Busways Blacktown Pty Ltd v Westbus Region 1 Pty Ltd

Which of CDC Australia's indirect costs are referrable to the CDC Bosnjak Businesses?

1. Mr Jackman SC, who appears with Mr Klineberg for Westbus CDC, informed me that CDC Australia and Westbus CDC have not retained primary records prior to 2010, and that the records they have retained since then are unlikely to reveal which indirect expenses incurred by CDC Australia are referrable only to the CDC Bosnjak Businesses.
2. Busways' expert, Mr Ross, opined: "The additional documents provided to me for the purposes of this report do not include the underlying accounting data for Westbus' trial balance or the underlying accounting data for CDC overhead costs that I would expect, based on my experience as an accountant, to be retained by Westbus and CDC. "
3. Mr Ross further opined that "further information…is likely to exist within Westbus and CDC's accounting system that records the underlying data from Westbus' trial balance and CDC overhead costs".
4. I am not able to make any finding about that issue. I accept the position is as Mr Jackman explained.
5. What is clear is that, on the evidence now adduced, Busways is not able to prove, by reference to the business records that have been discovered and on an item by item basis, what indirect costs incurred by CDC Australia at the relevant time were referrable to the CDC Bosnjak Businesses.
6. Messrs Jackman and Klineberg submitted that, in those circumstances: "Busways has adduced no evidence…which establishes that any of CDC Australia's indirect costs were not referable to the four Bosnjak businesses. … Busways cannot identify a single cost of CDC Australia which was incurred in respect of one of the businesses other than the former Bosnjak businesses."
7. Mr Wood, who appears with Mr Raffell and Mr O'Brien for Busways, submitted that, although an "item by item" analysis cannot be undertaken, the proportion of CDC Australia's indirect costs referrable to the CDC Bosnjak Businesses can be estimated based on the total bus numbers of the original Bosnjak business compared to the total number of buses operated (directly and indirectly) by CDC Australia each year; but excluding the buses operated by CDC Victoria (which had its own separate head office) and taxis.
8. Mr Wood submitted that the relevant proportions were as follows: Calendar year Total CDC Australia buses Bosnjak proportion (642 / Total CDC) 2007 787 (but 869 by year end) 81.58% 2008 894 71.81% 2009 1,046 61.38% 2010 1,121 57.27% 2011 1,199 53.54% 2012 1,290 49.77% 2013 1,210 52.06%

1. Applying 25.69% to those figures would result in allocation of the following percentage of CDC Australia's indirect costs to Westbus CDC: 1. 2007 - 20.96% 2. 2008 - 18.45% 3. 2009 - 15.77% 4. 2010 - 14.71% 5. 2011 - 13.75% 6. 2012 - 12.79% 7. 2013 - 13.37%.
2. In his report of 27 July 2018, Busways' expert, Mr Ross, expressed an opinion about "CDC [Australia's] reported bus numbers".
3. On 9 August 2018, Westbus CDC's solicitors wrote to Busways' solicitors stating "Westbus is content to accept [that] the bus numbers as stated in the report of Mr Ross are correct for the purposes of the hearing". That agreement was offered, and I infer accepted, to resolve a dispute about a Notice to Produce served by Busways.
4. Despite this, in an affidavit sworn a short time later, on 22 August 2018, Westbus CDC's Chief Operating Officer, Mr Jeff, deposed that "these bus numbers also include vehicles other than buses, such as cars, utes, vans and deregistered vehicles".
5. That evidence was inconsistent with the position agreed between the solicitors on 9 August 2018.
6. Understandably, in those circumstances, Mr Wood did not challenge Mr Jeff's evidence in cross-examination.
7. As the parties agreed that the case should be conducted on the basis that CDC Australia's bus numbers were as stated by Mr Ross, I propose to do the same, notwithstanding Mr Jeff's evidence.
8. For the same reason, I do not propose to take into account a submission I received from Mr Klineberg on 22 February 2019 to the effect that Mr Ross's figures were, for a number of reasons, incorrect. Mr Ross's figures were agreed between the parties to be correct for the purpose of the proceedings. Busways has conducted the proceedings on that basis. I do not propose to allow Westbus CDC to depart from that agreement.
9. In any event, the submission was put in response to my enquiry, through my Associate, as to whether it was common ground that the schedule at [14] above reflected Mr Ross's figures, less buses operated by CDC Victoria and taxis.
10. Westbus CDC's solicitor responded to that email stating that this matter was not common ground, and sought leave to make short submissions to that effect. Contrary to that indication, Mr Klineberg's submissions accepted the schedule did reflect Mr Ross's figures, but sought leave to make submissions that Mr Ross's figures were wrong; and proceeded to make submissions to that effect.
11. For the reasons I have set out, I am not prepared to entertain a submission that Mr Ross's figures were wrong. The submission should not have been made, as it is was not within the ambit of the leave I gave, was conditional on further leave being granted and proceeded on the assumption such leave would be granted.
12. Legal practitioners should bear in mind the following observations of the Court of Appeal in Bull v Lee (No 2) [2009] NSWCA 362 at [9]: "The effect of making submissions after judgment has been either delivered or reserved, that go beyond the scope of any leave that has been granted is not confined to having those submissions ignored. Counsel should understand that it is a breach of their professional responsibilities to the Court to seek to make submissions that go outside the scope of the leave that has been granted. For counsel to act in that way seeks to undermine the important principle that, save in the most exceptional circumstances, all arguments relating to an appeal should be put at the one time. It has the capacity to cause waste of the Court's time, and both waste of time and expense for counsel's opponent in deciding what to do about the submissions that have been made without leave."
13. In their written submissions, Messrs Wood, Raffell and O'Brien submitted: "[T]he proportion of indirect costs referrable to the original Bosnjak businesses in accordance with proportionate bus numbers, is broadly consistent with the trends demonstrated by Westbus' proportion of CDC Australia's revenue and its proportion of kilometres travelled in NSW. Those trends indicate that CDC Australia was expanding throughout the period, so that Westbus' (and the original Bosnjak businesses') proportion of total indirect costs incurred by CDC Australia was reducing, which is consistent with the finding at [125]-[129] of the First Judgment. During the period of the Government Contract: (a) Westbus' revenue when taken as a proportion of revenue earned by the CDC Australia Group was 17.36% in 2007, 16.68% in 2008, 12.43% in 2009, 12.56% in 2010, 11.15% in 2011, 11.19% in 2012 and 8.28% in 2013 (Fourth Ross Report at [3.4.65] CB 1.719); and (b) Westbus' kilometres (i.e. those travelled in Area 1) when taken as a proportion of the total kilometres travelled by CDC Australia's entities in NSW, is significantly less than 25.7% (being 19.4% (for second half FY 2007), 17.9% (for FY 2008), 17.3% (for FY 2009), 18.7% (for FY 2010), 17.3% (for FY 2011), 16.3% (for FY 2012) and 15.1% (for FY 2013) (First Judgment at [129])."
14. In their written submissions, Messrs Jackman and Klineberg responded: "Busways relies on changing proportions of revenue and in kilometres travelled contributed by Westbus CDC to CDC Australia over the period of the Government Contract. The reliance is misplaced. It is not in issue that CDC Australia grew. The question is what effect that growth had in relation to the allocation of CDC Australia's costs and, in particular, how that affects the identification of 'indirect costs not so referable'. The undisputed evidence of Mr Jeff to which reference is made above was that, for the various reasons he explained, the growth did not affect materially the proportion of CDC Australia's costs applicable to the four former Bosnjak businesses."
15. The evidence of Mr Jeff to which Messrs Jackman and Klineberg referred was in pars 54 to 71 of his 22 August 2018 affidavit. Much of that evidence, including the conclusion to which Messrs Jackman and Klineberg referred, was objected to and rejected.
16. Mr Jackman submitted orally that, nonetheless, a submission to the effect of Mr Jeff's rejected conclusion was available based on those parts of Mr Jeff's affidavit as was admitted.
17. I do not agree.
18. Mr Jeff said (at par 55 of this affidavit) that during the relevant period, and after acquiring the Bosnjak business, CDC Australia by itself or by subsidiaries, acquired three bus businesses (other than the businesses now operated by CDC Victoria).
19. Those businesses were Baxter's Bus Lines (acquired by Westbus Region 3 Pty Ltd), Toronto Bus Services (acquired by Hunter Valley Buses Pty Ltd, which also evidently purchased Morisset Bus Lines and Sugar Valley Coach Lines) and Deanes Bus Lines (acquired by CDC Australia itself).
20. As to the bus lines acquired by Hunter Valley Buses, Mr Jeff said (at par 69): "Hunter Valley Buses maintained its own shared services functions for scheduling, training, HR, recruitment, payroll, administration, and the like."
21. As to Deanes Bus Lines, Mr Jeff said (at par 70): "CDC Australia's only direct acquisition during the Relevant Period was of Deanes Bus Lines in Queanbeyan in September 2012. This was a small regional business comprising 97 buses which, during the Relevant Period, CDC Australia operated largely as a standalone business using the existing head office personnel of Deanes Bus Lines including accounting, HR scheduling, payroll business administration, and the like."
22. Mr Jeff said nothing about Baxter's Bus Lines.
23. I do not see how that evidence compels the conclusion, put by Messrs Jackman and Klineberg, that CDC Australia's growth "did not affect materially the proportion of CDC Australia's costs applicable to the four former Bosnjak businesses" (see submission extracted above at [28]).
24. As I pointed out at [127] of my first judgment, Mr Jeff used a comparison between Westbus CDC bus numbers and total CDC Australia bus numbers to justify an allocation of 25.7% of CDC Australia's head office costs to Westbus CDC. For the reasons I gave at [128] of that judgment, I doubted that those bus numbers provided such justification.
25. But here, the task is to ascertain the proportion of CDC Australia's indirect costs that are referrable to the CDC Bosnjak Businesses, in circumstances where Westbus CDC accepts, indeed asserts, that its primary records and those of its parent will not reveal an answer to the question. In those circumstances, my conclusion is that a comparison between Bosnjak bus numbers and those of CDC Australia overall (apart from Victoria) is likely to provide as accurate an insight into the critical question as is available.
26. Such a comparison suggests that the proportion of CDC Australia's indirect costs that are referrable to the CDC Bosnjak Business has decreased from some 20% to some 12% to 13%; the precise figures are set out above at [15].
27. As Messrs Wood, Raffell and O'Brien submitted, this is consistent with Westbus CDC's proportion of CDC Australia's revenue and travelled kilometres and points to the conclusion that the "bus comparison proxy" is one that is reasonably available.
28. My task is to determine the quantum of Busways' damages. I must do the best I can on the material available.
29. Accordingly, I propose to adopt Busways' submission.
30. I find that the proportion of the indirect costs incurred by CDC Australia referrable to the CDC Bosnjak Businesses is as set out at [15] above.

Excluded costs

1. In order that Westbus CDC's profits be calculated "on the same basis as [its] Bid Template" as required by cl 17.2(e) of the Shareholders Agreement (see [28] and [29] of my first judgment), such "indirect costs" must correspond to an item in that Bid Template.
2. As Mr Jackman and Mr Klineberg pointed out in their written submissions: "A challenge is that items in Westbus CDC's trial balance…do not correspond directly to the Bus Overhead Costs items [in the Bid Template]. The trial balance has 204 items whereas the Bus Overhead Costs has 30 items."
3. The 30 items in the Bid Template appear under the heading "Bus Overhead Costs". They represent indirect costs, being costs incurred other than directly delivering bus services; as opposed to direct expenses such as bus parts and drivers' wages.
4. The Bid Template followes a form prescribed by the NSW Government. It includes the generic categories "Admin and management on costs" and "Other". An annual figure of $384,066 was predicted for "Admin and management on costs" and an annual figure of $165,440 predicted for "Other" costs.
5. The particular question is whether bank charges, bad debts, travel and accommodation and directors' fees may be brought to account. Each of those items appear in Westbus CDC's trial balance. There are no corresponding entries, in terms, in the Bid Template.
6. Messrs Jackman and Klineberg submitted however that each of those items falls within one or both of the generic categories to which I have referred.
7. As to bank charges, Westbus CDC was treated as a costs centre within the consolidated accounts for CDC Australia. CDC Australia operated a single bank account for its NSW operations. In those circumstances I accept that bank charges fall within either of the two generic categories.
8. Bad debts are also capable of falling within either of the generic categories.
9. As to travel and accommodation, Messrs Jackman and Klineberg submitted that "if" CDC Australia personnel incurred travel and accommodation expenses in managing the Westbus CDC business (for example, in attending meetings of the Operator) those costs were incurred by CDC Australia for Westbus CDC and would fall within either of the generic categories. Assuming that it is clear from CDC Australia's records that travel and accommodation expenses were so incurred, I agree that they fall within either of the generic categories.
10. As to directors' fees, Westbus CDC did not have a separate management structure or a board of directors. Westbus CDC and the other CDC Australia subsidiaries that conducted the CDC Bosnjak Businesses were managed by CDC Australia's board. However there is an item in the Bid Template for "Shareholder/management fees". No amount was forecast as being incurred on that account. That suggests that the parties did not intend that "management fees" in the nature of "directors' fees" should be included as "Bus Overhead Costs". Accordingly, those costs should be excluded from consideration.

Final steps

1. The parties agree that these conclusions should now be made available to the experts so that they can consider the calculation of Westbus CDC's profit for the purpose of cl 17.2(e) of the Shareholders Agreement.

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: 26 February 2019