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Springfield City Group Pty Ltd v Pipe Networks Pty Ltd[2020] QSC 395

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd[2020] QSC 395

SUPREME COURT OF QUEENSLAND

CITATION:

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2020] QSC 395

PARTIES:

SPRINGFIELD CITY GROUP PTY LIMITED

ACN 055 714 531

(plaintiff)

v

PIPE NETWORKS PTY LTD

ACN 099 104 122

(defendant)

FILE NO/S:

BS 2798 of 2016

DIVISION:

Trial Division

PROCEEDING:

Application

DELIVERED EX TEMPORE ON:

20 November 2020

DELIVERED AT:

Brisbane

HEARING DATE:

17 November 2020; 18 November 2020

JUDGE:

Bond J

ORDER:

  1. (1)
    The plaintiff’s application for leave to tender the report of Mr O'Shea dated 15 November 2020 is dismissed.
  2. (2)
    The plaintiff has leave to file and serve a further report from Mr O'Shea by 29 January 2021 which:
  1. (a)
    consolidates his reasons;
  2. (b)
    (subject to (d)) which is based on the assumptions identified in the report referred to in order 1;
  3. (c)
    contains a statement of the reasoning and identifies the basis for his opinions;
  4. (d)
    is relevant to the pleaded issues in the proceeding.
  1. (3)
    The ruling on the defendant’s objections to Mr O'Shea’s report of December 2019 and to the joint expert report of Mr O'Shea and Mr Lytras is otherwise reserved.
  2. (4)
    The trial of the proceeding is adjourned to a date to be fixed.
  3. (5)
    The proceeding be set down for case management hearing at 9:00am on 16 February 2021.
  4. (6)
    Costs reserved.

CATCHWORDS:

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – CASE MANAGEMENT – GENERALLY – where the plaintiff applied for leave to tender a new expert report on day 7 of a 10-day trial – where the expert had previously prepared an expert report based on assumptions that were now obsolete – where the new expert report updated the expert’s calculations on the basis of a revenue data schedule agreed between the parties – where the revenue data schedule was only finalised days before the commencement of the trial – where, despite the matter being case managed on the commercial list, the plaintiff failed to raise the prospect that a new expert report might be produced which might disrupt the conduct of the trial – where part of the explanation for the lateness of the finalisation of the revenue data schedule was the defendant’s inadequate disclosure – where granting leave to the plaintiff to rely on the new expert report would necessitate adjourning the trial part-heard to 2021 to allow the defendant sufficient time to further brief its expert – whether the plaintiff should have leave to prepare a further expert report based on the revenue data schedule

EVIDENCE – ADMISSIBILITY – OPINION EVIDENCE – EXPERT OPINION – GENERALLY – where the defendant objected to the admissibility of the plaintiff’s proposed new expert report on the grounds that the plaintiff had not proved material assumptions on which the report was based and that the expert report failed to comply with the statement of reasoning rule – whether a ruling on the proof of assumption objections should be deferred until final reasons for judgment – where the expert report relied on a bespoke Excel spreadsheet model designed by the expert to calculate loss and account of profits on the basis of certain inputs and assumptions – where the model was little more than a “black box” with no explanation for the logic underlying the model offered – whether the expert report failed to comply with the statement of reasoning rule – whether any such failing is a matter of form that should be allowed to be corrected

Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21, cited

Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305, cited

Sanrus Pty Ltd v Monto Coal 2 Pty Ltd [2018] QSC 308, applied

Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 5) [2019] QSC 210, considered

Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 7) [2019] QSC 241, applied 

COUNSEL:

C R C Newlinds SC, with G Handran and W LeMass, for the plaintiff

S Couper QC, with D de Jersey QC, for the defendant

SOLICITORS:

McBride Legal for the plaintiff

RBG Lawyers for the defendant

HIS HONOUR:   I am presently conducting a trial of a proceeding which has been managed by me on the commercial list.  I have before me for resolution the defendant’s objections to admissibility to the plaintiff’s tender of certain expert opinion evidence, and also an application by the plaintiff for leave to tender a new expert report produced by its expert accountant halfway through the trial.  

Before I identify how I intend to resolve these matters, it is appropriate first to give a brief description of the nature of the case.

In 2005, the plaintiff entered into a contract with the defendant for the construction, operation and maintenance of two phases of a fibre-optic network between Springfield Central and the Brisbane CBD.  The first phase was for the construction of a 36kilometre western leg of the network.  The second phase was for the construction of a 54-kilometre eastern leg.  The agreement may be referred to as “the IRU agreement”.

The IRU agreement contemplated that, for each leg of the network, the network would comprise 72 cores of fibre-optic capacity in a section of the network described as the “on-rail” section, and a 72-core fibre-optic cable in a section of the network described as the “off-rail” section.  Each section required the installation of fibre-optic cable in underground PVC pipe conduits.  

For the on-rail section, the IRU agreement contemplated that the defendant would enter into a binding agreement with Queensland Rail for the construction of the on-rail part of the network, which would give the defendant an exclusive right to use and to grant sub-rights to use that part of the network and, in turn, that the defendant would grant to the plaintiff an indefeasible right to use the fibre capacity on that part of the network.

For the off-rail part of the network, the IRU agreement contemplated that:

  1. (a)
    the defendant would construct that section of the network by installing underground conduits along an identified network route and by placing the requisite 72-core fibre-optic cable in those conduits;
  2. (b)
    the plaintiff would own the fibre-optic cable so installed; and
  3. (c)
    the defendant would own all the infrastructure relating to that section of the network, including the requisite pits and conduits through which the plaintiff’s cable had been installed.

The term of the IRU agreement ended on the fifteenth anniversary of the date on which the first phase was made available to the plaintiff, unless extended.  That means that, unless extended, it will expire on or about 16 February 2021.  The IRU agreement provided that it could be extended up to five times, in each case for a period of three years.  There is a dispute as to whether it has been validly extended and whether it will expire on 16 February 2021.  

At the same time as entering into the IRU agreement, the plaintiff and the defendant entered into a Wholesale Fibre Services Agreement, by which the plaintiff agreed to supply, and the defendant agreed to acquire, certain fibre-optic capacity over the network the subject of the IRU agreement on the terms set out in the Wholesale Fibre Services Agreement.  

The Wholesale Fibre Services Agreement expressly provided that it commenced on 7 November 2005, and it expired 15 years later, unless terminated earlier.  There was no express term of the Wholesale Fibre Services Agreement which provided for an option to extend its term.  On its face, that means that the term of the Wholesale Fibre Services Agreement expired on 7 November 2020.  

The plaintiff contends that, despite the express terms of the Wholesale Fibre Services Agreement, there is some construction of the two contracts which permits the conclusion that the Wholesale Fibre Services Agreement may also be extended in the same manner as the IRU agreement.  I presently express no view on the merits of that contention.

Construction of the first phase of the network was completed in about February 2006, and construction of the second phase was completed in about December 2007.  A degree of complexity is created by the fact that after the western leg was completed, there was an alteration to the route of the off-rail section of the network, such that the plaintiff paid another contractor to lay the relevant conduits in that part of the route, and the defendant’s task was to install the fibre-optic cable through conduits constructed by that other contractor.  The plaintiff seems to contend that the ownership provisions of the IRU agreement could not apply to those conduits.

The plaintiff’s case is that in late 2009, and without the knowledge or consent of the plaintiff, the defendant installed its own fibre-optic network running in the pits and conduits in which the plaintiff’s network had been laid.  That may be referred to as the “Duplicate Network”.  It is comprised primarily of a 216-core fibre-optic cable which runs along both the eastern and western legs of the plaintiff’s network.  I say “primarily” because there is a section of the cable in that part of the network route which runs into what is referred to as the Polaris Data Centre, in which the defendant’s cable is reduced to a 144-core fibre-optic cable.  

The plaintiff says that, since installation, the defendant has been utilising the Duplicate Network to sell fibre capacity to the Springfield area in competition with the plaintiff.  The plaintiff says further that, in some parts of the network, the plaintiff’s network and the defendant’s Duplicate Network were not entirely separate such that the Duplicate Network involved the defendant making some use of the plaintiff’s fibre circuits and/or fibre capacity.  

The plaintiff’s case is that it was a term of the contracts, and/or part of a fiduciary duty that the defendant owed it, that the defendant was not entitled to use the network infrastructure (including the conduits) to build and accommodate a competing network, at least during the life of the contracts.  

The plaintiff opened its case by contending that the real issues in the case included: 

  1. (a)
    the proper construction of the two contracts and, in particular, of the limitation of liability and damages provisions relied upon by the defendant;
  2. (b)
    whether the parties were in a fiduciary relationship and whether the defendant had breached its duties as such;  
  3. (c)
    whether the defendant trespassed upon the plaintiff’s property and converted the plaintiff’s property for its own use; and 
  4. (d)
    whether the plaintiff had a misleading and deceptive conduct or estoppel claim based upon representations in pre-contractual negotiations that led to the contracts continuing whilst the contracts were on foot by concealing from the plaintiff that the Duplicate Network was being constructed and operated.  

The plaintiff claims damages under various causes of action and also an account of profits.  The damages case claims about $6 million and the account of profits case claims about $40 million.  

I turn now to explain the context in which the issues presently before me arise and to identify the views which I have reached as to the way forward.  

At a review hearing on 8 May 2020, I set the proceeding down for a 10-day trial commencing on 9 November 2020.  In due course, the trial commenced on that day.  By the commencement of day 7 of the trial, the proceeding had reached the stage in which the plaintiff had called all the lay witnesses it intended to call and tendered all the documentary evidence it intended to tender.  What remained in its case was expert opinion evidence from an expert accountant, Mr O'Shea.

In this regard, on the morning of day 7 of the trial, the plaintiff tendered a report of Mr O'Shea dated 20 December 2019 (which I will refer to as “the 2019 report”) and also the joint expert report of Mr O'Shea and the defendant’s expert accountant, Mr Lytras, the latter report being the product of an expert conclave between

Mr O'Shea and Mr Lytras concerning the opinions expressed in the 2019 report by Mr O'Shea and a responsive report by Mr Lytras dated 12 October 2020.  The plaintiff did not seek to tender that report of Mr Lytras.  

The plaintiff also sought to rely on a further report of Mr O'Shea dated 15 November 2020 (which I will refer to as “the 2020 report”).  The plaintiff recognised that the effect of case management orders which I had made during the interlocutory stages of this proceeding was that the 2020 report could not be tendered without my leave, and the plaintiff applied for that leave.  

In the 2019 report, Mr O'Shea addressed the following five questions:  

  1. (a)
    Question 1: the amount of the plaintiff’s lost profits from the network as a result of the construction of the Duplicate Network from the date on which the Duplicate Network commenced to 29 March 2036 (which was an end date which assumed the full extent of the possible contractual extensions of the IRU agreement);  
  2. (b)
    Question 2: the amount of profit made, and anticipated to be made, by the defendant from the Duplicate Network from the date on which the Duplicate Network commenced to 29 March 2036;
  3. (c)
    Question 3: the amount of profit ascertained pursuant to Question 2, on an average monthly basis;  
  4. (d)
    Question 4: the amount of the plaintiff’s lost profits as a result of an assumed use by the defendant of some of the plaintiff’s fibre circuits and/or fibre capacity; and 
  5. (e)
    Question 5: the amount of profit made, and anticipated to be made, by the defendant as a result of that assumed use by the defendant of the plaintiff’s fibre circuits and/or fibre capacity. 

In the 2019 report, Mr O'Shea made assumptions concerning the operational and financial performance of the plaintiff’s network, including the capacity of the network, and the revenue derived and expenses incurred from the operation of the network.  He wrote that the financial and operational information to which he had regard was that set out in paragraph 4.2.1 as follows:

The financial and operational information to which I have had regard in assessing the past cash flows derived from the Springfield Network is set out in the following table: Information provided

 Document title  Information provided

Spreadsheet - Calculation of network usage, profit and expenses_7

Proportion of monthly revenue received by Springfield from contracts retained through Pipe Networks and customers serviced by Springfield directly for the lease of fibre capacity on the Springfield Network for the period January 2006 to May 2018

 

Monthly expenses incurred by Springfield, including maintenance fees, other expenses, installation costs and capital expenses

SCG  Managed  Service

Income Spreadsheet

Additional revenue information for revenue derived from contracts retained through Pipe Networks

Supplementary revenue data (‘Supplementary

Revenue Data’)

List of customer contracts for the rent of Restricted Services and Managed Services from the Springfield Network, including contract number, annual or monthly amount payable and contract start and end date8

 

Installation revenue

Source: KordaMentha

8  Where the end date for a contract records “S/C”, I have assumed the contract is still connected as at May 2018. Restricted Services and Managed Services are explained at Section 4.4.

He also made assumptions concerning the operational and financial performance of the defendant’s Duplicate Network, including the capacity of the network, and the revenue derived and expenses incurred from the operation of the network.  He wrote that the financial and operational information to which he had regard was that set out in paragraph 5.2.1 as follows:

The financial and operational information to which I have had regard in assessing the past cash flows derived from the Duplicate Network is set out in the following table: Information provided

 Document title  Information provided

Supplementary Revenue Data

List of customer contracts for the rent of Restricted Services and Managed Services from the Duplicate Network, including contract number, annual or monthly amount payable and contract start and end date23

 

Installation revenue

Various invoices

Installation revenue

Source: KordaMentha

23  Where the end date for a contract records “S/C”, I have assumed the contract is still connected as at May 2018.

At some stage after the 2019 report was produced, the plaintiff made the forensic judgment that it would not seek at trial to prove critical assumptions of fact on which Mr O'Shea would opine by asking Mr O'Shea to assume the truth of the information which he had identified in the 2019 report.  By way of example, the material referred to at paragraph 4.2.1 to which I have just referred has not been put in evidence by the plaintiff and the plaintiff has no intention of seeking so to do.  Rather, the plaintiff made the forensic decision that it would seek to prove relevant facts concerning the financial and operational information of the plaintiff’s network and/or the defendant’s Duplicate Network in a completely different way, namely, by asking Mr O'Shea to assume the truth of the information set out in a “Revenue Data Schedule”.

The Revenue Data Schedule itself is a 179-A3-page Scott Schedule setting out, in relation to various discrete identified cores of fibre-optic cable over the many kilometres of the network and Duplicate Network – 

  1. (a)
    the plaintiff’s contention as to the way in which the defendant had used those cores to earn profits, including the extent to which the plaintiff contended that the defendant had used the plaintiff’s fibre circuits and/or fibre capacity, and including by making reference to relevant documentary evidence;  
  2. (b)
    the defendant’s position in relation to those contentions, including by making reference to relevant documentary evidence; and
  3. (c)
    the plaintiff’s response to the defendant’s position.  

By way of example, I set out as an annexure to these reasons an extract of how the Revenue Data Schedule deals with items 1 and 44.  There are 289 items in the schedule.  

Analysis of the enormous amount of detail contained in the “Plaintiff’s position”,

“Defendant’s position” and “Plaintiff’s response” sections of the Revenue Data Schedule would permit conclusions to be drawn as to the truth of very many propositions of fact regarding financial and operational aspects of the plaintiff’s network and the defendant’s Duplicate Network, including: 

(a)  the amount of revenue earned by the defendant from or in connection with discrete identified cores of fibre-optic cable on the network and Duplicate Network and the period during which the revenue was earned; and  (b)  relevant physical and operational characteristics of those cores.  

However, the Revenue Data Schedule was only finalised on 6 November 2020, which was the last working day before the commencement of the trial.  It was the late finalisation of the Revenue Data Schedule which explains why Mr O'Shea’s 2020 report was only produced on the afternoon of Sunday, 15 November 2020, after the completion of the first week of the trial.  That is because the Revenue Data Schedule seems to have entirely superseded the assumptions which Mr O'Shea had previously been asked to make concerning the financial and operational aspects of the plaintiff’s network and the defendant’s Duplicate Network.  As Mr O'Shea put it in the 2020 report:

 2.1  Revenue Data Schedule

On 10 November 2020, I was provided with a document titled “Revenue Data Schedule”.1  The Revenue Data Schedule contains a list of services detailing the amount of revenue and timeframes for those services on the Springfield and Pipe Networks and each party’s position in relation to each service.

I have been instructed to and have assumed the accuracy of all of the information contained in the Revenue Data Schedule.  I have applied the Revenue Data Schedule in the following way:

1. The column entitled “Defendant’s position” in the Revenue Data Schedule sets out all of the revenue earned from: a.  Pipe’s network; and

b. Springfield’s network, to the extent it addresses customers jointly serviced by Pipe networks and Springfield.

2. The column entitled “Plaintiff’s position” in the Revenue Data Schedule sets out all of the “Other Springfield Income” earned from Springfield’s network.

 I was previously provided with an incomplete draft version of the “Revenue Data Schedule” on 22 October 2020.  I was not provided with the complete or final version of the Revenue Data Schedule prior to 10 November 2020.  I have not relied upon the earlier draft of the Revenue data Schedule to prepare my updated calculation.

The Revenue Data Schedule has been admitted as an exhibit in the trial.

Once the plaintiff had made the forensic decision not to seek to prove at trial the assumptions it had previously asked Mr O'Shea to make and instead to ask Mr O'Shea to make the assumptions that it asked him to make concerning the Revenue Data

Schedule, it should have been obvious to the plaintiff that the 2019 report needed to be largely rewritten.  The plaintiff did not have Mr O'Shea embark on that task.  However, it is difficult to escape the inference that that may have been at least partially influenced by the timeframe in which the Revenue Data Schedule was finalised and the 2020 report was developed.  Indeed, Mr O'Shea’s 2020 report specifically stated, and I would accept, that due to the fact that the Revenue Data Schedule had only been provided to him on 10 November 2020, he had had limited time to undertake an updated assessment.  

I infer that the plaintiff had hoped that it would be possible to develop the Revenue Data Schedule to an appropriate state, to brief Mr O'Shea with it, and to have him make appropriate alterations to the manner of expression of his expert opinion within a timeframe which would not cause disruption to the trial.  That hope proved to be illfounded.  The plaintiff’s failure to raise with me what must have been a foreseeable problem concerning the conduct of the trial at any time before the commencement of the trial represents a gross departure from the standard of conduct which is expected of parties whose proceedings are being managed on this list.  However, the defendant is not blameless.  An affidavit of the plaintiff’s solicitor explains that the defendant’s disclosure was very significantly inadequate and late.  I find that a material part of the explanation for the lateness of the finalisation of the Revenue Data Schedule and of Mr O'Shea’s 2020 report was the defendant’s inadequate disclosure.  I note too that the defendant’s own expert report was months late, although it is difficult to assess the degree to which that lateness contributed to the timing of the plaintiff’s revision to its expert report.  

That the defendant bears some of the responsibility for the current predicament is a factor which I have found to be influential in the exercise of my discretion as to the way in which I should respond to the plaintiff’s application in relation to the 2020 report. 

The defendant objected to the admissibility of large swathes of Mr O'Shea’s 2019 report and to parts of the joint report.  Its argument was principally on the basis that it was now apparent that critical assumptions on which the reports were based had not been and would not be proven, the plaintiff’s forensic choice concerning the Revenue Data Schedule having the result that the 2019 report should be regarded as almost entirely based on obsolete assumptions.  I accept that submission.  That acceptance would suggest my upholding many of the objections advanced by the defendant in relation to that report.

I should observe at this juncture that there was one point of continuing significance, which had been proved by the 2019 report and the joint report, not the subject of objection: namely, that Mr O'Shea had developed a mathematical model (which I will refer to as the “KM Model”) which both he and Mr Lytras agreed was to be regarded as a broad framework which was suitable for loss and account of profits calculation purposes.  Mr O'Shea’s 2020 report explained that the KM Model was a quantum framework embedded in a series of Excel spreadsheets.  He described it as:

…an Excel workbook that contains a series of individual spreadsheets or calculation that combine to calculate various outcomes prepared by myself and Mr Lytras depending on what assumptions that are inputted into the KM Model.  

An electronic version of the Excel workbook was attached to the 2020 report and, albeit belatedly, made part of the 2020 report which was the subject of the application for leave.  

The 2020 report is a brief document.  I make the following observations:  

  1. (a)
    It refers to itself as an “Update of Expert calculation”.  
  2. (b)
    In section 1.0, it identifies the relevant previous reports and the joint report.  It explains the existence of the KM Model and the fact of the agreement between Mr O'Shea and Mr Lytras as to its utility.  Then it concludes:

Mr Lytras and I agree on the use of the KM Model as a basis for our calculations.  The reason that Mr Lytras and I arrive at different outcomes as to quantum are only due to the differing assumptions that are inputted into the KM Model.

In this statement I set out the relevant assumptions relied upon by me that I have input into the KM Model and the outcome based on those assumptions.

Many of the assumptions, if altered, have a “flow-on” effect through to other assumptions and calculations.  Because of that complexity, it is not practical for me to try and run the KM Model with every possible variation of assumptions.  To do so would produce at least hundreds if not thousands of different outcomes.

If asked by the parties, or directed by the Court, to run the KM Model with a defined set of assumptions (including, amongst many other things, if interest is to be awarded on past damages and, if so, at what rate), I am confident that Mr Lytras and I will be able to report back to the parties and/or the Court with an agreed calculation.

  1. (c)
    In section 2.0, Mr O'Shea identifies the assumptions and inputs which he puts into the model.  I have already referred to the assumption made at paragraph 2.1.  Sections 2.2 and 2.3 identify other assumptions which he has made.  
  2. (d)
    Section 3.0 identifies a particular assumption which he had previously made concerning revenue earned and to be earned by the plaintiff and the defendant from the plaintiff’s network which, having reviewed the Revenue Data Schedule, he concluded was no longer reasonable.  He had not yet worked out what was the appropriate course in relation to that assumption.  
  3. (e)
    Sections 4.0 and 5.0 set out Mr O'Shea’s conclusions.  Unlike the 2019 report, he did not seek to express conclusions by reference to five specific questions.  Rather, the 2020 report simply summarises the results of his calculations based on the position set out in the Revenue Data Schedule dated 10 November 2020 and the framework in the KM Model.  

For its part, the defendant opposed leave to rely on the 2020 report because the report was, on its contention, largely inadmissible because: 

  1. (a)
    although the revenue data schedule had been proved, it contended that the plaintiff had failed to prove some of the other important assumptions on which Mr O'Shea’s opinions set out in the report were based; and 
  2. (b)
    the 2020 report failed to comply with the statement of reasoning rule as expressed in Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705 and as discussed by me in Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 7) [2019] QSC 241.  

The defendant further submitted that if leave was granted, any grant of leave should be conditioned on an adjournment of the trial, essentially because its accounting expert, Mr Lytras, would need considerable time to understand the significance of the proposed altered assumptions and the use made of them by Mr O'Shea.  The defendant submitted that if leave was granted, it would need to obtain further advice from Mr Lytras before it made a decision as to the need to cross-examine Mr O'Shea and before it made a decision as to the need to call Mr Lytras.  Apart from the possibility of calling Mr Lytras, the defendant intends only to tender some affidavit material from individuals whom the plaintiff does not require for cross-examination.  Then it would be necessary to have written and oral final submissions.  Having regard to the nature and extent of the Revenue Data Schedule, to the form of the 2020 report and to the evidence on information and belief as to the difficulties which Mr Lytras had in understanding what had been done, I accept the defendant’s submission that an adjournment would be appropriate in the circumstances posited.  

I turn to the first group of objections to the 2020 report.  The defendant dealt with this group of objections by suggesting they were objections under the “assumption identification rule”, but they were not properly so identified.  Rather, they were advanced under a related proposition, namely, that material assumptions, although explicitly identified, had not been proved by the plaintiff.  For reasons which I will develop in my eventual final judgment in this proceeding to the extent that it is necessary so to do, I am of the view that the objections taken by the defendant falling under this category are not suited for determination other than in the context of my having heard final submissions and evaluated what conclusions I am prepared to draw on the evidence, whether because they are directly proved, or because I am prepared to draw an appropriate inference.  

In expressing this view, I am conscious of these propositions:

  1. (a)
    First, in Queensland at least, the proof of assumptions is a matter which goes to admissibility, not merely weight:  see R v Naidu [2008] QCA 130 at [68] and the footnote thereto.  
  2. (b)
    Second, the general rule identified by the High Court in Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588 at [19] and [20] is that it is only for very good reason that a trial judge should defer ruling on the admissibility of evidence until judgment.  
  3. (c)
    Third, however, as I observed in Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 5) [2019] QSC 210 at [50]:

There is often a difficulty with applying the proof of assumption rule before all the evidence is in and before the trier of fact is in a position to evaluate all the evidence in the trial in context.

In the present case, I think there is a very good reason to defer ruling on this category of objections.  It is true that all of the plaintiff’s evidence is in, but I am not in a position to evaluate all the evidence in the trial in context or, more importantly, to consider whether I am prepared to draw inferences which, if drawn, might render the opinion evidence admissible.  If the objections framed by the defendant in this regard were the only objections to the 2020 report, and otherwise it was appropriate to grant leave, the course I would take would be to receive the report subject to the objections raised by the defendant, and to rule on the objections and the use which could be made of the report in my final judgment.  To do otherwise would effectively require me to hear the final argument on the point of admissibility.  I am not prepared to take that course in this trial.  Of course, if I received the 2020 report, I would, for reasons already given, receive it on condition that there be an adjournment of the trial to permit the defendant to consider its position.  

One particular matter should be mentioned in relation to the first category of the defendant’s objections.  One argument advanced by the defendant focused on the effect of section 3.0 of the 2020 report and said that it was obvious that, on the face of the report, the calculations could not be accepted, because the evidence was, properly, casting doubt on the reasonableness of the assumption used in the calculations set out in the report.  That meant that the calculation Mr O'Shea advanced could not, accepting his own view of it, be correct.  My response is that correctness is not a measure of admissibility.  The subject matter of the expert’s concern is something on which, it seems to me at present, I may have to reach some conclusions of a nature which might render the opinion evidence admissible.  This point, too, should not be the subject of an expression of conclusion by me at this stage.

There was one other objection advanced under the first group of objections which, properly analysed, was a pleading objection.  It was that Mr O'Shea made an assumption as to a future upgrade of the network, which necessarily went towards a counterfactual proposition relevant to damages assessment which was outside the counterfactual proposition which had been pleaded in a statement of claim, which itself had been the subject of an opposed amendment at the outset of the trial.  This was the assumption dealt with in section 2.2.2 of the report at sub-paragraphs 3(b) and (c).  I would uphold this objection.  There is no merit in permitting an expert report to be tendered which presents counterfactual analyses which are outside the pleading advanced by the plaintiff.  

I turn to the second group of objections to the 2020 report.  

First, I summarised my view of the relevant law in Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 7) at [100] in these terms (emphasis in original):

The fourth relevant aspect of the Makita criteria is that the expert must state, in chief, the reasoning by which the conclusion arrived at flows from the facts proved or assumed by the expert so as to reveal that the opinion is based on the expert’s expertise.  As to this:

  1. (a)
    That is what the final of the Makita criterion addresses. In Makita (at [59]) Heydon JA had earlier observed that if an expert’s report is to be useful it must comply with the prime duty of experts in giving opinion evidence, namely to furnish the trier of fact with criteria enabling evaluation of the validity of the expert’s conclusions.  His Honour’s observations in this regard have been followed in the Queensland Court of Appeal: R v Sica [2014] 2 Qd R 168 per Muir and Gotterson JJA and Applegarth J at [104]; R v Lentini [2018] QCA 299 per Sofronoff P, with Philippides JA and Henry JA agreeing, at [55].
  2. (b)
    In Dasreef Pty Ltd v Hawchar at [91], Heydon J called this rule the ‘statement of reasoning rule’, and explained that the rule is important both from the point of view of how courts must be expected to act in relation to expert opinion and from the point of view of fairness to the opposing party.
  1. (c)
    As to the importance of the rule from the point of view of the Court, His Honour stated (at [92] – [94], footnotes omitted, emphasis added):
    1. Sir Owen Dixon, speaking extrajudicially, said: “courts cannot be expected to act upon opinions the basis of which is unexplained.”  In R v Jenkins; Ex parte Morrison Fullagar J quoted that statement with approval, and added that expert scientific witnesses should be asked to “explain the basis of theory or experience” on which their conclusions rest.  On appeal Rich and Dixon JJ approved what Fullagar J had said.  The witness must explain the basis of theory or experience because the court is not limited to examining the conclusion or the expertise of the expert witness: it must look to the “substance of the opinion expressed.”  Since choosing between conflicting experts depends in part on “impressiveness and cogency of reasoning” their “processes of reasoning” must be identified. […] 
    2. Function of the statement of reasoning rule. The rule protects cross-examiners by enabling them to go straight to the heart of any difference between the parties without the delay of preliminary reconnoitring.  It also aids the court in a non-jury trial, because at the end of the trial it is the duty of the court to give reasons for its conclusions.  And it aids jurors, because at the end of the trial they have the duty of assessing the rational force of expert evidence.  If there is not some exposition of the expert’s reasoning it will be impossible for the court to compose a judgment stating, and for the jurors to assemble, reasons for accepting or rejecting or qualifying the expert’s conclusion. 

“The process of inference that leads to the [expert's] conclusions must be stated or revealed in a way that enables the conclusions to be tested and a judgment made about the reliability of them.”

As Lord Cooper, the Lord President, said in Davie v Magistrates of Edinburgh: 

“The value of [expert opinion] evidence depends … above all upon the extent to which [the expert's] evidence carries conviction … 

[T]he defenders went so far as to maintain that we were bound to accept the conclusions of [an expert witness].  This view I must firmly reject as contrary to the principles in accordance with which expert opinion evidence is admitted. […] [The] duty [of expert witnesses] is to furnish the Judge or jury with the necessary scientific criteria for testing the accuracy of their conclusions, so as to enable the Judge or jury to form their own independent judgment by the application of these criteria to the facts proved in evidence.  …  [T]he bare ipse dixit of a scientist, however eminent, upon the issue in controversy, will normally carry little weight, for it cannot be tested by cross-examination nor independently appraised, and the parties have invoked the decision of a judicial tribunal and not an oracular pronouncement by an expert.” 

94.   It is sometimes said that these words deal with weight only, not admissibility.  But this is contradicted by the Lord President’s use of the word “admitted”.

  1. (d)
    As to the importance of the rule from the point of view of fairness to an opposing party, citing Lewis v The Queen (1987) 88 FLR 104 at 124, Heydon J wrote that the rule required the reasoning to be stated in chief because the opposing party is not to be left to find out about the expert's thinking for the first time in cross-examination.

Second, from that quote, I would again emphasise the highlighted part of the observations made by Lord Cooper in Davie v Magistrates of Edinburgh.  

Third, the structure of the 2020 report is very much a bare ipse dixit by Mr O'Shea.  There are three stages:  first, the identification of inputs or assumptions;  second, the identification of the fact of the KM Model;  and third, the identification of the outputs achieved by running the model with the identified inputs or assumptions.  As things currently stand, I can regard the KM Model as little more than a “black box” through which facts are processed to get to an outcome.  No reasoning is identified in the report.  I am not provided with criteria by which I can evaluate the validity of the conclusions reached.  I note in this regard that, although the KM Model itself was tendered, the plaintiff (by its senior counsel) expressly disavowed the notion that I should examine the contents of the KM Model in relation to the admissibility question.  It seems to me that where a judge is presented with an expert opinion founded upon the expert’s use of a bespoke Excel spreadsheet model constructed by the expert, sufficient of the logic inherent in the design of the bespoke model and its structure and use should be explained, so the judge can evaluate the validity of the conclusions reached by the use of the model and the appropriateness of the use of the model.  

Fourth, the possibility might arise in the trial, first, that the judge might ultimately be persuaded, after a proper statement of reasoning explains the nature and use of the model, that the model is in fact an appropriate tool for the calculation of certain categories of claimed remedy, but second, the trial judge’s ultimate findings might not match completely the inputs which the expert has adopted in the expert’s “run” of the model.  In that case, in a trial in which the judge is required to make findings as to the quantum of damages and the amount of an account of profits, the judge’s duty might effectively require the judge to “run” the model to get an appropriate conclusion at the end of the trial.  This brings into stark relief the requirement for an appropriate statement of reasoning which I have earlier described.  

Fifth, the problem of the absence of reasoning in the 2020 report is compounded by the bare statement in section 2.1 concerning the use which Mr O'Shea has made of the Revenue Data Schedule.  That bare statement itself hides an undisclosed process or processes of reasoning because, as I have explained and as is obvious from the extracts of the schedule that I have annexed to these reasons, the identification of the conclusions of facts to be drawn from the revenue data itself is itself an intellectual exercise.  It requires, on a core-by-core basis, understanding what the plaintiff contended, and then evaluating the extent to which the defendant’s response and the plaintiff’s reply reveals common ground to have been reached and a particular proposition of fact agreed, and therefore to be regarded as having been proved, and therefore to be assumed by the expert as being true.  The report does not identify what relevant facts Mr O'Shea has derived from that intellectual exercise, how he has derived them, or how they have been input into the KM Model.  

Sixth, it is not an adequate answer to this question of admissibility to know that Mr Lytras also agrees that the KM Model is to be regarded as a broad framework which was suitable for loss and account of profits calculation purposes.  As I observed in Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 5) [2019] QSC 210 at [37]:

…expert witnesses are not judges.  The fact that they might be able to “engage productively” (or even reach agreement, for that matter) in discussions about evidence is neither here nor there, if the evidence upon which they engaged or even reached agreement is found not to meet the criteria for admissibility of expert opinion when an objection is ruled upon by a judge.

For the foregoing reasons, I conclude that the present form of the 2020 report does fail to comply with the statement of reasoning rule.  The defendant advanced some further arguments in support of the same conclusion, but it is not necessary to consider them.  Much of the 2020 report would be inadmissible because of the failure to comply with the statement of reasoning rule.  

However, I conclude that the flaw is largely a matter of form, albeit important form.  What has been derived from the Revenue Data Schedule is obviously capable of explanation.  The link between whatever has been derived from the Revenue Data Schedule and the other assumptions, the KM Model and the conclusions drawn from the use of the KM Model must also be capable of explanation.  I am further confirmed in that view by the fact that I know that the joint view of the experts is that the model is suitable and of utility, and it did not seem that any objection was made to the proof of the KM Model itself.  

The conclusions I have expressed in relation to the form of the 2020 report for which leave is sought justify a conclusion that leave to rely on that report should be refused, except to the extent that it proves the KM Model.  That does not mean that I should simply refuse leave to rely on the 2020 report (apart from the KM Model) and proceed with the trial without the plaintiff having been put in a position to adduce further evidence from Mr O'Shea.  In fact, the stage that the trial has reached rather suggests I should take a different course.  

On both the objections to admissibility and on the leave application, I received extensive written and oral submissions.  That argument took up almost the whole of days 7 and 8 of the 10 days allocated to this trial.  Late in the afternoon of day 8, I adjourned the trial until the morning of day 10, today, so that during the course of day 9 I could determine how to proceed further in the trial.  These oral reasons are the result of that determination.  Even if I had thought it was a proper conclusion immediately to rule in favour of the defendant on all its objections and on the leave application, there would remain no time for written or oral final submissions.  In other words, it is now plain that the trial cannot hope to be completed in the time allocated for it and that the parties will have to come back next year.  Presently, the first available time for resumption would be the week commencing 15 February 2021.  

The fact that there must be a significant adjournment of the trial is a very significant factor in my assessment as to what is the appropriate resolution of the objections and/or the application for leave.  So is the fact to which I have already adverted, namely, that the defendant carries part of the blame for the plaintiff’s difficulties with its expert opinion evidence.  

The considerations which inform the course I take are those which I identified in Sanrus Pty Ltd v Monto Coal 2 Pty Ltd [2018] QSC 308 at [71].  Notwithstanding the fact that the form of the 2020 report renders it inappropriate to grant leave to the plaintiff to rely on the 2020 report, it seems to me that it would be unfair to the plaintiff to deny it the opportunity to adduce further evidence from Mr O'Shea.  Taking that course would not be in the interests of the just resolution of the issues which arise in this proceeding, and any prejudice to the defendant is capable of being ameliorated by timetabling considerations.  I observe parenthetically that in the present evaluation of discretionary considerations I would not accord the prejudice to other litigants significant weight.  

The course I will take is as follows. 

I would refuse the plaintiff leave to rely on the 2020 report of Mr O'Shea.  However, I would grant the plaintiff leave to prepare a further expert report of Mr O'Shea which consolidates in one report the entirety of the expert opinion of Mr O'Shea on which the plaintiff seeks to rely in this proceeding: 

  1. (a)
    which is based on the assumptions identified in the 2020 report;  
  2. (b)
    which is relevant to the pleaded case; and 
  3. (c)
    which remedies the defects in the statement of reasoning in the existing 2020 report.  

A question arises, on which I will hear the parties, whether the form of order should be a grant of leave (which, if it is to be exercised upon, must be exercised within a specified time) or a direction that the plaintiff must prepare such a report within a specified time. 

Although I have expressed a view that I would accept the submission that the 2019 report should be regarded as almost entirely based upon obsolete assumptions with the result that many of the objections advanced by the defendant in relation to that report should be upheld, I would adjourn formally ruling on the defendant’s objections to the admissibility of the 2019 report and the joint report to a date to be fixed after any further report of Mr O'Shea is produced.  In this regard, I observe that I am conscious that it is possible that the form of the further report produced may render it unnecessary to rule upon those objections, because it might prove possible or desirable for the plaintiff to withdraw the tender of the 2019 report.

I am conscious that a timetable must be fixed which will: 

  1. (a)
    identify the timeframe within which the plaintiff must avail itself of the grant of leave (or, if I formulate a direction requiring the report to be prepared, the timeframe within which the further report must be prepared);  
  2. (b)
    permit a responsive report by the defendant’s expert to be prepared and, possibly, provide for a further joint expert conclave and a further joint expert report;  
  3. (c)
    permit the defendant to consider whether objections should be pressed in relation to the further report and, if so, for those objections to be heard and determined (and, in this regard, I anticipate that the defendant would inevitably need at least formally to repeat its proof of assumption objections); and (d)  provide for the resumption of the trial to permit: 
    1. the tender of the further report;  
    2. any cross-examination of Mr O'Shea to take place;  
    3. the plaintiff to close its case;  
    4. the defendant to adduce the evidence to which I have referred, including any expert opinion evidence; and 
    5. final written and oral submissions.

On the question of the date for resumption of the trial, I should make two observations.  

First, as to the form of the final written and oral submissions.  There has been a large amount of documentary evidence tendered in hard copy and electronic copy form.  I have been assured by senior counsel for the plaintiff that it will not be necessary to look at much of that evidence, and that the only parts I will need to look at are those parts to which I have been specifically taken during the trial.  I will be acting on the faith of that assurance.  That means that any submission advanced to me as to the facts which I should find or that a proposition is proved by evidence must be founded upon a clear identification of the evidence which is said to do that.  

Second, there was some discussion with counsel during argument on day 8 as to the possibility that the trial might resume on 15 February 2021.  However, on reflection, and in view of what has happened in this trial to date, I am unwilling to set that date or any date for the resumption of the trial until the plaintiff has prepared and delivered a further report by Mr O'Shea.  Accordingly, my present inclination is that I should: 

  1. (a)
    set a timetable which will bring about that outcome;  
  2. (b)
    set a date for further review at a time sufficiently thereafter as will permit the parties to consider the other timetabling considerations; and
  3. (c)
    otherwise adjourn the further hearing of the trial to a date to be fixed at that further review hearing, with the contemplation that any other timetabling directions can be made at that review hearing.  

However, I will hear the parties on what further orders I should make.

The order of the court is that: 

  1. The plaintiff’s application for leave to tender the report of Mr O'Shea dated 15 November 2020 is dismissed. 
  2. The plaintiff has leave to file and serve a further report from Mr O'Shea by 29 January 2021 which: 
    1. (a)
      consolidates his reasons; 
    2. (b)
      (subject to (d)) which is based on the assumptions identified in the report referred to in order 1; 
    3. (c)
      contains a statement of the reasoning and identifies the basis for his opinions; 
    4. (d)
      is relevant to the pleaded issues in the proceeding. 
  3. The ruling on the defendant’s objections to Mr O'Shea’s report of December 2019 and to the joint expert report of Mr O'Shea and Mr Lytras is otherwise reserved. 
  4. The trial of the proceeding is adjourned to a date to be fixed. 
  5. The proceeding be set down for case management hearing at 9:00am on 16 February 2021.
  1. Costs reserved.

 

Annexure 1: Revenue Data Schedule, items 1 and 44

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2020] QSC 395

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2020] QSC 395

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2020] QSC 395

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2020] QSC 395

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2020] QSC 395

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2020] QSC 395

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2020] QSC 395

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2020] QSC 395

Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2020] QSC 395

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Editorial Notes

  • Published Case Name:

    Springfield City Group Pty Ltd v Pipe Networks Pty Ltd

  • Shortened Case Name:

    Springfield City Group Pty Ltd v Pipe Networks Pty Ltd

  • MNC:

    [2020] QSC 395

  • Court:

    QSC

  • Judge(s):

    Bond J

  • Date:

    20 Nov 2020

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Dasreef Pty Ltd v Hawchar [2011] HCA 21
1 citation
Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588
2 citations
Lewis v The Queen (1987) 88 FLR 104
1 citation
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705
2 citations
Makita (Australia) Pty Ltd v Sprowles (2001) NSWCA 305
1 citation
R v Lentini [2018] QCA 299
1 citation
R v Naidu [2008] QCA 130
1 citation
R v Sica[2014] 2 Qd R 168; [2013] QCA 247
1 citation
Sanrus Pty Ltd v Monto Coal 2 Pty Ltd [2018] QSC 308
2 citations
Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 5) [2019] QSC 210
3 citations
Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 7) [2019] QSC 241
2 citations

Cases Citing

Case NameFull CitationFrequency
Springfield City Group Pty Ltd v PIPE Networks Pty Ltd [2021] QSC 80 1 citation
Springfield City Group Pty Ltd v Pipe Networks Pty Ltd [2022] QSC 255 1 citation
1

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