BestCare Foods v Origin Energy

Judgment - EXTEMPORE (REVISED 15 jUNE 2012) 1HIS HONOUR: I gave judgment in these proceedings on 31 May 2012 ([2012] NSWSC 574) and stood the matter over until today to enable the parties to bring in orders to give effect to my reasons. The parties are in dispute today, including as to costs, on the orders to be made. 2The first dispute relates to interest on the components of the amount for which the plaintiff is, on the findings of the referee as varied and adopted, entitled to judgment. The most substantial component of those losses is an amount of $26.4 million for "lost profits". Although the amount is described as an amount of lost profits, its proper characterisation is damages for loss of the opportunity to earn those profits. I thought that I had made that clear in my reasons given on 31 May. (See in particular at [75] to [78] of those reasons.) 3The basis on which the referee assessed the loss of opportunity was to consider some scenarios as to possible sales that the plaintiffs might have made, but for the events that were in the relevant sense caused by the defendant's breach of duty, and to discount those by reference to the probability, or possibility, that the plaintiffs might not have earned them. For the reasons that I gave, I think that this was the correct approach; and for the reasons that I gave I do not think that the referee erred, in a way that would entitle the Court to intervene, in the factual and arithmetic basis of his calculations. 4The losses were discounted back to a conventional start date of November 2004. The referee did not assess losses year on year, and discount those by his 40 per cent "Contingencies" allowance, so as to produce an aggregate up to the date of the report. Nor did he adopt a similar approach for the future. 5The damages that are to be assessed are damages assessed in substance at the date of the wrong. Of course, because they include damages for loss of opportunity to make profits, they include a future element. Nonetheless, this is not a case where a plaintiff is being compensated for loss of earnings that, but for some unfortunate event, he would have derived. It is a case where the destruction of the plaintiff's factory deprived them of the opportunity to make profits, and it is the value of the loss of that opportunity, at the date of the wrong, that is assessed. 6In both circumstances, I think it is appropriate that interest should run from the date at which the loss is assessed. 7Mr Romaniuk of counsel, who appeared for the defendants today, submitted that the this should not be done because there was an element of loss accruing from time to time. Further, he submitted, because the calculations had been carried forward to 2018 (for reasons that I do not understand, but which I was assured I need not understand), he submitted that any allowance of interest for future losses would be inappropriate. 8I can accept the validity of the submission in cases where the damages are for actual losses, in the sense that they represent accrued losses of earnings year on year. But as I have said, this case is essentially different because it is a loss of opportunity case. 9Thus, as I have said, I think it appropriate to allow the interest on the whole of the sum from the date to which it was discounted back for the purpose of assessment. 10There is next a dispute as to the weight of interest that should be allowed. The plaintiff's claim interest on the "default rate", being the rate referred to in Practice Note SC Gen 16. The defendants submitted that they should be given an opportunity to adduce evidence of actual market rates over the time, with a view to showing that some different, and presumably lower, rate of interest should be allowed. 11The originating process claimed interest on damages. The practice note to which I have referred, which commenced on 1 July 2010, made clear that in the ordinary case pre-judgment interest would be assessed having regard to the rates set out in that practice note. Those rates are conveniently summarised in a table to UCPR r 36.7, in Ritchies' Uniform Civil Procedure looseleaf service. The calculation of pre-judgment interest has been carried out at the rate from time to time applicable as shown in the relevant column of that table. 12In circumstances where the claim for interest was made in the originating process, and where the practice note makes it clear that is the position that the Court will generally adopt, I think that the defendants should have flagged their intention to rely on some different rate a lot earlier than they have done. So as far as I can see, this is the first time that the point has been raised. 13In those circumstances, I see no reason to depart from the general expectation set out in the practice note. 14The calculation that was tendered has been bandied backwards and forwards between the parties. There is apparently some difference of opinion as to how the interest should be calculated. The evidence of the plaintiff's solicitor, Mr Curll, was that calculations had been performed by his client, by junior counsel (who was said to have some particular expertise in mathematics) and by an accountant. Mr Curll said, further, that he had carried out his own checks on aspects of the calculations, so performed, and found them to be accurate. He acknowledged that there were some differences between the calculations on which he relied, but said that those differences were of the order of only thousands of dollars. I say "only" because the interest calculated exceeds, on the plaintiff's calculation, $41.5 million. 15Mr Curll acknowledged further, that the defendants had taken an approach to calculation of interest which showed a more significant difference, apparently of the order of $1 million or $1.5 million. That does seem to me to be something significant. But there is no evidence of it. The question is whether I proceed on the basis of the calculations prepared by the plaintiffs, or whether I give the defendants an opportunity to deal with the matter now, by evidence. I should say that, if the defendants wished to avail themselves of that opportunity, and if there remained a dispute other than one of principle between them and the plaintiffs, I would be inclined to deal with that by referring the question of assessment of interest out to some expert such as an accountant so that the Court would be spared the tedium (and in my case, effective impracticability) of attempting its own resolution of the dispute. 16However, in circumstances where it is clear that the defendants have had the plaintiff's calculation for ten days, and where the defendants have not propounded their own calculations, I do not see why they should be given yet another opportunity to delay the entry of judgment in this matter. Accordingly, I propose to adopt the calculation propounded by the plaintiffs. 17The next matter in dispute relates to costs. The defendants submit that the plaintiffs should not have any order for costs, because it has not been shown that they had incurred costs. Mr Curll swore an affidavit in which he said that the plaintiffs had been billed, and had paid, costs from time to time. However, in cross-examination, he corrected that. He said that his retainer was with the plaintiff's insurer QBE, who had conducted the action in the name of the plaintiffs pursuant to its right of subrogation. That right arose because QBE had paid out an aspect of the damages sustained by the plaintiffs. Mr Curll acknowledged that all costs had been rendered to and paid by QBE. 18In those circumstances, Mr Romaniuk submitted that there should be no order as to costs. That followed, he said, because the discretion to award costs was compensatory in origin, and in circumstances where the party had incurred no loss (because it had not paid costs), there was no basis for the exercise of the discretion. 19The proposition that an insured plaintiff (or, for that matter, defendant) who receives a verdict in its favour should not have costs awarded, because those costs were paid by the insurer, is one that strikes me as being not only novel but alarming. Mr Romaniuk did not point to any authority in support of the proposition. Insofar as I am aware, it has never been suggested that the existence of insurance is a reason for depriving a successful insured party of its costs. 20An insurer's right of subrogation extends to give it the benefit of all rights enjoyed by the insured party against the opposite party. Those rights include not merely the right of recovery (in a case where the insured party is a plaintiff, and where the recovery is either for or includes the amount paid out by the insurer). In principle, it seems to me, they must also include any right that the insured party has in the nature of the entitlement to have a costs order made in its favour. Otherwise, the position would follow that an insured party is at a relative disadvantage. That would be so because, one would readily infer, the amount actually paid by the insurer would be subject to deduction on account of the costs that the insurer had incurred in pursuing its right of subrogation. 21The general proposition is that costs follow the event. See UCPR r 42.1. I accept that rule 42.1 applies, as it says, "if the Court makes any order as to costs." However, that qualification does not seem to me to entitle the Court to refuse to make a costs order simply because the action is pursued not by the plaintiff (in this case) in its own right, but by its insurer. 22Thus, I think, the plaintiffs are entitled to have their costs. 23The next dispute relates to interest on costs. The plaintiffs have filed a notice of motion seeking such an order. There is no doubt that the Court has power to order interest on costs. At first, it seemed to me that if the plaintiffs had not paid any amount of costs themselves, then there might be a reason for thinking that they should not have interest on costs. But, on reflection, I think, what I have just said in relation to the entitlement to costs applies equally in the case of interest. That is to say, I think that the insurer's right of subrogation extends not only to enable it to be subrogated to the insured's entitlement to costs, but also to the insured's entitlement to interest on costs. 24It is apparent that these proceedings have been on foot for some number of years. The originating process was filed in 2005. It is apparent from Mr Curll's affidavit, and I would in any event infer, that costs have been rendered and paid over that time. On that basis, the ordinary principle of compensation suggests that the plaintiffs should have interest on costs. That is not done to penalise the defendant, but, rather, to ensure that the costs order is not undermined or devalued by the loss of the use of the money represented by the payment of costs from time to time. Although, as I have said, that money was paid not by the plaintiffs but by their insurer, it seems to me that the principle of subrogation nonetheless applies. 25There was a dispute as to the basis on which the interest order should operate. For the reasons that I indicated in argument, that dispute appeared to me to proceed on an incorrect understanding of the draft orders proposed by the plaintiff. Those orders do not provide for the plaintiffs to have interest on unpaid costs. On the contrary, they provide for interest only on costs that have been paid. The formula is that pronounced by Campbell J in Lahood v Lahood [2006] NSWSC 126. It is a formula that has been applied in many cases since, including (and I mention this only because it comes to mind) one of my decisions in Ingot Capital Management v Macquarie Equities and Ors [2008] NSWSC 199 at [4(7)], [97]. I see no reason for making the order in any other form. 26Mr Romaniuk submitted that if interest were to be allowed, it should not be allowed on the basis of the "allowed percentage" of each sum of costs paid, but, rather, on the actual amount of each amount paid that was allowed on assessment. To explain this somewhat cryptic statement of the issue: the Lahood formula looks at the total amount of costs and disbursements allowed on assessment (or agreed between the parties) and the total amount of costs and disbursements paid or payable. It calculates a percentage in which the former amount is the numerator, the latter amount the denominator and the multiplier is of course 100. That allowed percentage is then applied to each individual payment of costs, and the result of its application is the amount on which interest is payable. 27It is of course correct that in any given case application of the allowed percentage may mean that interest is allowed on an amount that (if the assessment were dissected) is greater than that actually allowed. Equally, of course, it might mean that interest is allowed on a lesser amount. 28The purpose of the Lahood formula is to avoid the need to go back to every individual bill rendered and paid and to compare that with the assessment of the costs assessor to see how much was actually allowed, for the purpose of calculating interest. It is clear that that would be a nightmarish task in proceedings that have been on foot for some seven years. It is equally clear that, if the parties agree on the amount to be allowed, it would be virtually impossible to carry out the task. 29The Lahood formula was evolved specifically so that the question of interest on costs could be dealt with in a way that was overall fair to the parties, on the "swings and roundabouts approach" and in a way which paid appropriate regard to the objectives set out in s 56 of the Civil Procedure Act 2005 (NSW). Mr Romaniuk submitted that whilst it might be just, quick and cheap in a small case, it might not be so in a large case. I do not agree. As the reasons of Campbell J made clear, and as reasons in subsequent cases make clear, the approach is of particular applicability in complex litigation, where any other approach would require, as I have said, a nightmarish task of calculation. 30Accordingly, I think, it is appropriate to allow interest on costs in accordance with the Lahood formula. 31Otherwise, I think, the parties were in substantial agreement as to the orders to be made. I say that because I accept, as Mr Williams of Senior Counsel for the plaintiffs accepted, that the paragraphs of the report to be rejected should include paragraphs 934 to 936 as Mr Romaniuk submitted. 32I will amend the draft short minutes of the order propounded by the plaintiffs so that paragraph 1 (a) refers not only to paragraph 916, but also to paragraphs 934, 935 and 936 of the report, and make some consequential grammatical changes. I will also vary paragraph 1 (b) by adding the words "and as so varied, adopted." I do that to make it clear that the adoption relates to paragraph 942 as varied. 33I make orders in accordance with paragraphs 1 to 9 as amended of the short minutes of order initialled by me and dated today's date. I note specifically that by reference to order 8 those orders include orders in accordance with annexure A, which I have also initialled and dated today's date.