Barescape Pty Ltd & Anor v Bacchus Holdings Pty Ltd & Anor

Judgment 1These proceedings are part heard before me and several lay witnesses have already given evidence and the parties have made written submissions as to liability. The proceedings are to continue before me commencing on 2 April 2012 to deal with aspects of quantification and expert evidence, which primarily relate to a Cross-Claim brought by the Defendant/Cross-Claimant, Bacchus Holdings Pty Limited as trustee for the Bacchus Holdings Trust ("Bacchus") against the Plaintiffs/Cross-Defendants, Barescape Pty Limited as trustee for the Vs Family Trust ("Barescape") and Mr Anthony Ventura. 2Bacchus seeks to tender three expert reports of an accounting expert it has retained, Mr Claude Jugmans, dated 6 July 2011, 5 August 2011 and 5 January 2012 and also seeks to read the affidavit of Mr Claude Jugmans sworn 8 August 2011. An issue has arisen as to the admissibility of those expert reports. Bacchus also seeks leave under r 31.28 of the Uniform Civil Procedure Rules 2005 (NSW) in order to read one, or possibly two, of those reports. The parties have agreed that argument as to this issue should address several wider objections to those expert reports raised by Barescape and Mr Ventura, on the basis that any specific objections to particular paragraphs of the reports could be dealt with subsequently. An issue also arises as to the admissibility of certain MYOB records of Bacchus Restaurant and Longworth House. Background to the expert reports 3I should first outline the lengthy history of the preparation of Bacchus' expert reports in the proceedings. 4On 9 November 2010, Bacchus advised the Court that it would seek to lead expert evidence in the proceedings. Hallen AsJ directed that, within fourteen days of Bacchus' expert being engaged, Bacchus provide Barescape with an index of the documents provided to the expert. In my view, this direction at least indicated the Court's expectation that Bacchus was to keep Barescape informed of the documents which it briefed to its expert. 5Orders were made by Registrar Walton on 4 February 2011 for the service of expert reports. Following delay in the service of those reports, Bergin CJ in Eq made an order on 31 March 2011 for service of a joint expert report and on 11 May 2011 extended the time for filing of that report to 20 June 2011. 6Initial expert reports were prepared by 6 July 2011 by the accounting expert retained by Bacchus, Mr Jugmans, the accounting expert retained by Barescape, Mr Vella, and a first joint report was also prepared. Mr Jugmans' first report dated 6 July 2011 sought to identify "redirected potential customers" by a process of reviewing documents which had been provided to him, so as to identify individuals who had made an inquiry concerning holding a function at the Bacchus Restaurant and were "redirected" to Longworth House, and identifying which of those customers subsequently became or did not become customers of Longworth House. In my view, those were questions of fact which were properly matters of assumption for Mr Jugmans, rather than matters for inferences to be drawn by him. The documents from which those inferences were drawn were also largely unidentified in Mr Jugmans' first report. 7On 21 July 2011, Bergin CJ in Eq directed the parties to confer and instruct their experts to confer for the purpose of providing assistance to the trial judge in respect of specified matters. 8Bacchus' solicitors provided additional material to Mr Jugmans on 28 July and 1 and 2 August 2011. A further report of Mr Jugmans was served on 5 August 2011, one day late and shortly before the commencement of the hearing. Mr Jugmans' second report dated 5 August 2011 identified several new "redirected potential customers", again by reference to documents which were largely not identified in that report. That report makes various estimates of revenue and cost per head which also appear to be at least partly matters of assumption. Mr Jugmans' third report dated 5 January 2012 indicates that the amendment made in his second report resulted from being provided with further documents and instructions. A second report of Mr Vella and a second joint report were then served. 9On the commencement of the hearing on 9 August 2011, Barescape took objection to the tender of Mr Jugmans' reports, including by reference to the principles in Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 and on the basis of a contention that Bacchus had given inadequate discovery. Bacchus contended that UCPR r 31.26 required the admission of the joint reports of experts including Mr Jugmans' reports dated 6 July 2011 and 5 August 2011 but did not provide any detailed response to the objections taken to the admissibility of Mr Jugmans' reports. 10In my judgment delivered on 11 August 2011, I held that UCPR r 31.26 did not require admission of the joint reports without regard to their admissibility under s 79 of the Evidence Act 1995 (NSW) and that, unassisted by submissions by Bacchus as to the admissibility of Mr Jugmans' reports, I would have been inclined to reject those reports by reason of a failure to disclose the steps in Mr Jugmans' reasoning between the assumptions which he made and the documents on which he relied and the conclusions which he drew. I indicated that I would also have been inclined to exclude the reports under s 135 of the Evidence Act because of the difficulties which the absence of disclosure of Mr Jugmans' reasoning process would have caused for a cross-examiner. Had Mr Jugmans' first and second reports not been supplemented by additional material in his third report to which I will refer below, I would have continued to hold that view. 11Bacchus subsequently produced a substantial quantity of additional documents on notice to produce during the hearing, including two boxes of documents which had been provided to Mr Jugmans but not previously to Barescape on 15 August 2011; a further 13 folders of documents on 5 September 2011; and a further box of documents on 8 September 2011, which had apparently been retained in a filing cabinet at the Bacchus Restaurant and not discovered. 12On 2 November 2011, I delivered judgment in an application by Bacchus to tender additional documents contained in Court Book Volume 12 and granted leave to tender that volume of documents notwithstanding that it was served shortly after the time required by directions previously made as to the service of court books. The tender of these documents is of some significance for the admissibility of Mr Jugmans' reports, since it is apparent (and I noted in that judgment) that the documents contained in the folder related to the functions listed in Appendix C to Mr Jugmans' first report, which had been considered by Mr Ventura when he received it, and which largely originated from Barescape's discovery and from documents produced by Mr Pelosi (who is involved in the management of Longworth House) on subpoena. I also granted Bacchus leave to tender a second volume of documents which had been extracted from 13 folders of documents which were also largely produced by Barescape on discovery or by Mr Pelosi on subpoena. 13Mr Jugmans subsequently prepared a third report dated 5 January 2012. That report provided a detailed specification of the information on which he had relied to prepare his first and second reports; responded to the submissions made by Barescape in respect of the admissibility of his first and second reports; and further revised the conclusions in his first and second reports. I do not consider that the process of Mr Jugmans directly responding to submissions which had been made by Counsel as to the admissibility of his first and second reports was by any means desirable, although I accept that Mr Jugmans could properly have been asked to respond to the substantive criticisms which had been made of the methodology adopted in his first and second reports. 14There is also a change of assumption as to the capacity of the Bacchus Restaurant between Mr Jugmans' second and third reports, but Bacchus points out that that change is in narrow scope, relating to the practical capacity of the restaurant for functions which are not sit down functions, and impacts only on one function which was omitted from Mr Jugmans' second report and is included in Mr Jugmans' third report. I accept that change is in narrow scope. 15Mr Jugmans' third report also made amendments to address new material received by Mr Jugmans, including the accounts of Barescape (then trading as the Bacchus Restaurant) for the year ended 30 June 2008, which were not made available by Barescape and Mr Ventura until after Mr Jugmans had prepared his first and second reports. (It is not necessary for me to express any view as to whether those accounts were discoverable, although there was some controversy as to that matter in submissions). Mr Jugmans' third report is interdependent with at least the second report, since the views expressed by Mr Jugmans in his third report are expressly made subject to the "various assumptions" set out in the second report. Whether Mr Jugmans' reports are admissible 16In my view, the difficulties with the admissibility of the first and second of Mr Jugmans' reports to which I referred in my judgment of 11 August 2011 have been remedied by the specific identification of the assumptions and documents on which Mr Jugmans relies in his third report. 17Barescape contends that Mr Jugmans has sought to determine whether there is evidence that particular functions were held at Longworth House and this is a matter outside his expertise. Bacchus responds that all that Mr Jugmans did was to make assumptions from documents provided to him as to whether or not particular functions were held at Longworth House. It may be that Bacchus' position involves something of a re-characterisation of the approach initially adopted by Mr Jugmans. Although it would have been preferable if Mr Jugmans had been provided with specific assumptions of fact, it seems to me that the matters which Mr Jugmans now identifies as drawn from identified documents can properly be treated as assumptions, which will need to be proved (as Bacchus properly accepts) by those documents or inferences which may properly be drawn from them. In my view, Barescape's position in that regard is sufficiently protected by an order made under s 136 of the Evidence Act that inferences of fact drawn by Mr Jugmans in those reports are not to be treated as evidence of the fact, but as assumptions. 18A number of other criticisms of Mr Jugmans' reports made by Barescape relate to the substance of his reasoning process and are matters which are properly to be dealt with at the substantive hearing of issues as to the Cross-Claim and quantification rather than as matters of admissibility of his reports. 19A further issue arose in respect of the tender of the first and second of Mr Jugmans' reports, because the second report amended opinions expressed in the first report and the third report amended opinions expressed in the first and second reports. I was concerned that there would be a risk of prejudice to Barescape and to the efficient conduct of the proceedings if all three reports were tendered in their entirety in circumstances where there were inconsistencies between them arising from those qualifications. I directed Bacchus to identify the materials in the first and second reports which were no longer pressed because they were superseded by later reports and Bacchus has done so. 20The basis for exclusion of Mr Jugmans' three reports to which I referred in my earlier judgment is therefore no longer established and those reports should be admitted subject to the matter which I address below. Whether Bacchus should be granted leave to rely on Mr Jugmans' second and third reports 21A second issue arising in respect of Mr Jugmans' second and third reports is whether Barescape should be granted leave to rely on those reports where they were not served in accordance with the orders of the Court requiring service of expert evidence. Mr Jugmans' second report was served only shortly after it was due, although close to the hearing date. Mr Jugmans' third report was served long after the time by which such expert reports were required to be served. 22Rule 31.28(3) of the Uniform Civil Procedure Rules provides that, except by leave of the Court or by the parties' consent, an expert's report is not admissible unless it has been served in accordance with the Rule. Rule 31.28(4) provides that leave is not to be given unless the Court is satisfied: "(a) that there are exceptional circumstances that warrant the granting of leave, or (b) that the report concerned merely updates an earlier version of a report that has been served in accordance with sub-rule (1)." 23Barescape's primary position is that each report "merely updates" its first report which was served in accordance with the Rule. The concept of an "updating" report under r 31.28(4)(b) involves a report which is capable of being regarded as supplementary to an earlier report. In my view, Mr Jugmans' second report is properly characterised as merely updating the first report where it amends the inferences which Mr Jugmans had drawn (which should, as noted above, be treated as assumptions) and the opinions expressed in his first report following the receipt of additional documents and instructions. In my view, that part of Mr Jugmans' third report which amends his valuation of the Bacchus Restaurant to take account of information which had not been made available by Barescape at the time of his earlier reports is also properly treated as merely updating the earlier reports. However, it seems to me that there is a strong argument that those parts of Mr Jugmans' third report which substantially expand the first and second reports by identifying the documents relied upon and explaining the reasoning process so as to seek to remedy issues as to the admissibility of the first and second reports cannot be treated as merely updating those earlier reports: compare Australian Securities and Investments Commission v Rich [2005] NSWSC 706. 24To the extent that Mr Jugmans' second and third reports cannot be treated as "updating" reports, I consider that "exceptional circumstances" are established that warrant the grant of leave to tender the second and third reports in the present circumstances. The concept of "exceptional circumstances" was considered in Yacoub v Pilkington (Australia) Ltd [2007] NSWCA 290 at [66]-[67] where Campbell JA observed, relevantly, that: "Another question of construction concerned "exceptional circumstances" in rule 31.18(4). In San v Rumble (No 2) [2007] NSWCA 259 at [59]-[69], I gave consideration to the expression "exceptional circumstances" in a different statutory context to the present. Without repeating that discussion in full, I shall state such of the conclusions as seem to me applicable in the construction of r 31.18(4)." (a) Exceptional circumstances are out of the ordinary course or unusual, or special, or uncommon. They need not be unique, or unprecedented, or very rare, but they cannot be circumstances that are regularly, routinely or normally encountered: R v Kelly (Edward) [2000] 1 QB 198 (at 208). (b) Exceptional circumstances can exist not only by reference to quantitative matters concerning relative frequency of occurrence, but also by reference to qualitative factors: R v Buckland [2000] 1 WLR 1262; [2000] 1 All ER 907 (at 1268; 912-913). (c) Exceptional circumstances can include a single exceptional matter, a combination of exceptional factors, or a combination of ordinary factors which, although individually of no particular significance, when taken together are seen as exceptional: Ho v Professional Services Review Committee No 295 [2007] FCA 388 (at [26]). (d) In deciding whether circumstances are exceptional within the meaning of a particular statutory provision, one must keep in mind the rationale of that particular statutory provision: R v Buckland (at 1268; 912-913). (e) Beyond these general guidelines, whether exceptional circumstances exist depends upon a careful consideration of the facts of the individual case: Awa v Independent News Auckland [1996] 2 NZLR 184 (at 186). In the context of rule 31.18(4) UCP Rules, any decision about whether there are exceptional circumstances would need to bear in mind the explicit statement of objectives of a court in the management of litigation contained in sections 56-59 Civil Procedure Act 2005." 25In State of New South Wales v Tyszyk [2008] NSWCA 107, Campbell JA quoted that passage and held that exceptional circumstances were established where the reports in issue had been cross-examined on, had been in the plaintiff's possession for a substantial time (in that case, one year), the defendant had notified an intention to tender the reports, a reasonable time for the plaintiff to take steps to deal with the tender of the reports had elapsed, and there was a lack of any identifiable prejudice to the plaintiff. 26In the present case, the factors constituting "exceptional circumstances" are not as strong as they were in State of New South Wales v Tyszyk and, in particular, Barescape and Mr Ventura have had a shorter period in which to deal with Mr Jugmans' third report. However, the factors which arise in this case are nonetheless out of the ordinary course or uncommon. Mr Jugmans' second report was served only shortly after it was due, although close to the hearing date. Mr Jugmans' second report substantially overlaps with his first report and his third report substantially overlaps with each of the prior reports, and all reports substantially overlap with the documents contained in Volume 12 of the Court Book and the documents extracted from Volumes 18-30 of the Court Book on which Bacchus relies to make good the basis of those reports. In my view, the closeness of the relationship between, on the one hand, Mr Jugmans' first report and that further evidence and, on the other, Mr Jugmans' second and third reports supports a finding that "exceptional circumstances" exist in the present case: compare Ritchie's Uniform Civil Procedure NSW at [31.28.30]. 27Mr Jugmans' third report addresses the issues as to lack of identification of documents in the first and second reports by specifically identifying those documents. That identification will not, in this case, catch Barescape or Mr Ventura by surprise. Although Mr Jugmans' first report did not identify the documents on which it relied, those documents related to specified functions which were identified in that report; they were sourced from the discovery given by Barescape or from documents produced by Mr Pelosi on subpoena in respect of the operations of Longworth House with which Mr Ventura was also involved; the documents were contained in Court Book Volume 12 and Volumes 18-30 (subsequently reduced to one volume); and Mr Ventura's evidence was that he had reviewed the schedule to Mr Jugmans' report which referred to those functions when it was first received. So far as Mr Jugmans' third report deals with questions of valuation, it seems to me that exceptional circumstances are established by reason of the fact that the 2008 accounts relating to the Bacchus Restaurant only became available to him after the preparation of his first and second reports. 28The fact that the first and second reports have been the subject of exchange of documents and discussions between the respective experts and the respective experts have in turn prepared joint experts' reports also supports a finding of "exceptional circumstances" in permitting the tender of the second report and the third report to the extent that it rectifies the admissibility issues as to the first and second reports. 29Moreover, the objections taken by Barescape and Mr Ventura to the expert reports, commencing on the first day of the hearing, establish that they are well able to deal with, and challenge, the correctness of the inferences drawn by Mr Jugmans from the relevant documents and the adequacy of his reasoning process. I do not think that there is, in reality, any substantial prejudice to Barescape arising from either the difficulties with the admissibility of the first and second reports (now remedied by the specific identification of documents in the third report) or the delays and deficiencies in discovery to which Barescape refers. To the extent such a prejudice exists, it is likely to be limited to additional costs incurred by Barescape in addressing the relevant materials, rather than in any inability to do so, and could be remedied by a special order for costs in that regard. 30Barescape contends that the Court should be slow to find exceptional circumstances given Bergin CJ in Eq's order for a joint expert report made on 31 March 2011. However, the approach adopted in Mr Jugmans' first and second reports and the corresponding joint reports appear to reflect a consensus reached between the experts that the most effective way to prepare their joint reports was for them each to prepare their separate reports and then to prepare joint reports indicating the matters on which they agreed and disagreed, and that process was in fact undertaken in respect of each of the first and second reports. Mr Jugmans' third report appears to be largely directed to addressing the admissibility issues as to his first and second reports which I had identified in my earlier judgment. It was plainly desirable that he seek to do so, although it would have been preferable if this had been completed prior to January 2012. I do not regard these matters as substantively inconsistent with the order made by Bergin CJ in Eq. 31It also appears that there have been occasions on which information has been provided to Mr Jugmans and not shared with Barescape in a manner consistent with at least the spirit of the orders made by Hallen AsJ. However, the issues in that regard have been mitigated, at least in respect of Mr Jugmans' first and second reports, by a high degree of exchange of information between the respective experts. 32Barescape and Mr Ventura also resist leave for the tender of Mr Jugmans' reports because, they contend, Bacchus' discovery was incomplete. Bacchus in turn criticises Barescape's not having made available the financial statements for the Bacchus Restaurant for the 2008 financial year, prior to the point at which they were provided to Barescape's expert accountant and by him to Mr Jugmans after the preparation of Mr Jugmans' second report. 33I dealt with a similar submission made by Barescape and Mr Ventura in opposition to Bacchus' application to tender additional documents in my judgment delivered on 2 November 2011 and noted that additional documents had been produced on subpoena and notice to produce throughout the hearing and that Barescape would have sufficient time to assess them prior to the recommencement of the trial. I also referred to a contention advanced by Barescape, and repeated in argument concerning leave to tender Mr Jugmans' reports, that it should not be required to reopen its case to deal with these matters and that its witnesses should not be subject to further cross-examination after Bacchus' witnesses had been cross-examined. I noted that any disadvantage arising from that possibility is mitigated by the fact that the documents were sought to be tendered in Bacchus' case in chief in respect of the Cross-Claim and that Barescape had the ability to call evidence in reply as of right. 34Barescape and Mr Ventura also criticise the failure by Bacchus to discover documents held by its accountants, SIDCOR, in circumstances where there appears to be a close professional relationship between Bacchus and SIDCOR and a close personal relationship between their respective principals and there also appears to have been communication between SIDCOR and Mr Jugmans in respect of the joint report. However, I do not consider that it has been established that Barescape had control of SIDCOR's documents so as to make those documents discoverable by it. The matter is also largely of historical importance, rather than a source of ongoing prejudice to Barescape, in circumstances where documents were produced by SIDCOR on subpoena during the hearing. 35I am reinforced in my view that leave should be granted for the tender of Mr Jugmans' second and third reports by the requirements of Civil Procedure Act 2005 (NSW) ss 56-58 and by the principle to which the Court of Appeal referred in Hodder Rock & Associates v Genworth Financial Mortgage Insurance [2011] NSWCA 279 that the Court will prefer to decide matters with materials before it for a proper adjudication if it is possible to do so. Tender of MYOB records for Longworth House and Bacchus Restaurant 36A further issue arose before me as to the tender of MYOB records maintained by Longworth House and contained in the material sought to be tendered by Bacchus from Volumes 18-30 of the Court Book. Evidence was led before me identifying the source of those materials and Barescape, by its Counsel Mr Wood, has properly conceded that that evidence is sufficient to establish that those records should be admitted in evidence. 37Bacchus also seeks to tender certain MYOB files for the Bacchus Restaurant. There is evidence before me which establishes how the MYOB data files for the Bacchus Restaurant were prepared. Ms Bender, who was the bookkeeper for Bacchus Restaurant, gives evidence as to the process by which she would input data and prepare an MYOB file. 38Mr Jugmans' affidavit dated 8 August 2011 indicates that he received four separate MYOB data files containing transaction data and financial information relating to the accounts of the Bacchus Restaurant. Mr Jugmans received "version 1" of the MYOB data files from Bacchus' solicitors on or about 1 February 2011 containing financial information for the period June 2009-June 2010. Mr Jugmans received "version 2" of the MYOB data files from the expert accountant retained for Barescape, Mr Vella, on or about 22 June 2011 which contained information for the period July 2009-April 2011 which was not exactly the same as that which he had received in February 2011 and Mr Vella and Mr Jugmans agreed that they would work from that data in preparing their respective reports. Mr Woods, an accountant employed by SIDCOR has given evidence as to the steps taken in preparing the financial reports for the Bacchus Holdings Trust. Mr Woods has also confirmed that he provided Bacchus' solicitors with a compact disc containing the "version 1" MYOB files and the "version 2" MYOB files, although (as noted above) it appears that Mr Jugmans received that version of the MYOB files from Mr Vella. 39Mr Jugmans was then, at his request, provided with updated MYOB data files ("version 3") by Bacchus' solicitors on or about 27 June 2011 containing financial information for the period from July 2009-April 2011. He received "version 4" of the MYOB data files from SIDCOR on 26 July 2011. Mr Jugmans' evidence is that the financial information in "version 4" for the year ended 30 June 2010 appeared to be incomplete and that he and Mr Vella agreed not to use the data for the year ended 30 June 2010 from that source but to use the data for the year ended 30 June 2011 from that source. Mr Michael Hart, who is also employed at SIDCOR, has given evidence that "version 4" of the MYOB data for Bacchus Restaurant corresponds to that which he provided to Mr Jugmans on 26 July 2011. 40Mr Jugmans' evidence is that the depreciation figures differ materially between the first three sets of MYOB data files he received. However, he notes that depreciation is not relevant to the assessment of the losses claimed by Bacchus in these proceedings and has not affected his ability to form opinions on those matters. Mr Ventura has also led evidence of some differences in the information contained in versions of the MYOB data. I reviewed the authorities dealing with the question of authenticity of documents in my earlier judgment delivered on 2 November 2011, and noted the helpful summary of the position by Austin J in Australian Securities and Investments Commission v Rich [2005] NSWSC 417 (2005) 216 ALR 320 at [116]-[119]. To the extent that there are issues as to discrepancies in the information contained in the various versions of the MYOB records, they do not raise questions of authenticity going to the adducing of evidence, but matters going to the weight of the evidence. I consider that it has been established that the MYOB records of the Bacchus Restaurant and Longworth House respectively are business records which are admissible under s 69 of the Evidence Act. 41Accordingly: Bacchus should be permitted to tender the MYOB discs relating to Longworth House and Bacchus Restaurant which are respectively contained behind tabs 5 and 11 of its composite folder prepared from Volumes 18-30 of the Court Book. I grant leave to Bacchus to tender the identified parts of the three reports of Mr Jugmans, but reserving any specific objections to the admissibility of any specific paragraphs of those reports.