COMMONWEALTH v GORDON SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL GLEESON CJ, MEAGHER and COLE JJA 11 August 1995 [1995] NSWCA 89 Gleeson CJ. The respondent plaintiffs carry on a pastoral business. In 1991 they owned a stud bull of the Maine-Anjou breed, named Kanga Vigour. The evidence established that this was a bull of high quality, the best of its breed in Australia. In 1991 it was rising three years. The evidence also established that its quality was such that the respondents would not have been able to replace it by a bull of equal or superior quality. The bull's primary purpose in life was to service Maine-Anjou cattle in the respondents Castlemaine stud. In addition there was a significant potential for sale of the bulls semen to third parties. On 27 August 1991 as a consequence of the negligence of persons for whose conduct the appellant was responsible the bull was killed. The respondents sued the appellants for damages for negligence. Liability and damages were contested. The case came for trial before Badgery-Parker J sitting without a jury in Orange in October 1994. The issue of liability was resolved in favour of the respondents. There is no appeal against his Honour's finding on that issue. His Honour assessed damages in the amount of $300,150. That assessment of damages is the subject of the present appeal. It should be said at the outset that a reading of the record of the trial, and of the learned judge's reasons for judgment, strongly suggests that both evidence and argument on the issue of quantum of damages were dealt with by the parties in a rather perfunctory fashion. To a substantial extent the proper resolution of this appeal is related to the manner in which the trial was conducted. The case is not a reliable guide to valuation questions generally, or to the valuation of stud bulls in particular, because of that aspect of the matter. In their particulars, the respondents claimed to be entitled to recover the value of the bull and also economic loss which they suffered by reason of what was said to be the diminution of the herd value of their other cattle as a result of the loss of this bull. In addition they claimed loss of future income from sales to third parties of the bulls semen. I pause there to say that it might have been thought, on general principles of valuation, that the potential of the bull in relation to future semen sales would be a factor relevant to the bull's market value. However, as the respondents formulated their claim at trial, this aspect of the matter was dealt with separately. It was also dealt with separately in the reasons for judgment. At the commencement of the hearing counsel for the respondents tendered a written report entitled "Loss Compensation Assessment" which was prepared by Mr Poolmans. This report is somewhat lengthy, and complex in its reasoning. In many respects, it is not altogether clear. To say that, however, is to express no criticism of Mr Poolmans. Counsel who appeared for the appellant at the trial indicated that he had no desire to cross-examine Mr Poolmans on his report. Thus, some uncertainties or ambiguities in that report were never resolved. 2 UNREPORTED JUDGMENTS One feature of the report which is puzzling is the precise sense in which Mr Poolmans uses the word "value". The meaning of the word "value" in a legal context such as the present is discussed in Franke v CIC General Insurance Limited (1994) 33 NSWLR 373 at 376 and 377. Amongst other things, it was there pointed out that in a legal context the ordinary meaning of the word "value" is exchange value. Exchange value is the price in cash or in kind which would be obtained for an item of property in an arms length dealing between a willing but not anxious seller and a willing but not anxious buyer. It was also pointed out, that depending upon the context, care may need to be exercised to ensure that the basis of valuation of an item of property provides an appropriate measure of the loss suffered by the person to be indemnified or compensated. This problem is sometimes discussed in terms which distinguish between the market value of an item of property and its value to an insured. On the face of it, when one is valuing a stud bull which has, amongst other things, a potential to produce, over a given period in the future, semen which can be sold to third parties, the value of the bull would include a component calculated by reference to the present value of net future income from semen sales. It seems clear enough that the price that a willing but not anxious buyer would offer and the price that a willing but not anxious seller would require would include a component to reflect that economic potential. (It was not suggested that the hypothetical buyer might be a butcher, or a person in search of an unusual pet). As I understand the report of Mr Poolmans (although he was never given an opportunity to clarify it by any oral evidence at the trial) the general approach which he took was in substantial conformity with the principles just stated. First, he calculated what he described as the asset value of the bull. In doing that he took a number of factors into account, including what he regarded as the potential for future semen sales. It will be necessary to return in a little detail to what he said about that particular subject. It suffices for present purposes to note that in the asset value of the bull he included an element to take account of that factor. He said "The asset value of the bull was $27,500". He also calculated an amount of $84,000 to reflect what a lawyer might call special loss or damage or alternatively special value of the bull to its owners over and above its market value. This item of $84,000 related to what Mr Poolmans described as "Returns lost through decreased herd value". As I understand this aspect of the report of Mr Poolmans, he reasoned along the following lines. First, he said, the bull was irreplaceable in the sense that it was not possible to obtain another bull of equal or superior quality. Second, the availability of the bull increased the value of the Castlemaine stud herd owned by the respondents. Third, the amount of that additional value could be computed by comparing the returns to the stud on the assumption that Kanga Vigour had lived and thrived, with the returns to the stud employing the services of another but somewhat inferior bull. When the matter came to argument at the trial, counsel for the respondents made submissions which went in a number of respects significantly beyond the assessment of compensation contained in the report of Mr Poolmans. First, it was submitted that in calculating the second item, that is returns lost through decreased herd value, Mr Poolmans had stopped at the date of the hearing. It was submitted that so far as his calculation went, it was reasonable and appropriate, but the judge should also allow for a similar loss related to the remaining years of what would have been the life of Kanga Vigour after the date of the hearing. URJ COMMONWEALTH v GORDON (Gleeson Cu) 3 Second, in relation to the matter of future semen sales Mr Poolmans had made an assumption which was radically different from evidence which was given, without challenge or cross-examination, by Mr Gordon, who was himself an experienced stud master. Mr Poolmans had assumed that an appropriate estimate of the amount of semen that Kanga Vigour would have produced for the purpose of the estimation was 600 straws, which would have sold for a net price of $12.50 per straw. Mr Gordon, in his evidence, said that in his opinion, Kanga Vigour would have produced 5,000 straws. He also gave some evidence as to the gross sale price of straws which when netted back by reference to other figures appearing in the evidence produced a net sale price of substantially in excess of $12.50. Counsel appearing for the appellants at the trial did not challenge as a matter of principle the entitlement of the respondents to compensation for what Mr Poolmans described as returns lost through decreased herd value. Nor was there any challenge either at the trial or on this appeal to the amount of $84,000 calculated by Mr Poolmans in respect of that item of damages only on this appeal. Nor was there any challenge on this appeal to the calculation of $27,500 as the value of the deceased bull. The damages awarded by Badgery-Parker J comprised the following items: (1) asset value of the bull, $27,500; (2) loss of herd value to October 1994, 84 thousand dollars; (3) future loss of herd value, $50,000; (4) loss of semen sales to October 1994, $42,500; (5) loss of future semen sales, $96,150. Total $300,150. As I have indicated items | and 2 were not contested at the trial and are not challenged on this appeal. The challenge is to items 3, 4 and 5. In relation to item 3 I see no error of principle or fact in the approach taken by Badgery-Parker J. If one accepts, as was accepted at the trial, that, as a matter of principle, the respondents were entitled to compensation of the kind calculated by Mr Poolmans in respect of what he called returns lost through decreased herd value, there is no reason in logic why measurement of the appropriate compensation should stop in point of time at the date of the assessment of the damages. There was evidence as to the life and work expectancy of Kanga Vigour and his Honour was entitled to follow through the decrease in the herd value of the respondents in a manner that was consistent with that evidence. His assessment of the figure of $50,000 and the addition of that amount as part of the damages sustained by the respondents was appropriate once one grants the principle that was conceded by the appellant in accepting that the respondents were entitled to the amount of $84,000 assessed by Mr Poolmans. The problem in relation to items 4 and 5 is of a somewhat different character. From the outset the respondents had claimed that there should be taken into account in valuing their loss the potential of Kanga Vigour to produce semen for profitable sale to third parties. In this respect they were undoubtedly correct although, as I mentioned earlier, for my part I have difficulty in understanding why one would calculate the amounts involved separately. I would have thought they would fall to be treated as part of the value of the bull. This would have been a consideration that would unquestionably have been taken into account by any hypothetical vendor and purchaser of the bull. (The same might be said in relation to the impact of the bull upon it's owner's herd value). However, it has 4 UNREPORTED JUDGMENTS not been argued on behalf of the appellants that the mere process of treating these as separate items of itself results in any error. The error is said to arise in other respects. First, it is observed on behalf of the appellants that when Mr Poolmans calculated the value of the bull he, consistently with the views I have expressed, included an item to take account of future semen sales. The substance of the appellant's argument on this appeal is that the respondents should not have been found to be entitled to any amount in respect of this matter over and above that calculated and taken into account by Mr Poolmans. The sole ground of appeal is expressed as follows: There was no proper evidence upon which the court could have come to the assessment of damages of $300,150. There is no ground of appeal that suggests there was a denial of natural justice involved in the approach taken by Badgery-Parker J at the trial. It is not suggested there was some element of unfair surprise in the adoption by his Honour of a calculation which went beyond the assessment of damages made by Mr Poolmans. As I have already mentioned the reasons for judgment make it clear that at the hearing counsel for the respondents pressed the trial judge with an argument that was based upon certain oral evidence of Mr Gordon which was substantially different from a factual assumption that had been made by Mr Poolmans. A reading of the transcript suggests that perhaps the extent of the difference between the evidence of Mr Gordon and the assumption that had been made by Mr Poolmans, and its potential to affect the quantum of damages was not in the forefront of the minds of those representing the appellant at the hearing. The difference which had such a substantial bearing upon the calculation of the damages awarded was as follows. In his report Mr Poolmans, when assessing the value of Kanga Vigour, said this: From the supporting information (I believe) that 600 straws of semen can be used as a conservative estimate for Kanga Vigour semen sales. A net price of $12.50 per straw has been used to calculate a total value of $7,500 for the semen sales foregone as a result of the bull's death. This is compatible and comparable with the $5,000 offered for a one-quarter share in Kanga Vigour which entitled the purchaser to 400 straws of semen. In his evidence Mr Gordon, who was appropriately qualified to express opinions of this nature, said the following: Q— I knovw it is a difficult thing to, but what sort of range of number of straws would you have expected to market? A — To market? Q — Yes, both here and overseas? A — Maybe 5,000. Q — Over a period of years? A— Yes. Q— When you say 5, 000 are you being generous to yourself or conservative or what parameters are you using? A — I think it would be feasible to market a thousand in a stud situation, but there are a number of females out in the commercial world but I believe there was an endless market for that, particularly from the colour. URJ COMMONWEALTH v GORDON (Gleeson Cu) 5 Q — Over how many years would you be looking when you say you would be looking to market 5,000 straws? A — Probably ten years. Q-— So, ten years from about the time of his death? When you say ten years, would you say that the ten year period would start from when he died, is that right? A— Yes. There was some further questioning about the costs involved in collecting and marketing semen and there was evidence which ultimately resulted in an agreement being noted on the transcript that the cost of collecting a semen course was $1,000 a week. It should be mentioned at this stage that it is conceded on this appeal that, in one respect, Badgery-Parker J appears to have misunderstood or overlooked part of that evidence. The estimate of $1,000 a week should be related to some other evidence to the effect that six or seven weeks would have been involved in a certain collection process and it is conceded by senior counsel for the respondents that, if in other respects the arguments for the respondents are accepted, then a figure of $1,000, which was deducted by Badgery-Parker J, should have been $7,000. Senior counsel for the appellants, of course, argues that all this is immaterial and that there were more fundamental errors involved in the assessment of items 4 and 5. I simply mention that at this stage for the purpose of noting the concession. To return to the way in which the trial proceeded, there was, no objection to the estimate of Mr Gordon about his estate of 5,000 straws of semen and there was no attempt to call that evidence in question, either by cross-examination or by calling any contradictory evidence. As I have said, it may be that the full significance of that figure of 5,000 was not at that stage fully appreciated. However that may be, when dealing with a ground of appeal to the effect that there was no proper evidence to sustain a particular finding, the course that the trial took in that respect is of particular significance. There was no substantial evidence on the issue of damages from the appellant. There was a valuer who put a figure of $20,000 on the bull to compare with the figure of $27,500 put on it by Mr Poolmans but, apart from that, the evidence was left in the state which I have described. Badgery-Parker J accepted the invitation of counsel for the respondents to make a calculation of the present value of the loss of income from future semen sales on the basis of the figure of 5,000 straws referred to by Mr Gordon in his evidence. In making that calculation Badgery-Parker J referred to other pieces of evidence which he used to calculate the net price of a straw. He calculated the net price in a manner inconsistent with the figure of $12.50 used by Mr Poolmans. In the course of this appeal counsel have been unable to agree between themselves on what is the figure that one reaches on the basis of Badgery-Parker J's calculations which compares with the figure of $12.50 used by Mr Poolmans. Senior counsel for the respondents told us that the figure was $27.73. Senior counsel for the appellants told us that the figure was $32.58 in respect of semen sales to the date of judgment and $37 in relation to future semen sales. Disagreement about calculations of this nature are not matters which we should have to resolve until counsel have had a further opportunity to discuss the matter between themselves and I would propose that that question be left open in any order that the court makes concerning the disposition of this appeal. 6 UNREPORTED JUDGMENTS The challenges that were made to the reasoning of Badgery-Parker J in relation to items 4 and 5 may be summarised as follows. The first challenge is incontestably correct and is not denied by senior counsel for the respondents. Badgery-Parker J, in making calculations about the loss of future income from semen sales and the net present value of that loss, did so on the basis of a figure of 5,000 straws. His Honour appears to have overlooked the fact that, in calculating his figure of $27,500, Mr Poolmans had made an allowance in favour of the respondents on the basis of a future sale of 600 straws. There is, therefore, on any view of the matter, an element of double counting in relation to 600 straws. The extent to which that element of double counting reflects in the verdict depends upon whether one takes the figure of $27.73 that I have just mentioned or the figures of $32.58 and $37 or some other figure. It is sufficient for present purposes to note that, to the extent of 600 straws, there has been a double counting and, therefore, if one accepts in all other respects the reasoning of Badgery-Parker J the verdict has to be reduced by an amount calculated by multiplying 600 by whatever is the figure that Badgery-Parker J took as the net price of straw sales. It was then submitted on behalf of the appellants that the respondents were bound, in effect, by the figure of 600 straws taken by Mr Poolmans and by the net price of $12.50 per-straw upon which he operated. I am unable to accept this contention. It is undoubtedly regrettable that so little attention was paid at the hearing to the detail of the reasoning of Mr Poolmans or to the relationship between the evidence contained in the report of Mr Poolmans and the oral evidence of Mr Gordon. Nevertheless, the oral evidence of Mr Gordon is there, unchallenged, uncontradicted, and not the subject of any form of testing in cross-examination. Badgery-Parker J was entitled to accept that evidence and to calculate the loss of future income from the sale of semen on the basis of that evidence. Once again there was very little attention paid at the trial to the figure of $12.50 used by Mr Poolmans and to figures given in evidence by Mr Gordon as to the sale price that might be achieved for straws of semen or as to the cost of achieving sales of semen. Nevertheless there was evidence upon which Badgery-Parker J was entitled to make the calculations which he did in this respect. It has been conceded, as I mentioned, that his Honour's calculations involved an error to an extent of $6,000 and this amount also has to be deducted from the amount of the verdict. One of the respects in which the absence of any testing of the evidence of Mr Poolmans has a most unfortunate consequence is as follows. In his valuation of the bull Mr Poolmans used a number of cross checks which he regarded as consistent with the result he produced and as, at least by inference, consistent with his assumption of 600 straws as the expected production of the bull. What Mr Poolmans would have had to say if confronted in cross-examination with Mr Gordon's figure of 5,000 straws and with the effect of that figure upon the value of the bull, is something upon which one can only speculate. Badgery-Parker J was, as I have indicated, entitled to accept and rely on the evidence of Mr Gordon and his estimate of 5,000 straws. We have been told that ultimately it came as a great surprise to the Commonwealth of Australia that, relying upon that estimate, Badgery-Parker J came up with an award of damages which was substantially in excess of the award that might have been expected if one confined attention to the report of Mr Poolmans. If that is so, then the URJ COMMONWEALTH v GORDON (Cole JA) 7 principal reason for the surprise may be found in the way in which the Commonwealth conducted its case on the issue of damages. In my view there was proper evidence on which his Honour could have made the assessment of damages which is to be found in his reasons for judgment although, as I have said, there are two respects in which his assessment was in error. The first of those respects is that he should have deducted an amount of $6,000, to which I have referred, and the second is that the verdict should be reduced to take account of 600 straws in respect of which there is double counting. I would propose that the court should make the following orders and, before doing this, I note we have been informed by both sides in their written submissions there is to be argument and perhaps evidence on the issue of costs. We can deal with that in a moment. I would propose that the appeal be allowed in part and that the judgment for the plaintiff is varied to $277,512. The orders as to costs made by Badgery-Parker J will be confirmed. There will be no order as to the costs of the appeal up to 5 July 1995. The appellant will be ordered to pay, on an indemnity basis, the costs of the respondents on and from 5 July 1995. Meagher JA. I agree with the Chief Justice. I might have reached a rather different result if (a) the defendant Commonwealth had not made the concessions it did in fact make at the trial or (b) had taken the trouble to cross-examine the only expert called by the plaintiff or (c) had led evidence on the question of the value of the bull. Cole JA. I endorse his Honour's comment that this decision is not to be regarded as necessarily embodying the appropriate principles in the valuation of stud stock or losses flowing from their negligent death. The loss in this case flows in no small respect from the manner in which the appellant Commonwealth conducted its case. Appeal allowed in part. Judgment for the plaintiff is varied to $277,512.