Landoro (Qld) Pty Ltd v Jensen International Pty Ltd
[1999] QCA 318
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- Unreported Judgment
- Appeal Determined (QCA)
- Landoro (Qld) Pty Ltd v Jensen International Pty Ltd[1999] QCA 318
- Add to List
Landoro (Qld) Pty Ltd v Jensen International Pty Ltd[1999] QCA 318
Landoro (Qld) Pty Ltd v Jensen International Pty Ltd[1999] QCA 318
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No 5783 of 1998
Brisbane
BETWEEN:
LANDORO (QLD) PTY LTD
(ADMINISTRATOR APPOINTED)
ACN 056 314 839
(First Plaintiff) First Appellant
AND:
BRUCE EDMUND McLAREN and
SUZANNE ROSEMARY McLAREN
(Second Plaintiffs) Second Appellants
AND:
JENSEN INTERNATIONAL PTY LTD
ACN 010 068 872
(First Defendant) First Respondent
AND:
FLETCHER CONSTRUCTION AUSTRALIA LIMITED
ACN 054 067 284
(Second Defendant) Second Respondent
AND:
JACK RANDOLPH LEE
(Fourth Defendant) Third Respondent
McMurdo P
Davies JA
Demack J
Judgment delivered 20 August 1999
Separate reasons for judgment of each member of the Court; Demack J dissenting in part.
THE APPEAL IS ALLOWED AND THE JUDGMENT OF THE CHAMBER JUDGE SET ASIDE.
THE APPELLANTS HAVE LEAVE TO AMEND THE STATEMENT OF CLAIM IN TERMS OF THE PROPOSED AMENDED STATEMENT OF CLAIM EXHIBITED TO THE AFFIDAVIT OF BRIAN KELLEHER FILED HEREIN ON 26 MAY 1998 TOGETHER WITH THE PROPOSED AMENDMENTS SUBMITTED TO THIS COURT BY MR O'DONNELL QC WHICH ADD PARAGRAPHS 87 AND 88.
THE APPELLANTS TO PAY THE RESPONDENTS' COSTS OF THE APPLICATION BEFORE THE CHAMBER JUDGE.
THE SECOND RESPONDENT, FLETCHER CONSTRUCTION AUSTRALIA LIMITED TO PAY THE APPELLANTS' COSTS OF THE APPEAL.
CATCHWORDS: DAMAGES - GENERAL PRINCIPLES - RECOVERY OF COSTS
DAMAGES - MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR BREACH OF CONTRACT - REMOTENESS - LIABILITIES INCURRED
PROCEDURE - SUPREME COURT PROCEDURE - QUEENSLAND - PRACTICE UNDER RULES OF COURT - AMENDMENT
Appeal against refusal to grant leave to amend statement of claim - accelerated performance of contract where respondent aware of increased burden upon appellant - non-payment of reasonable costs of acceleration caused appellant to go into administration - damages claimed for breach of contract and misleading and deceptive conduct - appellant sought to claim costs of administration, administrator's litigation expenses and cost of litigation finance agreement as damages - whether claims were so untenable as to have no possibility of success - whether further loss was in contemplation of the parties
Trade Practices Act (Cth) 1974, s 52, s 82(1)
Energy & Resource Conservation Co Pty Ltd (in liquidation) & ors v Abigroup Contractors Pty Ltd & ors (NSWSC 55023/1997, 18 March 1998), Hadley v Baxendale (1854) 9 Ex 341, Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358, Hungerfords v Walker (1988-1989) 171 CLR 125, referred to.
Berry v British Transport Commission [1962] 1 QB 306, Marks v GIO Australia Holdings Ltd (1998) 73 ALJR 12, [1998] HCA 69, Pelletier v Pe Ben Industries Company Ltd [1976] 6 WWR 640, approved.
Rajski v Powell (1987) 11 NSWLR 522, applied.
Cachia v Hanes (1994) 179 CLR 403, distinguished.
Counsel: Mr B O'Donnell QC for the appellants
Mr P Dutney QC with him Mr D Savage for the second respondent
No appearances for the first and third respondents
Solicitors: Barwicks Wisewoulds for the appellants
Phillips Fox for the second respondent
Bridge Brideaux for the first and third respondents
Hearing Date: 1 June 1999
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No 5783 of 1998
Brisbane
Before McMurdo P
Davies JA
Demack J
BETWEEN:
LANDORO (QLD) PTY LTD
(ADMINISTRATOR APPOINTED)
ACN 056 314 839
(First Plaintiff) First Appellant
AND:
BRUCE EDMUND McLAREN and
SUZANNE ROSEMARY McLAREN
(Second Plaintiffs) Second Appellants
AND:
JENSEN INTERNATIONAL PTY LTD
ACN 010 068 872
(First Defendant) First Respondent
AND:
FLETCHER CONSTRUCTION AUSTRALIA LIMITED
ACN 054 067 284
(Second Defendant) Second Respondent
AND:
JACK RANDOLPH LEE
(Fourth Defendant) Third Respondent
REASONS FOR JUDGMENT - McMURDO P
Judgment delivered 20 August 1999
- I have had the benefit of reading the reasons for judgment of Davies JA and the reasons of Demack J.
- I agree with Demack J for the reasons given by him that the appeal should be allowed and that the appellants have leave to amend the statement of claim in the terms proposed by Demack J, save for the exception set out in his proposed order B.
- I also agree with Davies JA for the reasons given by him that the proposed amendment to the statement of claim in respect of the insured litigation finance agreement referred to in item 81 of schedule C should also be allowed.
- I agree with the orders proposed by Davies JA.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No 5783 of 1998
Brisbane
BETWEEN:
LANDORO (QLD) PTY LTD
(ADMINISTRATOR APPOINTED)
ACN 056 314 839
(First Plaintiff) First Appellant
AND:
BRUCE EDMUND McLAREN and
SUZANNE ROSEMARY McLAREN
(Second Plaintiffs) Second Appellants
AND:
JENSEN INTERNATIONAL PTY LTD
ACN 010 068 872
(First Defendant) First Respondent
AND:
FLETCHER CONSTRUCTION AUSTRALIA LIMITED
ACN 054 067 284
(Second Defendant) Second Respondent
AND:
JACK RANDOLPH LEE
(Fourth Defendant) Third Respondent
REASONS FOR JUDGMENT - DAVIES JA
Judgment delivered 20 August 1999
- I have had the advantage of reading the reasons for judgment of Demack J. I agree with him that the appeal should be allowed and that the appellant should have leave to make the amendments to the statement of claim which he would allow. However as appears from what I say below I would also allow the further amendments sought by the appellant Landoro.
- That appellant, which is the only appellant affected by the orders made below, according to its statement of claim entered into the subcontract with the respondent Jensen in November 1994 to carry out paving work on the Brisbane Casino project for the sum of $421,455. It alleged that, prior to making that subcontract, it communicated to Jensen that it would be dependent on the cash flow from the project to pay its bills and that it could not survive unless it received prompt progress payments from Jensen. There were variations to that subcontract to include further work.
- Landoro then alleged that, between September 1994 and April 1995 Jensen agreed that, in consideration of Landoro accelerating the work, Jensen would pay Landoro reasonable remuneration for that acceleration. It alleged that its costs of that acceleration were $185,000. In the alternative it alleged a new subcontract in those terms.
- Landoro alleged that, prior to making the acceleration agreement, or alternatively the new subcontract, Landoro communicated to Jensen that the acceleration would place a much greater strain on Landoro's cash flow, Landoro would be unable to continue its other normal business resulting in a loss of income of about $50,000 a month, Landoro's financial resources would be stretched to the limit, and Landoro would not be able to continue to operate without being paid a reasonable amount for accelerating its work. It then alleged that in breach of contract Jensen failed to pay for either the variations to the contract or the cost of acceleration.
- Landoro's alternative claim against Jensen was for misleading and deceptive conduct under s 52 of the Trade Practices Act (Cth) 1974, the conduct being a representation by Jensen that Jensen would pay Landoro's reasonable costs of acceleration. Landoro alleged it was induced by the representation to accelerate its work.
- Landoro made similar claims against Fletcher. It alleged that, in consideration of Landoro accelerating its work, Fletcher agreed to pay a reasonable amount for that acceleration and it alleged that prior to making that agreement Landoro had communicated to Fletcher the facts which it had communicated to Jensen. It also made an allegation against Fletcher of misleading and deceptive conduct and a claim in that respect against Fletcher.
- As Demack J has pointed out, the amendments disallowed below involved three items of loss or damage claimed either as damages for breach of contract or as damages for misleading and deceptive conduct. They were general costs of administration under a Deed of Arrangement of Landoro, specific costs of the administrator associated with the present litigation and the cost of litigation finance to fund the present litigation.
- For the first time in this Court, Landoro sought to add two further paragraphs to its statement of claim. The first of these alleged that if Landoro had received the amounts due from Jensen and Fletcher as and when they became due it would have been able to and would have met its obligations to its creditors as and when they fell due. And the second alleged that by reason of the non-payment of those amounts it could no longer meet those obligations and, in consequence, entered into the administration which it did, thereby incurring the obligations which it did but mitigating the loss which might otherwise have occurred. The appellant was allowed to formulate these amendments on the basis that, subject to any question of costs, this Court would consider the amendments disallowed as if supported by these two additional paragraphs.
- In considering whether to disallow the amendments it should be borne in mind that these claims involve an area of law which is developing and which is by no means clear. In these circumstances, in particular, this Court should not prevent them from being litigated unless they are so obviously untenable that they cannot possibly succeed. See for example Rajski v Powell (1987) 11 NSWLR 522 at 524.
- As to the claims for administration costs generally and, specifically in overseeing this litigation, as damages for breach of contract, I agree with what Demack J has written. Central to both of these claims, and indeed also to the claim for the cost of litigation finance, is the allegation, in effect, that the respondents knew that unless the appellant was paid promptly for the work and its acceleration, it would be unable to continue to operate and, it follows, might have to reach an agreement with its creditors of the kind which it did. Moreover, as Demack J points out, in effect, there is no difference in kind between damages of the first category and those of the second. And it may also be said of both that they were steps taken in order to mitigate greater loss.
- Those or similar arguments may, in my view, also be advanced to support recovery of the cost of litigation finance. The respondents' breaches caused the money to be owing; and, if they knew that Landoro would be unable to operate without that money, it is arguable that they must have known that, in that event, it would be unable to finance litigation to recover it either from its own resources or through ordinary avenues of borrowing. This argument assumes, as the appellant has contended, that litigation finance comes at a higher price than ordinary business loans. It is the extra cost of that finance, caused by the appellant's foreseen impecuniosity, which is arguably recoverable.
- To allow these claims to proceed is not, by any means, to assert their correctness. It is no more than, as mentioned earlier, to deny that they are so obviously untenable that they cannot possibly succeed. It may be that these claims are not pleaded with sufficient exactitude or do not sufficiently allow for contingent benefits which may accrue to the appellant; for example, the discharge of its creditors under the deed if that occurs. But that should not prevent litigation of the real issues between the parties which are, by now, sufficiently exposed. I would accordingly allow the amendments as pleaded.
- The damages claims under the Trade Practices Act are, in this respect if not in others, on firmer ground in that, as the passages cited by Demack J from Marks v GIO Australia Holdings Ltd (1998) 73 ALJR 12 show, once a causal connection is shown between contravening conduct and loss or damage, the questions of remoteness, which arise in damages for breach of contract, do not arise.
- I would therefore make the following orders:
- that the appeal be allowed and the judgment of the chamber judge set aside;
- that the appellants have leave to amend the statement of claim in terms of the proposed amended statement of claim exhibited to the affidavit of Brian Kelleher filed herein on 26 May 1998 together with the proposed amendments submitted to this Court by Mr O'Donnell QC which add paragraphs 87 and 88;
- that the appellants pay the respondents' costs of the application before the chamber judge;
- that the second respondent Fletcher Construction Australia Limited pay the appellants' costs of the appeal.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No 5783 of 1998
Brisbane
Before McMurdo P
Davies JA
Demack J
BETWEEN:
LANDORO (QLD) PTY LTD
(ADMINISTRATOR APPOINTED)
ACN 056 314 839
(First Plaintiff) First Appellant
AND:
BRUCE EDMUND McLAREN and
SUZANNE ROSEMARY McLAREN
(Second Plaintiffs) Second Appellants
AND:
JENSEN INTERNATIONAL PTY LTD
ACN 010 068 872
(First Defendant) First Respondent
AND:
FLETCHER CONSTRUCTION AUSTRALIA LIMITED
ACN 054 067 284
(Second Defendant) Second Respondent
AND:
JACK RANDOLPH LEE
(Fourth Defendant) Third Respondent
REASONS FOR JUDGMENT - DEMACK J
Judgment delivered 20 August 1999
- This is an appeal from the decision of a Chamber Judge refusing the first plaintiff (“Landoro”) leave to amend the statement of claim. Landoro alleged that in November 1994 it entered into a subcontract with the first defendant (“Jensen”) to perform paving work at the Brisbane Casino and Hotel site. It alleged that it informed Jensen that it depended on the cash flow from the project to pay its bills and that it would not survive unless it received prompt progress payments from Jensen. It alleged that the time for performance of the contract (a period of six months) was accelerated in February 1995 so that the work was to be completed by the end of March 1995. It alleged that Jensen agreed to pay the reasonable costs of the acceleration. Landoro communicated to Jensen that to accelerate the work it would be unable to continue its normal work and would lose income of $50,000 per month.
- The proposed amendment which was disallowed comprised three additional claims. First, because reasonable payments were not made Landoro became insolvent and went into administration pursuant to the provisions of the Corporations Law. Because this was contemplated or ought reasonably have been contemplated the costs of the administration were claimed as damages. Second, apart from the general costs of administration, the administrator had expenses associated with the present litigation, and these expenses were claimed as damages. Third, to fund the litigation, insured litigation finance agreements were entered into and the costs of those were claimed as damages.
The Chamber Judge’s Reasons
- Having noted the agreements advanced by counsel, the learned Chamber Judge said:-
“As to the claim in relation to the administration costs and expenses, Mr Dutney, on behalf of the second defendant, submitted that the law provides a remedy for the immediate consequences of the non-payment of money in the form of interest and does not provide for the indirect consequence of the non-payment of money, as in the present case, the cost of administering the affairs of the creditor either in and about the litigation or independent of the litigation. In my view that submission is correct, and such a loss is treated as either not causally related to an alleged breach of contract or as too remote.
Insofar as administration costs were incurred in connexion with the present litigation, I conclude they would not be recoverable as damages because it is settled that a litigant is not entitled to compensation for time spent in the pursuit of litigation, Cachia v. Hanes (1994) 179 CLR 403.
As to the other claim, i.e., the claim in respect of losses suffered by the first and second plaintiffs in and about the voluntary administration including those resulting from seeking and obtaining litigation finance to fund the action, I conclude that such a claim is not arguable either. It necessarily includes an unsustainable assertion that it is foreseeable that litigation will be funded by a litigation-funding agreement with the consequence of making what would otherwise be a fee for the financing recoverable as damages. Furthermore, that claim seeks to recover amounts relating to the incurring of costs and not to the alleged breaches of contract. As such they are outside the scope of damages.”
- Landoro has appealed from this decision on the following grounds:-
“1. His Honour erred in holding that the claims sought to be made by the amendments were not arguable, and effectively had no prospect of success.
- His Honour erred in holding that, in effect, the only damages which might ever be recovered for the loss of use of money are damages ‘in the form of interest’.
- His Honour erred in not considering whether the claims sought to be made by the amendments were at least arguable by the application of the so called second limb of the rule in Hadley -v- Baxendale (1854) 9 Ex 341 and by reference to the decision in Hungerfords -v- Walker (1991) 171 CLR 125.
- His Honour erred in the application of the decision in Cachia -v- Hanes (1994) 179 CLR 403 to the claims sought to be made by these amendments.”
- On the hearing of the appeal, Jensen and the third defendant did not appear. The second defendant (“Fletcher”) sought to uphold the decision. It is necessary to set out in more detail the statement of claim particularly to indicate how Fletcher is involved. To succeed on the appeal, Landoro must show that the proposed amendments were not obviously untenable: Rajski v Powell (1987) 11 NSWLR 522.
The Statement of Claim
- The initial sub-contract made between Landoro and Jensen in November 1994 was for the sum of $421,455. Variations were alleged to have been made in accordance with schedule A to the statement of claim. There are 56 items in schedule A and the additional amount claimed is $246,009.79. The additional costs associated with the acceleration of the work are set out in schedule B to the statement of claim. The amount claimed is $184,993.78. There is an alternate claim which alleges a new sub-contract comprising the original items, the variations and the costs associated with the acceleration. All of these allegations involve Landoro and Jensen.
- As originally pleaded, the claim against Fletcher was based on s 52 of the Trade Practices Act 1974. It was alleged that senior employees of Fletcher, which was the head contractor on the project, said that if the work was accelerated, Landoro’s reasonable costs would be covered. This was alleged to be misleading and deceptive. The learned Chamber Judge allowed amendments, which are not the subject of an appeal, which put this claim on the basis of a promise to make a reasonable payment.
The Disallowed Amendments
- The proposed amendments which were disallowed were contained in paras 84, 85 and 86 and in schedule C. At the hearing of the appeal the question whether these were sufficient to sustain the argument advanced was raised. Mr O'Donnell SC who appeared for Landoro has, since the hearing, added paras 87 and 88 to his proposed amendments. Paragraph 84 pleads extensively the burden that accelerating the performance of the contract cast upon Landoro and asserts this was known to Jensen and Fletcher. Paragraph 85 alleges:-
“85. In the premises, it was contemplated by Fletcher and Jensen, or ought reasonably to have been contemplated, that if Landoro were not paid its reasonable costs of acceleration, variations, delay, disruption and deviation of the Works, within a reasonable time, that it would:
(a) suffer the types of losses set out in schedules B and C;
(b) suffer, and continue to suffer, so long as Fletcher and Jensen failed to pay such reasonable costs, a continuing loss of profitability;
(c) become insolvent and have to go into Administration pursuant to the provisions of the Corporations Law; so long as its reasonable claims were not paid;
(d) incur the costs of the Administrator so long as the Administration continued and so long as its reasonable claims were not paid;
(e) incur costs associated with borrowing money in order to fund this action in order to obtain compensation for the failure of Fletcher and Jensen to make reasonable payment to it for its costs of acceleration, variation, delay, disruption, and deviation of the Works.”
- Paragraph 86 alleges that, in the premises of para 85, the losses there specified were a natural consequence of the events pleaded. Paragraph 87 alleges that, had Landoro received the amounts due from Jensen and/or Fletcher as and when they became due to be paid, it would have been able to and would have met its obligations to its creditors as and when they fell due. Paragraph 88 alleges:-
“88. By reason of the non-payment of the amounts due by Jensen and/or Fletcher to Landoro:
- Landoro could no longer meet its obligations to its creditors as and when they fell due;
- Landoro’s financial position was such that:
- on 31 August 1995 Landoro entered into administration by voluntarily appointing an Administrator of the company pursuant to s. 436A of the Corporations Law;
- on the resolution of its creditors on 27 September 1995, Landoro entered into a deed of company arrangement dated 18 October 1995;
- by the terms of the deed, Landoro became liable to remunerate the administrator in respect of work done by the administrator (and any partner or employee) in connection with the deed at the rates published from time to time by the Insolvency Practitioners Association of Australia, and to remunerate the administrator in respect of all costs, fees and expenses incurred in connection with the performance of his duties under the deed;
- Landoro thereby became liable for the fees and expenses charged by the Administrator, particulars of which are set out in schedule “C” at item 81;
- Landoro needed to raise funds to replace the monies not paid by Jensen and/or Fletcher;
- to that end, Landoro entered into insurance funding arrangements, so as to provide Landoro with the funds necessary to pursue Jensen and Fletcher in respect of their non-payment of the amounts due, by the conduct of this litigation;
- Landoro thereby incurred the costs of raising those funds, particulars of which costs are set out in schedule “C”, item 81;
- further or alternatively:
- Landoro was facing winding up on the ground of insolvency, which would entail the cessation of its business and the forced sale of its assets;
- Landoro entered into the company administration and the funding arrangements pleaded above in order to preserve its paving business and the assets used in that business;
- Landoro thereby incurred the costs associated with the company administration and the funding arrangements in an endeavour to mitigate the loss which would otherwise have been caused by the non-payment of the monies due from Jensen and/or Fletcher.”
- The deed of company arrangement made on 18 October 1995 stated:-
“D It is the object of this Deed to ensure that the Company, and the business of “Creative Paving” conducted by the Company, will continue in existence, and to maximise the return to all unsecured creditors, irrespective of whether they hold personal guarantees of the directors of the Company.”
- That deed also provided:-
“7.4 Litigation against Jensen International. Without limitation to the Administrator’s general powers and duties to do any thing reasonably necessary to get in the debts of the Company, the Administrator:
- Shall examine the Company’s claim against Jensen International Pty Ltd, Fletcher Construction Australia Limited and Jupiters Limited in relation to moneys outstanding on the Brisbane Casino site;
- May, for the purpose of that examination, seek such legal and other expert advice as he thinks fit;
- May, in his absolute discretion institute proceedings against any one or more of the persons against whom he considers the Company has a claim;
- May, in his absolute discretion, but subject to the terms hereof and to the Corporations Law continue, discontinue or settle those proceedings, or do any other act matter or thing in relation to the claim or the proceedings as he thinks fit.”
- Any money received pursuant to cl 7.4 is to be paid into the Administrator’s bank account. The full entitlement under the deed of any creditor shall be limited to the amount the creditor actually receives from the Administrator during the deed period. That period ended on 18 April 1997, but could be extended. This has apparently happened, as the committee of creditors resolved on 10 March 1998 to borrow further funds for the litigation.
The Claim for the Costs of Administration.
- This claim was rejected on the basis that the law provides a remedy for the immediate consequences of the non-payment of money in the form of interest and does not provide for the indirect consequence of the non-payment of money. Mr O'Donnell submitted that interest is not the only remedy award for loss suffered by the deprivation of the use of money withheld in breach of contract. He referred to the following passages in Hungerfords and Others v Walker and Others (1989) 171 CLR 125.
“But we see no reason for allowing the reluctance of the common law to extend to cases where the defendant’s breach of contract or negligence has caused the plaintiff to pay away or the defendant to withhold money and, as a result, the plaintiff has been deprived of the use of the money so paid away or withheld. The recovery of compensation for the loss may be ascribed to the operation of the second limb in Hadley v. Baxendale. However, we would prefer to put it on the footing that it is a foreseeable loss, necessarily within the contemplation of the parties, which is directly related to the defendant’s breach of contract or tort.”
(per Mason CJ and Wilson J at 149).
“There is, in our view, a critical distinction between an order that interest be paid upon an award of damages and an actual award of damages which represents compensation for a wrongfully caused loss of the use of money and which is assessed wholly or partly by reference to the interest which would have been earned by safe investment of the money or which was in fact paid upon borrowings which otherwise would have been unnecessary or retired. On the one hand, there is no common law power to make an order for the payment of interest to compensate for the delay in obtaining payment of what the court assesses to be the appropriate measure of damages for a wrongful act. If such interest is to be awarded at common law, it must be pursuant to statutory authority. On the other hand, there is no acceptable reason why the ordinary principles governing the recovery of common law damages should not, in an appropriate case, apply to entitle a plaintiff to an actual award of damages as compensation for a wrongfully and foreseeably caused loss of the use of money. To the extent that the reported cases support the proposition that damages cannot be awarded as compensation for the loss of the use of a specific sum of money which the wrongful act of a defendant has caused to be paid away or withheld, they are contrary to principle and commercial reality and should not be followed.” (per Brennan J and Deane J at 152).
- Also, in the course of their reasons for judgment, Mason CJ and Wilson J, at 145 said:-
“The point is that the loss of the use of the money paid away is so directly related to the wrong that the loss cannot be classified simply as due to the late payment of damages: see also General Securities Ltd. v. Don Ingram Ltd. (the plaintiff recovered a business loss incurred as a borrower in consequence of the lender’s breach of obligation to advance the money) and Pelletier v. Pe Ben Industries Co. Ltd. (damages awarded on a contract to purchase a truck in consequence of the defendant’s wrongful dismissal of the plaintiff from his employment). These cases proceed on the proposition that the cost of borrowing money to avoid a loss caused by a breach of contract is recoverable and not too remote.”
- Pelletier v Pe Ben Industries Company Ltd (1976) 6 WWR 640 is a decision of a single judge of the British Columbia Supreme Court, Munroe J, who said (p 642):
“In order to avoid the expense of a seizure, the plaintiff voluntarily surrendered his said vehicle to United Dominions Investment Ltd. on 1st December 1975, he having defaulted in monthly payments of $1,830 due to it (as assignee of vendor’s interest under the conditional sales contract aforesaid) on 13th September and 13th October 1975 and monthly thereafter. In fact, the plaintiff made no payments under the said contract apart from the down payment. The truck is still in possession of Dominions Investments for re-sale, it not having been able to find a purchaser.
Is the defendant liable to the plaintiff for consequential damages resulting from the plaintiff’s default under the conditional sales agreement? The defendant knew that the plaintiff was borrowing most of the money with which to purchase the vehicle, and the defendant knew that plaintiff’s sole source of income would be that paid by it to him under their contract and thus must have known from the outset that any failure on its part to pay the plaintiff would make it impossible for him to meet the payments due to his creditors, with the inevitable result that his vehicle would be lost to him. The defendant was reminded of those facts by letter (Ex. 7A) dated 4th November 1975. Had the defendant not breached the agreement, the plaintiff could and would have met his obligations to his creditors and by July 1977 would have owned the vehicle free of encumbrances. The loss of the vehicle was, I hold, a direct, probable and foreseeable consequence of the defendant’s breach of contract, such as might reasonably be expected to be in the contemplation of the parties at the time they made the contract as likely to flow from breach by the defendant of the obligations undertaken, for which the defendant is liable in damages to the plaintiff.”
- With respect, that approach has much to commend it. While in many cases the only additional remedy for non-payment of money is interest, the test in all cases is whether further loss was within the contemplation of the parties, see McGregor on Damages, 16th ed para 1120. Here the pleadings allege that Landoro’s precarious financial position was known to both Jensen and Fletcher. If that is proved, then it can fairly be argued that the costs of administering a deed of company arrangement was or ought to have been within the contemplation of the parties. Also, para. 86 pleads that the losses were a natural consequence of the events pleaded, so that both rules in Hadley v Baxendale (1854) 9 Ex 341 (156 ER 145) are fairly raised. Leave to plead this should have been granted.
The Administrator’s Costs of Overseeing the Litigation
- This amendment was disallowed on the basis that a litigant is not entitled to compensation for time spent in the pursuance of litigation; Cachia v Hanes (1994) 179 CLR 403. In that case, Mr Cachia, a self employed consulting engineer, successfully defended a claim by Mr and Mrs Hanes for the restoration of structural support to their land. Mr and Mrs Hanes were legally represented, but Mr Cachia was not. He obtained an order for costs but, on taxation, his claim for compensation for the loss of his time spent in the preparation and conduct of his case was disallowed. The High Court upheld that decision, affirming that the costs allowable were confined to money paid for professional legal services and did not include compensation for time spent by a litigant, who is not a lawyer, in preparing and conducting his case.
- That is not the point which Landoro seeks to raise in its amendment. Rather it contends that it was within the contemplation of the parties that, if it was not paid promptly for the additional expenses associated with the acceleration of the sub-contract, it would not only enter into a deed of company administration, but would have to sue Jensen and Fletcher. Such litigation would be under the oversight of the administrator and would be a specific additional expense of the administration. That point is fairly arguable and the amendment to plead this should be allowed.
The Insured Litigation Finance Agreement
- Again Mr O'Donnell asserts that, because of the conduct of Jensen and Fletcher, Landoro has been deprived of money it would otherwise have. Whether money is borrowed to conduct the business or to conduct litigation, it is a foreseeable consequence of the breach. The only case to which counsel directed our attention is an unreported decision of Rolfe J delivered on 18 March 1998 - Energy & Resource Conservation Co Pty Ltd (in liquidation) and others v Abigroup Contractors Pty Ltd and others (SC NSW 55023 of 1997, 18 March 1998). At 31, His Honour said:-
“ERCC claimed, by way of either costs or damages, the cost of insuring a loan facility, which it obtained, for the purpose of funding the litigation. The evidence was that unless the money had been borrowed there would not have been funds to enable ERCC to pursue the proceedings. The difficulty I have with this submission is that it seeks to add to the costs the cost of obtaining money, by the taking out of insurance and by the payment of interest, to prosecute the litigation. These expenditures do not amount to costs nor, in my opinion, do they constitute damages consequent upon the breach of contracts alleged. In every case a litigant will incur some expense in funding litigation. That will happen whether the litigant borrows money for the purpose, or utilises money, which the litigant could otherwise be using to earn interest. However, I am unaware of any circumstance in which it has been held that the loss thereby sustained to the litigant could be recovered as damages. Mr Harper made a reference to the principles expounded in Hungerfords and Ors v Walker and Ors (1990) 171 CLR 125. In that case the Court was concerned with plaintiffs, who sued their accountants in contract and in tort, for a loss of amounts, which were not recoverable, and for compound interest at market rates upon those amounts, and upon the increased amounts of provisional tax (32) that had been paid. The trial Judge held the accountants liable for the negligent discharge of their duties and the Full Court of the Supreme Court of South Australia held that the damage resulting from the loss of the use of the money was within the reasonable contemplation of the parties and should be included in the award. The issue, as Mason C.J. and Wilson J stated it at p 132, was:-
‘This appeal raises the important question whether, at common law, a court, when awarding damages for breach of contract in negligence, can include in its award damages, assessed by reference to the appropriate interest rates, for the loss of the use of money which the plaintiff paid away and lost as a direct consequence of the defendant’s breach of contract or negligence.’
The necessity to borrow money and insure against an adverse result in the litigation in the present case could not, in my opinion, be said to be “a direct consequence” of Abigroup’s breach of contract. Rather, it was a direct result of ERCC’s impecuniosity and, it is important to note, that there is no allegation in the present case that that was brought about by any breach on the part of Abigroup.
Mr Harper submitted that the insurance premium should be treated as a necessary expense, which Mr Weston and Mr Shirlaw are entitled to recover by way of costs. In my opinion that expense does not fit within the category of costs in the way in which I consider that word must be applied. In the alternative he submitted that the premium should be treated as a category of loss or damage suffered by ERCC through the wrongful termination by (33) Abigroup. In my opinion this requires that there be shown to be a relevant legal nexus between the breach and the loss and, in the present case, I do not consider that has been shown.”
- Earlier in his reasons, Rolfe J had referred to the rule that a successful party cannot recover as damages the difference between the actual amount expended on the costs and outlays of the litigation and the amount recovered as taxed costs (see McGregror on Damages 15th ed (1988) para 662 and Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358). Mr Dutney QC, for Fletcher, submitted the same considerations apply here. The amount spent on litigation finance involved the cost to Landoro of providing funds for litigation. If it succeeded, it would be entitled to its costs and no more; this was an attempt to claim the additional costs as damages.
- Mr O'Donnell’s example of using all available funds to conduct the litigation, while borrowing money to keep the business operating, is not without appeal. In such a case, on the principles derived from Hungerfords v Walker, the expenses involved in borrowing the money for the business would be recoverable. Why should there be any difference if the money is borrowed to conduct litigation? The short answer is that that is not what happened. The item which is claimed is in respect of the provision of funds for litigation. There would be many plaintiffs who claim to have been seriously injured in the course of their employment and who need to borrow money to meet the costs of litigation. If their injury has prevented them from working, it is foreseeable that they will need to borrow money in that way. This is a field of litigation which has been thoroughly worked over during the past forty years, and it has not been suggested that the interest paid on such borrowings is an item of damage.
- Just as a litigant cannot recover compensation for the loss of time spent in the preparation and conduct of the case (Cachia v Hanes (1994) 179 CLR 403), so a party cannot recover loss which consists of “expenditure on litigation”: Berry v. British Transport Commission [1962] 1 QB 306, per Devlin LJ at 328. The reason for that latter rule was examined in detail by Devlin LJ, and although it could not be said that taxed costs provided a full indemnity, His Lordship found a justification for the stringent standards which prevail in a taxation of party and party costs: “it helps to keep down extravagance in litigation and that is a benefit to all those who resort to the law” (p 322). As long as this rule remains, the necessity to borrow money and to insure against an adverse result is properly categorised as expenditure on litigation and is not recoverable. The amendment to claim this amount should not be allowed.
Section 52 of the Trade Practices Act (Cth) 1974
- The final issue that needs to be considered is whether these three claims can also be made under s 52. The original statement of claim pleaded the relevant representation and inducement. The amendments which were allowed added some additional representations. The learned Chamber Judge did not deal with the question whether the three claims which have been discussed may be treated as damages recoverable under the Trade Practices Act.
- Section 82(1) of the Act provides:-
“A person who suffers loss or damage by the conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.”
- This section was considered by the High Court in Marks v. GIO Australia Holdings Ltd (1998) 73 ALJR 12. The majority, in three separate judgments, expressed the opinion that the “loss or damage” recoverable was not confined by analogy either with actions in contract or tort (Gaudron J para 17, McHugh, Hayne and Callinan JJ para 38 and Gummow J para 103). The “loss or damage” recoverable is that suffered “by conduct of another person”. What must be shown is the causal connection between the conduct and the loss or damage.
- In respect of the claim for the costs of administration, the proposed amendment pleads the connection. Representations were made and acted upon. The payments, which it had been represented would be made, were not made. This led to the deed of company arrangement and its associated costs. This amendment should have been allowed.
- In respect of the claim for the administrator’s costs of overseeing the litigation, the same connection is pleaded. Again that amendment should have been allowed.
- In respect of the insured litigation finance agreement, the rule which limits the recovery of expenditure on litigation to the taxed costs is a rule of general application. Because it restricts the amount which may be recovered in litigation, there is no reason why it should not apply to claims advanced under the Trade Practices Act just as it applies to claims advanced in contract and tort.
Orders
- A.That the appeal is allowed and the judgment of the Chamber Judge set aside.
- B.That the appellants have leave to amend the statement of claim in terms of the proposed amended statement of claim exhibited to the affidavit of Brian Kelleher filed herein on 26 May 1998, except for the claim in respect of the insured litigation finance agreement referred to in item 81 of schedule C, together with the proposed amendments submitted to this Court by Mr O'Donnell SC which add paras 87 and 88.
- C.That the appellants pay the respondents’ costs of the application before the Chamber Judge.
- D.That the second respondent, Fletcher Construction Australia Limited, pay the appellants’ costs of the appeal.