Re Australian Guarantee Corporation Limited v Border Printing Services Pty Ltd; Mervyn George Howes and Louise Anegal Bandiera [1989] FCA 129 (21 April 1989)

FEDERAL COURT OF AUSTRALIA

Re: AUSTRALIAN GUARANTEE CORPORATION LIMITED
And: BORDER PRINTING SERVICES PTY. LTD; MERVYN GEORGE HOWES and
LOUISE ANEGAL BANDIERA
No. G1 of 1989
FED No. 194
Interest

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Lockhart(1), Spender(1) and Hill(1) JJ.

CATCHWORDS

Interest - Federal Court of Australia Act 1976, s. 51A - principles to be applied by Federal Court in considering whether "good cause is shown" to deny interest to successful party - whether Court took extraneous matter into consideration.

Federal Court of Australia Act 1976: s. 51A.

AMEV-UDC Finance Limited v Austin [1986] HCA 63; (1986) 162 CLR 170

O'Dea v Allstates Leasing System (WA) Pty. Ltd. [1983] HCA 3; (1983) 152 CLR 359

House v R. [1936] HCA 40; (1936) 55 CLR 499

Birkett v James (1978) AC 297

Jefford v Gee (1970) 2 QB 130

Ruby v Marsh [1975] HCA 32; (1975) 132 CLR 642

HEARING

BRISBANE
21:4:1989

Counsel for Applicant: Mr. N. Bain

Solicitors for Applicant: Henderson Trout

No appearance for Respondent.

ORDER

The appeal be dismissed.

There be no order as to the costs of the appeal.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

The appellant appeals against that part of the judgment of Pincus J. given in this Court whereby his Honour declined to order interest under s. 51A of the Federal Court of Australia Act 1976 in proceedings by way of cross claim, the appellant having been awarded damages in those proceedings.

2. Proceedings were commenced in this Court by the respondents claiming damages in reliance upon s. 52 of the Trade Practices Act, 1974. In these proceedings it was alleged that as a result of representations made on behalf of the appellant, which representations were misleading and deceptive, the first respondent, Border Printing Service Pty. Limited, had been induced to enter into a lease agreement with respect to certain goods. It was claimed that the lease agreement was, in consequence, void. However that claim was not proceeded with, and the respondents not appearing at the trial, it was in due course dismissed.

3. The appellant, however, by way of cross claim, sought in the alternative to recover against the first respondent $58,400.10 plus interest at 18% pursuant to clause 8 of the lease agreement between the appellant and the first respondent or damages arising out of the termination of the lease by virtue of the repudiation of the lease by the first respondent and the acceptance by the appellant of that repudiation. As the obligations of the first respondent were guaranteed by the other respondents the claim was made against each of the respondents jointly and severally.

4. The lease agreement was in the form of an offer to lease made by the first respondent to the appellant and was for a total rent of $57,093 for a period of 60 months. It provided:

"Total rent is payable in full upon or before
acceptance by you of this offer, provided that you
will not if I do not pay the total rent at the
time aforesaid exercise any of your rights and
powers contained herein nor shall interest on such
rent accrue so long as I shall pay to you on
account of such rent the sum of $502.15 per month
commencing 12/6/84 up to and including 12/5/85
then the sum of $1,063.90 per month commencing
12/6/85 up to andd including 12/5/89 ..."

5. The terms and conditions upon which the lease was to proceed were provided in clause 8 as follows:

"8. In the event of your acceptance of any
repudiation of the lease by me (whether such
repudiation occurs as provided in Clause 5 hereof
or otherwise) my liability to you for the payment
of the total rent specified in the Schedule hereof
and for any other moneys then payable to you under
the terms and conditions of this lease agreement
shall not be affected and I shall pay upon demand
a sum equal to the amount (if any) by which the
amount of the residual value of the goods as
stated in the Schedule hereto exceeds the amount
of the net proceeds of sale of the goods upon a
bona fide sale by you of the goods at public
auction without reserve or to or through a trader
dealing in goods of a similar description. Such
sum shall bear interest at the rate of Eighteen
dollars ($18) per centum per annum from the date
of demand until payment. Upon payment to you of
that sum and interest thereon together with the
unpaid rent and other moneys as aforesaid I shall
be relieved of all liability to you for rent or
other moneys under the agreement and damages for
breach of my agreement with you."

6. The learned trial Judge found that the first respondent had defaulted in making the monthly payments, that the first respondent had by letter received on 17 January 1985 expressly repudiated the lease agreement and that the leased goods were on the same day repossessed and sold by the appellant on 2 August 1985 for $9,500; expenses of repossession totalling $470. However, while noting the obscurity of the drafting of the lease agreement, his Honour was of the view that the proper construction of the agreement was that there was an agreement for total rental payable at the outset but for which no suit could be brought until there was a failure to make the stipulated monthly payments. So construed the obligation to pay the whole rent was in his Honour's view a penalty and unenforceable with the consequence that the appellant could not succeed in its claim under the provisions of clause 8 to which we have referred above: cf. AMEV-UDC Finance Limited v Austin [1986] HCA 63; (1986) 162 CLR 170; O'Dea v Allstates Leasing System (WA) Pty. Ltd. [1983] HCA 3; (1983) 152 CLR 359.

7. The appellant does not appeal from his Honour's decision as to this matter, and, whether or not the appellant virtually conceded this point as his Honour noted, it is clear from the transcript of counsel's address to his Honour that there was little argument on the question and rightly so, for we would have thought the point clear beyond argument.

8. However, his Honour was of the view the lease agreement having been brought to an end by repudiation of the lease accepted by the appellant, that the appellant was entitled to recover damages at common law relying upon what was said by Mason and Wilson JJ. in AMEV-UDC at 186. The respondents did not seek to appeal against his Honour's judgment as to the common law claim. Indeed, although served with the present appeal, they did not appear when the appeal was called. Accordingly, we say nothing as to the correctness of his Honour's award of damages in a case such as the present as that matter has not been argued before us.

9. His Honour then dealt with a claim by the appellants under s. 51A of the Federal Court of Australia Act 1976 for interest on the damages which he awarded and which were calculated as being in the sum of $38,000.

10. Section 51A relevantly provides:

"(1) In any proceedings for the recovery of any
money ... in respect of a cause of action that
arises after the commencement of this section, the
Court or a Judge shall, upon application, unless
good cause is shown to the contrary, ...
(a) order that there be included in the sum
for which judgment is given interest at
such rate as the Court or the Judge, as
the case may be, thinks fit or the whole
or any part of the money for the whole or
any part of the period between the date
when the cause of action arose and the
date as of which judgment is entered ..."

11. His Honour was of the view that the facts of the present case constituted "good cause" and accordingly declined to award interest to the appellants on the damages which he awarded. In so doing his Honour took into account that the amount the appellant recovered was not what the contractual arrangements in clause 8 provided, but was assessed only on the basis that the sum agreed in clause 8 was not payable; that the lease provisions were obscurely drawn and that the provisions of clause 8 provided for payment upon repudiation of a sum which his Honour said should at the date of the agreement have been known to be irrecoverable in law. His Honour then continued:

"I have come to the conclusion that there is good
cause within the meaning of s. 51A. It is not in
the interest of commerce, or litigation about
commerce, to encourage the inclusion in standard
business forms of provisions of such obscurity,
nor to encourage the thought that one may, without
disadvantage, include provisions in leases
purporting to allow recovery on termination of
sums greater than the law allows. That is
presumably done on the theory that the lessee may
not take the point, but if he does the lessor will
still be able to recover a substantial sum by
obtaining an award of damages including interest."

12. For the appellant it was properly conceded that s. 51A confers upon the Court or a Judge of the Court a discretion so that it was necessary for the appellant to succeed for it to show that the discretion exercised by his Honour had miscarried or that his Honour had erred in law cf. House v R. [1936] HCA 40; (1936) 55 CLR 499 at 505; Birkett v James (1978) AC 297 at 317.

13. The appellant pointed to the mandatory form of s. 51A requiring, as it does, that where application is made interest shall be awarded, and submitted, that the discretion given to the Court by the words "unless good cause is shown to the contrary", required there to be some disentitling conduct of the successful party in the way the claim was pursued: e.g. by gross delay. It was said that his Honour erred in taking into account a "policy" consideration not within the ambit of s. 51A, namely, that to award interest would encourage obscurity or reward lessors who drafted leases containing clauses that were void as clause 8 clearly was. It was submitted further that the appellant had two alternative causes of action; one under clause 8 and one at common law, that it had succeeded on its alternative claim, was not guilty of any conduct which should disentitle it to interest and that accordingly there had to be an error of law involved or the trial Judge's discretion was exercised so unreasonably that it had miscarried.

14. A further submission was made that his Honour's comment to the effect that clause 8 should have been known by the appellants to be void at the time the lease was signed was not justified having regard to the fact that his Honour relied upon the decision of the High Court in AMEV-UDC which case was not decided until 1986, two years after the date of the lease agreement.

15. In our opinion the appellant has not shown that his Honour's discretion miscarried or that his Honour erred in law in exercising that discretion.

16. It is clear that s. 51A and like sections were introduced to compensate a successful party from being kept out of his money cf. Jefford v Gee (1970) 2 QB 130 at 147; Ruby v Marsh [1975] HCA 32; (1975) 132 CLR 642 at 664. Thus the award of interest is mandatory unless good cause is shown. The provisions of the United Kingdom legislation considered in Jefford v Gee required the payment of interest "unless the Court is satisfied that there are special reasons why no interest should be given in respect of those damages". By way of illustration of the exceptional cases where interest should not be awarded Lord Denning M.R. referred to the case where one or the other party was guilty of gross delay. In so doing his Lordship did not limit the exceptional cases to this one class of situation.

17. It is not necessary to decide whether the different formulation in the present legislation of "good cause" rather than "special reasons" requires the conclusion that the discretion given to the Court under s. 51A is wider than that in the United Kingdom legislation considered by Lord Denning although there is a forceful argument that it is. It suffices only to say that good cause must be demonstrated to the Court or Judge before the normal award of interest will be denied. It is neither possible nor desirable to define what whill constitute good cause; each case must be considered by reference to its own circumstances.

18. In the present case his Honour has, in exercising his discretion, considered matters arising between the parties in having regard, in particular, to the obscurity of language of the lease and the difficulty caused to the respondents in knowing what their obligations were as at the date of repudiation, those obligations being different from those to be found in the void clause 8. These were in our opinion relevant matters for his Honour to take into account in the exercise of his discretion. What weight should be given to them was a matter for his Honour.

19. It is true that in the passage quoted above his Honour spoke generally of discouraging the insertion of obscure or void provisions in hiring agreements but in our opinion that passage does not suggest that his Honour took into account an extraneous general policy in exercising his discretion. Rather his Honour was extrapolating in general terms the consequences of the exercise of his discretion in the particular case. The passage does not, therefore, in our view support the submission that his Honour took into account a matter foreign to the policy underlying s. 51A. Rather his Honour weighed up the success of the appellant in obtaining a verdict in damages, the obscurity of the lease and the fact that the amount of damages was not what the parties had contractually provided for in the void clause 8 and concluded that the circumstances were such as to constitute good cause why interest should not be awarded. It could not, in our view in these circumstances, be said that his Honour's exercise of discretion was so unreasonable that it involved a manifest error.

20. The further submission to which we have referred above likewise cannot be accepted. His Honour in the judgment said of clause 8 that it "provides for a sum which should at the date of the agreement have been known to be irrecoverable in law". While it is true that his Honour had earlier referred to AMEV-UDC Finance Limited v Austin, supra, in support of the invalidity of clause 8, that case merely decided that the lessor was entitled only to recover unpaid instalments of rental plus interest and in the circumstances of the case not to recover the amount of any deficiency or resale on the present value of the future hiring charge as at the date of termination. It was conceded in that case that the relevant provision in the hiring agreement was void, that matter having been decisively settled in O'Dea v Allstates Leasing System (WA) Pty. Ltd., supra, at least a year before the lease agreement was signed. In those circumstances his Honour's comments were quite justifiable.

21. Accordingly, we are of the opinion that the appeal should be dismissed. As the respondents did not appear on the hearing of the appeal there should be no order as to the costs of the appeal.