Wingecarribee Shire Council v Lehman Brothers Australia Ltd

The amendment and reopening application 4 The Councils sought an order today that they be entitled to reopen, and, if need be, amend their statement of claim to add the following particular of loss to paragraph 27, in which their damages were claimed, namely: "… the loss of opportunity to earn interest on investments [that] would have been undertaken in lieu of the Dante notes." 5 Grange opposed the amendment and the attempt of the Councils to reopen and lead evidence on it. The Councils argued that if Grange is permitted to reopen so as to adduce evidence of the value of the settlement of the Dante notes in the Councils' hands, then they should have the right to lead evidence of their losses of payment of the interest, or coupons, from variously, June 2008 and September 2008, when those notes ceased to pay interest. The Councils argued that given that Grange seeks to rely on what has actually now occurred in respect of the Dante notes, as well as the Esperance and Newport products, they should be entitled to address this class of loss that they had not previously claimed. 6 Senior counsel for the Councils frankly admitted that it had not been part of the case that the Councils made at trial that the loss of the value of the coupon or payment of interest on the Dante notes had been put as an issue or claimed as damages at any earlier stage of these proceedings. They argued that the change in the landscape brought about by the finalisation of parties' rights in respect of the Dante notes should entitle them to relief against this further loss that they have, in fact, suffered. They submitted that justice required that they be given an opportunity to seek the BBSW rate on the value of the funds they had invested in the Dante products during the period in which those products did not pay interest. 7 The Councils relied on my findings that, prior to investing through Grange, each of them had had a conservative investment strategy under which they obtained returns very slightly above BBSW rates on investments they made of their surplus moneys. They argued that they had pursued a case at trial, while there was uncertainty as to what would happen with the Dante notes, by reference to the market value of those notes which they contended inevitably must have taken account of the value of the interest that the notes had not paid, and were not paying. The Councils contended that it was not appropriate to seek to dissect the compromises reflected in the ultimate payout figure for those notes.

Consideration 8 In Smith v New South Wales Bar Association (1992) 176 CLR 256 at 266-267, Brennan, Dawson, Toohey and Gaudron JJ discussed the principles on which a party might be granted leave to reopen on the basis that new or additional evidence was available. They said that if an application was made to reopen on the basis that new or additional evidence became available, it would be relevant to inquire why the evidence was not called at the hearing, adding: "If there was a deliberate decision not to call it, ordinarily that would tell decisively against the application." (footnote omitted) 9 Similarly, in relation to an amendment application, Gummow, Hayne, Crennan, Kiefel and Bell JJ said in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 at 215 [103]: "Generally speaking, where a discretion is sought to be exercised in favour of one party and to the disadvantage of another, an explanation will be called for." 10 In my opinion, the Councils should not be granted leave either to reopen on the issue of interest not paid on the Dante notes, or to amend. Importantly, the Councils lead no evidence as to why no such case had been mounted at trial, in circumstances where they knew that no interest had been received on the Dante notes from mid to late 2008, that is, well over two years prior to the hearing. 11 The basis on which the Councils asked for their losses to be valued, and which I substantially adopted in my principal reasons, was the "left in hand" method: see section 7.1 of my principal reasons in [2012] FCA 1028 at [1006] where I said: "The real value of each Claim SCDO is the value that subsequent events have showed was inherent in it at the time of its acquisition." 12 The circumstances that have arisen since I gave my principal reasons, involving the imminent maturity of the Esperance and Newport products and the resolution of the Dante notes issues, enable values to be set for those Claim SCDOs based on the actual sums left in the Councils' hands, using the principles on which the parties fought the trial. 13 I am of opinion that the absence of any explanation as to why such a case was never advanced at the trial by the Councils is telling. It would not be conducive to the orderly conduct of this litigation to permit the Councils now to make a case that had not been substantively put in issue during the course of the trial. 14 The structure of the damages assessment process that was at the heart of the Councils' case on damages was based upon their losses in hand. That involved an approach to damages reflected in the evidence and the way the parties argued damages should be assessed. The same substantive reasoning process to justify a claim for damages for the loss of interest or the coupon on the Dante notes could also have been applied to the non-Dante SCDOs that had either been wiped out or impaired by a reduction in principal and coupon due to the occurrence of sufficient credit events. Yet, the Councils did not make such a case at trial for lost interest on those other products or the Dante notes. Also, at the trial and before I gave my principal reasons, both parties used the actual amount paid or payable in respect of products that had matured or been wholly or partly wiped out as determinative of their values in calculating damages. 15 I do not accept that the valuation process could or did take account of the loss of the value of interest payments on the Dante notes prior to the time at which the experts valued those notes or those notes for which values were supplemented by later bids on which I based my assessment of value in my principal reasons. Indeed, it is highly unlikely that the values on which the expert evidence proceeded and which underlay my valuation of the Dante notes took account of the uncertainty of when an ultimate distribution of the collateral would occur by reason of LBSF's claims to it: see my principal reasons [2012] FCA 1028 at [841] and [1057]. 16 The operation of the "flip clause" had triggered an entitlement to be repaid the collateral either in favour of LBSF, or as the Supreme Court of the United Kingdom ultimately held, the note holders at or around the time that one or other of Lehman Brothers Holdings Inc. or LBSF filed for Chapter 11 relief in September and October 2008: see [2012] FCA 1028 at [828]. From that time, the subject of the valuation which I was asked to perform was the value of the Councils' rights to receive so much of the collateral and any interest that had accrued on it as was actually available to them. It was always clear that at least some of the collateral in respect of the Dante notes would be paid to the Councils in due course, once the inter-jurisdictional impasse had been resolved, although there was uncertainty as to the quantum of any such payments. 17 The Councils' attempt to introduce a completely new issue at this late stage, is not appropriate. Nor does it conform with their obligations under Pt VB of the Federal Court of Australia Act 1976 (Cth). Granting the application would introduce a new level of analysis and complexity at a very late stage in what has already been a highly complex and protected litigation.

COnclusion 18 For these reasons, I refuse the Councils' application to adduce further evidence and I refuse the application to amend the further amended statement of claim. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.