Allen v Kerr & Anor

Supreme Court of NSW|2019-11-18

Judgment

HER HONOUR: This is an appeal of the decisions of her Honour Magistrate Kennedy ("the Magistrate") dated 24 May 2019 and 31 May 2019.
By summons filed 21 June 2019, the plaintiff seeks firstly, an order that it be granted leave to appeal from the judgments and orders made on 24 May 2019 and 31 May 2019; secondly, that the appeal be allowed; thirdly, an order varying the terms of the judgment by entering judgment in favour of the plaintiff for the sum of $37,473, or such other amount as is determined by the Court, plus interest; fourthly, in the event an order is made in accordance with order three, an order pursuant to rule 42.14 or 42.15A of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") varying the terms of the costs order made on 31 May 2019 by setting aside the orders that costs be assessed on the ordinary basis, and ordering that the costs be assessed on the ordinary basis up to 19 January 2018 and on an indemnity basis from 19 January 2018.
The plaintiff is BBQ Smokers Australia Pty Ltd ("BBQ Smokers"), who was the defendant in the Local Court proceedings. The defendant is Mainfreight International Pty Ltd ("Mainfreight International"), who was the plaintiff in the Local Court proceedings. BBQ Smokers relied upon two affidavits of its solicitor, Ahmad Al Sarray, dated 4 November 2019 and 15 November 2019. For ease of understanding, I shall refer to the parties by name.

Appeals generally

Section 39 of the Local Court Act 2007 (NSW) provides that a party who is dissatisfied with a judgment or order of the Local Court may appeal to the Supreme Court, but only on a question of law.
Section 41 of the Local Court Act provides that this Court may determine an appeal either (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal.
Grounds 1 to 3 of this are related, but have been framed slightly differently.

Obligation to provide sufficient reasons

The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156; Carr v Neill [1999] NSWSC 1263 and RL & D Investments Pty Ltd v Bisby [2002] NSWSC 1082; (2002) 37 MVR 479.
It has been well established that if a court fails to give sufficient reasons for its decision it constitutes an error of law: see Wang v Yamamoto [2015] NSWSC 942 ("Yamamoto"); and Jung v Son [1998] NSWCA 120 ("Jung").
In Yamamoto at [35]-[38], I stated: "[35] It is not in dispute that a Magistrate is obliged to provide adequate reasons and not to do so constitutes an error of law: see Stoker v Adecco GemvaleConstructions Pty Ltd [2004] NSWCA 449 at [41] per Santow JA. [36] In Beale v Government Insurance Office of NSW (1997) 48 NSWLR 340 Meagher JA at 422 stated: 'A failure to provide sufficient reasons can and often does lead to a real sense of grievance that a party does not know or understand why the decision was made: Re Poyser and Mills Arbitration [1964] 2 QB 467 at 478. This court has previously accepted the proposition that a judge is bound to expose his reasoning in sufficient detail to enable a losing party to understand why it lost.' [37] In Stoker, Santow JA at [41] said that 'It is sufficient if the reasons adequately reveal the basis of the decision, expressing the specific findings that are critical to the determination of the proceedings.' However, 'the extent and the content of reasons will depend upon the particular case under consideration and the matters in issue. While a judge is not obliged to spell out every detail of the process of reasoning to a finding, it is essential to expose the reasons for resolving a point critical to the contest between the parties': see Pollard v RRR Corporation Pty Limited [2009] NSWCA 110, McColl JA at [58] (with whom Ipp JA and Bryson AJA agreed). [38] In Soulemezis v Dudley (Holdings) Pty Ltd (1987) NSWLR 247, McHugh J at 281 stated: 'In a case where a right of appeal is given only in respect of a question of law, different considerations apply from the case where there is a full appeal. An ultimate finding of fact, which is not subject to appeal and which is in no way dependent upon the application of a legal standard, can be treated less elaborately than an issue involving a question of mixed fact and law. If no right of appeal is given against findings of fact, a failure to state the basis of even a crucial finding of fact, if it involves no legal standard, will only constitute an error of law if the failure can be characterised as a breach of the principle that justice must be seen to be done. If, for example, the only issue before a court is whether the plaintiff sustained injury by falling over, a simple finding that he fell or sustained injury would be enough if the decision simply turned on the plaintiffs credibility. But, if, in addition to the issue of credibility, other matters were relied on as going to the probability or improbability of the plaintiff's case, such a simple finding would not be enough.'"
In Jung, Stein JA stated at 9: "While a judge does not have to state reasons for every aspect of the case, his reasons must be sufficient to satisfy the requirements of Pettit v Dunkley [1971] 1 NSWLR 376. The reasons must be sufficient to enable an appellate tribunal to gain a proper understanding of the basis of the verdict. Not to do so is an error of law (Asprey JA at 382 and Moffitt JA at 388). Failure to give reasons also makes it impossible for an appellate tribunal to give effect to a plaintiff's right of appeal. Issues critical to the case, as these were, must be dealt with by reasons (Samuels JA in Mifsud v Campbell (1991) 21 NSWLR 725 at 728)."
In short, the judicial officer should make it clear what he or she is deciding, and why.
Further, where "one set of evidence is accepted over a conflicting set of significant evidence, the trial judge should set out his findings as to how he comes to accept the one over the other": Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430 at 443-444. As Campbell JA (Allsop P and McColl JA agreeing) stated in Mitchell v Cullingral Pty Ltd [2012] NSWCA 389 at [116]: "Another way in which this has been put is that the judge must engage with, or grapple or wrestle with, the cases presented by each party… This is not adequately done by setting out the evidence adduced by one side, setting out the evidence on the other side, and saying that the judge prefers one body of evidence to another…"

The Magistrate's reasons dated 24 May 2019

This appeal is limited to whether the Magistrate provided adequate reasons in relation to economic loss, particularly for loss of profit in the amount of $20,032.
Under the heading "Economic loss" at paragraphs [52] to [53] and [54] to [68], the Magistrate stated: "52. The defendant also claims losses arising from the delay in the arrival of the shipment. The first loss is the rent of the premises which were unable to be used for sales. 53. The plaintiff submits there was no firm start-up date established on the evidence. I am not satisfied of the start-up date being much prior to the end of December. There were delays in paperwork along the way on the part of the defendant, and clearly the defendant knew it needed some flexibility in exactly when the start date would occur depending on the arrival of the goods but planned merely that it would be before Christmas. On balance I accepted that it intended to open its doors with goods prior to Christmas. … 55. In relation to the loss of profits claim, accounting experts gave concurrent evidence. The assessment of loss for a start-up business was a difficult task involving some speculation given they were making an assessment of losses to a business that had not yet commenced. The experts looked at future trading figures to determine what the profit may have been if the business had commenced before Christmas 2015. 56. Mr Manzo's evidence was relied on by the defendant as showing: a. There was $50,000 lost sales in December 2015. b. Start up costs were unrecovered. c. That the reduced cash flow reduced the defendant's ability to place more orders. d. Because of the unavailability of stock and the lost sales new stock could not be ordered and so sales in April, May and June suffered significantly. e. When a new order arrived in July 2016 sales increased significantly. f. Based on that analysis the total lost sales was $100,000. g. Having regard to the price list the lost profit was 48% or $48,000. h. The total losses calculated are as follows i. Loss of profit of $48,000 ii. Incremental costs incurred directly from delay of $15,500 iii. Repair costs of $14,336 (noted to be an error, the actual repair costs claimed are $11,425.70). 57. Mr Manzo undertook an analysis and in his first report compared the sales for 2015 with December 2016 and 2017. From the outset, those sales were after the business had been an operational business for 12-24 months. It is a difficult task that he had in trying to assess the loss to the defendant by delay. Management advised that 3 months before $15, 000 was spent on advertising. He found that December 2015 sales ought to have exceeded $34,700. I do not see how that can be the case given I do not accept there was any fixed date for commencement of the business. I have found based on the facts that it was due to start sometime in December 2015 before Christmas. He was comparing later years where the entire month of December was engaged in sales with stock. 58. Mr Manzo assessed that the delay and the loss of profits being injected into the business resulted in lost sales in December of $40,000 and a further $60,000 in April, May and June 2016. I am not persuaded by that evidence. It was a company in its infancy, it has been shown to grow in a positive direction, but to attribute to it the same value as when it first commenced cannot be made out on the evidence. 59. The stock that had been ordered amounting to $77,000 worth of stock was repaired and later available to be sold. This profit therefore remained available to the defendant. 60. Mr Manzo was a good witness, but was doing the very best with the limited information he had available to him. He recognised his limitations and was persuasive when giving evidence. 61. He analysed that the loss of immediate profit caused the defendant to be unable to order more product. This loss was reflected in profit in the months of April, May and June. I accept that he analysed this to amount to approximately $60,000 at 48% amounting to $28,800. 62. This was however based on an assumption that the whole of December would have been a profitable time for the defendant, which was not the finding. Only part of the month would have been revenue raising, and as such I made a deduction of 30%. 63. For the plaintiff, Mr Dryza's first report was based upon a number of factual conclusions which are not reflected in this judgment. It was not persuasive and I agree with the defendant's submissions in relation to the first report and I am satisfied he did not have sufficient data to perform a rigorous econometric process. 64. His supplementary report provides a clearer analysis of the loss suffered by the defendant. He applies the S curve effect in limiting early sales and a systematic approach to each and every delivery received by the defendant in the sale period being analysed. He applies a hypothetical sales approach similar to Mr Manzo however again my findings differ from the basis on which he had made allowances. I did not find him to be of great assistance in the witness box. His first report was advocating for the plaintiff and did not have an impartial appearance. This detracted from his later report. 65. Mr Dryza comes to a figure of $16,800 for gross profit foregone. He raises in that report his suspicion of the defendant's failure to nominate the start date. I approach his findings with caution. 66. In my view the loss to the defendant is found in the loss of operational funds due to an inability to order more stock. Mr Manzo provides a thorough analysis of that period which I prefer. However, Mr Manzo has based that on a decision to include the whole of December for trading. That was never guaranteed for the defendant. 67. As a result I cannot accept the profit loss is as high as Mr Manzo calculated. Doing the best I can with the material before me, I assess the defendant's loss of profit resulting from the delay to be $20,160. 68. In relation to the claim for incremental costs incurred as a consequence of delay and damage, I am not satisfied that there was evidence upon which to make that finding."
The Magistrate made the following orders at [69] to [71]: "69. The plaintiff is entitled to its payment of shipping and judgment in the sum of $37,767.18 less $23,214.12 which has already been paid result in $7,553.06. 70. The defendant/cross claimant succeeds for i. $11,425.70 being cost of repairs j. $20,160 for loss of profit; and 71. Accordingly I enter judgment for the defendant/cross claimant in the sum of $24,032.64."
The award of $11,425.70 for the cost of repairs is not subject to challenge in this appeal. This appeal is concerned only with the Magistrate's award of $20,160 for loss of profits.

BBQ Smokers' submissions

At [62], the Magistrate found that there ought to be a 30% deduction of the plaintiff's claim for lost profits for December 2015. As such, BBQ Smokers submitted that the Magistrate erred as a matter of law by awarding $20,160 for lost profits (being 70% of the claimed lost profits for April, May and June 2016), but failing to include 70% of the plaintiff's claimed lost profits for December 2015 (being $13,440). Alternatively, BBQ Smokers submitted that the Magistrate erred by failing to give adequate reasons for only awarding $6,720 for the plaintiff's claim for lost profits for April, May and June 2016, and/or assessing the plaintiff's claim for lost profits at $20,160.
BBQ Smokers submitted that in light of the finding that it was effectively entitled to 70% of the lost profits claimed for December 2015, the Magistrate provided no adequate explanation as to: 1. why, if the lost profits of $20,160 was 70% of the lost profits claimed for April, May and June 2016, no award was made for December 2015; or 2. why, if the lost profits included 70% of the lost profits claimed for December 2015, being $13,440, only $6,720 of the claimed lost profits of $28,800 was awarded.

Mainfreight International's submissions

Mainfreight International submitted that BBQ Smokers is seeking both to enlarge the quantum of the Magistrate's award for economic loss due to the shipment arriving later than anticipated, and to vary the Magistrate's costs orders.
Mainfreight International submitted that the appeal is misconceived. It seeks consideration of economic loss for the months of December 2015 and of April, May and June 2016. Mainfreight International says that any economic loss supposedly occurring in April, May and June 201 is not available to BBQ Smokers.
Mainfreight International submitted that para [61] of the Magistrate's decision speaks of loss of profit in April, May and June 2016, but that para [62] makes clear that the Magistrate was looking only at December. Paragraph [67] gives a clear indication of the Magistrate's apparent intent.
So far as the months of April, May and June 2016 are concerned, Mainfreight International submitted that the Magistrate's words at [68] are clear.
At para [70], the total allowance for economic loss is $20,160. Mainfreight International submitted that this amount is appropriately 70% of $28,800, the amount referred to in para [61].

Consideration

In the Local Court proceedings, an accountant, Mr Dryza, provided an expert's report on behalf of Mainfreight International. Another accountant, Mr Manzo, prepared an expert and supplementary expert's report on behalf of BBQ Smokers.
At [66] of her decision, the Magistrate stated that in her view, the loss to the defendant was the loss of operational funds arising out of its inability to order more stock. Her Honour said that Mr Manzo had provided a thorough analysis of the relevant period, and that she preferred his evidence.
The Magistrate set out Mr Manzo's evidence at [56] of her decision as follows: (a) there were $50,000 in lost sales in December 2015; (c) the reduced cash flow reduced the defendant's ability to place more orders; (d) because of the unavailability of stock and lost sales, new stock could not be ordered such that sales in April, May and June 2016 suffered significantly; (f) based on that analysis the total lost sales were $100,000; (g) having regard to the price list the lost profit was 48%, or $48,000; and (h) the total losses calculated are as follows: (i) loss of profit of $48,000; and (ii) incremental costs incurred directly from delay of $15,500.
At [58] of her decision, the Magistrate recorded that Mr Manzo assessed that the delay and loss of profits being injected into the business resulted in lost sales of $40,000 in December 2015, and a further loss of $60,000 in April, May and June 2016 (totalling $100,000). Her Honour then stated that she was not persuaded by that evidence. In the next sentence, her Honour gave reasons as to why she was not persuaded by that evidence, namely that the company was in its infancy, and although it had been shown to have grown in a positive direction, to attribute to it the same value as when it first commenced could not be made out on the evidence.
At [61] of her decision, the Magistrate accepted that Mr Manzo estimated BBQ Smokers' loss of profits in April, May and June 2016 to be approximately 48% of $60,000, which amounted to $28,800. However, at [59] her Honour also stated there was $77,000 worth of stock that had been repaired and was later available to be sold and profit therefore remained available to the defendant. It is my view that the Magistrate can be understood as stating that she did not accept that there were lost profits in April, May and June 2016, as there was enough stock on hand. With regards to BBQ Smokers' claim for incremental costs incurred as a consequence of delay and damages, her Honour was not satisfied that there was evidence to make that finding.
So far as the month of December 2015 was concerned, the Magistrate accepted, on balance, that BBQ Smokers was due to commence its business operations sometime in December 2015 before Christmas. Her Honour considered that the assessment of loss for a start-up business was a difficult task involving speculation on the part of the experts, who would need to make assessments of losses to a business which had yet to commence. At [57], her Honour noted that in reaching their estimations, Mr Dryza and Mr Manzo were comparing later years of the business where the entire month of December was engaged in sales with stock. Her Honour stated that Mr Manzo found that December 2015 sales ought to have exceeded $34,700. Importantly, her Honour reasoned that she did not see how that could be so, given that she did not accept that there was any fixed date for the commencement of the business. She found that based on the facts, the business was due to start sometime in December 2015 but before Christmas, and Mr Manzo was comparing later years where the entire month of December was engaged in sales with stock. At [62], the Magistrate stated that only part of the month would have been revenue raising, and as such she made a deduction of 30%. Her Honour concluded at [67] that she could not accept the profit loss was as high as Mr Manzo had calculated.
In my view, the Magistrate has provided sufficient reasons as to why she did not accept that BBQ Smokers suffered lost profits for the months of April, May and June 2016. Her reasoning was that there was still stock on hand, so there was no evidence to make that finding. As for December 2015, her Honour did not accept the expert's opinion that the sum of $40,000 or "exceed[ing] $34,700" could be attributed to the delay in receiving the stock. As such, the Magistrate had to make an assessment on the material she had, bearing in mind that the business did not operate for the whole of December 2015. As it only commenced its business operations before Christmas 2015, she reasoned that 30% should be deducted. So the Magistrate reasoned that she would assess an amount less than $34,700 and make a deduction of 30% based on the material. Her Honour considered that Mr Manzo's methodology in estimating the lost profits was flawed. Doing the best she could, she assessed the defendant's loss of profit resulting from the delay in December 2015 to be $20,160.
The Magistrate provided sufficient reasons as to why she assessed the loss of profits resulting in the shipment delay in December 2015 at $20,160 and why there were no lost profits in April, May and June 2016. There is no error of law. For these reasons, the appeal is dismissed.
BBQ Smokers raised a ground of appeal in relation to the Magistrate's decision as to costs dated 31 May 2019. This ground, which concerned indemnity costs, would only have come into play if the appeal was upheld. It has not, so it is not necessary for me to deal with it here.

Costs of this appeal

Costs are discretionary. Costs ordinarily follow the event. The plaintiff is to pay the defendant's costs on an ordinary basis.

The Court orders that: (1) The appeal is dismissed. (2) The decision of her Honour Magistrate Kennedy dated 31 May 2019 is affirmed. (3) The summons filed 21 June 2019 is dismissed. (4) The plaintiff is to pay the defendant's costs on an ordinary basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 December 2019

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Judgment (11 paragraphs)

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