FEDERAL COURT OF AUSTRALIA

Arms v WSA Online Limited (ACN 081 121 495) [2007] FCA 352

SIMON ARMS v WSA ONLINE LIMITED (ACN 081 121 495) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT), JAMES HOUGHTON AND JAMES STUDENT

VID 228 OF 2001

RYAN J

15 march 2007

MELBOURNE

THE COURT ORDERS THAT:

1.         There be included in the sum for which judgment is given in addition to the sum of $58,331, for which the Full Court on 30 March 2006 directed that there should be judgment for the applicant against the respondents, the sum of $27,220.40 by way of interest pursuant to s 51A(1) of the Federal Court of Australia Act 1976 (Cth).

2.         The respondents pay the applicant’s costs of the proceedings at first instance herein, such costs to be taxed in default of agreement and reduced by one-third in accordance with O 62 r 36A(1) of the Rules of this Court.

3.         The judgment for damages and interest referred to in paragraph 1 of this Order be taken, for the purpose of applying s 52 of the Federal Court of Australia Act 1976 (Cth), to have been entered on 8 July 2005.

4.         Liberty be reserved to any party to apply on not less than 48 hours notice in writing to the other parties.

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

REASONS FOR RULING AS TO INTEREST AND COSTS

1                     On 8 July 2005 I published reasons for orders which I then made that:

‘1.        There be judgment for the applicant against the first respondent in the sum of $58,331.00.

2.         The application as against the second and third respondents be dismissed.

3.         The application stand over to a date to be fixed for receiving submissions on the questions of interest and costs.’

2                     Written submissions on those questions were subsequently filed but, on 29 July 2005, the applicant, Simon Arms (“Arms”), filed a notice of appeal from my orders of 8 July 2005.  That appeal numbered VID 855 of 2005 was heard on 20 February 2006 and, on 30 March 2006, a Full Court of this Court ordered;

‘1.        The appeal be allowed.

2.         The orders made by the primary judge on 8 July 2005 be varied by deleting orders 1-3 and substituting the following orders:

“1.       There be judgment for the applicant against the respondents in the sum of $58,331.00.

2.         The application stand over to a date to be fixed for receiving submissions on the questions of interest and costs.”

3.         Costs reserved.’

3                     By notice filed on 29 July 2005, the first-named respondent, WSA Online Limited, (“WSA”) instituted a cross-appeal numbered VID 843 of 2005 against para 1 of my order of 8 July 2005.  By its cross-appeal, WSA contended that the assessment of damages reflected in para 1 of the order of 8 July 2005 was incorrect and should be set aside.  The cross-appeal was dismissed, also on 30 March 2006, by the same Full Court which then ordered that the costs of the cross-appeal be reserved.

4                     On 5 July 2006 the Full Court made orders in respect of the costs of the appeal and cross-appeal and on the same day published a single set of reasons explaining those orders.  An order was made on the cross-appeal by WSA that WSA, as the unsuccessful appellant, pay Arms’ costs of the cross-appeal to be taxed on a party and party basis.  As to the appeal by Arms, the Full Court ordered that the respondents pay his costs of the appeal, also to be taxed as between party and party.  The Full Court further ordered on the appeal by Arms (VID 855 of 2005) that;

‘(b)      The issue of interest payable on the judgment and of the costs of the proceeding at first instance be referred to the primary judge for determination.’

5                     The second and third respondents (“Houghton and Student”) obtained special leave to appeal to the High Court from so much of the orders of the Full Court in VID 855 of 2005 as made them liable, together with WSA, on the judgment in the sum of $58,331 and on 13 December 2006 their appeal was dismissed;  see Houghton v Arms (2006) 231 ALR 534.  Since the relevant orders of the Full Court have been upheld, it remains necessary to resolve the issues of interest and the costs of the proceedings at first instance which the Full Court has referred to me for determination.

(a)        Interest

6                     Section 51A(1) of the Federal Court of Australia Act 1976 (Cth) 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.’

7                     The usual practice of this Court in awarding interest under that section has been explained as follows by Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 201 ALR 55, at 58 [7];

‘No rate of interest is fixed or prescribed by the section and the Court has not, by Practice Direction or otherwise, sought to provide guidance on what might be considered an appropriate rate to be applied.  Though the matter is, and remains, one of judicial discretion, the usual practice that has been followed in applying s 51A has been to adopt the rates of interest applied by the Supreme Court of the State or Territory in which this Court is dealing with the matter (Namol Pty Ltd v A W Baulderstone Pty Ltd (No 2)(1993) 47 FCR 388; 119 ALR 187;  Kettle Chip Company Pty Ltd v Apand Pty Ltd (No 2)(1998) 83 FCR 466; 155 ALR 134;  H K Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon (a firm)[1999] FCA 795; BC9903352 (H K Frost Holdings Pty Ltd);  McCormick v Riverwood International (Australia) Pty Ltd [2000] FCA 32; BC200000071) unless there is evidence that those rates are penal or not commercial (EMCL Pty Ltd v ESANDA Finance Corp Ltd [1999] FCA 978 BC9904104).  The practice itself is one from which there has been occasional departure:  see eg White Industries (Qld) Pty Ltd v Flower & Hart(No 2) (2000) 103 FCR 559;  177 ALR 567.’

8                     There was no evidence in the present case that the rates of interest prescribed from time to time pursuant to the Penalty Interest Rates Act 1983 (Vic) were penal or not commercial.  I propose, accordingly, to apply those rates in calculating interest on the amount of $58,331 awarded to Arms.

9                     It was contended by Mr Cawthorn on behalf of WSA that interest should be awarded only from 26 July 2004, that being the date on which the cause of action based on the misleading or deceptive ANZ Requirements Representation was first introduced into Arms’ second amended statement of claim.  The lateness of the invocation of that cause of action was said, as I understood the argument, to amount to “good cause to the contrary” within the meaning of the prefatory words of s 51A.  Reference was made in support of that contention to Clarke v Foodland Stores Pty Ltd [1993] VR 382.  In that case, interest was allowed by the trial judge on certain amounts recovered as preferences by the liquidator of a company.  The liquidator, through his solicitors, had first made a demand to recover the preferences on 24 December 1986, but the trial judge on 6 June 1991 awarded that the “average interest rate from time to time of s 2 of the Penalty Interest Rates Act 1983 for the period from 24 December 1986 to 14 May 1991” be applied to the sum recovered “over a period of two and a half years”, ie from December 1988.  The Full Court declined to interfere with that exercise of his Honour’s discretion because it considered that it had been open to the learned trial judge to conclude that delay on the part of the liquidator in pursuing his remedies constituted “good cause” within the meaning of s 58(1) of the Supreme Court Act 1958 (Vic) which corresponds, in material respects, with s 51A(1) of the Federal Court of Australia Act.

10                  A significant difference between the statutory regime considered in Clarke v Foodland Stores Pty Ltd VR 382 and that applicable to the present case is that s 58(1) of the Victorian Act allowed the awarding of interest from the time “when the debt or sum was payable … or from the time when the demand for payment was made” rather than from “the date when the cause of action arose” which is the expression used in s 51A(1) of the Federal Court of Australia Act.  The Full Court in Clarke v Foodland Stores Pty Ltd VR 382 held that the statutory prescription that interest should be allowed “at a rate not exceeding that fixed” under s 2 of the Penalty Interest Rates Act accorded a general discretion to the trial judge irrespective of whether “good cause” had been shown to the contrary.  Their Honours also observed, at 392, that, if a trial judge were to hold that “good cause to the contrary” had been shown, he or she would have a largely unfettered discretion to allow interest otherwise than in accordance with the express requirements of s 58(1) of the Victorian Act.  The same Full Court went on to acknowledge that what amounts to “good cause” in any given case depends on the particular facts and circumstances of that case and is also in the discretion of the trial judge.  They then proceeded to hold, at 398, that “it cannot be said that delay is never irrelevant;  every case must turn on its own particular facts and circumstances” (original emphasis).  In the case before them, their Honours observed, it could not be said that the liquidator’s delay was necessarily irrelevant to the trial judge’s discretion.  In the present case, there was an appreciable delay by Arms, attributable solely to his own legal advisers, in instituting his action and, later, in making the appropriate amendment to invoke the cause of action on which he ultimately succeeded.  In the light of the observations in Clarke v Foodland Stores Pty Ltd VR 382, I consider that, in the circumstances of the present case, and notwithstanding the delay which I have identified, it is open to me to allow interest from the date when the relevant cause of action arose.  I propose to do so. 

11                  The amount of damages awarded on 8 July 2005 represented loss of profits resulting from approximately seven months delay incurred in the development of Arms’ business between November 2000 and 30 June 2001.  It is, therefore, appropriate to allow interest from the date when that loss crystallised and the relevant cause of action arose for contravention of the Trade Practices Act 1974 (Cth) constituted by the falsity of the ANZ Requirements Representation; ie, 30 June 2001.  Adopting, in accordance with the authorities noted at [7] above the rates prescribed from time to time pursuant to the Penalty Interest Rates Act 1983, interest on the sum of $58,331 should therefore be calculated as set out in the following table;

(b)        The costs of the proceeding at first instance

12                  In light of the order of the Full Court fixing Houghton and Student with liability jointly with WSA for the damages suffered by Arms, which I assessed at $58,331, there is no reason why those second and third respondents should not attract the same liability as WSA for Arms’ costs of the proceeding at first instance.  Mr Cawthorn of Counsel for WSA, in written submissions on the question of costs which were filed before the appeal and cross-appeal were heard, contended that Arms had succeeded on only one cause of action among many that he had invoked and had recovered judgment for an amount equal to only about 15% of the total damages of almost $400,000 which he had claimed. 

13                  Mr Cawthorn also contended that Arms’ costs at first instance should be reduced by one-third in accordance with O 62 r 36A(1) of the Rules of this Court, which provides;

‘Where a party is awarded judgment for less than $100,000 on a claim (not including a cross-claim) for a money sum or damages any costs ordered to be paid, including disbursements, will be reduced by one-third of the amount otherwise allowable under this Order unless the Court or a Judge otherwise orders.’

14                  Having regard to the conclusion reached by the Full Court and the High Court in relation to the personal liability of Houghton and Student under the Fair Trading Act 1999 (Vic), Arms should have succeeded on that cause of action at first instance.  It is true, as Mr Cawthorn contended, that Arms did not, in terms, succeed on any of the cases which he had pleaded in breach of contract, breach of the warranty implied by s 74 of the Trade Practices Act or misleading or deceptive conduct constituted by what were called, in my reasons of 8 July 2005, “the Production Representation” and the “Best Method Representation”.  However, the facts and evidence related to those issues were inextricably bound up with those on which Arms succeeded, or should have succeeded.  That inter-relationship made it unnecessary to decide whether there was any breach of the contract between Arms and WSA other than that constituted by the falsity of the ANZ Requirements Representation;  see [60] of the reasons for judgment of 8 July 2005. 

15                  The considerations which I have just identified apply with particular force in relation to the quantum of damages which were largely common to each of the causes of action invoked by Arms.  Nor did Arms’ persistence in those causes of action on which he was properly held to have failed, significantly prolong or add to the legal arguments which were addressed at first instance.  In my view, the relatively small amount which Arms recovered in proportion to his total claim will be reflected sufficiently by giving effect to the one-third rule, embodied in O 62 r 36(1).  The other considerations which I have just outlined militate against any further or other reduction in the costs which Arms should recover in respect of the proceedings at first instance.  Even with the addition of interest of $27,220.40 calculated as set out at [11] above, the amount recovered falls significantly short of the threshold of $100,000 erected by O 62 r 36A(1).  In the circumstances, I can see no reason for “otherwise ordering” in terms of that sub-rule.  Accordingly, the costs to be recovered by Arms pursuant to the order which I propose will be reduced by one-third.

Conclusion

16                  For the reasons outlined above, I shall order, in addition to paragraph 1 of the Order substituted by the Full Court on 30 March 2006;

“1.        That there be included in the sum for which judgment is given in addition to the sum of $58,331, for which the Full Court on 30 March 2006 directed that there should be judgment for the applicant against the respondents, the sum of $27,220.40 by way of interest pursuant to s 51A(1) of the Federal Court of Australia Act 1976 (Cth).

2.         That the respondents pay the applicant’s costs of the proceedings at first instance herein, such costs to be taxed in default of agreement and reduced by one-third in accordance with O 62 r 36A(1) of the Rules of this Court.”

To make it clear that the judgment is to carry interest pursuant to s 52 of the Federal Court of Australia Act from 8 July 2005 which is the date to which interest under s 51A(1) has been calculated, I shall order in addition;

“3.        That the judgment for damages and interest referred to in paragraph 1 of this Order be taken, for the purpose of applying s 52 of the Federal Court of Australia Act 1976 (Cth), to have been entered on 8 July 2005.”

Associate:

Dated:         15 March 2007