Supreme Court New South Wales Medium Neutral Citation: Shazbot Pty Ltd v Warner Capital Pty Ltd (No 5) [2023] NSWSC 1322 Hearing dates: On the papers; submissions completed 25 October 2023 Date of orders: 3 November 2023 Decision date: 03 November 2023 Jurisdiction: Equity Before: Parker J Decision: See [20]-[21] Catchwords: JUDGMENTS AND ORDERS – interest – pre-judgment interest – delay in articulating legal basis of ultimately successful claim – interest allowed in full from accrual of cause of action Legislation Cited: Civil Procedure Act 2005, s 100 Cases Cited: Alexander's (Pacific) Trading Co Pty Ltd v Karlander New Guinea Line Ltd [1980] 2 NSWLR 870 Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382 H K Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon [1999] FCA 795 ICT Pty Ltd v Sea Containers Ltd [2006] NSWSC 1280 Shazbot Pty Ltd v Warner Capital Pty Ltd [2018] NSWSC 1645 Spotlight Pty Ltd v Fatseas Investments Pty Ltd [2020] NSWCA 132 Texts Cited: Nil Category: Consequential orders Parties: Shazbot Pty Limited (First Plaintiff) Steven Barry Kugel (Second Plaintiff) Warner Capital Pty Limited (First Defendant) Anthony John Warner (Second Defendant) Clarence Street Partners Pty Limited (Third Defendant) Debtfree Pty Limited (Fourth Defendant) Representation: Counsel: E Finnane (Plaintiffs) C Wood SC (Defendants) Solicitors: Uther Webster & Evans (Plaintiffs) Emerson Lewis (Defendants) File Number(s): 2015/119465 Publication restriction: Nil JUDGMENT 1. This judgment resolves a question concerning interest on a previous judgment (strictly speaking, two separate judgments) of the Court. The successful plaintiff seeks to have the judgments carry interest, at the Court's usual pre-judgment rate, for the full period from the date of accrual of the cause of action until the date of entry of judgment (Civil Procedure Act 2005, s 100). The unsuccessful defendants contend that no interest should be allowed for part of that period. 2. The proceedings which resulted in the judgment were complex and hard-fought. The principal protagonists were Steven Barry Kugel (the second plaintiff) and Anthony John Warner (the second defendant). Mr Warner and Mr Kugel are insolvency practitioners who previously operated an insolvency practice together. The practice was conducted through two companies which were jointly owned by the parties and of which they were both directors. One was named CRS Warner Kugel Pty Ltd ("CWK"), and is now named Clarence Street Partners Pty Ltd (the third defendant). The other was Debtfree Pty Ltd ("Debtfree", the fourth defendant). 3. The business relationship between Mr Warner and Mr Kugel ended (at the instance of Mr Warner) in September 2014. Nearly all of the insolvency administrations on which the practice was working were retained by Mr Warner. He also obtained, from Mr Kugel, ownership of Mr Kugel's shares in CWK and Debtfree, which he thereafter operated himself. 4. The proceedings were begun in April 2015. They went to trial in February 2018. The principal issue concerned the fees collected by Mr Warner or his companies from the administrations retained by Mr Warner on the dissolution of the parties' business relationship. Mr Kugel claimed half of those fees, on the footing that the practice had, in law, been a partnership between Mr Warner and himself. This was disputed by Mr Warner. His contention was that the practice was, in law, what it appeared on its face to be: namely, two businesses conducted by CWK and Debtfree (in CWK's case as trustee for a unit trust). 5. I delivered my substantive judgment in October 2018: Shazbot Pty Ltd v Warner Capital Pty Ltd [2018] NSWSC 1645 ("J1"). Among other things, I ruled in favour of Mr Kugel on the partnership point. I also concluded that WIP accrued on the administrations, as at the date of dissolution in September 2014, was a partnership asset, for which Mr Warner was obliged to account. I adjourned the proceedings for orders to be formulated to give effect to my findings, and in particular to provide for partnership accounts to be taken. 6. The subsequent course of the proceedings was somewhat tortuous, but in view of the limited nature of the issue raised in connection with interest, does not need to be described. Eventually, following extensive debate about the form of the orders, an appeal, and a contested accounting hearing, I made orders finally determining the parties' monetary obligations and entitlements on 6 September this year. The orders included judgment for Mr Kugel against Mr Warner and CWK, jointly and severally, in the sum of $750,000 and judgment for Mr Kugel against Mr Warner and Debtfree, jointly and severally, in the sum of $34,000. 7. Section 100 of the Civil Procedure Act provides for pre-judgment interest to be "included in" the Court's judgment. But the orders formulated by the parties provided for the question of interest to be reserved, presumably with the intent that it would be the subject of supplementary judgments. There was no suggestion that the Court lacked power to proceed in that way. 8. I was originally asked to resolve issues of costs in this judgment as well as interest. The parties filed submissions on those issues, in accordance with a timetable. But I have since decided to defer the resolution of the costs issues (including interest on costs) until final directions for the winding-up of the partnership have been made. 9. The disputed question of interest is confined to the period until 7 February 2018, which was the first day of the trial. The parties agree that the plaintiffs are entitled to interest on monetary orders from that date. That being so, it is unnecessary to set out the lengthy history of the proceedings after that date. 10. The defendants contend that interest should be withheld prior to 7 February 2018. Counsel for the defendants submitted that the Court's discretion should be exercised in this way, because the plaintiffs were responsible for significant delay in the proceedings. Counsel cited authorities for the proposition that such delay may adversely affect an otherwise victorious party's entitlement to interest (Alexander's (Pacific) Trading Co Pty Ltd v Karlander New Guinea Line Ltd [1980] 2 NSWLR 870; Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382 at 389; ICT Pty Ltd v Sea Containers Ltd [2006] NSWSC 1280 at [14]-[19]). 11. Counsel for the defendants submitted that as of 7 February 2018, the case that the plaintiffs intended to run had not been properly pleaded, leading to the trial proceeding on an entirely different basis. In such circumstances, counsel submitted, the plaintiffs ought not be compensated for their delay in obtaining monetary judgments. 12. In submitting that interest should be awarded for the full period, counsel for the plaintiffs referred to the summary of principles articulated by Gleeson JA (White JA and Emmett AJA agreeing) in Spotlight Pty Ltd v Fatseas Investments Pty Ltd [2020] NSWCA 132 (at [103]-[104]). There, his Honour stated (citations omitted): The relevant principles are not in dispute. Interest is compensatory; it is not to be withheld to punish delay. It has been said that interest should generally be awarded on the "neutral" basis that the defendant "ought to have paid" the plaintiff money at a particular time, but did not and since that time the plaintiff has been out-of-pocket of that money and the defendant has had the benefit of it. Delay is a relevant factor which the Court should take into account when determining whether or not to award interest or to reduce interest. Generally where delay is treated as relevant it is used to reduce the period over which interest is awarded. 1. His Honour then referred to the following observations of Finn J in H K Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon [1999] FCA 795 (at [11], citations omitted): There is considerable diversity in judicial opinion as to the extent to which, if at all, the rate or (more usually) the period selected for an interest award should as a discretionary matter be moulded adversely to a party that delays in the prosecution or defence of a claim where no resultant detriment to the other party is shown. Nonetheless, insofar as concerns a successful applicant who has been guilty of unreasonable delay, the view I am prepared to follow in the absence of binding authority is that the period for which the interest award is made can properly be adjusted if to allow interest for the whole period for which it could otherwise be ordered would work an injustice to the respondent in the circumstances. Such would seem to be consistent with the policy of the s 51A(1) in that 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. 1. Counsel for the plaintiffs noted Finn J's observation that interest could be withheld because of unreasonable delay, for a period where ordering otherwise "would work an injustice to the respondent in the circumstances". Counsel submitted that the defendants had failed to identify a proper factual basis for the submission that the plaintiffs had caused significant delay. Rather, counsel submitted, the amendment to the plaintiffs' statement of claim during the 2018 hearing did not cause any appreciable delay, and merely involved a refinement in the case. Counsel further submitted that the defendants had failed to show that ordering interest for the entire period would work an injustice to them. Counsel submitted that interest should be awarded for the whole period, where Mr Kugel has been deprived of using partnership funds to which he was entitled, because the defendants have had the use of them instead. 2. The context for the principles stated in Spotlight was an award of interest on a judgment for damages or indemnity for breach of a lease. Those principles are no less applicable to the award of interest on a sum determined following an account, as in this case. Especially is that so because this case, like Spotlight, is commercial in nature. 3. The relevant prayers for relief following the amendments on 7 February 2018 were: A declaration that upon the dissolution of the Partnership or joint venture on 22 September 2014 or, alternatively, on 30 September 2014, the Second Plaintiff became entitled, as against the Second Defendant, to receive 50% of the value of the WIP Assets and 50% of the value of Debtfree as at 22 September 2014 or. alternatively, as at 30 September 2014. … An order that the Second Defendant pays to the Second Plaintiff an amount equal to 50% of the value of the WIP Assets and 50% of the value of Debtfree as at 22 September 2014 or, alternatively, as at 30 September 2014. 1. The orders ultimately made were in somewhat different terms, and Debtfree was not joined as a party to the proceedings until afterwards. But the defendants' argument on the interest issue effectively accepts that these later amendments to the claim were not substantial enough to displace Mr Kugel's prima facie entitlement to interest as a successful party. The question for me is whether the period prior to 7 February 2018 was different. 2. In my view, it was not. The claim as originally pleaded sought a declaration "that 50% of the WIP Assets are impressed with a constructive trust in favour of the Plaintiffs". It was clear from the outset that Mr Kugel was seeking a 50% share of the fees collected following dissolution. The plaintiffs' original statement of claim also alleged that there was a partnership (it was later pleaded that there was, alternatively, a joint venture). The existence of a partnership was consistently denied by the defendants, and remained a pivotal issue at the 2018 hearing. What shifted with the 7 February amendment was that if there was found to be a partnership (as proved to be the case), then there was no dispute as to whether it had come to an end. 3. Against that background, I do not think that the amendment to the statement of claim during the hearing was delay of a character that should move the Court to withhold interest. The delay was not in bringing the proceedings or in claiming interest, but in articulating the claim in the manner run at hearing. Different considerations must apply to delay of that kind, which is commonplace in commercial litigation (even if these proceedings may have taken longer to proceed to hearing than might have been expected). In my view, it does not justify withholding full recompense to Mr Kugel for his share of the partnership funds for which the defendants were, on my findings, accountable. 4. Accordingly, I will not withhold interest for the period in question. For completeness, I also agree that the defendants have not demonstrated any detriment resulting from the plaintiffs' delay, or alleged delay. I need not, however, say more about this. 5. When the matter is before the Court for the making of final winding-up orders, the parties should bring in an agreed minute of order to give effect to my conclusion. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 November 2023