Hanave Pty Limited v LFOT Pty Limited

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: HANAVE PTY LIMITED

AND: LFOT PTY LIMITED (IN LIQUIDATION) (FORMERLY JAGAR PROJECTS PTY LIMITED)

REASONS FOR JUDGMENT KIEFEL J: 7 This appeal concerns an application by Hanave Pty Limited ("Hanave") for pre-judgment interest on a judgment entered on 18 February 2000. The application was brought on 23 December 2002. The proceedings have a lengthy history. 8 The proceedings arise out of Hanave's purchase of shop premises from LFOT Pty Limited ("LFOT") which purchase was settled on 17 August 1994. On 19 September 1995 Hanave applied to this Court for damages under the Trade Practices Act 1974 (Cth) ("the Trade Practices Act") flowing from misrepresentations by LFOT concerning certain of the tenancies. Two directors of LFOT, Mr Tresidder and Mr Glew, were alleged to be liable as accessories. LFOT and the directors cross-claimed against Mr Burke, Hanave's solicitor and guiding mind, for equitable contribution on the basis that he had failed to exercise reasonable care in the purchase of the premises. 9 On 31 August 1998 Moore J dismissed Hanave's claim on the basis that LFOT's proven conduct did not constitute conduct infringing s 52 of the Trade Practices Act. However, Hanave successfully appealed to a Full Court which held that the misrepresentations did constitute contravening conduct. On 1 April 1999 the Full Court ordered that judgment be entered for Hanave against LFOT and remitted the matter to Moore J to determine the remaining issues, namely the amount of damages payable to Hanave; the liability of Mr Tresidder and Mr Glew on the claim; and the liability of Mr Burke on the cross-claim brought by LFOT. An application for special leave to appeal from the decision of the Full Court was lodged by LFOT on 7 May 1999 but was refused on 10 December 1999. 10 On 11 November 1999 Moore J ordered that LFOT and Mr Tresidder, but not Mr Glew, pay Hanave $750,000 by way of damages and that Mr Burke contribute the sum of $375,000 to the respondent. His Honour's order was entered on 18 February 2000. 11 On 30 November 1999 Hanave and Mr Burke appealed from Moore J's decision concerning the order for contribution, although the order was made only against Mr Burke. That appeal was dismissed on 18 August 2000. 12 On 5 September 2000 Hanave's solicitors wrote to LFOT and the directors' solicitors concerning payment of the sum due under Moore J's orders and also seeking payment of interest on that sum. In it the solicitors said: 'We note that by Orders of His Honour Justice Moore filed 15 February 2000 and entered on 18 February 2000 our client is entitled to interest up to judgment which was 11 November 1999 and from that date until the date of payment. The effect of His Honour's Orders are that your client pays our client $375,000 plus interest from the date of the cause of action …'. 13 Pre-judgment interest was then calculated to a total of $193,905.82 and a daily rate for post-judgment interest was stipulated. Mr Burke wrote the letter not knowing what the basis for Hanave's claim to interest might be and did not investigate that question. 14 LFOT and Mr Tresidder did not respond to the letter. It was explained by Mr Glew, in his evidence on the hearing of the application for interest, that he had instructed his solicitors to write, in effect refusing to pay, when Mr Burke filed his application for special leave to appeal. Mr Glew appears to have maintained involvement in the matter throughout. He said that so far as 'we were concerned, the matter was then back on foot. We heard nothing further from him and no further action was taken…'. He went on to say that there did not seem to be any point in dealing with the matter piecemeal. He was awaiting resolution of the case. Mr Tresidder said that he assumed that the question of payment of interest would be addressed when the matter was finalised. 15 On 13 September 2000 Hanave and Mr Burke applied for special leave to appeal the Full Court's decision concerning Mr Burke's liability to contribute to the judgment sum. Leave was granted on 1 June 2001. An application by LFOT for special leave in relation to its cross-appeal was made on 18 September 2000 but discontinued shortly thereafter. 16 Mr Burke was successful in his appeal to the High Court. On 18 April 2002 the Court ordered that the appeal be allowed and the order of the Full Court be set aside. The order made by Moore J concerning contribution was set aside. The net result of the litigation, therefore, was that LFOT and Mr Tresidder were held liable to pay Hanave damages of $750,000, Mr Burke not being required to make any contribution to the damages. 17 On 6 May 2002 Hanave's solicitors wrote to LFOT's and Mr Tresidder's solicitors claiming the payment of $750,000 together with post-judgment interest. No claim for pre-judgment interest was then made. Hanave paid $750,000 by 28 October 2002 in two instalments. In a bankruptcy notice dated 29 October 2002, directed to Mr Tresidder, Hanave claimed $316,726.03 for the periods 31 August 1998 to 28 May 2002 and from 28 May 2002 to 28 October 2002, in addition to the judgment sum. The two periods covered the whole of the time that elapsed between Moore J's first judgment and the payment of the judgment sum. The claim was said to be 'pursuant to Order 35 Rule 8 of the Federal Court Rules'. That rule provides for the rate of interest which is to apply to judgment debts, unless the Court orders otherwise. It relates only to interest after judgment.

the application for pre-judgment interest 18 On 23 December 2002 Hanave filed a notice of motion seeking an order pursuant to O 35 r 7(3) varying the order of 11 November 1999 to include an order for 'interest on the sum of $750,000 be paid by the first and second respondents on and from the 31 August 1998'. On 20 February 2003 Hanave applied to amend the motion in order to seek interest from the time the cause of action arose, 17 August 1994, until judgment. Moore J directed that the matter proceed upon pleadings. 19 Hanave's statement of claim alleged that there had been an accidental slip or omission on the part of its legal advisors and that the judgment entered on 18 February 2000 should have included pre-judgment interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) ("Federal Court of Australia Act"). Interest totalling $441,863.01 was claimed, the calculations being based upon the rates of interest from time to time provided for in the rules of the Supreme Court of New South Wales. A claim for post-judgment interest was also made although it was unnecessary. The effect of s 52 of the Federal Court of Australia Act is that post-judgment interest accrues without an order of the Court. 20 The defence of LFOT and Mr Tresidder denied that conditions existed for the application of the slip rule. In particular it alleged that Hanave had not applied at any of the five hearings in the proceedings and had made a deliberate decision not to apply to the Court to seek interest until at least 23 December 2002. They contended that it was necessary for Hanave to have applied for pre-judgment interest when it commenced the proceedings or when the proceedings were remitted to Moore J. Further, in its letter of 5 September 2000 Hanave had represented that they were required to pay only $375,000 and interest on that sum. Hanave did not press any larger claim and it should not be permitted to do so now.

statutory provisions and rules 21 Order 35 r 7 of the Federal Court Rules provides: (1) The Court may vary or set aside a judgment or order before it has been entered. (2) The Court, where it is not exercising its appellate or related jurisdiction under Division 2 of Part III of the Act, may if it thinks fit vary or set aside a judgment or order after the order has been entered where: (a) the order has been made in the absence of a party, whether or not the absent party is in default of appearance or otherwise in default and whether or not the absent party had notice of the motion for the order; (b) the order was obtained by fraud; (c) the order is interlocutory; (d) the order is an injunction or for the appointment of a receiver; (e) the order does not reflect the intention of the Court; or (f) the party in whose favour the order was made consents. (3) A clerical mistake in a judgment or order, or an error arising in a judgment or order from an accidental slip or omission, may at any time be corrected by the Court. (4) Subrule (2) shall not affect the power of the Court to vary or terminate the operation of an order by a supplementary order. 22 Section 51A(1) of the Federal Court of Australia Act provides: Interest up to judgment (1) 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.

the primary judge's reasoning 23 Before his Honour Hanave argued that 'the slip rule' (O 35 r 7(3)) should be applied because something was an 'accident' if it was 'something that happens without intention or design'. Moore J accepted this argument. His Honour held that he had the power to make the order under the slip rule. His Honour considered (at [38]) that it was clear from the judgment in L Shaddock and Associates Pty Ltd v The Council of the City of Parramatta (1983) 151 CLR 590 ("Shaddock") that 'the failure of a legal representative to apply for an order concerning interest is comprehended by the expression 'accidental slip or omission' in a slip rule of the type found in the Federal Court Rules. Accordingly that rule enables the Court to correct the order if it otherwise has power to do so'. It would appear that, on that basis, his Honour considered Mr Burke's omission to have been 'accidental'. At another point later in his reasons, in dealing with the application of s 51A, his Honour referred to Mr Burke having been, at the very least, 'careless' in relation to Hanave's rights to interest (at [46]). 24 His Honour considered that the issue which arose in Shaddock was similar to that in the present case, although he noted that it related to interest between the date upon which the trial judge gave judgment and the date of judgment in the successful appeal. An action for damages had been dismissed by the Supreme Court of New South Wales but the trial judge had nevertheless assessed damages. The Court of Appeal dismissed the appeal but the High Court allowed the appeal to it. Counsel overlooked making a claim for interest between the date of the trial judge's assessment and the successful appeal. The plaintiff subsequently applied under the High Court slip rule for an award of interest for the relevant period. 25 In his reasons for judgment in this case Moore J set out the following passage from the Shaddock judgment (at 594-595):

'Order 29, r. 11 is in the traditional form of a slip rule. It reflects the inherent jurisdiction of a court 'at any time to correct an error in a decree or order arising from a slip or accidental omission' (see Milson v. Carter [1893] A.C. 638, at p. 640). In terms, the rule provides, inter alia, that 'an error arising in a judgment or order from an accidental slip or omission, may at any time be corrected by the Court or a Justice on motion or summons'. The rule extends to authorize an omission resulting from the inadvertence of a party´s legal representative (see Fritz v. Hobson (1880) 14 Ch.D. 542, at pp. 561-562; Chessum & Sons v. Gordon [1901] 1 K.B. 694, at p. 698; In re Inchcape (Earl) [1942] Ch. 394, at pp. 397-398; Coppins v. Helmers & Brambles Constructions Pty. Ltd. [1969] 2 N.S.W.R. 279, at pp. 281-282; Tak Ming Co. Ltd. v. Yee Sang Metal Supplies Co. [1973] 1 W.L.R. 300, at p. 304; [1973] 1 All E.R. 569, at p. 571. This is so, regardless of whether the order has been drawn up, passed and entered (see Milson v. Carter [1893] A.C., at p. 640; Fritz v. Hobson (1880) 14 Ch.D., at p. 560).

The question whether the Council should be ordered to pay interest on any damages which the applicants proved they had sustained was a subsidiary or consequential question which only arose when the substantial issue between the parties as to liability and resulting damages had been determined. It should, of course, have been mentioned in the notices of appeal. Nevertheless, in the circumstances, we consider that it is competent for this Court, pursuant to the slip rule, to amend the Court's previous order to make provision for interest upon the damages, to which the applicants have been held to be entitled, for the period between the date on which judgment was given in the Supreme Court and the date on which the orders were made in this Court on appeal. …"

26 His Honour also recorded the Court's later observation (at 597) that the need for finality of litigation underscores the importance of prompt action under the slip rule. 27 Section 51A was not limited to situations where an application had been made prior to judgment being pronounced, his Honour held. The reasoning in Shaddock was that no narrow view should be taken of the circumstances in which an order for interest can be made. The section conferring power was not expressed in terms which limited the circumstance in which it could be exercised. Impliedly his Honour considered s 51A to be expressed in similar terms. This was to be contrasted with the provision in Whitlock v Brew (1968) 118 CLR 445 ("Whitlock v Brew") which required that an order could only be made 'at the hearing… upon application'. His Honour had earlier set out a passage from Shaddock (at 596) in which the majority had distinguished Whitlock v Brew on that account. 28 The exercise of the power conferred by s 51A was however conditioned by the words 'unless good cause is shown', his Honour observed. At issue, in that regard, was Hanave's delay. The delay complained of was not alleged to have occurred in the period up to judgment. It was not said to have occurred in the conduct of the proceedings, although his Honour observed that the successful allegation of non-disclosure was not raised until 2 May 1997, almost three years after the cause of action arose. Nor did his Honour consider that either party was responsible for the proceedings becoming protracted. Rather what was relied upon was the delay in seeking pre-judgment interest. In his Honour's view there was no real reason why the application should not have been made before judgment was given in November 1999 and there was no reason why it should not have been made immediately after the judgment of the High Court in April 2002. His Honour held the conduct of Hanave constituted 'good cause' within the meaning of s 51A. His Honour said (at [45] and [46]): '45. In my opinion, the failure of Hanave to seek pre-judgment interest before 20 February 2003 creates circumstances which constitute 'good cause'. These proceedings have been protracted. That they have been, has not been the fault of any party. However the fact that they have been protracted simply exacerbates the consequences of the delay of Hanave in making the application for pre-judgment interest. Mr Tresidder was entitled to assume when the High Court gave judgment in April 2002 that all issues arising from the application of Hanave filed in September 1995 (concerning events in August 1994) had been settled to the extent they required judicial determination. Moreover had an application for pre-judgment interest been made before or at the time judgment was given in 1999, it probably would have been uncontroversial and Hanave would have gained the benefit intended to be conferred by s 51A. It would have been unnecessary for the Court to engage in the type of adjudication reflected in these reasons. 46. The importance of finality in litigation is well settled: see Bailey v Marinoff (1971) 125 CLR 529. As the High Court pointed out in Gould v Vaggelas (1985) 157 CLR 215, the jurisdiction invoking the slip rule to make an order concerning interest on application made after judgment is to be exercised sparingly because to do otherwise would encourage carelessness by a party´ s legal representatives and expose to risk the public interest in finality of litigation. In this matter I am satisfied that, at the very least, Mr Burke has been careless in relation to Hanave´s rights to interest. While it is true that he turned his mind to pre-judgment interest when he wrote the letter of 5 September 2002, he made no attempt to ascertain the legal basis on which interest might be payable and whether it was necessary to obtain an order from the Court. He then believed Hanave was entitled to at least $375,000 but did nothing to secure payment of interest, even on that sum, beyond writing the letter of 5 September 2002.' 29 His Honour however accepted the submission by the respondents that: … 'if I did accept that the slip rule applied in these circumstances and I did not consider that the delay should deny any claim for pre-judgment interest, then I should use my discretion under s 51A to lower the amount of pre-judgment interest payable'. His Honour ordered that Hanave be paid $110,000 as pre-judgment interest from the date the cause of action arose to the date of entry of the orders of 19 November 1999, namely 19 February 2000. This equates to about one-quarter of Hanave's claim. His Honour did not undertake any calculation to arrive at that figure.

the appeal AND CROSS-APPEAL 30 Hanave submitted that his Honour erred in saying that 'good cause' had been shown. Further, his Honour's finding that Hanave's delay had furnished good cause for doing so was based upon a matter neither pleaded nor proven. Hanave submitted that it had never been alleged that Mr Tresidder in fact assumed that when the High Court gave judgment all matters requiring judicial determination had been dealt with. The letter of 5 September 2000 had raised the issue of interest and he and Mr Glew knew that it was outstanding. 31 In any event, Hanave argued, considering his judgment as a whole, Moore J should not be understood as making a finding of good cause. The words 'good cause to the contrary' in s 51A(1) mean 'good cause for not allowing interest at all rather than … good cause to assess an amount of interest less than would [usually] be payable'. The fact that his Honour allowed some pre-judgment interest is an indication that he did not find good cause; therefore, he erred in not awarding the whole of the interest sought by Hanave. 32 The other matter which Hanave said influenced his Honour's approach in reducing the amount of pre-judgment interest was Mr Burke's carelessness. Hanave submits that in doing so his Honour impermissibly penalised it. In Kewside Pty Ltd v Warman International Ltd (1990) ATPR 41- 012 (at 51,238) French J held that, where amendment is sought under s 51A, because of some error or inadvertence on the part of counsel, the Court's response is not to be influenced by punitive considerations. And although the need for finality to litigation is relevant, the dominating principle is that there is no kind of error or mistake which is not fraudulent which the Court ought not correct if it can be done without injustice to the other party, referring to Cropper v Smith (1884) 26 Ch D 700 ("Cropper v Smith"). 33 LFOT and Mr Tresidder have cross-appealed. Their primary contention is that the Court did not have the power to order pre-judgment interest at the point at which it did. In their submission s 51A requires an application to be made for interest before judgment is given. The position is said to be similar to that prevailing in Whitlock v Brew. The contention is one based upon the construction of s 51A and is supported by strong policy considerations in the finality of litigation. Here the respondents point out that Hanave had never claimed interest as part of its relief in its initial and its amended pleadings, as it was required to do by O 4 r 3(1)(a) of the Federal Court Rules. 34 Alternatively it was submitted by these respondents that there are two aspects to the discretion under s 51A: whether 'good cause is shown to the contrary' as to why interest should not be paid and, if the Court thinks that interest should be paid, the rate of interest that is appropriate. The inevitable conclusion, given his Honour's finding that 'good cause' was shown, was that interest was not payable. 35 The respondents also submitted that the case was not one appropriate for the application of the slip rule. Given the absence of a claim for interest, it ought more properly to have been seen as an application for leave to amend. Alternatively, the failure to plead the claim together with Mr Burke's carelessness constitutes 'good cause' to the contrary of an order for interest. Given his Honour's findings in that regard no order for interest should be made. 36 The primary contention on the cross-appeal may be dealt with shortly. Section 51A does not require that pre-judgment interest be claimed at a point prior to judgment. It does not contain the limitation which was present in the provision considered in Whitlock v Brew. That this is an important distinction is evident from Shaddock. However, the circumstance, where it occurs, that interest has not previously been claimed may be an important consideration in determining whether 'good cause' is shown, within the meaning of s 51A(1) of the Federal Court of Australia Act. It will be recalled that, in Shaddock, pre-judgment interest had previously been claimed and was included, up to the date of his judgment, by Waddell J in his assessment of damages. 37 The threshold question on the appeal is whether the slip rule ought to have been applied. The statement of principle taken by French J from Cropper v Smith suggests that the focus of the Court's consideration should be upon the effect upon the other party. If an injustice is not done to them by exercising a power, in that case the power to amend, then the Court ought to exercise a power allowing a person to correct their error or mistake. This principle was confirmed in The State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 at 153. If that were the only consideration in this case it might be said that the slip rule should be exercised since LFOT and the directors were always liable to pay pre-judgment interest. An award of interest is compensatory and is made because an applicant has been kept out of the monies to which they are entitled. Mr Tresidder might have been entitled to assume all legal issues were dealt with when the High Court gave judgment in April 2002, as his Honour held. However that was not his evidence. He and Mr Glew clearly enough thought that the question of interest was to be revisited after all issues had been resolved. It is to be inferred that they knew, from the time of receipt of the letter of 5 September 2000, that there was an issue about interest. There is nothing to suggest that they considered Hanave had abandoned it. 38 On the other hand it is clear that the slip rule is not available as a matter of course: Shaddock at 597. The Court there went on to say that there is a discretion in the Court to refuse an order if something has intervened which would render it inexpedient or inequitable to do so. I do not understand the Court to be limiting the notion of injustice to considerations of how the other party might be affected by the order. In Shaddock the eight month delay in applying for an order was regarded as substantial, and may have proved fatal to the application, had the party in error not informed the other party of its intention to claim interest promptly. It may also be observed that an explanation for the error was provided and that in that case pre-judgment interest had been earlier claimed and included by the trial judge in his assessment of damages. 39 Unless some error has been made by his Honour in exercising his discretion whether to apply the slip rule, this Court should not interfere. In my respectful view error did occur. 40 His Honour appears to have accepted, without more, that a failure to seek interest by a legal practitioner amounts to an accidental slip or omission and attracts the operation of the rule. However, there is a discretion under O 35 r 7. In considering whether to exercise that discretion, the Court should take account of all factors, including the nature and extent of the desired variation of the judgment, the length of the delay in applying for the variation, and any explanation offered for that delay. 41 His Honour did address the question of delay. His Honour found that the delays were substantial and there was no proper explanation given as to why the application could not have been made earlier. But these findings were applied to his Honour's decision concerning the application of s 51A and whether good cause was shown that interest should not be awarded. They were not applied in connexion with the question under O 35 r 7 which first required consideration, namely whether it was an appropriate case for the application of the slip rule. 42 In view of the conclusion I have reached, that his Honour's discretion has miscarried, it is necessary to consider what order should have been made. His Honour's findings in my view should have resulted in a refusal to exercise the discretion given by the rule. His Honour found that the delay was not satisfactorily explained. Mr Burke's conduct was found by his Honour to be careless. This finding goes beyond one of mere inadvertence, to which the High Court had regard in Shaddock. The Courts should not encourage carelessness and thereby put at risk the public interest in the finality of litigation: Gould v Vaggelas (1985) 157 CLR 215 at 275 ("Gould v Vaggelas"). And, whilst it may be said that the respondents were made aware of a claim for interest, it does not follow that the Court should assist Hanave. If anything these circumstances render Hanave's and Mr Burke's failure to act promptly after the resolution of the matter in the High Court more difficult to comprehend. 43 The view I have reached would result in the appeal being dismissed and the cross-appeal allowed. It is necessary however, in my view, to consider the second aspect of the appeal, namely his Honour's application of s 51A. 44 It was held in Australian Guarantee Corporation Ltd v Border Printing Services Pty Ltd (unreported decision of Lockhart, Spender and Hill JJ of 21 April 1989, at 6) ("AGC v Border Printing") that s 51A confers a discretion upon the Court. Their Honours were there dealing with the primary Judges' conclusion that there was good cause shown within the meaning of the section. It is not necessary here to discuss the nature and extent of the discretion and the factors which might operate as relevant to it. It may however be observed that gross delay may be relevant and other factors may involve policy consideration such as those referred to in Gould v Vaggelas. This appears to have been accepted by the Court in AGC v Border Printing (at 8). It is however necessary to observe that at this point in the section the discretion is referrable only to the question whether the Court considers that there is good reason not to order interest. 45 On its proper construction a finding of 'good cause to the contrary' means that interest will not be allowed at all: AGC v Border Printing at 8 and see HK Frost Holdings Pty Ltd (In Liq) v Darvall McCutcheon (a firm) [1999] FCA 795 at [9], Finn J. His Honour in this case was clearly of the view that that was established by Mr Burke's conduct, the extent of delay and made a finding to that effect. His Honour however also accepted a submission that, if he did not consider that delay should deny Hanave's claim for pre-judgment interest, he should exercise his discretion to lower the amount to be awarded. It does not seem to me that in doing so his Honour could be taken as saying that he was satisfied that good cause had not been shown. There are no findings or reasoning which can be attributed to such a consideration. Rather his Honour appears to have considered that there was another discretion given by s 51A to ameliorate a denial of interest altogether, namely to award some but not all of the interest claimed. It is my respectful view that the section contains no such discretion. Nor can the question posed in this part of s 51A be described as being whether there is good cause shown for reducing the amount of the interest, as Hanave submitted. Upon satisfaction that there is good reason not to award interest none is awarded. It is only where the Court is satisfied that that is not the case, and interest should be awarded, that it then examines the choices in pars (a) and (b) as to how the interest might be calculated. 46 In my respectful view his Honour was in error in his approach to the different discretions which s 51A gave. The evidence and his Honour's findings in my view can only support the conclusion that the first question under s 51A should be answered in the affirmative and interest denied, for the same reasons why the application of the slip rule should have been refused. 47 In my view the appeal should be dismissed and the cross-appeal allowed. His Honour's order should be set aside and in lieu thereof it be ordered that the application for pre-judgment interest be dismissed with costs. Hanave ought to pay the respondent's costs of the appeal. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.

Associate: Dated: 9 July 2004 Counsel for the Appellant: Mr G McVay

Solicitor for the Appellant: Gilbert Mane

Counsel for the second and third Respondents: Mr D J Hammerschlag SC and Mr D Jay

Solicitor for the second and third Respondents: Blake Dawson Waldron

Date of Hearing: 11 May 2004

Date of Judgment: 9 July 2004