Origin Energy LPG Ltd (formerly Boral Gas (NSW) Pty Ltd) v BestCare Foods Ltd
[2013] NSWCA 229
•19 July 2013
Court of Appeal
New South Wales
Case Title: Origin Energy LPG Ltd (formerly Boral Gas (NSW) Pty Ltd) v BestCare Foods Ltd Medium Neutral Citation: [2013] NSWCA 229 Hearing Date(s): 16 July 2013 Decision Date: 19 July 2013 Before: Macfarlan JA at [1]
Hoeben JA at [2]
Ward JA at [3]Decision: 1. Order 3 of the orders made on 24 April 2013 be varied by inserting, after paragraph (a) the following:
(aa) The referee's reasoning and conclusions are rejected insofar as they reflect a failure to recommend an award on account of lost profits in respect of the period between 23 January 2003 and 24 November 2004.
2. 2. Otherwise the Notice of Motion filed 7 May 2013 be dismissed with costs.[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords: PROCEDURE - application to vary orders of the Court - application in the alternative to recall part of the reasons for decision Legislation Cited: Uniform Civil Procedure Rules 2005 Cases Cited: Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 176 CLR 300
Newmont Yandal Operations Pty Ltd v J Aron Corp [2007] NSWCA 195; (2007) 70 NSWLR 411
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418Category: Procedural and other rulings Parties: Origin Energy LPG Ltd (formerly Boral Gas (NSW) Pty Ltd (First Appellant/Respondent on motion)
Origin Energy Retail Ltd (Second Appellant/Respondent on motion)
BestCare Foods Ltd (First Respondent/Applicant on motion)
BestCare Foods (Sales) Pty Ltd (Second Respondent/Applicant on motion)Representation - Counsel: Counsel:
B W Walker SC with E G Romaniuk, R D Glover (Appellants/Respondents on motion)
M L Williams SC with D S Weinberger, S A Lawrance (Respondents/Applicants on motion)- Solicitors: Solicitors:
Hunt & Hunt (Appellants/Respondents on motion)
McCabe Terrill (Respondents/Applicants on motion)File Number(s): CA 2012/223427 Decision Under Appeal - Court / Tribunal: Supreme Court - Before: McDougall J - Citation: BestCare Foods Ltd & Anor v Origin Energy LPG Ltd (formerly Boral Gas (NSW) Pty Ltd & Anor [2012] NSWSC 574, [2012] NSWSC 670 - Court File Number(s): SC 2005/270917
JUDGMENT
MACFARLAN JA: I agree with Ward JA.
HOEBEN JA: I agree with Ward JA.
WARD JA: On 24 April 2013, this Court handed down judgment on an appeal by the appellants (together, Origin) from the judgment and orders of McDougall J as to the quantum of damages payable as a consequence of their liability to the respondents (together, BestCare) for breaches of duties of care that led to an explosion at BestCare's then pet food factory at Gunnedah and the subsequent entry into administration by BestCare.
McDougall J had adopted, with a variation and some rejections, the report of a Court-appointed referee as to the quantum of damages. Origin's appeal from that decision was allowed and orders were made in relation to the adoption of the referee's report, in substitution for the orders that had been made by McDougall J. The matter was remitted to the Equity Division for determination as to the damages payable.
Orders 3 and 4 of the orders made on 24 April 2013 were as follows:
3 Order that the referee's report of the Honourable JMN Rolfe QC published on 30 August 2011 be adopted save that:
(a) Paragraphs 916, 934, 935 and 936 are rejected.
(b) The referee's reasoning and conclusions are rejected insofar as they constitute, incorporate or reflect findings as to whether, and to what extent, the respondents would, or may, have supplied pet food to the entity known as IAMS (and indefinitely to one or more of Nestlé, Safcol or Doane) if the explosion had not occurred at the respondent's premises on 25 January 2003.4 Remit the proceedings to the Equity Division for the determination of the damages to which the respondent is entitled and the making of orders (including as to costs) that the judge considers appropriate for disposal of the proceedings, on the basis that (subject to the tender of additional evidence as to matters of calculation and the tender of any further evidence that the judge considers is warranted on special grounds), the issues should be determined on the evidence taken before the referee, in accordance with r 20.24(1)(d) of the Uniform Civil Procedure Rules. (Note that, as part of this remitter, the question whether there should be a modification of the interest award in order to take into account the reliance placed by BestCare on the IAMS 2 scenario should be a matter for the judge hearing the matter.)
By Notice of Motion filed on 7 May 2013, BestCare seeks a variation of order 3 in two respects, only one of which is opposed by Origin. The application for variation is made invoking the inherent jurisdiction of the Court, Part 36 Rule 16(3A) and/or Rule 36.17.
Proposed addition of order 3(aa) (not opposed)
The first variation sought to Order 3 is to insert the following paragraph after 3(a):
(aa) The referee's reasoning and conclusions are rejected insofar as they reflect a failure to recommend an award on account of lost profits in respect of the period between 23 January 2003 and 24 November 2004.
The import of such an amendment relates to the amount of $4,002,850 awarded by McDougall J for loss of profits between January 2003 and November 2004 (as referred to in paragraph [119] of his Honour's judgment). BestCare submits that this amount was not in issue on the appeal and that the unintended consequence of the Court's orders on 24 April 2013 is to deprive BestCare of the benefit of that amount.
I accept that if order 3 operates to deprive BestCare of an award of loss of profits for the period in question, then this was not intended. Therefore, order 1 of the Notice of Motion should be made by consent.
Proposed variation to delete words appearing in parentheses in order 3(b)
The second variation, which is opposed, is sought on the basis of the submission that the inclusion of the words in brackets in order 3(b) fell outside the grounds of appeal and that BestCare did not have the opportunity to address that issue. BestCare contends that the remitter should be restricted to the extent of the lost opportunity for BestCare to profit from dealing with lAMS.
It is not necessary to repeat the principles applicable on an application to set aside a judgment or order of the court. Those were considered by Mason CJ in Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 176 CLR 300 at 301-303. BestCare places weight on what was said in Autodesk by Brennan J (at 308-9):
A court should not pronounce a judgment against a person on a ground which that person has not had an opportunity to argue .... It is one thing to reopen an appeal after judgment if the Court has reached a conclusion by adopting a proposition of fact or law which the unsuccessful party has not had an opportunity to argue. In that event, natural justice is denied and it can be said that the Court's jurisdiction to hear and determine the matter is not exhausted.
Unlike the first variation, what is sought by way of the deletion of the words in parentheses is not an exercise of the slip rule or the inherent jurisdiction to amend orders that give rise to unforeseen or unintended consequences (as considered in Newmont Yandal Operations Pty Ltd v J Aron Corp [2007] NSWCA 195; (2007) 70 NSWLR 411 by Spigelman CJ).
The words inserted in parentheses in 3(b) were intended to focus on the indefinite continuation of the loss of profit component of the calculation referable to the three named non-IAMS customers (as opposed to the loss of profit component as a whole in respect of IAMS). The distinction arose because there was some evidence as to the contractual arrangements in respect of the three named non-IAMS customers up to June 2008 and there had not been raised the same issue as to the assumptions of per annum production in relation to those arrangements.
I turn then to the two bases on which the variation of 3(b) is sought.
Was indefinite continuation of profits (other than in respect of IAMS business) within the scope of the appeal?
BestCare submits that the sole focus of both the appeal and the hearing before McDougall J in respect of loss of profits was the lAMS connection. Reference was made in that regard to paragraphs [22]-[32] and [52]-[87] of McDougall J's judgment and to Grounds 19-21 of the Amended Notice of Appeal.
In this regard, it is necessary to keep in mind that the IAMS 2 scenario, which formed the basis on which the referee had calculated the damages and in respect of which Origin challenged the referee's findings and the subsequent adoption of his report, was not limited to assumptions as to production quantities under the contractual, or any continuing, arrangements with lAMS. It included assumptions as to per annum production quantities for non-IAMS contract manufacturing customers (Nestlé, Safcol and Doane) as well as loss of the non-IAMS "core" business (by which I mean the direct sales by BestCare not the manufacture of product by it for sale by other suppliers like Nestlé).
The difference between the so-called IAMS scenarios was as to the level of production assumed for IAMS but both scenarios used a component for other contract manufacture customers that was then extended out to the terminal value point (i.e., giving rise to the indefinite continuation point).
Therefore, to the extent that the grounds of appeal raised the issue as to whether the primary judge had erred in failing to conclude that there was no evidence before the referee to support a quantification by him by applying the IAMS 2 scenario calculation (see the opening words of ground 21), this was not of itself expressly limited to the IAMS production quantities. In particular, ground 21(a) (and perhaps 21(f) as well) was not limited to the position of IAMS:
21 The primary judge erred in failing to conclude that there was no evidence before the referee to support a quantification by him by applying the IAMS 2 scenario calculation, including:
(a) The primary judge erred in failing to find that the per annum production quantities forming the basis of the IAMS2 scenario calculation were assumptions only, and had not been proved;
...
(f) The primary judge erred in failing to find that the evidence proved only that at the time of the hearing before the referee the administration of the respondents had caused it to lose the opportunity to perform contract manufacturing pursuant to the contract that was in place and ran for the period 8 June 2004 to 8 June 2008 (before the single year options)
The room for doubt as to the ambit of 21(f) arises because the lost opportunity for contract manufacturing to which this ground refers appears to be focussed on the IAMS contract (having regard to the description of the "contract" that was in place). Nevertheless, what this ground contends is that there was a failure to find that the evidence went no further than proving loss of an opportunity for contract manufacturing referable to that contract and for the period through to 2008. Logically, if that were to be the case then a finding of indefinite continuation of contract manufacture for Nestlé, Safcol and Doane would be encompassed within the error there identified.
Even if the ground raised in 21(f) is to be read as limited to findings relating to the IAMS contract, this does not limit the scope of 21(a), which challenged whether there was evidence before the referee to support the per annum production quantities forming the basis of the IAMS 2 scenario (i.e., including at least the quantities referable to contract manufacture other than for IAMS) or whether, as Origin contended, those quantities were based on unproven assumptions.
Therefore, while there was no express challenge in the Further Amended Notice of Appeal on the "indefinite continuation" ground relating to non-IAMS contracts (or to the three customers referred to above), the pleading was broad enough to encompass such a challenge.
True it is that the focus of much of the argument on the hearing of the appeal was on whether there was evidence to support the assumptions made as to the level (and period) of IAMS production contained in the IAMS 2 scenario. The explanation for this seems to have been, as noted at [40] of my earlier reasons, that the IAMS production component was by far the most significant in terms of quantum. In that paragraph, I noted that there was some uncertainty as to the extent to which complaint was pressed in relation to the non-IAMS suppliers (by which I meant the customers with whom BestCare had contract manufacture arrangements). That is distinct from loss of profits from direct sales by BestCare. At [40], I said:
[40] I interpose to note that Origin's complaint in relation to the component of the award for loss of future profits referable to the existing arrangements with suppliers other than IAMS (to the extent that it is now pressed at all) was limited to the fact that it assumed indefinite continuation of those arrangements. Senior Counsel for Origin, Mr Walker SC, indicated at the outset of the hearing of the appeal that there was no contest as to the assessment of damages insofar as it was referable to the non-IAMS contracts (T 16/17). Mr Walker accepted that there was evidence of those arrangements and that those entities had not (as IAMS had done) left the Australian contract manufacture market.
In other words, as I understood it, there was no challenge by Origin to the loss of profits claim in respect of suppliers insofar as it related to profits referable to particular contracts or arrangements that had been entered into but that was different from the question of a complaint to the indefinite continuation of such arrangements.
I went on to refer, at [41], to doubt as to the evidentiary basis on which assumptions as to the continuation of non-IAMS contracts may have been made, noting that:
[41] Reference was made to the evidence of Mr Dolman to the effect that no particular attention was given to the identity or nature of the non-IAMS contracts on the basis that it was accepted there might be some turnover of customers in the ordinary course. (At Blue 674U, Mr Dolman agreed that there was no evidence to suggest that there was a continuing contract in place with Safcol and Doane.) Insofar as there was either an assumption or an implicit finding, in the adoption by the referee of the IAMS 2 scenario, that there would have been a continuation of the Nestlé or other non-IAMS contract manufacture business beyond 2008, no ground of appeal expressly challenged this. Senior Counsel for BestCare (Mr Williams SC) also noted that there was no challenge to the assessment of projected profits in respect of the "core" business of BestCare up to 2008 (that being assessed at $4,126,200 on both IAMS 1 and IAMS 2 scenarios). (my emphasis)
It is not, I think, disputed that there was no express challenge to the assumption or finding as to the indefinite continuation of the Nestlé business (or other non-IAMS contract manufacture business). However, as noted above, a challenge to the assumptions of production quantities under the IAMS 2 scenario calculations would necessarily encompass this.
For Origin, it is contended that the challenge to the non-IAMS customers' component of the award for loss of future profits based on the IAMS 2 scenario was encompassed in the grounds of appeal on the basis that the grounds of appeal were directed to McDougall J's award, which assessed damages based on the adoption of 60% of the value of lAMS 2 scenario calculation without differentiation between the components of the lAMS 2 scenario. As the appeal from McDougall J's judgment related to the exercise of the discretion to adopt the referee's recommendation, it is submitted that a successful challenge to the assumptions on which the IAMS 2 scenario was based (by reference to the commercial connection with lAMS) meant that the damages award was incorrect (and that it was not a question of the "retrieving and saving" of some components of the loss of profits claim).
Whether or not (as suggested by Origin in its submissions) it was necessary for BestCare to file a Notice of Contention if it wished to maintain findings as to particular components of an award based on acceptance of the IAMS 2 scenario calculations, the proposition that a remitter of the indefinite continuation point in respect of the three named non-IAMS entities was outside the scope of the appeal in my view fails having regard to the breadth of ground 21(a) of the Further Amended Notice of Appeal.
Was there a concession/denial of procedural fairness?
The second aspect of the application to vary the orders by the omission of the words in parentheses is one based on an allegation of denial of procedural fairness. BestCare contends that there was a concession by Mr Walker during the hearing of the appeal that Origin's submissions did not extend to arguing that there should be a remission to the Equity Division of such part of the damages award as related to the indefinite continuation after 30 June 2008 of a loss of profits referable to the three non-IAMS customers. It contends that this point was expressly abandoned (at T 3.35 of the transcript of 6 March 2013) and notes that there was no application by Origin to amend its Notice of Appeal at any time. BestCare further contends that because of its perception that Origin had made such a concession it did not make all the submissions it would otherwise have made and hence was deprived of an opportunity to be heard on the issue.
Origin denies that there was any such concession and maintains that BestCare not only had the opportunity to be heard but was heard on the content of any remitter on the damages issue. Mr Walker concedes that it was accepted that the method of calculating historical data and applying a terminal value discounted cash flow approach, with a discount for vicissitudes, was a method that had been available to be adopted. However, he maintains that Origin's point was that to the extent that this involved an assumption of indefinite duration that was only ever an assumption.
Relevantly, the following exchanges took place during the course of oral submissions on the first day of the appeal (with my emphasis as italicised). First, from T 16:
WALKER: Now armed with that approach to principle and authority, in our submission, it [BestCare] was [required] to do more than simply say, "IAMS, an IAMS connection" and I should have done this in opening and let me digress to make this point. It may be controversial as to whether the plaintiff tied themselves to an IAMS connection but we make our position clear. They did. The referees so understood it. The first instance judge so understood it. Apart from the presently immaterial references to those three other named contract customers whose connections if they were to drive a quantification would, if that were the only issue between the parties, probably mean that we weren't here at all.
Then from T 17.8:
MACFARLAN JA: Mr Walker at orange 27 there are figures for the non-IAMS Contract and for IAMS. They suggest that the non-IAMS ones were about a third in respect of the second IAMS scenario.
WALKER: Yes.
MACFARLAN JA: But that's a proportion you'd accept, would you or you might seek to contradict those figures?
WALKER: No, not into what I'll call the indefinite future from which one gets the assessment of damages in this case because beyond the identified contracts there was no evidence of continuing connection.
MACFARLAN JA: So from 2008 you'd say it was wholly IAMS.
WALKER: Yes and that's how they put the case. Leaving aside as I say the drag-a-long for those proven much smaller connections with those other named customers. So leaving that aside and leaving aside I think Simone(?) Production in the past, all the big money and it's very big money in this case, over a hundred million, all the big money comes from the application of the court rate of interest to findings that produced the 26 million odd for this, what the referee called, the IAMS 2 contract which accepting didn't exist, wasn't even an artificial construct of the plaintiff.
At T 22.9, Mr Walker accepted that it was too late to challenge the discounted cash flow methodology that took the calculation out to terminal value (though that does not in itself amount to an acceptance of the indefinite continuation of particular contractual arrangements):
WARD JA: What is the reason that they're taken to the terminal value? That's beyond the nine years, isn't it? Am I right in thinking that?
WALKER: Your Honour, I can't give you an answer to that. It's too late for us I think to dispute that. The parties before the referee all decided to fight it on a discounted cash flow basis, which in itself is not given the once and for all rule, the lump sum rule, there's nothing wrong with that. But in terms of how long the connection, and why you would be bringing it down to zero figure which involves questions of indefinite periods, are beyond me. I can't answer you. You won't find in the report, you won't find in the first instance reasons, an explanation of it. I know you won't find it in the first instance reasons, because I didn't make any point about it. We can't make a point about it here, that was a matter for contest before the referee.
There are obviously more ways than one to skin a cat when one comes to turning into a single figure the value of a lost business opportunity with all its doubts. Discounted cash flow is, on the face of things, admirably adapted generally speaking, the parameters you apply are perhaps more arguable.
The question as to any challenge to the non-IAMS part of the award was later raised on day 3 of the appeal hearing, in the context of discussion as to the form of draft orders that had been handed up by Mr Walker (following a suggestion by Macfarlan JA that draft orders be prepared on the basis of certain assumptions).
The draft orders proposed by Origin expressly provided for the question of quantum in respect of the alleged loss of commercial connection with Safcol, Nestlé and Doane (as well as IAMS) to be remitted for a second hearing (paragraph 1(b) of the proposed orders). Mr Walker prefaced the handing up draft orders by noting that these addressed what was referred to as the "issue of the 80,000" (which he later explained as referring not only to the level of production by IAMS on the IAMS 2 scenario but also the indefinite continuation of the Nestlé, Safcol and Doane contracts) and noting that these draft orders left "other issues". From T 1.39, the following exchanges then occurred:
WALKER: Yes. So this, I stress, only deals with on the assumption your Honours ask me to address. At the moment I think we have, what can only be described as an extremely flexible and open ended prayer for relief in this Court, that is orders made to reflect the outcome in this Court which is why your Honour has no doubt asked for something more specific. On the hypothesis that we succeeded in relation to the 80,000 which is what I'm going to call the IAMS 2 combination of an IAMS contract of 80,000 and the indefinitely continuing Safcol Neslte Done [sic] elements of it, then we submit that this question can be described as one of quantum in respect of the respondent's alleged loss of commercial connection with those companies and that that should be remitted for hearing limited in the manner, both by topic referred to in B and by mode referred to in C.
...
MACFARLAN JA: ... I do have one comment about your draft. I can't at the moment see the basis arising out of the submissions for interfering with what the referee concluded so far as Safcol, Nestle and Done [sic] are concerned.
WALKER: It's only the indefinite continuation. On the evidence they're all under the contracts that's all, that's the only aspect.
MACFARLAN JA: Well I haven't seen that as an issue on the appeal so far. Please enlighten me.
WALKER: I think, with respect, your Honour's comment is correct insofar as it's not been the object of criticism by us that there was a finding of indefinite continuation for which there was no evidence but then there was no finding of indefinite continuation. The calculation, the so called IAMS 2 calculation just continues till the term of a point. That's the only reason by which we would seek to incorporate those contracts. I don't have anything else to say about that and your Honour's observation, with respect, is based on the record--
MACFARLAN JA: Because the IAMS 2 scenario incorporates assumptions and findings about those three other companies about which I do not understand any issue to have been taken.
WALKER: And that's correct, they were all proved in terms of the existence of the contracts, the economic financial scale of them plus also though their longevity.
MACFARLAN JA: Well you come back to this if you like but at the moment I'm not seeing the basis for it.
WALKER: I'm just reminded of what we say. If you go to orange 13 at para 42 we note Mr Goldring's limitation of evidence and then in para 43 makes the point that both IAMS 2 and IAMS 1 for that matter proceed on, what is called an ad infinitum basis but more accurately it is till the terminal point is reached on the discount rates. I think that's the way in which we put it. May I call it, it's an arithmetic point, it's not a commercial fact point.
HOEBEN CJ at CL: Your difficulty is though, there's a lot more force in calculating the possible future progress of those contracts to a terminal point where they were existing contracts.
WALKER: Unquestionably and of those people it cannot be said there was evidence that they'd left the market which is another point against us. And I can add a third point against us, Mr Dolman was specifically asked about this aspect of matters and said, well no he didn't give any particular attention to the identity or nature of those contracts, my words not his, swings and roundabouts as you go through, you get some customers, you lose some customers. IAMS of course is not just some customer.
HOEBEN CJ at CL: That's a different - yes.
WALKER: So yes if you put what I've said in answer to Justice Hoeben together with what I've said in answer to Justice Macfarlan there is - we'd only be hanging on by our fingernails to get that into a remitter. The reason is the arithmetic, just the ad infinitum arithmetic that's all and that may well be answered by what Justice Hoeben has put up, yes.
MACFARLAN JA: There is an assumption or perhaps a finding, perhaps an implicit finding in the referee's report that there would have been a continuation of the Nestle business.
WALKER: I'll call it business, yes. Well it doesn't have to be Nestle necessarily but business, yes.
MACFARLAN JA: Yes Nestle and the other companies. If you look at red 113 which is the relevant part of your notice of appeal, I can't see any place at the moment--
WALKER: No there isn't. So your Honours I don't want to be further heard on that. ...
I do not consider that by this exchange Origin withdrew the submission reflected in its draft orders that the loss of profits claim based on the indefinite continuation of the non-IAMS customers should be remitted to the Equity Division. What I understood Mr Walker to be saying was that whilst the existence of limited period contracts for those customers was not in issue, their extrapolation into the future was. Although Mr Walker recognised that there were difficulties in his position, he did not make the concession BestCare contends was made. The statement that Mr Walker did not wish to be heard further on that issue was not an express abandonment or withdrawal of the submission.
As there was undoubtedly some room for doubt as to Origin's position, BestCare was given the opportunity on the hearing of its motion to put the submissions that it would have put if the alleged concession had not been made. Those submissions raised, in essence, two points.
First, it was submitted that this point (the indefinite continuation of the trade connection with the three named non-IAMS customers) had not been run before McDougall J and that Origin should not now be permitted to raise it on appeal. Reliance was placed on the principle in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438-439 to the effect that it is not permissible for a party to raise on appeal a point not raised in the court below in circumstances where there is any possibility that further evidence could have been put which would have prevented the point from succeeding in the court below. Mr Williams submitted that had the indefinite continuation of the commercial connection with the three named non-IAMS customers been run in the Court below then BestCare would have adduced evidence to meet that point.
Second, it was submitted that if Origin were now permitted to raise the point then BestCare should be permitted to tender that evidence.
As to the first of the submissions, Mr Williams pointed to the Notice of Grounds of Challenge to Report of Referee filed by Origin in October 2011, paragraph 10 of which referred to the alleged error of the referee as to the "application of the IAMS 2 scenario for the loss of profits" and to the Outline of Submissions served by Origin in the proceedings before McDougall J.
In the Outline of Submissions four categories of error were identified (at paragraph [18]), including "error concerning IAMS 1 and IAMS 2". That error was addressed in paragraphs [19]-[49] of the Outline of Submissions. It included, as Mr Williams noted, submissions as to the referee's misapprehension as to the alternative, not sequential, nature of the two IAMS scenarios. It also included reference to the assumption that the IAMS contract would continue indefinitely ([25]), in the context of the issue as to whether an IAMS contract would have proceeded past a first term and, if so, for how long. The Outline also referred to the fact that the referee made no findings as to facts necessary to support the assumptions underlying either of the two IAMS scenarios ([41]).
Reference was also made to [22]-[32] and [52]-[87] of McDougall J's reasons and the statement of issues of substance on the adoption motions, as supporting the proposition that nothing was put to his Honour as to any issue in respect of the indefinite continuation of the non-IAMS trade connections. Finally, reference was made to McDougall J's reference to BestCare's statement of the issues arising on the application (at [11] of his Honour's reasons), which was broadly accepted by Origin (with the exceptions noted at [12]) and which again spoke of the referee misunderstanding the two IAMS scenarios.
As to whether this issue was raised before his Honour, Mr Walker pointed to submissions made by him at Black 116V to Black 117E, in which he had referred to the Nestlé, Safcol and Doane contracts; had noted that the Nestlé contract was a contract due to expire on 31 December 2006; and to the approach taken by Mr Dolman (one of the plaintiffs' experts) in estimating the worth of the Safcol and Doane cash flow into the future, namely Mr Dolman's acceptance that there was no evidence to extend those beyond their contractual periods. His Honour was directed to the transcript where Mr Dolman gave that evidence.
Mr Williams points out that the reference made in that passage of transcript to the three non-IAMS trade connections was not a challenge to the continuation of profits referable to those connections but was raised by way of distinction from the position in relation to IAMS.
From the above, it seems that the indefinite continuation of the three non-IAMS trade connections was a point only tangentially raised before his Honour, although his Honour was taken to the lack of any evidence as to the continuation of those connections beyond June 2008 other than an assumption (reasonable or otherwise as it may have been) as to the continuation of commercial relationships or the swings and roundabouts of business. Logically, however, the challenge to the establishment by BestCare of the assumptions on which the IAMS 2 scenario was based would encompass challenges to the assumptions relating to the three non-IAMS customers that had been included in the IAMS scenarios.
As to the evidence that BestCare contends it should be permitted to tender if this Court is satisfied that the indefinite continuation of the non-IAMS customer connection was not a point raised at the hearing below but one that Origin should be permitted now to raise, Mr Williams identified the following.
First, Mr Dolman's Economic Loss Report dated 4 September 2008, paragraph [97] of which stated:
I note that there were a number of other specific business opportunities which were likely to lead to contracts. I have not quantified any further specific losses and have assumed that these customers would be part of the normal gains and losses of customers in business operations.
At [96] of that report, Mr Dolman had referred to the assumption he had made as to each of the Nestlé, IAMS, Doane and Safcol contracts continuing to 30 June 2008.
Second, Mr Williams referred to certain portions of the transcript of Mr Dolman's cross-examination and re-examination before the referee (being passages at T 1107.47; T 1108.9/38/47; T 1438.19 - T1440.21; T 1475 - T 1476.27/43; and T 1534.25/45. In those passages, in summary, Mr Dolman gave evidence that he had taken into account the cash flow from Safcol, Doane and Nestlé based on actual sales; had not discounted the figures based on actual sales for those entities; assumed that the Nestlé contract would have been ongoing until 30 June 2008; assumed that the Nestlé contract would have been extended to that date; considered that this was not an unreasonable assumption provided that performance was being maintained; said that "as long as they were performing, I think usually those contracts get extended, in my experience"; did not agree that his calculations showed bias or were reckless; disagreed that there was no reasonable basis for him to accept that the IAMS and Nestlé contracts and the Doane and Safcol arrangements would be extended; agreed that there was no evidence that the Safcol and Doane contracts would be extended; made the assumption that the Nestlé contract would continue after its three year term on the basis of his experience that "provided contracts are fulfilled and people are satisfied with the outcomes, they are ongoing"; did not consider the possibility that the Nestlé contract might not run the full three years; and thought that the possibility that the contracts would not run their term was "probably a vicissitude or a discounting issue which was not part of my brief to include in calculations" and did consider that "in business that contracts and customers come and go".
Mr Williams submits that that evidence, allied with the fact that Mr Fayad was not cross-examined in relation to the indefinite continuation point, permits the conclusion that BestCare's loss of profit claim should be extrapolated beyond the term of those contracts, having regard to the possibility that those sales would be replaced with other customers and the possibility of the contracts being extended.
It is relevant to note, however, that Mr Dolman's evidence in relation to the continuation of customer connections was limited to the basis on which he had assumed, or accepted the reasonableness of assumptions, that the contracts or contractual arrangements that were then in place would be extended or ongoing until 30 June 2008, not indefinitely, though he did make some general observations as to continuation of contracts that were being performed and as to the coming and going of customers over time.
Mr Walker maintains that Mr Dolman's evidence goes no further than to support the reasonableness of the assumptions he had made or been asked to make; not to establish those assumptions. As to Mr Fayad, it was submitted that it was not to the point that he had not been cross-examined on his report, when his expertise was that of an accountant. Mr Williams' response to that was to note that the referee had accepted Mr Fayad's expertise in the valuation of businesses in the pet food industry (see [283] - [286] of the report). Mr Fayad's report, as I noted in my earlier reasons (at [159]) compared the values attributable on his calculations to BestCare's business and the valuations carried out by him in respect of another business he had valued (the Green's pet food business). Mr Fayad had been asked to opine as to the reasonableness of Mr Dolman's estimates. Those estimates, however, related to the production to 30 June 2008, as already noted.
Mr Walker submits that the evidence now sought to be relied upon by BestCare (and which it is said is evidence, for the purposes of the operation of the principle in Suttor v Gundowda, which would have been available to be relied upon had this issue been raised in the Court below) does not change the character of the non-IAMS component of the damages award as being of an essentially speculative unproven nature.
I would admit the evidence tendered by Mr Williams during the hearing of the motion as evidence that BestCare would have sought to rely on had it appreciated that there was a challenge to the indefinite continuation of the non-IAMS customer connection. I do not, however, consider that that evidence leads to a different conclusion from that reached in my earlier reasons. For the reasons I have given above, the point was sufficiently raised at first instance. Even if it was not, it should be allowed to be raised on appeal as any prejudice to BestCare has been cured by its tender of additional evidence. That evidence does not indicate that Origin's argument that there was no evidence on the relevant point before the referee is doomed to failure and therefore inappropriate for remission to the Equity Division.
I would therefore not vary order 3(b).
Should there be a recall of [228]-[229] of the reasons?
This brings me to the alternative submission in relation to order 3(b), which was that, if the words in parentheses are to remain in order 3(b), it is submitted for BestCare that the reasons in paragraphs [228]-[229] of my judgment should be recalled. This is put on the basis that the reference in order 3(b) to profits (other than those to be derived from dealing with lAMS) referable to dealings with Nestlé, Safcol and Doane is inconsistent with the reference in [229] to the issue of the continuation of profits from selling to all non-IAMS customers. It is submitted that this issue (i.e., whether the indefinite continuation of profits through to the date of terminal value is an issue relating to all non-IAMS customers) has the capacity greatly to affect the scope of enquiry on the remitter.
The relevant passages are as follows:
[228] BestCare submitted that the award of damages insofar as it related to the calculation of lost profits in respect of sales to other (non-IAMS) customers should, in effect, not be disturbed (i.e. that these should be calculated in accordance with the method of calculation underlying the IAMS 2 scenario by: accepting the forecast profits appearing at Blue 1/357 (save for the last two rows relating to IAMS production), calculating the net present value of those projected profits (extrapolated in the manner performed by Mr Fayad before the referee), taking the midpoint of net present values calculated using the discount rates appearing in the two right-hand columns of that page, and applying a discount for vicissitudes of 40% to those net present values).
[229] As to the non-IAMS component, this was calculated on an indefinite basis (insofar as the IAMS 2 scenario was carried through to terminal value). I am concerned that the question whether there was evidence to support the aspect of the IAMS 2 scenario that assumed the non-IAMS component would continue indefinitely into the future was not fully argued. Indeed, there is some doubt as to whether this point was even in issue (see transcript for 6 March 2013 p 2 line 18 - p 3 line 35). As the appellant's arguments concerning the prospects of supply to IAMS itself justify the orders that I propose, those orders should be made on the basis that this Court has not expressed any concluded view on the question concerning the non-IAMS component that I have identified.
I see no reason to recall [228]. It records what I understood (and still understand) to be BestCare's submission. As to [229], the question is what is meant by reference to the "non-IAMS component". BestCare correctly notes that the effect of the order is to limit the remitter to the calculation of loss of profits referable to the lAMS business and the calculation of the loss of profits referable to the continuation of the Nestlé, SAFCOL and Doane contracts beyond 30 June 2008 (as contained in the IAMS 2 scenario calculations).
If there is confusion as to the operation of order 3(b) by reference to [229] of my reasons then I accept that the latter should be clarified. As I understood the challenge by Origin, it was to the indefinite continuation, on the IAMS 2 scenario, to the projected profits for the Nestlé, Safcol and Doane arrangements and it was to this that I intended to refer (as reflected in the orders I subsequently proposed). However, it seems to me there is no need to recall the paragraph, as such. Rather, I simply note that it was my intention there to refer to the aspect of the IAMS 2 scenario that assumed indefinite continuation after June 2008 of the three non-IAMS contract manufacturing arrangements that had been in place with BestCare (with Nestlé, Safcol and Doane). (Although Green's was another non-IAMS contract manufacturing customer, it seemed to be accepted that this arrangement would have come to an end by 2008 in any event.) What was intended by the parenthetical words was to remit to the Equity Division the question as to the damages referable to loss of profits after 30 June 2008 from the three named non-IAMS customers (having regard to the evidence that was before the referee as to the arrangements with those customers). The loss of profits by reference to "core" business or direct sales was not intended by me to be part of the remitter.
Conclusion
As noted above, order 1 should be made, by consent. Otherwise, I would dismiss the Notice of Motion. Given that the substantive issue in dispute on this application was one on which BestCare was unsuccessful, costs should in my view follow the event.
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