FEDERAL COURT OF AUSTRALIA

Gibbett v Forwood Products Pty Ltd (No 2) [2001] FCA 434

INTEREST – whether delay by applicant in prosecution of claim may constitute good cause for declining to award interest for period between cause of action and judgment.

COSTS – applicant succeeds in claim – where applicant succeeds on some issues only – where applicant recovers judgment for sum much less than claim as presented – whether costs should be allowed in full or part only.

Federal Court of Australia Act 1976 (Cth) s 51A(1) and s 51A(1)(b)

Supreme Court Act 1933 (ACT) s 69

Supreme Court Rules 1987 (SA)

Grincelis v House [2000] HCA 42; 173 ALR 564 considered

Golden West Refining Corp Ltd v Daly Laboratories Pty Ltd (Carr J, 16 February 1995, unreported) applied

MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657 referred to

Osborne v Kelly (1993) 61 SASR 308 referred to

Inn Leisure Industries Pty Ltd (Prov Liqu appointed) v D F McGlory Pty Ltd (No 2) (1991) 28 FCR 172 applied

KENNETH MAXWELL GIBBETT and BRISK SHAVINGS PTY LTD v

FORWARD PRODUCTS PTY LTD (ACN 008 089 727) and THE STATE OF

SOUTH AUSTRALIA

SG 12 OF 1997

MANSFIELD J

27 APRIL 2001

ADELAIDE

THE COURT ORDERS THAT:

1.                  The applicant Brisk Shavings Pty Ltd recover from the respondent Forwood Products Pty Ltd damages including a lump sum in lieu of interest of $452,000.

2.                  The applicant Kenneth Maxwell Gibbett recover from the respondent Forwood Products Pty Ltd damages including a lump sum in lieu of interest of $13,800.

3.                  The respondent Forwood Products Pty Ltd do pay to the applicants Brisk Shavings Pty Ltd and Kenneth Maxwell Gibbett 40 percent of their costs of and incidental to the application to be taxed, excluding therefrom specific orders for costs made in the course of the proceedings.

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

REASONS FOR DECISION

1                     I gave judgment in this matter on 30 March 2001.  The applicants succeeded in their claims to the extent that Brisk Shavings Pty Ltd (“Shavings”) was awarded damages of $325,000 against Forwood Products Pty Ltd (“Forwood”) and Kenneth Maxwell Gibbett (“Gibbett”) was awarded damages of $10,000 against Forwood.  These reasons deal with the issues of interest and costs.

interest

2                     Both Shavings and Gibbett claim interest on the damages awarded at the rate prescribed from time to time by the Third Schedule to the Supreme Court Rules 1987 (SA) for the period 30 June 1994 to date.  It is acknowledged that the rate so prescribed is an appropriate rate to calculate interest under s 51A of the Federal Court of Australia Act 1976 (Cth) (“the Act”).

3                     The commencement date of 30 June 1994 reflects the end of the financial year in which the damage was suffered.  I have found that Forwood was liable for damages for breach of contract and on other grounds for selling to Gibbett between May and June 1993 and for selling to Shavings between July and October 1993 wood shavings which were not suitable for the purpose of packaging live crayfish for export.  The crystallisation of the losses consequent upon those sales was progressive during the 1993/94 financial year.  There is no contention on the part of Forwood that that is not an appropriate commencement date for interest to run.

4                     Section 51A(1) of the Act provides:

“In any proceedings, for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:

(a)      order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, 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 as of which judgment is entered; or

(b)      without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.”

5                     It is in effectively the same terms as provisions in other jurisdictions, including s 69 of the Supreme Court Act 1933 (ACT) recently considered by the High Court in Grincelis v House [2000] HCA 42; 173 ALR 564 (“Grincelis”).  As the majority (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ) pointed out at [7]:

“While it is undoubtedly necessary to have regard to the course of authority touching the issues that arise in this matter, it is of the very first importance to bear steadily in mind that the allowance of interest, in a case such as the present, is governed by statute.”

6                     In Golden West Refining Corp Ltd v Daly Laboratories Pty Ltd (Carr J, 16 February 1995, unreported), his Honour allowed interest for a period abridged by the period by which the applicant had delayed in instituting its proceedings.  His Honour regarded that as reasonable, having regard to the object of an award of interest as compensating an applicant for the detriment suffered by being kept out of its money during the relevant period, in effect because the detriment to that extent was self inflicted.  That general object of provisions such as s 51A was recognised in MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657 at 663.  In Grincelis, the majority at [16] also adverted to the possibility that such statutory provisions also serve the purpose of encouraging early resolution of litigation.  If that be the case, that purpose would not be served by awarding interest for a period during which the default of an ultimately successful applicant was responsible for the resolution of the litigation being delayed.  It was not necessary in Grincelis for the High Court to finally decide that question.  It is also not necessary to address it in relation to this matter.

7                     I share the view of Carr J that, to the extent that it is shown that final resolution of proceedings was delayed by the conduct of a successful applicant, good cause exists not to award interest on the amount of the judgment.  That is because it is reasonable not to compensate that applicant by an award of interest to that extent, as that applicant’s own conduct has been the cause of being kept out of the money to which that applicant was entitled during that period.  See also Osborne v Kelly (1993) 61 SASR 308.

8                     These proceedings were commenced on 16 November 1995.  They had a chequered history, in the course of which they were cross-vested to this Court by order of the Supreme Court of South Australia on 17 January 1997, and then were allied with separate proceedings in the Western Australian District Registry of this Court.  It was reported at a directions hearing on 15 May 1998 that those proceedings had resolved, so that this matter could progress in its own right.  At that directions hearing, Forwood through its counsel maintained that the discovery of both Shavings and Gibbett was inadequate.  On 26 June 1998, I fixed 1 February 1999 as the proposed hearing date, and gave directions to ensure that the parties were ready to proceed to trial at that time.  That hearing date had to be vacated as Shavings and Forwood did not comply with those directions in a timely manner.  Indeed, their failure to comply with directions led to an application to dismiss or stay the proceedings.  On 7 September 1999, due to the persistent failure of Shavings and Gibbett in complying with directions aimed at having the matter prepared for trial, I ordered, in effect provisionally, that the application be dismissed but gave them leave to apply within a certain time to discharge that order if they complied with directions already given albeit, very belatedly.  They then complied with those directions, and on 6 December 1999 I discharged the dismissal order.

9                     In my view, both Shavings and Gibbett are responsible for the fact that they have been kept out of their entitlement to damages for the period from 26 June 1998 to about the end of October 1999, a period of about sixteen months.  There is no indication that responsibility for that delay lay elsewhere than with themselves.  In that period Forwood conscientiously pursued orders seeking to bring the claim to trial, and ultimately in the face of its inability to force them to trial to have the claim dismissed or stayed.  It was not simply lying by, awaiting developments.  Its industrious but not overzealous pursuit of its rights as a litigant is a further consideration which supports my conclusion that good cause exists not to allow interest to Shavings or Gibbett in respect of that period.

10                  Forwood claims that the period of delay for which Shavings and Gibbett are responsible is much longer, and commenced in February 1997.  On the material now before me, Forwood by February 1997 had engaged a financial adviser to assist in its consideration of the claim.  That financial adviser identified the need for further information.  The financial adviser’s report was promptly provided to solicitors for Shavings and Gibbett.  Despite that step, and subsequent correspondence with solicitors for Shavings and Gibbett, the further financial documents requested were not provided for a long period.  On 26 June 1998, directions were made for the provision of further financial records to Forwood.  Ultimately, that direction was complied with, but only in the latter part of 1999.  Whilst I accept that Shavings and Gibbett were very dilatory in responding to that request, the giving of discovery was a matter of mutual ongoing concern during 1997.  However, I consider that the failure of Shavings and Gibbett to respond adequately to the requests for further information during the first six months of 1998 delayed this matter being ready for trial earlier.  Whilst the parties during that period were awaiting the outcome of the allied proceedings in the Western Australian District Registry of the Court, that does not excuse that failure.  An adequate response to the request of Forwood during that six month period would have enabled Forwood through its solicitors to prepare for trial at an earlier stage than proved to be the case.

11                  Forwood, through its solicitors, acted in a timely and persistent manner in its requests.  The delay on the part of Shavings and Gibbett is not satisfactorily explained.  Their failure impeded the proper progress of their application to hearing.  In my view these factors provide “good cause” why they should be deprived of their prima facie entitlement to interest from January 1998.

12                  I propose to allow interest, therefore, to cover the periods July 1994 to December 1997 and November 1999 to the present.  Rather than do a precise calculation, I will allow a lump sum in accordance with s 51A(1)(b) in relation to each of their claims, which roughly represents interest at the rates applicable under the Third Schedule to the Supreme Court Rules 1987 (SA) for those periods.  As my reasons for judgment indicate, the losses for which damages were awarded were essentially suffered by the end of the 1993/94 financial year.  There is no need to make any adjustment to reflect the fact that the losses were increasing beyond that time, so that interest awarded should also be adjusted to reflect such a consideration.

13                  I award Shavings a lump sum in lieu of interest of $127,000 and Gibbett a lump sum in lieu of interest of $3,800.  There will therefore be judgment in favour of Shavings against Forwood in the sum of $452,000 including interest, and in favour of Gibbett against Forwood in the sum of $13,800.

costs

14                  Forwood disputes that Shavings and Gibbett should be entitled to their costs for three reasons.

15                  Firstly, it points out that the claim in respect of the period December 1992 to May 1993 based upon communications in about December 1992 failed.  Secondly, it points out that generally I preferred the evidence given by Forwood’s Customer Services Manager to that of Gibbett, including as to the communications which took place at the next critical meeting in May 1993.  Accordingly, the claims based upon an express warranty that the wood shavings were suitable for packaging live crayfish for export, and upon the express representation that the wood shavings were kiln dried and chemical free, were also rejected.  The claims therefore succeeded only in respect of limited issues and in respect of one of the two critical communications pleaded.  Thirdly, it points out that the claims for damages were very substantially reduced in the final assessment.  The damages assessed are about one third of the claim as finally formulated.  That involved the preference of the contentions advanced by Forwood over those advanced on behalf of Shavings and Gibbett about the level of profitability of Gibbett’s wood shavings business in the 1992/93 financial year, about the prospective level of sales of Gibbett’s and Shavings’ businesses in succeeding financial years and as to the likely profit margin, and about the cause of Shavings’ trading losses in the 1994/95 financial year.

16                  The discretion of the Court to award costs is a wide one.  It must be exercised judicially.  French J in Inn Leisure Industries Pty Ltd (Prov Liqu appointed) v D F McGlory Pty Ltd (No 2) (1991) 28 FCR 172 at 173-174 discussed the relevant principles and cases concerning them.  I adopt what his Honour there said.  I will not repeat it.

17                  In my judgment, the matters which Forwood has referred to fairly identify discrete issues upon which Shavings and Gibbett failed in the claim.  They are each matters which took some appreciable time during the hearing.  Forwood did not seek costs of any of those issues, but contended that in the light of them no costs should be awarded against it or that the costs recovered should be substantially reduced.  In accordance with the ordinary rule, costs follow the event.  In this matter, where Shavings and Gibbett have succeeded only upon portion of their claim, I consider it reasonable to reflect that in reducing significantly the costs which Forwood should be ordered to pay.  In making a judgment as to the appropriate reduction, I have had regard to a general assessment of the extent which the disputed questions of fact referred to above occupied the time of the hearing, and of the pre trial preparation.  I have endeavoured to allow, in effect, that Forwood might be entitled to the costs of those disputed questions of fact.  Although the time occupied at the trial on those disputed questions of fact was substantial, I do not think that the pre-trial preparation would have been absorbed in the same proportions.  It is likely that much of the pre-trial work on liability would have been undertaken in any event.  On the other hand, the claims of Shavings and Gibbett for damages as presented would have involved considerable work, and work for which in my judgment those applicants ought not to be compensated in costs.  It is of course speculative as to what the course of these proceedings would have been had a more temperate formulated claim for damages been made, one instance of which may have been earlier resolution perhaps by compromise.  The delays on the part of Shavings and Gibbett in presenting all relevant material in support of their damages claim are likely to have impeded Forwood in addressing that claim and responding to it.  As the response of Forwood if a more moderate claim were presented in a timely manner is speculative, however, I do not take that consideration into account in determining the appropriate order for costs.

18                  Any judgment as to a proper order for costs will be somewhat broad axe.  Having regard to the matters which I have referred to, in my view the appropriate order is that Shavings and Gibbett should recover 40 per cent of their costs of and incidental to their application to be taxed.

Associate:

Dated:              27 April 2001