RW & Me Smith Pty Ltd v Boral Resources (Vic) Pty Ltd (No 2)

[2024] VCC 144

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

EXPEDITED LIST

Case No. CI-20-03807

RW & ME SMITH PTY LTD (ACN 105 445 645)	Plaintiff
V
BORAL RESOURCES (VIC) PTY LTD (ACN 004 620 731)	Defendant

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JUDGE:	HER HONOUR JUDGE A RYAN
WHERE HELD:	Melbourne
DATE OF HEARING:	Written submissions filed 24 January 2024, 30 January 2024 and 1 February 2024
DATE OF JUDGMENT:	27 February 2024
CASE MAY BE CITED AS:	RW & ME Smith Pty Ltd v Boral Resources (Vic) Pty Ltd (No 2)
MEDIUM NEUTRAL CITATION:	[2024] VCC 144

REASONS FOR JUDGMENT
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Subject:DAMAGES

Catchwords:              Assessment of damages consequent upon unlawful termination of cartage contract – loss of profits for remaining years of contract - loss of opportunity of extension of contract for two further terms – proper basis to assess expectation losses – whether nominal damages should be awarded

Cases Cited:Commonwealth v Amann Aviation Pty Ltd (1992) 174 CLR 64; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; RW & ME Smith Pty Ltd v Boral Resources (Vic) Pty Ltd [2022] VCC 729; RW & ME Smith Pty Ltd v Boral Resources (Vic) Pty Ltd [2023] VSCA 182;

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr L E P Magowan	Aitken Partners
For the Defendant	Mr O Fagir	Australian Business Lawyers & Advisors

HER HONOUR:

1On 30 May 2022, I delivered reasons for judgment (“the Reasons”).[1]  Following a successful appeal on issues of liability, the proceeding was remitted by the Court of Appeal to the County Court on 11 August 2023 for an assessment of the plaintiff’s damages (“Appeal Reasons”).[2] In these reasons, I will deal with the assessment of damages and will use the terms defined in the Reasons.

[1]        RW & ME Smith Pty Ltd v Boral Resources (Vic) Pty Ltd [2022] VCC 729

[2]        RW & ME Smith Pty Ltd v Boral Resources (Vic) Pty Ltd [2023] VSCA 182

2The Court of Appeal remitted the question of assessment of damages to the plaintiff on the footing that:

(a)   Boral breached the agreement by wrongfully purporting to exercise a right of immediate termination;

(b)   Boral’s breach prevented the applicant from performing the agreement and earning revenue from that performance;

(c)   Boral failed to prove that it would have terminated the agreement upon three months’ written notice;

(d)   the applicant is entitled to judgment, with costs, with damages to be assessed; and

(e)   the parties led the evidence at trial upon which they intended to rely for the assessment of loss and damage should the applicant succeed on its claim.[3]

[3] Ibid, at [146]

3Following the decision of the Court of Appeal, the parties were asked to provide an outline identifying the evidence and submissions of the parties at trial regarding the issue of damages. The parties filed outlines on 6 September, 11 September and 14 December 2023. The outlines set out the materials upon which each party relied as being relevant to the assessment of damages.

4Boral’s application for a stay pending its appeal to the High Court was dismissed by the Court of Appeal on 1 December 2023.

5The High Court refused Boral’s application for special leave on 7 December 2023.

6The matter was listed for a directions hearing on 23 January 2024. The purpose of the directions hearing was to determine whether further submissions should be permitted relating to the assessment of damages. Orders were made to the effect that the parties had leave to file and serve submissions taking into account the findings in the Reasons and the Appeal Reasons. Boral filed submissions on 24 January 2024. The plaintiff filed submissions in response on 30 January 2024.  On 1 February 2024, Boral filed a reply submission.

The plaintiff’s claim for damages

7Boral employed the plaintiff pursuant to a contract for cartage services dated 1 August 2014 (“the agreement”). On 21 July 2015, Boral terminated the agreement by reason of serious misconduct arising from the plaintiff engaging in allegedly unsafe conduct on 9 July 2015. The Court of Appeal held that the termination by Boral was unlawful.

8The plaintiff alleges that had the agreement not been terminated on 21 July 2015, it would have continued to provide services under the agreement for a further seven years. This period comprised the four years remaining under the term of the agreement, plus a two-year extension followed by a further one-year option.

9The plaintiff claims damages in the form of its average annual earnings before interest, taxation, depreciation and amortisation (EBITDA) of $141,500 multiplied by seven years. The total sum sought is $818,272, representing the estimated net present value of the lost revenue for the seven years together with interest from the date of the writ filed on 25 August 2020.

10The plaintiff had previously claimed damages, in the alternative, in the form of an amount for goodwill had it been able to sell the business. This was measured by using EBITDA of $141,500, multiplied by a capitalisation rate of between 2.5 and 3, arriving at a figure for goodwill of between $353,000 and $424,000. In the Reasons, I found that the business did not have goodwill which was capable of being on sold. The appeal did not include any challenge to this finding and this conclusion remains undisturbed.

11At trial, the plaintiff relied upon two expert reports from Mr Michael Jensen, a chartered accountant. His first report is dated 11 November 2020. Mr Jensen assessed the value of the goodwill of the plaintiff’s business as at 21 July 2015 in the range of $353,000 to $424,000. He also valued the business as a going concern inclusive of physical property at between $638,000 to $709,000.

12Mr Jensen had relied upon the plaintiff’s 2013-2016 financials and income tax returns for the purpose of preparing his report. In section 8 of his report, being his valuation assessment, he set out the plaintiff’s historical profit and loss statements for the three years ended 30 June 2015. This showed the total income earned, less expenses to arrive at a net profit for the first two years followed by a small loss for the third year. The average net profit for the three years is $47,271.

13Mr Jensen undertook a calculation adjusting for EBITDA. He did this by taking out interest paid, finance charges and depreciation from the expenses previously listed in the profit and loss statements. The effect of this was to increase the net profit amounts. Mr Jensen adopted what are described as normalising adjustments to arrive at normalised EBITDA for each of the three years. Mr Jensen assessed a  three-year normalised EBITDA of $141,500. Using this figure, he then applied a capitalisation rate of 2.5 and 3 to estimate the value of the goodwill and total business value of the plaintiff’s business.

14In his second report dated 22 April 2021, Mr Jensen assessed the plaintiff’s loss on a different basis. He was asked to assume the agreement would not have been terminated and that the plaintiff continued to operate its business for a number of years. Mr Jensen identified the plaintiff’s loss as the revenue it would have earned had the agreement been performed. Mr Jensen estimated the net present value of the lost revenue for the remaining seven years of the agreement in the sum of $818,772. In performing this calculation, Mr Jensen assumed the cost of capital was 5% and the average normalised EBITDA annual profit was $141,500, applying the figure for EBIDTA which he had assessed in his first report.

15At the hearing of the appeal, the plaintiff asked the Court of Appeal to assess damages on the basis of Mr Jensen’s second report dated 22 April 2021.

16The Court of Appeal declined to assess damages for itself on the basis of Mr Jensen’s second report.  The Court said as follows:[4]

“There are a number of issues that could be raised, about which we have heard no argument. They include:

(a)   Whether the correct basis upon which to assess the loss of bargain is to assess the net present value of the income the applicant would have earned for the life of the contract.

(b)   If so, how long should the entitlement to income be projected? What facts should be taken into account on that analysis?

(c)   Should Mr Jensen’s figures be accepted as correct?

It is not clear to us whether Boral disputed the conceptual measure of loss underlying Mr Jensen’s second valuation but merely took issue with the calculation and some of the assumptions made. That measure is the basis upon which the applicant sought an order for damages in this Court.

In this state of affairs, we are not able to make a determination of damages in the absence of full argument on both facts and law.”

[4]Supra, [2023] VSCA 182, [143]-[145]

Boral’s submissions on damages

17At trial, Boral had submitted that lost profit was to be assessed not by reference to EBITDA but by reference to the net profit recorded in the plaintiff’s financial returns and identified by Mr Jensen. Boral pointed out that EBITDA, and particularly normalised EBITDA, is not the appropriate integer in the calculation of lost profit because it does not represent profit but rather is a figure which excludes the significant business costs of interest, tax and depreciation.  Boral noted the plaintiff did in fact incur interest on finance used to purchase the trucks and depreciation costs and there was no logical reason to ignore them. Mr Jensen had agreed in evidence he excluded interest, depreciation and amortisation because a purchaser might incur different borrowing or depreciation costs. Boral argued that this acknowledgment exposed that EBITDA was not the correct basis for calculating damages because it wrongfully excluded certain costs that the plaintiff would have incurred had the agreement continued. The plaintiff did pay interest on the finance to buy the trucks and incurred depreciation of those assets. Mr Smith gave evidence that the truck related expenses were expenses of the business. To award damages on an EBITDA basis would erroneously result in a windfall gain to the plaintiff. The correct measure of loss is the average annual net profit recorded in the plaintiff’s financial statements, less deductions for contingencies and vicissitudes.[5]

[5]        See paragraphs 145 to 148 of Boral’s final submissions dated 14 June 2021

18Boral’s case was that the correct integer is the average annual net profit recorded in the plaintiff’s financial statements, as identified in the second Jensen report, namely, $47,271, less deductions for contingencies and vicissitudes.

19In its submissions dated 24 January 2024, Boral conceded it did not challenge the conceptual measure of loss in Mr Jensen’s second report. Boral accepts for present purposes that damages are to be assessed on the basis now urged by the plaintiff; that is, by reference to the revenue forgone as a result of Boral’s breach.

20Boral said the two questions that arise on the assessment are:

(a)   how long should the entitlement to income be projected and what facts should be taken into account on that analysis? and

(b)   whether Mr Jensen’s figures should be accepted as correct.

21Boral notes the contract had a remaining nominal term of four years with the possibility of extensions of two years and then one year.  The plaintiff had worked for Boral for a long period. The services provided by the plaintiff remained valuable and would have needed to continue.[6] This is a reason to think the contract would have remained on foot, at least for some period.

[6]        (Appeal Reasons [133])

22The contract was contingent in that it was terminable without cause on three months’ notice, did not require Boral to provide any particular level of work to the plaintiff, and did not prevent Boral from engaging additional or different cartage contractors.  Therefore, Boral could have terminated at any time on notice for any reason.  Boral could also have simply decided not to allocate work to the plaintiff or could have moved to a different contractor and ended its relationship with the plaintiff, independently of any issue with the plaintiff’s conduct or performance.

23Boral submits there was a real and significant possibility it would decide at some point to part ways with the plaintiff for reasons unrelated to the plaintiff’s conduct.

24Additionally, the plaintiff’s standing with Boral was poor.  There had been an earlier incident in 2014 for a similar safety breach. In addition to the incident in 2015 which resulted in the termination, Boral argues it is unlikely this pattern of behaviour would have changed. It is likely that tension between Boral and the plaintiff’s attitude would have led to further conflict.

25The plaintiff’s principal was elderly and was contemplating ending his active work in the business.  He could have employed a driver, but it is unclear whether he would have done so and what impact this would have had on wage costs, productivity and profitability. Boral was able to obtain a replacement cartage contractor within a period of three months so that whilst the plaintiff’s services were valued, they could have been replaced relatively easily within a reasonably short period.

26Boral points to the fact that the plaintiff’s trucks were sold for $308,000 (with $88,000 redirected to the plaintiff’s principals). This price reflected the fact that Boral agreed to allow the trucks to be sold with their agitators attached and on condition that the plaintiff execute Deeds of Release. The Court’s finding, which was unchallenged on appeal, was that otherwise there was no right to assign or sell the work under the agreement.

27There was no direct evidence of the likely value of the plaintiff’s trucks when sold at the end of the contract.  However, the plaintiff’s evidence is that the value of the trucks alone at the point of actual sale in 2015 was not very good or next to nothing.  In that context, the appropriate finding is that the value of the trucks at the end of the contract after several years of depreciation would have been negligible. 

28Boral contends that on the plaintiff’s best case the profit forgone was $330,897, comprising $189,084 for the balance of the nominal term and $141,813 in respect of the two extensions. This is calculated on the average net annual profit of $47,271 from the last three years of the plaintiff’s engagement, as identified in the second Jensen report.  The best-case scenario would require a finding that there was 100 per cent probability that Boral would have continued to allocate the same amount of work and would not have terminated the contract for any reason.  It also assumes the plaintiff would have agreed on the rates so as to take up the first two-year extension and Boral would have exercised its discretion to take up the further one-year extension.

29Boral submits the appropriate findings are that:

(a)   there was an approximately even chance the plaintiff would have continued to earn the same profits for the duration of the nominal term which results in a damages award of $95,542 in respect of the nominal term;

(b)   there was no better than a one in four chance that the two options would have been exercised leading to a damages award of $35,453.

30On these findings, the Court could award damages of $94,542 in respect of the nominal term and $35,453 in respect of the options period, leading to a total of $129,995 in respect of lost profit.

31But this is not the end of the matter according to Boral.  Any analysis must take into account the fact that the plaintiff obtained $308,000 on the sale of the trucks.  On the necessary counterfactual, the plaintiff would have had to continue to operate its trucks for a period and therefore, would not have received this sum of money for the sale of the trucks.  Instead, it would have received a de minimis price, something less than next to nothing for the reasons which Boral set out in paragraph 38 of its outline. Having regard to this, the plaintiff suffered no compensable loss at all and is better off having had the contract terminated than it would been, had it continued to operate.  Boral describes the amount received from the sale of the trucks as being a windfall, because Boral allowed the plaintiff to sell the trucks with the agitators still attached, which was something Boral did not have to do.

32On Boral’s case, the plaintiff did not suffer any loss by reason of the termination of the agreement and is entitled to only nominal damages in the sum of $1.

Plaintiff’s submissions in response

33The plaintiff takes issue with a number of the submissions made by Boral on damages. The first being that they go beyond the matters contained in the Reasons and Appeal Reasons and seek to recast Boral’s submissions on how loss and damage should be assessed.  The plaintiff says the matters now raised were not pleaded and were not the subject of opening or closing submissions at trial.  The plaintiff further contends that the matters now relied upon were:

(i)not put in accordance with the rule in Browne v Dunn;

(ii)are contrary to the evidence;

(iii)not contemplated; and

(iv)in breach of the orders of 23 January 2024.  

34The plaintiff contends Boral never suggested at trial that:

(a)   the appropriate measure of damages was $47,271, being the annual net profit;

(b)   the total profit forgone was $330,897;

(c)   the plaintiff received $308,000 from the sale of the trucks and that the proceeds of any eventual sale would be de minimis. 

These aspects are referred to as the new case theory. Under cover of that objection, should Boral’s submissions be allowed, the plaintiff made a substantive response as follows.

35In respect of the figures put forward by Mr Jensen, counsel for the plaintiff submitted:

“10.   Firstly, whilst the focus of Mr Jensen’s First Report was a quantification of goodwill, in order to do this, he expressly valued the business on the basis of a future maintainable earnings approach and, as part of that calculation, calculated normalised EBITDA in the 3 years leading to termination.  To the extent that this Court is now asked pursuant to the remission from the Court of Appeal to determine a loss, extrapolating normalised EBITDA over the future life of the contract (including any option and allowing for the possibility that a further contract might be entered) represents an entirely conventional approach (routinely applied by this and every other court) in relation to the quantification of loss and damage for wrongful termination of a contract.  As Mr Jensen made clear in his evidence, normalised EBITDA represents the cartage income less the costs of earning that revenue.  Thus, he gave evidence as follows under cross examination (“asked and answered”):

And what expenses are you referring to there?---The expenses that relate to earning the cartage income which would be the net figure which would be the normalised EBITDA that I referred to in my earlier report.

And is it your opinion then that the expenses necessary to earn the revenue would not include, for example, the wages paid to drivers employed by the company?---The wages paid by the company is already factored into that net lost revenue.

In what way, Mr Jensen?---It has been factored in because it is the normal course of running cartage income to incur those wages to those drivers.  So what I have calculated in the normalised EBITDA is the cartage income less the costs of earning that revenue giving a profit figure, or a revenue figure to the business of $141,500.

So just to make sure I understand this, are you saying your $141,500 figure already has deducted in it the wages?---Correct.

And all of those associated costs with employment?---Correct.

And all other costs of the business that the business has to incur to generate revenue?---That’s correct, yes. [emphasis added]

11.   Boral did not adduce any contrary expert evidence and there was no suggestion put to Mr Jensen or otherwise that his evidence is wrong.”[7]

[7]Plaintiff’s submissions in reply to Defendant’s submissions on damages filed 24 January 2024, paragraphs 11 and 12

36Counsel referred to Boral’s submissions regarding the sale of the trucks and pointed to the fact that it was not pleaded and said that it should have been.  It was not opened or closed at trial. The plaintiff points to the evidence given by Mr Jensen that the trucks were valued at $285,000 and were sold to Merran Ridge Pty Ltd by the plaintiff for $280,000.  It was not put to Mr Jensen that his evidence was wrong or that the proceeds of sale under the counterfactual would be de minimus.

Boral’s submissions in reply

37In answer to this last aspect, Boral said in its reply submissions that Mr Jensen valued the trucks with agitators at the point of sale in 2015. It argues that what is relevant to the counterfactual is the value of the trucks at some later time when the contract would have been terminated and after some period of further depreciation of the value of the trucks. Boral notes that the plaintiff’s financial statements recorded substantial depreciation expenses.

38Boral says the plaintiff’s assertion that Boral did not previously identify the need to take into account the gain associated with the sale of the trucks is wrong. In answer to the plaintiff’s generic and unparticularised plea that it suffered loss and damage, Boral specifically pleaded that the trucks were sold for a price of $308,000 which would not otherwise have been realised.[8]

[8]Second further amended defence, paragraph 14(b)

39Boral’s submissions at trial identified the need to consider the possibility of termination on notice. It submitted that the right to terminate would have been exercised immediately.  On that counterfactual, no loss was suffered. The fact that the plaintiff obtained a large benefit from the sale of the trucks was immaterial. As that scenario was rejected on appeal, it is necessary in Boral’s submission, to address specifically the difference between what actually occurred (termination after three months with a large gain on sale of the trucks with agitators) and the appropriate counterfactual (termination after a further period with additional income and depreciation of the value of the trucks and no opportunity to sell the trucks with agitators). There was no basis to assume on the counterfactual that Boral would have agreed to allow a sale with agitators.  It had no obligation to do so. The counterfactual would be assumed to have understood that the deeds of release Boral bargained for were ineffective.

40Contrary to the submission made by the plaintiff, Boral did submit at trial that net profit was the correct measure of loss.[9] Boral had submitted that the correct measure of loss is the average annual net profit recorded in the plaintiff’s financial statements, less deductions for contingencies and vicissitudes.

[9]See Transcript (“T”) 61.23 – T62.15, and closing submissions at paragraphs 146-148

41As to deductions for contingencies and vicissitudes, particularly, the contingency associated with the right to terminate without cause, Boral’s submissions at trial identified the relevant authorities and principles. It pointed out that the plaintiff’s damages claim, which assumed the contract would run for seven years, did not allow at all for any vicissitudes. Nor did it engage with relevant facts or the terms of the contract (including the absence of any guarantee of earnings on it, or any guarantee of extension).[10]

[10]Oral closing, especially at T374.25 and following

42Additionally, Boral says the argument put by the plaintiff that Boral had not previously submitted the maximum potential profit forgone was $330,897 is also wrong.  This figure represents the calculations of the average annual net profit of $47,000 which had been identified by Boral at trial,[11] multiplied by seven, being extrapolated over the balance of the nominal term of the contract and to extension.

[11]T6.8-17

43In answer to the suggestion that extrapolating normalised EBITDA over the future life of the contract represented an entirely conventional approach, Boral noted that the plaintiff did not cite any authority for this proposition or offer any explanation.  Boral’s contention is that EBITDA (not normalised EBITDA) is conventionally employed as an integer in valuation of a business as a going concern with no end date, in which case EBITDA is multiplied by a multiple appropriate to the particular industry and enterprise. It is not conventional to treat EBITDA as representing net profit for the self-evident reason that it does not represent profit.  There was no basis to assess profit on an assumption that the plaintiff’s trucks did not depreciate in value, that the plaintiff did not have to pay interest on its borrowings and did not have to pay a charge to access a line of credit in circumstances where the plaintiff did incur these costs.

44The profit identified by the plaintiff wrongly suggested that the net profit calculated by Mr Jensen is an after-tax amount.  His net profit figure is simply cartage income, less expenses, and is pre-tax.[12]

[12]        see Court Book (“CB”) 81-82

Relevant principles relating to assessment of contractual damages

45The primary purpose of contractual damages, as stated by the High Court in Gates v City Mutual Life Assurance Society Ltd,[13] is to:

“[place] the plaintiff in the position in which he would have been had the contract been performed – he is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss).”

[13][1986] HCA 3; (1986) 160 CLR 1 at 11-12

46As for expectation loss, in Commonwealth v Amann Aviation Pty Ltd, Mason CJ and Dawson J observed:[14]

“In the ordinary course of commercial dealings, a party supplying goods or rendering services will enter into a contract with a view to securing a profit, that is to say, that party will expect a certain margin of gain to be achieved in addition to the recouping of any expenses reasonably incurred by it in the discharge of its contractual obligations.  It is for this reason that expectation damages are often described as damages for loss of profits.  Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses.  This second amount is the net profit.

The expression “damages for loss of profits” should not be understood as carrying with it the implication that no damages are recoverable either in the case of a contract in which no net profit would have been generated or in the case of a contract in which the amount of profit cannot be demonstrated. ...  If the performance of a contract would have resulted in a plaintiff, while not making a profit, nevertheless recovering costs incurred in the course of performing contractual obligations, then that plaintiff is entitled to recover damages in an amount equal to those costs in accordance with Robinson v. Harman, as those costs would have been recovered had the contract been fully performed.”

[14][1991] HCA 54; (1992) 174 CLR 64 at 81

47In this case, the plaintiff seeks expectation costs by way of damages. The goal of protecting this interest is to put the plaintiff in as good a position as it would have occupied had the defendant performed its promise. Protection of this interest is reflected in the amount the plaintiff would have made had the contract been duly performed.[15]

[15]See Heydon on Contract, Lawbook Co, 2019 at [26.380]

48Where a Court must assess damages in respect of future events, such as future earning of profits, the assessment accounts for the probability that the event would have occurred.

49In Malec v JC Hutton, Deane, Gaudron and McHugh JJ commented:

“If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high- 99.9 per cent- or very low- 0.1 per cent. But unless the chance is so low as to be regarded as speculative- say less than 1 per cent- or so high as to be practically certain- say over 99 per cent- the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assess the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability. The adjustment may increase or decrease the amount of damages otherwise to be awarded.”[16]

[16]        Malec v JC Hutton (1990) 169 CLR 638 at 643 (Deane, Gaudron and McHugh JJ)

Analysis

50By reason of the foregoing, two matters arise for determination by the Court on the assessment of damages.  The first relates to the likely duration of the contract, had it not been unlawfully terminated. The second relates to the appropriate measure of damages, being the loss of revenue suffered by the plaintiff as a result of the unlawful termination.

Duration of the contract

51Boral became the owner of the Swan Hill plant in 1988. Mr Smith, the principal of the plaintiff, had continued to work at the Swan Hill plant. By 1999, he had become the exclusive contractor to deliver concrete to all of Boral’s customers within the region. Between 2001 and 2011, Mr Smith was subcontracted as the full-time plant operations manager at the Swan Hill plant.

52The plaintiff was incorporated on 8 July 2003. Mr Smith and his wife were appointed and remain the sole directors and shareholders of the company, working on the operations and secretarial management side of the business, respectively.  Mr Smith worked as the site manager at the Swan Hill plant until around 2011.  From that date onwards he returned to working solely in cartage services for the plaintiff.  It was around this time that the plaintiff and Boral entered into their first written contract for cartage services.

53On 1 August 2014, the plaintiff entered into the concrete cartage agreement, the subject of this proceeding. The plaintiff engaged two full-time and two part-time drivers to perform cartage works in order to fulfil the plaintiff’s obligations under the cartage agreement.

54It is clear from this chronology that Mr Smith and his company had longstanding arrangements with Boral for the provision of cartage services. Ms Coombs, on behalf of Boral, agreed at trial that the parties had a good relationship. Mr Smith gave evidence that he had been provided with positive assurances by Boral that the agreement would continue and be extended. Given these circumstances, I consider it reasonable to assume the agreement would have continued on for some time. Accepting that either party could terminate without cause by giving three months notice and that circumstances could have changed, I consider there was a 90 percent chance that the agreement would have run its term, being a further four years.

55It is likely that the prospects of further renewal would diminish with the passage of time, given the prospect that Boral might wish to engage a new or additional contractor; Mr Smith may wish to cease running the business given his advancing age and the potential vicissitudes, such as the continuity and volume of work available. The two-year extension depended upon the parties agreeing on rates and an assumption that both parties at the end of the initial contract term wanted to continue on. The relevant clause[17] provided that the agreement will be extended for an additional two years, subject to Boral and the contractor reaching a mutually satisfactory agreement regarding a $/load rate structure. If so extended, the agreement may be extended for a further one year upon mutual agreement. I estimate the likelihood of the two-year extension being granted at 80 percent. As for the remaining one-year period, I estimate the chance of that being renewed at 50 percent.

[17]        Clause 4.1- Part B- Details

Loss of revenue

56As already noted, Boral does not dispute that the plaintiff should be entitled to some loss of revenue having regard to the unlawful termination of the cartage agreement.  The issue in dispute between the parties is how this sum should be calculated.  The plaintiff relies upon the figures provided by its expert, Mr Jensen.  In contrast, Boral’s case is that the use of so-called normalised EBITDA is not the appropriate measure of damages. It argues instead that the correct method of calculation is to have regard to the net profit that would have been earned had the contract continued. I accept that this argument was raised by Boral at trial.

57In my view, the appropriate measure is the net profit that the plaintiff missed out on as a result of the termination.  Had the agreement continued, then the plaintiff would have earned fees but had to incur expenses in doing so, to arrive at a net profit. This should take into account the costs of running the business taking into account interest on borrowings and depreciation. It is the net profit that the plaintiff would have received for which it should be compensated rather than the revenue assessed by Mr Jensen as normalised EBITDA. By awarding loss of profits, this puts the plaintiff back into the position it would have been had the contract been performed.

58The Court adopts a broad-brush approach when assessing contractual damages where the evidence is uncertain.[18] I accept as a measure of loss the sum of $47,000 per annum as being the likely loss of net profit.

[18]        Euromark Limited v Smash Enterprises Pty Ltd & Ors (No.3) [2023] VSC 490 at [15]

59Therefore, I assess damages for loss of profits as follows:

(i)  90% of $47,000 for four years = $169,200;

(ii) 80% of $47,000 for two years = $75,200;

(iii) 50% of $47,000 for one year = $23,500

Total = $267,900

60I am not persuaded that the amount the plaintiff received from the sale of its trucks should be taken into account in the assessment of damages, contrary to Boral’s submission. The decision to allow the plaintiff to sell the trucks with the agitators was gratuitous. Boral was under no legal obligation to agree to this. The sale of the trucks only came about because of Boral’s unlawful termination of the agreement. The submission now put by Boral that the amount paid for the trucks should be offset against the damages claim with the result that the plaintiff only gets nominal damages was not precisely articulated in that form at trial. The second further amended defence did, however refer to the amount received for the trucks. For the purposes of the assessment now before the Court, I am willing to allow Boral to run this argument but for the reasons that follow, I am not satisfied it should succeed.

61The Court has to determine a hypothetical counterfactual on the assumption the agreement had continued on. Clearly, that involves the plaintiff holding onto its trucks to perform the cartage services. It remains speculative as to how much the trucks would have been worth at the end of some future period. Boral might have allowed the plaintiff to sell the trucks with the agitators at the end of their contractual arrangement contrary to its usual stance that it did not do so. But even if it did allow it, there is no firm evidence upon which the Court could estimate what sums might be recovered, if any, upon a sale of the trucks at some unknown future date.

62The Court has to assess the damages the plaintiff would have received had Boral performed the agreement, being the loss of revenue the plaintiff would have derived from the provision of cartage services. The fact that the plaintiff received money from a third party, namely Merran Ridge Pty Ltd, for the sale of trucks is not a sum which is capable of being offset against the plaintiff’s damages for loss of revenue in my view. The sale of the trucks only came about because Boral wrongfully terminated the agreement. It would lead to a curious result if Boral could avoid paying damages for lost revenue when its unlawful act was the cause of the plaintiff having to sell its trucks. The damages claim for loss of revenue and the sum received from another party following the sale of the trucks are unconnected. Consequently, I reject Boral’s submission that the payment received by the plaintiff from a third party for the sale of the trucks should be offset against the plaintiff’s damages, with the result that the plaintiff should only receive nominal damages of $1.

Conclusion

63Having regard to the foregoing reasons, judgment should be entered for the plaintiff in the sum of $267,900.

64I will hear from the parties regarding the precise form of orders to be made, including interest and costs. Subject to the parties’ submissions, I propose ordering that Boral pay the plaintiff’s costs of and incidental to the proceeding, including any reserved costs, on the standard basis to be assessed in default of agreement.

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Certificate

I certify that these 18 pages are a true copy of the Reasons for Judgment of Her Honour Judge A Ryan delivered on 27 February 2024.

Dated: 27 February 2024

Associate to Her Honour Judge A Ryan