Management Effect Pty Ltd v Sandvik Mining and Construction Australia Pty Ltd
[2012] QDC 302
•8 June 2012
DISTRICT COURT OF QUEENSLAND
CITATION:
Management Effect Pty Ltd v Sandvik Mining and Construction Australia Pty Ltd & Anor [2012] QDC 302
PARTIES:
MANAGEMENT EFFECT PTY LTD
(Plaintiff)AND
SANDVIK MINING AND CONSTRUCTION AUSTRALIA PTY LTD
(First Defendant)AND
SANDVIK MINING AND CONSTRUCTION TOMAGO PTY LTD
(Second Defendant)FILE NO/S:
1773/11
DIVISION:
Civil
PROCEEDING:
Trial
ORIGINATING COURT:
Brisbane
DELIVERED ON:
8 June 2012
DELIVERED AT:
Brisbane
HEARING DATE:
August 30, 31, September 1, 2, 19 and 20 September 2011
JUDGE:
Reid DCJ
ORDER:
Judgment for the plaintiff against the second defendant in the sum of $181,312.46 inclusive of interest.
Claim against the first defendant dismissed.
COUNSEL:
J. Ward for the Plaintiff
M. H. Hindman for the Defendants
SOLICITORS:
McInnes Wilson Lawyers for the Plaintiff
Thomson Lawyers for the Defendants
Introduction
This is a claim by the plaintiff company for $168,159, said to be a debt owed by the first and/or second defendants to the plaintiff under the terms of an agreement of 5 November 2008 as varied on 28 November 2008. In the alternative, it claims that the defendants are estopped from denying that there was an agreement between the parties and for payment of the sum previously referred to as damages in lieu of specific performance of the agreement. The plaintiff also claims interest.
The defendant companies deny the claim and, if it is found liable, the second defendant seeks to set off sums equivalent to the amount ordered to be paid, because of the plaintiff’s alleged breach of the terms of the agreement between them. In particular, it alleges that the plaintiff, in breach of the agreement, failed to “maintain open communication” with it on likely fees, and alleges that if the plaintiff had done so, by advising the second defendant of its likely fees, the second defendant would have advised the plaintiff to cease work.
Factual Considerations
On 8 October 2009 Brad Wells, a director of the plaintiff company, met with Barry Wright, the manager of the second defendant at Tomago, near Newcastle, and discussed the nature of services the plaintiff company was able to provide. Mr Wells had been referred to Mr Wright through a business contact whom they both knew.
In the course of those discussions, Mr Wright explained to Mr Wells the corporate structure of the second defendant. A diagram he drew explaining that structure was attached to Exhibit 3, which was an email sent by Mr Wright to Mr Wells on 10 October 2008.
The diagram did not show that the second defendant was a separate legal entity from, though a subsidiary of, the first defendant, as it in fact was. Rather, it showed that the second defendant was a business unit, or segment, headed by a customer segment manager (described in the document as a “CSM”). The diagram also showed that Mr Wright was the CSM of the underground soft rock mining operation (USM) and that below him there were four divisions – namely product lines, after market services, business development and HR/financial, each with its own manager.
It was also illustrated that the business was only part of a much wider global operation headed by a global segment manager (GSM), a Mr W Kraher. It seems from other evidence that the head office of the business was in Austria.
A list of issues identified by Mr Wright as important was recorded in the document.
In an email of 9 October 2008 (Exhibit 5), Mr Wells indicated to Mr Wright that he thought there would be “about two weeks’ work for 1.5‑2 resources”, which clearly meant, and I am sure Mr Wright understood it to mean, two weeks’ work for one and a half or two consultants, amounting to 15‑20 days of consultancy work.
Following that meeting Mr Wells sent to Mr Wright, on 10 October 2008, under cover of an email of that date, a proposal for an initial engagement to conduct a profitability analysis of the business (Exhibit 4). At the meeting between Mr Wells and Mr Wright on 8 October it was discussed that Mr Wright would be away for some time. In the email to him of 10 October enclosing “the proposal for initial agreement”, Mr Wells indicated that if the plaintiff commenced work “next week” it would “go close to having a draft report for you on return with final report a week or so later.”
The plaintiff’s proposal indicated it was to be a “business performance review and analysis” for “Sandvik-USM”. It is common ground that the second defendant operated as “Sandvik Underground Soft Rock Mining” (see paragraph 3 of the further amended statement of claim, admitted in paragraph 1 of the admitted defence and setoff). In that circumstance, there seems to me no doubt that the proposal was provided by the plaintiff to the second defendant, and not to the first defendant. So too the variation of that agreement as the plaintiff alleges, must also have been with the second defendant. In the circumstances, there can be no basis for any claim against the first defendant.
The proposal stated that the key objective was “to identify margin improvement opportunities to close the gap on current financial performance and embed longer-term sustainable margin growth” with the objective “to identify cost-saving opportunities in the order of $3M.”
The proposal indicated:
(a) It was likely to take four weeks, with weekly reports and progress meetings for each of the first three weeks and a final report and executive brief after week four.
(b) Certain activities were within the scope of work, but others, including “Detailed Business process review analysis and/or documentation”, “Direct data capture activities from the factory floor”, “Analysis of any other business units such as production plants or engineering groups”, and “Detailed supply chain analysis” were “out of scope for this initial assignment.”
(c) It would outline a “roadmap for improvement” and a “detailed action plan” and “high level business case for benefit realisation”.
The proposal also identified Mark O’Shannessy, a director of the plaintiff, Jeff Simpson, a senior financial analysis, and Sue Haywood, a business and process analyst, as persons who would be involved in preparation of the initial report.
The proposal referred to the work to be done as the “first package of work” and estimated fees at $39,600 for consultants and $5,000 allowance for expenses, totalling $44,600, which sums were exclusive of GST.
Importantly:
(a) The fees were based on an average 8.5 hours per day with the proviso that if work was consistently more than this, a pro rata hourly charge, after negotiation with the client, would be made;
(b) The fees were based on a daily fee for Mr O’Shannessy of $1,800, for Mr Simpson of $1,500, and for Ms Haywood of $900. Although Mr Wells’ daily fee was said to be “$0”, it was not proposed that he would be directly involved in the preparation of the report.
(c) The fees were said to be an “estimate only” and that the plaintiff would seek to achieve this estimate “maintaining open communications with the client on progress and likely fee”.
(d) The proposal provided that “subject to prior approval travel, accommodation and out-of-pocket expenses will be recharged at cost”. It was also said that three trips to Tomago were anticipated.
(e) The plaintiff’s proposal stated that “any work submitted that does not meet with quality standards of the client should be referred to Management Effect for correction and resubmit until satisfaction is achieved.”
Counsel for the defendant in her submissions before me submitted that the original estimate in the sum of $44,600 plus GST, comprising $39,600 for fees and $5,000 for expenses, was more than a mere estimate. She said that the plaintiff was specifically obliged to seek approval to incur any fees exceeding that estimate. In my view, however, consideration of Exhibit 5, and particularly Part 4 thereof which sets out the fees, makes it clear that the fee schedule provided therein was an estimate only. The word is used a number of times, both in the preamble to the table, in the footnotes, and in the table itself. In my view, there was an obligation on the defendant to work to achieve the estimate of fees that had been given and, if there was likely to be a significant disparity, to raise that with the client. In my view, however, the ultimate fee for the initial proposal in the sum of $44,042.79, excluding GST, comprising $42,000 in respect of consultant’s fees and $2,042.79 for expenses, was generally consistent with the estimate. Indeed, as a total fee, it is less than the estimate of $44,600, although the consultant’s fees are slightly more and the expenses somewhat less. Ultimately, I think the fact that, when this invoice was delivered, it was paid without any discussion by the second defendant is an indication that its employees, and in particular Mr Wright, also believed the fees rendered were in accordance with the proposal.
Because the proposal excluded production plants, as set out in [12](b) hereof, it excluded the facility owned by the second defendant at Hexham, which assembled long-haul dump trucks (LHD), which were responsible for about half of the second defendant’s sales revenue. It did, however, include an analysis of the sale of such units and other products, and aftermarket services relating to those vehicles, all of which were conducted from the second defendant’s Tomago premises.
I note Mr Wells also indicated that work could commence “next week,” i.e., on the week commencing 13 October 2008, and that a report would be completed within about four weeks.
It was however some time before Mr Wright accepted the proposal. He did so by email of 5 November 2008 (Exhibit 6), which said:
“We have had approval from Brisbane for your organisation to commence with this proposal.”
In his evidence, Mr Wright said that he indicated at the time of the initial meeting with Mr Wells, on 8 October 2009, that he needed to discuss the matter with and get approval “from Brisbane”. Whether this was said or not is not clear to me. In any case, after receipt of the written proposal the plaintiff’s offer was not accepted until this letter referring to having “approval from Brisbane” was sent to the plaintiff on 5 November. In my view, such a letter would not have caused someone in the position of Mr Wells or Mr O’Shannessy to have understood that Mr Wright had strict limits on the authority to engage outside consultants and I do not accept that the plaintiff ever understood this to have been the case. I shall refer to this aspect of the matter later.
In response, the plaintiff commenced work almost immediately. Employees of the plaintiff travelled to the second defendant’s Tomago premises regularly over November 2008 and met with employees of the second defendant. They were provided with information to enable them to prepare the analysis of the second defendant’s operations which had been agreed upon.
During November, Mr Wright was away from Tomago for much of the time. This may well explain why the contemplated weekly meetings did not occur.
On 18 November 2008 Mr Wells emailed Mr Wright (Exhibit 7). The email:
(i) stated that Mr Wells understood Mr Wright was “back in the country”; and
(ii) requested a meeting later on 18 November or on the next day to “debrief” Mr Wright.
The purpose of the debrief was, I conclude, for Mr Wells to inform Mr Wright of the then current state of the plaintiff’s analysis of the second defendant’s Tomago operation, in order to obtain input from Mr Wright. Mr Wright replied (Exhibit 8) on the same day, stating that “Monday next week is the earliest unless we do it over the phone.” Mr Wells replied later on the evening of 18 November (Exhibit 9) that he and Mr O’Shannessy were happy to see Mr Wright outside normal business hours and suggested a meeting over a dinner on 19 November. He wrote:
“We are keen to catch up within the next 24 hours as we gain some traction and start firming up our position and findings.”
Mr Wright confirmed that meeting later on 18 November (Exhibit 10), but then was unable to meet. Mr Wells against emailed Mr Wright on the night of 19 November (Exhibit 11), indicating he would call the next morning, that is on Thursday 20 November, and said, “Probably need 40 mins or [sic] to give you a progress report on saving we have identified to date and our thoughts on moving forward on them.”
Unfortunately, that meeting also did not occur and Mr Wright did not receive any interim feedback on the plaintiff’s analysis prior to 28 November.
On the morning of 24 November Mr Wells again emailed Mr Wright (Exhibit 12), apologising for not getting “back to you on Friday” (namely 21 November) and proposing Thursday “for the presentation of final report”. He said, “We are comfortable in having it complete by then.” He also suggested that the presentation would take a few hours and occur in two sessions – one to senior management and then to a “slightly wider audience”. That it was considered by the plaintiff as the “final report” is clear from this email and also in my view because the proposed two presentation sessions, one with “you and maybe Steve and then one with a slightly wider audience” is more consistent with a final meeting than an interim weekly update or other interim report. Mr Wells also asked whether “you want us to brief anyone outside your business? Do you want us to brief Rowan Melrose, for example?”. This also is more consistent with a final report. Steve was Steven Brown, the financial controller for the second defendant, and Rowan Melrose was the general manager of the first defendant.
In my view, these matters strongly support the view that Mr Wright must have known that it was the final report contemplated by the proposal which was to be presented on 28 November, despite the fact that weekly updating had not occurred, primarily because of his absences and difficulties in meeting with him.
On 28 November 2008, Mr Wells and Mr O’Shannessy presented a PowerPoint presentation initially to Mr Wright and Mr Brown, and subsequently to other employees of the second defendant. The report, Exhibit 13, was provided to the second defendant and is clearly described on its face as “Final Report”.
In any case, it would have been clear to Mr Wright that this was what was contemplated as a result of the correspondence leading up to that meeting that I have referred to. In my view, the fact that Mr Wright did not, at the meeting of 28 November or otherwise, raise with Mr Wells and Mr O’Shannessy the fact that there had not been previous weekly progress meetings or weekly reports strongly suggests that he did not regard that matter as of any importance. So too does his conduct earlier described.
A dispute arose at the trial about the reaction of the second defendant’s employees to the presentation of that report. Mr Wells and Mr O’Shannessy both said that the second defendant’s employees, including Mr Wright and Mr Brown and then those at the second “wider” meeting, were glowing in their praise of the work that the plaintiff had performed. Mr Wells said Mr Wright described it as “great stuff”. He said one of the product line managers at the “wider” meeting said, “This is fantastic. We need to get on with it.” He said Mr Wright enquired whether the plaintiff had the capacity to assist them, and Mr Brown asked when they “could get it up and running.”
Mr Wells said that he indicated that the next phase involved the utilisation of 3‑4 consultants for 3‑4 weeks, but did not give a separate estimate of the cost. Those matters were corroborated by the evidence of Mr O’Shannessy. From the earlier estimate, any person in Mr Wright’s position could easily have estimated this in round figures. Using $1,500 per day, the cost of a senior analyst such as Mr Simpson, the cost would have been $67,599-$120,000. This might be slightly higher to reflect the cost of a director ($1,800 per day as estimated for Mr O’Shannessy) or lower, if a less senior analyst such as Ms Haywood were used.
I interpose that at the trial the defendants relied on the fact that in the original estimate Mr Wells was said to have a daily charge out rate of $0. In my view, that must be seen against a background in which Mr Wells’ activities with respect to the original report was confined to marketing and presentation, and not to work done in preparation of the report. In my view it was a reasonable inference, understood by Mr Wright, that if Mr Wells did work in preparation or furtherance of the plaintiff’s analysis after 28 November (other than redoing the original report), his charge out rate (for an 8.5 hour day) should be $1,800 per day. So too senior analysts would be charged out at $1500 per day, and other analysts, like Ms Haywood, at $900 per day.
Mr Wright’s evidence was substantially different. He said he did not accept it was “the final report” referred to in the proposal that was presented, although he did not raise the lack of proposed weekly reports as an issue. He said he was unable to recall whether Mr Wells or Mr O’Shannessy presented the report. He said that his response and that of other employees of the defendant was at best lukewarm. He said he recalls Mr Brown saying that they needed to look at the figures presented, as he was not comfortable with them. He said he had concerns also about the lack of analysis. Mr Wright said he told Mr Wells and Mr O’Shannessy that they needed time to consider and review the figures and needed to get “Brisbane” to review them also. In the meantime, he said the plaintiff as to continue with the initial proposal “in a more detailed fashion”.
Mr Brown said that he thought “we” said we needed approval, and later said he was sure this was the case. His recall of the meeting, and that of Mr Wright, seemed to me somewhat vague and dependent in part on reconstruction of what he felt would have occurred.
Mr White’s evidence of the meeting was in my view also poor. He was the marking manager for the second defendant. He said he did not recall his reaction to it, any request for further work or what was agreed with regard to the future. He did say in cross‑examination that he understood more analysis was to be done.
Mr Johnston, the After Market Sales Manager for the second defendant, said he understood the plaintiff was to look further at the figures, as Mr Wright and Mr Brown were not convinced they were solid figures. He said he had no recollection of further fees or of further work being agreed to.
Ultimately, I accept the evidence of Mr Wells and Mr O’Shannessy about the events of 28 November. In my view, the response of Mr Wright and the other employees of the second defendant to the presentation was very positive and I find that at the meeting of that day it was agreed the plaintiff would perform further work for the second defendant, an agreement to which I shall refer shortly. In so finding, I am influenced by the demeanour of the witnesses and particularly the greater clarity with which both Mr Wells and Mr O’Shannessy recalled the events. I am also particularly influenced in that finding by a number of subsequent events, in particular:
(i) That after that date, employees of the defendant carried out a significantly greater volume of work, and over a longer period, than that contemplated by the original agreement of 8 November. Their performing such work would have been apparent not only to employees of the second defendant but to Mr Wright himself. Even making allowance for his regular absences from the second defendant’s premises, the presence of employees of the plaintiff over an extended period well beyond that contemplated in the original agreement would have been obvious to Mr Wright. I also think it highly likely that, as a result of speaking to his staff, he would have been aware of the fact they were engaged in extensive further work.
(ii) Furthermore, the scope of the further work, for example the review of the Hexham production plant, was outside the scope of the original proposal and would have been obvious to employees of the second defendant from whom employees of the plaintiff obtained such information. I think it is difficult to believe that such matters would not have been made known to Mr Wright at least in a general way in discussions he had with his own employees. In my view, common experience suggests such discussions between staff of a business would have taken place. It would also have been obvious to the second defendant’s employees who had attended the meetings of 28 November,
(iii) The plaintiff’s invoice for the original proposal in the sum of $48,447 was rendered to the second defendant on 8 December 2008 and was paid on 15 December 2008, as I shall later recount.
(iv) Mr Wright’s explanation for such payment, namely that it was paid “on account” for work done and yet to be done so as to avoid cash flow problems for the plaintiff, was in my view implausible.
(v) His credit about these matters was not enhanced by the fact that on 22 December 2008 the plaintiff sent to Mr Wright an email, being a progress report of work undertaken up to that time, and that email included an invoice for work undertaken by the plaintiff for the period up to 22 December 2008 for an amount of $91,671.93, inclusive of GST. Receipt of this email was acknowledged by Mr Wright on 22 December 2008. He did not question it, explaining that he believed it was a copy of the earlier, paid, invoice.
There are a number of other events which are of importance in resolving the issue of credit by reference to contemporaneous documents to which I will refer in the course of this judgment. While it is possible, as Mr Wright asserts, that he did not open the attachment to the email of 22 December and so was unaware of the invoice until later than then, I think the combination of these factors militate strongly against accepting Mr Wright’s version that work performed after 28 November related to attempts by the plaintiff to ensure the plaintiff met its obligations under the original proposal.
On 1 December 2008, Mr Wells again emailed Mr Wright (Exhibit 14) asking, once more, whether there was a need to brief “Rowan … so he is in the loop of what we have identified and how we are going forward” (my emphasis). In my view, the words that I have underlined strongly support the view that a decision had been made on 28 November to progress to a further stage in the development of the implementation plan.
Later on that same day, Mr Wright emailed Mr Wells, indicating that he thought “briefing with Rowan would be worthwhile at some stage soon”. In my view, this email also is of some importance. It is consistent with the view that a decision had been made on 28 November to progress the matter and, importantly, in view of the defendant’s assertion that Mr Wright did not have actual authority to agree to engage consultants as he did, the email does not suggest that it was necessary to obtain approval from Mr Melrose to progress the matter, especially when seen alongside earlier emails. Rather than being essential, Mr Wright says telling him of it was merely “worthwhile”. In fact, such a briefing with Mr Melrose occurred on 3 December 2008. It is referred to in Exhibit 16 as occurring on that day and described as “a quick run through”, consistent with a view that Mr Melrose was to be kept abreast of developments but that it was Mr Wright who had made the important decision to proceed.
Soon after, Girish Hebbani, a senior employee of the first defendant, also became involved. Mr Wright gave to Mr Wells details of Mr Hebbani’s contact details being “the guy you and Rowan want us to talk to” (see Exhibit 15, p 2).
The meeting of 3 December was with both Mr Melrose and Mr Wright. During it the plaintiff says Mr Melrose asked the plaintiff to liaise with Mr Hebanni regarding “broader applications of the plaintiff’s analysis and other Sandvik Operations.” It is apparent that from this date some work the plaintiff did was associated with a possible expansion in the scope of work to other segments of the first defendant’s business. It is not suggested that Mr Melrose specifically told Mr Wells or Mr O’Shannessy to proceed with further work for the USM segment. Rather, it was said on the plaintiff’s behalf that the agreement to do so was given by Mr Wright on 28 November, and nothing that Mr Melrose said on 3 December or otherwise gainsaid that agreement until a phone call from Mr White late in January 2009 told the plaintiff to desist from performing further work. I shall refer to this phone call later.
On 1 December 2008 the plaintiff sent its invoice, No. 1635 for $48,447.07 to “Sandvik Mining and Construction”. It was expressed in the following terms:
Business Improvement USM
Period: 15/11/08-28/11/08
Days Description Price (ex-GST) Amt (ex-GST) GST
9 Mark O’Shannessy $1,800.00 $16,200.00 $1,620.00
Reimbursable expenses $1,606.15 $160.62
– invoices attached
13 Jeff Simpson $1,500.00 $19,500.00 $1,950.00
Reimbursable expenses $298.82 $29.88
– invoices attached
7 Susan Haywood $900.00 $6,300.00 $630.00
Reimbursable expenses $137.82 $13.78
– invoices attached
Subtotal $44,042.79 $4,404.28
TOTALS $48,447.07
Terms: Net 14 days
Due date: 15 December 2008
The detailed days and hours worked and the amounts claimed for expenses were included. This invoice was paid by the second defendant, on instructions to do so from Mr Wright, on 15 December. In my view it was paid because of Mr Wright’s belief that the work required to be performed pursuant to the original agreement had been completed, and that further work was being performed in accordance with his instructions given to the plaintiff’s directors at the meeting on 28 November 2008.
As a result of Mr Wright providing Mr Hebbani’s contact details to the plaintiff, Mr Wells emailed Mr Hebbani on the night of 4 December suggesting that they catch up on the following day (Exhibit 15). On 5 December at 4.10 pm, Mr Wells emailed the “Sandvik final report” to Mr Hebbani and noted a number of matters, including some inaccuracies in “sales data” for long‑haul dump vehicles (LHD) and explained this was being revised as a result of further information which had been provided. Mr Wells’ email also says that the indicative business case shown on Slide 8 of the report “requires considerably more work” but that “detailed planning would focus on quick wins that can yield benefit realisation sooner”.
The email continues, “I look forward to your thoughts, feedback and advice on CSCT and the broader application to other CSC’s.” CSCT was a reference to Customer Service Centre Tomago. Mr Wells and Mr O’Shannessy say Mr Hebbani discussed with them the possibility of extending their analysis to other CSCs within the first defendant’s business. I accept this. In my view such an approach was consistent with the positive initial reaction to the plaintiff’s “final report” and is consistent with the subsequent conduct of the parties, including the subsequent presentation to an After Sales meeting of the first defendant. This too is a confirmation that some of the work the plaintiff did was related to potential further work and not to the agreement with Mr Wright of 28 November.
On Monday 8 December Mr Hebbani emailed Mr Wells (Exhibit 17). Mr Hebbani said he agreed with the plaintiff’s methodology but “would like to see a bit more detail/explanation of the background calculations” and referred to a number of examples in a brief, general manner.
It is important to understand what at this stage was happening on the ground at Tomago. Perusal of the attachments to the plaintiff’s subsequent invoice establishes the continued presence of a significant number of the plaintiff’s employees at the Tomago site, well beyond what had been contemplated in the preparation of the initial “final report” presented on 28 November.
On 8 December Mr Wells again emailed Mr Hebbani, advising of the plaintiff’s approach to some of the detail Mr Hebbani had raised and asking for a list of his questions so that they could prepare for a proposed meeting to discuss the matter (see Exhibit 18). The next day, 9 December, the plaintiff provided a detailed response to questions raised by Mr Hebbani on 8 December (see attachment to Exhibit 19), especially in respect of overtime, overheads, the cost of labour and utilisation rates.
On the following day, Mr Hebbani emailed Mr Wells, suggesting “catching up on Thursday 11 December at 10 am”. He wrote:
“We do need to discuss and compare notes in detail on a number of these issues … so that we can present an effective case that will deliver bottom-line savings. The USM business desperately needs this turnaround, as do the others. Let me assure you that I support the work that you have done so far, but want to ensure that some of the assumptions meet the realities when the rubber meets the road.” (see Exhibit 20)
It seems to me there is nothing in that exhibit to indicate that the agreement with Mr Wright to proceed had not been made or had been countermanded, but it is clear that Mr Hebbani was questioning some of the detail in the final report and the assumptions underlying it. It also seems to me that his use of the words that I have underlined suggests, as Mr Wells and Mr O’Shannessy said, that he was also interested in extending their analysis to other business units of the first defendant’s business. This too is consistent with the view that I have taken that the response to the preparation of the “final report” was positive.
Mr Wells responded on the morning of 10 December, suggesting a meeting on Thursday 11 December to “talk through approaches … associated with the ‘execution’ to achieve bottom-line improvements at USM and the others.” Two things can be said about this. One, the reference to “execution” suggests discussion about the implementation of the work then being carried on; and two, the reference to “other” segments of the first defendant’s business again supports the view that part of Mr Hebbani’s involvement and interest in the matter was because of a desire to spread the analysis to other segments of the first defendant’s business, consistent with my view that the final report had been well received.
Mr Wells again emailed Mr Hebbani in the morning of 10 December; this email is part of Exhibit 21. In my view, the email also appears to have been written on the basis that the plaintiff was then performing further work for the USM segment not consistent with the preparation or revision of the earlier final report. I say this because:
(i) there was reference in Mr Wells’ email to the “change programme” as a “work in progress” involving “better utilisation of available labour” and associated cultural changes in the productivity improvements in organisational redesign;
(ii) the statement that “some of the scoping work and preliminary planning work over the past week or so has clearly identified some fundamental challenges the team will have in delivering financial turnaround”. The reference to “scoping work” is also in my view more consistent with further work being done rather than preparation or revision of the initial final report; and
(iii) the statement of differences having been detected in the expected proportion of supervisors to workers from “initial desktop analysis” to “actual case on the workshop floor” is also consistent with new work beyond the scope of the initial report. I note that in the initial proposal (Exhibit 5, p 7.6) that it is clearly said that “direct data capture activities from the factory floor” were out of scope.
I accept that individually these matters might not be critical to the determination of a question of whether work being done at that time involved only revision of the final report, and so within the scope of the $44,600 estimate, but, considered together with the other matters I have referred to, support my strong view that work was being done pursuant to a further agreement reached at the meeting of 28 November.
On 11 December Mr Hebbani also sent to Mr Wells a detailed analysis that he had done of the Tomago workshop. This email is Exhibit 22.
The following day, 12 December, Mr White emailed Mr O’Shannessy (Exhibit 40) in relation to business targets for 2009. Importantly, the email says the targets had been set “on the assumption that resultant changes and improvements will fundamentally be driven through the work that is being undertaken collectively by (the plaintiff) and the business”. In my view, such a statement by Mr White, who was present as part of the wider audience in the second session considering the final report presentation, and was present when it was said Mr Wright agreed to the plaintiff’s preparing further work, supports the view I have taken, and is inconsistent with the view that further work was only a revision of the “final report”.
Following this, on 18 December Mr Hebbani and Mr Wells discussed labour rates and potential savings. This is referred to in an email from Mr Hebbani to Mr Wells and others of 19 December, referring to that meeting and asking the plaintiff to represent “the new savings plan based on the new calculations to Barry and Rowan” (Exhibit 30). Mr Wells advised on 19 December that he was away until 5 January but would revisit that issue after then (Exhibit 31).
On 22 December 2008, Mr O’Shannessy emailed Mr Wright outlining the current progress of the plaintiff’s activities (Exhibit 33). In his email of that date, he said that since presenting the report of 28 November 208, the plaintiff had:
(i) reviewed the Hexham operations as requested, and said it had uncovered efficiency opportunities which were being “finalised”. It is important to recall that under the initial proposal, the operations of the second defendant at Hexham were excluded as being “out of scope for the initial assignment”;
(ii) revised the CSC Tomago supply chain arrangement. It is also important to note that detailed supply chain analysis was also out of scope for the initial assignment;
(iii) scoped up improvement initiatives for both CSC Tomago and sales force;
(iv) reviewed the report of 28 December with Mr Hebbani and, as a consequence, amended some findings related to overtime and casual labour figures.
It was said work on these items was “almost complete” and would be presented to Sandvik on 8 or 9 January. Importantly, the email also stated that “our December account is attached” and said it “includes all professional fees for December”.
The invoice was for $91,671.93 inclusive of GST, as follows:
Phase 2 – Scoping and Analysis
Period: 1.12.08-19.12.08
CSCT Scoping Amt (ex-GST) GST
CSCT Scoping $27,506.25 $2,750.63
Sales Force Scoping $25,194.35 $2,519.44
Hexham Production Analysis $15,318.75 $1,531.88
CSCT Supply Chain Analysis $15,318.75 $1,531.88Subtotal $83,338.12 $8,333.81
TOTALS $91,671.93
Once again, details of who did the work, their hours and a brief description of what was done and the amount charged were attached to the invoice. I note in particular that three meetings of Brad Wells with Mr Hebbani on 5, 11 and 18 December were referred to but no charge was made therefore. This is consistent with that work being related to revision of the report of 28 November and to marketing in relation to work the plaintiff hoped to “win” from other segments of the first defendant’s business.
Mr Wright said in evidence that he thought the invoice “was the same invoice” that had been delivered earlier and paid on 15 December. In my view, such a view is inconsistent with the clear statement that it was “a December account” and “includes all professional work for December”. I reject Mr Wright’s evidence, as I reject his earlier evidence that he paid the initial invoice, not because he felt the plaintiff had done work entitling it to the full sum of $48,447.07, or that the said work was complete, but to avoid the plaintiff suffering cash flow problems.
The email of 22 December attaching the invoice was quite explicit. It was well in excess of the original quote of $44,600. In my view, it is inherently unlikely that Mr Wright would not have opened it and perused the invoice, even bearing in mind that he received it on the last working day prior to Christmas.
On 7 January 2009 Mr O’Shannessy again met Mr Hebbani. The matters discussed are recorded in an email from Mr O’Shannessy to Mr Hebbani and Mr Hebbani’s reply of that same day (Exhibit 34). Clearly the discussion involved the USM facility, but also discussion in relation to “underperformance in all segment CSC’s”. It included a “run sheet for Monday”; that is, 12 January 2009. On 8 January, Mr Wells emailed Mr Wright attaching what he said was a 90%‑95% complete document” to be refined before “briefing you tomorrow” (see Exhibit 23). Mr Wells said:
“We are planning to spend the next 2‑3 weeks doing some detailed planning for each of the projects before commencing execution activities for 01 Feb.”
In my view, the work there contemplated was clearly well beyond the initial “final report” and consistent with an understanding that Mr Wright had agreed that the plaintiff proceed further with the implementation of their projected programme.
In performance of what the plaintiff had said had been agreed, a number of staff employed by the plaintiff also liaised with staff of the second defendant. An email from Matt White, the After Market Manager for the USM business, to Anne Bonney, a consultant with the plaintiff, is also instructive in this regard. It said, inter alia:
“Look forward to catching up with you next time and the journey that lay [sic] ahead of us.”
In my view, the words I have underlined strongly support the view I have formed about the arrangements between the plaintiff and the second defendant.
In my view, the whole of the correspondence and the actions of the plaintiff went well beyond the initial final report and are consistent with Mr Wright having agreed that the plaintiff proceed further with the programme. What was prepared and referred to in Exhibit 23 was a detailed proposal for a programme which involved extensive use of employees of the plaintiff in implementation of a plan to restructure and re-energise the underground soft rock mining of the plaintiff’s business (see for example Slide 6, being the last page of Exhibit 23).
Minutes before that report had been sent to Mr Wright, Mr Hebbani had written to the plaintiff (Exhibit 24) in these terms:
“Anticipating one of the questions on Monday will relate to ‘at what cost?’ can you please put together a commercial proposal of the indicative consultancy costs of the implementation phrase … if you could separate Tomago and please assume four additional CSC’s that will require analysis and implementation support over the 12 months.”
In my view, this email also strongly supports the view that Mr Hebbani knew that what the plaintiff was working on was the implementation phase rather than preparation of the final report.
The importance of Mr Hebbani’s statement in the context of this case is that it is clear evidence that the plaintiff’s work had progressed beyond the preparation of a final report of an initial proposal and was concerned with the implementation phase. Mr Wells sent a copy of Exhibit 23 to Mr Hebbani at 1.48 pm on 8 January and said of it:
“We are discussing ‘project delivery’ with Barry (Wright) tomorrow so we can lock it down for progressing USM further.”
In my view it is clear from that document also that the plaintiff was clearly contemplating ongoing work consistent with the evidence of Mr Wells and Mr O’Shannessy that Mr Wright had agreed they should do so at the meeting of 28 November.
A final copy of the plan was sent by Mr O’Shannessy to Mr Wright at 10.48 pm on 8 January 2009 (Exhibit 35). On 9 January 2009 a meeting took place at Tomago between Mr Wells and Mr O’Shannessy on behalf of the plaintiff, Mr Wright, Mr Brown and others. The meeting is referred to in a subsequent email from Mr O’Shannessy to Mr Wright of 2 February 2009 (Exhibit 44). Although that email refers to the minutes of that meeting as being attached, they were not in fact part of the exhibit tendered before me.
In the email of 2 February, which I note was sent after the plaintiff had been instructed to cease work, Mr Wells said that the meeting discussed a presentation of an outline plan for the underground soft rock mining business improvement, a decision to include CSCs at Wollongong, Emerald and Mackay was made and there was an acceptance of a desire to commence implementation on 2 February 2009 as planned. The email also said that there was a direction to “resource proposed project team including use of SMC resources, especially the establishment of the Project Steering Committee” and a direction to liaise with parallel projects and initiatives such as the Aurora roll out, leadership in action project and other related initiatives. The notation in particular of an acceptance of the desire to commence a implementation of the plan on 2 February was consistent with the oral evidence of Mr Wells and Mr O’Shannessy. I accept that such a discussion occurred on 9 January.
On 12 January Mr O’Shannessy sent an email to Mr Brown, Mr Johnson and Mr White (Exhibit 28) being minutes of the meeting of 7 January 2009. At that meeting the plaintiff had presented its delivery plan, a draft of which had earlier been sent to Mr Wright (Exhibit 23) and to Mr Hebbani (Exhibit 24) on 8 January. The minutes record the following of particular relevance to this action:
1. A steering committee for the USM business improvement project was to meet “late January 2009” and then fortnightly; and
2. Project team formation was to commence from 1 February.
The minutes record that current “detailed planning activity” was to continue and the project management plan was to be presented to the steering committee for endorsement in February 2009. It was recorded that it was resolved to include USM CSCs (Sales Centres) at Mackay/Emerald and Wollongong in the Design and Implementation of Improvement Initiatives, and it is recorded that this would increase fees in January 2009 by $20,000 exclusive of GST.
The email setting out those minutes said; “Please indicate Acceptance by using the voting buttons above – modifications should be included in your reply.” Mr O’Shannessy said he received no reply for any person disputing the accuracy of those minutes. I accept that that is correct and accept the accuracy of the minutes.
In my view it is clear from the minutes and from the attached detailed delivery plan, being part of Exhibit 28, that implementation would involve the underground soft rock mining business outlaying very significant sums to implement the plan, which the plaintiff believed would ultimately lead to gross benefits in the order of $7 to $10 million over one and a half years from 2 February 2009 to June 2010.
That the first defendant had interest in having the plaintiff perform similar services for other units for the first defendant’s business is borne out by the fact that Mr Hebbani asked the plaintiff to present a presentation to a wider range of Sandvik employees, responsible for other segments of the present defendants’ business in Australia. It did so at a meeting on 12 January 2009 known as the After Market Regional Council. An email from Mr Hebbani to employees attending that meeting became Exhibit 64.
Mr O’Shannessy sent to Mr Hebbani and to Mr Wright on 14 January 2009 a Value Case plan report for the USM business (Exhibit 36) which suggested significantly improved earnings for the business. He asked for their review, questions and feedback. Mr O’Shannessy suggested a phone discussion later that day.
On 15 January Mr Hebbani emailed Mr O’Shannessy (Exhibit 42) asking for clarification on a number of issues “so that we can submit a solid business case to Rowan and Alex for Tomago.” This is the first reference I can see in the contemporaneous documentation suggesting the possibility of having to submit a case for approval to someone further up the order of command in the defendants’ business. The email suggests to my mind that Mr Hebbani had then begun to have some doubts about the plaintiff’s approach.
Mr O’Shannessy responded on 16 January 2009 (Exhibit 43). He said:
“My specific responses are below but in general a benefits plan usually comes after a detailed project plan, which we are still preparing, so the estimates I have provided to you are still formative. We have reversed our normal order of things to meet your requirements for a cost benefit analysis. In essence, we will refine this cost benefit analysis once the detailed project plan is finalized. Please see specific responses to each question below.”
On 20 January 2009 Mr O’Shannessy emailed Mr Hebbani (Exhibit 37) advising of the fact that he had been unable to contact him the previous day. He indicated he would “be in Tomago tomorrow finalising scope related issues and setting up reference groups for After Market Services and Sales Force”. In my view Mr Hebbani would clearly have known this involved work implementing the proposed programme and was not part of the initial retainer to prepare the report delivered on 28 November.
Despite this Mr Hebbani did not reply asking why such work was being done. Rather he responded on that same day (Exhibit 37) that:
“In light of the rumble in the northern hemisphere and the likelihood of some major changes I would hold off until early next week when Rowan gets back and we get some clear indication of the way forward.”
Evidence was given that the “rumble” referred to was changes in the international organisation of the head company of the Sandvik global business.
On 20 January 2009 Matt White phoned Mr O’Shannessy and asked the plaintiff to pause work pending broader re-structural decisions. Such a request seems consistent with the earlier indication of major changes due to the “rumble in the northern hemisphere” and suggests that the reason for the decision to cease the defendants’ involvement was those changes, and not any belief that the plaintiff was performing work outside the scope of the initial agreement or was not performing to the expected standard. I reject the evidence called on behalf of the defendants to that effect.
On 20 January 2009 Mr Hebbani also sent an email to Mr Wright and to Rowan Melrose (Exhibit 62) which said:
“I have completed the analysis of the value case for Tomago presented by Management Effect. I have attached a document that highlights the case details and the supporting information.
In summary:
1.Whilst the opportunity exists within the Tomago business to improve its profitability I think the gross benefits have been overstated by 100%. The management effect value case details a $10.5 million and my estimates are realistically at $5.0 million per year. (See attached)
2.The costs estimated with the improvement even assuming no overruns or inclusion of expenses is too high. I do not estimate the consulting effort to require Four TE consultants to work on the business at 1800 per day and each costing around $430k per annum and a total cost of $2.6 million.
I [sic] conclusion, it is difficult to justify the cost vs benefit case. It is ultimately Barry’s business decision/call on Tomago but would recommend that we seriously reconsider going down this path and put any further work by consultants on hold.”
It seems to me that Mr Hebbani may have developed misgivings about the plaintiff’s proposal, but these misgivings must be seen against the background of the changes in the northern hemisphere to which I have referred which would have pre-disposed him to think the proposal should not be implemented.
In such circumstances Mr Hebbani recommended that “we seriously reconsider going down this path … and put any further work by consultants on hold.”
In my view such a statement is inconsistent with the view that work being done was part of the original proposal to occur expense of about $44,600 for the preparation of a report. If that were so, further work being done would not have caused the defendant to incur any further expense and the word “reconsider” would not have been used. In my view the email strongly supports the plaintiff’s case.
It is also clear from exhibit 62 that Mr Hebbani had a good understanding of the proposed model, which he identified would have involved the second defendant engaging four full-time equivalent consultants at $800 per day, a cost of $430,000 per annum for about five years.
On 23 January 2009 Mr O’Shannessy wrote to Mr Wright advising that as per Mr White’s request the plaintiff had “suspended any further development of the improvement initiatives for USM until further notice”.
He briefly outlined work which had been done in 2009 and enclosed an invoice, being for the period from 20 December 2008 to 20 January 2009 for $76,487.08.
It must be remembered that at this stage the plaintiff had already rendered an invoice for about $48,447.07 on 1 December 2008, paid by the defendant in December, and an invoice for $91,671.93 on 22 December for the period from 1 December to 20 December 2008 which was still unpaid.
I find the reason for Mr White’s phone call of 20 January at the direction of Mr Wright was that the decision had been made to cease the plaintiff’s involvement due to issues involved with the defendant’s overall international management, and not the quality of the plaintiff’s work or the fact that it was allegedly unauthorised. In my view the defendants now reliance on those issues is an artifice.
On 31 January 2009 Mr Wright again wrote to Mr Wells and Mr O’Shannessy (Exhibit 39) in these terms:
“Please provide a copy of all the invoices to date and where approval to proceed came from past the initial investigation.”
In my view that email was a self serving attempt to create doubt about the formation of the agreement reached on 28 November. Mr O’Shannessy responded to Mr Wright on 2 February. He indicated that rates and subsequent invoices were based on the schedule of rates set out in the original proposal, Exhibit 5. He confirmed that at the meeting of 28 November 2008 Mr Wright had requested the plaintiff to undertake “Scoping and Analysis for USM Business Improvement”.
On 23 January 2009 Mr Wright asserted (Exhibit 45):
(i) That at the meeting of 28 November 2008 the “robustness” of the plaintiff’s figures were questioned and that for that reason Mr Hebbani was asked to get involved. I do not accept that Mr Hebbani’s involvement arose because of any such concern but because of an interest in expanding the plaintiff’s analysis to other segments of the first defendant’s business as I have indicated.
(ii) That any further work “would have been under the initial agreement premises”. That view I also reject for the reasons stated in this judgment. On 28 November he had instructed the plaintiff to proceed further as it had suggested.
(iii) At the meeting of 9 January 2009 it was “clearly stated by myself and Steve Brown” that any work over the initial $44,600 proposed “would need to be approved by Brisbane”. I also reject that evidence. I do not accept the evidence the defendants called for the reasons I have already outlined, including the uncertainty and lack of precision when giving their evidence. I find that there was never any discussion or correspondence about approval being required other than that contained in the letter accepting the initial proposal to which I have referred.
In circumstances where:
(a) the plaintiff liaised with Mr Wright and his senior employees on a regular basis;
(b) Mr Melrose and Mr Hebbani of the first defendant’s Brisbane office were kept fully informed and involved in discussions;
(c) the plaintiff was clearly doing significant further work at the second defendant’s premises;
(d) the invoice of 22 December had been sent and not queried;
(e) the contemporaneous documents strongly support the view that the plaintiff had been engaged to perform further work at the meeting of 28 November;
I reject Mr Wright’s assertions about such matters.
In my view the fact that employees of the first defendant and second defendant had specified authority levels is of no importance as those matters were not communicated to the plaintiff.
The defendant relied on the limits to suggest Mr Wright would not have agreed with the plaintiff’s proposal, involving as it did significant expense, because his authority was only for expenditure on consultants below $25,000. I note Mr Hebbani’s was only up to $50,000 and Mr Melrose up to $70,000 (see Exhibit 60, and the evidence that Mr Melrose was at the level of a regional manager, Mr Hebbani at the level of a regional vice president or equivalent and that Mr Wright was said to be a sub-segment manager). Although that seem to have been the case, it does not cause me to doubt Mr Wright engaged the plaintiff to do the further work it did, work Mr Wright knew might involve very significant expenditure as outlined in [32] hereof, nor cause me to doubt Mr Hebbani and Mr Melrose were aware that the plaintiff had been so engaged.
Defendants’ submissions
A curious element of the case is that the plaintiff alleged in its pleadings that the further work the plaintiff was engaged to perform as a result of the meeting of 28 November 2008 was work pursuant to a variation to the original contract rather than pursuant to a new contract. Counsel for the defendants argued, inter alia, that any agreement to perform work after that date pursuant to such a variation meant the plaintiff was obliged “to advise insofar as any fees were to change from the estimate” (see T6‑16 LL 20‑22) since that was a condition of the original agreement. She submitted that Mr Wright’s evidence was that no change in fees was advised to him and submitted that, as a consequence, the second defendant lost “the opportunity to cease the work at an early stage” before greater fees were incurred (see T6‑16 LL 24‑25).
In my view there are difficulties with that submission. It is quite clear that the total estimate of fees in the initial proposal (p 11 of Exhibit 5) was an estimate of fees for particular items of work and it could not be said that, if the plaintiff was engaged to perform further work, that that estimate of total fees was appropriate or binding with regard to new work. In any case, the second defendant was given an estimate of likely new fees. Different considerations apply in respect of consultant’s daily fees. In my view, in the absence of other agreement, it is reasonable to imply into the varied agreement a condition that consultants would be charged at the rates set out in the original commercial proposal. In saying that, I am conscious that Brad Wells’ daily fee was said to be $0. In the circumstances of the original proposal, however, his involvement was limited to consultation with Mr Wright in order to put together the original agreement, and final presentation of the report. He was not involved in preparation of the report itself. In my view, if he was involved in preparation of the further work as opposed to presentation, correction or marketing with regard to other possible work, then it would be implied that his daily fee would be equivalent to that of his co‑director Mark O’Shannessy, that is, $1,800 per day. So too senior consultants could be charged at $1500 per day and others at $900 per day, consistent with rates set out in Exhibit 5 for persons of that stature.
I accept that other conditions of the varied agreement, as set out in the notes to that initial proposal, would by implication continue to apply in respect of any further work; that is;
[i] that daily rates were based on an average of 8.5 hours’ work per day and that if protracted operations consistently exceeded 8.5 hours per day they would be charged pro rata on an hourly basis and after negotiation with the client.
[ii] That there was a general obligation on the plaintiff to maintain open communication with the second defendant on progress and likely fee.
[iii] That allowance for expenses would be limited to travel, accommodation and meals, and that, subject to prior approval, they would be recharged at cost.
In respect of the likely fees for this further work it is important to recall that Mr Wells had told Mr Wright that the further work would require three or four consultants for three or four weeks, i.e. that consultants (at an expense of about $1,500 per day, less if it was Susan Haywood or equivalent and more if it was Mark O’Shannessy and Brad Wells) would be required for a total of 9 to 16 working weeks.
In this way it can be seen that a ballpark estimate of consultants’ fees for preparation of the further was of the order of $67,500-$120,000. The defendants’ counsel submits that such an assertion is so improbable or unbelievable that it should not be accepted because Mr Wright would never have agreed to incur such an expense. She says that this is the case because, as Mr Wells knew, Mr Wright required approval with respect to the agreement to perform the first work at a total cost of about $44,600. Mr Wright gave evidence that he had advised Mr Wells at the initial meeting that approval would need to be obtained by him for such expenditure (T1‑1 LL 30‑45), and this is consistent with the letter, Exhibit 6, in which Mr Wright wrote to Mr Wells indicating that he had obtained “approval from Brisbane” for the initial proposal work to be done. While such a submission has some weight, I do not ultimately accept it. In my view Mr Wright did engage the plaintiff to perform the further work at significant expense for the reasons I have previously set out.
The defendants’ counsel also submitted that the deliverables required to be provided under the original proposal were not delivered as at 28 November 2008. She particularised a number of ways in which the plaintiff had failed in this regard, namely:
(i) Failure to have provided weekly progress reports, as referred to at p 6 of Exhibit 5. I have said already that in my view the failure to provide such weekly progress reports was really a failure by Mr Wright because of his absences on business and inability to schedule meetings on his return and not of the plaintiff. In any case Mr Wright did not regard it as a significant breach. He did not raise the matter with the plaintiff and paid the initial invoice as I find, because he considered the work completed. That nothing turned on the failure to give weekly reports was conceded by defence counsel in her submission (T6‑20 LL 38‑40).
(ii) No draft report was provided, as contemplated in the proposal at the end of week three, and prior to the final report and executive brief.
(iii) That Mr O’Shannessy had accepted Mr Hebbani’s identification of the fact that savings from excessive overtime were overstated by $2.5 million (see evidence of Mr O’Shannessy at T3-31, LL 1-25).
(iv) That the plaintiff relied in the report on alleged increases in revenue said to be achievable by increasing direct labour charge out rates by $10 per hour. Mr Brown and Mr Wright, when giving evidence, had said such a proposition was entirely unachievable (see T3-128, LL 40-55; T4-67, LL 12-16).
(v) That the report’s reference to increasing the utilisation rate from 83% to 90% was unrealistic.
The defendants’ counsel also criticised the report because; “It’s almost impossible to perceive how $44,000 worth of time produced a 9 page Powerpoint presentation with only 4 pages, slides 3-6, containing any type of analysis and only of the most general kind” (T6-32, LL14-15).
The difficulty I have with those criticisms is that they were not raised by the second defendant’s employees who, as I have found, embraced the report warmly. The report was, I find, persuasive to the businessmen to whom it was addressed and who knew their business well. It was sufficiently cogent to persuade Mr Wright to engage the plaintiff to proceed further as I have found. It was sufficiently compliant with what had been agreed to cause Mr Wright to direct that the invoice in the sum of $48,447.07 be paid in December.
In my view, the approach taken by defence counsel reflects an over-analysis of what was said to be required pursuant to the written proposal agreement. In reality the report was taken by employees of the second defendant, and in particular Mr Wright, to meet the plaintiff’s obligation because it sufficiently exposed weaknesses in the second defendant’s business which Mr Wright and others accepted could be rectified by the approach suggested by the plaintiff. The defendants’ counsel’s submission that when Mr Wright received a copy of the presentation on 28 November he asked to see more detail and explanation of the background calculations on how the savings were arrived at (see T6‑24 LL 5‑8) is not accepted because I do not accept what Mr Wright or other of the defendant’s witnesses said about what occurred at that meeting.
In my view, judged by the standards of the businessmen who engaged in the contract, the report that was provided complied with the plaintiff’s obligations under the original proposal. I find that the plaintiff has completed what was required of it in order to be entitled to the fee of $48,447.07, which was in fact paid by the second defendant in December 2008.
Subsequent criticism of the report must be seen in light of Mr Hebbani’s recommendation that the second defendant “reconsider” its decision (as he described it in Exhibit 62, referred to in [89] hereof), the reference to the “rumble” in the Northern Hemisphere, and in light of the dispute which has arisen leading to this court case.
So too do I reject the defendants’ submission that the plaintiff failed to maintain open communications with the second defendant on progress and likely fees thereafter. I have identified the ways in which the defendants were kept abreast of the plan for restructuring the second defendant’s business as it developed. In addition to having provided to it the daily rates set out in the initial proposal (Exhibit 5) and the estimate of likely fees referred to in [105] hereof, the plaintiff sent to the second defendant the invoice of 22 December 2008 and the second defendant had raised no objection thereto. In such circumstances I reject the submission that the second defendant was not kept informed and also reject the submission that it would, if better informed, have instructed the plaintiff not to proceed.
D’s counsel submitted (T6-66 – T6-69) that the 3 invoices (assuming the sums were recoverable at all) should be reduced because:
[i] Work involved completion, revision and correction of original work;
[ii] Work was preliminary to the plaintiff obtaining approval for further work from the defendants;
[iii] Work related to the analysis of the Hexham plant on the supply chain analysis which were not provided;
[iv] Work was performed by
(a) Ann Bonney
(b) Michael Derwin
(c) Brad Wells
and there had been no agreement that they be “charged out” for such work;
[v] Travel, accommodation and out of pocket expenses had not been the subject of prior approval, which was said to be required;
[vi] Of a combination of the above.
In my view it is abundantly clear, from a careful perusal of the contemporaneous material and the evidence of the plaintiff’s witnesses, that the second defendant engaged the plaintiff to perform work at the meeting on 28 November and that work performed thereafter primarily related to the development of the plan the plaintiff had outlined. It is clear that some of the work the plaintiff did was either by way of revision, or to seek further work and therefore a marketing expense, not chargeable against either defendant. It is also clear the invoices were prepared on the basis of 8 hour days, rather than 8.5 hour days as had been agreed.
It was submitted by the defendants’ counsel that the invoices were excessive by some $103,915.62 as follows:
Invoice 1635 $2011.87
Invoice 1710 $39,563.75
Invoice 1691 $62,340.00
I have set in [15](d) hereof the term of the agreement about out of pocket expenses. No approval of such expenses was ever obtained. Prior approval was required. Accordingly, the travel expenses of $2042.79 and GST of $204.27 should be deducted from Invoice 1635 (the first bill).
I have referred also to the assertion that claims for work performed by Ann Bonney, Michael Derwin and Brad Wells are not recoverable. It was, I find, implied into the agreement to the vary the original contract that Mr Wells would be charged for work he did in the furtherance of the new work the plaintiff was engaged to perform at the same rate as Mr O’Shannessy. So too Mr Derwin and Ms Bonney were chargeable at the same rate as Mr Simpson, i.e. as a senior consultant. This reduces the defendants’ claimed reduction in the invoices by $22,631.25 on Invoice 1710, and $29,100 for Invoice 1691. Such figures are drawn from helpful documentation about such issues provided to me by the defendant’s counsel during her submissions.
The defendants’ counsel also submitted that Invoice 1691 should be reduced by $25,740 as the analysis of the Hexham plant, and the supply chain, were ultimately not delivered. It was submitted that the terms of the agreement were such that there was no right to recovery for such work unless those analyses were completed.
I reject such a contention because, I find, the plaintiff’s capacity to complete that work was thwarted because of the second defendant’s decision not to proceed further with the plaintiff’s proposed program. The reason for that decision was because of the matter I have earlier referred to relating to the defendants’ reconsideration of the matter because of issues with the holding company’s operations and structure. I reject the view that the plaintiff had failed to perform its obligations or that the second defendant was entitled to terminate the agreement because of any fault by the plaintiff.
It is not possible to ascertain from the invoices the exact extent of any overcharging relating to work associated with revision or marketing. The defendants’ counsel sought to do so in documents handed to me during submissions. I do not accept, however, that all of the items of work the defendants’ counsel submitted should be deducted from the bill could be classified as work in revision of the original report, or as a marketing exercise. In my view, it would be improper to conclude that references, for example, in the second invoice to Mr Simpson’s “revised USM value case” could be said to constitute revision of the original report. No doubt the Underground Soft Rock Mining Value case required further revision as further information came to hand and as the scope of the work that was “in scope” expanded in conformity with agreement the earlier reached. So too the work of the other consultants set out in the document prepared by the defendants’ counsel as representing overcharging does not accurately reflect what I think was the work that was performed and unable to be charged for.
It is of course difficult to be precise about that matter because there is relatively little particularity given in the invoices. Having regard to the whole of the evidence, however, I think a reasonable approach is to reduce the remaining amounts claimed in the second and third invoices by some 15% to reflect work which I have found is not recoverable. This 15% must of course be deducted after adjustment of the relevant invoices for the overcharging arising from the fact that daily rates were calculated on an 8 hour rather than an 8.5 hour basis.
I have recalculated the invoices on the correct basis of an 8.5 hour day. It was a simple mathematical exercise. I find the three invoices were overcharged as follows:
Exhibit 25 – original invoice $1,730.00
Exhibit 26 – invoice 22.12.09 $1,284.00
Exhibit 27 – invoice 23.1.09 $2,016.95
Total$5,031.06
GST $503.11
Total deduction$5,534.17
Work that related to the marketing exercise of obtaining further work was largely done by Mr Wells. In the invoices there are a number of occasions on which no charge has been made for work he performed. I note, however, that the occasions on which no charge has been made generally relate to presentations by Mr Wells, and not preparation or background work which might have been performed by him or others. It is not possible to identify precisely what work of this nature was done from the invoices themselves, but in my view it is encompassed by the 15% deduction I have made. The relevant deduction is thus 15% of $162,625.58, being the total of the 2 invoices ($168,159.75) less the $5,534.17 overcharged.
The defendants submitted $103,915.62 should be deducted from the bill but I would not accept the following claimed deductions:
Invoice 1710
- Derwin/Bonney $16,781.25
- Wells $5,850.00
$22,631.25
Invoice 1691
- Hexham $15,240.00
- Supply chain $10,500.00
- Bonney $7,500.00
- Derwin $17,250.00
-Wells $3,600.00
- Combination (travel/Wells) $750.00
$54,840.00
Total $77,471.25
Accepting the other criticisms of the invoices results in a deduction of $26,444.37 from the bills.[1] This is consistent with the more “broad brush” approach I have made and, in circumstances where there is some uncertainty because of the inadequacy of information about the accounting process, justifies the view I have taken.
[1] $103,915.62 less $77,471.12
Summary
In my view therefore the plaintiffs claim should succeed calculated as follows:
Invoices of 22/12/08 and 23/1/09 $168,159.75
Deduction for travel as per [116] $2,247.06
Overcharging as per [122] $5,534.17
15% of $162,625.88 $24,393.83
Recoverable: $135,984.69
I allow interest at 10% per annum from 7 February 2009 (being 14 days after the invoice of 23 January 2009), which I calculate in the sum of $45,327.77. I therefore give judgment for the plaintiff against the second defendant in the sum of $181,312.46, inclusive of interest. I will hear argument as to costs.
0
0
0