Busways Blacktown Pty Ltd v Westbus Region 1 Pty Ltd (No 3)

1. [1]

   In my judgment of 23 October 2018, Busways Blacktown Pty Ltd v Westbus Region 1 Pty Ltd [2018] NSWSC 1590, as corrected by my judgment of 10 December 2018, Busways Blacktown Pty Ltd v Westbus Region 1 Pty Ltd (No 2) [2018] NSWSC 1901, I determined that (at [142]):

2. [2]

   Two issues remain.

3. [3]

   I will use the same abbreviations as in my earlier judgments.

4. [4]

   The first issue is what “indirect costs” incurred by CDC Australia were referrable to the businesses being conducted by the four CDC Australia subsidiaries (including Westbus CDC) in the four regions in which Bosnjak formerly operated. I will call those businesses “the CDC Bosnjak Businesses”.

5. [5]

   During argument, I raised with counsel the possibility of referring this question out to an expert for determination. On reflection, I have concluded that such a course would be problematic, would cause unnecessary delay and expense, and that the best course is for me to decide the issue.

6. [6]

   The second issue is whether such “indirect costs” of CDC Australia include bank charges, bad debts, travel and accommodation expenses, and directors’ fees.

Which of CDC Australia’s indirect costs are referrable to the CDC Bosnjak Businesses?

1. [7]

   Mr Jackman SC, who appears with Mr Klineberg for Westbus CDC, informed me that CDC Australia and Westbus CDC have not retained primary records prior to 2010, and that the records they have retained since then are unlikely to reveal which indirect expenses incurred by CDC Australia are referrable only to the CDC Bosnjak Businesses.

2. [8]

   Busways’ expert, Mr Ross, opined:

3. [9]

   Mr Ross further opined that “further information…is likely to exist within Westbus and CDC’s accounting system that records the underlying data from Westbus’ trial balance and CDC overhead costs”.

4. [10]

   I am not able to make any finding about that issue. I accept the position is as Mr Jackman explained.

5. [11]

   What is clear is that, on the evidence now adduced, Busways is not able to prove, by reference to the business records that have been discovered and on an item by item basis, what indirect costs incurred by CDC Australia at the relevant time were referrable to the CDC Bosnjak Businesses.

6. [12]

   Messrs Jackman and Klineberg submitted that, in those circumstances:

7. [13]

   Mr Wood, who appears with Mr Raffell and Mr O’Brien for Busways, submitted that, although an “item by item” analysis cannot be undertaken, the proportion of CDC Australia’s indirect costs referrable to the CDC Bosnjak Businesses can be estimated based on the total bus numbers of the original Bosnjak business compared to the total number of buses operated (directly and indirectly) by CDC Australia each year; but excluding the buses operated by CDC Victoria (which had its own separate head office) and taxis.

8. [14]

   Mr Wood submitted that the relevant proportions were as follows:

9. [15]

   Applying 25.69% to those figures would result in allocation of the following percentage of CDC Australia’s indirect costs to Westbus CDC:

10. [16]

    In his report of 27 July 2018, Busways’ expert, Mr Ross, expressed an opinion about “CDC [Australia’s] reported bus numbers”.

11. [17]

    On 9 August 2018, Westbus CDC’s solicitors wrote to Busways’ solicitors stating “Westbus is content to accept [that] the bus numbers as stated in the report of Mr Ross are correct for the purposes of the hearing”. That agreement was offered, and I infer accepted, to resolve a dispute about a Notice to Produce served by Busways.

12. [18]

    Despite this, in an affidavit sworn a short time later, on 22 August 2018, Westbus CDC’s Chief Operating Officer, Mr Jeff, deposed that “these bus numbers also include vehicles other than buses, such as cars, utes, vans and deregistered vehicles”.

13. [19]

    That evidence was inconsistent with the position agreed between the solicitors on 9 August 2018.

14. [20]

    Understandably, in those circumstances, Mr Wood did not challenge Mr Jeff’s evidence in cross-examination.

15. [21]

    As the parties agreed that the case should be conducted on the basis that CDC Australia’s bus numbers were as stated by Mr Ross, I propose to do the same, notwithstanding Mr Jeff’s evidence.

16. [22]

    For the same reason, I do not propose to take into account a submission I received from Mr Klineberg on 22 February 2019 to the effect that Mr Ross’s figures were, for a number of reasons, incorrect. Mr Ross’s figures were agreed between the parties to be correct for the purpose of the proceedings. Busways has conducted the proceedings on that basis. I do not propose to allow Westbus CDC to depart from that agreement.

17. [23]

    In any event, the submission was put in response to my enquiry, through my Associate, as to whether it was common ground that the schedule at [14] above reflected Mr Ross’s figures, less buses operated by CDC Victoria and taxis.

18. [24]

    Westbus CDC’s solicitor responded to that email stating that this matter was not common ground, and sought leave to make short submissions to that effect. Contrary to that indication, Mr Klineberg’s submissions accepted the schedule did reflect Mr Ross’s figures, but sought leave to make submissions that Mr Ross’s figures were wrong; and proceeded to make submissions to that effect.

19. [25]

    For the reasons I have set out, I am not prepared to entertain a submission that Mr Ross’s figures were wrong. The submission should not have been made, as it is was not within the ambit of the leave I gave, was conditional on further leave being granted and proceeded on the assumption such leave would be granted.

20. [26]

    Legal practitioners should bear in mind the following observations of the Court of Appeal in Bull v Lee (No 2) [2009] NSWCA 362 at [9]:

21. [27]

    In their written submissions, Messrs Wood, Raffell and O’Brien submitted:

22. [28]

    In their written submissions, Messrs Jackman and Klineberg responded:

23. [29]

    The evidence of Mr Jeff to which Messrs Jackman and Klineberg referred was in pars 54 to 71 of his 22 August 2018 affidavit. Much of that evidence, including the conclusion to which Messrs Jackman and Klineberg referred, was objected to and rejected.

24. [30]

    Mr Jackman submitted orally that, nonetheless, a submission to the effect of Mr Jeff’s rejected conclusion was available based on those parts of Mr Jeff’s affidavit as was admitted.

25. [31]

    I do not agree.

26. [32]

    Mr Jeff said (at par 55 of this affidavit) that during the relevant period, and after acquiring the Bosnjak business, CDC Australia by itself or by subsidiaries, acquired three bus businesses (other than the businesses now operated by CDC Victoria).

27. [33]

    Those businesses were Baxter’s Bus Lines (acquired by Westbus Region 3 Pty Ltd), Toronto Bus Services (acquired by Hunter Valley Buses Pty Ltd, which also evidently purchased Morisset Bus Lines and Sugar Valley Coach Lines) and Deanes Bus Lines (acquired by CDC Australia itself).

28. [34]

    As to the bus lines acquired by Hunter Valley Buses, Mr Jeff said (at par 69):

29. [35]

    As to Deanes Bus Lines, Mr Jeff said (at par 70):

30. [36]

    Mr Jeff said nothing about Baxter’s Bus Lines.

31. [37]

    I do not see how that evidence compels the conclusion, put by Messrs Jackman and Klineberg, that CDC Australia’s growth “did not affect materially the proportion of CDC Australia’s costs applicable to the four former Bosnjak businesses” (see submission extracted above at [28]).

32. [38]

    As I pointed out at [127] of my first judgment, Mr Jeff used a comparison between Westbus CDC bus numbers and total CDC Australia bus numbers to justify an allocation of 25.7% of CDC Australia’s head office costs to Westbus CDC. For the reasons I gave at [128] of that judgment, I doubted that those bus numbers provided such justification.

33. [39]

    But here, the task is to ascertain the proportion of CDC Australia’s indirect costs that are referrable to the CDC Bosnjak Businesses, in circumstances where Westbus CDC accepts, indeed asserts, that its primary records and those of its parent will not reveal an answer to the question. In those circumstances, my conclusion is that a comparison between Bosnjak bus numbers and those of CDC Australia overall (apart from Victoria) is likely to provide as accurate an insight into the critical question as is available.

34. [40]

    Such a comparison suggests that the proportion of CDC Australia’s indirect costs that are referrable to the CDC Bosnjak Business has decreased from some 20% to some 12% to 13%; the precise figures are set out above at [15].

35. [41]

    As Messrs Wood, Raffell and O’Brien submitted, this is consistent with Westbus CDC’s proportion of CDC Australia’s revenue and travelled kilometres and points to the conclusion that the “bus comparison proxy” is one that is reasonably available.

36. [42]

    My task is to determine the quantum of Busways’ damages. I must do the best I can on the material available.

37. [43]

    Accordingly, I propose to adopt Busways’ submission.

38. [44]

    I find that the proportion of the indirect costs incurred by CDC Australia referrable to the CDC Bosnjak Businesses is as set out at [15] above.

Excluded costs

1. [45]

   In order that Westbus CDC’s profits be calculated “on the same basis as [its] Bid Template” as required by cl 17.2(e) of the Shareholders Agreement (see [28] and [29] of my first judgment), such “indirect costs” must correspond to an item in that Bid Template.

2. [46]

   As Mr Jackman and Mr Klineberg pointed out in their written submissions:

3. [47]

   The 30 items in the Bid Template appear under the heading “Bus Overhead Costs”. They represent indirect costs, being costs incurred other than directly delivering bus services; as opposed to direct expenses such as bus parts and drivers’ wages.

4. [48]

   The Bid Template followes a form prescribed by the NSW Government. It includes the generic categories “Admin and management on costs” and “Other”. An annual figure of $384,066 was predicted for “Admin and management on costs” and an annual figure of $165,440 predicted for “Other” costs.

5. [49]

   The particular question is whether bank charges, bad debts, travel and accommodation and directors’ fees may be brought to account. Each of those items appear in Westbus CDC’s trial balance. There are no corresponding entries, in terms, in the Bid Template.

6. [50]

   Messrs Jackman and Klineberg submitted however that each of those items falls within one or both of the generic categories to which I have referred.

7. [51]

   As to bank charges, Westbus CDC was treated as a costs centre within the consolidated accounts for CDC Australia. CDC Australia operated a single bank account for its NSW operations. In those circumstances I accept that bank charges fall within either of the two generic categories.

8. [52]

   Bad debts are also capable of falling within either of the generic categories.

9. [53]

   As to travel and accommodation, Messrs Jackman and Klineberg submitted that “if” CDC Australia personnel incurred travel and accommodation expenses in managing the Westbus CDC business (for example, in attending meetings of the Operator) those costs were incurred by CDC Australia for Westbus CDC and would fall within either of the generic categories. Assuming that it is clear from CDC Australia’s records that travel and accommodation expenses were so incurred, I agree that they fall within either of the generic categories.

10. [54]

    As to directors’ fees, Westbus CDC did not have a separate management structure or a board of directors. Westbus CDC and the other CDC Australia subsidiaries that conducted the CDC Bosnjak Businesses were managed by CDC Australia’s board. However there is an item in the Bid Template for “Shareholder/management fees”. No amount was forecast as being incurred on that account. That suggests that the parties did not intend that “management fees” in the nature of “directors’ fees” should be included as “Bus Overhead Costs”. Accordingly, those costs should be excluded from consideration.

Final steps

1. [55]

   The parties agree that these conclusions should now be made available to the experts so that they can consider the calculation of Westbus CDC’s profit for the purpose of cl 17.2(e) of the Shareholders Agreement.