Kronenberg v Bridge (No 2)
[2015] TASFC 9
•23 July 2015
[2015] TASFC 9
COURT: SUPREME COURT OF TASMANIA (FULL COURT)
CITATION: Kronenberg v Bridge (No 2) [2015] TASFC 9
PARTIES: KRONENBERG, David Gerald
KRONENBERG, Robyn Joy
v
BRIDGE, Stephen
FILE NO: 1045/2013
JUDGMENT
APPEALED FROM: Kronenberg v Bridge [2013] TASSC 57
DELIVERED ON: 23 July 2015
DELIVERED AT: Hobart
HEARING DATE: 19 December 2014
JUDGMENT OF: Blow CJ, Porter and Pearce JJ
CATCHWORDS:
Damages – General principles – General and special damages – Special damages by way of interest – Compensation for delay in obtaining payment of assessed damages – Assessment of loss – Award based on compound interest – Misleading and deceptive conduct resulting in increased borrowings.
Fair Trading Act 1990 (Tas), s 37.
Hungerfords v Walker (1989) 171 CLR 125; State of Tasmania v Shaw (No 2) (2002) 12 Tas R 1, referred to.
Aust Dig Damages [1]
REPRESENTATION:
Counsel:
Appellants: S B McElwaine SC
Respondent: A Buckley
Solicitors:
Appellant: Shaun McElwaine + Associates
Respondent: Toomey Manning & Co
Judgment Number: [2015] TASFC 9
Number of paragraphs: 10
Serial No 9/2015
File No 1045/2013
DAVID GERALD KRONENBERG and ROBYN JOY KRONENBERG
v STEPHEN BRIDGE (No 2)
REASONS FOR JUDGMENT FULL COURT
BLOW CJ
PORTER J
PEARCE J
23 July 2015
Orders of the Court (19 December 2014)
Appeal allowed.
Judgment entered on 4 October 2013 set aside.
Determination made on 4 October 2013 in respect of the counterclaim of the respondent quashed.
Judgment for the appellants against the respondent in the action in the sum of $299,899.88.
Order that the respondent repay to the appellants $37,962 plus interest thereon in the sum of $2,047.77.
Respondent to pay the costs of the appellants of the action and of the counterclaim, taxed as between party and party to 10 August 2012, and taxed as between solicitor and client from 10 August 2012.
Respondent to pay the appellants' costs of the appeal.
Respondent granted an indemnity certificate pursuant to the Appeal Costs Fund Act 1968.
Serial No 9/2015
File No 1045/2013
DAVID GERALD KRONENBERG and ROBYN JOY KRONENBERG
v STEPHEN BRIDGE (No 2)
REASONS FOR JUDGMENT FULL COURT
BLOW CJ
PORTER J
PEARCE J
23 July 2015
This Court made final orders disposing of this appeal on 19 December 2014. These are our reasons for one of the orders that we made on that day. The only point in controversy on that day concerned the entitlement of the appellants to damages in the nature of interest in accordance with Hungerfords v Walker (1989) 171 CLR 125. The appellants contended that they were entitled to compound interest, but the respondent conceded only an entitlement to simple interest.
The respondent is a builder. He entered into a contract to build a house for the appellants. A dispute arose. The appellants sued him. The case went to trial. Tennent J dismissed the action: Kronenberg v Bridge [2013] TASSC 57. The appellants appealed. On 20 October 2014, this Court concluded that the appellants were entitled to succeed in the action, and were entitled to damages, not for breach of contract, but pursuant to the Fair Trading Act 1990: Kronenberg v Bridge [2014] TASFC 10. We were unable to complete the assessment of the appellants' damages at that time because they were entitled to damages in the nature of interest in accordance with Hungerfords v Walker (above), and the Court did not have sufficient information to assess that component of the damages. The making of orders disposing of the appeal was therefore delayed.
In relation to the Hungerfords v Walker claim, the parties subsequently reached agreement as to the principal sum, the interest rates applicable from time to time, and the commencement date for the interest calculations. The only matter that remained in dispute was whether the appellants should be entitled to simple interest or, as they contended, to compound interest, compounded monthly.
The appellants were entitled to recover damages pursuant to s 37 of the Fair Trading Act, not under the common law. However there was no reason not to assess their damages in relation to interest losses in the same way as such damages would be assessed when such an entitlement exists at common law. This Court concluded that the appellants were entitled to recover $208,860 plus interest thereon because (a) the appellants had paid a total of $691,175 for the construction of the house; (b) but for the respondent's contravention of the Fair Trading Act, they could have entered into a contract with another builder and had the house constructed for about $430,100; and (c) the difference between those two figures was to be discounted by 20% because the appellants were to be compensated only for the loss of the chance of a more advantageous arrangement.
The first appellant, Mr Kronenberg, gave uncontroversial evidence at the trial as to the appellants' financial arrangements in relation to the construction of the house. They financed it by borrowing from their bank, and had to pay interest. Initially they had a variable rate investment property loan. Subsequently they opened a "Rocket Deposit Account". That account is described as an offset account. By maintaining deposits in that account, the appellants were entitled to a more favourable interest rate in relation to their borrowings. Interest was charged to their loan account once per month. Once per month they paid or transferred money into that account to cover the interest payments. As a result, the bank did not ever charge them interest on interest. That is to say, they did not pay compound interest.
The respondent contended that, because the appellants had not paid compound interest, it would be inappropriate to assess their damages in respect of interest losses on a compound interest basis. However counsel for the appellants submitted that an award of simple interest would not adequately compensate the appellants for their loss. He relied on the following passage in the judgment of Mason CJ and Wilson J in Hungerfords v Walker (above) at 149–150:
"Simple interest would not reflect accurately the extent of the respondents' loss. Simple interest almost always undercompensates the injured party's true loss. Bowles and Whelan, Judgment Awards and Simple Interest Rates, International Review of Law and Economics, vol 1 (1981) 111, at p 112 observe:
'If the plaintiff was expecting payment for a consignment of goods, but did not receive his money, the extent of his loss could be measured approximately by the amount of income that he could otherwise have generated simply by putting the proceeds into a deposit account at a bank. Such a move would attract compound interest, since the bank would automatically add to the account any interest generated. Equally, a plaintiff in a tort action can be thought of as incurring opportunity costs best measured by compound rather than simple rates. Had he received his award immediately upon the damage occurring, it may be assumed that he would have invested it at compound rates in just the same way as would the plaintiff who is suffering from a breach of contract.'
The disdain of the common law for interest, especially compound interest, is a 'relic from the days when interest was regarded as necessarily usurious' (Ogus, Law of Damages (1973), p 98)."
At 152, Brennan and Deane JJ said that they were in general agreement with the reasons given by Mason CJ and Wilson J. It was held in that case, by majority, that the Full Court of the Supreme Court of South Australia had been correct to award damages in the nature of compound interest.
That case concerned a claim for interest in respect of a liquidated claim. The claimants were taxpayers who had paid too much tax as a result of negligence on the part of their accountants. In this case the appellants' claim under the Fair Trading Act was an unliquidated claim, but Hungerfords v Walker damages may also be awarded in respect of unliquidated claims: State of Tasmania v Shaw (No 2) (2002) 12 Tas R 1. However that case, like Hungerfords v Walker, concerned a plaintiff who had to pay compound interest.
In this case the appellants' borrowings from their bank substantially exceeded the sum of $208,860 which they were entitled to recover, with interest, by way of damages. The appellants were out of pocket as a result of the respondent's contravention of the Fair Trading Act. If they had not been out of pocket, they would not have owed their bank as much money as they did. Their monthly interest payments would have been smaller, but that would not have been the only consequence. If they had paid less interest each month, they would have had a little money available each month which could have been paid to the bank to reduce the principal sum. There is no reason why the appellants would have taken any other course. The reduction of the principal sum by a little each month would have had a cumulative or compounding effect by way of reducing the interest that would otherwise have been payable. It must follow that an award of simple interest would have been inadequate to compensate the appellants for the losses that they incurred in consequence of the respondent's contraventions of the Fair Trading Act, and that they could only be properly compensated by an award of compound interest. Their compound interest claim was calculated on the basis of the low interest rates that their bank charged because they were maintaining a substantial credit balance in another account. By calculating their claim in that way, they passed on to the respondent the benefit of the low interest rate charged by their bank.
For the reasons stated above we concluded that it was appropriate to assess the appellants' Hungerfords v Walker damages on a compound interest basis.
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