- Saturday, March 23, 2019
Authors: Katherine Hayes & Elise Turnbull, Senior Associate
On 21 December 2018, in Neville’s Bus Service Pty Ltd v Pitcher Partners Consulting Pty Ltd1, Justice O’Callaghan of the Federal Court of Australia entered judgment for Neville’s Bus Service Pty Ltd (NBS) against Pitcher Partners2 (PP) for approximately $5.5 million for deceit in relation to a simple amortisation error. Significantly, the error was incorrectly included by PP in financial modelling figures it prepared to assist NBS submit a tender bid. On 21 February 2019, it was further ordered that PP pay NBS’s legal costs of the proceeding on an indemnity basis, fixed at just over $3.3 million.
In 2013, NBS engaged PP to prepare financial data for the purposes of NBS submitting a tender bid to Transport of New South Wales (TfNSW) for a potential bus contract. Unknown to NBS, PP’s data contained an amortisation error that resulted in NBS’s tender bid being $660,000 less profitable per year than expected. NBS won the tender.
In February and March 2014, NBS sought further cash flow modelling from PP in relation to the TfNSW contract. It was common ground at trial that the cash flow modelling revealed the amortisation error and that the effect of it was obvious.
NBS entered a contract with TfNSW for the relevant bus services commencing 1 June 2014.
In August 2014, a newly employed accountant for NBS reviewed the TfNSW bus lease obligations and cash flow and, in doing so, identified the error and raised it with PP.
Shortly prior to trial, PP conceded the conduct causing the amortisation error was negligent, in breach of contract, and amounted to misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law.3
The issues in dispute at trial included the point in time that PP became aware of the error and whether PP fraudulently concealed it.
Relevant to the outcome at trial was the Judge’s dim view of the PP director who supervised the work. He was found to be an unsatisfactory witness who evaded questions during examination, sought to conceal the error and deflect responsibility for it. On the evidence available, the Judge found that the PP supervisor must have identified the relevant error:
Additionally, during cross examination, the PP supervisor conceded he acted dishonestly by misleading and deliberately not revealing the whole truth to NBS about the error.
Against that background the Judge had no hesitation in finding that the five elements of deceit, as summarised by the High Court in Magill v Magill,4 were made out. Those elements being that the:
The Judge also found that:
Damages of approximately $5.5 million were awarded to NBS for PP’s deceit, including interest.
In consideration of the finding that PP had been dishonest, deceived NBS, caused NBS to incur unnecessary and significant legal expenses and admitted to the amortisation error only shortly before trial, the Judge ordered PP pay NBS’s costs on an indemnity basis noting that this was a case where such an award was 'close to irresistible'.5 The lump sum ordered for costs allowed 90% of NBS’s professional fees and 100% of disbursements.
Even if the Judge had not allowed indemnity costs for the reasons discussed above, his Honour confirmed he would have allowed indemnity costs6 because NBS obtained a better judgment at trial than the sum for which it had offered to resolve the dispute prior to commencing proceedings.7 The Judge considered that although NBS’s offer was made pre-litigation, pre-discovery, as an all inclusive offer and was followed by later offers not bettered at trial, PP was in a position to assess its prospects when the offer was made.
This decision is subject to an appeal, PP having filed a notice of appeal in the Federal Court on 4 February 2019.8
This decision is a timely reminder that:
1 Neville’s Bus Service Pty Ltd v Pitcher Partners Consulting Pty Ltd  FCA 2098.