Aquatec-Maxcon Pty Ltd v Barwon Region Water Authority (No 5)

[2006] VSC 459

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IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

BUILDING CASES LIST

No. 7091 of 2000

AQUATEC-MAXCON PTY LTD (ACN 002 250 482)	Plaintiff
v
BARWON REGION WATER AUTHORITY	Defendant

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JUDGE:	BYRNE J
WHERE HELD:	Melbourne
DATE OF HEARING:	24 November 2006
DATE OF JUDGMENT:	1 December 2006
CASE MAY BE CITED AS:	Aquatec-Maxcon Pty Ltd v Barwon Region Water Authority (No. 5)
MEDIUM NEUTRAL CITATION:	[2006] VSC 459	1st Revision 1 December 2006

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DAMAGES – Breach of contract – whether interest paid is direct cost.

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APPEARANCES:	Counsel	Solicitors
For Nacap Pty Ltd (Minson Nacap)	Mr T Margetts	Moray & Agnew
For MWA Pty Ltd (Montgomery Watson)	Mr D Levin QC	Monahan + Rowell
For Wynton Stone and Mr Sloggett	Mr D J O’Callaghan SC	Deacons

HIS HONOUR:

1. The third round of judgments in this proceeding concerns the question of damages to be awarded in the claim of Minson Nacap against Montgomery Watson.  On this occasion, no party presented argument to these orders other than those two parties immediately concerned.

1. In the course of the trial, Minson Nacap amended its claim so that it sought damages for breach by Montgomery Watson of the terms of the design services agreement.  It was accepted by Montgomery Watson at the commencement of the trial that it was in breach of its design obligations under this agreement, so that the outstanding issue is as to the measure of damages for that breach. 

1. At trial, Minson Nacap sought damages and interest under nine heads:

1.	Its liability to pay Aquatec the cost of Barwon’s remedial civil works	$3,588,696
2.	Its liability to pay to Aquatec interest on negative certificates 13, 14 and 15	$452,207
3.	Its liability to pay to Aquatec its consequential losses	$450,000
4.	Its liability to pay to Aquatec statutory interest which Aquatec is to pay to Barwon	$1,636,466
5.	Its liability to pay to Aquatec statutory interest on the total amount of the judgment which is to be given against Minson Nacap in favour of Aquatec (to 14 December 2005)	$994,401
6.	The amount which Aquatec has not paid to Minson Nacap under its sub-contract if this be not recoverable from Aquatec	$1,015,304
7.	Statutory interest on item 6	$673,546
8.	Minson Nacap’s own cost of investigating the failures	$100,000
9.	Minson Nacap’s legal costs of defending the Aquatec claim on an indemnity basis[1]

[1][2006] VSC 117 at [101].

1. It is now common ground that the measure of damages to be awarded to Minson Nacap includes items 1, 3 and 8, and these sums were paid on 19 September 2006. It is also agreed that Minson Nacap should have damages by way of interest on those sums pursuant to s. 60 of the Supreme Court Act.  This interest calculated from 2 March 2001 to the date of payment is $2,640,951.60.  It is agreed, too, that Montgomery Watson should have judgment against Minson Nacap in the sum of $175,296.70 for its unpaid fees. 

1. The only matter now in issue is whether Minson Nacap is entitled to the further sum of $327,337.69 which is said to represent interest upon $3,023,392 calculated at the penalty interest rate from 14 April 2000 to 1 March 2001.

1. The principal sum of $3,023,392 represents the aggregate of $3,588,696, being the agreed cost to Aquatec of completing the civil works, plus $450,000, being the Aquatec consequential losses, less the sum of $1,015,304 being the agreed amount payable by Aquatec to Minson Nacap for unpaid work.  This principal sum represents items (a), (c) and (d) of the award against Minson Nacap in favour of Aquatec referred to in my reasons of 9 August 2006.[2]  In addition, I awarded to Aquatec statutory interest upon the total amount calculated from 14 April 2000, the date upon which Minson Nacap commenced proceeding number 5083 of 2000. 

   [2][2006] VSC 285 at [5].

1. The proceeding against Montgomery Watson was commenced on 2 March 2001.  Since it is agreed that Montgomery Watson should pay statutory interest from that date, the amount in dispute represents that part of interest paid by Minson Nacap to Aquatec which represents interest on the amount for which Montgomery Watson accepts liability, but calculated over the period before Montgomery Watson was a party to the proceedings.

1. As between Minson Nacap and Montgomery Watson, the amount in issue cannot represent an entitlement to statutory interest;  it must be assessed in terms of the entitlement of Minson Nacap to damages representing the direct loss suffered by it by reason of the breach.  This requires an examination whether the item in question is a loss to Minson Nacap flowing naturally from the default of Montgomery Watson.[3]

   [3][2006] VSC 117 at [102]-[105].

1. On behalf of Montgomery Watson, it was submitted, first, that Minson Nacap suffered no loss of the kind here in issue.  It did not pay any sum to Aquatec prior to judgment.  During the period 14 April 2000 to 1 March 2001 it was not out of pocket.  This, its seems to me, misconceives the claim.  As between Minson Nacap and Montgomery Watson, the claim is not made for interest upon money paid out by Minson Nacap;  it is claimed as a component of the loss Minson Nacap has suffered in satisfying the judgment which I have given against it. 

1. Nor is the issue to be analysed as a claim by Minson Nacap for Hungerfords damages.  It did not suffer loss because it did not have the use of a sum of money in the relevant period in 2000 and 2001.  During that period, it always had the use of its money.

1. The question must be analysed in terms of the measure of damages for breach of contract, subject to the contractual modification inserted by cl. 5.1 of the design services agreement. 

1. In these terms, the question becomes whether the sum in issue, which is payable by Minson Nacap to Aquatec because of its failure to satisfy the Aquatec claim in due time, is a direct loss suffered by Minson Nacap as a consequence of the Montgomery Watson breach.  Seen in this light, the answer must be in the negative.  As between Minson Nacap and Aquatec, Minson Nacap, being in breach of its contract, was sued in 2000.  It ought to have paid Aquatec promptly the amount to which Aquatec was entitled and, for its failure to do so, it has been required to pay interest.  Its failure to make prompt payment to Aquatec was not in any sense a consequence of Montgomery Watson’s breach of contract any more than it may be seen as a consequence of its own breach.  It was the consequence of what turned out to be its erroneous decision to deny liability. 

1. It follows, therefore, that the payment by Minson Nacap of interest to Aquatec is not a consequence of the breach of contract of Montgomery Watson.  A fortiori, it is not a direct loss. 

1. I propose, therefore, to enter judgment for Minson Nacap against Montgomery Watson in the agreed sum of $4,138,696 together with statutory interest on that sum pursuant to s. 60 of the Supreme Court Act, calculated from 2 March 2001 to 19 September 2006, which interest is agreed at $2,640,951.  There will be judgment for Montgomery Watson on its cross claim in the sum of $175,296.70.  I will also order that Montgomery Watson pay the costs of the claim by Minson Nacap against Montgomery Watson, including reserved costs.

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