The evidence issue
48The appellant's submission, that the respondent bore the onus of proving its damages, was, of course, correct. However, the sufficiency of the evidence to substantiate a matter upon which a party bears an onus is a question for the trial judge. If the trial judge is satisfied that, on the whole of the evidence, there is sufficient evidence to establish the case upon which a party bears the onus, it does not matter that some of that party's evidence is rejected or is in some way unsatisfactory.
49The trial judge awarded damages on the basis of forecast revenue less expenses incurred in performing the contract that in fact diminished as a result of the termination: see judgment at [41] and [58]-[60]. The forecast revenue aspect of the calculation was based upon the revenue earned by the security firm that had replaced the respondent.
50The appellant contended that his Honour did not deduct any portion of overhead expenses in his assessment of damages. The appellant submitted this was an error and contended there was no evidence of any loss by way of overhead expenses, as the respondent had claimed. The appellant submitted that at most the evidence indicated that overhead expenses generally continued to be incurred in the post-breach period. However, it contended that the respondent had not quantified those expenses and had not specified any portion that had reduced as a result of the breach of contract. The appellant also submitted that the respondent's claim for damages had not been properly proved because it had not adduced any evidence of revenue it had earned in the period for which it claimed damages.
51The appellant further submitted that the respondent should not have been permitted to rely upon the evidence it had adduced to quantify loss. This submission addressed the status of Exhs JM-1, JM-2 and JM-3 and the construction of the Evidence Act, s 146 and its application to that material. I propose to deal with that issue first as it involved a significant portion of the attack on the trial judge's assessment of damages. Before doing so, it is necessary to understand the source and derivation of Exhs JM-1 and JM-3.
52Mr Merhi, the respondent's principal, gave evidence as to how the respondent maintained its records and how each of Exhs JM-1 and JM-3 was derived. Exhibit JM-2 comprised the respondent's primary accounting records for its entire business. Exhibits JM-1 and JM-3 were each derived by Mr Merhi from Exh JM-2. Exhibit JM-1 comprised the accounting data Mr Merhi contended was relevant to the performance of the contracts together with a summary of that material. Exhibit JM-3 was prepared by the respondent to relieve the appellant from undertaking the burdensome task of accessing the material in Exh JM-2.
53Exhibit JM-3 in fact reflected a compromise reached by the parties at trial. This was explained to the trial judge by senior counsel for the appellant as follows:
"In the lead up to the case coming on for trial my instructing solicitors indicated to my learned friends that there was going to be an objection to JM2 being relied on because we didn't have any of the material underlying, we just had this compact disc ...
... in the result a motion was filed seeking an order under s 50 of the Evidence Act, allowing the summary [JM-1] to be relied upon. That motion was ultimately dismissed but then there was an accommodation reached that dealt with this and that resulted in a separate intermediate bundle of documents which became JM3 to a later affidavit.
...The compromise was to provide this JM3 which provided the intermediate report detail standing between JM1 and JM2, so that you had the raw data, a set of reports generated to a certain level of detail and then JM1 which was the greater degree of detail and it was JM3, this intermediate level of detail, that facilitated the cross-examination of Mr Merhi, because it was the means by which we had some capacity to test the data."
54The appellant's argument as to the proper application of s 146(2) was advanced on the basis that the section applied to the material in Exhs JM-1 and JM-3.
55The Evidence Act, s 146 provides:
"146Evidence produced by processes, machines and other devices
(1)This section applies to a document or thing:
(a)that is produced wholly or partly by a device or process, and
(b)that is tendered by a party who asserts that, in producing the document or thing, the device or process has produced a particular outcome.
(2)If it is reasonably open to find that the device or process is one that, or is of a kind that, if properly used, ordinarily produces that outcome, it is presumed (unless evidence sufficient to raise doubt about the presumption is adduced) that, in producing the document or thing on the occasion in question, the device or process produced that outcome."
56The s 146 question was dealt with by the trial judge in his answer to the first of the separate questions answered in his judgment: [2010] NSWSC 52 (see at [12] above). His Honour concluded, at [48], that there had not been evidence sufficient to raise doubt about the presumption within the meaning of s 146(2), because the underlying evidence, that is, in JM-2, was reliable.
57The appellant submitted that in reaching this conclusion, the trial judge failed to recognise the essential difference between Exh JM-2 on the one hand and Exhs JM-1 and JM-3 on the other. Exhibit JM-2 contained many thousands of contemporaneously recorded entries in the respondent's business records across the entirety of the respondent's business, which included business activities unassociated with the contracts with the appellant. The appellant accepted that the contents of Exh JM-2 thereby qualified as a business record.
58However, the appellant submitted that Exhs JM-1 and JM-3 were not business records, as they had been prepared for the purposes of the litigation: see the Evidence Act, s 69(3)(a). The appellant accepted that these two exhibits could have been relied upon as secondary hearsay evidence had s 146 applied. It contended, however, that their content was sufficiently attended by doubt that the presumption in s 146(2) did not operate. This submission was directed to the unreliability of the underlying entries in Exh JM-2. As I explain below, s 146(2) is not directed to the content of the produced material. However, it is appropriate to deal with the appellant's submissions, should I be wrong in that construction of the section.
59The appellant submitted that the evidence required to raise a doubt about a presumption fell well below the concept of "contrary proof" necessary to displace a presumption. The appellant referred to the following provisions of the Evidence Act as examples where contrary proof was required: see the Evidence Act, ss 13(6), 61(3), 148, 150(1)(f) and (2), 150(3), 152, 153, 154 and 156(1). These sections all contain a presumption, "unless the contrary is proved". For example, s 13(6) provides, "[i]t is presumed, unless the contrary is proved, that a person is not incompetent because of this section". Section 146(2) only requires the raising of a doubt. The appellant submitted that where there were clear indications that the input material was infected with error in a way which affected the output, sufficient doubt was raised to displace the presumption in s 146(2).
60The language of a provision such as s 13(6) differs in a material way from the language of s 146(2). A provision such as s 13(6) requires the court to act on the basis that the presumption is the fact unless the contrary is proved. The 'contrary' fact must be proved on the appropriate civil standard. Section 146 operates differently. It does not declare the presumed fact to be the fact. Rather, the Court first needs to be satisfied, viz "[i]f it is reasonably open to find" that the device is of a certain kind and performs a certain function before the presumption operates. The presumption will not arise if there is evidence that raises a doubt about the presumption. Evidence that raises 'a doubt' does not need to be of the same quality or of the same probative strength as evidence that is required to satisfy the civil standard. See Deputy Commissioner of Taxation, in the matter of ABW Design & Construction Pty Ltd v ABW Design and Construction Pty Ltd [2012] FCA 346 where the application of the phrase "unless evidence sufficient to raise doubt about the presumption is adduced" in the Evidence Act 1995 (Cth), s 160 is discussed. See also Kyogle Shire Council v Muli Muli Local Aboriginal Land Council [2005] NSWCA 4; 62 NSWLR 361, where a similar phrase in the Interpretation Act 1987, s 76(1) was applied.
61It follows that I agree with the appellant's submission that the evidence necessary to raise a doubt about the presumption in s 146(2) is of a different quality to that required for the purpose of a provision such as s 13(6). However, in my opinion, the appellant's challenge to his Honour's decision misapprehended the nature and application of s 146(2).
62The appellant's submissions were directed to the accuracy of the underlying information in Exh JM-2, rather than to the mechanical process to which the s 146(2) presumption applies. The appellant acknowledged that if the "outcome" referred to in s 146 was confined to the production of a piece of paper, being a document summarising the underlying material, its submission failed.
63Section 146 is directed to evidence produced by the application of a mechanical or technological process. Photocopied documents, computer generated material and material generated from data stored in a computer are typical examples. Section 146(2) is not directed to the underlying accuracy of the information contained in a document or record that is produced in this way. For example, s 146(2) has nothing to say about the accuracy of a statement in a photocopied document that $AUD100 was worth $US96. Rather, s 146(2) is a means whereby, on this example, a photocopy of a document containing such information may be received into evidence. It follows that, in my opinion, the appellant's s 146(2) submission fails.
64His Honour found, alternatively, that the respondent had in any event discharged its onus of proving loss by adequate and reliable evidence. In making this finding, his Honour, at [71], gave weight to his findings in [2008] NSWSC 413, at [55]-[57], in which his Honour considered that Mr Merhi had presented as "a quiet and careful witness who had a reasonable recollection of the events which had occurred" and that the attack on Mr Merhi's credit had been "considerably overdone". See also [2008] NSWSC 413 at 49 and 49. His Honour also found, in his judgment in [2010] NSWSC 52, at [44], that Mr Merhi's evidence, subject to certain qualifications made by him, "may be regarded as an accurate rendition of the manner in which [Exhs JM-1 and JM-3] came into existence". His Honour, at [45], observed that his evidence, particularly in re-examination, was "impressive in its detail" and "generally answered" and qualified the matters that had arisen in cross-examination.
65His Honour, at [46], found that Mr Merhi's evidence was sufficient to show that the records, that is, those comprised in Exh JM-2, were the respondent's business records. His Honour found that the effect of the cross-examination in respect of those records confirmed, rather than undermined, their general adequacy and reliability. His Honour considered that in those circumstances, there was no need for any reliance upon any presumption, whether pursuant to s 146 or otherwise. The respondent relied upon this finding in its notice of contention.
66His Honour, at [47], then made the following specific findings:
"i.[The respondent] was clearly not a huge concern and Mr Merhi was its principal. His knowledge of its affairs was plainly extensive.
ii.To the extent to which he gave evidence (as he did in the various affidavit paragraphs referred to above) of the fact that various documents reflected the state of various aspects of the company's affairs, then that was direct evidence of those matters, not merely evidence that a computer had generated certain results, at least to the extent to which the Court infers [as I do from the materials before the Court] that he had knowledge of the facts in question.
iii.I further accept that it is not necessary to take matters that far. The simple finding is that it was generally appropriate to rely upon [the respondent's] records, as extracted by Mr Merhi, [except of course to the extent to which he qualified his evidence]."
67These findings were imported into his Honour's judgment in the present matter: see at [71] viz:
"I also carefully considered the explanation given by Mr Merhi as to how these figures were derived. His explanation for these estimates was more than reasonable."
68Although the appellant's challenge to his Honour's conclusion that the respondent had adduced evidence, or sufficient evidence, to prove its damages claim essentially focused upon the alleged unavailability of the s 146(2) presumption, I consider that the Court should determine the matter on the basis that there was a direct challenge to the sufficiency of the evidence. The appellant's submissions insofar as they challenge his Honour's findings as to the sufficiency of the evidence may be summarised as follows:
(1)Exhs JM-1 and JM-3 had been generated specifically for the purposes of the litigation. They related to the period in which the contracts were performed (the performance period). The appellant pointed out that the respondent had used a set of lay calculations (that is, Mr Merhi's calculations) to calculate the daily gross profit from that data. There was no expert evidence before his Honour as to the respondent's claimed loss.
(2)There was no evidence of any actual loss incurred in the post-termination period. The respondent had merely projected the calculation referred to in (1) into the post-termination period as though the contract had been performed. In doing so, the respondent failed to refer to any records of actual revenue or expenses for the post-termination period. At most, the evidence indicated that overheads generally continued to be incurred in the post-termination period.
(3)As to the performance period data generally:
(a)there were virtually no primary records;
(b)there was no independent or expert evidence in relation to such primary records as there was in evidence.
(4)The evidence at trial established that the electronic records had not been honestly or accurately kept. Accordingly, the reports generated for trial (Exhs JM-1 and JM-3) did not reflect expenses that had been omitted from the computer records or had been wrongly entered. Exhibits JM-1 and JM-3 could not, therefore, be relied upon as evidence of the appellant's loss. The following particular matters were emphasised as demonstrating the inaccuracy and falsity of the respondent's electronic records:
(a)in the case of security guards named Hamilton and Wright, work by one man was falsely ascribed to another;
(b)entries were recorded in the name of "Elite School of Singing" as general marketing expenses for the appellant when they were really security guard payments and thus were not recorded as a wages expense for a specific venue of the appellant;
(c)entries were not properly coded and therefore not reported upon as expenses directly incurred on the contract with the appellant. For example:
(i)Exh JM-1 showed that travel expenses for the Seagulls club at Tweed Heads incurred by Mr Merhi were left out, resulting in an understatement of those expenses by some 40 per cent;
(ii)Exh JM-2 showed that a bonus paid to the security guard Hamilton was recorded as a general expense and GST was charged, rather than as a wages expense.
69The appellant submitted that the respondent had not adduced evidence that these examples of false and incorrect data entry and incorrect expense coding were isolated or unique occurrences. Notwithstanding the trial judge's finding as to Mr Merhi's evidence in re-examination, only some understatements of wages were explained. The appellant, in particular, contended that the discrepancies particularised above had not been explained. The appellant submitted that this gave rise to sufficient doubt as to the accuracy of the records, so that the onus remained upon the respondent to prove the accuracy of all of the financial material it relied upon to prove its damages claim. The appellant contended that the respondent had not done so.
70The appellant then encapsulated its argument in two central propositions. First, that at all times, the respondent had the onus of establishing its damages claim. Secondly, that the appellant had sufficiently demonstrated that the respondent's underlying records were unreliable, and on occasions false. Although the second submission, as argued, was directed to the operation of the s 146(2) presumption, it was integral to the appellant's argument generally that the unreliability of its records was such that the respondent had not discharged its onus of proving its damages claim.
71To the extent that there was any argument remaining as to the admissibility of Exhs JM-1 and JM-3, the appellant did not press that argument in its oral reply. However, the basis of the admission of Exhs JM-1 and JM-3, over and above the compromise reached as to their use (see at [53] above), remained in issue in the argument on the appeal and thus needs to be understood. Notwithstanding the compromise, the appellant maintained an objection to Exhs JM-1 and JM-3 on the basis that the material in those exhibits was opinion evidence and therefore inadmissible as the exhibits were not expert reports. In response to that objection, the respondent informed the trial judge that it did not seek to rely upon the exhibits on the basis that they provided evidence in respect of applicable accounting standards or principles. Rather, they were relied upon as evidence of calculations that Mr Merhi had performed.
72Given that explanation and undertaking upon which the trial then proceeded, the question for his Honour, therefore, was whether that evidence was sufficient to prove the respondent's damages, having regard to the principles that he had determined applied to the respondent's claim.
73As I have indicated, there was a significant challenge in the cross-examination of Mr Merhi as to the accuracy of the material in Exhs JM-1 and JM-3. Not only did Mr Merhi reject those challenges, he was re-examined to confirm that expenses such as CEO expenses and rent did not result in any saving or reductions to the respondent, but continued after the contracts had been terminated. The cross-examination in relation to rent provides a neat example of the rationale behind the respondent's claim for the whole of these expenses:
"Q.You will see a little further down there is an item there of rent for $82,326.50?
A.Yes.
Q.Rent has not been brought into account at all in any of your expenses calculations?
A.That is correct.
Q.That's an overall expense for running your business?
A.Yes.
Q.And I suggest that should have been apportioned according to the share of the business that these two contracts represented?
A.And again I disagree on the basis that we continued to pay rent after the Norths business disappeared, so to speak and we weren't able to sever part of the office. We had a lease that we were bound by as a consequence of that."
74The trial judge clearly accepted this evidence as he accepted the respondent's essential contention that overheads did not abate as a result of the loss of the appellant's business and therefore were not to be deducted.
75The respondent acknowledged that some errors in the primary documents had been identified, but submitted that in the overall context they were de minimus and not sufficient to destroy the overall reliability of the accounting evidence. The respondent submitted that, save for the few minor exceptions exposed in the cross-examination, its records were detailed and meticulously kept.
76In my opinion, the challenge based upon the unreliability and inaccuracy of the respondent's records should be rejected. Whilst some inaccuracies were identified in cross-examination, his Honour was entitled to conclude that they were not of sufficient size or volume to throw sufficient doubt upon the overall accuracy of the respondent's financial records, such that they were inadequate to prove the respondent's claim.
77The appellant also complained that the respondent failed to adduce any expert evidence. This complaint was directed to the sufficiency of the respondent's evidence on the damages claim. In my opinion, it was not necessary for the respondent to adduce expert evidence to prove its loss. As I have said, the sufficiency of evidence is a matter for the trial judge. Although the appellant challenged his Honour's determination of the principles that applied to the assessment of damages in a case of breach of contract, it did not contend that his Honour required expert evidence to determine that question. Indeed, the appellant did not call expert evidence to support its contention as to the correct approach to the assessment of damages in a case such as this.
78The respondent was required to do no more and no less than adduce evidence of its loss to be assessed in accordance with the applicable legal principles. This was an accounting exercise. His Honour was satisfied that Mr Merhi had a detailed understanding of the respondent's finances and that the data he had prepared sufficiently demonstrated its losses. That finding was open to his Honour. I would reject the complaint that there was a fatal deficiency in the respondent's evidence because the financial data had not been collated by an expert accountant.
79The appellant also complained that the respondent had failed to adduce any evidence as to whether it had earned revenue in the post-termination period. In this regard, the appellant contended that it was not sufficient for the respondent to claim loss on the basis of the revenue it had lost in the post termination period as a result of the appellant's breach of contract, without bringing to account any replacement revenue it had earned in this period.
80In my opinion, this submission failed to engage with the way the appellant had run its case at trial. If the appellant wished to contend that the respondent should have mitigated its damages by earning income in the post-termination period by way of replacement income for that lost as a result of the breach of the contracts, it should have pleaded that the respondent failed to mitigate its loss. It did not do so. Nor did the appellant challenge Mr Merhi in cross-examination that there had in fact been such replacement income, or that there had been any opportunity to earn such income. In the absence of any indication in the evidence that the respondent had earned such income and in the absence of any allegation of a failure to mitigate, I am of the opinion that this particular challenge must also fail.
81In my opinion, the appellant's submissions also failed to engage with the essential nature and extent of the claim the respondent made. This was recorded by his Honour, at [58], but bears repeating by way of conclusion. The respondent "looked at each expense individually, irrespective of whether it [was] a direct cost or overhead and determined what cost was saved as a result of the loss of the [contracts with the appellant]". The appellant failed to demonstrate in its argument on the appeal that the respondent had not in fact undertaken that task in a sufficiently adequate way. In seeking to attack the judgment on the basis that his Honour should have, but failed to deduct overhead expenses in the post-termination period, the appellant did not have regard to what the respondent in fact claimed and what it had not. The appellant has not established any error in his Honour's acceptance of the respondent's evidence in relation to its loss arising from the appellant's breach of contract.
82There was a further criticism of his Honour's reasons to which I should refer. The appellant submitted that his Honour's statement, at [60], that "fixed costs should not be factored in at all" and that "variable costs ... should be included only to the extent they are saved by the breach of contract" also revealed error in his Honour's reasoning process. A statement in such apparently bald terms might seem to conflict with his Honour's earlier resolution of the principle that applied in assessing the respondent's loss. However, read in the context of the judgment as a whole, his Honour was saying no more than that costs were only to be deducted to the extent they were saved, and were not to be deducted if they were not saved. That is confirmed by his Honour's acceptance of the respondent's submissions as to the calculation of its damages (see at [58]) and his Honour's earlier reasoning at [41] and [42].
83It follows, in my opinion, that the appellant has not established error in his Honour's judgment, for the reasons I have given. Accordingly, the appeal should be dismissed with costs.
84MACFARLAN JA: I agree with the judgment of Beazley JA and add the following observations.
85The distinction between variable and fixed costs, often made in accounting contexts, is not useful in the present case where the relevant question is what costs (whether variable or fixed) were able to be saved once the innocent party (here the respondent) knew of the other party's breach. These costs could be expected to have been largely variable costs in conventional accounting terms, but may also have included some fixed costs.
86The affidavit of Mr Joseph Merhi, the respondent's Chief Executive Officer, indicated that he turned his mind to this question and gave credit in his calculations of the respondent's damages for what the respondent was able to save. He initially gave credit for some overhead expenses, such as part of his salary as CEO. However, as explained by the respondent's counsel at the hearing in this Court, Mr Merhi ultimately did not do so because it was pointed out to him that his wages still had to be paid as the respondent could not, in practical terms, have reduced his pay following the loss of the contract with the appellant. There does not appear to have been any real challenge in cross-examination to this aspect of Mr Merhi's evidence.
87If the appellant had sought to contend that the respondent could have avoided various expenses after the loss of the contract with the appellant but failed to do so, it was incumbent upon the appellant to raise and prove a defence that the respondent failed to mitigate its damages. It did not squarely raise such a defence and did not in any event establish any failure to mitigate.
88As Beazley JA has pointed out, the judgment of McHugh J in Dart Industries Inc v Décor Corporation Pty Ltd is not presently relevant. The issue in that case was what expenses were in fact incurred, looking at the position in retrospect. There was no question there, as there is in the present case, of what expenses were (or could have been) avoided following another party's breach of contract.
89As Beazley JA has also concluded, s 146 of the Evidence Act is similarly irrelevant. That section concerns the mechanical reproduction of information. Here the issue was not whether the electronic copies of the underlying records contained in Exhibit JM-2 were accurately reproduced in the summary exhibits, JM-1 and JM-3. The appellant's examples of discrepancies and anomalies in the respondent's documentary evidence were ones found in the underlying business records copied in Exhibit JM-2. For these discrepancies and anomalies to bear significance, the appellant would need to persuade the Court that they were sufficiently extensive or important to require a conclusion that the business records of the respondent were unreliable, leaving the respondent without sufficient evidence of its loss.
90When considered in the context of the voluminous transactions recorded in the business records in Exhibit JM-2, the discrepancies and anomalies were, in my view, insignificant. The appellant did not contend that it took a random (or other) sample of the business records and therein found all the identified discrepancies and anomalies. Rather, the inference should be drawn that the appellant conducted a wide-ranging examination of the respondent's extensive records and identified only the very limited number of discrepancies and anomalies referred to in Beazley JA's judgment. In these circumstances I reject the appellant's contention that the respondent's business records were shown to be unreliable and that the respondent did not prove its loss.
91WHEALY JA: I agree with Beazley JA and the orders proposed by her Honour.