FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - enforcement and remedies - damages - assessment - loss of opportunity to contract - whether previous findings on additional business and economic growth should be varied - whether new store affected business - whether changes in per capita consumption of milk relevant - whether applicants’ expert report affected by unproven foundations - whether applicants’ expert report contradicted - how son’s wages to be dealt with - whether payments from Dairy Industry Authority to be off-set - how damages to be computed generally and in the particular circumstances.

DAMAGES - mitigation of loss - payments from statutory fund - whether payments to be taken into account - how payments to be characterised.

Dairy Industry Act 1973 (WA)

Dairy Industry Amendment Act 1994 (WA) s 91

Pownall & Ors v Conlan Management Pty Ltd (1995) 12 WAR 370

Redding v Lee (1983) 151 CLR 117

The National Insurance Company of New Zealand Limited v Espagne (1961) 105 CLR 569

Manser v Spry (1994) 181 CLR 428

Haines v Bendall (1991) 172 CLR 60

Adams v Ascot Iron Foundry Pty Ltd (1968) 72 SR (NSW) 120

Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 104 ALR 397

British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways of London Ltd [1912] AC 673

Hussey v Eels [1990] 1 All E R 449

Graham v Baker (1961) 106 CLR 340

Hodge v Clifford Cowling & Co (1990) 46 EG 120

Harris v Commercial Minerals Ltd (1996) 186 CLR 1

GABOR MARTIN NAGY and ANOR v MASTERS DAIRY LTD ACN 008 671 761

WAG 27 of 1995

GENERAL DISTRIBUTION

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1.                  The matter be set down for final orders at 9.15am on 19 December 1997.

Note:  Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

GENERAL DISTRIBUTION

REASONS FOR JUDGMENT

HIS HONOUR:  On 13 December 1996 reasons were published in this matter (“the first reasons”) in which it was held the respondent breached s 52 of the Trade Practices Act (1974) (Cth) (“the Act”).  It was found the conduct of the respondent in December 1994 in not disclosing to the applicants a deadline had been reached for taking up a milk round known as the Maddington zone was causative of a loss of commercial opportunity to the applicants.  At pp38‑39 of the first reasons it was said:

“The commercial opportunity which the applicants lost was evidently of value; namely, a value approximating the value of the milk round which would have been allocated to them as the result of the opportunity to conclude a contract.  The possibilities or probabilities of that occurring were extraordinarily high; indeed their opportunity or chance was at the very highest end of the scale of probability:  ...  The respondent accepted it could not allocate the Maddington zone elsewhere unless the applicants were not contracting for it.  The evidence for the applicants was that they would have contracted had they known the opportunity to do so was to be lost.  The applicants had a substantial prospect of acquiring the benefit, the loss of which was caused by the misleading conduct of the respondent.”

On the question of damages the Court then had before it the report of the applicants’ expert Thompson.  For the respondents there were expert reports of Ernst & Young.  After examination of issues raised by these reports and the evidence relating to them the first reasons made certain preliminary findings (at pp43‑44):

“In my opinion, the damages to which the applicants are entitled should be calculated on the following basis:

(a)       The years 1986/87 - 1994/95 should be addressed in the valuation.

(b)       The growth rate in the last two years should be reduced to a level which allows for the effect of the Woolworths supermarket.  This should not be a rate which equates to the pre-Woolworths rate because there should be allowance for growth in the economy and less milk vendors being in the market place.  Actual growth rates on a compound basis after the above adjustments should be applied.

(c)        No adjustment should be made for loss of Browne’s (sic) white milk sales on the basis these will be compensated for by sales picked up from Brown’s (sic) subcontractors.

(d)       Adjustment should be made for the margin in white milk sales.

(e)        It should be assumed that to continue in the business the applicants would have been required to purchase a refrigerated truck.

(f)        Allowance for tax should be at personal rates on the basis the applicants always operated as a partnership.

The evidence shows different discount rates used by the experts but provides no basis on which the Court can select the appropriate rate and determine whether it should be applied before or after tax.  There is the further question whether or not provision should be made for repayment of the DAAS payment in the calculation of damages.  These and the foregoing issues were not the subject of evidence from the experts or submissions from counsel in terms of how they should be translated into the calculation of damages.  It will therefore be necessary for the applicants’ expert to provide a further account prepared in the light of items (a) - (f) above and resolution of the appropriate discount rate.  The statement should be prepared on the alternative bases that DAAS is or is not to be repaid.  Submissions should follow.”

The process envisaged in this portion of the reasons has now been completed and further submissions, oral and written, received.  These reasons proceed to the assessment of damages and are therefore to be read in continuity with the first reasons.

Experts’ Reports

The experts’ reports given on the following dates are defined as follows:

(1)        Applicants’ expert J R Thompson of Jarot Business Assessments:

·      Report dated 15 April 1996 (“the First Thompson Report”)

·      Report dated 23 May 1996 (“the Second Thompson Report”)

·      Report dated 3 February 1997 (“the Third Thompson Report”)

·      Report dated 11 July 1997 (“the Fourth Thompson Report”)

·      Report dated 4 August 1997 (“the Fifth Thompson Report”)

(2)        Respondent’s experts Ernst & Young:

·      Report dated 10 May 1996 (“the First Ernst & Young Report”)

·      Report dated 29 May 1996 (“the Second Ernst & Young Report”)

·      Report dated 19 February 1997 (“the Third Ernst & Young Report”)

·      Calculation of loss (“the Fourth Ernst & Young Report”)

Objections have been allowed to specified portions of the Third and Fourth Thompson Reports.

I accept the submissions for the respondent that where the Third and Fourth Thompson Reports refer to matters not raised at trial (as detailed in pars 31, 33 and 35 of the respondent’s submissions on the damages hearing) no reliance should be placed upon them.  I exclude from this the item in par 33(b) referable to the 2 per cent discount.

It is submitted for the respondents the above matters cannot be excised from the Third and Fourth Thompson Reports and accordingly both those reports should be disregarded.  This is said to be supported by reference to Pownall & Ors v Conlan Management Pty Ltd (1995) 12 WAR 370 at 374 and 387.  The essential question is whether this is a case where the inadmissible hearsay and the admissible evidence are so intertwined they cannot readily be separated so the entire body of evidence, namely the two reports, should be rejected.  In my opinion that is not the case in relation to the matters referred to and the relevant expert opinions (excluding the portions to which objection has been taken) should be admitted subject to weight.  There is not a risk of injustice when the Third and Fourth Thompson Reports, with the exclusion of the inadmissible portions, are read in conjunction with the First and Second Thompson Reports.

Growth in the business

The First Thompson Report sought to explain the extraordinary increase of 71 per cent in the net profit of the business in the year ended 30 June 1994 as attributable to the following factors:

“(a)     the rapid growth in the WA economy since 1990/91;

(b)       the swing from home deliveries to shop rounds;

(c)        the introduction of discounted milk products at major supermarkets;

(d)       the revamped Woolworths supermarket was run more efficiently with a consequent increase in sales;

(e)        the reported increase in milk consumption per head for a third year in a row in 1995/6.”

In the Second Thompson Report, the applicants’ expert concedes the sales of generic discounted milk (par (c) above) would not have created extra growth after February 1995.

As to par (b) there was no evidence led.  For any increase in sales to be accountable due to this factor, persons living outside the Maddington area would have to have been shown to purchase their milk at supermarkets in Maddington.  If it is able to be inferred the increase in business due to the establishment of the Woolworths store attracted persons from outside the area, that is further evidence of the extraordinary effect of that store.

As to par (e) this was shown to be based on a sentence in an article in a newspaper.  The Third Ernst & Young Report (at item 2.2) shows there is no correlation between milk consumption per head and the state of the applicants’ business.  It also refers to a decrease in Western Australia of milk consumption since 1992.  Accordingly, there should be no allowance made for change in such consumption in the assessment of the applicants’ estimated loss of profits.

It is necessary therefore to turn to factors (a) and (d).

Findings regarding economic growth

This addresses the preliminary finding (b) in the first reasons so far as it said “there should be allowance for growth in the economy”.

In the First Thompson Report it was said the profit would be higher in each of the three years following 1994‑1995 due to less competition and “natural growth arising from the economy”.  Then followed the statement “a minimum growth rate of 20 per cent in the first year was likely, followed by minimal growth rates of 10 per cent in the last two years”.  In the Second Thompson Report growth in the economy was relied upon as a factor contributing to sales being made up after the loss of Brownes’ white milk sales.  In the Third Thompson Report growth rates of 18 per cent, 8 per cent and 8 per cent in years 1-3 respectively were relied on.

The respondent submits no reliance should be placed on the effect of economic growth.  Firstly, it is said there is no correlation between growth in the economy and the applicants’ business.  This is supported by reference to the Second Ernst & Young Report (item 2.3) where the absence of any historical correlation between the macro statistic of nominal Gross State Product (“GSP”) and the quantum of business conducted by the applicants during the past 10 years of operation is supported by columnar and graphic comparisons of those two progressions.

Secondly, it is said the growth in the economy was not factored into the assessment of the applicants’ business from 1985 to 1995 and to treat it as a separate matter affecting future profits would create an unrealistic picture.

In cross-examination, the applicants’ expert Thompson testified he saw economic growth as one of a number of factors to be taken into account but was non-specific.

In my opinion, the statistical and graphic material submitted to the Court on behalf of the respondent shows there is no necessary nor uniform connection between economic growth and the profit of the business of the applicants.  This is evidence which is not rebutted by the case for the applicants.  On this evidence I therefore conclude economic growth should not be taken into account in computing the damages.

Effect of Woolworths store

In par (b) of the preliminary findings in the first reasons, it was said the growth rate in the last two years should be reduced to a level which allows for the effect of the opening of the Woolworths supermarket.

In the second Ernst & Young Report this issue was first raised as a reason why an allowance should be made for consistent growth in net profits.  It was stated the growth was not sustainable as it was attributable to the new opening of the Woolworths store “which was a once‑off event”.

In the Third Thompson Report it was asserted the Woolworths supermarket was run more successfully than the predecessor Coles business so that sales thereby increased.

In the Third Ernst & Young Report support for the respondent’s submission was sought in data submitted by the first-named applicant in seeking the Dairy Adjustment Assistance Scheme Payments (“the DAAS payments”) in which he detailed eight weeks of milk supply measured by volume from 7 April 1994 to 1 June 1994.  That disclosed 42.5 per cent of the sales of the business by total volume of white milk were to Woolworths, so the business was heavily reliant on such sales.  It was asserted it was a “once‑off event” which could not be expected to continue into the future.  The report then addressed other factors to which the applicants’ expert had attributed growth, namely growth in the economy; a shift from home deliveries to supermarket purchases; introduction of discounted milk; and an increase in milk consumption per capita.  Having submitted none of these were established, the respondent’s experts submitted the applicants’ expert had not identified any factor which would justify the application of any growth in net profits and the net growth which did occur in 1994 and 1995 was not sustainable.  In a supporting table of comparison of net profit of growth rates reflecting the views of each of these experts, an increase in growth is shown from 1993 to 1995 with the net profit then levelling out in accordance with the respondent’s experts views, rather than continuing to increase in accordance with the applicants’ experts views.

In the Fourth Thompson Report it was made apparent the applicants’ have lost or destroyed all relevant documents relating to sale of the Masters’ and Brownes’ milk products to the Coles store between March 1987 and October 1992.  Accordingly there is no accurate data on which to compare the sales to the Coles store of all milk products before and after the takeover by Woolworths.

Of the information on product sales which appears in evidence the applicants have extracted the total sales to the Woolworths store over the following years to be:

However, as the applicants’ expert concedes, this data is of minimal assistance in determining what effect on sales occurred when Woolworths took over.

In an endeavour to overcome the unavailability of data due to loss or destruction of relevant records the applicants’ case provided a summary of sales in November each year from 1985 to 1994.  These figures were as follows:

“

”

Woolworths took over the store in October 1992 so the November 1992 figures included Woolworths.  The sales for November 1992 showed a 20.8 per cent increase over the previous year and the sales for November 1993 a 23.5 per cent increase.  The sales for November 1994 showed little increase (0.14 per cent) over the sales the previous year.  Profits increased 71 per cent in the tax year ended June 1994 and 35 per cent in the following year.

In cross-examination the applicants’ expert Thompson said he estimated the effect of the Woolworths replacement of Coles on overall sales as at 2 per cent or less but that this was a best estimate rather than a mathematical calculation.

For the respondent it is submitted in the absence of any other credible explanation, the increase in sales of the extraordinary nature occurring in November 1992 must be seen by way of inference as being due solely to the opening of the supermarket.  In my opinion that is a correct inference in all the circumstances.

However, that does not result in a need to return to the pre‑Woolworths figures.  At the time the applicants incurred damage their business was operating at a level which reflected the increase in sales a consequence of the opening of Woolworths.  There is no evidence the increase was a “once‑off effect” in the sense the level attained by 1994/1995 would not be sustained thereafter, albeit without additional growth occurring.  The sustainability at that level is supported by reference to the comparative graph prepared by the respondent’s experts; the above November figures; and the gross profit starting figure of $248,135 used in the First Ernst & Young Report and accepted with variation to $255,654 in the Second Thompson Report (neither of those figures returning to the pre‑October 1992 level of sales).

Findings regarding “extra business”

In the preliminary findings concerning damages as set out in the above quoted paragraphs in the first reasons reference is made in par (b) to “less milk vendors being in the market place” and in par (c) to sales being “picked up from Browns’ (sic) sub‑contractors”.

This item arose in the following way.  In the First Ernst & Young Report (item 3 (vii)) it was assumed the gross margin after deregulation would be between 72 per cent to 85 per cent of the gross historically achieved.  The lower percentage assumed both Brownes’ white milk and other products would no longer be distributed following deregulation.  The higher percentage assumed only Brownes’ white milk sales to chain stores (supermarkets) would be lost.  In the Second Thompson Report (Item 4) it was accepted all Brownes’ white milk sales would be lost after deregulation.  However, it was additionally said no allowance had been made in the First Ernst & Young Report for sales which Masters’ sub-contractors would pick up from Brownes’ sub-contractors.  The opinion was there expressed the applicants would not have lost sales after deregulation because, while they would have lost some sales to certain chain stores, they would have picked up new customers, so the overall effect would be to maintain a similar sales level.  Accordingly, the view of the expert Thompson was no discount should be made for lost sales.  He supported these views by evidence to the same effect in cross‑examination.

It is now submitted for the respondent deregulation would have resulted in a fall of sales because of a combination of four factors.  The first was the customers serviced by the applicants in the Maddington zone before deregulation were the same as the customers which they could have serviced in that zone after deregulation if they had entered into a contract with the respondent.  That assertion is in accordance with the evidence.  Secondly, the applicants were the only people licensed to deliver milk to specified customers in the Maddington zone before deregulation.  Thirdly, the contract offered by the respondent would prevent the applicants from delivering Brownes’ white milk.  Fourthly, the applicants would not be able to sell Brownes’ products to chain stores.

I find the evidence establishes the applicants, by entering into the Distribution Agreement with Masters, would have lost the sale of Brownes’ white milk sales to supermarkets and delicatessens and the sale of Brownes’ products to supermarkets.

At the adjourned hearing relating to damages (“the damages hearing”), the case for the respondent on this aspect referred to the percentage of Brownes’ products delivered to supermarkets in 1994 and 1995.  This was quantified in terms of the record of sales and purchases from 1 January 1985 tendered into evidence on behalf of the applicants showing such percentage in 1994 and 1995 as 24.4 per cent and 27 per cent respectively.  It was then submitted that all of these would have been lost if the applicants had entered into a contract with the respondent, a submission with which the first-named applicant agreed in cross‑examination.

In cross-examination at the first hearing the first‑named applicant gave evidence of the possibility of increased business in terms of the applicants receiving an area additional to the Maddington zone.  Later when asked whether deregulation would mean his business would suffer by 40 to 50 per cent, he said he was unable to exactly pin‑point how much it would have been.  As has been seen, it was accepted by the applicants’ expert if no additional business was picked up, the applicants’ business would have fallen.

On behalf of the respondent it was submitted the Court should now reconsider the above two findings concerning additional business and make a finding that the volume of the applicants’ business, had they been awarded a contract, would have fallen due to the loss of the sale of Brownes’ white milk sales to supermarkets and delicatessens and the sale of Brownes’ products to supermarkets.  Accordingly it is submitted the Court should adopt the figures contained in the Third and Fourth Ernst & Young Reports applicable in the circumstances of that loss.

On the evidence to which reference has been made, the respondent’s experts’ claim that extra business would not have been picked up is not rebutted by the case for the applicants.  Accordingly, I find the applicants have not made out the claim concerning extra business.

Reduction in son’s wages

In the First Thompson Report is was said:

“Subcontractors’ expenses included the employment of Mr and Mr  Nagy’s son.  He was paid approximately $1,000 per week until 1994/95 and then $1,100 per week.  This is approximately $400 - 500 per week higher than necessary if a non‑family member was employed to do the same work.  I have added back $400/week or $20,800 per annum to the profit to cover this higher than necessary expense.  The addback of $13,200 in 1994/95 was $400 per week for 33 weeks.”

Submissions for the applicants accept payments to relatives have to be reasonable.  In my view the submissions for the respondent show such deduction is inappropriate.  Firstly, the applicants and their expert accepted at trial the wage paid to their son was reasonable.  By claiming a full income tax deduction for it they proceeded on the basis it was so.  Secondly, the applicants’ expert accepted the basis for excluding the son’s wages was referrable to valuation for purchase of the business.  He also accepted the exercise of establishing loss of profits was entirely different from valuation.

The DAAS payments

It was common ground at the damages hearing the applicants had received an additional $50,000 from the Dairy Industry Authority (“the Authority”) pursuant to DAAS, bringing the amount of money they have received to $200,000.

In the prior reasons at p40 it was said when addressing the issue of election:

“...there is no necessary inconsistency between the right to recover damages for loss of opportunity and the right to seek a payment under the DAAS Deed.  An award of damages is open to adjustment to accommodate any payment recovered in respect of the same loss from another source.”

In the Third Thompson Report it was submitted the DAAS payments covered compensation to milk vendors for the loss of their goodwill and/or licence on leaving the industry.  Accordingly, it was submitted for the applicants it is appropriate not to take into account the DAAS payments and to make no allowance for the loss of potential goodwill suffered by the applicants.

For the respondent it was asserted the DAAS payments were made in respect of lost profits which would have been earned in a business.  In any event, it was submitted for the respondent the payments were clearly aimed at compensating the applicants for having to leave the industry.  The submission was therefore the payments should be categorised as compensation in respect of the same loss for which damages are now sought, otherwise it is conceivable the applicants will recover much more than their true loss.  The submission was therefore the DAAS payments should be deducted from any computation of damages to be awarded.

For the applicants it was submitted in reply that characterisation of the payment is important and the characterisation as compensation is wrong.  Its true character, it was submitted, is a payment by way of financial incentive to encourage milk vendors to leave the industry and not be disadvantaged.  This was supported by reference to the limitation on the amount of the payment from which it is said it can be seen not to be any real attempt to compensate.  Furthermore, it was submitted the way it is framed and presented (see pp 18‑19 of the first reasons) shows at least initially it is by way of a loan open to be repaid to the Authority and therefore not truly in its character in the nature of compensation.  The applicants also asserted that because it does not cover the same loss it should not therefore be deducted.

The bed of principle in which this issue falls to be resolved appears in a line of cases in which, as was said by Mason and Dawson JJ in Redding v Lee (1983) 151 CLR 117 at 135, the focal point is the decision of the High Court in The National Insurance Company of New Zealand Limited v Espagne (1961) 105 CLR 569.  Dixon CJ there said at 573:

“There are certain special services, aids, benefits, subventions and the like which in most communities are available to injured people.  Simple examples are hospital and pharmaceutical benefits which lighten the monetary burden of illness.  If the injured plaintiff has availed himself of these he cannot establish or calculate his damages on the footing that he did not do so.  On the other hand there may be advantages which accrue to the injured plaintiff, whether as a result of legislation or of contract or of benevolence, which have an additional characteristic.  It may be true that they are conferred because he is intended to enjoy them in the events which have happened.  Yet they have this distinguishing characteristic, namely they are conferred on him not only independently of the existence in him of a right of redress against others but so that they may be enjoyed by him although he may enforce that right:  they are the product of a disposition in his favour intended for his enjoyment and not provided in relief of any liability in others fully to compensate him.  This is readily seen in the case of benevolence.”

At 599-600 Windeyer J expressed the relevant principles in this way:

“So far as any rules can be extracted, I think they may be stated, generally speaking, as follows:  In assessing damages for personal injuries, benefits that a plaintiff has received or is to receive from any source other than the defendant are not to be regarded as mitigating his loss, if:  (a) they were received or are to be received by him as a result of a contract he had made before the loss occurred and by the express or implied terms of that contract they were to be provided notwithstanding any rights of action he might have; or (b) they were given or promised to him by way of bounty, to the intent that he should enjoy them in addition to and not in diminution of any claim for damages.  The first description covers accident insurances and also many forms of pensions and similar benefits provided by employers:  in those cases it is immaterial that, by subrogation or otherwise, the contract may require a refund of moneys paid, or an adjustment of future benefits, to be made after the recovery of damages.  The second description covers a variety of public charitable aid and some forms of relief given by the State as well as the produce of private benevolence.  In both cases the decisive consideration is, not whether the benefit was received in consequence of, or as a result of the injury, but what was its character:  and that is determined, in the one case by what under his contract the plaintiff had paid for, and in the other by the intent of the person conferring the benefit.  The test is by purpose rather than by cause.

Nevertheless it is not, I think possible, to enunciate an exhaustive rule for all parts of this vexed topic.  And the questions that arise can never be determined in the abstract.  Each must depend on the terms of the particular contract, pension scheme, charitable benefaction or statute governing the benefit conferred.”

These principles were also accepted as correct by Gibbs CJ in Redding v Lee at 126.

In Redding v Lee Mason and Dawson JJ said at 137:

“The subsequent decisions in this Court apply the principles expressed by Dixon CJ and Windeyer J in Espagne.  They make it clear that the issue turns on the character and purpose of the particular financial benefit which the plaintiff receives: Was the benefit conferred on him independently of any right or redress against others and so that he might enjoy the benefit even if he enforced the right?”

In Manser v Spry (1994) 181 CLR 428 at 436 the High Court (Mason CJ, Brennan, Dawson, Toohey and McHugh JJ) said:

“To ascertain whether a statutory benefit possesses the “distinguishing characteristic” that it is to be enjoyed independently of, and cumulatively upon, the right to damages, the court must endeavour to discover the intention of the legislature.

There are three possible indicia of a relevant legislative intention: the financial source of the benefit, the presence of a provision which requires a repayment of a statutory benefit out of the damages awarded or paid and the nature of the benefit.”

In that passage the High Court cited Gibbs CJ in Redding v Lee at 125 where he said:

“If the statute expressly provides (as some statutes relating to workers’ compensation have done) that a plaintiff who has recovered damages shall repay the amount of the benefit it will be clear that the receipt of the benefit must be disregarded in the assessment.  In many cases, however, the statute under which the benefit is provided will give no assistance of this kind.  Then it will be necessary to consider closely the nature of the benefit itself.  The conclusion that the benefit is intended for the plaintiff personally and not in reduction of the damages may be more readily be drawn when it is seen that the receipt of the benefit is not dependent on the loss of wages or earning capacity...for which the plaintiff claims damages (cf. Parry v Cleaver [[1970] AC 1 at 42] per Lord Wilberforce) and is not intended to replace the lost wages or remedy the loss of earning capacity.”

The High Court in Manser v Spry at 437 concluded by stating if all indicia of intent fail, the settled principle governing the assessment of compensatory damages as stated by the majority in Haines v Bendall (1991) 172 CLR 60 at 63 must be applied, namely the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed.  That was supported by reference to a statement by Walsh JA in Adams v Ascot Iron Foundry Pty Ltd (1968) 72 SR (NSW) 120 at 135 where he said that if it is possible to do so, it is necessary to extract from the Act an indication of what was intended.

The Full Court of this Court considered these principles in Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 104 ALR 397.  There the Court held the principles here in issue were of general application and not limited to actions for damages for personal injuries.  Burchett J, with whom O’Loughlin J agreed, relied upon the dicta of both Dixon CJ and Windeyer J in Espagne (at 416-418).  The members of the Court also considered, to the different effect in their application, the English authorities of British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways of London Ltd [1912] AC 673 and Hussey v Eels [1990] 1 All E R 449.  In Monroe Schneider it was held by majority (Burchett and O’Loughlin JJ) that a single judge had been correct to hold that payments by a third party (Feltex) to the respondents (Solomons) were the product of a collateral transaction and were not to be taken into account in computation of damages awarded against the appellants.  Beaumont J, dissenting, concluded the payment from Feltex resulted from a continuous dealing and not a collateral or disconnected transaction so that it should be brought to account in the computation of damages.

In his reasons, with which O’Loughlin J agreed, Burchett J accepted Espagne as a key decision and a focal point.  He referred to the decision in Graham v Baker (1961) 106 CLR 340 in which it was held by the High Court a few months after Espagne that payment of wages to an injured plaintiff during his absence on sick leave were to be taken into account in computation of damages in respect of his injury.  However, Dixon CJ, Kitto and Taylor JJ had added:  “needless to say, such payments are quite different in character from ex gratia payments made or advanced either unconditionally or conditionally on repayment at some future date or so that they will be repayable upon a contingency”  (at 349‑350).  Burchett J said “there is... ample authority to support the proposition that charitable donations...from some governmental or institutional source, will not generally be taken into account as mitigating an injured person’s loss for the purposes of a claim for damages” (at 418).

Burchett J accepted British Westinghouse was the starting point to determine whether the transaction between Feltex and Solomons, to the extent it was accounted for by normal commercial considerations, resulted in the payment being taken into account.  The principle of that case was when in the course of business a plaintiff has taken action arising out of the transaction occasioning loss, which action has diminished his loss, the effect in actual diminution of the loss the plaintiff has suffered may be taken into account.  In Westinghouse, the act of diminishment was the purchase of alternative machines so the benefit arose out of the act of mitigation (at 422).  Burchett J (at 423) said Hussey v Eels [1990] 2 QB 227 and Hodge v Clifford Cowling & Co (1990) 46 EG 120 had followed British Westinghouse and established that, for a subsequent transaction to be taken into account, it “must be one arising out of the consequences of the breach and in the ordinary course of business.”

Applying these principles, Burchett J concluded a refusal by Feltex to amend its price on its contract with Solomon meant there could be no direct link between the arrangement with them and the obligation to the respondents.  What was entered into by Solomons with Feltex was to be characterised as a collateral transaction.

Beaumont J, also in reliance on British Westinghouse and Hussey v Eels, considered the authorities distinguished between a continuous dealing on the one hand and an independent, collateral and disconnected transaction on the other.  As put by Viscount Haldane LC in British Westinghouse at 691‑692 the question is whether the action formed part of “a continuous dealing with the situation” and “not an independent or disconnected transaction”.  In the view of Beaumont J, the arrangement between Feltex and Solomons was to be characterised as one of proximity and inter-dependence so that the receipt did not arise collaterally and was therefore to be taken into account.

To apply these principles to the facts of the present case it is therefore necessary to turn to the text of the Dairy Industry Act 1973 (WA) (“the DI Act”) and specifically the provisions giving authority for the DAAS payment.

The DI Act is described in its long title as “An Act to consolidate and amend the law relating to the Dairy Industry and Milk and Dairy Produce” and to repeal certain other Acts.  It established the Authority and provided certain controls for quality and supervision of the supply, production and distribution of milk and dairy produce.

The Dairy Industry Amendment Act 1994 (WA) (“the DI Amendment Act”) was enacted for the purpose of providing payments to milk distributors and vendors leaving the industry.  That was achieved by s 91 in the following terms:

“91      (1)   In this section,‘Milk distributor’ and ‘vendor’ have the same meanings as they had in the principal Act before the commencement of this Act.

            (2)   Subject to subsection (3), the Authority may make payments to a milk distributor or a vendor who enters into an arrangement to sell or otherwise not continue in the business of milk vending, as the case may be, where the arrangement includes a restraint of trade provision that meets the Authority’s requirements.

            (3)   Subsection (2) applies only in respect of applications for payment that are received by the Authority before 1 July 1995.”

In its terms this section authorises payments where the recipient ceases the business of milk distribution or milk vending and becomes subject to a restraint of trade provision meeting the Authority’s requirements.  This provision is not otherwise explained by the provisions of the DI Amendment Act.

Without objection, the parties brought before the Court the provisions of the Minister’s second reading speech given on 29 November 1994 in which he said:

“The Bill before the House consolidates various changes in administrative responsibilities within the industry and formalises a process of deregulation which has been occurring over recent years.  The amendments focus the functions of the authority on the farm sector and away from functions which now more appropriately reside with the dairy companies.  They give effect to proposals adopted from past reviews and amends some other elements of outdated legislation.  The amendments also restructure the authority to more accurately reflect its new responsibility.”  (Western Australia, Parliament Legislative Council, Hansard, 29 November 1994, p7756).

The Minister continued (at p7759):

“Thirdly, provision is made in the Bill for the authority to continue to operate  a distribution adjustment assistance scheme to assist milk vendors adjust to deregulation.  This has been funded from authority reserves and in the past was made available to vendors retiring from the industry and trading their business to existing vendors.  Under the proposed Statute, vendors who do not accept a contract with a dairy processing company will be eligible for a payment from the scheme.  A payment will not be made where a contract is offered.  By this means it is anticipated that non‑contractors’ exit from the industry will be eased and remaining vendors will achieve sustainable economies of size.  Also, inefficiencies which have been identified will be corrected.”

I accept the submission for the applicants that the meaning of s 91 of the DI Amendment Act is clear, even if succinct.  It is that when a milk vendor exits the industry the Authority may make payments to the vendor provided the vendor agrees by way of restraint of trade clause to not re-enter the industry.  It may be arguable it is therefore not necessary for the Court to look beyond this statutory provision and the characterisation of it to resolve the present issue.  However, the authorities previously discussed make apparent regard may be had to the contract or statute.  This is a case where there is both a contract and a statute.  I consider therefore regard should also be had to the contract.

As stated at p18 of the prior reasons, the DAAS payments were made pursuant to an agreement between the applicants and the Authority dated 28 August 1995 (“the DAAS Deed”).  The DAAS Deed recites “the Authority has decided to implement the Scheme to assist those engaged in milk distribution to adjust to the termination of licensing”.  The “Scheme” is defined in cl 1.1 to mean the Distribution, Adjustment, Assistance Scheme promoted by the Authority, the terms and conditions of which were annexed to the DAAS Deed.  Item 1 of the terms and conditions states “In order to obtain DAAS assistance all people associated with a particular milk distributor/vendor business will be expected to leave the industry”.  It further provides “the decision as to whether or not a person is associated with an applicant so as to constitute a single business shall be at the Authority’s absolute discretion....”.  Condition 2 states they will be required to agree to a condition, should assistance be granted, “they will not be involved in a milk distributor/vendor delivery business until after the expiry of three years from the date of signing the Deed...,”subject to waiver at the Authority’s discretion.  Condition 6 states “DAAS assistance is only available for the entire milk distributor/vendor businesses and not part milk distributor/vendor businesses”.  Condition 7 provides nothing in the terms and conditions or any other documents or information provided by the Authority in connection with the DAAS scheme is intended to warrant or represent an application for assistance will be successful.

It is apparent the DI Amendment Act does not itself place any duty on the Authority to make DAAS payments to persons leaving the industry.  Rather it empowers the Authority to do so in circumstances in which a claimant enters an arrangement to sell or otherwise not continue in the business of milk distribution or milk vending where the arrangement includes a restraint of trade provision meeting the Authority’s requirements.  The manner in which the Authority administered this power appears from the terms and conditions.  Those expressly provide the Authority does not represent or warrant an application will be successful.  The effect of these provisions is to leave to the determination of the Authority whether a grant should be made.  The Authority was bound to make that determination by reasonable application of the terms and conditions.  A person satisfying the requirements of those terms and conditions would be entitled to expect the exercise of the Authority’s discretion in his or her favour.  That, however, does not mean the Authority is not exercising a discretion in the matter in the manner determined by its terms and conditions.  In that sense, I accept the submission for the applicants the award of DAAS payments was discretionary.

The principal operative covenant in the DAAS Deed is that contained in cl 2.1 set out in the earlier reasons.  That makes apparent the consideration for the payment is the recipients “shall not be engaged in any manner nor received (sic) any payment (whether by way of salary, wages, dividends, kind or otherwise) nor have any legal or beneficial interest, actual or contingent, in the business of milk distribution or milk vending in the State of Western Australia”.

It is submitted for the respondent if the applicants were to receive damages in addition to the DAAS payments, such damages would fall within the words in parenthesis in cl 2.1 and so be payments which the applicants had covenanted they would not receive.  Clearly payment of damages would not be salary, wages, dividends, or kind.  In my opinion payment of damages cannot fall within the word “otherwise”.  I agree with the submission for the applicants the words in parenthesis are predicated upon the operation of an ongoing business.  Damages for misleading conduct referable to loss of profits from a prospective contract are not within the reach of the words used.  That is because the words themselves derive from the exercise of the power provided in s 91 of the DI Amendment Act which extends only to requiring an arrangement in restraint of trade.  The section and the words are silent regarding the recovery of damages calculated by reference to profits.

The submissions for the respondent also address the contents of the application form completed by the applicants leading up to the DAAS Deed as well as a document entitled “Information for applicants.”  However, the DAAS Deed speaks for itself and there is no proper basis to take into account these materials extrinsic to it. 

With these authorities in mind, it is submitted for the respondent there is the necessary connection between the respondent’s wrongful act and the DAAS payments.  The fact the wrongful loss of opportunity visited upon the applicants produced the same circumstance which entitled them to seek the DAAS payment is relied upon to contend the benefit in the form of the payments should be taken into account in the computation of damages.

In its terms this submission is open to refutation on a number of grounds.

(1)  The operative event justifying the DAAS payments was the conclusion of the arrangement by which the applicants agreed to leave the industry for the time specified.  The operative event occasioning the award of damages was the misleading conduct of the respondent.

(2)  The former involved the exercise of a discretionary element not present in the latter although that may not be decisive:  see  Redding v Lee at 127 per Gibbs CJ and at 141 per Mason and Dawson JJ. 

(3)  The DAAS payments were not the product of a continuous dealing - they were the product of a new dealing with the Authority who was not a party to the original transaction.  This is an important, and perhaps decisive, consideration.

(4)  The DAAS payments were not entered into in the ordinary course of business but as a consequence of the applicants giving up their business.

The DAAS Deed is therefore to be characterised as an independent, collateral or disconnected transaction so that the DAAS payments have the same character.

For the respondent it is also contended the DAAS payments are computed with reference to the profits the applicants would have made had they continued in the milk distribution business.  It is said they cannot therefore obtain damages for the same lost profits.  I accept the applicants’ submission in reply to this that there is no evidence to support the submission that DAAS represents payment of lost profits.  DAAS is calculated on a simple formula relating to volume of milk sold and has a ceiling.  Damages are calculated by reference to all relevant matters and do not have a ceiling.

There are other fundamental conceptual reasons why the argument for the respondent does not succeed.  In Espagne both Dixon CJ and Windeyer J rejected the utility of terms like “collateral” or “res inter alios acta” or “causa sine qua non”: at 571-572 and 599.  In H Luntz, Assessment of Damages (2nd ed, 1983) p373 it is stated they did so “convincingly.”   The essential issue is therefore that of how the DAAS payments can be characterised, not how they were caused.

For that purpose it is first necessary to ascertain from the DI Amendment Act and the contract the purpose of the DAAS payment.  In my opinion Parliament’s intention in providing for the DAAS payment in return for a restraint of trade was to provide a balance for the loss of financial benefit derived from the industry consequent upon exit from it as a result of deregulation and acceptance of limitation on re-entry to it.

Turning to the words used by Dixon CJ in Espagne, the question is whether the DAAS payments have the “additional characteristic,” namely they are conferred not only independently of the existence of a right of redress against others but so that they may be enjoyed although that right may be enforced.  In my opinion the DAAS payments have that distinguishing characteristic.  They were intended for the enjoyment of persons required to leave the industry as the result of deregulation.  They were not provided for the relief of liability in persons whose actions wrongfully brought about application of deregulation to the claimant.

Turning to the dicta of Windeyer J in Espagne, this is not a case falling within par (a) of his description of benefits not to be regarded as mitigating the loss.  In my opinion the DAAS payments fall within par (b) as benefits given to the intent the recipient should enjoy them in addition to and not in diminution of any claim for damages.  They are a form of relief provided by the State upon leaving the industry as a result of deregulation, not of the effects of deregulation being wrongly visited upon the recipient.  The character of the benefit was to ease the transition from the industry.  The fact that such transition has been occasioned by a wrongful act giving rise to damages does not change the character of the benefit.

Adverting to the dicta of Gibbs CJ in Redding v Lee, this is not a case where the legislature, in providing the benefit, has provided a plaintiff who has recovered damages shall repay the amount of the benefit.  The receipt of the benefit, as I consider it is to be characterised by examination of the DI Amendment Act and the DAAS Deed, is conditioned by the arrangement by which the applicants left the industry.  Necessarily that benefit occurs in circumstances in which they have a loss of earning capacity.  But this is not a case where damages are sought in respect of such a loss: rather they have been sought in respect of conduct said to have been misleading or deceptive.  It is the existence of such conduct rather than the loss of capacity to earn which is the foundation of the claim in damages.

So far as concerns the three indicia of relevant legislative intention referred to in Manser v Spry, the position is as follows:  (1)  the financial source of the “benefit” is funds of the State (as contrasted, for example, with funds contributed to by an employer); (2)  there is no provision requiring repayment out of damages; (3)  the nature of the “benefit” is not dependent on a loss of earning capacity for which the applicants claim damages.  It is dependent on acceptance by them of restraint on trade for a certain period.  True it is that the consequence of their leaving the industry is the recipient ceases to earn from the industry but the damages claimed by the applicants are not for such loss but for misleading and deceptive conduct.  Even if the “benefit” can be characterised as made for loss of earning capacity, that would not lead to an inference that the payment was intended to be in reduction of damages where damages claimed are not for loss of earning capacity.  The DAAS payments are to be contrasted therefore with those before the Court in Harris v Commercial Minerals Ltd (1996) 186 CLR 1 at 17‑18.

For these reasons I am of the view the DAAS payments are not to be taken into account in the computation of damages.

Restatement of principles upon which damages should be assessed

Returning to the basis upon which damages should now be assessed as stated in the first reasons and revising them in the light of the preceding findings the following is the position:

(a)        The years 1986/87 - 1994/95 should be addressed in the valuation.

(b)        The growth rate in the last two years should be accepted as reflecting an increase in sales which would not increase further beyond the rate of 1994\1995.  This should be the only factor allowed for in relation to growth.

(c)        Adjustments should be made for loss of sales of Brownes’ white milk to supermarkets and delicatessens and Brownes’ products to supermarkets.

(d)        Adjustments should be made for the reduced margin on white milk sales to supermarkets, the rate of which is not now in contention at 5 cents per litre.

(e)        The applicants are to assume to have purchased a refrigerated truck at the agreed value of $15,675.  The Fourth Thompson Report raised the proposition that depreciation on the truck should be allocated only to the third year.  While the respondent’s case asserts to the contrary, it does not do so on the basis of any evidence.  I therefore accept the applicants’ expert’s proposition on depreciation.

(f)         As agreed, no allowance should be made for tax.

(g)        The before tax discount rate should be applied as agreed at 7.8 per cent.

(h)        The DAAS payments should not be taken into account in the calculation of damages.

(i)         The applicants’ son’s wage should be treated as not excessive.

Revised applicants’ damages claim

On the basis the son’s wages are not excessive and adjustment is made for loss of Brownes’ white milk sales and products, the applicants claim $284,809.  This is arrived at by deducting from the amount claimed of $457,759 the amount of $172,950 representing lost Brownes’ white milk and product sales.

Respondent’s revised damages claim

On the basis of the restated principles on which damages should be awarded, the position which most accords with those principles is that submitted by the respondent in the following terms:

This scenario does not allow for loss of profits from Brownes’ white milk products to delicatessens.  Such allowance would favour the respondent by providing a further reduction in the quantum of loss of profits from Brownes’ products.  However, the respondent’s case does not lead evidence of the value of the sales to delicatessens so there is insufficient evidence for the Court to determine the quantum of any such allowance.

It follows damages should be awarded in the sum of $169,443.

For the reasons previously given, the amount received by the applicants for the DAAS payments should not be off-set.

Interest

I accept the submission for the respondent that Supreme Court rates (because they reflect commercial rates) should be applied for calculation of interest from date of loss to the date of judgment:  Namol Pty Ltd v A W Baulderstone Pty Ltd (1993) 47 FCR 388 at 389.  Accordingly, interest on the applicants’ loss is to be calculated at 8 per cent, there being no evidence showing otherwise.  The DAAS payments not being taken into account, interest will be 8 per cent per annum on $169,443 from 19 February 1995 to date of this judgment.

Associate:

Date: