Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 9)

I gave my principal judgment in this matter on 29 September 2017 (Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 7) [2017] NSWSC 1321).

These reasons assume familiarity with that judgment.

I shall use the same abbreviations here as in those reasons.

In that judgment, in relation to damages, I:

One of those issues concerns undamaged stock.

At [931] to [939] of the judgment, I concluded that it was likely that Mobis had, without inspection, destroyed stock that was in damaged packaging but was nonetheless in saleable condition.

I concluded:

On 7 November 2017, I gave judgment in respect of that issue (Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 8) [2017] NSWSC 1507).

In my judgment of 7 November 2017, I said:

By notice of motion filed on 10 November 2017, XL sought leave to reopen paragraphs [24] to [27] of my judgment of 7 November 2017 (the last four paragraphs set out above at [9]).

XL sought that leave as it contends that my finding that should I assume that the value of the stock discarded by reason of damaged packaging (but which was itself undamaged and in saleable condition) was likely to be in the same order as that of the stock found within the warehouse to be in saleable condition was:

In effect, XL submits that it has been denied procedural fairness as I have made a finding which was both unbidden and unheralded.

It is true that Mobis did not seek the finding I made in paragraphs [24] to [27] of my 7 November 2017 judgment; nor did I raise with counsel the possibility that I may make that finding. It was a matter that occurred to me after I reserved my decision. Thus, I accept the criticism (made by Mr Weinberger on behalf of XL with his customary tact) implicit in XL’s application.

To enable XL to make such submissions as it thought appropriate on that question, I granted XL liberty to re-open the relevant paragraphs of the judgment to argue this point.

XL submitted that my conclusion that the value of saleable stock destroyed without inspection was likely to be in the same order as the value of stock found in saleable condition within the warehouse was, in effect, guesswork and that there was no reason to think there would be any correlation between the two.

In the principal judgment, my findings included that:

The evidence of Mr Stoddart referred to at [16(2)] suggested that the process set out in his “Demolition and Recovery Process” document (referred to in the principal judgment at [848]: see [9] above) was not always followed.

During argument, my attention was drawn to evidence of Mr Stoddart to the effect that some stock retrieved from the warehouse was inspected.

Nonetheless, I have found that Mobis destroyed some stock in damaged packaging without inspecting it and, thus, not knowing whether the stock within the packaging was still saleable.

Mobis made that decision deliberately, and for commercial reasons that were explained in the evidence (summarised at [931] of the principal judgment).

I see no reason to conclude that the decision was motivated by any apprehension within Mobis that its position vis-à-vis XL, including in this litigation, would be thereby advantaged. That was not how the decision was explained in the evidence. XL did not suggest otherwise during the hearing.

If, as I have found, Mobis followed this course, it must also follow that no-one at Mobis could, when these proceedings were commenced, have known how much of this stock was in fact saleable. No-one looked. The relevant stock was disposed of, without inspection, sometime between the date of the warehouse collapse (25 April 2015) and the fire (30 July 2015).

Mobis was thus not in a position where it could, at the hearing of this matter, adduce evidence of the value of the saleable stock it destroyed and thus, of the amount that should be deducted from what would otherwise be its entitlement to damages for stock.

The cases draw a distinction between the approach to be adopted in quantifying loss where precise evidence of that loss could not be adduced and cases where precise evidence of loss could have been but was not adduced.

Thus, in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; 196 ALR 257 (Hayne J, with whom Gleeson CJ, McHugh and Kirby JJ agreed) said (at [38]):

Where evidence is “obtainable”, the court “naturally expects to have it”: JLW (Vic) Pty Limited v Tsiloglou [1994] 1 VR 237 at 241 (Brooking J).

XL submitted that the reason Mobis was not able at the hearing to prove how much saleable stock was destroyed in the process I have described was its own decision to “destroy the evidence”; that is, its decision to destroy the damaged stock packages without inspecting their contents.

Accordingly, XL submitted, I should conclude that such evidence was relevantly “obtainable”, that it only ceased to be “obtainable” because of Mobis’s commercial decision, and that for those reasons I should not approach the issue on the basis that Mobis “cannot” prove the relevant value.

I do not think that is a realistic way of approaching the facts.

It is true that Mobis deliberately destroyed the stock in question. It did that for commercial reasons which were explained and appear rational from that point of view. It made the decision in the wake of the warehouse collapse and in the course of the complicated retrieval process undertaken between the collapse and the fire which I summarised at [845] to [863] of the principal judgment.

But I do not think it fair to characterise that conduct as “destroying the evidence” to be adduced by it in these proceedings. The “evidence” that Mobis could deploy should be seen as that available to it in the aftermath of the array of complicated events that followed the warehouse collapse and the resultant recovery and demolition process (up to the time of the fire). I see no reason to infer that any decision Mobis made during that process had anything to do with its contemplation of the evidence it might put forward in any dispute then looming with XL.

I think the fair conclusion from the facts is that, for the purposes of these proceedings, the relevant evidence should be seen as being “unobtainable” by Mobis.

I therefore find that this matter falls into the first category referred to at [24]; Mobis could not adduce evidence of the value of saleable stock discarded without inspection.

In those circumstances, unless I was prepared to dismiss the entirety of the damages to which Mobis would, in accordance with my reasons of 29 September 2017, otherwise be entitled for damaged stock (some $6.3 million), I had to come to some conclusion as to the amount to be deducted from that figure on account of saleable stock destroyed without inspection.

My conclusion was that there was in all probability some correlation between the value of that stock and of the value of saleable stock found within the warehouse. Some element of guesswork was at play. But, it was the best I could do and a decision made in circumstances where the true figure is unprovable.

I regret not raising the point during argument on 1 November 2017.

Having reconsidered the matter, on XL’s application, I am not prepared to come to a different conclusion.

I will reserve the costs of XL’s notice of motion of 10 November 2017, including the costs of today, until the date on which the question of costs of the proceedings, generally, is to be debated.