R C & M B Steinhardt Pty Ltd v Cunningham

[1997] QSC 3

IN THE SUPREME COURT

OF QUEENSLAND  Writ No. 2019 of 1990

Brisbane

Before the Honourable Justice Fryberg

[R C & M B Steinhardt Pty Ltd  v  Cunningham & Ors]

BETWEEN:
  R.C. & M.B. STEINHARDT PTY LTD

Plaintiff

AND:
  ALISON MEGAN CUNNINGHAM
  First Defendant
AND:
  LEONA CAROL DEI ROSSI
  Second Defendant
AND:
  ANTHONY JOHN SALISBURY
  Third Defendant
AND:
  GEOFFREY PAUL CUNNINGHAM
  Fourth Defendant
AND:
  KEN WILLIAM BLOWERS
  Fifth Defendant
AND:
  RUSSELL NEIL DEI ROSSI
  Sixth Defendant

BY ORIGINAL ACTION
  AND

BETWEEN:  
  GEOFFREY PAUL CUNNINGHAM
  and ALISON MEGAN CUNNINGHAM
  Plaintiffs
AND:
                 RONALD CHARLES STEINHARDT, MARION BERIS STEINHARDT,
  TREVOR STEINHARDT, KEVIN STEINHARDT,
  ANDREW GERRY and JANELLE GERRY
  First Defendants
AND:
  R.C. & M.B. STEINHARDT PTY LTD
  Second Defendant

BY COUNTERCLAIM

SUPPLEMENTARY REASONS FOR JUDGMENT - FRYBERG J.

Judgment delivered 29 January 1997

CATCHWORDS:       Damages - interest - Hungerfords v Walker claim - whether damage suffered - Costs - costs of separate issues

COUNSEL:L. Bowden for the plaintiff

B. O'Donnell QC for the defendants

SOLICITORS: Bowdens for the plaintiff

Clayton Utz for the defendants

HEARING DATES:     Written submissions

IN THE SUPREME COURT

OF QUEENSLAND  Writ No. 2019 of 1990

Brisbane

BETWEEN:
  R.C. & M.B. STEINHARDT PTY LTD

Plaintiff

AND:
  ALISON MEGAN CUNNINGHAM
  First Defendant
AND:
  LEONA CAROL DEI ROSSI
  Second Defendant
AND:
  ANTHONY JOHN SALISBURY
  Third Defendant
AND:
  GEOFFREY PAUL CUNNINGHAM
  Fourth Defendant
AND:
  KEN WILLIAM BLOWERS
  Fifth Defendant
AND:
  RUSSELL NEIL DEI ROSSI
  Sixth Defendant

BY ORIGINAL ACTION
  AND

BETWEEN:  
  GEOFFREY PAUL CUNNINGHAM
  and ALISON MEGAN CUNNINGHAM
  Plaintiffs
AND:
                 RONALD CHARLES STEINHARDT, MARION BERIS STEINHARDT,
  TREVOR STEINHARDT, KEVIN STEINHARDT,
  ANDREW GERRY and JANELLE GERRY
  First Defendants
AND:
  R.C. & M.B. STEINHARDT PTY LTD
  Second Defendant

BY COUNTERCLAIM

SUPPLEMENTARY REASONS FOR JUDGMENT - FRYBERG J.

Delivered 29 January 1997

On 22 August 1996, I delivered reasons for judgment in this matter.  I announced that I proposed to give judgment for the plaintiff against Mr and Mrs Cunningham on the claim, and on the counterclaim for the Cunninghams against the plaintiff, and that I would hear the parties on the questions of interest and costs.  I proposed to list the matter for argument on those questions the following week, but both parties argued that this would be inconvenient to them and also that more time would be needed to prepare the argument.  Subsequently, they joined in seeking directions that they be allowed to place written submissions before me, and that is what has occurred.  I received the last of those submissions (further submissions in reply on behalf of the plaintiff) from counsel for the plaintiff, Mr Bowden, at the end of November 1996.

The defendants' submission raised a matter arising out of my published reasons for judgment and going beyond the ambit of the directions which I made.  However no objection was taken to this by the plaintiff and the matter was dealt with by it.  It is convenient to dispose of that matter first.

Additional deductions for spraying contingencies
           The defendants made the following submission:

"The total value of lost sales at p.73 of the reasons for judgment has been reduced by 15% for 'spraying contingencies' as defined at p.60.  The same reduction ought be carried through to the calculation of the 'loss by sales at reduced prices' at pp.64-65 and 'losses due to buyer resistance' at pp.74-75."

It is not correct that the value of lost sales was reduced by 15 percent for spraying contingencies.  Rather, the notional total yield of 45,870 cartons was reduced by 15 percent for spraying contingencies.  The actual sales were then deducted from the resulting notional production.  In other words, the deduction for spraying contingencies was made not merely from the lost sales but from the whole crop.  To make a further deduction under this heading from the loss by sales at reduced prices would constitute double discounting.  Of course, in real life, spraying contingencies would no doubt have caused a range of damage to a quantity of the fruit as well as the complete loss of some of it.  However, it must be remembered that the discount is made to reflect a contingency and is incapable of precise calculation.  There would be no point in trying to estimate varying quantities of fruit with varying degrees of damage from minor through to total loss or to discount on that basis.  No greater level of accuracy could be achieved by such an exercise.  The position is quite different from that in respect of the "Additional Expenses" head, where I have taken the spraying contingencies into account.  The approach which I have adopted is in my judgment adequate to reflect the spraying contingencies.  No further adjustment under the heading "Loss by Sales at Reduced Prices" is necessary. 

Losses due to buyer resistance were losses due to depressed prices for subsequent crops of good fruit brought about by the fact that buyers were suspicious that the fruit might again turn out to be damaged.  There was no evidence that damage of a quantity and quality which might have been caused by spraying contingencies would have engendered any such suspicion.  There is therefore no basis for making a deduction under this heading. 

The Hungerfords v Walker claim
           The plaintiff pleaded its claim for damages in the following terms:

"11. By reason of the breach of contract and/or the breach of the Defendants' duty of care referred to in paragraph 10 above:-

...

(g)The plaintiff's overdraft facility has remained far higher than it would have and the plaintiff has incurred interest charges which it would not otherwise have incurred."

That was particularised in the following terms:

"GInterest

As a result of the losses suffered by the plaintiff, the plaintiff incurred interest expenses to both creditors and to the ANZ Bank which it would not otherwise have incurred.

As at November 1990, the plaintiff had lending facilities with the Australia & New Zealand Banking Group Limited as follows:

Overdraft at 16%  $130,000.00

Fixed rate fully drawn advance account at 14.5%  $600,000.00

Commercial bill at 14.09% plus 1.6% line fee payable quarterly $200,000.00

TOTAL lending  $930,000.00

Since November 1990, interest rate fluctuations on the overdraft and fully drawn advance facilities held by the plaintiff with the Australia & New Zealand Banking Group Limited have been as follows:

(a)Overdraft

November 1990  16%

March 199115.25%

August 1991  14.5%

November 1991  12.75%

February 1992  11.75%

May 199211%

August 1992  10.25%

April 19939.75%

August 1993  9.25%

13th September 1994              9.75%

14th November 1994  10%

(b)Fully drawn advance account

November 1990  14.1%

November 1991  12.2%

October 1992  9.9%

October 1993  11%

13th September 1994              11.5%

14th September 1994              11.75%

In addition to the facilities offered by the ANZ Bank, the plaintiff in the period November 1990 to the 30th April 1994 was charged interest on facilities from various trade creditors at varying rates between 18% and 20% per annum and paid interest in relation to those facilities totalling $278,368.26 up until the 31st October 1994.

On the basis that the plaintiff would have paid out trade creditors and would then have reduced its fully drawn advance account with the ANZ Bank, the total interest which the plaintiff has paid which it would not have paid had it not suffered the principal loss amounts to $348,968.10 as at the 31st October 1994.

In the alternative, interest calculated on the basis of the rates applicable to the fully drawn advance account facility with the ANZ Bank amounts to $296,364.00 up until the 14th November 1994.

The ongoing interest cost amount per day calculated on the basis of the fully drawn advance account rate of 11.75% is $277.62.

Summary of the Plaintiff's Loss

. . .

Interest to 31/10/94 as per G above  $348,968.10."

That claim was propounded in amendments made to the statement of claim on tenth day of the trial.  In its original form, the statement of claim sought interest at the bank overdraft rate calculated at a little over $15,000 up to 28 February 1991.  At all stages the defendants met the claim for interest with a bare denial. 

As appears from the above, the plaintiff's claim was for outlays actually incurred by way of interest paid to creditors and its bank.  For that claim to succeed it is essential that I be satisfied that the plaintiff would have applied the whole of the proceeds of sale of tomatoes toward reduction of indebtedness to either or both the creditors and the bank.

I found the plaintiff's evidence on this aspect of the case unsatisfactory.  Mr Ron Steinhardt, the only director of the plaintiff who gave evidence, did not deal with the question of how the plaintiff would have spent the proceeds.  The only witness who did deal with that topic was his daughter, Mrs Gerry.  At the time of the trial, she was the member of the family described as primarily responsible for the financial side of the plaintiff's business.  It was her job to ensure payment of accounts and collection of debts, and to keep the business records of the plaintiff.  She was also responsible for consignment of fruit.  In 1990, however, even these tasks were dealt with by both her and her father together, because she was new into the business.  She did not act as accountant for the company - it employed outside accountants to prepare its accounts and provide financial advice.

Based on invoices from creditors and bank statements, Mrs Gerry prepared a schedule showing (inter alia) the amount of interest paid to four of the plaintiff's creditors from November 1990 until October 1994[1].  However few details of the trade arrangements between the plaintiff and those creditors were given and there was little if any evidence of the position and trading pattern prior to November 1990.  The plaintiff's banking arrangements were equally vague.  It appears from ex.44 that as at November 1990 the plaintiff had an overdraft account drawn to $130,000, a fixed rate fully drawn advance of $600,000 and finance from a commercial bill of $200,000, all through the ANZ Bank.  These arrangements had apparently been put in place the previous month after the plaintiff had terminated its relationship with Westpac, its previous banker.  The circumstances of that termination were barely touched upon in evidence.  The term of the fully drawn advance and the conditions applicable to it were not disclosed, although the need for such evidence was explicitly raised with counsel for the plaintiff during Mrs Gerry's evidence.  On the other hand, there is no evidence that the bank was pressing for a reduction of the overdraft or the fully drawn advance, nor that it was unwilling to roll over the bills as they fell due. 

[1]Exhibit 48.

Although the plaintiff adopted the business name Steinhardt Family Farms from 1 July 1989, it was carrying on the family business for some years before that.  Both before and after that date, it did so as trustee of the Steinhardt Family Trust.  Its accounts disclose that on every balance date from 30 June 1986 onwards, the Trust had a surplus of liabilities over assets.  In a majority of the nine years for which figures were provided, it traded at a loss.  Despite this, the accounts show that it regularly lent substantial sums to members of the Steinhardt family.  These loans were made to Mr and Mrs Steinhardt Snr, and to Kevin, Trevor and Janelle (Gerry), as well as to Mrs Gerry's husband. They were identified in the accounts as "beneficiary loan accounts".  A further loan was identified in the accounts from 1989 onwards to T and K Steinhardt.  These matters are quantified in the following table, taken or calculated from ex.39.

Year	Excess of liabilities over assets ($)	Profit/loss ($)	Net funds to beneficiaries for year (excl T & K a/c)  ($)			Balance of loan accounts  ($)
Profit distributed		Loans (aka "Drawings")	T & K a/c		Beneficiary loan a/cs
1985-6	57,388	(65,964)	0		30,946	0		57,388
1986-7	66,915	319,831	132,876		42,403	0		66,915
1987-8	89,041	78,423	78,423		101,699	0		89,041
1988-9	154,717	(16,034)	0		65,676	39,953		154,717
1989-90	243,983	(258,975)	0		251,611	29,850		406,328
1990-1	1,026,892	(782,909)	0		65,587	51,205		471,915
1991-2	781,711	245,181	0		155,270	89,349		627,185
1992-3	1,301,357	(519,647)	0		17,449	112,984		644,634
1993-4	1,078,293	223,065	0		3,960	184,484		648,594

It is quite plain from exs.39, 44 and 48 that the plaintiff was at all times after November 1990 in debt for amounts far in excess of the award in the present proceedings.  Plainly it would have been open to it had it received its money at the end of 1990 to have used it to pay off debts and thereby to reduce its interest bill.  But would it have done so?

The only direct evidence on that question was given by Mrs Gerry.  Her attention was first directed to the amounts owing to creditors as shown in ex.48, and with those debts fresh in her mind, she was asked and answered:

"What was the decision or what was the attitude of the company - what would the company have done with, for instance, the $104,849 had those moneys come in?--  We would have paid our creditors."

The reference to $104,849 is to the amount which she claimed would have been received in November.  She also swore that upon receipt of the balance, she would have paid off the private creditors and reduced the plaintiff's borrowings from the bank with what was left.  She asserted (over objection) that the plaintiff would have been able to pay money off the fully drawn loan account. 

Despite the way in which these answers were expressed, I think Mrs Gerry meant that the money would have been deposited into the plaintiff's current account with the bank and cheques drawn to pay creditors as necessary.  Although there was no evidence called from the bank to show that such cheques would have been honoured, I see no reason to doubt that they would have been.  As I have observed, the arrangements with the bank were put in place only in late 1990 and there is no reason to think that the bank would have been demanding repayment in early 1991.  Mr Bowden for the plaintiff perceived this omission in the evidence as a flaw fatal to a claim based on interest charged by the creditors named in ex.48, but I do not think that it was.  On the evidence I am satisfied that the plaintiff could, if it had wished, have paid off its creditors in early 1991 from the hypothetical proceeds.  For how long the bank would have maintained that attitude it is impossible to say.  No doubt the bank's attitude would have depended upon the plaintiff's financial position from time to time. 

Despite this, and notwithstanding Mrs Gerry's evidence, I am not satisfied that most or all of the hypothetical income would have been used in the manner described by Mrs Gerry, or even to reduce indebtedness to the bank as contended for by Mr Bowden.  There are a number of reasons for this.  First, I am not convinced that Mrs Gerry was really in a position to know what would have happened.  She was not a director of the plaintiff and at the time in question carried out her fairly routine tasks only in conjunction with her father.  I find ex.48 is very much a calculation based on hindsight.  She was, moreover, able to offer only a limited and partial explanation of the increase in loans to family members described above[2].  As the table shows, the amount owed to the plaintiff by family members increased from about $57,000 on 30 June 1986 to $833,000 on 30 June 1994.  That increase seems largely to have been financed by the bank.  The loans were not for the purposes of daily living (the family members were paid wages as well) and were made interest free.  Not only are they the source of a large part of the plaintiff's interest bill for the period since 1990, but their unexplained existence leaves me wondering what would have happened to the hypothetical proceeds of sale had they been received.

[2]That explanation was in respect of the list of beneficiary loan accounts contained in the financial statements for the year ended 30 June 1991.  She sought to explain those accounts, then totalling $471,915 in these terms:

"When we last - when we bought our last farm, our previous accountant had it as though the bank had lent the money to the trust and that the trust had bought property, whereas in fact the bank had lent the money to the trust and the trust had borrowed it to the beneficiaries, which then owns the land, because the land is owned in the individual's names.  So there was ‑ actually the financial statements prior to this time are inaccurate, and when Mr McLellan started doing our work in 1990, he readjusted to bring up that there was beneficiary loans, which represents the acquisition of land."

In fact, in the previous year, the first year for which Mr McLellan did the accounts, a block of land described in the balance-sheet as "Land ex Bonel" had indeed been disposed of, and presumably that was the land to which Mrs Gerry was referring.  However it was valued in the balance-sheet at only $170,770 and it was the only land owned by the plaintiff then or at any relevant time.

An example of Mrs Gerry's lack of knowledge occurred in relation to her own loan account as at 30 June 1992.  Mrs Gerry and her husband had in 1990 built a house on the Home Farm.  It cost about $100,000.  First Mrs Gerry asserted that she and her husband had that money in their account, but later she said that they borrowed money from the bank as well as utilising their own savings - she thought the amount borrowed about $35,000.  At some time after 30 June 1991 and before 1 July 1992, Mrs Gerry's own loan account with the plaintiff increased from $10,629 to $115,622.  She was unable to say to what the increase of $105,000 related, though she denied it put her in funds for her house.  She said Mr McLellan, the accountant, would know the reason for the increase.  Despite the fact that Mr McLellan still lived in Bundaberg, he was not called to give evidence and no explanation for his absence was advanced. 

The plaintiff pleaded and ran its case on the basis that its relevant loss was the amount paid to the four creditors referred to in ex.48 as interest together with a proportion of the amount paid to the ANZ Bank as interest; or alternatively, an amount paid solely to the bank as interest (if it be held that the bank would not have allowed payment to the creditors).  It did not contend that it had lost the opportunity to invest the hypothetical proceeds, nor did it argue its claim on the basis that it had lost the chance to pay off creditors and the bank[3].  I am not satisfied that the hypothetical proceeds would all have been employed in the manner contended for by the plaintiff and no evidence has been led which would enable me to make any finding based upon partial employment of the proceeds for that purpose.  Consequently, the claim must fail.

[3]Compare Malec v. J.C. Hutton Pty Ltd (1990) 169 CLR 638; Sellars v. Adelaide Petroleum NL (1994) 179 CLR 332.

On behalf of the defendants, Mr O'Donnell QC argued in the alternative that the claim could not succeed if the defendant was unaware of the plaintiff's financial situation.  He based this argument on the judgment of the Full Court of the Supreme Court of South Australia in Walker v Hungerfords[4] and Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd[5].  Essentially, he submitted that the claim must be brought within the second limb of Hadley v Baxendale, and that the evidence in the present case did not do that.  It suffices to say that in my view, a majority of the High Court in Hungerfords v Walker[6] held that the claim may lie under either limb of Hadley v Baxendale.  If other requirements for recovery are met, reasonable foreseeability of damage will suffice to inculpate the defendant;  actual knowledge of the plaintiff's financial circumstances is not essential.  It was not argued on behalf of the defendants that if the loss occurred, it would have been unforeseeable in this sense, nor that it would not have been directly caused by the defendant. 

[4](1987) 49 SASR 93.

[5](1991) 58 SASR 184.

[6](1989) 171 CLR 125.

Simple interest

The defendants do not contest the plaintiff's claim for simple interest, but contend that in the exercise of my discretion I should fix a rate of 6 percent per annum and disallow interest for a period of 23 months during which it is alleged the plaintiff was guilty of delay.  They seek leave to read and file an affidavit in support of this submission.  A copy of that affidavit was delivered to me on 24 January 1997, after I had notified the parties of my intention to deliver this judgment on 29 January.  Mr Bowden dealt with the question of delay in his further submission in reply and I assume that a copy of the affidavit was available to him.  He raised no objection to my granting leave to read and file the affidavit, so leave is granted.  The affidavit discloses that the process of discovery was protracted and difficult for the defendants.  The plaintiff seems to have been less than co‑operative, a fact which would have increased the defendants' costs to some degree and caused their solicitors intense annoyance.  However the defendants chose to deal with the matter by refusing to sign a certificate of readiness until they were satisfied with discovery.  To what extent the process could have been expedited by a more co‑operative attitude does not appear from the affidavit.

I do not think it is appropriate for the court to undertake a detailed analysis of the parties' conduct of the litigation in order to identify periods when things might have been done more quickly, in order to reduce the period for which interest is awarded[7].  It was not suggested that the additional costs warranted a separate order.  I think interest should be allowed at bank overdraft rates prevailing from time to time in the area, and there was evidence of those rates in exs.45-47.  No doubt the parties can ascertain the rates since that time.

[7]See Metro Meat Ltd v Werlick [1993] Aust.Torts Reports ¶ 81-242.

In my judgment simple interest should be allowed from the date of the issue of the writ at those rates. 

Costs

The defendants have submitted that this is an appropriate case to apply the principles stated in Thiess v TCN Channel 9 (No. 5)[8].  I do not think those principles are applicable in the present case.  Mr O'Donnell submitted that whether it would have been negligent of Mr Cunningham to have recommended helothion as an appropriate treatment and whether the plaintiff's spraying equipment and techniques were defective, were separate "heads of controversy" within the meaning of that case.  I disagree.  Some of the evidence given primarily in relation to those issues I found of assistance in resolving the issue on which the plaintiff succeeded.  There were significant areas of overlap.   For example, evidence of the nature and effect of helothion bore upon that question.  Some of the evidence regarding helothion was also relevant to questions of credibility.  In the end, the result of the findings in the defendants' favour was simply some discounting of the award.  In my judgment, the costs of the claim should follow the event - that is, the unsuccessful defendants should pay the plaintiff's costs.

[8][1994] 1 Qd.R. 156 at pp.207-10.

Those defendants who were successful succeeded only because they were able to prove that they were not in fact carrying on business with the unsuccessful defendants, despite the external appearance which their manner of carrying on business produced.  They allowed themselves to be registered as persons carrying on business under the name Bundaberg Agricultural Management Consultants.  I think the plaintiff was quite justified in joining them as defendants.  Doubtless it was a misfortune so to be joined but they were the authors of that misfortune.  There should be no order for their costs. 

The Cunninghams were successful on their counter‑claim against the plaintiff.  They therefore should have their costs of those proceedings against it.  The mere fact that the costs may not be large is no reason for not making an order in respect of them.  They have failed against the individual members of the Steinhardt family whom they made defendants to the counter‑claim, thereby adding them as parties to the proceedings.  They should pay these costs, if any, to be taxed.
Draft Order

Judgment for R.C. & M.B. Steinhardt Pty Ltd on the claim against A.M. Cunningham and G.P. Cunningham for $357,850 and for interest thereon at the rates referred to in the reasons for judgment from the date of the writ and for costs to be taxed.  Judgment on the claim for L.C. Dei Rossi, A.J. Salisbury, K.W. Blowers and R.N. Dei Rossi against R.C. & M.B. Steinhardt Pty Ltd.

On the counterclaim, judgment for A.M. Cunningham and G.P. Cunningham against R.C. and M.B. Steinhardt Pty Ltd for $4,110 and interest thereon at the rates referred to in the reasons for judgment from 1 December 1990 and for costs to be taxed.  Judgment for R.C. Steinhardt, M.B. Steinhardt, T. Steinhardt, K. Steinhardt, A. Gerry and J. Gerry against A.M. Cunningham and G.P. Cunningham on the counterclaim and for the costs of the counterclaim to be taxed.