I will deal with each of these matters in turn.
3 (1) The affidavit of Mr Sweney of 3 September 2008 shows that before the matter came for trial, there was negotiation between the solicitors and as a result of this, three bank guarantees were lodged on behalf of the litigation funder as security for the plaintiff/cross-defendant's costs. It will be remembered that although the plaintiff/cross-defendant commenced these proceedings for a declaration, the real aggressor was the defendant/cross-claimant.
4 The proceedings at first instance have now been concluded and the defendant/cross-claimant says that the bank guarantees should now be released. Its counsel points out that there has not yet been any notice of appeal filed (as is most understandable seeing the orders have not been made!).
5 The plaintiff/cross-defendant resists this, and in support of its resistance, has cited the decision of McColl JA in Penrith Whitewater Stadium Ltd v Lesvos Pty Ltd [2007] NSWCA 103. In that case the situation was that a plaintiff which appeared to be insolvent was ordered to give a bank guarantee by way of security for costs. The plaintiff won the case; the defendant appealed and the plaintiff wanted the bank guarantee to be released. It argued, as the defendant/cross-claimant has argued before me, that to retain the bank guarantee would mean that there would be de facto security for the potential appellant's costs of the appeal.
6 McColl JA rejected that argument. Her Honour said that the critical question was what would happen if the appeal was successful. One would normally expect that the costs order below would be reversed, there was therefore a continuing possibility that there would be a call on the bank guarantee not for the costs of the appeal, but for the costs at first instance. Accordingly the bank guarantee ought to remain in place to constitute security for the costs of the proceedings at first instance.
7 Mr Carruthers says that that case is distinguishable because on the present there is no finding of insolvency or impecuniosity on behalf of the defendant/cross-claimant. However, it seems to me that prima facie the fact that the parties agreed that there should be security for costs indicates that the facts of this case are not sufficiently far removed from those in the Penrith Whitewater Stadium case for me to distinguish it. Of course, each case is separate and in each case the judge must exercise his or her judgment on the facts of the particular case. However, with respect, what McColl JA said in the Penrith Whitewater Stadium case is logical and I consider that I should reach the same result.
8 Accordingly, the guarantees should remain in place. However, if no appeal is lodged within 35 days of the date of publication of these reasons, the guarantees should be released. If there is such an appeal, they are to be held pending further order of the court.
9 (2) There is no doubt that the plaintiff/cross-defendant must bear the mainstream costs of the proceedings. However, there is a case for saying that the costs concerning the Max report should be excluded from this general order.
10 On 15 August 2007, the defendant/cross-claimant served a report which purported to be an expert's report, of a Mr Allen Max. At that stage no leave had been given to use such expert evidence. However, on 26 September 2007, Brereton J gave such leave. However, his Honour's reasons make it clear that he did not consider it appropriate to rule on disputable questions as to the qualification of an expert or as to the admissibility of individual parts of an expert's report when considering whether leave should be given. He made it quite clear that in granting leave to adduce that evidence, he did not in any way rule on the ultimate admissibility of the evidence.
11 The report was objected to and when considering the objections in the normal way before the case commenced, I was of the view that it was inadmissible entirely. However, I did not need to make any ruling because it was not relied upon by the defendant/cross-claimant.
12 The plaintiff/cross-defendant contends: (a) that it ought not to be ordered to pay the costs of Mr Max's report; and (b) that the defendant/cross-claimant should pay the plaintiff/cross-defendant's costs relating to that report. Both of those applications are opposed.
13 The plaintiff/cross-defendant says that it incurred substantial costs with respect to considering that report and points to the fact that the report had four lever arch folders of exhibits. It notes that the report was abandoned without prior warning on the first day of hearing. Counsel quotes the words of Lord Halsbury in Huxley v West London Extension Railway Co (1889) 14 App Cas 26 at 32 where his Lordship said, after pointing out that costs are nowadays in the discretion of the court:
"But whatever may be involved in that discretion I cannot entertain a doubt that everything which increases the litigation and the costs, and which places upon the defendant a burden which he ought not to bear in the course of that litigation, is perfectly good cause for depriving the plaintiff of his costs."
14 The defendant/cross-claimant says that the Max report was necessary to be prepared in view of the evidence put on by the other side and that it should not be penalised for abandoning reliance on that report as it is in the interests of justice to encourage parties to streamline litigation.
15 However, to my mind that is no answer to the bald fact that the report was inadmissible and was not in fact relied upon at the trial.
16 Accordingly, in my view the defendant/cross-claimant should not get its costs of and incidental to that report.
17 As to whether it should be required to pay the plaintiff/cross-defendant's costs of replying to the report, I was referred to the decision of Fisher J in the Federal Court in Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213, 220; 28 ALR 201, 208 which said that it was only in exceptional circumstances that it would be appropriate for the defendant/cross-claimant to be required to pay the plaintiff/cross-defendant's costs of replying to Max's report. I do not consider that that case goes that far and indeed it would be limiting the exercise of the discretion in the statute to so confine it. In any event, what happened here does get close to exceptional circumstances. The Max report was a very very detailed report and would need to be addressed. There is no material before the court to show that anything was prepared to address it, but if the costs assessor can see that that in fact happened, I can see no reason why the person who proffered the Max report should not have to pay the burden.
18 Accordingly, in my view, the proper order is that sought by the plaintiff/cross-defendant: (a) that the costs of the expert report of Max of 14 August 2007 is not to form part of the successful defendant/cross-claimant's costs; and (b) that the costs caused by the service of that report upon the plaintiff/cross-defendant should be paid by the defendant/cross-claimant and be set-off against the costs otherwise receivable by it.
19 (3) The defendant/cross-claimant submits that interest on costs should be ordered pursuant to s 101(4) of the Civil Procedure Act 2005. On that application, it relies on the judgment of Campbell J in Lahoud v Lahoud [2006] NSWSC 126 at [82]-[83]. I was also referred to the judgment of Einstein J in Optus Networks Pty Ltd v Leighton Contractors Pty Ltd [2005] NSWSC 156. Those decisions and others such as McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (1993) 32 NSWLR 190 at 192, focus on the injustice if interest is not awarded on a party having been out of pocket in paying its lawyer's costs as the case has progressed and not being reimbursed for a considerable period of time.
20 I do not consider that the rule is that as a matter of course interest should be paid on costs, even though it may well be that special circumstances do not have to be shown before such an order is made. There must be sufficient material for a judge to see that there has been a very real loss on the part of the applicant in being out of pocket for moneys advanced to its lawyers for a period of time for costs. In the instant case, it is clear that the defendant/cross-claimant had an arrangement with a litigation funder, the court does not know the terms of that funding or what moneys were paid when, and I do not consider that I have sufficient material before me to justify me making any order for interest on costs.
21 In accordance with the arrangements made on 4 September 2008, these additional reasons have been posted to counsel and bear the date on which they dispatched. I direct that within 7 days of that date the defendant/cross-claimant provide to my Associate the final form of the short minutes signed by both counsel or both solicitors or a combination thereof. Time for appealing will, of course, commence from that date. However, in the interest of certainty I will extend the time for lodging notice of appeal until the day 35 days after the date of these reasons.