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[2011] QSC 134
Supreme Court of Queensland
2011-05-27
Daubney J
Original judgment source is linked above.
GENERAL - where judgment in favour of the plaintiff -
where parties made written submissions on interest and costs
INTEREST - RATE OF INTEREST AND COMPOUND INTEREST - RATE IN OTHER CASES - where the plaintiff seeks interest on damages to the date of judgment - whether the rate of interest should be 10 per cent per annum.
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - CONDUCT OF PARTIES - OTHER CONDUCT - where the plaintiff seeks costs on an indemnity basis because of an offer to settle under the Uniform Civil Procedure Rules 1999 (Qld) - where the plaintiff abandoned a claim for damages for economic loss - where the defendant submits costs should be assessed on the District Court scale - whether the result at trial was more favourable than the formal offer.
Cashmere Bay Pty Ltd v Hastings Deering (Australia) Ltd [2011] QSC 32, cited
Cullen v Trappell [1980] HCA 10; (1980) 146 CLR 1, cited
Greig v Commissioner of Taxation (No 2) [2010] QSC 265, cited
Grincelis v House [2000] HCA 42; (2000) 201 CLR 321, cited
Hadzigeorgiou v O'Sullivan [1983] 1 Qd R 55, cited
Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60, cited
Jefford v Gee [1970] EWCA Civ 8; [1970] 2 QB 130, cited
MBP (SA) Pty Ltd v Gogic [1991] HCA 3; (1991) 171 CLR 657, cited
Payton v Brooks [1974] RTR 169, cited
R W Miller & Co Pty Ltd v The Ship Patris [1975] 1 NSWLR 704, considered
The London Corporation [1935] P 70, cited
The Napier Star [1933] P 136, cited
[1] This judgment should be read in conjunction with the judgment delivered by me in this matter of 11 March 2011.[1] The parties were invited to address me on the questions of interest and costs. I have now had the benefit of both extensive written submissions and oral argument from them on these issues.
[2] It will be recalled that the defendant was found liable for the damage caused to the plaintiff's vessel and the consequential expenses incurred by the plaintiff as a result of the breach by the defendant of its contractual and tortious duties to exercise reasonable care and skill in the repair and rectification of the engines in the vessel and in works associated with those repairs. The damages awarded fell into two categories:
(a) The cost of repairs to the vessel, assessed at $175,027.25, and
(b) Consequential losses for dynamometer testing and other out of pocket expenses, totalling $21,493.91.
[3] Having regard to the arguments advanced by the parties, it is necessary to deal separately with the interest recoverable under these broad heads of damage.
[4] The nature and extent of the damage to the vessel, and the causes of that damage, were addressed at length in the principal judgment. The sum of $175,027.25 was assessed as the damages recoverable by the plaintiff for the damage done to the vessel as a consequence of the defendant's breach of contract and negligence.
[5] In cases where goods are damaged, the normal measure of damages is the amount by which the value of the goods damaged has been diminished. Generally in the case of damaged goods, the prima facie measure of those damages is the cost of repair, although other measures (such as diminution in market value instead of, or in addition to, the cost of repairs) may be considered appropriate on the evidence in particular cases.[2] Moreover, as is noted in McGregor on Damages (18th ed)[3] at
32-004, the cost of repair is appropriate only if in the circumstances it is reasonable for the claimant to effect the repair; it might be cheaper to buy a replacement and sell the damaged item for the best price that can be obtained. In relation to the assessment of damages in cases of ships damaged by collisions, Greer LJ said in The London Corporation:[4]
"Prima facie, the damage occasioned to a vessel is the cost of repairs - the cost of putting the vessel in the same condition as she was in before the collision, and to restore her in the hands of the owners to the same value as she would have had if the damage had never been done; and prima facie, the value of a damaged vessel is less by the cost of repairs than the value it would have if undamaged."
[6] The assessment of the damages suffered in this case by the plaintiff by reference to the assessed cost of repairs to the damaged vessel was completely consistent with these principles. The point for present purposes, however, is that it was not an award to indemnify the plaintiff for the cost of repairs, but was an award of damages to compensate the plaintiff for the diminution in value of the vessel, with that diminution in value being measured by reference to the repair costs.
[7] The plaintiff seeks interest on those damages to the date of judgment. The defendant disputes that the plaintiff is entitled to such interest. It contends that:
(a) the cost of the repairs is an outlay which has not yet been incurred by the plaintiff; and
(b) there is no entitlement to interest until the repairs have been paid for.
[8] By s 47(1) of the Supreme Court Act 1995 (Qld), the Court "may order that there shall be included in the sum for which judgment is given interest at such rate as it thinks fit on the whole or any part of that sum for the whole or any part of the period between the date when the cause of action arose and the date of the judgment".
"The function of an award of interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period."
[10] That statement was cited with approval by the majority of the High Court in Grincelis v House.[7] Their Honours then said:
"There is no doubt that this is a very important purpose of statutory provisions providing for the award of interest on the amount of a debt or damages in respect of the period between the cause of action accruing ... and the date of judgment." (underlining added)
[11] It is also appropriate to have regard to the following observations by Mason CJ, Dawson, Toohey and Gaudron JJ in Haines v Bendall[8] about the similar power conferred by statute on the Supreme Court of New South Wales:
The power to award interest on damages for the period between the date when the cause of action arose and the date on which a judgment takes effect is conferred by s. 94 of the Supreme Court Act. The section confers power on the Supreme Court to order that there shall be included, in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or any part of the money between the date when the cause of action arose and the date when the judgment takes effect.
An award of interest up to the date of judgment is an award of interest in the nature of damages: Fire and All Risks Insurance Co. Ltd. This statement acknowledges that the award of interest is an integral element in the attainment of the object of damages, namely, to compensate a plaintiff for injury sustained. Hence the award of interest is compensatory in character. While "[i]nterest should not be awarded as compensation for the damage done' (emphasis added) (Jefford v. Gee) the award of interest is nevertheless an essential element in the achievement of true compensation for that damage. In Thompson v. Faraonio, the Privy Council stated that '[t]he reason for awarding interest is to compensate the plaintiff for having been kept out of money which theoretically was due to him at the date of his accident' (emphasis added): see also Batchelor v. Burke, per Gibbs C.J.; M.B.P. (S.A.) Pty Ltd v. Gogic; cf Ruby v. Marsh, per Barwick C.J.. The award of interest for the period of delay in payment between the date of accrual of the cause of action and judgment affords the fair legal measure of compensation: Pheeney v. Doolan, per Reynolds JA. Thus, it is the award of damages and, where appropriate, interest awarded on damages for the period up until the judgment takes effect which allows the plaintiff to be placed in or restored to the situation, as far as money can do, in which he or she would have been but for the defendant's negligence." (omitting footnotes)
[12] The discretion to award interest under the statute must, of course, be exercised judicially and in accordance with legal principle.[9] In Queensland, it was held by Andrews SPJ (Connolly and Thomas JJ concurring) in Hadzigeorgiou
v O'Sullivan[10] that "the proper approach to an exercise of discretion [under the statute] as to the granting of interest is that it ought to be granted unless there are proper reasons for withholding it".
[13] As I have said, the defendant contends that the discretion ought not be exercised in this case because the plaintiff did not, and has not, actually paid for the repairs. The evidence at trial was to the effect that the plaintiff could not afford to have the repairs performed.
[14] In advancing this argument, the defendant relied on the judgment of Sheppard J in
R W Miller & Co Pty Ltd v The Ship Patris.[11] That was an Admiralty case arising out of a collision between two ships in Sydney Harbour. There was a verdict for the plaintiff in the proceeding for damages to be assessed by the Registrar. There were two components to the damages - repairs and demurrage. After the assessment, the defendants did not dispute that they were liable to pay interest on the damages, but there was a contest between the parties as to the date from which interest should run and the rate at which it should be calculated. This was the dispute which came before Sheppard J.
[15] In the circumstances of that case, there was no statutory power in the Court to award interest. Sheppard J noted,[12] however, that "this Court in its Admiralty jurisdiction has always had jurisdiction to award interest". His Honour then examined a number of authorities he relied on for that proposition, starting with the judgment of
Lord Denning MR in Jefford v Gee.[13] Sheppard J noted that Lord Denning had referred to the fact that interest was not awarded by courts at common law, and then set out a lengthy extract from Lord Denning's judgment. That extract commenced with the words: "The Court of Admiralty did not apply the common law. It followed the civil law and gave interest on damages whenever the non-payment was due to the wrongful delay of the defendant."
[16] A little later in the quoted passage, Lord Denning said:
"When a profit-earning ship was sunk in a collision, the Admiralty Court awarded interest on the value of the ship, capitalised at the date of loss... as applied by the House of Lords in The Liesbosch. When a ship was not sunk, but only damaged, the Admiralty Court awarded interest on the cost of repairs, but only from the time that the repair bill was actually paid, because that was the date from which the plaintiff had been out of pocket: see The Napier Star,[14] per Langton J." (highlighting added, omitting footnotes)
[17] The defendant in the present case placed emphasis on the sentence I have highlighted.
[18] Later in his judgment, after determining the appropriate rate of interest to be applied, Sheppard J turned to consider the dates from which interest should run, and said:[15]
"In the case of damage to, as distinct from the loss of, a ship the authorities establish that interest is payable as from the date of the payment of the repair account."
[19] The authorities to which his Honour was referring were, of course, those he had cited earlier in his judgment, including the judgment of Lord Denning in
[20] In reliance on these statements of the principles relating to the award of interest in the Admiralty jurisdiction, the defendant in the present case contended that interest should not be allowed on the $175,027.25 component awarded in this case. It needs to be recalled, however, that the principles relied on to achieve the result contended for by the defendant developed in the Admiralty jurisdiction of the courts. The history of the divergence in the position at common law (where no interest was recoverable) and in the Admiralty jurisdiction is described in McGregor on Damages at 15-022 - 15-024, and is also referred to at 32-010. However, I do not perceive (and I was referred to no authority to support the proposition) that rules relating to the award of interest in the practice of the Admiralty jurisdiction, as distinct from the position which obtained under common law, are principles which bind the exercise of the discretion to award interest under the statute.
[21] On first principles, having regard to the authorities to which I have referred above, the position is that the plaintiff has been awarded damages for the defendant's breach of contract and negligence. Those damages, in principle, represented the diminution in value of the plaintiff's vessel by reason of the defendant's wrongdoing, and were measured by reference to the assessed cost of repairs. I see no reason in principle why those damages should not attract the exercise of the discretion to award interest under the statute unless good reason has been shown. I do not think that the fact that a particular rule or practice relating to the award of interest was developed in a particular historical context in a particular jurisdiction of the Court (i.e. the Admiralty jurisdiction) is sufficient reason to depart from the general rule which would see a favourable exercise of the discretion conferred by the statute for the purpose of awarding interest on the damages.
[22] The plaintiff submitted that it would be appropriate in the present case for that interest to be calculated from April 2008 (when the repair costs were assessed, rather than when the cause of action accrued). It seems to me that this is an appropriate concession in the circumstances of this case.
[23] In terms of the rate, the defendant submitted that interest should be allowed at six per cent. The plaintiff submitted that the appropriate rate is 10 per cent, pointing to the fact that the rate of interest prescribed as payable from the date of judgment is 10 per cent per annum.[16] It was also submitted that an award of interest to the date of judgment at that rate is in line with the practice of the Court, and consistent with the rate awarded in recent authorities.[17]
[24] It is to be recalled that the interest awarded is calculated as simple interest. Were the interest to be allowed on a compound basis, then it is clear that a lower rate would be appropriate. In the circumstances, however, it seems to me that the rate of 10 per cent is appropriate.
[25] It follows that interest will be allowed on the $175,027.25 component of the damages at a rate of 10 per cent per annum for three years, yielding $52,508.18.
[26] The plaintiff sought interest on the other expenses of $21,493.91. It seemed to be common ground that the sensible approach was to allow interest to run from the mid-point of the period over which this expenditure was incurred. The only issue was the rate at which interest should be allowed. Once again, the defendant contended for a rate of six per cent. For the reasons given above, however, I am again inclined to allow interest on this component of the damages at 10 per cent.
[27] Calculating interest at 10 per cent on the $21,493.91 since 3 June 2005 to the date of judgment yields interest of $12,538.12.
[28] A significant component of the plaintiff's pleaded claim, and indeed of the claim as initially presented at trial, was to recover damages for economic loss arising from the loss of use of the vessel for a commercial enterprise. An amount in excess of $100,000 had been claimed under that head. It became apparent in the course of the trial, however, that the plaintiff had difficulties in proving that claim, and it was ultimately abandoned.
[29] The plaintiff submits, however, that it ought have its costs, and indeed seeks those costs on the indemnity basis. It says that it is entitled to those costs because it had made an offer to settle under Chapter 9 Part 5 of the Uniform Civil Procedure Rules 1999 (Qld) ("UCPR") on 11 June 2010, and that the judgment obtained ($195,521.16 plus interest) is "no less favourable" than the offer to settle. The plaintiff says that UCPR r 360 requires, in such a case, an order that the defendant pay indemnity costs unless another order is shown to be appropriate.
[30] The formal offer to settle made by the plaintiff on 11 June 2010 was for the defendant to pay to the plaintiff:
"(a) $185,000 for damages and interest within 30 days of the acceptance of this offer by the Defendant; and
(b) the Plaintiff's legal costs and outlays of and incidental to the Proceeding, including reserved costs, on the standard basis as assessed or agreed."
(a) The starting point is that there is no reason for the Court to depart from the prima facie position that, in light of the quantum of the judgment, the plaintiff's costs ought be assessed on the District Court scale;[18]
(b) The costs incurred by the plaintiff in relation to the loss of profits claim should be excluded from any costs award;
(c) Further, the plaintiff should pay the defendant's costs on the Supreme Court scale in respect of the loss of profits claim.
[32] The defendant (I think appropriately) placed significant reliance on correspondence sent by the defendant's solicitors to the plaintiff's solicitors in 2009. The prelude to that correspondence was an application by the defendant on 10 June 2009 to strike out the economic loss claim. That application led to further amendments to the statement of claim, but the plaintiff persisted with the claim for lost profits.
[33] On 24 June 2009, the defendant's solicitors wrote to the plaintiff's solicitors pointing out the difficulties associated with the plaintiff's claim for economic loss. Not the least of the difficulties to which the defendant's solicitors specifically adverted was the absence of evidence to support such a claim. This letter noted that the plaintiff's claim was being litigated in the Supreme Court only by reason of the claim for economic loss and the claim for alleged diminution in the value of the vessel. The letter continued:
"It is readily apparent, with respect, that even based on your client's strongest argument in respect of quantum, this matter should not have been pursued in the Supreme Court.
If your client insists on persisting with the action, it should be maintained, in our view, in the Magistrates Court or, at its very highest, the District Court.
We invite you to provide to us a consent order to have the matter remitted to the District Court forthwith."
[34] On 13 August 2009, the defendant's solicitors wrote again to the plaintiff's solicitors. A number of topics were covered, but relevant for present purposes is the fact that the defendant's solicitors repeated:
"Owing to our client's perceptions of your client's difficulty in maintaining its economic loss and rectification cost claims, you are again invited to remit the matter to the Magistrates Court or the District Court."
[35] On 28 September 2009, the defendant's solicitors wrote to the plaintiff's solicitors again inviting the plaintiff to reconsider its position in relation to the appropriate jurisdiction for this case. Reference was made to the expert evidence, which the defendant's solicitors contended did not support the claim for economic loss. The letter concluded:
"We again invite your client, in the interests of conserving costs and time, to abandon the claim for economic loss. Even though our client has incurred the costs of meeting this allegation, and even though it has attempted in the past to avoid this issue, it will again allow a period of 21 days from the receipt of this letter for your client to abandon that part of the claim.
However, we put your client on notice that if it continues to pursue this claim in circumstances where both factually and legally it is bound to fail (irrespective of whether it has success on any other issue), we shall seek the costs of defending this part of the claim irrespective of the outcome of the trial."
[36] Dealing first with the plaintiff's attempt to rely on the terms of the formal offer made on 11 June 2010, it seems to me that it would be quite inappropriate in the circumstances of the present case to rely on that offer for the purposes of making an award of indemnity costs in favour of the plaintiff. It is not at all clear to me that the outcome which has been reached after trial is more favourable than that which was proposed under the offer. True it is that the quantum of the damages and interest awarded to the plaintiff have exceeded the $185,000 referred to in the offer. But the offer also called for payment of all of the plaintiff's costs, including the costs of and incidental to the claim for economic loss. Those costs would have included the costs of the expert (Mr Clough), whom the plaintiff had retained and from whom expert reports had been obtained for the purposes of pursing the economic loss claim. Indeed, the matter advanced so far at trial that Mr Clough was formally called as a witness but, after further argument and reconsideration of its position, the plaintiff elected not to adduce any evidence from him at trial. That was the turning point at which the plaintiff effectively abandoned its claim for economic loss. Having regard to the point in time at which this formal offer was made (only a month or so before the trial commenced), and having regard to the practical reality that a significant component of the costs which the plaintiff would have incurred by that time would have related to the claim for economic loss which it abandoned at trial, I am not satisfied that it can be said that the result at trial is, in fact, more favourable than that which was offered.
[37] It is, particularly having regard to the letters sent by the defendant's solicitors in 2009, clear to me that the best the plaintiff could ask for in the circumstances of this case is for an award of costs on the District Court scale. It seems to me, however, that regard also needs to be had to the fact that, despite the explicit urgings of the defendant's solicitors in 2009, the plaintiff persisted with its economic loss claim until and during the trial.
[38] As noted, the defendant seeks that I have regard to these matters by, in effect, dissecting the costs awards. In the course of oral argument, however, counsel for both parties accepted that it was within the proper ambit of my discretion with respect to costs to take account of these matters simply by discounting the quantum of costs which the defendant is ordered to pay to the plaintiff.
[39] It seems to me, in the circumstances of this case, that this is the appropriate methodology to adopt. Having regard to the fact that the economic loss claim constituted a significant part of the plaintiff's claim which the defendant was required to meet at trial, I think it appropriate to discount the costs awarded to the plaintiff by 30 per cent.
[40] The order will, therefore, be that the defendant pay 70 per cent of the plaintiff's costs of and incidental to the proceeding, to be assessed as if the proceeding had been started in the District Court.
[1] Cashmere Bay Pty Ltd v Hastings Deering (Australia) Ltd [2011] QSC 32.
[2] Payton v Brooks [1974] RTR 169.
[4] [1935] P 70 at 77.
[8] [1991] HCA 15; (1991) 172 CLR 60 at 66-67.
[9] Cullen v Trappell [1980] HCA 10; (1980) 146 CLR 1, per Gibbs J at 17.
[10] [1983] 1 Qd R 55 at 57.
[14] [1933] P 136 at p 138.
[16] Supreme Court Regulation 2008 (Qld), s 4.
[17] Such as Greig v Commissioner of Taxation (No 2) [2010] QSC 265.
Cashmere Bay Pty Ltd
Hastings Deering
(1980) 146 CLR 1
(2000) 201 CLR 321
(1991) 172 CLR 60
(1991) 171 CLR 657