Milicevic & Anor v Ferrari East Pty Limited & Ors

Background

1. The disputes in these proceedings arise out of dealings between the parties in relation to the plaintiffs' interest in a joint venture that operated a group of concessions in Myer retail stores and a store in Bondi Junction that sold and rented formal wear (Myer JV).
2. In the proceedings, the plaintiffs allege, amongst other things, that on 1 October 2013 they entered into an agreement to transfer their 60% interest in the Myer JV through their holdings in the associated corporate and trust vehicles to the first defendant (Agreement) having relied on a range of misleading and deceptive representations made by the defendants. The plaintiffs claim to have suffered loss as a consequence of the misleading and deceptive conduct and seek damages calculated on a "no transaction" basis pursuant to s 236 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)) (ACL) or under the Fair Trading Act 1987 (NSW) or Australian Consumer Law and Fair Trading Act 2012 (Vic), as an alternative to a claim for damages for breach and repudiation of the Agreement (T550.34-44).
3. The defendants have brought a cross-claim in the proceedings, which is not necessary to detail for the purposes of this application.
4. Prior to the hearing, the plaintiffs served an expert report from Mr Bell (an accountant retained by the plaintiffs) that sought to calculate the alleged loss and damages suffered by the plaintiffs on the basis that the Agreement had not been made, the Myer JV continued to be operated, the first plaintiff continued to receive a management fee, the plaintiffs continued to own 60% of the Myer JV through their holdings in the corporate and trust vehicles and would receive 60% of the profits of the Myer JV. One aspect of that loss and damages calculation was the lost profits generated by stores that were part of the Myer JV as at 1 October 2013 (Myer JV lost profits), in respect of which Mr Bell was asked to assume that the plaintiffs would have continued to draw 60%.
5. In accordance with the Court's directions, Ms Michelle Jennings-Jones (an expert retained by the defendants) provided an expert report in reply, Mr Bell served a responsive report, and the experts met and prepared a joint report.
6. The joint report identified some areas of disagreement between the experts in relation to the methodology for calculating the Myer JV lost profits, such as the approach to the treatment of wage costs, sales figures and capital expenditure. According to the joint report, Mr Bell calculated the plaintiffs' 60% share of the Myer JV lost profits (before interest) to be $412,503, whereas Ms Jennings-Jones calculated them as nil.
7. The hearing of the proceedings took place over six days and was completed on 8 March 2022.
8. The experts gave evidence in a joint session on the second last day of the hearing. During the cross-examination of Mr Bell, it became apparent that his calculation of the Myer JV lost profits (and those in the joint report) included historical data associated with a formal wear store in Clarence Street that was not part of the Myer JV and should not have been included in his calculations (T435.22 - T436.33). Mr Bell gave evidence that he considered he would be able to remove the data relating to the Clarence Street store and re-calculate the Myer JV lost profits (T436.49 - T439.7). After the joint expert session, plaintiffs' counsel foreshadowed an application to adduce further evidence from Mr Bell to deal with the issue.
9. The following morning, the Court observed that it appeared from the experts' reports that Mr Bell had also included sales amounts, as an input in his Myer JV lost profits calculation, relating to a formal wear store in Roselands that was not part of the Myer JV (T500.7-15).
10. At the time, plaintiffs' counsel sought leave to file further expert evidence from Mr Bell to deal with both of these issues, relying on Mr Bell's evidence that it involved a re-calculation and on the basis that the plaintiffs had not yet formally closed their case.
11. Counsel for the defendants objected to the application in those terms. He took issue with the submission that the plaintiffs' case had not yet closed and said that the defendants could not accede to an application in circumstances where Ms Jennings-Jones had not been asked about the issues raised and they did not know whether the exercise merely involved a "re-calculation" of the numbers. I accepted that submission and indicated that I would not grant leave in the absence of the defendants having an opportunity to consider any supplementary report from Mr Bell.
12. The hearing proceeded. The parties made oral closing submissions, including on the methodology of the quantification of damages by the experts. Judgment was reserved subject to hearing from the parties on two issues, one of which was whether the plaintiffs would make an application to adduce further expert evidence from Mr Bell. The other related to an aspect of the plaintiffs' defence to the cross-claim that has been dealt with.

The plaintiffs' application

1. By notice of motion filed on 18 March 2022, the plaintiffs seek leave to rely on a supplementary expert report of Mr Bell dated 10 March 2022 (Bell #3) and further written submissions and, to the extent necessary, leave to re-open their case.
2. In support of their application, the plaintiffs rely on an affidavit of Mr Richard Louis Mitry sworn 18 March 2022, which annexes Bell #3, and written submissions.
3. Bell #3 records that Mr Bell was instructed to produce a further report for the purpose of the proceedings which calculates the Myer JV lost profits by excluding the income and expenses of the Clarence Street store from the historical calculations for the Myer JV and the sales data from the Roselands store from the loss of profits calculation. It includes an explanation of what Mr Bell did to remove the Clarence Street and Roselands stores' income, expense and sales data and also identifies that Mr Bell approached the recalculation of the Myer JV lost profits adopting the same methodology he used in the joint report. In summary, the outcome of Mr Bell's re-calculation, as recorded in Bell #3, is, that the net present value of the plaintiffs' 60% interest in the Myer JV lost profits (before interest) is $313,319 (reduced from $412,503).
4. In addition to Bell #3, the plaintiffs seek leave to rely on short written submissions (of two pages) that address why the quantum of the Myer JV lost profits calculated in Bell #3 should be accepted by the Court.
5. The defendants oppose the application. They rely on an affidavit of Ms Katherine Beata Czoch affirmed 28 March 2022 and written submissions that were served in accordance with a timetable set by the Court.
6. Ms Czoch's affidavit annexes correspondence from Ms Jennings-Jones, in which Ms Jenning-Jones states that she would require further documents in order to express an opinion on whether the assumptions adopted by Mr Bell in his revised Myer JV lost profits calculation are reasonable, which information included the following: the FY11 MYOB Store Level PL or alternatively, the FY11 financial information for the Clarence Street store which is comparable to the FY Clarence Street information disclosed in the FY12 and FY13 MYOB Store Level PL; opening and closing stock information for each store operating at FY11, FY12, FY13 and at 30 September 2013; invoices for subcontractor costs incurring during those financial years and actual wages costs (including all on-costs for Clarence Street store for the 12 month period to 30 June 2012) and financial records supporting the amounts provided.

Consideration and determination

1. Although the plaintiffs position seems to be that leave to re-open may not be strictly necessary, their submissions and those of the defendants (who contend that leave to re-open is required) refer to the principles on which the Court proceeds in considering an application to re-open to adduce further evidence.
2. The plaintiffs' submissions refer to the summary of the principles in FYD Investments Pty Ltd v Promptair Pty Ltd [2017] FCA 1097 (FYD Investments) at [30] - [33]. The defendants cite Stevenson J's summary in Cappello v Scrivener (No 2) [2021] NSWSC 168 (Cappello) at [46]. Those cases and other authorities make clear that the overriding question is whether the interests of justice are better served by allowing or refusing the application: Cappello at [46(a)]; FYD Investments at [30]; Urban Transport Authority of NSW v Nweiser (1992) 28 NSWLR 471 at 478 (Nweiser).
3. The relevant factors to consider on an application for leave to re-open to adduce further evidence and which bear on the interests of justice include (FYD Investments at [32]): 1. the public interest (and the interest of the particular parties) in litigation being conducted efficiently and expeditiously; 2. the public interest in the finality of litigation, with the consequent expectation that litigants will present all their evidence and submissions at the one hearing; 3. the significance of the proposed new evidence and submissions in the context of the trial; 4. the explanation for the evidence not having been led at the trial; 5. the likely prejudice to the opposing party if the application is allowed; 6. the potential detriment to the applying party if the application is refused, and; 7. any delay by an applicant in seeking leave to reopen.
4. In considering whether to grant the plaintiffs' application, which would involve an exercise of the Court's powers to make directions and orders relating to evidence and the conduct of proceedings, regard must also be had to the overriding purpose of the Civil Procedure Act 2005 (NSW) (CPA) and the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to facilitate the just, quick and cheap resolution of the real issues in the proceedings (CPA, ss 56(1), 56(2); UCPR, r 2.1), the objects specified in s 57 of the CPA, which include the just determination and the timely disposal of the proceedings, and the need to seek to act in accordance with the dictates of justice: CPA, ss 57(1), 58(1)-(2).
5. Although there are no fixed rules for when leave to re-open will be granted or refused, there are four recognised, but non-exhaustive, classes of case in which leave may be granted, namely, where there is fresh evidence, an inadvertent error, a mistaken apprehension of the fact and a mistaken apprehension of the law: Cappello at [46(c)]; FYD Investments at [31]; Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 (Bradshaw) at [24].
6. The plaintiffs' submissions assert that the circumstances of this case involve fresh evidence, inadvertent error and a mistaken apprehension of the facts, although the thrust of their submission is that the need to tender and rely on Bell #3 arises from an inadvertent mistake by Mr Bell about the underlying data he was relying upon to calculate the Myer JV loss of profits. They accept that it was possible to discern the errors with Mr Bell's calculations at some point before they were revealed at trial but submit that they were unaware before then. They rely on Mr Mitry's evidence that he first became aware that Mr Bell's calculation of the Myer JV lost profits relied upon data that included figures associated with the Clarence Street store during the joint expert session on 7 March 2022 and that Mr Bell's calculation of sales (being an input in his calculation of lost profits) included sales figures from the Roseland store when the Court raised the issue on 8 March 2022. They also suggest that Ms Jennings-Jones was similarly unaware insofar as she did not raise either issue in her evidence or in the joint expert session.
7. The defendants take issue with the submission that Bell #3 is fresh evidence, contending that it could, and should, have been produced prior to trial and submit that there was no misapprehension of facts as to the case that the plaintiffs or the defendants were bringing to trial. While accepting that the test for re-opening is less stringent when judgment has been reserved but not delivered, they argue that the need to re-open arises solely from the plaintiffs' neglect and does not meet the threshold of "exceptional circumstances": Spotlight Pty Ltd v NCON Australia Ltd (2012) 46 VR 1; [2012] VSCA 232 at [17].
8. In my view, there is force to the defendants' submission that appropriate due diligence could have revealed the issues which have led to the plaintiffs' application and that their explanation for why the errors were not identified earlier is not entirely satisfactory. This is particularly as the first plaintiff's affidavit sworn 14 June 2019 listed the Myer JV stores which were part of the Myer JV Agreement at September 2013 but did not include the Clarence Street or the Roselands stores (and which affidavit was given to Mr Bell), Mr Bell's first letter of instructions asked him to consider the lost profits generated by stores which were part of the Myer JV as at 1 October 2013 but did not itself specify which stores were part of the JV, and his further instructions on 18 August 2021 seemed to imply that the Clarence Street store and Roselands store formed part of the Myer JV (see for example, the references to the "Clarence Street Myer Concession Store" and that Mr Milicevic would have agreed to the JV funding expenditure in relation to Myer Roselands).
9. That said, the circumstances in which the issues arose and the evidence from Mr Mitry satisfies me that this application is more properly characterised as one arising from an inadvertent error and oversight (most likely on the part of the plaintiffs' expert and legal representatives) as to the nature of the data relied upon and is not one that involved a deliberate or tactical decision by the plaintiffs not to call the evidence now sought to be led or to conduct their case on a particular basis from which they now seek to resile: Smith v New South Wales Bar Association (1992) 176 CLR 256; [1992] HCA 36 at 266-267; Nweiser at 475-6; Bradshaw at [28].
10. While acknowledging that discipline ought to attend in the conduct of commercial litigation and the data errors could and should have been identified earlier, I am persuaded that I should grant leave to the plaintiffs to permit them to tender and rely on Bell #3 and their further written submissions.
11. The matters which Bell #3 seeks to address relate to important, albeit confined, aspects of the plaintiffs' damages calculations. As the plaintiffs submit, in the absence of leave being granted, the Court may be left in the position where it is unable to determine damages even though it otherwise finds for the plaintiffs on liability and accepts Mr Bell's lost profits methodology over that of Ms Jennings-Jones. I do not think that justice would be served by shutting out the plaintiffs from relying on Bell #3, especially as the errors were not identified in Ms Jennings-Jones' evidence, are of a more mechanical nature and go to the issue of the calculation of the quantum of damages only.
12. As to the defendants' contention that the relevance and probative value of Bell #3's are reduced by limitations inherent in Mr Bell's approach to his damages calculation methodology, I note that detailed submissions have been made by the parties in support of the competing positions adopted by their respective experts on the proper approach to calculating damages. My decision on this application should not be taken as signifying any view on the probative value of Bell #3 or the ultimate outcomes on the issue of damages but simply as a recognition that the evidence is relevant and of importance to the plaintiffs' case.
13. While I am conscious of the public interest in the finality of litigation and the need to manage the proceedings expeditiously and efficiently, in my view, it is significant that the defendants have been on notice since the hearing that an application of this nature (with accompanying reasons) would be made by the plaintiffs. Judgment was reserved on that express basis and the plaintiffs' motion was brought promptly before delivery of judgment.
14. Relevantly, the boundaries of the re-opened evidence will be confined: cf Spotlight at [18]. In essence, the evidence which the plaintiffs wish to adduce is an expert report in respect of the same damages claim that was advanced at the hearing except the quantum is now lower as a result of the exclusion of certain data. Bell #3 relies on documents that the defendants have already had an opportunity to consider and is in a similar form to the previous reports reviewed by Ms Jennings-Jones.
15. I accept that granting leave to adduce Bell #3 will necessarily lead to further steps in the proceedings and some prejudice to the defendants by way of delay and the incurring of additional costs. While delay and increased costs are undesirable, not only for the parties but also for other litigants (Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at 5, 98 - 99 and 111 - 114), a costs order may help to mitigate that prejudice.
16. As is appropriate, the orders proposed by the plaintiffs provide the defendants with an opportunity to file and tender an expert report in response to Bell #3 and further written submissions in response to the plaintiffs' supplementary submissions if they wish to do so.
17. As noted above, Ms Czoch's affidavit refers to Ms Jennings-Jones email about the further documents required for her to express an opinion on whether the assumptions adopted by Mr Bell are reasonable. The defendants' submissions also refer to the need to issue subpoenas to the first plaintiff and Sales Momentum in relation to MYOB accounts and the possibility of further cross-examination and a concurrent evidence session.
18. I do not propose to make any directions for the service of subpoenas or the production of documents at this stage. The plaintiffs have not commented on that aspect of the defendants' submissions and it is not clear to me from the defendants' materials which of the assumptions that Mr Bell adopted Ms Jennings-Jones is referring to, how the documents identified by her and to be sought on subpoena arise from the re-calculations undertaken in Bell #3, and why they are necessary to test Mr Bell's assumptions and to provide a report in response when they were not sought by her previously.
19. Accordingly, I will grant leave to the plaintiffs to re-open to tender and rely on Bell #3 and their supplementary written submissions and make orders for the filing and service of a further report and further written submissions in reply by the defendants within 28 days. To the extent that the parties consider that further directions are necessary and such directions cannot be agreed, they will have liberty to apply to my chambers and, if necessary, a short directions hearing can be held.
20. I have also deferred making any costs order to allow the parties an opportunity to make submissions on that issue if they cannot agree on the orders to be made. I only note that, as the plaintiffs have been granted what might be considered to be an indulgence, my preliminary view is that they should pay the defendants costs of the notice of motion as well as any costs thrown away by reason of their application for leave to re-open.
21. For these reasons, I make the following orders and directions: 1. The plaintiffs be given leave to re-open their case to: 1. file and tender the Supplementary Expert Report of Alex Bell of 10 March 2022 (Bell #3), which is Annexure B to the Affidavit of Richard Louis Mitry of 18 March 2022 (RLM); and 2. file and rely upon the further written closing submissions referring to Bell #3, which is Annexure D to RLM. 1. The defendants be given leave to: 1. file and tender an expert report in response to Bell #3; and 2. file and rely upon further written closing submissions of no more than 3 pages in response to the plaintiffs' submissions referred to in Order 1(b), by 10 June 2022. 1. The parties to file and serve by 20 May 2022 short written submissions on the costs order be made as a consequence of granting leave to re-open. 2. Grant liberty to the parties to approach the Associate to Henry J in the event that the parties consider that further directions are necessary.

Amendments 13 May 2022 - 13/5/2022 - removed "(c)" from 40 before "by 10 June 2022" 16 May 2022 - 16/5/2022 - changed [38] from "of further written submissions by" to "of a further report and further written submissions by" 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: 16 May 2022