Three Takeaways from Blackmores Ltd v Jestins Enterprises Pty Ltd [2020] NSWSC 1177

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Background facts:

The Defendant, Jestins Enterprises, entered into an agreement with Blackmores that allowed the Defendant to order and obtain products from Blackmores on credit. The Defendant then opened another account with Blackmores, allowing it to export Blackmores products to China. For this purpose, it began trading as ‘Pharmadeal’.

Shortly after entering the agreement, Jestins struggled to make its payments. The Defendant subsequently entered into a Settlement Deed with Blackmores whereby it would pay $800,000 to Blackmores and then an outstanding amount owing of $1,193,813.53 in no more than 12 working days’ time.

Jestins paid the first sum of $800,000 but made no further payments. When Blackmores brought proceedings against the Defendant, the Defendant and Pharmadeal claimed that, amongst other things, Blackmores’ behaviour had amounted to a breach of contractual terms under their contracts and had caused a loss of $7 million.

The Expert Report

To assess the quantum of their alleged loss, the Defendant engaged Accountant and Valuer Mr S. The Court took issue with several aspects of Mr S’s methodology, which he did not justify despite the questionable assumptions that came with them. In particular, the court took issue with:

  • The assumption that Pharmadeal’s business should be valued as a part of Jestins’ business without questioning whether Pharamadeal had become a party to the original contract in a manner warranting inclusion in the business valuation; [93]
  • The reliance on information in spreadsheets and emails Mr Puthenpurackal (sole director of Jestins) sent to Mr S without attempting to question whether they were reliable and accurate; [94]-[95] and
  • Flaws in calculations to which the other side’s expert, Mr Alex Bell, drew the court’s attention and which Mr S was unable to account for. [96]

In addition, the court commented on Mr S’s brazen lack of formality as he presented evidence via videolink. Justice Ball commented in particular that the expert “was wearing a sweatshirt” and “appeared on occasions to be attending to text messages or emails on his mobile phone”.

The Court found that such behaviour fell below the standard of formality it expects from hearings conducted via videolink, explaining that it saw courtroom formality as:

“[O]ne mechanism by which all participants are reminded of the importance of the proceedings both to the community as a whole as a manifestation of the rule of law and to the individual litigants and witnesses, for whom the outcome of the proceedings can have major financial and reputational ramifications.” [98]

Justice Ball then questioned whether “it is appropriate for [Mr S] to charge for the time he spent giving evidence when he used some of that time to attend to other tasks as well”. [98] The Courts orders for this matter subsequently applied liberty to the Defendants to apply to the court to reduce the costs of Mr S’s fees.

Decision

In summarising their assessment of the expert evidence, the court concluded that:

“[T]hese considerations alone provide a sufficient basis to reject the conclusions of [Mr S’s] report, which the result that Jestins has failed to prove that is suffered any loss” [97]

The court held judgement in favour of the Plaintiffs after finding that it could not accept any of the Defendant’s counterclaims.

Takeaways

  1. Experts must remember to prove their assumptions or demonstrate that they have attempted to verify the foundations of their reporting.
  2. Experts should attend all hearings, including those that take place through video link, with formality and full attention to proceedings. Display an understanding of court etiquette by dressing suitably and placing aside any electronic devices for the duration of the hearing.
  3. Courts may allow parties to reduce the amount they pay to experts if experts display a brazen lack of commitment to the procedures of the Court over the course of a hearing.

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