Cox v Walker (No 2)

[2009] SADC 87

DISTRICT COURT OF SOUTH AUSTRALIA

(Civil)

COX & ANOR v WALKER & ANOR (NO 2)

[2009] SADC 87

Judgment of His Honour Judge Nicholson

17 August 2009

INTEREST - WHERE EQUITABLE RELIEF OR FIDUCIARY RELATIONSHIP

PROCEDURE - COSTS

District Court Act 1991 s 39; Supreme Court Act 1935 s 30C, referred to.
The Commonwealth of Australia v SCI Operations Pty Ltd (1998) 192 CLR 285; Westdeutsche Landesbank Girocentrale v Islington London Borough Council [1996] AC 669; Foti v Banque Nationale De Paris No 2 (1989) 54 SASR 433; Screenco Pty Ltd v RL Dew Pty Ltd (2003) 58 NSWLR 720, considered.

COX & ANOR v WALKER & ANOR (NO 2)
[2009] SADC 87

1. Reasons for judgment in this matter were delivered on 10 July 2009. I have now heard submissions from counsel for both parties concerning the issue of whether or not an order for interest should be made and, if so, the amount thereof and on the issue of costs.

2. Counsel for the defendants opposes the making of any order in favour of the plaintiffs for the payment of interest. His submission, in short, is to the effect that the accounting exercise I undertook in favour of the plaintiff necessarily calculated the full benefit the defendants can be said to have received as a result of their breach of fiduciary obligation. In other words, any accounting exercise must be seen to have captured not just the monies received by the defendants for wrongful use of the plaintiffs’ equipment but also any benefit enuring to the defendants as a result of having the use of that money. As such, to now award interest on the result of the account would be to engage in double counting and provide an additional benefit to the plaintiffs to which they should not be entitled.

3. I reject this submission. It does not pay due regard to the facts. I have found that the defendants obtained a financial benefit in the amount of $52,507 as a result of their breaches of fiduciary obligation. However, it is plain from the accounting exercise I engaged in that the defendants have not been mulcted with respect to any use they may have made of that $52,507. Further, I made it plain when delivering my reasons of 10 July 2009 that interest still needed to be dealt with. In circumstances where the defendants have not been held to account for any use of the financial benefit wrongfully received, it is not unfair or inequitable for an award of pre-judgment interest to be made which recognises the fact that the plaintiffs have been kept out of money to which they became entitled as at the date of each of the defendants’ breaches of their fiduciary obligation.

4. Furthermore, the defendants’ submission here is inconsistent with authority. Whether or not the plaintiffs are entitled to an award of pre-judgment interest pursuant to s39 of the District Court Act 1991 in these circumstances, there is authority for the proposition that equitable relief, in appropriate circumstances, might involve the payment of simple interest.[1] Specifically, an account of profits can carry an award of interest.[2]

   [1]    The Commonwealth of Australia v SCI Operations Pty Ltd (1998) 192 CLR 285 at [75]. In jurisdictions where an equivalent of s39 exists, equity usually will follow the law here and award simple rather than compound interest, Westdeutsche Landesbank Girocentrale v Islington London Borough Council [1996] AC 669.

   [2]    The Commonwealth of Australia v SCI Operations at [75], Warman International Ltd v Dwyer (1995) 182 CLR 544 at 570.

5. Whilst there is an entitlement in equity to an award of interest, in my view, s39 of the District Court Act also gives power to award pre-judgment interest or a lump sum instead of interest, in the present case. The plaintiffs are entitled to a monetary judgment.[3] Furthermore, considerations underlying s39 (whether or not the claim in question is liquidated) include whether or not a plaintiff has been out of the use of the money, the subject of the judgment and, if so, for what period, such that they have suffered a real and practical detriment.[4] In other words, pre-judgment interest is designed to recompense a plaintiff for being kept out of money that should have been paid earlier. In my view, this is the case with the present plaintiffs. Each time the defendants used an item of the plaintiffs’ equipment and thereby improperly obtained a financial benefit, they thereupon became accountable to the plaintiffs for that financial benefit. The circumstances before me are distinguishable from those in Foti v Banque Nationale De Paris No 2[5] where Legoe J found s30C of the Supreme Court Act 1935 not to apply in the circumstances before him.

   [3] Compare the, arguably, more narrow formulation in s30C(1) of the Supreme Court Act 1935 which requires a judgment for the payment of damages, compensation or any other pecuniary amount and Foti v Banque Nationale De Paris (No 2) (1989) 54 SASR 433 at 436.

   [4]    See for example, Screenco Pty Ltd v RL Dew Pty Ltd (2003) 58 NSWLR 720.

   [5] (1989) 54 SASR 433.

6. Accordingly, I propose to exercise the power available to me under s39 of the District Court Act and specifically the discretion under ss39(3) to award the plaintiffs a lump sum in lieu of interest without proceeding to a precise calculation of interest.

7. Counsel for the defendants submitted that an average of 6% per annum across the period in question would be an appropriate commercial rate of interest to apply. Counsel for the plaintiffs submitted, perhaps faintly, that 6.5% might be more appropriate. I propose to base my consideration of the matter on a rate of 6% per annum.

8. The full amount of $52,507 I have awarded in favour of the plaintiffs was due and payable as at the last occasion the defendants engaged in a breach of fiduciary duty. For present purposes, that date is no later than the end of the parties’ management arrangement, that is, 31 December 2004. Thereafter, ordinarily, interest would accrue on this full amount at the rate of, say, 6% per annum until the date of judgment.

9. However, the plaintiffs’ ultimate entitlement to the full amount of $52,507 accumulated over the period 1996 to 31 December 2004, a period of 9 years, Ordinarily, it would be open to the court when calculating interest to take account of this fact. If the accumulation had been at a consistent rate over this period, an appropriate rule of thumb would have been to allow 50% of the simple interest calculated at 6% per annum over the 9 years. However, the accumulation was not at a consistent rate. According to my findings, the plaintiffs’ boom spray was not available until late 1998. Use of the boom spray was by far the major contributor to the final amount found due from the defendants to the plaintiffs. Furthermore, the defendants used the plaintiffs’ equipment at a significantly greater rate during the four years 2001 to 2004 than during the five years prior thereto. For these reasons and using a broadaxe approach, in my view, 30% of the interest calculated over the 9 years would be an appropriate rule of thumb so as to accommodate this accumulation consideration.

10. Guided by these considerations, I propose to award the plaintiffs a lump sum of $20,000 in lieu of pre-judgment interest. It follows that I have rejected the plaintiffs’ submission that I should simply adopt an arbitrary date some time prior to 31 December 2004 and allow interest at 6% for all of the period from that arbitrary date until the date of judgment.

11. There is also the question of interest with respect to the amount awarded on the counter claim. The full amount of $3,126.99 I have awarded in favour of the defendants on the counter claim was due and payable as at the date of the relevant invoices, say, the beginning of February 2005. Thereafter, ordinarily, simple interest would accrue, again at the rate of 6%, until 17 August 2009, the date of judgment. On this basis, the defendants are entitled to an award of interest in the amount of $852.

12. The plaintiffs have sought an order for costs. The defendants oppose this and say that the plaintiffs should only be entitled to costs from the date the plaintiffs filed their Amended Statement of Claim, that is 22 November 2007. The Amended Statement of Claim was filed at time when the trial of this matter was part heard. The essential effect of the amendments was to plead additional causes of action, in particular, the claim for breach of fiduciary duty or obligation, in reliance on the factual basis of the plaintiffs’ claim that had already been pleaded, by and large, from the outset of the proceedings. It is the defendants’ submission that because the plaintiffs succeeded only on the breach of fiduciary duty claim, pleaded for the first time in the Amended Statement of Claim of 22 November 2007, the defendants should have their costs incurred up until that time and the plaintiffs be limited to a costs order for work done after the filing of the Amended Statement of Claim.

13. I reject this submission. The plaintiffs’ claim was hard fought from beginning to end. It was fought on the facts as well as on the law. It has not been suggested that the defence would have been conducted any differently had the cause of action for breach of fiduciary obligation been pleaded in the first instance. In my view, the plaintiffs’ conduct here did not unreasonably protract the trial. To the extent that the plaintiffs failed, they failed essentially on questions of law in the sense of the proper legal characterisation of the plaintiffs’ factual claim as pleaded from the outset. In my view, there is no reason to depart from the general rule. Notwithstanding that the plaintiffs failed on all of the other causes of action pleaded, for one reason or another, costs should follow the events. The plaintiffs are entitled to costs with respect to their claim and the defendants are entitled to costs with respect to the counter claim.

14. When the matter was last before me counsel for the plaintiffs, in open court, made an election on their behalf. They have elected for the remedy of an account rather than the remedy of equitable damages with reference to the defendants’ breaches of fiduciary obligation as found by me.

15. Accordingly, I make the following orders:

    1. The plaintiffs are to have judgment on the claim in the amount of $72,507 inclusive of interest.

    2.The defendants are to have judgment on the counterclaim in the amount of $3,978.99 inclusive of interest.

    3.The defendants are to pay the plaintiffs’ costs of the claim on a party and party basis.

    4.The plaintiffs are to pay the defendants’ costs of the counter claim on a party and party basis.