Supreme Court New South Wales Medium Neutral Citation: Realtek Holdings Pty Ltd v Wetamast Pty Ltd [2019] NSWSC 1869 Hearing dates: 4-8 February 2019, last written submissions delivered 3 June 2019 Decision date: 20 December 2019 Jurisdiction: Equity Before: Robb J Decision: Direct the parties to provide short minutes of order to my associate that give effect to these reasons for judgment, including in respect of the amount of interest that is payable on the damages. Catchwords: CONTRACTS — Breach of contract — Breaches of implied obligations of vendor under contract for the sale of business and sublease — Derogation from the relevant grants in circumstances where the purchaser was completely denied possession and use of the premises and was prevented from conducting the business purchased, and where the vendor sought to recapture as much of the benefit of the goodwill sold as possible — Transaction documents validly terminated in the circumstances CONTRACTS — Breach of contract — Consequences of breach — Total failure of consideration argument rejected — Purchaser's entitlement is to damages against the vendor — Calculation of damages CONTRACTS — Unconscionable conduct —Unconscionable conduct within the meaning of s 21 of the Australian Consumer Law — Relationship between breach of contract and unconscionable conduct TORTS — Miscellaneous torts — Interference with contractual and other relations — Liability for inducing breach of contract — Director not liable for causing breach of contract by company CONTRACTS — Construction — Context — Where the parties entered into a suite of transaction documents at or around the same time to give effect to a bargain — Transaction documents to be read together Legislation Cited: Competition and Consumer Act 2010 (Cth) Schedule 2 Property, Stock and Business Agents Act 2002 (NSW) Cases Cited: Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 93 ALJR 743 Baltic Shipping Company v Dillon (1993) 176 CLR 344; [1993] HCA 4 Byrnes v Jokona Pty Ltd [2002] FCA 41 Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2016] NSWCA 224 Hamilton v Whitehead (1988) 166 CLR 121; [1988] HCA 65 Heckenberg v Delaforce [2000] NSWCA 137 Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 328 Manks v Whiteley [1912] 1 Ch 735 McVeigh v National Australia Bank Ltd [2000] FCA 187; (2000) 278 ALR 429 Multinail Australia Pty Ltd v Pryda (Aust) Pty Ltd [2002] QSC 105 Robinson v Harman (1848) 1 Exch 850 Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231 Sai Teys McMahon Real Estate Pty Ltd v Queen Street Apartments Pty Ltd [2007] QSC 264 Said v Butt [1920] 3 KB 497 Smith v Chadwick (1882) 20 Ch D 27 Specialist Diagnostic Services Pty Ltd (formerly Symbion Pathology Pty Ltd) v Healthscope Ltd (2012) 41 VR 1; [2012] VSCA 175 The Commissioners of Inland Revenue v Muller & Co.'s Margarine Ltd [1901] AC 217 Trego v Hunt [1896] AC 7 Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 206; (2000) 18 ACLC 285 Texts Cited: B. Edgeworth, Butt's Land Law (7th ed, 2017, Lawbook Co Australia) J.D. Heydon, Heydon on Contract (2019, Thomson Reuters) Category: Principal judgment Parties: Realtek Holdings Pty Ltd (first plaintiff/first cross defendant) Daniel John Lambert (second plaintiff/second cross defendant) Wetamast Pty Ltd (first defendant/cross claimant) Brian Dorling (second defendant) Representation: Counsel: D Smallbone (plaintiffs/cross defendants) M Loewenstein (defendants/cross claimant) Solicitors: G J Gooden (plaintiffs/cross defendants) Kells Lawyers (defendants/cross claimant) File Number(s): 2014/232736 Judgment Introduction 1. The plaintiffs are Realtek Holdings Pty Ltd (Realtek), which at all material times has engaged in business as a real estate sales agency, and its principal, Mr Daniel Lambert. 2. The defendants are Wetamast Pty Ltd (Wetamast), and Mr Brian Dorling. At times relevant to this dispute, Wetamast conducted the business of a real estate agency as a franchisee of LJ Hooker Franchising Ltd (LJ Hooker), and later Raine & Horne Ltd (Raine & Horne), from premises at Princes Highway, Dapto in this State (the Dapto office). Until he retired about two years ago, Mr Dorling was the principal of Wetamast. 3. These proceedings arise out of a contract for sale of business between Wetamast as vendor and Realtek as purchaser, dated 2 May 2012, for the sale of that part of Wetamast's LJ Hooker franchise business that consisted of a property sales agency for a price of $200,000. Wetamast retained that part of its business that consisted of the management of its letting business and its rent roll. 4. An unusual aspect of the agreement was that it contemplated that Wetamast and Realtek would operate the two different aspects of the LJ Hooker franchise from the one office at Dapto. For that purpose, on 18 May 2012, Wetamast entered into a sublease with Realtek in respect of the Dapto office. 5. In order to assist Realtek to pay the purchase price, Wetamast and Realtek entered into a deed of loan dated 18 May 2012, under which Wetamast advanced Realtek $50,000 to go towards the purchase price on certain terms as to repayment. Realtek, on the same date, gave a charge over its assets under a security agreement to secure its liability to repay the loan to Wetamast. 6. On 2 May 2012, Mr Lambert entered into a deed of guarantee in favour of Wetamast, whereby he guaranteed the obligations of Realtek to that company. 7. In order to enable Realtek to enjoy the benefit of its arrangement with Wetamast, on 24 May 2012, LJ Hooker, as franchisor, entered into a franchise agreement with Realtek as franchisee and Mr Lambert as guarantor. 8. Following the execution of these agreements, Mr Lambert, and the other employees of Realtek, shared the Dapto office from which Wetamast had previously conducted its business alone, for the purpose of Realtek conducting the LJ Hooker franchise property sales agency business that it had purchased from Wetamast. 9. Over the ensuing months, the relationship between Mr Lambert and Mr Dorling deteriorated, and various events occurred that undermined the relationship and which were the subject of evidence in these proceedings. I will return to those events below. 10. As I will explain in more detail, Mr Dorling made a decision that Wetamast would cease operating as an LJ Hooker franchisee. At relevant times, Wetamast had been conducting its LJ Hooker franchise real estate business under a holding over in respect of an expired franchise agreement. Mr Dorling decided that he would rebadge Wetamast's business as a Raine & Horne franchise. By a series of events culminating in August and September 2013, Mr Dorling caused Wetamast to give LJ Hooker notice of its intention to terminate the franchise, and made arrangements to execute an alternative franchise agreement with Raine & Horne. Without notice to Realtek, Mr Dorling caused the LJ Hooker sign and livery to be removed from the premises, and the corresponding name of Raine & Horne and its livery installed instead. Mr Dorling advised Mr Lambert that, in the future, Realtek could no longer use the one telephone number that hitherto had been shared by both businesses. Mr Dorling advised that Realtek would have to be content with employees of Wetamast passing on messages in respect of inquiries received from people who sought to speak to Mr Lambert or any other employee of Realtek. 11. Although there was some contention about who was responsible for the publication of the material, information was published by various means in the local market area, which informed the public that Wetamast would continue henceforth to operate a Raine & Horne franchise real estate agency from the Dapto office that was being shared by the two companies. It did not mention Realtek or its business, and suggested that the new franchise business would continue in the same manner as it had been conducted for a considerable period, save for the change in the name of the franchisor. An arrangement was made for a company controlled by Mr Dorling's son to establish and operate from the Dapto office a new Raine & Horne franchise real estate agency business. It will be necessary to consider the terms of these publications in more detail below. 12. Realtek and Mr Lambert were faced with a fait accompli. It was a term of Realtek's LJ Hooker franchise agreement that it continue to operate its franchise business under the LJ Hooker name. It was entirely impractical for Realtek to continue to operate as an LJ Hooker franchise property sales agency business in competition with the Raine & Horne franchise businesses that would henceforth be conducted from the same Dapto office. It was self-evident that Realtek could not, in practical terms, re-establish the LJ Hooker name and livery at the Dapto office. 13. Consequently, on or about 23 September 2013, Realtek served on Wetamast notices of termination of the contract for sale, the sublease and the security agreement. 14. Thereafter, Mr Lambert did what he could to operate the LJ Hooker franchise property sales agency business from his home, until about November 2013 when he found a new office in which to carry on the business. Eventually, Realtek found a permanent home for its business, but on 31 May 2015, the LJ Hooker franchise agreement was not renewed by the franchisor, which had given the six months' notice of its decision not to renew that was required by law. Realtek was able to make an alternative arrangement to enter into a franchise with First National Real Estate, and, as I understand the case, it has continued to trade as a franchisee of that franchisor. 15. As Realtek had not, by the time it purported to terminate its agreements with Wetamast, repaid the whole of the $50,000, and as some payments for shares in the outgoings in respect of the lease of the Dapto office had not been made by Realtek, Wetamast, in 2014, instituted proceedings to recover the amounts that it claimed were owed in the Local Court at Wollongong. 16. Realtek and Mr Lambert filed the statement of claim in these proceedings on 7 August 2014. 17. Their primary claim was for declarations that the various agreements between Realtek and Wetamast, including the contract for sale, had validly been terminated by Realtek. 18. As will be seen, these claims for declarations were based upon the contention made by Realtek that, in all of the circumstances that had occurred, the consideration provided by Wetamast for Realtek's entry into the agreements had totally failed. 19. Realtek also sought an order that Wetamast repay it the amount of $183,333.33 or, in the alternative, $200,000. The lesser amount reflects the portion of the $50,000 that Realtek had borrowed from Wetamast that it has not repaid. 20. In the further alternative, Realtek claimed an entitlement to damages from Wetamast for breach of the contract for sale and sublease. 21. Realtek and Mr Lambert initially made alternative claims for damages based on contraventions of statutory obligations to act in good conscience and to not engage in misleading or deceptive conduct, but they have now abandoned their misleading or deceptive conduct claim. 22. Realtek has sued Mr Dorling for damages for the tort of wrongful inducement to Wetamast to break its contracts with Realtek, as Mr Dorling was personally aware of the contractual obligations of Wetamast, and he personally caused the breaches to occur for his own purposes. 23. It will be necessary for the Court to consider the terms of the statement of claim in more detail below. 24. It will be convenient to note, at this point, that, in the plaintiffs' final written submissions delivered on 26 March 2019, the plaintiffs advised that they did not press the claims made in pars 36 to 39, 41, 42, and 54 to 56 of the statement of claim, as well as identified parts of pars 67 and 95. The effect was that the plaintiffs abandoned pleaded claims that Wetamast had breached a number of contractual obligations owed to Realtek, by the manner in which it had caused certain persons formerly employed by Realtek to leave their employment to become employees of Wetamast. 25. The plaintiffs also initially included in the statement of claim a claim for relief that would, in practical effect, have required the Local Court proceedings commenced by Wetamast to be determined in these proceedings. The need for that relief has been obviated by the filing in these proceedings by the defendants on 2 October 2014 of a cross claim, which I understand claims the same relief as was formerly sought in the Local Court. The May 2012 Agreements 1. The proper starting point to develop an understanding of the real issues in these proceedings is to analyse the legal relationship created by the various agreements entered into in May 2012. 2. Mr Dorling had been conducting the full LJ Hooker franchise business from the Dapto office for many years, and apparently decided that, in anticipation of his retirement, he would agree to sell the property sales agency side of the business to Mr Lambert, and retain the rent roll and leasing management side. 3. Mr Lambert had obtained a Bachelor of Computer Science degree in 2003, but in 2005 he obtained a certificate of registration pursuant to s 10 of the Property, Stock and Business Agents Act 2002 (NSW) (the Act), which allowed him to work as a real estate salesperson. 4. Mr Lambert worked in a number of real estate businesses until early 2012, when he entered into discussions with Mr Dorling. 5. Mr Lambert did not have a corporate licence that was required by s 9 of the Act for a corporation to carry on the business of a real estate agent. Consequently, if Realtek acquired any part of Wetamast's business, Mr Lambert could not be the licensee in charge. 6. The discussions between Mr Lambert and Mr Dorling dealt with the parts of the Dapto office that would be occupied by Realtek's staff, the assets that would be acquired by Realtek, and the assets and facilities that would be shared between the two companies. 7. In Mr Lambert's evidence, he explained the discussions that took place with Mr Dorling by reference to a sketch plan of the Dapto office. That depicted an entry and window display at the front. The window display was divided into two parts, one of which was used to display advertisements for sales and one to display advertisements for rentals. There was a waiting room and a board room at the front, together with a reception desk. It was agreed that these areas would be shared. Behind the reception area there were two property managers' offices that would be used by Wetamast's employees, three sales offices and a sales support office. There was a key room in which the keys for the properties whose rental was managed by Wetamast were stored. Towards the rear of the Dapto office there was a filing area and the computer server, a kitchen and a toilet. At the back, outside the rear exit, there was a parking area for clients. 8. Mr Lambert gave evidence that he was told by Mr Dorling that he would take over all of the retail sales staff, and have the benefit of the area currently occupied by those staff, as well as the use of the receptionist. Mr Lambert would have to pay 50% of the outgoings and stationery. He would be entitled to use the photocopier, and to share the board room and use the key room. The retail sales staff would have access to the kitchen and the toilet. Each side of the business would have one panel in the window display. Mr Lambert would be entitled to the telephone handsets in the retail offices and a share of the telephones at the reception desk. The two businesses would use the one telephone number previously used solely by Wetamast. The computer monitors in the retail offices would belong to Mr Lambert, and he would also have the use of and Realtek would become half-owner of the main server. 9. Mr Lambert gave evidence that Mr Dorling, who had the licence required by s 9 of the Act, became a director of Realtek on 20 March 2012. Mr Lambert also obtained the agreement of one of the sales agency employees, Mr Patrick Ciocca, who had the requisite licence, to be employed by Realtek as the required licensee in charge of the business. 10. It is important that it be remembered, in the context of Realtek's agreement to pay $200,000 to Wetamast for the assignment of the property sales agency side of the business, that Mr Lambert did not have the licence that the Act required for him to act as the licensee in charge of the business. Mr Lambert had limited experience in operating a property sales agency, and the purchase gave him the opportunity to learn and to acquire in due course the necessary licence. It also enabled him, through Realtek, to commence his business under the umbrella of a long-established LJ Hooker franchise. The agreement made between Realtek and Wetamast gave the former a means of entry into the property sales agency business without the need for Mr Lambert initially to have the necessary licence, and without the need for a substantial initial amount of capital. Head lease 1. Wetamast occupied the property in which the Dapto office was situated under a head lease dated 10 September 2009, which appears to have created a five-year term from 1 September 2009 to 31 August 2014, with an option to renew for a further five-year period. 2. Clause 4 required Wetamast to pay all outgoings and clause 5.1 limited the use of the premises to the conduct of a real estate agency. Clause 8.1 prohibited subletting without the lessor's consent. Contract for sale 1. On 2 May 2012, Wetamast and Realtek entered into a contract for sale, in the form of the standard form 2004 edition of the contract for sale of business, for a price of $200,000, of the business with the name "LJ HOOKER DAPTO – PROPERTY SALES". The primary obligation imposed on the vendor was expressed in the following terms: The vendor sells and the purchaser buys the business for the price under these provisions, subject to any legislation that cannot be excluded. 1. Clause 1.1 defined the "business" as meaning the business identified on page 1 of the contract, which has been set out in capital letters in the preceding paragraph. 2. Clause 20 provided for the obligations of the parties on completion. Clause 20.1.1 required the vendor to give possession of the business and the premises to the purchaser. Other parts of clause 20.1 to 20.4 required the vendor to take other steps on completion to put the purchaser in possession of various items necessary to enable it to conduct the business. 3. Clause 30 obliged the parties to take various steps to enable Realtek to become a franchisee of LJ Hooker. 4. Clause 31 required Realtek to make an offer of employment to each employee of the business the subject of the sale. 5. Special condition 44 provided: 44. Business to be sold 44.1 For clarity, the parties agree that the business being sold by the vendor to the purchaser: 44.1.1 is the property sales arm of LJH; and 44.1.2 does not include: (a) the property management and leasing arm of LJH; and (b) the purchase of the rent roll operated by the vendor. 1. "LJH" was defined in special condition 33.1 as being "the business trading as LJ Hooker Dapto under registered business name J6177441". 2. Special condition 46 provided that Wetamast would advance $50,000 to Realtek upon provision of the relevant security documents. 3. On 2 May 2012, the solicitor for Realtek sent an email to the solicitor for Wetamast attaching a letter authorising the release of the $20,000 deposit to Wetamast and also "the Inventory which our client requests be attached to the Contract for Sale". The inventory listed the following matters: 3 desktop computers Nikon camera Split air-conditioning system 5 NEC phone handsets (NEC phone system) 4 filing cabinets sales filing cabinet 2 LCD televisions (window display) window display components 50% ownership of main server 6 desk chairs cordless drill all current sales related stationery, signage etc 1. It appears from the way that the Court Book has been constructed that this inventory was also physically attached as the last page of the contract for sale, although it is not specifically designated as being part of the contract. Deed of guarantee 1. Also on 2 May 2012, Mr Lambert executed a deed of guarantee, with Wetamast and Realtek being the other parties, under which Mr Lambert guaranteed all of the obligations of Realtek to Wetamast under the contract for sale. Deed of loan 1. On 18 May 2012, in conjunction with the completion of the contract for sale, Wetamast, Realtek and Mr Lambert entered into a deed of loan under which Wetamast agreed to advance $50,000 to Realtek for a period of two years at an interest rate of 18% per annum, with equal monthly repayments in the sum of $2,083.33, plus interest charges accrued during the previous month. 2. By clause 10, Mr Lambert guaranteed the obligations of Realtek to Wetamast under the deed of loan. Security Agreement 1. On 18 May 2012, Realtek executed a security agreement under which it charged, under clause 2.2 and the definition of "specified personal property": "All assets of the business trading as LJ Hooker Dapto – Property Sales", for the purpose of securing to Wetamast payment of the amount owing, as defined in clause 9.1, which was an 'all monies' clause, and also separately the amount owing under the loan agreement. Sublease 1. On 18 May 2012, Wetamast entered into a sublease of "[redacted] Princes Highway, Dapto" in favour of Realtek. 2. The period of the sublease was two years three months and 13 days, to 30 August 2014. Realtek was not given an option to renew. 3. The commencing rent was $20,550.40 a year payable by monthly instalments of $1,712.53, plus GST. 4. Realtek was required to pay a 50% share of outgoings. 5. The permitted use under clause 6.1.1 and item 17 of Annexure A to the sublease was: "Real estate – property sales only". 6. In due course, the lessor under the head lease gave consent to Wetamast entering into this sublease with Realtek. Franchise agreement 1. On 24 May 2012, LJ Hooker entered into a franchise agreement with Realtek, and with Mr Lambert as guarantor. 2. By clause 1.1(a), LJ Hooker granted to Realtek the right to operate the Business from the Premises during the Term and, by part of clause 1.1(a), Realtek agreed that it must during the Term operate the Business from the Premises. In doing so, Realtek was required to use the "Business Name". 3. By clause 22.1 and item 4 of Schedule 2, the Premises were defined as [redacted] Princes Highway Dapto, and the Business was defined by clause 22.1 as the business to be carried on by the franchisee under the franchise agreement. By clause 22.1 and item 5 of Schedule 2, the business name was "LJ Hooker Dapto Sales". 4. By clause 2.1 and Items 6 and 7 of Schedule 2, the term of the agreement was from 1 June 2012 to 31 May 2015. 5. As items 16 and 17 of Schedule 2 stipulated one further term of three years, the effect of clause 2.3 was to give Realtek a single option for renewal for three years provided a number of specified requirements were satisfied. 6. Clause 3.1 of the franchise agreement provided: 3.1 CONDUCT OF BUSINESS (a) The Franchisee must conduct the Business, which includes maintaining all books and records, strictly in accordance with the Manual and the System. … (c) The Franchisee and the Principals must not during the Term own any interest in any form in: (i) any other real estate business (other than another LJ Hooker franchise); or (ii) any other business which is a competitor of the Business or the Company. 1. "Principals" is defined in clause 22.1 as meaning the people named in item 8 of Schedule 2. 2. Item 8 makes separate provision for listing the shareholders, the directors and the persons with managerial authority for the affairs of the franchisee. Mr Lambert is listed as the shareholder and the person with managerial authority. Mr Lambert and Mr Dorling are both listed as directors of the franchisee. 3. Consequently, it appears that clause 3.1(c) had the effect that it would be a breach of the franchise agreement by Realtek for Mr Dorling to operate any real estate business other than an LJ Hooker franchise, or to operate any business which competed with the business of Realtek. 4. Clause 3.3(a) had the effect of requiring Realtek to "operate the Business from the Premises or such other Premises approved by the Company after written application by the Franchisee". 5. Under clause 3.3(c), Realtek was prohibited from conducting any other business from the Premises without the prior written consent of LJ Hooker "which will not be unreasonably withheld if that business complements the Business and does not interfere with the proper conduct of the Business". 6. Finally, clause 3.4 dealt with "OFFICE APPEARANCE" and obliged Realtek to "(b) ensure that the appropriate signage is painted on or attached to the exterior of the Premises…" Effect of the May 2012 Agreements 1. As the issues in this case primarily turn on whether Wetamast breached contractual obligations that it owed to Realtek, and if so, what the legal effect of those breaches was, it will be convenient at this point to identify the relevant contractual duties imposed upon Wetamast. 2. It is plain that all of the agreements entered into by Wetamast, Realtek and Mr Lambert in May 2012, save for the franchise agreement, were entered into for the purpose of giving effect to a single transaction. Not only does that appear from an examination of the terms of the individual documents and how they fit commercially together, but drafts of the deed of guarantee and the sublease were annexed to the contract for sale. Schedule 4 to that contract makes provision for the loan agreement and the charge also to be annexed, although drafts of those documents do not appear to be included in the contract in the Court Book. Special condition 46.2 of the contract required Realtek to deliver the loan agreement properly executed to Wetamast on or before completion. 3. All of the transaction documents must therefore be read together for the purposes of their proper construction and the determination of their effect: see Smith v Chadwick (1882) 20 Ch D 27 at 62-63; Manks v Whiteley [1912] 1 Ch 735 at 754-755; McVeigh v National Australia Bank Ltd [2000] FCA 187; (2000) 278 ALR 429 at [30]; and Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2016] NSWCA 224 at [67]-[70]. The present case does not raise the problem, considered in the latter two cases, where not all of the parties to the one transaction are parties to all of the transaction agreements. Wetamast, Realtek and Mr Lambert are in substance parties to all of the relevant agreements. 4. The primary source of the rights and obligations imposed upon Realtek and Wetamast was the combined effect of the contract for sale and the sublease. Under the contract for sale, Realtek paid a price of $200,000 for the property sales arm of "LJH", which was the business trading as LJ Hooker Dapto. As required by the contract for sale, Wetamast facilitated the franchise agreement being entered into between Realtek and LJ Hooker, which obliged Realtek to conduct a LJ Hooker franchise business from the Dapto office until 31 May 2015, on the terms that have been set out above. It was a requirement of the contract for sale that Realtek enter into the sublease, under which the only permitted use was "Real estate – property sales only". That conformed with the obligation imposed upon Wetamast under the head lease that limited the use of the premises to the conduct of a real estate agency. 5. The combined effect of these provisions was that Realtek had both the right and the obligation to operate the property sales arm of the LJ Hooker franchise from the Dapto office until 31 May 2015, on a basis governed by the franchise agreement, subject to the duration of the sublease, which I will consider below. 6. Although the consideration promised by Wetamast under the contract for sale was substantially executed by it on completion of the contract on 18 May 2012, when Realtek was put into possession of the property sales arm of the LJ Hooker franchise, together with all of the other rights and property required to enable Realtek to conduct the business, the ongoing operation of the suite of transaction documents imposed continuing obligations upon Wetamast. 7. The sale of a business should be distinguished from the sale of property the title to which is capable of being effectively transferred by the execution of a document or the registration of a transfer. In the latter case, such as the sale of land, the transfer of the title is once and for all effected by the delivery of a deed of conveyance or the registration of a transfer. The purchaser acquires all of the rights of ownership, including the entitlement to possession, at the instant that the transaction is effected. 8. The sale of a business is different because of the complex nature of the subject matter of the sale. For example, the essence of the business can be its goodwill, but normally the ability of the purchaser to realise the value of the goodwill will require the availability of physical assets and services. Ordinarily, the physical assets such as the premises from which the business operates and the inventory that is used will be capable of immediate transfer of title. Services such as employment contracts, telephone numbers, email and social media addresses, and utilities will be capable of assignment or novation with immediate effect. That will not necessarily be so for the transfer of the goodwill. 9. Goodwill is an intangible asset. The Macquarie Dictionary relevantly describes the term as: "3. Commerce an intangible, saleable asset arising from the reputation of a business and its relations with its customers, distinct from the value of its stock, etc." 10. The following extracts from the speeches of members of the House of Lords in The Commissioners of Inland Revenue v Muller & Co.'s Margarine Ltd [1901] AC 217 are pertinent descriptions of the nature of goodwill. First, Lord Macnaghten said at 223, 224: …What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start. The goodwill of a business must emanate from a particular centre or source. However widely extended or diffused its influence may be, goodwill is worth nothing unless it has power of attraction sufficient to bring customers home to the source from which it emanates. Goodwill is composed of a variety of elements. It differs in its composition in different trades and in different businesses in the same trade. One element may preponderate here and another element there. To analyze goodwill and split it up into its component parts, to pare it down as the Commissioners desire to do until nothing is left but a dry residuum ingrained in the actual place where the business is carried on while everything else is in the air, seems to me to be as useful for practical purposes as it would be to resolve the human body into the various substances of which it is said to be composed. The goodwill of a business is one whole, and in a case like this it must be dealt with as such. 1. Lord Lindley gave the following description at 235: Goodwill regarded as property has no meaning except in connection with some trade, business, or calling. In that connection I understand the word to include whatever adds value to a business by reason of situation, name and reputation, connection, introduction to old customers, and agreed absence from competition, or any of these things, and there may be others which do not occur to me. In this wide sense, goodwill is inseparable from the business to which its adds [sic] value, and, in my opinion, exists where the business is carried on. Such business may be carried on in one place or country or in several, and if in several there may be several businesses, each having a goodwill of its own. 1. The effective transfer of the goodwill of the business will depend upon the relative significance to the particular business of such matters as location, reputation and customer connection. A seller of goodwill may be able to effectively transfer an aspect of the goodwill immediately by giving possession of the premises from which the business operates to the buyer. However, the former customers may continue to contact the seller after the sale has been completed. If the seller does not have a continuing obligation to redirect customers to the buyer, then the sale of the goodwill may be ineffectual. Further, if the seller continues to exploit its relationship with its former customers by enticing them away from the buyer, the transfer of the goodwill to the buyer may not be effective. 2. The law imposes on the seller in the circumstances a continuing implied obligation not to act in a way that derogates from the seller's grant of the ownership of the goodwill to the buyer. 3. A similar implied obligation may be imposed on the lessor under a lease, where the lease has been granted for a particular purpose for the benefit of the lessee. 4. In both Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 (Castlemaine Tooheys) per Hope JA (Samuels and Priestley JJA agreeing) at 485, and Specialist Diagnostic Services Pty Ltd (formerly Symbion Pathology Pty Ltd) v Healthscope Ltd (2012) 41 VR 1; [2012] VSCA 175 (Specialist Diagnostic Services), in the joint judgment of the Court of Appeal at [105], the Courts stated with apparent approval the following statement of Lord Macnaghten in Trego v Hunt [1896] AC 7 (Trego v Hunt) at 25: …A man may not derogate from his own grant; the vendor is not at liberty to destroy or depreciate the thing which he has sold; there is an implied covenant, on the sale of goodwill, that the vendor does not solicit the custom which he has parted with: it would be a fraud on the contract to do so. These, as it seems to me, are only different turns and glimpses of a proposition which I take to be elementary. It is not right to profess and to purport to sell that which you do not mean the purchaser to have; it is not an honest thing to pocket the price and then to recapture the subject of sale, to decoy it away or call it back before the purchaser has had time to attach it to himself and make it his very own. 1. In Castlemaine Tooheys, Hope JA observed at 485: It is submitted for the plaintiffs that the principle is not limited to the solicitation of customers but applies generally to prohibit acts by a previous owner of or partner in a business which will depreciate the value of the goodwill. Undoubtedly the Trego v Hunt term can extend past the mere solicitation of customers, although precisely where it does end has not been resolved… 1. His Honour also, at 484, set out an extract from the speech of Lord Herschell in Trego v Hunt at 21 to the effect that it was not necessary to consider whether the obligation arose out of "the principle that he is not entitled to depreciate that which he has sold" or "from an implied contract to abstain from any act intended to deprive the purchaser of that which has been sold to him and to restore it to the vendor". 2. The Court of Appeal in Specialist Diagnostic Services held at [106]: "Thus, a term is generally to be implied into a lease that each party is to abstain from any act which would deprive the lease of its efficacy" (footnotes omitted). 3. The Court of Appeal had earlier, at [86] rejected the proposition that "an obligation of good faith should be implied indiscriminately into all commercial contracts", but continued by reasoning (footnotes omitted): [87] In the case of a detailed written lease entered into between commercial entities of equivalent bargaining power, such a condition will ordinarily arise only if it meets the tests laid down in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings. [88] In the case of the JFP Hospital, it can hardly be doubted that at the time of the lease, a reasonable onlooker would conclude that the parties did not intend the landlord to be able to exercise its powers over the building containing the leased premises so as to materially alter the physical form of the hospital to substantially deprive the tenant of the benefit of cl 20.1(b). [89] In our view, an obligation of good faith not to undertake such an alteration should be implied. The tenant was necessarily vulnerable to such conduct because the benefit it received from its premises depended upon a use ancillary to the use of the hospital premises as a whole. [90] The lease specifically imposed positive obligations upon the landlord with respect to supply of services to the hospital building and maintenance of common areas. The negative obligation we would imply meets the tests laid down in the BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings case. [91] Such a term is reasonable and equitable. It is necessary to give business efficacy to cl 20.1(b). It is so obvious "it goes without saying". It is capable of clear expression and it does not contradict any express term of the contract. [92] The installation of the tubular vacuum delivery system was material to the benefit received under cl 20.1(b) in the same consequential way as an alteration to the premises which prevented delivery of pathology samples from the balance of the hospital directly to Symbion's laboratory would be. The contemplated physical relationship between the hospital and the premises leased to Symbion was materially altered in a way which substantially affected the benefit received under cl 20.1(b). [93] The term which we accept should be implied is necessary to give effect to the explicit terms of the lease. As the New South Wales Court of Appeal noted in Burger King Corporation v Hungry Jack's Pty Ltd: …Viewed another way, the implied covenant of good faith is breached only when one party seeks to prevent the contract's performance or to withhold its benefits … As a result, it thus ensures that parties to a contract perform the substantive, bargained-for terms of their agreement. 1. I am satisfied in the present case, because of the terms of the related agreements that have been considered above, and the unusual degree of cooperation that was required between Wetamast and Realtek if the latter was to enjoy all of the benefits for which it paid the $200,000 price, that even after the execution by Wetamast of so much of the consideration that it was able to provide at the time of completion on 18 May 2012, Wetamast remained subject to implied legal obligations, which at least extended as far as follows. 2. First, Wetamast was prohibited from taking any step that unreasonably diminished Realtek's ability to fully operate the business of the sales arm of the LJ Hooker franchise that had been sold to it, or to take any action calculated to regain from Realtek the benefit of the goodwill of that business. 3. Secondly, Wetamast was prohibited in its capacity as sub-lessor of the Dapto office from altering the structure or appearance of the premises in any way that unreasonably interfered with Realtek's ability to operate the LJ Hooker franchise, including its ability to comply with its obligations under the franchise agreement. 4. A question arises as to the duration of the rights acquired by Realtek. As noted above, the head lease expired on 31 August 2014, but there was a single option to renew for a further five-year period. The head lease was an annexure to the contract for sale, so Realtek and its solicitor must have been aware of these terms. The period of the sublease was hand-written as two years three months and 13 days, to 30 August 2014. The space provided in the sub-lease form for the insertion of an option to renew was left blank. 5. This evidence would suggest that Realtek entered into the transaction knowing and agreeing that it would only have a right to occupy the Dapto office until 30 August 2014. 6. The franchise agreement with LJ Hooker was for the period to 31 May 2015, with an option to renew for three years if Realtek complied with the relevant terms. Realtek was obligated to LJ Hooker to conduct the franchise business at the Dapto office for the period of the franchise agreement. 7. The evidence does not disclose whether Realtek or its solicitor adverted to the difference in the periods of operation of the sublease and the franchise agreement. 8. Nor does the evidence disclose whether Wetamast had any involvement in or knowledge of the terms of the franchise agreement between LJ Hooker and Realtek. Had Wetamast had that knowledge as at 2 May 2012, or perhaps even the date of completion on 18 May 2012, it may have been material to the determination of what was intended to be the term of the mutual arrangement between Wetamast and Realtek. 9. The issue is clouded by the fact that the contract for sale did not specify any duration of the arrangement, and it is at least conceivable that there may have been a basis for the implication of some term into the contract for sale concerning the duration. While, on the one hand, the draft sublease was annexed to the contract for sale, so was the inventory which provided for example for Realtek to become a 50% owner of the main computer server for the business. That fact at least complicates the issue, because the parties did not make provision for what would happen to the inventory, for example the server, at the time Realtek was required to leave the Dapto office at the end of the arrangement. 10. On the evidence before the Court, and in the absence of persuasive submissions to the contrary, the appropriate conclusion to be drawn is that, under the contract for sale, Wetamast agreed to sell the sales agency side of its LJ Hooker franchise business on terms that Realtek would continue to enjoy the right to conduct that business so long as LJ Hooker would continue the franchise agreement, but Realtek only had the right to conduct the business from the Dapto office that it shared with Wetamast until the sublease terminated on 31 May 2015. It would be difficult to justify the implication of a term that Wetamast would extend the sublease, if it exercised its option under the head lease, because that would be inconsistent with the express terms of the sublease. Breaches of implied obligations by Wetamast 1. As I have explained above, the plaintiffs have not pressed some of the allegations of breach made in their statement of claim. 2. The plaintiffs made a significant number of other allegations of breach which I do not accept, whether taken individually or collectively, could have constituted material breaches of the implied obligations of Wetamast that I have identified above. 3. These allegations included that, on 25 May 2013, Mr Dorling threatened Mr Lambert with physical violence (par 44); that, on or about 12 June 2013, Mr Dorling directed one of Realtek's employees to work at the front desk in the common part of the Dapto office (par 48); that, on or about 21 June 2013, Mr Dorling and an employee of Wetamast used the computer server to withdraw the listings of two properties from Realtek's listings of property for sale (par 50); that, on or about 24 June 2013, Mr Dorling directed an employee of Realtek to remove the listing of a property for sale from Realtek's listings (par 51); that, on 25 July 2013, Mr Dorling stood over an employee of Realtek in a threatening manner and told him to mind his own business (par 57); and that, prior to 12 August 2013, Mr Dorling enticed an employee of Realtek to leave her employment and take employment by Wetamast (par 67). 4. In various ways, the defendants contested that the events the subject of these alleged breaches occurred, or, if they did occur, that in the context they had the purpose or the consequences claimed by Realtek. They were individual and relatively isolated events that occurred during the course of operation of the two different businesses from the one premises. I reject the plaintiffs' argument that it is proper to aggregate this alleged conduct by the defendants into a systematic course of conduct that could properly be treated as a derogation from the grant made by Wetamast to Realtek that constituted a breach of the implied obligations. Although it is common for parties in dispute to get distracted by ultimately irrelevant allegations and counter-allegations of allegedly bad conduct, it often happens, as it did in the present case, that the parties deploy their forensic efforts to ultimately immaterial disputes, and they do so in such a cursory way that the Court cannot realistically make a proper judicial determination as to what the true circumstances were. For example, in this case there was a dispute between the parties as to whether Mr Dorling, or an employee of Realtek, Mr Simon Halcrow, engaged in intimidatory conduct towards the other. That dispute extended to whether one threatened the other, and whether, when Mr Halcrow invited Mr Dorling to step outside, it was with the intent to assault him, or whether, as Mr Halcrow said in evidence, and as was confirmed by one of the witnesses, Mr Halcrow invited Mr Dorling to go outside to continue the argument they were having, because the witness told the pair to be quiet because there were clients in the front office. On the limited evidence that is available, it is not realistic to expect the Court to determine whether any of the conduct was truly threatening, particularly given that Mr Dorling is an older man, who may easily have felt threatened, and Mr Halcrow is a younger man, who may have thought that his conduct was non-threatening, even if forceful. The point is that these isolated incidents, the real significance of which is inherently contestable, could not sustain a claim that Wetamast denied Realtek the benefit of the grant of the business or the sublease that it had made. 5. In so far as the defendants made a number of claims in their evidence of bad conduct by Mr Lambert on behalf of Realtek, those claims are of no significance because the defendants did not plead in their defence any misconduct by the plaintiffs that constituted breaches of any relevant agreements that justified the defendants to take the actions that they did. In any event, for similar reasons to those given concerning the isolated allegations of bad conduct made by the plaintiffs, the sundry claims made on behalf of the defendants in their evidence are not readily justiciable. The Court cannot tell whether Mr Lambert occasionally attended the Dapto office while inebriated, and if he did how often that happened and whether his conduct seriously impinged on the operation of Wetamast's business. Mr Lambert may, or may not, have occasionally raised his voice to the staff when giving them instructions, but that is not an issue that can properly be determined or found to be an exculpation for the defendants' conduct. 6. Putting aside the irrelevant allegations of breach made by the plaintiffs, they have pleaded and proved intentional breaches of the implied obligations imposed upon Wetamast the collective effect of which constituted a serious derogation from the grants made to Realtek and effectively prevented Realtek from conducting its property sales agency business from the Dapto office: see statement of claim pars 60, 65, 69, 71, 73, 75, 77, 78, 80, 84, 85, 86, 87 and 88 for claims substantially established by the plaintiffs. 7. At some time in or before June 2013, Mr Dorling formed the intention that he would cause Wetamast to cease conducting its business as an LJ Hooker franchise, and would enter into a new franchise agreement with Raine & Horne. For that purpose, as Mr Dorling only wanted to continue to operate his property management and leasing business, he would require someone other than Realtek to conduct the property sales arm of the Raine & Horne franchise. Mr Dorling obtained the agreement of his son, Jason, to establish and operate the property sales agency part of the new Raine & Horne franchise from the Dapto office. 8. Mr Dorling caused Wetamast to write to LJ Hooker on 15 July 2013 to advise of its intention to cease trading as an LJ Hooker franchise on 17 August 2013. I infer that, by this time, Mr Dorling must have been confident that his proposed franchise agreement with Raine & Horne would be agreed. On 17 July 2013, LJ Hooker wrote a letter to Wetamast containing an instruction to redirect the telephone number to LJ Hooker while it remained advertised as an LJ Hooker number. On the same date, LJ Hooker wrote to Mr Lambert to advise that it had received the notice from Mr Dorling on behalf of Wetamast advising of its intention to cease trading as LJ Hooker Dapto. 9. From 2 to 6 August 2013, Wetamast undertook work at the Dapto office which included removal of the LJ Hooker signage and the erection of Raine & Horne signage. The LJ Hooker colours and livery were also removed from the front of the Dapto office and replaced by the colours and livery of Raine & Horne. For all practical purposes, the Dapto office had ceased in appearance to be an LJ Hooker franchise office and had become a Raine & Horne office. 10. On 14 August 2013, Wetamast's solicitor wrote to Realtek to advise that, from Monday, 19 August 2013, the office telephone number would be the primary contact number for Raine & Horne Dapto. An assertion was made that any enquiries received for "LJ Hooker Dapto" would be referred to Realtek's employees. 11. I conclude that, from on or about 19 August 2013, Wetamast in practice effectively excluded Realtek from possession of the premises demised under the sublease and from the joint use of the common areas and facilities, and entirely prevented Realtek from conducting the business of an LJ Hooker property sales agency franchisee from the Dapto office. Further, Wetamast prevented Realtek from having access to the one telephone number that had jointly been used for the purposes of the two businesses that operated from the Dapto office. 12. Although the evidence is sparse, I infer that, from about this time, Jason Dorling commenced to operate a Raine & Horne property sales agency franchise from the Dapto office. Mr Dorling gave evidence in cross-examination that the sales agency franchise was operated by his son through a company with the name "Evany", and that it has operated ever since (T 159.15). 13. The plaintiffs pleaded in par 63 of the statement of claim that the renovation work carried out from 2 August 2013 created noise and accordingly disrupted the work of Realtek's employees. It is likely that the work and the resulting noise did disrupt the employees, but I do not consider that to be a material breach of Wetamast's implied obligations. It was the nature and the consequences of the work that constituted the breach. 14. Further, there was a consequential dispute between the parties, which arose from the matters pleaded in par 62 of the statement of claim and pars 60 and 62 of the defence, as to whether Wetamast committed the tort of conversion in relation to the LJ Hooker signage that was removed from the front of the Dapto office. Realtek pleaded that the signage had become the property of Realtek under the contract for sale. Wetamast denied that allegation, and alleged that, before the signage was removed, Wetamast had notified Realtek of the proposed removal and offered the signage to Realtek, which offer was according to Wetamast rejected. 15. I am not satisfied that technically Realtek's claim to ownership of the LJ Hooker signage has been established. I infer that, while both businesses operated as LJ Hooker franchisees, any LJ Hooker signage on the front of the Dapto office was for the benefit of both businesses. The inventory that was apparently attached to the contract included an item: "window display components", and another item "all current sales related…signage". It is not clear that these descriptions applied to the LJ Hooker signage that was relevant for both businesses. 16. Mr Lambert in his evidence denied that Mr Dorling made the alleged offer that Realtek could have the LJ Hooker signage. It does not matter, as it had become impossible for Realtek to continue to operate as an LJ Hooker franchisee from the Dapto office. That was impossible for practical reasons as, given the change in circumstances, and the fact that Jason Dorling had commenced to operate a competitive Raine & Horne franchise from the Dapto office, Realtek could no longer conduct its business from the same premises. 17. There was a factual dispute between the parties concerning the allegations in pars 69, 71, 73, 75 and 76 of the statement of claim concerning representations claimed by the plaintiffs to have been made by Wetamast in press releases that were issued at the time Wetamast rebranded its business as being a Raine & Horne franchise. The defendants denied all of the allegations made by the plaintiffs. 18. Mr Lambert gave evidence, which I accept, that on about 14 August 2013 he received a copy of a media release relating to Wetamast's change to being a Raine & Horne franchisee. The email was sent from "dapto@ljh.com.au" to Mr Lambert's Hotmail account. Its subject was: IMPORTANT NEWS – LJ HOOKER DAPTO CHANGES TO RAINE & HORNE DAPTO. It said: Important News Due to an internal re-organisation, LJ Hooker Dapto will be re-branding to Raine & Horne Dapto. We are still at the same address and our phone numbers have not changed. Our new email as of the 19th August 2013 will be dapto@rh.com.au After this date please address all cheques in rent payments to Wetamast Pty Ltd or Raine & Horne Dapto. Our staff are as follows: [Staff are then listed with their work description and phone number. Three sales staff are listed including Jason Dorling] Our offices are being renovated and will be complimented [sic] by new and exciting systems. As our business partners, nothing will change for you. Our professionalism will be enhanced as will our profile and we hope to bring better and more cost effective ways to benefit everyone. Stay tuned and please don't hesitate to call for a chat. Looking forward, Brian Dorling P.S preview press release enclosed 1. The attached media release preview was in the following terms: Media Release Preview Monday 12th August, 2013 Raine & Horne hoists flag in Dapto in time for Spring selling market Well-respected Dapto sales agent and businessman Brian Dorling has switched allegiances to leading real estate group Raine & Horne, a move that is set to shake up the competitive local property market. From 19 August, Mr Dorling and his expert team of Sales Agents and Property Managers will operate under the Raine & Horne Dapto banner, from its long standing commercial base at [redacted] Princes Highway Dapto. "While we are joining Raine & Horne, I would like to stress to our clients, landlords and tenants that it is business as usual," said Mr Dorling, who has been the principal of the business since 1999. "It is the same business that has been in place since 1984 and it will be a seamless transition to Raine & Horne, a brand, which was established in 1883. "The Property Management Business, which has enjoyed exceptionally low staff turnover, will continue to be led by myself, while Patrick Ciocca and my son Jason Dorling will lead the Real Estate Sales Team." On the issue of Real Estate sales, Mr Dorling is expecting a buoyant Spring market as the weather warms up. "Dapto is one of the Illawarra's highest growth areas because of the amount of land being released for housing, along with the local area's excellent affordability," said Mr Dorling. "It's possible to pay about $200,000 for a standard block of land in the 2530 postcode, while entry level three bedroom homes are available for less than $300,000. "We have a lot of new land releases and new homes being built, with first time buyers taking advantage of the $15,000 government grants when buying or building new homes." In addition to demand for entry level properties, million dollar acreages are also popular with second and third time buyers, many of whom are locals, according to Mr Dorling. "We have a very constant stream of investor enquiry, which combined with the upgrader market means we can look forward to a robust Spring market," he said. "However we still have a shortage of quality stock to meet buyer demand, so if you're thinking of listing your home for sale this Spring, it might be a good time to contact our sales team on 02 4261 3444." Raine & Horne Dapto also has a very healthy Property Management business with over 500 homes under management between Austinmer in the north and Kiama in the south. "The attraction of a rental home in Dapto is that we have very low vacancy rates and generous yields for many homes," said Mr Dorling. In relation to the decision to move to Raine & Horne, Mr Dorling named the firm's recent brand revolution as a major attraction. "The revitalisation of the brand really caught my eye, while I like the fact that Raine & Horne has enjoyed 130 years of continuous family ownership," said Mr Dorling. "There's a sense that Raine & Horne is strategically combining a commitment to innovation with traditional business values. "The can do attitude of the corporate team also impressed, while Raine & Horne's personal service and training programs have also proven to be very worthwhile." Responding to the opening of Raine & Horne Dapto, Angus Raine, CEO of Raine & Horne, said, Brian Dorling and his team have been major players in the local real estate market for many years and are well-known among the local community. "All the staff at Raine & Horne Dapto live locally and have worked in the Dapto region for many years," said Mr Raine. "They all went to the local schools and are involved in many sporting and community organisations in the Dapto local area. "Brian and the team at Raine & Horne Dapto are known for their professionalism and attention to detail whether it's a property sale or management, and I'm excited about them joining our very strong network of offices on the NSW South Coast." For Sales and Property Management needs, contact Raine & Horne Dapto on (02) 42613 444 For further media information contact: Brian Dorling, Raine & Horne Dapto on 0413 762 885 Andrew Harrington, National Marketing & Communications Co-ordinator on 02 9258 5400 1. According to Mr Lambert's evidence, the following media release was also part of the attachment: Meet the Raine & Horne Sales team Iconic Australian Brand Raine & Horne is proud to now be open in Dapto. We are proud to introduce Sales Agent/Manager, Jason Dorling and the Systems Marketing Officer, Stephanie Perez of the new look Raine & Horne Dapto. Jason Dorling has been an active licensed real estate agent for the last 6 years. He prides himself on the highest level of customer service, professionalism and in depth knowledge of the real estate market. Feel free to call Jason at any time to discuss your real estate needs. Working alongside Jason is the Systems Marketing Officer, Stephanie Perez. By using industry leading technology she produces a seamless approach to the entire sales process. If you have any property enquiries, wanting a market appraisal and are thinking of selling feel free to contact us. Contact Us Ph: 02 4261 3444 Jason Mb: 0438 425 574 Email: jason.dorling@rh.com.au 1. It is clear that, if this media release was published to the local Dapto market, including to persons who may have been former clients of LJ Hooker Dapto's property sales agency business, this was an attempt by Wetamast to recapture the goodwill sold to Realtek under the contract for sale. The media release contains extensive wording inviting sales agency business as well as lease management. The (02) 4261 3444 telephone number was the number formerly used by Wetamast and Realtek. The media release ignores the existence of Realtek's sales agency business, and falsely suggests that "the same business that has been in place since 1984" was continuing to operate from the Dapto office as part of "a seamless transition to Raine & Horne". The media release also contained many statements specifically attributed to Mr Dorling by means of the use of quotation marks. 2. The natural inference for the Court to draw, in the absence of contrary evidence, is that the media release preview was sent out with the authority of Mr Dorling, who is given as the author of the email, as an attachment to that email to all persons on the email mailing list that was available to Wetamast at the time. It just so happened that Mr Lambert was also on that mailing list. 3. Mr Dorling did not in his affidavit evidence suggest that the email and the attachment were not sent out with his authorisation. At par 94 of his 22 December 2015 affidavit, Mr Dorling referred to the pages of his exhibit which contained "the initial mock up advertising material dated 12 August 2013". Mr Dorling said that he reviewed that material and provided alternative wording to Raine & Horne for use in the final advertising materials. Mr Dorling referred to the pages of his exhibit that contained a copy of the final advertising materials in par 95 of his affidavit. 4. It is not necessary to analyse in detail the process of the revision of the original draft to the attachment to the 14 August 2013 email to the final media release, which has a date of 30 September 2013. The final media release included the statement, attributed to Mr Dorling: "It is the same business that has been in place since 1984 and it will be a seamless transition to Raine & Horne, a brand which was established in 1883." The media release stressed that "it's business as usual". It contained a new reference to "the newly minted sales operation, Raine & Horne Dapto Sales" which was to operate from "the firm's long standing commercial base at [redacted] Princes Highway, Dapto". 5. In cross-examination, Mr Dorling made an entirely incredible attempt to avoid responsibility for the content of the various versions of the media release and the statements attributed to him. Mr Dorling said at T 150.9 that he had very little discussion with Raine & Horne as it was their responsibility to prepare the promotional material. He said at T 151.14 that the draft was formulated by a Raine & Horne copywriter and that it did "not specifically" reflect something that he had told Raine & Horne. He only conceded at T 151.36 and .39 that the information in the draft "possibly" was the result of discussions with Mr Dorling. Mr Dorling at T 152.4 "would beg to differ" that he told Raine & Horne that Wetamast was going to conduct a real estate sales business. It was about that point that Mr Dorling explained that the real estate sales business was to be conducted by his son using a company with the name "Evany". He said at T 153.34 that "what was written by the copywriter was never printed, as it was never approved…" He then denied at T 154.6 that the media release preview was sent under his direction. 6. When asked at T 154.1 whether the email to Mr Lambert was sent from his office, he claimed that his email address was a generic address used by the front office and that it could be used by anyone. Mr Dorling claimed at T 154.10 that it was "ridiculous" to suggest that he directed the email to be sent to Mr Lambert's personal address. Mr Dorling also said at T 154.9 that Mr Lambert could have sent the email to himself. The cross-examination continued in this vein for a number of pages. 7. In my experience it is often unjustifiably suggested by cross-examiners that the witness has been making up the evidence as the witness has gone along, but in all of the circumstances I am quite satisfied in this case that that is exactly what Mr Dorling was doing. 8. I find that the email that was attached to the 14 August 2013 email addressed to Mr Lambert was sent out by Wetamast with the authority of Mr Dorling to persons on an email address list in the possession of Wetamast. 9. I also find that Raine & Horne, probably with the assistance of employees of the Raine & Horne Dapto franchise, circulated the final media release in the Dapto area, probably including by placing the material in letterboxes in the area. 10. There was evidence that, at the time Wetamast changed to being a Raine & Horne franchisee, from about 28 August 2013, as alleged in par 92 of the statement of claim, properties listed for sale by Realtek as LJ Hooker Dapto were listed for sale on the website www.realestate.com.au in the name of Raine & Horne Dapto. 11. A screenshot from the website that appears to depict about 16 properties for sale is under the name Raine & Horne – Dapto, although there appears to be a reference to Mr Lambert at the end. Mr Dorling accepted at T 167.46 that Mr Lambert did not direct the change in the website, but when asked whether he did, Mr Dorling replied: "if I recall correctly on those dates, most of my staff and myself were in Queensland at a Raine & Horne conference or a Raine & Horne meeting". He suggested that the mistake was the fault of realestate.com.au. 12. The evidence is not sufficient to prove that Mr Dorling or anyone else at Raine & Horne Dapto caused the change in the website, although there are strong grounds for suspicion. Proof of Realtek's case that Wetamast breached the implied obligations that I have identified above does not depend upon Realtek being able to establish this allegation. 13. I accept Mr Lambert's evidence that, after Realtek was excluded from the Dapto office, neither he nor any staff employed by him received from Raine & Horne Dapto any referred telephone messages. Mr Dorling gave evidence that he instructed the office staff to refer enquiries made to LJ Hooker Dapto sales to Mr Lambert, but I am satisfied that if any such instruction was given it was ineffective. 14. The evidence therefore, taken as a whole, establishes that, by about 18 August 2013, Wetamast had fundamentally breached the implied obligations in a manner that had the result that Realtek was completely denied possession of the premises demised by this sublease and the use of the Dapto office, and was entirely prevented from conducting the LJ Hooker property sales agency franchise business from that office, and that Wetamast had engaged in, or authorised Raine & Horne to perform, a thorough advertising campaign in the market area formerly serviced by the LJ Hooker franchise in a manner that asserted that the business had always been the business of Wetamast, and sought to garner for Wetamast, or alternatively Jason Dorling's company, as much of the benefit of the goodwill sold to Realtek as could be gained by the campaign. Effect of breaches of implied obligations by Wetamast 1. Realtek pleaded in par 99 of the statement of claim that, on or about 20 September 2013, Realtek gave notice of termination of the contract for sale, the sublease and the security agreement to Wetamast. The defendants admitted that the notices were received on or about 23 September 2013, but denied that they were of any force or effect. 2. Mr Lambert gave evidence in his 2 June 2015 affidavit that he served the notices of termination on about 25 August 2013. The actual notices that are in evidence are not dated. It does not appear that the date of the service of the notices of termination is significant. 3. Each of the notices purported to terminate the agreement the subject of the notice "from the date of this notice". The notice of termination of the contract for sale also demanded repayment of all money paid by Realtek to Wetamast under the contract. 4. The plaintiffs' principal submission was that the consideration provided by Wetamast for Realtek's promise to pay the $200,000 price for the sale of the LJ Hooker property sales agency franchise to Realtek wholly failed, so that Realtek became entitled to the repayment of the entire price, less the portion of the $50,000 that it borrowed from Wetamast that it had not repaid at the time it terminated the agreements. 5. This submission appears to be encapsulated in the following part of the plaintiffs' final written submissions: 168. The price is recoverable because payment of the price was a payment conditional on receipt and retention of the substantially the [sic] entire business bargained for, which was a consideration that failed. 169. Alternatively, the price is recoverable because the defendant's obligation to give the business to the plaintiff was an entire obligation, and by September, 2013 the defendant had effectively destroyed or withdrawn the performance that had been bargained for. If there was anything left, it was nonetheless an incomplete performance that the plaintiff was entitled to reject and did reject, so that the consideration fails totally. 170. Alternatively, in fact the conduct did destroy substantially all of the defendant's performance, causing a total failure of the consideration. The law's concern with substantial performance means that it is not necessary to be concerned with any insubstantial residue of the business contracted for. 1. I respectfully take the relevant principles to be as stated by Mason CJ in Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 350-351; [1993] HCA 4 (Baltic Shipping), where his Honour said (footnotes omitted): An entire contract or, perhaps more accurately, an entire obligation is one in which the consideration for the payment of money or for the rendering of some other counter-performance is entire and indivisible. In Steele v Tardiani, Dixon J. cited the general proposition stated in E. V. Williams' Notes to Saunders' Reports: "Where the consideration for the payment of money is entire and indivisible, as where the benefit expected by the defendant under the agreement is to result from the enjoyment of every part of the consideration jointly, so that the money payable is neither apportioned by the contract, nor capable of being apportioned by a jury, no action is maintainable, if any part of the consideration has failed; for, being entire, by failing partially, it fails altogether." The concept of an entire contract is material when a court is called upon to decide whether complete performance by one party is a condition precedent to the other's liability to pay the stipulated price or to render an agreed counter-performance. If this were a case in which the appellant sought to enforce a promise to pay the cruise fare at the conclusion of the voyage the concept would have a part to play; then, if the appellant's obligations were entire, on the facts as I have stated them, the appellant's incomplete performance of its obligations would not entitle it to recover. When, however, an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance by the contract-breaker of its obligations under the contract and the contract-breaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration. If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration. In the context of the recovery of money paid on the footing that there has been a total failure of consideration, it is the performance of the defendant's promise, not the promise itself, which is the relevant consideration. In that context, the receipt and retention by the plaintiff of any part of the bargained-for benefit will preclude recovery, unless the contract otherwise provides or the circumstances give rise to a fresh contract… 1. The contract for sale in the present case is not an entire contract in the sense that Wetamast was required to transfer the sales agency side of its business to Realtek and then allow Realtek enjoyment of the business for the entire time that Realtek was able in the context to enjoy that business before Wetamast became unconditionally entitled to the purchase price of $200,000. The highest that Realtek put its case was that Wetamast did transfer the business to Realtek, and Realtek was able to exploit its ownership of that business for over a year, before Wetamast "recaptured" that business, following the establishment of the Raine & Horne sales agency franchise and the circulation of the media release and other advertisements. Even if this result could have been demonstrated, it would have involved Wetamast performing its contractual obligation and then destroying the effect of that performance. In the process, Wetamast's entitlement to retain the purchase price would have been established. The question would have been whether the recapture of the business caused the consideration wholly to fail. There would be no room for consideration of whether or not the promise to transfer the business was entire. 2. The initial issue is whether, as Realtek claimed, it has established that the consideration for the payment of the $200,000 price wholly failed. If it did not wholly fail, then the question becomes one of assessment of the damages payable by Wetamast to Realtek. Provision of consideration by Wetamast 1. It will be appropriate to approach the task of identifying the real consideration that was to be provided by Wetamast, and then determining whether that consideration totally failed, by examining the relevant aspects of the evidence. 2. It must be remembered that the consideration that is provided in support of a contractual promise may be proved by parole evidence and is not limited to the consideration identified in the relevant transaction documents: see J.D. Heydon, Heydon on Contract (2019, Thomson Reuters) at [9.200]. 3. I propose first to make a number of observations concerning the expert valuation evidence led by the parties in these proceedings. The value of the income stream represented by the LJ Hooker sales agency franchise purchased by Realtek as at the time of purchase has a bearing on the determination of the consideration that Realtek expected to receive. 4. Realtek obtained expert valuation reports from Mr Stephen Fisher, while Wetamast responded with reports prepared by Mr Brett Goodyer. 5. In his initial report dated 25 July 2016, Mr Fisher expressed the opinion, at par 8.19, that the appropriate valuation methodology to value the goodwill of the sales agency part of Wetamast's franchise business was to multiply the average annual EBITDA, being earnings before interest, tax, depreciation and amortisation, for that part of the business by a multiple of one. Mr Fisher assigned values for the goodwill of the sales agency business of $41,000 as at 2 May 2012, $41,000 as at 18 May 2012, $24,000 as at 28 February 2013, $24,000 for the end of each of the following months up to 30 June 2013, and finally no value as at a range of dates beginning at 31 July 2013 and ending on 20 September 2013. 6. It is a mystery why valuations were sought as at all of these dates. Mr Fisher only had trading figures for a limited number of years, and, for dates after 18 May 2012, he found it necessary to average the trading figures when the business was operated by Wetamast and when it was operated by Realtek. 7. In pars 8.41 and 8.42, Mr Fisher explained that, for the period after the removal of the LJ Hooker signage, the issue of the press release, the deprivation of the LJ Hooker phone number, the rebranding of Wetamast to Raine & Horne, and the listing of Realtek's properties as being marketed by Raine & Horne, the business operated by Realtek after 20 September 2013 was "a new sales business", so that its value could only be determined by ascertaining the EBITDA of Realtek's business as at 30 June 2014. As that was negative, Mr Fisher's formula led to an assessment that the goodwill had no value as at the date when Realtek purported to terminate the various agreements that it had with Wetamast. 8. In Mr Goodyer's 27 April 2017 report, he responded to Mr Fisher by expressing the opinion, at par 12.40, that the proper valuation methodology was to determine future maintainable EBIT, being earnings before interest and tax, and assign a value as the average of that amount multiplied by 1.2 and 2.8 (that is, simply multiply it by 2). Mr Goodyer was able to determine the value of the goodwill of the sales agency business as at 30 June 2015 as being $78,194. He was able to do that by relying upon Realtek's trading figures, which related solely to the sales agency business. He determined the future maintainable EBIT to be $39,096.96, which when multiplied by two gave $78,194. 9. However, in respect of the exercise carried out by Mr Fisher in valuing the sales agency business at various times when he relied upon Wetamast's trading figures, Mr Goodyer pointed out that, because those figures covered both the sales agency and the rental management sides of Wetamast's business, it had been necessary for Mr Fisher to dissect the trading figures relevant to the sales agency business out of the total trading figures. That was a simple matter for the revenue, as Wetamast's financial reports identified the revenue separately for the two sides of the business. However, they only reported the total expenses. It was therefore necessary to have a proper basis for estimating the proportion of the expenses that was attributable to the sales agency business and the proportion that was attributable to the lease management business. 10. In par 8.7 of his report, Mr Fisher indicated that he had used a database maintained by the firm of which he was a member that contained detailed information of the trading figures in respect of real estate businesses. In par 8.8, he said that he had identified the average contributions made by sales and property management departments towards the overall operating surpluses of the other real estate agencies. It is sufficient to note that Mr Fisher determined relevant EBITDA by applying the averages that he had determined from the database to the actual revenue figures for Wetamast. 11. Mr Goodyer challenged this approach on the basis that the database was undisclosed and could not be tested. This prevented Mr Goodyer from determining the value of the sales agency business at any time that depended upon the use of the Wetamast trading figures. 12. It is sufficient to note that the two experts prepared supplementary reports in which they challenged the other's opinion concerning the proper valuation methodology to be adopted. 13. Ultimately, Mr Fisher made available a spreadsheet, which contained the data upon which Mr Fisher had acted in determining the proportion of Wetamast's expenses that should be attributed to its sales agency business. The schedule contained detailed figures in relation to 19 real estate agencies. However, those agencies were not identified, so the information was not available that may have been necessary to determine how comparable the relevant businesses were to the sales agency business operated by Wetamast at Dapto. 14. Mr Fisher had simply used the average of the 19 real estate agencies' trading figures in order to undertake the valuations that he had made. 15. During the course of the hearing, efforts were made by the parties to resolve the valuation difficulties. These efforts led to the experts engaging in a conclave from which they prepared a joint expert report. 16. The joint expert report was admitted into evidence as Exhibit PD1. 17. The experts were not called to give evidence, and accordingly they were not cross-examined. Consequently, the Court has no basis for resolving the differences in professional opinion between the experts. 18. The two experts provided their different opinions as to the value of the sales agency business as at 18 May 2012, 30 June 2013 and 20 September 2013. I conclude from reading the joint expert report that Mr Fisher must have provided satisfaction to Mr Goodyer concerning the use of the database, as Mr Goodyer was able to provide valuations for the earlier dates using the trading figures for Wetamast. 19. However, the two experts adhered to their different valuation methodologies, which led to them assigning different values to the sales agency business at the different dates. 20. The experts set out the following table (which I have slightly edited) summarising their different results, at the end of the joint expert report: Valuation Date 18 May 2012 30 June 2013 20 September 2013 Expert Fisher Goodyer Fisher Goodyer Fisher Goodyer EBIT/EBITDA $39,000 $38,548 $49,000 $33,659 $49,000 $33,659 Capitalisation Multiple 1 × 2 × 1 × 2 × 1 × 2 × Valuation of Sales Business $39,000 $77,097 $49,000 $67,319 $49,000 $67,319 Difference Between Experts $38,097 $18,319 $18,319 1. The reason why the values of both experts for 30 June and 20 September 2013 are the same is that the experts agreed that they should use Realtek's trading results for the year ended 30 June 2013 for the valuation as at 20 September 2013, and not its trading results for the year ended 30 June 2014, as the former was only three months earlier than the valuation date, and the latter was nine months after that date. Consequently, the trading figures for the year ended 30 June 2013 were more relevant for the purpose of determining the value as at 20 September 2013. 2. A number of comments should be made about the state of the expert evidence tendered by the parties. 3. First, as already mentioned, the Court has no basis upon which it can determine whether any of the valuations are reliable, and if so which ones. 4. Secondly, no party has suggested any particular relevance for any of the valuations at any of the dates. 5. Thirdly, the experts were not asked to give a valuation of the sales agency business operated by Realtek starting from 20 September 2013, when Realtek purported to terminate certain of the agreements that it had with Wetamast, following which Realtek was obliged to carry on the business as best it could. As I have explained above, the two experts pointedly avoided giving a valuation that relied upon Realtek's trading figures after 30 June 2013. Consequently, all of the valuations that the experts provided related to periods before Wetamast's breaches of the implied obligations. I will return to a consideration of this issue when I deal with the assessment of the damages that may be payable by Wetamast to Realtek. 6. Finally, there is one conclusion that can be sifted out of the expert evidence that was tendered by the parties that is of some utility. Mr Fisher and Mr Goodyer assigned values of the LJ Hooker property sales agency franchise business that was sold by Wetamast to Realtek on 18 May 2012 as being $39,000 and $77,097 respectively. Although the Court cannot be confident about the true value of the business at that date, the evidence justifies a conclusion that the value may have been of the order $39,000 to $77,097, and accordingly that the value of the income stream was substantially less than the $200,000 price paid by Realtek. 7. It may be argued that this result supports the conclusion that Realtek paid an excessive price for the sales agency business, but in my view the difference between the value and the price justifies the Court in reaching an entirely different conclusion. That is, that Realtek acquired rights and opportunities that justified it paying a higher price than would be paid by an experienced operator of real estate businesses who had the necessary licenses and wished to acquire Wetamast's sales agency business to add to an existing operation. 8. I have touched upon this issue above. Mr Lambert was in reality a novice who had the certificate that was required to enable him to be a salesperson, but he did not have the licence required to operate a real estate agency. The suite of agreements that Realtek entered into with Wetamast gave Realtek the opportunity of commencing business as an LJ Hooker franchisee under the umbrella of the established LJ Hooker franchise operated by Wetamast. Realtek was not required to pay the price for the acquisition of a full real estate business, including the management of a rent roll. Realtek was not obliged to lease a complete office. It acquired the right to sublease part of the Dapto office and to share the other facilities. It enjoyed the benefit of Mr Dorling becoming one of its directors. Mr Lambert had time to learn how to operate the sales agency business and to acquire the licence necessary for him to supervise the business. Realtek acquired the opportunity to form a relationship with LJ Hooker. If Wetamast chose to continue to operate as an LJ Hooker franchisee after the end of the sublease, LJ Hooker may have required Wetamast to continue its relationship with Realtek, and to grant a new sublease for that purpose, if Wetamast renewed the head lease. Even if Realtek's sublease was not renewed, the relationship it established with LJ Hooker may have facilitated the continuation of its franchise at a new location. 9. The reality of this expected relationship is in part demonstrated by the evidence tendered by Realtek of the commissions that it earned between May 2012 and September 2013 from sales agency referrals from Wetamast. Twenty-one referrals led to Realtek earning commissions totalling $152,825.20 upon which Realtek paid commissions of 20%, equalling (according to the evidence, but not a precise calculation) $31,323.80, to Wetamast. Thus, the arrangement between Realtek and Wetamast gave Realtek the prospect of growing its sales agency business by reason of the arrangement and co-location with Wetamast. 10. For the purpose of considering whether Realtek's claim that the consideration to which it was entitled from Wetamast wholly failed, it is instructive to look at the evidence that is available as to the commissions received by Realtek in the period after it acquired the sales agency franchise business from Wetamast. I have focused on the commission income, even though Realtek received other lesser amounts of income, because the evidence of the commissions shows monthly receipts. 11. The following table sets out the monthly commissions received by Realtek between June 2012 and June 2016: 2012 2013 2014 2015 2016 January $19,955 $19,261 $24,773 $20,296 February $47,972 $7,273 $29,523 $32,305 March $49,291 Nil Nil $23,224 April $44,570 $23,000 $25,309 $48,822 May $13,068 $12,860 $18,888 $8,181 June $20,992 $36,934 $10,711 $8,527 $5,798 July $13,180 $51,380 $28,077 $22,754 August $39,050 $21,932 $11,818 $47,225 September $20,556 $29,139 $33,468 $22,555 October $33,026 $24,199 $24,250 Nil November $46,898 $8,525 $9,091 $24,045 December $83,886 $14,818 $26,364 $9,950 1. Realtek served the notices of termination on Wetamast on about 20 September 2013. I consider that it is appropriate to treat the period from June 2012 to the end of October 2013 as being the time when Realtek was effectively operating the LJ Hooker property sales agency franchise business before the consequences of Wetamast's breaches took effect. I have reached that conclusion on the basis that, at the date of the breaches, Realtek would have had work in progress and sales for existing clients that had not yet been made, or if contracts had been exchanged they had not yet been completed. It is a matter of common knowledge that agents usually receive their commissions out of the deposit to which the vendor becomes entitled on completion. There is thus usually a delay in the agent receiving the commission to which it is entitled. Further, there was a substantial drop-off in commissions received by Realtek in November 2013 compared to the preceding year, which is likely to have been a consequence of the disruption to Realtek's business caused by the abrupt termination of Realtek's ability to conduct its business from the Dapto office. 2. Taking as the relevant comparators successive years to 31 October, Realtek achieved total and average monthly commissions as follows (noting that this is an approximate calculation), with the final period being only eight months to 30 June 2016: 31.10.13 31.10.14 31.10.15 30.6.16 Total $469,224 $194,061 $235,009 $172,621 Average $39,102 $16,172 $19,584 $21,578 1. Realtek's trading figures therefore show a substantial reduction in income over the year to 31 October 2014 over the previous year of $275,163, or an average of $22,930 per month. Comparatively, Realtek's commissions showed slow improvement over the following two years. 2. While these figures show that Wetamast's breaches of its implied obligations had a seriously damaging effect on the future receipt of commissions by Realtek, they also show that the breaches did not destroy Realtek's property sales agency business entirely. 3. It is in this context that it is necessary to examine Realtek's claim that the consideration that Wetamast was required to provide for the price of $200,000 that Realtek paid totally failed. 4. In addressing this question, it is necessary to apply the principle stated by Mason CJ in Baltic Shipping at 350, 351: "In the context of the recovery of money paid on the footing that there has been a total failure of consideration, it is the performance of the defendant's promise, not the promise itself, which is the relevant consideration". 5. Realtek's principal argument, as I understood it, was that the price of $200,000 was substantially paid for the benefit and the continuing enjoyment of the goodwill of Wetamast's property sales agency business, but after little more than a year, in August 2013, Wetamast's conduct was "an appropriation back to Wetamast of the business that had been sold to Realtek for a substantial price": Realtek's written opening submissions par 44. 6. Realtek sought to support this claim by arguing that the various changes that Wetamast made to the operation of its business in August 2013, coupled with the effect of the media releases, was that what Wetamast sought to achieve by establishing a new property sales agency business at the Dapto office, and by participating in the publication of the media releases, actually led to a recapture of the goodwill that had been sold to Realtek. 7. I find that Realtek's claim is not supported by the evidence, if the claim is understood as being that Wetamast in substance totally deprived Realtek of the goodwill of the business that had been sold to it. 8. Realtek, in effect, treated the claims made by Wetamast in the media releases as if the objectives of the media releases had totally been achieved. Wetamast's involvement in the media releases was a serious breach of its implied obligation not to derogate from its grant, but it does not follow that the enticements in the media releases substantially succeeded. 9. The question of the extent to which Wetamast's conduct destroyed Realtek's enjoyment of the goodwill that was sold to it is a matter to be determined on the evidence. 10. A forensic difficulty faced by Realtek is that, in the apparent belief that its total failure of consideration case would succeed, Realtek did not explore in any detail in the evidence what actually happened after Realtek was ejected from the Dapto office. Apart from the tender of certain documentary evidence, Mr Lambert in his principal affidavit made on 2 June 2015 ended his chronological explanation of the relevant events on 27 August 2013. Mr Lambert's 31 March 2016 affidavit responded to the evidence in the affidavits served by the defendants. 11. There is evidence that throws some light on the course of events after August 2013, but it is not comprehensive. 12. In response to Realtek's claim that Wetamast recaptured the goodwill sold to Realtek after August 2013, the Court put to its counsel during the hearing that Mr Fisher's report had noted that Wetamast's financial reports disclosed no sales commission income in 2014 and only $1,508 in 2015. Counsel responded at T 70.23 by saying "I think I would have to put it as rather than as a capture more as a destruction of the plaintiff's [goodwill]". It was later discovered that the fact that Wetamast had not earned any sales commission income, and had not conducted a sales agency business, may be explained by the fact that a company controlled by Mr Dorling's son did conduct such a business from the Dapto office. There was no evidence, however, of the trading results of that company. There is no objective basis for the Court to assess the relative success of the real estate sales agency businesses conducted by Mr Dorling's son's company and Realtek. 13. What is known is that, even though Wetamast's breaches were very detrimental to Realtek's business, they did not terminate it. 14. One of Wetamast's promises in the contract for sale was to assist Realtek to become an LJ Hooker franchisee. That promise was performed and Realtek's franchise agreement survived its ejectment from the Dapto office until 31 May 2015. Even though the franchise agreement was not renewed, and the effect of Wetamast's breaches may have contributed to that result, the fact remains that Realtek became an LJ Hooker franchisee and that relationship survived the breaches. 15. Mr Lambert gave evidence at T 131.23 to .40 that he downloaded the database of Realtek's clients from the server onto a USB drive. He also gave evidence that, over the period after 18 May 2012, he added to the database and revised it as a result of his own marketing efforts. Although Realtek was deprived of its half-interest in the server, it secured for its future use the data relating to client contacts that is generally considered to be a major component of the value of the goodwill of a real estate sales agency business. Realtek had the benefit of this data and continued to use it in its future business. 16. Realtek submitted, at par 137 of its closing written submissions, that "the USB stick is irrelevant. The plaintiff did not purchase a USB stick with a database. It purchased an entire business and the payment is conditional on getting substantially the entire business contracted for". However, in the modern world, substantial amounts of crucial commercial information can effectively be stored in a single USB drive, and that is what Mr Lambert did, so that Realtek could retain as much of the benefit of the goodwill that it had purchased that was possible. It did not matter whether the data was on the server or in the USB drive. 17. Realtek's argument, at par 141, that there was no evidence that the USB drive contained anything useful provided by Wetamast is not to the point. Wetamast, so to speak, delivered the goodwill of the property sales agency business to Realtek on 18 May 2012, and at that point the database would have contained client contact information compiled by Wetamast. Over time, some of the connections with those clients would have been renewed, and also the database would have been supplemented by Realtek's own marketing efforts. That part of the goodwill that is composed of records that assist in communications with the business' client base will evolve over time, but it is that database that represents a substantial part of the goodwill. 18. The physical circumstances in which Realtek continued to conduct its business were severely disrupted by Wetamast's breaches of the implied obligations, in so far as Mr Lambert was required to continue to conduct the business from his home until November 2013. However, Mr Halcrow, one of Realtek's former employees, gave evidence that Realtek found an office across the road from the Dapto office at another address at Princes Highway, Dapto, from which he and Mr Lambert continued to work. He remembered taking things from his office over to the new premises, which he said were so small that barely two people could work at the same time. There was no specific evidence about the items of equipment that were relocated from the Dapto office to the new office. It appears from the evidence that the time came when Realtek continued to operate as an LJ Hooker franchisee from a new office at Princes Highway Dapto. From 1 July 2015, Realtek was rebadged as First National Real Estate. The entries for monthly receipts of commissions set out in the table above for the year to 30 June 2016 cover the first year of Realtek's operation of the new franchise. 19. Circumstances could be imagined whereby, after Realtek's ejectment from the Dapto office, it established a new real estate sales agency business at a location sufficiently distant from Dapto that the conclusion would be justified that the business was a new business, established from scratch, with little benefit from the goodwill attached to the LJ Hooker Dapto franchise. Sensibly, in order to preserve the goodwill as much as possible, Realtek, after a little delay, established offices on the Princes Highway in Dapto in the immediate location of the Dapto office. 20. A further aspect of the consideration provided by Wetamast for the contract for sale was that it would enter into the sublease to Realtek. The sublease entitled Realtek to occupy part of the Dapto office for a little more than two years. One consequence of Wetamast's breach of the implied term in the sublease was that Realtek only enjoyed half of the period to which it was entitled. The enjoyment of half of the period is inconsistent with the claim that the consideration totally failed. 21. Wetamast also made the loan of $50,000 to Realtek required by the contract for sale. 22. In these circumstances, I reject Realtek's claim that the consideration required to be provided by Wetamast for the contract for sale totally failed. As Mason CJ noted in Baltic Shipping at 351, "the receipt and retention by the plaintiff of any part of the bargained-for benefit will preclude recovery, unless the contract otherwise provides or the circumstances give rise to a fresh contract". His Honour in referring to recovery meant a claim for the repayment in full of the price. Although the facts of one case will usually provide little guidance for the proper determination of another, I have formed substantially the same conclusion as did Mason CJ at 353, where his Honour said: …The consequence of the respondent's enjoyment of the benefits provided under the contract during the first eight full days of the cruise is that the failure of consideration was partial, not total. I do not understand how, viewed from the perspective of failure of consideration, the enjoyment of those benefits was "entirely negated by the catastrophe which occurred upon departure from Picton", to repeat the words of the primary judge. 1. I add, in response to Realtek's reliance upon the decision of the Court of Appeal in Heckenberg v Delaforce [2000] NSWCA 137, that the consideration was found in that case to have totally failed because the promise that constituted the consideration was an undertaking to transfer shares in particular companies and no transfers occurred. Where the promise is to transfer property that requires actions to give it effect, such as the delivery of a share transfer, the failure to do so has the effect that the promise is not performed at all, so that the consideration fails totally. That is not this case. 2. In this case, Realtek enjoyed the benefits of the consideration promised by Wetamast in some respects for over a year, and in other respects continuing after the breaches of the implied obligations. There was a failure of consideration but it was partial. It would not be an undue description to describe the consequences of the breaches as being a catastrophe for Realtek, but Realtek survived with some aspects of the consideration intact, albeit diminished. 3. Consequently, Realtek's entitlement is to damages against Wetamast for breach of contract. Assessment of damages 1. The question is, what is the amount of money necessary to place Realtek in the position it would now be in if Wetamast had not breached the implied obligations? See Robinson v Harman (1848) 1 Exch 850 at 855. 2. The parties negotiated a price of $200,000 for all of the rights and benefits that Realtek gained a right to expect by entering into the contract for sale, which among other things required Realtek to enter into the sublease and the other agreements. 3. The Court should start from the position that, if Wetamast had not breached the implied obligations, Realtek would have enjoyed the rights and benefits for which the agreed price was $200,000. By the expression "enjoyed", I mean to refer to the fact that Realtek would still have the rights and benefits for which it bargained, and it matters not whether, in the counterfactual, those rights and benefits would have matured in the way expected by Realtek. 4. It is not appropriate to start from the position that the rights and benefits for which Realtek bargained in reality had some lesser value than $200,000, on the basis that the value of the goodwill purchased by Realtek, viewed in isolation of the real circumstances of this case and the relationship between the parties, was some lesser amount than $200,000. The fact is, Realtek paid that price to Wetamast and that is the value of the rights and benefits as between the two parties. 5. The primary effect of the breaches of the implied terms by Wetamast is that Realtek was deprived of a number of the rights and benefits that it was promised, and its capacity to exploit other rights and benefits was damaged. Realtek lost the whole of the enjoyment of the comprehensive suite of rights and benefits for half of the two-year period of the sublease. It lost the right entirely to conduct its business from the Dapto office under the LJ Hooker franchise name from September 2013. It took time for Realtek to establish an effective new office. It lost the benefit of its existing employees. It is legitimate to conclude from the monthly commission figures that Realtek suffered a considerable loss of income. 6. It would not be practicable for the Court to attempt to assess separately the value of each of these losses, and in any event there was no evidence led that would permit the Court to embark upon that exercise. 7. The most natural way for the Court to conceive of the loss suffered by Realtek is to start by looking at its trading results starting from the time of its ejection from the Dapto office, and to determine, after making any appropriate adjustments, the value of the business reflected in the maintainable earnings that are demonstrated. Those would not be the earnings of an entirely new business, but of a business shorn of significant rights and benefits that Realtek would have enjoyed if the breaches of Wetamast's obligations had not occurred. 8. In my view, an appropriate way to assess Realtek's loss is to deduct from the $200,000 paid by Realtek the value of the business that it ended up with after the breach of the implied obligations, and then to consider whether Realtek retained some additional value reflecting the other rights and benefits for which it bargained that did not consist of the value of the goodwill acquired under the contract for sale. 9. As I have explained above, the difficulty that the Court faces is that, for all the valuations that the expert valuers inconclusively carried out, they did not separately value the income stream demonstrated by Realtek's property sales agency business starting from September 2013. 10. There is information in the evidence that makes it possible for the Court to extrapolate the reasoning of the experts in their joint report to deduce alternative valuations of Realtek's property sales agency business as at 30 June 2015. For that purpose, it is necessary to make a number of assumptions that I will identify below. As the Court is not itself an expert, and as the experts were not called to give evidence and cross-examined, the Court does not have a basis for choosing between the experts' opinions or valuation methods where they are inconsistent. 11. The following table is an extrapolation of the evidence given by Mr Fisher to 30 June 2015: 2013 2014 2015 Average Total income 523,321 246,412 305,811 Less operating expenses 493,773 274,983 292,314 Operating surplus 29,548 -28,571 13,497 EBITDA calculation Depreciation 230 746 746 Amortisation 0 0 0 Interest 11,501 14,463 12,503 Principal salary 5,000 40,348 40,348 Less market salary -40,000 -40,000 -40,000 Add backs -23,269 15,557 13,597 EBITDA 6,279 -13,014 27,094 20,359 1. The table was prepared on the following basis: 1. The template used was the table used by Mr Fisher in Exhibit PD1 to calculate the value of the sales agency business as at 30 June 2013. 2. The table is more simple than the one used by Mr Fisher, because he included years when Wetamast was operating both the sales agency business and the rental management business, and he had to undertake calculations to determine the financial performance of the sales agency business. 3. As the valuation methodology adopted by Mr Fisher was that value equals average EBITDA over three years x 1, the value derived when I adopt the same methodology is effectively $20,000. 4. That Mr Fisher used a three-year average appears from a comparison of the tables used by Mr Fisher for his 30 June 2012 and 30 June 2013 valuations. In each case Mr Fisher used the average of three years. 5. The figures in the 2013 column are taken from the 2013 column in Mr Fisher's table in Exhibit PD1. 6. The figures in the 2014 and 2015 columns are taken from the Collated Profit and Loss Statements at Appendix K to Mr Goodyer's 27 April 2017 report (Court Book vol 3 page 786) in which Mr Goodyer has collated financial information from Realtek's financial statements. 7. As depreciation and amortisation and the principal's actual salary are not stated in Realtek's annual financial statements, it was necessary to find that information elsewhere in the evidence. The depreciation and amortisation figures for 2014 were taken from Realtek's taxation return for that year at Court Book vol 2 page 544. The principal's salary was taken from Mr Lambert's taxation return for 2014 at Court Book vol 2 page 565. As Realtek's taxation return for 2015 and Mr Lambert's taxation return for 2015 were not included in the evidence, the assumption was made that Realtek's depreciation and amortisation and Mr Lambert's salary were the same in 2015 as they were in 2014. 8. The commercial salary that has been deducted in calculating EBITDA requires explanation. It appears from the joint expert report in Exhibit PD1 that the experts were agreed that ordinarily it would be appropriate to allow a commercial salary for the principal of a real estate sales agency business such as that conducted by Realtek of $100,000. That is the figure adopted by Mr Goodyer for each year of his calculations, and it was adopted by Mr Fisher for 2011 and 2012, when the business was operated by Wetamast. Mr Fisher did not provide an explanation for why in his calculation of the value as at 30 June 2013 he reduced the salary to $40,000. It may be because Mr Fisher allowed $100,000 as the commercial salary for a principal who operated a business that engaged in both lease management and sales agency, and Mr Fisher attributed 40% of the principal's time to the management of the sales agency aspect of the business. In order to be conservative, I have extrapolated the $40,000 allowance made by Mr Fisher into the 2014 and 2015 years. 1. The following table is an extrapolation of the evidence given by Mr Goodyer to 30 June 2015: 2013 2014 2015 Total income 523,321 246,412 305,811 Total expenses 493,773 274,983 292,314 Operating surplus 29,548 -28,571 13,497 Add interest paid 11,501 14,463 12,503 EBIT $41,049 -14,108 26,000 Normalisation adjustments Add: directors fees 5,000 40,348 40,348 Less: commercial salary -40,000 -40,000 -40,000 Add: donations 50 10 145 Add: entertainment 350 0 0 Add: fines 0 0 0 Add: legal fees 32,119 23,182 Adjusted EBIT 6,449 18,369 49,677 Weighting 33% 33% 34% Weighted Average EBIT 2013 to 2015 24,832 FME valuation Future EBIT 24,832 24,832 EBIT multiple 1.2 2.8 Enterprise value 29,798 69,530 Midpoint 49,664 1. This table has been prepared in substantially the same manner as the table that extrapolates the valuation opinions of Mr Fisher, using the same relative sources. 2. One addition has been the normalisation adjustment made by adding back legal fees. Mr Goodyer made this adjustment in his collated profit and loss statements for Realtek in Appendix K to his 27 April 2017 report for 2014 and 2015: see Court Book vol 3 page 787. It is not known why Mr Fisher did not make a similar adjustment: see the table concerning Realtek's 2014 financial statements on page 15 of Mr Fisher's 25 July 2016 report at Court Book vol 3 page 627. In principle, it would seem to be appropriate to add back the legal costs of proceedings the purpose of which is to recover damages in part calculated on the basis of the value of the business, where such costs may be recovered if the claim is successful, and in any event the costs do not relate to the normal trading of the business. 3. The experts did not provide any theoretical explanation of the valuation methodology that they adopted, save that there was an extensive and unresolvable dispute about whether EBITDA or EBIT was the proper starting point for estimating the value of the business. One issue of concern is the experts' treatment of the income of the principal of the business. I accept that it is logical to make an adjustment in valuing the business for the difference between what the principal has historically earned in fact and an assessed reasonable salary for the principal. Otherwise, a valuation methodology based upon a multiple of either EBITDA or EBIT would give the same value for businesses with the same EBITDA or EBIT, irrespective of differences in the revenue and expenses between them. A business with revenue of $1,000,000 and expenses of $950,000 would have the same value as a business with revenue of $200,000 and expenses of $150,000. That approach would seem to be flawed, as the first business may be able to pay a much greater salary to the principal than the second one. As a prospective purchaser of a real estate sales agency business is likely to operate the business personally, the salary that the business is able to generate for the principal will logically be a significant factor in the valuation. 4. In the present case, the joint expert report shows that the experts agreed that $100,000 was an appropriate commercial salary to adopt for the principal. The Court has no reason to reject that evidence. 5. The issue of concern is that both experts adopted a commercial salary of $40,000 in respect of Realtek's 2013 financial statements. No explanation was provided. In the extrapolation of the experts' valuations that I have made above, I have accepted the experts' conclusion concerning the 2013 year and extrapolated that conclusion into subsequent years. I have done that because a consequence of the parties' failure to call the experts is that the Court has not had the opportunity to explore this issue with the experts. 6. I can understand why it may be logical, if one starts with an assumption that the market salary for a principal is $100,000, to apportion that salary to two components of a single business, such as the experts found was necessary for the years in which Wetamast operated both the sales agency and the lease management businesses. If the sales agency business represented 40% of the revenue, it would be logical to assume that the market salary of the principal for that component of the business would be adequate if it amounted to $40,000. However, it has not been shown why a principal, who proposed only to acquire a property sales agency business, would be satisfied with a salary of $40,000, instead of the $100,000 that would apply if the business had both components. The experts prepared their joint expert report in the course of a single conclave that took place during the hearing, and I consider that there is a substantial risk that the experts agreed to adopt a commercial salary of $40,000, for the analysis of Realtek's 2013 financial statements, without giving sufficient consideration to the question of whether an annual salary of $40,000 was truly realistic. 7. As I have said above, I am inclined to the view that, in the extrapolation of Mr Fisher's valuation opinion, the legal fees incurred by Realtek should be added back, even though Mr Fisher did not take that course in his initial report when he had the opportunity to do so. If that were done, averaging the legal fees incurred in 2014 and 2015 over the three-year period of the assessment would have increased the valuation using Mr Fisher's method by $18,434. 8. However, if I were also right in my inclination that the commercial salary adopted should be $100,000, then that would have the effect of reducing the valuation using Mr Fisher's method by $60,000 to -$39,641. The more complicated arithmetic adopted by Mr Goodyer, which includes a higher overall multiple, would lead to a value of -$70,336. 9. The position reached concerning the valuation evidence is therefore unsatisfactory. Not only has the Court not been able to resolve the differences in valuation principle between Mr Fisher and Mr Goodyer, but it has had to extrapolate from their reports, because they did not address the most relevant valuation issue. The experts' treatment of legal fees and the choice of a market salary are problematic for the reasons that I have given. The Court cannot assume, in the complete absence of relevant expert evidence, that the same valuation principles apply to cases that give a positive value and cases that give a negative value. For example, the income stream generated by Realtek might not be sufficient to pay a market salary to the principal, if conducted in isolation, but it may have a positive value if sold to the principal of a larger real estate sales agency business, which could pay the market salary required by the principal from a much larger revenue base. 10. These difficulties have led me to the conclusion that the least unsatisfactory course is for the Court to start with the opinions of the experts, as stated in the joint expert report, to extrapolate those opinions in the manner that I have done in the above tables, and then to adopt the midpoint as the value of the property sales agency business of Realtek, as established by its three years of operation until 30 June 2015. That may not be entirely satisfactory, but it is a consequence of the state of the expert evidence put by the parties to the Court. 11. The result is a finding that Realtek's business had a value of $35,000, being the average of the $20,000 extrapolated from Mr Fisher's evidence, and $50,000 derived from Mr Goodyer's evidence. 12. It must be borne in mind that the exercise in which the Court is engaged is the attempt to assess the damage suffered by Realtek in a rational way, and not strictly the determination of the value of Realtek's business at any time. The conclusion that Realtek's business had some positive value, after Realtek suffered the consequences of Wetamast's breaches of the implied obligations, is supported by the consideration that Mr Lambert has continued that business, whereas if it had no value to him, it would be expected that he would have abandoned it. 13. The difference between the price of $200,000 paid by Realtek and the value of the property sales agency business that it ended up with of $35,000 is therefore $165,000. The question is whether that should be adopted as the amount of the damage suffered by Realtek. 14. As I have recorded above, Mr Fisher valued the property sales agency business at 18 May 2012 as $39,000, and Mr Goodyer adopted a value of $77,097. If, for consistency with the approach adopted above, I accepted the midpoint of those values, then the value of the property sales agency business on the date of completion of the contract for sale may be taken to be $58,000. As I have explained above, the proper approach is not to conclude that Mr Lambert agreed to overpay by about $140,000, but rather the Court should proceed upon the basis that Mr Lambert and Mr Dorling, on behalf of their respective companies, struck a bargain for the price that Realtek should pay for all of the rights and benefits that it would receive under the suite of agreements. Should Realtek's damages be assessed on the basis that Realtek should be treated as having enjoyed some of the benefits for which it bargained, as well as retaining the value of the property sales agency business? 15. This is a difficult question, because there is no orthodox methodology for valuing the additional benefits. Realtek gained the benefit of the sublease of the Dapto office, but it paid or became liable to pay the agreed rent. Realtek gained the benefit of the LJ Hooker franchise, but I will infer that it paid all relevant franchise fees. Realtek enjoyed about half of the period of occupation of the Dapto office to which it was entitled, but it was in practical terms summarily ejected without notice, so that it entirely lost the ability to make an orderly transition of its business to new premises. Mr Lambert did not obtain the licence necessary to enable him to conduct the business on his own as principal before Realtek was ejected from the Dapto office. 16. While Realtek may have enjoyed some of the rights and benefits for which it bargained, in addition to the ownership of the property sales agency business, for a period of slightly more than a year, I have concluded that that enjoyment was largely ephemeral. Mr Dorling wilfully caused Wetamast flagrantly to breach the implied obligations in a manner that plainly brought Realtek to its knees, notwithstanding that Mr Lambert has been able to cause Realtek to struggle on. 17. I am satisfied that Realtek has lost the benefit of the whole of the $200,000 price that it paid save for the $35,000 that I have concluded should be allowed as the value of the continuing business. Consequently, Realtek is entitled to an order that Wetamast pay $165,000 in damages. Declarations of invalidity 1. As I have noted above, Realtek sought declarations that the contract for sale, the sublease and the security agreement had validly been terminated. 2. In my view it is clear that the breaches of the implied obligations committed by Wetamast substantially deprived Realtek of what it had bargained for under the contract, notwithstanding the residual $35,000 value of the property sales agency business, and Realtek was entitled to terminate the contract in relation to any continuing obligations of the parties under it. 3. As to the sublease, it is clear that it has been terminated, as both parties served notices of termination. 4. I accept, however, that the notice of termination served by Realtek was valid. I accept that the applicable principle is as stated by Allsop J (as his Honour then was) in Byrnes v Jokona Pty Ltd [2002] FCA 41 as follows: [70] I agree with Powell J in Todburn Pty Ltd v Taormina International Pty Ltd, supra at p11,176 that, specific terms of the lease to the contrary, the covenant for quiet enjoyment is not an essential condition of a lease, any breach of which will entitle a tenant to terminate the lease. The lease here did not so elevate the covenant into a condition. Rather, a breach of the covenant may range from minor to major matters of disturbance. If the degree or nature of the conduct is such as would be described as serious or substantial it may be that it evinces an intention by the landlord not to be bound by the lease and thus amounts [to] a repudiation by the landlord. Another way of examining the matter is to assess the extent and gravity of the breach and determine whether the breaches deprive the party not in default of substantially the whole benefit which it was intended that he, she or it should obtain from the contract: Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 69 (per Diplock LJ); Cehave NV v Bremer Handelsgesellschaft m.b.H. [1976] 1 QB 44; Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, 998; Federal Commerce and Navigation Co Ltd v Molena Alpha Inc [1979] AC 757; Bunge Corp v Tradax Export SA [1981] 1 WLR 711; Shevill v Builders Licensing Board (1982) 149 CLR 620, 625-626, 637; Associated Newspapers v Bancks (1951) 83 CLR 322, 339; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, 642; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 556-557, 561-562; Progressive Mailing House v Tabali, supra at 31 and 33. 1. Although his Honour was dealing with the consequences of a breach of the covenant for quiet enjoyment, the principles that apply when the breach is of the lessor's implied obligation not to derogate from the grant are the same: see B. Edgeworth, Butt's Land Law (7th ed, 2017, Lawbook Co Australia) at [7.570]-[7.590]. 2. It is clear in this case that Realtek was entitled to terminate the sublease, not only because it was deprived of substantially the whole benefit which it was intended that it should obtain from the sublease, but Mr Dorling's conduct demonstrated that Wetamast had no intention to be bound by the sublease in the future. 3. It is not clear that Realtek was entitled to terminate the security agreement. As Realtek remains liable to pay Wetamast certain amounts under the sublease, as will be considered below, in theory the security agreement may continue to secure those amounts. Wetamast's conduct did not involve a breach of any term of the security agreement per se. However, as the property that was made subject to the security agreement was Realtek's interest in the property sales agency business, it is possible that Wetamast's conduct destroyed a substantial part of the charged property. It is not necessary to consider that question further, because, as a result of the orders to be made in these proceedings, the amount payable by Realtek to Wetamast will be set off against a much larger sum payable by Wetamast to Realtek. Accordingly, whether or not the security agreement continues in effect, Realtek is entitled to a declaration that the security agreement does not secure any debt payable by Realtek to Wetamast. Unconscionability 1. Realtek did not argue that it was entitled to a different and better remedy for the alleged breach by Wetamast of the statutory prohibition of unconscionable conduct in s 21 of the Competition and Consumer Act 2010 (Cth) Schedule 2 (Australian Consumer Law). As, in practical terms, the result of these proceedings would not be different if Realtek had established its statutory unconscionable conduct claim against Wetamast, it is not necessary to consider that claim further in detail. 2. However, it is appropriate for the Court to record that it does not accept that the conduct engaged in by Wetamast in this case falls within the notion of statutory unconscionable conduct. In Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 93 ALJR 743 the members of the High Court explained the meaning of statutory unconscionable conduct in somewhat different terms. It is not necessary for the purposes of this matter to examine their Honours' reasons in detail. Kiefel CJ and Bell J observed at [79] that the respondent's conduct had not "exploited or otherwise [taken] advantage of the customer's lack of education and financial acumen". Gageler J at [92] said: "…conduct proscribed by the section as unconscionable is conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience". Keane J at [116] framed the issue as whether "the respondent actually took advantage of that increased vulnerability, or even acted with predatory intent with a view to doing so". Nettle and Gordon JJ, in dissent, referred at [167] to the "vulnerability" of the customers and from [172] to the respondent "taking advantage" of that vulnerability. They also referred at [231] to the "predatory and exploitative nature of [the respondent's] conduct", and at [235] to "[v]ulnerability or special disadvantage". Compare this statement by Edelman J at [311]-[313] that "…the statutory concept of unconscionability in s 12CB(1) of the ASIC Act is broader than the concept in equity". 3. Statutory unconscionable conduct does not appear to be limited to conduct that involves a party taking advantage of the vulnerability of some specific other party, but at least may extend to conduct that may injure other parties in general because of factors that make them vulnerable in their dealings with the first party. The unconscionability arises out of the advantage that the first party derives by commercially unscrupulous conduct. At least in general, the conduct of a party in breach of a contract, where the other party becomes entitled to ordinary contractual remedies, is unlikely to constitute statutory unconscionable conduct. That is not to say that conduct in performance of, or in breach of, a contract may never be judged as being unconscionable, as a contract may give one party power as to how the contract is to be performed that creates a state of vulnerability in the other. I suggest only that it is likely to be wrong to equate breach of contract with unconscionable conduct because of a judgment that the breach is offensive to commercial morality. Perhaps a large proportion of breaches of contract may to some degree be offensive to commercial morality, but it should rarely be the case that a party to a contract who acts in its own interests and thereby breaches the contract will, to use Gageler J's words at [92], have engaged in "conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience". 4. Wetamast's breach of the implied obligations may have been egregious in this case, but they were no more than breaches of obligations in a contract for sale and other agreements freely negotiated between two parties of relatively equal bargaining power. It is true that, in practical terms, Wetamast, as the sublessor, had the upper hand when it came to ejecting Realtek from the Dapto office and terminating most of the rights and benefits bargained for by Realtek in the contract for sale, but that conduct did not necessarily rise to the level of statutory unconscionable conduct and, in my view, in all the circumstances of this case, did not actually rise to that level. Mr Dorling's liability for inducing breach of contract 1. I accept that the elements of the tort of wrongly inducing breach of contract are as stated by Chesterman J in Sai Teys McMahon Real Estate Pty Ltd v Queen Street Apartments Pty Ltd [2007] QSC 264 as follows: [90] As conventionally expressed the tort requires the proof of three elements: (i) that the defendant intended to induce the party who had contracted with the plaintiff to break that contract; (ii) the defendant did induce that party to break the contract it had with the plaintiff ie the defendant's conduct in fact caused the party to break the contract; (iii) the plaintiff suffered loss as a consequence. See Multinail Australia Pty Ltd v Pryda (Aust) Pty Ltd (2002) QSC 105 paras 23–24. 1. Realtek's case against Mr Dorling was based upon the premise that a director of a company who intentionally causes the company to breach a contract to which the company is a party can be treated in law as a third party who may be found liable for inducing the company to breach the contract. Realtek's submissions did not address this question in detail, and relied primarily on the decision of the High Court in Hamilton v Whitehead (1988) 166 CLR 121; [1988] HCA 65. That case, however, concerned the issue of whether a person who has knowledge of all of the material circumstances and whose conduct constitutes the commission by the company of a criminal offence may be convicted, as an accessory, of being knowingly concerned in that offence. 2. The question of whether a director of a company acting within the course of the director's authority as such may be liable for the tort of intentionally inducing breach of contract where the director causes the company to breach a contract to which it is a party was considered at length by Einstein J in Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 328 in the following terms: [17] It is quite plain that the person who commits the tort must be a third party, someone who stands outside the contractual relation being interfered with. The third party cannot be the alter ego of one of the parties to the contract [cf Rutherford v Poole [1953] VLR 130 at 135 per Herring CJ]. [18] O'Brien v Dawson (1941) 41 SR 295 (and in the High Court (1942) 66 CLR 18) involved the plaintiffs having sued a company and two of its directors for conspiracy to injure the plaintiffs, alleging that in pursuance of the conspiracy the defendants took possession of certain theatres and ejected the plaintiff from those theatres. On the evidence the plaintiff was shown to have been in occupation of the theatres under an agreement with the defendant company. The evidence was to the effect that the defendant company acting by the defendant directors terminated the agreement and ejected the plaintiff from the theatres. The verdict of the jury for the plaintiff was set aside by the Full Court and judgment ordered to be entered for the defendants, principally upon the ground that breach of contract by a company acting through the medium of its board of directors does not amount to a conspiracy. Judgments in both the Full Court and the High Court also dealt with whether or not breaches of contract by a company acting through the medium of its board of directors might amount to a tortious procurement of a breach of contract. [19] Jordan CJ in O'Brien v Dawson [41 SR 295 at 307] put the matter as follows: "The next question is whether, if an ordinary limited liability company is a party to a contract, and its directors acting as such, and in the course of conducting the company's business at a Board meeting, resolve that the company shall refuse to perform a contract to which it is a party, the directors knowing that the refusal cannot be legally justified, and effect is given to this resolution, the directors concerned are guilty of the tort - and presumably also of the crime - of conspiracy. I am of opinion that in such a case it is entirely artificial to speak of the directors as "procuring" the company to break its contract in the sense in which this word [was] used in the Lumley v Gye type of case. An incorporated company is a figment of the law. It is incapable of acting except through agents. Its directors are persons who have been authorised by the constituent members of the corporation to cause acts to be done on its behalf. They are its agents who have power to control its acts. It cannot act at all except through them or through some other authorised agents. They are not in the position of outsiders who are influencing the independent volition of a contracting party who is capable of exercising volition for himself. It is their volition and theirs only which determines the making, the performance or the breach of the company's contract. In my opinion on the state of facts assumed, they stand in the same position as regards liability to a charge of conspiracy as do joint contractors. This is not to say that every boardroom constitutes an Alsatia in which persons may conspire to their heart's content and with complete impunity so long as they do so in the character of directors of a company and employ the machinery of their company for carrying their conspiracy into effect. It means only that the mere fact that the directors who determine whether or not a company shall perform the obligations of a contract are several in number makes them no more subject to the law of conspiracy then would be a single managing director if it were he who determined it.... Directors of a company are, however, personally responsible for any torts committed by their company in the procuring of which they are personally implicated...But there is authority for the proposition that the fact that one or more directors of a company acting as such, are the instruments by which the company, without just cause, refuses to perform a contract does not confer on the other party to the contract a right to sue directors in tort on the footing that they have procured a breach of contractual rights..." [emphasis added] [20] The judgment of McTiernan J in the High Court O'Brien v Dawson [66 CLR 18 at 34] includes the following: "A commits an actionable wrong against B if he procures C to break its contract with B... Hence McCardie J said in Pratt v British Medical Association that it is necessary in dealing with actionable conspiracy to distinguish it at once the line [sic] of decisions which establish this proposition. He added: "An individual can commit the tort as effectively as an aggregate of persons. The effect of a conspiracy to commit a wrong within Lumley v Gye is of importance only in considering the weight of the acts alleged and the extent of the resultant damage.... But an action by the plaintiff would not lie against the company for procuring a breach of its own contract with him nor against the individual defendants on that cause of action if in terminating the agreement they were acting in pursuance of their authority as directors... There is no evidence that they were not acting in pursuance of that authority" [21] Starke J at 32 put the matter as follows: "A company 'cannot act in its own person for it has no person' (Ferguson v Wilson (1866) 2 Ch App 77 at 89). So it must of necessity act by directors, managers or other agents. The company, if it were guilty of a breach of its contract in this case, acted through its director, the respondent Doyle, but it is neither 'law nor sense' (Lagunas Nitrate Co v Lagunas Syndicate (1899) 2 Ch 392 at 431) to say that Doyle in the exercise of his functions as a director of the company combined with it to do any unlawful act or become a joint tortfeasor. Again it is equally fallacious to assert that Doyle knowingly procured the company to break its contract. The acts of Doyle were the acts of the company and not his personal acts which involved him in any liability to the plaintiff. But I would add that it does not follow that a director of a company would escape personal liability under cover of the company's responsibility if he himself became an actor and invaded the plaintiff's rights, as by trespassing on his land, or seizing his goods and so forth. And for similar reasons the contention is equally untenable that Doyle and the respondent Dawson combined together or engaged in common in knowingly procuring a breach by the company of its contracts. Dawson if he is guilty of a breach of his contract with the plaintiff is of course liable in damages. And here, I think, there is some evidence that the company knowingly, through its director Doyle, procured the breach of Dawson's contract with the plaintiff. Doyle was I think, acting within the scope of his functions as a director of the company in procuring Dawson to terminate his employment with the plaintiff and to enter into an agreement with the company. It was an unlawful act of the company done through its director Doyle. But Doyle is not involved in the act otherwise than as a director. It was again the company's act." [emphasis added] [22] I take it as clear law that so long as a director is acting within the scope of his authority, the company is responsible for the acts of the director. In other words, the director's acts are the acts of the company. If the director could by acts within the scope of his authority, induce the company to breach a contract, then the invidious situation which would result would be that the company would be inducing a breach of its own contract. [23] This reasoning appears clear from Said v Butt (1920) 3 KB 497 where McCardie J dealt with proceedings in which the plaintiff, a Russian gentlemen of independent means went to the Alice Theatre to see a new play. The defendant, the managing director of the theatre company, gave orders to the attendants that the plaintiff was not to occupy his seat and his money was to be returned to him. In the result the plaintiff was refused admission to the performance. He sued the defendant on the ground that he had wrongfully and maliciously procured the company to breach the contract made when the plaintiff had purchased a ticket for a seat entitling him to view the performance. [24] McCardie J found against the plaintiff because he could not establish the existence of a contract and hence could not prove that the defendant had caused any breach of a contract. His Lordship further considered what would have been the position had there been a contract and observed that strange results would flow from treating servants acting within the scope of their authority as being liable in an action for interference with their employer's contract with another person. His Lordship said (at 504-505): "if the plaintiff is right in his contention, it seems to follow that whenever either a managing director or a board of directors, or a manager or other official of a company, causes or procures a breach by that company of its contract with a third person, each director or official will be liable to an action for damages, upon the principal of Lumley v Gye as for a tortious act. So, too, with the manager or other agent of a private firm, who does the like thing. This far-reaching result of the principle here suggested by the plaintiff is emphasised, when it is remembered that in an ordinary action for breach of contract the plaintiff recovers his pecuniary loss only: whereas in an action for wrongfully procuring a breach of contract the damages against the wrongdoer are at large, and may vastly exceed the sum recoverable in a mere claim for breach of contract against the contract ..." [25] After making it plain that his Lordship had not been able to locate any decisions supporting the view that a servant could be liable in tort for procuring a breach of his masters contract with another, his Lordship continued (at 505-506): "But the servant who causes a breach of his master's contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his master. His acts are in law the acts of his employer. In such a case it is the master himself, by his agent, breaking the contract he has made, and in my view an action against the agent under the Lumley v Gye principle must therefore fail, just as it would fail if brought against the master himself for wrongfully the procuring [sic] a breach of his own contract.... To hold otherwise might create at least three actions whenever a managing director or other authorised agent knowingly procured a breach of the employer's contract. First, an action based on contract against the employer for the pecuniary loss caused by the breach of contract; secondly, an action for tort against the agent who had procured the breach of contract, wherein the damages would be at large and might include every element of annoyance, inconvenience, or in dignity [sic]; and thirdly, an action against the employer himself for the tort was wrong committed by his authorised agent in procuring the employer to break his contract with the plaintiff.... [26] His Lordship concluded with a holding in which the expression "acting bona fide within the scope of his authority" was used. This formulation occasions some difficulties of interpretation. I shall return to examine the matter ["the acting bona fide within scope issue"] below. [27] The essential proposition ["the O'Brien v Dawson principle"] is then that directors are not liable for the tort of inducing breach of contract where, in exercising their functions as directors and in acting within authority, they have caused the company to breach its contract. Hodgson CJ in Eq. As [sic] his Honour then was, had occasion in the recent decision Tsaprazis v Goldcrest Properties 2000 18 ACLC 285 at 288 to accept and apply this basal proposition. [28] Although as the defendants point out, it is correct that O'Brien v Dawson did not concern procurement of breach of contract but rather conspiracy, courts in Australia since that time have clearly correctly treated what was said in O'Brien on the subject of procurement of breach of contract as binding in terms of principle. The significance of the claim being one for conspiracy demonstrates that the doctrine extends to acts of the officer which caused his or her company to commit a tort. [29] Although the plaintiffs cited a number of authorities said to support their submissions as to the appropriate principles, in my view the O'Brien v Dawson principle is binding upon a court of first instance in this country. 1. The same conclusion was reached by Finkelstein J in Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231 at [125]-[136]; by Hodgson CJ in Eq (as his Honour then was) in Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 206; (2000) 18 ACLC 285 at [11]-[14]; and Multinail Australia Pty Ltd v Pryda (Aust) Pty Ltd [2002] QSC 105 at [121]-[126] (Multinail Australia). 2. Realtek did not plead any claim against Mr Dorling that by his personal actions he committed a tort against Realtek, and the claim was limited to the allegation that he, as the director, caused Wetamast to breach contractual obligations that it owed to Realtek. 3. In this context, it is stated in R.P. Balkin and J.L.R. Davis, Law of Torts (5thed, 2013, LexisNexis Butterworths) at [21.14] (Balkin & Davis) that: "It has, however, been held that the director of a company may be liable, along with the company, if that director, with the relevant intent (see 21.6), procures or directs the company to perform the tortious act". The learned authors rely upon Multinail Australia at [126]-[130]. However, as Chesterman J explained at [122] and [126], the line of authority arising from Said v Butt [1920] 3 KB 497, to the effect that a director is not treated by the law as having induced the company to breach its contract, as discussed in the authorities referred to above, did not apply in the case before him. That was because the company of which the defendant was a director was not a party to the contract that was breached. The defendant had used his authority as director of the company to cause the company to induce another company to breach its contract with the plaintiff. Accordingly, the plaintiff's claim was that the director's acts had caused his company to commit the tort of intentionally inducing a breach of contract. Consequently, the claim against the defendant director was not that he had caused his company to breach a contract, but that his acts were tortious because both he and his company caused a second company to breach its contract with the plaintiff. The result was that the applicable principles were those that govern when a director who acts on behalf of a company and commits a tort may be held liable for the tort together with the company. Multinail Australia is consistent with the statement in Balkin & Davis in so far as it refers to the director procuring or directing "the company to perform the tortious act". That is different to the case where the director procures or directs the company to breach a contract to which it is a party. In context, the statement made in Balkin & Davis may be liable to be misunderstood. 4. The result is that Realtek's claim against Mr Dorling that he committed the tort of intentionally inducing Wetamast to breach its contracts with Realtek must fail. Cross claim by Wetamast 1. Wetamast filed a cross claim against Realtek and Mr Lambert on 2 October 2014. 2. By the beginning of the hearing, Wetamast's claim was as stated in a schedule of damages annexed to its written outline of submissions. The claim was $18,750.05 outstanding of the $50,000 loan made under the loan agreement, plus $28,482.65 interest since 1 October 2013. Secondly, Wetamast claimed 11 months' rent from 1 October 2013 to the end of the term of the sublease, being $22,412.55, plus unpaid outgoings of $1,433.56, giving a total of $23,846.11, plus interest of $15,366.04. The claim for unpaid rent was described in the schedule as follows: "Number of months remaining on term of Sub-lease after Plaintiffs/Cross-Defendants' repudiation (difference between end of term of Sub-lease being 30 August 2014 and last payment of rent received being September 2013). At the commencement of the hearing, Wetamast's claim on the cross claim was therefore $86,444.85, plus continuing interest from 4 February 2019. 3. As the damages that I have found are payable by Wetamast to Realtek were calculated on the basis that Realtek had paid a price of $200,000, the fact that $18,750.05 of the $50,000 debt remained outstanding at the termination date means that Realtek's damages must be reduced by that amount. The effect will be that Realtek's obligation to pay the outstanding part of the debt will be set off against Wetamast's liability to pay damages to Realtek. 4. The issue of whether Realtek is liable to pay Wetamast for the unpaid balance of the rent due under this sublease depends upon whether or not the purported termination of that sublease by Realtek was effective. As I have held that the termination was effective, Realtek is not liable to pay the additional rent claimed by Wetamast. 5. The evidence given by Mr Dorling in his 22 December 2015 affidavit was that Wetamast delivered a number of invoices to Realtek for outgoings and expenses, and that, on 18 December 2013, Wetamast's solicitors sent a letter of demand to Realtek regarding the unpaid invoices. The demand, which is Exhibit DJL-1-39 to Mr Lambert's affidavit, claimed an amount of $552.28 for office expenses pursuant to an invoice dated 12 August 2013 and $881.28 for office expenses pursuant to an invoice dated 1 September 2013. These amounts are equal to the last two entries referred to in Mr Lambert's Exhibit DJL-1-15, which Mr Lambert said contained the details of invoices received from Wetamast for Realtek's shares in payments of outgoings, and which have dates 12 August 2013 and 1 September 2013. I understand Mr Lambert's evidence to have the effect that Realtek admitted liability for the amounts claimed in the invoices where those invoices had not been paid. 6. Mr Dorling's evidence was that he received a notice of termination of the sublease from Realtek on 23 September 2013, and that Wetamast gave a notice to Realtek on 7 November 2013 that it was terminating the sublease. It therefore appears that, whichever notice of termination was effective, the sublease remained in effect until after the date of Wetamast's two invoices seeking payment of a half-share of the outgoings. As Mr Lambert did not provide any explanation that could justify a conclusion that Realtek's obligation to pay the two amounts did not arise before the sublease was terminated, the Court should find that Realtek became obliged to pay to Wetamast a total of $1,433.56. Result 1. The result is that Wetamast is liable to pay damages to Realtek equal to $165,000 less the total of $18,750.05 and $1,433.56. The amount of damages is $144,816. 2. Realtek is entitled to interest on those damages at the Court's rate from the date of termination of the agreements. 3. Realtek's claim for damages against Mr Dorling for intentionally inducing Wetamast to breach its contracts with Realtek is dismissed. 4. The plaintiffs are entitled to declarations that the contract for sale and the sublease were terminated on the dates on which Realtek served the notices of termination. 5. Realtek is entitled to a declaration that the security agreement does not secure any amount that is now owed by Realtek to Wetamast. 6. Mr Lambert is entitled to a declaration that he is not liable to Wetamast under any guarantee given by him in favour of Wetamast. 7. The plaintiffs are entitled to an order for the costs of these proceedings against Wetamast. If the parties cannot agree on the appropriate costs order, I will hear further argument as to the basis upon which the costs should be ordered to be paid, including as to how any separate costs incurred by Mr Dorling should be treated. 8. The parties should provide short minutes of order to my associate that give effect to these reasons for judgment, including in respect of the amount of interest that is payable on the damages, as soon as possible. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 December 2019