Burns Philp (South Seas) Company Ltd v Lees Trading Company Limited [1997] FJHC 185; Hbc0643.85 (25 November 1997)

Fiji Islands - Burns Philp (South Seas) Company Limited v Lees Trading Company Limited - Pacific Law Materials

IN THE HIGH COURT OF FIJI

AT SUVA

CIVIL JURISDICTION

CIVIL ACTION NO. 643 OF 1985

BETWEEN:

BURNS PHILP (SOUTH SEA) COMPANY LIMITED
Plaintiff (Respondent)

AND:

LEES TRADING COMPANY LIMITED
2nd Defendant (Claimant)

J.and QC for the Plaintiff
B.C. Patel with M.K. Narsey for the Second Defendant

ASSESSMENT OF DAMAGES

On 18 May 1987 Mr. Justice F.X. Rooney gave Judgment for the Second Defendant (Lees) on liability after a six day hearing. Concluding his Judgment, Rooney J having noted that Lees were claiming $4,214,296.00 in damages anticipated that the claim would be strenuously resisted by the Plaintiff (BP). He went on to urge the Parties to do their best to secure an agreement on the damages to be awarded and, if that proved impossible, to consult together and, with the assistance of accountants to try to narrow down the issues. He suggested that it should be possible to define the extent to which damages flowed from the breach of contract and the figures involved.

Just under nine years later after an unsuccessful appeal to the Fiji Court of Appeal and a myriad of interlocutory applications, appointments, summonses and directions Assistant Court Officer Robin Singh came into my chambers carrying a large cardboard box. Inside it were 11 grey lever arch files containing 4,953 pages of documents disclosed by Lees. Owing to Court fixtures I had not been able to begin reading these documents before the first day of the hearing of the Claim for Damages on 22 April 1996. On that day I came into Court to be confronted not only with the 11 grey files but also a further 6 white lever arch files prepared by BP and containing their own disclosure documents, the record of the proceedings for Rooney J and the proposed evidence in chief of the principal witnesses.

Over the course of the next 15 days I heard evidence from 5 witnesses for Lees and 2 witnesses for BP. Fortunately the parties had made arrangements for the evidence to be transcribed and there are 2 volumes of transcript numbering 805 pages.

During the course of the hearing and its conclusion I several times expressed my concern at the extremely technical nature of much of the evidence which had been presented. In particular, the evidence of the 2 senior chartered accountants namely Peter Lane, a partner with Coopers & Lybrand, NZ, called by Lees and John Banks, a partner with KPMG New South Wales, called by BP contained many pages of highly complex mathematical calculations which were subjected to the most minute analysis and, on a number of occasions, found to be in need of amendment or further elucidation by the preparation of yet further calculations. Many of these further calculations appeared for the first time either in cross-examination or in re-examination and were greeted with a flurry of further calculations performed, it must be said with great panache on rather formidable looking calculators which most of the witnesses and some of the spectators in the public gallery appeared to keep constantly about them. Sums never having been my preferred pastime I began to wonder whether I should have been invited by counsel to hear the case with the advice and assistance of an expert as provided for by section 31(2) of the High Court Act (Cap. 13). After discussion with counsel however it was agreed that detailed and comprehensive written submissions offered the best way forward.

On 26 April 1996 counsel conferred together and produced a document entitled “Summary of Remaining Issues” which was marked for convenience as exhibit LT-7. The 16 issues there identified form the basis of the following written submissions filed by both sides:

(i) BP: 5 August 1996 - Exhibit BP22

(ii) Lees, in answer: 15 October 1996 - Exhibit LT38

(iii) BP, in reply: 23 October 1996 - Exhibit BP23

(iv) Lees, in reply: 24 October 1996 - Exhibit LT39

(v) Lees, additional submissions - 3 December 1996

(iv) BP, additional submissions - 3 December 1996

to these should be added the parties’ opening statements Exhibits BP-13 and LT-28.

Careful examination of the evidence and the written submissions reveal that the principal matters which separate the parties are not questions of arithmetic but differences of principle and methodology underlying the different sets of calculations. As I made quite clear to counsel on more than one occasion I did not have the expertise to decide between competing sets of accounts. I am therefore grateful to counsel who obviously worked very hard to agree and formulate the issues now calling for resolution. I have been advised by counsel that once my decisions on these issues have become known it should prove possible with the aid of the accountants to arrive at agreed calculations. To some extent therefore this assessment is unfortunately still interim in nature.

I do not propose to repeat the history of the events leading up to this litigation. It is already set out in detail in the judgment of Rooney J, in the witness statements and in the written submissions. I will instead simply deal with the 16 issues in the order in which they appear in Exhibit LT-7 which is the same sequence in which they are dealt with by both counsel in their written submissions.

Issue 1

Question: In calculating the loss of contribution from the manufacture of biscuits suffered by Lees during the period between 1984 and 1989 is it appropriate to assume for the purposes of the calculations the sales mix of products by Pacific Biscuit Company/Sports Drinks in that period?

Answer: Altogether four agreements were entered into between the parties for the sale and purchase of Pacific Biscuits. These covered the sale of plant and machinery, sale of stock, sale of trademarks and also dealt with the supply of packaging material. The four agreements were inter-related and it was the intention of the parties that they should all become operational at the same time. The foundation agreement was that set out at page 211 of volume 4 of the BP documents. For ease of reference I will henceforth refer to these documents thus “BP/4/211". This foundation agreement contained a restraint of trade provision in clause 9. The effect of it would have been to give Lees a virtual monopoly in the manufacture of biscuits in Fiji for a period of 5 years. The sale not having gone through the exercise now been undertaken by the Court is the evaluation of the loss, if any, suffered by Lees as a result of being deprived of the opportunity to exploit the monopoly which it had stood to gain. In these circumstances it has been agreed that the relevant claim period is the 5 year period June 1984 to May 1989.

Both parties have agreed that the calculation of the damages entitlement must include an assessment of the sales of biscuits actually made by BP and Sports Drinks (the Company to which the BP biscuit business was eventually sold) during the claim period and also an assessment of the costs Lees would have incurred in the production of those sales had the contract not been breached.

The relevance of the appropriate product mix that the cost of producing the different types of biscuits manufactured by both parties was not the same and neither was the profit attributable to each type. Furthermore, the percentage of total sales of each manufacturer represented by each type was not identical.

In his statement of evidence dated 24 November 1995 Mr. Lane showed in paragraphs 4.4 to 4.16 how he had based his calculations on the BP product mix which he had derived from samples taken by another firm of chartered accountants KPMG Peat Marwick (Peats, which had prepared a report on the Lees claim for BP in November 1991 - Lees Trading disclosure documents Volume 1, page 0062 - I will cite such documents hereafter as DFT/0062).

Mr. Banks on the other hand in paragraphs 6.3 to 6.7 of his statement dated 15 December 1995 based his calculations on the Lees sales mix. He explained that he had done so not only because, unlike the Peats sample there was evidence of the continuous sales mix over a period of 2 years but also because “Lees Trading were a dominant provider of biscuits to the Fiji market, thereby suggestion that the sales pattern of Lees Trading was indicative of the market generally”.

Professor Robert Bowman, a professor of finance at the University of Auckland was an expert witness called by Lees. The effect of his evidence was generally to support Mr. Lane wherever there was a conflict of approach between Messrs Lane and Banks. On this issue at paragraph 6.3 of his statement dated 1 March 1996 he stated “the purpose is to estimate sales details of Pacific Biscuits, not the market generally. Therefore data on Pacific Biscuits sales would be appropriate, not that of Lees”.

In paragraphs 5 & 6 of his supplementary statement dated 8 May 1996 Mr. Banks pointed out that the difference between the two approaches was really one of principle and that adoption of either approach make very little difference to the outcome of the calculation.

In paragraphs 106 & 107 of Lees first written submission it is suggested, with the aid of detailed calculations there set out that Mr. Banks had not only taken the wrong approach but had also miscalculated. It is said that the difference not only one of principle but one of value also. As far as I can see the calculations and matters set out in paragraph 106 & 107 were never put in evidence. In my view they are not appropriately included in written submissions. As I see it a central thrust of the whole of Lees case is that it would have gained a virtual monopoly with all the increased powers which flows with such a situation. Among those powers would have been the extra power to direct and shape the market. Although I was told by Robert Lee that it was the intention to continue producing Pacific Biscuits under the label I am quite satisfied that fairly soon after the planned take-over Pacific Biscuits as a separate entity and identity would have withered away only being kept alive for the purposes of specialised markets (see issue 10). I prefer the approach taken by Mr. Banks and resolve issue 1 in favour of BP.

Issues 2, 3 & 4

Question: (adapted from Exhibit LT-7) In determining the cost to Lees of raw materials, energy, labour and packaging in the manufacture of biscuits which calculations, as between those supplied by Lees to the PIB and those supplied by Lees to and verified by Coopers and Lybrand, are to be preferred.

Answer: These three issues are among the most important calling for resolution. Since it is the net profits lost to Lees which have to be calculated the production costs of the biscuit sales lost must also be correctly assessed. The four cost elements covered by these issues are raw materials (issue 2), energy and labour (issue 3) and packaging (issue 4). The fundamental question in relation to each issue is same. It is whether in calculating these costs the right approach is to base the calculations on invoice costs taken together with other information provided by Lees to Mr. Lane or whether the right approach is to base the calculations on figures provided by Lees to the Prices and Incomes Board.

The Prices and Incomes Board (PIB) comes into it in this way: Cabin crackers and breakfast Crackers which together accounted for almost 90% of the sale of Pacific Biscuits (see Lane statement paragraph 4.5) are among those staple household items which are subject to price control imposed under the provisions of the Counter Inflation Act (Cap 73). From time to time the PIB issues Price Control Orders specifying the maximum prices which may be charged for various products subject to the Act. Examples of such Orders, which it will be seen are extremely detailed, can be found at DFT 0343 to DFT 0525. Although the Secretary of the PIB Mr. Vishnu Baldeo was called to give evidence (pages 151 to 194 of the transcript - hereinafter referred to as TC) he was not asked to explain how or why exactly the PIB decides to issue Orders either reducing or increasing prices and nor was he asked what precise procedure the PIB follows in calculating the variations later published. It appears, however, from Exhibit BP-1 that while occasionally the PIB took the initiative to vary existing prices (see Exhibit BP-1 page 187) usually it was the manufacturers, in this case Lees, who made the first approach. One example of such an approach is that dated 8 and 28 August 1984 which may be found at Exhibit BP-1 pages 6 to 38.

In its letter dated 8 August 1984 Lees, through its General Manager Allen Lee submitted a request for immediate price increases for biscuits. This letter was followed by another dated 28 August. From these letters it emerges that Lees were seeking the increases in order to cover cost increases which they themselves had experienced. These included increased costs of electricity, fuel, flour, raw materials, packing materials, wages and salaries, vehicle running costs, professional services and charges and insurance. The submission also referred to the decline in the value of the Fiji dollar, increases in Post and Telecommunications charges, increased cost of interest and withdrawal of duty-free import concessions. The letter of 28 August encloses a copy of Lees profit and loss account for the 12 months to 30 April 1984 (pages 34 & 35) together with 10 pages of costing calculations. The degree of accuracy in the calculations which, in my opinion, it was clearly intended to convey can be illustrated by taking one example namely 18 kilogram cabin crackers.

On page 9 we see that the current ex-factory price (100/107ths of the wholesale price - TC 742 and Banks statement 15-12-95 paragraph 6.5) was currently $20.04. The requested increase was to $20.89. Somewhat mysteriously the cost for this product (pages 20 & 28) was put at $21.36. Of the costing element labour was calculated at $1.78 per man hour while on page 37 it can be seen how the $1.78 was calculated to within an accuracy of four decimal points. On page 29 it can be seen that to produce $923.38 worth of biscuits required expenditure of $100.89 on administration and the expenditure on administration is itself set out on page 35.

It was this and other similar calculations together making up BP-1 upon which Mr. Banks based his calculations. The question is whether that was the correct approach or whether the better approach was that taken by Mr. Lane.

Before examining Mr. Lane’s approach it must again be made clear that I am and only am able to be concerned with the broad issue of the correct or better methodology. Both Mr. Lane and Mr. Banks admitted during the course of the hearing that upon closer examination they wished to alter some of the less crucial aspects of their approaches or calculations. It would be wholly unrealistic for me to attempt to embark in this assessment on an adjudication upon each modification still in issue.

Mr. Lane’s explanation of how he calculated direct biscuit costs is set out in section 5 of his statement dated 24 November 1995. It involves examination of a large sample of actual invoices which were then taken together with certain information provided to Mr. Lane by Messrs Robert and Allen Lee. Examples of information provided by the Lee brothers are recipes, yield, through put, energy usage and labour costs.

The impact of the two alternative approaches on the damages calculations can be seen from Exhibit BP-19. This exhibit, which appeared in its first form as Appendix A to Mr. Bank’s final statement dated 8 May 1996 (when it replaced a number of other tables of calculations e.g. table 12 in the statement dated 19 February) was produced on 5 May 1996. I might say that I found it a considerable improvement on most of other tables the producers of which did not apparently see the need for such devices as addition, subtraction and dollar signs or line indicators.

Looking at Exhibit BP-19 it can be seen that lines 6 to 10 deal with the costs of production. Mr. Banks calculated the total cost within the claim period to be $4,152,764.00 while Mr. Lane put the figure at $3,532,198.00, a very significant difference of $620,566.00 and indeed almost half of the total difference between the parties (before interest and after tax) which is shown as $1,431,499.00.

At paragraph 6.6 of his statement Professor Bowman wrote as follows:-

“In section 7 Mr. Banks explains his estimates of product costing including overhead costs. In paragraph 7.1 he states he has based his analysis on correspondence between Lees and the PIB. This seems a peculiar source of costing information. The manufacturing would have been done by Lees so production costs of Lees would be the correct source of data. Mr. Banks may not have had access to cost information from Lees. In that event I believe cost information from Pacific Biscuits to which he would have had access would be much more helpful and accurate than the information included in the correspondence with the PIB.”

At paragraph 6.22 Professor Bowman added:-

“Mr. Banks places reliance upon information which he extracts from Lees correspondence with the PIB. His estimates of product costs and overhead costs are derived from this source. In my opinion this is a poor source of information given the alternative sources available to him.”

Professor Bowman was cross-examined on this aspect of his evidence at TC 428 to 435. I did not find that his oral evidence added very much to his written statement. I find it hard to reconcile his criticism of the use of the material contained in Exhibit BP-1 with his assertion that Lees was the correct source of data; all the data contained in BP-1 had Lees as its source.

To suggest that the information provided by Lees to the PIB was less accurate than cost information which could be had from Pacific Biscuits seem to me, with respect, to be somewhat far-fetched. Whether Professor Bowman had read page 220 of Exhibit BP-1 before advancing this proposition I do not know. Part of the letter from Robert Lee to the PIB reads:-

“We had also been led to believe that one of our competitors has not been requesting a price increase. This has been taken to indicate that the price is okay. We find this incredible as our recipes and quality of biscuits are substantially different. This is reflected in the market share that we have both in exports and locally.”

It is clear to me that “our competitors” is Pacific Biscuits.

I have to say, with respect, that I did not find Professor Bowman’s evidence on these issues to be of great assistance to me.

B.P’s initial arguments are set out in paragraphs 24 to 73 and 74 to 115 of its written submission filed on 5 August 1996 (Exhibit BP-22) while Lees’ answers on the same issues are set out in paragraphs 50 to 71 of the written submission filed on 15 October (Exhibit LT-38). B.P’s reply to Lees is at paragraphs 11 to 41 of Exhibit BP-23 handed to the Court on 23 October 1996 and the final response by Lees is Exhibit LT 23, paragraphs 5 to 15 handed to the Court on 24 October. Given the extremely detailed nature of these submissions which involved reference and cross reference to each other, to the transcript and to the various exhibits it is very difficult, and really pointless, to do more than attempt a broad outline of the two arguments. In working towards a resolution of these particular issues I have studied each submission in detail and no attempt fully to understand the arguments can dispense with such a study. At the same time certain of the submissions, facts and matters covered by counsel stand out in their importance and can be specifically mentioned.

B.P’s central argument against the Lane approach is that it is fatally flawed by being heavily dependent on unsubstantiated or only poorly substantiated information supplied to Mr. Lane by Robert Lee who, it is said, had shown himself, in particular by his evidence relating to the provision of Lees management accounts not to be a witness of credit. If the Lane approach is not to be followed then the only alternative is that of Mr. Banks which it is said relied on information supplied by Lees to the PIB which was contemporaneous, which had been acted upon by the PIB and which had been compiled and prepared by Lees then general manager Mr. Allen Lee (who was not called to give evidence).

The essence of Lees’ reply is contained in paragraph 71 of the written submission filed on 15 October 1996 (Exhibit LT-38). It is argued that the Lane approach should be preferred since the PIB submission - based calculations “contained actual costs, estimated costs, allocation of costs and projections. These were accurate at one point of time only and (it) is inappropriate to apply those submissions to the whole claim period”. It was also argued that some of the information and assumptions upon which Mr. Banks had based his calculations were demonstrably wrong. As already seen Lees also rely on Professor Bowman’s endorsement of the approach taken by Mr. Lane and his criticisms of that taken by Mr. Banks.

Lees management accounts for the period in question are contained in a mauve lever-arch file and were finally produced after a deal of argument between counsel and various allegations of impropriety on 7 May 1996, day 12 of the trial (see TC 620 to 632) and was marked LT-26.

There is no dispute that in attempting to calculate a claim of this type a company’s management accounts are of very great importance but for the purpose only of the resolution of these three particular issues their importance is said by BP to derive not from their evidential value in calculating the claim but in demonstrating Mr. Robert Lee’s lack of value as a credible witness. BP’s case is set out in detail at paragraphs 49 to 70 of Exhibit BP-22 while Lees answer is to be found at paragraphs 23 to 38 of Exhibit LT-38.

The first mention of the management accounts at the hearing appears to have been during Mr. Robert Lee’s evidence in chief on 3 May 1996. At TC 468 line 38 and a little later at TC 469 line 47 he confirmed paragraph 30 of his supplementary statement of evidence dated 3 May 1996. Mr. Lee told me:

“I have made a thorough search but have been unable to find the management accounts for the period June 1984 to June 1989 and they now appear lost.”

At TC 471 Mr. Lee, confirming paragraph 31 of his supplementary statement told me:

“Copies of the monthly management accounts for the period June 1984 to August 1988 were given to George McLean of Burns Philp in Sydney Australia in October 1988 by Allen Lee. I know that because I made copies of them for Allen to take .....”

This claim by Mr. Lee is denied by BP (TC 471 lines 3 & 4). BP say that the management accounts were never given by Lees to BP until on or about day 10 of the hearing.

Volume 5 of the BP documents shows that the first request by BP to Lees for copies of the management accounts was made on 28 October 1985: BP/5/005335 and 005336. On 13 November 1987 the request was repeated (see penultimate paragraph of 005342). This letter contains the first indication that Lees were not happy to disclose the management accounts.

On 25 March 1988 the parties met in Sydney to consider Lees claim. The minutes of the meeting are at 005343. On 005345 we read:

“4. Request copies of management and financial accounts for the period of claim.

Reply: Alan (sic) Lee was against providing copies of accounts but would reconsider the matter.”

At 005346 we see a copy telex from Peat Marwick (acting for BP) to Mr. Allen Lee requesting, at item 4, copies of the management and financial accounts. This telex was followed by a reminder at 005348 and at 005349 in a letter dated 18 September 1988 BP’s company secretary reported that he has spoken to Allen Lee who has confirmed “that the necessary documents/information will be available in the next few days. He confirmed that his staff were currently putting them together”.

On 31 October 1988 BP’s Legal Affairs Manager Mr. G.W. McLean (clearly the same George McLean referred to by Mr. Lee at TC 471) confirmed receiving information provided by Lees being:

“..... a volume about 3 centimetres thick containing detailed month by month figures on Lees business. To what extent it responds to Peats requirements I am unable to say ..... I did notice that no information was provided on management salaries/costs .....”

On 14 August 1989 BP wrote to Lees (005352) complaining that Lees had provided insufficient information for their claim properly to be evaluated. Additional information sought included “copies of all management accounts or trading accounts.”

On 7 September 1989 Lees replied (005354) asking “how following information sought would help verify claim” and went on to list “copies of all management accounts.”

On 12 September 1989 (005359) Lees stated:

“Management trading accounts for biscuits. These were given to you in Sydney in November 1988 .....”

On 30 August 1990 (005367) BP filed a motion in Court seeking, inter alia, copies of the monthly and annual management accounts.

From the foregoing it will be obvious that establishing what or was not provided by Lees to BP by way of management accounts was and remains of crucial importance.

The cross-examination of Mr. Robert Lee begins at TC 476. Mr. Lee told the Court that he had made a photocopy of the original management accounts in October 1988 and that the photocopy had been taken by his brother Allen to Sydney and had there been given by him to BP. Mr. Lee explained that the original management accounts had dealt not only with the Lees biscuit operation but with its bread business also. Since the bread operations were not relevant for the purposes of the biscuit claim that segment of each sheet of the management accounts (“the right hand side” - see TC 477) had not been photocopied. Apart from this omission of material however the materials supplied to BP were exactly the same and in exactly the same form as the management accounts. It was, in other words, a partial photocopy no more and no less. He 3 times confirmed that the accounts which had been given to BP by Allen Lee had not been prepared especially for BP. He had simply made partial photocopies of what was already in existence (see TC 477 lines 38 to 50 and TC 559).

At TC 478 Mr. Lee was handed a 2cm thick ring-bound volume bearing on its cover in black and white the words “Lees” and “BP Claim file”. It was initially marked MFI-1 for identification and was subsequently tendered as Exhibit BP-4. It is quite obviously a photocopy of another volume bearing the same words on its cover (although this time in colour) and having precisely the same contents and which was tendered as BP-20 on 10 May by Mr. G.W. McLean (TC 802).

Mr. McLean (who had also made the contemporaneous diary note Exhibit BP-11) told me, without challenge, that BP-4 was a photocopy of BP-20 which was the document which had been given to him by Mr. Allen Lee at a meeting in Sydney on 24 October 1988. He also confirmed, without challenge, that no other documents had been given to him by Mr. Allen Lee at the meeting and also that he had never seen any of the documents contained in LT-26 prior to being shown them the day before (i.e. on 9 May 1996).

When shown BP-4 Mr. Lee denied that this was the document which he had prepared and which he had sent by Mr. Allen Lee to Sydney in 1988 (TC 478 line 16 and TC 479 line 34). While he vaguely recalled seeing the document before “lying around” he was not sure if he had prepared it.

On 6 May Mr. Lee was questioned further about BP-4. By now he had become rather more emphatic. At TC 5537 lines 13 and 14 he again denied that this was the document taken to Sydney by Mr. Allen Lee but he also went on positively to deny that he had prepared it.

Unfortunately this latter denial involved, as I see it, a very considerable difficulty for Mr. Lee because he did admit that the document was divided up into a number of different sections and that each of those sections bore a title, as did the cover of the volume which was written in his own handwriting (see TC 538 to TC 540).

There is, it seems to me, another serious difficulty involved in Mr. Lees account. According to him, as has been seen, the information supplied to BP in response to their request for copies of the management accounts was no more than a photocopy of the relevant parts of already existing management accounts. But comparison of any page of BP-4 with LT-26 reveals quite clearly that the one is most definitely not a partial photocopy of the other. Not only does the layout not correspond at all but the figures to be found in the two documents are significantly different. There is no question of the “right hand side” of the pages of LT-26 having simply not been photocopied. Apart from anything else if that had been all that was done then the left hand side totals which occasionally contained information only derived from the right hand side would not have made any sense. The process described by Mr. Lee does not bear comparison with LT-26 at all. Mr. McLean having given unchallenged evidence that he only received the original BP-4, namely BP-20 and no other management accounts it can only be concluded that Mr. Lees description of having merely provided partial photocopies of already existing management accounts must be incorrect.

Having heard and seen Mr. Lee and Mr. McLean and having studied the correspondence and the contents of LT-26 and BP-4 and BP-20 I am satisfied that Mr. Lee was not telling me the truth, and that he knew fully well that the only information supplied prior to the hearing to BP in response to their request for management accounts was BP-20. I am also satisfied that he actually remembered quite clearly that he had had a principal role in the preparation of that document. I am satisfied that he was not telling the truth when he denied that the information supplied to BP was significantly different from the information contained in LT-26.

Some indication of the measure of the difference can in fact be gained from Exhibit BP-16 prepared by Mr. Banks during the course of the hearing. It is not necessary to be a trained accountant to spot some startling differences. Thus, for example, repairs and maintenance for the 11 months ending 30 April 1985 are given in BP-4 as $38,687 while LT-26 gives $63,302. Production wages for the year ending 30 April 1996 are given by BP-4 as $154,646 while LT-26 gives $313,006. By any token these are very significant differences indeed.

By way of recapitulation I think I should at this point restate that I am neither accepting nor rejecting the information contained either in LT-26 or in BP-20. What, as I find, has been successfully advanced by BP is the proposition that Mr. Robert Lee should not, on the matter of the management accounts and their preparation be taken to be a witness of truth. If the further and final proposition that the Lane calculations being heavily dependent on uncorroborated information supplied by Mr. Lee ought therefore to be rejected is to be accepted then two further conditions have to be satisfied. First, I must be satisfied that Mr. Lee was not merely misleading the Court on this question of management accounts and secondly I have to be satisfied that the integrity of the Lane calculations is dependent on information supplied and only supplied by Mr. Lee to Mr. Lane.

Apart from management accounts the second topic upon which Mr. Lee was extensively examined and cross-examined was throughput, yield and recipe. BP’s argument is set out at paragraphs 44 to 47 of Exhibit BP-22 while Lees answer is to be found at paragraphs 39 to 49 of Exhibit LT-38. Somewhat waspish reply and response are to be found at paragraphs 30 to 32 of Exhibit BP-23 and at paragraphs 21 to 25 of Exhibit LT-39.

The bulk of Mr. Lees oral evidence on this topic is to be found at TC 487 to TC 519 and the primary exhibits are LT-10, a bundle of 4 most attractive illustrations of the biscuit production processes for cabin crackers, breakfast crackers, milk arrowroot and cookies and LT-12 a bundle of 23 daily shift mixing reports for the period of 13 December 1983 to 27 February 1989 together with 5 daily production summaries for the period 4 October 1984 to 1 May 1987.

While I find there is force in some of Mr. Patel’s submissions e.g. in the more than coincidental correspondence between Mr. Bank’s and Mr. Lane’s recipes (see paragraph 45 (p) and page 26A of Exhibit LT-38) I also find that a number do not appear to be borne out. Thus, for example paragraph 45(a) advances the 1987 Coopers and Lybrand Report (DFT 0043) as being corroborative of the Lane calculations but in so doing appears to overlook the somewhat different production rates contained in both documents:

Coopers Lane (Appendix G)

C.C. 856 kg/hr 790 kg/hr

B.C. 748 kg/hr 750 kg/hr

The considerable difference between the Lane figures and actual figures on the face of Exhibit LT-12 may also be noted.

I did not understand the statement contained in paragraph 45 (n) of Exhibit LT-38 that the Peat Marwick working papers “have never been made available to Lees Trading or tendered in evidence at the hearing” when taken together with references to those papers in paragraphs 45 (p) and 49 and DFT 82 and DFT 300 to 342, until the submission was somewhat clarified in paragraph 22 of LT-39. What, however the missing papers may have contained can only be open to speculation.

I find the suggestion in the last sentence of paragraph 45(j) to have little logical force while I am of the view that the statement in paragraph 45 (m) must be considered alongside Exhibits BP-17 and BP-18 both of which show very considerable and unexplained variations between the various figures put forward on behalf of Lees at different stages of the claim.

One of the main thrusts of Lees submission on the topic of the Lane calculations is to suggest that these calculations would remain both well founded and unshaken even were Mr. Lees input to be removed. In my view however any fair reading of Mr. Lane’s statement of 24 November 1995 and in particular of paragraphs 5.4, 5.5, 5.7, 5.9, 5.11, 7.8 and 7.9 (these last two paragraphs dealing with cakes) reveals that Mr. Lane’s calculations were dependent to a very significant degree on what he was told by Mr. Robert Lee. Having reached that conclusion I find myself in agreement with the points made by Mr. Ireland in paragraphs 44 to 48 of BP-22. I have to say that I found Mr. Lees evidence on these matters commencing at TC 487 to be singularly unconvincing particularly at pages TC 509 to 518. At the conclusion of the evidence I was left with the definite impression that there was a distinct element of unreliability about what Mr. Lee had told me and also about the information supplied by him to Mr. Lane.

The conclusion of all this is that I find the Lane approach open to the profound criticism that it is dependent to a very significant degree on information supplied by Mr. Robert Lee which in my view lacks a sufficient degree of integrity to be acceptable. Before concluding this response to issues 2, 3 and 4 it is finally necessary briefly to consider Lees criticism of the alternative PIB - submission based approach taken by Mr. Banks.

The criticisms fall into two categories. First, as has already been seen, it is said that the materials supplied to the PIB was not accurate enough to form a sound basis for reliable calculations and secondly it is said that Mr. Banks compounded the error of his approach by a number of errors of calculation or of assumption.

Mr. Ireland at paragraph 83 of BP-22 suggested that the first criticism was a “highly invidious submission” since it involves the proposition that the PIB were deliberately given inaccurate information by Lees and then, as a matter of record, acted on that information by granting Lees the price rises which it had sought. I agree.

The proposition that the information supplied to the PIB was inaccurate seems to be contradicted by the partial concession at paragraphs 54 and 71 of LT-38 that it was “correct at one point of time”. The suggestion at paragraph 59 that the information was “largely estimates” seems to conflict with the very precise calculations which I have already referred to and which can be seen set out in full at DFT 0526 to DFT 0696.

I find Lees suggestion that the PIB would have been in no doubt that the materials supplied to it consisted “largely (of) estimates” (paragraphs 57, 58 and 59 of Exhibit LT-28) hard to follow. The position appears to be that the original application to the PIB was made on 8 August 1984 (BP-1 page 005197). There were a number of enclosures 005200 to 005204. Further information was supplied on 28 August 1984 (005210) together with enclosures including costs of sales, distribution and administration (005219 and 005220) for the 12 months to 1984. The only accounts which I can find for 1985 are first, at pages 47 and 48 which are located between 005232 and 005233 and which were attached to a letter sent to the PIB on 4 April 1985 (not 1984) and second, pages 70 and 71 referred to in paragraph 58 of LT-28 which are 005255 and 005256 and which were attached to a letter from Lees to the PIB dated 18 March 1986 (not, again, 1984) (005253). At best these documents appear to reveal only one month out of 24 being estimated.

At paragraph 59 of LT-38 Mr. Patel submitted on the one hand that the PIB had its own accountant to verify the information supplied by Lees and on the other hand that Mr. Baldeo did not tell the Court that he had been misled by the information supplied (see TC 151). In my view if it was proposed later to impugn the quality of the information supplied to the PIB then the suggestion that the information was wanting in accuracy should have been put by Lees to Mr. Baldeo. As to the accountant, there is nothing to show that he did anything other than accept the materials supplied by Lees at their face value which in itself suggests that the PIB took it to be accurate.

Mr. Ireland suggested at paragraph 89 of Exhibit BP-22 that the failure to call the author of the material supplied to the PIB was “fatal”. While I think that slightly overstates the position and while I do not go so far as to accept the inference which it is suggested follows from his failure to testify, the absence of any testimony from this key player in the whole saga without any further explanation than that he had left Lees in 1993 does little to add to one’s confidence in this aspect of Lees case.

The final matter is the accuracy of the Banks calculations. It is already been seen that there are very wide variations between many of the sets of figures advanced by Lees or on its behalf at various times. The variations between LT-26 and BP-20 and those set out in BP-17 and BP-18 have already been noted. Another example is the comparison between DFT 0043/0044 (and 0062), a figure of $4,237,556 and the figures set out on page 35 of Mr. Lane’s statement dated 24 November 1995 (one whole column of which was later deleted).

I do not have enough experience of the workings of accountants to know whether it is common for such wildly different sets of figures to be offered and then later amended or completely withdrawn. During the course of the hearing there was an ongoing process of consultation between Mr. Lane and Mr. Banks and each made a number of concessions to the other. In a matter as convoluted as this one such a process is hardly surprising. Mr. Banks original statement dated 15 December 1995 was followed by an amending statement dated 19 February 1996 which was followed by a third and amending statement Appendix A of which was itself superceded by Exhibit BP-19. As I made clear the outset of this Judgment I do not have the ability to decide between the different calculation offered by the two experts. I also pointed out that because of that limitation the final calculations which would follow from my individual rulings on each issue remained to be carried out. I have decided that in relation to issues 2, 3 and 4 I prefer the PIB-submission based methodology adopted Mr. Banks. It may well be that the final figures arrived at by him are open to further refinement. I do not at this stage have to hold them to be entirely accurate as they presently stand.

Issue 5

Question: In calculating the incremental overheads of Lees Trading in the manufacture of biscuits is it appropriate to take the average percentages of 8.7% on nett revenue contained in the 1985 and 1986 submission by Lees Trading to the PIB and increasing this to 10% on nett revenue for further contingencies or to have regard to the incremental overhead of 6.35% of nett revenue calculated by Coopers & Lybrand and allow such additional increase thereto as the Court may deem appropriate.

Answer: The task of answering this question is not made any easier by the number of different sets of figures which at different stages of examination and cross-examination were referred to or disputed by counsel.

The starting point was that Mr. Lane based his calculations on DFT 0697 and 0698 (see Lane statement paragraph 8.1) while Mr. Banks based his calculations on information supplied by Lees to the PIB (see Banks statement dated 15 December 1995 paragraph 7.9 to 7.15 and DFT 611). Professor Bowman supported the Lane approach (paragraph 6.8 of his statement).

DFT 0697 and 0698 were initially vigorously objected to by Mr. Ireland (TC 94) and then with passing reference to BP/5/005042 were recreated as Exhibit LT-2 (TC 101) tendered without objection but which itself left a number of questions unanswered (see TC 269 and 270). It emerged later that a copy of DFT 0697 and 0698 had been given to Peat Marwick on 6 September 1991 (Exhibit LT-23) and that they had been prepared by Mr. Robert Lee in 1991 after he had referred to the management accounts (TC 521 and see BP-6, BP-7 and LT-26). Those accounts were themselves prepared by a Lees company accountant who was neither named nor called. As demonstrated at TC 526 and 527 there are a number of very significant differences (amounting in some cases to over $100,000) between the figures contained in DFT 611 and 612 (Exhibit BP-1 005256 and 005257) submitted to the PIB on 18 March 1986 by Mr. Allen Lee and the figures contained in the management accounts. No satisfactory explanation for the differences emerged in evidence.

Given the foregoing I did not have an especially high confidence in either of these sets of calculations between which I was being asked to choose. The Lane approach however has the merit that it is based on an audited review of Lees performance over a 5 year period whereas Mr. Banks based his calculations on the unaudited and partly estimated submission by Allen Lee to the PIB covering a 2 year period. In this instance I prefer the Lane approach and resolve the issue in favour of Lees.

Issue 6

Question: In assessing the effect of Lees Trading obtaining a virtual monopoly in biscuits sold in Fiji in the 5 year period between 1984 and 1989 is it appropriate to postulate reduction by the PIB in maximum wholesale biscuit prices within that period if the sale of Pacific Biscuit Co. to Lees Trading had proceeded and if so to what extent.

Answer: BP’s case is set out in paragraphs 160 to 162 of Exhibit BP-22 and Lees answer is at paragraphs 110 to 113 of Exhibit LT-38. Both arguments are comprehensive and clear and need not now be repeated in any detail. In short, Mr. Banks took the view that once having achieved a monopoly Lees would have been in a position to make excessive profits. At this point the PIB would have intervened and lowered prices. To reflect this likelihood a discount of 1% was applied.

Mr. Patel in response argued first, that there was no precedent for a price reduction for such reasons by the PIB although there were a number of other examples of monopolies having been achieved (see also TC 446) and secondly, that Exhibit LT-6 showed that Lees would not in fact have made excessive profits even if it had gained the monopoly which it sought.

In my view both these submissions have merit. There are also 3 further points which can be made. First, I have already been critical of Lees for not putting one aspect of its case (the quality of information supplied to the PIB) to Mr. Baldeo. I believe a similar criticism can be made of BP. Mr. Baldeo’s examination in chief is at TC 151 to 181. At TC 166 and 167 Mr. Ireland established that the PIB regularly took steps to reduce prices when there were raw material cost reductions. At TC 170 line 22 there was what I take to be an unsuccessful attempt to introduce profitability as an element in the PIB’s considerations. At TC 176 it became fairly clear that profitability was not in fact a major consideration when Mr. Baldeo stated that the same product marketed by different manufacturers carried the same PIB price. If BP wanted to advance the proposition that monopolistic profit levels would have induced the PIB to act by reducing the monopoly’s prices then that proposition should have been put squarely to Mr. Baldeo and not deliberately avoided.

Secondly, it is fallacious to think that achieving a product sales monopoly invariably removes all (non statutory) restraints on excessive profits. While a monopoly provider of vital goods or services say, sugar or public transport, may be able to increase prices virtually at will such is not the case where a product such as cabin crackers is concerned. Although convenient and popular in Fiji they are not vital to human health and indeed they do not exist in many parts of the world. Mr. Lane admitted that he never even tasted one (TC 337). Even had Lees achieved a monopoly in cabin cracker and breakfast cracker production it could not have increased their price at will. Had they done so consumers would simply have switched to something else (see also second paragraph, DFT 0127).

Finally there was, as I see it, a marked lack of rigour in the determination of the 1% figure advanced by Mr. Banks. There was no mathematical premise leading to a conclusion. The figure of 1% simply appeared from nowhere without explanation of how it was calculated and why it was 1% and preferred to 2%, 5% or indeed 50%.

I agree with Mr. Patel that this aspect of BP’s case is “highly speculative (and) should be rejected”.

Issue 7

Question: In calculating the loss of contribution suffered by Lees Trading in the 5 year period is it appropriate to postulate that discounts given on PIB ex-factory prices by Lees Trading and Burns Philp would have been less and revenue consequently higher. (If the answer is in the affirmative, the parties have agreed that the appropriate period to consider is June 1984 to April 1987).

Answer: A figure of 50% of the discounts given by Pacific Biscuits Co. and by Lees between June 1984 and April 1987 was agreed subsequently to the preparation of Exhibit L-T 7 (see BP-22 paragraphs 136 and 137 and BP-23 paragraph 42).

Issue 8

Question: Is the appropriate source of information to calculate discounts actually given by Lees Trading based on the full year sales analysis of Lees Trading in the agreed period or the partial sales analysis information contained in the first Coopers & Lybrand Report of 1987 used by Mr. Banks.

Answer: BP’s submissions are found at paragraphs 132 to 140 of Exhibit BP-22 while Lees answer is set out at paragraphs 72 to 109 of Exhibit LT-38. BP replied at paragraphs 42 and 43 of BP-23 but Lees did not further respond.

There are two discounts to be separately considered, those of Lees and those of Pacific Biscuit Co.

Mr. Banks based his calculations of the Lees discounts on a report prepared by Coopers and Lybrand for Lees in February 1987. The Report is at DFT 0042 and at DFT 0061 B (missing from the papers supplied to me and therefore added in) is to be found Appendix F “Summary of discounts”. As is clear from paragraph 140 of BP-22 Mr. Ireland in supporting the Banks approach relied on Coopers & Lybrand having examined Lees “primary records” which now no longer exist and having therefrom accurately established the discounts.

I am not sure what is meant by “primary records” but assume them to be different from the original sales invoices copies of which are to be found in their thousands at DFT 2701 to DFT 4802 and upon which Mr. Lane based his calculations. I am not aware of any evidence that there are any other primary records which are not available and neither am I aware of any evidence which tends to show that Coopers & Lybrand examined any primary records and from them accurately established the discounts. Nobody who was involved in the preparation of the 1987 Report was called and although the report itself is not particularly clear there is nothing in it to show how the figures in Appendix F were derived while item (6) in Appendix A2 (DFT 0046) “projected discounts” is now accepted not to be correct (see paragraph 136 of Exhibit BP-22).

The Lane approach had as its starting point actual monthly sales revenue which was extracted from the management accounts by a Mr. Craig Edwards who was assisting Mr. Lane and whose affidavit evidence was admitted without objection and without further submission (see TC 633). Further analysis involved consideration of Exhibit LT-9 (tendered at TC 213) the makers of which were not called but the accuracy of which was not questioned (see TC 284 et seq.) and also LT-15 apparently prepared, I am not sure how, by Mr. Robert Lee. Mr. Lane also examined a sample of the sales invoices DFT 2701 to DFT 4802 which are summarised together with further cash sale dockets in Exhibit LT-25.

In my view both of the alternative approaches are considerably dependent on unproved and unexplained information some of which might, upon further investigation turn out not to be correct. Lees is once again in the strange position of inviting the Court to reject information which it itself provided, this time to Coopers & Lybrand in 1987. In the outcome however I find the Lane approach more firmly based and prefer it. Mr. Lane’s use of PIB prices in calculating export sales discounts does not seem to me to favour Lees (see also issue 10).

The disagreement between the parties over the Pacific Biscuit discount is somewhat different. As can be seen from paragraph 97 of LT-38 Lees submit that the Banks approach is wrong for two fundamental reasons. First, it is said that he erred in basing his calculations upon the Lees sales mix rather than Pacific Biscuit Co’s sales mix and second it is said that his calculations are not correct. Mr. Ireland on the other hand (BP-22 paragraph 138) suggested that Mr. Lane had accepted that his figure of $283,256 was incorrect (see TC 331) and that the Banks figure of $197,589 (TC 672) had not been “successfully challenged” although this figure was in fact the third produced (see LT-38 paragraph 97).

In answering issue 1 I resolved that the appropriate sales mix for the purposes of this assessment is that of Lees. In answer to issues 2, 3 and 4 I pointed out that I am unable to resolve purely numerical differences between the expert accountants. In calculating Pacific Biscuit Co. discounts I prefer the Banks approach which I think is based on the correct sales mix. At paragraph 96 (k) of LT-38 Mr. Patel invited me to order that the Banks calculations be reworked. I decline to make such an order at this stage as I am hopeful that any remaining purely arithmetical differences can be amicably resolved.

Issue 9

Question: Is Lees Trading entitled for the purposes of the claim to rely upon revenue which would have been earned from the sale of cakes and if so, to what extent.

Answer: BP’s case is set at paragraphs 142 to 145 of BP-22 while Lees answer is to be found at paragraphs 161 & 162 of LT-38. The rival arguments are clearly and concisely expressed and need not now be repeated.

In my view the starting point must be the four agreements between the parties, the breach of which gives rise to this assessment. As has been seen the agreement for sale and purchase of the plant is at BP/4/211. The stock and shipping agreement is at BP/4/196. The Wrightcel (packaging) agreement is at BP/4/206 while the trademark agreement is at BP/4/201.

None of these agreements makes any reference to cakes. The trademarks agreement at paragraph (3) on its first page refers to “trademarks insofar as they apply to edible biscuits”. Unfortunately a schedule referred to in the paragraph was not supplied to me. The Wrightcel agreement in paragraphs (1), (5) and (6) refers to the “business of manufacturing edible biscuits under the trade names of “Sunshine” and “Pacific””. It does not refer to a trade name “Big Sister”. Paragraph (3) refers to “manufacturing selling and otherwise dealing in edible biscuits”. The stock and shipping agreement refers to the sale of “stock and other materials concerning the manufacture of biscuits and cans”. The very important restraint of trade clause which is contained in paragraph 9 of the sale of plant agreement prohibits the “manufacturing or distribution of edible biscuits”.

At DFT 0127 there can be found a document apparently prepared by or on behalf of BP entitled “Pacific Biscuit Company - a proposal to sell”. At DFT 0134 a schedule to the document contains a sales analysis of Pacific Biscuit Co. While the first 4 items in the product list are obviously edible biscuits the list also contains a number of other products which either are not, or may not be. These are:

Big Sister Cakes

Muesli

Homestyle

Vit-O-Bix

Damaged (broken) biscuits

Miscellaneous

In my view the existence of these products taken together with the specific reference to cans in the stock and shipping agreement conclusively rules out any suggestion that the right to manufacture all the products which were made by Pacific Biscuit Co was being sold as a whole. The reference in the final sentence of paragraph 6 of DFT 0129 to the Big Sister cake manufacturing agreement with Reckitt and Colman being terminated reinforces my view. Lees have not claimed for loss of profits from Muesli sales.

The right to use the Big Sister trademark was not sold to Lees. That BP did not in fact continue to manufacture cakes does not seem to me to be especially relevant. I can find no basis for the assertion in paragraph 162 of LT-38 that on acquisition of BP’s biscuit business Lees “would have obtained most, if not all of the market share of Big Sister”.

In my opinion the four reasons advanced by Mr. Banks and set out in paragraph 145 of BP-22 for disallowing this part of Lees claim are irrefutable. My answer to this question is “no”.

Issue 10

Question: Is Lees Trading entitled, for the purposes of the claim, to rely upon revenue which would have been earned from Burns Philp export sales of biscuits from Fiji.

Answer: BP’s case is set out at paragraphs 125 to 131 of BP-22 and Lees answer is at paragraphs 114 to 128 of LT-38. BP replied at paragraph 45 of BP-23 and evoked a final response from Lees at paragraphs 31 and 32 of LT-39. Once again the contrasting arguments are clear and concise and do not now need to be summarised.

Mr. Ireland’s starting point was the restraint of trade clause in paragraph 9 of the sale of plant agreement already referred to in the consideration of issue 9 and which can be found at BP/4/212. He points out that this clause does not specifically exclude BP from the biscuit export market providing only that those biscuits were not sourced from within Fiji. With respect, my view is that this very small point was also the high point of BP’s submission on this topic.

Returning to DFT 0127 we can read:

“Lees have crept into PBC’s traditional export market (Pacific Islands) and greatly affected PBC’s sales .... It therefore seems prudent that we divest out of biscuits whilst the scale of our business is of a greater nuisance value to Lees.”

In my view the intention of BP to divest itself of its entire biscuit business is plain and to suggest otherwise makes no sense and is supported by no evidence, least of all by the existence of a biscuit factory in Vanuatu which in fact was owned by Lees. The shipping agreement (BP/4/196) also supports the Lees case.

Apart from questioning the entitlement to loss of profits deriving from lost export sales Mr. Ireland also questioned the basis of Mr. Lane’s calculations. Once again I cannot agree. I think it will be fairly clear by now from this assessment that while the calculations advanced by the experts were usually extremely precise the foundation for those calculations was all too often quite vague and unsubstantiated. Although the aim of this exercise is to reach a satisfactory quantification of the loss suffered by Lees and although such loss will in due course be expressed in precise figures it cannot be doubted that this eventual outcome will represent no more than the most reasonable result that can be calculated given the degree of estimating necessarily involved in the whole process. Mr. Ireland is correct to point out that strictly speaking PIB prices have no direct relevance to export prices. He is also right to point out that there were other players in the export field and that the income and expense structure of export sales was not the same as that for domestic sales. In the absence of any alternative calculations however the position is that I either accept the Lane approach with what I am quite satisfied are at best minor flaws or I leave export sales out altogether. To my mind there can be no doubting the correct choice. I resolve this issue in favour of Lees.

Before leaving this topic altogether I think it appropriate to express my regret at the use of such emotive expressions as “typical evasive, shifting and misleading” and “bad faith” (LT-38 paragraphs 116 and 119). While this type of language was not confined to one side and reluctantly has to be accepted as part of the cut and thrust of live advocacy it should not reappear in written submissions.

Issue 11

Question: Is Lees Trading entitled, for the purposes of the claim to rely upon revenue which would have been earned from the sale of sweet biscuits (milk arrowroot and cookies).

Answer: BP’s case is set out at paragraphs 146 to 151 of BP-22 while Lees reply is at paragraphs 146 to 155 of LT-38.

As has already been noted cabin and breakfast crackers accounted for about 90% of BP’s biscuit production but during the claim period BP also manufactured approximately 481 tons of sweet biscuits (see Exhibits BP-19 and LT-30).

BP’s submission (paragraph 151) is that it is “entirely speculative” to suggest that following its purchase of the BP sweet biscuit business Lees would have inherited the market previously enjoyed by that business. The final position taken by BP on this topic is not altogether easy to understand since on the one hand BP’s own expert Mr. Bank’s conceded that Lees would in all probability have gained the 25% of the market enjoyed by B.P. and therefore would have inherited the profits derived from that market (see BP-22 paragraph 150, Banks statement dated 8 May 1966 paragraphs 31 to 35 and TC 734 to 737) but on the other hand Mr. Ireland (paragraph 151) submitted that “in the absence of a monopoly position ... and price control when coupled with difficulties inherent in Mr. Lanes calculation” this element of Lees claim should be rejected altogether.

The Lees position is also somewhat unclear. Mr. Patel (paragraph 155) suggested that it is inconceivable that Lees “would have acquired only 25% of the Pacific Biscuit markut that is not, as I un I understand it, what Mr. Banks thought would be likely to occur (see TC 735 line 38 to TC 736 line 15).

As drafted the issue for resolution only requires either an affirmative or negative answer but in view of counsel’s submissions I think I should go a little further.

In my view Lees, upon acquiring the BP sweet biscuit manufacturing business would have continued to market BP’s sweet biscuit lines under the trade names which it had also acquired. In fact, as can been seen from LT-30 the BP share of the market was dwindling away. I do not think that Lees would have struggled to keep the Sunshine and Pacific Biscuits share of the market, there would have been no point in doing so except perhaps in certain niche export markets. The fact that Lees never attempted to acquire the brand name “ Big Sister” may also be noted. I believe that marketing and manufacturing substantially the same products with two slightly different recipes and two different labels would eventually have been seen to be inefficient and that the two production lines would in the fullness of time have been merged. How soon this would have happened I do not know but it is worth remembering that the Wrightcel agreement (BP/4/206) was for 2 years only.

In my opinion the correct approach is to disregard imports (which did not achieve any major breakthrough during the claim period) and to assume that Lees would have inherited the whole of the BP sweet biscuit market. I believe the sales mix and costs of production would initially have been roughly those of BP. By the end of the claim period I think the sales mix and costs would have been those of Lees. I do not think the lack of a monopoly position is relevant. While I accept that there may be difficulties in the Lane calculations and their dependency on information only supplied by Mr. Robert Lee I do not think those difficulties are sufficient to disentitle Lees to succeed on this issue.

Issue 12

Question: In assessing the revenue which would have been earned by Lees Trading for the period between 1984 and 1989 should account be taken of reduced sales by virtue of a partial strike at Lees Trading factory between 9 September 1985 and 4 December 1985.

Answer: BP’s case is at paragraphs 153 to 159 of BP-22 while Lees answer is at paragraphs 156 to 159 of LT-138 (and see also Robert Lee’s supplementary statement dated 3 May 1996, paragraphs 1-5).

If conceded that the effects of the strike should be taken into account then the gap between the parties is small: Lane - $87,670; Banks - $83,923. The real issue therefore is whether account should be taken of the effects of the strike at all.

Although admitted in evidence Mr. Lees argument set out in his supplementary statement strikes me as being almost totally devoid of relevant statements of fact derived from his own knowledge. None of the other directors of Lees at the material time was called. Neither of the two banks mentioned in his statement provided any evidence. In my view Mr. Lee’s self serving statement of opinions on this topic is almost worthless, especially given the stage of the hearing at which it was provided. I can find no valid reason for supposing that those considerations set out in the last sentence of paragraph 5 of his statement and repeated in the last sentence of paragraph 160 of Mr. Patel’s submissions would have prevailed in a post Pacific Biscuits acquisition situation when during the strike which actually took place they so obviously did not.

In my opinion the strike must be taken into account. Failing agreement as to the calculation of its precise effects I would average the Lane and Banks estimates.

Issue 13

Question: Is Lees Trading entitled for the purpose of the claim to have the residual value of the plant at the end of the 5 year period.

Answer: As has been seen (Issues 1 and 9) Lees agreed to purchase the plant which BP was using to manufacture its biscuits. The agreement is that to be found at BP/4/211. Unfortunately a copy of the schedule listing the plant referred to in the agreement was not produced (and apparently was not annexed to the original document to be found in an old “Elba Rado” file which I have marked MDS 1 and from which BP/4/211 was apparently photocopied). It appears clear however that the plant in question was substantially the same as that listed in the schedule to an earlier superseded agreement to be found at BP/4/164, 168 and 169, the consideration being identical.

At paragraph 8.3 of his first statement Mr. Lane explained that he had been “advised by Lees that this plant and machinery had a value of $545,000 under the contract”. At paragraph 11.3 he referred to having been advised by Lees that the plant and machinery would probably have been sold after their acquisition but decided against including the proceeds of such a sale in his calculation because he was not sure whether the envisaged sale would in fact have taken place and how much would have been raised.

In his statement commenting on the Lane Report Professor Bowman rejected Mr. Lane’s approach as “unnecessary conservative”. At paragraphs 5.9, 5.10, 5.11, 5.14 and 5.26 Professor Bowman explained his alternative approach which concluded with the suggestion that “the value of the facility should be considered recoverable. This would reduce the nett investment by approximately $545,000 from the beginning of the acquisition. The impact on the assessment of damages would be the $545,000 plus interest from June 1984.”

The issue was not dealt with by Mr. Banks until he gave his evidence in chief (TC 677) and he returned to it when he was cross-examined (TC 748 et seq.). In his final supplementary statement dated 8 May 1996, paragraphs 38 and 39, Mr. Banks recorded the view that the true value of the plant was not $545,000 but rather was $200,000. In his calculations he had “allowed Lees full depreciation on the sum and written off the balance in the 5th year of the claim”. The value of this issue before interest is $274,680 (see Exhibit BP-19 line 20).

BP’s original submissions are set out at paragraphs 164 to 170 of Exhibit BP-22 and paragraph 46 of BP-23 while those of Lees are to be found at paragraphs 129 to 145 of Exhibit LT-38. In response to my request for the arguments to be amplified Lees filed an additional written submission on 6 November 1996 and this was followed by the final written submission by BP filed on 3 December 1996.

Having considered these submissions I find myself favouring a position some way between them. Taking into account BP/4/8 - BP/4/11 and Mr. Lees oral evidence, in particular TC 486 I am satisfied that it is proper to question whether the figure of $545,000 placed on the plant was an accurate assessment of its actual worth. Such contemporaneous evidence as there is (BP/4/8) suggests that the very much lower figure of $124,000 is rather more likely.

Lees suggest (paragraph 132) that it is immaterial how the figure $545,000 was arrived at and rely heavily on Exhibit LT-37 for the proposal that Lees would be entitled to claim tax depreciation on the whole sum of $545,000 paid since the price agreed had been reached between parties at arms length. With respect, I disagree. In the first place Exhibit LT-37 nowhere mentions a figure of $545,000. Secondly, it is plain that the Commissioner’s advice envisages a situation where a wholly tangible asset is being purchased and constitutes the total sale. In this case, however an initial offer of $688,000 made up of goodwill plus assets plus stock was, after protracted discussions restructured into a series of agreements together worth $755,000 made up of stock and shipping plus trade marks plus plant and machinery plus a restrictive covenant, this latter item not being a tangible asset and not being subject to depreciation. For all these reasons I am satisfied, as Mr. Lee himself all but conceded, that the valuation of $545,000 placed on the plant and equipment was indeed an artificial figure designed with possible tax advantages in mind and I am also satisfied that it is not the proper figure upon which the calculation of damages under this head should be based. Although Mr. Banks did not explain in any detail how he reached the figure $200,000 I prefer it to the figure advanced by Lees.

Professor Bowman suggested (Paragraphs 5.9 & 5.10) that once the plant had been acquired it was “highly probable that Lees would either have sold the facility or found an alternative use for it, perhaps leasing it to another company. In either event Lees stood to benefit substantially from the facility”. Later he suggested that its ownership might have been retained and the plant and machinery “put to another use. This would have conferred a cash flow benefit to Lees”.

Professor Bowman did not tell me with whom he had discussed Lees plans for the plant or how he had reached his conclusions. They appear to me to be broadly inconsistent with Mr. Lees evidence which was that the equipment bought (with the exception of the wrapping machines) was surplus to Lees requirements. Having acquired a monopoly at considerable cost it is hard to see what advantage Lees would have derived from reselling or leasing the biscuit manufacturing plant for use by a new competitor. In the absence of any detailed valuation or description of the equipment and its precise uses it seems impossible to place any figure on the cash benefit which would have flowed to Lees from its retention.

In spite of these difficulties however I accept that at the end of the 5 year period the plant would have had some residual value and that merely writing off that value is not the correct approach. In my view the proper starting point is a figure of $200,000 (which is probably being generous to Lees) while the realisable value of the plant at the end of the 5 year period would be its tax written down depreciated value as calculated which should then be taken in as income in calculating the loss. I so rule.

Issue 14:

Question: Is Lees Trading liable to income tax on the damages and interest to be awarded. If so how is this to be reflected in the Judgment.

Answer: As will be seen from paragraphs 207 to 217 of Exhibit LT-38 and paragraphs 173 to 184 of Exhibit BP-22 the whole question of the liability of Lees for taxation on the damages awarded in their favour is described by Lees as highly complex and by BP as a significant question of law. The practice in Australia and New Zealand appears to be that the Courts regard these matters as separate from the assessment of damages. Mr. Patel points out that any determination now made would not be binding on the Commissioner of Inland Revenue who is not a party to these proceedings, who was not called and who expressed no opinion similar to LT-37 on this topic. Apart from the written submissions I heard no argument on the issue. As also pointed out by Mr. Patel I have no knowledge of the Lees tax position. Lees asked me to order BP to provide an indemnity, supported by adequate security, to cover any future income tax liability arising from this award. In all the circumstances I agree with Mr. Patel that it would not be satisfactory for me to rule on the incidence of tax at this stage but, in the absence of special reasons for doing so, I do not think that the provision of a secured indemnity can be justified.

Issue 15

Question: Is Lees Trading entitled to interest and if so at what rates and for what period.

Answer: BP’s submissions are at paragraphs 185 to 191 of Exhibit BP-22 and paragraphs 48 and 49 of BP-23. Lees submissions are at paragraphs 182 to 206 of Exhibit LT-38.

In summary, BP’s submit that the Courts power to award interest is governed by the Law Reform (Miscellaneous Provisions) (Death & Interest) Act (Cap. 27) which is in virtually identical terms to the English 1934 Act and Section 3 of which gives the Court a discretion to award interest at a suitable rate in any action for the recovery of damages or debt. BP’s second submission is that the history of this litigation reveals considerable procrastination by Lees the effect of which should be wholly or partly to disentitle them to recover interest on the damages now being awarded.

Lees answer to these submissions which is developed with numerous interesting references to authorities from Australia, New Zealand and England is to suggest that Lees should receive compound interest on the award at the rate of between 10 and 14.5% for the whole period since the cause of action arose.

It will be remembered that this is an action for the breach of a contract in June 1984. It is not an action in equity nor is it an action in restitution. In my opinion the reasoning in Westdeutche Bank v. Islington LBC [1996] UKHL 12; [1996] 2 WLR 802 is not directly relevant to the consideration of this issue.

At law, statute apart, there is a right to interest as damages only in a very limited range of cases connected primarily with the failure to pay money (see De Havilland v Bowerbank [1807] EngR 24; (1809) 170 ER 872). Most of the authorities cited by Mr. Patel are concerned with the late payment of debt and where the loss of the use of money is the central matter complained of it is obvious that failure to compensate for the loss of the use of that money may cause injustice. This case however is not one of compensation for the loss of use of a specific sum of money rather it is an action for the recovery of damages which are now being assessed and which are said to have flowed from BP’s failure to accept payment of money from Lees in consideration of the transfer to it of its biscuit making business - a wholly different situation.

In the circumstances of this case I am satisfied that Cap. 27 covers the field and that the only questions for me to decide are whether to award simple interest on the damages (see Section 3 proviso (a)) and if so at what rate and for what period.

Having pleaded a claim for interest Lees is prima facie entitled to an award. It is unfortunate that neither counsel addressed me either as to the rate or as to the applicable period. As I see it however the award of damages covers the agreed claim period namely June 1984 to May 1989 and therefore the loss incurred by Lees was not completely incurred until May 1989 since the profits looked forward to but not in fact earned because of BP’s default would not have been fully earned until the end of the claim period. In the absence of any allocation of percentages of the total loss by the accountants to each of these years I do not think I can do better than take as the starting point for the award the end of the claim period i.e. 1 June 1989.

The rate of interest awarded on damages has varied considerably over the years. Awards in Fiji, as elsewhere, have ranged between a low of 4% (Attorney-General v. Sharma FCA Reps 94/351) and a high of 13.5% (Maganlal Bros Ltd v Narayan FCA Reps 84/368 and Narayan v Devi FCA Reps 85/152). In England the amount awarded in respect of Judgment debts has varied over recent years between 4% and 15% (see RSC O.42). Interest rates are now very low in Fiji but for part of the relevant period they were quite high. In the absence of any detailed submissions by the parties I am of the view that a rate of 8% for the whole period in question is appropriate.

The remaining matter is whether Lees should be penalised wholly or in part because of delays caused by them. While Lees have certainly being guilty of a degree of dilatoriness Rules of Court provide that a party prejudiced by delay has a number of options designed to encourage despatch, options of which BP largely failed to avail itself. Furthermore, as pointed out both in Honey v Keyhoe (1973) 6 SASR 466 and in Day v Mead [1987] NZCA 74; (1987) 2 NZLR 443, both authorities cited by Mr. Patel, one effect of the delay in securing a Judgment is that the party against whom the Judgment is finally entered has meanwhile retained the use of the sum awarded for that additional length of time. I do not think in the circumstances of this case that the rate of interest or the applicable period should be reduced by reason of Lees conduct of the litigation.

Issue 16:

Question: Should an allowance be made for any additional working capital in the initial 5 year period. If so should the allowance be on the basis done by Mr. Banks or on an assumption that any additional inventory should be financed by supplier credit.

Answer: BP’s submissions are at paragraphs 171 & 172 of BP-22 while those of Lees are at paragraphs 163 to 169 of LT-38.

This issue was not fully developed or investigated and its monetary value to the claim is not clear to me. In his final statement dated 8 May 1996, paragraph 36, Mr. Banks accepted at least part of Professor Bowman’s criticisms expressed at paragraph 6.24 and indicated that he had adjusted his calculations accordingly. The precise effect of the adjustments was, however, not explained. Working capital costs do not appear as a separate item in Exhibit BP-19.

One of the problems associated with resolving this issue is that the evidence appears to consist largely of assumptions coupled together with estimates (all of suspiciously round numbers) for which no explanation was offered. Thus at paragraph 11.2 of his statement Mr. Lane expressed the opinion that Lees “would have been able to reduce its working capital requirements” after requiring its customers to provide forward orders and by tightening its credit terms. As a total explanation of why no additional working capital would be required this is obviously quite insufficient. Again, Professor Bowman at paragraph 5.25 of his statement estimated that “working capital could have increased by about $50,000 in 1985 declining steadily with sales and realised efficiencies to zero before the end of the 5 year period”. This estimate was, Professor Bowman stated, “based upon all available information” but what the information was, how precisely it was based on it and how the conclusions were derived I was not told.

The only figure which is reasonably certain is the $200,000 worth of additional stock which Lees would have purchased as part of the agreement. Doubtless this amount of additional working capital would have declined but Mr. Lane’s view that it would have vanished entirely strikes me as being unreasonable, especially without any detailed explanation being offered. I cannot accept what Professor Bowman described as Mr. Lane’s “optimism” as a satisfactory basis for assessing damages. On the material available to me I prefer the conclusion finally reached by Mr. Banks.

Conclusion

There is no commercial division of the High Court of Fiji. The creation of such a division was recommended by Sir David Beattie in 1984 but so far as I am aware nothing has yet been done to implement that recommendation. In the absence of such a division the preparations for the hearing of this assessment, the hearing itself and the preparation of the assessment have all created profound difficulties. A special Court room had to be borrowed from the Small Claims Tribunal, a stenographer had to be flown in from Australia at the parties expense and the volume of papers was such that I had to find a special room away from Government Buildings in which to work on the assessment. The time needed was extremely difficult to find in an already crowded calendar while the subject matter was such that it could not suitably be taken up and put down whenever a short period of free time became available. The last hearing in Chambers was on 24 October 1996. I aim normally to deliver Judgment within weeks rather than months of a final hearing. I regret that it has taken so much longer on this occasion. Some of the difficulties already mentioned are offered as at least part of the explanation.

I wish to add a footnote. During the preparation of this assessment the sad news was received that Robin Singh had suddenly died. Robin was one of the longest serving and most widely liked and respected members of the Judicial Department. He was my clerk for this case. He is much missed. It is appropriate to pay tribute to him on this occasion.

M.D. Scott
Judge

25 November, 1997

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