Aquatec-Maxcon Pty Ltd v Minson Nacap Pty Ltd [2005] VSCA 167

2 On 23 March 2004 - following the entry of this Court's judgment against it - the respondent re-paid to the appellant the $1,655,698 representing the summary judgment sum and interest referred to in the previous paragraph. The respondent also paid the following amounts to the appellant:

1. Interest on principal amount $268,563.28
2. Interest on costs $9,899.76

The appellant now contends that these payments by the respondent are insufficient to properly restore it to its former position. The respondent, on the other hand, contends the amounts paid are appropriate and adequate.

3 To understand the competing arguments, it is necessary to briefly state the background. At all material times the appellant was the head contractor charged with the responsibility of designing and constructing, for the Barwon Water Authority (in or about 1997 and 1998) water treatment plants at Lorne and Apollo Bay. The appellant engaged the respondent as its sub-contractor to design and construct the civil works. The contract between the appellant and the respondent was found by the Court to be in the form of the Australian Standard Contract 4303-1995. In accordance with the terms of the contract, the respondent submitted to the Contract Superintendent progress claims during the course of the works. Claims 1 to 9 inclusive had been accepted and paid. In late 1997/early 1998 problems arose as a result of cracks occurring in the "aeration basins" at both plants. Prior to termination of the contract in June 1998, the respondent had submitted further progress claims to the Superintendent (Claims 10 to 15) which were not paid. These claims totalled $1,277,020 which was the amount for which the respondent claimed summary judgment, and was the sum for which summary judgment was entered.

4 The problems relating to costs and consequential orders which have now arisen between the parties are not the fault of the parties. They arise because this Court has determined that the primary judge was in error in entering final judgment rather than allowing the matter to proceed to trial in order that arguable issues arising on the pleadings could be resolved. This is not dissimilar to the circumstances which arise when an appellate court overturns a trial judge's judgment for debt or damages. Where that is done - as frequently occurs - the appellate court endeavours, so far as practicable and within certain limits, to restore the parties to the position in which they would have been but for the erroneous judgment[1]. As Brooking, J., speaking as a member of the Full Court of this State in National Australia Bank Ltd. v. Bond Brewing Holdings Ltd.[2], said[3]:

"Mistakes [by courts] are made from time to time. This case ... raises the question who is to pay for one of them.

[His Honour then discussed numerous authorities from various jurisdictions in relation to this matter; and continued[4]]:

This survey shows that the principle on which the courts have for centuries acted is that when an erroneous judgment or order is overturned, whether by means of appeal or by any other procedure, the court will achieve a just result by requiring that anything that has been taken from him (i.e. the appellant) by the other party by virtue of the wrong decision be restored. Interest is for this purpose treated as the fruit of the money and he who has had the use of the money will not be heard to say that there were no fruits. The principle is ... one of restitution or restoration. The court is seeking to restore to one party what it has wrongly taken from him and given to the other_. It does not seek to restore the successful party to his former position by awarding damages to compensate him for loss flowing from the erroneous judgment or order. There is no basis for an award of damages. No right of the party suffering loss has been infringed_ ... As I said earlier in these reasons, many final judgments and orders are apt to cause great damage to the unsuccessful party; I gave as examples a winding up order, a final injunction in a nuisance action and a judgment for possession of business premises. Why is it that no application has ever been made, after a successful appeal in a case of this kind, to have the injury done to the suitor by the act of the court redressed on the principle of Rodger's case[5] by an award of damages? The reason is clear. No right of the party ultimately successful has been infringed and the principle of Rodger's case allows no more than the passing back to that party of what has been taken from him." (my emphasis)

5 These principles have been regularly applied when appellate courts have overturned primary judgments which have awarded, inter alia, damages and other sums of money to respondents who have been unsuccessful on appeal. The application of the principle focuses upon restitution or restoration by the respondent, rather than compensating the successful appellant with an award of, or resembling, damages[6]. However, although the focus is upon restitution by the respondent, it must be recognized that, as Callaway, J.A. pointed out in Meerkin & Apel v. Rossett Pty. Ltd.[7], the position of a respondent to an appeal is sui generis, because:

"It has had the benefit of a judgment and the monies that it has received are its own, but there is a risk that the judgment may be set aside. The presumption in favour of the judgment and the fact that the monies belong to the respondent favour a higher rate [of interest], for the respondent will not be heard to say that it did not earn a reasonable rate of return on its own monies ... . The respondent's position is not, however, indefeasible and that consideration points to a lower rate. ..."

6 The appellant has contended before this Court that the principles to which we have referred in the preceding paragraphs do not apply to it because the special nature of the proceedings before the trial judge led to the conclusion that - notwithstanding that his Honour had given summary judgment in favour of the respondent for the amount claimed (together with interest and costs) - those proceedings were not, in truth, "determined in the respondent's favour". This followed, so it was submitted, from the special nature of the claim and the contract upon which it was brought which provided, by clause 42.1, that:

"Payment of moneys shall not be evidence of the value of the work or an admission of liability or evidence that the work has been executed satisfactorily, but shall be payment on account only."

Thus, so it is submitted, the summary judgment entered in favour of the respondent was of "a temporary nature" because the amount stipulated in a "certificate" is not conclusive but "provisional" and may later be found to be incorrect and subject to adjustment[8]. It was, accordingly, submitted that the summary judgment here entered in favour of the respondent was not final or conclusive. Thus, it is said, the position of the respondent when receiving moneys paid as the consequence of the judgment "in circumstances such as arose in this proceeding" is different from other litigants who are successful in summary judgment applications "in that it (i.e. the respondent) was aware that it did not yet have the Court's adjudication on the merits of its claims, and that in consequence it held the summary judgment money awarded to it, in equity, subject to the Court's final determination at trial".

7 We do not agree with the appellant's proposition that the position of this respondent is materially different, for present purposes, from other respondents whose judgments for liquidated, or unliquidated, damages have been set aside by appellate courts for error. The summary judgment which the respondent sought, and was awarded, was not of a "temporary" nature simply because the amount of it was subject to the possibility of adjustment at a later date. The fact that the "amount" of the judgment was "provisional" does not mean that the judgment is provisional. The respondent's claim before the trial judge was for summary judgment in respect of its contractual right to be paid "certified" sums. The fact that the sums had a "provisional quality" about them says nothing about the finality of the judge's decision on the respondent's right to payment. There is nothing about the nature of this right which is "temporary" or suggests that its establishment requires the respondent to treat the fruits of its established claim as moneys subject to an "equity" in favour of the appellant pending further adjudication. Once the right to payment had been established in favour of the respondent, it was entitled to treat the monies as its own and disburse them as it pleased. In this respect it was no different from any other respondent who had been successful in a claim for damages at trial; but who necessarily received those damages subject to a successful appeal. The principles to which we have already referred will therefore apply to the circumstances which have arisen in this case, as in any other case.

8 The appellant then submitted that, although the respondent had repaid to it the amounts of the judgment sum and interest which the respondent had received as a consequence of the judge's orders, the respondent should be required to pay to the successful appellant a rate of interest greater than the "cash deposit" rate reflected in its "interest refund" of $268,563. The appellant's contention is that it is entitled to "statutory interest in accordance with the Penalty Interest Rates Act 1983", by analogy with ss.58 and 60 of the Supreme Court Act 1986; or, alternatively, "bank overdraft rate"; or, alternatively, a rate struck by the Court "based on its own experience and memory" of rates during the relevant period. The appellant further contends that the "interest on costs" paid by the respondent to it (namely $9,900 approx.) is also too low.

9 In support of its contention that "statutory interest" is appropriate, the appellant argues that the issues, raised by the competing contentions of the parties in the trial which is now to take place, carry with them the prospect that the appellant will have to pay interest, in accordance with ss. 58 and 60 of the Supreme Court Act, at the statutory rates. In this respect the appellant repeats its argument that its position remains "distinctly different" from the "normal course of events" where an appellate decision "concludes the matter". The submission is that the respondent, if its claims are upheld, has the opportunity to recover "statutory interest"; and that, even if its claims are not upheld, the respondent should properly compensate it for keeping it (the appellant) out of its money for the period during which it held the summary judgment amount.

10 We are not prepared to accept the contention that the appellant is entitled to have statutory interest on the amount which it paid following summary judgment, and which has now been repaid. Sections 58 and 60 of the Supreme Court Act cannot apply directly to the circumstances of this case[9]. Nor is it for this Court to speculate, as the appellant asks us to do, what may occur at trial. As we have said, the guiding principle is one of restitution - focusing on the position of the respondent. The matter in issue is what the respondent should fairly pay to restore the parties to their previous positions as at the time when the appellate court sets aside the summary judgment which the trial judge has made in favour of the respondent. The court must assume, for these purposes, that what occurs thereafter will be according to law. It is clear from the decision of this Court in Meerkin & Apel v. Rossett Pty. Ltd. that interest should not be paid to the appellant at "penalty rates" but at rates which are calculated to restore to the appellant the presumed fruits of the judgment sum which was erroneously ordered in favour of the respondent. In assessing the appropriate sum which the respondent should pay in restitution, the Court focuses on the respondent, because the respondent is ordinarily entitled to rely on the judgment that it has obtained "until and unless it is set aside"[10].

11 For similar reasons to those which we have already given in rejecting the appellant's submissions that the respondent should pay "penalty interest" in the events which have occurred, we would reject the submission that it is appropriate to award interest to the appellant at "bank overdraft rates". The appellant's submissions are premised on the proposition that we should (in the words of Callaway, J.A. in the Meerking & Apel case[11]) adopt the "wider view" preferred by Fitzgerald, P. in Idemitsu Queensland Pty. Ltd. v. Agipcoal Australia Pty. Ltd.[12] in preference to the "narrower view" adopted by Brooking, J. in the Bond Brewing Holdings' case. The view adopted by Fitzgerald, P. in the Idemitsu case was that the court should focus on the loss that the appellant has sustained by satisfying the judgment. The view adopted by Brooking, J. in the Bond Brewing Holding case is that the Court should focus its attention on the fruits of judgment that the respondent is presumed to have enjoyed. The "narrower view" is the law which applies in this State. As Callaway, J.A. said in the Meerkin & Apel case[13]:

"An appellate court is concerned to do justice to the parties, not solely to the appellant. The error was made by the court below, not by the respondent. There is no right to compensation as against the respondent, but only to restitution. If interest measured by the appellant's loss is awarded, all that will do is to shift the injustice occasioned by the erroneous judgment from the appellant to the respondent."

The appellant submits that it is entitled to agitate for the "wider view", first because the evidence before the court demonstrates that the sums which the respondent paid to the appellant were, at one time or another, "used in the normal course of trading"; and secondly because the respondent always held the funds subject to the court's determination of the underlying issues.

12 There is, in our opinion, no basis - either in law or fact - for applying what has been described as the "wider view"; and there is no evidence - in any event - to support the appellant's claim that the loss which it has suffered by paying the amount of summary judgment and costs now requires restitution on the basis of "bank overdraft" rates. Correspondence between the appellants' and respondents' solicitors in April 2004 reveals that, despite requests by the respondents' solicitors, the appellants were not prepared to provide information justifying a claim for interest at bank overdraft rates. Rather, the appellants - correctly - stated that the "focus" should be on the respondent. Accordingly, the respondent provided to the appellant a summary of how it had applied the fruits of its summary judgment, and the interest paid thereon. The figures provided by the respondent demonstrated that the "fruits received" closely equated to the interest which was in fact paid.

13 There is, thus, no basis for the appellant's claim that interest should be paid at bank overdraft rates (as distinct from a rate which is based on the court's "own experience and memory of rates during the relevant period") in order to do justice between the parties. In our view, a rate so fixed would produce a sum which closely approximates the amount paid as interest by the respondent, both on the principal amount and the costs of the summary judgment application. Those amounts should, therefore, stand.

Costs of the Application for Summary Judgment

14 The appellant again submits that this application for summary judgment can be distinguished from other such applications; because - in reality - it was calculated to determine "who should hold the money prior to a trial of the issues?" It is then said that, because the respondent has now been shown to have failed on that issue, it will not be ventilated again; and - therefore - the appellant's costs in defending summary judgment should be awarded to it.

15 It seems to us that this submission is founded on a false premise. The application for summary judgment was not rendered discrete from other summary judgment applications, because of the consequences which may flow from it. The question raised by the application was simply whether the respondent's claim to payment was so plain on its face that it should have summary judgment. This was the point decided in the respondent's favour by the trial judge - and that is why the respondent's costs followed the event. However, now that this Court has said that the judge was wrong to enter summary judgment, and that the appellant should have leave to defend, the final rights of the parties are to be determined hereafter. Nothing has been finally determined for or against either party; and it will be up to the court which hears the ultimate proceedings to finally determine whether the respondent is entitled to payment of his progress claims. Clearly the determination of those issues will have a bearing on the question of entitlement to the costs of the proceedings for summary judgment.

16 It follows that it is our opinion that the costs of the application for summary judgment should be either reserved for the trial judge, or be "costs in the cause". We think the preferable view is that they should be reserved to the trial judge.

Costs Reserved by this Court on 9 September 2003

17 The appeal was first listed in the Court of Appeal on 9 September 2003. On that day the Court (Ormiston, Batt and Buchanan, JJ.A.), which appears to have been pressed for time, was not prepared to hear the appeal either because the respondent had intimated that there should be an adjournment pending a forthcoming mediation; or because the Court was dissatisfied with the state of the appeal books. The respondent boldly contends that the appellant should pay its costs of the day; i.e. 9 September 2003. The appellant contends that the costs of the day (which were reserved by the Court) should "follow the event"; and be "costs in the cause" of this appeal. In our view the appellant's contention should be accepted.

18 Having regard to the foregoing, it is our view that the Court should make the following orders:

1. Appeal allowed with costs (including the costs reserved on 9 September 2003).

2. 2. The judgment given in favour of the plaintiff (respondent) by the Honourable Justice Byrne on 13 October 2000 be set aside; and in lieu the following orders made:

(a) the application for summary judgment by the plaintiff (respondent) be dismissed;

(b) the defendant (appellant) have leave to defend.

1. The respondent pay to the appellant the sum of:

(a) $1,655,698 together with $268,563.28 by way of interest;

(b) $90,155.00 by way of costs paid by the appellant to the respondent together with the sum of $9,899.76 by way of interest.

1. The costs of the application for summary judgment be reserved for determination by the trial judge.

Respondent be granted an indemnity certificate pursuant to Appeal Costs Act 1998.

[1] Meerkin and Apel v. Rossett Pty. Ltd. (No.2) [1999] VSCA 10; [1999] 2 V.R. 31 at 32.

[2] [1991] VicRp 31; [1991] 1 V.R. 386.

[5] Rodger v. Comptoir d'Escompte de Paris [1871] EngR 3; (1871) L.R. 3 P.C. 465 at 475.

[6] Cf., per Eames, J.A., Ronston International Pty. Ltd. v. Thompson [2002] VSCA 107 (25 July 2000) at para [5].

[8] Cf. Daysea Pty. Ltd. v. Watpac Australia Pty. Ltd. [2001] Q.C.A. 49 per Williams,. J.A. at [21].

[9] Cf. Braeside Bearings Pty. Ltd. v. H.J. Brignell & Associates (Boronia) [1996] VicRp 3; [1996] 1 V.R. 17.

[10] Meerkin & Apel Pty. Ltd. v. Rossett Pty. Ltd., supra, at [6].

[12] [1996] 1 Q.R. 26.