Federal Court of Australia

Koolan Iron Ore Pty Ltd v Infrassure Ltd (No 3) [2024] FCA 643

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory application filed on 27 February 2024 is dismissed.

2.    The applicant must pay the respondent's costs of and incidental to the interlocutory application, to be assessed if not agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

JACKSON J:

1    On 21 December 2023, I delivered reasons for decision in the claim of the applicant, Koolan Iron Ore Pty Ltd, for indemnity from the respondent, Infrassure Ltd: Koolan Iron Ore Pty Ltd v Infrassure Ltd (No 2) [2023] FCA 1654 (trial judgment or TJ). These reasons concern an application to reopen Koolan's case. They largely assume familiarity with the trial judgment, and the same defined terms will be used.

2    Infrassure was a member of a syndicate of insurers under a business interruption Policy that Koolan had taken out. The parties were agreed that indemnity followed from the business interruption Incident in question, but did not agree on quantum.

3    The trial judgment determined a list of issues that the parties had agreed needed to be determined in order to calculate the amount of the indemnity. The trial judgment did not result in final orders, as all concerned also agreed that it would be necessary for the parties to seek to reach a consensus on the amount of the indemnity consequent on the Court's determination of the issues.

4    Following the trial judgment, the parties did not reach a consensus as to the amount of the indemnity. That is because Koolan contended that the rejection in the trial judgment of one of the components of its claim required an 'adjustment' to the accounting calculations.

5    As a result of that remaining dispute, Koolan sought leave to reopen its case in order to adduce expert accounting evidence. On 11 June 2024, I heard and dismissed the application for leave. These are my reasons for doing so.

The relevant claim component that was rejected

6    The component of the claim that has led to the present controversy was encapsulated at paragraph 4 of the list of issues at TJ [58] as follows:

Is the applicant entitled to the items claimed as 'Increase Cost of Working at ACE' (UWE's) in Appendix G of the Reissued Third Supplementary expert report of John McKenzie, referenced in paragraph 13 of the report (CB 42a)

a)    under Item 1(b) of Section 2 of the Policy; or

b)    to the extent that the answer to a) is 'no', under Item 4 of Section 2 of the Policy (up to the $7.5 million sub-limit)?

7    I will call this the ICW Issue. It reflected Koolan's claim, primarily under Item 1(b) of the Policy, for what it termed 'Increased Cost of Working - Uninsured Working Expenses'. In the words of Item 1(b) (as amended to substitute 'Output' for 'Turnover' as explained at TJ [21]-[22]), this provides indemnity for:

the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Output which, but for that expenditure, would have taken place during the Indemnity Period in consequence of the Damage …

The 'ACE' mentioned in the ICW Issue is Koolan's Acacia East pit at the Koolan Island mine, which was not affected by the Incident.

8    In the trial judgment, both parts of the question in the ICW Issue received a negative answer. That was because I found that Koolan had failed to establish that a sum of $17,956,182 that it claimed as the additional cost of mining at ACE (on the '91% EMP' basis that is explained in the trial judgment) met the criteria in Item 1(b) of the Policy, and further that it did not fall under Item 4 of the Policy, which provided for any increase in cost of working not otherwise recoverable under the Policy: TJ [583]-[654].

9    The basis on which Koolan put its claim in respect of the ICW Issue is explained fully in the trial judgment. For present purposes, it is relevant to note that the claim was based on two related assumptions: first, that 'Uninsured Working Expenses' under the Policy were simply all variable expenses of producing the Output of the Koolan Island mine; and second, that the Rate of Gross Profit for the purposes of the Policy, being the rate of gross profit earned in the financial year ended prior to the Incident (as adjusted under the Policy), was 37.90%. Infrassure did not dispute either of those assumptions, so they were effectively common ground. They are related because, eliminating matters that are presently irrelevant, the Policy defines Gross Profit to be the amount by which the sum of the Output exceeds the sum of the Uninsured Working Expenses. So the Rate of Gross Profit depends on the sum of Uninsured Working Expenses (and on the total Output). I will need to say more about this as the basis of the case below.

10    To put it as briefly as possible in order to recap, under the ICW Issue Koolan claimed as ICWs the difference between its actual costs of mining ore at ACE during the Indemnity Period (that is, during the 12 months after the Incident) and the costs that would have been expected assuming the same Rate of Gross Profit from mining that ore. The actual costs were claimed and agreed for the purposes of the trial at $48,748,356. The costs that would have been obtained had the Rate of Gross Profit of 37.90% been applied to the Output were $30,792,174. That yielded the difference of $17,956,182.

11    In the trial judgment I held that this way of putting the claim did not establish that the $17,956,182 was the amount of any additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Output.

Koolan's proposed reopened case

12    The way in which Koolan sought to reopen its case after the trial judgment was delivered is set out in a further expert report of Mr McKenzie dated 20 February 2024; in what follows, paragraph references are to that report unless otherwise indicated. That is the evidence which Koolan sought leave to adduce by way of reopening its case. Mr McKenzie agreed with Infrassure's accounting expert, Michael Potter, that 'strictly applying the Court's conclusions' the value of Koolan's claim was $1,661,812 plus interest (para 2.4). However, he said that disallowance of Koolan's claim under the ICW Issue had a 'consequence not specifically addressed in the judgment' (para 2.5).

13    That consequence, in Mr McKenzie's opinion, meant that Koolan's total claim against Infrassure (taking into account the outcome on all the agreed issues) was $2,960,919. That was the same amount that would have resulted had the claim under the ICW Issue been allowed in full.

14    For the purposes of the application to reopen, it is not necessary or appropriate to delve fully into the reasoning behind Mr McKenzie's opinion. Had leave been given to reopen, it would have been necessary to permit Infrassure to adduce responsive expert evidence before assessing the merits of that opinion. It is enough to say that Mr McKenzie's view relied on his description of the trial judgment as meaning that a portion of the costs of mining at ACE, which comprised a claim separate from the ICW claim, had been 'allowed' (para 4.6, Table 2), 'taken into account' (para 4.15) or 'reimbursed' as part of Koolan's claim (para 4.20). He considered that since these expenses were of the same nature as the expenses that had not been 'allowed' etc. as ICWs, the latter should also be 'allowed', that is, taken into account in order to increase the quantum of the indemnity: paras 4.19-4.23.

15    Mr McKenzie then achieved that outcome by recalculating the indemnity due in a different way to the way put at trial. Rather than calculating the indemnity on the basis that there were UWEs equal to 62.10% of the Standard Output (the inverse of the Rate of Gross Profit, as used in the claim as put at trial), he calculated it on the basis that there were no UWEs, so that the Rate of Gross Profit was 100%. In Mr McKenzie's view, that is a standard way of allocating variable costs where, as here, no UWEs are listed in the policy. For reasons that need not be explained, that would have the same outcome for Koolan's claim as would have been obtained had Koolan succeeded on the ICW Issue, namely a total indemnity of $2,960,919.

16    In contrast, if only $30,792,174 is 'allowed', on Mr McKenzie's characterisation the insurers would receive a 'net credit' of $18,794,538 (para 4.23, recalling that Infrassure's share of that 'credit' would be 8.5%).

17    As has been indicated, Mr McKenzie's report characterised his proposed course as an 'additional adjustment' arising from the conclusion the Court had reached (para 4.14). He explained that the nature of double entry accounting means that usually a number cannot be eliminated from one area of accounts without making a consequent change to another area, and that 'revenue or expenses, if reclassified, do not simply disappear' (para 4.3).

Koolan's submissions concerning leave to reopen

18    On its application to reopen, Koolan characterised the 'net credit' just mentioned as a windfall which would lead to injustice if it were allowed to stand. The touchstone for giving leave to reopen, it said, was the interests of justice and it was in the interests of justice to permit this evidence to be adduced so that Infrassure did not receive that windfall.

19    In an initial set of written submissions, Koolan emphasised Mr McKenzie's view that it was important that the costs that had not been accepted as ICWs do not disappear from the accounts.

20    Koolan also referred to several passages in the evidence adduced at trial in which Mr McKenzie had averted to the way of calculating the claim that it now sought to put. For example, in paragraph 4.6(f) of his Fourth Supplementary Report dated 20 June 2021, he said:

Given there are no UWEs listed in the Policy, an alternative way of presenting this claim would have been to use the common Business Interruption preparation and adjustment practice in such circumstances (where no UWE's listed in the Policy Schedule), especially with mining claims, to assume a rate of gross profit of 100% and deduct a net saving in costs from the reduction in revenue. This would produce a true indemnity (and the same result as the submitted claim, albeit by a different means).

21    Mr McKenzie made similar statements in a number of other reports, including his first Expert Report dated 15 November 2019 (paras 2.1(b), 5.7), his Fourth Supplementary Report dated 20 June 2021 (para 4.6(f)), the Joint Expert Report dated 10 December 2019 (Appendix A), and the further Joint Expert Report (pages 6, 12-13).

22    Also, this approach appeared in Koolan's written closing submissions at trial, in connection with an approach to calculating indemnity found in a textbook (Gordon Southern's Consequential Loss Risk and Insurance - Concepts and Applications (Globe Press, Melbourne, 1989)) (footnotes and emphasis omitted):

387    The former approach (of treating any cost in doubt as insured (IWE) then simply deducting savings) is the same as the alternative proposed by Mr McKenzie in his reports and the Joint Report with Potter. Where - as here in KIO's policy, there are no 'Uninsured Working Expenses set out in the Schedule' (as referred to in the definition of Gross Profit) to guide the adjuster on what expenses are uninsured, the amount payable under Item 1(a) of the Policy can conveniently be calculated by simply assuming that all of the working expenses are Insured Working Expenses (i.e. that the policyholder has insured all fixed and variable costs since there are no UWE's listed). If a strict approach to adherence to the Policy is to be taken, then in this case no UWEs in the Schedule means that none of the expenses are uninsured, which means that the ROGP is 100% of the Standard sales value of Output (under whatever mine plan is upheld). From that figure, there needs to be reduction for any savings in either category of expense which have been avoided because certain expenses obviously would not have been incurred in the hypothetical Standard operating environment.

388.    By this method, the result is the same, vindicating the validity of the model used by Mr McKenzie in his restatement of the claim - the first snip is of Appendix D(ii) to McKenzie's Third Supplementary Report, and the second shows the same bottom line under the strict method referred to in paragraph 387 above using the same data …

23    The written submissions then present two tables, one that calculates the ICWs on the basis that was not accepted in the trial judgment, that is on the basis of a Rate of Gross Profit of 37.90%, and the other on the basis later proposed in Mr McKenzie's 2024 report, without UWEs and with a Rate of Gross Profit of 100%.

24    As is apparent from the way that the submission is expressed, however, the second basis was not how Koolan put its case at trial, whether as an alternative case or otherwise. It was put as a way of supporting the validity of the claim that Koolan put on the first basis. It is similarly apparent from the way that Mr McKenzie described the alternative approach in the passages from the reports referred to above that, whether or not he would have preferred that approach, it was not put to the Court as one that it ought to accept for the purposes of determining the ICW Issue. As the very framing of that issue reflects, the issue at trial was solely whether the Court should accept the $17,956,182 claimed as ICWs on the basis of accepting that there were UWEs that produced a Rate of Gross Profit of 37.90%.

25    Consequently, and properly, counsel representing Koolan on the present application accepted that the purpose of reopening to put Mr McKenzie's 2024 report into evidence would have been to put a case that was different to the case that was put at trial. He accepted that the trial was conducted on the basis that the UWEs were simply the variable expenses of producing Output. His position was that, nevertheless, it was an alternative way of calculating the indemnity of which Infrassure and the Court were aware, and which could be finalised on the basis of the figures that were already in evidence, the accuracy of which was not disputed.

26    In Koolan's submission, if the indemnity were not calculated that way, Infrassure would benefit because the true cost of producing ore from ACE during the Indemnity Period would not be taken into account. As has been said, Koolan characterised this as a windfall, and submitted that it would be unjust. That injustice could be avoided by applying the indemnity clause in the simpler way outlined by Mr McKenzie. To do so would be merely to calculate the existing figures in a different way on the basis of information that was already before the Court.

27    Koolan also submitted that if the Court did not accept Mr McKenzie's views as to the accounting implications of the Court's reasons, it should refer the matter to a referee with expertise in accounting and business interruption loss adjusting.

Principles

28    Conceivably, distinctions could be drawn between the principles to be applied to reopening in several different situations: (1) an application during trial, or at least before judgment is reserved; (2) an application after judgment is reserved but before reasons are delivered; (3) an application after reasons are given but before any final orders are made; and (4) an application after orders are made but before they are formally entered. The principles to be applied in the last of these situations are quite strict: see Davis v Insolvency and Trustee Service (No 2) [2011] FCAFC 9; (2011) 190 FCR 437 at [6]. But I do not detect in the authorities any hard and fast division between the principles to be applied in the other situations.

29    This case is in the third category. In that respect it bears some analogy with Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22, where Kenny J had delivered reasons for judgment but gave the applicants an opportunity to adduce further evidence as to the precise quantum of a relevant loss, her Honour not having been apprised of the applicants' specific rejection of that option in pre-trial correspondence with the respondents. After learning of that, her Honour permitted all parties to make submissions as to the appropriate disposition of the case. Her Honour determined that in the circumstances, the applicants had opened and closed their case at the first hearing before her on the basis that they would not quantify their loss. Her Honour went on to summarise the principles applicable to applications to reopen, in terms that have since been applied to cases in each of the first three situations outlined above: see Bradshaw at [24]-[29].

30    This case also bears some analogy with Di Stasio Pty Ltd v R & K Services Pty Ltd [2018] VSCA 340. There, the trial judge allowed an application to reopen after he had delivered reasons for decision but before he had pronounced orders. In dismissing an appeal from that decision, the Victorian Court of Appeal (Tate JA, McLeish and Niall JJA agreeing) applied what it described as established principles from Bradshaw and from cases involving applications to reopen after judgment had been reserved but before it had been delivered, at [71] fn 77: Spotlight Pty Ltd v NCON Australia Ltd [2012] VSCA 232; (2012) 46 VR 1, CC Containers Pty Ltd v Lee (No 5) [2013] VSC 619. Tate JA also paid particular regard to De L v Director-General, NSW Dept of Community Services (No 2) (1997) 190 CLR 207, a case where an application to reopen was made after orders were pronounced but before they were perfected: see Di Stasio at [73]-[79]. Bradshaw was also applied in similar circumstances in Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75; (2017) 251 FCR 404 at [168]-[171].

31    On that basis I consider that the generally accepted principles outlined in Bradshaw at [24] apply (citations removed):

The authorities indicate that, broadly speaking, there are four recognised classes of case in which a court may grant leave to re-open, although these classes overlap and are not exhaustive. These four classes are (1) fresh evidence; (2) inadvertent error; (3) mistaken apprehension of the facts; and (4) mistaken apprehension of the law. In every case the overriding principle to be applied is whether the interests of justice are better served by allowing or rejecting the application for leave to re-open.

32    Nevertheless, in assessing where the interests of justice lie, the stage that the proceeding has reached must be relevant. In Spotlight at [17], the Victorian Court of Appeal (Harper and Tate JJA and Beach AJA) said:

There are good reasons why the circumstances must be exceptional before a court may allow a case, having been closed and judgment reserved, to be re-opened. The need for finality in litigation is one. It is no answer to this point to say that the further evidence sought to be adduced by the respondent in this case is confined to the quantum of damages. Were applications to re-open to be allowed almost as of course, such applications would be regularly made. That would add enormously to inefficiencies in the administration of justice, even if the re-opened hearing was strictly confined. The discipline which ought to attend the conduct of litigation by highly competent litigators would also inevitably decline.

33    These considerations must apply all the more strongly where reasons for judgment have been delivered. It is obviously not in the interests of justice to permit a party, without very good cause, to reopen its case after it has received reasons for decision and has had the opportunity to assess how its evidence or arguments could be improved in order to overcome findings it does not like. Although made in the context of an application to reopen after orders had been made, the following comment by the Full Court in Davis (at [9]) surely applies:

The public interest in the finality of litigation does not permit the losing side to reopen a case just because, in retrospect, it can be seen that better evidence about some matter in dispute might have changed the result. Were it otherwise, there would be no end to litigation.

34    In Re Culleton [2017] HCA 3 at [21]-[22], Gageler J described the policy of the law as follows (footnote omitted):

In University of Wollongong v Metwally (No 2), six Justices of the High Court said:

'It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.'

Metwally (No 2) was a case in which an application to re-open was made after orders had been pronounced and perfected. The observation applies with somewhat diminished force in a case where a hearing has been conducted by a Full Court of the High Court and where judgment is reserved, but the policy expressed in the observation remains applicable even then.

35    That policy must apply with renewed force after reasons have been given and the reception that the Court has given to the arguments that were made has been revealed.

36    Likely prejudice to the party resisting the application will also be relevant on an application to reopen: Urban Transport Authority of New South Wales v Nweiser (1992) 28 NSWLR 471 at 478. The probability that the additional evidence will affect the result is also relevant: Telstra Corporation Ltd v Australian Competition and Consumer Commission [2008] FCA 1436; (2008) 171 FCR 174 at [208]-[209] (Lindgren J). If success in reopening is not likely to make any difference to the outcome of the trial, that would weigh against putting the parties and the Court to the delay, trouble and expenditure of resources involved in reopening.

Why leave to reopen was refused

37    Koolan put its claim to ICWs in a certain way at trial. The Court published reasons indicating that it did not accept the case that had been put. Koolan then sought to reopen in order to put its case in a different way. It pointed to no misapprehension of fact or law or inadvertence to explain why that different case was not put at trial. On the principles articulated above, something exceptional would have to be identified to warrant reopening the case in these circumstances. Koolan identified nothing of that kind.

38    I do not accept Koolan's attempts to characterise the proposed reopening as an accounting adjustment consequent on the trial judgment. It is not to the point that to classify the $17,956,182 as other than ICWs might require further accounting entries. The Court is not conducting an accounting exercise; it is determining what orders to make consequent on a claim. In this case, it has determined that Koolan has not discharged its onus of establishing the ICW component of its claim. It follows that the claim fails, in the sense that the orders the Court makes will not make provision for it. What implications that may have for any given set of accounts is of no concern to the Court. As such, I saw no need to refer any question to an expert accountant or loss adjuster acting as a referee.

39    In any event, it is plain that the proposed evidence does not effect a mere adjustment; rather, it restates the entire claim on a completely different basis. As was explained in the trial judgment, it was common ground that there were UWEs. They were the variable costs of producing Output. That had the result that (on the EMP basis) there was a Rate of Gross Profit of 37.90%, not 100%. The formula set out in the Policy was applied accordingly. Koolan's case was relevantly reflected in Appendix D(iii) of Mr McKenzie's Third Supplementary Report, reproduced at TJ [590]. That Rate of Gross Profit was applied, not only to determine the alleged ICWs, but throughout in order to calculate the indemnity resulting from the difference between actual Output and the Standard Output (as adjusted). The proposed new evidence is a wholesale departure from that approach and the common ground concerning UWEs on which it was based.

40    Koolan made a submission that it would be unfair to proceed on the basis of industry practice in one respect (when UWEs are not specified in the schedule to the Policy, they are simply variable costs) but not to permit Koolan to rely on industry practice in another respect (when UWEs are not specified in the Schedule, the claim can be calculated as if there were none). That submission is without merit. Mr McKenzie's opinion as expressed in the Joint Expert Report shows that the two 'industry practices' are alternatives. As the above discussion makes plain, for the purposes of the trial, Koolan chose the first but not the second.

41    To justify the proposed departure from the case put at trial, Koolan relied squarely on what it puts as the interests of justice, in the form of the need to avoid what it said would be the injustice of the windfall that Infrassure would receive if leave to reopen were not given. There are several observations to make about this. First, as the discussion of principle above reflects, the interests of justice go beyond the importance of arriving at an outcome in the case which (Koolan says) is the just result. The damage to the administration of justice that would result if applications of this kind were to be allowed too readily is obvious.

42    Second, and relatedly, the interests of justice must also be assessed in light of the justice of the process that led to the result Koolan now seeks to avoid. In our adversarial system, generally speaking, it is just to permit a party to put to the Court such case as it sees fit, to reach a conclusion after hearing that case and (subject to any right of appeal) for all parties to abide by that conclusion, regardless of whether a different outcome might have been obtained had a different case been put. That is what has happened here. Hence the general, if not invariable, need to support a different approach by reference to inadvertence, misapprehension or the other grounds identified in cases like Bradshaw and Davis.

43    Third, to say that the outcome will be unjust unless Koolan's claim is increased by the ICW amount that the Court has not allowed is to beg the question sought to be raised. It cannot be said to be unlikely that Mr McKenzie's proposed evidence would affect the result. But as Koolan accepted, if that evidence were to be adduced, then Infrassure would be entitled to adduce responsive expert evidence. Infrassure also submitted that it might need to seek further discovery in connection with some of the line items claimed. The Court cannot proceed on the absolute conviction put by Koolan without (unjustly) prejudging the issue. It is also relevant that, even though all the figures necessary to recalculate the claim may be in evidence, the need to interrogate the composition of the line items will cause further expense and delay in the resolution of the proceedings.

44    The principal cases on which Koolan relied, The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard's Pty Ltd (No 2) [2004] FCA 1310 and Di Stasio, were different to this case. In both of them, the courts found that a particular matter had not been addressed because of oversight, inadvertence or misunderstanding about the way that the claims were being put: see Silver Fox at [16]-[18], [22]; Di Stasio at [35]-[36], [53], [71]-[72]. In Di Stasio there was the further factor that all that was lacking was a purely formal step, where the trial judge had positively found that, but for the failure to take that step, the relevant aspect of the claim would have succeeded: Di Stasio at [25], [36]. The circumstances of this case are removed from either Silver Fox or Di Stasio.

45    I also took into account that Infrassure had established that it would have been prejudiced if Koolan had been permitted to reopen. It adduced evidence in the form of an affidavit from its solicitor, Wen-Ts'ai Lim, to the effect that had Koolan put its case differently, he would have recommended to Infrassure that it instruct him and counsel to investigate the particular line items that contributed to the quantum of the sum claimed as 'ICW-UWEs'. Mr Lim would have required the assistance of an expert accountant and possibly also a mining engineer.

46    That evidence was not disputed or challenged. While it is evidence about past hypothetical events (see TJ [182]-[193]), it is consistent with the objective probabilities and I accept it. It is also inherently likely that Infrassure would have given the instructions Mr Lim sought. That being so, relevant prejudice was established. I took that into account as a factor weighing against exercising the discretion to permit Koolan to reopen.

47    Koolan submitted that Infrassure's expert accountant, Mr Potter, had in fact already analysed the variable expenses claimed as ICWs and had arrived at the same figure as Mr McKenzie. However the 'analysis' Koolan relied on appears at paragraph 5.10 of Mr Potter's report of 2 October 2020 as a line item designated as follows (emphasis added): 'UWEs incurred for Alternate Product assumed all related to Actual Output'. This does not evince the kind of analysis that is posited in Mr Lim's affidavit.

48    Mr Lim's affidavit also raised a difficulty concerning the ongoing engagement of Mr Potter who, but for that difficulty, would have been the person best placed to respond to the proposed new evidence from Mr McKenzie. But I considered that if it were necessary for Infrassure to retain a new expert as a result of that difficulty, that could be ameliorated by an appropriate order for costs against Koolan. I therefore did not give this matter any weight in the exercise of the discretion.

49    Nevertheless, for the reasons given, I considered that the circumstances were overwhelmingly against exercising the discretion to permit Koolan to reopen, and I dismissed the application. Costs followed the event.

50    Koolan accepted that if the interlocutory application to reopen were dismissed, final judgment, essentially in the terms proposed by Infrassure, should be entered. Orders to that effect were also made.

Associate:

Dated:    14 June 2024