Tungsten Hardfacing Pty Ltd v. Hagedorn & Ors

[2017] VCC 1279

IN THE COUNTY COURT OF VICTORIA  Revised

(Not) Restricted

Suitable for Publication

AT MELBOURNE COMMERCIAL DIVISON GENERAL LIST

Case No. CI-14-05638

TUNGSTEN HARDFACING PTY LTD  Plaintiff

v.

FRANK CHRISTIAN HAGEDORN & ORS  Defendants

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATEOF HEARING:	11 September 2017
DATEOF JUDGMENT:	11 September 2017
CASE MAY BE CITEDAS:	Tungsten Hardfacing Pty Ltd v. Hagedorn & Ors
MEDIUMNEUTRAL CITATION:	[2017] VCC 1279

REASONS FOR JUDGMENT

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Catchwords:             Practice and Procedure – Expert witness – sufficiency of report.

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APPEARANCES:	Counsel	Solicitors
For thePlaintiff	Mr T. Sowden	William Mulholland & Co Lawyers
For the Defendants	Mr D. Hancock	JBT Lawyers

County Court of Victoria, 250 William Street, Melbourne

HIS HONOUR:

1The dispute between Tungsten Hardfacing Pty Ltd (“Tungsten”) and Frank Hagedorn, Peter Gula and Wearlife Services Pty Ltd (“Wearlife”) is fixed for trial on 15 November 2017. Mr Hagedorn and Mr Gula previously worked for Tungsten and later for Wearlife. Mr Hagedorn set up Wearlife as a company trading in the same area of business as Tungsten. Tungsten alleges that Mr Hagedorn and Mr Gula misused confidential information and were not faithful to their obligations as employees of Tungsten. Tungsten claims damages and equitable compensation against them and an account of profits and equitable compensation against Wearlife.

2These claims are quantified in an expert report of Mr Ross McDermott, a chartered accountant, dated 28 April 2017. By a summons dated 13 June 2017, the defendants seek orders that:

a.the report of Mr McDermott be ruled inadmissable; and

b.the plaintiff’s further and better particulars of loss and damage be struck out.

3There have been three affidavits with a substantial quantity of exhibits filed in support of the application and counsels’ arguments have included extensive and helpful written submissions.

4At the conclusion of defendants’ counsel Mr Hancock’s oral submissions, I indicated that I would refuse the application although I would give further directions which it was considered might assist the trial of the action and the parties’ preparation for it.

5The orders I propose to make are as follows:

1.The defendants’ summons filed 13 June 2017 is dismissed.

2.The defendants must pay the plaintiff’s costs of the summons including the hearing today and the costs reserved by His Honour Judge Cosgrave on 4 July 2017 to be assessed by the Costs Court on a standard basis in default of agreement. Execution of the costs order is stayed until the hearing and determination of the proceeding or further order.

3.On or before 4pm on 18 September 2017, the plaintiff must file and serve:

a.a statement signed by Mr Ross McDermott stating –

i.whether, prior to preparing his report dated 28 April 2017, he had received copies of the documents numbered 20-25

inclusive of the plaintiff’s discovered documents being the documents exhibited as “CJ-7” to the affidavit of Clare Jordan sworn 22 May 2017;

ii.whether the documents were taken into account by Mr McDermott in preparing his report, giving references to relevant passages in the report and stating whether “Section 5 – Loss and Damage of Tungsten” is one such passage;

iii.whether Mr McDermott received any other documents which are not listed in Annexure B to his report, and if so, what documents;

iv.the training, study and experience Mr McDermott has had in the valuation of businesses (limited to no more than one page);

b.a statement signed by Mr Ian Ney giving particulars, including copies of relevant documents, of the “23 diverted sales” referred to in the email dated 23 April 2017 to Mr Mulholland on page numbered 138 of exhibit “CJ-1” to the affidavit of Clare Jordan sworn 22 May 2017.

4.By 4pm on 2 October 2017, the defendants must file and serve any expert reports on the issue of quantum upon which the defendants intend to rely at trial.

5.By 4pm on 16 October 2017, the plaintiff must file and serve any expert reports limited to a response to the defendants’ experts’ reports on the issue of quantum upon which the plaintiff intends to rely at trial.

6.On or before 12 October 2017, the parties’ experts on the issue of quantum are directed:

a.to confer; and

b.to provide the Court with a joint report specifying matters agreed and matters not agreed and the reasons for their not agreeing.

7.The experts are to confer on the following matters:

a.the valuation of the plaintiff’s business as at 30 June 2008;

b.the profit of the third defendant’s business up to and including 30 June 2009;

c.the valuation of the third defendant’s business as at 30 June 2009;

d.the methodology for calculating loss of profits for any year beyond the year ended 30 June 2009.

8.The experts may apply to the Court for further directions. This should be done by email addressed to the Commercial Division Coordinator for the attention of Judge Anderson at [email protected] and copied to the parties’ solicitors at [email protected] and [email protected].

9.The legal representatives of the parties are directed not to attend the conference.

10.Subject to the order in paragraph 6(b) hereof and the directions of the trial judge, no evidence shall be admitted of anything said or done by any person at the conference.

11.Any agreement reached during the conference shall not bind a party except in so far as the party agrees in writing.

12.A copy of this order shall be provided as soon as is reasonably practicable to each expert, by the party’s or parties’ solicitors engaging the expert.

13.Liberty to apply further is reserved.

6During the course of the hearing before me, Mr Hancock expanded upon his written submissions, and specifically the grounds referred to in paragraph 13 of those submissions.

7In summary, I rejected each of the grounds for the following reasons:

a.   the report and particulars are non-compliant: Paragraphs 24 and 26 of the Further Amended Statement of Claim claim damages and an account of profits. Although the pleading does not allege that Tungsten lost its “entire business” or that all of Wearlife’s profits to 30 June 2009 were accountable to Tungsten, those are the opinions of Mr McDermott based upon the reasoning in his report.

b.   no factual matrix is pleaded giving rise to the loss claimed: The plaintiff’s claim alleges misuse of confidential information and breach by the first and second defendants of the fiduciary duties owed to Tungsten. Mr McDermott states in his report that by reason of the timing of the first two defendants’ association with Tungsten, the date Wearlife commenced business and the identity of the third parties

it traded with, the loss of the value of Tungsten’s business was immediate and total. The reasons for these opinions are stated by Mr McDermott and are based on the instructions given to Mr McDermott as identified in his report.

c.   Mr McDermott does not have the necessary expertise in business valuations: Mr McDermott is an experienced receiver and liquidator. This work will have given him some expertise in business valuations. Mr McDermott has specified 3 valuations he has undertaken. His report provides an analysis of how he has valued the business of Tungsten and his reason for choosing that method and rejecting an alternative. In my view, this demonstrates a sufficient level of expertise for his report to be received. It is likely that this matter will be tested in cross-examination. For this reason, Mr McDermott has been required to provide more comprehensive details of his training, study and expertise in the field of business valuations.

d.   Prior relationship with a Tungsten director not properly disclosed affecting Mr McDermott’s impartiality: Mr McDermott adequately noted this matter in “Section 2 – Relevant matter for disclosure” in his report. It was not suggested that this statement was inaccurate or further relevant information had not been disclosed.

e.   professional standards for chartered accountants had not been complied with: Any non-compliance was minor, for example reference to the standards in the report. The report complies with the expert witness code of conduct.

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Certificate

I certify that these 4 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 11 September 2017.

Dated: 11 September 2017

Carla Cianfaglione

Associate to His Honour Judge Anderson