MA & J Tripodi Pty Ltd v Swan Hill Chemicals Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2018 0079
S APCI 2018 0099

MA & J TRIPODI PTY LTD (ACN 083 150 136)	Applicant/Cross-respondent
v
SWAN HILL CHEMICALS PTY LTD (ACN 144 706 258)	Respondent/Cross-applicant

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JUDGES:	KYROU, KAYE and EMERTON JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	22 February 2019
DATE OF JUDGMENT:	12 March 2019
MEDIUM NEUTRAL CITATION:	[2019] VSCA 46
JUDGMENT APPEALED FROM:	[2018] VCC 526 (Judge Cosgrave); [2018] VCC 710 (Judge Cosgrave)

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DAMAGES – Loss of opportunity to make profit from sale of agricultural product to supermarket chain – Opportunity more than merely speculative – Whether sufficient evidence adduced regarding production costs, sale price and sales volumes of product to establish venture would have been profitable – Appeal dismissed.

DAMAGES – Whether judge erred in awarding damages for wasted production costs – Cross-appeal dismissed.

COSTS – Whether judge erred in refusing to make special costs order in favour of respondent/cross-applicant based on ‘all-in’ offer of compromise served by it – Whether judge erred in awarding costs to applicant/cross-respondent notwithstanding its failure to establish entitlement to damages for loss of opportunity – Cross-appeal dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Applicant/ Cross-respondent	Mr P G Cawthorn QC with Mr A Schlicht	Vadarlis & Associates
For the Respondent/ Cross-applicant	Mr T J Margetts QC with Mr W D Thomas	Wotton & Kearney

KYROU JA
KAYE JA
EMERTON JA:

Introduction and summary

The applicant/cross-respondent, MA & J Tripodi Pty Ltd (‘Tripodi’), is a farming enterprise. Its director is Michael Tripodi. Prior to 2010, Tripodi primarily produced stone fruit, however from 2010, it began to expand its business to produce legumes.

The respondent/cross-applicant, Swan Hill Chemicals Pty Ltd (‘SHC’), is a supplier of agricultural chemicals and other farming products, and a provider of agronomy services.

In the 2012–2013 growing season, Tripodi endeavoured to grow a commercial quantity of borlotti beans, to be freshly shelled, packaged and sold in 250 g punnets.[1] Before doing so, it sought advice from SHC on an appropriate herbicide to protect the crop from weeds and how to maintain the health of the crops.
[1]A growing season for borlotti beans typically commences in October or November and concludes in March or April of the following year.

In mid-2012, Tripodi engaged in discussions with Woolworths Supermarkets (‘Woolworths’) regarding Woolworths selling Tripodi’s legumes, including shelled peas and borlotti beans, in its supermarkets.

On 18 July 2013, Tripodi and Woolworths entered into a memorandum of understanding (‘MOU’) pursuant to which Woolworths agreed to purchase 5,000 kg of freshly shelled peas per week at a cost of $13.20 per kilogram.[2] The MOU provided that, if agreement was reached for the supply of other Tripodi legumes, they would be supplied to Woolworths exclusively. During 2013, Tripodi supplied freshly shelled peas to Woolworths. It experienced some ‘teething problems’ in complying with Woolworths’ specifications.
[2]The MOU provided for a business volume rebate which is not presently relevant.

Between 16 November 2012 and 6 February 2013, Tripodi conducted 12 plantings of borlotti beans. SHC had recommended a herbicide for Tripodi’s first planting and half of the second planting and another herbicide for the remaining half of the second planting. The first and second plantings failed due to those chemicals. The third to fifth plantings failed due to inadequate monitoring of the crops by SHC. The seventh planting, which involved re-sowing the land that was used for the unsuccessful first planting, failed due to the chemical from the first planting remaining in the soil. The sixth and eighth to twelfth plantings were successful. However, as the quantity of borlotti beans produced from those plantings was insufficient to meet Woolworths’ minimum supply requirements, the beans were either dumped or sold to the wholesale market at a loss.

On 16 August 2013, Tripodi commenced a proceeding in the County Court, alleging breach of contract and negligence by SHC. It sought damages of $4.25 million for loss of profit arising from its inability to sell borlotti beans to Woolworths pursuant to an alleged supply contract with that company.

In March 2015, Tripodi applied for leave to amend its statement of claim. SHC consented to the amendment subject to the trial, which was due to commence on 15 April 2015, being vacated. On 30 March 2015, the judge granted Tripodi’s application, vacated the trial date and reserved costs.

The trial commenced on 11 July 2016. On 27 July 2016, after the evidence had been completed and SHC had made its final submissions, it became evident that Tripodi may not be able to prove that it had a concluded supply contract with Woolworths in relation to the sale of borlotti beans. The following day, Tripodi applied for leave to amend its statement of claim to claim, in the alternative, damages for loss of opportunity to make a profit by entering into such a supply contract with Woolworths. After reserving his decision on Tripodi’s application, on 10 August 2016 the judge granted it.[3] The trial resumed on 27 March 2017 and concluded on 30 March 2017.
[3]MA & J Tripodi Pty Ltd v Swan Hill Chemicals Pty Ltd [No 1] [2016] VCC 1139. The Court of Appeal refused to grant leave to appeal from that decision. See Swan Hill Chemicals Pty Ltd v MA & J Tripodi Pty Ltd [2016] VSCA 264.

In his careful and thorough reasons dated 24 April 2018,[4] the judge made the following findings:

(a)In 2012, Tripodi and SHC entered into a contract for SHC to advise Tripodi about herbicides for the borlotti bean crop for the 2012–2013 growing season and how to best care for the crop, and to provide monitoring services to maintain and safeguard the health of the crop.[5]
(b)SHC owed a duty of care to Tripodi to provide the advice and services referred to in (a) above.[6]
(c)SHC breached the contract and duty of care and those breaches caused the failure of six of the plantings.[7]
(d)Tripodi and Woolworths had not concluded a contract for Tripodi to supply borlotti beans to Woolworths and therefore Tripodi failed to prove it had suffered financial loss under such a supply contract as a result of SHC’s conduct.[8]
(e)Tripodi had established that it had lost an opportunity, which was not merely speculative, to sell borlotti beans to Woolworths but had not adduced evidence, which it was capable of adducing, to enable the Court to assess damages for that lost opportunity.[9]
(f)Tripodi was entitled to damages in the sum of $40,000 for moneys wasted in duplicating work by replanting two of the failed borlotti bean plantings.[10]

[4]MA & J Tripodi Pty Ltd v Swan Hill Chemicals Pty Ltd [No 2] [2018] VCC 526 (‘Judge’s principal decision’).

[5]Judge’s principal decision [137], [162], [203], [213], [421].

[6]Judge’s principal decision [162], [203], [213], [421].

[7]Judge’s principal decision [171], [192], [203], [213], [218], [236].

[8]Judge’s principal decision [260], [421].

[9]Judge’s principal decision [394], [397]–[398].

[10]Judge’s principal decision [415]–[419], [421]. As discussed at n 53 below, there is a question whether one or two of the plantings were replanted.

The judge stated that, even if Tripodi had proven its claim for damages for loss of opportunity, he would have discounted the damages by 85 per cent to take into account certain contingencies. He further stated that, if it had been argued by SHC, he also would have further reduced Tripodi’s damages due to its contributory negligence.

After the judge delivered his principal decision, he adjourned the proceeding for submissions on the final orders for substantive relief and costs.

In its submissions on costs, SHC relied on an offer of compromise dated 23 September 2015 by which it offered to settle Tripodi’s claims by paying it $250,000 inclusive of interest and costs (‘all-in offer of compromise’). SHC contended that the judge should make an order under r 26.08(3) of the County Court Civil Procedure Rules 2008 (‘Rules’) that Tripodi pay SHC’s costs incurred after 11:00 am on the second business day after 23 September 2015, that is, 25 September 2015, and that there be no order as to costs incurred before that time.[11] SHC contended that, in accordance with that rule, the judgment Tripodi obtained was not more favourable to it than the terms of the offer. This was said to be so because, as the offer was made well before trial and the damages and interest awards were modest,[12] the Court could safely conclude that Tripodi had not incurred costs of more than $190,886.03 as at 23 September 2015.
[11]In the alternative, SHC submitted that the judge should order that SHC pay a percentage of Tripodi’s costs incurred before 11:00 am on 25 September 2015.
[12]See [14] below.

On 22 May 2018, the judge published reasons for his decision on costs[13] and made the following order:

1There be judgment for [Tripodi] against [SHC] in the amount of $40,000 together with interest in the amount of $19,234.52.
2[Tripodi] pay [SHC’s] costs reserved on 30 March 2015.
3Subject to order 2 above, [SHC] otherwise pay [Tripodi’s] costs of the proceeding, including reserved costs, such costs to be taxed on a standard basis in accordance with the County Court scale.

[13]MA & J Tripodi Pty Ltd v Swan Hill Chemicals Pty Ltd [No 3] [2018] VCC 710 (‘Judge’s costs decision’).

On 28 June 2018, Tripodi sought leave to appeal on seven proposed grounds. Those grounds seek to impugn the judge’s finding that Tripodi had not proven its claim for damages for loss of opportunity and the judge’s statements that any damages that might have been awarded for loss of opportunity would have been reduced to take into account certain contingencies and contributory negligence.

On 10 August 2018, SHC sought leave to cross-appeal on four proposed grounds. Those grounds allege the following: firstly, the judge failed to afford SHC procedural fairness by awarding Tripodi $40,000 in damages on a basis that was not claimed by it; secondly, the judge failed to afford SHC procedural fairness by declining to refer to the Costs Court the assessment of Tripodi’s costs as at the date the offer of compromise was served in order to determine whether the offer was more favourable than the judgment; thirdly, the judge took an irrelevant matter into account in determining whether SHC’s offer of compromise should result in a special costs order; and fourthly, paragraph 3 of the judge’s order dated 22 May 2018 is unreasonable and plainly unjust.

For the reasons that follow, we will grant Tripodi leave to appeal and SHC leave to cross-appeal but dismiss both the appeal and the cross-appeal.

PART A: ISSUES RELATING TO DAMAGES

In essence, Tripodi’s appeal deals with whether the judge erred in not awarding it damages for loss of opportunity. As neither party has sought to impugn the judge’s findings on liability, we will confine our discussion of the appeal to the issue of damages. Central to determining that issue is whether the judge was correct to conclude that Tripodi had not adduced sufficient evidence to enable him to determine the cost to Tripodi of growing borlotti beans,[14] the price at which the beans would have been sold to Woolworths and the volume of the sales.
[14]The parties sometimes used growing costs and production costs interchangeably. Production costs is a broader concept than growing costs because the former concept includes costs such as distribution costs. However, the distinction between the two concepts does not affect the analysis in the present case.

Tripodi’s claim against SHC

In its initial statement of claim, Tripodi alleged that it suffered loss and damage as a result of SHC’s breach of contract and negligence. The statement of claim stated that particulars of Tripodi’s loss and damage would be provided upon the completion of an expert report.

Tripodi’s initial statement of claim stated the following:

7[Tripodi] entered into a supply agreement with Woolworths … to supply it with packaged shelled beans during the 2012/2013 season …

As we have already stated at [9] above, on 10 August 2016, Tripodi was granted leave to amend its statement of claim. Pursuant to that leave, Tripodi added the following paragraphs to its statement of claim:[15]
[15]All errors in original.

7AFurther and in the alternative to paragraph 7, [Tripodi] had an opportunity to sell its Borlotti Beans to Woolworths … and [Woolworths] made a commitment to and/or provided an opportunity to [Tripodi] to sell to Woolworths … [Tripodi’s] range of freshly shelled legumes including Borlotti Beans when they became available.

PARTICULARS
The commitment was oral and given at a face to face meeting held 3 July 2012 between Tony Klatt and Mario Saad of Woolworths and Michael and Jina Tripodi and Lisa Cork of [Tripodi] and in a subsequent telephone conversation between Michal Tripodi and Tony Klatt.
The substance of the commitment was that Woolworths would purchase the whole range of freshly shelled legumes, including Borlotti Beans, of [Tripodi] when they became available.
The commitment is confirmed in the evidence of Tony Klatt … and also in an email dated 18 July 2013.

7BBy reason of the actions of [SHC] summarised in paragraph 50 herein, [Tripodi] lost the opportunity to supply Borlotti Beans to Woolworths … and suffered loss and damage.

PARTICULARS
The loss and damage suffered by [Tripodi] is set out in two reports of Bruce [Wilkinson] … dated 11 August 2015 and 9 October 2015 respectively.

Tripodi’s new claim for damages for loss of opportunity included both the 2012–2013 growing season, and future seasons until the 2017–2018 season.

When the trial resumed on 27 March 2017, further evidence was adduced and further closing submissions were made by the parties.

Evidence at trial

Both parties called a number of lay and expert witnesses on the issues of liability and damages. The evidence by the lay witnesses was given orally without a prior exchange of witness statements.

Tripodi tendered, as business records, a bundle of invoices setting out costs incurred by it. An aide-mémoire, which summarised those invoices, was received by the judge not as evidence but in the nature of a submission. The invoices did not disclose on their face that they related to the production of borlotti beans by Tripodi (as distinct from Tripodi’s other agricultural products) and no person with knowledge of the product or products to which the invoices related gave evidence about them.

We will summarise the lay evidence before turning to the expert evidence. As the judge’s findings on liability have not been challenged, we will not refer to the evidence given by any lay or expert witness on liability except insofar as the evidence was also relevant to damages.

Lay evidence relating to damages

The lay witnesses who gave evidence on behalf of Tripodi in relation to the damages issues that are presently relevant were Mr Tripodi and Anthony Klatt. Mr Klatt was a senior manager at Woolworths who had authority to decide which fresh produce the company would buy from Victorian farmers and on what terms.

Mr Tripodi gave evidence in July 2016 and again when the trial continued in March 2017.

Mr Tripodi said that in a meeting with Mr Klatt in July 2012, they discussed a cost price to Woolworths of $3.50 per punnet of peas. He said that Mr Klatt asked him to review the price and that approximately two weeks later, he and Mr Klatt had a further discussion in which he agreed to reduce the price by 20 cents to $3.30 per 250 g punnet, or $13.20 per kilogram. He said that he and Mr Klatt agreed that the price would be the same for all legume products that Woolworths agreed to purchase from Tripodi, including freshly shelled borlotti beans.

In his evidence in chief, Mr Klatt said that Woolworths was interested in buying shelled borlotti beans from Tripodi and that, if they had been available in sufficient quantities, Woolworths would have undertaken a trial in the same manner as the trial for the peas, although the trial for the borlotti beans would not have been as rigorous. He said that if the trial had been successful, Woolworths ‘would have purchased the same amount of the borlotti beans, which was around 5,000 kilos per week’.[16] Although Tripodi called Mr Klatt to give evidence, it did not examine him on whether he and Mr Tripodi had discussed a price for the supply of borlotti beans by Tripodi to Woolworths.
[16]Transcript of Proceedings (14 July 2016) 371.

In cross-examination, Mr Klatt said that, before he ceased working for Woolworths in September 2013, he had only signed one MOU with Tripodi and that MOU related to freshly shelled peas. He said that he had not issued an MOU in relation to borlotti beans and that there was no agreement about quantities or price for borlotti beans because that product was not available for purchase.

The lay witnesses called by SHC whose evidence extended to the issue of damages were two employees of Woolworths who reported to Mr Klatt. Their evidence was broadly consistent with that of Mr Klatt. In cross-examination, Tripodi did not put to them that Woolworths had agreed to buy borlotti beans from it at a price of $13.20 per kilogram.

Expert evidence relating to damages

Before discussing the evidence of the experts the parties called in relation to damages, it is necessary to refer to the evidence of David Bell, an expert called by Tripodi on liability, particularly causation. That is because Tripodi’s expert on damages, Peter Wilkinson, relied on Mr Bell’s calculations relating to Tripodi’s costs of growing the borlotti beans.

Mr Bell is a horticultural and agricultural consultant. Tripodi relied on three reports prepared by him, the first of which was prepared in March 2014. He also gave oral evidence during the 2016 portion of the trial. Only the first of Mr Bell’s reports is presently relevant.

In that report, Mr Bell stated that Tripodi’s growing costs for the borlotti bean crops were $3.79 per kilogram, or $18,600 per hectare, and up to $570,000 in total.[17] On 14 August 2015, SHC’s solicitors sent an email to Tripodi’s solicitors taking issue with aspects of Mr Bell’s first report. In their email response of 16 August 2015, Tripodi’s solicitors stated the following:

Just so there is no doubt and to make it perfectly clear, [Tripodi] will not be relying on Mr Bell’s report regarding matters of loss and damage, the report will be relied on on the issue of liability. In regards [to] loss and damage, [Tripodi] will only be relying on Mr Wilkinson’s report.

[17]Mr Bell’s opinion was based on a calculated total yield of 150,300 kg of borlotti beans.

Notwithstanding that email, during the 2016 portion of the trial, Tripodi indicated that it wished to rely on Mr Bell’s opinion of its growing costs, as that opinion formed part of the basis upon which Mr Wilkinson had prepared his calculations of loss and damage. SHC opposed Tripodi’s reliance on Mr Bell’s first report. The judge ruled that in the light of the fact that the email was unambiguous, and did not seek to reserve reliance on any aspect of Mr Bell’s first report, Tripodi could not rely on that report in relation to loss and damage.[18] Tripodi has not sought to challenge that ruling.
[18]Transcript of Proceedings (15 July 2016) 464–6.

As we have already stated, on the question of damages, Tripodi relied on the evidence of Mr Wilkinson. Mr Wilkinson is a chartered accountant who has specialised in forensic accounting since 1988.

Tripodi relied on two expert reports from Mr Wilkinson, dated 12 August and 13 October 2015. Mr Wilkinson also gave oral evidence.

In his first report, Mr Wilkinson calculated Tripodi’s loss for the borlotti beans in the 2012–2013 growing season at $1.37 million, which he altered in his oral evidence to $1.35 million. In his second report, he dealt with the financial years ending 30 June 2014 to 30 June 2018 and, after applying a discount factor of 25 per cent, calculated the net present value of Tripodi’s future losses for the borlotti beans, as at 30 June 2013, at $2.9 million. The total loss was calculated at $4.25 million.

In arriving at the loss figures, Mr Wilkinson relied on an assumed contract price of $13.20 per kilogram of borlotti beans. In calculating the costs and expenses Tripodi incurred in growing the borlotti beans, he relied on the figure of $3.79 per kilogram, or $18,600 per hectare, in Mr Bell’s first report. Mr Wilkinson also had regard to a bundle of invoices totalling $574,186 that were provided to him by Tripodi, which he did not independently verify.[19] Mr Wilkinson said that the total of the invoices correlated closely with Mr Bell’s calculation of $570,000. Mr Wilkinson also adopted from Mr Tripodi the figure of 4,908 kg per hectare as the average yield of the borlotti bean crops.
[19]The invoices were not identical to those that were summarised by the aide-mémoire referred to at [25] above. In his oral evidence, Mr Wilkinson stated that the invoices totalled $547,000 and that Mr Bell had relied on an amount of $550,000 for expenses. See Transcript of Proceedings (18 July 2016) 510.

It was Mr Wilkinson’s evidence that if there was no contract between Tripodi and Woolworths, and Tripodi was required to sell its borlotti beans on the wholesale market, the borlotti bean venture would not be profitable.

Importantly, Mr Wilkinson stated on more than one occasion during cross-examination that he was not an agricultural expert and that he had simply conducted an accounting exercise based on the information that was supplied to him.[20]
[20]Mr Wilkinson said: ‘I wouldn’t be able to tell you how much it costs to plant one tree, let alone 5 and a half acres of Borlotti beans’. See Transcript of Proceedings (18 July 2016) 510.

As will be seen, the judge’s ruling that excluded Mr Bell’s first report from the evidence on loss and damage[21] affected the probative value of Mr Wilkinson’s opinion on Tripodi’s costs of growing the borlotti beans insofar as that opinion was based on Mr Bell’s first report.
[21]See [36] above.

SHC relied on a report prepared jointly by Richard Ivey and Peter Tremain dated 9 June 2016 (‘Ivey/Tremain report’) and on oral evidence from Mr Ivey. Mr Ivey is a chartered accountant who holds a Bachelor of Agricultural Science degree, a Postgraduate Diploma of Agricultural Economics and a Bachelor of Commerce degree. Mr Tremain is a consultant and business partner of Mr Ivey. He holds a Bachelor of Rural Science (Hons) degree and is a member of the Agriculture Institute of Australia and the Australian Association of Agricultural Consultants.

The Ivey/Tremain report disputed the figures on which Mr Wilkinson relied, including the yield per hectare, for which they adopted a figure of 3,502 kg per hectare for their calculations. The report stated that Mr Bell’s estimated cost of $18,600 per hectare was ‘likely to be substantially overestimated’ and that the correct figure would be closer to $8,000. The report concluded that, regardless of SHC’s conduct, if capital costs are taken into account, Tripodi’s borlotti bean venture would not have been profitable in the 2012–2013 season or in any subsequent season.

Relevantly, the Ivey/Tremain report set out the instructions upon which it was based, including that they

are instructed that as a matter of law, the assessment of [Tripodi’s] damages is limited to any profit lost only (that is to say, what profit if any, would have been earned if the enterprise had gone ahead) plus the additional expenses incurred.[22]

[22]Emphasis added.

The Ivey/Tremain report calculated the cost to Tripodi of replanting crops. It stated the following:

[Tripodi] appears to have incurred extra expenses in resowing plantings 5 and 7 allegedly due to [SHC’s negligence]. Planting these areas twice resulted in higher expenses than if the original planting had been successful in the absence of the alleged negligence.
… the growing expenses of the crops that were planted but not carried through to harvest are estimated at $5,200 per hectare being total growing costs ($8,000 per hectare) less assessed growing costs not incurred ($2,800 per hectare). However, these growing costs include land preparation costs that would not have to be incurred for the replanted crops, and some fertiliser that would not have been fully used by the original crops. Therefore, we have assessed the extra cost arising from the replanting at a lower amount of $4,000 per hectare.

The Ivey/Tremain report calculated the cost of replanting the 11 hectares for plantings 5 and 7, including an opportunity cost for irrigation water of $495, at $44,495. It stated that Mr Ivey and Mr Tremain were ‘instructed that these extra expenses constitute damages to [Tripodi] as a matter of law’ and that, based on their instructions, ‘[t]he only damages recoverable are the extra expenses incurred’.

Mr Wilkinson and Mr Ivey prepared a joint expert report dated 28 June 2016. The only aspect of that report which is presently relevant is the repetition by Mr Ivey of the statement made in the Ivey/Tremain report that Tripodi had incurred additional costs of $44,495 in replanting 11 hectares.

The judge reserved his judgment on 30 March 2017. On 22 January 2018, the judge’s associate wrote an email to SHC’s solicitors (with a copy to Tripodi’s solicitors), as follows:

The court understands that [SHC] contends that it has no liability at all to [Tripodi]. However, if [SHC] were liable in some way, is it correct to read the [Ivey/Tremain] report as saying that:
· [Tripodi’s] loss and damage would be limited to $44,495 for the 2012/13 season; and
· [Tripodi] would not be entitled to any ongoing damages for the period after 2012/13, namely, until 2017/18?
Please advise … whether this interpretation is correct, and if not, where and why it is wrong.

SHC’s solicitors responded the following day that ‘[SHC] confirms that the interpretation set out in your email is correct’.

Judge’s decision in relation to damages
Principles relating to loss of opportunity applied by the judge

In reviewing the legal principles for claims of loss of opportunity, the judge discussed Sellars v Adelaide Petroleum NL[23] at length. He referred to the plurality of Mason CJ, Dawson, Toohey and Gaudron JJ’s citation with approval of the following passage from Malec v JC Hutton Pty Ltd, which explains how the civil standard of proof must be applied to proof of historical facts, but not future possibilities or hypothetical situations:

If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high — 99.9 per cent — or very low — 0.1 per cent. But unless the chance is so low as to be regarded as speculative — say less than 1 per cent — or so high as to be practically certain — say over 99 per cent — the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability.[24]

[23](1994) 179 CLR 332 (‘Sellars’).

[24](1990) 169 CLR 638, 643. See Sellars (1994) 179 CLR 332, 350.

In Sellars, the plurality stated that the above reasoning is not confined to the assessment of damages for personal injuries but applies equally to the assessment of damages for the loss of a commercial opportunity.[25] The judge set out the approach to be adopted based on the following observations of the plurality:

[W]e consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s 52(1) [of the Trade Practices Act 1974], should be ascertained by reference to the court’s assessment of the prospects of success of that opportunity had it been pursued. The principle recognized in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation for confining the principle to cases of any particular kind.
On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant’s case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.[26]

[25]Sellars (1994) 179 CLR 332, 350.

[26]Sellars (1994) 179 CLR 332, 355 (emphasis in original). See Judge’s principal decision [270].

Regarding when a commercial opportunity will be valuable, the judge also had regard to Kiefel J’s view in Tabet v Gett that an opportunity to acquire a commercial benefit may itself be valuable, provided that the opportunity provides a substantial, and not just a speculative, prospect of acquiring the benefit.[27]
[27]Tabet v Gett (2010) 240 CLR 537, 581 [124].

The judge also referred to two decisions of this Court which discussed how, once a plaintiff has proved on the balance of probabilities that the defendant’s conduct deprived him or her of a valuable opportunity, damages for the loss of the opportunity must be assessed. In the first of those cases, Price Higgins & Fidge v Drysdale, Winneke P, with whom Ormiston and Charles JJA agreed, stated:

While the plaintiff is required to prove to the appropriate standard of proof the existence of a valuable loss of opportunity and the fact that it was caused by the defendant's negligence, the plaintiff is not required to prove, on the balance of probabilities, the value or extent of the loss because of the difficulties associated with proof of past hypothetical fact situations; in those circumstances the value or extent of the loss is to be ascertained by reference to degrees of possibilities or probabilities.[28]

[28][1996] 1 VR 346, 354.

In the second case, Masters Home Improvement Pty Ltd v North East Solution Pty Ltd, this Court stated:

In considering damages for loss of a commercial opportunity, the court asks first whether there was a commercial opportunity of some value (which is more than speculative or negligible); that is, was there a chance? Secondly, the court looks to whether that opportunity has been lost; that is, would the plaintiff have pursued the opportunity? The third step is to consider what amount should be awarded having regard to the prospects of success if the opportunity had been pursued. In taking this third step, the courts’ task is to apply a discount which reflects the prospects of success. This is sometimes referred to as a Sellars discount.[29]

[29][2017] VSCA 88 [411] (emphasis in original).

The judge summarised the applicable principles as follows:

In general terms, the existence of a valuable opportunity is to be assessed on the balance of probabilities even if it has only a limited chance of success. The quantification of the loss is determined by reference to the range of possibilities and probabilities reflected in the contingencies.[30]
[30]Judge’s principal decision [337].

Principles relating to expert evidence applied by the judge

The judge had regard to Dixon J’s summary in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [No 3][31] of the relevant matters for determining whether expert evidence is admissible under s 79 of the Evidence Act 2008, as follows:
[31][2012] VSC 99 (‘Dura’).

(a)is the opinion relevant or of sufficient probative value (the relevance rule);
(b)has the witness properly based ‘specialised knowledge’ (the expertise rule);
(c)is the opinion to be propounded ‘wholly or substantially based on specialised knowledge’ (the expertise basis rule);
(d)is the opinion to be propounded ‘wholly or substantially based’ on facts assumed or observed that have been, or will be, proved or more specifically (the factual basis rules):
(i)are the facts and assumptions on which the expert’s opinion is founded disclosed (the assumption identification rule);
(ii)is there evidence admitted or to be admitted capable of proving matters sufficiently similar to the assumptions made by the expert to render the opinion of value (the proof of assumptions rule);
(iii)is there a statement of reasoning showing how the facts and assumptions relate to the opinion stated to reveal that the opinion is based on the expert’s specialised knowledge (the statement of reasoning rule).[32]

[32]Judge’s principal decision [364]. See Dura [2012] VSC 99 [98].

Regarding Dixon J’s ‘factual basis rules’ set out above, the judge stated that ‘it is axiomatic that facts or assumptions upon which an expert relies in proffering an opinion must be proved by admissible evidence before the party on whose behalf the expert testifies closes his case’.[33] He stated that to the extent that Mr Wilkinson gave his opinion based on facts which were not proved by admissible evidence, his opinion was inadmissible.[34]
[33]Judge’s principal decision [365].
[34]Judge’s principal decision [365].

Judge’s credit findings

The judge devoted 18 paragraphs of his reasons to Mr Tripodi’s credibility and reliability as a witness. The judge concluded that he had ‘reservations about the reliability and accuracy of [Mr Tripodi’s] evidence’ and considered that Mr Tripodi had ‘unconsciously or subconsciously altered his recollection of events to better fit what he perceived to be the best interests of Tripodi’.[35] The judge continued:

For that reason, his evidence needs to be treated with care. In the absence of some corroboration, either from other witnesses, contemporaneous documents or the probabilities of other established facts, I would be somewhat sceptical of his evidence. His enthusiasm for the bean project has rendered him not the most credible or reliable of witnesses.[36]

[35]Judge’s principal decision [104].

[36]Judge’s principal decision [104].

The judge did not accept Mr Tripodi’s evidence that he had reached agreement with Mr Klatt for Tripodi to sell borlotti beans to Woolworths for $13.20 per kilogram. The judge said that Mr Tripodi’s evidence on this point was ‘self-serving, uncorroborated and, in particular, not supported by the other person to the conversation’.[37]
[37]Judge’s principal decision [393].

The judge found that Mr Klatt was an ‘honest, credible and reliable’ witness and accepted his evidence.[38] The judge added that ‘to the extent of a conflict between [the evidence of Mr Klatt and that of] one of the parties, [the judge] would prefer [Mr Klatt’s] evidence’.[39]
[38]Judge’s principal decision [128].
[39]Judge’s principal decision [128].

The judge said that ‘in general terms [he] preferred the evidence of [SHC’s] experts to that of [Tripodi]’.[40] In relation to Mr Wilkinson, the judge observed that ‘he did no more than perform an arithmetic exercise based on instructions and assumptions not all of which were made good by the evidence’.[41]
[40]Judge’s principal decision [420].
[41]Judge’s principal decision [420].

Judge’s reasons for not awarding Tripodi damages for loss of opportunity

The judge found that the assessment of damages for the loss of opportunity claimed by Tripodi was a speculative exercise because Tripodi had failed to adduce reliable evidence to enable the Court to undertake that assessment.[42] He reached that conclusion for a number of reasons.
[42]Judge’s principal decision [394], [397].

First, there was no proper basis established by Tripodi for the growing costs of the borlotti beans either in Mr Wilkinson’s report or on the basis of other evidence. He found that was so because, as set out at [35]–[36] above, Mr Wilkinson was unable to rely on the contents of Mr Bell’s first report regarding growing costs, and Mr Wilkinson did not offer any other proven facts regarding those costs.

The judge noted that Mr Wilkinson had been provided with a bundle of invoices,[43] the total of which correlated closely with Mr Bell’s calculation of Tripodi’s growing costs for the borlotti beans. However, he stated that this did not assist Tripodi because: the calculation in Mr Bell’s first report related to quantum and Tripodi had agreed that it would not rely on Mr Bell’s first report for that purpose; Mr Bell was not asked about it in his oral evidence; and the invoices did not assist because of an absence of reliable evidence about the nature, source, accuracy or completeness of the invoices.
[43]See [25], [40], n 19 above.

Secondly, the judge observed that the source for the ‘fundamental assumption’ underlying Mr Wilkinson’s calculations, namely that Woolworths would pay Tripodi $13.20 per kilogram of borlotti beans, was Mr Tripodi.[44] However, Mr Klatt’s evidence was that no agreement had been reached between Woolworths and Tripodi about price in relation to borlotti beans. The judge had accepted the evidence of Mr Klatt on this point and rejected Mr Tripodi’s evidence on it as self-serving and uncorroborated. The judge stated that, because Mr Wilkinson’s opinion was based on figures for production costs which were not proven and income figures which did not accord with Mr Klatt’s evidence, ‘Tripodi has failed prima facie to prove its alleged loss and damage’.[45]
[44]Judge’s principal decision [360].
[45]Judge’s principal decision [368].

Thirdly, Tripodi and Woolworths had not reached any agreement on the quantity of borlotti beans to be purchased by Woolworths.

Fourthly, the judge stated that the evidence of Mr Wilkinson as to the yield of the plantings was problematic and, accordingly, Tripodi had failed to adduce sufficient evidence of the yield.[46]
[46]The judge was also critical of Mr Ivey’s evidence on yield: see Judge’s principal decision [394].

Fifthly, Mr Wilkinson failed to explain his valuation methodology and in particular why he employed a discount rate of 25 per cent in his calculation of Tripodi’s future loss.

The judge distinguished Tripodi’s case from one in which the plaintiff was prevented by the nature or subject matter of its claim from being able to provide evidence to prove its loss. He said that while in such a case the court could not refuse to calculate damages, Tripodi’s case was ‘an instance where the plaintiff has simply failed to provide the court with sufficient evidence to prove its loss, leaving the court to merely speculate or guess as to the amount of damages that should be awarded’.[47]
[47]Judge’s principal decision [398]. The judge cited Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257, 266 [38] (‘Placer’).

The judge considered that the present case bore similarities to Longden v Kenalda Nominees Pty Ltd.[48] In that case, the defendant’s breach of a contract (a lease of business premises) deprived the plaintiff of the opportunity to set up a retail furniture business. The plaintiff sought to prove her claim for damages for loss of opportunity solely by adducing evidence of the profitability of another retail furniture business. As the trial judge had rejected that evidence, there was no evidence from which the Court could determine that the lost opportunity had any value, let alone the amount of that value.[49] Buchanan JA stated the following:

It was … necessary for the appellant to establish a means of estimating the amount of the profit. The appellant was required to prove the loss of profit with as much precision as the subject matter reasonably allowed. It was necessary for her to lay a foundation for an estimate of the lost profit which was not mere guesswork, for this was not a case where precise evidence of what had been lost could not be adduced.[50]

[48][2003] VSCA 128 (‘Longden’).

[49]Longden [2003] VSCA 128 [7], [9]–[12], [37]–[38].

[50]Longden [2003] VSCA 128 [12] (citations omitted).

In Longden, Chernov JA stated:

it is for the plaintiff to prove both the fact of loss arising from the defendant’s breach and the amount of the loss. Moreover, the plaintiff is required to establish both matters with as much certainty and particularity as is reasonable in the circumstances. Consequently, where a plaintiff could have produced evidence of loss but has simply failed to do so, it ordinarily means that it has failed to prove its case on damages … There are, of course, situations where a plaintiff cannot adduce precise evidence of the amount of loss, in which case the court will do its best in that regard and will estimate the damages and, where appropriate, will engage in a certain amount of guesswork.[51]

[51][2003] VSCA 128 [33] (emphasis in original) (citations omitted).

Although the judge concluded that as a result of the deficiencies in Tripodi’s evidence, he was unable to award any damages to Tripodi for loss of opportunity, he nevertheless awarded it damages for wasted expenditure. The basis of that award was ‘a concession by [SHC’s] experts that, if contrary to [SHC’s] primary submissions, it has some liability to Tripodi, then such liability is limited to the sum of $44,495 for the 2012/13 season’.[52] The judge’s reasons for awarding damages — albeit for the lower amount of $40,000 — on the basis of the concession to which he referred were as follows:

SHC acknowledges that Tripodi replanted two of the original bean crop plantings. This was because the initial planting failed and so it became possible to replant soon after that failure. SHC in essence accepted that, in the absence of the incident of the failed crops, only one original planting would have grown and there would have been no time to replant. SHC says that planting two areas … a second time resulted in higher expenses than if the original plantings had been successful in the absence of the alleged negligence.
[SHC’s] expert report estimates the costs of replanting at $4,000 per hectare. This compares to a figure of $8,000 per hectare for the total growing costs associated with the initial plantings. The figure of $8,000 does not include the costs of leasing the [land] or the irrigation water used.
While I am satisfied that SHC breached its retainer and its duty to Tripodi, Tripodi has not proved any significant loss and would be limited to nominal damages on its contract claim. Here, it was not disputed that Tripodi did replant two of the areas at the [land]. Tripodi’s evidence about growing costs was defective and it led no direct evidence of the replanting costs.
However, [SHC] did. The rules of court provide for the possibility of one party tendering and relying upon an expert report prepared by the other party. SHC estimated the replanting cost at $44,495 but that figure represented its best guess subject to reservations about growing costs, crop husbandry practices and the areas replanted.
Doing the best I can on limited and qualified material, I award Tripodi damages of $40,000.[53]
[52]Judge’s principal decision [415].
[53]Judge’s principal decision [415]–[419]. The ‘concession’ to which the judge referred is set out at [46]–[48] above. Although the judge stated that SHC acknowledged that Tripodi replanted two of the original plantings, it appears that only the land on which the first planting occurred was replanted: see [6] above. However, neither party took issue with this aspect of the judge’s decision.

Grounds of appeal and ground 1 of cross-appeal

Tripodi’s grounds of appeal are in the following terms:[54]
[54]All errors in original. Citations omitted.

(1)(a) The trial judge erred in law in having found that [SHC] breached its duty of care to [Tripodi] and as a result of that breach suffered loss and damage including loss of opportunity erred in law in not assessing damages;
(b)The trial judge, having held that the evidence of Anthony Klatt of Woolworths to be honest, credible and reliable and to the extent of a conflict, would prefer his evidence and given that Klatt’s evidence was that:-
(i)Woolworths were looking for fresh produce and was keen to continue the range of freshly shelled legumes;
(ii)Woolworths was an enthusiastic buyer of borlotti beans if available;
(iii)[Tripodi] achieved quality certification of the freshly shelled peas in January 2013–2015;
(iv)the trial was not just for peas but for the whole range of legumes;
(v)Woolworths advised [Tripodi] it wished to proceed with the peas and when available, other products;
(vi)Woolworths were going to put borlotti beans into its 900 supermarkets and would have purchased 6,000 kgs per week of borlotti beans;
(vii)whether Woolworths purchased borlotti beans was ultimately Klatt’s call —

and the trial judge in finding that [Tripodi] suffered a loss of opportunity to supply borlotti beans to Woolworths by reason of the actions of [SHC], the trial judge erred in finding non quantum of damage in respect of such loss.

(2)The trial judge erred in whilst acknowledging difficulty in assessing damage ought to have estimated damages in any event.
(3)The trial judge erred in law in finding no damages suffered for loss of opportunity when:
(a)there was ample expert evidence of the loss and damage suffered given in two expert reports dated 12 August and 13 October 2015 respectively;
(b)there was no real challenge to the qualifications of Mr Peter Bruce Wilkinson, the expert of [Tripodi];
(c)that whilst there were no adjustments that could be made, there were significant losses incurred;
(d)the price of $13.20 per kilogram for borlotti beans was unchallenged and accepted as the correct price for the shelled peas and this was confirmed by Anthony Klatt and ought to have been accepted as the only credible evidence of such price;
(e)the figures used by Wilkinson for costs and expenses were not challenged by [SHC].

(4)The trial judge erred in finding that [Tripodi] had not proved its case.

(5)       The trial judge erred in not calculating any such loss and damage.
(6)       The trial judge erred in finding contributory negligence when:-
(a)       it was not pleaded by [SHC];
(b)it was not put to [SHC] in either cross-examination or submissions;

(c) it was not an issue in the proceeding.

(7) There was no basis for the judge to reduce any damages by 85%.

Ground 1 in SHC’s application for leave to cross-appeal is in the following terms:

The trial judge failed to afford procedural fairness to [SHC] by awarding damages to [Tripodi] for wasted expenditure, when [Tripodi] did not make any claim for damages for wasted expenditure and [SHC] was not afforded an opportunity to contradict any such claim.

As grounds 1–5 of the application for leave to appeal and ground 1 of the application for leave to cross-appeal deal with the same subject matter, we will consider them together. We will then consider grounds 6 and 7 of the application for leave to appeal together.

Appeal grounds 1–5 and cross-appeal ground 1: Assessment of damages
Parties’ submissions

Tripodi submitted that the judge erred first, in misstating the applicable test for the assessment of damages for loss of opportunity and, secondly, in finding that it had not proven its loss.

Tripodi contended that the judge improperly assessed the quantification of its lost opportunity on the balance of probabilities, rather than on the basis of possibilities or probabilities as a consequence of his incorrect interpretation of this Court’s decision in Longden. It argued that, in Longden, the plaintiff was unsuccessful because she failed to satisfy the threshold issue of whether the defendant’s conduct had caused the loss of a valuable opportunity, but the judge had incorrectly interpreted Longden as a case in which damages could not be awarded because there was insufficient evidence adduced to determine the value of the lost opportunity.

Tripodi argued that the judge, in reaching his conclusion that it had failed to prove the quantum of its damages, had erred by applying the civil standard of proof. According to Tripodi, the judge was required to assess on the balance of probabilities only whether it suffered any loss, which was not speculative and, that threshold having been met, the issue of quantum was only to be assessed on the basis of possibilities, which could be assessed at as low as one per cent. It further contended that the judge was incorrect to apply the test in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd,[55] regarding the necessary precision of evidence before a court for the assessment of damages, at the stage of assessing the quantum of damages after the threshold question was satisfied on the balance of probabilities.
[55](2003) 196 ALR 257.

Tripodi accepted that it was nevertheless required to adduce admissible evidence at trial on the issue of quantification. However, it submitted that it had adduced sufficient admissible evidence to allow the judge to assess damages, and the judge had erred in finding that the assumptions on which Mr Wilkinson had relied were not proven. Tripodi contended that the judge further fell into error by then ignoring evidence of actual expenditure that had informed Mr Wilkinson’s assumptions, namely the bundle of invoices, which were summarised in the aide-mémoire that was submitted to and accepted by the Court during the trial.

Tripodi also pointed to the fact that, in his report, Mr Wilkinson listed the documents he relied on, which were almost all included in the court book, and there was an agreement between the parties that, subject to objection, all of the documents in the court book to which witnesses referred would be admitted into evidence. It contended that Mr Wilkinson had not based his calculations solely on Mr Bell’s first report but also arrived at his own growing costs figure of $3.79 per kilogram of borlotti beans on the basis of other documents, including the bundle of invoices.

Tripodi further contended that the judge should have had regard to estimated expenses in the Ivey/Tremain report. According to Tripodi, if the judge had regard to these matters, it would not have been open to him to reject its claim for damages for loss of opportunity on the basis that it had failed to prove its loss.

Tripodi argued that the judge also rejected Mr Tripodi’s evidence that the selling price to Woolworths for borlotti beans would be the same as for peas, namely $13.20 per kilogram, without giving any reasons for that rejection. According to Tripodi, the judge also erred in refusing to accept Mr Tripodi’s evidence of the sale price of borlotti beans in circumstances where it was not put to Mr Tripodi in cross-examination that the price had not been agreed and it was not contradicted by any witness from Woolworths.

Tripodi submitted that the judge was obliged to undertake a calculation of its loss by having regard to Mr Wilkinson’s reports, and then applying a discount factor for contingencies.

SHC submitted that the judge had not erred in finding that Tripodi had not proven its loss, because it had failed to prove the assumptions upon which Mr Wilkinson had relied as to the costs of growing the borlotti beans and the price that Woolworths would pay for them.

Regarding the growing costs, SHC submitted that Mr Wilkinson had adopted the figure of $3.79 per kilogram of borlotti beans calculated by Mr Bell, upon whose evidence Tripodi was precluded from relying by the judge’s ruling. SHC also submitted that the judge had not ignored the invoices relied on by Mr Wilkinson, but correctly found that they had not been properly proved.

Regarding the price that Woolworths would pay for the borlotti beans, SHC contended that Mr Wilkinson had assumed that Woolworths would pay $13.20 per kilogram. That assumption, it contended, was based only on the evidence of Mr Tripodi, which the judge rejected on that point as self-serving, uncorroborated and not supported by Mr Klatt.

SHC submitted that Mr Klatt had, during cross-examination, agreed that Woolworths had not made a decision as to price or quantity for Tripodi’s borlotti beans, and that Tripodi had not examined Mr Klatt on that point, giving rise to a Jones v Dunkel[56] inference. SHC argued that it had not failed to comply with the rule in Browne v Dunn[57] by not putting to Mr Tripodi that Mr Klatt’s evidence would be that there was no agreement that Woolworths would pay Tripodi $13.20 per kilogram of borlotti beans. It contended that it had no obligation to do so and, indeed was unable to do so because Mr Klatt was called by Tripodi, after Mr Tripodi, and thus SHC could not anticipate Mr Klatt’s evidence.
[56](1959) 101 CLR 298.
[57](1893) 6 R 67.

SHC contended that Tripodi’s reliance on the principle that the difficulty of estimating damages does not relieve a court of its responsibility to assess them as best it can is misplaced in circumstances where Tripodi could have adduced cogent evidence within its control to prove its loss, but had simply chosen not to do so.

In addition to Mr Wilkinson relying on Mr Bell’s first report, and Tripodi’s failure to properly prove the invoices on which he based his calculations, SHC submitted that the judge was correct to refuse to speculate and award damages to Tripodi for the following reasons. First, Tripodi was required to prove its loss with as much certainty and particularity as the circumstances allowed, and it failed to do so.[58] Secondly, the judge was not required to speculate as to the amount of that loss; Tripodi was required to prove not only the fact of the loss on the balance of probabilities, but the amount of its loss as precisely as possible.[59] Thirdly, in circumstances where the quantum of damages was imprecise due to a lack of evidence, the difficulties in assessing those damages should have been resolved against Tripodi, as the party that could have provided that evidence.[60]
[58]SHC relied on Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 and other authorities.
[59]SHC relied on Longden [2003] VSCA 128 [10], [12]–[13], [32]–[33].
[60]SHC relied on NCON Australia Ltd v Spotlight Pty Ltd [2012] VSC 604 [291] and other authorities.

Regarding ground 1 of the application for leave to cross-appeal, SHC submitted that the award of $40,000 was not based on any claim that Tripodi had pleaded or pursued at trial. It contended that by awarding Tripodi $40,000 damages, the judge failed to afford it procedural fairness by providing it with an opportunity to respond to any claim for wasted expenditure. It emphasised that Tripodi did not claim damages for wasted expenditure and did not adduce any evidence in relation to such expenditure even when, after having been granted leave, it amended its statement of claim on 1 September 2016.

In response, Tripodi submitted that it was open to the judge to award $40,000 in damages on the basis of its pleaded claims, and argued that it was SHC’s expert witnesses, Mr Ivey and Mr Tremain, who had stated in their report that if there was negligence on SHC’s part, it gave rise to a loss of $44,495 for wasted expenditure. Tripodi contended that it was disingenuous for SHC to now claim that it was not given an opportunity to address that loss, in circumstances where it was raised by Mr Ivey and Mr Tremain, and its case at trial was that any damages were limited to those for wasted expenditure.

Decision

In our opinion, grounds 1–5 of the application for leave to appeal and ground 1 of the application for leave to cross-appeal are not made out. We will deal with the former grounds before the latter ground.

Where, as in the present case, a plaintiff seeks damages for loss of opportunity in respect of a proposed business venture, it must be borne in mind that what is relevant — and must be the subject of evidence — is not only that there was an opportunity to consummate the venture that was lost due to the defendant’s conduct, but also that there was a prospect of a profit being made from the venture. Accordingly, a plaintiff who adduces compelling evidence that a business venture would have been consummated but for the defendant’s conduct will not be entitled to damages if he or she does not adduce any evidence at all about the potential for that venture to make a profit. Put simply, the law does not provide for damages for loss of opportunity to consummate a loss-making business venture.[61]
[61]Longden [2003] VSCA 128 [34]. The judge recognised this principle. See Judge’s principal decision [385].

In the case of a proposed business venture involving the sale of a product, the key components that will determine whether the venture will be profitable are the costs of producing the product, its price per unit and the volume of sales. Self-evidently, even a venture involving sales at a high price and in large volumes will not be profitable if the sales revenue is insufficient to recover production costs.

In the present case, SHC’s breach of contract and negligence prevented Tripodi from entering into a supply contract with Woolworths in relation to borlotti beans because it was not able to meet Woolworths’ minimum volume requirements. The judge correctly found that, but for SHC’s conduct, it was likely that Tripodi and Woolworths would have entered into a contract for the supply of borlotti beans — due to their shared enthusiasm for selling freshly shelled legumes — and therefore Tripodi suffered a loss of opportunity.[62] This finding explains why the judge was satisfied on the balance of probabilities that Tripodi ‘suffered a loss of opportunity of some value due to the conduct of SHC’.[63]
[62]Judge’s principal decision [325], [331], [333]–[335].
[63]Judge’s principal decision [339].

However, in order for Tripodi to be entitled to damages for loss of opportunity, it had to adduce evidence to enable the judge to assess the value of that opportunity. In accordance with Sellars, Tripodi did not need to adduce evidence establishing the value on the balance of probabilities. Rather, evidence of what the value might be — in the sense of possibilities rather than probabilities — would have sufficed.

For the reasons set out earlier, in order to establish a possible value of the loss of opportunity to enter into a supply contract with Woolworths in relation to borlotti beans, it was necessary for Tripodi to adduce evidence as to production costs, sales volumes and price per unit. That is because, in the absence of such evidence, the judge would be left to speculate whether such a supply contract would have been profitable, if the opportunity had been realised. The judge rejected Tripodi’s claim for loss of opportunity damages because it failed to adduce any reliable evidence about production costs, sales volumes and price per unit.

In our opinion, the judge was right to conclude that Tripodi had not adduced any reliable evidence in relation to its costs of producing borlotti beans in the 2012–2013 season and the price and volumes at which it would have sold the beans to Woolworths if it had entered into a supply contract with that company.

In relation to production costs, Tripodi sought to rely primarily on the evidence of Mr Wilkinson and the tendered invoices.

The tendered invoices were not probative of Tripodi’s costs of growing borlotti beans because no evidentiary nexus between the costs the subject of the invoices and the beans was established either by the contents of the invoices or any witness who had personal knowledge of those contents. Although the costs the subject of the invoices represented production costs incurred by Tripodi, the invoices did not state for which products the costs were incurred and there was nothing from which it could be inferred that the invoices exhaustively set out all the costs that had been incurred.

Mr Wilkinson was not able to give any admissible opinion evidence on Tripodi’s production costs relating to borlotti beans in accordance with s 79 of the Evidence Act. He conceded that he did not have any agricultural expertise and thus could not express an opinion on those production costs ‘wholly or substantially’ based on his specialised knowledge. The absence of such expertise would not have precluded his opinion from being admissible under s 79 if it had been based on facts that had been established by other admissible evidence. However, the information upon which Mr Wilkinson relied for his opinion did not constitute such admissible evidence in the present case. That was so in relation to Mr Bell’s first report because, as we have already seen, that report did not form part of the evidence on loss and damage.[64] To the extent that Mr Wilkinson had regard to them, that was also the case in relation to the invoices because, for the reasons already discussed, they were not proven to be evidence of the production costs.
[64]See [36] above.

The only other evidence that was before the judge in relation to Tripodi’s production costs for borlotti beans was that of Mr Ivey and Mr Tremain. However, the amounts that they assigned to production costs were based on assumptions they had made rather than Tripodi’s actual costs. In circumstances where evidence of actual costs incurred by Tripodi for producing the borlotti beans was available and capable of being adduced by Tripodi — and no explanation was provided for not adducing it — it would not have been appropriate for the judge to rely on assumed costs. In any event, as Mr Ivey and Mr Tremain concluded that Tripodi’s borlotti beans venture was unprofitable, it would not have been appropriate for the judge selectively to rely on those amounts in support of a conclusion that Tripodi would have made a profit.

In relation to the price at which Tripodi would have sold borlotti beans to Woolworths, Tripodi sought to rely on the evidence of Mr Tripodi, Mr Klatt and Mr Wilkinson.

The judge rejected Mr Tripodi’s evidence concerning price. We do not accept Tripodi’s contention that the judge failed to give any reasons for his conclusion that Mr Tripodi’s evidence on price was ‘self-serving, uncorroborated and, in particular, not supported by the other person to the conversation’.[65] That finding must be considered in the context of the judge’s detailed explanation as to why he concluded that Mr Tripodi’s evidence ‘needs to be treated with care’ and why he preferred Mr Klatt’s evidence to that of Mr Tripodi.[66]
[65]See [61] above.
[66]See [60], [62] above.

There is no substance to Tripodi’s submission that the judge erred in refusing to accept Mr Tripodi’s evidence on price in circumstances where SHC did not put to him in cross-examination that no agreement had been reached with Woolworths as to price. As the proceeding was conducted without witness statements and the senior decision-maker at Woolworths, Mr Klatt, was a witness for Tripodi and gave evidence after Mr Tripodi, SHC had no evidentiary basis to put to Mr Tripodi that Mr Klatt had not agreed to a price.

The judge was right to conclude that Mr Klatt’s evidence contradicted Mr Tripodi’s evidence that Tripodi and Woolworths had agreed on a sale price of $13.20 per kilogram for borlotti beans. Read as a whole, Mr Klatt’s evidence was to the following effect. First, Woolworths had not reached any agreement with Tripodi regarding the purchase of borlotti beans because Tripodi had not met Woolworths’ preconditions for the entering into of a supply contract. Secondly, Woolworths would not be in a position to reach agreement on quantity and price until those preconditions were met, at which time any agreement that was reached would be incorporated into an MOU.

As Mr Wilkinson’s reports relied exclusively on Mr Tripodi as the source of information as to price, the judge’s rejection of Mr Tripodi’s evidence on price meant that there was no evidentiary foundation for the price figures in those reports.

In relation to the volume of sales to Woolworths, the judge was right to accept Mr Klatt’s evidence that no agreement had been reached between Tripodi and Woolworths regarding the quantity of borlotti beans that Woolworths would have purchased. However, it must be said that Tripodi was on stronger ground in relation to quantity compared to price. This is because Mr Klatt gave evidence that, subject to Tripodi satisfying Woolworths’ minimum supply requirements and quality standards, Woolworths ‘would have purchased the same amount of the borlotti beans, which was around 5,000 kilos per week’.[67]
[67]See [30] above.

It follows from the above discussion that the judge correctly rejected Mr Wilkinson’s calculations of Tripodi’s loss of profit arising from SHC’s conduct. In the absence of those calculations, there was no evidence at all to support a conclusion that any contract that Tripodi may have entered into with Woolworths for the supply of borlotti beans would have been profitable. Even if it is assumed in Tripodi’s favour that there was sufficient evidence from which the volume of sales and sale price could be assessed as a matter of non-speculative possibility, there was simply no probative evidence of the remaining key component going to the profitability of the borlotti beans venture, namely production costs.

We reject Tripodi’s submission that the judge misapplied the principles for determining damages for loss of opportunity. The judge correctly set out the principles derived from Sellars and how those principles are to be applied to a proposed business venture involving the sale of a product. He correctly referred to the distinction between cases where a plaintiff is unable to adduce evidence quantifying an opportunity and cases in which a plaintiff is able to adduce such evidence but fails to do so. In the latter case, it is not for the court to use guesswork to determine the issue of damages. The judge did not misinterpret or misapply Placer, Longden or any other authority.

In the present case, Tripodi’s costs for producing borlotti beans in the 2012–2013 season were a historical fact which was uniquely within its knowledge. There was no explanation as to why evidence of those costs was not given by Mr Tripodi — who gave evidence at both stages of the trial — or by any other witness for Tripodi. As production costs are one of the three key components informing the profitability or otherwise of a business venture involving the sale of a product, Tripodi’s unexplained failure to adduce evidence of such costs was fatal to its claim for damages for loss of opportunity.

We will now deal briefly with ground 1 of the application for leave to cross-appeal.

In our opinion, that ground is not made out. As stated at [19] above, Tripodi’s initial statement of claim alleged in general terms that it had suffered loss and damage as a result of SHC’s breach of contract and negligence. In its defence, SHC denied that allegation. Accordingly, the questions whether Tripodi suffered any loss as a result of SHC’s conduct and the quantum of any such loss were in issue from the outset of the proceeding and did not cease to be in issue by reason of the addition of a claim for damages for loss of opportunity. Tripodi’s pleaded claim for damages was never limited to a claim for damages for loss of profit. In determining the pleaded issues relating to damages, the judge was entitled to rely on the totality of the evidence and was not confined to the evidence adduced by Tripodi.

There was no obligation on the judge to give SHC notice that he proposed to rely on the evidence of its expert witnesses in assessing Tripodi’s damages or to give it an opportunity to ‘test’ its own expert witnesses’ evidence. In any event, the email from the judge’s associate dated 22 January 2018[68] gave SHC adequate notice that the judge was considering awarding damages on the basis of the Ivey/Tremain report and the response from SHC’s solicitors did not raise any objection to the judge doing so.
[68]See [50] above.

It follows that the judge did not err in relying on the Ivey/Tremain report regarding the loss suffered by Tripodi arising from SHC’s conduct. Indeed, it would have been open to the judge to treat the statements in that report to which we have referred at [46]–[48] above as admissions on the part of SHC that Tripodi had suffered loss of $44,495 as a result of SHC’s conduct.

Grounds 6 and 7 of appeal: Discount of 85% and contributory negligence

As we have already stated under grounds 1–5 of the application for leave to appeal, the judge correctly concluded that Tripodi had not adduced sufficient evidence to enable him to award any damages for loss of opportunity. Although it was not necessary for him to do so, the judge went on to say that, if he had been able to arrive at a ‘prima facie figure for damages for loss of opportunity’, he would have discounted that figure by 85 per cent in order to take into account ‘a number of significant contingencies which [he] would have expected to affect the outcome’.[69]
[69]Judge’s principal decision [404], [412].

The general contingencies that the judge took into account were: first, farming is an inherently unpredictable activity; secondly, the scope for human error in farming; thirdly, although it was likely that Tripodi would have reached an agreement with Woolworths about the terms and conditions upon which it would have supplied borlotti beans, such an agreement was not guaranteed; fourthly, the challenges associated with the packaging of freshly shelled legumes in a way that preserves them in good condition for a commercially acceptable shelf life; and fifthly, issues relating to the reliability of the packaging plant in dealing with the beans.[70]
[70]Judge’s principal decision [406]–[411].

The judge concluded as follows:

In all the circumstances, including the various contingencies and issues discussed above, I would discount any damages figure by 85%. My expectation is that Tripodi was unlikely to have been able to reliably grow, package and deliver the borlotti bean product in the quantities and to the specification required by Woolworths.
Because the problem with Tripodi’s basic figures concerning the likely cost of production and the likely income received is fundamental to both the claim for the 2012–13 year and the further claim for the later years ending in 2018, I have not dealt in any detail with the further claim. Suffice to say, if [Tripodi’s] figures alleged for the 2012/13 season are not proved, then the position is the same for the period of the further claim. Indeed, I remain sceptical of [Tripodi’s] figures.
In any case, even if Tripodi had suffered a loss of the kind it claimed for the 2012/13 year, I am by no means satisfied that this would necessarily lead to an award of damages for the later years ending in 2018. There is an issue not only with the quantum of any loss but the causative link between any loss in the 2012/13 season and the later losses claimed up to and including the 2017/18 season. Not only did Tripodi fail to establish to my satisfaction that there was a causal link between any breach of contract or duty by SHC and the losses claimed for 2013/14 and thereafter, the evidence disclosed another more likely basis for [Tripodi’s] economic difficulties after 2012/13. The evidence showed that the income from Tripodi’s primary business, its stone fruit, declined from $2,008,579 in 2011/12 to $781,624 in 2012/13 and $566,335 in 2013/14. Such a decline in income is likely to have had a major impact on the profitability of [Tripodi] and its ability to fund other farming operations.[71]

[71]Judge’s principal decision [412]–[414].

The judge also made the following brief reference to contributory negligence on the part of Tripodi:

If it had been argued, I would have further reduced [Tripodi’s] damages for Tripodi’s contributory negligence in planting the bean crop after being warned, albeit shortly before planting, that it was sensible to conduct a test planting using [the chemical recommended by SHC].[72]

[72]Judge’s principal decision [421(f)].

Tripodi submitted that the contingencies to which the judge referred did not warrant ‘anything but a minor reduction’ and that the discount of 85 per cent was ‘manifestly excessive’. It contended that the judge should not have taken into account the first and second contingencies and that his conclusions in relation to the remaining contingencies were contrary to the evidence. Tripodi also argued that the judge’s finding regarding contributory negligence was erroneous because: SHC had not led any evidence of contributory negligence or put allegations of contributory negligence to any of Tripodi’s witnesses; and neither party had made any submissions in relation to contributory negligence.

SHC submitted that the judge’s statements about discounting any damages for loss of opportunity by 85 per cent and contributory negligence did not form part of the reasons for his decision — which was that Tripodi was not entitled to any such damages — and therefore could not properly be the subject of a ground of appeal. SHC emphasised that, even if the judge had not made the impugned statements, the outcome of the proceeding would have been the same.

We agree with SHC’s submission.

As we have upheld the judge’s decision to reject Tripodi’s claim for damages for loss of opportunity, grounds 6 and 7 do not arise for consideration. In any event, the judge’s discussion of the various contingencies was soundly based on the evidence, particularly the extensive difficulties Tripodi had in meeting Woolworths’ specifications in relation to the shelled peas. Further, the judge’s statement about contributory negligence made it clear that that issue had not been argued and that he was not making a finding concerning it.

PART B: ISSUES RELATING TO COSTS

Rule 26.08(3) of the Rules deals with the cost consequences of a plaintiff’s failure to accept a defendant’s offer of compromise in circumstances where the plaintiff obtains a judgment that is not more favourable than the offer. As the rule is of considerable importance to SHC’s application for leave to cross-appeal, we set it out below:

Where an offer of compromise is made by a defendant and not accepted by the plaintiff, and the plaintiff obtains a judgment on the claim to which the offer relates not more favourable to the plaintiff than the terms of the offer, then, unless the Court otherwise orders—
(a)the plaintiff shall be entitled to an order against the defendant for the plaintiff’s costs in respect of the claim before 11:00 am on the second business day after the offer was served, taxed on the ordinarily applicable basis; and
(b)the defendant shall be entitled to an order against the plaintiff for the defendant’s costs in respect of the claim thereafter taxed on the ordinarily applicable basis.[73]

[73]Rule 26.01 provides that in respect of costs incurred before 6 October 2014, ‘ordinarily applicable basis’ means party and party basis and, in respect of costs incurred after that date, it means standard basis. For convenience, we will refer to the standard basis as encompassing both bases.

As we have already stated, after he published his principal decision, the judge adjourned the proceeding to give the parties an opportunity to file written submissions on costs. The parties also made oral submissions at a separate hearing on costs. The judge then published a separate decision on costs.

Tripodi did not file any written submissions on costs. SHC filed written submissions in which it contended that the judge should make an order in its favour under r 26.08(3) of the Rules because the judgment obtained by Tripodi was not more favourable than the ‘all-in’ offer of compromise of $250,000. This was said to be because, as the judgment with interest totalled $59,113.97 and the offer was made well before the trial, the judge could safely conclude that Tripodi had not incurred costs of more than $190,886.03, calculated on the standard basis, as at the date the offer was made (23 September 2015).[74]
[74]See [13] above.

In its oral submissions, SHC argued that, as the amount of costs recoverable by Tripodi on the standard basis was a matter within Tripodi’s own knowledge, its failure to produce any documents regarding its costs engaged the principles in Jones v Dunkel.[75] SHC also argued that if Tripodi were seriously to contend that its standard costs exceeded $190,886.03, the judge should refer the assessment of Tripodi’s costs to the Costs Court.
[75](1959) 101 CLR 298.

Judge’s decision on costs

The judge’s reasons for not applying r 26.08(3) of the Rules were as follows:

The question of costs incurred by Tripodi in this case at September 2015 is important because of its potential impact in connection with the offer of compromise. To a degree, the offer was more akin to many Calderbank offers which are frequently ‘all in’ and thereby include an amount for costs. There was a suggestion in this case that if I were not prepared to accept the assertion by SHC that Tripodi’s recoverable costs at the time of the offer were less than $190,000, then I could refer the matter to the Costs Court for assessment before deciding upon the effect of the compromise offer. I indicated to the parties in court that delaying the resolution of the case for a further lengthy period was an unattractive option which did not serve the interests of the parties or the court. The proceeding was issued in 2013 and concerns events from an earlier time. The overarching purpose of the Civil Procedure Act 2010 (Vic) which governs civil litigation is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. The court is to give effect to that purpose in exercising its powers. I consider that incurring further substantial expense in conducting a taxation and delaying the resolution of the case for a further lengthy period is inconsistent with the overarching purpose.
I have no expertise in matters of professional costs. On occasion, I am surprised to learn the costs claimed by lawyers in connection with a piece of litigation. Sometimes the legal costs appear to be disproportionately large and bear little relationship either to the quality of the work or the progress of the litigation. In the circumstances, I am not prepared to speculate about possible costs and guess what Tripodi’s recoverable costs might have been at the relevant time.
While it is correct to say that Tripodi would know or be able to work out its recoverable costs as at September 2015, the question whether the court should force Tripodi to provide such information is a difficult one.

Here, SHC did no more than make an assertion about Tripodi’s costs. SHC filed no evidence from an experienced solicitor or other expert about the likely quantum of costs. Nor did SHC try to subpoena relevant bills or other financial information from Tripodi. In circumstances where SHC has not taken reasonable steps readily available to it in order to establish its argument, I do not consider it appropriate to make a presumption against Tripodi or order Tripodi to produce documents. The onus is on SHC to establish the necessary facts in order for the provisions of Order 26 to operate in its favour.[76]

[76]Judge’s costs decision [24]–[27].

The judge then referred to the decision of Garde J in Metricon Homes Pty Ltd v Sawyer.[77] That case concerned a proceeding in the Victorian Civil and Administrative Tribunal (‘VCAT’) by the owners of a property against a builder. As the damages award in favour of the owners was less than the amount the builder had offered them in an ‘all-in’ settlement offer, the question arose as to whether the addition of the owners’ costs to their award would result in the offer being less favourable than the outcome of the proceeding. The builder had applied to VCAT for an order that the owners produce the invoices they had received for legal services as at the date of the offer. VCAT refused to make that order and awarded costs to the owners. Garde J decided that VCAT’s decision was erroneous because it denied the builder a proper opportunity to put its case as to costs and deprived VCAT of evidence that would have enabled it to make an informed decision on costs.[78]
[77][2013] VSC 518 (‘Metricon’).
[78]Metricon [2013] VSC 518 [53]–[54].

The judge then stated:

I note that, had SHC sought production of Tripodi’s bills of costs or any other documentation setting out the costs incurred up to the date the offer was served, I would have entertained such an application in order to enable SHC to discharge its evidentiary onus. In saying this, I acknowledge that there may have been objections by Tripodi regarding legal professional privilege which arguably attached to such documents.
I further note that in the New South Wales Court of Appeal decision of Elite Protective Personnel Pty Ltd v Salmon, Basten JA referred to the disadvantage which can befall an all-inclusive Calderbank offer where the litigation proceeds to judgment. His Honour said:
The disadvantage of an inclusive offer lies with the defendant if the matter proceeds to judgment. Where the judgment is equal to or above the inclusive figure, the defendant will have failed to better its own offer. However, if the judgment is below the offer there may be uncertainty because the offer included an unquantified element for costs incurred up to the time when it lapsed or was rejected. No doubt the figure for costs incurred to that time by the plaintiff could be resolved by some form of assessment, but if the calculation of the damages component is not clearly seen to provide a figure above the judgment, then the interests of justice will usually not be served by incurring further expense in assessing the costs element of an offer and the plaintiff would be entitled to his or her costs …

While I accept that the legislative provisions in New South Wales are different from Order 26, the above dicta nonetheless reflect the risk run by parties who seek to rely on an ‘all in’ offer — that is, the risk that they may face difficulties in proving the other party’s costs incurred at the time of the offer, and thus demonstrating that the offer was more favourable than the outcome received at trial.
Thus, in a substantial piece of litigation like this, I consider an offer has greater clarity and generates less confusion and uncertainty if it is made exclusive of costs. Because of the inherent uncertainty of the costs in this case, and notwithstanding that Tripodi’s recoverable costs at the time of the offer might have been less than $190,000, in my view Tripodi should not pay SHC’s costs from the time of the offer. SHC has not done enough to show that Order 26 should operate in its favour in this case.[79]

[79]Judge’s costs decision [31]–[34] (citations omitted).

The judge decided that, notwithstanding that Tripodi did not succeed in its substantial claim for damages for loss of opportunity and was awarded the modest amount of $40,000 for wasted production costs, SHC should be ordered to pay Tripodi’s costs of the trial for the following reasons:

In my view, the interests of justice are best served by Tripodi recovering its costs from SHC. Even if Tripodi did not enjoy substantial success in its claim for damages, this was due mainly to Tripodi’s failure to prove matters within its knowledge and control. It was not due to the evidence adduced by SHC or to SHC’s submissions on critical points of fact or law. As a result, in a hard fought case where Tripodi won the majority of the important issues, it should recover its costs, to be taxed on a standard basis on the County Court scale in default of agreement.[80]
[80]Judge’s costs decision [44] (citations omitted). In a footnote to that paragraph, the judge added that he had ‘rejected SHC’s case on most of the significant issues’.

Grounds of cross-appeal relating to costs

Grounds 2–4 in SHC’s application for leave to cross-appeal are in the following terms:

(2)The trial judge failed to afford procedural fairness to [SHC] by declining to refer the matter to the Costs Court for assessment of [Tripodi’s] recoverable costs as at the date of [SHC’s] offer of compromise, in order to determine whether [Tripodi] had obtained a judgment that was not more favourable to it than [SHC’s] offer.
(3)The trial judge erred in the exercise of his discretion to award costs by taking an irrelevant matter into account, namely, the trial judge’s view that an offer of compromise made pursuant to Order 26 of the County Court Civil Procedure Rules 2008 (Vic) generates less uncertainty in determining whether a plaintiff has obtained a judgment that is not more favourable than the terms of the offer where the offer is expressed to be exclusive of costs as opposed to inclusive of costs.
(4)The trial judge erred in the exercise of his discretion to award costs by making a decision that was unreasonable and plainly unjust, namely, ordering [SHC] to pay [Tripodi’s] costs of the proceeding (save for the costs identified in order 2 of the orders made on 22 May 2018), in circumstances where [Tripodi] had been substantially unsuccessful in its claim for damages and entirely unsuccessful on any claim which it advanced at trial.

Grounds 2 and 3 of cross-appeal: Offer of compromise

SHC submitted that the judge’s decision not to refer the assessment of Tripodi’s costs to the Costs Court denied SHC procedural fairness because it prevented SHC from being able to discharge its onus of proving that the judgment was not more favourable to Tripodi than the offer of compromise, in order to engage r 26.08(3) of the Rules. SHC also submitted that the judge’s suggestion that SHC may have sought production of Tripodi’s bills of costs would not have assisted SHC to discharge its onus. This was said to be because Tripodi could have objected to the production of the bills on the basis of client legal privilege and, in any event, the bills, if produced, would have disclosed Tripodi’s solicitor-client costs rather than costs recoverable by it on the standard basis.

SHC contended that the judge erred in taking into account the observations made by Basten JA in Elite Protective Personnel Pty Ltd v Salmon[81] regarding ‘all-in’ Calderbank offers because those observations were made at a time when the Rules did not provide for ‘all-in’ offers of compromise. SHC argued that, as the current Rules do not, either expressly or impliedly, prefer costs-exclusive offers of compromise over ‘all-in’ offers, the judge’s preference for the former is inconsistent with the Rules. The judge’s preference was also said to be inconsistent with the underlying purpose of ‘all-in’ as well as costs-exclusive offers of compromise, namely, to promote settlement of disputes by providing for special costs orders where a party rejects such an offer which is at least as favourable as the judgment obtained by that party.
[81][2007] NSWCA 322 (‘Elite’).

Tripodi submitted that, as SHC had not adduced any evidence to discharge its onus of proving that its offer of compromise had satisfied the requirements of r 26.08(3) of the Rules, the judge correctly refused to make a special costs order under that rule. Tripodi also submitted that the judge had correctly held that it was inappropriate to delay the proceeding further by a referral to the Costs Court, particularly in the light of the Civil Procedure Act 2010 (‘CPA’).

In our opinion, SHC’s grounds 2 and 3 are not made out.

As SHC sought to rely on its offer of compromise as the basis for a special costs order under r 26.08(3) of the Rules, it had the onus of establishing that the total of the damages and interest awarded to Tripodi and the costs incurred by Tripodi as at 23 September 2015, calculated on the standard basis, did not exceed $250,000. SHC could have taken at least two steps to discharge that onus but failed to take either of those steps.

First, SHC could have filed an affidavit by a solicitor experienced in commercial litigation in the County Court, or a costs consultant, which set out that individual’s expert opinion on Tripodi’s costs calculated on the standard basis.[82] While that opinion would, of necessity, be in the nature of an estimate, the judge would have been entitled to rely upon it if it clearly set out the basis of the estimate — including the components of work comprising the estimate — and no contrary evidence was adduced by Tripodi.
[82]We note that the partner of the firm of solicitors who had the conduct of the proceeding on SHC’s behalf swore an affidavit on 9 May 2018 in support of SHC’s submissions on costs. However, that affidavit did not express an opinion on the quantum of Tripodi’s costs.

Secondly, SHC could have sought production of the bills of costs that Tripodi had received from its solicitors. We reject SHC’s submission that Tripodi could have objected to production of the bills on the basis of client legal privilege. It is well established that a lawyer’s bill of costs is not privileged except to the extent that it sets out the substance of any legal advice sought or provided.[83] If Tripodi’s bills included any privileged material, copies of the bills, with the privileged material redacted, could have been produced.
[83]Hodgson v Amcor Ltd [No 2] [2011] VSC 204 [60]–[63].

While it is true that any bills of costs produced by Tripodi would have disclosed Tripodi’s solicitor-client costs rather than costs recoverable on the standard basis, SHC could have filed an affidavit by a solicitor experienced in commercial litigation in the County Court, or a costs consultant, stating the deponent’s opinion as to the proportion of solicitor-client costs that are usually recoverable on taxation on the standard basis. Once again, the judge would have been entitled to rely on such an affidavit if it clearly set out the basis of the opinion and no contrary evidence was adduced by Tripodi.

In the absence of a court order or a legally effective notice under the Rules which compelled it to produce evidence of its costs, Tripodi was not obliged to adduce any such evidence. Also, in the absence of any evidence by SHC regarding Tripodi’s costs, no adverse inference could be drawn against Tripodi from its failure to adduce any evidence of its costs.

Metricon does not assist SHC. Unlike the builder in that case, SHC did not seek an order requiring Tripodi to produce its bills of costs. The judge made clear in his reasons that, if SHC had made an application for such an order, he would have entertained it. The judge’s approach is to be contrasted with VCAT’s decision in Metricon to refuse the builder’s application for such an order.

There is no substance in SHC’s criticism of the judge’s observations based on the statement of Basten JA in Elite. The judge’s observations did not indicate a preference by him for costs-exclusive offers over ‘all-in’ offers. Those observations merely pointed out the reality that a defendant who makes an ‘all-in’ offer may find it more difficult than a defendant who makes a costs-exclusive offer to establish that the judgment obtained by a plaintiff was not more favourable than the offer due to the need to adduce evidence as to the quantum of the plaintiff’s costs as at the time the offer was made.

In our opinion, the judge did not err in declining to refer the assessment of Tripodi’s costs to the Costs Court. Once a court publishes its judgment in a civil proceeding, it is in the interests of the parties to the proceeding as well as the administration of justice that the court determines outstanding issues, such as interest and costs, expeditiously so that the proceeding can be finalised as soon as practically possible. In deciding the orders to be made about which party should pay the costs of the proceeding, the proportion of the other party’s costs to be paid and the basis upon which costs are to be taxed — as distinct from the assessment of the quantum of costs payable pursuant to such an order — courts do not seek to achieve arithmetic precision. Rather, they adopt a broad brush approach with a view to achieving fairness between the parties.

Had the judge acceded to SHC’s request that he refer the assessment of Tripodi’s costs to the Costs Court, the judge would have been required to delay making final orders in the proceeding for many months. Such a delay would have been inconsistent with the principles set out at [146] above and would not have furthered the overarching purpose in s 7 of the CPA, namely, ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’. The discussion in Metricon regarding referrals to the Costs Court for the purposes of resolving cost issues arising from the making of offers of settlement should be read subject to the principles to which we have referred.

Ground 4 of cross-appeal: Whether judge’s costs discretion miscarried

SHC submitted that three features of the present case indicate that, in ordering SHC to pay Tripodi’s costs, the judge’s discretion as to costs miscarried: first, the quantum of the damages awarded to Tripodi ($40,000) — on a basis it had not advanced at trial — is greatly disproportionate to the amount claimed by it ($4.25 million). As Tripodi recovered less than 1 per cent of the amount it claimed, it achieved minimal success in the litigation. Secondly, Tripodi failed in its central claim for damages for loss of opportunity because it failed to prove matters within its control, even after being granted leave to amend its statement of claim to pursue that category of damages. Thirdly, the judge was wrong to conclude that Tripodi ‘won the majority of the important issues’.[84] On the contrary, so it was said, Tripodi was unsuccessful on the central issues of whether it had entered into a supply contract with Woolworths in relation to borlotti beans and the quantification of the value of the lost opportunity to enter into such a contract.
[84]See [133] above.

In its oral submissions, SHC contended that in ‘the first trial’— by which it meant the 2016 portion of the trial — it ‘won 100 per cent’ and the judge erred in not awarding it, ‘at the very least’, the costs of ‘the first trial’.

Tripodi submitted that most of the hearing was devoted to issues of liability which were decided in its favour and that, as it had succeeded on the majority of the important issues in the proceeding, the judge was correct in ordering SHC to pay its costs. Tripodi also submitted that an appeal from a decision on costs is akin to an appeal against a decision on practice and procedure, which appellate courts have traditionally been reluctant to disturb.[85]
[85]Tripodi relied on Transport Accident Commission v O’Reilly [1999] 2 VR 436, 457 [46].

In our opinion, SHC’s ground 4 is not made out.

Courts have a wide discretion in deciding questions of costs. That discretion must be exercised judicially and in accordance with established principles. One such well-established principle is that costs usually follow the event, that is, that the unsuccessful party is usually ordered to pay the successful party’s costs. However, there can be departures from that principle where required by the justice of a particular case. Where parties enjoy mixed success, the court can fashion a costs order that fairly reflects the measure of success achieved by each party and all the other circumstances that bear upon the justice of the case.[86]
[86]See generally Boz One Pty Ltd v McLellan [2015] VSCA 145 [41].

Where a court determines to make an order apportioning costs, it does so primarily as a matter of impression and evaluation, rather than with arithmetical precision, having considered the importance of the matters upon which the parties have been successful or unsuccessful, the time occupied and the ambit of the submissions made, as well as any other relevant matter.[87]
[87]Chen v Chan [No 2] [2009] VSCA 233 [10].

Where a plaintiff seeks damages for breach of contract and establishes the existence of a contract and a breach of it by the defendant and is awarded only nominal damages because the plaintiff is not able to prove that any loss resulted from the breach, it is open to the court to treat the plaintiff as not being the successful party for costs purposes.[88] Where the court so characterises the plaintiff, it might make one of a number of costs orders, including that there be no order as to costs, that the defendant pay a proportion of the plaintiff’s costs or that the plaintiff pay a proportion of the defendant’s costs. However, there are no fixed rules as to the appropriate costs order in that or any other situation. Ultimately, the court must be guided by what the justice of the case requires.
[88]See, eg, NCON Australia Ltd v Spotlight Pty Ltd [No 7] [2014] VSC 25 [14]–[21]; Braham v Stephan [No 2] [2015] VSC 194 [15]–[21].

As questions of costs involve the exercise of a discretion, the principles in House v The King[89] are engaged. In order to successfully impugn a decision on costs, the aggrieved party must establish that the primary judge made some error in the exercise of his or her discretion, such as by acting upon a wrong principle, by taking into account any irrelevant matter, by failing to take into account any material considerations or by mistaking the facts. If such an error is not evident, the exercise of the discretion may nevertheless be reviewed on the ground that a substantial wrong has occurred if, upon the facts, the impugned decision is unreasonable or plainly unjust.[90]
[89](1936) 55 CLR 499 (‘House’).
[90]House (1936) 55 CLR 499, 505.

In the present case, SHC has not submitted that, in deciding to award costs in favour of Tripodi, the judge acted upon a wrong principle, took into account any irrelevant matters, failed to take into account any material considerations or mistook the facts. Rather, SHC has relied on the three features set out at [148] above in support of the proposition that the judge’s decision was ‘unreasonable and plainly unjust’.

In our opinion, there is nothing unreasonable or unjust about the judge’s decision. There was a substantial dispute between the parties on liability as well as quantum. Tripodi succeeded on all issues relating to liability and also succeeded in relation to quantum in that it obtained a damages award which was not nominal, albeit that it was significantly lower than the amount Tripodi claimed and was not awarded on the basis of Tripodi’s claim for loss of opportunity. In these circumstances, it could not be said that it was not open to the judge to require SHC to pay Tripodi’s costs. It follows that the judge’s discretion in relation to costs did not miscarry.

There is no merit in SHC’s submission that the judge should have awarded it, ‘at the very least’, the costs of ‘the first trial’. First, there was only one trial, which was conducted in two stages. Secondly, SHC did not succeed ‘100 per cent’ on the issues the subject of the first stage of the trial. Thirdly, as SHC did not differentiate between the costs of the two stages of the trial in its submissions before the judge, the judge did not err in the exercise of his discretion by failing to distinguish between the costs of the two stages of the trial.

Conclusion

As the grounds in Tripodi’s application for leave to appeal and SHC’s application for leave to cross-appeal were arguable, we will grant each of them leave to appeal. However, for the reasons set out above, we have not upheld any of the grounds. Accordingly, Tripodi’s appeal and SHC’s cross-appeal will be dismissed.

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[2019] VSCA 46

12 March 2019