Mushroom Composters v Robertson (No.2)

[2014] NSWSC 552

Supreme Court

New South Wales

Medium Neutral Citation:	Mushroom Composters v Robertson (No.2) [2014] NSWSC 552
Hearing dates:	On the papers
Decision date:	12 May 2014
Jurisdiction:	Equity Division
Before:	McDougall J
Decision:	Judgment for cross-claimant in the sum of $1,566,206.00. Cross-defendant to pay cross-claimant's costs of the action and the cross-claim
Catchwords:	DAMAGES - general principles - difficulty of assessing damages where future or hypothetical events- whether total absence of reliable evidence of company's financial affairs - whether methodology for quantifying losses was sound DAMAGES - where successful claims by both parties - application of Civil Procedure Act 2005 (NSW) s 90(2)(a)
Legislation Cited:	Civil Procedure Act 2005 (NSW)
Cases Cited:	Camellia Properties Pty Ltd v Wesfarmers General Insurance Ltd [2013] NSWSC 1975 Troulis v Vamvoukakis [1998] NSWCA 237
Category:	Consequential orders
Parties:	Mushroom Composters Pty Ltd (Plaintiff/Cross Defendant) IS & DE Robertson Family Trust (Defendant/Cross Claimant)
Representation:	Counsel: GA Sirtes SC / SJ Duggan (Plaintiff/Cross Defendant) B F Katekar (Defendant/Cross Claimant) Solicitors: Curtis Delaney Gray (Plaintiff) Henry Davis York (Defendant)
File Number(s):	2011/20925

Judgment

1. HIS HONOUR: In reasons given on 4 March 2014 ([2014] NSWSC 164), I concluded that the plaintiff (Composters) succeeded in part on its claim and that the defendant (Robertson) succeeded in part on its cross-claim.

1. There was no difficulty in quantifying the damages to which, on my findings, Composters was entitled. The figure was $27,815.00, exclusive of GST and before interest.

The damages issue

1. Robertson's cross-claim included three components. For the first component, I assessed damages at $808,328.00. For the second component, I assessed damages, provisionally, at $311,570.00. For the third component, I assessed damages, again provisionally, at $202,521.00. Each of those assessments was exclusive of interest.

1. The second and third components of Robertson's damages were assessed provisionally because I was not satisfied that the methodology propounded by Robertson for quantifying its losses was sound. I dealt with this at [281] of my reasons. Accordingly, I propounded an alternative methodology, outlined at [282].

1. Since the parties had not been given an opportunity to address on my alternative methodology, I expressed the outcome of its application, to the second and third components of Robertson's claim, provisionally; and I allowed the parties an opportunity to speak to the methodology or its application that I proposed if they could not agree.

1. The parties were unable to agree. Accordingly, I directed them to furnish written submissions, and said that I would decide the outstanding question of damages on the basis of those submissions.

1. I also required Robertson to indicate whether it claimed interest on each component of its damages. That was necessary because, as part of its suggested quantification of damages, Robertson had abandoned a claim to interest on the basis that this would make its quantification more conservative (see for example at [304]).

1. I reserved the question of costs.

The proposed methodology

1. For convenience, I set out [282] of my reasons, which describes the methodology that I proposed:

[282] In those circumstances, it seems to me, the better approach is to take the 2008/2009 financial year as a base year, and then to undertake the following steps:

(1) identify and deduct if necessary any items of income in respect of which, it can be assumed, significant expenses would not have been incurred;

(2) calculate the ratio between income from straw sales and the total (if necessary, so adjusted) income for that year;

(3) on the assumption that expenses were incurred in the rough proportion that income from straw sales bears to total adjusted income, apply that ratio to expenses to derive a notional expense figure for all harvesting and baling of straw; had the contract been performed according to its terms;

(4) calculate the ratio between straw harvested and baled for Composters and all straw harvested and baled;

(5) apply this latter ratio to the notional expenses referable to the harvesting and baling of straw;

(6) use that notional expense figure to calculate a notional profit on the sales that should have been made to Composters for the 2010/2011 and 2011/2012 years; and

(7) consider whether some discount for contingencies (including reduction in price by reason of good faith negotiations as to the royalty component) should be allowed and, if so, quantify that discount.

1. The three components of damages were for the 2009/2010, 2010/2011 and 2011/2012 "straw seasons". Each of those straw seasons fell within the equivalent financial year.

1. Some difficulties with my proposed methodology, and its underlying rationale, were set out at [283] and [284] of my reasons:

[283] I accept that there are difficulties with this methodology. One is that it assumes that the relationship between the income attributable to straw sales and the income attributable to other activities would have remained more or less constant. The other is that the relevant expenses would have remained more or less constant. But in the absence of any other methodology, it seems to me that the suggested methodology possesses a sufficient degree of logic to justify the conclusion that it is more than sheer (or mere) speculation.

[284] In case it is not clear, the reason for treating the 2008/2009 financial year as the base year for establishing the ratio between straw and other income is that all (or substantially all) of the 10,000 tonnes of straw baled by Robertson for Composters were sold, delivered and paid for.

Submissions and decision

1. I turn now to Composters' submissions. Composters submits that I should not quantify damages in the way that I provisionally did. In essence, however, Composters does not quarrel with my proposed methodology as a methodology. Rather, it submits, the underlying financial records - the financial statements for the 2008/2009 and 2009/2010 financial years - should not be accepted as reliable. Thus, Composters submits, it is not appropriate to use those figures as the basis for any calculation of damages.

1. The submissions for Composters did not address the question of whether, assuming that the figures do possess a sufficient degree of liability, the methodology was, nonetheless, incapable of leading to an assessment of damages that possessed a sufficient basis in fact and reason to form the subject of a judgment against it.

1. The position of Composters, as to the accuracy of the financial statements, is surprising. As is pointed out in the submissions on this issue for Robertson, Composters' written submissions at trial had put that the profit and loss statements should be accepted as reliable, in preference to figures given by Mrs Robertson in her affidavit (and, I add, in addition to figures derived from a trial balance which, ultimately, I rejected).

1. The further submissions for Composters do not explain why it is that the financial statements have become so unreliable as to be an inadequate basis for any assessment of damages.

1. The submissions for Composters referred to what Gleeson CJ said in Troulis v Vamvoukakis [1998] NSWCA 237 at p14. His Honour there said that where "what is involved is the valuation of the goodwill of a business, and the plaintiff fails to adduce either reliable evidence of the trading results of the business, or evidence as to how one goes about valuing such a business, then there is an absence of the raw material to which good sense may be applied. Justice does not dictate that, in such a case, a figure should be plucked out of the air".

1. That was a case where the plaintiff claimed damages for misleading or deceptive conduct said to be constituted by misleading representations as to the takings and hence the goodwill of a business. The plaintiff did not give any adequate evidence of his takings after purchase. Not surprisingly, Gleeson CJ considered that the plaintiff had not made good this aspect of his claim.

1. The present case is different. The breach (in my view) was clear. The raw financial figures were proved. There was a rational (if not entirely precise) basis for applying the expenses incurred by Robertson over the years to the different aspects of its business. There was thus a basis for estimating (again in a way that could not be described as entirely precise) the profits lost by the breach and repudiation of its contract with Composters.

1. The question with which I was faced was not a total absence of any reliable evidence as to the financial affairs of Robertson but, rather, what I perceived to be deficiencies in the methodology for calculation of damages that it propounded. As I have said, the submissions for Composters do not attack, as a methodology, the way in which I proposed that damages should be assessed.

1. In those circumstances, I do not regard the observations made by Gleeson CJ in Troulis as having any real bearing on the present issue.

1. As Sackar J observed in Camellia Properties Pty Ltd v Wesfarmers General Insurance Ltd [2013] NSWSC 1975 at [390], the process of estimating damages, where future or hypothetical events are concerned, has been described by many epithets: imprecise, indeterminate, speculative, based on slender materials, or on thin evidence, involving guess work, and prophesy or judicial guesses.

1. However, as his Honour pointed out, the fundamental task of the court is to adopt a rational process of reasoning and to apply it to such evidence as there is that bears on the question to be decided.

1. I accept that the materials on which I based my provisional assessment are not as full as they might be. I accept that the resulting provisional assessment has an element of imprecision. But I do not accept that the methodology lacks any rational basis. Nor do I accept that it is not capable of application based on such financial records, and other relevant matters, as were proved. And, at the risk of repetition, I note that the further submissions for Composters did not submit otherwise.

1. I conclude that the provisional assessment should be adopted.

Interest

1. As to interest: Composters said (in its written submissions dated 9 April 2014) that when Robertson clarified whether it claimed interest, Composters would respond.

1. Robertson did confirm that it claimed interest: apparently both in correspondence before the court made directions for submissions, and again in the submissions that it provided (on 22 April 2014) after those directions were given.

1. Composters has not replied to Robertson's submissions as to interest, although it has now had ample time to do so. I see no reason to draw out further the finalisation of this litigation.

1. There is no challenge to Robertson's quantification of interest.

Form of orders

1. Robertson submits that, pursuant to s 90(2)(a) of the Civil Procedure Act 2005 (NSW), it would be appropriate to give judgment in its favour for the balance between the amount due to Composters in respect of its successful claim and the amount due to Robertson in respect of its successful claims. Composters does not challenge that proposition, which appears to be correct.

1. Robertson calculated interest on the damages due to Composters. That calculation does not appear to be challenged. Nor is Robertson's calculation of the net balance in its favour, $1,556,206.00.

1. Those calculations were carried as at 1 May 2014. The result, in my view, is that judgment should be directed for Robertson in the amount indicated, such judgment to take effect on that date.

Costs

1. Robertson sought its costs, on the ordinary basis. Composters did not challenge the proposition that Robertson was entitled to its costs, having regard to my conclusions.

Orders

1. I make the following orders:

(1) Verdict for the plaintiff in the action in the sum of $34,817.00 inclusive of interest to 1 May 2014.

(2) Verdict for the defendant on its cross-claim in the sum of $1,591,023.00 inclusive of interest to 1 May 2014.

(3) Pursuant to the Civil Procedure Act 2005, s 90(2)(a), direct entry of judgment for the cross-claimant against the cross-defendant in the sum of $1,556,206.00.

(4) Direct that the judgment take effect from 1 May 2014.

(5) Order the plaintiff/cross-defendant to pay the defendant/cross-claimant's costs of the action and the cross-claim.

(6) Direct that the exhibits be handed out.

Postscript

1. After these reasons had been finalised, and apparently in response to an email from my Associate notifying the parties that judgment would be handed down on 12 May 2014, Junior Counsel for Composters sent to my Associate a document described as:

Plaintiff's submissions in reply as to outstanding issues.

1. There had been no direction for any such submissions in reply to be provided. On the contrary, the court's directions of 25 March 2014 required both parties to provide their submissions on all outstanding questions, including that of interest.

1. I refer to what I said at [25] to [27] above. Composters has not sought to explain why, despite the matters set out at [26], it was unable to provide any submissions as to interest until after it had been notified that judgment was to be handed down.

1. There are three points that I wish to make. The first is that it is not appropriate for a party to litigation, of its own volition and without any direction or grant of leave to do so, to provide to the court a contentious document of the kind that I am now considering. Mason J said in Carr v Finance Corporation of Australia Limited [No.1] (1981) 147 CLR 246 at 258 that "[t]he impression... that parties may file supplementary written material after the conclusion of oral argument, without leave having been given beforehand, is quite misconceived". The observation applies equally to written material filed outside the terms of any direction or leave.

1. The second point is that although the email forwarding the submissions was copied to counsel for Robertson, the email does not state that the submissions were provided to the court with his consent. The obvious inference is that he, as well the court, was presented with what appears to be a fait accompli.

1. The third point is that there is nothing in the submissions that could not have been said in Composters' earlier submissions. It seems to have been a deliberate choice to leave, until the last moment, the points sought to be made.

1. The proper way to deal with this unacceptable situation is to order that the submissions in question be removed from the file. Accordingly, I make the following further order:

(7) Order that the written submissions in reply provided by the plaintiff on 8 May 2014 be removed from the file.

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Decision last updated: 13 May 2014