Advance Business Finance Pty Ltd v Zip Zap Pty Ltd (No.2)
[2014] FCCA 1423
•26 May 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ADVANCE BUSINESS FINANCE PTY LTD v ZIP ZAP PTY LTD (No.2) | [2014] FCCA 1423 |
| Catchwords: PRACTICE & PROCEDURE – Costs – costs awarded – party and party basis – indemnity basis. |
| Legislation: Trade Practices Act 1974 (Cth), ss.52, 82 |
| Advance Business Finance Pty Ltd v Zip Zap Pty Ltd [2014] FCCA 483 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Frith v Gold Coast Mineral Springs Pty Ltd (1983) 47 ALR 547 Hawkins v Clayton (1988) 164 CLR 539 Henville v Walker (2001) 206 CLR 459 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 Jamieson and Ors v Westpac [2014] QSC 32 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 Potts v Miller (1940) 64 CLR 282 Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 |
| Applicant: | ADVANCE BUSINESS FINANCE PTY LTD |
| Respondent: | ZIP ZAP PTY LTD |
| File Number: | BRG 447 of 2011 |
| Judgment of: | Judge Burnett |
| Hearing date: | 26 May 2014 |
| Date of Last Submission: | 26 May 2014 |
| Delivered at: | Brisbane |
| Delivered on: | 26 May 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr M. Brady |
| Solicitors for the Applicant: | Clayton Utz |
| Counsel for the Respondent: | Mr D. Freeburn QC |
| Solicitors for the Respondent: | Biggs Fitzgerald Pike |
ORDERS
That there be judgment for the Applicant against the Respondent in the sum of $348,922.62.
That there be interest on the judgment sum pursuant to the provisions of the Federal Circuit Court of Australia Act 1999 (Cth) from 1 July 2009 to 26 May 2014 at the rate applicable from time to time.
That in default of agreement within 24 hours of this order concerning the quantum of interest applicable in terms of Order 2, the matter be referred to a Registrar of the Court for determination and there be judgment for that sum.
That the Respondent pay the Applicant’s costs of and incidental to the application to be taxed:
(a)on the party and party basis until and including 19 February 2013; and
(b)on the indemnity basis from and including 20 February 2013.
It is certified that it was reasonable for the Applicant to engage counsel in the proceeding.
| FEDERAL CIRCUIT COURT AT BRISBANE |
BRG 447 of 2011
| ADVANCE BUSINESS FINANCE PTY LTD |
Applicant
And
| ZIP ZAP PTY LTD |
Respondent
REASONS FOR JUDGMENT
(Revised from Transcript)
This judgment addresses a question which has arisen between the parties upon orders which I made following trial directing that they circulate and submit a form of order giving effect to the findings of the Court.
As I have stated in my earlier reasons,[1] I am satisfied that the Applicant has sustained loss and that an award of damages ought be made. I stated that the damages, being compensatory in character, ought equate with the Applicant’s capital loss, because of the Respondent’s conduct.
[1] Advance Business Finance Pty Ltd v Zip Zap Pty Ltd [2014] FCCA 483.
I had requested that the parties attempt to agree on this figure, but regretfully they cannot. Notwithstanding the fact that the calculation involves an exponential calculation of various factors, the figure is discretely calculable, and I have done it myself using the evidence adduced at trial. The calculations have been performed with the assistance of Microsoft Excel software; a copy of the relevant spreadsheet is attached at Annexure 1.
The principal dispute between the parties concerned the manner in which the monthly payments made by the borrower were to be attributed. The Respondent says that they should be allowed in full against the capital amount due at the time of default, when the cause of action was perfected, because it was from that point that the Applicant suffered loss. The Applicant contends the opposite.
Initially, the Applicant sought a sum of $498,036.48. This sum reflected allowance only for payments against the revenue account. I note that this is not a case that can be simply addressed on the standard Potts v Miller (1940) 64 CLR 282 basis of assessment. That is, the Applicant appears to want to recover the balance due under its contract, that being ($12,799.76 x 34 [outstanding payments]).[2] That seems to account for the sum of $498,036.48 referred to in Exhibit 12.
[2] Minor allowances were also made for late payments made close to the time of default.
The Respondent contends that the appropriate measure is $223,125.00. That sum is achieved by setting off each monthly payment of $12,799.76 against the capital value of the loan. That is, no part of any of each of the monthly instalments of $12,799.76 is to be allowed for interest. Deducting the sum of (25 x $12,799.76) from $500,000.00 will give the sum of $223,125.00 to which I have referred.
I should note that there was no significant debate about the make-up of Exhibit 12. It was really upon request that the parties to draw up appropriate orders that the contest between them on this issue became apparent. I am satisfied that neither of the parties’ proposals represents a satisfactory measure of damages, because they fail to acknowledge the underlying principle that damages in the context of an application for damages under s.82 Trade Practices Act 1974 (Cth) (“TPA”) have to be compensatory in character.
Exhibit 12, in fact, proposes a measure comparable to the measure which might flow from an assessment of damages in a full breach of contract. That is, the figures indicated in the “Gross Balance” column reflected the grossed-up sum agreed to be repayable at any point of time between the date of the loan and its expiration five years later, measured at monthly rests. As the default occurred at about the time of at the time that the 25th instalment had been paid, that would suggest that a sum of approximately $499,346.66 would have been the appropriate measure. As I have noted, that sum requires some minor adjustment as is reflected in Exhibit 12, because of the later payments evidenced in that document, but the figures are not materially different for present purposes.
The general principles governing assessments of this kind are as follows. Sections 82 and 52 TPA have a remedial purpose and, accordingly, principles of common law relevant to assessment in tort or contract are not necessarily pertinent.[3] Further, the measure of compensation is the amount of the loss or damage sustained.[4]
[3] Henville v Walker (2001) 206 CLR 459.
[4] I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109.
To recover damages, the Applicant must prove that the loss and damage was occasioned by the contravening conduct.[5] Reliance upon the contravening conduct need not be the sole cause of the Applicant’s loss or damage, however, some aspect of the loss must be referable to the contravening conduct.[6]
[5] Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514.
[6] Henville v Walker.
The reference to loss or damage should be given no narrow meaning. It is wrong to approach the remedial provision of Part 6 of the TPA by beginning with an attempt to draw an analogy with a particular form of claim under the general law.[7] Reference to loss or damage includes economic or financial loss.[8]
[7] Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388.
[8] Wardley Australia Ltd v State of Western Australia.
Damages are available for consequential loss as long as the loss is a direct result of contravening conduct.[9] Finally, if damage has occurred, the Court must do its best to quantify the loss, even if a degree of speculation and guesswork is involved.[10]
[9] Frith v Gold Coast Mineral Springs Pty Ltd (1983) 47 ALR 547.
[10] Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64.
An excellent application of those principles is to be found in the recent decision of Jamieson and Ors v Westpac [2014] QSC 32, where Jackson J observed:
“[169] In my view, the central principle in awarding damages for either the tort of deceit or under ss 52 and 82 is that damages are compensatory. The object of that principle is that the plaintiff is to be restored to the position as if the wrong had not occurred.
[170] As previously stated, in the tort of deceit, where a fraudulent misrepresentation induces a contract under which property is acquired, the well established prima facie measure of loss is the difference between the price paid and the value of what is acquired at the time of the transaction, ie when the loss is suffered. There are several notable features of the rule in Potts v Miller, including that:
(a) if the value of what was acquired at the time of the acquisition was equal to or more than what was paid, there is no loss, even if the property acquired would have been worth more if the representation had been true;
(b) the object in mind is to place the plaintiff in the position as if they had not altered position on the faith of the misrepresentation, not to restore to the plaintiff a hoped for benefit or protection which does not materialize;
(c) this is the fundamental difference in outcome between a pre-contractual misrepresentation and a contractual warranty which is breached;
(d) the value of the property acquired is assessed by the court and the inquiry is not constrained by market value at the time, if the market was not fully informed. That is, the inquiry is as to true or fair value; and
(e) in assessing true or fair value as part of assessing damages, a court is not bound at a later trial to ignore matters which have in fact occurred after the transaction as if they were still hypothetical contingencies at the date of entering into the transaction. The task is the assessment of damages at trial, not the determination of market value at the date of entering into or completion of the contract.
[171] Despite rumblings of other possibilities in High Court cases, in the practical world of litigation, the usual measure in accordance with the rule in Potts v Miller is every-day stuff. It has been consistently applied in misrepresentation cases at common law and in claims for damages under ss 52 and 82.
[172] Also, as previously stated, the usual measure is intended to compensate by putting the plaintiff in the position they would have been in if the misrepresentation had not induced them to enter into the transaction. However, as the causation discussion above also shows, the plaintiff is not required in every case to go so far as to prove that they would not have entered into the transaction if the inducing misrepresentation had not been made. This is a simple enough forensic advantage given to a plaintiff. It compensates the plaintiff without the need for an inquiry as to relative causal significance. The financial detriment of the transaction is compensated by notionally returning the plaintiff’s money, the purchase price, but subtracting the value of what they got under the transaction, so they are not over compensated. It usually follows that if what the plaintiff acquired was worth what was paid for it or more, there is no compensable loss. This is a proper application of the compensation principle in damages for the tort of deceit. It is consistent with the application of the principle in awarding damages for tort generally, which is often identified with Livingstone v Rawyards Coal Co.
[173] The operation of the compensation principle in damages for breach of contract is different. There, generally speaking, the object of an award of damages is to put the plaintiff in the position they would have been in if the contract had been performed without the breach complained of. It is not to put them into the position as if they had not entered into the contract. On the contrary, the plaintiff is entitled to the value of any benefit which performance of the contract should have given them. The application of the compensation principle in awarding damages for a breach of contract is often identified with Robinson v Harman.”
So what is an appropriate measure of compensation in this instance? Given that, in undertaking the assessment exercise, the Court is not confined to the hypothetical contingency that there would have been a default, I think that the measure of compensation can be reasonably assessed by asking what would have been the value of the loan had the advance been made knowing there was to be a default and the loan would have become irrecoverable from the end of June 2009? Was that less than the value of the loan, and, if so, how and by what amount, given that knowledge?
The loan represented the right to recover the repayment of capital of $500,000.00 together with interest accrued over its life. That occurred until the time of default, at which time the Applicant also came to know that it would become irrecoverable (that is the date the winding-up order was made). It follows that the cause of action arose then.[11] In my view, the loss that followed and which constitutes the appropriate measure of compensation is the value of the outstanding capital at the time of default. That was the loss that the Applicant suffered.
[11] Hawkins v Clayton (1988) 164 CLR 539.
This can be illustrated in two ways. First, in a world of ‘perfect knowledge,’ a term known particularly to economists, and assuming immediately enforceable remedies,[12] the Applicant could have advanced the sum on the terms agreed and, upon default, would immediately recover by enforcement his outstanding capital and deploy it to another loan. He would not recover the future projected interest, because that reflects a contractual entitlement. If he was so simply to be compensated, he would suffer no loss upon his immediate recovery of the outstanding capital at the point of default accepting that he was able to immediately deploy that sum to another loan.
[12] Another fantasy concept available only in theory.
This is in contrast to the position advanced by the Respondent. If each monthly payment had been credited in full to the loan account, the Applicant would have enjoyed no interest on his loan up to the full extent of the borrowings. Taking matters to their logical conclusion on the Respondent’s case, after having made approximately 40 payments, the Applicant would not have suffered any loss. On the Respondent’s case, the capital would have been repaid and thereafter the Applicant would not have been eligible for compensation because its interest entitlement from the point of default was contractual.
So what would happen, in that event, if the cause of action did not arise until the default in payment and the final causative event occurred after the 41st payment? On the Respondent’s case, capital would have been repaid and the Applicant would not have been entitled to any compensation. That result appears to me to be counter-intuitive.
Likewise, if the converse position is considered for the Applicant, namely that it was only the last 40 payments which represented capital reduction, such that in the event a s.52 claim arose at any time before the 20th instalment, it would mean the Applicant to that point would be entitled to the full capital sum as a true measure of his recoverable loss.[13]
[13] To be clear this was not the case advanced by the applicant but is the corollary to the respondent’s approach.
I do not think that either view can properly represent the position in the context of a loan that allows for progressive payments by instalments in reduction of principal and provides for interest over its term.
On that basis I assess the value of the capital due at the time that the right of action accrued as $403,554.68 as calculated in Annexure 1.
Annexure 1 requires some explanation. The box in the top left-hand corner incorporates the relevant ‘operators’ derived from the loan document, they being the principal, the term of the loan and the quantum of the monthly repayment. The “Rate” does not appear in the loan document itself but is a function of those three matters, together with the loan document’s provision that the balance due at the term of the loan is zero.
It can be seen by reference to the figures in Exhibit 12 that the “Total Payments remaining” column reflects the “Gross Balance” column; my calculations can be followed by reference to those made by the Applicant. The calculations have been made with the assistance of formulas generated via the Excel software.
It can be seen that, when calculating the total payments, for the interest sum (which is the ‘operator’ I have used) I have used repayment at the end of the period. The contract states that the payments are due on the last day of each month. However it will be noted that I have taken the payments as being due on the first day of each month. That was done simply for my convenience. In fact, I have calculated repayments on the basis of payments being due at the end of each month. So, for instance, the first payment was not due on 1 June 2007, as the draw-down date was 30 May. The first payment was not due on 31 May, obviously enough; it was due on 30 June, that being the last day of the month. For convenience the first deduction was calculated for 1 July, being the next day, and for the first day of each subsequent month (this was done as a matter of convenience and would not materially impact the calculation).
If the calculation was to continue to its 60th instalment it would render the “Total Payments remaining” as zero and, of course, the “Capital outstanding” would also be zero.
The “Total Payments remaining” column equals the gross balance in Exhibit 12. It simply reflects arithmetically the sum of the multiplier – 50 periods of instalments by payments. It can be seen that in the period 1 June 2007 60 payments remain outstanding and the total remaining payments are $767,985.60. On 1 August 2008 there were 46 payments remaining. Multiplication of ($12,799.76 x 46) equates to $588,788.96.
The “Interest” column reflects the interest component of each instalment, which was $12,799.76. It is a relatively straightforward financial calculation to calculate the interest. Once the interest is deducted from the payments the “Principal reduction” amount is derived.
The “Principal reduction” figure is then taken from the “Capital outstanding pre-reduction” sum.
The financial calculation is an exponential calculation, not a linear calculation as is proposed in respect of interest on the judgment sum. Because of the nature of the calculation it can be seen that during the course of the payment periods the interest sum gradually reduces as the principal outstanding reduces, and the principal repayment increases commensurate with the reduction in principal outstanding. Over time the figures demonstrate that in respect of each instalment the sum of attributable interest decreases and the sum of attributable capital increases by a commensurate factor.
At any point in time the sum of principal and interest always equates to the instalment sum. The “Capital outstanding” column reflects the principal of $500,000 less the amount of principal reduced. As at 30 June 2009 the principal outstanding was $403,554.68.
Finally, I should note that in order to avoid any confusion; there was a discrepancy between the repayment figure provided for in the Schedule to the loan and a summary of the loan document referred to in the papers attached to Mr Crutchley’s affidavit.[14] In the loan summary document dated 6 March 2007 the repayment was noted as being $12,766.98.[15] In fact, the loan document provides for $12,799.76.[16] Not only does the document provide for that, but that seems to be a sum which the debtor paid by way of reduction, which I take as an admission that that was the correct sum and on that basis there were no overpayments.
[14] Affidavit of P. Crutchley filed 21 May 2012 at Annexure PC-4.
[15] Affidavit of P. Crutchley filed 21 May 2012 at Annexure PC-4 (page 80).
[16] Affidavit of P. Crutchley filed 21 May 2012 at Annexure PC-4 (page 96).
The box at the bottom left-hand corner of Annexure 1deals with special charges. They are simply the charges which I have extracted from the material based upon those matters attested to by Mr Crutchley. I have allowed, although they are not attested to, two credits of $3,000.00 in respect of direct deposits made on 14 May 2009 and 2 June 2009 respectively.
These inclusions give rise, in the box in the far right-hand side, to the “Capital outstanding” sum of $403,554.68 which is carried forward from the main table on the spreadsheet, together with the special charges balance of $35,525.88. There is also the deduction of $90,157.94 which relates to the sum which was paid by way of cheque on 14 June 2010 to the Applicant by the receivers following the sale of the scaffolding equipment.
It follows that I assess damages at $348,922.62. I note that although the sum of $90,000.00 paid on the sale of the scaffolding was paid about 12 months after the date on which the damages arose, I consider the Applicant ought to have interest on the full judgment sum from 1 July 2009 to today on the statutory scale.
An issue was raised by the Respondent on the last occasion that the Applicant’s proposed table showing damages (Exhibit 12) amounted to the introduction of additional evidence. While it may have contained some errors, I do not accept that it constituted fresh evidence at all. The table clearly had its source in the evidence before the Court. All that was required was a calculation based upon the existing evidentiary material, no different to that which I have performed. Respectfully, this is a simple mechanical exercise for which the parties ought to have engaged an independent accountant to undertake.
The real issue between the parties, unless I have misunderstood Mr Freeburn’s submissions on the last occasion, was not the calculation but, in fact, the attribution of the payments in order to ascertain what I regard as the appropriate compensatory measure for the value of the capital lost as at the date the cause of action arose. That, I think, was illustrated by Mr Freeburn’s argument that the payments should be set off against capital; not apportioned as between principal and interest.
I shall also make mention of the subject of costs. The further hearings related to this matter have been occasioned not because of fresh evidence nor, I think, because of any real failure to understand the case being advanced by the Applicant. The further hearings have been for the benefit of both parties. As such, I determine that any of these further costs should follow the event.
I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of Judge Burnett
Date: 4 July 2014
Annexure 1
| Rate | .1838/12 | 0.015316667 | |||||||
| Principal | $500,000.00 | ||||||||
| No. of repayments | 60 | ||||||||
| Repayment | $12,799.76 | ||||||||
| Date Due | Period | Periods remaining | Payment | Total Payments remaining | Interest | Repayment | Principal reduction | Capital outstanding pre-reduction | Capital outstanding |
| 30-May-07 | - | - | $ - | $ 767,985.60 | $ - | $ - | $ - | $ 500,000.00 | $500,000.00 |
| 1-Jun-07 | 0 | 60 | $ - | $ 767,985.60 | $ - | $ - | $ - | $500,000.00 | $500,000.00 |
| 1-Jul-07 | 1 | 59 | $ 12,799.76 | $ 755,185.84 | -$7,897.91 | $ 12,799.76 | $5,033.48 | $500,000.00 | $494,966.52 |
| 1-Aug-07 | 2 | 58 | $ 12,799.76 | $ 742,386.08 | -$7,766.28 | $ 12,799.76 | $5,048.17 | $494,966.52 | $489,918.35 |
| 1-Sep-07 | 3 | 57 | $ 12,799.76 | $ 729,586.32 | -$7,751.59 | $ 12,799.76 | $5,065.14 | $489,918.35 | $484,853.20 |
| 1-Oct-07 | 4 | 56 | $ 12,799.76 | $ 716,786.56 | -$7,734.62 | $ 12,799.76 | $5,084.45 | $484,853.20 | $479,768.76 |
| 1-Nov-07 | 5 | 55 | $ 12,799.76 | $ 703,986.80 | -$7,715.31 | $ 12,799.76 | $5,106.16 | $479,768.76 | $474,662.60 |
| 1-Dec-07 | 6 | 54 | $ 12,799.76 | $ 691,187.04 | -$7,693.60 | $ 12,799.76 | $5,130.34 | $474,662.60 | $469,532.26 |
| 1-Jan-08 | 7 | 53 | $ 12,799.76 | $ 678,387.28 | -$7,669.42 | $ 12,799.76 | $5,157.07 | $469,532.26 | $464,375.18 |
| 1-Feb-08 | 8 | 52 | $ 12,799.76 | $ 665,587.52 | -$7,642.69 | $ 12,799.76 | $5,186.42 | $464,375.18 | $459,188.76 |
| 1-Mar-08 | 9 | 51 | $ 12,799.76 | $ 652,787.76 | -$7,613.34 | $ 12,799.76 | $5,218.47 | $459,188.76 | $453,970.29 |
| 1-Apr-08 | 10 | 50 | $ 12,799.76 | $ 639,988.00 | -$7,581.29 | $ 12,799.76 | $5,253.28 | $453,970.29 | $448,717.02 |
| 1-May-08 | 11 | 49 | $ 12,799.76 | $ 627,188.24 | -$7,546.48 | $ 12,799.76 | $5,290.93 | $448,717.02 | $443,426.09 |
| 1-Jun-08 | 12 | 48 | $ 12,799.76 | $ 614,388.48 | -$7,508.83 | $ 12,799.76 | $5,331.51 | $443,426.09 | $438,094.58 |
| 1-Jul-08 | 13 | 47 | $ 12,799.76 | $ 601,588.72 | -$7,468.25 | $ 12,799.76 | $5,375.09 | $438,094.58 | $432,719.49 |
| 1-Aug-08 | 14 | 46 | $ 12,799.76 | $ 588,788.96 | -$7,424.67 | $ 12,799.76 | $5,421.76 | $432,719.49 | $427,297.73 |
| 1-Sep-08 | 15 | 45 | $ 12,799.76 | $ 575,989.20 | -$7,378.00 | $ 12,799.76 | $5,471.60 | $427,297.73 | $421,826.12 |
| 1-Oct-08 | 16 | 44 | $ 12,799.76 | $ 563,189.44 | -$7,328.16 | $ 12,799.76 | $5,524.70 | $421,826.12 | $416,301.42 |
| 1-Nov-08 | 17 | 43 | $ 12,799.76 | $ 550,389.68 | -$7,275.06 | $ 12,799.76 | $5,581.15 | $416,301.42 | $410,720.27 |
| 1-Dec-08 | 18 | 42 | $ 12,799.76 | $ 537,589.92 | -$7,218.61 | $ 12,799.76 | $5,641.03 | $410,720.27 | $405,079.25 |
| 1-Jan-09 | 19 | 41 | $ - | $ 537,589.92 | -$7,158.73 | $ - | $0.00 | $405,079.25 | $412,237.98 |
| 1-Feb-09 | 20 | 40 | $ - | $ 537,589.92 | -$7,268.38 | $ - | $0.00 | $412,237.98 | $419,506.36 |
| 1-Mar-09 | 21 | 39 | $ - | $ 537,589.92 | -$7,379.71 | $ - | $0.00 | $419,506.36 | $426,886.06 |
| 1-Apr-09 | 22 | 38 | $ 42,493.64 | $ 495,096.28 | -$7,492.74 | $ 42,493.64 | $35,487.47 | $426,886.06 | $391,398.60 |
| 1-May-09 | 23 | 37 | $ - | $ 495,096.28 | -$7,006.17 | $ - | $0.00 | $391,398.60 | $398,404.77 |
| 1-Jun-09 | 24 | 36 | $ 8,500.00 | $ 460,791.36 | -$7,113.48 | $ 8,500.00 | $1,675.04 | $398,404.77 | $396,729.72 |
| 1-Jul-09 | 25 | 35 | $ - | $ - | -$6,824.96 | $ - | $0.00 | $396,729.72 | $403,554.68 |
| Special charges | |||||||||
| Date | Description | Debit | Credit | ||||||
| Finance charges | $27,500.00 | ||||||||
| 1/05/2009 | Clayton Utz fees | $11,440.30 | Capital outstanding | $403,554.68 | |||||
| 1/05/2009 | GST on fees | $1,144.03 | Special charges | $35,525.88 | |||||
| 14/05/2009 | Direct deposit | $3,000.00 | Refund on sale of scaffold | -$90,157.94 | |||||
| 2/06/2009 | Direct deposit | $3,000.00 | TOTAL | $348,922.62 | |||||
| 30/06/2009 | Clayton Utz collection fees | $1,310.50 | |||||||
| 30/06/2009 | GST on collection fees | $131.05 | |||||||
| Total | $41,525.88 | $6,000.00 | |||||||
| Total | $35,525.88 | ||||||||
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