Territory Sheet Metal Pty Ltd & Others v Australia and New Zealand Banking... [2010] NTSC 3 | Case summary

Territory Sheet Metal Pty Ltd & Others v Australia and New Zealand Banking... [2010] NTSC 3 | Case summary | Zoe

[12]

[5] To say the least, these proceedings have had a lengthy and tortuous history.

[6] As appears from my primary findings, they relate to factual events that commenced as long ago as early 1997. The present action was instituted on 1 December 2000.

[7] The factual and legal issues were involved and extensive - a situation that is readily revealed by my primary findings. The plaintiffs' claims were based on no less than five separate causes of action.

[8] The proceedings were hard fought at all stages and it proved well nigh impossible to manage the case to a timely trial. That situation was further complicated by the fact that the commercial failure of TSM had, in practical terms, brought the plaintiffs to their financial knees.

[9] Interlocutory processes were both extensive and protracted. The pleadings were the subject of major amendments on a number of occasions. So it was, by way of illustration, that, by trial, I was, inter alia, called upon to consider what was titled the defendant's "Further further amended defence" to a second amended statement of claim. That statement of claim ran to 65 pages.

[10] Despite the best efforts of the Court to progress the action, it was not ready for trial until June 2008 and the trial itself was not, for various reasons, concluded until 12 February 2009. The trial occupied a very substantial number of hearing days with a transcript ultimately running to almost 3000 pages and a requirement to consider documentary exhibits encompassing thousands of pages in total.

[11] My primary findings reflected such a situation. They extended to some 517 pages.

[12] My primary findings having been published, it only remained for the parties to make submissions to me as to certain aspects related to the issue of the precise formulation of an ultimate judgment for damages reflecting those findings.

[13] Two factual issues identified at the virtual outset of the trial and which were fully canvassed as the trial proceeded were, first, the extent to which any of the plaintiffs had, in the re-financing proposal presented by TSM to the witness Bradley, incorrectly stated the relevant asset and liability situations and, second, the extent to which the defendant had, at material times, been on notice as to or was aware of those misstatements and/or had investigated or relied on them.

[14] My primary findings specifically canvassed such issues.

[15] As arranged with the parties, initial written submissions focusing on the residual topics remaining for consideration following publication of my primary findings were exchanged and filed. As I have indicated, the proceedings were then listed for oral presentations in relation to those submissions, commencing on 23 November 2009.

[16] On about 6 November 2009, present senior counsel for the defendant (who had, by then, replaced senior counsel at trial consequent upon her elevation to the bench) notified me in writing that, when the matter came on for final oral submissions, he would seek to present an argument to the effect that, by virtue of the operation of the principle ex turpi causa non oritur actio (to which I shall hereafter simply refer as the ex turpi causa principle), no damages ought to be awarded to TSM and that the plaintiffs' action should, accordingly, be dismissed.

[17] The defendant's submission in that regard, when presented, in fact encompassed a specific application to amend para [9] of the counterclaim by adding the plea:

[14]

[18] The formulation of this principle is to be extracted from several relatively early English authorities.

[19] It seems generally accepted that its genesis was the judgment of Lord Mansfield in Holman v Johnson.[2] That case concerned a situation in which a plaintiff sold and delivered a quantity of tea to the defendant in France, knowing that it was intended to be smuggled by the latter into England. The plaintiff was not, himself, involved in the smuggling scheme, but was said by the defendant to have been complicit in it in the sense that he deliberately agreed to make the sale for the express purpose of the tea being smuggled.

[20] An action having been initiated against him in England to recover the price of the tea, the defendant sought to defend the claim on the basis that the contract for sale had been founded upon an ultimate intention to make an illicit use of the goods sold, which intention was with the privity and knowledge of the plaintiff.

[21] In the event, the plaintiff's claim was upheld on the basis that the relevant contract had been concluded in France and that it was a routine commercial contract of sale which involved no breach of the law of that country in consummating it.

[22] However, in the course of his judgment,[3] his Lordship commented that the principle of public policy was that no Court would lend its aid to a man who founded his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of the country "there the Court says he has no right to be assisted".

[23] The published authorities[4] indicate that the word "illegal", as used by Lord Mansfield, was expressed by him in the sense of conduct that is prohibited by the law, ie conduct that is in violation of the general law (whether civil or criminal) or a relevant express statutory prohibition, or which is otherwise illegal as contrary to public policy.

[24] Not all transactions fit in to a single clear cut category as either unenforceable, void or illegal. It has been said[5] that there are "grey areas", of which covenants in unreasonable restraint of trade constitute an example. To employ the words of Denning LJ (as he then was) in Bennett v Bennett[6] "[such] covenants offend public policy ... [t]hey are not 'illegal' in the sense that a contract to do a prohibited or immoral act is illegal."

[25] As readily emerges from Derry v Peek,[7] it is important to draw a clear distinction between mere misrepresentation of material fact that may found rescission of a contract, on the one hand, and fraud - which necessarily involves proof of the making of a false representation knowingly, or without belief in its truth, or recklessly, without caring whether it be true or false.

[26] That case, inter alia, gave rise to the proposition that a false statement, made through carelessness and without reasonable grounds for believing it to be true, may be evidence of fraud, but does not necessarily amount to fraud, giving rise to an action of deceit.

[27] In the case of Scott v Brown, Doering McNab & Co[8] Lindley LJ commented that:

[16]

[28] This dictum reflected earlier dicta such as that of Lord Tenterden CJ in Wetherell v Jones,[10] who held that where a contract which a plaintiff seeks to enforce is, expressly or by implication, forbidden by law, no Court will lend its assistance to give it effect.

[29] The case of Chettiar v Chettiar[11] concerned a claim by a father against his son for a re-transfer of land that had been placed in the son's name to achieve an illegal purpose. The Privy Council, in extension of the concept above referred to, held that the claim could not be entertained, as "in the present case, the father has, of necessity, to put forward, and indeed, assert, his own fraudulent purpose, which he has fully achieved".[12] That purpose had been to achieve a deliberate circumvention of governmental rubber production control regulations and the plaintiff was seeking to directly reap the benefits of his own illegal activity.

[30] In the Australian context the ex turpi causa rule was articulated by Mason J as being that "the court will not enforce [a] contract at the suit of a party who has entered into [the] contract with the object of committing an illegal act."[13]

[31] In the course of his judgment in Yango,[14] Gibbs ACJ noted that, in Wetherell, Lord Tenterden CJ had expressly made the point that whilst the Court will not lend its assistance to give effect to an illegal contract, nevertheless, where the situation is such that the consideration for a contract and the matter to be performed pursuant to it are both legal, a plaintiff has never been precluded from recovering by an infringement of the law, not contemplated by the contract itself, in the performance of something to be done on his part.

[32] Wetherell arose from a situation in which a vendor had sold alcoholic spirits without first procuring an excise permit specifying their strength. The Court held that, although the vendor's conduct in selling the spirits without a permit was a violation of the law, it did not deprive him of the right to sue upon a contract which was, in itself, perfectly legal - there having been no agreement, express or implied, in that contract that the law should be violated in the manner in which it was carried into effect.

[33] In Yango, Mason J made reference to the case of Cleaver v Mutual Reserve Fund Life Association,[15] in which Fry LJ was reported as saying that no system of jurisprudence can, with reason, include amongst the rights which it enforces, rights directly resulting to the person asserting them from the crime of that person.

[34] In the same case, Lord Esher MR, having accepted that, if the performance of the contract would be contrary to public policy, that performance cannot be enforced, went on to make a further important point. He was of the view that:

[18]

[35] This was an aspect also identified by Mason J in Yango.[17] He made the point that the application of the relevant principle often involves a conflict between two competing common law policies. That conflict is between the principle that, on the one hand, no Court ought to assist a criminal to derive benefit from his crime and, on the other, the principle that contracts deliberately undertaken by persons not under disability ought to be enforced.

[36] In Yango it was argued that, because the plaintiff had lent money in circumstances in which it was unlawfully conducting a banking operation contrary to regulatory legislation, that money was irrecoverable.

[37] Mason J expressed the view that to uphold such an argument would be to provide an inappropriate windfall to the borrower who had received the full benefit of the relevant transaction. He emphasised that the main considerations from which the ex turpi causa principle arose could be seen in the reluctance of the Courts to be instrumental in offering an inducement to crime or removing a restraint to crime.

[38] In the same case Gibbs ACJ took, as his commencement point, the fact that it could not be said that the relevant contract itself was performed for any illegal purpose. There was no suggestion that the money was borrowed for an illegal purpose and the fact that the contract was made in the course of the unlawful banking business did not mean that the contract was made in order that the lawful purpose of carrying on a banking business without authority could be achieved or carried out.

[39] Once it was held that neither the making nor the performance of the contract was unlawful, the fact that the contract was made in the course of the conduct of an unlawful business provided no ground for denying relief to the plaintiff. The illegality was something merely casual or adventitious.

[40] It is to be noted that this was a general process of reasoning that attracted approval in the later decision of the High Court in Fitzgerald v F J Leonhardt Pty Ltd.[18]

[41] It is convenient to move on from there to a consideration of the judgment of Spigelman CJ in Hunter Area Health Service v Presland.[19] In that case the learned Chief Justice held that the mere fact of the existence of relevant unlawful conduct is not finally determinative. It does not necessarily lead to a denial of remedy at law. The weight to be given to any unlawful conduct of a plaintiff depends on a range of considerations.

[42] These include:

[24]

[43] It is to be noted that Presland arose from a situation in which a plaintiff had been acquitted of murdering his brother's fiancée on the ground that he had been in a psychotic state at the time of the killing. The day before, he had been taken to a psychiatric hospital by police following an episode of bizarre and extremely violent behaviour. He was released after being interviewed by the psychiatric registrar on duty. He sued the local area health service and the registrar for negligently discharging him and for damages for the harm caused to himself while incarcerated prior to his acquittal.

[44] Spigelman CJ concluded his analysis of the relevant legal principles by making the point that the significance of moral culpability in determining the weight to be given to unlawful conduct is clearly established on the authorities. Where, as in Presland, a person has been held not to be criminally responsible for his or her actions on the ground of insanity, the common law ought not to deny that person the right to a remedy as a plaintiff.

[45] The key point that he sought to make was that, in such a context, the unlawfulness of the conduct was not entitled to weight in a multifactorial analysis.

[46] It only remains necessary to refer to the decision of the Full Court in Harry Goudias Pty Ltd v Akakios.[24]

[47] That case involved an allegation that the plaintiff had entered into a conspiracy with others to defraud the revenue - in that certain loan agreements were entered into in pursuance of a scheme said to have been designed to benefit the plaintiff with interest that would not be declared as income to the ATO.

[48] Whilst not denying the possibility of cases in which relevant illegality might come to the notice of the Court absent pleadings identifying the issue, the Full Court made the points that, where a defendant sought to rely on the fraudulent and dishonest conduct on the part of a plaintiff, it was incumbent on them both to clearly and unequivocally plead allegations of such conduct, with very specific particulars of the conduct sought to be relied on, and also to prove the alleged conduct to a standard that conformed with the reasoning of the High Court in Briginshaw v Briginshaw.[25]

[49] The corollary of that reasoning is, of course, that if the Court is to take cognisance of illegality absent formal pleadings raising the issue, it may only properly do so if the evidence before it plainly establishes a relevant illegality to the same standard of proof.

[50] Finally, it is to be noted that in Goudias the Full Court, relevantly, confirmed two other important points.

[51] First, it considered that the Court should not refuse to enforce contractual rights arising under a contract merely because the contract is associated with or is in the furtherance of an illegal purpose where that contract is not made in breach of a statutory prohibition upon its formation or upon the doing of a particular act essential to its performance or otherwise making unlawful the manner in which the contract is performed.

[52] Second, it pointed out that the nature and seriousness of any illegality and the extent to which it was wholly incidental or peripheral to a contract were important considerations.

[53] As this is I note the citation by Gray J with approval in Goudias[26] of the dictum of Thomas JA in Holdcroft v Market Garden Produce Proprietary Limited[27] to the effect that, in determining whether public policy requires the court to refuse to enforce an agreement, it will take into account many factors. These may include, where appropriate, the degree to which each party is involved in intended illegality, the expected level of benefit of each, the seriousness of the illegality, the consequences to other citizens or institutions, public morality, whether the Court can bring about a just result without undermining respect for the law, and many others.

[54] That reasoning is, of course, in conformity with the multi-factorial approach espoused by Spigelman CJ in Presland.

[30]

[62] There can be no doubt that, in now seeking to plead a new fundamental issue of illegality based on both civil deceit and an alleged breach of the Criminal Code, the defendant is in clear breach of O 13 of the Northern Territory Supreme Court Rules. This is so despite the plea of deceit in para [9] of the counterclaim. Rule 13.07 expressly stipulates that a party shall, relevantly in its defence, specifically plead a fact or matter which the party alleges makes the claim of the opposite party not maintainable.

[63] No such plea is contained in the defence. Whilst the defence does assert various misrepresentations of fact, these are merely pleaded as an answer to a claim by the plaintiffs to equitable relief.

[64] It is stating the obvious to say that the primary purpose of pleadings is to clearly identify the issues arising between the parties and to prevent surprise - absent which it is impossible to conduct fair and orderly litigation. Proper pleadings constitute an integral part of the overall case management process.

[65] The trial in this matter went forward on the basis of the finally amended pleadings and there was never any hint that the matter now sought to be ventilated (in the manner in which the defendant now seeks to propound it) was a live issue between the parties.

[66] No plea based on the ex turpi causa principle, as such, has ever previously been raised in the pleadings, notwithstanding the fact that relevant inaccuracies and omissions in the re-financing proposal constituted a very live factual issue from the outset and was the subject of the counterclaim in deceit pleaded in para [9] of the counterclaim. Nor was such a contention ever remotely agitated at trial.

[67] The plea of deceit in the counterclaim fell far short of constituting a plea (or at least a satisfactory plea) of illegality giving rise to the application of the ex turpi causa principle.

[68] It was a global plea, generally asserting falsehood of a wide range of alleged representations, and was not particularised. On any view, it was scarcely a form of pleading that conformed with the requirements of authorities such as Gold Coast City Council v Pioneer Concrete (QLD) Pty Ltd,[30] Fisher v Rural Adjustment & Finance Corporation of Western Australia[31] and Hinds v Uellendahl.[32]

[69] It must be inferred that, from its perspective, this strategy was a considered decision on the part of the defendant.[33]

[70] Another important consideration, quite apart from the pleading rules, relates to the more general case management aspects of this litigation.

[71] An enormous amount of the time and resources of both the parties and the Court has been devoted to the preparation for and conduct of what has been a long and complex trial, directed to the factual and legal merits of this case, based on the pleadings in the form in which they finally emerged.

[72] As I have said, the factual basis of what is now proposed to be pleaded has been apparent to all concerned at all relevant stages. The alleged misstatements came as no new revelation or topic by reason of the publication of my primary findings. Those alleged misrepresentations were canvassed in considerable detail in the course of evidence as to issues of witness credibility and were identified in the very early stages of the trial.

[73] Had the issue of ex turpi causa been pleaded or raised in a timely manner, it might well have given rise, for example, to a consideration of the desirability of conducting an initial trial related to the issue of liability, prior to the very considerable expenditure of time and resources on issues related to quantum of damages.

[74] Moreover, as counsel for TSM points out, absent any plea of illegality, or even mention of ex turpi causa at trial, no attention was given by TSM to such issues in developing its evidentiary case to meet any issues of that type.

[75] An amendment as now proposed would effectively deny TSM procedural fairness unless the cases of the parties were reopened to permit a proper exploration of relevant factual aspects pertinent to the new issue - specifically as to issues bearing on whether or not there had been relevant knowing and deliberate dishonesty on the part of TSM or its directors in any acts of commission or omission; by way of contrast with mere negligent misstatements or misstatements arising in relation to a faulty perception of relevant situations or even obligations to disclose. There may also be a need to recall various defence witnesses for further cross-examination as to aspects relevant to the ex turpi causa issue.

[76] That proposition is not met by a mere riposte that the evidence at trial canvassed certain aspects potentially going to deceit, especially as to mental state considerations arising in relation to fraud or any alleged specific breach of the criminal law.

[77] Such a reopening - with its attendant delay, expense and escalation of the scope of the trial - would be unthinkable.

[78] As to this, I note the point made by Mr Wyvill, senior counsel for the defendant, that para [9] of the counterclaim certainly articulated the assertion that TSM knew that the written and implied representations there referred to were false and that TSM knew that they were false.

[79] However, this did not give rise to a need for TSM to direct attention to what evidentiary matters might need to be addressed to meet, for example, an asserted breach of s 227(3) of the Criminal Code, as now contended or, indeed, any other criminal behaviour - specifically those related to necessary mental state elements bearing on deliberate, knowing falsehood or omission. Nor did it necessitate an exploration of the factual relevance of any incorrect statements in relation to their actual impact upon the ultimate contractual relationships entered into by the parties. This is a particularly important consideration when my assessment of the personalities of DLS and ECD is borne in mind.[34]

[80] In short, the attempted formal plea of ex turpi causa at this juncture is nothing short of a complete negation of any notion of proper case management.

[81] It seems to me that the conceptual principles emerging from the dicta of the judges of the High Court in its recent decision in Aon Risk Services Australia Ltd v Australian National University[35] are pertinent to the situation in this case - at least by a parity of reasoning given that Aon focused on a belated application for leave to amend a statement of claim so as to raise a new basis of claim.

[82] It is fair to say that the plurality judgment in Aon did not accept a proposition based on dicta in the earlier decision in State of Queensland v JL Holdings Pty Ltd[36] that, generally speaking, a just resolution of litigation requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs thrown away.

[83] The plurality judgment cited with approval dicta to the effect that case management considerations were an important factor to be borne in mind and that, where a party has had ample opportunity to plead its case and has, in effect, elected to pursue a given course, it may be necessary for the Court to decline to permit the making of fundamental amendments to pleadings in the course of a trial, especially at virtually the end of that trial process.

[84] As the plurality commented, to say that case management principles should only be applied in extreme circumstances, to refuse an amendment implies that considerations such as delay and costs can never be as important as the raising of an arguable case. It also denies the wider effects of delay upon other litigants.

[85] To that I would, with respect, add that it also denies the effect of a proposed fundamental amendment in terms of the wanton waste of scarce and expensive public resources. To adopt the language of the plurality, it simply cannot be said that just resolution of litigation requires that a party be permitted to raise any arguable case at any point in the proceedings on payment of costs.

[86] In the instant case, my primary findings having been published and, having indicated a potential liability of the defendant in damages, that party now seeks to plead and argue a new, fundamental issue that it could have pleaded at the outset but did not.

[87] To grant leave to amend in such circumstances would be to constitute a parody of the pleading rules, to fly in the face of important case flow management principles and considerations and to ignore any notions of procedural fairness. This is particularly so when it is borne in mind that what is now proposed is the strategy of a defendant with deep pockets in attempting, at the last moment, to thwart the claim of plaintiffs with very limited resources.

[88] In those circumstances, the application for leave to amend must be refused.

[63]

[95] Taking the defendant's factual propositions at their highest, this is not a case where, in the relevant sense, TSM has, of necessity, to assert any illegal conduct as the basis for its claim.

[96] On the contrary, it merely relies on the breaches by the defendant of its obligations under a lawful commercial contract that benefited both parties. The defendant received full consideration and security in return for the assumption by it of those obligations.

[97] To the extent that monies were advanced for the purposes of and within the banker/customer relationship, they were advanced for the lawful commercial operational purposes of TSM. To employ the words of Gibbs ACJ, any illegality - if illegality there was - was something merely casual or adventitious. It was no more than a then somewhat remote collateral circumstance.

[98] I reject the proposition that any misrepresentations (if they were relevantly illegal) went to the whole core of the pertinent banking relationship and operations.

[99] On conducting the multi-factorial analysis envisaged by Spigelman CJ, it is at once apparent that, if there was any unlawful conduct on the part of TSM, it did not have any relevant weight in the present context. Indeed, it seems to me to ill behove the defendant to seek to evade liability in the circumstances, on the basis that it seeks to propound.

[100] Having enjoyed a commercial profit from the transaction, it now seeks to retain that profit, whilst also seeking to eschew the contractual obligations that it assumed towards its customer by becoming its banker and so obtaining such profit. It is, in a very real sense, seeking to 'have its cake and eat it too'.

[101] Finally, it must be said that, on the present state of the evidence, the Court simply could not conclude, to the Briginshaw standard, that there was relevant illegal conduct on the part of TSM attaching to the financing transaction as it ultimately went forward, by reason of the state of mind and knowledge of its directors.

[102] As to the matters to which the attention of the Court is specifically directed, these points arise:

[75]

[119] It seems to me that the very assumption that Edwards seeks to make begs the question as to whether the loss occasioned by the ANZ breaches of contract was, indeed, merely the loss of value of the business - which I take to be the essential thrust of Benward damages. As Mr Wyvill SC himself emphasised, the loss under consideration was a loss of opportunity to pursue the relevant business activity and continue to make an appropriate profit.

[120] The case of Benward damages focused on the measure of damages in tort, consequent upon the roof of a plaintiff's business premises collapsing due to the negligence of a contractor. The collapse had the practical effect of disrupting the plaintiff's printing business for a time, as a consequence of which it lost the business of certain major clients because of inability to meet printing deadlines.

[121] Palmer J accepted the contention that, in such circumstances, it was not appropriate to quantify the consequential economic loss suffered by the plaintiff by reference to some defined period during which the business was said to have failed to earn as much profit as it would have earned, had the collapse not occurred.

[122] He agreed with an expert accountant that, in the particular circumstances, the plaintiff had suffered and would continue to suffer a permanent loss in the value of its business and that the most appropriate method of quantification of the loss was therefore an adoption of the capitalisation of future profits method.

[123] This involved estimating the NPAT which the business was likely to have earned after adjusting for abnormal items, to produce a future maintainable profit figure. An appropriate rate of capitalisation multiplier was then to be applied to that figure.

[124] From the resultant amount, the present value of the business (arrived at in a similar mathematical fashion) was to be deducted, the resultant net difference being the compensable loss.

[125] As appears from the relevant judgment, such an approach essentially valued the diminution in goodwill of the printing business, due to the loss of the major clients in question.

[126] In the Court of Appeal Young CJ in Eq made the point that, on the facts there under consideration, the judgment at first instance was that there was a loss of value of the business and that the capitalisation rate adopted meant that the plaintiff was, in practical terms, being compensated for 4.5 years of lost profits - a result that was appropriate in the circumstances.

[127] Giles JA expressed the view that, in the particular circumstances, the loss in value method was appropriate because, due to the permanent loss of clientele, it was not feasible to assess a loss of income stream for any finite period.

[128] In the instant case, my task, conformably with the reasoning in Sellars v Adelaide Petroleum NL[55] and National Australia Bank Ltd v Nemur Varity Pty Ltd,[56] is to assess damages by reference to the loss that flowed naturally from the breach, or was loss of the type that should have been in the contemplation of the breaching party.[57]

[129] On the basis of reasoning in Benward and in Owners of Dredger Liesbosch v Owners of SS Edison[58] (which was also a claim in tort and turned on the questions of the concept of restitutio in integrum applied to loss by reason of a tortious act and the extent to which the external consideration of the financial situation of the ship owner was relevant, if at all), it was argued on behalf of the defendant that, in the instant case, the correct approach to be adopted was that, because the loss sustained by TSM was a loss for all time, the loss of the relevant commercial opportunity fell to be assessed solely as a loss of capital value.

[130] Here, the effective result of the breaches was ultimately, as asserted by TSM, to cause the relevant business to fail (thereby giving rise to a serious diminution in capital value) whilst, at the same time, also denying TSM the opportunity of continuing and developing that business, so as to earn profits.

[131] In my opinion an award of Benward damages, which were the product of a quite different factual scenario and in a tort context, would not achieve a relevant and just end result in conformity with the authorities to which I have referred.

[132] Having said that, and as Finn J pointed out in Ductline Pty Ltd v Arcric Investments Pty Ltd,[59] albeit in relation to assessment of damages for contravention of s 52 of the Trade Practices Act 1974 (Cth), it is important to ensure that double compensation is not awarded. Given that imperative, he was, nevertheless, of the opinion that, on the facts of that case, it was appropriate that damages be awarded both in respect of loss of business profits resulting from the relevant contravention and also for damage to the applicant's goodwill.[60]

[133] In this case both logic and justice dictate that TSM ought to recover both its capital loss, in terms of the dissipation of the value of the business and its goodwill, and also an appropriate sum in recognition of its loss of opportunity to trade on, develop its business and earn profits, both components being losses that should have been in the reasonable contemplation of ANZ at the time of its breaches.[61] The conceptual approach adopted by Wilcox J in the contract case of Flamingo Park Pty Ltd v Dolly Dolly Creations Pty Ltd[62] supports such a conclusion.

[134] When it is appreciated that the capitalisation of future maintainable profits is simply a means of measuring, in capital terms, the inherent value of the relevant business and its goodwill, there is no double counting in adopting the approach to which I have referred, as asserted by ANZ.

[135] In its submissions, the defendant contends that the correct calculation of damages should simply be based on the capitalised value of the loss of the business as at 2 January 1998 (the date of breach) being the NPAT for the 1998 year ($79 873) to which a PER multiplier of three should be applied - giving rise to a resultant figure of $239 619, from which the capital value of the business as at 1997 should be deducted.

[136] In my primary findings[63] I concluded that the methodology adopted by the witness Clark in calculating capital loss was appropriate and gave rise to a resultant figure of $189 018, which ought to be discounted by 50 per cent to $94 509. This contrasts with a figure of $119 809 arrived at by the defendant by its different mathematical approach.

[137] The present submission, in effect, asks me to revisit my primary findings. Those findings were the considered product of my review of the submissions made at trial and I am of the view that it is inappropriate to do so. I adhere to such findings.

[138] I merely comment that there is considerable force in the TSM contention that a mere capitalisation of the loss of value of the business at or about 2 January 1998 ignores the fact that the business continued to trade for a considerable time thereafter, albeit unsuccessfully in the particular circumstances; and TSM has not received the benefit of any compensatory amount. There was never any intention of selling the business as at 1998 and the principals of TSM strove to maintain it, even though their efforts did not ultimately prove fruitful. There was no permanent destruction of TSM or of its undertaking as at, or immediately following, the relevant breaches.

[139] I see no reason to question the Clark and Martin methodology in light of the evidence of Edwards. Each of them was disposed to consider the loss of potential profit over a ten-year period.

[140] I agree that, bearing in mind the fact that a loss of opportunity assessment must, inevitably, involve a broad axe approach, the loss assessed must, nevertheless, necessarily be based on some reasonable finite time span. Various minds may reasonably differ as to what that span ought to be but I see no reason to quarrel with the period selected by the two experts.

[141] In practical terms, TSM is entitled to have, as the commencement point for its assessment of damages, loss computed in accordance with my primary findings, in the following manner:

[78]

[142] In my primary findings[64] I made reference to the submission of counsel for ANZ that the clearing of the $460 000 cheque had not resulted in loss to any of the plaintiffs because TSM obtained a benefit of like value. This was said to be by virtue of the fact that the effect of the drawing of the cheque was that the alleged Godwin properties became available to provide first mortgage security to support the ANZ loan facilities - which securities were ultimately so dealt with as, in effect, to realise full value to TSM and/or other plaintiffs.

[143] That assertion was not factually correct, at least to the extent that, in any event, a $48 286.25 portion of the cheque proceeds was paid to the credit of Godwin's account with the NAB and, inferentially, applied for his own purposes.

[144] Bearing in mind that the $570 000 cheque (against the proceeds of which the $460 000 cheque was drawn) was paid to the credit of TSM's account and applied for its purposes rather than those of LTD to whom NPG purported to make the relevant loan, it must be said, as a general comment, that TSM clearly became liable to account to LTD and/or NPG at the time for that sum and thus increased its total liabilities at the time by that amount.

[145] The individual, personal security owners simply exchanged one creditor for another and the ANZ loan facilities were made de facto available to TSM, thereby rendering it primarily liable, in any event, to repay the secured debts to the bank, as well as also being liable to its sureties in the event that the mortgages were, in effect, called up. The figures before the Court indicate that the net liability of TSM to DLS, NKS, ECD and SED alone, as sureties, amounted to some $408 000.

[146] At the end of the day, the net result was that, by reason of the $570 000 cheque transaction, TSM's liabilities, prima facie, remained increased by that amount over and above its originally contemplated and then existing debt level.

[147] That said, I also note the protest of TSM that this contention was never the subject of express pleading and that the evidence was therefore never directed to topics such as:

(1) the precise application of the proceeds of the $570 000 cheque;

(2) the accounting treatment that was given to the relevant transactions, including the alterations in the respective liability positions of each of TSM, LTD and the personal plaintiffs by virtue of the two impugned cheque transactions; or

(3) the circumstances leading to the entry by the parties into what is said to be a deed of settlement dated 9 March 2000 related to the proceeds of sale of the Brayshaw Crescent property and the $50 000 said to have been paid by Walter Lew Fatt to retain the Wells Street property. That deed of settlement is not before the Court.

[93]

[153] TSM further seeks interest on that sum since 2 January 2008.

[154] The defendant disputes liability to pay the sums claimed by TSM as scheduled above or interest on them. Alternatively, it disputes liability to pay certain of the components claimed.

[155] As I understand the defendant's primary contention, it is that (what it describes as) the broad brush assessment of the capitalised value of TSM, based on the hypothetical NPAT adopted for 1998, necessarily picks up all of the income and expenditure of that entity for the whole year.

[156] In those circumstances it is said that the specific items identified as paid in relation to re-financing on or after 2 January 1998 amount to a departure from the adopted hypothetical financial performance, but only in relation to one specific category of expenses.

[157] Accordingly, it is argued, it would double compensate TSM and double penalise the defendant to award damages by both arriving at a capitalised value of that entity based on the alternative 1998 financial year net profit and also allow a specific item of expenditure incurred in the equivalent 'actual' year, by reason only of its direct connection with events close to the breach.

[158] The defendant seeks to argue that an award of damages for the diminished capital value of TSM based on its hypothetical financial performance adequately compensates TSM for its loss. It then becomes inappropriate to consider individual items of expense associated with re-financing.

[159] In the alternative, the defendant contends that no interest differential is claimable, because the ANZ simply exercised its contractual rights under the finance agreement following default by TSM, by reassessing the risk rating for TSM, thus giving rise to the relevant increased interest rates.

[160] It is argued that, at best, the amounts properly justifiable on the evidence are $925 paid to ATSIC[65] and $1845 paid to ANZ for security fees. It is submitted that the evidence does not justify or vouch any other fees claimed.

[161] I consider that there is an inherent fallacy in the defendant's contention concerning a double compensation in respect of this head of claim.

[162] In my opinion, the criticism proffered would be valid if the expenses that are in contemplation were normal operating expenses of the TSM business or were expenses of a type that, manifestly, it would have incurred in any event in the normal course of its operations. This was not the situation.

[163] Leaving aside the excess interest component, the expenses incurred were extraordinary, 'one-off' expenses directly associated with the implementation of the ANZ loan transactions and required to settle them. They were, in no sense, normal operating expenses of TSM.

[164] In fact, the inclusion of the items in question in the normal operating expenses of TSM necessarily has had the practical effect of actually diminishing the figures utilised to assess both capital and income losses in what, technically, is probably an inappropriate manner. There is a reasonable argument that it has thus actually benefited the defendant in a windfall manner.

[165] However that may be, there can be no logical basis on which it can be asserted that their allowance will result in any double counting in favour of TSM.

[166] Nor, in my opinion, is there validity in the contention that the excess interest charged by the defendant post 5 February 1998 is not claimable because it was no more than the product of a contractual right exercised by ANZ pursuant to the relevant loan conditions.

[167] The reality of the situation is that the right to charge a higher rate of interest stemmed from the ANZ risk re-assessment consequent upon the revelation of Godwin's criminal conduct in relation to the $570 000 cheque and the impact that this ultimately had on TSM's ability to meet its obligations.

[168] The evidence does not suggest that, absent those factors, TSM could lawfully have been called upon to pay the higher rate of interest actually levied, in the normal course of events.

[169] I conclude that the amounts claimed are losses directly sustained by TSM as a consequence of the defendant's breaches of contract and should be included in any damages awarded to it.

[170] Subject to wider considerations pertinent to the award of interest, to which I will separately come in due course, I consider that TSM is also entitled to recover interest on the total of the expenses, pursuant to s 84 of the Supreme Court Act.

[106]

[181] Perry J expressed the view that it follows that there is clear authority which, as a matter of strict principle, points to the soundness of the proposition that the relevant figures ought to be adjusted for inflation. However he was of the view that, for the reasons mentioned by King CJ, this was an area where strict theory did not necessarily always correspond with day-to-day practice.

[182] It was his perception that, in practice, most cases proceeded on the basis of the calculation of past loss of earning capacity in historic terms without any direct adjustment for depreciation in the value of money. It was normally left, he said, to the award of interest which, on pre-trial economic loss, is at commercial rates, to redress the element of under compensation which would otherwise be apparent.

[183] Nevertheless, he conceded that, as had been pointed out by some judges in Johnson v Perez,[79] an award of interest may not always be adequate to that task.

[184] Perry J went on to further comment that he suspected that, in the case before him, where the Court was addressing a loss extending over some 14 years, an award of interest at the levels conventionally awarded, would prove to be inadequate fully to redress the effects of inflation over that period. He said that the Court owes a duty to select the process of assessment which is likely to ensure, so far as is possible, that the plaintiff is put in the position he would have been in, had the injury not been suffered.

[185] Accordingly, in the case before him, that aim was best achieved if the assessment of the allowance for past loss of earning capacity proceeded on the basis of levels of remuneration adjusted to reflect current values.

[186] In the instant case, such a conclusion would, in my opinion, give rise to a clear situation of double counting if, as I consider should be the case, full market rates of interest are allowed pursuant to s 84 of the Supreme Court Act. I therefore decline to make CPI adjustments, as proposed by counsel for TSM

[110]

[199] In its submissions, the defendant asserts that these proceedings were characterised by what it terms substantial periods of inactivity or delay by all plaintiffs which, it contends, ought to lead to a disallowance of pre-judgment interest in respect of those periods. I will shortly return to the submissions of Mr Wyvill SC bearing on this factual aspect.

[200] The defendant bases its argument on what fell from Finn J in HK Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon (a firm)[83] and Ashley J in Nemur Varity.[84]

[201] In Frost,[85] Finn J observed that there is considerable diversity in judicial opinion as to the extent to which, if at all, the period selected for an interest award should be moulded adversely to a party that delays in the prosecution of a claim, where no resultant detriment to the other party is proved.

[202] He felt that, absent binding contrary authority, he was justified in adjusting periods of interest allowed, if not to do so would work an injustice to the other party - that, as he put it, "an applicant that has been held out of the benefit of its money because of its own unreasonable actions should not be allowed, as of course, to cast the effects of a 'self-inflicted burden' onto the respondent".

[203] In Nemur Varity, Ashley J was of the view that, under the applicable statutory provisions in Victoria that mandated the disallowance of interest where 'good cause' is shown for so doing, delay to plaintiff was a relevant consideration.

[204] In my opinion, the appropriate statement of principle applicable to the instant case is that expressed by the Court of Appeal in Kalls.[86]

[205] The Court unanimously held that delay is, ordinarily, not a reason for refusing or reducing the inclusion of interest. The defendant has had the use of the money and the plaintiff has been out of its use and should be compensated accordingly. The core purpose is, in fact, to compensate the plaintiff for being kept out of its money. Interest ought therefore to be included in order to fulfil that purpose, unless good cause to the contrary be shown.

[206] However, the Court went on to say that delay can, nonetheless, be relevant in the exercise of the statutory discretion. Unreasonable delay coupled with a high interest rate may mean that the defendant is unjustly left as the source of the plaintiff's investment income. The question is one of whether, in the circumstances, injustice is occasioned to the defendant. If, for example, the interest rates are unduly high, the plaintiff's self-inflicted loss of use of money ought not to be unfairly made a burden on the defendant.

[117]

[219] It will at once be seen that the delay that has occurred was in no sense occasioned by any deliberate dilatoriness on the part of any of the plaintiffs, or by any lack of desire on their part to progress the litigation. The material before me abundantly indicates that they were in a well-nigh desperate financial situation and did their best to proceed as and when they could and (subject to the requirements of the liquidator and administrator) with what modest resources they were able to garner from time to time.

[220] Added to that, they were faced with litigation that was inherently complex and was always going to take a very substantial time in which to come to trial in the normal course. The volume of evidence and the massive discovery processes evident at trial bore eloquent testimony to those aspects.

[221] It is to be noted that, at least in the latter stages of the proceedings when I became involved in the management of them, the honours were fairly evenly divided between the plaintiffs and the defendants as to failure to meet appropriate deadlines. I do not make that comment in a denunciatory fashion. It was a simple fact of life that preparation for trial by both parties was an extremely time-consuming and resource costly process.

[222] The inevitable conclusion must be that this is a situation of the category adverted to by Smith J in Alucraft. Conformably with Kalls, I see no proper basis for denying TSM pre-judgment interest from the date of the occurrence of the cause of action to date of judgment.

[223] I therefore direct the parties to prepare and lodge with me an appropriate computation of interest on the basis of the rate that I have earlier indicated, within 21 days. If they are unable to agree, I will hear supplementary argument on that question.

[224] Prima facie, bearing in mind the non-allowance of CPI adjustments, interest should run on the damages assessed as from 2 January 1998, and on the refinancing costs fees and expenses from their respective dates on which they were incurred, save that, as a matter of practicality, interest may fairly be calculated on the additional interest paid by the defendant as from the last date of payment of such interest.

[118]

[225] TSM takes, as its commencement point, the fact that the damages assessment in this case has derived from NPAT figures stemming from the 1997/1998 financial year data.

[226] It makes the point that the income-tax returns lodged with the ATO were prepared on an accruals basis, as appears from the TSM documentation tendered in these proceedings[90] and also the affidavit of DLS sworn on 28 September 2009.

[227] It is argued that, because TSM will become liable to pay tax on any profit-based component of a damages award, it becomes necessary to "gross up" such award to reflect that situation.

[228] In support of that proposition, Mr Sallis directs attention to the reasoning of Einfeld J in SVI Systems and what fell from Rogers J in Gill v Australian Wheat Board.[91]

[229] With respect, it seems to me that the conclusion that was come to by Rogers J in the latter case accords with plain common sense and logic.[92]

[230] However, as Mr Wyvill SC points out, TSM necessarily confronts two fundamental hurdles in propounding its "grossing up" contention.

[231] First, this issue was never raised in the pleadings related to damages and also it was never agitated at trial. It is said to be now too late to seek to raise the issue, because to do so would be to deny the defendant an opportunity of obtaining and leading expert evidence pertinent to it.

[232] Second, and perhaps more importantly, it is argued that there is simply no definitive evidence before the court to establish what net tax liability (if any) is likely to arise and thus no basis of fact on which the court could properly make any satisfactory calculations.

[233] In this latter regard, it is patent that the ultimate tax outcome is, on the information currently available, quite unpredictable due to issues such as possible accumulated offset losses and other relevant accounting factors associated with the liquidation and other administration processes.

[234] I took Mr Sallis to submit that the taxation issue did not really emerge until at least the essential thrust of my primary findings became apparent. He submitted that, given that the factual evidence was not before me or even presently available to enable any tax liability to be ascertained, the proper course would be to adopt the approach of Hodgson J in Rabelais Pty Ltd v Cameron.[93]

[235] I was invited to either make some appropriate declaration or, alternatively, reserve leave to TSM to apply for an order for additional damages referable to any necessary grossing up, when the final tax situation is eventually known.

[236] Just as the defendant's proposed case on ex turpi causa was un-pleaded and fatally belated, so also is this present issue. It must have been abundantly apparent that the TSM claim to damages would potentially give rise to this type of issue, yet the plaintiffs chose to go to trial without pleading or identifying it, in a fashion that has precluded the defendant calling expert evidence with regard to the question.

[237] Whilst it is true that a reservation of this question would enable that problem to be overcome, it would also necessarily cause a reopening of trial issues and at least a limited, end on, further trial to take place. Such a process would necessarily give rise to a concomitant additional delay and a further significant cost in arriving at a final conclusion of this litigation.

[238] In all of the circumstances I am not prepared to adopt the course proposed by TSM. It would be a gross negation of case management principles to do so.

Territory Sheet Metal Pty Ltd & Others v Australia and New Zealand Banking Group Ltd [2010] NTSC 3

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