Cutting Edge Services Pty Ltd v Raymond & Therese Penfold

Supreme Court of NSW|2020-08-03|Before: Adams J, Mr J, Mr P

Solicitors: Baldock, Stacy and Niven (Plaintiff) Campbell Paton & Taylor (Defendants) McMahons Lawyers (Cross-Defendant) File Number(s): 2018/00033995 Publication restriction: Nil

Background

This matter is listed for a five day hearing commencing on 17 August 2020. By Notice of Motion filed on 24 July 2020, the plaintiff, Cutting Edge Services ("Cutting Edge"), seeks leave to rely on additional evidence recently served on the other parties. The application is opposed.
By way of statement of claim filed on 1 February 2018 Cutting Edge seeks damages arising from the destruction of approximately 32,865 wooden railway sleepers at a property at Barmedman, owned by the defendants, Raymond and Ruth Penfold, on 18 December 2016. The sleepers were destroyed when a fire accidentally started by Mr Penfold spread out of control. Cutting Edge alleges that the destruction of the sleepers was caused by the defendants' negligence. The defendants deny liability and, additionally, have entered a cross-claim against their insurer, the Hollard Insurance Company ("Hollard").

The plaintiff's evidence

Previous orders, made on 11 May 2018, allowed the plaintiff until 18 June 2018 to serve evidentiary statements in chief. On 29 November 2018, the plaintiff was allowed until 18 January 2019 to serve "all expert evidence on which it intends to rely". On 24 June 2019, the plaintiff was given until 22 July 2019 to serve affidavit evidence in reply.
In accordance with this as at 1 July 2020, the plaintiff's evidence comprised the following documents.
Mr Dean Brus is a director of Cutting Edge. He has sworn three affidavits, namely, on 22 June 2018, 5 November 2018 and 22 July 2019. His first affidavit relates to the tendering process for the purchase of timber railway sleepers from the NSW Country Regional network and the fact that the replacement program has now ceased. He also explains that the conclusion of the program has increased the cost of sleepers in the market. At [8] he sets out the fixed price at which the company sold sleepers from January 2015 to 2018. His affidavit also provides details of the price that the company paid for the destroyed sleepers as well as the process for storing them at Maryvale. He also gave descriptions of the attempts he made, along with the defendants and the Rural Fire Service, to recover the sleepers during the fire of 18 December 2016.
Mr Dean Brus' later affidavits respond to the factual allegations made in the affidavits filed by the defendants, particularly the affidavits of Mr Raymond Mark Penfold sworn 7 September 2018 and 14 June 2019. In particular, Mr Dean Brus denies that any of the destroyed sleepers had already been assessed according to their quality. He also provides details of the process of using his own helicopter to fight the fire at Maryvale.
Ms Janine Brus has sworn affidavits on 22 May 2018, 5 November 2018 and 22 July 2019. She is the wife of Dean Brus and the sister of Raymond Penfold (the first defendant). Her first affidavit relates to her recollection of the conversation between her husband and the defendants about storing the sleepers. Ms Brus' subsequent evidence relates to the process of storing the sleepers and scrap metal as well as the process of disposing of the sleepers after the fire.
Mr Peter Duffy swore an affidavit on 6 November 2018. He was seconded to the plaintiff from time to time to work as a plant operator and truck driver. He provides evidence about the process of stacking the sleepers and the alternative arrangements for storing some sleepers taken from the same portion of railway corridor at Access Recycling at Barmedman.
Mr Peter Brus, the son of Dean and Janine Brus and the nephew of the defendants, has sworn an affidavit dated 22 July 2019 which details the efforts made to save the sleepers from fire using their helicopter. He denies that any conversations occurred which suggested that the sleepers in the paddock had already been graded. He also states that he and his father were able to use the helicopter (when the Rural Fire Service gave permission) and an excavator.
Mr Adam Perry provided a report dated 18 January 2019. He is the director of Access Recycling, which is a business that specialises in providing materials, recovery and recycling services to the rail industry. He had graded almost 90% of the approximate two million sleepers recovered by the company. On the final page of his report he provides an opinion as to the retail price of sleepers of each grade. He also provides evidence about the estimated grade of the destroyed sleepers based on another 6,000 sleepers that were stored at Barmedman. In his opinion, the burnt sleepers would have fallen across a similar range of qualities. He gave the results of a representative sample of 600 of the 6,000 as follows: 1. AA grade 150 2. A grade 150 3. B grade 175 4. C grade 75 5. Firewood grade 50
On 27 September 2019, the parties participated in mediation. The proceedings were not resolved at mediation and, on 11 October 2019, the Court ordered that the matter be set down for a final hearing with a five day estimate commencing on 17 August 2020.

Mention on 21 July 2020

I was allocated this trial in advance and convened the Court on 21 July 2020 to ascertain whether anything needed to be done prior to the hearing. It soon became clear that there was a significant dispute between the parties as the defendants and cross-defendant had recently been served with three pieces of additional evidence filed on 1 and 2 July 2020 which they asserted significantly changed the plaintiff's case. This new evidence can be summarised as follows.
First, a fourth affidavit of Mr Dean Brus sworn 2 July 2020 was served. This includes evidence about the availability of contracts to purchase timber sleepers wholesale from the rail network. At [7] of his new affidavit, Mr Brus states that he was not aware of any opportunities since the date of the fire for the company to buy suitable railway sleepers. He also provides detail about the retail market price of sleepers as well as the costs of "grading" sleepers.
Secondly, there is now an affidavit from Mr Perry sworn 26 June 2020 in addition to his expert report dated 18 January 2019. This new affidavit addresses the current status of the rail sleeper replacement program and the availability of second-hand sleepers in the market.
Thirdly, a report by Mr Chris Katehos, a forensic accountant with the firm Furzer Crestani was served. This report includes calculations of the plaintiff's "loss of profits" by reference to the retail price of sleepers from 2017-2020 less the estimated costs and wholesale price of the sleepers.
Both the defendants and cross-defendant objected to the plaintiff being allowed to rely on this new material.
Counsel for the plaintiff submitted that this further evidence was supplementary in that it provided more detail about the availability of second-hand sleepers as replacements for the lost sleepers. The accounting report was characterised as an illustration of the "quantum of loss" because it demonstrated the profits that the plaintiff would have made had they sold the lost sleepers at the market prices in the four years after the fire.
Counsel for the defendant submitted that they would now have to investigate the cost of second-hand railways sleepers at the time of the incident, as a mitigation issue. The defendants' contended that, following the fire, the plaintiff could have acquired replacement sleepers at approximately the same wholesale price as it paid for the lost sleepers. In order to contest the plaintiff's "lost profits" argument they needed to investigate evidence about the market for sleepers at the time of the fire. Counsel for the defendant also notes that no financial statements or any documentation regarding sale or sale price for the volume of sales for these sleepers was provided in the report of Mr Katehos.
Counsel for the cross-defendant also objected to the further evidence. In support of the submission on behalf of the defendant, Mr Chen SC submitted that the evidence of the plaintiff to date had contained very limited financial material about the period before and after the acquisition of the sleepers. Furthermore, he submitted that Mr Katehos' report introduced a number of factual matters about the value of sleepers that the cross-defendant had not been prepared for. He, thus, characterised the new material as "recasting a significant portion of the plaintiff's claim".
Given the significance of the issue, I ordered the plaintiff to file a notice of motion seeking leave to rely on this new material and fixed a timetable for the filing of evidence and submissions by the parties.

Notice of motion 30 July 2020

At the hearing of the notice of motion on 30 July 2020, counsel for the plaintiff relied on the affidavit of Michael Niven sworn 24 July 2020 in addition to written submissions. Counsel for the defendant relied upon the affidavit of Mr Mason Richard Manwaring sworn 29 July 2020. Counsel for the cross-defendant relied on two affidavits of Mr Brian Francis MacMahon affirmed 20 and 29 July 2020 respectively.
The written submissions filed prior to the hearing explained each party's position as follows.
The plaintiff's position was that, as a sleeper is a chattel, the normal measure of damages was the market value of the chattel destroyed. However, these were unique chattels because, after the upgrading of the rail network, they are no longer in ready supply. As such, the plaintiff's damages were the amount that it will have to pay to buy the sleepers on the wholesale or retail market. It was submitted that there has been no substantial change to the issues in the case through the introduction of this new evidence because the availability of second-hand railway sleepers was raised by the defendants in the (unfiled) amended defence as a mitigation issue. Mr Perry's affidavit addressed the mitigation point, as it provided evidence about his knowledge of the current status of the rail sleeper replacement program. Such evidence, it was submitted, was capable of being met by a reply from Mr Kennedy, the expert retained by the cross-defendant.
The defendants' position was that they had been informed by the plaintiff in October 2018 that it would not be leading evidence about transportation, stockpile, storage and grading costs in relation to loss of profits and, thus, would not be providing documents on these issues pursuant to notices to produce served on them. As such, the defendant characterised the new evidence as "extensive, altogether new and unable to be met by the Defendants before the hearing date". In order to meet the new expert report, the plaintiff's financial records need to be provided. This has not, as yet, occurred. That is, the plaintiff has not, as yet, produced any material providing evidence of sale prices for the second-hand railway sleepers, the retail costs, the selling costs and profit. The defendant, thus, submitted that: "It is impossible for the Defendants to properly assess the profitability or otherwise of the Plaintiff's business and what, if any, profit it could have derived from the sale of the destroyed and/or damaged sleepers without the above materials and without conducting a forensic examination of the Plaintiff's financial records."
It was submitted that the assertions made in the affidavit of Mr Brus sworn 2 July 2020 about the availability of railway sleepers since the fire were new and needed to be investigated. Mr Perry's affidavit likewise raised new material in terms of his opinion about the rising value of sleepers. The defendants further submitted that there was no explanation for the delay and the non-pecuniary prejudice to the defendants if the hearing dates are vacated would be significant.
The position of the cross-defendant was that the plaintiff had changed its case. It objected in particular to the evidence contained within the forensic accountant's expert report. It was submitted that, as yet, the plaintiff had simply particularised the nature of their damages as the "estimated value of the destroyed sleepers ($872,894.40)" and the "recovery and stockpile costs thrown away ($221,838.75)". The evidence to support this had been limited, but was predominantly contained within Mr Brus' evidence about the increasing cost of sleepers and the sales prices that the plaintiff had previously obtained for sleepers. The expert report introduced new issues as: "It purports to assess not the 'estimated value' of the sleepers destroyed, including the plaintiff's apparent lost profit on their sale. The author (Mr Katehos) concludes that the plaintiff's lost between $912,965 and $933,406 in profit, due to the destruction of the sleepers: Furzer Crestani report, Schedules D and E. It seeks to do this - at least implicitly - by assessing costs to acquire and realise the sleepers and other issues such as discount rates necessary to arrive at these figures. As explained in Mr McMahon's affidavit, the report raises significant new issues - notably in circumstances where the plaintiff had expressly disavowed reliance on evidence of this kind."
At the hearing of this application, counsel for the plaintiff repeated that the accounting report was a "bookending exercise" in terms of calculating the return or value of the sleepers when if the plaintiff had sold them as planned. He further explained that the "recovery and stockpile costs" would have been the money spent to acquire replacements and this was "built into the value of the sleepers as at the date of the destruction". When dealing with the question of whether the forensic accounting report was crucial, counsel stated: "It is an unusual case in the sense that we are dealing with a large number of pieces of second-hand wood. It is not something that you need an expert to calculate how much they are worth if you have a range of values that can be as ascribed to them."
Counsel for the defendant submitted that if this new calculation of value was relied on, the defendant required further evidence as to the plaintiff's costs. This included the costs of transportation and loading of the sleepers both at the Maryvale property and then any point of sale. The defendant emphasised that when it had issued a notice to produce on the plaintiff for such information the plaintiff had indicated that it was not going to rely on evidence about the grading of the railway sleepers and the cost of transportation from storage to sites, to retailers, outlets or wholesalers. Without such evidence, the defendant submitted that it could not meet the plaintiff's evidence about "lost profits" or "value" because it did not have an accurate idea about the plaintiff's expenditure.
In terms of whether new evidence for the defendant could be gathered before the allocated hearing date, counsel for the defendant indicated this was unlikely given the time it would take for subpoenas to be issued to companies engaging in the tendering process in the different states of Australia, as well finding material about the amount of sleepers on the market in the period immediately after the fire.
Senior counsel for the cross-defendant submitted on the issues of delay and lack of explanation. On the question of prejudice it was submitted that meeting the expert evidence from Mr Perry would require Mr Kennedy to undertake further research. The cross-defendant would be prejudiced if the plaintiff was permitted to rely on the reports and opinions of Mr Perry. Counsel for the cross-defendant agreed with the defendant's submission that an adjournment was necessary for further investigations to be carried out.
In reply, counsel for the plaintiff indicated that although the plaintiff's case could be run without the forensic accounting report from Mr Katehos the report from Mr Perry was vital.

Consideration

This application required the Court to make two discretionary decisions: whether to grant leave to the plaintiff to rely upon the additional material and, if so, whether to adjourn the hearing date of 15 August 2020. Discretionary decisions of this nature are to be made in accordance with ss 56-61 of the Civil Procedure Act 2005 (NSW) ("CPA"), as well as the fundamental principles concerning case management discussed by the plurality (Gummow, Hayne, Crennan, Kiefel and Bell JJ) in Aon Risk Services Australia Ltd v The Australian National University (2009) 239 CLR 175; [2009] HCA 27.
The overriding purpose of civil litigation in New South Wales is to "facilitate the just, quick and cheap resolution of the real issues in the proceedings": s 56 of the CPA. Section 57 of the CPA provides for mandatory considerations of case management when furthering the overriding purpose of civil litigation. They are: 1. The just determination of the proceedings; 2. The efficient disposal of the business of the Court; 3. The efficient use of available judicial and administrative resources; and 4. The timely disposal of the proceedings, and all other proceedings in the Court, at a cost affordable by the respective parties.
As Allsop ACJ (as his Honour then was) put it in Hans Pet Construction Pty Limited v Cassar [2009] NSWCA 230 at [38], regard to the requirements of ss 56 and 57 is "statutorily compulsory".
Section 58 of the CPA requires the court to act in accordance with the interests of justice. It is to be accepted that the overriding purpose of the CPA will on occasion lead to potential for a decision to result in some degree of apparent injustice.
The nub of the application before me turns on whether Cutting Edge should be permitted to rely on this new evidence as to how it puts its damages case.
The general principle in an award for damages in tort is to place the plaintiff in the position they would have been in had the tort not occurred: Marks v GIO Australia Holdings Limited (1998) 196 CLR 494;[1998] HCA 69. This would usually mean that a plaintiff is entitled to the value of the property destroyed, although there is no "universal rule". If something has been destroyed (rather than damaged) then the plaintiff is entitled to the cost of replacement: Parramatta City Council v Lutz (1988) 12 NSWLR 293. The plaintiff's basic loss in the case of destruction of goods is their market value at the time and place of the loss: Electricity Trust of South Australia v O'Leary (1986) 42 SASR 2.
The complicating factor in the present case is that the plaintiff contends that old wooden sleepers can no longer be sourced cheaply by obtaining contracts with State Rail to pull them up in situ. The question then arises as to how to assess their replacement cost. The defendants claim that there were such contacts still around at the time of the fire, thus, the assessment should still be made on that basis. Whatever ultimately be the case, the question of the assessment of damages is not a straightforward one in this matter.
In this context, Cutting Edge pleaded damages as the "estimated value of the destroyed sleepers". The new material seems to suggest that its case is that this value is to be assessed either based on the replacement value or loss of profits. Although a very specific amount of $872,894.40 is pleaded in the statement of claim, the new amount set out in the Furzer Crestani report is lost profit of between $912,965 and $933,406 over a four year period. It may well be that there is little difference between these approaches, as the lost profits would be the difference between the market price and the wholesale price. The fact remains that I am satisfied that there has been a change in the way Cutting Edge brings its case relying upon new additional evidence.
Despite the fact that counsel for Cutting Edge initially described this additional evidence as "bookending" the existing evidence about the cost of replacing the sleepers, during the hearing of the motion it became clear that without the supplementary statement of Mr Perry it would be very difficult, if not impossible, for any assessment of damages to be made either way. That is, Cutting Edge would be significantly disadvantaged if it could not rely upon this additional evidence to establish its case in damages.
Counsel for the defendants and senior counsel for the cross-defendant both submitted that they would suffer prejudice as well if leave was granted to rely on this material, given the change in the way that Cutting Edge now seems to be putting its case on damages.
I have considered the claims made by the defendants and cross-defendant as to the time required to respond to this new material. I am satisfied that it is not simply a matter of getting new expert reports over the next two weeks. This is because I am satisfied that before such reports could be prepared it will be necessary to obtain additional documents from the plaintiff by way of subpoena or notices to produce to provide to any experts in order for the evidence to be met. It will then be necessary for the experts to undertake research as well. I am satisfied that this cannot take place before the hearing date of 17 August 2020.
In support of their position that leave should be refused, the defendants and the cross-defendant placed reliance on the manner in which the plaintiff has conducted the case thus far and the absence of any explanation for the late service of this additional material. I have had regard to these submissions. Hearing dates are not vacated lightly. Other litigants are waiting in the queue to get their hearings on. On both 21 and 30 July 2020, I impressed upon counsel for the defendants and cross-defendant that all efforts should be made to try and meet the evidence. At one stage, I indicated to the parties that an option would be to order them to do their best to meet the new evidence and if it truly could not be done in the time available I would vacate the hearing date of 17 August 2020 on the day. Now that I am satisfied that the evidence cannot be met in time, it is clear that such a course would only increase the costs thrown away.
The question of whether a hearing on liability alone could be heard on 17 August and the hearing on damages heard separately on a date in the future was also flagged. This course was opposed by the cross-defendant given that, on its case, there are significant credit issues pertaining to some of the plaintiff's witnesses relevant to both liability and damages such that the appropriate course is for all matters to be aired at the one hearing. There is some force in this submission.
In summary, the prejudice to Cutting Edge, should I not grant leave to rely on this additional material, is difficulty in proving its damages case. The prejudice to the other parties is both the inability to meet the evidence before the hearing date and a strong desire to maintain the hearing date. I also accept that the defendants would suffer inconvenience and stress if the hearing date was vacated.
Having regard to these competing prejudices in the context of the well-recognised case management principles I have set out above, I am satisfied that in order to do justice to all of the parties I would permit the plaintiff to rely upon this additional evidence but vacate the hearing date in order to provide the defendants and cross-defendant with an opportunity to meet it.
I have granted this indulgence to Cutting Edge despite the fact that there was no explanation for the delay. As was conceded during the hearing of the motion, the consequential orders will include an order that Cutting Edge pay the costs thrown away from the vacation of the hearing date.
When this matter came before me again on 3 August 2020 there were further submissions as to the appropriate case management orders and new hearing date. The date subsequently arrived at is almost a year away which is most unfortunate. It is apparently the first available date that is convenient to all of the parties.
Submissions were also made on 3 August 2020 as to the appropriate costs order regarding the costs of the motion. Although the plaintiff has been successful on the motion, it has also been granted a significant indulgence. Section 98(1)(a) of the CPA provides that the court has "full power to determine by whom, to whom and to what extent costs are to be paid". Among the fetters on the discretion to award costs are the rules of the court contained in Part 42 of the Uniform Civil Procedure Rules 2005 ("UCPR"). The usual rule is that costs follow the event, unless it appears to the court that some other order should be made: UCPR, r 42.1.
Counsel for the plaintiff suggested that the order should be that costs be in the cause. Alternatively, it was submitted that costs should be reserved until the final hearing so that the extent to which the defendants and cross-defendant actually obtained further evidence could be properly assessed.
Counsel for the defendant and cross-defendant submitted that the plaintiff should pay the costs of the motion because it has not in fact been successful. The motion sought orders to adduce the evidence at the hearing on 17 August 2020. That is not the effect of the orders, it was submitted, because the court ordered that that trial date was to be vacated given the late service of the material.
I have had regard to these competing submissions. It seems to me that there is a sufficient nexus between the costs thrown away and the costs of the motion such that the appropriate costs order is that the plaintiff pay the costs of the motion as well.

ORDERS

Accordingly, I make the following orders: 1. Leave be granted to the plaintiff to rely upon the following evidence at the hearing: 1. Affidavit of Dean Maxwell Brus sworn 2 July 2020; 2. Affidavit of Adam Perry sworn 26 June 2020; 3. Report of Chris Katehos dated 1 July 2020. 1. The hearing date on 17 August 2020 be vacated. 2. The plaintiff is to pay the costs of the motion and the costs thrown away from the vacation of the hearing date. 3. The plaintiff is to particularise its damages claim within 21 days, including the manner of its assessment and each way the claim is put. 4. The defendant is to amend its defence, if required, within 28 days of service of the plaintiff's further particulars as to damages. 5. The defendant and cross-defendant are to serve any evidence in reply to the evidence served by the plaintiff in July 2020 by 21 December 2020. 6. The parties are to agree upon a list of questions to be forwarded to the experts for the purposes of a joint report, with such list to be forwarded by 12 March 2021. 7. The experts in their respective areas of expertise are to confer and provide a joint report on matters agreed and disagreed setting out the reasons for their disagreement. Such conference is to take place by 26 March 2021. 8. The joint report from the experts is to be filed and served by 23 April 2021. 9. The parties are to file and serve a Final Joint Memorandum of Issues in Dispute and Agreed Facts by 21 May 2021. 10. The parties are to file and serve an affidavit as to readiness for hearing by 4 June 2021. 11. The matter be listed for directions on 11 June 2021. 12. The matter be listed for hearing on 2 August 2021. 13. Liberty to apply on 3 days' notice. The Court notes that the plaintiff has served the entirety of the evidence on which it intends to rely and it is not to serve any further evidence without leave of the Court.

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: 06 August 2020

At a glance

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Judgment (9 paragraphs)

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Legislation Cited (1)

Cases Cited (7)

Cited By (2)