Hosking v Ipex Software Services Pty Ltd

5. The plaintiff submitted that he was entitled to interest at the penalty interest rate from the date of the commencement of the proceeding, 27 March 1997, to the date of the judgment. The defendants submitted that the plaintiff was entitled to interest only from 30 June 2002, being the date which the Court had fixed for the assessment of damages. How this came about is explained in paragraphs 61 to 70 of my earlier judgment.

8. Although the parties were diametrically opposed on this issue of interest, they did reach agreement on the two calculations of the amount of interest at the penalty interest rate from time to time. If the plaintiff's submissions are upheld, the amount of interest from 27 March 1997 to 13 September 2004, being the day on which judgment will be entered, was agreed to be $1,391,584.69. On the other hand, if the defendants' submissions are upheld, it was agreed that the amount of interest from 30 June 2002 to 13 September 2004 was $391,938.73. On any view, therefore, the question of whether the plaintiff is entitled to interest in respect of the period between 27 March 1997 and 30 June 2002 is quite significant.

11. Mr Scerri QC, who appeared with Mr Horan of counsel for the plaintiff, submitted that this situation was governed by s.60(1) of the Supreme Court Act 1986, which reads as follows:

"The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded."

15. Mr Scerri submitted that in accordance with this section there was a statutory entitlement to interest from the date of the commencement of the proceeding unless good cause was shown to the contrary.[2] He accepted that what constituted "good cause" in any given case will depend on the particular facts and circumstances.[3] At the end of the day, the Court had to be satisfied on the material before it that there was good reason not to apply the general rule in favour of awarding interest to the plaintiff.[4]

18. Further, the "good cause" had to be measured against the purposes of the statutory power to award interest. They were recognised to be twofold:

(a) to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money and deprived of its use during the relevant period; and

(b) to encourage the early resolution of litigation.[5]

24. In the present case, it was submitted, there was no "good cause" not to award interest from the date of commencement of the proceeding. The plaintiff had been kept out of his entitlement to damages equivalent to 5% of the equity in the Ipex Group since the commencement of the proceeding. Accordingly, interest should be awarded to compensate him from being kept out of his money whilst the litigation continued.

27. Mr Scerri submitted that the fact that damages were assessed by reference to the value of the Ipex Group as at 30 June 2002 did not constitute "good cause" for depriving the plaintiff of his entitlement to interest. He submitted that the assessed amount of damages did not include or incorporate any amount which compensated the plaintiff for being kept out of his money. He accepted that there might be "good cause" not to award interest in circumstances where it was clear that the value of the plaintiff's entitlement had increased in value between the date of the commencement of the proceeding and the date of assessment by an amount that was equal to or greater than the rate of penalty interest. But he submitted that there was no such indication in the present case. Rather, he submitted that the evidence suggested that the value of the Ipex Group in March 1997 was likely to have been at least comparable to that at 30 June 2002, if not higher. Attached to the plaintiff's written outline of submissions were some calculations which purported to show that the amount of damages which would have been reached by reference to the 1996 figures using an equivalent approach to mine was $2,567,622, with a multiple of 6.5, or $1,636,176, with a multiple "as low as 3." Thus, it was submitted that the damages awarded to the plaintiff were adversely affected both by inflation and by any decline in the value of the Ipex Group over the relevant period.

30. It was further submitted that unless interest for the longer period was awarded, the assessment of damages by reference to the value of the Ipex Group at 30 June 2002 would not fairly compensate the plaintiff for the wrong that he had suffered and therefore would not be in the interests of justice. This would be contrary to the summary in paragraph 61 of my earlier judgment of the circumstances in which there could be a departure from the general rule that damages should be assessed as at the date of breach. The plaintiff would be penalised by being kept out of his money from 1997 to 2004 and the defendants would be rewarded for delaying payment. Counsel for the plaintiff submitted that this would effectively be requiring him to bear the risk that the value of his entitlement might not increase (or might even fall) while he remained powerless to compel the defendants to pay his entitlement until a final judgment was obtained. Two points should be noted at this stage in respect of these submissions. First, the period in which the plaintiff was being kept out of his money was overstated, because there was no suggestion from the defendants that interest at the appropriate penalty rate should not be allowed in respect of the period since 30 June 2002. Secondly, the obvious way in which the plaintiff would avoid the risk that the value of his entitlement might not increase or might even fall during the period of delay between commencement and completion of the litigation was to assess damages as at the date of breach and claim interest thereon until the date of judgment. Here, the plaintiff had deliberately chosen, presumably for good reason, to follow a different route. He chose to pursue increase in value rather than interest.

33. The plaintiff further submitted that it was not responsible for any delay in the period between the commencement of the proceeding and the date of judgment. The length of this period, it was said, was the result of the separate determination of the issue of liability; the defendants' appeal and special leave application as to liability; and the time involved in having a trial on assessment of damages and obtaining judgment. Again, the relevant period of delay is overstated because interest at the appropriate penalty rate from 30 June 2002 is not opposed. Further, whether the plaintiff was entirely blameless for the delay before 30 June 2002 might be a matter for debate, if it were to become relevant. However, I need say nothing further about that issue in this application.

36. Mr Burnside QC, who appeared with Mr Barber of counsel for the defendants, submitted that "good cause" was shown for not allowing interest from the commencement of the proceeding. He referred to the discussion surrounding the adoption of 30 June 2002 as the date at which damages were to be assessed and quoted the following passage from my earlier judgment which summarised the plaintiff's position at the opening of the damages trial as put by his senior counsel, Mrs Crennan QC:

"Mrs Crennan also explained that the principal consideration which made it inappropriate to assess damages as at the date of breach was that, if the defendants had performed their obligations under the agreement by giving effect to the plaintiff's 5% interest in the Group, the plaintiff would not have been required immediately to sell or dispose of that interest. Thus, she submitted that the plaintiff was entitled to hold on to his 5% interest and to take the benefit of any subsequent increase in the value of that interest."[6]

40. It was submitted that in this unusual case where the claim was not that the defendants' actions had caused the plaintiff the loss of an amount of money in the past, but rather that they had failed to give effect to an agreement to provide a relatively unnegotiable minority interest in a private company, the plaintiff had asserted his entitlement to have the valuation done on the assumption that he would have held on to his interest until at least 30 June 2002, and thereby gain the benefit of any increase in the value of that interest. In those circumstances, it would not be correct, Mr Burnside submitted, to compensate the plaintiff for the loss of use of money over the period between 21 March 1997 and 30 June 2002, when ex hypothesi he would not have "liberated" any money until the date he chose to sell. He could not have both the increase in value as a result of maintaining the holding and interest on the money, before that money would have been "liberated" by a sale. This consideration was sufficient, Mr Burnside submitted, to displace the prima facie rule that interest would be allowed from the commencement of the proceeding,

43. The defendants also submitted that the plaintiff's case had been opened and closed on the basis that interest on the damages assessed on the basis of the 30 June 2002 position of the Ipex Group would be calculated only from that date and not earlier. Mr Burnside referred to one passage from Mrs Crennan's opening where she said, after submitting that the appropriate course for the assessment of damages was to look at the figures as at 30 June 2002:

"But let me tell Your Honour just in passing that if Your Honour wanted to test whether what we are claiming is fair, it would be possible to test what the figures would be calculated as at the date of breach and it would result in a higher figure, Your Honour, because you would be having penalty interest rates running from every year in which the profits should have been paid and my recollection is it leads to a figure of something more of the order of $9 million and we would have apprehended that that's one reason why the defendant showed a great deal of keenness over many letters to go forward on the basis that the proper approach was 30 June 2002, which we accepted in our preparation because it is simpler. It does lead to a slightly lower figure but it is much simpler to calculate."[7]

47. Counsel for the plaintiff argued that this was a reference only to the calculation of interest on the separate claim for 5% of the profits in each year from 1 July 1994, which I have rejected. Although this interpretation of what Mrs Crennan was saying in the quoted passage is open, given the actual words used by her, I do not consider that she was intending to limit herself to the question of interest on profits. In any event, the position of the plaintiff was made clear by a later passage from Mrs Crennan's opening. Having identified three items in the plaintiff's claim of $7.623 million - adjusted fair value of 5% of the equity of $2.935 million, 5% share of the after tax profits from 1 July 1994 to 30 June 2002 of $2.19 million, and 5% share of the capital reserve distribution of $1.291 million, Mrs Crennan was asked:

"HIS HONOUR: Do you say that if you take the three figures as at today or as at 30 June, you don't get any interest? MRS CRENNAN: That would be right. The convenient thing on these figures is take it as at 30 June 2002 because they have all been prepared on that basis. HIS HONOUR: And then get interest from then. MRS CRENNAN: And get penalty interest from them. That's a simple way. That gives us a bit less than if we got penalty profits on a year by year basis but we have been content to run the cases on that basis and we are happy to continue to do so. So that's the basis on which we have run our particulars."[8]

51. Mr Burnside also referred me to paragraph 180 of the plaintiff's written outline of final submissions where the various items making up the plaintiff's claim of $7.623 million were listed together with the following additional item:

55. Mr Burnside submitted that it would be unfair to the defendants to allow the plaintiff to change the basis on which the valuation date of 30 June 2002 had been adopted. He said that the defendants would have approached the question of valuation date quite differently if the plaintiff had indicated at that stage that it would also be seeking interest from 27 March 1997.

58. In my opinion, the correct date from which interest is to be calculated is 30 June 2002. I accept the defendants' submissions that "good cause" has been shown for not allowing interest from the commencement of the proceeding.

61. First, I consider that it was part of the plaintiff's case that he was entitled to have the valuation of his interest carried out as at 30 June 2002 because he would have held on to that interest until at least that date. Thus, as the plaintiff's counsel submitted, he was entitled to have any increase in the value of the Ipex Group over the period between 1 July 1996 and 30 June 2002 taken into account when his interest was being valued for the purpose of awarding damages. But acceptance of this proposition carried with it, as the defendants correctly submitted, the consequence that the plaintiff could not be said to have lost the use of any money over the period since the proceeding commenced, because if the defendants had not breached the contract all he would have had during that period would have been his 5% equity in the form of shares or units, which would not have given him any income. Any return would have been of a capital nature, but this would not have been realised until the plaintiff chose to sell. Thus it would be illogical, in my opinion, to award interest from a date earlier than 30 June 2002.

64. Secondly, it seems to me that interest should not be awarded from 27 March 1997 on the whole amount of damages, which I assessed at $1,545,650, because that sum must include profits made by the Ipex Group, over the intervening years to 30 June 2002, which have all been retained within the Group. These profits have arguably increased the amount of the plaintiff's 5% equity in the Group as at 30 June 2002. Clearly, these profits were made after 27 March 1997 so that it would not be just to allow interest from that date on the whole amount of the damages. In my opinion, on the evidence before me, there is simply no way in which calculations could be made of the lesser amount of damages on which interest should be allowed from time to time before 30 June 2002. This is a further reason, in my opinion, why it is illogical to award interest from a date earlier than 30 June 2002.

67. Thirdly, I consider that it would be quite unfair to the defendants to allow the plaintiff to change the basis on which the valuation date of 30 June 2002 had been adopted. The above quotations from the transcript of the opening by the plaintiff's counsel and from the written outline of the plaintiff's final submissions make it quite clear, in my opinion, that the plaintiff's case was that damages would be assessed as at 30 June 2002 and interest allowed on the damages from that date, not back to the commencement of the proceeding. The issue is put beyond doubt by another example of the plaintiff's position. Paragraph 4 of a document headed "Plaintiff's Submissions on Date of Assessment of Damages", which was referred to in the plaintiff's opening, read:

"However, for evidentiary and procedural reasons, it is not feasible for the Court to attempt to value the plaintiff's interest as at the date of judgment. Accordingly, the damages should be assessed by reference to the value of the plaintiff's interest as at the last balance date of the Ipex Group, namely 30 June 2000 [sic] plus pre-judgment interest on that amount from that date."

Shortly after again being referred to this document by Mrs Crennan on the third day of the hearing the following exchange occurred:

"HIS HONOUR: By the way, can I just be sure. In paragraph 4 of that note, you mean 30 June 2002? MRS CRENNAN: Yes, I do. I beg your pardon, Your Honour, and I would ask you to make that change."[9]

73. In circumstances where the plaintiff has argued that the damages should not be assessed as at the date of breach but at a later date[10]

so that the plaintiff could benefit from the increase in value of his interest, I am not impressed by the submission on his behalf that the amount of damages awarded did not include or incorporate any amount which compensated the plaintiff for being kept out of his money. It was his choice to approach the task in this way, even though it was said that it would lead to "a slightly lower figure."

78. Finally, I have disregarded the plaintiff's attempt in this application to put forward figures allegedly demonstrating that the value of the Ipex Group in March 1997 was likely to have been at least comparable to that at 30 June 2002, if not higher. These figures were not tested. Possible discrepancies were that there was only partial normalisation and, as the plaintiff's written outline of submissions itself recognised, the applicable multiple as at 30 June 1996 was likely to be different. No doubt the defendants' experts would point to others. Nevertheless, these criticisms and the figures themselves are irrelevant, in my opinion, because the plaintiff chose to have his interest valued using the 30 June 2002 figures. If the amount of damages awarded does not properly reflect the value of the plaintiff's interest at that date including the increase (or decrease) in the value of his interest over the period since the date of breach, then that is a matter for appeal. It cannot be cured by allowing the plaintiff interest from the date of the commencement of the proceeding, contrary to the position adopted by him throughout the hearing of the damages trial.

81. Accordingly, there will be judgment for the plaintiff in the sum of $1,545,650 together with interest pursuant to statute in the sum of $391,938.73.

[1] [2004] VSC 299

[2] Victorian Workcover Authority v Esso Australia Limited (2001) 207 CLR 520 at [34] per Gleeson CJ, Gummow, Hayne and Callinan JJ

[3] Clarke v Foodland Stores Pty Ltd [1993] VicRp 81; [1993] 2 VR 382 at 394 per Fullagar, Marks and J.D. Phillips JJ

[4] Clarke v Foodland Stores Pty Ltd [1993] VicRp 81; [1993] 2 VR 382 at 395 per Fullagar, Marks and J.D. Phillips JJ

[5] Ruby v Marsh [1975] HCA 32; (1975) 132 CLR 642 at 652-653 per Barwick CJ; Clarke v Foodland Stores Pty Ltd [1993] VicRp 81; [1993] 2 VR 382 at 396 per Fullagar, Marks and J.D. Phillips JJ; MBP(SA) Pty Ltd v Gogic [1991] HCA 3; (1991) 171 CLR 657 at 663 per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ; Grincelis v House [2000] HCA 42; (2000) 201 CLR 321 at [16] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ and at [29] per Kirby J; Victorian Workcover Authority v Esso Australia Limited (2001) 207 CLR 520 at [69], [92] and [109] per Kirby J.

[6] [2004] VSC 299 at [62]. This passage repeats almost verbatim part of paragraph 3 of a document headed "Plaintiff's Submissions on Date of Assessment of Damages", which Mrs Crennan referred to and adopted at transcript p.12 and pp.290-291.

[10] Contrary to the statement by Mrs Crennan set out in the quotation from the transcript appearing in paragraph [ above, paragraphs 61 to 70 of my earlier judgment show that it was the plaintiff who rejected the defendants' initial suggestion that damages be assessed as at the date of breach and insisted that they be assessed on current values. Eventually, the defendants accepted this approach.