Milicevic & Anor v Ferrari East Pty Ltd & Ors (No 3)

1. [1]

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

2. [2]

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

3. [3]

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

4. [4]

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

5. [5]

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

6. [6]

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

7. [7]

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

8. [8]

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

9. [9]

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

10. [10]

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

11. [11]

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

Overview of claims and issues in dispute

1. [12]

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

2. [13]

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

3. [14]

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

4. [15]

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

5. [16]

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

6. [17]

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

7. [18]

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

8. [19]

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

9. [20]

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

10. [21]

    The Defendants also plead additional implied conditions and warranties that Mr Milicevic had a right to sell the Myer JV Assets, Ferrari East would have quiet enjoyment of them and they would be free from any charge or encumbrance in favour of a third party not known or declared to Ferrari East before the agreement was entered into, by reason of the Sale of Goods Act 1923 (NSW) (Sale of Goods Act).

11. [22]

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

12. [23]

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

13. [24]

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

14. [25]

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

15. [26]

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

16. [27]

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

17. [28]

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

18. [29]

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

19. [30]

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

20. [31]

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

The evidence and witnesses

1. [32]

   The Plaintiffs read five affidavits sworn by Mr Milicevic.

2. [33]

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

3. [34]

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

4. [35]

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

5. [36]

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

6. [37]

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

7. [38]

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

8. [39]

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

9. [40]

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

10. [41]

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

11. [42]

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

12. [43]

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

13. [44]

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

14. [45]

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

15. [46]

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

16. [47]

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

17. [48]

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

18. [49]

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

19. [50]

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

20. [51]

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

21. [52]

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

22. [53]

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

23. [54]

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

24. [55]

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

25. [56]

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

26. [57]

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

Facts

1. [58]

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

2. [59]

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

3. [60]

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

4. [61]

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

5. [62]

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

6. [63]

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

7. [64]

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

8. [65]

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

9. [66]

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

10. [67]

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

11. [68]

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

12. [69]

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

13. [70]

    Pursuant to the JV Trust Deed:

14. [71]

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

15. [72]

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

16. [73]

    According to Dynamic’s constitution:

17. [74]

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

18. [75]

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

19. [76]

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

20. [77]

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

21. [78]

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

22. [79]

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

23. [80]

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

24. [81]

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

25. [82]

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

26. [83]

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

27. [84]

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

28. [85]

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

29. [86]

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

30. [87]

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

31. [88]

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

32. [89]

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

33. [90]

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

34. [91]

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

35. [92]

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

36. [93]

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

37. [94]

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

38. [95]

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

39. [96]

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

40. [97]

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

41. [98]

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

42. [99]

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

43. [100]

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

44. [101]

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

45. [102]

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

46. [103]

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

47. [104]

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

48. [105]

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

49. [106]

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

50. [107]

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

51. [108]

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

52. [109]

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

53. [110]

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

54. [111]

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

55. [112]

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

56. [113]

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

57. [114]

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

58. [115]

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

59. [116]

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

60. [117]

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

61. [118]

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

62. [119]

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

63. [120]

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

64. [121]

    The BSA relevantly provides:

65. [122]

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

66. [123]

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

67. [124]

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

68. [125]

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

69. [126]

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

70. [127]

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

71. [128]

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

72. [129]

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

73. [130]

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

74. [131]

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

75. [132]

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

76. [133]

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

77. [134]

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

78. [135]

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

79. [136]

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

80. [137]

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

81. [138]

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

82. [139]

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

83. [140]

    Gerard Ferrari’s email includes financial predictions of the new Ferrari East business following the Belgravia deal which he described as including all stock, fixtures and fittings, plant and equipment, store and operating leases, franchise licence and JV agreements, intellectual property, all brands and a business that turned over $23 million last year and made a $1 million loss. Gerard Ferrari’s email states:

84. [141]

    Gerard Ferrari offered to send to Mr Milicevic Ferrari East’s budget for the first three years and set out a “draft” proposal that he wanted to discuss with Mr Milicevic before sending it to Bevan and Brian Ferrari, which was in the following terms:

85. [142]

    It appears that shortly after sending the email Gerard Ferrari added in a further comment about the new entity in the following terms:

86. [143]

    In cross-examination, Mr Milicevic gave evidence that at the time of this email “[s]tock was not an issue. It was a transfer of shares” and that “it was just a transfer… of the business. So whatever stock was at hand” (T131.21; T132.4–11). I find Mr Milicevic’s evidence to be unconvincing. Stock was plainly an issue for the deal at this time as Gerard Ferrari’s email refers to a payment to Mr Milicevic based on the “stock value” of the Myer JV and suggests that Ferrari East honour the agreement that Belgravia had with Mr Milicevic upon exiting the Myer JV to pay “cost price for his stock”. Further, according to Mr Milicevic’s own evidence, after receiving the 18 September email from Gerard Ferrari, they had a conversation in which Mr Milicevic said he was open to the idea “in principle” and arranged to travel to Melbourne to discuss the proposal.

87. [144]

    Mr Milicevic also deposes that he relied on the matters referred to in Gerard Ferrari’s 18 September email, particularly in relation to the future profitability, revenue and valuation of Ferrari East, when deciding to enter into an agreement with Ferrari East on 1 October 2013 to transfer his 60% share of the Myer JV. He rejected in cross-examination that he took the figures referred to in Gerard Ferrari’s email as some kind of projection in any real sense as to the value of Ferrari East going forward (T132.43).

88. [145]

    On 19 September 2013, Mr Peck sent three emails to Bevan Ferrari attaching financial records relating to the Myer JV.

89. [146]

    The first email attached a “Balance Sheet” as of June 2013 and a “Profit & Loss Statement” from July 2012 to June 2013, which are both headed “Spurling JV Trust” and were referred to by Mr Peck in his email as relating to the “Myer JV” and as “probably requir[ing] explanation” (Myer JV Financials).

90. [147]

    The Balance Sheet sets out the sale, asset and liability figures as separate line items for the Myer concession stores (the six Myer stores), the Bondi Junction store (the subject of the Myer JV) and the Clarence St store. It records total equity of $155,445.62 which comprises the following: share capital of $25,000 (for “Milicevic Trust” and Belgravia of $15,000 and $10,000 respectively); beneficiary distributions to “BF JV” and “HM JV” of $40,000 and $50,000 respectively (which appear to be distributions under the Myer JV based on a 60/40 split) and to “BF”, “HM” and “SD” of $33,000 each (which appear to be a reference to the parties to the Heads of Agreement in respect of the Clarence St store); retained earnings of $213,620.08; and current year earnings of $105,825.54. The Profit and Loss Statement records income, cost of sales and expenses as separate line items for the six Myer stores, the Bondi Junction store and the Clarence St store, and a net profit of $105,825.54.

91. [148]

    In cross-examination, Bevan and Gerard Ferrari both accepted that they were aware of and read the Myer JV Financials at this time.

92. [149]

    Bevan Ferrari accepted that when he read the Myer JV Financials he understood, consistent with what he read in the Myer JV Agreement, that a trust was involved but said he did not know what type of trust it was. He accepted that the assets of the Myer JV were “sitting on the… JV financials” but rejected that he knew from this that the assets of the Myer JV were not owned by Belgravia or Mr Milicevic (T356.34–48; T388.22–8).

93. [150]

    Gerard Ferrari accepted that he would have seen the words “Spurling JV Trust” as the heading of the Balance Sheet but said he “didn’t question it”. He gave evidence that, in hindsight, he should have been aware that there was a trust related to the Myer JV but he was occupied with the figures and did not ask the question or ask about the trust (T273.40–50). He also accepted that he was aware there was an entity involved from the reference to “Share Capital” and that an entity called Dynamic Platinum owned the Myer JV (T246.27–8; T273.42–274.36), and he gave evidence as follows (T274.33–6):

94. [151]

    In cross-examination, Gerard and Bevan Ferrari also accepted that the Myer JV Financials identified that the stores were generating a profit in the previous financial year but they gave evidence that they did not think that the Myer JV was profitable at the time. Bevan Ferrari claimed this was because the beneficiary distributions outweighed the current year earnings (T357.9–22). Gerard Ferrari explained that he thought that there were quite a few costs that were not included that they had questioned, including about the leases and fit-outs, which if they were put back in would have shown that the Myer JV was not profitable. He sought to explain that the Myer JV would have made a loss if all the lease and fit-out costs had been included which they had not based on what he understood from discussions with Mr Peck and Mr Milicevic (T270.1–21).

95. [152]

    The second email attached the “weekly P&Ls” for the Myer JV for July. The third email attached the same for August. The weekly profits and losses are set out in separate sections for the six “Spurling JV Stores” at Myer, the Bondi Junction store and the Clarence St store.

96. [153]

    On 23 September 2013, Gerard Ferrari sent an email to Bevan and Brian Ferrari that set out what he and Bevan Ferrari had discussed and agreed about the “strategy to bring the JV back into Ferrari East from October 1st” and a draft letter to Ferrari East investors about the “Final Deal” with Belgravia. In the email, Gerard Ferrari described the benefits of bringing the JV back into Ferrari East as: a $4.5 million increased turnover to Ferrari East; a net profit of $105,825; a senior partner experienced in the Sydney marketplace and the Myer relationship as their State Manager; around $200,000 – $250,000 extra working capital; a large uplift to their balance sheet since Ferrari East would take over $530,184 based on stock at the Myer stores and the Castle Hill, Clarence St and Bondi Junction stores (noting that if the stock from the Castle Hill, Clarence St and Bondi Junction stores was deducted, the increase to the Ferrari East balance sheet would be $359,517); and the only liability they needed to consider was provision for holiday leave (totalling $18,158.43) and six fit-outs (totalling $157,448.36).

97. [154]

    Gerard Ferrari’s 23 September email sets out the terms of an offer to Mr Milicevic and an explanation to Ferrari East’s investors regarding the proposed deal with Mr Milicevic, as follows:

98. [155]

    It is apparent that Gerard Ferrari incorporated figures from the Myer JV Financials into his 23 September email (the Balance Sheet and P&L Statement refer to $4.5 million of total income, $105,825.54 for net profits, $359,517.89 for stock and $157,448.36 for fit-out).

99. [156]

    In cross-examination, Gerard and Bevan Ferrari were both asked about the word “shares” in relation to the expression “5% of FE for [Mr Milicevic’s] shares in the JV”, and both denied the word referred to shares in a company (T277.28; T345.42).

100. [157]

     On 25 September 2013, Gerard Ferrari sent an email to Mr Milicevic concerning the “JV/Ferrari East Proposal” that attached the first nine month budget (1 October 2013 to 30 June 2014) for the new “Ferrari East P/L company that has purchased the assets of [Belgravia]”. The email describes how the budget was prepared and sets out a proposal for Mr Milicevic to consider, as follows:

101. [158]

     Around this time, Mr Peck called Mr Milicevic and told him that Belgravia had sold out to Ferrari East. On 25 September 2013, Mr Milicevic sent an email to Mr Peck in which he asked him to confirm if “the 40% share holding in the JV was a part of the sale and if so what was this valued at”. In response, Mr Peck explained the deal as follows:

102. [159]

     It is not clear what the “suggested draft” referred to in Mr Peck’s email is. Mr Milicevic assumed it was the 18 September draft “Myer Deed of Management Arrangement” although there is no evidence that this was received by the Defendants. It is possible that Mr Peck was referring to the “new Myer plan” that had been sent to Bevan Ferrari on 7 August 2013, as referred to at [110] above.

103. [160]

     On the evening of 25 September 2013, Mr Milicevic and his assistant, Ms Golovchenko, had a meeting with Gerard and Bevan Ferrari in Melbourne during which they discussed the terms of a deal. The contents of that discussion is partially in dispute.

104. [161]

     Mr Milicevic deposes that during the meeting there was a conversation to the following effect:

105. [162]

     Mr Milicevic says that they then talked for an extended period of time about the terms of the deal and at the end of the discussion Gerard Ferrari said words to the effect that they had an outline of an agreement in principle and everyone should sleep on it but there was not much time as settlement had to occur next week or ANZ would take over the Belgravia business.

106. [163]

     Gerard and Bevan Ferrari give evidence of different versions of what was discussed at the 25 September meeting.

107. [164]

     In his first affidavit, Gerard Ferrari deposed to a conversation in the following terms:

108. [165]

     In a later affidavit, Gerard Ferrari deposed to a conversation in the following terms:

109. [166]

     Gerard Ferrari says that at the end of the conversation he said words to the effect of: “I think we have a deal in place and you should sleep on it. If you want to go ahead with this deal, it would be cleanest if it is done at the same time as our deal with Belgravia.”

110. [167]

     Bevan Ferrari deposes that: Gerard Ferrari did most of the talking; the discussions centred around how the business would run if the deal was done and Mr Milicevic and Ms Golovchenko’s roles; Bevan Ferrari said words to the effect that the “Belgravia deal was done”, “you own 60% of nothing” and “ANZ would place Belgravia into administration due to the debts it owes”; they discussed that the Myer stores that Mr Milicevic was operating would come under Ferrari East’s control; and he would not have said words to the effect that “we have bought everything”, “yes, but we’re the franchisor and so we can terminate that franchise” or “then you will own 60% of nothing. We are doing you a favour by buying Belgravia’s business and offering you an ongoing role in our business”.

111. [168]

     In an affidavit in response, Mr Milicevic denied saying the words attributed to him by Gerard Ferrari at [165] above. He says that he never discussed selling “stock” in the Myer JV, the discussion was about the transfer of his shareholding of the Myer JV (being the shares in Dynamic in exchange for shares in Ferrari East) and gave evidence of the following conversation at the meeting:

112. [169]

     There is no dispute that: Mr Milicevic was told that the deal with Belgravia was settling the following week and that the Defendants wanted Mr Milicevic to “come on board”; Mr Milicevic expressed surprise that Mr Peck had done the deal without telling him when he was “a 60% owner” and that he was not given the first option to buy them out; Bevan Ferrari said it was “too late… You own 60% of nothing… The deal is done”; Gerard Ferrari acknowledged that Mr Milicevic did not have to do the deal; and Mr Milicevic asked what he would be doing for the new company and was told by Gerard Ferrari that they wanted him as a partner and as a State Manager for New South Wales.

113. [170]

     It is also common ground that they talked about the terms of the deal, that at the end of the meeting Gerard Ferrari said he thought they had a deal in principle but they should sleep on it and that Mr Milicevic was aware that the Defendants wanted to do a deal with him on 1 October 2013 so it could be done on the same day as the BSA with Belgravia (T17.47–138.8).

114. [171]

     The disputes about what was discussed at the 25 September meeting concern three matters: first, the reasons given for why Mr Milicevic owned “60% of nothing”; second, what was said about “assets”, “stock”, the possibility of a Shareholder Loan, “company” and “Dynamic”; and third, the description of the proposed role of State Manager (T137.27–8).

115. [172]

     As to the first matter, Bevan Ferrari gave evidence that he said words to the effect of “ANZ would place Belgravia into administration due to the debts it owes” and “you own 60% of nothing” but said that the latter comment was made in the context of discussing whether Myer would extend the licence agreement with Belgravia. He otherwise does not accept the words attributed to him by Mr Milicevic.

116. [173]

     I prefer Bevan Ferrari’s evidence to that of Mr Milicevic. This is based on the contents of the email at [180] below and Mr Milicevic’s own evidence that at the meeting he also said words to the effect that he “owned 60% of nothing” in the context of the business being dependent on Myer continuing to grant the concessions.

117. [174]

     As to the second matter, I am not persuaded that Gerard Ferrari referred to Mr Milicevic as the “60% owner of the assets” in the Myer JV. I consider it more likely that he referred to Mr Milicevic owning “60% of the Myer JV” based on how he described Mr Milicevic’s interest in his previous and later emails.

118. [175]

     As for Mr Milicevic, I accept his evidence that he referred to Belgravia selling its 40% shareholding as he owned “60%”, as it is consistent with his use of that expression in his email to Mr Peck at [158] above. However, I am unpersuaded that he referred to “that company” or to Dynamic at the 25 September meeting, and do not accept his evidence that there was no discussion about selling stock. Mr Milicevic accepted in cross-examination that he could not recall using the word “company” in terms of the interest he held in the Myer JV (T140.34) and his evidence that he referred to Dynamic is at odds with the contemporaneous documents, particularly the emails between him and Gerard Ferrari on 28 September and 1 October 2013, none of which refer to Dynamic by name or as the company that owned the stock used for the Myer JV business, and his earlier affidavits which do not refer to a conversation in those terms. In my view, the contents of the email sent by Gerard Ferrari to Mr Milicevic on 28 September (referred to at [180]–[181] below) makes plain that the topic of stock was raised by Mr Milicevic at the meeting and was the subject of some discussion. An objective reading of the email satisfies me that Mr Milicevic was interested to know how 60% of the stock held by the Myer JV would be valued by Ferrari East and whether he would receive payment for it, which is more consistent with the conversation deposed to by Gerard Ferrari (as set out at [165] above).

119. [176]

     As to the third issue, Gerard Ferrari’s evidence is set out at [164].

120. [177]

     Mr Milicevic’s affidavit evidence did not address that matter but he gave evidence in cross-examination that Gerard Ferrari described the role as “minimal role, absolute minimal role. No more than what - less than what you’re doing now” (T137.27–8). I prefer and accept Gerard Ferrari’s evidence. Mr Milicevic’s account was new and inherently implausible, in my view, given he was offered $110,000 per annum for the role and it involved overseeing employees and managing landlords, franchisees and more than the seven Myer JV stores.

121. [178]

     As to the Plaintiffs not calling Ms Golovchenko as a witness, I do not consider that I should draw an inference that her evidence would not have assisted the Plaintiffs. Having regard to her limited role at the meeting and the period of time that had elapsed, it is difficult to conclude that Ms Golovchenko could have given any meaningful evidence about what was discussed. Further, even if such an inference could be drawn, in my view, it would not assist the Defendants in establishing the agreement for which they contend.

122. [179]

     On 28 September 2013, Mr Milicevic left a voicemail for Gerard Ferrari about the proposed deal.

123. [180]

     Later that day, Gerard Ferrari sent a lengthy email to Mr Milicevic stating at the outset that he was “rapt that one way or another we are partners again”. In the email, Gerard Ferrari expressed the view that Mr Milicevic should make his decision from a business and financial perspective and not an operational one. He stated that the stores in New South Wales that Mr Milicevic would be overseeing would have a lot more resources than simply Mr Milicevic and Ms Golovchenko, and that he saw Mr Milicevic’s role as being “very strategic, dealing with landlords re leases, dealing with Myer re current & future stores and dealing with the few remaining franchisees only on major things”.

124. [181]

     In the email, Gerard Ferrari expressed the view that “the Franchise system is dying” and “things must change if we are to be successful”, and went on to state:

125. [182]

     Gerard Ferrari was asked about the reference to the ““real” val closer to $6m… prior to the JV or any other stores coming back to FE” in the context where Gerard Ferrari had previously referred to a valuation of $6 million being predicated upon bringing other businesses, including the joint venture, back to Ferrari East. In cross-examination, Gerard Ferrari accepted that his email to Mr Milicevic on 28 September referred to $6 million as the figure that he had in mind that the business was worth but could not explain the discrepancy. He also gave evidence that his partners probably did not agree with him and they thought the business was valued at more like $4 million, he felt that the extra stores coming on board made the business worth more and described that he “just felt” that they could value the business at a figure in that range (T302.10–34; T303.7–33).

126. [183]

     Mr Milicevic called Gerard Ferrari after receiving the 28 September email. He deposes to a conversation in which he told Gerard Ferrari that he needed more time to consider the sale and his legal options against Ferrari East and Belgravia, and that he may have to get an injunction if he did not get more time. He gives evidence that Gerard Ferrari then said:

127. [184]

     Gerard Ferrari does not recall that conversation and says that he would not have said those words as he did not intend to place pressure on Mr Milicevic.

128. [185]

     On 1 October 2013 at 4.25am, Mr Milicevic sent an email to Gerard Ferrari, copying in Bevan Ferrari, which attached a document that set out three proposals for their future relationship. At 6.48am, Gerard Ferrari responded by email, copying in Bevan Ferrari and attaching a copy of Mr Milicevic’s document with his comments. For ease of comprehension, the following paragraphs set out various elements of Mr Milicevic’s document with Gerard Ferrari’s comments in italics.

129. [186]

     In the document, Mr Milicevic introduced the proposals and Gerard Ferrari commented on them (in italics) in the following terms:

130. [187]

     The document then noted that Mr Milicevic was assured that no matter how they moved forward he would be no worse off than he currently was; Gerard Ferrari agreed.

131. [188]

     Option (A) along with Gerard Ferrari’s comments (in italics) is set out as follows:

132. [189]

     Mr Milicevic’s email then set out a number of matters, which he asked to be kept in mind “in order for you to understand our thinking on Option (B)”, which are set out below with Gerard Ferrari’s response (in italics):

133. [190]

     Option (B) is then described as “TRADE IN CURRENT SHARE HOLDING OF JV FOR A PERCENTAGE OF THE NEW FE” underneath which Mr Milicevic lists five matters that are set out as follows along with Gerard Ferrari’s responses (in italics):

134. [191]

     Option (C) is referred to as “HYBRID OPTION, COMBINATION OF (A) AND (B)” and provided for the Myer JV to stay in place as per Option (A) and for Mr Milicevic to be appointed as Store Manager and sit on the board. Gerard Ferrari responded that he did not think Option (C) was possible.

135. [192]

     Also, in the document:

136. [193]

     In cross-examination, Mr Milicevic was asked about his reference to “share holding” at the start of his document (set out at [186] above). He rejected that it was used to describe the 60% interest he had in the Myer JV and that he was not adverting in any way to “any company shares” (T151.5–21).

137. [194]

     When asked about Mr Milicevic’s proposal in Option (B), Gerard Ferrari gave evidence that (T310.1–23):

138. [195]

     Mr Milicevic deposes that, early in the morning of 1 October, he spoke with Gerard Ferrari and they had a conversation to the following effect:

139. [196]

     Mr Milicevic says that the conversation continued for about an hour. He cannot recall all that was discussed but said that it included discussions of the profitability of Ferrari East and the dividends he would receive, and that towards the end of the call there was the following exchange:

140. [197]

     Gerard Ferrari says that he did not have a conversation with Mr Milicevic in the terms set out at [195]–[196] above and gave evidence of a conversation with Mr Milicevic on the morning of 1 October in the following terms:

141. [198]

     Gerard Ferrari says that he then spoke to Bevan Ferrari and they agreed that Ferrari East should go ahead with the deal with Mr Milicevic on the basis of a payment of $250,000 at 8%. He gives evidence of a further conversation with Mr Milicevic on 1 October 2013 in words to the following effect:

142. [199]

     Mr Milicevic denies that conversation and says that he never had any conversation with Gerard Ferrari in which he agreed to transfer an “interest in the stock”. He also gives evidence that the $250,000 figure was raised by him during their conversation on 1 October as an increase from the $200,000 figure, describing it as a “sweetener” to get him over the line and that the figure was not tied to the value of stock.

143. [200]

     I consider it likely that Gerard Ferrari said to Mr Milicevic that Ferrari East wanted to do a deal with Mr Milicevic that day and that Mr Milicevic may have asked to leave the Myer stores as they were for three months. Those statements are supported by the documents in evidence. However, I am unconvinced by Mr Milicevic’s evidence that Gerard Ferrari said they had to do a deal “or else the sale of Belgravia’s business doesn’t happen today and you risk losing everything”. Mr Milicevic’s evidence, to the effect that he was told that the Belgravia deal was dependent or conditional on the deal with Mr Milicevic also proceeding on 1 October, is inconsistent with his evidence that he had been told that Ferrari East’s deal with Belgravia had been done and would settle on 1 October 2013 (such as by Mr Peck as referred to at [158] above and at the 25 September meeting) and the contents of Gerard Ferrari’s 28 September email and the 1 October document, both of which contemplated the scenario of Mr Milicevic choosing not to do a deal with Ferrari East and staying “as is” with Ferrari East as his partner in the Myer JV business in place of Belgravia. In that context, I accept Gerard Ferrari’s evidence that he would not have said that if Mr Milicevic did not agree to transfer his share of the Myer JV then that would jeopardise Ferrari East’s acquisition of Belgravia’s business because Ferrari East had already entered into a contract with Belgravia.

144. [201]

     As to the discussion at [196] above, Gerard Ferrari may have referred to their 20 year friendship and Mr Milicevic being able to trust him, but I am not persuaded that Gerard Ferrari said to Mr Milicevic that he would have income guaranteed for the rest of his life. That statement is at odds with the contents of the 1 October document, where Gerard Ferrari indicated that the Ferrari East team would be operating on a “performance basis”, and it is inherently implausible, in my view, and I reject Mr Milicevic’s evidence about that matter.

145. [202]

     It is common ground that Mr Milicevic raised the $250,000 figure during their initial conversation but there is a dispute about what was said about that figure and whether there was a second conversation that morning. I find that, after speaking to Bevan Ferrari, Gerard Ferrari communicated to Mr Milicevic that it was agreed that the value of the Shareholder Loan would be $250,000 and that Ferrari East would pay 8% interest on it, and Mr Milicevic agreed to do the deal with Ferrari East on that basis. But I am unpersuaded by Gerard Ferrari’s evidence that he said the $250,000 figure was based on the transfer, on an agreed valuation of the stock of the Myer JV, or that he and Mr Milicevic referred to a transfer of Mr Milicevic’s 60% interest in the stock of the Myer JV on that basis. This is for the following reasons. First, the emails sent by Gerard Ferrari later that day do not refer to a transfer of 60% in the interest in the stock of the Myer JV but to a 60% share in the JV. Second, Gerard Ferrari’s evidence at [198] above was not included in his initial affidavits and appeared for the first time in his third affidavit that was sworn just prior to the hearing at around the time of an amendment application. The conversation is an important part of the Defendants’ case and there was no reason for it not to have been referred to previously if it had been discussed in those terms. Third, Gerard Ferrari’s account of the conversation seems inherently implausible given he had referred to the “loan account” and the “share purchase price” as being based on stock value, and the experience Mr Milicevic brings to the group, or a combination of both, in the 1 October document. It also makes little commercial sense for the $250,000 figure to be based on an agreed valuation of the Myer JV stock which Ferrari East had valued at $200,000.

146. [203]

     On 1 October 2013 at about 11.00am, the BSA transaction completed.

147. [204]

     At 7.00pm, Gerard Ferrari sent an email to Mr Kain and Mr Tsonis, copied to Mr Milicevic and Bevan Ferrari, which set out the key points concerning the deal agreed with Mr Milicevic that day as follows:

148. [205]

     Shortly after, Gerard Ferrari sent an email to ANZ (Ferrari East’s bankers) which referred to an agreement reached that day with Mr Milicevic and stated:

149. [206]

     Mr Milicevic gives evidence, which I accept, that he and Gerard Ferrari did not discuss on 1 October 2013, or in any earlier conversations, the precise legal mechanisms by which his and Mrs Milicevic’s stake in the Myer JV would be transferred to Ferrari East. He also gives the following evidence: as Ferrari East had entered into an agreement to buy Belgravia’s business, he assumed that Mr Peck and Mr Lord would or had transferred Belgravia’s share in Dynamic and its units in the JV Trust to Ferrari East; he did not know that that could not occur without his knowledge or consent as he had not read the JV Trust Deed or the constitution of Dynamic; and at no point did he think that Gerard or Bevan Ferrari were unaware that the Myer JV was run through a corporate entity and a trust, and he did not turn his mind to that issue at the time.

150. [207]

     It is common ground that on 1 October 2013 Ferrari East took possession and control of the seven stores and the assets used to conduct the Myer JV business (including the stock, work in progress, staff entitlements and fit-out), and took over responsibility for the employees and the administration of the business in a financial and managerial sense. In other words, with effect from 1 October 2013, Dynamic as trustee for the JV Trust ceased operating the six Myer concessions and the Bondi Junction store that had been the subject of the Myer JV and they began to be operated by Ferrari East as “company owned stores”.

151. [208]

     This is reflected in an email sent by Gerard Ferrari to Mr Milicevic and Bevan Ferrari on 2 October 2013 which set out the key administrative issues in relation to the transition of the Myer JV to Ferrari East. The email stated that: the Myer payment, which was to be received by Ferrari East that Thursday, was to be forwarded onto the Myer JV in the normal manner but the payment for the following weeks would be retained by Ferrari East with an adjustment for Monday, 30 September; the Myer JV would need to pay staff and superannuation up to 30 September, with Ferrari East to do its first pay run on 15 October for the period from 1 to 13 October; settlement for the Bondi Junction store would be arranged once the EFTPOS terminal was installed; and Ferrari East would take over all staff entitlements pertaining to holiday pay and long service leave. The email also noted that the Clarence St store would continue to conduct its own administration and payroll, pending further negotiations.

152. [209]

     It is also common ground that in the next day or so Ferrari East agreed to pay Mr Milicevic $150,000 per annum, rather than $110,000 per annum, for his role as State Manager.

153. [210]

     It appears that around this time Dynamic changed its ABN to signify a change in the business, namely, that only the Clarence St store remained trading. According to a letter dated 10 September 2015 from Ms Yun, an employee of Sales Momentum, to the liquidator of Dynamic, Dynamic’s ABN was changed upon the sale of the Myer stores on the instruction of Mr Peck which was confirmed by external accountants. The evidence indicates that Dynamic continued to operate after 1 October; it paid wages in relation to the Clarence St store and the income and expenses in relation to that business continued to be included in Dynamic’s accounts.

154. [211]

     On 3 October 2013, presumably in response to the request to prepare a “contract for sale”, Mr Tsonis sent an email to Gerard Ferrari, copied to Bevan Ferrari and Mr Milicevic, asking for the deed or indenture in respect of the Myer JV so that Kain Lawyers could review the document in respect of the “transfer mechanisms… to ensure the JV interest is unconditionally transferred from Mr Milicevic to Ferrari East”. The following morning, Mr Tsonis sent an email to Mr Milicevic requesting the constituent documents in respect of the Myer JV. Later that day, Mr Milicevic sent a copy of the Myer JV Agreement to Mr Tsonis, describing it as the “initial agreement signed off with BF in 2010”. He also stated that changes had been made “without really affecting how the new contract between ourselves and the Ferrari’s gets written up” (being the changes described at [79] above) and that he and Gerard Ferrari went back a long time so there was no need to be concerned of any “implied conditions on the transfer as there won’t be any”.

155. [212]

     On 4 October 2013, Mr Peck sent an email to Mr Milicevic, copied to Gerard and Bevan Ferrari, asserting that the Myer JV owed Belgravia amounts for trade creditors, unpaid fit-out fees, display stock agreements and profit share up to 30 September 2013, the Myer JV also owed Mr Milicevic for unpaid profits and the original capital invested, and they needed to discuss how to do this.

156. [213]

     That afternoon, there was an exchange of emails between Mr Milicevic and Gerard and Bevan Ferrari in which Mr Milicevic asked them to confirm his understanding that Ferrari East had bought out Belgravia including “all stock… any stock levels in stores that were on display facility/consignment”. Bevan Ferrari replied by stating that they “bought the assets of Belgravia but any investments would be net of debt”, he thought Mr Milicevic “owned the stock valued at approx $450k” and he did not realise it was on consignment. In response, Mr Milicevic clarified that they were carrying about $650,000 of stock in total, $450,000 was unencumbered stock that was not on consignment and he “would hate to think that you thought that I would use consignment stock and value it as part of the JV”.

157. [214]

     On 5 October 2013, Mr Boutin sent an email to Bevan Ferrari advising that the licence agreement with Myer had been approved, although Myer had not yet sent through the official document due to delays.

158. [215]

     On 9 October 2013, Mr Tsonis sent an email to Mr Milicevic, copied to Gerard and Bevan Ferrari, requesting details of the “JV entity”, the “Unit Trust”, the unitholders and the entity to which Ferrari East should issue shares in order to finalise a draft joint venture sale agreement for review by the parties, along with the “ancillary documents to effect the transfer of the JV interest” and cause the issue of the shares to Mr Milicevic in Ferrari East.

159. [216]

     On 11 October 2013, an employee of Sales Momentum provided the requested details to Mr Tsonis and copied the email to Bevan Ferrari. The email identified Dynamic as the JV entity and trustee for the JV Trust, included the first three pages of the JV Trust Deed (which identified Dynamic as the trustee) and stated that the shares should be issued to Mrs Milicevic as trustee for the MF Trust.

160. [217]

     Bevan Ferrari deposes that, prior to receiving the 11 October email, he did not know that Mr Milicevic did not have title to 60% of the Myer JV Assets.

161. [218]

     Bevan Ferrari also deposes that from around October 2013: he and Gerard Ferrari agreed that Bevan Ferrari would deal with Mr Milicevic in relation to all future negotiations regarding the transfer of “60% of the assets”; in order for Ferrari East to obtain title to the Myer JV Assets, it would require the consent of Dynamic; in order to obtain Dynamic’s consent, he and Gerard Ferrari agreed that Mr Milicevic had to settle his past dealings with the other directors of Dynamic and procure Dynamic’s consent; and Ferrari East, Mr Milicevic and Dynamic would enter into an agreement formalising the transfer.

162. [219]

     Gerard Ferrari also deposes that in October 2013 he became aware that Mr Milicevic did not own 60% of the Myer JV Assets and they were owned by Dynamic, who acted as trustee for the JV Trust. Gerard Ferrari says that, as a result, it became apparent that Ferrari East would require the consent of Dynamic to obtain legal ownership to the entirety of the Myer JV Assets. He also gives evidence that at no point in time during his discussions with Mr Milicevic did Mr Milicevic say that he did not directly own the Myer JV Assets.

163. [220]

     Thus, by no later than 11 October 2013, Gerard and Bevan Ferrari were aware that Dynamic, not Mr Milicevic, owned the Myer JV Assets and for Ferrari East to obtain title to those assets, it had to deal with Dynamic. As events transpired, Ferrari East did not seek to do so.

164. [221]

     On 14 October 2013, Mr Milicevic transferred $100,000 out of Dynamic’s bank account.

165. [222]

     Mr Milicevic deposes that he transferred the money because he was concerned that Mr Peck might take it having regard to the issues Mr Peck had raised and that the money sat in the account to which it was transferred, or another account, from 2013 onwards. When cross-examined about this matter, Mr Milicevic could not recall which account he transferred the money to although, upon seeing the Spurling JV Unit Trust General Ledger (which identified “Acc 2”), he considered it was possible that the money was transferred into a second bank account owned by Dynamic which he thought Mr Peck may not have had access to because it related to the Clarence St store (T192.11–197.12).

166. [223]

     Mr Milicevic’s evidence on this issue was unconvincing. The claims relating to the withdrawal of the $100,000 by Mr Milicevic may have been raised at a late stage in the proceedings (pursuant to amendments made on 18 February 2022) but, in my view, Mr Milicevic’s evidence did not satisfactorily explain why the money had been transferred out of Dynamic’s bank account and had been retained by him in an unidentified account from 2013 onwards. His evidence in cross-examination that he transferred the money in conjunction with Gerard Ferrari (T193.50) was also new and there was no reason why that matter had not been referred to in his affidavits.

167. [224]

     In an internal email dated 17 October 2013, sent by Gerard Ferrari to Mike Schilling, an employee of Belgravia, copied to Bevan and Brian Ferrari, Gerard Ferrari asked how the stock that it had taken over from the Myer JV should be dealt with, referring to Mr Milicevic conducting a complete stocktake and to stock of around $700,000 in value which included $100,000 sitting in the display facility. Bevan Ferrari’s response was that:

168. [225]

     Gerard Ferrari gives evidence that in mid to late October he met with representatives of Myer to discuss Ferrari East’s acquisition and to reintroduce himself as the contact person for the Myer business. His evidence (which was admitted on a limited basis) is that he was told that Myer did not want to continue the relationship with Spurling as it did not like the brand or the franchise model, Myer wanted to give three months’ notice to Spurling to move out of the stores but would allow Ferrari East to operate for one year to prove it was changing the brand to Ferrari and going “vertical”, and there would be new management in place.

169. [226]

     The Plaintiffs submit that the Court should reject this hearsay evidence. The conclusion I have come to is that I can place no reliance on it. This is because Mr Milicevic, who had day-to-day contact with Myer representatives as part of his role managing the Myer concession stores during the period from 2010 to 2017, gave evidence that no complaint or suggestion was made to him that Myer was unhappy with the Myer concession stores or wished for them to be closed. There is also contemporaneous documentary evidence that in August 2013, Myer had agreed and acted on the new commercial terms, including the licence fee and term, that reflected that an agreement with Myer was to be renewed (as referred to at [114] above) and there is evidence that Gerard Ferrari sought approval for a change of branding from Spurling to Ferrari East in November 2013 in the context of the acquisition, which approval was finally given in early 2015.

170. [227]

     On 15 November 2013, Mr Milicevic met with Mr Peck to discuss the debts alleged to be owed by the Myer JV. According to Mr Milicevic, Mr Peck said that the “Ferraris have screwed up. They don’t know what they purchased. They did not buy the assets of the JV Trust”.

171. [228]

     In an email Mr Milicevic sent to Gerard and Bevan Ferrari reporting on the meeting, Mr Milicevic expressed concern about Mr Peck’s agenda and noted that Mr Peck was going to invoice Ferrari East for 40% of the stock holding of the Myer JV as Ferrari East “didn’t read the contract properly and he sold his shareholding and not the stock”. Bevan Ferrari responded by email which stated:

172. [229]

     On 20 November 2013, an administrator was appointed to Belgravia.

173. [230]

     On 21 November 2013, Bevan Ferrari sent an email to Mr Tsonis seeking clarification regarding the Myer JV in the context of the BSA as follows:

174. [231]

     In cross-examination, Bevan Ferrari gave evidence that his reference to the balance of the “JV shares” did not mean shares in a company, it was a mistake and he meant to refer to assets (T379.26–33).

175. [232]

     On 21 November, Mr Tsonis sent an email to Bevan Ferrari in response to his query which stated:

176. [233]

     Mr Milicevic also responded to Bevan Ferrari’s 21 November email stating:

177. [234]

     The Plaintiffs say that it is significant that Ferrari East’s lawyers understood the effect of both the BSA and the Myer JV Agreement to be that which is contended for by the Plaintiffs, namely, that the shares in Dynamic and the units in the JV Trust were required to be transferred. When asked about that matter in cross-examination, Bevan Ferrari said that Mr Tsonis’ statement to that effect was not consistent with his understanding of the agreement with Belgravia at that time, although in hindsight he did understand that matter.

178. [235]

     In a phone call later that day, Bevan Ferrari asked Mr Tsonis to request the Myer JV accounts from Mr Milicevic as he understood there to be “loans owed to the JV parties”. According to Mr Tsonis’ file note, he told Bevan Ferrari that Belgravia was obliged to deliver and transfer the business assets to Ferrari East free of encumbrances under the BSA and that any “JV loans” must be settled prior to the interest being transferred.

179. [236]

     That day, Mr Tsonis sent an email to Mr Milicevic and Mr Peck requesting the most recent set of accounts for the JV Trust. In an email responding to Mr Milicevic’s query about why the accounts were needed, Mr Tsonis explained that Ferrari East was entitled to a set of documents given the sale agreement between Ferrari East and Belgravia obligated the transfer of Belgravia’s 40% interest in the Myer JV to Ferrari East (which comprised units in the trust and a share in the trustee company). Mr Milicevic and Mr Peck both sent to Mr Tsonis copies of the Profit and Loss Statement for the JV Trust for the period from July 2012 to June 2013 and the Balance Sheet for June 2013, being the same documents that Mr Peck had sent to Bevan Ferrari on 19 September 2013 (referred to at [146] above).

180. [237]

     On 25 November 2013, Mr Tsonis sent an email to Mr Peck referring to their earlier conversation about “the mechanics of the transfer of the JV Agreement”. The next day, Mr Tsonis sent an email to Mr Peck attaching “the relevant share and unit transfers” to execute (namely a share transfer in relation to Dynamic and unit transfers for the JV Trust) so as to transfer Belgravia’s interest in the Myer JV to Ferrari East as per the BSA. It appears that the share and unit transfers were not executed by Belgravia.

181. [238]

     In cross-examination, Bevan Ferrari gave evidence that Mr Tsonis’ email did not reflect his understanding of the agreement with Belgravia or with Mr Milicevic (T386.44–8).

182. [239]

     As already noted, the Plaintiffs submitted that a Jones v Dunkel inference should be drawn in relation to the Defendants’ failure to call Mr Tsonis to give evidence. I accept that submission. It is apparent that Mr Tsonis played a significant role in advising Ferrari East about the BSA and the agreement with Mr Milicevic, particularly from early October 2013. In my view, it is to be expected that he could have given evidence about those matters and clarified ambiguities in relation to the post-contractual actions of Ferrari East which would have a bearing on the identification of the terms of the agreement. This is particularly so given an affidavit from Mr Tsonis was included in the Court Book but the Defendants declined to call Mr Tsonis at the hearing. The Defendants’ failure to call Mr Tsonis means that I can more comfortably draw the inference, which I consider is available from the evidence, that by early October 2013 the Defendants were aware that Mr Milicevic did not own and was unable to transfer 60% of the Myer JV Assets to Ferrari East as the Myer JV operated through an incorporated entity, Dynamic, as trustee for the JV Trust, that Mr Milicevic and Belgravia’s interests in the Myer JV comprised their shares and units in those vehicles, and that, to obtain title and ownership of the Myer JV Assets, Ferrari East had to acquire them from Dynamic or take control of that company by a transfer of the Plaintiffs and Belgravia’s shares in Dynamic and units in the JV Trust.

183. [240]

     On 16 December 2013, Mr Peck sent an email to Mr Milicevic demanding payment on account of Belgravia’s debt which, according to the schedule attached to his email, was $437,556.20 comprised of fit-out costs, profits and trade debtor for the Myer/Bondi and Clarence St stores. Mr Milicevic responded by stating that he would come up with a fair and reasonable proposal, and suggested that Ferrari East should not be dragged into the dispute as it was “a matter for the old JV and the Clarence Street partnership to sort out”.

184. [241]

     On 18 December 2013, Mr Milicevic sent a without prejudice proposal to Mr Peck for the Myer JV to pay $80,000 to settle the Belgravia account and release Belgravia from any further liabilities, for the Myer JV to pay all tax and superannuation liabilities and for a firm to be appointed to “wind down the company”. Mr Milicevic had discussed the offer with Mr Tsonis and Bevan Ferrari before he sent the email.

185. [242]

     On 19 December 2013, Mr Milicevic sent an email to Gerard and Bevan Ferrari expressing his disappointment with Ferrari East’s position that it would not assign the shares in Ferrari East unless he could get closure with Belgravia and that if he chose to put the “company” into voluntary administration it would create problems in releasing the shares per their agreement. Mr Milicevic noted that he had proposed a “Jan 1 change over” to resolve matters with the Myer JV but they insisted on 1 October 2013, and he understood that he needed to sort out his issues with Belgravia independently as it had nothing to do with Ferrari East.

186. [243]

     In response, Bevan Ferrari sent an email which stated that he thought that they had agreed that Mr Milicevic would settle with Belgravia with an offer of $80,000 for which Belgravia would “give clear title” to the Myer JV and that, unless Ferrari East could get clear title, “we cannot complete the share transfer, however, we have paid the interest component on your loan account & all management fees as per our agreement & will continue to until this is resolved”. His email also noted that Mr Tsonis had advised that it was in all of their best interests to complete the deal but it was a call for Mr Milicevic as Ferrari East had no involvement or influence over the Myer JV, and that Mr Milicevic was not exposed as he was “our business partner & we have your back”.

187. [244]

     In cross-examination, Mr Milicevic gave evidence, which I accept, that he did not consider himself free to ignore what Bevan Ferrari had told him in circumstances where he had not yet received his 5% shareholding in Ferrari East, he was working with that company and the option was presented as being in his interest (T168.1–17; T169.37–171.2).

188. [245]

     The Plaintiffs submit that Bevan Ferrari’s use of the phrase “complete the share transfer” refers to a transfer of the shares of Dynamic to Ferrari East, consistent with their contention that the agreement provides for a transfer of a share in Dynamic and units in the JV Trust. I do not accept that submission. Based on an objective reading of the email exchange, I consider that Bevan Ferrari was referring to the transfer of shares in Ferrari East that Mr Milicevic expected to receive under their 1 October agreement.

189. [246]

     That said, it is apparent that at this time Ferrari East did not want to take control of Dynamic and the JV Trust because Bevan Ferrari was concerned that Ferrari East would take on debts owing to Belgravia (T402.47–403.12) and he considered that Mr Milicevic should resolve the issues in relation to the Myer JV with Belgravia in order to receive his 5% shares in Ferrari East and to finalise the transaction under their agreement.

190. [247]

     On 19 December 2013, Mr Tsonis sent an email to Mr Milicevic which attached a “draft sale agreement” for his review and set out Ferrari East’s position in relation to Belgravia and the “JV issues”.

191. [248]

     The draft sale agreement is an asset sale agreement between Mr and Mrs Milicevic as “Seller” (jointly and severally), Ferrari East as “Buyer” and Dynamic as “Trustee” that provides for the Seller to transfer title to the “Business Assets” to Ferrari East (free from encumbrance) at completion for the purchase price. The draft asset sale agreement:

192. [249]

     As will be observed, the draft asset sale agreement seeks to implement the idea of the Plaintiffs selling the assets they own in the Myer JV with Dynamic as a party consenting to the transaction. There is, of course, a difficulty with the concept that the Plaintiffs owned and could sell to Ferrari East the Myer JV Assets. As the Defendants’ counsel accepted at the hearing, the assets were owned by Dynamic (T59.6–10).

193. [250]

     As to Ferrari East’s position in relation to Belgravia, Mr Tsonis’ email confirmed that the transaction that settled between Belgravia and Ferrari East in October 2013 included the purchase of 40% of the assets in the Myer JV owned by Belgravia and, in relation to the Myer JV issues, Mr Tsonis suggested that the offer that Mr Milicevic made to Belgravia to settle for $80,000 be documented in a deed of release that would provide for Belgravia’s release of Ferrari East from all claims in connection with its purchase of the Myer JV Assets.

194. [251]

     Throughout 2014, further attempts were made by Mr Milicevic and Ferrari East to resolve the claims made by Belgravia.

195. [252]

     On 22 January 2014, Mr Peck sent an email to Mr Milicevic, copied to Gerard and Bevan Ferrari, about the “Myer JV debt” that Mr Peck claimed was owing to Belgravia. Mr Peck’s email stated that the liabilities of the “JV” were represented in the main by JV stock and that he did not know that Mr Milicevic had done a deal with the Defendants “involving the only tangible non cash asset of the JV… the stock”. Mr Peck claimed that the “stock on hand in the JV at 30th September 2013 belonged to the JV a separate entity” which had been bought on credit from Belgravia, he did not know what had been received in exchange for the stock that had been given to Ferrari East, someone owed the Myer JV for “the COST value of the stock” and he believed Mr Milicevic had to work it out with the Defendants.

196. [253]

     Mr Tsonis was instructed by Bevan Ferrari to review Mr Peck’s email and the material provided by Mr Milicevic, which included the without prejudice proposal Mr Milicevic had sent to Mr Peck on 18 December 2013. In an email sent to Mr Tsonis on 29 January 2014, Mr Milicevic referred to his legal team insisting that he “put the JV in to voluntary admin as well” which he did not do due to the request from Mr Tsonis and Bevan Ferrari to sort the matter out amicably with Belgravia so that the shares could be transferred to Mr Milicevic in a smoother fashion. In his email, Mr Milicevic asked Mr Tsonis to ensure that his “Family Trust and [himself] are well protected from any [Belgravia] backlash”.

197. [254]

     On 13 February 2014, Kain Lawyers, on behalf of Ferrari East, sent a letter dated 11 February 2014 to Mr Peck, Mr Milicevic and Dynamic as trustee of the JV Trust which stated that:

198. [255]

     A draft of the 11 February letter had been provided to Mr Milicevic and it was approved by him before it was sent, although he raised concerns that the letter did not appear to protect his position. In an email sent to Mr Milicevic on 13 February 2014, Bevan Ferrari noted that Kain Lawyers could not act for Dynamic, only Ferrari East, and the issues related to Mr Peck’s assertion that Ferrari East did not own Belgravia’s share of the assets, which they refuted. Bevan Ferrari’s email also stated:

199. [256]

     In cross-examination, Bevan Ferrari was asked about the statement in Kain Lawyers’ letter about the transfer of shares or units in the Myer JV entities (referred to at [254(b)] above). He did not accept that it was consistent with his instructions that Ferrari East would refuse to transfer any shares or units, explaining that it would not accept that without a transfer of the “unencumbered assets” (T387.36–7).

200. [257]

     It is difficult to reconcile the assertions in Kain Lawyers’ letter and in Bevan Ferrari’s email, being that Mr Milicevic had confirmed the transfer of his interest in the Myer JV Assets which was deemed to have been transferred to Ferrari East and Bevan Ferrari’s evidence at [219] above that he was aware that Mr Milicevic did not have title to 60% of the assets and Ferrari East had to obtain consent from Dynamic to obtain title.

201. [258]

     On 13 February 2014, Mr Tsonis sent an email to Mr Milicevic and Bevan Ferrari which attached a copy of the “draft sale agreement (Haris selling JV assets to FE in exchange for 5% of shares in FE)” with some comments within, and asked Mr Milicevic to review and provide comments/approval in response. The attached draft sale agreement is not in evidence but I infer it is in similar terms to the draft asset sale agreement described at [248] above.

202. [259]

     There is no evidence of any written response to this email from Mr Milicevic and it is common ground that the parties did not execute the “sale agreement”.

203. [260]

     Mr Milicevic gives evidence (which was not disputed by Gerard Ferrari) that Gerard Ferrari told Mr Milicevic not to execute the sale agreement and there was no rush to do so. It is also agreed that at some point in late 2013 Gerard Ferrari said to Mr Milicevic that even though the agreement between them had not been signed, they would continue to treat Mr Milicevic as a partner and pay him the interest payments and his management fees.

204. [261]

     On 2 March 2014, Nick Stretch Legal Pty Ltd (Stretch Legal), on behalf of Belgravia, responded to Kain Lawyers’ 11 February letter. Stretch Legal’s letter stated that “we are instructed that our client does NOT assert that its interest in the joint venture has not been transferred to your client under the sale of business agreement” and “now that it has emerged that the joint venture is constructed by a trust vehicle” Belgravia would, upon request from Ferrari East, be happy to provide the documents required to transfer to Ferrari East its units in the JV Trust and its share in the trustee. The letter also noted that the BSA defined “Assets” to exclude trade receivables and debts (as “Excluded Assets”), claimed that the Myer JV owed Belgravia the amount of $437,556.20, stated that the disposal of the Myer JV stock by Mr Milicevic to Ferrari East was taken without the knowledge and consent of the directors of Dynamic other than Mr Milicevic, and threatened to wind up Dynamic unless satisfactory payment arrangements were made within 5 business days.

205. [262]

     Further letters were exchanged between Kain Lawyers and Stretch Legal on 14 and 27 March 2014. Kain Lawyers took issue with the assertion that Belgravia’s equity in the Myer JV had been transferred to Ferrari East under the BSA and rejected Belgravia’s offer to remedy any defect in the transfer, stating that Ferrari East contracted to purchase defined assets and did not acquire equity in any entities in which Belgravia held an interest. This contention appears to be contrary to Ferrari East’s lawyers’ position post-completion, as referred to at [232] and [237] above. Kain Lawyers also asserted that Ferrari East had paid Belgravia and Mr Milicevic valuable consideration for their respective interests in the Myer JV Assets, referring to the agreement with Mr Milicevic and his sanctioning of the transfer of the Myer JV Assets to Ferrari East. In response, Stretch Legal contended that Ferrari East was aware at all times during the transaction that the Myer JV was housed in a separate entity, referring to the emails between Bevan Ferrari and Mr Peck on 22 July, 6 August and 19 September 2013 (described at [98], [107] and [146] above).

206. [263]

     On 16 June 2014, Kain Lawyers sent a letter in response to Stretch Legal’s 27 March letter offering to resolve the issues on terms that provided for Ferrari East to pay to Dynamic a one-off ex gratia payment of $20,000 with no admission of liability, for Mr Milicevic and Mr Peck (as directors of Dynamic) to pay to Belgravia the balance of the Myer JV cash at bank (estimated to be about $80,000 to $90,000) and for entry into a deed of release by Dynamic, Mr Milicevic, Belgravia, Ferrari East and their associated entities. Kain Lawyers maintained that the transfer of Belgravia’s interest in the Myer JV Assets had been validly effected and enclosed what was described as a “diagrammatic representation of the relevant Myer JV asset transfers” (reproduced at Figure 1 below).

207. [264]

     Prior to Kain Lawyers sending their letter, Bevan Ferrari forwarded the diagram to Mr Milicevic for his comments. That led to an exchange of emails between Mr Milicevic and Bevan Ferrari on 9 and 11 May 2014 in which Mr Milicevic suggested that, in the context of the Clarence St store business, he and Mr Dib give Ferrari East as close to $80,000 as possible, Ferrari East take over all negotiations with Belgravia regarding any outstanding matters from the Myer JV and Clarence St store, and Ferrari East release he and Mr Dib of any outstanding matters. That offer was not accepted by Bevan Ferrari who wrote to Mr Milicevic, referring to Mr Milicevic’s commitment from a “shareholder & consultant perspective”, and stated that they needed approval to go ahead with an offer to Belgravia as they could not act for Dynamic, that it “in no way changes the share allocation to your Family trust/company”, that Ferrari East was happy to represent Mr Milicevic and Mr Dib in the negotiation but could not release either of them for matters with Belgravia, and that they had his and Mr Dib’s best interests at hand as he had given “100% of the liquid assets of DP to BF”.

208. [265]

     The offer made by Ferrari East in Kain Lawyers’ 16 June letter was not accepted by Belgravia.

209. [266]

     On 28 September 2014, Bevan Ferrari issued a shareholder’s report to Ferrari East's investors. No reference was made to the dispute with Belgravia. A copy was sent to Mr Milicevic.

210. [267]

     On 13 October 2014, Stretch Legal wrote to the administrator of Belgravia (Vince Acqualino) recommending that consideration be given to placing Dynamic into formal involuntary administration on the basis that Belgravia was a creditor of Dynamic, its equity interest in the Myer JV had been sold to Ferrari East without debts and Mr Milicevic had agreed to transfer the stock of the JV Trust without the knowledge and consent of Dynamic’s other directors. Mr Peck gave a copy of that letter to Bevan Ferrari.

211. [268]

     In early 2015, Ferrari East and Myer entered into a new licence agreement for the Myer concessions called the “Services and Support Agreement”. The Services and Support Agreement was for a five year term commencing on 31 January 2015 but included a termination clause that provided each party with the right to terminate by giving three months’ written notice at any time after the third anniversary of the commencement date, being 31 January 2018.

212. [269]

     On 5 January 2015, Mrs Milicevic resigned as the secretary of Dynamic.

213. [270]

     On 13 July 2015, Mr Milicevic received from Mr Peck and Mr Lord a notice of board meeting for Dynamic for 20 July 2015 that proposed the appointment of an administrator on the basis of insolvency.

214. [271]

     The meeting was held on 23 July 2015. Mr Milicevic attended by telephone. Mr Peck was appointed chairman. The meeting resolved that Dynamic was or was likely to become insolvent and for the appointment of Anthony Cant as the administrator of Dynamic, with Mr Peck and Mr Lord voting for and Mr Milicevic against.

215. [272]

     In a report prepared by Mr Cant pursuant to s 439A(4)(a) of the Corporations Act 2001 (Cth) (Corporations Act) and dated 19 August 2015, Mr Cant referred to: the BSA providing for a sale of Belgravia’s equity interest in the JV Trust to Ferrari East; Mr Milicevic reaching an agreement to transfer all of his interest in the Myer JV to Ferrari East and, as part of that agreement, agreeing to transfer all of the stock of the JV Trust to Ferrari East; Dynamic not being a party to the sale documentation; and there appearing to be no legally supportable basis for Ferrari East to claim that they are not liable to the company for the stock taken over. The report identified that unsecured creditor claims had been admitted for Belgravia in the amount of $437,556.20 and Mrs Milicevic as trustee for the MF Trust in the amount of $176,723.20 but that claims made by Sales Momentum (of $268,180), Platinum Sales Group (of $11,402.94) and Ferrari East (of $44,839.30) had not been admitted.

216. [273]

     Mr Cant did not accept Ferrari East as a creditor as he considered that “the business [of Dynamic] ceased trading” on 30 September 2013.

217. [274]

     On 27 August 2015, Dynamic was placed into liquidation.

218. [275]

     Around the time of the liquidation of Dynamic, Mr Milicevic signed a report as to its affairs and a statement verifying the report in his capacity as a director of that company. The statement refers to unsecured creditors’ claims by three of Mr Milicevic’s companies: Sales Momentum, Platinum Sales Group and Prime Telecom.

219. [276]

     Mr Milicevic was cross-examined about the claim made by Sales Momentum for the amount of $268,180, which related to management fees of $150,000 per annum for the period from 1 October 2013 to July 2015 which were the subject of invoices issued by Sales Momentum to Dynamic. This was in the context where Sales Momentum had invoiced Ferrari East for Mr Milicevic’s management fees in accordance with the Consultancy (of $150,00 per annum) for the same period.

220. [277]

     Mr Milicevic’s evidence on this issue was not convincing. He accepted that the invoices were backdated. In my view, his evidence did not adequately explain why Sales Momentum was issuing invoices for $150,000 per annum in respect of management fees to different entities at the same time. He also could not identify the agreement pursuant to which Sales Momentum issued the invoices to Dynamic or the stores that the fees related to, and he gave inconsistent evidence by initially stating that the invoices related to the management of the seven stores under the Myer JV Agreement but later stating that they related to “what was left under Dynamic”, referring to the Clarence St store which still had to be managed (T189.33–190.33). His explanation in cross-examination that the creation of the invoices and the claim in the report as to the affairs of the company was based on the advice of his lawyers was not persuasive given that Mr Milicevic was a director and responsible for providing instructions for the basis of the claim. The claim may have been prepared in a context where Mr Milicevic and the Defendants hoped that a friendly administrator would be appointed and where Gerard Ferrari was aware that Mr Milicevic was charging Dynamic, but I do not accept the submission that the evidence indicates that Gerard and Bevan Ferrari approved the strategy to issue those invoices or that Mr Milicevic’s claim did not involve some form of “double dipping” in relation to his management fee.

221. [278]

     On 25 September 2015, Kahns Lawyers, acting for Mr Cant as liquidator of Dynamic, sent a letter to Kain Lawyers foreshadowing legal action on the basis that the liquidator was concerned that Dynamic’s stock was incorrectly transferred to Ferrari East for no consideration and asking whether Ferrari East would be willing to offer a fair amount for the value of the stock.

222. [279]

     On 12 May 2016, Gerard Ferrari sent an email to Mr Milicevic and Bevan Ferrari advising that due to “a tough cash flow period ahead” they were going to cease giving interest payments to the shareholders for June, July and August, noting that it was intended that later payments would top up the missed payments. There is no evidence that Mr Milicevic responded to that email.

223. [280]

     On 23 May 2016, Kain Lawyers, on behalf of Ferrari East, wrote to Mr Milicevic’s solicitors, O’Neill McDonald Lawyers, in relation to the proceedings threatened by the liquidator of Dynamic against Ferrari East. The letter denied the allegations made by Dynamic’s liquidator in respect of the transactions pursuant to which Belgravia and Mr Milicevic agreed to transfer the Myer JV Assets to Ferrari East, and indicated that they proposed to meet with the liquidator to negotiate a resolution. Amongst other things, Kain Lawyers’ letter stated that, prior to entry into the BSA, the directors of Belgravia and Mr Milicevic (in his own capacity) made representations to Ferrari East that Belgravia and Mr Milicevic either had good title to the Myer JV Assets or would acquire good title prior to completion, that Ferrari East was purchasing the Myer JV Assets, that any right by Dynamic to immediate possession to the Myer JV Assets was impugned by Belgravia and Mr Milicevic having moved certain assets out of the Myer JV, and that Ferrari East was not a party to the agreements between Dynamic, Belgravia and Mr Milicevic regarding the transfer of the assets out of the Myer JV.

224. [281]

     Two comments can be made about the allegations in this letter. First, as Mr Milicevic was not speaking to Ferrari East in relation to the transactions before the BSA was signed on 5 September 2013, the claim that he made representations to Ferrari East that he had good title to the Myer JV Assets or would acquire good title prior to entry into the BSA is incorrect. Second, I have seen no evidence to suggest that Belgravia and Mr Milicevic moved assets out of the Myer JV by agreement with Dynamic.

225. [282]

     On 23 May 2016, Bevan Ferrari sent an email to Mr Milicevic as a follow up to the 23 May letter from Kain Lawyers which described the issue as Ferrari East having “entered into a transaction with both Belgravia and Mr Milicevic to purchase certain assets of Dynamic Platinum for which we provided valuable consideration in both cash & scrip; it appears that neither party had good title to these assets”. He also stated that Mr Milicevic had been asked to sort out the Myer JV issue with Belgravia (an issue arising from an agreement which Ferrari East was not a party to), that it seemed unlikely that the issues would be resolved simply and that this would affect “the 5% shareholding as agreed due to your inability to provide [Ferrari East] with clear title”.

226. [283]

     In a further email sent on 24 May 2016, which responded to an email from Mr Milicevic querying why the position of Ferrari East had changed, Bevan Ferrari described the action by the liquidator as Dynamic suing Ferrari East for stock, which Ferrari East believed it had paid by cash to Belgravia and Mr Milicevic via equity in Ferrari East, that it looked like neither party had good title to the assets with neither party owning what they warranted to sell and that Ferrari East was comfortable with its position but would not pay twice for the same asset.

227. [284]

     On 20 June 2016, Gerard Ferrari sent an email to Mr Milicevic informing him that Ferrari East could not afford to pay Mr Milicevic the fee of $150,000 per annum and that Mr Milicevic and Gerard and Bevan Ferrari all had to be paid the same amount of $80,000. Mr Milicevic and Gerard Ferrari exchanged emails about that matter in which Mr Milicevic asked that “this weeks (sic) payment” not be reduced to which Gerard Ferrari agreed.

228. [285]

     Mr Milicevic gives evidence that, a week or two later, he met with Gerard Ferrari to discuss this development. Mr Milicevic says he told Gerard Ferrari that they could not reduce his Consultancy fee because of their agreement and gives evidence that he was given no choice in the matter.

229. [286]

     Gerard Ferrari’s evidence differs from that of Mr Milicevic in some but not all respects. He says that he told Mr Milicevic that the business was not doing as well as they had hoped, the fees Gerard Ferrari and others received had to be reduced, Bevan Ferrari’s salary would be reduced to $80,000 and so Mr Milicevic’s Consultancy fee had to be reduced to $80,000, and, when the business turned around, his Consultancy fee could be increased. Gerard Ferrari says that Mr Milicevic said he was not happy about this but he understood the reasoning.

230. [287]

     On 23 November 2016, the liquidator for Dynamic commenced proceedings in the Federal Court against Ferrari East and Mr and Mrs Milicevic, claiming the sum of $373,683.37 from Ferrari East arising from the sale of the Belgravia business, the sum of $100,000 from Mrs Milicevic arising from the transfer of that amount (as described at [221]–[223] above) and the sum of $473,683.37 from Mr Milicevic arising from both transactions (Federal Court Proceedings).

231. [288]

     The statement of claim filed by the liquidator on 3 March 2017 claimed that: on or after completion of the BSA, Dynamic remained the legal owner of the Myer JV Assets, which it held as trustee for the JV Trust; as at 30 June 2014, the assets were valued at $891,616.22 (which included stock on hand of $359,517.89, trade receivables of $278,539.61 and Myer fit-out of $14,165.48); and after 30 September 2013, Ferrari East and/or Mr Milicevic removed the stock on hand and Myer fit-out, and Ferrari East took possession of it without paying consideration to Dynamic which was, amongst other things, an uncommercial transaction and voidable under ss 588FB and 588FE(2) of the Corporations Act, by reason of which Ferrari East was indebted to the liquidator in the sum of $359,517.89 for stock and $14,165.48 for the fit-out.

232. [289]

     On 22 February 2017, Ferrari East sent a letter to Mr Milicevic purporting to terminate any ongoing negotiations or arrangements between them and their related companies. The letter stated that:

233. [290]

     A number of the statements made in Ferrari East’s 22 February letter are not correct or are not supported by the evidence. As Bevan Ferrari accepted in cross-examination, Mr Milicevic did not make any representations regarding the Myer JV and the Myer JV Assets that Ferrari East relied on in negotiating or entering into the BSA (as asserted in [289(a)] above). Nor is there any evidence to suggest that Mr Peck raised objections regarding the Myer JV Assets acquired under the BSA which led to the negotiations with Mr Milicevic (as asserted in [289(d)] above). The claim that Ferrari East would not finalise negotiations nor enter into the proposed transaction with Mr Milicevic is also at odds with Ferrari East’s claim in these proceedings that it had entered into an agreement with Mr Milicevic on 1 October 2013 that provided for Mr Milicevic to transfer 60% of the unencumbered assets of the Myer JV to Ferrari East.

234. [291]

     In March 2017, Ferrari East settled the claims brought against it by Dynamic’s liquidator in the Federal Court by agreeing to pay $260,000 to Dynamic. The Deed of Settlement and Release provided for the settlement to be on a full and final basis and for the Federal Court Proceedings to be discontinued.

235. [292]

     On 17 May 2017, Mr and Mrs Milicevic settled the claims made against them by Dynamic’s liquidator in the Federal Court Proceedings. The terms of settlement provided for Mr and Mrs Milicevic to pay to Dynamic the sum of $22,500 and to not prove as creditors in the liquidation, whether directly or through any corporate entity. The parties mutually released each other from any proceedings, claims, actions or demands and agreed that the Federal Court Proceedings would be discontinued with no order as to costs.

236. [293]

     On 29 November 2017, Belgravia came out of external administration.

237. [294]

     On 13 December 2018, the Plaintiffs commenced these proceedings.

What were the terms of the agreement made on 1 October 2013?

1. [295]

   The first issue for determination, which is relevant to both the Plaintiffs’ claim and Ferrari East’s cross-claim for relief alleging breach of contract, is the ascertainment of the terms of the agreement which the parties agree was made on 1 October 2013.

2. [296]

   As already noted, the Plaintiffs and the Defendants each plead an agreement was made on 1 October 2013, following which Ferrari East began to operate the Myer JV stores, but on different terms.

3. [297]

   It is common ground that the agreement included the following terms: Ferrari East would give a 5% shareholding in itself to Mr Milicevic; there would be a notional Shareholder Loan of $250,000 made to Mr Milicevic which would be paid proportionately with other shareholders of Ferrari East; monthly interest would be paid (at least initially) on the Shareholder Loan of 8%; Mr Milicevic would provide services to Ferrari East as State Manager for which Ferrari East would pay $150,000 per annum excluding GST; the Consultancy could be terminated on reasonable notice; and the agreement would be recorded in writing.

4. [298]

   It is also common ground that it was agreed that Ferrari East would take over the administration and day-to-day control of the Myer JV stores and their revenue from 1 October 2013.

5. [299]

   The disputes concern:

6. [300]

   The principles applicable to ascertaining the terms of an informal oral contract also apply to contracts which are partly written and partly oral: Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234 at [90], per Campbell JA (with whom Allsop P, as his Honour then was, and Basten JA agreed).

7. [301]

   The guiding principles are set out by Sackar J in King v Adams [2016] NSWSC 1798 at [65]–[69], which I respectfully adopt:

8. [302]

   In determining what the parties agreed, the Court must consider what the words and conduct of the parties would have led a reasonable person in the position of the other party to believe who had knowledge of all the background circumstances then known and reasonably available to the parties. The intention of the parties is to be objectively ascertained and not by reference to their subjective intentions or beliefs: Realestate.com.au Pty Ltd v Hardingham (2022) 406 ALR 678; [2022] HCA 39 (Realestate.com.au v Hardingham) at [15], [47] and [48], citing Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40]; Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 at 20 and 77; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 at [369]; and County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [2].

9. [303]

   In identifying and construing the terms of an agreement, the Court will strive to give a commercial and business-like interpretation to the agreement, and must give effect to the language used by the parties unless to do so would give the contract an absurd operation: Jireh International Pty Ltd v Western Export Services Inc [2011] NSWCA 137 (Jireh International v Western Export Services) at [55].

10. [304]

    As to the implication of terms and conditions, the Plaintiffs and the Defendants’ submissions refer to the principles in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (BP Refinery v Shire of Hastings) at 283:

11. [305]

    While BP Refinery v Shire of Hastings concerned a formal written contract complete on its face, its principles remain applicable to informal contracts: Realestate.com.au v Hardingham at [18] and [116].

12. [306]

    The Plaintiffs submit that, having regard to the pre-contractual correspondence and conversations and the commercial background and context, the terms of agreement made on 1 October 2013 were as follows.

13. [307]

    The agreement was between Mr Milicevic for himself, and as an agent for Mrs Milicevic, and Ferrari East. They submit that this must have been the case given Mrs Milicevic’s control of the units in the JV Trust and the evidence that she deferred to Mr Milicevic in respect of matters associated with the Myer JV and would have agreed to sign whatever paperwork was necessary to transfer their interest to Ferrari East.

14. [308]

    The Plaintiffs submit that the terms of the agreement meant that they were obliged to:

15. [309]

    As already noted, the Plaintiffs contend that in exchange Ferrari East was obliged to: provide a 5% shareholding to the Plaintiffs, which was to be held by the MF Trust; create the Shareholder Loan, which was to be repaid proportionately with the other shareholders; pay 8% interest per annum to the Plaintiffs on the Shareholder Loan; and pay Mr Milicevic $150,000 plus GST for his services as State Manager.

16. [310]

    The Plaintiffs submit that the following contextual matters support a finding that the agreement included the terms for which they contend.

17. [311]

    The first matter is the pre-existing BSA. They submit that the agreement made between Mr Milicevic and Ferrari East and the BSA were linked, noting that they were required to be completed on the same day, with the commercial intent being that Ferrari East would get whatever was left that it had not obtained under the BSA so it would have full control of the Myer JV business.

18. [312]

    The Plaintiffs acknowledge that the BSA was incomplete (as all necessary mechanisms were not included). However, they submit that the evident commercial aim of the BSA was for Ferrari East to obtain Belgravia’s interest in the Myer JV, which they say could only mean Ferrari East stepping into Belgravia’s shoes in respect of the Myer JV Agreement and obtaining Belgravia’s directorship and shareholding in Dynamic and units in the JV Trust. This, they submit, reflects Mr Peck’s understanding of the BSA (referring to his email to Mr Milicevic and what he said to Mr Milicevic at [158] above). The Plaintiffs also submit that although Mr Milicevic was not aware of the terms of the BSA, based on him being told by the Defendants that they had acquired what Belgravia had in respect of the Myer JV business, Mr Milicevic could only have assumed that this also meant “the shares and units”.

19. [313]

    The second contextual matter is that all the parties clearly understood (at least) that the Myer JV business was operated by Dynamic.

20. [314]

    The Plaintiffs submit that the evidence supports a finding that Ferrari East was actually aware prior to 1 October 2013 (and indeed prior to its entry into the BSA on 5 September 2013) that the business of the Myer JV was run through an incorporated body, being Dynamic, and a unit trust, being the JV Trust. They say that the Court should find that Gerard Ferrari was aware that the JV entity was a company and was Dynamic, and that Bevan Ferrari’s denials that he was unaware of the structure of the Myer JV or the existence of Dynamic are impossible to believe.

21. [315]

    The Plaintiffs submit that, therefore, all parties were aware that the Myer JV Assets were owned by Dynamic and not Mr Milicevic personally, that Gerard and Bevan Ferrari must have known that the only way in which Ferrari East could gain control of the Myer JV business under the BSA and its agreement with Mr Milicevic would be to take control of Dynamic, being the company that ran the business, and that an agreement with Mr Milicevic could not have led to a transfer of any Myer JV Assets.

22. [316]

    Alternatively, the Plaintiffs submit that the Court should infer that Bevan and Gerard Ferrari knew that the Myer JV was run through Dynamic (a company) because, in the circumstances, to have not known that fact involved a level of wilful blindness from a failure to make enquiries, referring to Perreira v Director of Public Prosecutions [1988] HCA 57; (1988) 82 ALR 217 at 219–20.

23. [317]

    The Plaintiffs accept that Gerard and Bevan Ferrari were not aware of the constitution of Dynamic and the JV Trust Deed, both of which included pre-emptive rights requiring the holders of shares and units to first offer their shares to Belgravia. However, they submit that this is of no import as Gerard and Bevan Ferrari did not need to read the constitution to know that a company owns its assets and an agreement with a director and shareholder will not assign assets of a company. They also say that not knowing about the pre-emptive rights means that, in the Defendants’ mind, those rights were not an impediment to the 1 October agreement providing for a transfer of a share in Dynamic and units in the JV Trust.

24. [318]

    The third contextual matter relied on by the Plaintiffs is that the Clarence St store was not part of the deal because that business was run pursuant to an agreement between Mr Milicevic, Mr Dib and Belgravia.

25. [319]

    The other contextual matters are that, in entering into the agreement with Ferrari East, the Plaintiffs were giving up a valuable business. Reference was made to the description of the business by Mr Boutin, as referred to at [117] above. It was also submitted that Mr Milicevic had an expectation that he would be paid a management fee for as long as there was an ongoing relationship with Myer and that he would be no worse off than he was currently under their arrangement.

26. [320]

    In that context, the Plaintiffs’ position is that the property transferred or to be transferred must be the share in Dynamic and units in the JV Trust because that was the only property which could be transferred by the relevant counterparties to the agreement and which could, with Belgravia’s share and units, give Ferrari East the control of the Myer JV business which it sought and, thus, is the only possible commercially sensible subject matter of the agreement which the parties entered into. They say that the subject matter of the agreement could not be the Myer JV Assets or the Stock because Ferrari East did not contract with Dynamic (the company that owned the Myer JV Assets) and the Court would not adopt an interpretation of a term that is absurd or legally impossible, referring to Jireh International v Western Export Services at [55].

27. [321]

    The Plaintiffs also submit that the following matters do not support the Defendants’ characterisation of the agreement as providing for a sale of the Myer JV Assets:

28. [322]

    As to the Consultancy, the Plaintiffs submit that it was a term of the agreement that Mr Milicevic was to provide services to Ferrari East on an ongoing basis as State Manager, at least until such time as the agreement with Myer ended, subject only to a right to terminate his position due to a failure of performance. They submit that the Consultancy was part of the “package deal”, there is no evidence to suggest that any agreement was made by Sales Momentum and the fact that Mr Milicevic nominated Sales Momentum as the entity to which his payments should be made after the agreement does not alter the terms of the agreement itself.

29. [323]

    As to the implication of terms, the Plaintiffs submit that the Court would not imply a term that allowed Ferrari East to unilaterally vary the amount of interest it would pay on the Shareholder Loan or require it to be paid pro rata with other shareholders, as it was contrary to what was stated in the 1 October document and did not form part of what was discussed and agreed that morning. They submit that the implication of such a term would not be reasonable or equitable, it is not so obvious that it goes without saying and it would not be necessary to give efficacy to the agreement in the context where the variation in the amount of the Shareholder Loan with other shareholders came about by way of agreement rather than an existing unilateral right, the concept of proportionality on repayment of the Shareholder Loan was a condition raised by Mr Milicevic for his protection and there is no commercial reason for proportionality to apply to interest where the Plaintiffs are not shareholders in Ferrari East.

30. [324]

    The Plaintiffs submit that as the agreement was for a transfer of a share and units, and not an asset sale, there would be no terms implied pursuant to the Sale of Goods Act.

31. [325]

    The Plaintiffs submit that the Court would not imply a term that the Plaintiffs warranted that they were capable of transferring, or would successfully transfer, Dynamic’s Stock to Ferrari East having a particular agreed value in the hands of Ferrari East because such a warranty would be contrary to the subject matter of the agreement, namely, a share sale, which they say would give rise, at most, to a warranty that the entity owned the assets the subject of the agreement, namely, a warranty in relation to title and present ownership of the share in Dynamic and units in the JV Trust, and because such a warranty is not required for the commercial efficacy of the agreement and would be highly unusual given that warranties usually relate to collateral facts of an agreement which are in the particular knowledge of a party.

32. [326]

    As to the condition precedent propounded by the Defendants, the Plaintiffs submit that the Court would not imply such a term as it is contrary to the express terms of the agreement (pursuant to which Ferrari East was given control of the stores on and from 1 October 2013, prior to the transfer of shareholding or units) and contrary to how the parties behaved for some years following the agreement, referring to Ferrari East having paid Mr Milicevic interest, acknowledging the debt and referring to Mr Milicevic as a shareholder (as referred to at [243], [260] and [264] above).

33. [327]

    Finally, the Plaintiffs accept that there would be an implied term of the agreement that they not unreasonably devalue Dynamic as trustee for the JV Trust in advance of the transfer of a share and units to Ferrari East.

34. [328]

    The Defendants accept that the parties acted as though there had been a binding contract and submit that both the agreements pleaded by the Plaintiffs and themselves were of the first category in Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72 (Masters v Cameron), namely, that the parties agreed on certain terms, treated themselves as bound by those terms on 1 October 2013 and left the recording of those terms to a later formal contract. While acknowledging that Ferrari East’s 22 February 2017 letter appeared to treat the contract as falling within the third category in Masters v Cameron, they submit that this was not the intention when written, referring to Bevan Ferrari’s evidence in cross-examination that the letter contained mistakes.

35. [329]

    The Defendants dispute the Plaintiffs’ characterisation of the contract as partly written and partly oral. They say that the email from Gerard Ferrari to Mr Milicevic dated 1 October 2013 and the preceding email chain were preliminary and non-contractual. While accepting that some of the words used in those emails may have been subsequently incorporated, they contend that the contract was wholly oral.

36. [330]

    The Defendants submit that the parties to the agreement are clear by description but not necessarily by name, noting that Mr Milicevic refers to his 60% interest being owned by the “HM Family Trust”, later identifies Mrs Milicevic as the trustee for the MF Trust and never properly identifies his own interest.

37. [331]

    The Defendants submit that the term of the agreement pleaded by the Plaintiffs, namely, that the Plaintiffs would immediately transfer their 60% beneficial holding in the Myer JV Agreement, Dynamic and the JV Trust, is imprecise as it is not clear whether the 60% beneficial holding simply applies to the Myer JV Agreement or whether it is intended to mean that the Plaintiffs also hold a 60% interest in Dynamic and/or the JV Trust, noting that Mr Milicevic held a 50% interest in Dynamic (as equal shareholder) and that it is difficult to quantify Mrs Milicevic’s interest given she held 60 of a total of 100 A-class units and a 100 of a total of 100 B-class units. They submit that the property alleged to have been sold under the Plaintiffs’ agreement is also inconsistent with the correspondence exchanged between the parties, noting that Mr Milicevic did not mention Dynamic in any of his emails or his affidavit evidence; they submit that Mr Milicevic’s evidence to the effect that he assumed certain matters is the product of reconstruction, not of memory, and is irrelevant regardless.

38. [332]

    The Defendants submit that the agreement posited by the Plaintiffs, being the transfer of the share and units, appears simple but cannot be proven on the evidence because a transfer of the Plaintiffs’ share and units would have entailed a transfer of the beneficial ownership of the Clarence St store which the parties agreed did not form part of the deal. The Defendants contend that it is clear from the documentary evidence that the Clarence St store formed part of the JV Trust, referring to Dynamic’s financial records and the fact that Dynamic continued to operate that business after 1 October 2013. They say that this means that the Plaintiffs’ agreement would require an additional term that they did not plead, namely, that Dynamic and the JV Trust excised the Clarence St store from the property transferred, and Mr Dib would have to be added as a party to the agreement so that his interest in the Clarence St store could be reconveyed to him.

39. [333]

    The Defendants reject the Plaintiffs’ contention that they were aware that the business of the Myer JV was run through Dynamic as trustee for the JV Trust or that the Myer JV Assets were owned by Dynamic in that capacity. They say they did not know that Mr Milicevic did not control Dynamic and was unable to cause Dynamic to transfer the Myer JV Assets to Ferrari East without the consent of Belgravia. The Defendants submit that Gerard and Bevan Ferrari’s evidence to that effect should be accepted.

40. [334]

    The Defendants also place reliance on the following matters in support of their contention that they did not know that Dynamic owned the Myer JV Assets or that the agreement did not provide for the transfer of the share and units: Mr Milicevic did not mention Dynamic in any of his emails to Gerard or Bevan Ferrari; Mr Milicevic’s affidavit evidence does not state that he explicitly told Gerard or Bevan Ferrari about Dynamic; Mr Milicevic’s references to “shares” in emails and his evidence lacked precision and did not make it clear that he was talking about shares in a company; the terms “shares”, “shareholding” and “entity” were used by Gerard and Bevan Ferrari loosely and not in a manner indicative of a company; a reasonably available reading of the Property and Franchise Report is that Dynamic was an entity owned by Mr Milicevic that managed two unincorporated joint ventures, being the Myer JV and the Clarence St store partnership; and Ferrari East and its lawyers did not know of the existence of Dynamic and the JV Trust as assets of Belgravia, noting that the “Completion Checklist” did not require transfer of the share in Dynamic or units in the JV Trust. They also submit that the terms of the JV Trust are not relevant in considering what the agreement provided for as Mr Milicevic was not aware of its terms and neither were Gerard or Bevan Ferrari.

41. [335]

    The Defendants submit that the term of agreement for which they contend, namely, that the property to be sold was Mr Milicevic’s 60% interest in the Myer JV Assets, is supported by Ferrari East’s “evident commercial aim” which was to have the Myer JV stores back on its books by acquiring the Myer JV Assets, of which it believed it already owned a 40% interest, having acquired that interest under the BSA. They submit that it is unnecessary for the Court to determine what the BSA actually meant as what is relevant is Ferrari East’s understanding of what the BSA meant and what Ferrari East conveyed to Mr Milicevic, with Ferrari East’s consistent position being that it had bought 40% of the Myer JV Assets under the BSA.

42. [336]

    The Defendants submit that Mr Milicevic’s commercial aim was to secure the maximum amount he was to be paid, which was best served by representing that he was selling the business assets of the seven Myer JV stores. They contend that it was not in Mr Milicevic’s interest to disclose the true financial position of the JV Trust or to mention Dynamic or the JV Trust as the most generous reading of the books of Dynamic and the JV Trust valued the net assets of the trust at $155,445.62, which was inclusive of cash of just over $120,000 that was not, in fact, reflected in Dynamic’s bank statements which, at 30 June 2013, revealed a shortfall of cash and a net asset position of $48,144.30.

43. [337]

    The Defendants also submit that, in the period following 1 October, all parties treated the transaction as a business sale agreement, placing emphasis on the email sent by Gerard Ferrari to Kain Lawyers on 1 October 2013 (at [204] above; which they describe as the Terms Email), the adjustments made post-completion as referred to by Gerard Ferrari in his email dated 2 October 2013 (at [208] above) and the terms of the draft asset sale agreement (at [248] above).

44. [338]

    They submit that the Terms Email summarises the terms of the parties’ agreement with sufficient breadth and depth, and makes clear that what was being sold were the Myer JV Assets as the email refers to stock, work in progress and staff entitlements (although the Defendants concede that the latter would actually be a liability and not an asset of the Myer JV). They submit that the settlement day adjustments would only be necessary if the agreement provided for a sale of business assets. The Defendants rely on the fact that Mr Milicevic had the opportunity to comment on the email either at the relevant time or in his affidavits but did not, and argue that Mr Milicevic’s post-completion conduct, as a director of Dynamic, was consistent with him and/or Dynamic having sold the Myer JV Assets to Ferrari East; that conduct being that he ceased making wage payments to employees at the Myer JV stores from Dynamic’s bank account, he continued to make payments from Dynamic’s bank account for wages to Mr Dib and another person in relation to the Clarence St store, invoices were issued to Dynamic for Mr Milicevic’s management fees and telephone bills from a company associated with him were addressed to Mr Dib as the trustee for the JV Trust as late as 2015.

45. [339]

    The Defendants submit that the draft asset sale agreement did a “pretty good job” of giving effect to the 1 October agreement as it included Dynamic as a party, recited the terms of the Myer JV Agreement for the purchase of 40% of the Myer JV Assets from Belgravia and the acquisition from the Plaintiffs jointly and severally of the Myer JV Assets they owned, and did not refer to the transfer of units in a trust or shares in Dynamic.

46. [340]

    The Defendants also rely on Mr Milicevic’s assertion in his email as late as 21 November 2013 that he had title to unencumbered Stock, which was valued at $250,000, and was good consideration for his shares in Ferrari East, and his oral testimony to the effect that Gerard Ferrari was aware of the $100,000 transfer which, they submit, would only be consistent with Ferrari East not having purchased any interest in the cash of the Myer JV.

47. [341]

    As to the interest term, the Defendants submit that the Shareholder Loan was to be treated in the same way as the cash injected by the other partners and rely on Ferrari East’s constitution which allowed for the capitalisation of interest and required that any interest be paid proportionately across all loans.

48. [342]

    In relation to the Consultancy, the Defendants submit that Mr Milicevic was confused as to whether it was an “entitlement” or a fee to be paid for services rendered, and the fact that GST was recorded as being payable on the Sales Momentum invoices strongly suggests that it was a fee for services rendered.

49. [343]

    The Defendants submit that the Court should find that the Consultancy was a routine commercial contract for management services determinable on the usual reasonable notice terms. They say that the term pleaded by the Plaintiffs, that the Consultancy was established to provide security and ongoing income for Mr Milicevic’s lifetime, is uncommercial and not reasonable or equitable. They submit that the effect of the term would make the Consultancy an annuity, one whose purchase price would be far greater than the $250,000 value of Stock that Mr Milicevic was proposing to provide, and is not necessary to give business efficacy to the contract. They also rely on Mr Milicevic’s email (at [211] above), which expressly precluded the existence of any implied terms to his benefit.

50. [344]

    As to the implied conditions and warranties, the Defendants submit that:

51. [345]

    As already noted, the parties plead that an agreement was made on 1 October 2013 and it is common ground that they reached consensus on a number of terms. Thus, the principal task of the Court is not to determine whether a binding agreement was entered into but whether the parties agreed to the particular terms that are in dispute.

52. [346]

    The legal principles referred to at [300]–[305] above recognise that ascertaining terms of an informal agreement which have not been fully articulated or documented by the parties is a question of fact, the Court must ask: what did the parties agree? The answer to that question is to be determined objectively by reference to what a reasonable person would draw from the conduct of the parties and the language they used, having regard to the object and purpose of the agreement, and the surrounding circumstances.

53. [347]

    The primary dispute concerns the subject matter of the agreement, namely, what property was to be sold to Ferrari East. That issue is presented to the Court in these proceedings as a binary choice between a term that provided for the transfer to Ferrari East of the Plaintiffs’ shareholding in Dynamic and units in the JV Trust, and a term that provided for the transfer to Ferrari East of Mr Milicevic’s unencumbered legal title to 60% of the Myer JV Assets. At this point, it is appropriate to record that, considered objectively, the obvious dichotomy in the parties’ positions might be seen as tending to suggest that the parties did not reach agreement and were not ad idem as to what was to be sold, as the Defendants’ counsel observed in closing submissions (T556.5–9).

54. [348]

    Applying the relevant principles to this case, I find that the oral agreement between Mr Milicevic and Ferrari East did not include a term that provided for the transfer to Ferrari East of the Plaintiffs’ shareholding in Dynamic and units in the JV Trust, as the Plaintiffs contend. In my view, when regard is had to the surrounding circumstances, including conversations, documents and the conduct of the parties, a reasonable person would not have understood that the terms of the bargain provided for Ferrari East to acquire the Plaintiffs’ equity in Dynamic and the JV Trust. There is some force to the Plaintiffs’ contention that, as they did not own the Myer JV Assets, the only property that they could have transferred to Ferrari East was their one share in Dynamic and the units in the JV Trust. However, as Mr Milicevic remained a party to the Myer JV Agreement, there was something of value that he could give to Ferrari East; that is, Mr Milicevic could agree to treat the Myer JV as at an end and give up his rights under the Myer JV Agreement, thereby providing Ferrari East with administrative control and the right to operate the Myer JV stores directly, and allowing it to take profits that it would not otherwise have been entitled to as a Myer JV partner.

55. [349]

    In my view, it was apparent and known to Mr Milicevic that the commercial aim of the transaction was to enable Ferrari East to take back the business of the Myer JV and operate the seven stores directly as company owned stores with the associated assets (including existing stock), rather than for Ferrari East to take control and ownership of Dynamic, the JV Trust and the associated liabilities, including those relating to the Clarence St store. The transaction was linked to the BSA in the sense that the Defendants wanted to get from Mr Milicevic what was “left over”. However, the intention and understanding of the Defendants as at 1 October 2013, as conveyed to Mr Milicevic, was that they had acquired 40% of the business assets of the Myer JV from Belgravia under the BSA (see, for example, Mr Milicevic’s evidence at [137] above, the emails sent on 4 October at [213] above and the email from Bevan Ferrari to Mr Tsonis at [230] above) and wanted to do a deal with him which would see Mr Milicevic forgo his interest in the Myer JV under the Myer JV Agreement and work for Ferrari East.

56. [350]

    I am satisfied that, as at 1 October 2013, Ferrari East, through knowledge imputed to it from its directors, Gerard and Bevan Ferrari, had information available to it from which it could discern that the Myer JV operated through an entity that was a company called “Dynamic Platinum” and that the Myer JV was housed within a trust known as the “Spurling JV Unit Trust” from which Mr Milicevic and Belgravia received distributions reflecting their 60/40 ownership interests in the Myer JV. However, I am not persuaded that the Defendants were actually aware of or on notice that Dynamic had legal title to the Myer JV Assets in its capacity as the trustee for the JV Trust at that time. I find that the Defendants became aware of that matter on or around 11 October 2013 in the circumstances described at [216]–[220] above.

57. [351]

    As to the Defendants’ knowledge about Dynamic and the JV Trust, Gerard Ferrari had been told by Mr Milicevic in 2010 that Dynamic was the entity formed to take on the Myer JV (of which Mr Milicevic owned 60% and Belgravia owned 40%) and the Myer JV was going to run through a “company” in the same way as Sydney Formalwear (the company that had run the Myer concession stores prior to 2010 of which Mr Milicevic and Gerard Ferrari had been directors and shareholders). He also knew that the Myer JV was owned by Dynamic (T231.10–6; T240.1–29; T241.23–7; T242.33–40; T246.25–8). I accept that Gerard Ferrari did not know the precise structure of Dynamic or the JV Trust as at 1 October 2013, such as the number of shares and units held by Mr Milicevic and Belgravia (T278.1–19), but he was an experienced company director, knew about trusts and was aware that a joint venture could be run through a company, a company was a separate legal entity to its directors and shareholders, and a company could own property in its own right (T227.47–228.48).

58. [352]

    Gerard Ferrari’s explanation in cross-examination that “I would call a company the same as I’d call a partnership or joint venture”, he only knew Dynamic was an “entity”, he did not know if Dynamic was a company, a partnership or some other entity, and he did not understand the term “shares” to mean shares in a company (T240.36–241.46; T278.1–7) was implausible, in my view, and I reject it.

59. [353]

    Bevan Ferrari, who was also an experienced company director, knew that a company could own property in its own right and had acted as trustee for a unit trust and dealt with trust structures in the past (T342.48–343.16), had likely been told by Mr Peck that the Myer JV was run through a company (as I have found at [100] above), but was not told about Dynamic.

60. [354]

    Bevan Ferrari had received and read the following: the Myer JV Agreement, which referred to the Myer JV business running through an “entity” that would act as the “trustee of a trust”; and the Myer JV Financials, which referred to the “Spurling JV Trust” as the trust through which the Myer JV business was run. He was aware from these documents that the “assets of the Myer JV were sitting on the… JV financials” (T388.24). He also received, but did not read in detail, the Property and Franchise Report which, as he accepted in cross-examination, disclosed that the franchise entity of the stores the subject of the Myer JV was Dynamic (T388.46–9; T389.26–9; T392.46).

61. [355]

    However, the documents received by Bevan Ferrari did not identify Dynamic as the entity that acted as the trustee for the JV Trust or that it owned the Myer JV Assets. Further, in my view, having seen the Property and Franchise Report and the Myer JV Financials, it was open for Bevan Ferrari or a reasonable businessperson in his position to conclude that Dynamic was an entity associated with Mr Milicevic that managed two joint ventures, being the Myer JV and the Clarence St store partnership, and that the assets of the Clarence St store business formed part of the property of the JV Trust.

62. [356]

    On the evidence as I have found, during the period from 1 September to 1 October 2013, Mr Milicevic did not refer in any written communications or discussions with Gerard and Bevan Ferrari to Dynamic, the Myer JV Assets being owned by Dynamic or Dynamic acting as trustee for the JV Trust. Nor had Gerard or Bevan Ferrari been provided with a copy of the JV Trust Deed which identified Dynamic as the trustee of the JV Trust or had they been informed that Dynamic, but not the unitholders, had full power to deal with the assets of the JV Trust.

63. [357]

    There were also no discussions in September or on 1 October 2013 in which Mr Milicevic mentioned his share in Dynamic and units in the JV Trust, or offered (for himself and as agent for Mrs Milicevic) to transfer them to Ferrari East, or in which Gerard Ferrari said words to him that conveyed that Ferrari East would accept such a proposal.

64. [358]

    As set out above, the Plaintiffs rely on Gerard Ferrari and Mr Milicevic’s use of the words “shares” and “shareholding”, particularly when used in conjunction with the words “shares” and “shareholding” in respect of Ferrari East (see, for example, the 23 September email at [154] above, the 1 October document at [186] above and the 1 October emails to Kain Lawyers and Ferrari East’s bankers at [204]–[205] above), to describe what Mr Milicevic was giving to Ferrari East in respect of the Myer JV. When considered in that context, I accept that a reasonable businessperson would understand the words to refer to shares and shareholding in a company.

65. [359]

    However, Mr Milicevic and Gerard Ferrari also used the term “share” and “shareholding” somewhat loosely. As the Defendants submitted, Mr Milicevic had one ordinary class share in Dynamic, representing 50% of the share capital, and yet used the term “60% shareholding” when describing his interest in the Myer JV to Mr Peck (at [85] above) and in his affidavit evidence, and he used the word “share” when talking about his interest “[n]ot in the Myer JV. In the Myer JV trust” (T140.10–3) rather than units. Gerard Ferrari used the terms “60% shareholding” and “60% share” to refer to Mr Milicevic’s interest in the Myer JV and in the “7 store JV”.

66. [360]

    The description in the 1 October document and Gerard Ferrari’s 1 October email of the arrangement between Ferrari East and Mr Milicevic as a “[t]rade in” of Mr Milicevic’s “current JV share holding towards an agreed share holding of the new FE entity” is objective evidence that supports the term contended for by the Plaintiffs. However, even that description lacks clarity and is incomplete as it only refers to a “share holding in the JV” and not to a single share in Dynamic or any units in the JV Trust. It also uses the term “trade in”, which seems inapt to describe a transaction involving the sale of Mr Milicevic’s equity stake in the two Myer JV vehicles.

67. [361]

    Given it was agreed that the Clarence St store did not form part of the Myer JV and the agreement with Mr Milicevic, another objective matter that militates against the term advanced by the Plaintiffs is that the information available to all the parties indicated that the assets (and liabilities) relating to the Clarence St store were the property of the JV Trust and, presumably, the property of Dynamic. The Plaintiffs’ candid acknowledgement that there must have been an additional term(s) to the agreement that such property be transferred out of the hands of Dynamic to the owners of the Clarence St store business leads, in my view, to an inescapable conclusion that the term they advance cannot be sustained.

68. [362]

    The parties’ post-contractual conduct provides further support for my conclusion that it was not agreed that the Plaintiffs would transfer their share and units to Ferrari East which, together with Belgravia’s, would enable Ferrari East to take control and ownership of Dynamic and the JV Trust. In particular, the following matters are inconsistent with such a term and are more consistent with some form of business sale arrangement:

69. [363]

    Considered objectively, it seems most likely that none of the relevant parties fully appreciated the nature of Mr Milicevic’s interest in the Myer JV business and assets, and they did not discuss nor reach consensus on what was necessary to enable Ferrari East to take back the business of the Myer JV and operate the seven stores directly as company owned stores with the associated assets (including existing stock) through an agreement with Mr Milicevic. As Mr Milicevic stated, there were no discussions about the precise mechanisms for that to occur.

70. [364]

    Having regard to what was said and not said, and the commercial aims, expectations and conduct of the parties, it seems to me that consensus was reached on a term that obliged Mr Milicevic to transfer to Ferrari East the right to take day-to-day control of the Myer JV stores and their revenue from 1 October 2013 (by giving up his rights under the Myer JV Agreement and, in practical terms, treating it as at an end) but there was no mutual assent as to the term by which the Myer JV Assets (including Stock) were to be legally transferred to Ferrari East’s ownership.

71. [365]

    It follows that I am also unpersuaded that the Defendants have established that the parties agreed to the term they plead, namely, that Mr Milicevic would transfer unencumbered legal title to 60% of the Myer JV Assets to Ferrari East. There are other difficulties with that term.

72. [366]

    In addition to it being legally impossible for Mr Milicevic to directly transfer the Myer JV Assets to Ferrari East as he did not own them, there seems to me to be an inherent conceptual difficulty with a term that provides for a party to transfer unencumbered legal title to only a percentage of the assets of a business, particularly where that party does not know the terms on which the other percentage of the assets are to be transferred.

73. [367]

    In my view, the term contended for by the Plaintiffs is also inconsistent with an objective consideration of the evidence. As I have found, as at 1 October 2013, there had been no discussions about the transfer of unencumbered legal title to the Myer JV Assets (such as Stock) by Mr Milicevic and none of the email communications and contemporaneous documents suggest otherwise. There are also documents which indicate that Ferrari East did not intend to obtain ownership of the Myer JV Assets free of all financial liabilities, as evidenced by Gerard Ferrari’s 23 September email (at [153] above) acknowledging that Ferrari East would be taking on liabilities in relation to the six fit-outs of the Myer JV stores amounting to $157,448.36 in addition to provision for holiday leave amounting to $18,158.43.

74. [368]

    The Defendants also allege that the term arises from implication by law to give business efficacy to the agreement and that it is otherwise reasonable. I disagree. In this case, I do not consider that a term requiring Mr Milicevic to transfer (or to procure Dynamic to transfer) “unencumbered legal title” to 60% of the Myer JV Assets to Ferrari East is necessary for the commercial efficacy of the agreement or could be said to be so obvious that it goes without saying.

75. [369]

    Turning to the other disputed terms, I accept the Plaintiffs’ submission that it was a term of the agreement between Mr Milicevic and Ferrari East that Mr Milicevic was to provide services to Ferrari East as State Manager for which Ferrari East was to pay him $150,000 per annum excluding GST.

76. [370]

    I do not accept the Defendants’ submission that the Consultancy was a collateral contract between Ferrari East and Sales Momentum. In my view, the fact that Mr Milicevic may have nominated Sales Momentum as the entity to which his payment should be made following his entry into the agreement does not give rise to a contract between that entity and Ferrari East.

77. [371]

    It is common ground that the Consultancy could be terminated on reasonable notice, consistent with it being a contract for services with an implied term to that effect: Creen v Wright (1876) 1 CPD 591; [1874-80] All ER Rep 747 at 749.

78. [372]

    It follows from this that no issue arises as to whether there is an implied term that the Consultancy was established to provide security and ongoing income to Mr Milicevic for his lifetime, as the Defendants suggest. Indeed, the Plaintiffs did not press that implied term in their closing submissions.

79. [373]

    As to the interest term contended for by the Defendants, that Mr Milicevic’s interest entitlement would accrue in line with other shareholders of Ferrari East, I am persuaded by the Defendants’ submission that such a term should be implied. The correspondence may not indicate that the concept of proportionality on interest was discussed. However, it was agreed that the Shareholder Loan was to be treated in the same way as the cash injected by the other partners and cl 79.1.2 of Ferrari East’s constitution expressly requires that a Seed Member Loan, which attracts interest at the rate of 8% per annum and is payable monthly in arrears, is to be paid proportionately across any Seed Member Loan owed to “Members” under that clause. Mr Milicevic may not have been a “Member” or a shareholder at the time but, in my view, it is reasonable, equitable, necessary for the efficacy of the agreement and obvious that the interest payable on the Shareholder Loan would be treated in the same way as the repayment of the Shareholder Loan itself, namely, it would be paid proportionately with other shareholders of Ferrari East.

80. [374]

    As I have found that there was not a term that provided for Mr Milicevic to transfer unencumbered legal title to 60% of the Myer JV Assets to Ferrari East, no conditions and warranties are implied by s 17 of the Sale of Goods Act.

81. [375]

    I should record that, even if I was satisfied that the agreement included a term that provided for the transfer of Mr Milicevic’s 60% interest in the Myer JV Assets, I would have been inclined to the view that the agreement is not a contract of sale of goods for a price within the meaning of s 6(1) of the Sale of Goods Act, such that no conditions and warranties are implied by that statute. This is because I consider the better characterisation of the agreement as one in relation to the sale of Mr Milicevic’s interest in a business and not merely goods. While the business assets of the Myer JV included Stock in trade and there were discussions about the “value of existing stock”, the agreement also provided for the transfer of other rights and assets relating to the business (such as the right to operate and administer the stores), with the “purchase price” calculated not only based on the value of the Stock but also having regard to Mr Milicevic’s professional skills, a somewhat arbitrary figure for the Shareholder Loan to incentivise Mr Milicevic’s entry into the agreement and a 5% shareholding of Ferrari East.

82. [376]

    As I have found that the subject matter of the agreement was not the transfer of a share in Dynamic and units in the JV Trust, the issues as to whether a warranty was implied that the Plaintiffs were capable of, or would, successfully transfer Dynamic’s Stock to Ferrari East having a particular value in the hands of Ferrari East, or whether there was an implied condition precedent that the issue of a shareholding in Ferrari East, repayment of a loan and repayment of interest was conditional upon a transfer of the shareholding in Dynamic and units in the JV Trust, do not arise.

83. [377]

    As the Defendants’ closing submissions did not address that issue, I simply record that I was persuaded by the reasons advanced in the Plaintiffs’ written submissions at [145] and [149] (and as summarised at [325] and [326] above) that such terms did not arise expressly or by implication.

84. [378]

    For the above reasons, I have concluded that the Plaintiffs and the Defendants have not established the essential term of the agreement that they each plead. It follows, in my view, that the issues raised by the parties’ claims for relief based on breach of contract, the Defendants’ defences and Ferrari East’s cross-claim in respect of mistake, frustration and total failure of consideration do not arise, and those claims should be dismissed.

85. [379]

    However, as these matters were the subject of debate and in case I am wrong, the following sections set out my views on the parties’ principal claims (but not their alternative claims) and responses to the submissions made.

Plaintiffs’ contract claims: Relief

1. [380]

   There was no dispute that if the Court accepted the Plaintiffs’ characterisation of the agreement as correct, that agreement was repudiated by means of the 22 February 2017 letter (at [289] above) and had terminated (T541.15).

2. [381]

   The Plaintiffs claim that, as they had accepted the repudiation and terminated the agreement, at least nominal damages are payable by Ferrari East. However, they say they can establish substantial damages on the basis that Ferrari East breached the agreement as it terminated Mr Milicevic’s Consultancy without reasonable notice, refused to transfer 5% of the shares in Ferrari East to the Plaintiffs, refused to repay the Shareholder Loan and has not paid any interest on the Shareholder Loan since 2017.

3. [382]

   The Plaintiffs seek damages for Ferrari East’s breach by failure to transfer the 5% shareholding. They submit that damages should not be assessed based on the value of the shares presently or in 2017, as such a calculation would reward Ferrari East for failing to transfer the shareholding within a relatively short period of time after 1 October 2013 in accordance with the agreement, and contend that the Court should value damages for non-payment of the shareholding, doing the best it can, referring to Houghton v Immer (1997) 44 NSWLR 46 at 59:

4. [383]

   The Plaintiffs submit that, at completion, Gerard Ferrari offered a fair means of valuation, being $6 million. On this basis, the Plaintiffs seek damages of $300,000 for non-payment of the shares.

5. [384]

   The Defendants contest this claim on the basis of mistake and frustration, which I deal with at [409]–[435] below. As to the quantum of damages, they submit that the Plaintiffs have not proven the loss associated with the failure to receive 5% of the share capital in Ferrari East. They contend that the Plaintiffs’ reliance on Gerard Ferrari’s valuation should not be accepted as he is not an expert business valuer and because he agreed in cross-examination that he was content to refer to figures he did not know to be correct (see [130] above).

6. [385]

   Based on the evidence, I accept that a finding is available that the Plaintiffs had lost something of value by reason of Ferrari East’s failure to transfer a 5% shareholding to them in accordance with the agreement. In those circumstances, the Court is required to do the best it can in assessing that value. Mere difficulty in estimating damages does not relieve the Court from the responsibility of embarking on that task: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; (1991) 104 ALR 1 at 11.

7. [386]

   However, the authorities also recognise that there is a limit to the lengths to which a Court may go in doing the best it can to assess damages. In Troulis v Vamvoukakis [1998] NSWCA 237 at 29, Gleeson CJ said:

8. [387]

   I am not persuaded by the Plaintiffs’ submission that the Court should attempt to quantify damages on the basis of Gerard Ferrari’s valuation of Ferrari East which the Plaintiffs allege, and I have found, is misleading or deceptive.

9. [388]

   The Plaintiffs chose not to adduce any evidence in support of their claim for damages under this head. In my view, relying on a valuation that the Court has found was not supported by reasonable grounds is not an appropriate basis on which to calculate damages in this case.

10. [389]

    Accordingly, I would have concluded that the Plaintiffs had failed to adduce sufficient evidence on which to assess damages.

11. [390]

    The issues raised by the Plaintiffs’ claim for damages in relation to the Consultancy are:

12. [391]

    As to the first issue, I accept the Plaintiffs’ submission that the Consultancy fee had not been reduced to $80,000 by way of an agreed variation to the parties’ agreement. The evidence satisfies me that Mr Milicevic, as the relevant counterparty, did not agree to the change and it was in effect forced on him unilaterally. Mr Milicevic maintained in cross-examination that he did not accept the change or agree with Gerard Ferrari’s suggestion that the reduction of the management fee was entirely appropriate (T211.43–412.20).

13. [392]

    Further, no consideration was provided for the variation. As the Plaintiffs submit, it was exclusively to Ferrari East’s benefit and Mr Milicevic’s detriment, with the expectation that Mr Milicevic would provide the same services for less money, such that no legally binding agreement could have been made: Moratic Pty Ltd v Lawrence James Gordon (2007) 13 BPR 24,713; [2007] NSWSC 5 at [20]–[25].

14. [393]

    As to what is reasonable notice in respect of terminating the Consultancy, the Plaintiffs contend that a “very lengthy period” of notice is appropriate in the circumstances of this case. They submit that three years would be a suitable period of notice, referring to the following matters: in the 1 October document, Mr Milicevic stated “[e]very time we renew our agreements with Myer we have a 3 year assurance in our management position” to which Gerard Ferrari responded “OK”; the Services and Support Agreement ran from January 2015 to January 2020, which meant that it had three years left to run as of February 2017; Mr Milicevic had given up very valuable rights, such as a role of indefinite duration for as long as the Myer concessions continued to operate, in order to enter into the Consultancy; Gerard Ferrari had agreed on 1 October that Mr Milicevic would not be worse off under their agreement than he was prior; Gerard Ferrari had said that even if the arrangement with Myer ended, Ferrari East would still need a State Manager; Mr Milicevic did not obtain the benefit of the shareholding in Ferrari East that he expected to receive; Mr Milicevic occupied a senior position at Ferrari East, received a significant salary, was involved in strategic discussions and was referred to as a “partner” in the business; and there is no evidence that termination was based on unsatisfactory performance.

15. [394]

    The Defendants submit that they were free to terminate the Consultancy under the agreement with reasonable notice, which they say is 30 days given the negotiation documents stated that “the entire FE management team will operate on a performance basis”, and that it has paid out that notice period.

16. [395]

    I do not accept the Defendants’ submission that 30 days is a reasonable period of notice for termination of Mr Milicevic’s Consultancy in the circumstances of this case. What constitutes reasonable notice is to be determined at the date when notice is given, not at the date of the agreement itself. The matters to which regard may be had in determining what is reasonable notice include: the duration of employment; industry practice; the seniority and importance of the position held; the size of the salary; the worker’s age; the worker’s length of service; what the worker gave up to come to the present employer; and the worker’s prospective pension or other rights: Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 at 580.

17. [396]

    Having regard to those matters, and in particular the seniority and importance of Mr Milicevic’s role and the statements made to him and accepted by both parties as to the expectation and length of the future licence agreements with Myer, I would have concluded that a reasonable period of notice in this case is 18 months. This reflects that Mr Milicevic was a senior member of the Ferrari East team, had been told that Ferrari East would still need a State Manager even if the arrangement with Myer ended, was referred to and treated in certain respects as a “partner” in the business as he was involved in strategic discussions, and there is no suggestion on the evidence that he was not performing to Ferrari East’s expectations.

18. [397]

    I do not consider that three years is a suitable period of reasonable notice as at 22 February 2017 given he had only been employed by Ferrari East for less than four years, his age and the fact that he was running other businesses at the time.

19. [398]

    It follows from this that I would have assessed Mr Milicevic’s entitlement to damages to be the amount of $225,000, representing 18 months of his management fee at $150,000 (excluding GST).

20. [399]

    The Defendants submit that damages should be calculated based on the net position in respect of management fees, with costs associated with the generation of management fees taken into account, and on a post-tax basis.

21. [400]

    The Plaintiffs reject the Defendants’ submissions and say that there is no evidence that Mr Milicevic did or would incur expenses associated with the generation of that income. The Plaintiffs also submit that it is not appropriate for the Court to award damages on a post-tax basis, particularly as this would give Ferrari East a windfall gain.

22. [401]

    Based on the submissions and evidence before the Court, I would not have been satisfied that the award of damages should be net of expenses or on a post-tax basis. As the Court said in Davinski Nominees Pty Ltd v I & A Bowler Holdings Pty Ltd [2011] VSC 220 at [59]:

23. [402]

    The Plaintiffs accept that it was an express term of the agreement that the Shareholder Loan would be repaid pro rata with other shareholders.

24. [403]

    However, they seek damages in the amount of $250,000 on the basis that Ferrari East created the Shareholder Loan of $250,000 owing to them which, by means of repudiation of the agreement, Ferrari East has indicated it does not intend to ever repay.

25. [404]

    The Defendants submit that the Plaintiffs are only entitled to demand payment of the Shareholder Loan if that right accrued prior to termination of the agreement. They submit that the right did not accrue:

26. [405]

    I am not persuaded by that submission. The existence of the condition precedent relied on in [404(a)] above has not been established by the Defendants. Further, the Court is not ordering repayment of the loan but damages in lieu of performance. As the Plaintiffs submit, the Shareholder Loan was a debt owing which has now been denied and sounds in damages.

27. [406]

    The Plaintiffs claim damages for the Defendants’ failure to make interest payments of 8% per annum during the period from May 2016 to 21 February 2017 in the sum of $10,166.62, and then from 22 February 2017 until judgment for the unpaid Shareholder Loan. The claim in the first period is based on the “pause” on interest payments for June, July and August 2017, as referred to at [279] above.

28. [407]

    As with the Consultancy, the evidence does not satisfy me that Mr Milicevic agreed to a pause on his interest payments for June, July and August 2017 at the time such that those amounts remain owing and payable.

29. [408]

    As to the second period, the Defendants refer to Gerard Ferrari’s “understanding” that the 8% interest rate was varied by agreement to 5% from September 2017 and that interest payments made to shareholders were sporadic and ceased from February 2020. As the Plaintiffs’ submissions note, those variations to increase payments were not agreed by the Plaintiffs because they occurred after the 22 February 2017 letter.

Ferrari East’s contract claims: Defences and relief

1. [409]

   Ferrari East alleges that Mr Milicevic breached the terms of the agreement it propounds as he did not transfer legal title to 60% of the Myer JV Assets to Ferrari East and there has been a total failure of consideration pursuant to that agreement.

2. [410]

   Ferrari East claims that, as a result, it is not obliged to fulfil any of its obligations under the agreement and is entitled to be refunded for the interest payments it has made to Mr Milicevic.

3. [411]

   Ferrari East also claims that its obligations under the agreement arose from a mistake as to the true position regarding the ownership of the Myer JV Assets, in that the assets of the business were owned by Dynamic as trustee for the JV Trust, not Mr Milicevic, and thus Mr Milicevic was not in a position to transfer those assets.

4. [412]

   Ferrari East also seeks repayment of the interest paid out of the Shareholder Loan under the Frustrated Contracts Act on the basis that the agreement was frustrated as Mr Milicevic was not in a position to transfer the Myer JV Assets.

5. [413]

   The Defendants’ written submissions also raise the principles of mistake, frustration and total failure of consideration in response to the Plaintiffs’ contractual claims. It was submitted that the Plaintiffs’ agreement was frustrated prior to the purported repudiation and so there was no breach of contract by the Defendants.

6. [414]

   The Defendants also submit that, if the Court finds that the agreement was for the transfer of a single share in Dynamic and units in the JV Trust, they were mistaken as to the subject matter of the agreement and are entitled to an order rescinding or setting the agreement aside. This is because, they say, they would not have been willing to pay more than $250,000 for property worth less than $200, which they assert is the real value of the share in Dynamic and units in the JV Trust based on the financial records in evidence. They also submit that, as Mr Milicevic was involved in the preparation of the financial statements, he can be taken to have known what the units were worth and if he intended to sell the units for more than 100-times what they were worth then that was to engage in unconscionable conduct to exploit the mistake and the agreement should be rescinded, referring to Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 (Taylor v Johnson).

7. [415]

   As to frustration, the Defendants submit that when Dynamic went into liquidation in 2015, it was automatically removed as trustee in accordance with clause 20.3 of the JV Trust Deed and there is no longer any property of the JV Trust. They argue that they would have been substantially deprived of the whole commercial benefit of the transaction, causing frustration of the contract, referring to Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha) at 66. They submit that the agreement was frustrated as of 27 August 2015 even if it was still possible to transfer a share in Dynamic and/or units in the JV Trust from that time to 22 February 2017, which nevertheless did not happen and the interest paid stands to be refunded under s 12 of the Frustrated Contracts Act.

8. [416]

   The Defendants submit that, in any event, Mr and Mrs Milicevic have provided no consideration under the agreement. They submit that if the property was the share in Dynamic and units in the JV Trust, they have been unable to provide these and the agreement is frustrated.

9. [417]

   A contract may be voidable in equity because of a unilateral mistake as to a fundamental term of the contract if it would be unconscionable to uphold the bargain: Taylor v Johnson; and N Seddon, Cheshire and Fifoot – Law of Contract (11th ed, 2017, LexisNexis) at [12.50].

10. [418]

    In Taylor v Johnson, a case in which a party had not carefully read a written contract for sale before signing and was mistaken in her belief as to the amount of the purchase price, the High Court said (at 432–3):

11. [419]

    Frustration occurs when, without default of either party, a contractual obligation becomes incapable of being performed because the circumstances in which performance is called for renders it a thing radically different from that which was undertaken by the contract. The task of the Court is to determine, on the true construction of the contract read in light of its nature and the relevant surrounding circumstances, whether the contract the parties entered into is wide enough to apply to the new situation such that, if it is not, then the contract is at an end: Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 720 and 729, per Lord Reid and Lord Radcliffe respectively; adopted in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 51; (1982) 41 ALR 367 at 378–9, per Mason J (as his Honour then was).

12. [420]

    The effect of frustration is to automatically discharge the parties from the obligation to perform their contractual obligations from the time of the frustrating event. Termination is prospective from the time of frustration; the contract is not invalid ab initio: J D Heydon, Heydon on Contract (2019, Thomson Reuters) (Heydon on Contract) at [23.100]–[23.110]; and Re Continental C&G Rubber Co Pty Ltd (1919) 27 CLR 194 at 201.

13. [421]

    Under statute, where a contract is frustrated and a party to the contract has paid money to another person as or as part of an agreed return for performance of the contract by another party, that other party shall pay the same amount of money to the party who made the payment: Frustrated Contracts Act, s 12.

14. [422]

    Applying those principles in this case, I would have rejected the Defendants and Ferrari East’s cross-claim and defences based on unilateral mistake, frustration and total failure of consideration. This is for the following reasons.

15. [423]

    Payment can be recovered only if there has been a total, or at least substantial, failure of consideration. Proportionate recovery of a payment is not allowed unless the consideration is severable: Baltic Shipping Co v Dillon (1993) 176 CLR 344; [1993] HCA 4; and Roxborough v Rothmans (2001) 208 CLR 516; [2001] HCA 68 at [16]–[104].

16. [424]

    Thus, to establish an entitlement to the relief they seek, the failure of consideration must have been total or substantial such that it can be said that Ferrari East did not receive any benefit that it had bargained for under the agreement. Regardless of whether the agreement was for an asset sale or a transfer of equity, Ferrari East has received some benefit.

17. [425]

    As the Plaintiffs submit, Ferrari East bargained for control of the seven Myer JV stores, obtained the right to operate the businesses as company owned stores from 1 October 2013 and to make revenues and receive profits from them, and continues to do so to the present day. The Defendants may have had to pay Dynamic’s liquidator for Stock but what they received under the agreement went beyond those goods as it enabled them to operate the Myer JV business in a manner that they would not otherwise have been able to in the absence of that agreement.

18. [426]

    In addition, Ferrari East received the benefit of Mr Milicevic’s services from 2013 to 2017, which was a core part of the agreement. As put by the Plaintiffs, the Consultancy was part of a “package deal”, together with the shareholding and Shareholder Loan, in which Ferrari East would take control of the Myer JV business and have Mr Milicevic run it.

19. [427]

    As to mistake, even if I were to assume that the Defendants were labouring under a mistake as to the subject matter of the agreement (in that they were mistaken that it provided for the transfer of a share in Dynamic and units in the JV Trust and/or that Mr Milicevic was not in a position to transfer the Myer JV Assets as they were owned by Dynamic as trustee of the JV Trust), the Defendants were aware of the correct position by 11 October 2013, shortly after the agreement was made. At that time, Ferrari East took no steps to rescind or void the agreement and instead affirmed it.

20. [428]

    While there is no overriding principle of law that an act done under a contract will always communicate the decision to affirm, the cases indicate that continued performance of a contract by the innocent party will suggest an election to affirm. In particular, where the innocent party acquires a business under a contract, affirmation may be inferred from that party’s decision to operate the business unless they have no other practical alternative: Calleby Pty Ltd v Leros Pty Ltd (Unreported, Supreme Court of Western Australia, Steytler J, 30 May 1997).

21. [429]

    Similarly, to make payments pursuant to an obligation under a contract to do so can amount to affirmation: Heydon on Contract at [31.640]–[31.800] and the cases there cited.

22. [430]

    In this case, more than three years passed between the date on which the Defendants became aware that Dynamic had legal title to the Myer JV Assets and when Ferrari East repudiated the agreement. Had the Defendants chosen to rescind at that time, at least part of the Myer JV business could have been returned to the Plaintiffs. That is no longer possible and it is a significant factor weighing in favour of a refusal to grant relief in the nature of rescission to the Defendants.

23. [431]

    The evidence also does not suggest that Mr Milicevic was aware of any mistake on the part of Ferrari East, whether it be about his ownership of the Myer JV Assets or the transfer of a share in Dynamic and units in the JV Trust. As the Plaintiffs submit, there is no evidence to suggest some conscious course on Mr Milicevic’s part to lead Ferrari East astray, at most he did not turn his mind to the issue.

24. [432]

    As to frustration, a party cannot rely on that doctrine where they had the means and opportunity to prevent the frustrating event but nevertheless caused or permitted it to come about: J Lauritzen AS v Wijsmuller BV [1990] 1 Lloyd’s Rep 1 at 10; Hong Kong Fir Shipping v Kawasaki Kisen Kaisha at 66; and Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 at 186.

25. [433]

    As Ward J (as her Honour then was) observed in Urusoglu v MSU Management Pty Ltd [2011] NSWSC 54 at [349]:

26. [434]

    In this case, it seems to me that Ferrari East could have prevented the alleged frustrating event from occurring by accepting the transfer of the share and units from Belgravia or dealing with Dynamic directly to acquire the Myer JV Assets.

27. [435]

    Further, and in relation to both the claims of frustration and mistake, the evidence is clear that Ferrari East continued to affirm the existence of the agreement until February 2017, well after becoming aware that Dynamic, not Mr Milicevic, had legal title to the Myer JV Assets.

Misleading or deceptive conduct claims

1. [436]

   During closing submissions, the Defendants’ counsel noted that the Plaintiffs plead reliance upon each of the representations when entering into the particular “Agreement” for which they contend. He submitted that, if the Court were to find against the Plaintiffs in relation to their “Agreement”, there was no room in the Plaintiffs’ pleading for any entitlement to damages under the ACL, and the Defendants had defended the case on that basis.

2. [437]

   In reply, the Plaintiffs’ counsel acknowledged that they had pleaded a particular “Agreement” that was entered into by the Plaintiffs having relied upon the particular representations pleaded. He submitted that every potential universe of agreement could not be pleaded and, in the event that the Plaintiffs did not establish their “Agreement”, the Court should approach the misleading or deceptive conduct claims on the basis that some agreement was entered into (as agreed by both parties) and, if the Defendants were right about their characterisation of the agreement, the Plaintiffs’ claim in respect of misleading or deceptive conduct would also apply in respect of that agreement.

3. [438]

   Given my conclusion that neither the Plaintiffs nor the Defendants have established the terms of the agreement for which they contend but the parties are agreed, and I accept, that some agreement was entered into, I have approached both the Plaintiffs and the Defendants’ misleading or deceptive conduct claims on the basis that they each claim to have entered into “an agreement” (in addition to their pleaded “Agreements”) on 1 October 2013 reliant upon the representations for which they contend.

4. [439]

   The Plaintiffs allege that the Defendants engaged in misleading or deceptive conduct in contravention of s 18 of the ACL and/or s 8(1) of the Victorian ACL and/or s 28(1) of the NSW ACL by making three sets of representations: the Belgravia Administration Representation, the Compensation Representation and the Profit, Revenue and Balance Sheet Representations (together, the Representations).

5. [440]

   There is no dispute that, if the Representations were made, they were made in trade or commerce within the meaning of s 18 of the ACL.

6. [441]

   The Representations are particularised by the Plaintiffs as being partly written and partly oral. Insofar as they were written, they comprise the emails from Gerard Ferrari to Mr Milicevic on 18, 25 and 28 September 2013, and the email and attached document on 1 October 2013. Insofar as they were oral, they comprise words used by Gerard and Bevan Ferrari at the meeting on 25 September and by Gerard Ferrari in numerous phone discussions with Mr Milicevic during September 2013 and on 1 October 2013. The particulars do not identify which parts of the emails or which particular phone discussions are relied on.

7. [442]

   The Plaintiffs contend that, although the correspondence originated from Gerard Ferrari, the Representations must have been made with and on behalf of Bevan Ferrari as he was copied in on the correspondence and involved in formulating the strategy in relation to the deal with Mr Milicevic. They also submit that the Representations were made by Ferrari East as they were made by Gerard and Bevan Ferrari as directors acting with apparent authority, referring to s 84(2) of the CCA.

8. [443]

   The Defendants accept that, if the Representations were made, they were made by Ferrari East but deny they were made by Gerard and Bevan Ferrari.

9. [444]

   The Plaintiffs’ misleading or deceptive conduct case raises the following issues:

10. [445]

    The Belgravia Administration Representation alleged is that the Defendants represented that:

11. [446]

    The Amended Statement of Claim refers to the above matters as “each a Belgravia Administration Representation”. At the hearing, the Plaintiffs’ case was that all of the above matters would be read together as the Belgravia Administration Representation as a “joint one”, rather than each matter comprising a separate representation that is alleged to be misleading or deceptive. The Plaintiffs accepted that if, for example, the Court finds that the Defendants did not make the representation at [445(c)] above, then the Belgravia Administration Representation was not made (T543.31–544.5). I have approached the claim on that basis.

12. [447]

    The Defendants admit that the representations referred to at [445(a)] and [445(c)] above were made in substantially the terms alleged but deny making the balance of the Belgravia Administration Representation.

13. [448]

    They also contend that, if made, the Belgravia Administration Representation was substantially true in a material respect as Belgravia went into administration not long after the relevant events and therefore the representation to that effect was not misleading or deceptive.

14. [449]

    The Plaintiffs described the Belgravia Administration Representation in their closing submissions as follows: that if Mr Milicevic failed to transfer the Plaintiffs’ interest in the business of the Myer JV to Ferrari East, it would cause Ferrari East’s agreement with Belgravia to fail, which in turn would cause the business of the Myer JV to collapse because Belgravia would be put into administration. This reflects those parts of the Belgravia Administration Representation outlined at [445(d)] and [445(e)] above.

15. [450]

    I accept that representations were made by Gerard Ferrari to Mr Milicevic that Ferrari East had entered into the BSA to buy Belgravia’s business and assets (which included assets of the Myer JV) and that Ferrari East wished to buy-back Mr Milicevic’s interest in the Myer JV. I also accept that the statements made by Bevan Ferrari at the 25 September meeting represented to Mr Milicevic that if Ferrari East’s deal with Belgravia did not proceed then Belgravia would go into administration due to the debts it owed.

16. [451]

    The difficulty with the Plaintiffs’ claim is that I have rejected Mr Milicevic’s evidence of the conversation he asserts he had with Gerard Ferrari on 1 October 2013 in which Gerard Ferrari was said to have mentioned that the sale of Belgravia’s business would not happen that day if Mr Milicevic did not agree to the deal and my findings about what was said at the 25 September meeting (at [169]–[178] above) do not give rise to the alleged representation. There is, in my view, no evidence that Gerard or Bevan Ferrari represented that Ferrari East would not or could not complete the purchase of Belgravia’s business under the BSA if the Plaintiffs did not transfer their interests in the Myer JV to Ferrari East on 1 October 2013. To the contrary, a fair reading of the evidence makes clear that Mr Milicevic was told by Gerard and Bevan Ferrari (and was aware) that the deal with Belgravia had already been done, it was to complete on 1 October 2013 and he had the option to leave the Myer JV operating “as is” albeit with Ferrari East partnering with Mr Milicevic in relation to the Myer JV business rather than with Belgravia.

17. [452]

    Accordingly, I find that the Belgravia Administration Representation in the terms contended for by the Plaintiffs was not made.

18. [453]

    If the Belgravia Administration Representation was made, I would have been satisfied that it was misleading or deceptive. This is because completion of the BSA was not conditional on the Plaintiffs entering into a separate agreement to transfer their interests in the Myer JV, Dynamic or the JV Trust to Ferrari East. It follows that there would have been no reasonable basis to represent that Belgravia would be put into administration due to debts owed by it to ANZ Bank or that the Myer JV business would collapse if the Plaintiffs did not transfer their interests in the Myer JV to Ferrari East on 1 October 2013.

19. [454]

    The Compensation Representation alleged is that the Defendants represented to the Plaintiffs that if they transferred their beneficial ownership in the Myer JV to Ferrari East:

20. [455]

    Like the Belgravia Administration Representation, the Amended Statement of Claim refers to the above matters as “each a Compensation Representation” but the Plaintiffs’ case, as advanced at the hearing, was that the Compensation Representation should be read together as a “joint one” rather than the above matters each comprising a separate Compensation Representation (T543.31–544.5).

21. [456]

    As described by the Plaintiffs in their closing submissions, the Compensation Representation is as follows: if Mr Milicevic entered into an agreement with Ferrari East, he would be put in a secure financial position as part-owner of a valuable and profitable asset and would have less onerous working hours than he had in respect of his previous role running the Myer JV business.

22. [457]

    Having considered the evidence, I am not satisfied that the Plaintiffs have established that the Compensation Representation was made in the terms alleged. This is for the following reasons.

23. [458]

    First, I have rejected Mr Milicevic’s evidence in cross-examination of what he claims Gerard Ferrari said at the 25 September meeting about the role being “minimal… No more than what – less than what you are doing now” (at [177] above) and his evidence of the conversation with Gerard Ferrari on 1 October 2013 in which he claims that Gerard Ferrari mentioned that the deal would give him income guaranteed for life (at [201] above).

24. [459]

    Second, in my view, the contents of the emails sent by Gerard Ferrari to Mr Milicevic do not give rise to a representation that Mr Milicevic would be working less hours than what he had been working solely for the Myer JV business. Rather, they clarify that his future role would be different, in that he would have responsibilities over the current and future Myer stores as well as franchisees and company owned stores in Sydney and New South Wales. It is true that they acknowledged that Mr Milicevic would not be as “hands on” as an Interstate Manager or be expected to undertake the State Manager role 100% himself as he already had an existing significant business of his own but those statements do not, in my view, express that Mr Milicevic’s role would involve less onerous hours than his previous role.

25. [460]

    Third, and as to the matters referred to at [454(d)] above, none of the emails sent by Gerard Ferrari refer to the prospect of Ferrari East purchasing marketing products from Sales Momentum as part of the deal, either in the volumes occurring at that time or at all. Nor is that matter referred to in Mr Milicevic’s affidavit or oral evidence in relation to what was said to him by Gerard Ferrari during their telephone discussions.

26. [461]

    Fourth, Gerard Ferrari’s emails may have emphasised the benefits to Mr Milicevic of doing a deal and taking a stake in Ferrari East based on the expected financial position of that company,­ and that entering into an agreement with Ferrari East would give Mr Milicevic a 5% shareholding in a valuable and profitable company. However, the evidence does not persuade me that the Defendants represented that the Plaintiffs’ existing financial prospects were “dire” and that doing a deal with Ferrari East would secure them.

27. [462]

    The Profit, Revenue and Balance Sheet Representations alleged are that Ferrari East (of which the Plaintiffs would own 5%) would:

28. [463]

    In closing submissions, the Plaintiffs also alleged that Gerard Ferrari made a further representation about the value of the Ferrari East business in his 28 September email (Valuation Representation) in the following terms:

29. [464]

    The Plaintiffs contend that the Profit, Revenue and Balance Sheet Representations and the Valuation Representation (together, the Financial Representations) are each separate representations that, in summary, represent that Ferrari East would be likely to make certain revenue and profits in the first three years, and the business would have a certain value on and from 1 October 2013 and in subsequent financial years.

30. [465]

    The Plaintiffs contend that the Financial Representations were representations as to future matters as each of them were predictions of what would occur and the Defendants did not have reasonable grounds for making them, within the meaning of ss 4(1)(a) and 4(1)(b) of the ACL.

31. [466]

    The Plaintiffs also submit that the Defendants have not satisfied their onus as representors to show that they had reasonable grounds for making the Financial Representations.

32. [467]

    The Defendants accept that the Financial Representations were representations as to future events. However, they submit that none of them were misleading or deceptive as Gerard Ferrari had a reasonable basis for making them and they were his opinions. The Defendants refer to Gerard Ferrari’s evidence in cross-examination, where he stated that the Financial Representations were his opinion based on what he had access to (T302.28–31), and the contents of his emails, referring to the 25 September email where he said “I reckon the “real” val, is closer to $6m”, which they say made it clear that it was a matter of his opinion and the basis on which it was made was provided.

33. [468]

    In my view, the evidence establishes that the Financial Representations were made by Gerard Ferrari and by Ferrari East by reason of s 84(2) of the CCA. The emails sent by Gerard Ferrari to Mr Milicevic on 18, 25 and 28 September, upon which the Plaintiffs rely, included representations that Ferrari East would be likely to make certain profits and revenue in the first three years, and the balance sheet and business would have a certain value on and from 1 October 2013 following the acquisition of the Belgravia business.

34. [469]

    A director of a corporation who engages in conduct in the course of and for the purposes of the corporation’s business may engage in conduct for which he or she can be primarily liable under the NSW ACL and Victorian ACL. The liability is a product of their own conduct which they engaged in as a director. There is no need to find “separate conduct”, being conduct engaged in other than in their capacity as a director, to conclude that a director who engages in conduct for a company can also attract primary and personal liability for that conduct: CH Real Estate Pty Ltd v Jainran Pty Ltd; Boyana Pty Ltd v Jainran Pty Ltd (2010) 14 BPR 27,361; [2010] NSWCA 37 at [101]–[105]; Arktos Pty Ltd v Idyllic Nominees Pty Ltd (2004) ATPR 42-005; [2004] FCAFC 119 at [13]; and Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 at [44]–[46].

35. [470]

    As to the representations referred to at [462(b)]–[462(d)] above, Gerard Ferrari’s email dated 18 September included predictions as to the profitability of the new Ferrari East business prior to the increase in the first year of operations of the new business of $1 million profit for the first year, $2 million for the second year and $2.5 million for the third year. He also predicted that, if the Myer JV and other stores came back to Ferrari East, it was possible that it would have “no debt, a balance sheet of around $15million, a profit of around $3m pa and a property, that after completion, fit-out and a commercial lease in place, would be worth around $5m, with a $2m mortgage”.

36. [471]

    Gerard Ferrari’s 25 and 28 September emails included further predictions of the profits and revenue of the new Ferrari East entity following the acquisition of the Belgravia business of around “$2.5million & $3.0million profit”, referring to a profit of $1,481,436 in the first year and in later years.

37. [472]

    As to the representations referred to at [462(a)] and [462(e)], they were made by the statements in Gerard Ferrari’s 25 and 28 September emails where he predicted that the balance sheet will show on “day one” an “asset value of between $10milion - $15 million”, the business would become a “$30million plus turnover company very quickly” soon after Ferrari East took over Belgravia’s business and that a “fair & reasonable” value of Ferrari East would be $8 million by 30 June 2014 and “hopefully $10m, by end of year three”. Gerard Ferrari made the Financial Representations predicting that the ““real” val” of the new Ferrari East entity would be closer to “$6m” in his 28 September email.

38. [473]

    I accept that the Financial Representations involved statements of Gerard Ferrari’s belief or opinion about Ferrari East and were qualified in some ways. For example, Gerard Ferrari’s 25 and 28 September emails referred to valuing the Ferrari East business as “very subjective” and profits being based on budgets that were “not finalized yet”. However, that does not mean that the Financial Representations were not with respect to future matters and could not be misleading or deceptive.

39. [474]

    Section 4 of the ACL is enlivened when a person makes a representation with respect to a “future matter”. It is concerned with predictions, promises, forecasts and other like statements which are directed to circumstances or events which may or may not happen in the future but which cannot be proven to be true or false at the time they are made: Digi-Tech v Brand (Australia) Ltd v Brand (2004) 62 IPR 184; [2004] NSWCA 58 (Digi-Tech v Brand) at [121], [125] and [132].

40. [475]

    In Australian Competition and Consumer Commission (ACCC) v Woolworths Group Ltd (formerly called Woolworths Ltd) (2020) 281 FCR 108; [2020] FCAFC 162 (ACCC v Woolworths), the Full Court of the Federal Court of Australia (Foster, Wigney and Jackson JJ) stated at [132]–[134]:

41. [476]

    Where there is an express representation as to the representor’s state of mind concerning a future matter, the representation does not lose that character merely because it implies a representation as to the representor’s present state of mind: Digi-Tech v Brand at [99]–[100], citing Ting v Blanche (1993) 118 ALR 543. Whether an expression of an opinion or belief relates to a future matter depends on the words used and the context in which they were used: ACCC v Woolworths at [125], referring to Digi-Tech v Brand at [99]–[102].

42. [477]

    In this case, the Financial Representations clearly concerned the future performance and expectations of the financial position of Ferrari East. They included predictions about the financial position of Ferrari East following completion of the BSA and in the event that the Myer JV stores and other stores were bought back and operated by Ferrari East as company owned stores, and represented that Ferrari East was likely to grow its profitability and asset position. Thus, they related to future matters: Willett v Thomas [2012] NSWCA 97 at [160].

43. [478]

    Section 4(1) of the ACL provides that, if a person makes a representation with respect to a future matter, the representation is taken to be misleading if the person does not have reasonable grounds for making it.

44. [479]

    Section 4(2) of the ACL places an evidential burden on the person who makes a representation with respect to a future matter to adduce evidence that there were reasonable grounds for making it. If the Court concludes that they did not have reasonable grounds for making the representation, the representation will be taken to be misleading.

45. [480]

    To satisfy that burden, the Defendants must prove by evidence: some facts or circumstances; existing at the time of the representations; on which the representor in fact relied; which are objectively reasonable; and which support the representations made: Sykes v Reserve Bank of Australia [1998] FCA 1405; 88 FCR 511 at 513.

46. [481]

    In Digi-Tech v Brand at [115]–[131], the Court of Appeal (Sheller, Ipp and McColl JJA) found that the representor did not discharge its burden to establish reasonable grounds for showing that the purported representation as to a future matter could be achievable based on, amongst other things, the representor’s failure to adduce evidence in that respect. In particular, no evidence was given to the effect that the representor took into account the matters to which it referred to in arriving at the representation or that explained what impact the factors to which the representor referred would have on the representation and what weight should reasonably be attributed to each.

47. [482]

    I accept the Plaintiffs’ submission that Ferrari East and Gerard Ferrari have not satisfied their onus of establishing that they had reasonable grounds for making the Financial Representations.

48. [483]

    In their written submissions, the Defendants contend that there was a reasonable basis for the Financial Representations, relying on Gerard Ferrari’s evidence in cross-examination that his opinion was based on what he had access to (T302.28–30) and that the basis for the Financial Representations was set out clearly in his emails. However, no evidence was adduced by Gerard Ferrari that identified what materials he had access to or how he took them into account in arriving at the Financial Representations, or that explained the impact of particular factors that gave rise to the Financial Representations and what weight should be attributed to them. Nor did he give evidence of his actual belief as to the facts and circumstances that would support each of the Financial Representations.

49. [484]

    Further, and as the Plaintiffs submit, it is not unreasonable to draw an inference that there was an absence of reasonable grounds for the Financial Representations. Gerard Ferrari’s evidence was that some of his figures were based on his own estimates or “guesses” without any basis whatsoever (as referred to at [130] above). He also accepted in cross-examination that he did not have access to the financial records of the Myer JV, he referred to figures that he did not know to be correct and made conclusions about predicted revenue from those figures, and his partners probably did not agree with him about his valuation of the business and thought it was more like $4 million (T253.5–24; T.302.26–31; T303.10–1).

50. [485]

    In any event, the issue of reasonable grounds is not determined by asking whether Gerard Ferrari honestly believed his estimates or predictions were accurate but whether, considered objectively, those matters on which he relied (which in this case, have not been identified and are unknown) were objectively reasonable and supported the representations made: Cummings v Lewis (1993) 41 FCR 559 at 520 and 565.

51. [486]

    For these reasons, I find that the Defendants did not have reasonable grounds for making the Financial Representations at the time they were made and were misleading or deceptive contrary to s 18 of the ACL, s 8(1) of the Victorian ACL and/or s 28(1) of the NSW ACL.

52. [487]

    The Plaintiffs submit that Mr Milicevic relied upon the Representations made to him in entering into the agreement for himself and on behalf of Mrs Milicevic. They submit that his evidence to that effect should be believed because it accords with common sense as the Representations were clearly intended to induce Mr Milicevic to enter into the agreement.

53. [488]

    The Plaintiffs also point to the following matters as indicative of reliance on the part of Mr Milicevic: the Representations were made to him by a friend, not a commercial adversary; Mr Milicevic had not been provided with the BSA nor the financial records of Belgravia and, as such, he had no means of going behind the numbers; and there was no reason for him to doubt what he was told as he was aware that Dynamic was a profitable entity.

54. [489]

    The Plaintiffs seek damages calculated on a “no transaction basis”, with the relevant counterfactual clear from the 1 October proposal, namely, that the Myer JV would have remained as it was although Ferrari East would have been substituted for Belgravia.

55. [490]

    The Defendants submit that the Financial Representations were not causative of the Plaintiffs’ loss. They submit that Mr Milicevic’s evidence of reliance in his affidavit was a reconstruction in light of litigation rather than a record of his true memory of reliance at that time and it is necessary to consider what a reasonable person in Mr Milicevic’s position would have done in light of his knowledge at the time.

56. [491]

    The Defendants submit that the Court should find that Mr Milicevic treated the dissolution of the Myer JV as inevitable and did not rely on any of the Representations when entering into the agreement with Ferrari East. They say that the evidence shows that Mr Milicevic knew that both Mr Peck and Gerard Ferrari did not accept that there was a future to the franchise model, Mr Milicevic was unable to prevent Belgravia from unilaterally imposing a new contract on him and he “could already see the writing on the wall” and wanted to maximise his return on the agreement.

57. [492]

    The Defendants also submit that:

58. [493]

    Reference was made to the statement of the majority in Berry v CCL Secure Pty Ltd (2020) 271 CLR 151; [2020] HCA 27 (Berry v CCL Secure) at [37] that:

59. [494]

    The Defendants submit that the Plaintiffs’ losses are referrable to their outcomes after termination as the Court should find that Ferrari East would have terminated the Myer JV Agreement. They say that termination would have the same effect as termination of the franchise because goodwill is not an asset of the Myer JV and the Plaintiffs’ position would “in effect be 60% of the net asset position” of the Myer JV, and, relying on the June 2013 balance sheet, contend that the Plaintiffs would only be entitled to $6,012.97.

60. [495]

    In Gould v Vaggelas (1984) 157 CLR 215; (1984) 56 ALR 31, Wilson J stated at 46:

61. [496]

    What must be established is a causal connection between the alleged representations and the loss for which the representee seeks compensation: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; (1992) 109 ALR 247 (Wardley v Western Australia) at 253; and Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 (Henville v Walker) at [17] (Gleeson CJ), [61] (Gaudron J), [94] (McHugh J with whom Gummow J agreed) and [159]–[160] (Hayne J with whom Gummow J agreed). In a claim for misleading or deceptive conduct constituted by representations, acts done by the representee in reliance upon the misrepresentation will “constitute a sufficient connection to satisfy the concept of causation”: Wardley v Western Australia at 253.

62. [497]

    A representation need not be the sole cause of the loss, it need only be a material contributor. A representation that is “objectively likely” to act as an inducement to act in a particular way will be a cause of the relevant loss or damage if it contributed to the loss or damage in some way even if “other factors or conditions… played an even more significant role in producing the loss or damage”: Henville v Walker at [106] (McHugh J, with whom Gummow J agreed) and [163] (Hayne J, with whom Gummow J agreed).

63. [498]

    In Berry v CCL Secure, Bell, Keane and Nettle JJ stated at [31]:

64. [499]

    Where a representation is a material contributor to entering into the agreement, the Court must calculate a monetary sum to put the claimant in the position that they would have been in had the agreement not been made: Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373; [2019] FCAC 167 at [107].

65. [500]

    Applying the above principles, I am satisfied that causation is established in respect of the Financial Representations. This is primarily because they were of a nature and communicated in a manner that was seemingly calculated to induce Mr Milicevic into giving up management of the Myer JV (through Dynamic and the JV Trust) pursuant to the terms of the Myer JV Agreement for a new agreement with Ferrari East and, in my view, they would likely have that effect.

66. [501]

    I do not accept the Defendants’ submission that I should reject Mr Milicevic’s evidence on reliance. He gave direct evidence that he relied upon the matters Gerard Ferrari included in his emails regarding the likely revenue, profitability, balance sheet and business valuation of Ferrari East, and maintained that position during cross-examination (T147.28–148.47). Mr Milicevic’s evidence was not without blemish but, in my view, his testimony on this issue was entirely plausible, and I accept it.

67. [502]

    The Financial Representations were persuasive, repeated and couched in terms that were designed to encourage Mr Milicevic to do a deal that would give him an ongoing senior role at and equity in Ferrari East. Mr Milicevic did not have access to Belgravia’s financial records or the BSA which would have enabled him to verify what he was told. The Financial Representations were made by a former business colleague who, it is to be expected, could be trusted and relied upon to provide Mr Milicevic with information that was reasonably based about the future performance of a company he was being encouraged to contract with such that it was not unreasonable for Mr Milicevic to rely on those representations.

68. [503]

    I accept that there were other factors at play that also likely motivated Mr Milicevic’s decision making at the time, such as his prior discussions about the possible dissolution of the Myer JV with Mr Peck and the indications from Mr Peck and Gerard Ferrari that the franchise model was not the way of the future. However, I do not accept that Mr Milicevic had no alternative option other than entering into a new deal with Ferrari East. In my view, the evidence makes plain that Mr Milicevic had the choice to remain “as is” and stick with “Option (A)”. Overall, I am satisfied that the Financial Representations had the intended effect and were a substantial and not minimal cause in inducing Mr Milicevic to pursue “Option (B)”, changing the Plaintiffs’ position by their giving up of rights under the Myer JV Agreement and bringing about their entry into a new agreement with Ferrari East on 1 October 2013 albeit on different terms to the agreements pleaded by the Plaintiffs and the Defendants in this case.

69. [504]

    As to the position of Mrs Milicevic, based on Mr Milicevic’s evidence that she did and does defer to his decisions regarding the conduct and management of the Myer JV and would have executed whatever documents Mr Milicevic requested her to sign to consummate the agreement with Ferrari East, I am satisfied that, as between herself and Mr Milicevic, it was his decision that was determinative of their course of action. I can infer that Mrs Milicevic was prepared to do what Mr Milicevic decided and the Financial Representations that were relied on by him were also relied on by her through him, and so find.

70. [505]

    Turning to loss, the parties agree that the relevant counterfactual is the “no transaction” case. The dispute concerns whether that counterfactual should be on the basis that the Plaintiffs and Dynamic would have continued to have an interest in and operate the Myer JV stores. In particular, whether, as the Plaintiffs contend, the Myer JV arrangement would have remained as it was although with Ferrari East substituted for Belgravia or, as the Defendants submit, Ferrari East would have terminated the Myer JV Agreement with the consequence being that the Plaintiffs’ loss is referrable to their outcomes after termination.

71. [506]

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

72. [507]

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

73. [508]

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

74. [509]

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

75. [510]

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

76. [511]

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

77. [512]

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

78. [513]

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

79. [514]

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

80. [515]

    The Defendants did not address this issue in their submissions.

81. [516]

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

82. [517]

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

83. [518]

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

84. [519]

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

85. [520]

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

86. [521]

    Ferrari East’s particulars refer to the following matters:

87. [522]

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

88. [523]

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

89. [524]

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

90. [525]

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

91. [526]

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

92. [527]

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

93. [528]

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

94. [529]

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

95. [530]

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

96. [531]

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

97. [532]

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

98. [533]

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

99. [534]

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

100. [535]

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

101. [536]

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

102. [537]

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

103. [538]

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

104. [539]

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

105. [540]

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

106. [541]

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

107. [542]

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

108. [543]

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

109. [544]

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

110. [545]

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

111. [546]

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

112. [547]

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

113. [548]

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

114. [549]

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

115. [550]

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

116. [551]

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

117. [552]

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

118. [553]

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

119. [554]

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

120. [555]

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

121. [556]

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

Plaintiffs’ damages: Quantum

1. [557]

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

2. [558]

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

3. [559]

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

4. [560]

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

5. [561]

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

6. [562]

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

7. [563]

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

8. [564]

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

9. [565]

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

10. [566]

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

11. [567]

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

12. [568]

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

13. [569]

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

14. [570]

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

15. [571]

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

16. [572]

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

17. [573]

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

18. [574]

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

19. [575]

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

20. [576]

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

21. [577]

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

22. [578]

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

23. [579]

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

24. [580]

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

25. [581]

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

26. [582]

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

27. [583]

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

28. [584]

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

29. [585]

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

30. [586]

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

31. [587]

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

32. [588]

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

33. [589]

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

34. [590]

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

35. [591]

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

36. [592]

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

37. [593]

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

38. [594]

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

39. [595]

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

40. [596]

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

41. [597]

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

42. [598]

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

43. [599]

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

44. [600]

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

45. [601]

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

46. [602]

    The experts agree:

47. [603]

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

48. [604]

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

49. [605]

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

50. [606]

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

51. [607]

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

52. [608]

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

53. [609]

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

54. [610]

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

55. [611]

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

56. [612]

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

57. [613]

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

58. [614]

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

59. [615]

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

Conclusion

1. [616]

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

2. [617]

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

3. [618]

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

4. [619]

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

5. [620]

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

6. [621]

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