IN THE FEDERAL COURT OF AUSTRALIA  )

                                   )

SOUTH AUSTRALIAN DISTRICT REGISTRY )

                                   )

GENERAL DIVISION                   )   No. SG 15 of 1994

                                   B E T W E E N:

                                  BAZZA INVESTMENTS PTY LTD and DAVID JOHN BARRATT

                                                  Applicants

                                   - and -

                                  INNOVATION MANAGEMENT PTY LTD, JOHN DONALD STIRLING TAYLOR, KARL MARTIN DE PORTEOUS, and MICHAEL LAWTON HARRINGTON SOUTH

                                                 Respondents

                    REASONS FOR JUDGMENT

Coram:    O'Loughlin J.

Place:    Adelaide

Date :    12 December 1995

     On 13 October 1995 I published my reasons in this matter for coming to the conclusion that Bazza Investments was entitled to a judgment against Messrs Taylor, De Porteous and South based on its losses of $350,000 and $150,000.  At page 70 of my reasons for judgment I addressed the question of interest, saying that Bazza Investments would normally be entitled to interest as part of its award of damages.  However, as I said in my judgment, counsel for Innovative Management and Mr Taylor claimed in his written submissions that interest under s51A of the Federal Court of Australia Act 1976 must be pleaded and evidence must be adduced in support of such a pleading.

     The applicants had brought their actions for damages under s82 of the Trade Practices Act, subs1 of which reads:

     "A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."

     The trial of this matter commenced on 6 February 1995.  At that time the applicants proceeded on their fourth statement of claim.  Neither it nor its three predecessors had included in its prayers for relief a claim for interest per se, but each statement of claim had alleged that the applicants had suffered loss in specific amounts and further that the applicants had also suffered a loss of use of the specific amounts.  Those specified sums have crystallised now at $500,000.

     Thus, although the word "interest" may not have appeared in the statement of claim, the applicants have made those claims in paragraph 89 of the fourth statement of claim filed on 23 December 1994.  In the prayer for relief there are included claims for damages against the respondents pursuant to s82 of the Trade Practices Act and any other appropriate relief the court deems fit pursuant to s87 of that Act.

     A convenient starting point is s51A of the Federal Court of Australia Act.  Unless good cause is shown to the contrary the court can order that there be included in the sum for which judgment is given interest at such rate as the court thinks fit or, without proceeding to calculate interest in that manner, the court can order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.  Subsection 2 makes it clear however, that subs1 of s51A does not "authorise the giving of interest upon interest or of a sum in lieu of such interest".

     Neaves J has said, obiter, that there is an obligation to award a sum of interest up till judgment: Centrepoint Freeholds Pty Ltd v T N Lucas Pty Ltd (1985) 6 FCR 133 at 150.

      A Full Court of this Court has said:

     "It is clear that s51A and like sections were introduced to compensate a successful party from being kept out of his money... thus the award of interest is mandatory unless good cause is shown."

AGC v Border Printing (unreported judgment delivered 21 April 1989).

     Beaumont J has identified the policy of s51A in his unreported judgment in Perkes v McIntyre: (judgment published 6 November 1992) as recognising that:

     "... there should be some scope for compensation of the moving party for the loss of use of the money from the accrual of the cause of action up to the date of judgment."

The expressions "kept out of his money" ("AGC v Border Printing") and "loss of use of the money" ("Perkes v McIntyre") are in my opinion, synonymous. In other words, I consider, that the plea in paragraph 89(b) of the statement of claim that Bazza suffered the loss of use of its money coupled with the claim for damages under s82 of the Trade Practices Act is sufficient, having regard to the findings and reasons as already published to assess the damages of Bazza Investments in a sum which equates with the loss of $500,000 and the loss of use of $500,000.

     Whilst facts in individual cases may vary, in this case that is tantamount to saying that the applicant should get an award of $500,000 plus an appropriate amount by way of interest to compensate for the loss of use of that sum. 

     I would therefore be prepared to make an appropriate order against Messrs Taylor, De Porteous and South because I would consider that such an order would compensate Bazza Investments in part for its loss of the use of its moneys totalling $500,000.

     In Kewside Pty Ltd v Warman International, French J, after the delivery of reasons for judgment but before entry, entertained an oral application under 0 35 r7(3) ("the slip rule") to vary the amount of the judgment to allow interest which had not previously been claimed.  His Honour noted that pre-judgment interest may be awarded under s51A of the Federal Court of Australia Act but that the power of the court to award interest under that section is conditional upon an application being made for that purpose.  His Honour was of the opinion that the power to award interest would arise upon the inclusion of a claim for interest in the pleadings and that of course would be the conventional circumstance.  But he also said:

     "It ('that is the power to award interest') may also arise upon application after judgment has been delivered."

Having concluded that there was no question of prejudice, his Honour amended the judgment to include an amount of interest.

     I turn now to the history of this matter.

     During the course of the trial, counsel for the applicants handed up to the court a schedule containing calculations with respect to the applicants' entitlement to interest.  This schedule utilised the Reserve Bank's Schedule F3 entitled: "Interest Rates: Banks".  This schedule included in its calculations first, the rates to be found in schedule F3 and secondly, a quarterly compounding factor of that interest.  Such compounding is proscribed by s51A of the Federal Court of Australia Act, a factor that was then overlooked by all counsel.

     Counsel for the first and second respondents challenged the use of the schedule F3 calculations, not because of the utilisation of the compound factor but because, so it was said, the Reserve Bank's Schedule F4 was the appropriate schedule.  That schedule was entitled: "Interest Rates and Yields: other financial institutions."

     Schedule F4 contained lower rates and as a result the calculations using F3 were in the vicinity of $127,000 whilst the calculations using schedule F4 were not much more than half of that figure.

     Upon the conclusion of evidence in the trial the matter was adjourned for the parties to make written submissions.  Before adjourning off however discussions took place between counsel and the bench with respect to these interest calculations.  At p1180 of the transcript I am recorded as saying to counsel:-

     "So really if I can get this clear, that the parties at the Bar table are now saying: By agreement, here are two sets of calculations.  We accept the calculations, we accept the rates, we accept their arithmetic, but we just want to fight over which set of calculations is the appropriate set of calculations and on that subject we will include our submissions as part of our written submissions."

     Counsel for the applicant said that he was "very comfortable with that position" and counsel for the first and second respondents added "that he likewise was comfortable with that position."

     It seemed to me then (bearing in mind that everyone had overlooked the compounding factor in the calculations) that the argument between the parties was limited to whether the appropriate rate of interest was that to be found in schedule F3 dealing with banks or that to be found in schedule F4 dealing with other financial institutions.  In schedule F3 the interest rates were set out in the calculations at quarterly intervals.  The higher such rate was 10.5% p.a. and the lowest in March 1994 was 4.2% p.a.  Thereafter, it climbed gradually and in December 1994 was 6.4%.  The rates recorded in schedule F4 were even lower.

     When the applicants came to prepare their written submissions they realised that their calculations, using as they did, a quarterly compounding factor, offended the provisions of s51A.  Bearing in mind that the court had been informed on 23 February 1995 that both counsel acknowledged the rates of interest in the two schedules, one would have thought that the applicants would have prepared afresh a new calculation of interest based on the schedule F3 rates but without the quarterly compounding factor.  But they did not do that.  Instead, presumably, they treated the presence of the quarterly compounding as an excuse to revisit the subject of interest at large.  They therefore put into their written submissions a claim for simple interest at between 11% and 13%.  Depending upon the chosen rate, this had the affect of increasing their claim for interest by almost $100,000.

     The first and second respondents reacted to this material
shift in the manner in which I have already indicated, that is, they raised the issue that interest had not been pleaded and evidence had not been led as to the appropriate rates of interest.

     In their written submissions on the subject of interest the applicants said:

     "236.  During trial counsel provided calculations of suitable interest based on compounding interest.  Counsel now realises these calculations are not permissible.  Section 51A(2)(a) prohibits the giving of interest upon interest.

     237.The preferred course is that indicated by Spender J in Smallcombe v Lochyer (1993) 114 ALR 568 at 574/575, where he had regard to the post judgment interest rates set by the court.  He came to the conclusion that 14% was an appropriate median figure for interest for the period 1983 to 1993."

Thereafter, the submissions addressed the questions of the appropriate rate of simple interest.

     In needs to be emphasised that nowhere in those written submissions did the applicants advisers say anything other than compounding interest was not permitted by s51A.

     The applicants made further submissions dated 14 September and spoke to those submissions on 16 September but it was not until 8 December when the matter was called on for further argument that it ultimately transpired and was acknowledged by counsel for the applicants that the legal advisers for the applicants considered that they were in error in using the Reserve Bank's rates of interests.

     I quote from the transcript of 8 December 1995 where counsel for the applicant said:

     "What we should have done, looking back at the thing, in here - in this submission in April - was to say 'Look, we got compound interest wrong and we got the rate wrong, we say this is what our client is entitled to.  We missed out that second step and for that I very much regret doing that but given that we made that error at that stage it is a question of whether that should carry long term consequences if there is no prejudice to the respondents."

     Having now had the position fully explained to me, I consider that it was inappropriate for me to have indicated, as I did in my reasons for judgment, a rate of simple interest which I thought would have been otherwise appropriate.  The correct approach is to remind oneself that the applicant Bazza Investments is entitled to compensation for the loss of use of its money.  Originally, in making its calculation, it used as a source, schedule F3 which contained rates of interest which were then apparently acceptable to the applicants.  The impermissible aspect, that is the compounding of interest, was not found in schedule F3: it was found in the calculations made by the applicant's advisers when using the rates that were set out in schedule F3.

     But as is apparent from a reading of s51A the calculation of interest on a judgment is not a precise or exact science.  Many judges have used the euphemism "broad axe" when approaching this subject of interest.

     The applicant was successful substantially, in the prosecution of its causes of action.  It has been kept out of its money and it is entitled to be compensated for having been so kept out.  It has now become apparent to me that the rates of interest in the Reserve Bank's Schedules are quite low but I venture to suggest that this matter has been unnecessarily delayed through the failure of the applicants in April 1995 to declare their mistake with respect to the appropriate rate in clear concise terms.

     Apart from the obvious prejudice of swelling the size of the judgment debt, the respondents have not been able to point to any prejudice that they would suffer as a consequence of there being a departure from the original intention to use the Reserve Bank's Schedules.  Furthermore, counsel for the first and second respondents did not seek to advance an argument, based on the passage from the transcript at p1180 to which I have already referred, that the applicant should be held to a concluded bargain that interest would be based on one or other of the Reserve Bank's Schedules.

     The confusion that has been caused must be visited primarily upon the applicants because basically it was their mistakes which had caused the confusion and the disruptions. Wielding that broad axe to which I have just referred I fix
upon a lump sum of $200,000 by way of interest.  In arriving at this figure I have used a rate of 10% simple interest and limited the calculation of interest to April 1995 when the applicants filed their written submissions showing their shift in ground.

     As a result there will be judgment in favour of Bazza Investments in the sum of $700,000 (which sum is inclusive of interest) against the second, third and four respondents Messrs Taylor, De Porteous and South.

     Consistent with my Reasons for Judgment the second respondent shall have judgement against the third and fourth respondents by way of indemnity in respect of the liability of the second respondent to the applicant Bazza Investments in the sum of $700,000.

     I turn now to the questions of costs.

     The applicant was substantially successful against the second, third and fourth respondents but was wholly unsuccessful against the first respondent.

     The immediate attraction of costs following the event would, in the particular circumstances of this case, cause a degree of confusion as was acknowledged by all parties.  This is occasioned by the fact that the first and second
respondents (who were employer and employee) were represented, at all times, by the same legal advisers and the same counsel at trial.  It would be very difficult for a taxing officer to differentiate between work done on behalf of the successful first respondent and work done on behalf of the unsuccessful second respondent.

     Despite the apparent conflict in their respective positions, however, counsel for the first and second respondent announced that his clients were prepared to engage in an exercise which did not pay regard to the differing results of the litigation.  Utilising this proposition I have come to the decision that it would be equitable to cover the question of costs in the following manner.

     First, there will be an order for costs in favour of the applicants Bazza Investments against the second, third and fourth respondents.

     Secondly, there will be an order by way of indemnity in respect of those costs in favour of the second respondent against the third and fourth respondents.

     Thirdly, the joint and several party and party costs of the first and second respondents are to be taxed and the applicants are to pay to the first respondent an amount equal to 30% of the total of those taxed costs.

     Finally, because of the differences in the parties there is to be no set-off with respect to the several payments of costs which are the subject of these orders.

                                  I certify that this and the      preceding pages are a true copy of the Reasons for Judgment of Justice O'Loughlin.

                                  Associate

                                  Dated: