Nella, J.B. v Kingia Pty Ltd

[1989] FCA 201

Re: JOHN BAPTIST NELLA; CLIFFORD SIDNEY BROWN; BARBARA SYBIL BROWN and
IAN WILLIAM BROWN (Applicants); KINGIA PTY LTD (Cross-Claimant)
And: KINGIA PTY LTD; IAN DAVID ASPHAR; PETER ANTHONY McCOMISH; ROBERT
WILLLIAM WATERS; HILLDODD PTY LTD; MAXWELL DODD; MAURICE HOWARD HILL and
STANLEY RONALD LAYTON (Respondents); HILLDODD PTY LTD (Cross-Respondent)
No. WAG18 of 1983
FED No. 201
Interest - Costs

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Interest - interest on damages for negligent misstatement including purchase of business - s.32 Supreme Court Act 1935 (WA) - retrospective operation - discretion - delay in prosecution of proceedings - interest on damages representing interest paid on borrowed capital.

Costs - Bullock Order - unsuccessful respondents denying agent's authority - joinder of agents - principles relevant to Bullock Order.

Trade Practices Act 1974 s.52, s.82

Federal Court of Australia Act 1976 s.51A

Judiciary Act 1903 s.79

Supreme Court Act 1935 (WA) s.32

Pavich v Bobra Nominees Pty Ltd (31/10/88; Unrep., French J.)

Nella v Kinga Pty Ltd (1985) 11 FCR 281

Centrepoint Freeholds Pty Ltd v T.N. Lucas Pty Ltd (1985) 6 FCR 133

Foyster v Goynich (No. 2) (1984) WAR 91

Harper v Phillips (1985) WAR 100

Brasser v Graham (1985) WAR 180

Australian National Airlines Commission v Commonwealth (1975) 6 ALR 433

Simonius Vischer & Co. v Holt (1979) 2 NSWLR 322

Clybucca Holdings Pty Ltd v Hill (1984) WAR 44

Komisars v Guardian Assurance Co. Ltd (1973) 5 SASR 515

Bates v Nelson (1973) 6 SASR 149

Zannoni v Loft (1975) 13 SASR 208

Clearihan v Allen (1978) 18 SASR 496

Sanderson v Blyth Theatre Co. (1903) 2 KB 533

Bullock v The London General Omnibus Co. (1907) 1 KB 264

Gould v Vaggelas (1985) 157 CLR 215

Johnson Tyne Foundry Pty Ltd v Maffra Corporation (1948) 77 CLR 544

HEARING

PERTH

#DATE 1:5:1989

Counsel for the Applicants: Mr S. Owen-Conway

Solicitors for the Applicants: Corser & Corser

Counsel for the First and Mr R. Le Miere Second Respondents:

Solicitors for the Respondents: Dwyer Durack & Dunphy

Counsel for the Fourth, Fifth Mr D. Clyne and Sixth Respondents:

Solicitors for the Fourth, Michael Whyte & Co. Fifth and Sixth Respondents:

ORDER

The first and second respondents pay to the applicants pre-judgment interest on the damages awarded herein in the amount of $24,760.

The first and second respondents pay the applicants' costs of the action.

The applicants pay the fourth, fifth and sixth respondents' costs of the action.

The first and second respondents indemnify the applicants in relation to the costs of the action payable by the applicants to the fourth, fifth and sixth respondents.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

On 2 December 1988 the applicants obtained judgment against the first and second respondents in the sum of $75,670.00. The judgment sum was by way of damages found to have been suffered by the applicants resulting from a contravention by the first respondent of s.52 of the Trade Practices Act 1974 and by the negligence of the first and second respondents. The second respondents, who are directors of the first respondent were also liable to pay damages under the Trade Practices Act as persons "involved" in its contravention.

1. The proceedings arose out of false statements found to have been made in connection with the sale of the business of the Rosemount Hotel by the first respondent to the applicants. These representations were made on or about 14 January 1981 and the contract induced by them was executed on 12 February 1981. The present proceedings were instituted on 29 April 1983 but did not come to trial until October 1987.

2. At judgment the parties were given liberty to apply on the question of interest and costs. Argument on those matters was heard on 1 March 1989.
   Interest

3. The application and statement of claim filed on 29 April 1983 sought damages under s.82 of the Trade Practices Act and at common law, but no claim for interest on the damages. There was at the time no power under the Federal Court of Australia Act 1976 to award pre-judgment interest. Section 51A of the Act which makes such provision was inserted by amendment in 1984 and is limited in its application to causes of action arising after its commencement on 22 November 1984 (see s.51A(1)).

4. By an amendment to the statement of claim, made by consent order on 4 November 1985, the applicants added to their claim for relief:
   

"Interest on any sum awarded pursuant to the orders sought in paragraphs 1, 2 and 3 herein at the rate of 14% per annum from 3rd March 1981 to date of payment in full or judgment herein pursuant to the provisions of s.32 of the Supreme Court Act 1935-1979 or at such other rate as this Honourable Court may think fit."

1. Section 32 in a form providing for the award of pre-judgment interest on damages was enacted with effect from 20 June 1983. An amendment in 1986 prevented such awards being made in relation to general damages in respect of pain or suffering or loss of enjoyment of amenities of life awarded in relation to personal injury or the death of a person. Relevantly the section provides:
   

"32(1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods), the Court may order that there shall be included, in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date when judgment takes effect.

(2) This section does not -

(a) authorise the giving of interest upon interest;

.

.

."

The section will not authorise the payment of interest on damages awarded pursuant to s.82 of the Trade Practices Act 1974 - Pavich v Bobra Nominees Pty Ltd (31/10/88; Unrep., French J.). It will, however, by operation of s.79 of the Judiciary Act 1903, allow this Court to order the payment of pre-judgment interest in respect of damages assessed on a common law cause of action - Nella v Kingia Pty Ltd (1985) 11 FCR 281, 284 (Toohey J.); Centrepoint Freeholds Pty Ltd v T.N. Lucas Pty Ltd (1985) 6 FCR 133, 143 (Sweeney and Woodward JJ..

1. Section 32 operates retrospectively in the sense that interest may be awarded in relation to causes of action that arose and periods of time that elapsed before it came into operation - Foyster v Goynich (No. 2) (1984) WAR 91, 93 (Burt CJ); Harper v Phillips (1985) WAR 100, 104 (Burt CJ); Brasser v Graham (1985) WAR 180, 181 (Brinsden J.). Whether or not interest should be awarded in respect of a period prior to the coming into operation of the section is a matter of discretion. Ordinary principles of fairness suggest that that discretion will not readily be exercised in favour of the award of interest - Australian National Airlines Commission v Commonwealth (1975) 6 ALR 433, 437 (Mason J.); Simonius Vischer & Co. v Holt (1979) 2 NSWLR 322; Clybucca Holdings Pty Ltd v Hill (1984) WAR 44, 46 (Brinsden J.). No compelling reason has been advanced and I am not persuaded in the circumstances of this case that interest should be awarded in respect of the period prior to the coming into effect of the amended s.32 on 20 June 1983.

2. There were some significant delays in the conduct of the application and its progress to trial. Litigation between the parties commenced in the District Court on 29 July 1981 with interpleader proceedings as to the disposition of $11,030.43 held in the trust account of Hilldodd Pty Ltd and received from the applicants as payment of the balance of the purchase price and for stock. The payment had been made on condition that the moneys not be transferred to Kingia without the written authority of the applicants. In the event, Hilldodd paid $10,930.43 into Court which was in turn paid into an interest bearing deposit account in the joint names of the applicants' and Kingia's solicitors until further order.

3. On 7 August 1981 the first, second and third applicants commenced proceedings in the Supreme Court against Kingia on grounds substantially the same as those relied upon later in this Court, save for the trade practices claim. Those proceedings reached the stage at which pleadings were closed and a rather extended and tortuous discovery process completed, when the present application was instituted on 29 April 1983. Thereafter it took nearly 4 1/2 years to come to trial in October 1987.

4. I do not propose to undertake any detailed analysis of the many interlocutory steps and the debate about pleadings and discovery that ebbed and flowed between the parties. I note, however, that no interlocutory steps were taken by the applicants for a period of some eighteen months between January 1984 and June 1985. A period of five months inaction on the file occurred between 6 November 1985 and 18 April 1986 when the applicants filed a motion to join the fourth, fifth and sixth respondents. And for some 11 months between the filing of the defence by the fourth, fifth and sixth respondents on 21 May 1986 and their motion to strike out the claim on 18 June 1987, nothing appears to have happened as between the applicants and the first and second respondents, although as counsel for the applicants pointed out there was activity in relation to the fourth, fifth and sixth respondents .

5. In my opinion it is not ungenerous to the applicants to say that these proceedings took, on their account, at least two years too long to get to trial. In coming to that conclusion I have regard to the stage which the action in the Supreme Court had reached when the present application was instituted.

6. Generally on the question of delay in the prosecution of proceedings it may be said that there is no prejudice to a respondent who has the benefit of the applicants' money for a longer period and ought therefore to pay for that benefit. On the other hand the Court should not encourage applicants to treat respondents as a kind of risk free, interest bearing investment. Delay in prosecution of proceedings has been accepted in a number of cases as a factor relevant to the exercise of the discretion to award interest - Komisars v Guardian Assurance Co. Ltd (1973) 5 SASR 515, 524 (Walters J.); Bates v Nelson (1973) 6 SASR 149, 157 (Mitchell J.); Zannoni v Loft (1975) 13 SASR 208, 222 (Walters J.); Clearihan v Allen (1978) 18 SASR 496, 498 (Bright J.). Moffitt P. in Simonius Vischer & Co. v Holt (supra) at 331 accepted a submission that it would be wrong to isolate the fact of delay and on this basis exclude consideration of other matters and refuse any award of interest. His Honour, with whom Reynolds and Samuels JJA. agreed on the question of interest, also accepted however that material delay could be a relevant circumstance. In my opinion, I should award interest in this case for the period from 20 June 1983 to 2 December 1988 less a period of two years. For ease of calculation I will fix the maximum period over which interest is to be worked out as the period from 20 June 1985 to 2 December 1988.

7. In the absence of evidence of appropriate rates, I will adopt the suggestion made by counsel for the first and second respondents, and apply those fixed in respect of judgment debts under s.142 of the Supreme Court Act 1935. I was informed by counsel and accept that for the period 20 June 1985 to 3 January 1986 the figure was 13%. For 4 January 1986 to 4 December 1987 it was 14%, and from 5 December 1987 to the date of judgment in these proceedings it was 13%.

8. Interest on the primary loss of $28,616, calculated on this basis, works out at $9,360.19.

9. It was submitted for the first and second respondents that sub-s.32(2)(a) precluded any award of interest on that component of the damages award representing interest paid on moneys borrowed by the applicants to finance the purchase of the business. In my opinion, however, the prohibition relates to the award of compound interest and not to interest payable in respect of loss sustained in the form of interest actually paid. It is necessary to have some regard to the period over which this component of the loss was suffered. In this connection the evidence showed that the interest paid by Mr and Mrs Brown was paid before 31 July 1985 when their refinanced loan was finalised. (See letter from R. & I. Bank of 10 July 1986. Appendix 12 to report of R.J. Parry). Mr Nella's loan was repaid in full on 14 March 1985 (See Appendix 15 to Parry Report). Mr Ian Brown's loan was for $10,000 for a period of five years from 11 March 1981 (see Appendix 16 to Parry Report). The interest paid by him was therefore incurred over the term of 5 years, ending 10 March 1986. Any adjustment of s.32 interest on this component of the loss to take account of the fact that it was partly incurred over the period of 9 months from June 1985 to March 1986 would be unwarranted in view of the small amount involved. The same is true of the five weeks or so between 20 June and 31 July 1985 when Mr and Mrs Brown's loan was finalised. I will therefore treat the loss of $27,089.73 making up the component of loss representing interest paid on borrowed capital as fully incurred at 20 June 1985. On that basis interest on this component from 20 June 1985 to 2 December 1988 is $8,868.60.

10. Interest on the trading losses component of $11,515 comes to $3,768.94. As to the sum of $8,450 representing lost income on capital, interest from 20 June 1985 is $2,762.16. Total interest payable pursuant to s.32 of the Act in respect of damages under the the negligence claim is therefore $24,759.89 which I will round off to $24,760.
    Costs

11. There is no doubt that the applicants are entitled to the costs of the action as between themselves and the first and second respondents.

12. No case has been made out for the proposition that I should make an order whereby the first and second respondents pay the fourth, fifth and sixth respondents' costs direct. This would seem to leave the fourth, fifth and sixth respondents to recover their costs from the first and second respondents (see - Sanderson v Blyth Theatre Co. (1903) 2 KB 533, 539 (Romer LJ)). In my opinion the applicants having been unsuccessful against the fourth, fifth and sixth respondents must pay their costs of the action. The only question is whether they should be indemnified in that regard by the first and second respondents pursuant to a "Bullock" order - Bullock v The London General Omnibus Co. (1907) 1 KB 264, 272 (Cozens-Hardy LJ). A Bullock Order may be made where the Court consider it just that the costs of the successful respondent should be borne by the unsuccessful respondent. Such an order may be made where the costs in question have been reasonably and properly incurred by the applicant as between him and an unsuccessful respondent - Gould v Vaggelas (1985) 157 CLR 215, 247 (Wilson J., Murphy J. agreeing at 232). The mere fact of a reasonable joinder of additional respondents will usually be insufficient to ground such an order in the absence of some conduct on the part of the unsuccessful respondent that has led the applicant to sue the successful party - Gould v Vaggelas (supra) at 229 (Gibbs CJ). In Johnsons Tyne Foundry Pty Ltd v Maffra Corporation (1948) 77 CLR 544, the plaintiff sued a Shire for payment for work done and material provided in the repair of its steamroller. The Shire by its defence denied that the engineer who engaged the plaintiff had authority to do so. The engineer was joined and sued for breach of warranty of authority. He was successful in his defence and the Shire which was unsuccessful, was ordered to reimburse the plaintiff to the extent of the engineer's costs paid by the plaintiff. It was reasonable in the circumstances for the plaintiff to join the engineer and the joinder flowed from the position adopted by the Shire as Williams J. observed at 573:
    

"In the present case, in view of the respondent's attempt to limit its liability in any event to a liability to pay for a small part of the repairs and its claim that Hallows had no authority to order the balance, it was reasonable for the appellant to join both defendants in the action and not unreasonable that the respondent if it failed, as in my opinion it did, on this issue should be penalized by having to reimburse the appellant for Hallow's costs. In several cases where it was doubtful whether the agent was authorized by the principal to make the contract sued on claims against the principal have been joined with claims against the agent for damages for breach of warranty of authority: Honduras Inter-Oceanic Railway Co. v Lefevre and Tucker ((1887) 2 Ex Div 301); Bennetts & Co. v McIlwraith & Co. ((1896) 2 QB 464); Sanderson v Blyth Theatre Co. ((1903) 2 KB 533). A Bullock Order was made in the last mentioned case."

1. The applicants here contend that in their defences and at trial the first and second respondents denied that the fourth, fifth and sixth respondents had authority to make the statement contained in the estimated trading results document. They also denied that they made them as agents for the first respondent. According to the applicants it was, therefore, inevitable that the fourth, fifth and sixth respondents would be joined. The first and second respondents however contended that the joinder was for reasons other than the defences of lack of authority and agency. Reference was made to evidence which indicated a concern by the applicants that Hilldodd Pty Ltd was not likely to yield any funds upon execution. It was also suggested that another reason for the joinder was a desire on the part of the applicants to use the processes of the Court to extract information from the fourth, fifth and sixth respondents for use in the case against the first and second respondents.

2. In my opinion, however, the first and second respondents by their pleading did endeavour to deflect responsibility for the misrepresentation in a way which effectively invited the joinder. They should be ordered to indemnify the applicants in respect of costs paid to the fourth, fifth and sixth respondents.

3. The form of orders will be:
   

1. The first and second respondents pay to the applicants pre-judgment interest on the damages awarded herein in the amount of $24,760.

2. The first and second respondents pay the applicants' costs of the action.

3. The applicants pay the fourth, fifth and sixth respondents' costs of the action.

4. The first and second respondents indemnify the applicants in relation to the costs of the action payable by the applicants to the fourth, fifth and sixth respondents.