FEDERAL COURT OF AUSTRALIA

The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust (ACN 083 629 225) v Lenard’s Pty Ltd (ACN 010 711 145) (No.2)

[2004] FCA 1310

PRACTICE AND PROCEDURE – whether leave to re-open should be granted – orders not yet entered – Court and counsel for respondents misunderstood aspects of applicants’ claim for damages – respondents conducted part of their case on mistaken belief about the claim – whether interests of justice require further argument to be permitted

Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 cited

ICI Chemicals and Polymers Ltd v Lubrizol Corp Inc (1999) 45 IPR 617; [1999] FCA 662 cited

LED Builders Pty Ltd v Eagle Homes Pty Ltd (1999) 46 IPR 375; [1999] FCA 1114 cited

Orr v Holmes (1948) 76 CLR 632 cited

Council of the City of Greater Wollongong Corporation v Cowan (1954) 93 CLR 435 cited

Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 cited

THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST (ACN 083 629 225), BRYAN WILLIAM BAKER & BEVERLY ANN BAKER v LENARD’S PTY LTD (ACN 010 711 145), THE POULTRY SHOP LEASING (SA) PTY LTD (ACN 060 052 020), POULET FRAIS PTY LTD (ACN 059 852 265) & RICHARD HAMOOD

SAD 70 of 2001

MANSFIELD J

13 OCTOBER 2004

ADELAIDE

REASONS FOR DECISION

1                     The present issue is whether the Court, having delivered reasons for judgment on 17 September 2004 (the judgment) but not then having made orders, should revisit the quantum of damages assessed in favour of the applicants.  As the judgment indicated, I proposed to hear argument as to interest and costs before making formal orders.  That argument took place on 27 September 2004.  In these reasons for orders, I shall adopt the same abbreviations as in the judgment.

2                     The Bakers sought also on 27 September 2004 to have the Court re-address the issue as to the quantum of damages awarded in their favour.  I determined in the judgment that Lenard’s, Poulet Frais and Mr Hamood were liable to the Bakers for misleading conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth), and I determined that the damages which they had suffered by reason of that misleading conduct totalled $182,800, plus $10,000 in respect of Mr Baker and $6,000 in respect of Mrs Baker for identifiable psychiatric illnesses. 

3                     The Bakers’ contention was that the judgment should be revisited to increase the damages awarded to them by the further sums first of $143,073 for salary and superannuation foregone, and secondly of $21,416 for claimed increased capital losses by reason of Lenard’s recovering against Silver Fox (and against the Bakers as guarantors of the liabilities of Silver Fox) that sum on the cross-claim.  They do not seek to re-argue the process by which damages came to be assessed at $182,800 or for the amounts awarded for psychiatric illnesses.  The contention is that those two additional heads of damage were not addressed in the judgment.

the circumstances

4                     The circumstances giving rise to the present issue must be explained.  Both the Court and counsel and solicitors for the respondents addressed the quantum of the Bakers’ claim as being limited to the sum of $228,705.  It was that amount which, after adjustment for the reasons explained in the judgment, led to the figure of $182,800.  The starting point of $228,705 came from the last of the reports of Mr Krantz, the applicants’ accounting expert.  It is dated 16 April 2003.  Mr Krantz’s report of 16 April 2003 referred to his previous reports of 13 June 2002 and 2 April 2003.  It discussed certain information which had been brought to his attention subsequent to those two earlier reports.  It concluded as follows:

‘Summary

5                     As the judgment indicates, the quantification of the claim of the applicants was finally expressed through Mr Krantz’s reports rather than through the amended statement of claim.  The amended statement of claim was expressed in approximations only, and included elements which were not pursued in the course of the hearing.  The applicants accept that.  They contend that, despite the ‘summary’ being so expressed in Mr Krantz’s report of 16 April 2003, there were other elements to their claim.

6                     Mr Krantz’s report of 13 June 2002 had at p 6 (see the reference in the ‘summary’ referred to above) a heading ‘Summary of Losses’ as follows:

‘Based on the above analysis the losses incurred by the Bakers during their period of operation of the Lenard’s – Hilton Franchise can be summarised as follows:

Immediately under that section was a further similarly sized heading ‘Estimate of Reasonable Income had the Bakers not entered into the Lenard’s Hilton Franchise’.  Under that heading, Mr Krantz concluded that an estimate of net wages and superannuation foregone by the Bakers to 31.05.02 was $144,037.  That figure was subsequently adjusted by Mr Krantz to $143,073.

7                     In the judgment, the figures claimed for loss of business capital of $123,851 and for net salary and superannuation foregone of $143,073 were recorded.  As then noted, there was a dispute between the views of Mr Krantz on the one hand and Robert Kennedy (Mr Kennedy) on the other as to whether any further net capital loss as claimed of $100,687 should be allowed and as to whether the loss of $27,256 for ‘Pay/Superannuation/Inheritance’ should be allowed.  Those matters were discussed in the judgment at [94].  Mr Kennedy is an expert accountant engaged by Poulet Frais and Mr Hamood.

8                     However, the issues between the accountants was understood by the respondents and by the Court to have been overtaken by Mr Krantz’s subsequent report of 16 April 2003 in which the summary of the claims was expressed as set out in [4] above.  That is noted at [95] of the judgment.  Mr Krantz’s report of 16 April 2003 refers to further information which he had received and to his earlier report, in particular that the amounts which he had previously assumed to have been received by the Bakers and applied by them to the operation of the Silver Fox business were not in fact so applied.  He adjusted the claimed capital loss accordingly.  He then proceeded to discuss ‘other matters’, namely to increase the claimed loss by the amount claimed to be payable to CBFC Ltd.  He concluded on that topic:

‘This liability [the CBFC liability] when paid will result in a further loss to Mr and Mrs Baker and should be added to the Capital Loss calculation.’

There then appears the summary and the ‘Revised Loss’ as quoted above.

9                     Consequently, both the Court and counsel for the respondents understood the report of Mr Krantz of 16 April 2003 as the final expression of his opinion as to the losses of the Bakers.  It was not qualified in any way.  It did not indicate that its summary is a revision of part only of the claim or of his opinion of the losses sustained by the Bakers.

10                  However, as is now pointed out, the Bakers did not intend to abandon their additional claim for loss of income of $143,073.  The explanation for the fact that Mr Krantz did not include that claim in his later summary is said to be that he did not regard it as contentious.  Following Mr Krantz’s report of 13 June 2002, Poulet Frais and Mr Hamood had obtained a report from Mr Kennedy dated 19 December 2002.  It was marked for identification, but was not ultimately tendered.  Certain of the schedules to his report were tendered.  Mr Kennedy was not called to give evidence.  Mr Krantz’s report of 2 April 2003 asserts that:

‘The conclusion reached by Mr Kennedy in his review of my Report was that in relation to the calculation of the loss of business capital and the net salary and superannuation foregone my methodology is reasonable and I have correctly applied that methodology.

In relation to the calculation of the further net capital loss and loss of opportunity income, Mr Kennedy concludes my methodology is not reasonable.’

Counsel for the respondents in submissions on the present issue did not gainsay the assertion that Mr Kennedy did not take issue with the views of Mr Krantz about the claim for net salary and superannuation foregone.

11                  The second way in which the Bakers claim that the damages assessed should be increased relates to the cross-claim by Lenard’s.  The judgment in favour of Lenard’s was for $21,416.  The Bakers claim that their capital loss claim should be increased by that sum. 

12                  In Mr Krantz’s report of 13 June 2002, at the end of the section assessing the capital loss, he added the following comment:

‘We understand that Brian and Beverly Baker guaranteed the payment of amounts to Lenard’s Pty Ltd for the supply of various goods and services.  An amount of $24,684.18 has been claimed by Lenard’s Pty Ltd.  In the event that Brian and Beverly Baker are required to pay this debt, the capital loss will be increased by this amount.’

There is no mention of that qualification in his subsequent revision of the capital loss claimed, or in his summary of the amount claimed.

consideration

13                  The question now arises as to what is to be done.

14                  Senior counsel for the applicants contends that the Court should simply revisit the issue of the quantum of damages and increase it by two amounts.  The first amount should reflect the claim for loss of income had the Bakers not entered into the Hilton franchise, namely $143,073 plus such further amount as the Court considers appropriate to accommodate the period of time subsequent to 31 May 2002 (the date to which that calculation was made).  The second amount is the amount proposed to be awarded on the cross-claim of $21,416.  Counsel for the respondents contend that the hearing has been completed, that there is a public interest in the finality of the litigation, and that the assessed damages should stand so judgment should be entered in favour of the Bakers for $182,800 plus the two amounts allowed for psychiatric injuries.

15                  I do not think either option suggested is satisfactory.

16                  The judgment indicates that the Court apprehended the nature of Mr Krantz’s initial formulation of the claimed loss, and then understood from the revised report of Mr Krantz of 16 April 2003 that the summary of loss represented the amount of the claimed loss.  That too was the understanding of the respondents.  I accept the assurances of counsel for the respondents that they conducted their cross-examination of the Bakers, and their cross-examination of Mr Krantz, and made their decision as to what (if any) evidence was called on the issue of damages, on that understanding.  Their submissions on the question of damages were relatively brief, perhaps understandably so in the circumstances as the quantum of the claim (as they understood it) had significantly been reduced as expressed in the summary of losses expressed by Mr Krantz in his report of 16 April 2003.  It is apparent, in particular from the written submissions of the first and second respondents, that those respondents understood that Mr Krantz’s report of 16 April 2003 set out his conclusions as to the total of the applicants’ claimed losses.  Brief submissions were made suggesting that the claim should be reduced by reason of certain cross-examination.  At that time it was not clear that the amount owing to CBFC of $44,474 would in fact be payable by the Bakers.  Subsequent evidence (when the applicants were given leave to re-open their case for other purposes) demonstrated that it was not.

17                  It is also clear that that is not the basis upon which senior counsel for the applicants intended the matter to be addressed.  He has pointed out that in the written submissions on behalf of the applicants the summary of Mr Krantz in his report of 16 April 2003 is treated as a summary of the claim of capital loss only, and there is maintained a claim for additional loss of income and for personal injury.

18                  The circumstance which has arisen is an unfortunate one.  The way in which it has arisen is understandable.  It flows from the fact that Mr Krantz in his report of 16 April 2003 did not clearly indicate that it was a summary of part only of the applicants’ claim.  Nevertheless, I accept that is what it was intended to be.  The exchange of written submissions occurred only shortly prior to the hearing of final submissions, and the written submissions were prepared independently of the others, so the misunderstanding did not then emerge.

19                  Mr Krantz’s evidence-in-chief did not explain explicitly the restricted purpose of his ‘summary’ in his report of 16 April 2003.  His three reports were tendered.  He was asked, and he explained, that the calculation as to loss of past earnings or loss of reasonable income was done only to 31 May 2002, and that he had made no calculation of any continuing loss from 31 May 2002.  He was not then asked to explain the limited function of the summary in his report of 16 April 2003, in the light of that evidence.  His cross-examination did not relevantly extend beyond testing the foundation of the figures contained in the summary in his report of 16 April 2003. 

20                  It is now apparent how one can reconcile the two reports of Mr Krantz of 13 June 2002 and 16 April 2003 dealing with capital losses.  On my analysis, his assessment of the capital losses is made up as follows:

That is to be compared with the figure of $228,705 appearing in Mr Baker’s summary of 16 April 2003.  It was arrived at by making adjustments to the initial estimate of $252,064.  The above analysis reconstructs the primary items.  The difference of $230 is explained by an addition of $500 by reason of Mr Krantz having deducted from his previous starting point of $252,064 a sum of $78,118 superannuation of Mr Baker previously assumed to have been paid to Silver Fox as part of its operating capital, but in fact having allowed in his initial estimate $77,618 only, and by a subtraction of $270 because the total of the initial three elements of Mr Krantz’s summary of capital losses is not $252,064 but $251,794 i.e. $270 less than his starting point for his revised summary.

21                  What is apparent by that process of construction (compared to the subtraction process which his third report adopted) is that the claim for $143,073 for net salary and superannuation foregone to 31 May 2002 has been omitted from the quantification of the claim.

22                  In my view the interests of justice require that the oversight or misunderstanding be rectified.  No formal orders have yet been made.  It is plain that the Court should not provide a back door method by which unsuccessful litigants can seek to re-argue their cases by giving an opportunity to re-open them:  see e.g. per Mason CJ in Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 303.  There is a public interest in the finality of litigation.  However, I do not think this case is an example of an unsuccessful litigant seeking by a backdoor method to re-argue a case.  The Bakers have in fact been successful in their claims, and they thought they were making a claim for damages on a certain basis which, in the circumstances I have described above, was not the understanding either of the respondents or ultimately of the Court.  In ICI Chemicals and Polymers Ltd v Lubrizol Corp Inc (1999) 45 IPR 617; [1999] FCA 662, Emmett J permitted the respondent to make submissions after the publication of reasons in respect of an issue which they had overlooked addressing.  His Honour permitted that course of action because the oversight did not flow from the neglect or default of the respondent, and the issue was identified as soon as practicable after the reasons were delivered, and (in that case) no further evidence was proposed to be adduced.  Similarly, Lindgren J gave leave to a respondent to re-open argument on a limited issue as to interest in LED Builders Pty Ltd v Eagle Homes Pty Ltd (1999) 46 IPR 375; [1999] FCA 1114.

23                  The application in this matter is a limited one.  It is to enable the Court to address an aspect of the claim for damages which, in the circumstances outlined above, was not addressed.  As I have indicated, the applicants assumed or understood that that claim for damages was being pursued, and tfhe respondents assumed that it was not. 

24                  The further consideration of the claim of the Bakers for $143,073 for net salary and superannuation foregone can be addressed without unfairness to the parties, albeit with a little inconvenience.  It is a discrete claim.  The applicants have had the opportunity to adduce evidence on that topic, and to make submissions.  The respondents have not.  They should be given the opportunity to do so.  As counsel for the respondents indicated, there may be submissions appropriately made as to what the Bakers might have done if they had not undertaken the Hilton shop franchise.  There may also be some overlap in the allowance (as now analysed) of the capital losses, particularly in respect of the Bakers’ projected income and capital gain of $27,256 allowed in the damages as assessed and the claim for loss of earnings up to the time of the hearing.  There are obviously contingencies as to the extent to which the Bakers may have continued to have maintained their previous employment, or have obtained some alternative franchise and then as to the prospects of them succeeding in that franchise.  At present, the evidence is simply that the quantification of the amount of the Bakers’ loss of earnings and superannuation foregone, on the assumption that they had maintained their employment from the time they entered into the Franchise Agreement to 31 May 2002, is $143,073.  As the respondents did not conduct the trial to confront that part of the claim, they should also be given the opportunity to explore the evidence on the topic.  They may seek to further cross-examine the Bakers or Mr Krantz (or perhaps some other witness or witnesses).  They may now seek to call Mr Kennedy or to call evidence which they did not adduce.  It may be that they do not wish to further cross-examine any of the applicants’ witnesses or to ask Mr Kennedy to give evidence.  His report (according to Mr Krantz) accepted the arithmetical calculation made by Mr Krantz as to the loss of earnings on a certain assumption up to 31 May 2002.  The respondents may simply wish to make further submissions on the issue on the basis of the existing evidence.  There would then, of course, be no re-examination of any recalled witness and no cross-examination of any fresh witness.  That is a matter for them.  What is clear is that any further evidence will be able to be confined to a limited and discrete area. 

25                  I do not consider the same can be said of the additional proposed claim for capital losses of $21,416 by reason of the cross-claim being successful.  To permit that issue to be ventilated or reventilated would or might open up the foundation for the claimed capital losses further.  The claim is based upon the brief observation in Mr Krantz’s report of 13 June 2002 set out in [12] above.  It was not expanded upon in his later reports or in his evidence.  There may be considerations which militate against the direct correlation of capital loss and cross-claim which the respondents may wish to explore.  I am not satisfied that could be done without the risk of revisiting the foundation of the assessment of capital loss which I have determined in the judgment.  To expose the issue, with that risk, might therefore require revisiting the assessment of damages of capital loss made in the judgment.  It would be inappropriate to permit that to happen.  The public interest in the finality of litigation points strongly against doing so:  Orr v Holmes (1948) 76 CLR 632; Council of the City of Greater Wollongong Corporation v Cowan (1954) 93 CLR 435; Commonwealth Bank of Australia v Quade (1991) 178 CLR 134.  I am fortified in that conclusion by the absence of any reference to the matter in Mr Krantz’s report of 16 April 2003; his summary appeared as comprehensive, at least of the claimed capital losses.  I note further that the possibility of the claimed capital losses being increased by the quantum of any amount awarded on the cross-claim was not part of the applicant’s submission on damages.  It appears only in the written submission of the applicants dealing briefly with the cross-claim, and then only by the observation:  ‘The sum is also considered by Mr Krantz in his report as a potential capital loss’.

ORDERS

26                  For those reasons I propose to permit the re-opening of the evidence, to the extent the respondents wish to do so, to consider the merits of the Bakers’ claim for salary and superannuation foregone.  The respondents are given 14 days in which to notify the Court and the solicitors for the applicants whether they wish any of the witnesses called in the applicants’ case to be recalled for further cross-examination, and whether they wish to adduce any evidence in their own cases limited to that issue.  If the respondents do not wish the evidence to be re-opened, I will then hear the parties as to how the respondents may respond to the applicants’ written submission and for any reply by the applicants on that issue.  The parties may be able to agree such a procedure without further attendance.

27                  The parties have made submissions on interest and costs.  The further submissions may, however, also address how the costs of the further hearing on 27 September 2004 and thereafter should be borne.

Associate:

Dated:              12 October 2004