C H Leaman Investments Pty Ltd v Tuesday Enterprises Pty Ltd as trustee for the Steele Investment Trust
[2022] WASC 447
•16 DECEMBER 2022
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: C H LEAMAN INVESTMENTS PTY LTD -v- TUESDAY ENTERPRISES PTY LTD as trustee for THE STEELE INVESTMENT TRUST [2022] WASC 447
CORAM: HILL J
HEARD: 24, 27 - 31 JULY, & 20 AUGUST 2020
DELIVERED : 16 DECEMBER 2022
FILE NO/S: CIV 1323 of 2019
BETWEEN: C H LEAMAN INVESTMENTS PTY LTD
Plaintiff
AND
TUESDAY ENTERPRISES PTY LTD as trustee for THE STEELE INVESTMENT TRUST
First Defendant
COMPLETE FIELD MAINTENANCE PTY LTD
Second Defendant
MATHEW ALLEN STEELE also known as HARRY STEELE
Third Defendant
Catchwords:
Contract – Proper construction of contract – Time for compliance with conditions precedent – Whether contract came to an end due to failure to satisfy condition precedent – Whether defendants entitled to give notice of termination of contract through effluxion of time – Turns on own facts
Contract – Financial assistance provision – Obligation to use best endeavours to satisfy provision – What was required to comply with provision – Whether defendants used best endeavours – Whether plaintiff used best endeavours – Turns on own facts
Contract – Whether conduct of defendants in giving notice of termination of agreement a repudiatory breach of agreement – Whether plaintiff was ready, willing and able to complete agreement – Standard required
Damages – Measure of damages – Loss of opportunity – Whether loss proven on balance of probabilities – Whether loss was reasonably foreseeable at the time of entering into agreement – Turns on own facts
Damages – Assessment of damages – Whether plaintiff failed to mitigate against loss
Legislation:
Corporations Act 2001 (Cth), s 260A, s 260B
Result:
Judgment for plaintiff
Defendants to pay nominal damages
Category: B
Representation:
Counsel:
| Plaintiff | : | M L Bennett & C E Hagan |
| First Defendant | : | M C Goldblatt & A M Freund (24, 27, 28, 29, 31 July); M C GoldBlatt & S C England (30 July); S C England & A M Freund (20 August) |
| Second Defendant | : | M C Goldblatt & A M Freund (24, 27, 28, 29, 31 July); M C GoldBlatt & S C England (30 July); S C England & A M Freund (20 August) |
| Third Defendant | : | M C Goldblatt & A M Freund (24, 27, 28, 29, 31 July; M C Goldblatt & S C England (30 July); S C England and A M Freund (20 August) |
Solicitors:
| Plaintiff | : | Bennett + Co |
| First Defendant | : | Lawton Gillon |
| Second Defendant | : | Lawton Gillon |
| Third Defendant | : | Lawton Gillon |
Case(s) referred to in decision(s):
Adler v ASIC; Williams v ASIC (No 3) (2002) 20 ACLC 576
Adler v ASIC; Williams v ASIC [2003] NSWCA 131; (2003) 21 ACLC 1,810
Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2022] WASCA 69
Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475
AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton Utz (a firm) [No 2] [2019] WASC 306
AWB Ltd v Honourable Terence Rhoderic Hudson Cole (No 5) [2006] FCA 1234; (2006) 155 FCR 30
Bennett v Chief Executive Officer, Australia Customs Service [2004] FCAFC 237
Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219
Castle Constructions Pty Ltd v Fekala Pty Ltd [2006] NSWCA 133; (2006) 65 NSWLR 648
CIC Insurance Ltd v Hannan & Co Pty Ltd [2001] NSWSC 437
Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
Connective Services Pty Ltd v Slea Pty Ltd [2019] HCA 33
CSR Ltd v Adecco (Australia) Pty Ltd [2017] NSWCA 121
Flack v Chairperson, National Crime Authority (1997) 80 FCR 137
Foran v Wight (1989) 168 CLR 385
Fraser v Fraser [2019] WASC 135
G W Sinclair & Co Pty Ltd v Cocks [2001] VSCA 47
George 218 Pty Ltd v Bank of Queensland Ltd [No 2] [2016] WASCA 182; (2016) 313 FLR 287
Hadley v Baxendale (1854) 9 Exch 341; (1854) 156 ER 145
Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Joseph Street Pty Ltd v Tan [2012] VSCA 113; (2012) 38 VR 241
Malec v J C Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638
Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1
MK & JA Roche Pty Ltd & Ors v Metro Edgely Pty Ltd [2005] NSWCA 39
Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 247 ALR 140
Ng v Filmlock Pty Ltd [2014] NSWCA 389; (2014) 88 NSWLR 146
Olympic Holdings Pty Ltd v Lochel [2004] WASC 61
O'Rourke v P & B Corporation Pty Ltd [2008] WASC 36; (2008) 36 WAR 197
Paltara Pty Ltd & Anor v Dempster & Ors (1991) 6 WAR 85
Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235
Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92
Poseidon Ltd v Adelaide [1994] HCA 4; (1994) 179 CLR 332
Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd (No 2) [2009] WASCA 183
Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332
Sheahan v Londish [2010] NSWCA 270
Sopov v Kane Constructions Pty Ltd [2007] VSCA 257; (2007) 20 VR 127
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418
Tamanna v Zattere [2017] NSWSC 1388
TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd (1963) 180 CLR 130
The Mediana [1900] AC 113
Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson trading as Holgerssons Complete Home Service [2019] WASCA 114
Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; (1998) 192 CLR 603
Watson v Foxman (1995) 49 NSWLR 315
Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454
Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 All ER 571; [1980] 1 WLR 277
TABLE OF CONTENTS
Introduction
Summary of agreed facts
The parties
Share Purchase Agreement
Financial Assistance
Termination of Agreement
Mitigation
Delay in judgment
Pleadings
Issues for determination
Onus, approach to the evidence and general observations on credibility
Onus and standard of proof
Approach to the evidence
General observations on credibility
Christopher Leaman
Wei (Alex) Qian
Allan Pocock
Peter Lark
Matthew (Harry) Steele
Rudolph Alexander (Alex) Zilkens
Accounting experts: Mr Barry Honey and Mr Darryn Hockley
Jones v Dunkel inference
Procedural rulings during trial
Waiver of Privilege
Legal Principles
Disposition
Exhibit 1.29
Ex 1.57 and Ex 1.62
Relevance of negotiations with Rio Tinto
Entry into the Agreement
Conduct of the parties after execution of the Agreement up until 17 January 2018
Conduct of the parties between 17 January and 22 January 2019
Conduct of the parties after 22 January 2022
Financial Assistance under the Corporations Act
Proper Construction of the Share Purchase Agreement
Legal principles
Disposition
Satisfaction of cl 2.3 of the Agreement
Did C H Leaman use its best endeavours to satisfy cl 2.3?
Did the defendants fail to use their best endeavours to satisfy cl 2.3?
Did the Defendants repudiate or renunciate the Agreement?
Legal Principles
Did the defendants, by the 17 January Notice, repudiate the Agreement?
Was C H Leaman entitled to accept the repudiation of the Agreement and terminate the Agreement?
Does cl 1.5 of the Agreement apply?
Has C H Leaman failed to take reasonable steps to mitigate its loss?
Assessment of damages
Legal principles
Evidence
Expert evidence
Quantification of loss of profits
Calculation of Final Payment
Valuation of Stock
Small Business Pool assets
Taxation Liabilities
Disposition
Measure of damages
Quantification of loss of profits
Proper construction of Agreement
Calculation of Final Payment
Valuation of stock
Small Business Pool assets
Taxation liabilities
Conclusion
HILL J:
Introduction
On 21 December 2018, the plaintiff (C H Leaman) entered into a share purchase agreement with the defendants (Agreement). Under the Agreement, C H Leaman agreed to purchase the one issued share in Rexwells Corporation Pty Ltd (Rexwells) from Tuesday Enterprises Pty Ltd (Tuesday Enterprises).
The Agreement was subject to a number of conditions precedent, including the provision of financial assistance. This required compliance with s 260A and s 260B of the Corporations Act 2001 (Cth) (Act). Under the Agreement, if the conditions precedent were not satisfied before 30 January 2019, the Agreement ceased to have effect and neither party would have any claim against any other party.
On 17 January 2019, the defendants gave notice that the financial assistance provision in the Agreement had become incapable of being satisfied and that, as a result, the Agreement ceased to have any effect. C H Leaman says this notice is a repudiation of the Agreement, which it elected to accept on 22 January 2019. C H Leaman also contends the defendants breached their obligations to use their best endeavours to satisfy the financial assistance provision. As a consequence, C H Leaman says it has suffered loss and damage of between $5,267,000 and $6,049,000.
The defendants deny their conduct, properly viewed in the context of what had occurred, was a breach of the Agreement or that the letter was a repudiation of the Agreement. In any event, the defendants say C H Leaman was in breach of the same obligation and, on this basis, was not entitled to elect to accept any repudiation. In relation to damages, the defendants dispute C H Leaman has proved it suffered any loss, let alone damages in the amount claimed.
For the reasons that follow, it is my view that:
(a)the defendants breached their obligations to use their best endeavours to satisfy the financial assistance condition precedent under cl 2.3 and cl 2.4 of the Agreement. The plaintiff did not;
(b)the defendants, by their letter of 17 January 2019, renunciated the Agreement, which the plaintiff elected to accept on 22 January 2019;
(c)C H Leaman has failed to prove they suffered any loss and, as a consequence, is entitled only to nominal damages.
Summary of agreed facts
Prior to the trial of these proceedings, the parties helpfully filed a detailed statement of agreed facts. The following summary is drawn from this, using the same headings as contained in this document. Where the agreed facts refer to a document and there is no dispute regarding the contents or effect of the document, I have extracted or summarised the relevant aspect of the document in this summary. Otherwise, I address the evidence in relation to matters in dispute (including any contentious documents) at the relevant part of these reasons.
The parties
C H Leaman is an investment company of Christopher Leaman. Mr Leaman is the sole director of C H Leaman.[1]
[1] Statement of Agreed Facts [8].
Rexwells carries on business under the trading name of 'Complete Field Maintenance'. Complete Field Maintenance provides products for the supply of parts, services, and maintenance of mobile and fixed plant and equipment for the mining industry, including blast hole drilling rigs.[2]
[2] Statement of Agreed Facts [3].
The third defendant, Mr Steele (who is known as Harry Steele), is the sole director and company secretary of Rexwells.[3] The first defendant, Tuesday Enterprises (in its capacity as trustee for the Steele Investment Trust), is the sole shareholder of Rexwells.[4]
[3] Statement of Agreed Facts [5.2]; Ex 1.102B.
[4] Statement of Agreed Facts [2.2]; Ex 1.102B.
The financial statements of Rexwells disclose that Rexwells made a profit each year it was operating. Specifically, its net profit before tax was:[5]
(a)for the year ending 30 June 2015, $646,563;
(b)for the year ending 30 June 2016, $1,510,530;
(c)for the year ending 30 June 2017, $1,847,782;
(d)for the year ending 30 June 2018, $2,065,943; and
(e)for the year ending 30 June 2019, $1,795,104.
[5] Statement of Agreed Facts [17].
Mr Steele is the sole director, company secretary and shareholder of both Tuesday Enterprises[6] and the second defendant, Complete Field Maintenance Pty Ltd (CFM).[7]
[6] Statement of Agreed Facts [5]; Exhibit 1.102A.
[7] Statement of Agreed Facts [5]; Ex 1.102C.
CFM owns certain intellectual property rights that are used by Complete Field Maintenance, including its business name. CFM has since changed its name to Drilltrax Pty Ltd (Drilltrax).[8]
Share Purchase Agreement
[8] Statement of Agreed Facts [4].
In about 2017, Performance Business Sales advertised the assets and undertakings of Rexwells for sale. A copy of an information memorandum on Rexwells prepared by Performance Business Sales was provided to Mr Leaman in late 2017.[9] Mr Steele wanted to sell the business and retire to be a more full‑time father to his two young children.[10]
[9] Statement of Agreed Facts [8]; Ex 1.106.
[10] ts 480.
Between late 2017 and late 2018, Mr Leaman made a number of offers to purchase the business. The defendants accepted at least two of the offers (in November or December 2017 and June 2018).[11] However, after some further negotiations, Mr Steele changed his mind and the purchase did not go ahead.
[11] ts 272 – 273 (Leaman).
On 13 December 2018, Mr Qian of the National Australia Bank (NAB), Mr Leaman's relationship manager at NAB, advised Mr Leaman that his application for a $4 million business loan had been approved, subject to certain conditions.[12] The NAB were long‑term bankers of Mr Leaman and his companies.[13]
[12] Ex 1.162.
[13] ts 275.
On 18 December 2018, C H Leaman received a letter from NAB offering to provide a facility of $4 million for the purchase of the share in Rexwells (Facility).[14] It was a condition of the offer that C H Leaman provide evidence to the bank that due diligence had been completed, together with a copy of the due diligence report. The offer also required a 'whitewash certificate' to be provided prior to any drawdown of the loan.[15] The term of the Facility was for three years, until 31 December 2021. Mr Leaman's evidence was that he expected at the expiration of the term, the loan would continue 'for the rest of its normal period'.[16] In November 2019, he confirmed with NAB that the principal repayments assumed repayment of the loan over approximately eight years, the NAB would review the facility on 31 December 2021 and roll over the loan for another three years.[17]
[14] Statement of Agreed Facts [15]; Ex 1.163.
[15] Ex 1.163, p 6.
[16] ts 283.
[17] Ex 1.170.
The offer required a number of assets to be provided as security for the Facility. These were a mortgage over a property at 15 Hodgson Way Kewdale, which was unencumbered,[18] a term deposit of $1 million, a fixed and floating charge over all assets of C H Leaman, a 'Security Interest and Charge over all of the present and future rights, property and undertaking' of C H Leaman and a guarantee and indemnity from Mr Leaman and Rexwells supported by a 'Security Interest and Charge over all of the present and future rights, property and undertaking' of Rexwells.[19] Mr Leaman's evidence was that in addition to this security, he agreed with the NAB that he would inject $1 million into Rexwells after settlement.[20]
[18] ts 282.
[19] Ex 1.163, p 7
[20] ts 282.
On or about 21 December 2018, the parties entered into the Agreement.[21] The completion date for settlement of the Agreement was defined to be 31 January 2019.[22]
Financial Assistance
[21] Statement of Agreed Facts [16]; Ex 1.45.
[22] Ex 1.45, cl 1.1.
The first time that the financial assistance clause was raised between the parties after execution of the Agreement was on 4 January 2019, in an exchange of emails between Mr Leaman and Mr Steele.
Following this, there was a telephone discussion between the solicitors for the parties on 7 or 8 January 2019 and a subsequent email from Zilkens Lawyers to Lark Lawyers on 8 January 2019 asking that Lark Lawyers prepare the financial assistance documents.[23]
[23] Ex 1.51, p 2.
At 11.35 am on 9 January 2019, Mr Allan Pocock of Lark Lawyers, the solicitors for C H Leaman, sent an email to Zilkens Lawyers, the defendants' solicitors, copied to Peter Lark, a partner of Lark Lawyers, and Mr Leaman, informing them that C H Leaman intended to borrow $4 million from the NAB for the purchase of Rexwells and that the NAB intended to take security over the shares in Rexwells and the assets and undertaking of Rexwells.[24]
[24] Statement of Agreed Facts [23]; Ex 1.55.
Subsequent to this email, Alex Zilkens and Sidd Jain (of Zilkens Lawyers) had a telephone conversation with Allan Pocock.[25]
[25] Statement of Agreed Facts [24].
Following discussions between the parties' solicitors, Lark Lawyers agreed to prepare initial draft documents for the s 260B application and provided them to Zilkens Lawyers by email on 11 January 2019.[26] Further emails were exchanged between the parties' solicitors on 11 January 2019.[27]
[26] Statement of Agreed Facts [25]; Ex 1.61.
[27] Statement of Agreed Facts [26] – [27].
On 14 January 2019, Zilkens Lawyers wrote to Lark Lawyers requesting further information in order to make an assessment as to whether there would be material prejudice to the company under s 260A of the Act.[28] Further information was provided by Lark Lawyers on 15 January 2019.[29]
[28] Statement of Agreed Facts [29]; Ex 1.65.
[29] Statement of Agreed Facts [31]; Ex 1.69.
On 16 January 2019, Zilken Lawyers requested further information together with an indemnity from the plaintiff.[30] Subsequent to this email, on 17 January 2019, Allan Pocock and Sidd Jain had a telephone conversation, the contents of which are disputed.[31] Following this, on 17 January 2019, Lark Lawyers emailed Zilkens Lawyers a draft indemnity deed.[32]
Termination of Agreement
[30] Statement of Agreed Facts [32]; Ex 1.70.
[31] Statement of Agreed Facts [33].
[32] Statement of Agreed Facts [34]; Ex 1.72.
At 4.48 pm on 17 January 2019, Zilkens Lawyers sent a letter to Lark Lawyers (17 January Notice).[33] The letter stated that C H Leaman had refused to provide the information requested and that, in the circumstances, the defendants had concluded they had insufficient information to be able to resolve that the provision of financial assistance would not materially prejudice Rexwell's ability to pay its creditors. On this basis, the defendants gave notice that the financial assistance provision had become incapable of being satisfied and the agreement ceased to have effect.
[33] Statement of Agreed Facts [35]; Ex 1.75 and Ex 1.75.1.
On 22 January 2019, Bennett + Co (as they then were), who had been appointed to act on behalf of C H Leaman, wrote to Zilkens Lawyers asserting the 17 January Notice was a repudiatory breach of the Agreement and gave notice that C H Leaman elected to accept the defendants' repudiation.[34]
Mitigation
[34] Statement of Agreed Facts [36]; Ex 1.79 and Ex 1.79.1.
The defendants appointed Lawton Gillon to act on their behalf in late January 2019. Following discussions between Mr Steele and Mr Leaman, on 6 February 2019, Lark Lawyers emailed Lawton Gillon a draft amended Agreement.[35]
[35] Statement of Agreed Facts [38]; Ex 1.89 and Ex 1.89.1.
On 15 February 2019, the defendants offered to 'treat the Share Purchase Agreement as on foot' subject to the purchase price being reduced by $400,000 and the completion date being amended to 28 February 2019.[36] This offer was open for acceptance until 4.00 pm on 22 February 2019.
[36] Statement of Agreed Facts [39]; Ex 1.94.1.
This offer was not accepted by the plaintiff. Instead, on 21 February 2019, C H Leaman commenced these proceedings.
Delay in judgment
The hearing of this matter took place in July and August 2020. It has not been possible to complete the reasons for my decision as quickly as I would have liked.
I have taken the following steps to ensure my ability to properly assess the parties' cases and the evidence that was given at trial has not been impaired by the delay between the hearing and the publication of these reasons.
First, I continued to have a clear impression of the evidence given by the principal witnesses called by each of the parties. Each of them gave evidence in person, and was subjected to cross-examination. During the course of the trial, I made contemporaneous notes of their evidence and my observations of each of them as witnesses. My assessment of the witnesses has been assisted by my review of these notes, my review of the transcript, as well as the documents that were tendered in evidence. I have also re‑listened to portions of the oral recordings of each of the witness' evidence.
Second, I had the benefit of detailed written and oral closing submissions from counsel for the parties. Each counsel made submissions on the evidence given by the witnesses, including as to the findings of credibility that each contends should be made.
Third, my conclusions as to the credit and reliability of each of the witnesses are primarily based on the internal consistency of the evidence that each witness gave, and the consistency of their evidence with contemporaneous records and the facts that were objectively established.
Pleadings
C H Leaman's claim against the defendants arises in relation to the Agreement. C H Leaman alleges that Tuesday Enterprises and Mr Steele failed to use their best endeavours to satisfy the condition in cl 2.3 of the Agreement.[37] This clause required these defendants to provide financial assistance to C H Leaman under s 260B of the Act. C H Leaman says that the 17 January Notice was a repudiation of the Agreement[38] which it elected to accept on 22 January 2019.[39]
[37] Amended Statement of Claim [20].
[38] Amended Statement of Claim [21].
[39] Amended Statement of Claim [22].
As a consequence of the repudiation or alternatively the breach of the Agreement, C H Leaman says it has suffered loss.[40] C H Leaman says it lost the opportunity to acquire the issued share in Rexwells and the benefit of owning Rexwells. C H Leaman calculates the loss as comprising the likely net present value of the likely future profit of Rexwells if the sale had completed, together with the amount that it would have realised from any subsequent sale of Rexwells or its business less the purchase price that was payable under the Agreement and its financing costs. The Amended Statement of Claim pleads this loss as being between approximately $6.7 million and $9.7 million. Subsequently, C H Leaman filed particulars of loss and damage which reduced the claim to between $5.267 million and $6.049 million.[41]
[40] Amended Statement of Claim [23].
[41] Plaintiff's further and better particulars of loss and damage.
The defendants advance a number of grounds on which they say C H Leaman is not entitled to any relief or damages in the amount claimed or at all.
First, the defendants say they were never provided with sufficient information to enable Tuesday Enterprises and/or Mr Steele to consider whether to pass a resolution under s 260B of the Act.[42] Had they passed the resolutions requested of them, Mr Steele would have been in breach of the director's duties which he owed to Rexwells. On this basis, they deny there was any breach of the Agreement.
[42] Substituted defence [15.4].
Second, the defendants say that on a proper construction of the Agreement, the Agreement ceased to have effect on 16 January 2019, alternatively 17 January 2019, alternatively 30 January 2019. Following these dates, under the express terms of the Agreement, the parties had no claim of any nature against each other.[43]
[43] Substituted defence [19.4].
Third, the defendants say that to the extent any relief is sought for a breach of the Agreement, C H Leaman failed to comply with the terms of the Agreement and was not entitled to commence court proceedings.[44]
[44] Substituted defence [20.4].
Fourth, the defendants deny the 17 January Notice was a repudiation of the Agreement for two reasons. First, because by that time, the Agreement had come to an end. Second, alternatively, because, on its proper construction, the 17 January Notice did not convey a repudiation of the Agreement.[45]
[45] Substituted defence [21.2(a)] – [21.2(d)].
Fifth, the defendants say that as at 22 January 2019, C H Leaman was not ready willing and able to perform the Agreement and accordingly was not entitled to accept any repudiation of the Agreement.[46] In reply, C H Leaman say that they were not 'substantially incapacitated from, nor definitively resolved against' being ready, willing and able to complete the transaction on 31 January 2019.[47]
[46] Substituted defence [22.4].
[47] Second amended reply [32.2].
Finally, the defendants contend C H Leaman failed to mitigate its loss by not accepting an offer from the defendants to treat the Agreement as if it were on foot with a discount to the purchase price of $400,000.[48] C H Leaman accepts the defendants made this offer but says it acted reasonably in refusing this offer. The basis for this contention includes that it had no confidence, given the matters that had occurred, that Mr Steele would comply with his obligations under the Agreement. For this reason, C H Leaman believed it would be necessary to continue to engage the current general manager of Rexwells at a higher rate, rather than the alternative manager it had planned. The proposed reduction in the purchase price did not cover the additional costs associated with this change in plan, the loss of the profits of one month's trading and the additional costs that C H Leaman incurred.[49]
[48] Substituted defence [23].
[49] Second amended reply [31].
At the commencement of the trial, the defendants also contended that C H Leaman was estopped from asserting the 17 January Notice constituted a repudiation of the Agreement.[50] During the course of the trial, counsel for the defendants advised that the defendants would not rely on this plea.[51] Accordingly, I have not addressed this aspect of the defence in these reasons.
[50] Substituted defence [21.2(e)].
[51] ts 467.
Issues for determination
The parties provided a statement of issues for determination. This statement reflected the parties' pleadings and the way the trial was run. Most of the issues were agreed between the parties, although each party contended there were additional issues which required determination. In relation to the additional issues, the primary dispute between the parties was, in my view, as to the proper characterisation of the issue.
The parties agree the following issues are required to be determined:
(a)In relation to the proper construction of the Agreement:
(i)What were the parties required to do in order to satisfy cl 2.3 of the Agreement?
(ii)What were the defendants required to do to satisfy their contractual obligation under cl 2.4 of the Agreement (to use their best endeavours to satisfy the condition in cl 2.3 of the Agreement), taking into account their duties under the Act and at law?
(iii)What was C H Leaman required to do to satisfy its contractual obligation under cl 2.4 of the Agreement (to use their best endeavours to satisfy the condition in cl 2.3 of the Agreement)?
(iv)Did the Agreement cease to have effect pursuant to cl 2.7? If so, when?
(b)In relation to the alleged repudiation of the Agreement:
(i)Was Tuesday Enterprises, alternatively the defendants, entitled to give notice to C H Leaman on 17 January 2019 that the condition in cl 2.3 was incapable of being satisfied and the Agreement ceased to have effect? Was the 17 January Notice given by Zilkens Lawyers valid?
(ii)Did Tuesday Enterprises, alternatively the defendants, repudiate the Agreement by the 17 January Notice?
(iii)Did cl 1.5 of the Agreement [that a party was not entitled to institute proceedings unless a notice of breach is given and not remedied within the time specified] apply where the defendants repudiated the Agreement?
(iv)Was C H Leaman entitled to accept the repudiation on 22 January 2019 and terminate the Agreement?
(v)Has C H Leaman failed to take reasonable steps to mitigate its loss?
As noted above at [46], there is a dispute about the precise wording of the other issues for determination. The additional issues that are required to be determined are:
(a)Whether the conduct of either party (or both parties) was a breach of cl 2.3 of the Agreement (best endeavours clause);
(b)Whether the plaintiff was 'ready, willing and able', alternatively whether the plaintiff was 'not substantially incapacitated from, nor definitively resolved against' being ready, willing and able, to complete the Agreement by the Completion Date;
(c)Did C H Leaman suffer any loss and damage and if so, what is the quantum of any damage?
Onus, approach to the evidence and general observations on credibility
Onus and standard of proof
The plaintiff accepts that it bears the onus of proof in establishing its claim. The defendants bear the onus of proof in relation to the mitigation of damage.
The standard of proof is, at all times, the balance of probabilities.
Approach to the evidence
Much of the dispute between the parties concerned the proper construction of the Agreement and the 17 January Notice.
In considering the oral evidence of the parties, I have taken the following matters into account.
There is a significant risk that conversations have been reconstructed by witnesses. There are dangers in relying on evidence of what may have been a casual observation made to a person who had no reason to remember the exact words used at the time of the conversation.
Human memory of what was said in a conversation is fallible for a number of reasons. Ordinarily, this increases over time, particularly where disputes or litigation intervene. This is because the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, often subconsciously, constructed.[52]
[52] Watson v Foxman (1995) 49 NSWLR 315, 318 ‑ 319 (McLelland CJ in Eq).
The credibility of a witness and their veracity may be tested by reference to objective facts which can be proved independently, in particular by reference to the documents in the case. Often, the only safe course is to place primary emphasis on the objective factual surrounding material, the inherent commercial probabilities and the contemporaneous documents. Documents will often provide more valuable information than the attempted recollection of the facts by witnesses with an interest in the outcome of the litigation. This is particularly the case when the documents are accepted as genuine and were prepared by a person who had no reason to misstate the facts in these documents.
Contemporaneous statements and documents are likely to be a more accurate reflection of events than later statements. This is because false memories can intrude, especially when the person recalling events has tried to assemble recollections logically. In doing so, the person can attempt to have some rational explanation in the person's mind as to what has happened. It is important to keep in mind that memories are both fluid and malleable and are constantly rewritten whenever they are retrieved.[53]
General observations on credibility
[53] McClellan P, 'Who Is Telling the Truth? Psychology, Common Sense and the Law' (2006) 80 Australian Law Journal 655, 665, quoting Australian Psychological Society, Guidelines Relating to Recovered Memories (2000).
C H Leaman called five witnesses to give evidence on its behalf: Mr Leaman, the sole director of C H Leaman, Wei (Alex) Qian, a senior business banking manager with the NAB, two solicitors from Lark Lawyers, Allan Pocock and Peter Lark, and Mr Barry Honey, an accounting expert. The defendants called three witnesses: Mr Steele, the third defendant, Alex Zilkens, the principal of Zilkens Lawyers and Mr Darryn Hockley, an accounting expert.
Christopher Leaman
Mr Leaman is the sole director and secretary of the plaintiff. At the time of the trial, he had more than 25 years' experience in managing PJL Diesel Electric, a mining supply business, which was sold in 2014.[54] After this business was sold, Mr Leaman started two businesses in the United Arab Emirates and is a significant shareholder and non‑executive director of two companies in Perth.
[54] ts 270.
Mr Leaman gave his evidence confidently. It was clear from his evidence that Mr Leaman was a relatively sophisticated and experienced business‑person. He came across as someone who was a shrewd negotiator, who was prepared to use any advantages he had to improve his bargaining or commercial position.
By way of example, Mr Leaman gave evidence of the development and use of a spreadsheet which he used to assess Rexwells, his assumptions, and his predictions as to likely sales, profits and expenses.[55] It was apparent from his evidence that he carefully analysed the information he received in relation to Rexwells and considered how he could maximise returns from this business.
[55] Ex 1.108E; ts 275.
The submissions from the parties about Mr Leaman as a witness were diametrically opposed. Counsel for the plaintiff submitted that his evidence was given in a 'careful considered sensible manner', he did not attempt to argue or avoid questions in cross-examination and that he made appropriate concessions. In contrast, the defendants submitted that Mr Leaman was an unreliable witness who tried to 'understate and obfuscate' evidence which he thought might be unfavourable to the plaintiff's case.
In my view, some of the matters that were raised by the defendants in support of their submission were quite minor. For example, much was made in the defendants' closing submissions about what was said in a meeting on 13 November 2018 in relation to who would draft the financial assistance documents. Mr Leaman accepted that, at this meeting, Zilkens Lawyers stated they were not experienced in drafting financial assistance documents, they would like Lark Lawyers to assist and Lark Lawyers agreed to do so. A distinction was sought to be drawn as to whether Mr Lark said he would assist Zilkens (Mr Leaman's evidence) or whether he said that Lark Lawyers would draft them (Mr Lark's evidence). Ultimately, I do not consider that much turns on this distinction.
However, other matters were more meritorious. For example, Mr Leaman did not accept that Mr Steele struggled to understand the commercial and legal aspects of the sale,[56] denied that Mr Steele was 'overwhelmed by the complexities' involved in the sale and expressed the view that he used this as a 'buffer' between them as it enabled Mr Steele to control the situation better.[57] In his view, this was all 'part of the game' of trying to minimise exposure in a business transaction.[58] In re‑examination, Mr Leaman explained that he had discussions with Mr Steele over the course of the negotiations about the rise, fall and re-rise of his business and some 'business dealings that he enjoyed doing out of New York, in the evenings', which caused him to form this view of Mr Steele. For the reasons that I develop below in my assessment of Mr Steele, I do not accept this characterisation of Mr Steele's conduct.
[56] ts 297.
[57] ts 298.
[58] ts 301.
I also accept that Mr Leaman's statements in emails about Mr Horsman's involvement in the transaction overstated Mr Horsman's role, whether he was making any financial contribution to the transaction and the time that he was spending on it.[59] However, when asked about these matters in cross‑examination, Mr Leaman readily accepted that the statements he had made in these emails were incorrect.[60] I do not accept the explanations that he gave for these statements, namely that the documents were written as generalisations. However, these emails do not, in my view, provide a basis upon which I should reject Mr Leaman's evidence. This evidence reinforces the impression I formed of Mr Leaman, namely that he was a sophisticated and astute businessman who considered negotiations to be 'part of the game' to maximise benefits to be obtained from a commercial transaction or to reduce any associated risks, and that where possible, he attempted to obtain commercial advantage in his negotiations and use it to his advantage.
[59] See for example Ex 1.3, Ex 1.67, Ex. 1.81, Ex 1.87.
[60] ts 304 - 307.
However, much of Mr Leaman's evidence is consistent with the contemporaneous documents. For this reason, I make no adverse credit finding against him. In considering his evidence, I consider the contemporaneous documents are the most reliable evidence.
Wei (Alex) Qian
Mr Qian is a senior business banking manager with the National Australia Bank. Mr Leaman is one of his clients. Mr Qian gave evidence about the offer to Mr Leaman for a facility to fund the purchase price of Rexwells. I accept Mr Qian's evidence in its entirety.
Allan Pocock
Mr Pocock is a legal practitioner who is a special counsel at Lark Lawyers. He has been admitted to practice in Western Australia since October 1985. Prior to this, he practised law in Cape Town, South Africa from January 1970 until September 1984. He has been employed by Lark Lawyers since 2012.
Mr Pocock was brought into this matter at short notice, shortly prior to the meeting of 13 November 2018, because Mr Lark was going to be overseas in December 2018. Mr Pocock took over carriage of the matter on the part of C H Leaman from late November 2018 until mid‑January 2019.[61]
[61] ts 375.
Mr Pocock gave direct answers to the questions asked of him, including as to what conversations he had an independent recollection of and which conversations he had refreshed his memory from his file notes. In my view, Mr Pocock was an impressive witness and I accept his evidence.
Peter Lark
Mr Lark is a legal practitioner who is a special counsel at Lark Lawyers. He has been admitted to practice for 25 years and prior to that worked as an accountant for approximately 15 years.[62]
[62] ts 398.
Mr Lark has historically acted for Mr Leaman and his related entities on various commercial transactions and was retained by him in 2018 in respect of the proposed purchase of Rexwells.[63]
[63] ts 399.
Mr Lark gave direct and confident answers to the questions asked of him in both examination in chief and cross‑examination. In answer to a number of questions in cross‑examination about what involvement he had in relation to certain correspondence, Mr Lark's response was 'I cannot recall'. In responding in this manner, I did not get the impression that Mr Lark was trying to avoid the question or responsibility for what had occurred. The answer simply reflected his position. However, this meant that there were only limited aspects on which Mr Lark was able to give evidence. In my view, Mr Lark was an honest witness, and I accept his evidence.
Matthew (Harry) Steele
At the time of the hearing, Mr Steele was 41 years old. After leaving school, Mr Steele did a fitter and turner apprenticeship in Tasmania, which he finished in mid-2000. He moved to Western Australia in 2003 with his then employer to work as a fly‑in, fly‑out heavy duty drill fitter.[64] In about 2004, he started work as a drill product specialist servicing drilling rigs. In 2007, he started his own labour hire business, CFM. In about 2012, the nature of the business changed and it started to focus on supplying service kits and products for drill rigs.[65] In late 2013, the business was restructured and Tuesday Enterprises and Rexwells were incorporated.
[64] ts 420.
[65] ts 421.
In contrast to Mr Leaman, Mr Steele came across as relatively unsophisticated, particularly in relation to the structuring of the transaction, matters of corporate governance, and the provisions of the Act. To use Mr Steele's words, 'It's a simple business [I]'m a simple bloke let's make it a simple transaction'.[66] At the time he entered into negotiations with Mr Leaman, he had never sold a business.[67]
[66] Ex 1.20.
[67] ts 425.
Once again, the submissions from the parties about Mr Steele as a witness were diametrically opposed. Counsel for the defendants submitted that Mr Steele gave his evidence in a 'forthright and candid' manner. It was said that Mr Steele struggled with the legal and commercial complexities of the transaction and that he relied heavily on the services of his advisers. In contrast, counsel for the plaintiff contended Mr Steele was a 'shrewd capable and successful business man'.
It was clear from the evidence of Mr Steele that he has been successful. At the time of the trial, he owned three properties (that were subject to mortgages), he owned the companies and business the subject of these proceedings as well as another company that was involved in Vitamin E oil.[68] Mr Steele has investments in the United States of America and confirmed he has a 'broker' in New York who conducts trading on his behalf, subject to his instructions. Mr Steele has invested in one 'biotech' company that was recommended to him. The value of this portfolio is 'around about [US] $900,000'.[69]
[68] ts 473 – 474.
[69] ts 480 – 481.
While I accept that Mr Steele is a successful businessman, as is apparent from the trading and financial history of Rexwells, this, of itself, does not mean that Mr Steele is 'shrewd' or that he feigned his struggle to understand the complexities of the transaction and his reaction to it.
Mr Steele was somewhat reserved and defensive when giving evidence. By way of example, at the commencement of his cross-examination, he was asked a number of questions about the assets that he had in personal name at the time of the negotiations. While Mr Steele accepted he had significant assets in his own name, he initially said that he was not sure whether these were to the value of $2.5 million. When an email from Zilkens Lawyers was shown to him which said that for the last four years (prior to November 2018), he had property and personal assets (excluding his interest in the family home) which exceeded $2. million, he accepted this was the case. However, having accepted this, he was unable to or did not provide any further information as to what these assets were, apart from saying it included two properties and that he thought the remainder was cash.
While I accept that Mr Steele is a more reserved and quiet person than Mr Leaman, this is not a complete explanation for the answers he gave in his evidence.
In answer to a significant number of questions that were put to Mr Steele in both examination in chief and cross‑examination, Mr Steele said that he relied on the advice of others, including the business brokers (in respect of the information in the Information Memorandum for the sale of his business), Mr Zilkens (in relation to the legal aspects of the proposed transaction) and his accountant, Mr Brennan (in relation to any taxation, structuring, accounting or financial issues).
An example was when Mr Steele was asked about the special purpose financial accounts of Rexwells dated 31 January 2019 and the payment of a dividend to Tuesday Enterprises on or around this date of approximately $4.3 million. Initially, Mr Steele's response to a question asking whether he, with Mr Brennan, had prepared these accounts was that Mr Brennan took care of all the accounts. When he was then asked whether the background to the transaction was that it was going to 'free up' profits of $4.3 million, he again said that he left all of the finance to the accountants. When asked what he meant by that, Mr Steele first said that this is what the figures said before agreeing that he was not going to leave that money behind in Rexwells and that he would receive almost $10 million from the proposed sale.[70]
[70] ts 484 - 485.
Shortly afterwards, Mr Steele was asked about the Agreement. In answer to a question about whether he had read through the document and knew what the structure was, his initial response was that he 'relied on Alex Zilkens to take care of the document'. However, when he was asked further details about his knowledge of the document, including the warranties he was giving, he accepted that he knew about these matters.[71]
[71] ts 486.
In answering the questions in this way, I did not form the impression that Mr Steele was attempting to avoid answering the questions asked of him. In my view, these answers were more consistent with a view Mr Steele appeared to have taken that he was not under any personal obligation to make efforts to understand what was proposed and that he was entitled to leave matters to his advisers. However, I do accept that in answering the questions in this manner, Mr Steele attempted to minimise his role in and understanding of the transaction. When his initial response was tested, particularly in cross-examination, it was apparent (as set out in the example above) that Mr Steele had a broad understanding of the matters, even if he did not have a detailed understanding of why matters were recorded in a particular way.
The impression that I formed of Mr Steele was that he is not comfortable with conflict and that when conflict arose, or something occurred that he was not happy with, he withdrew from the situation. This was evident from the history of negotiations in this matter. The evidence before me was that prior to entry into the Agreement, the parties had reached broad agreement about the price of a sale of Rexwells to Mr Leaman or one of his entities on three occasions but that the negotiations broke down when Mr Steele withdrew from them.[72] It is also consistent with Mr Steele's conduct in turning his phone off for three days after the 17 January Notice was sent and Mr Lark's evidence of Mr Steele's behaviour at the meeting on 13 November 2019 that Mr Steele was upset with the way he had been greeted at the meeting so sat in the corner and looked out the window for the duration of the meeting.[73]
[72] ts 497.
[73] ts 401.
Mr Steele's reluctance in cross-examination to answer the questions asked of him, even on minor points, did not reflect well on him. In my view, at least some of this reluctance and defensiveness is due to his discomfort at being involved in court proceedings and being required to give evidence. While I make no adverse credit finding in relation to Mr Steele, I consider the contemporaneous documents are the most reliable evidence as to what occurred.
Rudolph Alexander (Alex) Zilkens
Mr Zilkens is a legal practitioner with approximately 32 years' post admission experience. Since 1993, he has run his own law firm, Zilkens Lawyers.
Mr Zilkens' evidence was that he employed Mr Jain in 2018, who was a very junior lawyer. For this reason, Mr Jain did not have much autonomy and all of his emails were settled by Mr Zilkens.
In both his evidence and evidence in chief, Mr Zilkens answered questions directly and made appropriate concessions. This included his answer to the question asked of him as to whether he looked at the relevant sections of the Act (s 260A and s 260B) at the time of providing his advice. His answer in examination in chief was that he couldn't remember a specific time that he looked at these provisions.[74] In cross‑examination, Mr Zilkens accepted that he had not looked up a textbook on the financial assistance provisions, considered these provisions in the Act, or done any research himself.[75]
[74] ts 538.
[75] ts 550, 554.
Counsel for the plaintiff, quite properly in my view, accepted that Mr Zilkens was an honest witness. I accept Mr Zilkens' evidence in its entirety.
Accounting experts: Mr Barry Honey and Mr Darryn Hockley
Each of the parties called an expert witness to give expert evidence on the quantification of damages. C H Leaman called Mr Honey, a chartered accountant, and the defendants called Mr Hockley, a chartered accountant and a partner of Grant Thornton.
In the course of the matter, the parties agreed a schedule of agreed expert evidence questions. The defendants did not seek to adduce evidence as to what they said was the correct calculation of the plaintiff's damages but simply addressed what they say is the correct calculation of damages in the event the court accepts the plaintiff's methodology is correct.
Mr Honey filed three reports: a report dated 23 July 2019 (First Honey report), which the defendants objected to and was prepared prior to orders being made for expert evidence, a report dated 31 January 2020 which addressed the schedule of agreed expert evidence in accordance with the orders of 16 December 2019 (Second Honey report), and a supplementary expert report dated 2 April 2020 (Third Honey report). Mr Hockley filed one report dated 13 March 2020.
The defendants objected to the First Honey report being admitted in evidence for several reasons. First, it was prepared prior to the orders for expert evidence and was not the subject of conferral between the experts. Second, the report expresses an opinion on the profit that would have been earned in Rexwells over a ten year period and equates that to the loss of C H Leaman. Third, the report includes an amount for the sale of the business in ten years time, when there was no evidence that this was the intention of Mr Leaman. At the hearing, I received the report on a provisional basis with the exception of par 10(c), which was deleted in its entirety, as well as the words 'the value of the loss of opportunity suffered by C H Leaman Investments Pty Ltd' in the chapeau to par 10 of the First Honey report. Ultimately, for the reasons set out in my assessment of damages, I do not consider this report to be of any assistance in the resolution of the issues in these proceedings and have not given it any weight.
As is common in matters in the commercial and managed cases list of this court, the experts were ordered to confer and produce a joint expert report (JER). The JER was filed on 23 June 2020. The JER succinctly summarised the areas of agreement and disagreement between the experts. As a result of this process, very little remained in dispute between the experts.
The accounting evidence was directed to two matters: first, a quantification of the loss of profits that was likely to have been generated by Rexwells over a 10 year period; and second, the calculation of elements of the purchase price, most notably the Final Payment. At trial, the experts gave their evidence concurrently.
For the reasons that I set out below, I do not consider that either of these matters are relevant to an assessment of the plaintiff's damages. On this basis, the expert accounting evidence was, ultimately, of no practical utility in assessing the plaintiff's damages.
Jones v Dunkel inference
Both parties did not call certain witnesses at the trial: Mr Mark Horsman (for C H Leaman) and Mr Siddarth Jain and Mr Greg Brennan (for the defendants). This gave rise to the question as to whether I should draw a Jones v Dunkel inference from these decisions.[76]
[76] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, 308, 312, 320 - 321.
Before considering whether and what inference should be drawn from this decision, it is important to set out the limits of the inference that can be drawn. These were usefully summarised by Vaughan J in AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton Utz (a firm) (No 2).[77] As his Honour noted, the rule in Jones v Dunkel:
(a)does not mean that an adverse inference should be drawn that the evidence that has not been called would be positively damaging to that party's case. As was stated by Menzies J in Jones v Dunkel, the absence of a witness cannot be used to make up any deficiency in the evidence;[78] and
(b)does not prevent a favourable inference being drawn in favour of a party if other evidence justifies this inference.[79]
(c) If matters of fact which are pleaded are otherwise established by the evidence, the failure to call a witness does not prevent a finding of fact being made.[80]
[77] AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton Utz (a firm) [No 2] [2019] WASC 306 [145].
[78] Jones v Dunkel, 312.
[79] Flack v Chairperson, National Crime Authority (1997) 80 FCR 137, 148 - 149.
[80] Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 247 ALR 140 [634].
There are two consequences which may flow from the unexplained failure to call a witness. First, it may enable the court to draw an inference that the evidence of the witness would not assist the party's case. Second, the court may draw with greater confidence an inference which is unfavourable to that party.[81] However, that inference must be available on the evidence. The relevant witness must be one who may be able to 'cast light on the fact relied on as the ground for the inference'.[82]
[81] Morley v Australian Securities and Investments Commission [634].
[82] AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton Utz (a firm) (No 2) [146].
Procedural rulings during trial
At the conclusion of the evidence in chief of Mr Steele, I heard submissions from counsel in respect of two matters arising from the evidence. First, whether Mr Steele in his evidence waived privilege in advice he received from his solicitors during the course of the transaction. Second, whether certain evidence Mr Steele gave in respect of an agreement with Rio Tinto was relevant to the issues in the proceedings.
During the course of evidence, it was agreed that these objections would be noted and, in respect of the second matter, the evidence received provisionally. At the commencement of the fourth day of the hearing, I delivered brief reasons for my decisions on these matters. For the sake of completeness, I set out below in more detail, the basis for each of my rulings.
Waiver of Privilege
Counsel for C H Leaman contended that Mr Steele in his examination in chief had waived privilege in respect of three documents.[83]
[83] Ex 1.29, Ex 1.57, Ex 1.62.
The first document was an email from Mr Steele to Mr Leaman which was copied to Mr Horsman and dated 27 November 2018, prior to the execution of the Agreement.[84] Mr Steele's evidence was that he typed the first paragraph of this email and that the remaining paragraphs (in blue) were cut and pasted from an email he received from his solicitors.[85]
[84] Ex 1.29.
[85] This description was subsequently corrected as it was an email from Mr Brennan to Zilkens Lawyers. The defendants did not contend or make any additional submissions that this would alter the orders or judgment given in relation to this document (see ts 471).
The second document was an email from Zilkens Lawyers to Mr Steele and Greg Brennan forwarding an email received from Allan Pocock of Lark Lawyers dated 9 January 2019.[86] The contents of the email from Zilkens Lawyers had been redacted on the basis of a claim of legal professional privilege. Mr Steele was asked whether he read the email from Mr Pocock and whether he understood what he had to do. His response was 'No'. Mr Steele was then asked at that time, what he was relying on. His evidence was that he was still relying on Zilkens Lawyers. He was then asked whether he took any steps in relation to the matters raised in the email. He said that he did not take any steps but relied on Zilkens Lawyers to attend to it.[87]
[86] Ex 1.57.
[87] ts 430 – 431.
The third document was an email from Zilkens Lawyers to Mr Steele, copied to Mr Brennan, dated 14 January 2019 forwarding a copy of an email received from Allan Pocock dated 11 January 2019.[88] The contents of the email from Zilkens Lawyers had been redacted on the basis of a claim of legal professional privilege. Mr Steele was asked whether he recalled reading the email from Mr Pocock and the attachments. His evidence was that he didn't recall reading the email or the attachments and that he relied on Zilkens Lawyers to take care of it.
[88] Ex 1.62.
Counsel for C H Leaman contended that Mr Steele had waived privilege in these emails. Counsel noted that the defendants' pleaded case (at that time) was that the defendants acted in reliance on the representations of Lark Lawyers by causing Zilkens Lawyers to take certain steps.[89] The pleading contrasted with Mr Steele's evidence which was, in essence, that he relied on Zilkens Lawyers to attend to the matters concerning the financial assistance approvals that were required under the Agreement.[90]
[89] Amended defence [21].
[90] ts 432 – 433.
Counsel for the defendants denied the evidence of Mr Steele constituted a waiver of privilege in the documents. He emphasised that the authorities make plain that waiver occurs where there is inconsistency in the position adopted by a defendant in maintaining the claim for privilege and not because of unfairness.
Legal Principles
The relevant authorities in respect of waiver of legal professional privilege were summarised by Strk AJ (as her Honour then was) in Fraser v Fraser.[91]
[91] Fraser v Fraser [2019] WASC 135 [29] – [35].
The onus of establishing an implied or inferred waiver lies on the plaintiff who is seeking to displace the existence of the legal professional privilege. Waiver can be express or implied. The law may impute waiver even if that was not a consequence intended by the party claiming the privilege. It is the inconsistency between the party's conduct and the maintenance of the privilege that is the relevant guiding principle.[92]
[92] Mann v Carnell [1999] HCA 66; (1999) 201 CLR 1 [28] ‑ [29].
For legal advice to be waived, the substance or gist of the advice must be disclosed and not the mere existence of the advice. That is, there must be conduct which is inconsistent with the maintenance of the privilege. This requires that the substance or content of the advice is disclosed with some specificity or clarify.
As was noted by Tamberlin J in Bennett v Chief Executive Officer, Australia Customs Service:[93]
In my view, it would be inconsistent and unfair, having disclosed and used the substance of the advice …, to now seek to maintain privilege in respect of the relevant parts of that advice which pertain to the expressed conclusion. It may perhaps have been different if it had been simply asserted that the client has taken legal advice and that the position which was adopted having considered the advice, is that certain action will be taken or not taken. In those circumstances, the substance of the advice is not disclosed but merely the fact that there was some advice and that it was considered. However, once the conclusion in the advice is stated, together with the effect of it, then in my view, there is imputed waiver of the privilege.
Disposition
Exhibit 1.29
[93] Bennett v Chief Executive Officer, Australia Customs Service [2004] FCAFC 237 [6].
Mr Steele's evidence was that he voluntarily disclosed part of the advice he received from Zilkens Lawyers. From the terms of the email, it is apparent that this was deployed by Mr Steele as evidence of his frustration with the discussions occurring between the solicitors and to indicate the information he had received from his solicitors in respect of the negotiations concerning cl 16 of the Agreement. The way that this was deployed is, in my view, inconsistent with the defendants' maintenance of the claim for confidentiality over this particular advice.
The question then arose as to whether this resulted in the waiver of privilege of any further or associated material. In considering this, the test is whether the material represents the whole of the material relevant to the same issue or subject matter.[94]
[94] Attorney-General (NT) v Maurice [1986] HCA 80; (1986) 161 CLR 475; see also AWB Ltd v Honourable Terence Rhoderic Hudson Cole (No 5) [2006] FCA 1234; (2006) 155 FCR 30 [164].
I considered that by his conduct, Mr Steele waived privilege in the email he received from Zilkens Lawyers concerning what was then cl 16 of the Agreement, which he then cut and pasted into this email. The contents of the email do not reflect what is cl 16 of the Agreement and this clause did not form part of the final Agreement.
On this basis, it was my view that the disclosed advice was limited to objections on the proposed cl 16 of the Agreement and the advice was disclosed to demonstrate his frustration at what was occurring.
For these reasons, I did not consider that Mr Steele's conduct waived privilege in respect of any associated communications but was limited to the email from Zilkens Lawyers.
Ex 1.57 and Ex 1.62
In respect of each of these documents, Mr Steele's evidence was not that he relied on the legal advice he received from Zilkens Lawyers, but that he relied on Zilkens Lawyers to attend to these matters. Mr Steele did not disclose the substance of the legal advice he had received. In my view, Mr Steele's evidence did not disclose the substance, gist or conclusion of the advice but only that the defendants had obtained legal advice.
As a consequence, I was not persuaded that Mr Steele's conduct constituted a waiver of the legal privilege in any advice he had received. Accordingly, I dismissed C H Leaman's application for inspection of the unredacted versions of Ex 1.57 and Ex 1.62.
During the trial, counsel for the plaintiff objected to the tender of the redacted versions of these documents on the basis that the unredacted versions should be produced. Given this ruling, this objection was not upheld and I admitted the redacted versions of these documents into evidence and have addressed them below where relevant.
Relevance of negotiations with Rio Tinto
Counsel for C H Leaman objected to Mr Steele's evidence concerning Ex 1.30, which is an email chain between Rio Tinto, Mr Steele and Mr Horgan concerning the ongoing contractual arrangements between Complete Field Maintenance and Rio Tinto. He noted the defendants had not referred to Rio Tinto in the particulars of its defence contending the plaintiff was not ready, willing and able to complete the Agreement.
Counsel for the defendants said the defendants did not rely on Ex 1.30 or evidence for the purpose of its contention the plaintiff was not ready, willing or able to complete the Agreement. The defendants relied on this document for the purpose of the assessment of the damages suffered by C H Leaman, if, ultimately, it were found there had been a repudiation of the Agreement. In this regard, counsel submitted the defendants did not have to specifically plead or particularise any reference to Rio Tinto as the onus was on C H Leaman to prove its damages. The agreement with Rio Tinto was one of the contingencies that needed to be taken into account in the assessment of damages.
In response, counsel for C H Leaman maintained this was a matter that was required to be pleaded to ensure that it was not taken by surprise.
In this case, C H Leaman pleads that the defendants have repudiated the Agreement, which was accepted on 22 January 2019. If C H Leaman succeeds in proving these matters on the balance of probabilities, C H Leaman will be entitled to recover damages as at the date of the breach of Agreement of the value of the rights it lost, subject to any duty it had to mitigate the loss.
As was held in Sellars v Adelaide Petroleum NL,[95] in order to establish a claim for loss of opportunity, a plaintiff must prove on the balance of probabilities that it has lost the opportunity and that the opportunity had some value. This value is calculated by reference to the degree of probabilities or possibilities.
[95] Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332.
Rio Tinto is and has been a very significant customer of Complete Field Maintenance and an updated pricing agreement between Rio Tinto and Complete Field Maintenance had not been signed at the date of entry into the Agreement. Entry into a new agreement with Rio Tinto on terms satisfactory to C H Leaman in its absolute discretion was one of the conditions precedent of the Agreement.
In my view, the defendants are entitled to adduce evidence of the value of the opportunity lost by C H Leaman and the probability that the matters relied on by C H Leaman to establish its claim would have occurred. This includes the arrangement with Rio Tinto which was one of the major customers of Complete Field Maintenance. I do not consider this is a matter that was required to be specifically pleaded. Mr Leaman was cross‑examined in relation to the contractual arrangements with Rio Tinto and no objection was taken.
For these reasons, I ruled this evidence was both relevant and admissible.
Before turning to the issues for determination, I set out below my findings on the various factual matters raised.
Entry into the Agreement
In 2017, Mr Leaman was looking to purchase a business that would form part of a group that would run under management, generate profits and cash to use for commercial property investment and development.[96] Mr Leaman became aware of Rexwells in late 2017 through an advertisement. Mr Leaman was provided with a copy of the information memorandum (IM) that had been prepared for the sale of the Rexwells.[97]
[96] ts 271.
[97] Ex 1.106.
The IM highlighted a number of key features about the business, including a high gross profit margin of 45%, fixed price contracts with major customers, low numbers of staff and that it was easy to operate. It emphasised there was 'high potential to expand, just through proactive marketing and sales'.[98] These key features are repeated on each page of the IM. As noted in the IM, the business had extremely low capital requirements, good revenue, positive cash flow and 'excellent profits'.[99] At p 23 of the IM, the document states that:
CFM specialises in one area of the market (drilling rigs) where there is minimal competition, and provides excellent product support and service compared to the slow moving OEM's.
[98] Ex 1.106, p 27; ts 272.
[99] Ex 1.106, p 15.
Mr Leaman subsequently entered into negotiations to purchase the business.[100]
[100] ts 272.
Prior to execution of the Agreement, there were two discussions between the parties and their respective solicitors in relation to the proposed financial assistance condition.
Mr Lark's evidence was that he first had a discussion about this clause with Mr Jain on about 5 November 2018. He believed he had two calls with Mr Jain on that date. His recollection was that in the first telephone call, he asked Mr Jain whether he knew much about the law in this area, and that Mr Jain responded that he knew all about it. Mr Lark did not believe this to be an accurate response and said that Lark Lawyers would draft the s 260B documentation.[101] His explanation for this was that, in his view, it was more efficient for him to prepare the documents. Mr Lark explained the way the precedent worked was it was a 'bundled‑up document' including instructions, index, directors meeting, calling of shareholders meeting, correspondence with shareholders and the resolution to approve the finance. Depending on the facts of the matter, these documents could be reduced. Some of the factors that reduce the length and complexity of the documents include that the precedent is designed for multiple shareholders so if there is only one shareholder, this reduces the documentation.[102] He expressed the view that:[103]
The facts, really – you come down to the material statement. It's – that's where you can write an essay or write nothing. The – well, not nothing, but a much smaller disclosure. The practical implication is that that document is discoverable – it's filed with ASIC – and you don't want to disclose private information that might be private or – or valuable. So typically you would disclose less, and the law permits that. The law says you must disclose what is material subject to – of course, if the parties are fully aware of the facts, you wouldn't disclose it a second time, so if you've – if you've provided enough information to make a decision and the people are happy, then you wouldn't be disclosing much in that material statement.
[101] ts 400.
[102] ts 400 – 401.
[103] ts 401.
Mr Lark recalled that Mr Jain called him back on the afternoon of 5 November 2018 to relay the defendants' consent to the retention of the financial assistance clause.[104] In cross‑examination, Mr Lark was asked about his impression of Mr Jain, to which he responded that he was a younger lawyer.[105]
[104] ts 405.
[105] ts 405.
The second occasion on which this clause was discussed was at a meeting on 13 November 2018. This meeting was attended by Mr Steele, Mr Brennan, Mr Zilkens, Mr Jain, Mr Leaman, Mr Pocock and Mr Lark at the offices of Lark Lawyers.[106] There are slight differences in the evidence of the witnesses as to what precisely was said at the meeting. It is not disputed that at this meeting, Mr Zilkens said he did not have any recent experience in preparing the required documents in relation to the provision of financial assistance. In response, Mr Lark said he had experience and had done the necessary documentation in the past. He offered to assist (according to Mr Leaman)[107] or to prepare them (the evidence of Mr Lark,[108] Mr Steele,[109] and Mr Zilkens)[110]. It was also not in dispute that there was no discussion at this meeting as to the nature or extent of the financial assistance that was to be provided.[111]
[106] ts 307 – 308 (Leaman, XXN); 368 (Pocock, XN)
[107] ts 280 (XN), ts 308 (XXN).
[108] ts 401.
[109] ts 427.
[110] ts 541.
[111] ts 280 (XN, Leaman).
In cross-examination, Mr Lark explained that this was a very short exchange between him and Mr Zilkens that was 'all of five seconds' and that he did not know what weight others who attended the meeting had attached to it.[112] This was consistent with the evidence of Mr Zilkens who said that it was mentioned in passing at the end of the meeting.[113]
[112] ts 407.
[113] ts 541.
To the extent that it is relevant, I accept the evidence of Mr Lark and Mr Zilkens and find that at the conclusion of this meeting, Mr Lark told Mr Zilkens that he would prepare the financial assistance documents. In my view, this was a conversation that was likely to have occurred between the two principal lawyers and was consistent with Mr Lark's previous discussion with Mr Jain.
Conduct of the parties after execution of the Agreement up until 17 January 2018
After execution of the Agreement on 21 December 2018, the first time that the financial assistance condition was raised by either party was on 4 January 2019.
On 4 January 2019, after responding to a query from Mr Leaman, Mr Steele asked 'Is there anything else you are waiting on from me or my team at the moment?'[114] In response, Mr Leaman attached a list and then stated:[115]
There is one important form you need to lodge as per the sell agreement too. I think it's called a 260B to satisfy the Financial Assistance Condition. This needs to be done asap as it takes a minimum of 14 days (I think) to be processed, and needs to be cleared prior to settlement.
[114] Ex 1.47, p 2.
[115] Ex 1.47, p 2.
Mr Steele then downloaded the form. He told Mr Leaman he did not understand 'what this is' and would 'need to get further clarification on what exactly I am signing regarding this form'. In response, Mr Leaman sent him a link to s 260B of the Act and said that 'it is for me [Mr Leaman] borrowing funds to buy the company' and that Mr Steele's accountant, Mr Brennan, would be able to explain it to him.[116]
[116] Ex 1.47, p 1.
Mr Leaman and Mr Steele arranged to meet on the afternoon of Monday 7 January 2019.[117] The meeting was held in the boardroom of Rexwells and was attended by Mr Leaman, Mr Horsman, Mr Steele, and Ms Debra Lucas, who was employed by Rexwells in an administrative role.[118] Prior to the meeting, Mr Leaman made a note of the list of questions he had for Mr Steele.[119] This included the necessity to file the Form 260B 'by Tuesday (tomorrow)'.[120] Mr Leaman's evidence was that he raised the s 260 documents at the meeting and said words to the effect of 'Don't forget, we need documents done'.[121] He did not recall how he formed the opinion they were due on that date or whether he conveyed this to Mr Steele, although he accepted this was possible.[122] He accepted, in cross‑examination, that notwithstanding the fact that at the meeting in November 2018, Mr Lark had said he was going to do the first draft of these documents, he was pushing Mr Steele to take the first steps.[123]
[117] Ex 1.47.
[118] ts 317.
[119] ts 283.
[120] Ex 1.49.
[121] ts 317 – 318.
[122] ts 318.
[123] ts 318.
Mr Steele denied the s 260 documents were discussed at that meeting and said that the focus of the meeting was on answering some due diligence questions that Mr Leaman and Mr Horsman had.[124]
[124] ts 430.
I accept that the focus of this meeting was on answering due diligence questions. This is consistent with both the list of questions prepared by Mr Leaman and the attendance of Ms Lucas at this meeting. However, I accept Mr Leaman's evidence and find that at the meeting, he raised the question of the s 260B documents. This is more consistent with the exchange of emails on the previous Friday and Saturday raising the requirement to comply with this section and the conversation between the parties' solicitors the following day. It is clear that at this time, compliance with the financial assistance provisions was important to Mr Leaman and it is more likely than not that he raised it at the meeting.
On 8 January 2019, Mr Pocock had a telephone conversation with Mr Jain of Zilkens Lawyers. Mr Pocock took a file note of this conversation.[125] Mr Pocock did not have any independent recollection of this conversation but, from his notes of the conversation, considered it was 'quite apparent' what matters were discussed.[126] On refreshing his memory from his notes, Mr Pocock believed that during this conversation, Mr Jain told him that the defendants' accountant, Mr Brennan, was dealing with the financial assistance provision, and Mr Pocock asked whether there was any objection to him speaking to Mr Brennan.[127] Mr Pocock rang Mr Brennan later that day and had a brief discussion with him, which was also recorded in a file note.[128] Mr Brennan told him that he would be lodging the Australian Securities and Investments Commission (ASIC) forms but that the compliance documents would need to be completed by the solicitors.[129]
[125] Ex 1.52.
[126] ts 379 – 380.
[127] ts 369.
[128] Ex 1.54.
[129] ts 370 (XN); 380 (XXN).
At the time of Mr Pocock's conversation with Mr Jain, Mr Pocock agreed he had met him at the meeting on 13 November 2018, although he did not recall being introduced to him. He also accepted that Mr Jain was a young man but was not aware of his level of experience.[130]
[130] ts 379.
At 4.22 pm on 8 January 2019, Zilkens Lawyers sent an email to Mr Pocock, copied to Mr Lark, which stated:[131]
In relation to the preparation of the ordinary shareholders resolution in which Tuesday will approve the financial assistance provided by Rexwells to the buyer, it may be the best course of action if you prepared this document as well (along with the From (sic) 2601) as you will have a better understanding of the nature of the financial assistance to be provided to the buyer and the terms of the approval required from the shareholders of Rexwells.
Please let us know if you agree.
[131] Ex 1.51, p 2.
This email refers to a telephone conversation with Mr Jain on 7 January 2019. Mr Pocock did not recall having a conversation on that date, did not have a file note recording any such conversation,[132] and believed it may be a reference to the conversation on 8 January 2019.
[132] ts 370.
On the following morning, 9 January 2019 at 11.35 am, Mr Pocock responded to Zilkens Lawyers (copied to both Mr Lark and Mr Leaman).[133] The email relevantly stated that:
Dear Sidd
We advise our instructions are that the buyer/borrower intends to borrow $4 million from the NAB for the purchase of Rexwells. The NAB will take required securities over the shares in Rexwells, and the assets and undertaking of Rexwells.
Our instructions are that the borrower expects to be able to service and repay the borrowings.
Our instructions are that our client requires the Seller to satisfy the requirements of s.260A & B.
We remind you of the timing requirements of s.260B and the fact that Completion is currently set for 31 January 2019.
Would you please attend to this as a matter of urgency and copy us with the documentation which you prepare, to be provided to the NAB.
Please also confirm to us that the process has been successful (i.e. that ASIC has not objected to the financial assistance) once the waiting period has passed.
[133] Ex 1.51, p 1.
Prior to this date, neither Mr Steele nor Zilkens Lawyers had sought any details as to the extent of C H Leaman's proposed borrowing,[134] and none had been provided.[135]
[134] ts 284.
[135] ts 379.
Zilkens Lawyers forwarded this email to Mr Steele and Mr Brennan at 2.29 pm that day.[136] Mr Steele's evidence was that his usual practice when he was forwarded correspondence between the solicitors was that he would read the email and then file it.[137] In relation to this email, he read the email but did not take any further steps. His answer was that:[138]
I relied on Zilkens Lawyers to tend to it.
[136] Ex 1.57.
[137] ts 431.
[138] ts 431.
Later that day, at approximately 3.55 pm, Mr Zilkens telephoned Mr Pocock. Mr Pocock took a file note of this conversation.[139] Even after reading his file note, Mr Pocock did not have a strong recollection of what was discussed during this conversation apart from recalling that Mr Zilkens told him that he expected Lark Lawyers would do the s 260B documentation.[140] After reading his subsequent email,[141] Mr Pocock recalled that Mr Zilkens said to him that they had not done an application under s 260B for many years and wanted Lark Lawyers to do the documentation.[142]
[139] Ex 1.58.
[140] ts 371 – 372.
[141] Ex 1.59.
[142] ts 372.
Mr Pocock agreed that as at 10 January 2019, Lark Lawyers had not commenced preparation of the s 260 documents.[143]
[143] ts 379.
At 1.45 pm on Thursday 10 January 2019, Mr Pocock emailed Mr Zilkens and Mr Jain (copied to Mr Lark and Mr Leaman) referring to the telephone call of the previous day. After recording that Mr Zilkens had asked Lark Lawyers to prepare the documents as he had not done an application 'for many years', Mr Pocock noted that Lark Lawyers had been asked to prepare the documents. The email then stated:[144]
We see a conflict in this.
In the spirit of professional collegiality, and strictly on the basis that we have no liability whatsoever to you or your client, we will prepare initial draft documents, which we will provide to you for your use, for you to review and finalise on behalf of your client. We understand that Greg Brennan will attend to attend to the ASIC lodgement.
If you wish to proceed on the basis we have suggested, please confirm by email.
[144] Ex 1.59.
Mr Leaman confirmed this email was sent on his instructions.[145] Mr Pocock's evidence was that Mr Lark settled this email, by an exchange of drafts. Mr Lark accepted that he had seen this document but believed it was primarily Mr Pocock's drafting.[146] Mr Pocock's evidence was that prior to sending this email, Mr Lark had not reminded him that he had previously told Mr Zilkens that Lark Lawyers would do the initial draft of the financial assistance documents.[147]
[145] ts 284.
[146] ts 402.
[147] ts 381 - 382.
At 9.38 am the following morning, 11 January 2019, Zilkens Lawyers confirmed that Lark Lawyers should proceed on the basis set out in the email at [153] and confirmed Mr Brennan would attend to lodgement of the documents with ASIC.[148]
[148] Ex 1.60.
At 1.50 pm on Friday 11 January 2019, Mr Pocock sent an email to Mr Zilkens and Mr Jain, copied to Mr Lark and Mr Leaman,[149] attaching five draft documents: a draft resolution of the director of Tuesday Enterprises;[150] a draft resolution of the sole member of Rexwells under s 260B of the Act;[151] a draft disclosure statement;[152] a draft timetable;[153] and a draft covering letter to ASIC.[154] Mr Pocock confirmed he prepared these documents based on Lark Lawyers precedents,[155] and that these documents represented his understanding of what was required under the Act.[156]
[149] Ex 1.61.
[150] Ex.1.61.1.
[151] Ex 1.61.2.
[152] Ex 1.61.3.
[153] Ex 1.61.4.
[154] Ex 1.61.5.
[155] ts 372.
[156] ts 382.
The plaintiff's primary submission is that each party should bear their own costs, alternatively that the plaintiff should pay 40% of the defendants' costs of the proceedings. The defendants say the plaintiff should pay their costs of the proceedings and also seek a special costs order that their costs be assessed without regard to the limits in the applicable costs determinations.[377]
[377] Because these proceedings were commenced in 2019, heard in July and August 2020 and the costs application heard in March 2023, three costs determinations apply to the costs incurred by the defendants.
There are two primary issues in dispute between the parties, namely: first, whether the defendants are entitled to their costs of the proceedings and, if so, whether any discount should be applied to reflect they were not successful on all aspects of the matters raised by them; and second, whether special costs orders should be made in favour of the defendants.
General principles
Costs orders
Under s 37 of the Supreme Court Act 1935 (WA), the court has a wide discretion to award costs. However, the discretion is not unfettered and must be exercised judicially.[378]
[378] Frigger v Lean [2012] WASCA 66 [53].
The general rule is that costs should follow the event; that is, the successful party should recover their costs from the opposing party. It is incumbent on an unsuccessful party to satisfy the court that there are good reasons it should not pay the successful party's costs.[379]
[379] Rules of the Supreme Court1971 (WA) O 66 r 1(1).
As was noted by the Court of Appeal in Strzelecki Holdings Pty Ltd v Jorgensen:[380]
What constitutes 'success' in proceedings is to be determined by the reality of the circumstances involved in the case. The Court may depart from the general rule that costs follow the event and modify a costs order to take into account matters such as any unreasonable conduct of a generally successful party, or to the failure of that party on one or more specific issues. The exercise of the discretion in that way is recognised by a number of rules in the [Rules of the Supreme Court], together with the practice of the Court, and authority. So, for example, if the Court is of the opinion that the conduct of a successful party - either before or after the commencement of the litigation - has resulted in costs being unnecessarily or unreasonably incurred, the Court may deprive that party of costs, either wholly or in part, and it may further order that party to pay the costs of an unsuccessful party, either wholly or in part …
Under O 66 r 1(3) RSC, where a party, though generally successful in an action, has, by the introduction of some issue or issues on which it has failed, increased the costs, the Court may order such party to pay the costs of such issue or issues. It is well-recognised that an order that a successful party recover only a portion of its costs, where it has not been wholly successful, should not be made as a matter of course, for at least two reasons. First, it is often the case that a successful party will not succeed on every issue raised. Secondly, to attempt, in every case, an analysis of which party was successful on which issue would add uncertainty and complexity to the outcome of litigation, and add to the time and cost of costs arguments. Consequently, the power to apportion costs in this way should only be exercised where there are discrete and severable issues on which the generally successful party failed, and which added to the cost of the proceedings in a significant and readily discernible way. Furthermore, while parties should be encouraged to consider carefully what matters they put in issue, justice may not be served if, by too ready a resort to deciding questions of costs according to success on particular issues, parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case.
Where the Court decides, in the exercise of its discretion, to modify the usual costs orders to reflect the limited success of the successful party, that power will be exercised broadly, and as a matter of impression, and without any attempt at mathematical precision (which is likely to prove illusory in any event). That approach reflects the fact that it may be difficult to separate the factual and evidentiary substratum of different issues, the fact that some issues are more important than others, and the fact that some issues are subsidiary to others. (footnotes omitted)
[380] Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 [50] ‑ [52].
However, even if a court does not accept all of a successful party's arguments at a trial, this does not, of itself, mean that it is appropriate to deal with costs orders on an issue by issue basis.[381] The court's discretion to render an award of costs by undertaking an assessment conducted by reference to issues at trial that have been won or lost, should only to be exercised in the clearest of cases.[382] The court's discretion to reduce costs for a successful party is approached as a matter of overall impression, without requiring any higher degree of mathematical precision.[383]
[381] State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 [8] (Emmett, Kenny & Middleton JJ).
[382] KSG Investments Pty Ltd v Open Markets Group Ltd (No 2) [2021] VSC 359 [8] (Nichols J).
[383] Amaca Pty Ltd v Hannell [2007] WASCA 158 (S) [6]; May v Thomas [2014] WASCA 176 (S) [5].
In assessing the success or failure of the parties on the issues in the proceedings, it is generally accepted that greater latitude is given to a successful defendant than a successful plaintiff. The rationale for this approach was explained by Burchett J in Australian Conservation Foundation Inc v Forestry Commission of Tasmania in the following terms:[384]
A party against whom an unsustainable claim is prosecuted is not to be forced, at his peril in respect of costs, to abandon every defence he is not sure of maintaining, and oppose to his adversary only the barrier of one hopeful argument: he is entitled to raise his earthworks at every reasonable point along the path of assault. At the same time, if he multiplies issues unreasonably, he may suffer in costs. Ultimately, the question is one of discretion and judgment.
Special costs orders
[384] Australian Conservation Foundation Inc v Forestry Commission of Tasmania (1988) 81 ALR 166, 169.
Pursuant to s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA), the court has power to make special costs orders. This section is in identical terms to the now repealed s 280 of the Legal Profession Act 2008 (WA). Given the identical language of these provisions, it is accepted that the principles that govern the making of special costs orders, which are well established, continue to apply.
There are two questions for the court in considering an application for special costs:
(a)Is the maximum amount allowable under the applicable costs determination inadequate, in the sense that there is a fairly arguable case that, on taxation, costs may properly be allowed in an amount greater than the maximum amount?
(b)Does the inadequacy of the costs allowable under the costs determination arise because of the unusual difficulty, complexity, or importance of the matter?
Each of these questions is addressed as a matter of impression, rather than matters of detailed evaluation, precision or science.[385]
[385] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 (S) [12].
The effect of s 141(1) of the Legal Profession Uniform Law Application Act 2022 (WA) is to confine the costs recoverable by a successful party to the limits imposed by the relevant costs determination then in force. As was noted by the Court of Appeal in Sino Iron Pty Ltd v Mineralogy Pty Ltd, in referring to the identical provision in the previous act, this provision is 'protective of the party charged and, more generally, serves the due administration of justice by limiting the allowable scope for legal costs'.[386]
[386] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [11].
In considering whether a party has established there is a fairly arguable case that a greater amount will be allowed on taxation than that which is allowable under the relevant costs determination, it is not sufficient for a party to show that it incurred costs greater than the limit in the costs determination. However, the fact that a party has incurred significantly greater costs in each step of the litigation, when viewed in the context of the difficulty, complexity or importance of the matter, may enable the court to conclude there is a fairly arguable case that each of the items identified is inadequate.[387]
[387] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [14].
There has been little judicial consideration as to what is meant by the term 'importance' in this section. In Crawley Investments Pty Ltd v Elman, Edelman J expressed the view that this did not require broader importance to the public or a sector of the public, and encompassed importance to the parties.[388] In Currie v Currie [No 2], the Court of Appeal accepted that the matter was important in that case because it was important to the resolution of a long‑running dispute, on which the livelihood of the first respondent depended.[389]
[388] Crawley Investments Pty Ltd v Elman [2014] WASC 233 (S) [5(v)].
[389] Currie v Currie [No 2] [2019] WASCA 2 (S).
In Uon Pty Ltd v Hoascar, after emphasising that special costs orders are just that - special, Archer J summarised the authorities which have considered the meaning of this term as follows:[390]
[390] Uon Pty Ltd v Hoascar [2020] WASC 271 (S) [20] ‑ [25].
Cases in which importance has been found includes cases which involve the risk of significant professional damage, test cases, or cases which involve enormous sums of money.
Heartlink Ltd v Jones (as liquidator of HL Diagnostics Pty Ltd (in liq)) was a case in the first category, involving serious allegations against liquidators. In Heartlink, Martin CJ said that:
[B]y reference to 'importance' in this context, the legislature is allowing the court to have regard to the question of whether the work done was appropriate to the significance of the issue that arose in the litigation. Significance can arise either because of the significance of the issues to the parties or because of the significance of the issues to other prospective parties or to the public or to the community generally. In this case, the issues raised were of considerable significance to the liquidators in the practice of their profession, and in respect of whom serious allegations were made.
This passage was endorsed by the Court of Appeal in Sino Iron [No 2].
In Blatchford v Laine, Vaughan J commented on the passage as follows:
His Honour's formulation involves a qualitative evaluation as to the significance of the matter. It requires an assessment of the weight, seriousness and gravity of the issues and controversy before the court. Often the question of importance will be answered as a matter of impression informed by experience. Outside of those relatively rare cases involving matters of public importance — where 'importance' may well be obvious — the importance of the matter may be evident in the amount of the claim or the nature of the allegations that are being litigated.
Vaughan J concluded that the matter before him lacked importance in the sense used in s 280(2) of the Act. His Honour said:
The issues and controversy before the court as part of the application fell within the general remit of an application for judicial advice as is commonly determined in this court without remark. … No issue arose where it was necessary for the plaintiff to defend his actions or reputation. The issues and controversy before the court had no signification over and above those commonly arising in applications by trustees for judicial advice and applications within item 11 more generally.
It is plain from these authorities, and the context of s 280 and the Act as a whole, that a matter will not be 'important' in the required sense simply because a party considers it to be so. If it were otherwise, the test of importance would probably be satisfied in every litigated dispute.
The discretion to be exercised by the court on an application for special costs must be exercised judicially as the interests of justice in each case require. As was noted by Quinlan CJ in Sino Iron Pty Ltd v Mineralogy Pty Ltd, the interests of justice include 'the need to keep the costs of litigation generally within reasonable bounds'.[391]
[391] Sino Iron Pty Ltd v Mineralogy Pty Ltd [2022] WASC 151 [20].
Parties' submissions
The plaintiff contended that in this case, given the number of issues in the proceedings on which the defendant was unsuccessful and the length of time that these matters occupied, it was appropriate to reduce the defendants' entitlement to costs to either nil or, at the most, 40% of their costs. In support of this position, the plaintiff submitted the defendant could have conceded liability, which would have significantly reduced the length of the trial. In addition, counsel for the plaintiff emphasised the matter was listed for an additional day to address the defendants' submissions in relation to the Final Payment. All of these submissions, save for one (in relation to the valuation of stock), were ultimately rejected.
The defendants contended that in this case, they were the successful party and that costs should follow the event. In relation to the issues on which the plaintiff succeeded, counsel for the defendants emphasised that these, ultimately, were not determinative. The defendants characterised the plaintiff's claim as an 'ambit award' which sought an unrealistic and unreasonable amount of damages. In these circumstances, it was contended that the defendants had 'no choice but to defend the proceedings on all bases'.
In support of its application for special costs orders, the defendants relied on an affidavit of Alexander Max Freund filed 13 February 2023, which annexed a draft bill of costs. The defendants submitted that the fact that the total amounts claimed by them significantly exceeded the relevant scale items was evidence that there was a fairly arguable case a taxing officer might properly allow costs at an amount greater than in the costs determination. In considering the application, counsel for the defendant emphasised that the court, in lifting any relevant item, was not expressing a view as to the quantum of the amount claimed or whether it should ultimately be allowed. Where there is insufficient evidence before the court to make an assessment of an appropriate ceiling, it is not uncommon for an order to be made removing the limit of the item in the costs determination.[392]
[392] Crawley Investments Pty Ltd v Elman [5(vi)].
Counsel for the defendants submitted that this matter was of significant importance to the defendants because of the quantum of the claim and the impact it would have had on the first and third defendants.
The plaintiff opposed the application for a special costs order. The plaintiff submitted that in the exercise of discretion, it was a relevant factor that the defendant was not successful on all of the matters on which it litigated. The plaintiff emphasised the defendants did not adduce any evidence as to the importance of the proceedings to the defendants or any of them. On this basis, the plaintiff submitted the defendant had not satisfied the court that any inadequacy in the costs determination had been caused by the importance of the matter to the defendants.
Disposition
Costs orders
The plaintiff, quite appropriately in my view, conceded the award of only nominal damages was an indication it was not the successful party in the proceedings and that it was contrary to current principles of case management and the efficient and cost‑effective use of judicial resources for a party in the position of the plaintiff to recover its costs, having substantively failed in the action.[393]
[393] Plaintiff's submissions filed 13 February 2022 [7], citing Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65 (S) [10].
In considering the appropriate order as to costs, it is important to emphasise that, in my view, the defendants were the wholly successful party at trial. This is because, at its heart, this case concerned a claim by the plaintiff for damages of $6 million arising out the defendants' repudiation or renunciation of the contract between them. The plaintiff failed to establish it was entitled to any substantial award of damages. On this basis, prima facie, the defendants are entitled to receive their costs of the action subject to any discount for the matters raised by the plaintiff.
In my view, none of the matters raised by the plaintiff warrant a departure from the usual costs order that costs should follow the event.
In this case, the parties raised a number of issues that required determination. These were summarised at [47] and [48] of my Primary Reasons. I accept the plaintiff's submission that it was successful on a number of these issues, including the proper construction of the agreement, whether it was entitled to accept the defendants' renunciation of the agreement and terminate the Agreement, and whether it failed to mitigate its loss. I also accept that the time spent on these issues at the hearing was not insignificant.
However, given the quantum of the damages that were sought by the plaintiff against the defendants, I do not consider the defendants' conduct in raising these matters was unreasonable, or that the defendants unreasonably prolonged the length of the trial by raising any of these issues for determination.
In these circumstances, I do not consider that the defendants' costs should be discounted simply for the reason they did not succeed on all of the matters raised by them.
Special costs orders
The defendants initially sought a general lifting of the limits imposed by the relevant costs determinations. In the course of the hearing, counsel for the defendants limited the application for special costs to the removal of the limits for the following items, set out in [43] of their submissions, namely:
(a)the defence;
(b)discovery;
(c)preparation of case;
(d)attendance at trial; and
(e)the costs application.
The only support for the application for special costs was the draft bill of costs which was annexed to the affidavit of Mr Freund. The rates used in the draft bill of costs, with one exception, reflect the rates for practitioners set out in the relevant costs determination. The exception is the rate for counsel in the 2018 Determination. At that time, the rate for counsel set out in the 2018 Determination was $418.00 and not $451.00. In considering this application, I have proceeded on the assumption that the basis for the application is that the limits for the costs of particular items in the relevant costs determination should be lifted rather than the hourly rates of the legal practitioners and counsel involved in the matter. This is consistent with the orders sought, the manner in which the application was argued, and the submissions.
In respect of the items set out at [28], the draft bill prepared by the defendants sets out the following information:
Description
Items in draft bill
Item in Costs determination
Limit in Costs determination
Amount claimed
Defence
3, 6, 9, 12, 13, 23, 28
3(b)
$4,950.00
(10 hours of SP)
$23,012.00
Discovery
7, 30, 33 and 35
7(b)
$4,950.00 (10 hours of SP)
$23,243.00
Preparation of case
4, 17, 20, 21, 31, 32, 40, 42, and 44
18
19
$59,400.00 (120 hours of SP)
$273,955.00
Trial
45, 46, 47, 48, 49, and 52
22
$47,355.00 (fee on brief for counsel, 5 subsequent days of trial and refresher)
$29, 645.00
(instructing solicitors attending – one as counsel (although not claimed at counsel rates) – assumes court hours of 5 hours per day)
$102,159.20
Application for costs
57
10(a)
$14,190 (assumes 2 days preparation; 1 day hearing)
>$19,580.00
The relevant limits for each of items in the costs determination is set out in the table above, together with the assumptions that underly these limits.
The only information before the court as to the work that was done by the defendants' solicitors and counsel is set out in the draft bill of costs. The items in the draft bill summarise the amount of time spent by each practitioner on each matter. However, no further information is provided as to what each of the practitioners specifically did, or the difference in the work that was done by each of them.
Are the maximum amounts allowable under the costs determination inadequate?
The draft bill of costs claims separate amounts for each of the amended defences that were filed, rather than seeking one amount for the defence. In this case, the defence was amended on six separate occasions and six separate claims are made for these costs.
In total, the amount claimed for the defence comprises 12.1 hours for counsel, 28.3 hours for 2 separate senior practitioners at the defendants' solicitors and 11.7 hours of a junior practitioner's time, or a total of 52.1 hours. No evidence is given as to the nature of the work that was done by each of these practitioners, or the difference in the work that was done.
I note that the defence that was relied upon by the defendants at trial is a 30 page document which raises a number of issues. On the basis of this defence, I consider that it is fairly arguable that on a taxation of the costs, it is possible that the taxing officer might allow an amount greater than $4,950, being the limit imposed by the relevant costs determination.
In this case, it is not possible to reach any conclusion as to what might be an appropriate limit for the costs of the preparation of the defence. In these circumstances, I have concluded it is appropriate to order that the limit imposed by the relevant item in the costs determination be removed. It will then be for the taxing officer to consider the reasonableness and the necessity for the work that was undertaken and make a judgment about the remuneration reasonably required.
In relation to discovery, four affidavits of discovery were sworn by the defendants and a little over 100 documents produced.
By way of example, the initial affidavit contains 93 documents in the List of documents. The draft bill of costs seeks $9,350 for the discovery of these documents, calculated on the basis of 17 hours of a junior practitioner's time and 6.8 hours of a senior practitioner's time. No evidence is given as to the nature of the work that was done by each of these practitioners, or the difference in the work that was done by them. In particular, there is no evidence before me as to how many documents were reviewed by the defendants, or why it is contended the item in the scale is inadequate.
The remaining amounts claimed of in excess of $13,000 arose from the plaintiff's request for further and better discovery. This is calculated on the basis of 17.4 hours of a senior practitioner's time and 15 hours of a junior practitioner's time. Once again, no evidence is given as to the nature of the work that was done by each of these practitioners, or the difference in the work that was done by them, how many documents were reviewed by the defendants, or why it is contended the item in the scale is inadequate.
On the evidence before me, I do not consider there is a basis on which I could consider that, on a taxation of costs, it is possible that the taxing officer might allow an amount greater than $4,950.
The draft bill of costs includes numerous items which comprise preparation of the case for trial. These include the issuing of a subpoena to the National Australia Bank (no 4), preparing statements of agreed facts (no 17), agreed issues (no 20) and agreed evidence schedule (no 21), preparing witness outlines for Mr Steele, Mr Jain and Mr Zilkens (no 31), preparing a brief to expert, reviewing and finalising the expert report (no 32) and joint expert report (no 40), preparing submissions (no 42) and chronology (no 44), and reviewing the material filed by the plaintiff.
While there is no specific evidence before me as to the nature of the work that was done, I consider that on the basis of the matters set out in the draft bill of costs, it is fairly arguable that, on a taxation of this item, the taxing officer may allow an amount in excess of the relevant item in the costs determination.
In this case, it is not possible to reach any conclusion as to what might be an appropriate limit for the costs of the preparation of the case. In these circumstances, I have concluded it is appropriate to order that the limit imposed by the relevant item in the costs determination be removed. It will then be for the taxing officer to consider the reasonableness and the necessity for the work that was undertaken and make a judgment about the remuneration reasonably required.
In respect of the costs of the trial and the application for costs, there is simply no evidence before me as to the basis on which I could conclude that the amounts in the relevant costs determination are inadequate.
In relation to the costs of the trial, the time claimed for counsel is not calculated on a daily rate but an hourly rate and the claim for the instructing solicitors exceeds the hours they were required to attend trial. There is no evidence before me to explain how these costs have been calculated, or how this work is different to the amounts claimable for preparation of case.
Similarly, in relation to the application for costs, ultimately the hearing before me took less than half a day. Detailed submissions were filed together with one affidavit. It is not clear as to the basis upon which it is contended that there is a reasonable basis on which I could conclude the amount in the costs determination is inadequate.
Does the inadequacy arise because of the importance of the matter?
The only matter which the defendants relied on was that the matter was of importance.
Counsel for the defendants emphasised that the plaintiff sought a very substantial sum ($6 million) against the defendants. In the context of these defendants, being two very small companies and an individual, this was a very significant claim which would have had very significant implications for these defendants had it succeeded.
I accept the submissions of the defendants. While I accept that the test of importance is not satisfied simply because a party considers it to be important, in the context of these defendants, I am satisfied that it was of significant importance to them. This is because of the quantum of the claim made by the plaintiff and the likely impact of a successful claim on each of the defendants. On this basis, I accept this matter was important to the defendants.
Conclusion and orders
For these reasons, I am satisfied that the plaintiff should pay the defendants' costs of the action. I am also satisfied that there is a fairly arguable case that the items in the costs determinations for the defence and the preparation of the case for trial are inadequate because of the importance of the matter and that the special costs order sought by the defendants in respect of these items should be made.
For these reasons, the court will make orders that:
1.The plaintiff pay the defendants' costs of and incidental to the proceedings (including, for the avoidance of doubt, the costs in relation to the special appointment on 17 March 2023 and any reserved costs).
2.Pursuant to s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA) the defendants' costs of its defence and preparation of case are to be taxed without regard to the limits imposed by the applicable determinations, being:
(a)Legal Profession (Supreme and District Courts) (Contentious Business) Determinations 2018 (WA);
(b)Legal Profession (Supreme and District Courts) (Contentious Business) Determinations 2020 (WA).
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
FD
Associate to the Honourable Justice Hill
23 MARCH 2023
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