Assafiri v The Shell Company of Australia Limited

CATCHWORDS : DAMAGES - award - interest - whether interest should be calculated in accordance with UCPR or clause 15.2 of lease - where damages related to breach of contract and breach of provisions of lease - whether damages fall within clause 15.2 - UCPR Sch 5, r 6.12, Practice Note SC Gen 16. - COSTS - indemnity costs - whether plaintiff entitled to indemnity costs - construction of lease - whether defendant's conduct of proceedings exhibited relevant delinquency - where part of plaintiff's claims unsustainable - interest on costs - no question of principle.

LEGISLATION CITED : Uniform Civil Procedure Rules 2005

Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Hexiva Pty Ltd v Lederer [2006] NSWSC 1259 Kyabram Property Investments Pty Ltd v Murray [2006] NSWSC 54 CASES CITED : Lahoud v Lahoud [2006] NSWSC 126 Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283 Liberty Grove (Concord) Pty Ltd v Mirvac Projects Pty Ltd [2008] NSWSC 216 Oshlack v Richmond River Council (1998) 193 CLR 72

PARTIES : Haissam Assafiri (Plaintiff) The Shell Company of Australia Limited (Defendant)

COUNSEL : F C Corsaro SC / J L Doyle (Plaintiff) R P L Lancaster SC

SOLICITORS : Koffels Pty Ltd (Plaintiff) Allens Arthur Robinson (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

14 October 2010 (ex tempore - revised 14 October 2010)

2007/266565 HAISSAM ASSAFIRI v THE SHELL COMPANY OF AUSTRALIA LIMITED JUDGMENT

1 HIS HONOUR: After a hearing of eight days, I gave judgment on 23 September 2010: [2010] NSWSC 1058. I concluded that the plaintiff (Mr Assafiri) was entitled to damages for misleading or deceptive conduct and breach of contract, calculated in the manner set out at [217], [265] and [272] of those reasons. I also found that Mr Assafiri was entitled to interest on various components of those damages, to the extent that payments had been made, and otherwise provided for a notional date from which interest should run. 2 I had hoped that the parties would be able to agree on the orders to be made. However, they were not. I should start by saying that the parties agree on the amount of damages excluding interest. The gross amount is $1,144,280, of which some $30,628.49 was in fact paid at an earlier time (the reasons are of no present relevance). Thus, the net amount of the principal component of the judgment is agreed to be $1,113,651.51. 3 The defendant (Shell) contends that interest on the components of the judgment should be calculated in accordance with Schedule 5 to the Uniform Civil Procedure Rules 2005 up until 30 June 2010, and in accordance with UCPR r 6.12 and Practice Note SC Gen 16 from that date. I should say straight away that my reference at [274] of my reasons to UCPR Schedule 5 should be taken as referring only to the period for which that schedule was applicable, and that it should be understood to include the replacement basis (r 6.12 and Practice Note SC Gen 16) thereafter. 4 For Mr Assafiri, it is contended that interest should be payable in accordance with clause 15.2 of the lease. That clause, which appears under the heading "Default" reads as follows:

The Tenant must pay interest to the Landlord at the Default Rate on any overdue Rent or other money payable by the Tenant to the Landlord from the date for payment until the date on which it is paid.

5 The expression "Default Rate" and the word "Rent" are defined terms. It is not necessary to set out the definitions. 6 There was no specific claim, in the further amended summons, for interest on damages calculated in accordance with clause 15.2. Nor, although the parties agreed the issues that were to be decided (and they are set out at [3] of my earlier reasons), was there any issue stated as to the basis on which interest on damages (if awarded) should be payable. 7 The question is whether damages for breach of contract fall within clause 15.2. Clearly enough, they are not "Rent" (that defined term meaning, as one might think, the annual amount payable by way of rent from time to time under the lease). It is of course correct to say that the damages include an element of "opportunity cost" calculated by reference to rent notionally foregone. However, although that component of the damages was calculated by reference to the rent provisions of the lease, it cannot be regarded as rent, let alone as "overdue Rent". 8 The other components of damages are, one way or another, for breach of the relevant provisions of the lease. They are not claims to recover, either as liquidated sums or otherwise, amounts due and payable but unpaid under the lease. On the contrary, they were unliquidated claims for the monetary consequences of what I have found to be Shell's breaches of the relevant obligations. 9 In those circumstances, I do not think that the damages fall within clause 15.2. That is to say, I do not think that the covenant as to the applicable rate of interest is relevant to damages for breach. 10 I accept, of course, that where a claim is made under a contract and where the contract covers the question of interest, the Court should respect the parties' bargain, to the extent possible, when awarding interest on damages. Where the claim is one for an amount payable under the lease (for example, a claim for rent) then the parties' bargain should be given effect, so as to respect the parties' allocation of risk. See Kyabram Property Investments Pty Ltd v Murray [2006] NSWSC 54 at [17] and [18]. But that is not the situation with which we are presently concerned. 11 It would have been open to the parties to covenant that interest at the contractual rate should run not only on overdue rent and other money payable (I interpolate, under the lease) by Shell to Mr Assafiri, but also on damages for breach. Such provisions are by no means uncommon. The parties did not so covenant. In my view, the Court, in respecting their bargain, should respect what it does not say as much as what it says. 12 It follows that interest on damages should be calculated in the manner for which Shell contends. It is common ground, in those circumstances, that Shell's calculation of interest is correct. 13 The next matter in dispute concerns Mr Assafiri's claim for indemnity costs. That claim was put two ways. The first was based on clause 16.3(iii) of the lease. That clause provided that "the Tenant must pay the Landlord's Cost in connection with...any breach of this lease by the Tenant". 14 The word "Cost" is defined in clause 1.1(h) of the lease. That definition reads as follows: 1.1 (h) Cost means any reasonable cost, charge, expense, outgoing, payment or other expenditure of any nature. In determining whether a cost, charge, expense, outgoing, payment or other expenditure is reasonable, regard must be had to the circumstances in which that cost, charge, expense, outgoing, payment or other expenditure becomes payable including, without limitation, whether the Tenant is in default under this Lease;

15 Mr Corsaro of Senior Counsel, who appeared with Mr Doyle of counsel for Mr Assafiri, submitted that on its proper construction clause 16.3(a)(iii), read in conjunction with clause 1.1(h), entitled Mr Assafiri to costs on the indemnity basis. I am not sure that that submission is correct. In any event, and again seeking as best I can to respect the parties' bargain, I think that the appropriate course is to order that costs payable be calculated in accordance with the formula set out in clause 1.1(h). I appreciate that this may cause some problems of assessment. However, the definition is clear in its terms, and the discretionary factors to which regard must be paid in deciding whether a particular item of expense is reasonable are equally clear. It would be open to the parties to put before an assessor (if they cannot agree) such material as might be relevant to inform a determination of the question of reasonableness. 16 In any event, as I have indicated, it is always open to the parties to agree. If they cannot do so, and if it is thought that the process of assessment might be extremely difficult and expensive, it is open to the parties to apply for a gross sum order. 17 Mr Corsaro relied, in the alternative, on what he submitted was "relevant delinquency" on the part of Shell (the phrase comes from the judgment of Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 at 89). Mr Corsaro submitted, at some length, that Shell's conduct of the proceedings exhibited relevant delinquency having regard to my findings. He submitted that Shell, properly advised, should have understood that there was no factual foundation for its defence (see the judgment of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401). 18 I do not think that this is an appropriate case for indemnity costs on what I might call the "Oshlack" basis. True it is that I made various findings about Shell's conduct, and its motivations, that were less than favourable. But the submissions put by Mr Corsaro, if accepted, would mean that in almost every case the unsuccessful party, as it were retrospectively informed by the reasons of the Court, should be taken to have known that it could not successfully prosecute or defend the case (as the case may be), so as to render it liable for indemnity costs. I do not think that this is an approach to be encouraged. 19 Again, it is necessary to bear in mind that Mr Assafiri pursued issues that in my view were unsustainable. For example, I disagreed with the case that he ran on "highest and best use" and "basement as an aspect of highest and best use". Again, I rejected his claim for damages for loss of the contract of sale of the subject land. An order for indemnity costs would mean, among other things, that Shell would be bound to pay all of Mr Assafiri's costs even though part of them were on any view referable to claims that were, and that properly advised he should have realised were, unsustainable. 20 Shell does not ask for any order for costs other than the usual one. It takes that stand recognising that it succeeded on some issues and lost on others. That is appropriate. But it does not mean that the question of success and failure on particular issues is not relevant to the issue of indemnity costs. 21 As I have said, I do not think that the claim for indemnity costs on the Oshlack basis has been made good. 22 The remaining issue which separates the parties is the question of interest on costs. As a general rule, a successful party who is held entitled to its costs is entitled to interest on those costs in the usual way. It is not correct to say that an order for interest on costs should be made only in an exceptional or unusual case. That was made clear by Campbell J in Lahoud v Lahoud [2006] NSWSC 126 at [82] and [83]. See also Brereton J in Hexiva Pty Ltd v Lederer [2006] NSWSC 1259 at [21]. Einstein J reviewed and summarised the relevant principles in Liberty Grove (Concord) Pty Ltd v Mirvac Projects Pty Ltd [2008] NSWSC 216. I accept, and adopt, his Honour's summary at [21]: [21] There are cannot be any serious issue is to the principles. They include the following: i. it is not necessary for the Court to be satisfied that the circumstances of the case are out of the ordinary before interest on costs is awarded: Australian Development Corp Pty Ltd v White Constructions (ACT) Pty Ltd (in liq) [2002] NSWSC 280 at [23] per Einstein J; ii. the principal rationale underpinning an order for payment of interest on costs is to compensate the successful litigant for having relevantly been out-of-pocket from having arranged payment of legal costs to its legal representatives during the course of lengthy proceedings: see ADC v White (supra) at [17]. iii. the overriding principle is to provide the successful litigant with full justice and compensation for delay: Barclays Australia (Finance) Ltd v GWG Leviny Pty Ltd (unreported, Supreme Court of New South Wales, Rolfe J, 10 December 1998); iv. to the extent to which the plaintiffs have been out-of-pocket as a result of having to pay their lawyers' costs and disbursements, it is appropriate that the compensation which is recognised in the Court's order for costs take into account the fact that the plaintiffs have been out-of-pocket in that way: Hughes Bros v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [1999] NSWSC 1051 at [60] per Foster AJ; v. relevant matters to consider are the amount of costs paid and the length of time the claimant has been out-of-pocket before recovery: Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101 at [11] per Barr J; vi. it is also relevant where, as here, both parties conduct businesses, that the moneys which the plaintiffs have had to pay is likely to be money which otherwise could have been put to a productive use. vii. conversely, the defendants, by not being required to pay costs until some time in the future when the costs are agreed or assessed, are likely to have been able to retain, for their own productive use, the amount of those costs: Lahoud v Lahoud [2006] NSWSC 126 at [83] per Campbell J; viii. the true position is that the ordering of interest on costs will be appropriate (absent disentitling conduct) where the discretion is properly enlivened: here that is seen to be the case as the applicant has been relevantly out-of-pocket from having arranged to pay legal costs from time-to-time during the course of lengthy litigation in which the applicant ultimately succeeded and where the respondent may be presumed to have benefited from not having had to pay the costs at the time when they were paid to the applicant's legal representatives, hence having had the use of the money from that time: see ADC v White (supra) at [28] per Einstein J.

23 In my view, subject to the resolution of one point to which I shall turn in a moment, Mr Assafiri is entitled to interest on costs that he has paid, to the extent that those costs are recoverable. The assessment of costs on that basis requires application of what might be called the "Lahoud" formula which was set out at length by Campbell J. His Honour's formulation was adopted by the Court of Appeal in Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283. See order 4 set out at [9] of the Court's reasons. 24 The exception to which I refer is a point taken by Mr Lancaster as to Mr Assafiri's conduct of the case. Mr Lancaster noted that in May 2009 an order had been made that the proceedings should stand dismissed unless Mr Assafiri filed his evidence (or remaining evidence) by a specified date. That showed, Mr Lancaster submitted, that Mr Assafiri had been less than diligent in his conduct of the proceedings up to that date. In those circumstances, Mr Lancaster submitted, interest on any costs actually paid before that date should not run from May 2009. 25 I do not think that this submission is entirely consistent with the basis on which the Court orders interest on costs. It has long been held that it will only be in an exceptional case (if at all) that the Court would diminish interest on damages because of delay by a plaintiff in the prosecution of the proceedings. Mr Lancaster did not submit that interest on damages should run otherwise than in the usual way. Equally, interest on costs is awarded not by way of punishment of the unsuccessful party but more fully to compensate the successful party for the amounts that it has spent to vindicate its claim. In the usual way, what is relevant is the fact that money has been paid and the successful party is out of pocket. I do not think that there is any justification in this case for restricting the period for which interest on costs should run. 26 For those reasons, I make the following orders:

(1) Direct entry of judgment for the plaintiff against the defendant in the sum of $1,261,048.77 including interest to today's date; (2) Order the defendant to pay the plaintiff's costs; (3) Order that those costs (if not agreed) be assessed on the basis set out in clause 16.3(a)(iii) of the lease made on 24 March 2006 between the plaintiff and the defendant, read in conjunction with clause 1.1(h) of that lease; (4) Reserve liberty to apply either for directions in respect of the assessment of costs or for costs to be fixed on a gross sum basis; (5) Make an order for interest on costs in accordance with order 4, mutatis mutandis, made by the Court of Appeal in Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283 at [9]; (6) Order that the exhibits remain with the file for 28 days and that thereafter they be dealt with in accordance with the Rules.

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