State of Queensland v Northaus Trading Co Ltd

[1999] QCA 313

IN THE COURT OF APPEAL	99.313
SUPREME COURT OF QUEENSLAND

Appeal No. 6299 of 1998

Brisbane

[State of Qld v Northaus Trading Co Ltd]

BETWEEN:

STATE OF QUEENSLAND

(Defendant) Appellant

AND:

NORTHAUS TRADING COMPANY LIMITED

ACN 010 710 693

(Plaintiff)	Respondent
Pincus JA Moynihan J Atkinson J

Judgment delivered 13 August 1999

Judgment of the Court

(1)	APPEAL ALLOWED WITH COSTS.
(2)	JUDGMENT GIVEN BELOW VARIED BY REDUCING ITS AMOUNT FROM $329,096.88 TO $215,812.88.
(3)	CROSS-APPEAL DISMISSED WITH COSTS.

CATCHWORDS: DAMAGES - GENERAL PRINCIPLES - DIFFICULTY OF ASSESSING

DAMAGES - breach of contract giving rise to claim for exchange loss - fluctuation in value of Australian dollar between date when relevant sum should have been received and date when actually received - whether party held out of money for this period may recover an exchange loss

DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS

FOR BREACH OF CONTRACT - GENERAL - loss of opportunity for sale due to breach of contract - degree of probability of sale - whether evidence established that as a matter of certainty sale would have been effected

Attorney General of the Republic of Ghana v Texaco Overseas

Tankships Ltd (The "Texaco Melbourne") [1994] 1 Lloyd's Rep 473

Bonython v Commonwealth of Australia [1951] AC 201

British Bank for Foreign Trade, Limited v Russian Commercial and

Industrial Bank (1921) 38 TLR 65

In re Chesterman's Trusts [1923] 2 Ch 466

International Minerals & Chemical Corporation v Karl O Helm A G

[1986] 1 Lloyd's Rep 81

Isaac Naylor & Sons Ltd v New Zealand Co-operative Wool Marketing

Association Ltd [1981] 1 NZLR 361

Miliangos v George Frank (Textiles) Ltd [1976] AC 443
President of India v Lips Maritime Corporation [1988] AC 395

Services Europe Atlantique Sud (Seas) of Paris v Stockholms

Rederiaktiebolag Svea of Stockholm (The "Folias") [1979] AC 685

The Teh Hu [1970] P 106

Ventouris v Mountain (The "Italia Express" (No 2)) [1992] 2 Lloyd's

Rep 281

Counsel:	Mr R W Gotterson QC, with him Mr C Wilson, for the appellant. Mr P D McMurdo QC for the respondent.
Solicitors:	Crown Solicitor for the appellant. Russell & Company for the respondent.
Hearing Date:	22 April 1999.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 6299 of 1998

Brisbane

Before Pincus JA
Moynihan J
Atkinson J

[State of Qld v Northaus Trading Co Ltd]

BETWEEN:

STATE OF QUEENSLAND

(Defendant) Appellant

AND:

NORTHAUS TRADING COMPANY LIMITED

ACN 010 710 693

(Plaintiff) Respondent

REASONS FOR JUDGMENT - THE COURT

Judgment delivered 13 August 1999

1. The respondent (Northaus) obtained judgment against the appellant (Queensland)

   for damages for breach of contract. The breach consisted in a failure to supply cattle to Northaus

   at the time promised. Northaus suffered a loss of $92,477 because of a fluctuation in the value of

   the Australian dollar. At the time when, but for Queensland's breach, Northaus would have

   delivered cattle to a Thai buyer, the Australian dollar was worth $92,477 more in US dollar terms

   than it was at the time when Northaus was able to, and did, deliver the cattle. Under the contract

   with the Thai buyer, Northaus was entitled to payment in US dollars. The right of Northaus to

   recover the sum of $92,477 plus interest, which was awarded to it below, has been challenged in

   the appeal. The problem raised can be distinguished from that which arises when the plaintiff sues

   for damages consequent on entering into a transaction which produces an exchange loss, the suit
   being based on deceit or a similar cause of action.

2. Queensland's argument is that although Northaus led evidence of receipt of the relevant US

   dollar sum from the Thai buyer, Northaus gave no evidence as to what it did with those US dollars,

   and so the claim was not proved. It is argued on Queensland's part that Northaus might, for all one

   knows, have kept the US dollars rather than converting them to Australian currency. As such, it

   is said, an award of damages based on the assumption that such conversion was made at the date

   of receipt does not necessarily reflect any real loss by Northaus. The answer to the question

   involved requires, in our view, a close examination of the way in which claims for exchange losses

   are treated by the courts.

3. Northaus is an Australian company which carries on a business of exporting from

   this country. The proposition that it was appropriate for the primary judge to award the relevant

   damages in Australian dollars was accepted by both sides. Had the damages been awarded in US

   dollars there would of course have been no exchange loss; it was the fact that the relevant part of

   the award was expressed in Australian dollars which, in a sense, created the loss. Most of the

   recent authorities in which the problem of exchange fluctuations has been dealt with have to do with

   the currency in which judgment should be given. An example is the decision of the House of Lords

   in Services Europe Atlantique Sud (Seas) of Paris v Stockholms Rederiaktiebolag Svea of

   Stockholm (the "Folias") [1979] AC 685. There a French charterer claimed against a shipowner

   a sum the charterer had had to pay because of damage to cargo carried on the "Folias". The

   charterer settled the claim for the damaged cargo by a payment in Brazilian currency of cruzeiros

   456,250, purchasing those cruzeiros with French francs. Arbitrators awarded the charterer the sum

   claimed in French francs, but the shipowner argued that the award should have been made in

   cruzeiros, that being the currency which had been expended by the charterer. Lord Wilberforce,
   who delivered the leading judgment, referred to:

   " . . . the principle that, subject to the terms of the contract, damages should be recoverable in the currency which most truly expresses the plaintiff's loss". (701)

4. Lord Wilberforce went on to say that:

   "The essential question is what was the loss suffered by the [charterers] . . . their loss, which they claim as damages, was the discharge of the . . . claim, together with the legal and other expenses they incurred. They discharged all these by providing francs - until they provided the francs to meet the . . . claim they suffered no loss . . . it was reasonable to contemplate that the charterers, being a French corporation and having their place of business in Paris, would have to use French francs to purchase other currencies to settle cargo claims arising . . .

   In my opinion a decision in what currency the loss was borne or felt can be expressed as equivalent to finding which currency sum appropriately or justly reflects the recoverable loss". (702, 703)

5. A similar outcome ensued in Attorney General of the Republic of Ghana v Texaco

   Overseas Tankships Ltd (The "Texaco Melbourne") [1994] 1 Lloyd's Rep 473, where the

   judgment for damages for breach of contract was in Ghanian cedis rather than US dollars, with

   catastrophic results for the plaintiffs. There was no suggestion in the "Texaco Melbourne" that the

   damages should be supplemented by a sum representing the plaintiffs' additional loss due to the

   decline in the value of the Ghanian currency against the US dollar between the date of the breach

   and the date of judgment.

6. In the present case, it is not a fluctuation between those two dates which is complained of,

   but one between the dates when the relevant sum should have been received by Northaus and the

   dates when it was in fact received. According to the late Dr F A Mann's work, "The Legal Aspect

   of Money", 5th ed, 1992 at 116:

   "In England damages for actual loss suffered through the depreciation of sterling have, in the absence of an agreement between the parties, never been awarded and even where the breach of contract occurs, not as a result of failure to pay, but from other causes . . . and consists, inter alia, of a fixed sum representing, e.g., past expenditure, damages for monetary depreciation have invariably been refused".

   According to the same work:

   "As regards the quantum of simple debts expressed in foreign money, there is no rule in English law which enables a party to claim a reduction or an increase of the amounts of foreign money payable on the ground of a rise or fall in the international value of such money". (287)

   The authorities generally support these views. We refer to British Bank for Foreign Trade,

   Limited v Russian Commercial and Industrial Bank (1921) 38 TLR 65. In re Chesterman's

   Trusts [1923] 2 Ch 466 at 488, 489 referred to with approval in Bonython v Commonwealth

   of Australia [1951] AC 201 at 222, and The Teh Hu [1970] P 106. This last case involved the

   question whether a devaluation of sterling between the date of rendering salvage services and that

   of the award should entitle the claimant to additional payment. Salmon LJ, with whom Karminski

   LJ agreed, remarked:

   "In no case of breach of contract, tort or debt is the amount for which judgment is entered to be affected by any change in the value of sterling after the date when the damages or the debt became due" (128).

7. The House of Lords has, more recently, refused to award damages, measured by a decline

   in the value of sterling, for late payment of demurrage: President of India v Lips Maritime

   Corporation [1988] AC 395. Dr Mann attacked this decision in the work to which we have

   referred to above (at 293) and also in a note in (1988) 104 LQR 3.

8. In the Lips case Lord Brandon said:

"There is no such thing as a cause of action in damages for late payment of
damages". (425)

That rule does not cover the present case, where the question is whether damages consequent upon exchange rate fluctuations can be recovered, not in respect of a payment due by the defendant (as

in Lips), but in respect of one due by a third party. If the Lips principle is to be treated as correct,

the question becomes whether a right denied to the plaintiff where the loss results directly from the

defendant's breach, consisting in late payment by the defendant, should be accorded to the plaintiff

where the loss results indirectly from the breach, because the breach leads to a late payment by a

third party. The simplest example of the latter situation is that where the defendant has broken a

promise to cause a third party to make a payment.

1. Two other English decisions should be mentioned. One is International Minerals &

   Chemical Corporation v. Karl O Helm A G [1986] 1 Lloyd's Rep 81, (decided before the Lips

   case) where an exchange loss in respect of money due under a contract was allowed, essentially

   on the ground that the defendant knew "the facts or circumstances which [would] make such a loss

   a not unlikely consequence of [the defendant's] default" (104). As far as we can see, the only

   relevant fact or circumstance was the proposition that the value of Belgian francs fluctuates against

   that of US dollars (101). If that is enough then such claims would, as it seems to us, routinely be

   allowed. Pegged exchange rates, which once were the rule, have long been out of fashion. The

   second English case is Ventouris v Mountain (The "Italia Express" (No 2)) [1992] 2 Lloyd's Rep

   281, where the Lips principle was applied to late payment of a sum due under an insurance policy.

2. Counsel referred us to Isaac Naylor & Sons Ltd v New Zealand Co-operative Wool

   Marketing Association Ltd [1981] 1 NZLR 361, where a claim for damages for exchange losses

   in respect of money due under a contract for sale was allowed, the decision being consistent with

   the decision of Hobhouse J in International Minerals & Chemical Corporation, but inconsistent with the two later decisions we have cited, namely Lips and the "Italia Express". The approach

   taken was similar to that in the International Mineral & Chemical Corporation case, the losses

   being held to be "in the contemplation of the parties" (367, 371, 382). None of these decisions is

   binding on this Court, but where the question relates to international financial matters a House of

   Lords decision, given in a great financial centre, should be departed from only if there are strong

   considerations dictating that course. 11 The advantage of the Lips rule is its simplicity, but

   there is a question whether it arrives at a just result. In our opinion the answer to that question will

   ordinarily be yes. If, as in the present case, an Australian plaintiff has a sum due to it in a foreign

   currency and payment is late, the plaintiff will appreciate that, as is the fact, the Australian dollar may

   move either way against the foreign currency during the period of delay. If the Australian dollar

   moves up, then the amount received will be higher in Australian dollar terms and if it moves down

   the amount received will be less in Australian dollar terms. The plaintiff may decide to guard against

   an adverse movement by an appropriate transaction, or simply take its chance. That is a chance

   which it would be taking in common with others; all the Australians who have, or have due to them,

   Australian dollars are less wealthy if the Australian dollar falls in value, relative to our trading

   partners' currencies.

3. The Lips rule not only avoids the oddity that a plaintiff may in the event of an adverse

   exchange movement be compensated, but if the currency goes the other way keep the profit; it also

   avoids the necessity of any such investigation as should, according to Queensland's argument, have

   been undertaken in the present case. In International Minerals & Chemical Corporation

   Hobhouse J referred to the complexities of the plaintiff's position with respect to the sum of Belgian

   francs in issue there:

   "The plaintiffs might use it, or part of it, to provide cash for a Belgian franc liability, or to purchase some other non-US dollar currency which they happened to require at that time, or they might transfer it straight into US dollars . . .". (101)

   "At any given time, the plaintiffs' actual position in currencies other than US dollars was complex with forward liabilities and receivables in such currencies, and with hedged and unhedged positions". (101)

   ". . . to try and unravel on a hypothetical basis all the exchange dealings or contracts that a corporate group had made over a period of three years would involve an absurd and maybe impossible investigation". (102)

   The advantage of such an examination of the plaintiff's currency situation as that which Hobhouse

   J eschewed would be to achieve greater accuracy, giving the plaintiff its "real loss" rather than an

   imputed or deemed loss. But to cut off the investigation at the point chosen by Northaus in this case

   - that is, at the point of receipt of the foreign currency - is artificial and could lead to compensating

   Northaus for a loss which it did not, in the events which occurred, sustain.

4. It is important to keep in mind that the basic question is in what circumstances a plaintiff who

   is held out of money for a time may recover an exchange loss. The delay may be one between the

   date when the money should have come in and the date when it did in fact come in - as in the

   present case - or, more typically, between the former date and judgment. If the money comes in

   later than it should have done, there will be, almost invariably, a change in the rate at which it could

   have been exchanged for other currencies; whether this causes a loss to the plaintiff will depend on

   a number of matters. First, there is the direction of the change. If the "plaintiff's currency" has gone

   up in value, relative to the currency in which the money was paid, there will obviously be no loss,

   when the money comes in. Then, the plaintiff might not convert the money received to its own

   currency, but rather use it unconverted. Or the plaintiff might hold the "foreign" money for a time

   and convert it into its own currency when it has recovered its value. Again, the plaintiff might run its business in such a way as to minimize the effects of currency fluctuations, by hedging, so that the

   change in value has no, or a lessened, impact.

5. English and Australian courts have since Miliangos v George Frank (Textiles) Ltd [1976]

   AC 443, been prepared to give judgment in currencies of foreign countries. If during the delay in

   payment, two relevant foreign currencies have changed in value against each other, one being that

   in which the payment should have been made, then the judge can influence the outcome by choosing

   an appropriate currency in which to give judgment. Should the plaintiff's business be conducted in

   various currencies and countries, this may be a debatable choice; the judge's task is to select that

   currency in which the plaintiff's loss is "felt". Choosing a currency which has fallen a great deal can

   produce a judgment of little value, as in the case of the Ghanian cedis, the "Texaco Melbourne".

   Because cedis rather than US dollars was held to be the currency in which the plaintiff had to have

   its judgment, it had to bear the full cost of cedis' depreciation. Apart from the technique of choosing

   the "plaintiff's currency", which may avoid an exchange loss which would, if another currency had

   been chosen, have been sustained, there is no method or means of compensating a plaintiff for an

   exchange loss due to late payment of damages or debt. Damages are not awarded to cover the

   loss.

6. We allow the appeal, with costs.

   Cross-Appeal

7. There is a notice of contention which seeks an increase in damages assessed relating to the

   loss of a certain contract for the supply of cattle to Thailand in 1996. In his comprehensive and

   concise reasons, the primary judge dealt with, amongst other claims, one for loss of profit on a sale

   of 500 "additional" cattle to a Thai buyer. The judge found in effect that as a result of a breach by Queensland the opportunity of selling certain calves and thereby making a profit had been lost to

   Northaus. His Honour said:

   "I still have to assess the degree of probability of a sale. Having regard to the evidence of Mr McNamee I accept that there was a high probability of such a sale".

   His Honour found the probability to be 70%. It is the proposition that there was only a 70% chance

   of making the sale in question which is challenged by Northaus.

8. The respondent relied upon evidence that it contracted to sell the relevant breed of cattle

   to Thailand in each of the years from 1993 to 1997 inclusive, with the exception of the 1996 year,

   in which according to its contention it lost the opportunity of a sale because of Queensland's breach.

   Mr McMurdo QC, for Northaus, pointed out that the only discounting factor used in arriving at the

   figure of 30% was the contingency that the contract would not have been won. It was said that

   there was no evidentiary basis for the discount and that the sale was "as good as a certainty". Mr

   McMurdo particularly relied upon the evidence of Mr Moore, who was called for Northaus below.

9. Moore's evidence was that he was at relevant times a director of RAB Australia Pty Ltd,

   a company which sold 520 cattle to Thailand in 1996. The relevance of that sale was that,

   according to Northaus's argument, but for the breach by Queensland it would have been able to

   make the sale which was in fact made by RAB. Moore's evidence was that the RAB sale in 1996

   was made to or through an entity which acted as agent for RAB in Thailand and which was a

   competitor of Northaus's agent in that country. Moore said, in effect, that Northaus would have

   had very little prospect of selling to RAB's Thai agent. There is, as it appears to us, a gap in

   Northaus's proof of this aspect of its case. In the preceding and succeeding years Northaus sold

   520 head of the relevant breed of cattle to Thailand; the question is whether the primary judge was obliged to hold that as a matter of certainty Northaus could have sold about the same number in

   1996, in addition to or in substitution for those sold by RAB. As is argued for Queensland, there

   is no direct evidence to that effect.

1. We were invited on behalf of Northaus to have regard to all the relevant evidence in order

   to reach a conclusion contrary to that of the learned primary judge. Doing the best we can in

   response to this exhortation, we have come to the conclusion that there is no sound basis on which

   to disagree with the conclusion his Honour reached.

2. The orders we make are therefore as follows:

(1)	Appeal allowed with costs.
(2)	Judgment given below varied by reducing its amount from $329,096.88 to $215,812.88.
(3)	Cross-appeal dismissed with costs.