The Beautiful Body Co (Intl) Pty Limited v David Eric Hammer & Ors [2009] NSWSC 91 (18 March 2009)

Last Updated: 19 March 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
The Beautiful Body Co (Intl) Pty Limited v David Eric Hammer & Ors [2009] NSWSC 91


JURISDICTION:


FILE NUMBER(S):
50114/2007

HEARING DATE(S):
23, 24, 25 February 2009

JUDGMENT DATE:
18 March 2009

PARTIES:
The Beautiful Body Co (Intl) Pty Limited ACN 101 263 852
David Eric Hammer
Eva Karpati
Luminex Pty Limited ACN 104 913 046

JUDGMENT OF:
Hammerschlag J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
G. Mahoney (Plaintiff)
P. Braham (Defendants)

SOLICITORS:
Purcell Lawyers (Plaintiff)
Hicksons (Defendants)


CATCHWORDS:
TRADE PRACTICES – claim for damages for conduct alleged to be misleading or deceptive within s 42(1) Fair Trading Act 1987 (NSW) – allegation that defendant individuals represented that plaintiff was dealing with a particular entity and that defendant individuals represented they had authority to commit particular entity to a licensing agreement with the plaintiff when in fact they did not – claim that third defendant company was a person involved in the contravention – claimed that plaintiff suffered damages being commitments that it undertook in conducting a business having believed it obtained the rights under the licensing agreements to do so – held that individual defendants’ conduct was in the circumstances not misleading or deceptive because it was not capable of misleading the plaintiff – held no damages suffered because plaintiff did not rely on the alleged inducement and in any event no damage proved – held that company defendant was not knowingly involved in any event because its guiding minds were not aware of the material facts constituting the contravention even if there was one

LEGISLATION CITED:
Fair Trading Act 1987 (NSW)

CATEGORY:
Principal judgment

CASES CITED:
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191
Taco Co of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 2 TPR 48
Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661
Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109
Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Helton v Allen [1940] HCA 20; (1940) 63 CLR 691
Rejfek v McElroy(1965) [1965] HCA 46; 112 CLR 517
Watson v Foxman (2000) 49 NSWLR 315
Macmillan v Mumby & Another [2006] NSWCA 74

TEXTS CITED:


DECISION:
The plaintiff’s claim dismissed with costs



JUDGMENT:

- 36 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST


HAMMERSCHLAG J

18 MARCH 2009

50114/2007 THE BEAUTIFUL BODY COMPANY (INTL) PTY LIMITED ACN 101 263 852 -v- DAVID ERIC HAMMER & 2 ORS

JUDGMENT

INTRODUCTION

1 HIS HONOUR: The plaintiff sues the first defendant (“Mr Hammer”) and the second defendant (“Mrs Karpati”) for damages it says it suffered by conduct on their part which it alleges was misleading or deceptive or likely to mislead or deceive in contravention of s 42(1) of the Fair Trading Act 1987 (NSW) (“the Act”).

2 The plaintiff sues the third defendant company (“Luminex”), of which Mr Hammer and Mrs Karpati are the shareholders and directors, as a person allegedly involved in the contravention.

FACTUAL BACKGROUND

The David Jones rights

3 David Jones Ltd (often called DJs or DJ) is a well-known Australian departmental store with outlets across the country.

4 Some of its stores have hair and beauty salons.

5 Mrs Karpati has been involved in the beauty industry for many years. She has a reputation in that industry. Her and Mr Hammer are husband and wife. Mr Hammer is a business man.

6 On 13 April 2005 a company known as Karpati Hair and Beaute Pty Ltd (ACN 113 802 672) (“KHB Co”) was incorporated.

7 On its incorporation Mr Hammer and Mrs Karpati each owned twenty per cent of KHB Co, and were directors. The remaining sixty per cent was held by four individuals (including a Mr Bazouni) all of whom were associated with an enterprise known as Royal Lion Property Group.

8 On 29 April 2005 David Jones entered into a written Retail Brand Management Agreement with KHB Co under which KHB Co was given the right to conduct the business of hair and beauty salons in identified David Jones stores for a period of three years, with one option for renewal of three years (“the David Jones rights”).

9 KHB Co started trading on 3 May 2005. By December that year it was operating twenty-four salons. One discrete service which those salons offered was hair removal. KHB Co traded under the name “Karpati Hair and Beaute”.

10 Mr Hammer and Mrs Karpati fell into conflict with other shareholders in KHB Co. Mr Hammer was looking for a way to resolve the problem by excluding the other shareholders (other than Mr Bazouni) from participation in KBH Co.

11 To achieve this result, a number of steps were taken.

12 On 8 September Mr Hammer and Mrs Karpati resigned as directors of KHB Co.

13 On 12 December 2005 KHB Co sold and transferred its business to a company called Karpati Pty Ltd (“KPL”) of which Mr Hammer and Mrs Karpati were the sole shareholders and directors.

14 Also on that day, a Novation Deed was entered into under which David Jones agreed to substitute KPL for KHB Co as the party having the David Jones rights.

15 On 19 December 2005 voluntary administrators, Messrs Ozem Kassem and David Watson, were appointed to KHB Co.

16 On conclusion of these steps KPL, which was controlled by Mr Hammer and Mrs Karpati, owned the beauty and hair salon business and held the David Jones rights, and KHB Co was no longer trading.

Luminex

17 At material times Luminex Pty Ltd had the exclusive right to import from France and distribute in Australia Yperion Intermittent Pulse Light Electronic Hair Removal machines.

18 Luminex licensed Smartech Concepts Pty Ltd to import and distribute the machines in Australia. The machines were commonly referred to as Luminex machines.

19 Luminex machines work in conjunction with what are described as “shot cards”. These cards empower the machine to work a specific number of times or “shots”.

Introduction of the plaintiff and negotiations leading to the entry into of the Licence Agreement

20 The plaintiff is a company owned by Mr David Major. Its directors have at all material times been Mr Major and his associate Mr Steven Fitzjohn.

21 Coolong Group (Australia) Pty Ltd and its subsidiary Coolong Consulting Pty Ltd, are companies associated with Mr Major. They provide consulting services in the information technology sector.

22 In 2005 Mr Major became interested in becoming involved in franchising hair removal businesses. He was introduced to Mr Hammer by Mr David Ginges who was then involved in hair removal businesses. Mr Ginges had an arrangement with KHB Co to assist it in its hair removal businesses. Mr Ginges was associated with a Mr Peter Watson. Mr Ginges and Mr Watson told Mr Major in mid 2005 that KHB Co had a licence to operate beauty salons in David Jones’ stores.

23 The plaintiff wished to enter the hair removal business by acquiring the right to operate such business in the DJs stores.

24 Negotiations between Mr Major and Mr Hammer commenced initially with a view to Mr Major acquiring Luminex machines and then with a view to him taking over the hair removal component of KHB Co’s beauty and hair salon business.

25 On 17 November 2005 on a Coolong Group letterhead, Mr Major recorded that Mr Hammer had agreed to Mr Major’s “proposed new company” using the Karpati name, it being planned that that company would provide a range of hair removal personal services through salons based around Australia based on the use of Luminex machines which would be supplied by Smartech Pty Ltd. In the letter Mr Major stated, amongst others, the following:

“On behalf of the new company (yet to be formed) we wish to order twenty LS600 Luminex IPL machines from Smartech for the landed cost of $5,000 each.

· We agree to enter into discussions with the respective companies regarding final payment for these machines...

I have taken the liberty of documenting this matter sin (sic) this preliminary form as we will be starting several new staff next week and it will be good to have a common basis for understanding our agreed arrangements. We will also be working hard to prepare and finalise a joint heads of agreement in which all these matter can be detailed and mutually agreed...”

26 On 8 December 2005 Mr Major sent to Mr Hammer proposed Heads of Agreement between BBCo and KHB Co. One of the provisions in the proposed Heads of Agreement was:

“Continuation of this agreement as far As (sic) DJ outlets are treated is concurrent with KHB tenure and NO damage shall accrue at termination of the DJ agreement”.

27 In December 2005 Mr Major re-named the plaintiff, which was one of his “old companies”, The Beautiful Body Company (Intl) Pty Ltd to be the vehicle for operating the hair removal business. In the dealings between the parties the plaintiff was sometimes referred to as BBCo. Where appropriate I shall refer to it in that way.

28 Mr Hammer’s evidence was that between 12 and 14 December 2005 he had a conversation with Mr Major to the following effect:

“David, just to let you know, I’ve now done it. I’ve cleaned up that bucket of mud, if you know what I mean. I have bought the DJs beauty salons business and I now control the business. The old company is no longer trading and is going to be wound up. Everything else will be the same, DJ’s insisted on that. It will be kept quiet. It will still be called “Karpati Hair and Beauté” but the owner will be a new company with Eva, John Bazouni and I called Karpati Pty Limited. DJ’s have redone the licence with Eva and I. I have taken over the assets and most of the liabilities. You will be looked after. Effectively, it gets rid of the crooked shareholders and directors. Bazouni is coming in with us to help fund it. As soon as we have a chance we will do your contract.”

29 The conversation was not denied by Mr Major.

30 He says that just before Christmas Day 2005 he received notification that KHB Co had been placed into voluntary administration on 19 December 2005 by its directors. Coolong Group had done some work for KHB Co earlier in 2005 and he, as an unpaid creditor, received notification from the administrator.

31 He says he immediately telephoned Mr Hammer to ask him what was going on and was told that he had problems with two of his shareholders and he had placed the company into administration to deal with that problem. Amongst others, he says Mr Hammer told him he would be able to sort it out and that Mr Major should not be concerned about their proposed future arrangements.

32 He says that Mr Hammer informed him that he had a company called Karpati Pty Ltd which was taking over the running of the business so that he could rid himself of his troublesome shareholders.

33 On 19 December 2005 Mr Major wrote to Mr Hammer on a letterhead which has the following heading:

“BBCo Pty Ltd Trading as Karpati Hair Removal Clinics”

34 The letter was addressed to Mr Hammer as “Director, Karpati Pty Ltd”. Mr Major wrote the following:

“We are pleased to formalise the business relationship that has been the subject of discussion between Karpati and BBCo executives for some time. We believe that we have now reached agreement on all the key points and wish to bring this matter to a formal contractual conclusion.

We have prepared a Deed of Agreement based upon our extended discussions that seeks to delineate the relationship between Karpati Pty Ltd and BBCo Pty Limited. Similar documents are in the process of being prepared for review and agreement by David Ginges and Smartech Pty Ltd.

The key points in the Deed of Agreement are as follows:

1. BBCo is given the right to use the Karpati name, “brand” and image in all of its business activities. We have assumed that this right will be assigned by the current owner of the Karpati names, “brand” and image directly to BBCo for this purpose.

2. BBCo will trade as Karpati Hair Removal Clinics. The location of the clinics will be subject to review by Karpati but would not be located within the same shopping centre as a David Jones outlet or within 200 meters of an existing David Jones location;

3. BBCo assumes responsibilities for all current Karpati’s ‘Hair Removal’ operations from start of business,

4. BBCo will acquire the rights to the existing 16 machines currently located in the Karpati Hair & Beaute salons located within David Jones from Smartech;

5. BBCo will undertake to place Luminex equipment in those Karpati Pty Ltd salons that do not have Hair Removal equipment once the business demand has been assessed and agreed;

6. BBCo will purchase PULSES for the month of December from Smartech, from a date that has yet to be determined, with the initial date of any payments to Smartech being the effective date of this agreement.

7. BBCo will employ David John Ginges or his nominated entity to assist in the promotion, advertising, marketing and management of the BBCo Hair Removal business and the delivery of its services on an extended period royalty and personal services contract;

8. BBCo will pay Karpati 45% of all the Luminex ‘Hair Removal’ income generated in the KPL salons located in David Jones stores where Karpati staff perform the hair removal service;

9. Subject to the terms and conditions in the contract between Karpati and David Jones, BBCo will have the option to install their own staff within David Jones salons as workload dictates;

10. BBCo will pay Karpati 25% of all the Luminex ‘Hair Removal’ income generated in the KPL salons located in David Jones stores where BBCo staff perform the service;

11. BBCo will trade as Karpati Hair Removal Clinics;

12. BBCo will have the right to assign its interest in this agreement to suitable third parties. Not agreed

We are confident that the attached Deed of Agreement covers these key maters, as well as other matters of a more operational nature.

We would like to thank you and your fellow Directors for the opportunity to work closely [sic] your company on this business opportunity and in future years.

We also wish to assure you all that it our (sic) intention to make this new business venture an outstanding success for all its stakeholders.”

35 A proposed Deed of Agreement accompanied the letter. The proposed parties were the plaintiff and KPL.

36 Clause 4 of the proposed deed was in the following terms:

“Term

a. BBCo will assume control and management of KPL hair removal operations on opening of business on (DATE TO BE DETERMINED);

b. The term of this agreement will be co-terminus with the KPL concession contract with David Jones. BBCo has the first/last option to extend the arrangement for further periods, at no cost, these being co-terminus with any extension of the KPL David Jones concession;”

37 On 23 December 2005 Mr Major sent a further letter to Mr Hammer addressed in the same way as the 19 December 2005 letter, enclosing a further draft Deed of Agreement between the plaintiff and KPL in the following terms. Clause 4 of that draft:

“Term

(a) BBCo will assume control and management of KPL hair removal operations on opening of business on 12th December 2005, (this date being based upon advice received from KPL) the date on which we understand that the KPL concession in David Jones was transferred from Karpati Hair & Beaute to KPL;

(b) The term of this agreement will be co-terminus with the KPL concession contract with David Jones. BBCo has the first/last option to extend the arrangement for further periods, at no cost, these being co-terminus with any extension of the KPL David Jones concession;”

38 Mr Major and Mr Fitzjohn met Mr Hammer on 6 January 2006.

39 On 12 January 2006 Mr Major again wrote to Mr Hammer providing a further draft of the proposed agreement again between the plaintiff and KPL. In clause 1, entitled Scope of Agreement, the following appeared:

“This is an exclusive arrangement and BBCo will be provided with access to the information needed to monitor and manage its business operations within the existing KPL salons and allow the development of new hair removal clinics and salons within David Jones.”

40 Mr Hammer retained a solicitor, Mr Stephen Noss, to assist with the agreement. Mr Noss had had some involvement with proposed earlier arrangements involving Mr Ginges.

41 Mr Hammer called Mr Noss on 16 January 2006. According to Mr Noss he had become aware late in 2005 that KHB Co had entered administration and that a fresh company was to be formed to take over the David Jones beauty salon businesses.

42 Mr Hammer forwarded the draft agreement and letter dated 12 January 2006 to Mr Noss. Mr Noss commenced to consider and then redraft the agreement.

43 Mr Major says he had a telephone conversation with Mr Hammer on 20 January 2006 in which Mr Hammer said words to the following effect:

“I’m calling to let you know that I have sorted out the Shareholders and cleaned up that “bucket of mud”. I’ve just come from a meeting with the administrators. I’ve bought the company and I have full control. I will continue to use Karpati Hair and Beaute Pty Ltd to provide hair and beauty services.”

44 This conversation is contested.

45 Mr Hammer accepts that at an earlier point he told Mr Major that he had sorted out the “bucket of mud”, that he had bought the business and that he had full control of it. He denies ever having told Mr Major that he had bought “the company”.

46 On 30 January 2006 Mr Noss met Mr Hammer. A conversation to the following effect took place:

Mr Noss: David, I understand you have formed a new company for the DJs salons. I need you to confirm the details of the name, ACN and ABN of that company.

Mr Hammer: We had to close down Karpati Hair and Beauté Pty Limited late last year because Royal Lion Property Group Pty Limited failed to come up with the funding needed for the early stages of the business. We sold the hair and beauty salon business and the David Jones salon licence to a new company owned by Eva and me, with the consent of David Jones. Karpati Hair and Beauté Pty Limited now has administrators appointed.

47 Mr Noss also asked Mr Hammer to send him confirmation of the names, ACNs and ABNs of all the various companies that were and had been involved in the David Jones hairdressing and beauty salons.

48 Julie Renton is an administrative assistant who works within Mr Hammer’s and Mrs Karpati’s business organisation. On 30 January 2006 she sent an email to Mr Noss in the following terms:

“Please be advised that I am in the process of obtaining the information on the names of the companies as requested.

Details I have so far are:-

KARPATI HAIR AND BEAUTÉ PTY LTD

ACN: 113 802 672

ABN: 81 113 802 672

As soon as I have further information I will advise you accordingly.”

49 Mr Noss redrafted the agreement which had earlier been sent to him and sent his first draft to Mr Hammer on 1 February 2006.

50 The parties to Mr Noss’ draft were “Karpati Hair and Beaute Pty Limited (ACN )”, “BBCo Pty Ltd (ACN )”, “Luminex Pty Limited”, and “David Major”.

51 Mr Hammer forwarded the draft to Mr Fitzjohn on 3 February 2006.

52 Between 3 and 15 February 2006 Mr Noss and his secretary Elizabeth Aitken had several conversations and a conference with Mr Hammer which led to the amendment of the first draft agreement which Mr Noss had prepared. According to Mr Noss during one conversation he said to Mr Hammer:

“You need to make sure all the parties are correctly identified. We have not included the ACNs for any of the parties because you have not confirmed what they are.”

53 That draft was between the same proposed parties (excluding Mr Major) as the earlier draft – still without the inclusion of ACN numbers.

54 On 15 February Mr Noss wrote to Mr Hammer enclosing the first draft amended agreement. His covering letter concluded as follows:

“I still don’t have the ACN numbers for the new Karpati Hair & Beaute and if you could give me Luminex as well and BBCo.”

55 On 17 February 2006 Mr Noss met with Mr Hammer, Mr Fitzjohn and Mr Major. They discussed the draft agreement. Mr Fitzjohn sent a marked-up version of the agreement to Mr Noss on 20 February 2006.

56 The parties were shown as before, still with no ACN numbers.

57 On 20 February 2006 KHB Co went into liquidation.

58 On 21 February 2006 Mr Noss faxed to Mr Fitzjohn a copy of the draft proposed agreement with handwritten notes.

59 Mr Fitzjohn emailed Mr Noss on 21 February 2006 a modified draft agreement still without ACN numbers. Mr Noss had no further involvement in settling the agreement and never saw the final version.

The “Licence Agreement”

60 On 23 February 2006 a document entitled Agreement to Licence was executed. I shall refer to this document as the “Licence Agreement”.

61 On its face the parties were KHB Co, the plaintiff and Luminex. KHB Co was defined as “KHB”. The plaintiff was defined as “BBCo”.

62 Under it KHB Co agreed to grant to the plaintiff “the right to conduct the Hair Removal business within DJ’s and the DJ’s Hairdressing and beauty salons which is an exclusive right.”

63 The Licence Agreement contained the following recitals:

“RECITALS

A. WHEREAS David Jones Limited by its retail stores which it either owns/or operates has in the past granted concessional licenses to an operator to operate the hair dressing and beauty salons so located within their premises subject to terms.

B. AND WHEREAS KHB has entered a concessional license agreement with David Jones Limited (hereinafter referred to as ‘DJ’s”) to conduct the hairdressing and beauty salons utilising space provided by DJ’s in each of its relevant retail stores hereinafter described.

C. AND WHEREAS KHB by its predecessor granted to David Ginges the right to operate and manage as part of the KHB business the business of Hair Removal utilizing solely equipment as provided by Smartech Pty. Limited pursuant to a license granted by Luminex Pty. Ltd through KHB to operate the Luminex equipment hereinafter described or any updated equipment.

D. AND WHEREAS KHB and Luminex have been requested to release David Ginges from his obligations pursuant to the aforementioned Agreement and enter a fresh commercial arrangement with BBCo whereby BBCo is given the right/license to use the KHB brand name and image in all of its Hair Removal related business activities within the DJs retail stores and in other places subject strictly to the terms of this Agreement.”

64 Clause 2.1 of the Licence Agreement was in the following terms:

“KHB hereby grants to BBCo the right to conduct the Hair Removal business within DJ’s and the DJ’s hairdressing and beauty salons which is an exclusive right.”

65 Clause 3.1 of the Licence Agreement provided that “...the licence shall be for the period as defined in Schedule 1, item 5 from the date of this Agreement (subject to the termination provision of this Agreement as set out in clause 18 but always limited to the duration of the Agreement between KHB and DJ’s.)” (emphasis added)

66 Clause 12 of the Licence Agreement was in the following terms:

“12.1 BBCo acknowledges all Gross Revenue generated within the Karpati Hair and Beaute Salons within the DJ retail stores is first received and paid to David Jones.

12.2 KHB will forward on a weekly basis particulars of Gross Revenue directed by BBCo from its operations in the business of Hair Removal and pay the said sum to BBCo (subject to 12.4) within forty eight (48) hours of receiving the particulars and the money from David Jones.

12.3 The parties acknowledge and agree the first such payment shall commence notwithstanding the terms of this Agreement as relates to payments received with respect to the existing Hair Removal business as and from February 5, 2006 such payment to be made within fourteen (14) days from the commencement date of this Agreement.

12.4 The parties further acknowledge and agree KHB shall be entitled to deduct from the payment referred to in 12.2, 25% of all Hair Removal related income and/or gross revenue generated by BBCo by virtue of its operation as a hair removal business in the DJ’s hair and beauty salons representing KHB’s cost of infrastructure and facilities used by BBCo to conduct the business.

12.5 The parties further acknowledge and agree that so long as BBCo continues to use the services of suitably trained KHB staff in part or otherwise to provide its Hair Removal services, KHB shall be entitled to receive an additional payment of 20% of all Gross Revenue generated by BBCo’s business within the DJ’s retain stores by way of compensation and/or payments to KHB with respect to its staffing costs. The 20% payment shall be 20% of Gross Revenue generated by KHB staff calculated before the payments referred to in 12.4.

12.6 Gross Revenue from gift vouchers and other methods of pre-purchasing Hair Removal services will not be recognised or payable to BBCo immediately but will be paid to BBCo as each associated customer visit to a salon occurs and the deferred income from the pre-purchase is recognised by BBCo and David Jones and KHB.”

The events after the Licence Agreement

67 It is not altogether clear when the plaintiff commenced operating the hair removal businesses at the David Jones’ outlets, but as at the date of the Licence Agreement it was doing so. As early as 19 December 2005 Mr Major had described BBCo as “Trading as Karpati Hair Removal Clinics”.

68 Sixteen Luminex machines which had been ordered from Smartech by the plaintiff were installed in David Jones’ stores. According to Mr Major related entities borrowed from various finance companies to acquire them for the benefit of the plaintiff.

69 By the end of March 2006 Mr Major was considering acquiring the entire beauty salon business of KPL.

70 On 31 March 2006 he sent a memorandum to Mr Hammer which referred to the “current agreement between KHB and DJ’s”.

71 On 5 April 2006 Mr Major wrote to Mr Hammer concerning the proposal that the plaintiff acquire a hundred per cent interest in the business operations. The letter referred to a conversation between them in which Mr Hammer had suggested that the plaintiff’s offer be amended “in the following key ways”:

“1. That any business and/or due diligence period be undertaken in a more timely manner. You stated that you would be willing to assist this process by providing BBCo with indemnification against any losses or damage suffered by the company and/or its Directors, officers and employees for any past actions and transgressions by KH&B and/or its current and previous shareholders and directors from any source from the date of the transfer of responsibility to BBCo of KH&B.

2. That instead of a $500,000 performance bond, BBCo agree to provide an immediate $500,000 in funding to KH&B, either as cash injection in return for a 49% equity interest in KH&B, or a purchase of shares from the existing KH&B share holders (Eva Karpati and David Hammer), with them providing the cash injection of $500,000 directly into KH&B to be used for funding KH&B only business activities and operations;

3. That the current shareholders in KH&B would agree to transfer their remaining equity (51%) to BBCo for $1 when the commercial lien (currently $1,500.00) held by KH&B’s Bank of certain assets had been reduced down to the sum of $500,000 by the payment of various services and other payments as set out in our previous letter dated 3 4 2006.

4. That the current Directors of KH&B would seek to offer additional financial support to BBCO (sic) while it was operating KH&B by providing other financial relief through other complementary businesses, sources and channels, including such options as providing retail beauty products at a lower cost price or on a more flexible trading basis. This could be done with GMCollin beauty products provided a regular (weekly) base payment model with quarterly financial reconciliations and adjustments.”

72 Mr Major wrote a second letter dated 5 April 2006 to Mr Hammer in which he said, amongst others, the following:

“Re Letter of Interest to acquire the business interests of Karpati Hair & Beaute

In the letter I forwarded to you on this matter yesterday afternoon, I mentioned that we would like some financial and other operational information to assist our advisors complete a limited due diligence process. In that letter, I undertook to forward to (sic) a brief list of our information based (sic) and other requirements.

I am pleased to do that. As stated, our advisors would like to see the following information. We will be happy to receive it in hard copy, softcopy via email or during a face-to-face meeting with key KH&B finance and/or accounting staff.

We would like to see or have access to the following information:

1. Documents on which the company was established and its ACN

2. All returns lodged by the company since its formation(BAS, PAYG AND ASICO)

3. A copy of all current back statements

4. A copy of all current corporate Balance Sheet/Profit and Loss statement

5. Specific information on the contents and background to the Trade Debtors Control a/c

6. A complete list of the current A/P and A/R accounts

7. A full and current statement of account for all the Company’s current indebtedness to its Bank and other lenders

8. A copy of instruments entered into by the company with its lenders and other suppliers

9. A sample of all key employee contracts and agreements

10. A copy of all committed future expenses 9advertising etc.)(sic)

11. A copy of all agreements and contracts entered into regarding the Head Office space at Waterloo

12. Any commitments being carried by KH&B#2 as a result of the liquidation of KH&B#1. (emphasis added)

13. The current status of the staff superannuation fund and/or other statutory obligations of the company to the Government and its employees.”

73 By April 2006 there was tension between Mr Hammer’s interests and Mr Major’s interests because, according to Mr Major, “KHB” had failed to meet invoices for what the plaintiff had claimed were its share of revenue from David Jones.

74 The plaintiff in turn did not pay money which it owed Smartech for shot cards.

75 The plaintiff complained that the David Jones generated hair removal weekly income was not coming through as per the terms of the Licence Agreement.

76 According to Mr Hammer KPL was trading at a loss and many of the individual David Jones beauty salons were not profitable. They sought David Jones’ agreement in July and August to close certain of the salons after Christmas 2006.

77 On 19 August 2006 a conversation between Mr Hammer and Mr Major to the following effect took place:

“Mr Hammer: You’re using my people and my machines and I am taking the business back. You are not meeting your advertising budgets so you are in breach.

Mr Major: That is unfair as those are the terms of our agreement and we are only short of cash because you owe us more than $100,000 in unpaid David Jones sales revenue. We have not paid Smartech because they have agreed to wait for payment until KHB pays their unpaid invoices but we are still ahead of the requirements for all our contractual commitments to KHB.”

78 During the latter half of 2006 Mr Major continued to negotiate with Mr Hammer for the purchase by the plaintiff of the entire beauty salon business.

79 On 10 November 2006 Mr Fitzjohn emailed to Mr Hammer and Mr Major a draft Deed of Agreement between KPL and the plaintiff described as Agreement to Manage, Licence and Acquire. The recitals to that draft include the following:

“2. AND WHEREAS KPL has entered a concessional license agreement with David Jones Limited (hereinafter referred to as ‘DJ’s”) to conduct the hairdressing and beauty salons utilising space provided by DJ’s in each of its relevant retail stores hereinafter described.

...

4. AND WHEREAS BBCo has agreed to enter into a commercial arrangement with KPL whereby KPL licenses BBCo to use the KPL brand, name and image in all of its Hair & Beauty related business activities within the DJs retail stores and in other places subject strictly to the terms of this Agreement.”

80 On 30 November 2006 Mr Major wrote to Mr Hammer referring to a meeting on Wednesday 29 November during which Mr Hammer had been informed that the provisional offer “made to the Directors of KHB to acquire the business and operational assets of your company several weeks ago...” was withdrawn. The letter was addressed to “Mr David Hammer Director Karpati Pty Ltd”.

81 In the letter Mr Major set out the rationale behind withdrawal of the conditional offer.

82 On 1 December 2006 Mr Major wrote a further letter to Mr Hammer addressed in the same way presenting a further proposal “to KHB for its consideration”.

83 On 1 February 2007 voluntary administrators were appointed to KPL and it went into liquidation on 28 February 2007.

THE ACT

The relevant sections

84 Section 42(1) of the Act (which is in Part 5) provides as follows:

(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive.

85 Section 68(1) of the Act (which is in Part 6) provides as follows:

(1) A person who suffers loss and damage by conduct of another person that is in contravention of a provision of Part...5 (section 43 excepted)...may recover the amount of the loss or damage by action against the other person or against any person involved in the contravention.

86 Section 61 of the Act provides as follows:

A reference in this Part to a person involved in a contravention of a provision of the Act shall be read as a reference to a person who:

(a) has aided, abetted, counselled or procured the contravention,

(b) has induced, whether by threats or promises or otherwise, the contravention,

(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention, or

(d) has conspired with others to effect the contravention.

The legal principles pertinent to the application of the Act

87 The following precepts are now well established with respect to the sections of the Act earlier referred to:

a conduct is misleading or deceptive within section 42(1) of the Act if it induces or is capable of inducing error:
b whether conduct is misleading or deceptive is a question of fact;
c where the conduct consists of a misrepresentation (which is often but not always the case), it is not misleading unless the person to whom the representation is directed labours under some error;
d intention to mislead is not necessary;
e in order to be “knowingly concerned” in a contravention a person must have knowledge of the essential facts constituting the contravention;
f “knowingly” means actual and not constructive knowledge;
g in order to recover damage the plaintiff must prove that loss of damage suffered was “by” conduct in breach of the Act. This means that the loss must be caused by the conduct complained of whether that is the case, is to be determined by approaching the matter in a common sense and practical way;
h the conduct complained of need not be the only cause of the plaintiff’s loss or damage;
i the plaintiff bears the onus of proving its loss;
j where a purchase of business is induced by a representation, it is not enough to show, in order to recover losses subsequent to purchase, that the transaction of purchase was induced by the representation and that the losses would not have occurred but for the transaction. What has to be shown is that the loss flows directly from the inducement.

See: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191; Taco Co of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 2 TPR 48; Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661; Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109; Anema E Core Pty Ltd v Aromas Pty Ltd [1999] FCA 904.


THE PLAINTIFF’S CASE

88 There is no issue that, on 23 February 2006 Mr Hammer and Mrs Karpati had no authority to commit KHB Co to anything. They were then no longer directors and the company had voluntary administrators. Moreover, about ten weeks earlier KHB Co had divested itself of its business and the David Jones rights had been transferred to KPL.

89 Ms G Mahoney of counsel who appeared for the plaintiff put the following:

a Mr Hammer and Mrs Karpati engaged in conduct that was misleading or deceptive by representing to the plaintiff (contrary to the fact) that the plaintiff was dealing with KHB Co, when it could not have been doing so;
b the misrepresentation was first made during the telephone conversation which Mr Major says he had with Mr Hammer on 20 January 2006 when according to him Mr Hammer conveyed that the party which would be entering into the licensing agreement with the plaintiff was KHB Co;
c the misrepresentation was reinforced by the insertion into the Licence Agreement (before execution) of KHB Co’s name as a contracting party, and then repeated when Mr Hammer and Mrs Karpati purported to execute the Licence Agreement on behalf of KHB Co;
d had the plaintiff known that it was not dealing with KHB Co it would not have entered into the Licence Agreement. It would not have contracted with KPL to the David Jones rights but would have taken some other course;
e the plaintiff suffered loss by incurring financial obligations it otherwise would not have incurred, namely:
i. $422, 310.48 which it owes to the Coolong Group which financed the leasing of the Luminex Machines; and
ii. $165,000 which it owes to Coolong Group (Australia) Pty Ltd for “Contracted Business Services” rendered by that company from February to November 2006 inclusive at $16,500 per month;
f Luminex was knowingly involved in the conduct complained of because Mr Hammer and Mrs Karpati are its directors and were aware of their lack of capacity to bind KHB Co.

90 No claim for damages for breach of warranty of authority is made against Mr Hammer or Mrs Karpati.

THE DEFENDANTS’ CASE

91 Mr P Braham of counsel who appeared for the defendants put the following:

a the oral representation alleged by the plaintiff to have been made in the 20 January 2006 conversation was not established on the evidence;
b even though on the face of the Licence Agreement KHB Co was the licensing party, in reality it was KPL. Accordingly, the representation by Mr Hammer’s and Mrs Karpati’s execution purportedly on behalf of KHB Co was not misleading or deceptive or likely to mislead or deceive;
c the plaintiff did not suffer any damage “by” the conduct complained of because:
i. had the error been disclosed, the plaintiff would nevertheless have contracted with KPL, orat the lowest the plaintiff failed to establish that it would have taken some course other than entering into a Licence Agreement with KPL;
ii. the losses it claims it suffered (if it made such losses) result from the “inducement” which it alleges, namely the representation that KHBCo was the contracting counter party;
d Luminex was not knowingly involved in my contravention (even if there was one) because Mr Hammer and Mrs Karpati were not aware of the error that had been made.

THE ISSUES

92 The issues which arise for determination are accordingly as follows:

a whether the plaintiff has established the oral misrepresentation it claims was made in the 20 January 2006 telephone conversation;
b whether the insertion into the Licence Agreement of KHB Co as the licensing party and the execution by Mr Hammer and Mrs Karpati purportedly on behalf of KHB Co, was in all the circumstances, misleading or deceptive;
c if the answer to either (a) or (b) is yes, whether the plaintiff suffered any loss by the conduct complained of; and
d whether Luminex was a person knowingly involved in the contravention.

THE 20 JANUARY 2006 CONVERSATION

93 The allegation of misrepresentation by way of this conversation is only against Mr Hammer. There is no suggestion that Mrs Karpati was a participant in it or was aware of it.

94 In December 2005 Mr Hammer had told Mr Major that KPL was to be the contracting vehicle.

95 The essence of what Mr Hammer conveyed was that the contracting party would no longer be KPL but would be KHB Co.

96 Where a party seeks to rely upon spoken words as a foundation for a cause of action the conversation must be proved to the reasonable satisfaction of the Court. This means that the Court must feel an actual persuasion of its occurrence or its existence. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362; Helton v Allen [1940] HCA 20; (1940) 63 CLR 691 at 712; Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517 at 521; Watson v Foxman (2000) 49 NSWLR 315 at 319.

97 There is no objective contemporaneous or near contemporaneous material, record or other satisfactory corroboration of the conversation. I feel no actual persuasion of its occurrence.

98 To the contrary, there are a number of considerations, some objective, which make its occurrence unlikely.

99 Firstly, according to Mr Major, Mr Hammer said he had just come from a meeting with the administrators. But there is no evidence that Mr Hammer had attended any meeting with the administrators on that day. No evidence from the administrators was called.

100 Secondly, Mr Hammer had not bought “the company”. He clearly had an understanding of the difference between buying a company and buying a business.

101 Thirdly, the transactions which gave him control of the business had occurred weeks before rather than on or shortly before 20 January 2006. KPL had weeks before acquired the right to use the name Karpati Hair and Beaute.

102 Fourthly, he had already (in mid December 2005) told Mr Major that the “bucket of mud” had been sorted out.

103 Faced with these considerations, counsel for the plaintiff accepted that it was improbable that Mr Hammer had intended to convey what Mr Major says he took from what Mr Hammer said on 20 January 2006 about who was to be the contracting party.

104 Ultimately, the position adopted by the plaintiff was that Mr Hammer did not mean to convey what Mr Major took, but that Mr Hammer used words which, objectively viewed, had the meaning that KHB Co was to be the contracting party.

105 In my view, the concession that Mr Hammer did not have an intention to convey what Mr Major took is an additional reason why I have no actual satisfaction that Mr Hammer said words with the claimed meaning. I prefer Mr Hammer’s evidence to that of Mr Major.

106 The plaintiff has failed to establish to the Court’s reasonable satisfaction that the conversation which Mr Major asserts took place on 20 January 2006, took place.

INSERTION OF KHB CO INTO THE LICENCE AGREEMENT AND ITS EXECUTION

107 I turn now to the inclusion of the name of KHB Co into the Licence Agreement and execution by Mr Hammer and Mrs Karpati purportedly on its behalf.

108 It was put on behalf of the plaintiff that as a result of a chain of errors on the defendants’ side of the record the wrong name of the proposed licensing party was inserted into the Licence Agreement, reinforcing the misrepresentation that KHB Co was the contracting party, and that this was followed through by Mr Hammer’s and Mrs Karpati’s execution.

109 I have already found that the plaintiff has failed to establish the earlier alleged misrepresentation. There was accordingly nothing to reinforce.

110 So far as inclusion of the name (and ACN number) on the document is concerned, how that came about when, at the time it was under voluntary administration and Mr Hammer and Mrs Karpati were no longer directors, was not revealed by the evidence.

111 The origin of the error seems most likely to have been the email from Julie Renton to Mr Noss on 30 January 2006. How Ms Renton came to do what she did was not revealed.

112 Mr Noss himself gave evidence that as he put it, “Potentially I think – I thought, correctly or incorrectly, that Karpati Hair & Beaute Pty Ltd had been placed in administration and that a company by the same name had been formed with the same ACN number. I don’t know whether that’s right or it’s wrong, but I suspect that that’s what it was”.

113 Mr Noss was aware that the original company had been placed in administration.

114 The defendants’ response to the plaintiff’s submission that there had been a misrepresentation which was later reinforced, was that the insertion of KHB Co’s name in the document was a misnomer and that the real contracting party was KPL.

115 The defendants pointed to a number of “objective factors” requiring this conclusion, including that the commercial purpose of the transaction was to licence use by the plaintiff of a subset of the David Jones rights and that KPL was the only party which could grant that licence.

116 The defendants relied on Macmillan v Mumby & Another [2006] NSWCA 74 as authority for the proposition that the true parties to a written contract are those whom the signatories objectively intend to be the parties irrespective of how the parties are described on the document.

117 Macmillan v Mumby concerned execution of a contractual document by a person on behalf of a non-existent company.

118 The usual rule is that when a person signs on behalf of a non-existent other person, the signatory is personally liable on the contract.

119 The facts of the case were that a document purporting to be a loan agreement was signed. The Mumbys represented the borrower as a particular entity and themselves as directors of it. However, the name of their company and the actual borrower was different. The lenders sought to argue that the loan contract was with the individuals personally because the entity represented to be the borrower did not exist. At [38] Tobias JA said,

“In the present case, as I have already observed, the respondents did not purport to contract on behalf of a non-existent company (A.R. Appliance Sales & Rentals Pty Limited) insofar as they signed the receipt referred to in [14] above as directors and, therefore, only as an agent rather than as the real principals. It being the objective intention of both parties that any contract for loan would be between the appellant and the company who carried on the relevant business, no room exists to support a finding that merely because A.R. Appliance Sales & Rentals Pty Limited was non-existent company, the parties intended that the contract of loan would be between the appellant and the respondents personally.”

120 The case is authority for the proposition that the rule that the signatory is personally liable is not an irrefrangible one. It yields when the objective intention of the parties is that an existing entity is to be a party notwithstanding that the parties sign a document which on its face identifies a non-existent entity as a party.

121 It may be the case that in such circumstances, namely where parties objectively intend a particular entity to be a party, that that entity in fact is bound as a party (assuming a person executing can bind it), but the case does not stand for that proposition, and no authority directly supporting it was cited.

122 Either way, it seems to me that the true substance of the defendants’ submission was that the defendants’ conduct was not misleading or deceptive because it was not capable of misleading the plaintiff because Mr Major (on behalf of the plaintiff) intended that the plaintiff contract with the entity which had the David Jones rights and which could sub-licence the plaintiff to exercise some of those rights, namely KPL.

123 This proposition was separately articulated as a lack of reliance by the plaintiff on the basis, even if there had been a misrepresentation, the plaintiff would nevertheless have proceeded to contract with KPL had the error been detected. This was on the assumption that the plaintiff had in fact not contracted with KPL anyway.
124 Mr Major’s affidavit evidence (which was by way of one affidavit sworn on 2 June 2008) was at no time did Mr Hammer or his associates ever bring to the attention of the plaintiff’s directors that there was a possibility that the plaintiff had contracted with anyone other than KHB Co and Luminex with respect to the Licence Agreement.

125 In his affidavit he did not give evidence as to why it may have been material to the plaintiff to contract with KHB Co as opposed to KPL. He also did not give evidence in his affidavit to the effect that he would not have proceeded with KPL rather than KHB Co.

126 Although he gave oral evidence under cross examination that he really did not want to deal with KPL because it had a number of other commercial interests, I do not accept his evidence that this was his state of mind because:

a from as early as 14 December 2005 he was asserting a belief that agreement had been reached on all the key points with KPL and that he wished to bring the matter to a formal contractual conclusion;
b he prepared deeds of agreement reflecting KPL as the counter party; and
c draft deeds which he prepared, dated 19 December 2005, 23 December 2005, and 12 January 2006 each reflected a consciousness that KPL had the David Jones rights and provided that BBCo’s rights would be co-terminus with the “KPL concession contract with David Jones.

127 It was put to Mr Major during cross examination that as at 14 December he was contemplating dealing with KPL. He declined to accept this.

128 It was also put to him that he wanted to deal with whichever company Mr Hammer could proffer would give the David Jones rights. He also declined to accept this proposition responding that “We had two options at the time that I recall. We had two options. One was to work inside David Jones through Karpati Hair and Beaute, as we understood it. The other was to ignore the David Jones business and go straight to market and not do the work through David Jones.”

129 When faced with the fact that his email correspondence was addressed to Mr Hammer as a director of KPL, his evidence was that he thought he was dealing with KPL on a temporary basis for probably a 4-6 week period. His evidence was that he put KPL “in there because I was advised that they would be acting temporarily until they sorted out the Hair and Beaute” and that Mr Hammer had said that “we would be dealing with Karpati Pty Ltd until he had cleaned up the Karpati Hair and Beaute bucket of mud which included the Royal Lion shareholders which he didn’t particularly want to have in that entity”.

130 As at 14 December 2005 Mr Major was clearly contemplating dealing with KPL. There is no suggestion in any contemporaneous material of dealing with any entity other than KPL. He had been told by then that KPL was to be the party and documentation which he brought into existence around that time reflects an intention that the plaintiff contract with KPL.

131 I accordingly do not accept his evidence that he was not contemplating dealing with KPL.

132 Moreover, in my view he knew that KHB Co did not have the David Jones rights because they had been transferred to KPL.

133 The draft deed of agreement which he prepared dated 23 December 2005 records that on 12 December 2005 the David Jones rights were “transferred from Karparti Hair and Beaute to KPL”.

134 His letter to Mr Hammer on 5 April 2006 reflected an understanding that “KHB#1” (clearly KHB Co) had been liquidated and that he was dealing with another entity.

135 Further, on 11 November in 2006 he transmitted to Mr Hammer the draft agreement to manage, licence and acquire which recorded in its preamble that KPL had the David Jones rights and that BBCo had agreed to enter into a commercial arrangement with KPL to licence BBCo to use the KPL brand, name and image within the DJ’s retail stores.

136 In addition it is clear from Mr Major’s correspondence in 2006 that offers were being made to KPL and that he used the terms KHB, Karpati, and Karpati Hair and Beaute with a degree of looseness and interchangeability. It is also clear that Mr Major’s understanding at that time was that the plaintiff’s agreement was with KPL.

137 I also do not accept Mr Major’s evidence that he considered he was dealing with KPL only temporarily because:

a there was no suggestion in his affidavit evidence or in any contemporaneous material of any understanding that he was dealing with KPL temporarily;
b nothing in any of the conversations he recounted with Mr Hammer (even on his own version) conveyed any such imputation; and
c there is no rational reason why Mr Hammer would have conveyed that KPL’s involvement was to be temporary only.

138 On behalf of the plaintiff it was submitted that it should be inferred from the conduct of the plaintiff in 2006 when it requested information for the due diligence process it was undertaking in contemplation of the possible purchase of the entire beauty salon operation, that had it been given the Asset Sale and Purchase Agreement and Novation Deed entered into on 12 December 2005 the plaintiff would have been put “on strong notice” that the Asset Sale and Purchase Agreement was not an arm’s length one, may have been attacked by liquidators and rescinded, returning the real assets back to KHB Co so that any agreement with KPL would have been worthless.

139 This submission is unsustainable. In 2005 and up to the time the Licence Agreement was entered into the plaintiff never called for those documents. There was no evidence from which the court could draw any inference that any of the earlier transactions were in any way impeachable and the objective behaviour of the plaintiff does not support any such inference.

140 Finally, I do not accept Mr Major’s evidence that he considered there were still two options at the time.

141 Mr Major saw the David Jones stores, as he put in his affidavit, as “ideal for an initial rollout of hair removal businesses operating within a prestigious retail chain known Australia wide.” By the time of the Licence Agreement, on any realistic view, the plaintiff was commercially committed to using the David Jones outlets as the vehicle for its proposed rollout.

142 In my view Mr Major intended that the plaintiff contract with the entity which had and was able to convey the David Jones rights and that he thought that the company described on the Licence Agreement was that entity.

143 By the time of the Licence Agreement he had not even asked for or sighted the Retail Brand Management Agreement or any instrument conferring the David Jones rights. He only asked for it in the context of the subsequent proposed due diligence process in 2006.

144 It was critical for the plaintiff to obtain part of the David Jones rights. Both Mr Major’s draft agreements of 19 December 2005 and 23 December 2005 contemplated that the term of the agreement would be co-terminus with KPL’s concession contract with David Jones. Clause 3.1 of the Licence Agreement has the same contemplation.

145 So far as Mr Hammer and Mrs Karpati’s execution of the Licence Agreement is concerned, no logical or rational reason, other than a mistake on their part, emerged for why they would have signed on behalf of KHB Co.

146 The plaintiff ultimately accepted that Mr Hammer and Mrs Karpati made an unconscious error in executing the document in the form they did, because, clearly (as was revealed during cross examination) both of them were aware that they had no power to commit KHB Co to the Licence Agreement.

147 It was put to each of them that they refrained from drawing the error to Mr Major’s attention and they accepted, of course, that this was the case.

148 Clearly so far as they were concerned the Licence Agreement was intended to convey to the plaintiff that part of the David Jones rights that would enable the plaintiff to operate the hair removal businesses.

149 I am satisfied that each of them intended to execute an agreement on behalf of the entity that had and was to convey those rights, namely KPL.

150 In my view Mr Hammer and Mrs Karpati and Mr Major on behalf of the plaintiff all contemplated that the party, whatever its name, which held the David Jones rights was to be the party to the agreement.

151 It follows that the conduct complained of neither misled nor was capable of misleading the plaintiff in any relevant way.

152 In my view the plaintiff has failed to establish that there was any conduct on the part of Mr Hammer or Mrs Karpati that was misleading or deceptive or likely to mislead or deceive within the meaning of s 42 of the Act.

153 The plaintiff’s claim accordingly fails.

154 I will nevertheless deal with the question of whether the plaintiff suffered loss or damage by the conduct complained of even if it was misleading or deceptive.

Damages

155 The plaintiff has the onus of establishing that by the conduct complained of it suffered loss or damage.

156 In this case the plaintiff articulates its loss as the monetary value of commitments which it says it undertook in operating the businesses, and which but for entering into the licence agreement it would not have undertaken.

157 The particular amounts are the outstanding liabilities of $422,310.48 of the Coolong Group to various financiers in respect of finance rental agreements entered into to obtain the Luminex machines which were used in the plaintiff’s business and monthly amounts of $16,500 (including GST) charged by the Coolong Group to the plaintiff reflected in end of the month monthly invoices commencing on 28 February 2006 and ending on 30 November 2006 (totalling $165,000) for “Contracted Business Services” described as “Business Management & Development; Office Administration, Facilities Rental (Space, Power, Furniture and Equipment, Communications) Telephone, Fax and Internet Lines and Computer Equipment”.

158 The fundamental difficulty with this claim, is that the losses claimed cannot be said to flow directly from the conduct complained of, namely the alleged inducement to contract with KHB Co.

159 In his own affidavit, Mr Major described these amounts as “losses incurred by BBCo from not being paid the David Jones sales revenue under the contract with KHB...” (meaning KHB Co).

160 The alleged losses flow from the manner in which the plaintiff chose to conduct the business over the period that it did, and did so unhindered from the beginning of 2006 until 19 August 2006 when the plaintiff stopped operating.

161 In Anema E Core Pty Ltd v Aromas Pty Ltd at [43] the Full Federal Court, Burchett, Kiefel and Hely JJ said:

“It is not enough to show, in order to recover losses subsequent to purchase, that the transaction of purchase was induced by the representation, and that the losses would not have occurred but for the transaction: Netaf Pty Ltd v Bikane Pty Ltd [1990] FCA 35; (1990) 26 FCR 305, 308; Kenny & Good Pty Ltd v MGICA (1992) Ltd (1997) 77 FCR 307, 328, 330; appeal dismissed [1999] HCA 25. The appellant's submissions proceeded on the erroneous basis that it was sufficient to show that the contract resulted from the inducement. What has to be shown is that the loss flows directly from the inducement. The appellants failed to establish this fact.”

162 The plaintiff was not disturbed in its occupation of the David Jones beauty salons by David Jones or anyone else during that period.

163 The plaintiff has failed to show that the loss it says it suffered flows directly from the inducement.

164 There are further difficulties.

165 There was no evidence as to the value of the finance rental agreements on 19 August 2006 (or at any other time). Self evidently (and nothing to the contrary was put on behalf of the plaintiff) the outstanding liability on each lease does not equate to the value of the rights under it.

166 There was no evidence that established any contractual liability on the part of the plaintiff to pay the Coolong Group for the invoiced “Contracted Business Services”. Moreover from 19 August 2006 the plaintiff was not operating the businesses. The evidence did not satisfy me that contracted business services were provided by Coolong to BBCo as described in the invoices beyond that date.

167 The plaintiff has failed to establish that it suffered any loss by the conduct complained of.

LUMINEX

168 In my view Mr Hammer and Mrs Karpati were oblivious of the fact that the contracting party reflected on the Licence Agreement was KHB Co when they executed it.

169 It follows that they did not have knowledge of an essential element of the alleged contravention.

170 It further follows, insofar that they were there on behalf of Luminex, that it did not have knowledge of an essential element of the alleged contravention and Luminex was in the circumstances not a person knowingly involved in the alleged contravention.

171 In my view the plaintiff has failed to establish that it suffered any loss by the conduct complained of.

CONCLUSION

172 The plaintiff’s claim is dismissed with costs.

173 The exhibits are to be returned.

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LAST UPDATED:
18 March 2009