Kenxue Pty Ltd ATF The Susan Investment Trust v Westpro Finance Pty Limited

Judgment

1. In this matter on 10 July 2020 I handed down my reasons for concluding that the Plaintiff was entitled to succeed in its action against the Defendants ("the July Reasons"): see [2020] NSWSC 1146. Although I dealt with several issues in relation to damages which had been raised I did not determine the quantum of damages for the reasons explained at [140]-[144] and see also [129] of the July Reasons.
2. The Plaintiff had sought by its closing submissions: 1. the capital loss of $5,494,712.20; 2. the profit that it would have obtained had it invested in commercial real estate in the Penrith and proximate regions; and 3. interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) ("CPA") which I shall refer to as "the s 100 interest".
3. In support of 2(2) above the Plaintiff led evidence from its principal, Mr Campbell, that the Plaintiff would have invested in commercial real estate (and there was evidence it had done so a few months later with other money available) and evidence from a real estate expert as to what the expected profit from such investment would have had been. The Plaintiff accepted that there would need to be an allowance for vicissitudes.
4. I accepted the Plaintiff's evidence that had it not lent the $6M to YIC it would have invested in commercial real estate, accepted the evidence of Ms Hamilton, the Plaintiff's real estate expert, as to the anticipated return on the investment in commercial real estate, and concluded that the Plaintiff would be on that basis entitled to an amount of $1,592,104.80 after an allowance of 20% for vicissitudes. I shall refer to that amount as the "real estate profit".
5. The figure that was calculated for s 100 interest was approximately $2.9M.
6. I held that the Plaintiff could not recover both the real estate profit and the s 100 interest since s 100 interest is designed to compensate a party for loss: see [141]-[142] of the July Reasons.
7. I set in place a timetable for submissions on the quantification of damages and on costs with which the parties have complied. The following submissions were received: 1. The Plaintiff's Submissions on Damages and Costs dated 24 July 2020 ("PSDC"); 2. The Defendants' Submissions on Damages and Costs dated 7 August 2020 ("DSDC"); and 3. The Plaintiff's Reply Submissions on Damages and Costs dated 14 August 2020 ("PRDC").
8. The Plaintiff, by its PSDC, accepts that it cannot obtain both the real estate profit and the s 100 interest, and it therefore now seeks damages on the following basis (at paragraph 2.3 of the PSDC): "(a) taking the principal sum advanced on 7 October 2010 of $5,547,425.49, it has calculated interest on this figure at the relevant statutory rates to the period ending 23 January 2014; (b) on 24 January 2014, the plaintiff received a dividend from the bankrupt estate of John Quinn, one of the guarantors of the loan, in the sum of $48,984.50; (c) accordingly, from 24 January 2014 until 6 March 2014, the plaintiff calculated interest on the principal of $5,498,440.99 (being the sum in (a) above less the sum in (b) above) at the relevant statutory interest rate; (d) the plaintiff has then continued to approach the calculation in this manner, by accounting for its subsequent receipts (namely, the dividend from the liquidation of Quinnco Pty Ltd (on 7 March 2014, in the sum of $5,413.78) and the net sales proceeds it received upon the sale of the land (on 7 February 2017, in the sum of $2,921,093.23)), on an itemised basis, on the date of each receipt, (see the entries in red), through to the date of judgment."
9. The Plaintiff calculates the figures as a result of the components as $5,481,164.26 (the "$5.5M") being (as at 24 July 2020): 1. the nett principal of $2,541,433.98; and 2. $2,939,730.28 s 100 interest.
10. The Defendants contend that the amount of judgment should be $4,133,538.78 (rounded in these reasons as "4.1M") and submit that the Court's discretion to make an award of interest under s 100 "is not enlivened because the Court's findings provide the most accurate way to compensate the Plaintiff in order to put it into the position it would have been but for the Defendant's conduct as found by the Court": see the DSDC at paragraph 3.
11. The Defendants point out that the unchallenged evidence of Mr Campbell was that if he had not entered into the loan in October 2010 he would have invested in real estate as he did a few months later. This, they submit, is the position he would have been in if he had not entered into the loan: see [128]-[129] and [138] of the July Reasons. Thus $4.1M is the amount that will place the Plaintiff in the position it would have been in if it had not invested in the YIC Property, i.e. if the contract had been performed and if the relevant provisions of the Trade Practices Act 1974 (Cth) had not been infringed: see DSDC at paragraph 17.
12. The Defendants by the DSDC contend that there is no room for the exercise of the Court's discretion to award interest under s 100 when the Court "is able to assess damages which most accurately reflect the Plaintiff's loss" and that the purpose of an award of interest is compensatory "in circumstances where the evidence does not establish the proper measure of damages, so that resort to the discretion is necessary to ensure the plaintiff receives fair compensation for its loss" (DSDC at paragraph 19). Reference is made in the DSDC at paragraph 20 to Screenco Pty Ltd v R L Dew Pty Ltd [2003] NSWCA 319; 58 NSWLR 720 at [90] per Tobias JA: "In my opinion, it follows from the foregoing considerations that pre-judgment interest is only to be awarded to a plaintiff where, as a consequence of being deprived of the use of the judgment money during the relevant period, it has suffered a real and practical loss or detriment for which it should be compensated in order to ensure that it is restored fully to the position in which it would have been but for the defendant's wrongdoing."
13. The Defendants submit that an award of $5.5M (rather than $4.1M) would only be appropriate if the Court had found that the Plaintiff would not have entered into the loan and would not have entered into any other transaction.
14. The Plaintiff responded to the DSDC by drawing attention to part of [127] of the July Reasons in which I said: "The Defendants accept that if liable they are liable for the loss of the money head of damage, being the difference between the $5.5M advanced (after allowance for the early interest payment and fees) and the amounts recouped from the sale or received as a result of the guarantees. They also accept that Kenxue is entitled to interest at the rates applicable by virtue of s 100 of the CPA."
15. The Plaintiff submitted that I should pay no regard to the Defendants' submissions on the Court's approach to damages which it contended went beyond the leave granted: see PRDC at paragraph 2.4.
16. The DSDC in relying on cases such as Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1, Marks v GIO Australia Holdings Ltd [1998] HCA 69; 196 CLR 494, Henville v Walker [2001] HCA 52; 206 CLR 459, Cummins Generator Technologies Germany GmbH v Johnson Controls Australia Pty Ltd [2015] NSWCA 264; 326 ALR 556 and Westpac Banking Corporation v Jamieson [2015] QCA 50; [2016] 1 Qd R 495 draw attention to the fact that a plaintiff can seek to establish what it would have done had it not relied on a representation but is not required to do so. The passage from Jamieson at [143]-[144] set out at paragraph 15 of the DSDC, for example, is relevant to the issue with which the Court must now deal: "[143] For the reasons which follow I do not accept the unqualified proposition that it is irrelevant to inquire into what a claimant in a case such as this would have done if the negligent and misleading advice had not been given and the claimant had not entered into the loss-making transaction in reliance upon it. A claimant is not necessarily required to plead and prove an alternative transaction in order to establish loss. A defendant may seek to demonstrate that a different, loss-making transaction probably would have been undertaken. In a particular case a court may determine that an award of compensation should take into account a hypothetical, alternative transaction which probably would have resulted in a loss. In doing so the court is not engaging in impermissible speculation. [144] If it is apparent that the claimant would have entered into a different, loss-making transaction, then this fact can hardly be irrelevant. Its relevance follows from the basic compensatory principle that the object of compensation is to place the claimant in the position he or she would have been in if the contract had been performed, the defendant not been negligent or the relevant statute not been contravened…" (Emphasis Added).
17. The July Reasons noted the inconsistency between the Plaintiff's Opening Submissions and the Plaintiff's Closing Submissions and the difference between the s 100 interest and the real estate profit and expressed no view as to which was the appropriate measure if the Plaintiff accepted that it could not have both. The basis for an award of damages advanced by the Defendants, set out at [127] of the July Reasons and referred to in [14] above, was not accepted by the Plaintiff and the Court was called on to determine the outcome on damages. I do not think that the Defendants are precluded from contending that the Plaintiff is not entitled to s 100 interest in lieu of the real estate profit - that alternative case was not one advanced by the Plaintiff at the hearing, and accordingly I do not regard the submissions as outside the leave given.
18. Section 100 gives no substantive right to interest as it rests upon the discretion of the Court (see Screenco [41]-[42] and [81]), exercised in accordance with appropriate principles. I can say that had the Plaintiff not advanced the real estate profit claim and not put forward the evidence it did to support its claim I would have had no hesitation in awarding it s 100 interest. I am also conscious that the Defendants, whilst not accepting that any award should be made for the real estate profit claim (on grounds in respect of which they were unsuccessful), did not contend that the Plaintiff could not obtain an award for both the real estate profit and s 100 interest and yet now assert that the Plaintiff should be limited to the capital loss and the real estate profit.
19. In my view the critical problem for the Plaintiff is that it has put forward evidence as to what it would have done, which evidence I have accepted. The first question is whether, in circumstances where the Plaintiff has persuaded me that it would have invested in real estate and I have accepted the evidence as to what that would have yielded, is there any basis for exercising the discretion found in s 100? If the answer to the first question is that the Court can exercise its discretion I must then consider whether, in these circumstances, discretion should be exercised in favour of the Plaintiff.
20. In the July Reasons (see [141]) I refer to MPB (SA) Pty Ltd v Gogic [1991] HCA 3; (1991) 171 CLR 657 at 663 and Grincelis v House [2000] HCA 42; (2000) 201 CLR 321 at 328-331. In Gogic the joint judgment at 663 stated: "The function of an award of interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period."
21. That passage was approved in Grincelis and cited by Tobias JA in Screenco at [78].
22. Tobias JA at [86] said: "In Haines v Bendall (1991) 172 CLR 60 (also a personal injury case), the majority articulated (at 63) the settled principle governing the assessment of compensatory damages (in both tort and contract) that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been but for the breach. It then stated (at 66) (omitting citations): An award of interest up to the date of judgment is an award of interest in the nature of damages. This statement acknowledges that the award of interest is an integral element in the attainment of the object of damages, namely, to compensate a plaintiff for injuries sustained. Hence the award of interest is compensatory in character in Thomson v Faraonio the Privy Council stated that '(t)he reason for awarding interest is to compensate the plaintiff for having been kept out of money which theoretically was due to him at the date of the accident'. (emphasis added) The award of interest for the period of delay in payment between the date of accrual of the cause of action and judgment affords the fair legal measure of compensation. Thus, it is the award of damages and, where appropriate, interest awarded on damages for the period up until the judgment takes effect which allows the plaintiff to be placed in or restored to the situation, as far as money can do, in which he or she would have been but for the defendant's negligence."
23. Screenco, it will be observed, was not a personal injury case and Tobias JA at [89] said: "Nevertheless, the above passage is pertinent in that it emphasises the need, particularly where commercial transactions are involved, to consider whether, as a matter of practical reality, the appellant did in fact sustain loss or detriment by virtue of being kept out of its judgment money. Further, as Clarke JA pointed out in Star v O'Brien (1996) 40 NSWLR 695 at 701G (albeit dissenting in the result), all the circumstances must be considered in order to ensure that an award of interest is substantially just for both parties. As his Honour observed, the general rule is not to be regarded as an inflexible maxim to be applied in all circumstances."
24. At [118] Tobias JA said: "Principle required that if those arrangements were relevant, as I consider they were, to the issue of whether an award of interest was necessary to ensure that the appellant was properly and fairly compensated for its "real or practical loss", the onus was upon the appellant to establish that loss. In my opinion, it did not do so."
25. The Court in Screenco accepted the trial judge's view that an award of interest for an item that had not been paid for by the Plaintiff would improve its position, not simply restore it to the position it would have been in had there been no loss. The passage at [90] of Screenco which I have set out above provides clear guidance, in my view, as to the outcome of the present issue.
26. Since the Plaintiff's evidence is that it would have invested the money in commercial real estate and that evidence was accepted by me and a finding made to that effect, an award of interest would put the Plaintiff in a better position than it would have been if it had not lent the money to YIC.
27. Having regard to the course which the Plaintiff adopted and my findings consequent upon that, I cannot ignore the evidence that establishes what the Plaintiff would have done and what it would have yielded. I therefore do not think it is open to award interest pursuant to s 100 but if I am in error in so concluding then I would not exercise the discretion in favour of the Plaintiff for the same reasons.
28. I therefore conclude that judgment should be entered for the Plaintiff in the amount of $4,133,538.78, with a further $223.16 per day from 20 July 2020 till today (i.e. $8,480.08). This equates to a total of $4,142,018.86.

Costs

1. There is no dispute that the Plaintiff is entitled to an order for its costs on the basis that the Defendants pay the Plaintiff's costs of the proceedings as agreed or assessed.

Amendments 28 August 2020 - Decision Date: 27 August 2020 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 August 2020