Arms v WSA Online Limited (ACN 081 121 495) FCA [2005] 943

FEDERAL COURT OF AUSTRALIA

Arms v WSA Online Limited (ACN 081 121 495) FCA [2005] 943 SIMON ARMS v WSA ONLINE LIMITED (ACN 081 121 495) (Subject to a Deed of Company Arrangement), JAMES HOUGHTON and JAMES STUDENT VID 228 of 2001 RYAN J 8 JULY 2005 MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VID 228 of 2001

BETWEEN: SIMON ARMS

Applicant

AND: WSA ONLINE LIMITED (ACN 081 121 495) (Subject to a Deed of Company Arrangement)

First Respondent

JAMES HOUGHTON

Second Respondent

JAMES STUDENT

Third Respondent

JUDGE: RYAN J

DATE OF ORDER: 8 JULY 2005

WHERE MADE: MELBOURNE

THE COURT ORDERS THAT: 1. There be judgment for the applicant against the first respondent in the sum of $58,331.00. 2. The application as against the second and third respondents be dismissed. 3. The application stand over to a date to be fixed for receiving submissions on the questions of interest and costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VID 228 of 2001

BETWEEN: SIMON ARMS

Applicant

AND: WSA ONLINE LIMITED (ACN 081 121 495) (Subject to a Deed of Company Arrangement)

First Respondent

JAMES HOUGHTON

Second Respondent

JAMES STUDENT

Third Respondent

JUDGE: RYAN J

DATE: 8 JULY 2005

PLACE: MELBOURNE

REASONS FOR JUDGMENT

The background facts 1 The applicant, Arms ("Arms") had been engaged as Sales and Marketing Manager of Eyton Winery at Coldstream in Victoria until March 1999. Before his resignation from Eyton Winery, after discussion with other people in the wine industry, Arms conceived, the idea of providing a market service for small to medium independent wineries by means of the Internet. He envisaged that a website would be established under the name "auscellardoor" to which retail purchasers would have access to identify wines available from participating wineries and, if so minded, to make purchases of wines which they had selected. It was contemplated that payments would be made by credit card processed through an "e-Gate" facility to be provided by the ANZ Bank. Once the transfer of funds from the purchaser had been cleared, they would be credited, after deduction of a small transaction charge, directly to the account of the vendor winery which was to have its own "merchant agreement" with ANZ e-Gate. Income was to be generated for auscellardoor by charging a commission of 5% on each sale effected through the Internet. 2 The attraction of the concept for participating wineries was that they would pay, on sales effected through the Internet, tax at the rate applicable to "cellar door" sales and would avoid the need to pay a margin, usually of the order of 30%, to agents or distributors who arranged the sale of the wineries products to retail outlets. 3 As he refined the concept, Arms proposed to become an "online wine facilitator" of sales of wine from small to medium wineries directly to the public by means of a website which Arms, through auscellardoor, would own and operate. To that end, he conceived a "business plan". 4 The business plan recited that a large expansion had occurred in usage of the Internet and noted that for small to medium wineries "the most profitable division of their business is their cellar door sales." It then continued: 'An opportunity exists to market cellar door business through the Internet, using one site to facilitate the "cellar doors" of a group of wineries.