Australian Development Corporation Pty Limited v White Constructions

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

Friday 5 April 2002 ex tempore Revised 29 April 2002

55041/91 AUSTRALIAN DEVELOPMENT CORPORATION PTY LIMITED V WHITE CONSTRUCTIONS (ACT) PTY LIMITED (IN LIQUIDATION) & ORS JUDGMENT

1 There is before the court an amended notice of motion filed on 5 April 2002 in which the second and third defendants, Enex Ulan Pty Limited (formerly Exxon Coal Australia Limited), and White Constructions [ACT] Pty Limited (formerly White Constructions Pty Limited), seek an order pursuant to ss 76, 95(1) and 95(4) of the Supreme Court Act 1970 that the plaintiff pay interest on the amount of the applicants' costs as agreed or assessed, at the prescribed rates applicable from time to time, from the dates on which such amounts were paid to the applicants' solicitors and other providers of legal services (including counsel) whose costs would otherwise be the subject of assessment until the date of payment of those costs, the quantum of such interest to be agreed or assessed. 2 The applicants further seek costs of the motion. 3 In support of the motion there has been filed an affidavit by Mr Nicholas Reeves, solicitor for the applicants, made on 5 March 2002 which, together with the two exhibits to the affidavit, gives a general history of the proceedings, which have clearly been long and complex with numerous hearings before judges and referees, causing the applicants to regularly incur significant legal costs over the past ten years. 4 The parties are agreed as to the detailed summary and explanation of the background to the present application and as to the bill of costs and payment of costs to Mallesons and counsel and others generally set out in sections B and C of the applicants' outline written submissions dated 20 March 2002: "B. The background to the present application .

The proceedings to which the present motion relates have a long and extensive history encompassing litigation commenced in August 1991. The history is outlined in paragraphs 6 and 7 of the affidavit of Nicholas Pember Reeves sworn 5 March 2002 and in the Chronicle and the Outline of Proceedings sections of the Bill of Costs that is exhibit NPR1 to the same affidavit.

Shortly stated, the proceedings relate to the construction of a building in Canberra under a building contract was entered into on 25 February 1987 between White Constructions (ACT) Pty Ltd (now in liquidation) ('White ACT') and Australian Development Corporation Pty Ltd ('ADC'). On 11 August 1988 ADC terminated the contract. In August 1991 ADC commenced proceedings in the Commercial Division of the Supreme Court of New South Wales against White ACT, White Industries Limited ('WIL'; now known as Enex Ulan Pty Ltd) and White Constructions Limited ('WCL') relating to the contract. On 10 July 1992 Cole J referred certain questions to Yeldham QC for inquiry and report.

Yeldham QC provided a report dated 14 April 1993. On 14 October 1993 Giles J delivered a judgment adopting in part (and rejecting in part) the findings of referee Yeldham QC. Further judgments of Giles J were delivered on 19 October 1995 and 30 January 1996. On 29 April 1997 Giles J delivered a further judgment determining that remaining issues should be sent to a referee. On 1 June 1998 the referee (R J A Morriset) submitted his report. On 8 February 1999 Einstein J delivered judgment. On 9 February 1991 the Court of Appeal of the Supreme Court of New South Wales dismissed with costs the appeals lodged by ADC. On 20 November 2001 the High Court refused an application by ADC for special leave to appeal. The High Court ordered ADC to pay Enex Ulan Pty Ltd's costs of the application for special leave.

Aside from questions of assessment of costs and interest, the litigation appears to be at end.

Costs orders were made in favour of WIL/Enex Ulan Pty Ltd by the Supreme Court on 3 December 1993, 25 February 1994, 28 April 1995 and 10 June 1999 (in proceedings no. 55041/91); and by the Court of Appeal on 15 November 1993 (in proceedings no. 40605/93) and 9 February 2001 (in proceedings no. 40511/99). Costs orders were also made in favour of White Constructions Ltd by the Court of Appeal on 9 February 1996 in proceeding no. 40101/96. See Reeves 5.302, annexure A.

C. The Bill of Costs and the payment of costs to Mallesons and counsel etc . 9. A Bill of Costs and an Application for Assessment of Costs were filed with the Supreme Court on 6 February 2002 and allocated proceeding no. 90196/02 (see Reeves 5.3.02, para 5). The costs have not yet been assessed. This does not preclude the Court from making the order sought (see paras 24-25 below).

10. The total amount of costs claimed in the Bill of Costs is $2,906,356.87 . See Reeves 5.3.02, para 4.

11. Mallesons Stephen Jaques ('Mallesons'), the solicitors for the Applicants, have issued invoices to the Applicants for legal services relating to the above proceedings from 30 December 1991 to at least 18 May 2001. Payment of such invoices was received by Mallesons, on average within 3 months of issue, with the first such payment being received on 24 March 1992 (see Reeves 5.3.02, paras 8-9 and annexure B).

12. During the course of the proceedings, Mallesons also sent invoices and fee notes for disbursements, including counsel's fees, to the Applicants to arrange for payment direct to the person concerned (eg the barrister) who issued such invoice. See Reeves 5.3.02, para 10. Such disbursements are detailed in pp 273-316 of the Bill of Costs ( Reeves 5.3.02, exhibit NPR1).

13. The reasons supporting an order for interest on costs apply equally in respect of payments received by the Applicants' solicitors, Mallesons, and payments received by other persons, including counsel, who rendered invoices and fee notes that were paid after Mallesons had forwarded them on to the Applicants to arrange for payment. To the extent that paragraph 1 of the Notice of Motion filed on 6 March 2002 may not extend to such payments, a proposed Amended Notice of Motion is attached (and will be relied upon at the hearing), which seeks an order in the terms set out in paragraph 1 above." 5 Save in one respect, there is essentially no issue as to the Court's clear jurisdiction to order payment of interest on costs. In this regard the applicants rely on three alternative bases of jurisdiction in support of their motion, namely, s 94(4) , s 95(1) and s 76 of the Supreme Court Act ["the Act"]. 6 Section 95 of the Act entitled "Interest on Debt under Judgment and Order" is in the following terms: "95 (1) Where judgment is given or an order is made for the payment of money, interest shall, unless the Court otherwise orders, be payable at the prescribed rate from the date when the judgment or order takes effect on so much of the money as is from time to time unpaid. (2) Notwithstanding subs(1), where, in proceedings on a common law claim the Court gives judgment for damages and the damages are paid within 21 days after the date when the judgment takes effect, interest on the judgment debt is not to be payable under subs(1) unless the Court otherwise orders.

(3) Notwithstanding subs(1), where, in proceedings on a common law claim, the Court makes an order for the payment of costs and the costs are paid within twenty-one days after ascertainment of the amount of the costs by assessment under Division 6 of Pt 11 of the Legal Profession Act 1987 or otherwise, interest on costs shall not be payable under subs(1) unless the Court otherwise orders.

(4) If an order is made for the payment of costs, the Court may order that interest is to be paid on the amount so ordered, at the prescribed rate referred to in subs(1), from the date or dates when the amount in respect of costs was duly paid." 7 Jurisdiction under s 95(1) relevantly arises from the Court's power under that provision to "otherwise order". 8 Section 76 of the Act is entitled "Costs". Section 76(1) is in the following terms: "76(1) Subject to this Act and the rules and subject to any other Act: (a) costs shall be in the discretion of the Court.

(b) the Court shall have full power to determine by whom and to what extent costs are to be paid, and.

(c) the Court may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on an indemnity basis." 9 Section 95(4) provides the clearest source of jurisdiction to order payment of interest on costs. 10 Section 95(4) was introduced in 1995 by the Courts Legislation Further Amendment Act 1995. Section 95(4) commenced operation on 17 May 1996 (see Statute Law (Miscellaneous Provisions) Act 1996). 11 The present application relates to payment of costs stretching back to 22 March 1992 (see Reeves 5.3.02, annexure B), ie including a period prior to the enactment of s95(4). A question arises as to whether s 95(4) extends to authorise an order for payment of interest on costs in respect of the period prior to 17 May 1996. 12 Two judges of first instance of this court, namely Foster A J and Rolfe J, have expressed different views as to whether or not s 95(4) should be given retrospective operation. In Hughes Brothers Pty Limited v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [1999] NSWSC 1051 Foster A J held (at paragraph 60) that s 95(4) should be given retrospective operation, and further that, in any event, s 76 enabled the making of the orders sought in that case. 13 In Barclays Australia (Finance) Limited v GWG Leviny Pty Limited (unreported, 10 December 1998) Rolfe J held that s 95(4) could not operate retrospectively on the basis that it was not merely procedural in nature. Accordingly, recourse was required to be made to another source of jurisdiction authorising the making of the orders sought. Rolfe J found that alternative source of jurisdiction in s 95(1). 14 The applicants have submitted that, in conformity with the holding of Foster A J in Hughes Bros, s 95(4) provides the jurisdiction for the making of the order for costs on the present application. In the alternative, the applicants have submitted that if s 95(4) is held not to have retrospective effect and hence not to apply in respect of the period prior to 17 May 1996, then in respect of that earlier period: · s 95(1) authorised the making of the order sought (see Barclays Australia); and · alternatively, s 76 authorises the making of the order sought [see Hughes Bros at paragraph 60; Woods v Woods [2001] NSWSC 1108 at paragraph 8 per Hamilton J; and McWilliams Wines Pty Limited v Liaweena Pty Limited (1993) 32 NSWLR 190 at 193. 15 In my view it is in the present circumstances unnecessary for the Court to make a finding in terms of which of the approaches taken by Foster A J or Rolfe J was correct. It is plain that, even if the section does not have retrospective effect and is inapplicable in respect of the period prior to 17 May 1996, jurisdiction is conferred upon the court in the manner submitted for by the applicants in terms both of section 95(1) as well as s 76. 16 No issue is raised by the respondent in relation to the power of the court to make an order for payment of interest on costs before costs are assessed, and the respondent has not so submitted in opposition to the subject application. 17 The applicants' written submissions have, it seems to me, carefully, usefully and efficiently summarised the relevant principles and their application to the present case in the following terms, each of which I adopt entirely: " 26. 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. Consider McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (1993) 32 NSWLR 190 at 192.

27. In this sense, the overriding principle is to provide the successful litigant with full justice and compensation for delay and not penalise the losing party. Thus, in Barclays Australia, above, Rolfe J said: 'The view I take as to the proper exercise of discretion on the facts of this case can...be put quite shortly and, I believe, in accordance with accepted principles. The defendants paid out money, quite properly, to their former solicitors as the litigation progressed. Subsequently, it was held that Barclays and Morgan were obliged to pay portion of that money to the defendants. The rationale behind the payment of interest is, generally speaking, that the party ultimately ordered to pay money, whether by way of damages, debt or costs has had the benefit of the money from the institution of the proceedings, that benefit being either that the party is not obliged to pay over money upon which it could be earning interest or which it could be using in its own commercial enterprise, or it has not been subjected to the burden of borrowing money on which it would be obliged to pay interest. In the present case both Barclays and Morgan were engaged in commercial activities and the only reasonable inference to be drawn is that moneys they did not have to expend on costs could be used in their businesses. They have had the advantage of either retaining or not having to borrow money whilst the defendants, to which and who the money is now payable, have been out of pocket. In all those circumstances the requirements of a proper indemnification demand the payment of interest as from the date when costs were paid to their solicitors'. 28. In Hughes Bros, above, Foster A J said that the principles upon which such an order may be made 'are founded upon common sense and justice.' Foster A J also stated the rationale as being the need to compensate the successful litigant-- 'In circumstances where a successful party has outlaid, from an early stage and often continuously, amounts of money, by way of payments to his legal representatives to finance the conduct of the litigation, he will, manifestly, be significantly out of pocket if he receives, by way of reimbursement of this payments, only an amount of taxed or assessed costs at a far later stage, after he has successfully prosecuted the litigation to finality. Such a financial detriment can only be compensated by the making of an appropriate award of interest to be paid in respect of those payments, providing, of course, that the relevant payments can be properly allocated to the successful outcome of the litigation in whole or in part.' 29. Similarly, in Maronis Holdings Ltd, above, Bryson J said (at para 30): 'The Second Defendant and the Seventh Defendants have each sought an award of interest on costs. I regard it as appropriate to award interest in exercise of the power in subs 95(4) of the Supreme Court Act 1970 so that interest is to be paid on amounts of costs paid from the dates when amounts in respect of costs were paid. I regard this as appropriate because the interlocutory stages of the litigation and the hearing were very protracted, largely because of the conduct of the plaintiffs and complexities arising out of the plaintiffs having made many amendments to their pleadings. It would in my view be unjust that the defendants should not recover any interest in respect of the period between the dates, which could now be over six years ago, when they were called on to pay costs to their own representatives and the date when an order for costs is made.' 30. More recently in Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101 Barr J confirmed (at para 12) that the legislative purpose behind s 95(4) 'is not to penalise but to recompense a litigant for being out of pocket whilst the other side has had the use of the money.'.

31. Furthermore, in Grogan Barr J stated (at para 11) that factors that the Court may take into account in deciding whether to award interest on costs include: 'the amount of costs paid, the length of time the claimant has been out of pocket before recovery, whether during the time between commitment and assessment the respondent has been relieved of the need to borrow at interest or has obtained the advantage of leaving monies invested at interest and how the parties have conducted themselves during the litigation.'" 18 The respondent to the motion has advanced two reasons why the court should, so it is submitted, not order the respondent to pay interest on costs. The first is that s 95(4) (or the alternative sources of jurisdiction under sections 95(1) or 76) require the applicants to demonstrate a "special case" in order to justify the order of payment of interest on costs. The second is that an order for payment of interest on costs would "penalise the [respondent]." 19 In support of the respondent's submissions, Mr Kerr has relied upon the decision of Bryson J in Maronis Holdings Limited v Nippon Credit Australia Limited [2001] NSWSC 864 where his Honour referred to an order in the terms of that being sought in the present application as being a "special" one. [See para 26]. Mr Kerr has cited his Honour's statement in the exercise of his discretion at paragraph 30: "...I regard this as appropriate because the interlocutory stages of the litigation and the hearing were very protracted, largely because of the conduct of the plaintiff and complexities arising out of the plaintiffs having made many amendments to their pleadings." 20 Mr Kerr has also submitted that similar factors appear to have been taken into consideration by Foster A J in Hughes Bros where the factual history set out in paragraphs 2 - 26 refer to the many amendments to pleadings and the like agitated by the parties. The submission advanced by Mr Kerr is that, as it was in Maronis, this factual history appears to have been one of the factors taken into account by Foster A J in the making of the order under s 95(4). 21 In short, Mr Kerr's submission has been that the making of an order of the type here sought is a special one and that this matter is reflected in a section of the second reading speech dealing with the amendment to s 95 (which is to be found reproduced in paragraph 17 of the judgment of Hamilton J in Woods v Woods (2001) NSWSC 1108). 22 The gravamen of Mr Kerr's submission is that these were proceedings before the Court, and, notwithstanding the protracted period which the proceedings certainly occupied before various judicial officers and referees and appellate tribunals, there is nothing which may be here regarded in terms of satisfying the suggested requirement that it be shown that the making of an order of the type here sought be a "special" one before the order may be made. 23 In my view, by its terms, s 95(4) is plainly not limited to the awarding of interest only where an applicant demonstrates a "special" case. As the applicants point out in their written submissions in reply, Justice Barr recently in Grogan v Thiess Contractors Pty Limited [2000] 1101 paragraph 10 said: "Subsection (4) bears no requirement that interest on costs is not to be awarded in an ordinary case. It does not fetter the power of the Court to order costs in an appropriate case. The width of the power conferred by the subsection is, I think, consistent with that of the power over the ordering of costs generally: Supreme Court Act s 76; McWilliam Wines v Liaweena (NSW) per Rogers J at 192." 24 As the applicants further submit, the reasoning of Barr J in Grogan has recently been endorsed by Grove J in Puntoriero v Water Administration Ministerial Corporation [2002] NSWSC 217 at paragraph 10. Grove J further stated "The words of the statute [i.e. s 95(4)] are unambiguous and they contain no restriction to special circumstances." 25 The suggested restriction to special circumstances to be found in the second reading speech reproduced in Grogan at para 6 and in Woods at para 17, as the applicants point out, did not find its way into the language of s 95(4). 26 I further accept as of substance the applicants' submission that the second reading speech and the Explanatory Note proceeded upon a misunderstanding of what had been decided in McWilliams Wines v Liaweena. Hence in Woods Hamilton J said (at para 17): "The problem with these documents as indicators of the intent of Parliament is that the authors appear to proceed with the purpose of remedying a defect in the law revealed by the decision in the McWilliams Wines case, but on the basis of a complete misapprehension of what the judge decided. True, he criticised the ambiguous state of the Supreme Court Act, but concluded that the Court did have power to make the disputed order and made it." 27 Paragraph 5 of the Applicants' reply submissions is of substance: "Moreover, the decisions in Hughes Bros Pty Ltd v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [1999] NSWSC1051; Barclays Australia (Finance) Ltd v GWG Leviny Pty Ltd (unreported, 10/12/98, Sup Ct NSW, Rolfe J); Cremona v Roads and Traffic Authority [2000] NSWSC 735 and Maronis Holdings Ltd v Nippon Credit Australia Ltd [2001] NSWSC 864 contain no express restriction to 'special' circumstances. For example, in Barclays Rolfe J proceeded on the basis that, on the facts, an order for interest on costs was appropriate unless the respondent could point to some disentitling conduct on behalf of the applicants (the defendants in that case). Rolfe J concluded (at p 20): 'I am not satisfied that either party [defendants] has engaged in any conduct which would disentitle it to interest on the costs orders recovered.'" 28 The applicants submit, and I accept, that the true position is that the ordering of interest on costs will be appropriate (absent disentitling conduct) where the discretion is properly enlivened, namely, where 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 applicants' legal representatives, hence having had the use of the money from that time [see Barclays per Rolfe J]. 29 In terms of the respondent's second suggested reason for the non-application of s 95(4), namely the submission that an order for interest on costs in the present case would "penalise the plaintiff", I accept as correct, the applicants' submission that this submission is simply misconceived. Clearly the rationale for the making of such an order is to compensate a successful applicant and not to penalise a losing party. Clearly in so acting, the law recognises that, as here, the respondent who is ordered to pay interest on costs is presumed to have benefited from the use of the money ultimately ordered to be paid over by way of costs, such benefit arising from having been able to earn interest on the money not paid over at an earlier time or from having been able to use such money in its own enterprise or from not having been earlier burdened by having had to borrow money on which it would have been obliged to pay interest (see Rolfe J in Barclays at page 19). In these circumstances an order under s 95(4) requiring the respondent to pay interest on costs does not, in either its object or effect, involve the penalising of the respondent. 30 In the present case the principles earlier referred to clearly strongly suggest that an order for payment of interest on costs should be made. 31 Whilst I do not accept that in order to enliven the exercise in favour of an application such as the present one, it is necessary for the applicant to discharge a burden of showing special circumstances, it is certainly clear that the present litigation has been special in a number of ways. It has extended over a very long period of time. Since at least late December 1991 Mallesons has rendered invoices, having forwarded fee memoranda and invoices of counsel and the like, progressively during the course of the proceedings. Since at least 24 March 1992 the applicants have progressively arranged for payment of such invoices and fee memoranda. The applicants were relevantly successful in the litigation and obtained corresponding orders for costs. 32 Hence in the event that I be wrong in the approach that I have taken in terms of it being unnecessary to show special circumstances in order for the applicants to succeed in the obtaining of an order for the payment of interest on costs of the type presently sought, I am clearly of the view that the present litigation, bearing in mind the history of that litigation, is sufficiently removed from the vast bulk of litigation which comes before the Court as to justify the Court making the orders now sought. 33 Finally, it is to be noted that the respondent, being a commercial entity, the Court may readily infer that it benefited significantly from not having to pay the applicants' costs at the time when they were in fact paid to the applicants' solicitors and counsel and to others. 34 For all of those reasons I am disposed to make the order sought in the amended notice of motion. 35 The orders of the court are: 1. I make an order in terms of paragraph 1 of the amended notice of motion filed on 5 April 2002; 2. I order that the plaintiff pay the costs of the applicants of the motion.

I certify that paragraphs 1 - 35 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 5 April 2002 ex tempore and revised on 29 April 2002

      Susan Piggott
      Associate

29 April 2002

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