Hospital Benefit Fund of Western Australia Inc v Minister for Health, Housing and Community Services

Re: TAG PACIFIC LIMITED and TOIKAN HOLDINGS PTY. LIMITED (formerly KELSO PTY.
LIMITED)
And: BRIAN ALBERT McSWEENEY and BRUCE WILLIAM PHILLIPS
No. N G38 of 1990
FED No. 599

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Olney J.(1)

HEARING

SYDNEY

#DATE 20:8:1992

Counsel and solicitors for
the applicants: Mr R.D. Robb instructed

by Rosenblum and Partners

Solicitors for the respondents: Gillis Delaney and Brown

ORDER

THE COURT ORDERS THAT:

1. Judgment be entered for the applicants against the respondents in the sum of $4,026,915.80;

2. The applicants' costs of the assessment of damages be taxed and paid by the respondents.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

These proceedings were commenced by application filed on 29 January 1990 by which the applicants claimed damages against the respondents pursuant to the Trade Practices Act 1974 (Commonwealth) and/or the Fair Trading Act 1987 (NSW).

On 22 July 1991, at the commencement of the trial of the proceedings, an order was made that the issue of liability be tried separately from and before the issue of the quantum of damages.
On 28 February 1992 I gave judgment for the applicants against the respondents for damages to be assessed. The reasons for judgment published on that occasion are referred to hereafter as the February decision.
The assessment of damages was subsequently listed for trial on 20 July 1992. Prior to that day, the solicitors acting for the respondents foreshadowed that an application would be made for the adjournment of the assessment proceedings but when the matter was called on Mr Hodges, representing the respondents, informed the Court that the foreshadowed application would not be made and that the respondents had no objection to the hearing proceeding. Mr Hodges further informed the Court that he had no instructions to remain for the purpose of defending the proceedings and sought (and was granted) leave to be excused. The assessment of damages was thereafter conducted on 20 and 21 July 1992 in the absence of the respondents or any legal representative of the respondents.
On 21 July 1992 I reserved my decision, which I now deliver.
In the February decision the facts of the case are canvassed in considerable detail and it is unnecessary to repeat what appears in that decision which should be read with these reasons.
On 20 and 21 July 1992 further evidence was adduced on behalf of the applicants in the form of affidavits sworn by Peter Harry Wise, to whom reference is made in the February decision, and David John Henderson (Henderson), the financial controller of the first applicant from December 1986 to November 1988 and a director of both applicants since November 1988. In addition numerous further exhibits were tendered.
The assessment of damages in a complex commercial matter is always difficult and it is not rendered any easier by the absence of the respondents from the proceedings. In many cases undisputed items of damage would be conceded without formal proof and the affidavit evidence would be subjected to scrutiny both as to its admissibility and credibility. None of this has occurred in the present case. It has therefore been necessary to consider each time of damage claimed and to make an assessment from the available evidence as to whether it legitimately forms part of the damages suffered by the applicants and also to verify the quantum claimed. Similarly, the affidavit evidence has been scrutinised to ensure that only relevant admissible testimony is taken into account.
I have previously found Wise to be a credible witness and there is no reason to question the credibility of the further affidavit evidence to which he has deposed. Nor is there any reason to question the credibility of the affidavit evidence of Henderson whose testimony is derived from his personal recollection of events in which he was involved, and to some extent, is supported by documents to which he is able to refer.
The statements of fact which are made hereafter in these reasons represent findings I have made based upon the totality of the evidence in the proceedings, including the proceedings in relation to the issue of liability. There can be little or no question as to the historical events recorded. To the extent that the findings involve questions as to the state of mind of the persons involved I have accepted the undisputed affidavit evidence as being credible and probative.
DRAMATIS PERSONAE
At pp 5 to 9 of the February decision I identified the various companies and individuals to whom reference is made in that decision. Most of those companies and many of those individuals are also referred to in these reasons and nothing further need be said by way of describing their respective roles in these events. I will continue to refer to them by the abbreviations adopted in the February decision. The group of companies comprising TKN and the other companies in which TKN was a shareholder are referred to collectively as the TKN companies. THE BASIS OF THE CLAIM FOR DAMAGES
At pp 48-49 of the February decision I said:

If TAG had known the truth it would not have entered into the acquisition deed, nor would it have proceeded to settlement after having entered into the deed. It follows that it would not have paid the money paid out at settlement nor entered into the other obligations associated with the settlement.

The ultimate failure of the Toikan group was at least contributed to by the reduced amount of income received from interest on the broking accounts. TAG continued to provide financial support to the group after settlement, beyond the extent of its contractual obligations for the purpose of trying to maintain the value of the group's broking portfolio.

TAG suffered loss and damage by reason of the misleading and deceptive conduct of PMS. That loss and damage arose directly from it having been misled and deceived by PMS's conduct and it did not contribute to the amount of its loss and damage by any failure on its part to act prudently in the transaction. Nor did TAG fail to take any step reasonably open to it to mitigate its loss or damage. ...

Upon the facts as found, the applicants are entitled to recover from the respondents the full amount of the loss sustained by the applicants by reason of their reliance upon the misleading and deceptive conduct of the respondents.

For present purposes it is not necessary to distinguish between the position of the two applicants. In respect of the original acquisition, TAG lent money to TAGNT which the latter paid to TKN to acquire shares in that company. TAGNT has no assets apart from its shareholding in TKN and its loss is quantified by reference to the value of that shareholding. TAG's loss is the difference between the amount lent to TAGNT and the value of the debt owed to it by that company, a value which is directly related to the value of TAGNT's shareholding in TKN. To the extent that TAGNT is able to recover damages from the respondents, the sum recovered will become available to be paid to TAG in reduction of TAGNT's liability to TAG, thus reducing the amount of TAG's loss.
Apart from money paid by TAG as the guarantor of TKN's liability to the State Bank, a considerable portion of the damages claimed represents money paid out by TAG both to TKN and to third parties for the purpose first, of maintaining the value of the insurance portfolio, and second, in attempting to assist TKN recover from Webber and others the amount of the shortfall in funds. Neither TAG nor TAGNT was under any contractual or other obligation to incur any of this latter expenditure, but it was both reasonable that those efforts should be made and for TAG to make them, given that TAGNT is wholly owned by TAG and had no resources other than its capacity to obtain funding from TAG. To the extent that TAG has paid money to TKN and to third parties in the reasonable pursuit of either of the objectives referred to, the sums paid are properly recoverable as part of the damages claim.
Damages are claimed under the following 10 heads:

1. The sum paid on acquisition;

2. Legal costs on acquisition;

3. Liability under the State Bank guarantee and the legal costs of the State Bank action on the guarantee;

4. Advance to TKN for purchase of Adelaide business;

5. Refinancing with Sun Alliance;

6. The deed of acknowledgment;

7. Enforcement of TKN's rights;

8. Other attempts to mitigate the loss;

9. Accountants' fees;

10. Interest.

Each of these heads of damage will be dealt with in detail below.

CHRONOLOGY

The chronology contained in the February decision does not record in detail events specifically referable to the issue of damages and accordingly it is appropriate to supplement same by reference to some events not previously recorded and by expanding upon others.
Subsequent to the execution of the acquisition deed TAG continued to use the services of Rosenblums first to attend to matters associated with the settlement, and later in relation to matters consequential upon the settlement. From time to time various accounts for fees and disbursements were rendered and paid.
On 2 November 1987 TAG executed a guarantee in favour of the State Bank to satisfy its obligation under the clause 2.3 of the acquisition deed and its undertaking to provide a guarantee to enable TKN to borrow working capital.
Early in 1988 the directors of TKN decided that it would be advantageous for the company to acquire two insurance broking businesses in South Australia. The directors of TKN asked TAG to advance to TKN the funds necessary to make these acquisitions, which TAG agreed to do upon the assurance that same would be repaid by 30 June 1988.
In February 1988 Wise became concerned about constant requests by TKN for further funding and instructed Moffitt to investigate the accounts of TKN and the other companies. In about March 1988 Moffitt discussed with Wise payment of Thompson Douglass Butterell's fees for work in relation to TKN and obtained Wise's agreement that TAG would guarantee payment of same.
On 18 May 1988 the TKN companies executed charges over their respective assets and undertakings to secure advances made by Sun Alliance.
In about June 1988 Wu informed Wise that investigations by Thompson Douglass Butterell disclosed that there were irregularities in the broking accounts and there was a cash deficiency. On 16 June 1988 Wise met with Moffitt, Webber, McSweeney and others. A deficiency of about $1.7m was mentioned by Wu but McSweeney replied that Webber may owe only a minor amount to the group.
On 27 and 28 June 1988 Wise met with Webber in Wellington. Webber acknowledged that he owed money to the TKN companies. Although the exact amount of the liability was not agreed, on 28 June 1988 Webber signed a letter acknowledging his indebtedness to TKN of $1,465,404. Shortly thereafter in Sydney, Webber showed Wise valuations of his stud farm at Mudgee (the Mudgee property) and a house at Rose Bay (the Rose Bay property) which suggested to Wise that Webber had access to sufficient net equity to meet his obligations to TKN.
In July 1988, Webber told Wise that he was auctioning the Mudgee property and selling an apartment at Surfers Paradise (the Queensland unit). Wise gave instructions for Rosenblums to formally document the debt due by Webber and arrange security over Webber's assets. Instructions were given to Rosenblums by TKN but Rosenblums insisted that TAG guarantee the costs involved, which Wise agreed to do.
On 3 September 1988 Webber, Webber's wife Roslyn (Mrs Webber), Sabada, Shamm Pagny Pty Ltd (Shamm Pagny), SFC, Ligon, TIBG and TKN entered into a deed (the deed of acknowledgment) whereby, inter alia:

(a) Webber assumed responsibility for, and agreed to pay to TKN $2,232,145.54 which was agreed to be the aggregate of the deficiencies in the various broking accounts of the TKN companies together with the net deficiencies in other bank accounts of the TKN companies as at 1 July 1987;

(b) Webber agreed to direct TKN to apply $371,143 owing to him by TKN in partial discharge of his liability, leaving a balance of $1,861,003;

(c) the parties other than Webber guaranteed Webber's obligation to pay TKN $2,322,145.54, but Mrs Webber's guarantee was limited to the net proceeds from the Rose Bay property;

(d) Mrs Webber agreed to mortgage the Rose Bay property to TKN to secure her liability under the guarantee;

(e) Sabada agreed to mortgage the Queensland unit to TKN to secure its liability under the guarantee;

(f) Shamm Pagny agreed to mortgage the Mudgee property and certain bloodstock to TKN to secure its liability under the guarantee, and further for the same purpose to give a charge over all its assets and undertaking;

(g) Ligon agreed to give a charge over its assets and undertaking to TKN to secure its liability under the guarantee;

(h) Webber agreed to indemnify TKN in respect of stamp duty payable on the deed, and to bear all of Rosenblum's and Thompson Douglass Butterell's costs in relation to the deed of acknowledgment.

From the latter part of 1988 numerous unsuccessful efforts were made by TKN, with the active involvement of Wise and Webber, to sell TKN's insurance portfolio and the shares in its subsidiaries. The last negotiation took place a matter of days before 20 April 1989 when the TKN companies were placed into receivership.
On 28 March 1989 TKN made demand on both Shamm Pagny and Ligon for payment of not less than $1.75m on account of their respective liabilities under the deed of acknowledgment.
On 5 April 1989 the Rose Bay property was sold at auction.
On 7 April 1989 TKN appointed a receiver and manager of both Shamm Pagny and Ligon. TAG guaranteed the fees and expenses associated with both receiverships. On the same day, Webber's appointment as managing director of TKN was terminated.
On 20 April 1989 Sun Alliance appointed receivers of the TKN companies, and entered into a business sale agreement with OAMPS Robinson Aust. Pty Ltd for the sale of the TKN business. On the same day the State Bank made demand on the receiver of TKN for payment of two sums totalling $1,347,263.67.
On 21 April 1989 a provisional liquidator of TKN was appointed on the application of TAGNT and on 20 June 1989 TKN was wound-up by order of the Supreme Court of NSW. (In the February decision it is incorrectly stated that TKN made the winding-up application.)
On 18 July 1989 the State Bank commenced proceedings against TAG in the Commercial Division of the Supreme Court of New South Wales (the State Bank action) claiming $857,935.31 and interest pursuant to the guarantee of TKN's account.
On 19 October 1989 the State Bank action was settled by agreement upon TAG paying State Bank $575,000.
By way of general comment, it can be said that despite all of the several steps taken by TKN to enforce payment of the deficiency by Webber and those who guaranteed the payment of same, the very limited benefits derived from the taking of those steps have been insufficient to return any dividend to TAGNT in the winding-up of TKN. The whole of TAGNT's investment in TKN has been lost.
GENERAL PRINCIPLES
Actions based on section 52 of the Trade Practices Act 1974 are analogous to actions in tort and the remedy in damages provided by subsection 82(1) adopts the measure of damages applicable in an action in tort (Gates v. City Mutual Life Assurance Society Ltd 160 CLR 1 per Gibbs C.J. at p 6). In such a case, it is a question of determining how much worse off the applicant is as a result of entering into the transaction which the representation induced him to enter than he would have been had the transaction not taken place. This entitles him to all the consequential loss directly flowing from his reliance on the representation (Gates, per Mason, Wilson and Dawson JJ. at p 12). In an action for deceit where a person has been induced by the fraudulent misrepresentation of another to enter into a contract of purchase, the measure of damages is the difference between the real value of the property at the time of purchase and what the purchaser paid for it. Events which happen after the time of purchase may throw light on the real value of the property at that time. Where the property has depreciated in value after the purchase, and the depreciation was due to some cause inherent in the property itself, the depreciation must be considered in determining the real value of the property at the relevant time (Gould v. Vaggelas 157 CLR 215, per Gibbs C.J. at p 220). Where the victim of the fraud did not purchase anything in reliance upon the fraudulent inducement, but paid away money, it is proper to award damages representing the loss actually suffered, provided it is not too remote (Gould per Gibbs C.J. at p 226).
In his submissions, counsel for the applicants formulated the following proposition, namely: misleading conduct may induce a person to acquire property that is worth less than the cost. If there are factors arising directly from the transaction which prevent the purchaser disposing of the property upon discovery of the misleading conduct, and which in a practical sense oblige the purchaser to retain the property, then that retention is itself a consequence of the wrongful conduct. In such a case the assessment of the loss must involve a determination of the loss actually suffered after taking into account the practical realities which prevent the purchaser realising the actual value of the property acquired as soon as the wrongful conduct is discovered.
With respect I am of the view that this proposition is both consistent with authority and apposite in the facts of this case.
The ultimate test under section 82 is one of causation but loss or damage may not necessarily be irrecoverable merely because its immediate cause is not the contravention complained of. Loss resulting from action reasonably taken by the applicant in the circumstances in which he finds himself in consequence of the contravention including action taken in an attempt to mitigate loss or damage, may be recoverable. Reasonableness is a question of fact to be determined in all the circumstances. The standard is not high and must be assessed by reference to the circumstances at the time not as they appear with the advantage of hindsight. The applicant is not required to risk his money too far and acts which prove to have been mistaken, or the fact that other measures may have proved less burdensome do not necessarily mean a loss is not recoverable (Hellyer Drilling Co. v. McDonald Hamilton Co. Pty Ltd (1983) 51 ALR 177 per Fitzgerald J at p 192).
APPLICATION OF THE PRINCIPLES
Relying upon the respondents' representations TAGNT acquired a 60% interest in TKN but at no time did it have complete dominion over the assets of TKN and thus the ability to sell or refrain from selling as it thought fit. Under the acquisition deed, Webber was entitled to act as managing director of TKN for 10 years and TAGNT was prevented, without Webber's consent, from the date of acquisition until 30 June 1990 from varying the operations and day to day management of the TKN companies. TAG was an overseas investor, without relevant employees in Australia, and was reliant upon the experience of Webber and the other TKN staff who had previously been employed by Webber's companies for the running of the business. Webber had built up the goodwill of the business over a period of almost 20 years and in no practical sense was it ever possible for TAGNT, without Webber's consent and co-operation, to dispose of the only valuable asset of TKN, namely its insurance portfolio. In a very real way, from the date of settlement, TAGNT and thus TAG, was locked into its investment in TKN. Following discovery of the true position in relation to the various broking accounts, TAG had no alternative but to continue to support TKN financially first to preserve the value of the major asset and second, to keep the company in business so that in due course it may be sold.

With the wisdom of hindsight, it is beyond doubt that as from the date of acquisition the 60% shareholding of TAGNT in TKN had no commercial value. Similarly, TAG's asset in the form of TAGNT's liability to it for the funds advanced at settlement was clearly always valueless. In these circumstances the whole of the funds outlaid at settlement are recoverable as damages as is the amount of any liabilities incurred by TAG by way of guarantees in accordance with the terms of the deed of acquisition. By the same token, TAG's efforts, albeit unsuccessful, to mitigate its loss subsequent to ascertaining the true state of affairs were reasonable in the circumstances and the cost involved is properly recoverable as part of the damages.
ASSESSMENT OF DAMAGES
I propose now to deal with each of the 10 claimed heads of damage referred to above.
1. The sum paid on acquisition:

TAG advanced to TAGNT the whole of the money it was required to pay under the acquisition deed to subscribe for 153 fully paid ordinary shares of $1 each in TKN at a total premium of $1,199,847. The total amount advanced by TAG, and paid by TAGNT to TKN was $1,200,000. The shares so acquired were valueless. The loss suffered by TAGNT was $1,200,000. TAGNT had no other assets and has been unable to meet its liability to TAG. The whole of the amount paid for the shares in TKN is recoverable as damages.

Legal costs on acquisition:

(a) TAG paid to Rosenblums legal costs in relation to the negotiation and settlement of the acquisition by TAGNT of a 60% interest in TKN which proved worthless. The costs claimed by the applicants are as follows - Date of

Account Amount Date paid

(i) 28.7.87 $ 7,556.00 25.8.87

(ii) 26.8.87 $10,297.74 19.10.87

(iii) 29.9.87 $ 7,856.00 30.10.87

(iv) 23.10.87 $15,866.06 14.12.87

(v) 23.11.87 $12,650.28 18.1.88

(vi) 29.2.88 $ 1,032.60 22.3.88

(vii) 16.8.88 $ 940.70 4.11.88 $56,199.38

On a perusal of the various accounts I am of the opinion that the accounts dated 28 July 1987, 26 August 1987 and 29 September 1987 relate entirely to the negotiation of the acquisition deed. Had the respondents made a full disclosure of the state of the broking accounts immediately before the acquisition deed was executed it is certain that the transaction would not have proceeded but it could not have been then said that the costs incurred to that date represented expenditure incurred in reliance upon the misleading conduct found against the respondents. The amounts of these accounts are not recoverable as part of the damages. I am satisfied that the costs charged in the remaining 4 accounts are recoverable. The total amount assessed under this item is $30,489.64.

(b) Legal costs and stamp duty amounting to $35,382 payable under the acquisition deed by TAGNT were not paid at the time of settlement but were paid by TKN. Subsequently, on 12 February 1988 TAG credited this sum to TKN. (Details of this credit are referred to in item 4.) The whole of the amount credited is recoverable as damages.

The State Bank guarantee and the State Bank action:

Pursuant to its obligation under the acquisition deed TAG executed guarantees in favour of the State Bank to secure financial accommodation granted to TKN being a fixed sum of $900,000 and overdraft accommodation of $600,000. Subsequently, to enable TKN to continue trading TAG agreed to extend the amount of its guarantee. On 20 April 1989 the State Bank made demand on the receiver of TKN for payment of the sum of $1,347,263.60 which included the debit balance in the broking account. The bank later commenced proceedings in the Supreme Court of NSW to recover from TAG $857,935.31 and interest. Following negotiations, the proceedings were settled by TAG paying the bank $575,000 on 19 October 1989. It is clear from the evidence produced that this settlement was particularly advantageous to TAG and thus it was reasonable for it to have paid the amount involved. The whole of the sum paid in settlement is recoverable as damages. TAG paid solicitors costs, counsel fees and other expenses in defending and settling the State Bank action. Particulars of the amounts claimed as damages are:

(a) Costs paid to Rosenblums -

Date of

Account Amount Date Paid

(i) 31.5.89 $ 4,468.05 17.8.89

(ii) 29.9.89 $12,118.00 17.11.89

(iii) 31.10.89 $ 5,518.00 17.11.89 $22,104.05

(b) Fees paid to Mr S.D. Robb of counsel on 25 September 1989 - $4,735.00.

(c) Conduct money paid on 20 January 1990 in relation to a subpoena issued by TAG - $175.00.

I have perused the various accounts and am satisfied that the amounts claimed were reasonably incurred and are recoverable as part of the damages.

Advance to TKN for purchase of Adelaide business:

In January 1988 TKN negotiated the purchase of an insurance broking business in Adelaide but was unable to finance the acquisition. At the request of Webber (made on behalf of TKN), and upon the understanding that TKN would be able to refund the money by 30 June 1988, TAG advanced $212,000 to TKN for this purpose on 12 February 1988. After the advance was made TAG became aware that it owed TKN $35,382 for costs paid on behalf of TAGNT (item 2(b) above) and credited TKN with that sum leaving a balance of $176,618 outstanding. The advance was made by TAG to enable TKN to meet an obligation it had incurred but was unable to meet. At the time of the advance TAG was still acting under the influence of the respondents' misleading and deceptive conduct and acted reasonably in making further funds available to TKN to enhance the value of its business. The money would not have been advanced had TAG known the true state of affairs. The whole of the sum so advanced (less the amount credited) is recoverable as damages.

Refinancing with Sun Alliance:

In April 1988 TKN borrowed money from Sun Alliance to purchase an insurance broking business in Melbourne (Grant Fowler), and to refinance the initial $900,000 advance from the State Bank which TAG had guaranteed. TKN instructed Rosenblums to act as its solicitors, but failed to pay their fees. TAG paid the fees in order to protect its investment by ensuring that the solicitors would continue to act for TKN. Details of legal costs paid are as follows:

(a) Fees paid to Rosenblums relating to Sun Alliance loan - Date of

Account Amount Date Paid

(i) 27.5.88 $ 7,784.90 30.6.88

(ii) 31.1.89 $ 1,903.32 28.2.89 $ 9,688.22

(b) Fees paid to Rosenblums relating to acquisition of the Grant Fowler business -

Date of

Account Amount Date Paid

(i) 11.8.88 $ 764.77 20.9.88

(ii) 27.5.88 $ 2,621.70 20.9.88 $ 3,386.47

The various amounts paid by TAG were reasonably incurred and are recoverable as part of the damages.

The deed of acknowledgment:

After the applicants became aware of the shortfall in the funds of the TKN companies, they sought to protect their own and TKN's interests by requiring Webber to enter into a deed acknowledging liability for the deficiencies. Such a deed was executed on 3 September 1988 by Webber, Mrs Webber and 5 companies controlled by Webber. Securities were taken over various assets owned by the parties to the deed. Legal and accounting costs and associated expenses were incurred by the applicants and paid by TAG in obtaining relevant advice and in the preparation and execution of the deed. Details of legal costs and expenses are shown below. Details of accounting costs involved are referred to under item 9.

(a) Fees paid to Rosenblums -

Date of

Account Amount Date Paid

(i) 29.7.88 $10,694.40 15.11.88

(ii) 24.8.88 $ 5,788.15 $5,350.42 on 15.11.88; and $437.73 on 8.2.89

(iii) 26.9.88 $ 8,524.07 8.2.89

(iv) 27.10.88 $ 3,165.99 8.2.89 $28,172.61

(b) Stamp duty paid on deed of acknowledgment on 29 September 1988 - $8,961.80.

The whole of these costs and expenses were reasonably incurred by TAG in order to protect its investment in TKN and are recoverable as damages.

Enforcing of TKN's rights:

After execution of the deed of acknowledgment TKN engaged Rosenblums to take steps necessary to realise the assets of the Webber interests. The solicitors were not prepared to undertake the necessary work unless TAG assured them that if TKN was unable to pay their fees, TAG would. Such an assurance was duly given as otherwise TKN's rights could not be enforced. Steps taken to enforce TKN's rights included the appointment of receivers to Ligon and Shamm Pagny and the sale of the Rose Bay property. The receiver of the two companies would only act if TAG guaranteed his fees and expenses which TAG agreed to do. Particulars of the amounts claimed are as follows:

(a) Fees paid to the receiver of Ligon on 20 January 1990 - $1,151.00.

(b) Fees paid to the receiver of Shamm Pagny on 31 March 1989 - $11,800.43.

(c) Costs paid to Rosenblums in relation to the receivership of Ligon and Shamm Pagny -

Date of

Account Amount Date Paid

(i) 28.2.89 $13,529.75 7.6.89

(ii) 31.3.89 $23,107.13 7.6.89

(iii) 31.5.89 $ 8,890.02 4.9.89 $45,526.90

(d) Costs paid to Rosenblums in relation to the sale of the Rose Bay property -

Date of

Account Amount Date Paid 31.5.89 $ 3,179.59 Part payment by receiver of TKN - $1,300. Balance paid by TAG on 30.10.89 - $1,879.59

(e) Auctioneers' fees re sale of Rose Bay property - $15,412.00.

(f) After the appointment of receivers to the TKN companies by Sun Alliance on 20 April 1989 TAGNT decided to seek the appointment of a provisional liquidator of TKN in order to protect TKN's interest in the broking accounts which were not covered by Sun Alliance's securities. The winding-up application was made by TAGNT and the costs of same were paid by TAG as TAGNT had no funds or assets which could be used for this purpose. Solicitors' costs and counsel fees were incurred for this purpose.

Particulars of the amounts claimed in relation to the appointment of a provisional liquidator and the winding-up of TKN are as follows:

(i) Costs paid to Rosenblums -

Date of

Account Amount Date paid 27.7.89 $7,254.75 31.10.89

(ii) Counsel fees paid to Mr M. Oakes on 31 October 1989 - $600.00.

(iii) Counsel fees paid to Mr G. Burton on 31 October 1989 - $200.00.

All of the fees, costs and expenses referred to above were reasonably incurred and paid by TAG for the purpose of first enabling TKN to pursue its rights to recover the amount of the deficiency from the parties to the deed of acknowledgment and second to protect the interest of TKN in the only assets not covered by Sun Alliance's securities. It is not to the point that all of TKN's efforts proved to be of no avail in so far as its shareholders were concerned. The whole of the amount claimed above is recoverable as part of the damages. (In addition to the foregoing the applicants claim the sum of $11,823.50 paid to Thompson Douglass Butterell for accountancy fees. This claim will be dealt with under item 9.)

Other attempts to mitigate the loss:

At the time the deed of acknowledgment was signed (3 September 1988), Wise (and therefore TAG and TAGNT) believed on reasonable grounds that the assets which were available as security for the payment of the amount Webber agreed to pay would be adequate for that purpose, but it became increasingly apparent with the passage of time that this would not be so, and accordingly, the only way whereby the situation could be resolved was by the sale of the insurance portfolio. Over the period from late 1988 until April 1989 numerous efforts were made to find interested purchasers and in the case of C.E. McDonald Ltd negotiations extended over an extensive period. TKN incurred legal costs with Rosenblums in pursuing the negotiations with C.E. McDonald Ltd and same were paid by TAG on the same basis as other costs had been paid on behalf of TKN.

(a) Particulars of costs and disbursements paid to Rosenblums are as follows:

Date of

Account Amount Date paid

(i) 31.3.89 $14,870.79 7.6.89

(ii) 31.5.89 $11,197.37 4.9.89

(iii) 18.10.89 $ 216.15 17.11.89 $26,284.31

The foregoing costs and expenses were reasonably incurred in an attempt to mitigate the loss likely to be sustained by TAG and the whole of the amount claimed is recoverable as damages.

(b) In addition, the applicants have claimed under this heading a further sum of $1,522.20 for legal costs paid to Rosenblums for advising on and preparing security documentation in relation to a proposed facility to TIIB

(TKN). In the applicants' schedule of damages (exhibit 12B) the claim is described thus: attempts by TAG and Sun Alliance to advance further funds to the Toikan Group to allow it to continue trading so that it can be restructured for a possible sale. There is no evidence before me concerning to this aspect of the claim and I am not in a position to make any finding in relation to it.

Accountants' fees:

(a) Fees paid to Thompson Douglass Butterell: TKN made extensive use of the services of this firm of accountants, and in particular of Moffitt, for the most part in attempting to remedy the inadequacies of the financial documents and accounts of the TKN companies. The final disclosure of the financial position of the TKN companies as evidenced by the deed of acknowledgment resulted from work done by Moffit and his staff. In the period February 1988 to March 1989 accountancy fees amounting to $109,080.63 were rendered to TKN but not paid. In the default of payment by TKN, TAG agreed to advance some funds towards the account on the basis that it was necessary to do so for TKN to retain the services of the accountants. On 31 March 1989 TAG paid $100,000 to Thompson Douglass Butterell on account of their fees. In March 1990 Thompson Douglass Butterell sought payment of the balance of the 1989 account ($9,080.63) and a further sum of $17,294.04 for costs and expenses for the period February 1989 to March 1990. Subsequently, on 20 June 1990 TAG paid $16,376.22. No details have been provided as to the account of $17,294.04 for the period February 1989 to March 1990, the bulk of which period is subsequent to the appointment of the receiver and the provisional liquidator in April 1989. There is no basis upon which any finding can be made concerning the sum of $17,294. However, of the total amount paid by TAG at least $109,080.63 was an expense reasonably incurred by TAG in order to protect the value of its investment and is recoverable as part of the damages.

(b) Fees paid to BDO Binder:

BDO Binder were engaged by TKN as auditors in early 1988. By September 1988 the audit of the TKN companies was almost complete and at that time the auditors raised with Henderson the question of the payment of their fees as they had formed the view that TKN may not have the ability to meet them. After discussion it was arranged that TAG would pay if TKN did not. In or about May 1989 BDO Binder requested TAG to meet an account for audit fees amounting to $84,300. It was later ascertained that the account included fees for other audit work carried out and ultimately (on 30 April 1990) TAG paid $47,080 to BDO Binder in settlement of the portion of the account relating to TKN companies. The amount paid by TAG was reasonably expended for the purpose of protecting its investment in TKN and is recoverable as part of the damages.

(c) Accounting fees relating to receivership etc: In the period from 21 February 1989 to 20 April 1989 Thompson Douglass Butterell were engaged by TAG to provide extensive financial advice and other services relating to the recovery from Webber and the other parties to the deed of acknowledgment of the moneys payable thereunder and other related and consequential matters culminating in the appointment of a provisional liquidator of TKN. The services rendered are particularised in the evidence. The expenditure incurred was reasonable having regard to the complexity of the situation and the desirability of pursuing all possible avenues in an attempt to mitigate TAG's loss. On 5 September 1989 $11,823.50 was paid to the accountants and is recoverable as part of the damages.

Interest:

Interest is claimed by the applicants on all items of damage from the date of expenditure to the date of judgment. There is no specific provision in the Federal Court Act for the payment of pre-judgment interest nor is any rate prescribed in respect thereof but in accordance with established practice it is appropriate to include as part of the damages interest on amounts actually paid by the applicants at the rate from time to time payable on judgments in the Supreme Court of the State where the action arose. In this case the relevant rates adopted are those of the Supreme Court of New South Wales.

Exhibit 13A is a document which itemises the applicants' claim for $2,407,333.43 (before interest) and contains a detailed calculation of interest on all items claimed by the applicants in these proceedings. It sets out the relevant interest rates applicable from time to time, the amounts paid by TAG, the dates of payment and the amount of interest claimed for each relevant period. The total claim for interest to 20 July 1992 is $1,653,244.59.

I accept the accuracy of the calculations made in exhibit 13A, but it is necessary to adjust the claim in order to take account first of the fact that not all items claimed have been found to be recoverable, and second, that judgment will be given at a date subsequent to 20 July 1992.

The items included in exhibit 13A which have not been allowed as part of the damages and the interest calculated thereon are as follows:

Item No. in Amount not Interest not exhibit allowed allowed 2(a)(i) 7,556.00 6,378.71 2(a)(ii) 10,297.74 8,413.96 2(a)(iii) 7,856.00 6,376.27 8(b) 1,522.20 785.08 9(a)(part not allowed) 7,295.59 2,533.67 $34,527.53 $24,487.69 The total claim for damages is therefore reduced by $34,527.53 to $2,372,805.90 and the claim for interest to 20 July 1992 should be reduced by $24,487.69 to $1,628,756.90.

Further interest in respect of the period since 20 July 1992 should be calculated at the rate of 13% per annum on $2,372,805.90 which gives a daily increment of $845.10 for each day from and including 21 July 1992 to the date of judgment, a period of 30 days. The total increment is therefore $25,353 and the total interest recoverable as part of the damages is $1,654,109.90.

SUMMARY

The following particulars summarise the various items of damage which I have found are recoverable by the applicants from the respondents:

1. The sum paid on acquisition $1,200,000.00

2. Legal costs on acquisition:

(a) Costs paid to Rosenblums 30,489.64

(b) Costs and stamp duty on

deed 35,382.00 65,871.64

3. The State Bank guarantee 575,000.00

(a) Legal costs in relation

to the State Bank action 22,104.05

(b) Counsel fees 4,735.00

(c) Conduct money 175.00 602,014.05

4. Advance to TKN for purchase

of Adelaide business 176,618.00

5. Refinancing with Sun Alliance:

(a) Costs re Sun Alliance loan 9,688.22

(b) Costs re Grant Fowler

acquisition 3,386.47 13,074.69

6. The deed of acknowledgment:

(a) Solicitors' costs 28,172.61

(b) Stamp duty 8,961.80 37,134.41

7. Enforcing of TKN's rights:

(a) Receiver of Ligon 1,151.00

(b) Receiver of Shamm Pagny 11,800.43

(c) Solicitors' costs re

receiverships 45,526.90

(d) Solicitors' costs re

sale of Rose Bay property 1,879.59

(e) Auctioneers' fees re

sale of Rose Bay property 15,412.00

(f) (i) Solicitors' costs re

winding-up of TKN 7,254.75

(ii) Counsel fees (M. Oakes) 600.00

(iii) Counsel fees (G. Burton) 200.00 83,824.67

8. Other attempts to mitigate the loss:

Solicitors' costs 26,284.31

9. Accountants' fees:

(a) Fees paid to Thompson

Douglass Butterell on

behalf of TKN 109,080.63

(b) Audit fees paid to

BDO Binder on behalf

of TKN 47,080.00

(c) Fees paid to Thompson

Douglass Butterell 11,823.50 167,984.13 SUBTOTAL: Amount on which

interest is calculated 2,372,805.90

(k) Interest to date of judgment 1,654,109.90 $4,026,915.80

There will be judgment for the applicants in the sum of $4,026,915.80.

[1992] FCA 599

20 AUGUST 1992