably be paid electronically, or by cheque. Alternatively, if that could not be done, the purchaser would insist upon an appropriately worded warranty as to the truth of the turnover representation. Mr Facer did none of these things.

It is true that, after Jewelsnloo entered into the contract of sale, Mr Facer continued to pursue the vendors to provide him with all financial records concerning the operation of the business, and shortly before settlement he became aware that MYOB records existed. However, in my view the fact that he was content to receive those records after settlement, even though he became aware of them before, tends to support the conclusion that Mr Facer did not regard proof that the turnover representation was correct as being crucial to Jewelsnloo’s completion of the contract.

Instead, immediately after Mr Facer had learned that the vendors could not substantiate the turnover representation, and that they had only banked $54,152.71 into their bank accounts, Mr Facer offered, as I have found, to purchase the business anyway. The particular findings as to the conversations between Mr Facer and Mr Lyons are not decisive. The fact is that Mr Facer immediately offered to buy the business for a price of $200,000, plus the cost of stock. I find that Mr Facer on behalf of Jewelsnloo struck the bargain that he did with Mr and Ms Kotsiopoulos on the basis that he did not accept that the turnover representation was true, and he understood that Jewelsnloo would be taking the risk as to the truth of the representation in so far as it had a bearing on the turnover that Jewelsnloo itself could generate through operating the business.

Mr Facer expressly acknowledged that circumstance by his signing Mr Lyons’ 26 September 2012 letter, and thereby acknowledged that a discounted purchase price had been negotiated in recognition of the fact that the vendors could not verify the sales data that had been provided. The only sensible commercial meaning to give to this acknowledgement is that Jewelsnloo had accepted the benefit of a substantially discounted price on the basis that it was to take the risk as to the truth of the turnover representation (remembering that Jewelsnloo would primarily have been concerned with whether it could achieve the level of turnover generated by the business when it was managed by Mr Sengos, rather than simply whether Mr and Mrs Kotsiopoulos had enjoyed the receipts the subject of the turnover representation).

I have set out above at par 117 part of the transcript of Mr Facer’s cross-examination concerning whether the price that he offered involved a discount. Mr Facer’s responses were entirely unpersuasive. His evidence has assisted me to find that Mr Facer knowingly accepted a substantial discount in the sale price in order to compensate Jewelsnloo for the risks inherent in the inability of the vendors to substantiate the turnover representation.

The circumstances in which Jewelsnloo first complained about the falsity of the turnover representation also provide some additional support for the conclusion I have reached above on the issue of whether Jewelsnloo relied upon the truth of the turnover representation in entering into the contract of sale. I have reached that conclusion independently of this consideration, which may not by itself have justified that conclusion.

Jewelsnloo first alleged that it had relied upon the turnover representation in entering into the contract of sale, and that that representation was false, when it filed its amended statement of claim on 24 July 2013, some nine months after settlement. As I understand it, the evidence does not show that Jewelsnloo complained of the falsity of the turnover representation before that date.

The evidence proffered by Jewelsnloo concerning the turnover of the business after settlement of the contract of sale is found in Exhibit C. The shortcomings in that evidence have been considered in pars 37 to 48 of my reasons published on 20 February 2015. It is not necessary to record those deficiencies. It is sufficient for present purposes to record that Jewelsnloo asserts that Exhibit C is an accurate record of its turnover. If that evidence is taken at face value, it shows that total sales of the business for the period between settlement and 30 June 2013 were $37,064.88, and the monthly receipts were $588.95, $3372.11, $2,745.42, $3,825.05, $2,793.54, $8,355.46, $6,751.36, $5,643.39 and $2,989.60.

This is such a variance from the turnover representation and the monthly receipts in the monthly sales figures, that it would be reasonable to expect that Jewelsnloo would have reacted dramatically within no more than three or four months if it had believed that it was entitled to expect that its own turnover would approximate that represented in the turnover representation. There was no explanation offered as to why it took so long for Jewelsnloo to complain about the falsity of the turnover representation. That justifies considerable scepticism that Mr Facer, as the principal of Jewelsnloo, believed when it entered into the contract of sale that the turnover representation was correct, or that Jewelsnloo was entitled to insist on its correctness.

My finding that Jewelsnloo did not enter into the contract of sale on the basis that it believed that the turnover representation was true requires the court to dismiss Jewelsnloo’s claim based upon that representation.

This issue does not strictly arise given that I have determined that Jewelsnloo’s claim based upon the making of the turnover representation should be dismissed. However, as the parties have fully contested the issue it will be appropriate for me to deal with it.

The question is not whether Jewelsnloo would have been entitled to an order that Mr and Mrs Kotsiopoulos pay it damages, and if so what the quantum of those damages should be. Jewelsnloo’s claim is, and only is, that it is entitled as damages in an amount equal to the purchase price of $210,000. It is that or nothing.

Jewelsnloo did not tender evidence of the value of the business and the stock at the date of the completion of the contract of sale. It therefore could not demonstrate on the evidence that the business and stock was worth less than the amount paid. Jewelsnloo acknowledged that the conventional manner at general law of proving the quantum of damage where a purchaser has purchased an asset in reliance upon a false representation made by the vendor, and the purchaser would not have entered into the transaction if it had known that the representation was false, is to demonstrate the difference between that value and the price. On this basis Jewelsnloo abandoned reliance on its claim for damages at general law.

I should note that Jewelsnloo did not give evidence that it would not have entered into the contract of sale at all if it had known that the turnover representation was not true.

Jewelsnloo’s case was that it was nonetheless entitled to damages equal to the purchase price if it established a cause of action under the statutes upon which it relied, because the authorities have established that the process for quantifying the damages that should be paid for contravention of the statutory provisions is not circumscribed by the rules that apply to the determination of the quantum of damages in general law claims.

It will be sufficient for present purposes to set out the recent observations by Emmett JA on this subject (with whom Bathurst CJ and McColl JA agreed on this issue) in Williams v Pisano [2015] NSWCA 177 at [98] to [101] (footnotes omitted):

However, the observations made by Emmett JA immediately following those that I have set out above are with respect salutary, and demonstrate that the principles governing the quantification of damages for contravention of the statutory obligations do not absolve the plaintiff from the need to demonstrate in a rational way by reference to the evidence, and in particular the conduct of the parties and the consequences to the plaintiff of being misled and deceived by the defendant’s conduct, what the loss suffered by the plaintiff has been. Emmett JA said at [102] to [106] (footnotes omitted):

It may be that cases will arise in which a purchaser of a business could establish that it has suffered damage equal to the purchase price by purchasing the business in reliance upon some misleading and deceptive conduct of the vendor. As this is not such a case, it is not an appropriate occasion for the court to explore in any detail the principles that might justify such a result. However, as a simple example, a case may be imagined where the business purchased does not have any assets capable of being realised for value. The evidence may establish that as a result of the effect of the misleading and deceptive conduct, the purchaser did not have a realistic prospect of selling the business for value. The evidence may show that while the business was operated by the purchaser, it traded for a net loss. The evidence may also demonstrate that notwithstanding reasonable efforts on the part of the purchaser, including perhaps the refusal of the vendor to take back the business, the business has wholly failed and ceased to exist. I do not suggest that all of these features would always be necessary to justify an award of damages equal to the purchase price. I have merely proposed an example which tends to show how the purchaser could put a rational case to the court that, even in the absence of evidence that the business had no value at the date of its purchase, the purchaser had in fact suffered loss as a result of the misleading and deceptive conduct equal to the amount of the purchase price. In short, there may be cases where the purchaser can establish that it has in fact lost the whole of the purchase price in circumstances that justify an award of damages equal to that amount.

In my view the present is clearly not such a case. That is primarily because the evidence that supports the trading figures for the business for the period that it was managed by Mr Sengos would in principle establish that the business was likely to have some inherent value, at least in the absence of persuasive expert valuation evidence to the contrary. The court could not reasonably accept without proper evidence that any shortfall in the turnover generated by the business in the five months relevant to the turnover representation had the consequence that the business had no value at the time that it was acquired.

Jewelsnloo did not tender in its case evidence of the business’ trading performance, including income, cost of goods, expenses and profit from the date of settlement up until shortly before the commencement of the hearing. (I rejected an application by Jewelsnloo to reopen its case to tender evidence of this nature for a closed period that did not extend to the commencement of the hearing). There was proof that Jewelsnloo was continuing to conduct the business, so that it had not failed entirely.

Furthermore, the evidence established that on 15 January 2013 shows that Jewelsnloo used the funds of the business to register a new business name, being “Aussie Water Coolers”. Jewelsnloo traded under that name as well as the name “Amazing Water” until May 2013, when a new company, Aussie Water Coolers Pty Ltd was incorporated, to carry on business selling comparable products to Jewelsnloo under the Aussie Water Coolers name. I have dealt with this matter in pars 54 to 60 of my judgment published on 20 February 2015. It is sufficient to record that Mr Facer, his wife and another couple became shareholders in Aussie Water Coolers Pty Ltd. I would infer that Mr Facer has divided his management attention between the two businesses. Aussie Water Coolers Pty Ltd has done business in the same market as Jewelsnloo, and sold similar products. That company operates the same business model as does Jewelsnloo by relying among other things upon the Internet for sales. Indeed, Aussie Water Coolers Pty Ltd sells products that look the same as the products offered by Jewelsnloo but at a lower price. The competing products may be inferior to Jewelsnloo’s products, but the difference is not readily apparent unless potential purchasers look relatively deeply into the information made available on the Internet by the two companies. The relevant point is that the purchase of the Amazing Water business from Mr and Mrs Kotsiopoulos may have provided a springboard to the establishment of the business of Aussie Water Coolers Pty Ltd.

As I stated in my 20 February 2015 judgment, the whole issue of the existence and operation of the Aussie Water Coolers business only seeped into the proceedings during the course of the hearing. Importantly, Jewelsnloo tendered no evidence whatsoever about the trading performance of that business.

Additionally, there is a real possibility that the Amazing Water business operated by Jewelsnloo has fared less well than it would otherwise have done, because Mr Facer decided not to offer Mr Sengos the same co-operative arrangements as he had enjoyed when the business was operated by Mr and Mrs Kotsiopoulos. It is a fair inference that Mr Sengos’ expertise was a significant contributor to the ongoing success of the business, such as it was, while under the ownership of Mr and Mrs Kotsiopoulos.

All of these considerations have the result that in the present case the court could not be satisfied that Jewelsnloo suffered damage equal to the whole of the purchase price for the business. There was no other basis put forward by Jewelsnloo that would have enabled the court to make any rational alternative assessment of the damage suffered by Jewelsnloo. This was not a matter of unavoidable uncertainty of calculation of the appropriate amount arising from the underlying circumstances. It was the result of a calculated forensic decision by Jewelsnloo not to propound an alternative claim for damages upon any more conventional basis.

Accordingly, if I had found that Jewelsnloo was entitled to an award of damages under the statutes upon which it relies, I would not have found that Jewelsnloo had established the entitlement to the damages that it claimed, and had failed to show that it had suffered any loss at all.

This issue also does not strictly arise, but it is appropriate that I should record briefly my reasons for refusing Jewelsnloo’s claim for an order avoiding the sale, if Jewelsnloo had established that it was entitled in principle to some relief under the statutes. It will not be necessary for me to canvass all issues that may have been relevant to this question.

In relation to Jewelsnloo’s claim for an order under s 243(a) of the Australian Consumer Law declaring the contract for sale of business void ab initio, Jewelsnloo relied substantially on the following statement of principle by Allsop ACJ (as his Honour then was) in Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200 at [43] to [46]:

However, Jewelsnloo appears to have wholly ignored the following sentence at the end of par [46], notwithstanding that it is set out in its written submissions, where his Honour said: “Any such grant of relief would be subject to counter restitution being able to be made by them”.

In the present case, on the evidence, Jewelsnloo continued to operate the business long after it discovered that the turnover representation was not true. Indeed, it instituted the passing off claim against Mr Sengos and his companies on 20 December 2012, which was an act consistent with Jewelsnloo’s intention to continue to operate the business. As I have noted above, if the court places the reliance on Exhibit C that Jewelsnloo says it should do, then the falsity of the turnover representation became clear soon after settlement, and the passage of time served to reinforce that realisation.

Jewelsnloo did not purport to rescind the contract, and it did not offer to Mr and Mrs Kotsiopoulos to return the business to them when Jewelsnloo was capable of doing so in circumstances where the business returned would substantially have been the same as the business sold.

Jewelsnloo did not claim an order from the court avoiding the sale until it filed its further amended statement of claim on 10 December 2013.

In the meantime, Jewelsnloo had decided in its own interests to exclude Mr Sengos from the participation in the business that he had undertaken while it was owned by Mr and Mrs Kotsiopoulos, and it had obtained injunctions from the court against Mr Sengos and his companies that had the practical effect of them leaving the market.

In the manner that I have outlined above, Jewelsnloo and Mr Facer established the competing business of Aussie Water Coolers Pty Ltd using the business knowledge acquired as a result of the purchase of the Amazing Water business.

The absence of evidence concerning the financial affairs of both Jewelsnloo and Aussie Water Coolers Pty Ltd makes it impossible for Mr and Ms Kotsiopoulos or the court to make any judgments at all about the effect of the establishment of the Aussie Water Coolers business on the Amazing Water business acquired by Jewelsnloo from Mr and Ms Kotsiopoulos.

There has been no suggestion by Jewelsnloo that, if the court made an order avoiding the sale of the Amazing Water business, then Aussie Water Coolers Pty Ltd would transfer its Aussie Water Coolers business to Mr and Ms Kotsiopoulos. Accordingly, if the sale was avoided, Mr and Ms Kotsiopoulos would be left with the Amazing Water business, in whatever unknown condition it is in, while Aussie Water Coolers Pty Ltd would be free to continue its business in competition with Mr and Ms Kotsiopoulos.

The reality is that Jewelsnloo, somewhat as an afterthought, appears to have decided to claim an order avoiding the sale. It has wholly failed to attend to the evidentiary issues that would be essential before the court could justly determine to make an order avoiding the sale, or, importantly, to decide what consequential orders were required to ensure that a sufficient semblance of the status quo before the sale of the business could be achieved in order to justify an order avoiding the sale.

The circumstances of the present case are entirely dissimilar to those considered in authorities such as Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 (settlement January 1987 contract rescinded April 1987); Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324 (settlement 29 November 1996 notice of rescission in writing 27 March 1997); and Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2003] FCA 329 (purchased July 2000 contract rescinded December 2000).

Even if Jewelsnloo had established an entitlement in principle to relief against a contravention of the statutes by Mr and Mrs Kotsiopoulos, it would not have been appropriate in the circumstances of this case for the court to make an order avoiding the sale of the business.

There are two parts to this aspect of Jewelsnloo’s case. One concerns the issue of whether Mr Sengos made a representation to Mr Facer to the effect that Mr Sengos had no intention of getting back into the water cooler and filtration business. The other concerns whether Mr Kotsiopoulos represented to Mr Facer that he (or Jewelsnloo) would be entitled to the benefit of the restraint of trade agreement that Mr Sengos entered into in favour of Mr and Ms Kotsiopoulos at the time they bought the business from the fourth defendant, and whether Mr Sengos and Mr and Ms Kotsiopoulos engaged in misleading and deceptive conduct by the latter releasing Mr Sengos from his obligations under the restraint of trade agreement without informing Jewelsnloo.

Jewelsnloo’s claim against Mr Sengos that he made representations to Mr Facer concerning his intention not to go back into the water cooler and filtration business is pleaded in par 6 of the second further amended statement of claim (as set out in par 56 above).

The claim against Mr and Ms Kotsiopoulos concerning Mr Kotsiopoulos’ representations concerning Jewelsnloo’s entitlement to rely upon the restraint of trade is pleaded in par 8 (see par 39 above).

Jewelsnloo’s claim against all three defendants that they engaged in misleading and deceptive conduct by remaining silent about the release of Mr Sengos is pleaded in pars 12 to 13 of the second further amended statement of claim.

It will be appropriate to make a number of preliminary observations concerning these aspects of Jewelsnloo’s case.

The only alleged representations made before Jewelsnloo entered into the contract for sale on 18 October 2012 are the representations alleged against Mr Sengos in par 6. All of the other representations are alleged by Jewelsnloo to have been made after the date of the contract. (Jewelsnloo sought by its draft third further amended statement of claim to amend par 5 to assert that Mr and Ms Kotsiopoulos made a representation during the course of negotiations that Jewelsnloo would have the benefit of the deed of restraint, as well as maintaining the allegation in par 8 that the same representation was made on 24 October 2012. During the course of the hearing I rejected Jewelsnloo’s application for leave to file a third further amended statement of claim).

Jewelsnloo did not attempt, by its evidence or submissions, to establish how any of the alleged post-contract representations caused it to suffer any loss, given that the contract did not provide for those matters, and Jewelsnloo was obliged to complete the contract whatever representations were made to it after the date of the contract.

There was nothing in Mr Facer’s evidence to the effect that Mr Facer would not have caused Jewelsnloo to enter into the contract for sale if he had known the alleged representations made by Mr Sengos before the date of the contract were not true, or that Mr Sengos had changed his mind between the time when the representations were made and the time Jewelsnloo entered into the contract for sale.

As I understand the evidence and the submissions made by Jewelsnloo, it has not made any attempt to quantify any loss that it claims to have suffered as a result of any of these representations. Jewelsnloo made submissions on the issue of damages in a compendious way that appeared to cover the consequences of both the turnover representation and the representations concerning Mr Sengos’ intentions concerning continuing in the water cooler and filtration business, or the entitlement of Jewelsnloo to rely upon the restraint against Mr Sengos.

It appears that the fourth defendant sold a relatively small number of units after the sale of the business to Jewelsnloo, first before it became subject to an injunction preventing it from undertaking those sales, and then for a short period as authorised by the proviso to the injunction that was continued by the court on 30 January 2013. Jewelsnloo has not put before the court any evidence to establish that, if the fourth defendant had not made those sales, Jewelsnloo would have done so.

Mr Sengos and his companies have submitted in response to Jewelsnloo’s passing off case that Jewelsnloo has not established that it suffered any loss in respect of that claim, but, if it did, the maximum amount would be the profit of $9,824 earned by the fourth defendant on sales of some $19,506. While Jewelsnloo did not address the issue in submissions, it is unclear how any damage that Jewelsnloo may have suffered as a result of this aspect of the misleading and deceptive conduct alleged against the three defendants could have exceeded the amount of $9,824.

Jewelsnloo’s claim for damages for this aspect of its case therefore is trivial.

In relation to the aspects of Jewelsnloo’s case that depend upon evidence of oral conversations, this is an example of the appropriateness of bearing in mind the observations made by McClelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315, at [319]:

In par 9 of their defence, Mr Sengos and his companies admitted the allegation in par 9 of the second further amended statement of claim that any representations made by Mr Sengos were made in trade or commerce. The representations alleged in par 6 against Mr Sengos before Jewelsnloo entered into the contract for sale were allegedly made by conduct of Mr Sengos on 25 September 2012 and 1 October 2012. Having regard to the observations made by Emmett JA in Williams v Pisano at [36] to [43] concerning the circumstances that fall within the notion of trade or commerce, there may have been a basis for an argument that Mr Sengos’ conduct did not take place in trade or commerce. That is not, however, an issue that arises in this case. Nonetheless, and notwithstanding that Mr Sengos entertained a hope that he could continue the arrangement that he had with Mr and Mrs Kotsiopoulos, his participation was substantially in the nature of a helpful bystander. That may be a relevant consideration in determining the real significance of Mr Sengos’ conduct.

Mr and Ms Kotsiopoulos entered into a contract to purchase the business from Amazing Water Australasia Pty Limited on 27 January 2012. Special condition 38.1 and items in the schedule on the front page of the contract required Mr Sengos not to conduct the business of selling water filtration and water dispensers for two years in Australia and New Zealand.

Amazing Water Australasia Pty Ltd and Mr Sengos entered into a restraint of trade deed with Mr and Mrs Kotsiopoulos on 1 February 2012. Both the company and Mr Sengos covenanted in terms of the restraint required by the contract of sale.

A submission made by Jewelsnloo (par 63 (c) of its final written submissions) seems to suggest that the covenants in the restraint of trade deed were made in favour of Mr and Ms Kotsiopoulos and their assigns. Jewelsnloo submitted that Mr Kotsiopoulos’ evidence (dealt with below) that he did not tell Mr Facer that Jewelsnloo would have the benefit of the restraint of trade deed was “erroneous having regard to the deed itself i.e. ‘assignees’”. In fact, clause 7.1 of the deed provided that it “bound” the parties’ assignees; that is, assignees were to be burdened by the covenants but not receive the benefit of them.

On 15 March 2012, Mr Sengos and the fourth defendant entered into an agreement with Mr Kotsiopoulos and his company, newly named Amazing Water Australasia Pty Ltd, under which Mr Sengos and his company would introduce new business on the basis of a commission of 10% of the sale price of any goods sold plus a further 40% of the net profit of the sale.

Mr Sengos said that, in late August or early September 2012, he agreed with Mr Kotsiopoulos to simplify their arrangement so that Mr Kotsiopoulos would sell to Mr Sengos the stock that he wanted at prices of $8 per filter, $15 per bench filter and $60 per floor cooler.

Mr Sengos gave evidence that, in late August or early September 2012, he bought from Mr Kotsiopoulos 168 floor coolers, 60 benchtop filters, and 900 replacement filters. He further said that, as at the date of his affidavit, 29 January 2013, he retained 124 floor coolers, 34 benchtop filters and 184 replacement filters. It was these products that Mr Sengos and the fourth defendant were permitted to sell by the proviso to the order continuing the injunction that was made by the court on 30 January 2013. These purchases occurred before Mr Kotsiopoulos told Mr Sengos in mid-September 2012 that he wanted to sell the business.

As noted above, one of the answers to the FAQ provided by Mr Lyons to Mr Facer on 21 September 2010 informed him that the vendors had a noncompetition agreement with the original vendor, strictly the fourth defendant, and that the vendors would sign a noncompetition agreement. The question itself only indicated that the purchaser would require the vendors to sign a noncompetition agreement, not the original vendor.

Mr Facer and Mr Sengos had a telephone conversation on 25 September 2012. According to Mr Facer he asked Mr Sengos why he sold the business to Mr Kotsiopoulos, and the following conversation occurred:

Mr Facer then gave evidence that Mr Sengos suggested to him that if he offered to pay Mr Kotsiopoulos an extra $10,000 in cash “then I think I can get Stan over the line for you to buy the business”.

Mr Sengos’ version of this conversation was that Mr Facer said to him: “Stan’s being paying you commission”. Mr Sengos replied by saying: “I’d be hopeful of continuing to sell some stock if you buy the business on the same basis as I have sold stock for Stan”. Mr Facer replied: “I’m sure we could work something out”.

Mr Sengos denied that there was any discussion about Mr Facer “being worried” that he might come back into the business, and said that there was no discussion on that subject.

Mr Facer denied that he had a conversation in which Mr Sengos said that he was hopeful of continuing to sell some stock and that Mr Facer said that he was sure that they could work something out. He denied saying that Mr Kotsiopoulos had been paying Mr Sengos a commission, and said that he was not aware at that time that there was any commission sales arrangement between Mr Kotsiopoulos and Mr Sengos.

It must be noticed that, even on the version of the conversation given by Mr Facer, the issue rose no higher than Mr Facer saying that he was worried that Mr Sengos might come back into the business, and Mr Sengos saying that he was far too busy. The conversation took place in the context of the discussion concerning the accuracy of the financial information given to Mr Facer for the period when Mr Sengos was operating the business, and the appropriate way for Mr Facer to structure his purchase offer. From Mr Sengos’ perspective, the discussion (if it had occurred) concerning Mr Sengos’ intention could simply have been a passing conversation. Certainly, even on Mr Facer’s version, he did not say anything to Mr Sengos that would make an ordinary person in Mr Sengos’ position appreciate that it was essential to Mr Facer that Mr Sengos not compete; that Mr Facer’s question was a serious one with possible legal consequences; that Mr Facer may buy the business on the faith of Mr Sengos’ reply; and that Mr Facer may hold Mr Sengos legally to his response. Furthermore, Mr Facer did not ask Mr Sengos in terms whether he would bind himself not to compete if Mr Facer purchased the business.

On 25 September 2012, Mr Facer made an offer by email to Mr Sengos that if he was successful in purchasing the business at a price of $200,000 plus stock, he would make a further payment of $10,000 to either Mr Kotsiopoulos or Mr Sengos upon exchange of contracts. Mr Facer added a disclaimer that the email was directed to Mr Sengos and was confidential in nature.

On 26 September 2012, Mr Facer agreed to buy the business subject to contract.

Mr Lyons gave evidence that, in late September 2012, after 22 September 2012, he had the following telephone conversation with Mr Facer:

Mr Facer denied Mr Lyons’ evidence, and said that he was not aware that there was a noncompetition agreement until a meeting at a storage facility in Homebush on 1 October 2012. However, as I have noted above, Mr Facer ought to have been aware that the vendors had the benefit of a noncompetition agreement with Mr Sengos as a result of the answer to one of the FAQs provided to him on 21 September 2012.

Mr Facer said that he attended a meeting at Homebush with Mr Kotsiopoulos and Mr Lyons on 1 October 2012. Mr Facer’s version of the conversation was:

In his evidence Mr Kotsiopoulos accepted this version of the conversation up to the point where Mr Facer claims that he said: “But how does that help me”? Mr Kotsiopoulos said that the balance of the conversation was as follows:

Mr Lyons said about this conversation that he said to Mr Facer: “Julian, given that Stan is selling the Business I don’t think the restraint is passed on to you”.

Mr Facer sent an email to Mr Sengos on 1 October 2012. The relevant part of the email reads:

Mr Sengos replied by email on the same day, saying:

Mr Sengos’ evidence was that, at the time he wrote this email, he in fact had no intention of going back into the water cooler business, in the sense of trading in water coolers and filters on his own account, although he hoped that he could continue the subsidiary arrangement that he had enjoyed with Mr Kotsiopoulos.

Mr Sengos gave evidence of the following conversation that he had with Mr Kotsiopoulos on 9 October 2012:

On 9 October 2012 Mr Sengos sent an email to Mr Kotsiopoulos. The email said:

Mr Kotsiopoulos replied on the same day on behalf of himself and Ms Kotsiopoulos saying: “Yes we agree on all counts”.

There is in evidence of a deed of release dated 12 October 2012 between Mr and Ms Kotsiopoulos and Mr Sengos. The effect of the deed was to release the restraints imposed upon Mr Sengos by the contract of sale and the deed dated 30 January 2012 (in fact 1 February 2012). Clause 3 confirmed that Mr Sengos was now free to conduct any business, whether in the water filtration and dispenser business, or otherwise.

However, Mr Kotsiopoulos gave evidence that the deed of release was not executed on the typewritten date which it bears. He put into evidence an email dated 14 December 2012 from Mr Sengos to himself that contained no information other than a subject heading “Deed of Release – Sengos.doc”. He said that the email enclosed the draft deed of release, which was the first time he had seen it. He and Ms Kotsiopoulos signed the document on 20 December 2014 and gave it to Mr Sengos.

A meeting occurred at the Homebush warehouse on 18 October 2012 between Mr Facer, Mr Kotsiopoulos and Mr Sengos. Mr Kotsiopoulos said that he and Mr Sengos had already sold a lot of the stock that was coming in the next container that had been ordered. Mr Facer agreed.

Mr Facer claimed that he was informed that Mr Kotsiopoulos would only need to take about 20 water coolers.

Jewelsnloo entered into a contract to purchase the business from Mr and Ms Kotsiopoulos on 18 October 2012. Clause 14 of the contract provided for the purchaser to make requisitions in certain circumstances, and clause 12 contained limitations on the right of the purchaser to make a claim or requisition or rescind or terminate the contract. Jewelsnloo did not put any argument that the terms of the contract authorised it to make any requisition concerning the existence of any non-competition agreement between the vendors and Mr Sengos, or that Jewelsnloo was entitled under the contract to terminate it if such a requisition was responded to in a false or misleading manner.

Jewelsnloo’s solicitors delivered requisitions to the vendors’ solicitors on 19 October 2012. Paragraph 16(b) asked whether, when the vendors acquired the business, they obtained the benefit of any restraint of trade covenant. The requisition then said: “If so, full details and a copy of such covenants must be provided any rights in respect thereof should be assigned to the purchaser on completion”.

On 24 October 2012, Mr and Ms Kotsiopoulos’ solicitor responded to the requisitions and in response to requisition 16(b) said: “Yes”. The solicitor enclosed a copy of the restraint of trade deed with his response.

Settlement of the contract of sale occurred on 26 October 2012. Mr and Ms Kotsiopoulos did not provide an assignment of the benefit of the restraint of trade deed in favour of Jewelsnloo. Jewelsnloo completed the contract without requiring compliance with the demand made in the requisition.

Jewelsnloo has not put any argument to justify the claim in the requisition that it was entitled to require the vendors to provide an assignment in its favour of the benefit of the restraint of trade deed on completion.

On 30 October 2012, Mr Sengos sent Mr Facer an email in which he asked: “Do you want to do a deal where I get paid 50% of the profit on any business I introduce to the Amazing Water Busn (sic) – profit split after cost of goods and freight”. Mr Facer replied on the same day by asking a number of questions as to how the joint venture might operate. Later that day, Mr Sengos replied by providing information concerning how he thought the arrangement might work.

Mr Sengos gave evidence that after this email exchange, he had a telephone conversation with Mr Facer in which Mr Facer said: “I thought it over and I don’t want to do any deal with you”.

Mr Sengos said that he reached the conclusion that Mr Facer had “strung me along” over the last month, and had never intended to do any business with him from the outset. It was then that he changed his mind about re-entering the water cooler and filtration business, and he decided that he would do some of that business, although he did not intend large-scale operations along the lines that he had previously undertaken. He decided again to use the fourth defendant as his corporate vehicle for conducting the business.

Mr Sengos learned from Mr Kotsiopoulos on 1 November 2012 that Mr Facer was of the view that Mr Sengos was restrained from selling water coolers. Mr Sengos believed that he was under no restraint because Mr Kotsiopoulos had released the deed of restraint.

Accordingly, on 1 November 2012, Mr Sengos sent an email to Mr Facer in which he said: “As you are aware I have NO contractual arrangement with yourself that would preclude me from selling any items I should choose to do so”.

Mr Facer denied the truth of Mr Sengos’ claim that, on about 18 October 2012 at the warehouse, he was told that Mr Kotsiopoulos and Mr Sengos needed to have some of the stock from the next container load to fill existing orders, and that he said he understood that. Mr Facer said that at no stage was there any mention or agreement that Mr Sengos was to get any stock from the container. He said that the first time Mr Sengos had ever mentioned the possibility of selling Jewelsnloo’s stock on a profit share basis was in his 30 October 2012 email. Mr Facer denied that he told Mr Sengos on 30 October 2012 that he did not want to do any deal with Mr Sengos. He said that he was always of the belief that Mr Sengos would not be re-entering the water cooler business. He simply elected not to do business with Mr Sengos.

It is Jewelsnloo’s case that Mr Sengos mislead it when he told Mr Facer that he had no intention of re-entering the water cooler business. By implication, Jewelsnloo says that Mr Sengos did have that intention when he made the representation. Mr Sengos, on the other hand, says that, when he made the representation, he had no intention to re-enter the business on his own account in a substantial way, although he hoped that he could continue with Jewelsnloo the arrangement that he had enjoyed with Mr and Mrs Kotsiopoulos. He said that Mr Facer had caused him to believe that he had reasonable prospects of forging a relationship with Jewelsnloo, but when Mr Facer told him on 30 October 2012 that he would not deal with Mr Sengos, Mr Sengos formed the view that he had been strung along, and it was only later that he decided that he would enter the business through the fourth defendant, albeit in a relatively minor way.

In my view, the proper approach is not to simply prefer the recollection of one witness to the other, and then find that the facts accorded with the evidence given by the preferred witness. The state of the evidence leaves the facts somewhat muddled. For instance, Mr Sengos says that he did not form the intention to re-enter the water cooler business until after 30 October 2012, but he procured Mr Kotsiopoulos’ agreement to release his obligations under the deed of restraint on 9 October 2012. It is probable that he did that for the reason given, being that he had recently agreed to change his arrangement with Mr Kotsiopoulos, and might be caught with substantial stock in hand that he could not sell after the sale to Jewelsnloo, if he was still subject to the restraint. On the other hand, I am not satisfied that I should accept Mr Facer’s evidence that he did not learn of Mr Sengos’ proposal until 30 October 2012.

On Mr Facer’s own evidence, he knew by 1 October 2012 that Mr Sengos “seems to still be involved in this business”. He was told by Mr Kotsiopoulos on that day that Mr Sengos and he “share the profits”. I accept the evidence of Mr Sengos that in late September or early October 2012 his arrangement with Mr Kotsiopoulos changed, so that Mr Sengos purchased stock from Mr Kotsiopoulos, and that Mr Sengos purchased the stock that he said he purchased. I also accept Mr Sengos’ evidence that, when he wrote his 1 October 2012 email to Mr Facer, he meant that he did not intend to re-enter the business as a principal, in the sense of selling stock that he would acquire from the supplier. He plainly intended to continue the process of selling the stock that he had already acquired from Mr Kotsiopoulos, and he hoped to continue that arrangement with Mr Facer.

Mr Facer retained solicitors to act for him, and notwithstanding the knowledge that he had about Mr Sengos’ existing involvement in the business, he was apparently content to rely solely upon Mr Sengos’ 1 October 2012 statement that: “I have no intentions at getting back into the water cooler business”. Given that Mr Facer already knew that there was a subsisting profit share arrangement between Mr Sengos and Mr Kotsiopoulos, Mr Facer should not have interpreted Mr Sengos’ brief statement in his 1 October 2012 email as meaning that Mr Sengos had no intention of undertaking any involvement in the water cooler business at all. Mr Facer was given no reason to believe positively that Mr Sengos would not seek to continue with the existing arrangement, at least so long as he had stock to do so.

The salient fact is that, notwithstanding that Mr Facer was on notice, even if only in general terms, of Mr Sengos’ involvement in the business, he did not undertake any comprehensive investigation of the issue, either on his own account, or through his solicitors.

I accept that Mr Sengos and Mr Kotsiopoulos agreed on 9 October 2012 that the latter would release the former’s obligations under the deed of restraint in order to permit Mr Sengos to continue to try to sell the stock that he had already purchased. I do not accept that there was anything nefarious or underhand about this conduct.

Mr Sengos did not contest that he made the representation alleged in par 6(a) of the second further amended statement of claim, that on 25 September 2012 and 1 October 2012 he indicated that he had no intention of getting back into the water cooler and filtration business.

I reject the claim that Mr Sengos made the representations in par 6(b) to 6(b2). The claim that these representations were made is imaginary; the representations were not implied in anything said or done by Mr Sengos; and as I understand from Jewelsnloo’s final submissions, it has not attempted to make good its claim that these further representations were made.

Jewelsnloo’s allegation in par 8 of the second further amended statement of claim, that Mr and Ms Kotsiopoulos made the representations therein set out on 24 October 2012, is based upon their solicitors’ response to par 16(b) of Jewelsnloo’s solicitors’ requisitions. That response constituted a representation that the vendors obtained the benefit of a restraint of trade deed in Australia (par 8(a); the restraint of trade was against Mr Sengos for a period of two years commencing on 15 February 2012 (par 8(b)); and by implication that the deed of restraint was binding on Mr Sengos (par 8(c)).

They did not make a representation that Jewelsnloo had the benefit of the deed of restraint against Mr Sengos (par 8(d)); or that the rights under the deed of restraint would be assigned to the plaintiff on settlement (par 8(e)). Jewelsnloo’s solicitors’ demand that the benefit of the deed should be assigned to Jewelsnloo on completion, and the failure of the vendors’ solicitors to specifically respond to that claim, does not amount to a positive representation that Jewelsnloo would obtain the benefit of the deed or that an assignment would take place. That is particularly so as Jewelsnloo has made no attempt to establish that it was entitled to make the requisition. In any event, settlement came and went without Jewelsnloo requiring the requisition to be complied with.

It is to be remembered that, even if the representations alleged in sub- pars 8(a) to (c) were made, they were made after Jewelsnloo had contracted to purchase the business.

For completeness, even though I did not permit Jewelsnloo to amend its statement of claim to allege that Mr and Ms Kotsiopoulos represented before the date of the contract of sale that Jewelsnloo would have the benefit of the deed of restraint against Mr Sengos after it purchased the business, I should say that I am satisfied that Mr Kotsiopoulos did not make any such representation as alleged, by means of the conversation that Mr Facer said took place on 1 October 2012.

I prefer the evidence given by Mr Kotsiopoulos and Mr Lyons to that given by Mr Facer. I prefer Mr Lyons’ evidence to that given by Mr Facer for the reasons set out above in the discussion concerning the turnover representation. Further, it is inherently improbable that a professional business broker such as Mr Lyons would have volunteered such a risky and incorrect assertion that a purchaser would have the benefit of a non-competition agreement given by a previous vendor to the vendor, when that is obviously a legal question.

Further, having had the benefit of seeing Mr Kotsiopoulos in the witness box, I fully accept, as he himself claimed, that he did not have a sophisticated understanding of any matters connected with the operation of the business, and I find that it is unlikely that Mr Kotsiopoulos would have made any positive assertion to the effect that any purchaser would automatically have the benefit of the deed of restraint that was executed by Mr Sengos in favour of Mr and Ms Kotsiopoulos.

In my view it is also unlikely that, in Mr Facer’s 1 October 2012 email to Mr Sengos, he would meekly have asked whether Mr Sengos had any intention of getting back into the water filtration/cooler business, if he had just been told that Mr Sengos was bound by the deed of restraint in favour of Mr and Ms Kotsiopoulos, and upon sale of the business to himself the purchaser would automatically have the benefit of the restraint.

Jewelsnloo relied upon a number of cases that have discussed the principles that are applicable to a claim that a party has engaged in misleading or deceptive conduct by failing to reveal information to the other party. It is sufficient to set out the following statement by French J (as his Honour then was) in Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digests) 46-054 at [53,195] (approved in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 21 at [34]):

I reject Jewelsnloo’s claim that Mr Sengos was under any duty to inform Mr Facer of the terms of the 9 October 2012 agreement between himself and Mr and Ms Kotsiopoulos, in which they informally released him from his obligations under the restraint of trade deed, by reason of the fact that, to the knowledge of Mr Sengos, the circumstances gave Mr Facer a reasonable expectation that he would be informed of that matter.

From Mr Sengos’ perspective, all that he had said to Mr Facer on 1 October 2012 was that he had no intention of getting back into the water cooler business. At that time he was not engaging in that business as a principal, but only assisting in the conduct of the business by Mr and Ms Kotsiopoulos on a basis that generated him some profit. I accept Mr Sengos’ evidence that he had the intention expressed in the email at the time it was sent. Mr Sengos was not a party to any conversation with Mr Facer concerning the existence, or the continued existence, of the deed of restraint that he had granted to Mr and Mrs Kotsiopoulos. From Mr Sengos’ reasonable perspective, he had no reason to think that, as between himself and Mr Facer, Mr Facer had any legitimate interest in knowing about the subsistence of the deed of restraint. Additionally, although the request for an assurance that Mr Facer made on 1 October 2012 was a serious request for information, I am not satisfied that the circumstances ought to have imposed upon Mr Sengos the realisation that his statement of his then present intention was crucial to the negotiations between Mr Facer and Mr and Ms Kotsiopoulos, or that the continuation of his stated intention was in some way a condition to Mr Facer proceeding with the purchase.

Accordingly, I do not accept that Mr Sengos’ failure to advise Mr Facer of the 9 October 2012 arrangement constituted an implied representation by silence that no such arrangement had been made.

As to the claim that Mr Sengos was obliged by circumstances to inform Mr Facer of the execution of the deed of release, I accept Mr Kotsiopoulos’ evidence that, notwithstanding the printed date that it bears, the deed of restraint was not prepared until on or about 14 December 2012, and was not executed until 20 December 2012, well after Jewelsnloo completed the contract of sale.

So far as Jewelsnloo’s claim that Mr and Mrs Kotsiopoulos made an implied representation by silence that the deed of restraint remained binding on Mr Sengos is concerned, it must be accepted that superficially the provision of the deed by their solicitors to the solicitors for Jewelsnloo in answer to the requisition would naturally be interpreted by the recipient as meaning that the deed of restraint remained valid and effective. In fact, the informal arrangement made on 9 October 2012 was made before the response to the requisition, and Mr and Ms Kotsiopoulos did not know about the draft deed until about 14 December 2012. Nonetheless, it would be reasonable for Jewelsnloo to expect, having received the response to the requisition, that if Mr and Ms Kotsiopoulos had any reason to believe that it may not be valid and effective, Jewelsnloo would have been so advised.

The likely explanation for what happened is that the solicitors were aware of the existence of the deed of restraint, but not the informal arrangement made on 9 October 2012, and they could not know about the deed of release because it had not yet been drafted.

The first observation to be made about this possible representation by silence is that it could not have been material to Jewelsnloo to be told that the deed of restraint remained valid and effective, because the deed did not benefit Jewelsnloo; it would not do so merely upon the purchase of the business; and Jewelsnloo through its solicitors took no positive steps to try to get the benefit of the deed of restraint, save for the demand in requisition 16(b).

Furthermore, the significance of the effect of the response to the requisition must be assessed in the light of my findings that both Mr Kotsiopoulos and Mr Lyons said to Mr Facer that they did not think that a purchaser would get the benefit of the deed, and suggested to Mr Facer, and he agreed, that he should seek his own legal advice. In those circumstances, it was reasonable for Mr and Ms Kotsiopoulos to understand that Mr Facer would pursue the issue of the restraint of Mr Sengos directly with Mr Sengos, and for them not to understand that Mr Facer had a continuing expectation that if, as between themselves and Mr Sengos, they took any step to release the deed of restraint, they would advise Mr Facer of that circumstance.

I am accordingly not satisfied that the failure by Mr and Mrs Kotsiopoulos to advise Mr Facer of the arrangement made with Mr Sengos on 9 October 2012 was capable of constituting misleading or deceptive conduct by silence.

As I have already observed above, Jewelsnloo does not appear to have led evidence or made submissions capable of quantifying any loss that it suffered by acting in reliance on any representation concerning Mr Sengos’ future intentions, or its entitlement to the benefit of the deed of restraint (being a loss separate to that which it might have suffered as a result of relying upon the turnover representation).

Damages payable for contravention of the statutory provisions is compensatory, and exemplary damages are not available: see for example Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274; and Marks v GIO Aust Holdings Ltd [1988] HCA 69; (1998) 196 CLR 494.

In any event, I am not satisfied that Jewelsnloo could have suffered loss as a result of any of the alleged representations made after it entered into the contract for sale. The contract for sale does not appear to have given Jewelsnloo any entitlement to terminate the contract, if it had discovered afterwards that the facts represented were not true. Jewelsnloo was obliged to complete the contract in any event. As I have noted, Jewelsnloo did not make any submission contrary to this conclusion.

It is convenient to add at this point that I am not satisfied that Jewelsnloo has established that the conduct of Mr and Mrs Kotsiopoulos in agreeing to release Mr Sengos on 9 October 2012, or in executing the deed of release, constituted unconscionable conduct on their part as alleged by Jewelsnloo. Jewelsnloo’s submission to the contrary of this conclusion was a bare assertion. From Mr and Mrs Kotsiopoulos’ perspective, the deed of restraint was in their favour, and Jewelsnloo would not gain its benefit merely by virtue of the sale of the business. Mr Sengos’ covenants were not made for the benefit of Mr and Mrs Kotsiopoulos’ assignees. They were incapable of assigning the benefit of the deed of restraint to Jewelsnloo. Jewelsnloo had no right to require them to do so. Jewelsnloo did not attempt to enforce compliance with its contrary assertion in the requisitions at the time of completion of the contract. Mr Kotsiopoulos had told Mr Facer that he did not think a purchaser would gain the benefit of the deed of restraint on sale, and that Mr Facer should seek his own advice. Jewelsnloo was represented by a solicitor, and there was no reason why it could not act to protect itself, and it was not reliant upon any assistance of Mr and Mrs Kotsiopoulos.

Jewelsnloo’s claims based upon alleged representations concerning Mr Sengos’ intention to re-enter the water cooler and filtration market, and the continuing existence and Jewelsnloo’s entitlement to the benefit of the restraint of trade deed executed by Mr Sengos must therefore be dismissed, as must the related unconscionable conduct claim.

The plaintiff alleges that Mr Sengos and his two companies engaged in passing off between about 28 October 2012 and 20 December 2012, and that their conduct was calculated to deceive and mislead, and that they did in fact deceive and mislead. There are two bases for these claims, as set out in the particulars to par 25 of the second further amended statement of claim, which provide:

Jewelsnloo in its final submissions relied upon Fletcher Challenge Ltd v Fletcher Challenge Pty Ltd (1981) 1 NSWLR 196 for the proposition that, in order to succeed in an action for passing off, a plaintiff must establish: (a) that his goods have, or his business has, acquired a certain goodwill or reputation; (b) that the actions of the defendant have caused, or in all probability will cause, the ordinary purchasers of the plaintiff’s goods, or the ordinary customers of the plaintiff’s business, to believe that the defendant’s goods are those, or that the defendant’s business is that, of the plaintiff; and (c) that, in consequence, the plaintiff has suffered, or is likely to suffer, injury in his trade or business.

Wigney J has recently, in Troung Giang Corporation v Tung Mau Quach [2015] FCA 1097; (2015) 114 IPR 498, given a similar statement of the elements of the tort of passing off:

Mr Sengos and his companies did not challenge the submission that these are the elements that must be established to prove the tort of passing off, and it will be appropriate for the court to proceed on that basis.

As I understand the position of Mr Sengos and his companies, even though the conduct alleged to constitute passing off was engaged in by one or other of the companies, they do not contest that Mr Sengos’ involvement in that conduct was sufficient to make him jointly liable if passing off is established. That position would be justified by the following principles stated by Wigney J in Truong:

The facts of the present case put Mr Sengos in the same position as was Mr Quach.

The first question is whether the Amazing Water business when operated by Jewelsnloo had the required goodwill or reputation; that is, were purchasers and potential purchasers of water coolers and water filters likely to believe that product sold under the trade name “Amazing Water” would be supplied by a particular supplier (even if they did not know the actual identity of that supplier)?

Mr Sengos and his companies challenged the proposition that the evidence was sufficient to establish that the Amazing Water business had the necessary goodwill or reputation. The evidence is limited, but it appears that in one form or another “Amazing Water” had been advertised on the Internet from some time in 2008, either by the fourth defendant or by Mr and Ms Kotsiopoulos, to the time of the conduct alleged to constitute the passing off. Additionally, operators like Scoopon and Groupon had engaged in many Internet campaigns that included the sale of products sold under the trade name “Amazing Water”. Some product was purchased by distributors such as Harvey Norman, and sold under the trade name and get up of the Amazing Water business. It is of some relevance that the fourth defendant sold the goodwill of the business to Mr and Ms Kotsiopoulos for a price of $300,000, which suggests that the goodwill had some value.

In the absence of any evidence to the contrary, I am prepared to infer on the balance of probabilities that the “Amazing Water” trade name and business had the reputation required to support a claim against Mr Sengos and his companies for passing off.

The next question is whether the circumstances in which Mr Sengos and his companies sold the Amazing Water products, or offered them for sale, caused, or were likely to cause, the ordinary purchasers of Jewelsnloo’s goods, or the ordinary customers of its business, to believe that the goods were being sold or offered for sale by Jewelsnloo.

Mr Sengos and his companies have not denied that they have sold products in the manner alleged in par 25 (a); that is, through the group selling agents identified in the subparagraph.

To put the matter in perspective, as I understand it, Jewelsnloo has not taken issue with Mr Sengos and his companies’ claim that, during the six week period in which the business existed, some $19,506 in sales were made with $9824 in profit. When taken to the evidence of Mr Sengos to this effect in par 60 of his affidavit, Mr Facer did not doubt these figures (T 109).

I am satisfied on the evidence that Mr Sengos and his companies (whichever of them it may have been) acquired the stock that they sold in a legitimate way from Mr and Ms Kotsiopoulos, before they sold the business to Jewelsnloo. The products were sold in the same packages and get up in which the supplier supplied the products to Mr and Mrs Kotsiopoulos.

Primarily, Jewelsnloo relied upon pars 70 and 72 of Mr Facer’s first affidavit, and the documents at pages 309 to 311 (and perhaps also pages 313 and 314) in the exhibit to Mr Facer’s first affidavit to establish that the second element was satisfied. Mr Facer points to the fact that the Groupon webpages depict one of the Amazing Water products and that the telephone numbers given are numbers of one of Mr Sengos’ companies.

The Groupon webpages appear (I have been able to detect references on pages 309, 310, 313 and 314 of the relatively unclear exhibit) to identify Amazing Water as the supplier. This appears most clearly from pages 309 and 310, which speak of “includes nationwide delivery from Amazing Wa (screenshot not complete)” and “includes nationwide delivery from Amazing Water” respectively. Pages 313 and 314 refer to “Amazing Water’s unique five-stage filtration process”. Page 314 contains another reference to “Amazing Water’s amazing [illegible]”. Although the name of the fourth defendant is set out on pages 310 and 311, that is done in a way that would suggest, when read with the text of the webpages, that the fourth defendant was the owner of the Amazing Water trade name.

I should note a somewhat strange aspect of the evidence. Mr Sengos was asked in cross-examination whether he was responsible for the preparation of the design of the Groupon webpages referred to above. He said that he was not. The matter was not taken further, either in cross-examination or in evidence in reply by Mr Sengos and his companies. The significance of this evidence is somewhat mysterious. It may mean that Groupon itself designed the webpages. It is also possible that, if that was the case, Groupon simply reused the designs that it had formerly used when the Amazing Water Business was owned by the fourth defendant, and then Mr and Ms Kotsiopoulos. That possibility is enhanced by the fact that Mr Sengos apparently continued to liaise with the group selling agents on behalf of Mr and Ms Kotsiopoulos. This is all a matter of speculation. Mr Sengos and his companies did not plead that, for any reason that the law might recognise and accept, they were not responsible for the designs of the webpages under which businesses such as Groupon sold products on behalf of the fourth defendant with the trade name and get up of the Amazing Water business. In these circumstances I regard Mr Sengos’ answer as immaterial. He and his companies would be responsible for the web page designs employed by the likes of Groupon to find purchasers for the products on behalf of Mr Sengos and his companies.

I am satisfied that Jewelsnloo has made out its claim in relation to the allegations in par (a) to the particulars to par 25 of the second further amended statement of claim.

So far as the allegation in par 25(b) is concerned, it is to be noticed that the allegation is that Mr Sengos and his companies “advertised for sale on their website” the relevant products, and not that they sold any.

The website that Mr Sengos used was designed by his daughter Bianca. Mr Sengos accepted that, when his website was compared with the Amazing Water website used by Jewelsnloo: “apart from the relatively marginal changes Bianca made, the two websites are basically the same”. That was a proper concession for Mr Sengos to make. A comparison between the two websites strongly justifies the conclusion that any potential purchaser who opened Mr Sengos’ website would probably confuse the supplier with the owner of the Amazing Water website, and believe that any product acquired would be supplied by Amazing Water; that is Jewelsnloo. Mr Sengos and his companies did not submit to the contrary.

Mr Sengos gave evidence, which Jewelsnloo did not challenge, that there was only one sale that was effected through the website, and that sale was reversed after the court granted the initial injunction on 20 December 2012. Accordingly, Mr Sengos and his companies did not complete any sales through the website, which is consistent with the allegation in par 25(b) that all that they did was advertise products for sale.

Although on the evidence I accept that it has not been shown that Mr Sengos or his companies made any sales by acting in the manner alleged in par (b) to the particulars to par 25 of the second further amended statement of claim, I am satisfied that that conduct constituted passing off, at least to the extent that the second requirement is satisfied if the conduct is likely to cause Jewelsnloo to suffer injury in its trade or business. The conduct would be sufficient to support the granting of an injunction by the court to prevent its continuance.

Jewelsnloo has established by the evidence considered above that it is entitled to an injunction to prevent Mr Sengos and his companies from continuing the conduct that I have found constituted passing off. However, Jewelsnloo effectively got that relief on the very day that it commenced these proceedings, and Mr Sengos and the companies have never suggested that the order that has been made until further order should be discharged.

Furthermore, Mr Sengos and his companies only acquired a limited amount of goods from Mr and Ms Kotsiopoulos, which I infer they have now sold over the period of the six weeks before 20 December 2012 and the period allowed by the proviso to the 30 January 2013 orders. The evidence does not support a finding that there was any real likelihood that Mr Sengos and his companies would have attempted to acquire additional goods bearing the trade name “Amazing Water”, and with the Amazing Water get up from the Chinese suppliers in order to continue selling the products on a long-term basis.

The question, therefore, is whether Jewelsnloo has established an entitlement to any additional relief.

The law affords plaintiffs who can establish that the defendant has engaged in passing off alternative remedies in damages or an account of the defendant’s profits. The former involves compensation for the loss suffered by the plaintiff as a result of the passing off, and make cover loss of profits from sales that the plaintiff has been prevented from making as a result of the defendant’s passing off, as well as for damage to the plaintiff’s reputation. The alternative remedy of an account of profits entitles the plaintiff to be paid the profits earned by the defendant as a result of the passing off. The plaintiff must make an election as to which remedy is pursued, and the plaintiff may be given time after the commencement of the proceedings to decide which election should be made. That time is given because it may not initially be clear whether the more advantageous remedy to the plaintiff will be damages or an account, and the plaintiff may need to use the interlocutory processes of the court to determine which remedy it should elect to pursue. The elections must be made before final judgment: see Dr Martens Australia Pty Ltd v Bata Shoe Co of Australia Pty Ltd (1997) 75 FCR 230.

In the present case Jewelsnloo sought an account in the initiating summons, as well as damages, but then deleted the claim for an account in the initial statement of claim and all subsequent amendments of that pleading.

Jewelsnloo said nothing during the course of the hearing concerning the alternative remedy of an account of the profits made by Mr Sengos and his companies. I assume that it decided to take that course because it appreciated that only a small profit had been made – as it appears, only $9,824.

The only remedy that has been pursued by Jewelsnloo in addition to the injunction is damages.

As I understand Jewelsnloo’s evidence and submissions, it has not attempted to make out a case for compensatory damages by proving that a consequence of the passing off was that Jewelsnloo was prevented from selling the goods that were sold by the fourth defendant itself.

Furthermore, Jewelsnloo has not made any claim for compensation for any injury to its reputation caused by the passing off. Nothing has been said by Jewelsnloo on that issue. It may be that, because the fourth defendant has sold identical products to those sold by Jewelsnloo, under the Amazing Water trade name and to get up, so that the products sold are not in any way inferior copies of Jewelsnloo’s products, no damage has been caused to Jewelsnloo’s reputation.

The only positive claim that Jewelsnloo has made for damages is for exemplary damages.

It will be appropriate to start with a review of the authorities that have considered the circumstances in which exemplary damages should be awarded for the tort of passing off.

The Full Court of the Federal Court of Australia in Taleb v GM Holden Ltd [2011] FCAFC 168; (2011) 286 ALR 309 accepted that exemplary damages could be awarded upon proof of the tort of passing off in Australia, in the following terms:

The circumstances in which the court will award exemplary damages for passing off have recently been considered by a number of judges of the Federal Court. In Facton Ltd v Rifai Fashions Pty Ltd [2011] FCA 290; (2011) 91 IPR 109 Bromberg J said:

On appeal in Facton Ltd v Rifai Fashions Pty Ltd [2012] FCAFC 9; (2012) 287 ALR 199, Lander and Gordon JJ did not (at [11]) find it necessary to discuss the tort of passing off or the claim for exemplary damages, because they decided that additional damages should be ordered under s 115 of the Copyright Act 1968 (Cth). Their Honours increased the amount of the additional damages that the trial judge had awarded to the applicant, and did so on a different principle than that upon which his Honour had acted.

Gilmour J disagreed with the judgment of the trial judge in respect of his findings concerning exemplary damage, in the following terms:

In GM Holden Ltd v Paine [2011] FCA 569; (2011) 281 ALR 406 Gordon J said the following in relation to an application for an order for exemplary damages in respect of a passing off:

On appeal in Taleb v GM Holden Ltd (above) at [45] and [55], the Full Court decided that the exercise of Gordon J’s discretion in assessing the amount of exemplary damages had miscarried, because her Honour had made a mistake of fact, and the amount of the exemplary damages was reduced to $75,000. The Full Court did not disagree with her Honour’s statement of principle.

I have considered the reasoning in these cases in some detail, as expressions such as “contumelious” and even “contemptuous” will not always provide an objective indication of the quality of the conduct of a defendant that is sufficient to warrant an award of exemplary damages, as a punishment for the defendant’s conduct. There was a level of disagreement in Facton Ltd v Rifai Fashions Pty Ltd between the trial judge and Gilmour J as to whether contumelious conduct was “wanton, malicious, insolent or the like”, or whether conduct falling short of being malicious or spiteful could be contumelious because it was contemptuous. It may not be a simple matter in a particular case to characterise conduct as being contemptuous while not malicious or spiteful.

Of perhaps more utility is the apparent acceptance by the courts that conduct involving passing off may be knowing and deliberate, and thus warrant an award of compensatory damages, without the conduct having the quality that justifies an award of exemplary damages as a punishment for that conduct. While the conduct listed by Gilmour J at [82] and by Gordon J at [96] of their judgments set out above only provide examples of conduct considered by the courts as being contumelious, those lists throw useful light on the seriousness of the conduct and the state of mind and attitude of the defendant that is required before an order for exemplary damages is warranted.

The question is whether the conduct of Mr Sengos and his companies in this case was such as to justify an order for exemplary damages against them.

Jewelsnloo made a strong submission that the conduct was contumelious, but it did not offer any reasoned explanation as to why the court should treat the conduct as having that extreme character. Jewelsnloo appeared to approach the issue on the basis that it was an obvious conclusion to reach. Although Jewelsnloo did not articulate its submission in the following way, it may be that Jewelsnloo was proceeding upon an assumption that the court would find that Mr Sengos made the misrepresentations to Jewelsnloo that are alleged against him in relation to his intentions to continue in the business, and the continuation of the restraint of trade to which he agreed, so that his later conduct in passing off the products he acquired from Mr and Mrs Kotsiopoulos should be considered as all being part of the same wrongful attack by Mr Sengos on the lawful interests of Jewelsnloo. However, if that be so, the first limb of Jewelsnloo’s case has failed, and the passing off must be considered as a separate wrong.

Jewelsnloo did not cross-examine Mr Sengos with the end of demonstrating that his motives were in fact contemptuous of the interests of Jewelsnloo, or looked at differently, involved a wilful or conscious disregard for Jewelsnloo’s rights, so that, however described, they would warrant the description of a “conscious and contumelious disregard for the plaintiffs’ rights” as stated by Brennan J (as his Honour then was) in the XL Petroleum case.

It will therefore be necessary for the court to determine itself how the conduct of Mr Sengos and his companies should be assessed. In my view that conduct should be assessed from the perspective that Mr Sengos and his companies were left with a finite and relatively small amount of stock that had legitimately been purchased from Mr and Ms Kotsiopoulos when they unexpectedly decided to sell the business. Mr Sengos initially hoped to be able to sell that stock in the course of some cooperative arrangement with Jewelsnloo, and to continue to operate as a subsidiary to Jewelsnloo’s business. When that aspiration failed, Mr Sengos decided to sell the stock using the same business model as he had always used, given that he had been released from the deed of restraint that he had executed.

In my view the most probable explanation of what followed was that, because of the relatively limited amount of stock, which would be expected to generate only a small amount of profit, Mr Sengos decided to make use of the marketing arrangements that he had always used after making minimal and inexpensive alterations. The amount of stock available for sale did not warrant the cost of designing a new web page or advertisements for the webpages of businesses such as Groupon from scratch. Mr Sengos arranged for his daughter to make changes to the webpage that had been used by Mr and Ms Kotsiopoulos, and then transferred to Jewelsnloo. For whatever reason, his daughter only made minimal changes, which were entirely insufficient to create the appearance that the webpage was operated by a completely different business to Jewelsnloo. The evidence concerning the design of the Groupon webpages is limited. It is not clear who designed the webpages, what Mr Sengos’ involvement was, or whether he even knew exactly what the content of the advertisements was. Nonetheless, he was responsible for the content. Whether he was insufficiently careful and simply left it to Groupon to design the advertisements (with the result that they simply adapted the existing advertisements), or whether Mr Sengos himself took an unwarranted shortcut in deciding to use those advertisements, the probability is that the inclusion in the fourth defendant’s webpage and the Groupon advertisements of features that have led to passing off being committed was caused by decisions on Mr Sengos’ part to try to sell the goods quickly and at the least expense possible.

That conduct on Mr Sengos’ part was deliberate and unwarranted, and justified the imposition of the conventional remedies for passing off, but in my view it was insufficient to justify a finding that it was contemptuous of Jewelsnloo’s rights, or otherwise contumelious in the sense discussed above. Accordingly, I decline to make any order for exemplary damages against Mr Sengos and his companies.

Given the stance taken by Mr Sengos and his companies, as described above, concerning the continuation of the interlocutory injunction granted on 20 December 2012, and continued until further order on 30 January 2013, Jewelsnloo is entitled to a final order granting injunctive relief in relation to the passing off committed by Mr Sengos and his companies. An order to that effect should be made, to ensure that an order dismissing the proceedings does not undermine the effectiveness of the existing interlocutory injunction. However, the interlocutory injunction issued by the court restrained Mr Sengos and his companies from selling, promoting for sale or distributing water filtration equipment and dispensers on a blanket basis, whether or not that conduct involved passing off by the defendants. It will be necessary to reformulate the permanent injunction so that it only restrains conduct that constitutes passing off.

Jewelsnloo has otherwise entirely failed in these proceedings, and an order should be made that the proceedings be dismissed.

As the parties have requested, I will hear them as to the costs of the proceedings.

I therefore make the following orders: