FEDERAL COURT OF AUSTRALIA Seaside Drilling Pty Ltd v Telstra Corp Ltd [1999] FCA 1268 No question of principle SEASIDE DRILLING PTY LIMITED (FORMERLY KNOWN AS AUTOBORE (HOLDINGS) PTY LTD) v TELSTRA CORPORATION LIMITED NG 1021 OF 1996 HELY J 13 SEPTEMBER 1999 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 1021 OF 1996 BETWEEN: SEASIDE DRILLING PTY LIMITED (FORMERLY KNOWN AS AUTOBORE (HOLDINGS) PTY LIMITED) Applicant AND: TELSTRA CORPORATION LIMITED Respondent JUDGE: HELY J DATE: 13 SEPTEMBER 1999 PLACE: SYDNEY REASONS FOR JUDGMENT 1 These proceedings were instituted on 23 December 1996. The hearing was scheduled to proceed before me on 12 October 1998 with an estimated duration of two weeks. The hearing date was vacated at the last minute on the application of Seaside Drilling because, in some substantial respects, it sought to recast its case. 2 Special orders for costs were made having regard to the fact that Seaside Drilling was under administration. Those orders involved the payment into Court of $50,000 as security for the respondent's costs thrown away by the amendment of the claim and the vacation of the hearing date, as well as certain directors of Seaside Drilling assuming personal responsibility for payment of those costs. The Registrar has indicated that his estimate of the likely amount at which those costs would be taxed is $138,000. Taxation of those costs has been requested, but has not yet occurred. 3 The expert accountant retained on behalf of the applicant is Mr R G Humphreys. He filed an affidavit sworn on 7 October 1998 in support of a damages claim of $3.292 million. That claim comprised loss of anticipated profits of $3.211 million and other matters. 4 On 16 March 1999 Mr Humphreys filed a further affidavit which was effectively his third report. That affidavit exposed seven different damages scenarios and Seaside Drilling's claim, at the highest alternative level, was now $9.431 million, of which the bulk was comprised of loss of anticipated profits. 5 On 24 May 1999 the respondent's expert, Mr Bryant, filed his third report in response to the Humphreys' reports of October 1998 and March 1999. 6 On 25 May 1999 I fixed the matter for hearing. On 18 June 1999, due to some problems which I had in relation to my own docket, the matter was transferred into the docket of Justice Mathews and the hearing was fixed to commence on 22 September 1999, with an estimated duration of three weeks. 7 I was under the impression that whilst the totality of the evidence on which the parties intended to rely at the hearing may not then have been filed, the parties knew the substance of outstanding affidavits which, for logistical reasons, had not been sworn or filed. 8 On 25 August 1999 Mr Humphreys filed a further affidavit annexing his fourth report. That report contained thirty two damages scenarios. The claim increased to $18.898 million at its highest level. The loss of profits claim was increased by $2.4 million to $11.7 million at its highest level. Mr Humphreys' first three reports were prepared on the basis of costings supplied by James Perry, one of the directors of Seaside Drilling. The fourth report was prepared on the basis of more favourable costings derived from estimates contained in affidavits filed on behalf of the applicant by Stephen Wilson on 10 June 1999 and 16 July 1999. Shortly put, Mr Humphreys changed the assumptions which he had made in his earlier reports as to the capacity, costings and resultant profitability of the operation of the machines in question. 9 Further, a new claim was introduced for the first time asserting a failure to realise the indicative value which Seaside Drilling's business would have possessed in September 1997 ($1.3 million) and in April-June 1999 ($7.1 million) had Telstra performed its commitments. In April 1996 the administrator of Seaside Drilling sold its business and assets to a company which, in Telstra's submission, was apparently connected with the applicant for $105,000. 10 On 3 September 1999 Telstra took out a motion seeking orders that: · Seaside Drilling not be entitled to rely on the affidavit of Mr Humphreys of 25 August 1999; · Seaside Drilling not be entitled to propound the new claim for failure to realise the indicative value of Seaside Drilling's business; · alternatively, that the hearing date be vacated with consequential costs orders; on the ground that Telstra could not meet the new claim, or the reformulated loss of profits claim in time for the hearing scheduled to commence on 22 September 1999. Mr Halligan, of Arthur Anderson, gave evidence that with three people working on the job it would take until 29 October 1999 to complete a report in response to Mr Humphreys' fourth report at an anticipated cost of $40,000-$60,000. 11 If the response was to be confined to the reformulated loss of profits claim it would take three to five weeks at an estimated cost of $30,000-$50,000, with three people working on the job to respond to that aspect of the claim, and having regard to existing commitments of those who would be involved, particularly Mr Bryant, it would take until about 29 October 1999 before a response could be completed. Mr Halligan gave the following evidence: "Then what I would like to know is how long it would take you to respond to this report if your response was confined to dealing with the increase in the loss of profits claim which, at the upper level, is of the order of $2.4 million? --- Well, my answer remains the same, your Honour. I estimate 30 to $50,000 to respond to the loss of profits claim." 12 There was some evidence from Mr Humphreys and from an independent accountant, Mr McLeay, to the effect that in their judgment, a response to the Humphreys' fourth report could be prepared in five to seven days. But Mr Halligan has been involved with this matter for Arthur Anderson for most of this year. It took Mr Humphreys three months after receipt of Mr Bryant's report to come up with his response. Whilst it was put to me that I ought not to accept the evidence of Mr Halligan in this respect, no real foundation was established for not accepting his sworn testimony. 13 Thus the effect of the 25 August 1999 report, shortly stated, was: · The damages claim was increased by $9.4 million; · The damages scenarios were increased from 7 to 32; · The loss of profits claim was increased by $2.4 million by reason of a change in the assumptions on which that claim had previously been based; · A new claim for failure to realise the indicative value of the applicant's business was introduced, which at its highest level sought $7.1 million. 14 The motion came on for hearing before me on 9 September 1999 and argument on the motion was not completed in the course of that day. On 10 September 1999 counsel for Seaside Drilling, Mr Gullotta, informed me that his clients no longer wished to press Part F of Mr Humphreys' report of 25 August 1999 which propounded the claim for failure to realise the indicative value of the business. That makes it unnecessary for me to determine whether I would be prepared to permit Seaside Drilling to advance that new case. Nor is it any longer necessary for me to consider whether any failure to give earlier discovery of the documents discovered by Telstra in its further list of documents filed on 28 May 1999, contributed to the delay in the bringing forward of this new claim. 15 I should say that the primary position of both Seaside Drilling and Telstra is that the hearing date should not be vacated. Seaside Drilling accepts that if the price of being permitted to bring forward the reformulated loss of profits claim is the vacation of the hearing date, and consequential orders as to costs, it is a price which it is unwilling to pay. If that is the price then Seaside Drilling's preference is to be confined within the boundaries of its existing loss of profits claim. 16 Telstra's reaction to Mr Humphreys' report of 25 August 1999 was to take out the notice of motion of 3 September 1999, rather than beginning immediately to respond to the changed case and to the new case advanced in that report. Two weeks have thus been lost. This was, however, a reasonable reaction to the service of that report. This is partially confirmed by the fact that Seaside Drilling has now abandoned the new case based on failure to realise the indicative value of the business. 17 Thus, I think it is reasonable to approach the matter upon the basis that the issue is whether Seaside Drilling should be permitted to reformulate its loss of profits claim by reference to changed assumptions when the hearing is to commence on 22 September 1999 and given that any prejudice to Telstra is not sought to be overcome by the vacation of the hearing date with consequential cost consequences. 18 I have considered whether I should simply do nothing, and leave this problem to be sorted out by the trial judge in the light of such developments as may have occurred between now and the hearing date. I do not think that that is an appropriate course to adopt if only because it might result in a waste of substantial sums of money which could not be compensated for by the making of costs orders. 19 An applicant should have the opportunity of presenting its case framed in the way in which it or its advisers believe that it should be framed provided that there is no unfair prejudice to the respondent. On balance, I have come to the conclusion that Seaside Drilling should not be permitted, at this late stage, to bring forward its reformulated loss of profits claim. I have come to that conclusion for the following reasons: - The matter was allocated a hearing date upon the basis that the formulation of Seaside Drilling's case was complete. The matter was transferred to the docket of another judge because I was informed that it was important from Seaside Drilling's point of view that the matter be heard this year, and I could not accommodate that desire within my docket; - It is not suggested that Telstra is in any way responsible for the delay in bringing forward the reformulated loss of profit case; - Mr Halligan's evidence leads to the conclusion that there will be a real and substantial prejudice to Telstra if the reformulated case is allowed to be propounded at this stage; - Seaside Drilling does not propose that such prejudice should be overcome by vacation of the hearing date with consequential costs orders; - The reformulated case is based upon the testimony of one of the applicant's own witnesses, Mr Wilson. It is apparent that the reformulated case could have been brought forward at an earlier stage in the proceedings, and no explanation is proffered as to why it was left until 25 August 1999 for the reformulated claim to be exposed; - Seaside Drilling has already received one indulgence in terms of vacation of the hearing date so as to allow a reformulation of its claim. 20 I propose to direct that the applicant not be permitted on the hearing of these proceedings to read or to rely upon the affidavit of Robin Geoffrey Humphreys sworn on 25 August 1999, or the contents of Annexure A to that affidavit. 21 Seaside Drilling should have an opportunity of filing an affidavit of Mr Humphreys which is strictly in reply to earlier affidavits or reports of Mr Bryant. I direct that any such affidavit be filed and served by Friday 17 September next. I also direct that on or prior to 10 am on Monday 20 September 1999 the parties exchange and lodge with the associate to Mathews J an outline of the facts and contentions upon which each intends to rely at the hearing of these proceedings. 22 Seaside Drilling should pay the costs of the motion. I am not prepared to make any more elaborate order as to costs. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely. Associate: Dated: 13 September 1999 Counsel for the Applicant: S P Gullotta and M G Vincent Solicitor for the Applicant: Greg Judd & Associates Counsel for the Respondent: P M Wood Solicitor for the Respondent: Mallesons Stephen Jaques Date of Hearing: 9 September 1999 Date of Judgment: 13 September 1999