FEDERAL COURT OF AUSTRALIA

Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 3) [2012] FCA 504

THE COURT ORDERS THAT:

1.    The first respondent pay 30% of the applicant’s costs incurred in, or in connection with, the first part of the proceeding.

2.    The applicant pay 70% of the first respondent’s costs incurred in, or in connection with, the first part of the proceeding.

3.    Otherwise, the parties bring in orders giving effect to the reasons within 21 days.

4.    Liberty be reserved to apply on two days’ notice.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    In February 2010 the first respondent (“The Optical Superstore”) broadcast two television commercials. The commercials compared the prices of certain prescription spectacles it sold with the prices of the same spectacles offered by the applicant (“Specsavers”), a major competitor. The first (“the Standard TVC”) was inspired by an advertising campaign Specsavers ran in which they compared their prices favourably with those of OPSM, a leading player in the optical goods market. The second (“the Tailor-Made TVC”) compared the prices of prescription spectacles with tailor-made lenses and anti-reflective coating at the two companies’ stores. Specsavers alleged that both advertisements made misleading or deceptive representations and sought damages and other relief under the Trade Practices Act 1974 (Cth). On 9 February 2010 Specsavers obtained an interlocutory injunction (“the injunction”) against The Optical Superstore to stop the advertising campaign based around the Standard TVC. The Standard TVC was broadcast from 4 February 2010 until 10 February 2010.

2    At the time the injunction was granted Specsavers offered to the Court the usual undertaking as to damages. That is to say they undertook to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order and to pay the money to those persons. See Practice Note CM14.

3    At the request of the parties liability was separately determined. Specsavers succeeded with respect to the second commercial but failed with respect to the first, which was the subject of the injunction: Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No. 2) [2010] FCA 566. The injunction remained in force until 4 June 2010, at which time it was discharged by order of the Court.

4    Specsavers did not press their claim for relief but the respondents now seek to enforce the undertaking as to damages Specsavers gave when they obtained the injunction on 9 February 2010.

5    The second to eighth respondents are licensees of The Optical Superstore that claim to have been affected by the injunction. They were added by order of the Court on 20 October 2011. There are some discrepancies between the evidence of Ms Douglas and the evidence of the licensees concerning who runs some of the stores. In that regard I prefer the evidence of those who operate the stores to the evidence given by Ms Douglas. I expect she was mistaken but the mistakes do not appear to be significant. The second respondent (“Optom Admin”) owns all The Optical Superstore branded stores in the Australian Capital Territory and Queensland (except, according to its sole director, Ian Melrose, for the stores in Bundaberg, Ipswich, Mt Isa, Robina, The Pines, Townsville and Cloncurry). The evidence is clear that the Townsville, Bundaberg, and Ipswich stores are run by the fifth, sixth and eighth respondents respectively under licence from The Optical Superstore. The evidence is silent as to who operated the Robina, The Pines and Cloncurry stores and there is conflicting evidence about who operated the Mt Isa store (Ms Douglas said that the third respondent, William Chin did, but he did not). The Optical Superstore also licences Mr Chin to operate three stores in the Northern Territory; the fourth respondent to operate stores in Coffs Harbour and Port Macquarie in New South Wales; and the seventh respondent to operate stores in Hurstville, Chatswood and Nowra in New South Wales.

6    Three broad questions arise for determination in this part of the proceeding. The first is whether there is any compensable loss. The second is whether, if so, how is the lost to be measured. The third is how costs for the first part of the proceeding should be awarded, having regard to the mixed outcome.

Is there any compensable loss?

What are the issues?

7    In most cases it will be just and equitable to award as compensation the damages which flow directly from the injunction and which could have been foreseen when the injunction was granted: Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249 (“Air Express”) at 266–7; European Bank Ltd v Evans (2010) 240 CLR 432 (“European Bank v Evans”) at [10]–[18]. Thus, as the High Court explained in European Bank v Evans at [29], the inquiry involves three questions. First, what is the loss that is now alleged? Second, did that loss flow directly from the Court’s order? Third, could a loss of the kind that was sustained have been foreseen at the time of the order? It is common ground that the respondents bear the onus of proof on each question.

8    In addition, as the remedy is an equitable one, disentitling conduct on the part of the respondents may render it just that no order for damages be made or that the amount that would otherwise have been ordered should be diminished to the extent necessary to ensure that the order of the court is not “practically unjust”: Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221. Specsavers contend that, even if the respondents discharge their onus of proof on the first three issues, they should not recover damages.

9    I now turn to consider these questions.

What is the loss that is now alleged?

10    The loss for which the respondents claim damages under the undertaking is the loss of the commercial opportunity to derive a profit from continuing the advertising campaign of which, they claim, the Standard TVC was merely a part. The respondents assert that the campaign would have also involved supporting catalogues and newspaper advertisements.

11    The respondents relied on a report by a chartered accountant, Gregory Meredith, a partner in the firm of Ferrier Hodgson. He provided an opinion that the respondents would have derived considerable profits if the campaign had continued until 4 June 2010. Based on a number of alternative hypotheses, he purported to quantify the amount of the profits with precision. The respondents initially claimed the highest figure in damages, although ultimately it was common ground that, as a matter of law, if they made out their case, the figures had to be discounted in accordance with the principles in Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 (“Malec”). Mr Meredith’s calculations were founded on a number of assumptions — some explicit, some implicit. Foremost among them was the assumption that the campaign would have been conducted until 4 June 2010, the day the injunction was lifted, that is, for a total period of four months.

12    Specsavers countered Mr Meredith’s evidence in a number of different ways. Most importantly, they challenged the assumptions upon which Mr Meredith’s evidence was based. They retained the services of another chartered accountant, Andrew Ross, a partner of the firm KordaMentha, and also a marketing expert, Dr Stephen Downes, which generated a report at The Optical Superstore’s request from another marketing expert, Dr Colin McLeod. The experts also produced joint reports indicating the areas of agreement and disagreement. They gave concurrent oral evidence and were cross-examined.

13    For the reasons given below, I accept that the respondents have suffered the loss of a commercial opportunity to profit from the Standard TVC but I do not accept Mr Meredith’s assessment of it. In particular, I do not accept his basic premise that the campaign would have run for four months.

Did the loss flow directly from the injunction?

14    Specsavers dispute that the loss claimed flows directly from the injunction.

15    It is important to distinguish between loss caused by the order and loss caused by the litigation itself. Only the former is recoverable and to recover it the successful respondent must prove that the loss would not have occurred but for the making of the order. Gibbs J explained in Air Express at 312:

It was submitted on behalf of the appellant that it is enough that the making of the order should have been a cause of the damage, so that if both the making of the order and the continuance of the litigation are concurrent causes the undertaking will be applicable. However, in almost every case in which an injunction is granted the injunction will play some part in causing the party bound by it to act in accordance with its terms. To order a plaintiff to pay damages where it appears that the party bound by the injunction would have acted as he did even if the injunction had not been granted, would be to give the undertaking an effect obviously not intended. The party seeking to enforce the undertaking must show that the making of the order was a cause without which the damage would not have been suffered. It was further submitted that the onus lies on the plaintiff, against whom the undertaking is sought to be enforced, to disentangle any damage arising from the litigation from that which was caused by the making of the order. However, the onus of proof does not shift in this way; the defendant, who seeks to enforce the undertaking, must prove that the damage he has sustained was caused by the making of the order.

(Emphasis added.)

16    In the context of this case this question is to be answered by considering whether the respondents have proved that they lost the opportunity to derive profits from being unable to air the Standard TVC and run any associated advertising campaign after the time the injunction was imposed until it was lifted. That matter must be proved on the balance of probabilities although the value of the lost opportunity is to be determined by reference to degrees of probability or possibility: Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332 (“Sellars”) at 355.

17    Before answering that question it is necessary to deal with the antecedent question: what would have happened if the injunction had not been imposed or, put differently, have the respondents shown that the making of the order was a cause without which the damage would not have been suffered. This matter must also be proved on the balance of probabilities: Sellars at 368. The first step in this process is to consider whether the advertising campaign would have run any longer than it did.

What would have happened if the injunction had not been granted?

18    The evidence on this question was given by Margaret Douglas, the sole director and company secretary of The Optical Superstore.

19    In her first affidavit Ms Douglas said that the Standard TVC was broadcast in Adelaide, Brisbane, Canberra, Melbourne and Perth; the Queensland regional cities of Bundaberg, Rockhampton, Townsville, Cairns, Toowoomba, Gold Coast and the Sunshine Coast; and the New South Wales regional cities of Coffs Harbour, Port Macquarie, Wollongong and Wagga Wagga. In her fourth affidavit Ms Douglas added Ipswich in Queensland to this list. Ms Douglas said that it was her intention when the injunction was granted to also broadcast the Standard TVC in Mt Isa, Darwin (including Casuarina) and Alice Springs. With one qualification I accept her evidence in this regard. That the Standard TVC was intended for wider distribution is confirmed by the evidence of Mr Chin, who operated under licence The Optical Superstore branded stores in Darwin, Casuarina and Alice Springs. An email copied to him, dated 29 January 2010, attached a video file of the Standard TVC (and the Tailor-Made TVC) and stated that the advertisements would probably begin running the following week. The Standard TVC did run the following week although not in Darwin or Alice Springs. Yet, there is no reason for Ms Douglas to have sent them to Mr Chin if she did not intend to run the Standard TVC in the places where he had his stores. The email was sent to a number of other individuals, including other licensees operating stores in areas where Ms Douglas said she intended the Standard TVC to be broadcast, and where it was in fact broadcast. There was, however, no evidence to corroborate Ms Douglas’s account that she intended to show the advertisement in Mt Isa. I think it is likely she was mistaken in this regard and her mistake was based on her recollection of sending the email to Mr Chin, whom she erroneously believed ran the Mt Isa store.

20    Ms Douglas testified that the Standard TVC was the first part of an advertising campaign she intended to conduct. She said it was to be followed by letterbox drops of catalogues and print advertising in local and community newspapers and magazines. She said she intended to distribute about two million catalogues. Ms Douglas also testified that if the injunction had not been imposed The Optical Superstore would have continued to broadcast the Standard TVC until Specsavers reduced their prices, making the Standard TVC out of date or, if they did not reduce their prices, for a total period of about four months in order to try to maximise the return on the campaign. She went on to assert that if Specsavers had reduced their prices after the Standard TVC had been aired, The Optical Superstore would have reduced their prices and therefore continued to be cheaper than Specsavers “to ensure that [The Optical Superstore] could continue to broadcast a variation of the Standard TVC featuring the Specsavers advertisement against OPSM to maximise [The Optical Superstore’s] benefit from the campaign”. She also stated that, but for the injunction, The Optical Superstore would have begun to distribute related advertising material.

21    Ms Douglas adhered to this evidence under cross-examination.

22    Some aspects of Ms Douglas’s evidence raise questions about whether her memory was selective. But she was not discredited overall. Still, the Court is not bound to accept her evidence. If evidence is implausible, unconvincing or contradicted by other credible evidence, even where there is no cross-examination a court is entitled to reject it. See JD Heydon, Cross on Evidence, LexisNexis, 8th edition, [17460] and the cases referred to there; Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 588 per Samuels JA; Kowalski v Mitsubishi Motors Australia Ltd (2011) 198 FCR 153 at [129].

23    On a proper consideration of all the evidence the four-month estimate for the campaign, which is the basis for Mr Meredith’s assessment of loss, does not hold up.

24    As I said in my introductory remarks, the Standard TVC was a response to a television commercial broadcast by Specsavers (“the Specsavers TVC”) in which they favourably compared their prices with those offered by OPSM. The Specsavers TVC ran for 16 days, from 15 January 2010 to 30 January 2010. In my view, for the following reasons, it is unlikely that the Standard TVC would have run for much longer than that. I do not accept that there is any chance it would have run for four months.

25    First, Ms Douglas’s evidence was that the campaign would have run until Specsavers dropped their prices or for a total period of about four months. Mr Meredith was given this assumption but proceeded on the basis (understandably perhaps) that it would have run for four months. Simon Hawkins, Specsavers’ joint marketing director, gave evidence that if Specsavers had not obtained the interlocutory injunction they would have taken other steps to remove the impact of the Standard TVC. In particular, he said that he believed that Specsavers would immediately have introduced and advertised a free multifocal lens upgrade with the purchase of two pairs of glasses. He said that that would have had the effect of making the Standard TVC instantly “out of date and redundant”. I accept this evidence. I found Mr Hawkins a credible witness. I made a note at the time he gave his evidence that he was understandably careful in answering questions under skilful cross-examination and I did not form an impression that he was at all evasive. In any case, the undisputed evidence was that this was a successful marketing ploy Specsavers had used in a number of overseas markets and was also introduced in Australia as an offer on one pair of glasses in November 2010. It may be true, as the respondents pointed out in their submissions in reply, that the effect of Mr Hawkins’s oral evidence is that Specsavers would have had to offer the free upgrade on both pairs of multifocal glasses the subject of the Specsavers TVC, something Specsavers had never previously offered in this country. Yet, the evidence of the fiercely competitive relationship between Specsavers and The Optical Superstore since The Optical Superstore started to threaten Specsavers’ market share in this country indicates that it is highly likely that Specsavers would have done in Australia what they had done overseas. Ms Douglas’s evidence concerning the four-month period was predicated on Specsavers not lowering their prices and thereby making the Standard TVC out of date. The free multifocal lens upgrade offer would have had the same effect.

26    Even if Mr Hawkins’s scenario did not come to pass, the history of the advertising wars between these two companies shows that Specsavers would almost certainly have taken action which would have made the Standard TVC obsolete. Ms Douglas’s evidence was that she expected Specsavers to reduce their prices. After all, this was The Optical Superstore’s experience in the past, an experience Ms Douglas said she expected would be repeated. Evidently, on nine previous occasions Specsavers had dropped their prices apparently in direct response to The Optical Superstore’s advertising. Indeed, The Optical Superstore exploited this fact in the Standard TVC itself, teasing Specsavers with the words:

Come on Specsavers can you reduce your price? You’ve done it 9 times before.

27    If the injunction had not been granted and Specsavers had dropped their prices, Ms Douglas conceded that The Optical Superstore would have immediately stopped broadcasting the Standard TVC and would never have broadcast it in the following four months. That evidence does not exclude the possibility that The Optical Superstore would have gone ahead with any print advertising, including a catalogue (assuming, for the moment, that this was indeed part of the proposed campaign), but it is most unlikely. If the offers changed or the prices were reduced, there would be no point in producing it. In all probability a new and different advertising campaign would be mounted.

28    In re-examination Ms Douglas said that she expected it would take Specsavers about two months to drop their prices. That evidence, she explained, was based on her past experience, such as the “$389 cheaper” campaign run by The Optical Superstore in early 2009. I found this evidence unimpressive. Contemporaneous correspondence passing between Ms Douglas and Specsavers’ solicitors in relation to the $389 cheaper campaign suggests that Specsavers had at least advised The Optical Superstore of their intention to drop their prices within a few weeks of the initial broadcast of The Optical Superstore’s advertisement. Whether or not the evidence from Ms Douglas is true or reliable, however, it does not support the proposition that the Standard TVC would have been broadcast for four months.

29    The second reason I reject the notion that the Standard TVC would have been broadcast for four months is that the unchallenged evidence from Mr Hawkins in relation to the Specsavers TVC was that the price data it contained was from a specific period of time (8 September 2009 – 13 January 2010) and would quickly have become “stale and out-of-date”. The Standard TVC featured the same price data. This evidence is persuasive in the light of the fiercely competitive nature of the market. Indeed, as Specsavers contended, it might reasonably be expected that OPSM would take issue with prolonged use of that data in comparative advertising. In that event, there is at least a chance that either Specsavers or OPSM would have prevailed upon The Optical Superstore to stop the advertisements, and, given the litigious disposition of all the relevant players, by Court order if necessary. The Standard TVC contained additional price data from 27 January 2010 (comparing prices at Specsavers and The Optical Superstore). It, too, is likely to have quickly dated.

30    Thirdly, the four-month scenario is called into question by a file note made on 21 February 2011 by Michelle Dixon, the then solicitor on the record for The Optical Superstore. That was a file note of a conference with Ms Douglas, Mark Draper, an employee of The Optical Superstore, Mr Meredith and someone else from his firm. The file note appears to record a discussion about the assumptions to be given to Mr Meredith. Against the question “how long advertisement would have run” the words “2 months or until reduced price” appear. In cross-examination Ms Douglas said she did not recall a discussion that the advertisement would have run for two months or until the next price drop, although she did not deny that there was such a discussion. Counsel for the respondents argued that no-one knows whether any of these statements were made by anybody or whether they were Ms Dixon’s jottings and so, he submitted, it was impossible for the Court to draw any conclusion from it as to what was said by whom and what the statement was. Ms Dixon was not called and Mr Meredith was not asked about it. I think it is more likely than not that the information about the two-month period came from Ms Douglas, although I accept that it would be unsafe to infer much from the file note. But one thing is clear. The note does not support the proposition that the Standard TVC would have run for four months.

31    Fourthly, in its defence filed on 26 February 2010, The Optical Superstore appeared to acknowledge that it was unlikely the advertisement would run for four months. In paragraph 28 it pleaded:

The [Standard] TVC … may now be out of date and accordingly [The Optical Superstore] has no further intention to cause those same advertisements to be broadcast.

32    It maintained this position in its amended defence filed on 1 April 2010.

33    Ms Douglas was cross-examined about this pleading and said it was a correct statement.

34    The reason for this seems clear. On 7 February 2010 Specsavers started broadcasting another television commercial (“the Roy Morgan TVC”) in all states except Western Australia and continued to do so until 20 February 2010. This commercial once again compared Specsavers’ prices favourably with those offered by OPSM. The price comparisons were based on market research carried out by the Roy Morgan organisation. On 14 February 2010 they started broadcasting the Roy Morgan TVC in Perth and continued to do so until 27 February 2010. Doubtless this provides the context for the statement made in the defence.

35    Specsavers re-broadcast the Roy Morgan TVC nationally from 5 to 9 March 2010. This was followed by a television commercial for The Optical Superstore (dubbed the “Wondered Why TVC”) which was first broadcast on 11 March 2010. On 13 and 14 March 2010 The Optical Superstore printed and distributed a four-page catalogue (the “25 times” brochure, which referred to Specsavers reducing their prices 25 times in response to The Optical Superstore’s price comparison advertising). I think it is most unlikely in the circumstances that, but for the injunction, The Optical Superstore would have continued to run the Standard TVC and any associated print marketing campaign as well. The Optical Superstore’s commercial “piggy-backed” on the Roy Morgan TVC. It ran until 15 March 2010. The only reason it stopped then was that on 16 March 2010 Specsavers obtained a Court order restraining The Optical Superstore from continuing with the broadcast. Ms Douglas said in her affidavit of 18 October 2011 that it was not a substitute for the Standard TVC.

36    It might have been helpful if there were evidence that television advertising had been booked for the Standard TVC for a particular period. But the evidence Ms Douglas gave is that her practice was not to place advertisements for particular defined periods. Rather, she said, the advertisements are broadcast until The Optical Superstore (or its advertising agents) asks the television station to replace them with different advertisements in pre-booked time slots.

37    The evidence indicates that, regardless of the imposition of the injunction, it is more probable than not that The Optical Superstore would have responded to the Roy Morgan TVC. By the time of the Roy Morgan TVC the earlier advertising campaign was out-of-date. There is a chance, I suppose, that in these circumstances, but for the injunction, The Optical Superstore would have revived the Standard TVC, but I do not rate it highly. I certainly think it would not have continued into April 2010 when The Optical Superstore ran a variety of other advertising campaigns.

38    Fifthly, I am of the view that Ms Douglas never expected the campaign to have such a long life. What she expected was that Specsavers would drop their prices, as they had done in the past. That might have taken them a couple of months, but she was not counting on as long as four months. In the event that Specsavers did drop their prices, The Optical Superstore would probably have devised a new advertising campaign to respond to the new prices. That such an advertising campaign might have involved a modification of the Standard TVC does not make it part and parcel of the same campaign. The loss of the opportunity to capitalise on any such price reductions is not a direct result of the Court order.

39    Sixthly, the only contemporaneous evidence of Ms Douglas’s intentions points against a four-month life for the campaign or, for that matter, anything like it. The email sent to Messrs Dorz, Chin and others on 29 January 2010, to which the Standard TVC was attached, relevantly states:

New adverts attached, for your eyes only at this point in time. They will probably begin running next week.

I will hopefully have a new catalogue ready within three weeks and there will be another tv advert to match the catalogue.

(Emphasis added.)

40    This email suggests that the Standard TVC was unlikely to be run for a long time — at least not much longer than three weeks in toto (about a week longer than it actually ran). It is also instructive for another reason. It supports the inference that the catalogue that was planned was not associated with the Standard TVC. Indeed, apart from Ms Douglas’s evidence, there is nothing to indicate that The Optical Superstore ever intended to distribute a catalogue in association with the Standard TVC. Ms Douglas said in cross-examination that she simply had not “got onto that task” before the injunction was imposed, she had not had the time. I have difficulty with this explanation in the face of the email. Not all television commercials were accompanied by catalogues and when they were the policy of The Optical Superstore was to write to the printer/distributor well in advance (one to two months) to determine printing and distribution dates. There is no evidence of any communications of this kind in relation to the Standard TVC.

41    I would make one final observation. In her fourth affidavit (sworn on 7 May 2011) Ms Douglas stated that she determines the form and content of The Optical Superstore’s advertising in consultation with her husband, Mr Melrose. Under cross-examination she said that she and Mr Melrose “put the thought and the design and the organisation into the TVCs”. Mr Melrose swore two affidavits in support of the claim for damages only one of which was read. He said nothing about the intended duration of the campaign. The inference should be drawn that nothing he could have said would have assisted the respondents’ case: Jones v Dunkel (1959) 101 CLR 298.

Conclusion

42    Taking all these matters into account I find that it is more probable than not that The Optical Superstore would have run the campaign for no more than two to three weeks after the injunction and certainly not for as long as four months. I am not satisfied in any case that the campaign would have extended to producing catalogues or other print advertising. In coming to these conclusions I do not mean to insinuate that Ms Douglas gave deliberately false evidence. But her evidence in this respect is self-serving, given with the benefit of hindsight, no doubt clouded by the litigation, and unsupported by contemporaneous materials or corroborated by other witnesses. I consider it unreliable.

43    I acknowledge that The Optical Superstore has a history of conducting advertising campaigns over longer periods. The “Transitions campaign” was conducted for about eight weeks and the “2+1 campaign” for four months. But they were different campaigns. They were not designed to respond to a specific advertising campaign run by a competitor. Even the “History TVC” (a campaign showing how Specsavers had lowered their prices apparently in direct response to The Optical Superstore’s advertising) only ran for five weeks. Ms Douglas said in her fifth affidavit (sworn 18 October 2011) that The Optical Superstore broadcast its $389 Cheaper TVC between January and February 2009 and a revised version (“$159 Cheaper”) between March and May 2009. These were comparative commercials. The revision occurred after Specsavers dropped their prices. Importantly, Ms Douglas was vague about the precise duration of these two campaigns.

Could a loss of the kind that was sustained have been foreseen at the time of the order?

44    I am satisfied that loss of the opportunity to earn profits from advertising is loss of a kind that could have been foreseen at the time of the order. This is largely a matter of common sense. Although the answer to the question is to be determined objectively, it finds some support in the evidence of Specsavers’ witnesses.

45    Stewart Roussel, Specsavers’ marketing director, swore an affidavit on 1 March 2010. He expressed the opinion based on his experience that the Standard and Tailor-Made TVCs were likely to occasion damage to Specsavers by, amongst other things, causing existing customers who would otherwise shop at Specsavers to buy products from The Optical Superstore instead. He also expressed the opinion that customers who would have switched to Specsavers from another optical retailer (perhaps as a result of the Specsavers TVC) might now switch to The Optical Superstore.

46    Similarly, Mr Hawkins gave evidence that when he saw the Standard TVC being broadcast in February 2010, he was concerned that it may take sales away from Specsavers. He was concerned that consumers who saw the Standard TVC and who might have shopped at OPSM might be diverted from Specsavers to The Optical Superstore.

47    Loss of sales revenue might reasonably be translated into a potential loss of profit.

48    If senior officers of Specsavers felt the business could have lost customers to The Optical Superstore were the advertising campaign to continue, it follows that a loss to The Optical Superstore and its licensees of the commercial opportunity to derive income or profit from the sale of their products to those customers could have been foreseen.

How is the loss to be measured?

Mr Meredith’s evidence

49    As I indicated earlier, the respondents’ case was based on the evidence of Mr Meredith. Mr Meredith affirmed four affidavits. The first (affirmed on 9 March 2011) annexed his first report of 9 March 2011. The second (affirmed on 27 May 2011) corrected typographical errors in the first report and annexed a supplementary report dated 13 April 2012 which relates to losses alleged to have been suffered by the third to eighth respondents. The third (affirmed on 13 July 2011) annexed a further supplementary report informed by sales data provided by Specsavers after Mr Meredith had affirmed the second affidavit. The fourth (affirmed on 1 August 2011) annexed a letter Mr Meredith wrote to The Optical Superstore’s solicitors the same day reporting on the impact of further information he had received from Specsavers since the date of his third affidavit.

50    Mr Meredith’s first report addressed two questions posed for him by the solicitors for The Optical Superstore:

(a)    Whether The Optical Superstore and/or Optom Admin (the second respondent) were adversely affected by the operation of the interlocutory order of 9 February 2010; and

(b)    If the answer to (a) was yes, what amount would be required to be paid to each of them in order to compensate it or them for the adverse effect of the operation of the Court order.

51    They were unfortunate questions for two reasons. First, they did not address the position of the other respondents, necessitating a further report. Secondly, Mr Meredith was ill-equipped to answer them, because of the nature of his expertise and/or because of the dearth of information.

52    Although objections were foreshadowed to various parts of the expert evidence, ultimately no objections were taken and the parties contented themselves with leaving these matters to addresses. There is a difficulty in this approach. It permits inadmissible opinion evidence to be adduced and has the potential to obfuscate the Court’s task. As Gleeson CJ said in HG v The Queen (1999) 197 CLR 414 at 429 [44]:

Experts who venture “opinions” (sometimes merely their own inference of fact), outside their field of specialised knowledge may invest those opinions with a spurious appearance of authority, and legitimate processes of fact-finding may be subverted.

53    To the extent that any expert ventures an opinion outside his expertise I propose to disregard it.

54    Mr Meredith demonstrated from an analysis of weekly sales figures of The Optical Superstore branded stores that there was no discernible reduction in sales at the time of the Specsavers TVC that could not be attributed to seasonal factors and concluded that there was no material loss of custom as a result of the broadcasting of that commercial that could have been protected by the broadcasting of the Standard TVC.

55    Based on various assumptions, including that the Standard TVC would have been broadcast for a continuous period of four months, and Mr Meredith then set out to:

    identify what, if any, additional revenue the respondents would have derived had the Standard TVC been continuously broadcast until 4 June 2010;

    identify the additional costs the respondents would have incurred to derive the additional revenue; and

    deduct the additional costs from the additional revenue, in order to determine the loss sustained by the respondents as a result of the injunction.

56    The approach is unexceptionable. Mr Ross (the accounting expert retained by Specsavers) agreed that, if this approach were “capable of being implemented appropriately”, it “would produce a measure of the adverse effect, if any, of the operation of the Court Order”. The problem is with some of the assumptions used to give effect to the approach, in particular, the assumption about the period of the campaign.

57    In his first report, to calculate the additional revenue, Mr Meredith examined the results of two other advertising campaigns run by The Optical Superstore. They were:

(a)    An offer for a free pair of prescription polarised glasses with the purchase of spectacles with transition lenses, which ran for two months from the second week in October 2008 to the second week in December 2008 (the Transitions campaign); and

(b)    A two pairs plus one free offer, which ran for an extended period from the fourth week in July 2010 to the third week in December 2010 (the 2+1 campaign).

58    He concluded that each campaign had a positive impact on The Optical Superstore’s sales, and calculated the percentage increase in sales revenue related to each campaign. Using these two figures, he derived a “sales uplift” percentage figure to be applied to the respondents’ actual sales figures to predict the additional revenues relating to the Standard TVC.

59    In his further supplementary report Mr Meredith also considered the Specsavers TVC and concluded that its broadcast had increased Specsavers’ sales and used these revenue increases to assess the respondents’ likely losses.

60    The simplicity of this approach disguises a number of problems, some of which were uncovered by Mr Ross, some by the marketing experts.

61    First, why pick these two advertising campaigns for The Optical Superstore, when in the same period The Optical Superstore had run over 40 other campaigns? There is nothing to indicate that this was a random selection. On the contrary, Ms Douglas said that she chose those two campaigns because they were both “offer” (as opposed to “maintenance”) advertising, were “distinct campaigns” that ran for a discrete period of time (more than two months) and involved the highest perceived saving to The Optical Superstore customers. Yet, as Specsavers pointed out in their submissions, there were other advertising campaigns that fitted this description but the sales figures at the time of these campaigns were not provided to Mr Meredith. In cross-examination, Ms Douglas agreed that the $389/$159 cheaper campaign also satisfied the same three criteria; and that sales data surrounding that campaign was important information which could have been provided to Mr Meredith.

62    There was also a dispute between the marketing experts about whether they were suitably comparable campaigns. There were, of course, some common elements. The Transitions campaign and the Standard TVC were both mass market campaigns and both conveyed a message of value for money. The 2+1 campaign and the Standard TVC both contained direct references to Specsavers and both used anchoring techniques to communicate information. If I had accepted Ms Douglas’s evidence that the plan was to produce a catalogue and other print advertising associated with the Standard TVC as well, then the two campaigns would have also been comparable in that they used a variety of media to send out their messages.

63    But there is an important difference between the two campaigns run by The Optical Superstore that Mr Meredith used as proxies and the Standard TVC. They were not comparative advertising campaigns. They offered consumers something for nothing, a proven effective marketing strategy, and the offers were advertised as being available for a limited time only. Moreover, the Transitions campaign did not include a television commercial.

64    The Optical Superstore had run other comparative advertising campaigns, which were not considered by Mr Meredith (including the $389/$159 cheaper campaign discussed above). Ms Douglas said in her affidavit of 18 October 2011 that it had done so on at least seven occasions. Not all of these campaigns involved television advertising but most of them did. Yet, the sales figures for none of these campaigns were provided to Mr Meredith. It is reasonable to infer that they would not have assisted the respondents’ case.

65    There were several difficulties in comparing profits apparently generated by the Specsavers TVC with those that could have been generated by the Standard TVC campaign. I will come to these later. Suffice it to say at this point that an obvious difficulty is that many of the people who might otherwise have bought glasses at The Optical Superstore would already have bought them from Specsavers before the injunction was granted.

66    Next, during the period between 4 February 2010 and 4 June 2010 nine different television commercials were screened on behalf of The Optical Superstore. Mr Meredith lacked the expertise to make any assessment about the impact of these other advertising campaigns on the respondents’ actual profits and made no allowance for it. In my view, this circumstance alone undermines the value of his opinion.

67    There are other problems with Mr Meredith’s assumptions. Importantly, he assumed that the increase in sales revenue occurred because of the particular advertisement. Yet, common sense suggests (and the expert evidence supports the commonsense conclusion) that some of the people who made purchases at one of The Optical Superstore outlets would have done so regardless of any particular campaign. Some may have been repeat customers. Some may have been influenced by word of mouth, some by an earlier or different advertising campaign. Some may have been passing traffic. Above all, Mr Meredith assumed that there was a direct correlation between an increase in sales figures in any given period and, allowing for a lag period of two weeks, a particular advertising campaign that preceded the increase. The marketing evidence revealed the fallacy of this assumption.

What is the impact of advertising?

68    It is trite to observe that the object of advertising is to increase sales. But measuring its effect may be impossible. Is there a direct and measurable relationship between increased profits and a particular advertising campaign? Can the impact of a particular advertising campaign ever be sensibly evaluated without surveying the market of actual and potential buyers, something not done in this case? Is it possible to isolate the effect on sales of a particular advertising campaign from the effect of other campaigns and of non-advertising variables?

The relationship between advertising and sales

69    The marketing experts agreed that marketing practitioners and academic researchers well accepted that there is a relationship between advertising and sales. The respondent put some store by this agreement. But this proposition does not go very far. Dr McLeod said that “it can be a difficult relationship to measure accurately”. During the course of the expert evidence I asked Dr McLeod whether he accepted the premise that, in general, advertising benefits the bottom line for a business, but that it was extremely difficult to point to the impact of a particular campaign just by looking at the revenue derived during or within a reasonable time after the campaign has been run. He replied:

I think your Honour has summed that up pretty well. I mean, there’s a range of parameters around any campaign. There’s the issue of how long the campaign ran for? How long do we think the carryover effect will be? Do we think that it will generate new customers who will produce repeat customers? These are also what we call high involvement products. There’s a lot of risk attached to buying the wrong product, so it’s possible that people could come in looking for one product and end up buying another. So all those things, I think are part of the consideration which I think go to the point that it can be difficult, yes.

70    Ms Douglas accepted that particular sales may have nothing to do with a particular campaign and that The Optical Superstore cannot know, and can only estimate, what caused particular transactions to take place.

71    The marketing experts also agreed that it was very difficult to determine with precision the role that advertising plays in influencing sales in any given period because of the influence of a large number of other non-advertising variables. The agreed variables include:

    Product range and stock availability;

    Pricing, in that the same sales revenue may be achieved by a smaller number of sales at a higher average price per sale or a larger number of sales at a lower average price per sale;

    The behaviour of sales staff and the presence of in-store sales support in reinforcing advertising messages and securing sales;

    Competitors’ advertising and marketing communication activities occurring at the same time as, or in response to, the advertising;

    The duration of the purchase cycle (the time between repeat purchases in the same category) and the purchase process (the time from the consumer becoming aware of the need to complete a purchase). Where the duration of one or both are lengthy, it is usually extremely difficult in the absence of other intermediate (non-sales) data to attribute a particular sale to a particular advertising campaign.

    Seasonal factors; and

    The complexity of the market, including:

    The complex “bundling” of products and services;

    The complexity of consumers’ buying behaviour;

    The number of different customer segments;

    The number of competitors and their relative size in terms of sales volume and market share;

    Pricing behaviour and price dynamics in the market; and

    The geographic distribution of all of the competitors relative to the distribution of the media in which the advertising is carried.

72    Mr Hawkins gave evidence to similar effect. He said, and I accept, that it is extremely difficult to measure with any degree of certainty, if at all, the uplift in sales that directly results from a particular advertising campaign. That, he explained, is because at any particular point in time there are a number of different factors that may affect sales. They include other advertising or promotional campaigns running at or around the same time; the activities of other competitors in the market place, including their share of voice (a combination of the frequency and reach to consumers of advertising); seasonal factors, product range and availability; price; competitive product offerings; level of service and accessibility of stores; trading hours; consumer perceptions of quality and brand; partnerships with health funds; economic climate and consumer confidence; and market share.

73    A key area of disagreement between the marketing experts was the capacity to make reasonable assessments about the impact of advertising on sales without information on the non-advertising variables.

74    Dr Downes pointed to the absence of any figures as to audience numbers and demographics, and therefore of audience reach and frequency (that is the number of times the advertisement is seen), as a factor rendering it very difficult to assess the comparative or relative effectiveness of advertising or to forecast advertising effects in terms of total sales.

75    There was evidence about the effect of seasonal factors. It was common ground that there was an increase in sales of optical products due to health insurance rebates on two occasions annually. Ms Douglas said that the increase typically occurs during the last month and the first two months of the calendar year. Mr Hawkins said that the first increase was from mid-October to December, the second from mid-January to early February. Ms Douglas also said that there was an increase in sales of prescription sunglasses in the lead-up to summer each year. Doubtless, the increase would not be confined to prescription sunglasses. Mr Hawkins said that summer also saw an increase in sales of tinted and transition lenses (that is, photochromic lenses that tint automatically with increasing levels of light). These increases presumably occur regardless of any particular advertising campaign. Mr Hawkins also pointed to a decline in sales at Easter.

76    Mr Meredith’s model sought to take into account seasonal factors by comparing sales in the relevant campaign period with those in the same period in the preceding year.

77    Apart from the seasonal factors, however, there was no evidence about the other factors and no attempt made to take them into account. The respondents brushed this aside, arguing that there was no evidence from Specsavers’ experts about the effect these factors had on the respondents’ sales revenue in the relevant period. But it was not for Specsavers to call that evidence. The issue having been raised, it was up to the respondents to discount their effect. The onus of proof rested throughout with them. The marketing experts agreed that many organisations do not have access to data of this type “on an accurate or timely basis” but they said that marketers often make estimations on the basis of available data, as well as subjective judgments based on a qualitative knowledge of the market. The respondents called no evidence of this kind in this case.

78    In cross-examination Dr McLeod agreed that, even where there is evidence of increased sales, an advertising campaign may not be the only reason why sales increased and if other factors played a role, an attempt should be made to disentangle their effects. He also agreed that even where the number of people who responded to a promotion and the number of those who went on to buy the product were both counted, the calculation assumes that all those sales were incremental sales generated by the promotion, whereas some of the people would probably have bought the product anyway, whether or not they had been exposed to the promotion.

Market share and the impact of advertising

79    Dr Downes said that market share was a better and more meaningful guide to the impact of advertising than sales revenue. He explained that sales revenue should be assessed in the context of what was happening in the relevant market at the relevant time. He also said that movements in market share provided a better measure of an advertising campaign’s success than total revenue.

80    Dr McLeod agreed that market share was frequently used and was a useful measure of the impact of advertising but he did not think it necessarily provided more meaningful information. In her fifth affidavit (sworn on 18 October 2011) Ms Douglas said that the market share of The Optical Superstore varied significantly across states and localities. She said that in Queensland and South Australia, where The Optical Superstore has been operating for more than 20 and 18 years respectively, its market share at the time of the Standard TVC (based on revenue) would be closer to over 10% in Queensland and 15% in South Australia. She also estimated that The Optical Superstore’s market share would be significantly higher than 15% in some smaller markets. This evidence is of no assistance as there was no evidence that she had seen the revenue figures of her competitors or any other information from which she could have based them.

81    Mr Hawkins said that from November 2009 to February 2010 OPSM had about a 25% share of the spectacles market and that The Optical Superstore had a much smaller market share than both Specsavers and OPSM. But, once again no foundation was laid for these opinions.

82    There was no evidence about the relative market shares held by the parties. But there was evidence that during the relevant period Specsavers had more than three times the number of stores than The Optical Superstore. As at 4 February 2010 (the date the Standard TVC first aired), Specsavers had 210 stores across the country. By mid March 2010 The Optical Superstore had 58 stores. Presumably, the number of stores says something about market share.

83    There was, however, no evidence about what was happening in the market or about movements in market share at the relevant time. In any case, there are problems in evaluating the impact of the advertising in question by this means. Dr Downes said that to assess the relationship between advertising and sales in a complex and highly competitive market with significant seasonal variations, it would be necessary to have regular, reliable data on consumer sales of all competitors in the market. Even so, he said it would be very difficult to attribute changes in market share to specific advertising activity unless the confounding effects of other factors (both advertising and non-advertising) were taken into account.

84    It will be recalled that there were nine different television commercials for The Optical Superstore that were broadcast between 4 February 2010 and 4 June 2010 (including the Standard TVC). Dr Downes said that the rapid switching between television commercials with different targets and different messages makes it likely that few of the commercials achieved minimum effective levels of exposure to their respective target audiences. His view was that advertising in the relevant period was almost certainly inefficient and is likely to have had negligible impact on sales. Dr McLeod conceded that there was the potential for overlapping and confusing messages and that, in the absence of detailed information about the campaigns themselves, it was difficult to judge the likely success of (any of) The Optical Superstore’s advertising in this period.

85    It is, in my view, not without significance that there was no evidence from a marketing expert about the likely effect of the Standard TVC on the sales revenue of the respondents. Although Dr McLeod said it was common practice to use revenue as a measure of advertising effectiveness, he intimated that a qualitative interpretation of the figures was required. He said that most marketing managers have access to a range of information resources, including the distribution channel, market research, customer service, media coverage and their own sales staff, which can alert the manager to unexpected factors which may have influenced the effectiveness of a campaign. Here, there was no qualitative interpretation of the estimates of sales impacts. The reason, I think, is apparent from Dr McLeod’s oral evidence that it was impossible to express an opinion about the likelihood of success of any of the nine campaigns The Optical Superstore ran between 4 February 2010 and 4 June 2010. Paradoxically, even though the Standard TVC was one of those nine campaigns, Dr McLeod said it was possible to assess what probably would have happened if the injunction had not been imposed, apparently through other information about “responsiveness and sensitivity” and other comparative information. Tellingly, he made the following observation:

The reality is that very few commercial organisations have either the frequency of purchase data or the analytical techniques to isolate the specific impact of advertising.

Were the campaigns selected as proxies comparable?

The Specsavers TVC

86    Mr Meredith said that given the relationship between the Specsavers TVC and the Standard TVC, the best indication of whether the respondents were adversely affected by the injunction was to see whether Specsavers benefited from the Specsavers TVC. I do not see how Mr Meredith’s expertise as an accountant qualifies him to express such an opinion. In any case, for various reasons to which I will come shortly, I consider this conclusion to be flawed. The Optical Superstore submitted that there was an obvious relationship between the Specsavers TVC and the Standard TVC. That is true. They promoted the same products. The Standard TVC reproduced the central component of the Specsavers TVC (the price comparison between Specsavers and OPSM for two pairs of standard multifocal glasses), and then represented that The Optical Superstore’s prices were lower than the prices offered by either Specsavers or OPSM. The Standard TVC was also first broadcast only five days after the Specsavers TVC was last broadcast. I accept that there was a real chance that the timing of The Optical Superstore’s campaign would benefit The Optical Superstore. Still, there are several circumstances that make the comparison of sales revenue derived from the two campaigns an awkward one.

87    First, the Specsavers campaign was run at the beginning of the New Year which the evidence indicates is a peak time for spectacle sales.

88    Secondly, it was broadcast nationally “at very high frequency” during the telecast of the Australian Open, a prime time sporting event. In contrast to the Standard TVC it was broadcast not only in Melbourne, but also in regional Victoria. It was broadcast throughout South Australia, not just Adelaide, and, unlike the Standard TVC, it was broadcast in Sydney, Launceston and various other places not covered or intended to be covered by the Standard TVC. Unlike the Specsavers TVC, the Standard TVC was not programmed to coincide with the telecast of a major sporting event.

89    Thirdly, as I mentioned earlier, it is reasonable to conclude that the Specsavers TVC had cornered the market so that at least some people who might otherwise have bought glasses from The Optical Superstore had already made their purchases by the time The Optical Superstore began its advertising campaign or at least before the injunction was made.

90    Fourthly, the Specsavers TVC was supported by online advertising and extensive print media advertising (including broad coverage metropolitan or major daily newspapers as well as some regional newspapers) with the same message. There was no evidence that the respondents intended to support the Standard TVC in such a comprehensive way and I have rejected Ms Douglas’s evidence concerning the prospect that the Standard TVC would have been backed up by print advertising of any kind. Yet, Mr Meredith assumed that the Standard TVC would be supported by catalogues and advertising in local newspapers.

91    Fifthly, as counsel for The Optical Superstore accepted, the Specsavers TVC appeared to be part of the same marketing strategy as at least one other television commercials (the Roy Morgan TVC, which started a week after the Specsavers TVC finished). Mr Hawkins, having looked at Specsavers’ data during January and February 2010 (the time the Specsavers TVC was run and the month afterwards), said there were several other Specsavers campaigns that contributed to an uplift in Specsavers’ sales at that time. Accordingly, to attribute the sales uplift in the period Mr Meredith examined (the first three weeks of February) to the Specsavers TVC alone could overstate its impact on sales.

92    Sixthly, although the evidence does not permit any firm conclusion as to the magnitude of the parties’ market shares, the greater number of Specsavers’ stores indicates that Specsavers’ market share was significantly greater than the respondents’. Dr McLeod explained that the relative market positions of different firms may affect the relative impact of their respective campaigns. Dr Downes observed that differences in brand awareness (of which market share is a likely factor) have important modifying effects on the effectiveness of advertising campaigns.

93    Seventhly, Mr Hawkins’s evidence was that the spike in sales was higher than ever for Specsavers, in part, at least, because of a substantial increase in advertising to Medibank Private customers and Specsavers’ growing presence in health fund advertising.

94    Finally, the target (at least the direct target) of the Standard TVC was Specsavers. On Ms Douglas’s own evidence, part of her strategy was to drive Specsavers out of the market by forcing them to drop their prices to such a level that it would become unprofitable for them to trade here. Dr Downes said that the Standard TVC was likely to have been perceived by customers as primarily a challenge to Specsavers. That is not to say that The Optical Superstore did not also seek to attract custom through the advertisement, but to recognise that the campaign was part of a long-term strategy, the results of which may be impossible to calculate for years to come.

95    Mr Meredith said that the Specsavers data suggested a particular percentage uplift was attributable to the Specsavers TVC “and related campaigns” (Meredith, 12 July 2011 at [5], [35](c), 42(c), [46] and [53], 1 August 2011 at annexure D). (The figure itself is the subject of a confidentiality order). He rounded it up and then reduced it to allow for what he calculated to be the benefit the respondents derived from substitute advertising (Meredith, 9 March 2011 at [72] and annexure K) to arrive at a projected uplift figure (Meredith, 12 July 2011 at [46]; 1 August 2011 at annexure D) to estimate additional revenues he said the respondents would have obtained from the Standard TVC. He said that the figure was likely to be conservative for reasons he gave in his report of 12 July 2011 at [5](d) and [53](d), and because, if the impact on stores in Western Australia (where the Specsavers TVC was not aired) were discounted, the Specsavers data would actually suggest a higher uplift attributable to the Specsavers TVC.

96    With the singular exception of the Transitions campaign, however, there is no evidence to indicate that The Optical Superstore ever achieved an uplift in sales of the magnitude that Mr Meredith postulated by his comparison with the Specsavers campaign.

The Transitions and 2+1 campaigns

97    As I mentioned earlier Mr Meredith examined the respondents’ sales figures around the time of two other advertising campaigns conducted by The Optical Superstore — the Transitions and 2+1 campaigns. In each case he found that there had been an increase in sales but the level of increase differed markedly between various respondents and between the two campaigns. There was no evidence to account for the differences.

98    Using the average of the uplift figures Mr Meredith attributed to the Transitions and 2+1 campaigns and deducting the uplift the respondents were said to have derived from the substitute advertising, Mr Meredith came up with a sales uplift figure to estimate the loss suffered by the respondents by reason of the injunction (Meredith, 9 March 2011 at [74]). (Once again the figure itself is confidential).

99    There are, however, real problems with this approach. Mr Ross referred to some of them in his report. Sales figures during the period of the Transitions campaign are anomalous. Significant care needs to be taken before it could be used as a proxy.

100    The Transitions and 2+1 campaigns were not the only campaigns being run by the respondents in the periods Mr Meredith analysed. If it is possible to determine the effect of one campaign, it is necessary to isolate the impact of that campaign from other campaigns run at around the same time.

101    The above discussion alone shows the difficulty in assessing the potential effect of one advertising campaign by comparing it with another. The other factors I discussed above at paragraphs 60 to 64 further emphasise the weaknesses of Mr Meredith’s use of these two campaigns to estimate the additional revenue that would have been generated by the continued broadcast of the Standard TVC.

102    In my view, for the reasons I have given, neither the sales figures achieved by Specsavers following the broadcast of the Specsavers TVC nor the sales figures achieved by the respondents after the Transitions and 2+1 Campaigns provide a reliable basis for calculating the likely impact of the continuing broadcast of the Standard TVC.

Conclusion

103    Specsavers submitted that if the respondents cannot establish the case based on Mr Meredith’s approach their application for compensation should be dismissed. I disagree. I have come to the conclusion that the continued broadcast of the Standard TVC is likely to have had some positive impact on sales and so the respondents have proved that they have lost the opportunity of acquiring a profit from sales generated as a result of their inability to proceed with the advertising campaign. That the loss is a loss for both The Optical Superstore and its licensees follows from the fact that the Standard TVC was broadcast or intended for broadcast in areas serviced by all the respondents.

104    There is no doubt that damages may be awarded for such a loss: Commonwealth v Amman Aviation Pty Ltd (1991) 174 CLR 64 (“Amman”). Some customers who might have been attracted by the Specsavers campaign but who had not yet made up their minds whether to buy spectacles might have gone to The Optical Superstore to see if they could have got a better deal. Whether they would have made a purchase is far from certain but there must have been a real chance that some of them would. Subject to the next issue, it is well settled that no matter how difficult the task might be, if the Court finds that damage has occurred it must do the best it can to quantify the loss, even if a degree of speculation and guess work is involved: Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 (FCAFC) at 183 cited with approval in Sellars at 364 per Brennan J; Air Express at 284. Cf. Fink v Fink (1946) 74 CLR 127 at 143. Uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court to refuse to award damages: Amman at 83. Still, as Aickin J went on to observe in Air Express at 284, it is not an exercise in imagination. To the extent that any of the assumptions Mr Meredith made are not justifiable on the evidence, it is necessary to explore whether adjustments can be made to enable a reasonable approximation to be obtained. In this case, as will be seen, appropriate adjustments can be made.

105    How then to measure the loss? Damages are to be assessed by reference to the degree of probabilities or possibilities of the respondents deriving a profit from the Standard TVC campaign had the injunction not been made. In valuing the loss all chances that are more than speculative must be taken into account: Malec at 643. In Malec the plurality (Deane, Gaudron and McHugh JJ) postulated that a speculative chance was less than 1%. That this is the correct approach is not in doubt. See Amman and Sellars. Although none of these decisions concerned the assessment of damages in equity (Malec was a personal injuries action, Amman an action for breach of contract, and Sellars a claim under the Trade Practices Act 1974 (Cth)), all parties accepted that these principles applied. It is the approach that Aickin J followed in Air Express at 286. Yet, the task is impressionistic, necessarily imprecise and not the least bit scientific: TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444 at [248], [251] per Finkelstein J.

106    In the light of my findings damages should be calculated on the premise that the campaign would more probably than not have run for a further two to three weeks but not four months. I rate the chance of it running a further week as 90%, another week 65% and I think there is a 50-50 chance it would have run for an additional two weeks but the chance that it would have continued after The Optical Superstore launched the “Wondered Why?” campaign is no higher than 10%. In any event, especially having regard to the confounding influence of other advertising campaigns in that period, I am not satisfied on the evidence that any loss to the respondents after April 2010 has been proved. With the exception of the Medibank Private campaign, which was run periodically both before and after the injunction (and which Ms Douglas referred to as “the Substitute Advertising” and which Mr Meredith took to be the substitute advertising), there is no evidence that the other advertising campaigns would not have been mounted in any event regardless of the injunction.

107    The evidence supports the likelihood of a lag period between the beginning of any advertising campaign and an increase in sales figures. This, too, is a commonsense conclusion. After all, common experience tells us that people do not always rush out to make a purchase immediately they have seen an advertisement. And some may learn of the advertisement second-hand. I think it reasonable to allow for a two-week lag period.

108    Notwithstanding the difficulties to which I have referred, broadly speaking I accept the approach Mr Meredith adopted to the calculation of loss (see [55] above) as the best way to arrive at a reasonable approximation of the damages. That is to say, damages should be calculated by taking the additional revenue the respondents would probably have derived if the Standard TVC had been continuously broadcast until the end of April 2010 (subject, of course, to the percentage adjustments given above) and from which the additional costs likely to have been incurred to derive that additional revenue are to be deducted.

109    To calculate the probable additional revenue it is first necessary to determine the likely percentage sales uplift.

110    Counsel for the respondents submitted that it is reasonable to expect that the respondents would have derived a higher percentage sales uplift than Specsavers did from the Specsavers TVC because they were in a position to benefit from Specsavers’ substantial expenditure and the Standard TVC was targeted at potential customers who might (otherwise) have purchased from OPSM or Specsavers. I reject the submission. It is purely conjectural and it fails to take into account the matters I have discussed that make the comparison with Specsavers’ figures a fraught, and ultimately unsafe, one.

111    For the various reasons I have given I do not accept that the percentage uplift is likely to have been anywhere near the figures suggested by Mr Meredith’s evidence.

112    Doing the best I can, taking into account all the difficulties to which I have referred, I find that the injunction deprived the respondents of the chance of increasing their sales on average by 4% after allowance is made for the impact of the substitute advertising (which I accept was the Medibank Private campaign), and for any differences in impact during the period in which the Standard TVC would have been broadcast. In my view, the percentage should be applied to sales of prescription glasses only (both standard and tailor-made; multifocal and single vision) but not to sales of any other products or services (such as sales of mining and industrial safety spectacles, which appear to have been included in the respondents’ sales data on which Mr Meredith’s model was based). Mr Meredith assumed that the uplift would have been achieved on sales of all spectacle products. He explained that he had made the assumption because standard multifocal products are not suitable for all customers’ needs and prescriptions and the evidence bears this out. He went on to say that, for this reason “it appears reasonable that customers, if attracted by the Standard TVC to purchase spectacles from an OS Branded Store, would purchase an alternative product if the ‘Standard’ product was not suitable”. I accept that someone enticed into The Optical Superstore by the Standard TVC might be persuaded to buy tailor-made multifocals rather than standard multifocals and that others might ultimately decide against multifocals altogether and opt for single vision prescription glasses. But there is no reason to think that the Standard TVC would attract shoppers into the store who did not need prescription glasses.

113    I should also indicate that the percentage should apply across all The Optical Superstore branded stores in the areas where the Standard TVC was broadcast and would have been broadcast but for the injunction.

114    The percentage uplift should be applied to the period from 18 February 2010 (to take into account the lag period) until the putative end of the campaign (as to which see [106] above).

115    Once the percentage uplift is applied to the sales figures during the relevant period the extra costs associated with the making of the additional sales must be into account. Mr Meredith listed those as the direct costs of sales (that, is the amount the respondents paid for the products), the employee costs (that is, the cost of casual labour employed to deal with the additional custom) and advertising costs. The only advertising costs Mr Meredith considered were the costs associated with the production (and presumably also distribution) of a catalogue. The evidence was that the television advertising space was taken up by other advertisements and it was common ground that the cost of television advertising was consequently irrelevant. As I have found that a catalogue would not have been produced in association with the Standard TVC, there is no need to deduct the costs of producing a catalogue.

116    The accounting experts agreed “in principle” on the various costs associated with additional sales. Subject to the qualification concerning the costs of catalogue production, I accept Mr Meredith’s calculations regarding the relevant additional costs to be deducted from additional revenue in order to calculate the loss suffered by the respondents. Mr Ross considered the figures that Mr Meredith used were reasonable, with two minor qualifications in the case of employee costs. Mr Ross said that the employee costs used in Mr Meredith’s model were below the industry average, but whether or not they were does not make them unreasonable. The figures were based on actual wages paid and sales made. Mr Ross agreed that an allowance should be made for a component of employee costs which would not increase despite additional sales, but was of the opinion that this fixed component was likely to change depending on the level of additional sales. Mr Ross said that this may affect the calculation of lost profits at the “higher levels of lost revenue calculated by Mr Meredith”. Since I have found that the level of additional sales would be far lower than the levels postulated by Mr Meredith, Mr Meredith’s calculations regarding additional employee costs should be accepted.

117    I was informed that the accounting experts have agreed upon a model that would allow them to derive an agreed amount of compensation to be awarded to the respondents upon the making of findings on the integers or inputs to be factored into the model (see T575-6). I have made those particular findings and, for convenience, repeat them in summary form below. The respondents invited me to do no more than this and then to leave it to the parties to come up with the final calculation of loss using the accountants’ model. Specsavers was not at all keen on this approach but it has an obvious appeal. Having regard to the way that the expert evidence was presented, it seems to be the fairest and the most sensible course to follow. I have also made other findings regarding the assumptions in Mr Meredith’s model which will need to be factored into the accountants’ model and which I have incorporated into the summary. In case of any unforeseen difficulties in the application of the model I propose to reserve liberty to the parties to apply on short notice.

118    In summary, I find :

    There is a 90% chance that the Standard TVC would have been broadcast for a further week (i.e. to 17 February 2010).

    There is a 65% chance that the Standard TVC would have been broadcast for a week beyond that (i.e. to 24 February 2010).

    There is a 50% chance that the Standard TVC would have been broadcast for about two further weeks until the “Wondered Why?” commercial went to air (i.e. to 10 March 2010).

    There is a 10% chance that the Standard TVC would have been broadcast for a further 2 weeks after The Optical Superstore was restrained from running the “Wondered Why?” commercial any longer (i.e. from 17 March to 31 March 2010).

    There would have been a lag period of about two weeks from the beginning of the campaign and any impact on sales.

    The Standard TVC campaign would not have extended to producing catalogues or other print advertising.

    The injunction deprived the respondents of the chance of increasing their sales of prescription glasses on average by 4% after allowance is made for the impact of the replacement advertising.

119    Interest should be paid pursuant to s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth) from 1 April 2010 at the rates referred to in Practice Note CM 16.

120    The evidence does not permit me to apportion between the individual respondents and no submissions were made on this question. I expect there is some agreement between the respondents on the subject. I also expect that the accountants’ model will be able to calculate the losses suffered by each respondent, based on its sales data and the licensee arrangements between The Optical Superstore and the licensees, as Mr Meredith’s model had. In default of agreement I will hear from the parties.

121    I will direct that the parties bring in orders giving effect to these findings.

Is there any disentitling conduct?

122    Specsavers relies on The Optical Superstore’s defence, filed on 26 February 2010, in which it asserted that the Standard TVC “may now be out of date and accordingly it has no further intention to cause [that advertisement] to be broadcast”. Specsavers argued on the basis of the defence that the respondents had no intention of running the campaign at least beyond 26 February 2010. I do not consider it amounts to disentitling conduct. The statement must be read in context. It was made after the injunction had been granted. It is nonetheless relevant, as I have already observed, in determining what The Optical Superstore would have done but for the Court order.

How should costs be assessed?

123    The relevant principles were conveniently summarised in EMI Songs Australia Pty Limited v Larrikin Music Publishing Pty Ltd [2011] FCAFC 92 at [9]:

Costs are in the discretion of the Court (Federal Court of Australia Act 1976 (Cth) s 43). The discretion is broad but is to be exercised judicially. The fundamental purpose of the discretion is to compensate the successful party, not to punish the unsuccessful party. The furtherance of the goal of compensation means that, in general, a successful party will obtain an order for costs in its favour (Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65]-[68]). However, “a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party’s costs of them…” (Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748 at 48,136). If apportionment of costs is appropriate, the object is not mathematical precision (Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272) but a result that best reflects the interests of justice in the overall circumstances of the case.

124    The Optical Superstore relied on an affidavit from Ned Mahony, a solicitor employed by Maddocks, who act for it in these proceedings. Mr Mahony said he had reviewed the full transcript of the trial and the submissions and calculated that 77% of the Court’s time was taken up with matters specific to the Standard TVC and 8% to both commercials of which 81% related to the Standard TVC. The problem with this analysis, of course, is that it ignores the time and effort spent in preparation. If the task of assessment were easily open to apportionment I would be inclined to award the costs associated with the allegations involving the Standard TVC to The Optical Superstore and the costs associated with the allegations involving the Tailor-Made TVC to Specsavers. This is the approach that Specsavers urge. The difficulty with it, however, is that there will be overlap and it may be productive of further disputation. In all the circumstances, I propose to award Specsavers 30% and The Optical Superstore 70% of the costs of the first part of the hearing.

125    Specsavers asked to be heard on the question of the costs of the second part of the hearing. My provisional view is that they should pay the respondents’ costs but I will give them the chance to put any submissions to the contrary or in relation to any special costs order once the substantive orders have been agreed.

Associate:

Dated:    17 May 2012