FEDERAL COURT OF AUSTRALIA

BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 4)

[2009] FCA 1448

PRACTICE AND PROCEDURE – judgment in foreign currency – when appropriate to award damages for breach of warranty of authority in foreign currency – date for conversion to Australian currency – interest on judgment in foreign currency – applicable rate based on rate for borrowing foreign currency in the foreign market

COSTS – entitlement to indemnity costs following refusal of “Calderbank offer” – where terms of offer are ambiguous

COSTS – Bullock order – Sanderson order – where joinder of successful defendant was reasonable – form of costs order at court’s discretion

ANZ Banking Group Ltd v Cawood [1987] 1 Qd R 131 cited

BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 3) [2009] FCA 1087 referred to

Calderbank v Calderbank [1976] Fam 93 cited

Federal Commerce and Navigation Co Ltd v Tradax Export SA (The Martha Envoy) [1977] QB 324 cited

Gould v Vaggelas (1985) 157 CLR 215 cited

In re United Railways of Havana and Regla Warehouses Ltd [1961] AC 1007 not followed

Jean Kraut A.G v Albany Fabrics [1977] QB 182 cited

Maschinenfabrik Augsburg-Nurenburg AG v Altikar Pty Ltd (1984) 3 NSWLR 152 cited

Miliangos v George Frank (Textiles) Ltd (No 2) [1977] QB 489 followed

Miliangos v George Frank (Textiles) Ltd [1976] AC 443 followed

Mitsui OSK Lines Ltd v The Ship Mineral Transporter [1983] 2 NSWLR 564 cited

Namol Pty Ltd v AW Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388 cited

Neuchatel Swiss General Insurance Co v Vlasons Shipping Inc [2001] VSCA 25 cited

Schorsch Meier GmbH v Hennin [1975] QB 416 cited

State of New South Wales v Swiss Bank Corporation (2001) 39 NSWLR 350 cited

State of Victoria v Hovarth [2003] VSCA 24 cited

Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179 cited

Stroms Bruks Aktie Bolog v Hutchison [1905] AC 515 cited

Swiss Bank Corporation v State Bank of New South Wales (1993) 33 NSWLR 63 cited

The Arpad [1934] P 189 cited

The Despina R [1979] AC 685 cited

The Folias [1979] AC 685, 699 considered

Vlasons Shipping Inc v Neuchatel Swiss General Insurance Co Ltd (No 2) [1998] VSC 135 cited

Westpac Banking Corp v MV ‘Stone Gemini’ [1999] FCA 917 cited

BHPB FREIGHT PTY LTD v COSCO OCEANIA CHARTERING PTY LTD AND SEAWISE SEASCOPE PTY LTD (formerly known as BRAEMAR AUSTRALIA PTY LTD and SOUTHERN CHARTERING PTY LTD)

VID 903 of 2006

FINKELSTEIN J

7 december 2009

MELBOURNE

REASONS FOR JUDGMENT

1                          When judgment on the substantive claims was delivered (BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 3) [2009] FCA 1087) several issues were left for later consideration.  Those issues are:  (1) on what claim will BHPB elect to take judgment; (2) in what currency should judgment be given; (3) interest; and (4) costs.  The parties have filed written submissions on each issue.  Some raise nice questions of principle.

2                          BHPB was successful in several of its claims against Cosco, including a claim that Cosco had breached a warranty that it had authority to act on behalf of New Century International Leasing Co Ltd (NCI) in the negotiations of the charterparty for the Global Hawk.  BHPB elects to take judgment on that claim.  In the originating application BHPB claimed damages in US dollars.  At trial BHPB proved the value of its claim in US dollars.  That value is US$1,063,316.19.  This amount comprises unpaid hire, a ballast bonus, bunkers, port costs and miscellaneous expenses, less a payment of US$120,000.  Although in its originating process BHPB claimed damages in US currency and established the quantum of that claim in US currency, it now seeks judgment for the Australian dollar equivalent calculated as at the date of entry of judgment. 

3                          At one time it was clear that an Australian court could only enter judgment in Australian currency:  In re United Railways of Havana and Regla Warehouses Ltd [1961] AC 1007 at 1068-1069.  That is no longer the law.  In some cases at least, a judgment can be given in a foreign currency.  In Miliangos v George Frank (Textiles) Ltd [1976] AC 443 the House of Lords held that where a contract provides for a monetary obligation to be paid in foreign currency, the judgment ought be given in that currency.  It is now also established that judgment can be given in foreign currency for damages in tort (The Despina R [1979] AC 685) and for breach of contract (Jean Kraut A.G v Albany Fabrics [1977] QB 182; The Folias [1979] AC 685, 699).  Miliangos has been followed in Australia:  see eg Mitsui OSK Lines Ltd v The Ship Mineral Transporter [1983] 2 NSWLR 564 in New South Wales; ANZ Banking Group Ltd v Cawood [1987] 1 Qd R 131 in Queensland; Vlasons Shipping Inc v Neuchatel Swiss General Insurance Co Ltd (No 2) [1998] VSC 135 in Victoria; and Westpac Banking Corp v MV ‘Stone Gemini’ [1999] FCA 917 in the Federal Court. 

4                          In breach of contract cases, the question is whether, expressly or by implication, the contract specifies in what currency payment for all obligations under the contract should be made:  The Folias [1979] AC 685, 699 at 700.  That the contract requires some payments to be made in a particular currency does not lead to the conclusion that damages must be paid in the same currency.  If the contract is silent the plaintiff should be compensated for losses in the currency which most truly expresses his loss:  The Folias [1979] AC 685, 699  at 701.

5                          So, for example, where damages consist of expenses incurred in the currency of the contract, the award should be made in that currency:  Federal Commerce and Navigation Co Ltd v Tradax Export SA (The Martha Envoy) [1977] QB 324.  If, on the other hand, the expenditure is incurred in another currency and in order to meet it the plaintiff uses his own currency, then the award should be made in the plaintiff’s own currency:  The Folias  [1979] AC 685, 699 at 702.

6                          On BHPB’s claim for damages for breach of warranty the contractual measure of damages applies.  The contractual measure entitles BHPB to be put into the position it would have been in had it entered into a charterparty with NCI.  If that had happened BHPB would have obtained the hire and ballast bonus in US dollars.  The contract (the charterparty) is silent on the currency in which other obligations are to be discharged.  Moreover, there is no evidence about the currency in which those expenses were discharged.  It is unlikely that they were paid in Australian currency.  It is possible they were paid in US dollars.  It is equally possible, however, that they were paid in a local currency.

7                          In this state of affairs BHPB should have judgment for the unpaid hire and ballast bonus in US dollars and the balance of its claim in Australian dollars.  As to the US dollar portion, the order should follow the form suggested in Schorsch Meier GmbH v Hennin [1975] QB 416 at 427, namely that the judgment for the specific amount of US dollars or the Australian equivalent at the time of payment or execution cf Vlasons Shipping Inc v Neuchatel Swiss General Insurance Co Ltd (No 2) [1998] VSC 135.  As regards the balance, the conversion should be determined on the rates existing when each debt fell due (Stroms Bruks Aktie Bolog v Hutchison [1905] AC 515; The Arpad [1934] P 189), which I will take to be the day on which the relevant invoice was sent. 

8                          As to interest, the rule appears to be that as regards the judgment in the foreign currency, interest should be calculated at the rate applicable for that foreign currency.  In Miliangos v George Frank (Textiles) Ltd (No 2)  [1977] QB 489 at 497 Bristow J held that the plaintiff, who obtained judgment in Swiss francs, was entitled to interest at a rate at which someone could reasonably have borrowed Swiss francs in Switzerland at simple interest.  The same approach has been adopted by Australian courts:  see eg Maschinenfabrik Augsburg-Nurenburg AG v Altikar Pty Ltd (1984) 3 NSWLR 152; Swiss Bank Corporation v State Bank of New South Wales (1993) 33 NSWLR 63 affirmed on appeal State of New South Wales v Swiss Bank Corporation (2001) 39 NSWLR 350.  In Vlasons Shipping Inc v Neuchatel Swiss General Insurance Co Limited [1998] VSC 135, Byrne J applied the US prime borrowing rate in respect of a judgment in US dollars. This decision was reversed on appeal, but on other grounds: Neuchatel Swiss General Insurance Co v Vlasons Shipping Inc [2001] VSCA 25. I would also apply that rate calculated on a monthly basis.  In the case of judgment for damages to be entered in Australian dollars, the practice is to adopt the rate prevailing in the Supreme Court of the State or Territory in which the Federal Court is sitting:  Namol Pty Ltd v AW Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388 at 389. 

9                          In the case of both judgments interest should be calculated from the time each debt fell due for payment.  No reduction in interest is warranted by reason of any alleged delay on the part of BHPB in pursuing its claim.  To allow a reduction would enable Cosco to earn a profit by withholding payment.  This would be unjust.

10                        Several issues arise in relation to costs.  It is not disputed that BHPB should have its costs.  The dispute is whether some of those costs should be paid on an indemnity basis. 

11                        First, BHPB relies on what it describes as a Calderbank letter (after Calderbank v Calderbank [1976] Fam 93), which it served on Cosco’s lawyers before the trial.  The relevant parts of the Calderbank letter read:

“[I]n a genuine attempt to resolve its dispute with both Cosco and [Seawise, the second respondent], our client would be prepared to accept the total of US$725,000 plus interest and costs as follows:

(a)        as to Cosco:  US$550,000 (plus interest and costs to be agreed or        otherwise taxed);

(b)       as to [Seawise]:  US$175,000 (plus interest, and costs to be agreed or otherwise taxed).

Clearly this figure represents a considerable reduction of our client’s principal claim, and we would encourage your client to take advantage of this opportunity to resolve the claim promptly and in its entirety.  Further, should Cosco and [Seawise], as between themselves, consider that a different division of the total amount of US$725,000 plus interest and costs occur, we would invite you to deal with that as you may see fit, provided the total of our client’s offer is met.”

12                        For good reason BHPB was seeking to compromise its claims against both respondents.  For that it wanted a total of US$725,000 plus interest plus costs.  Accordingly, BHPB made an offer that could only be accepted by both respondents unless one agreed to pay the full claim with interest and costs, and the other respondent agreed to waive any claim for costs.

13                        According to the Calderbank principle, indemnity costs will not be ordered if a party acted reasonably in rejecting the Calderbank offer. Cosco’s rejection of BHPB’s Calderbank offer was reasonable. A party will be acting reasonably in rejecting a Calderbank offer if the offer is unclear or imprecise. In this case, BHPB’s offer was imprecise in some respects. The offer did not specify a rate of interest, in circumstances where the applicable rate was open to argument.  More importantly, it is unclear whether the offer was being made to Cosco alone, or Cosco and Seawise jointly. The offer appears to have been addressed to Cosco alone, but refers to both Cosco and Seawise making payments. If the offer was made to both Cosco and Seawise jointly, then this raises a further problem– the offer was incapable of acceptance by Cosco alone. BHPB is not entitled to charge one offeree with indemnity costs for not having accepted an offer that was incapable of acceptance by that offeree alone. 

14                        BHPB also seeks indemnity costs by reason of the abandonment by both respondents on the first and second days of the trial of several contentions raised in their respective defences on which BHPB had gone to the trouble of obtaining expert evidence from two lawyers.  The particular contentions were that BHPB had failed to exercise rights of lien and possession with the consequence that it was the author of its own loss.  These allegations made it necessary for BHPB to call expert evidence on English law (the law of the charterparty) and Thai law (the place where the Global Hawk was to discharge its cargo). 

15                        The abandonment of part of the defence is not, without more, the occasion to award indemnity costs in respect of those costs which, in the event, have been unnecessarily incurred.  Indemnity costs might be justified if the abandoned contentions were hopeless.  That, however, is not what is argued here.  What happened in this case was that BHPB filed the relevant expert reports around a month or so prior to the trial commencing. When BHPB’s case in respect of the abandoned contentions was fully laid out, the respondents realised they could not meet it. So, by abandoning aspects of their respective defences, the respondents saved BHPB incurring unnecessary trial costs as well as saving court time. They should not be punished for that. Accordingly, up to the point where BHPB filed the expert reports, indemnity costs are clearly not warranted.  Whether indemnity costs should be paid in respect of costs incurred after the filing of expert reports is more difficult. The respondents took more than a month after receiving the expert reports to indicate they were abandoning the contentions. During that period, BHPB may have incurred further costs regarding the abandoned contentions (although these costs may have been ameliorated by the fact that the experts were to give oral testimony via videolink). On balance, I consider that the respondents’ delay in indicating their intentions to BHPB was not so great as to warrant the award of costs on an indemnity basis.

16                        The last contentious matter is BHPB’s application for a Bullock or Sanderson order so that Cosco will bear the costs of the successful respondent, Seawise.  Such orders may be justified where the applicant has reasonably and properly incurred the cost of joining the successful defendant to establish his claim and it is just that the unsuccessful respondent should bear the costs of the joinder:  see generally Gould v Vaggelas (1985) 157 CLR 215 at pp 230, 247, 260; Stevedoring Industry Finance Committee v Gibson [2000] NSWCA 179 at [127]-[136]; State of Victoria v Hovarth [2003] VSCA 24.  It will be just to make a Bullock or Sanderson order if the conduct of the unsuccessful respondent has rendered it appropriate to shift the incidents of the successful respondent’s costs.  That is the position here.  BHPB was justified in joining Seawise after Cosco filed a defence denying responsibility for BHPB’s losses and laying the blame at the feet of Seawise.  That made it inevitable that BHPB would join Seawise and it is equally inevitable that Cosco should bear Seawise’s costs.

17                        As to whether a Bullock order (where BHPB would be required to pay Seawise’s costs and recoup those costs from Cosco) or a Sanderson order (where Seawise’s costs are to be paid directly by Cosco) should be made, I base my decision on who should bear the risk of not being able to recover from Cosco.  It is reasonable that the risk lie with BHPB.

18                        BHPB should within 48 hours bring in short minutes of order to give effect to these and my earlier reasons.

Associate:

Dated:         7 December 2009