ICT Pty Limited v Sea Containers Limited

Bennett v Jones [1977] 2 NSWLR 355 BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382 Davies v Ku-ring-gai Municipal Council [2003] NSWSC 1010 De Girolamo v South Australia (1991) 56 SASR 40 CASES CITED : Geoffrey W Hill & Associates (Insurance Brokers) Pty Ltd v Squash Centre (Allawah North) Pty Ltd (1990) 6 ANZ Ins Cas 61-012 Golden West Refining Corporation Ltd v Daly Laboratories Pty Ltd (unreported, Federal Court of Australia (WA), Carr J, 16 February 1995) HK Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon (a firm) [1999] FCA 795 Keates v Nelson (unreported, Supreme Court of New South Wales Court of Appeal, Kirby P, Mahoney and Cripps JJA, 16 April 1992) Keithara Pty Ltd v J G L Holdings Pty Ltd (unreported, Supreme Court of Victoria, Smith J, 6 December 1994) Lahoud v Lahoud [2006] NSWSC 126; [2006] NSWCA 169 Simonius Vischer v Holt & Thompson [1979] 2 NSWLR 322

PARTIES : ICT Pty Limited (Plaintiff) Sea Containers Limited (Defendant)

COUNSEL : Mr DJ Fagan SC, Mr E Hyde (Plaintiff) Ms J Soars (Defendant)

SOLICITORS : Deacons (Plaintiff) Ebsworth & Ebsworth (Defendant)

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

50101/06 ICT Pty Limited v Sea Containers Limited JUDGMENT Whether the Court has power to make the order sought by the plaintiff 1 The plaintiff seeks an order pursuant to s 101 (4) of the Civil Procedure Act 2005, that the defendant pay to the plaintiff interest [at the rate prescribed by Schedule 5 of the Uniform Civil Procedure Rule 2005] on the costs payable under the orders made by this Court on 31 October 2006. Those orders were that the defendant pay the plaintiff's costs of the arbitration. The claim for interest is pursued from the dates on which the costs concerned were paid. 2 The defendant contends that the Court does not have the power to make the orders sought. Alternatively, that the principled exercise of the discretion is to refuse to make the orders. 3 The material provisions for the purpose of treating with the issue are as follows: Civil Procedure Act 2005

(1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.

(2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court.

(3) An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings.

(4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount…

(4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs.

"costs , in relation to proceedings, means costs payable in or in relation to the proceedings, and includes fees, disbursements, expenses and remuneration."

28 Award to be final Unless a contrary intention is expressed in the arbitration agreement, the award made by the arbitrator or umpire shall, subject to this Act, be final and binding on the parties to the agreement. 30 Power to correct award Where an award made under an arbitration agreement contains:

(b) an error arising from an accidental slip or omission,

(c) a material miscalculation of figures or a material mistake in the description of any person, thing or matter referred to in the award, or

the arbitrator or umpire may correct the award or the Court, on the application of a party to the agreement, may make an order correcting the award.

31 Interest up to making of award (1) Unless a contrary intention is expressed in the arbitration agreement, but subject to subsection (4), where the arbitrator or umpire determines to make an award for the payment of money (whether on a claim for a liquidated or an unliquidated amount), the arbitrator or umpire shall have power to include in the sum for which the award is made interest at such rate as the arbitrator or umpire may direct (being a rate not exceeding the rate at which interest is payable on a judgment debt of the Supreme Court) on the whole or any part of the money for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(2) Unless a contrary intention is expressed in the arbitration agreement, but subject to subsection (4), where: (a) arbitration proceedings have been commenced for the recovery of a debt or liquidated damages, and (b) payment of the whole or a part of the debt or damages is made during the currency of the proceedings and prior to or without an award being made in respect of the debt or damages, the arbitrator or umpire may order that interest be paid at such rate as the arbitrator or umpire may direct (being a rate not exceeding the rate at which interest is payable on a judgment debt of the Supreme Court) on the whole or any part of the money paid for the whole or any part of the period between the date when the cause of action arose and the date of the payment.

32 Interest on debt under award (1) Unless a contrary intention is expressed in the arbitration agreement, where the arbitrator or umpire makes an award for the payment of money, the arbitrator or umpire shall have power to direct that interest at the same rate as that at which interest is payable on a judgment debt of the Supreme Court shall be payable on and from the date of the making of the award or such later date as the arbitrator or umpire may specify on so much of the money as is from time to time unpaid and any interest that so accrues shall be deemed to form part of the award.

(2) If judgment is entered by the Court in terms of an award, interest shall cease to accrue in pursuance of a direction under this section on the date of the entry of the judgment. 33 Enforcement of award (1) An award made under an arbitration agreement may, by leave of the Court, be enforced in the same manner as a judgment or order of the Court to the same effect, and where leave is so given, judgment may be entered in terms of the award.

38 Judicial review of awards (5) The Supreme Court shall not grant leave under subsection (4) (b) unless it considers that: (a) having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement, and (b) there is: (i) a manifest error of law on the face of the award, or (ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.

49 Power to impose terms on orders etc Subject to this Act, an order, direction or decision made under this Act by the Supreme Court or the District Court may be made on such terms and conditions (including terms and conditions as to costs) as the Supreme Court or the District Court thinks just. 4 The defendant's contention is that the context in which the plaintiff seeks the order under s 101 (4) of the Civil Procedure Act is the application by the amended summons for leave to enforce the award under s 33 of the Commercial Arbitration Act [as the section that brings the amended summons before the Court]. The defendant's proposition 5 The defendant's proposition is that:

(i) the Court's power under section 33 of the Commercial Arbitration Act is to grant leave to enforce and to enter judgment "in accordance with the award";

(ii) the Court is not empowered to alter the award in any respect;

(iii) where the award presently is one relating to costs of arbitration, the Court is not empowered by s 33 to add pre-award interest to those costs;

(iv) if the Court was to make the order presently sought, it would in effect, be altering the terms of the award in circumstances where there was no appeal from the terms of the award by the plaintiff. 6 The defendant's proposition is that s 101 (4) of the Civil Procedure Act only applies where the Court has itself made an order for costs in a proceeding before it in the exercise of the power conferred by s 98 of the Civil Procedure Act [and in this regard the defendant draws attention to the definition of 'costs' in section 3 of the Civil Procedure Act]. The contention is that s 101 (4) of the Civil Procedure Act has no application where the relevant underlying order for costs was not made as an award in proceedings that were before the Court, but was made in arbitration proceedings carried out under the Commercial Arbitration Act. 7 The contention is that any interest that is payable on such an award is to be determined in accordance with the provisions contained in the Commercial Arbitration Act, s 31 of which makes clear that in an appropriate case of an award for the payment of money, the power of an arbitrator to include an amount for interest is limited to the whole or any part of the period between the date on which the cause of action arose and the date of making of the award. 8 The defendant draws attention to the fact that the Commercial Arbitration Act provides that pre and post award interest only runs on an award for the payment of money [s 31 and 32 of the Commercial Arbitration Act], these sections not being presently applicable as the plaintiff did not seek and was not ordered to be paid a discrete sum of money for its costs. Analysis 9 Ultimately the point is a short one of statutory construction. In my view, once proceedings are commenced before the Court for the enforcement of an award, those proceedings, albeit regulated by the power to impose terms stipulated for in s 49 of the Commercial Arbitration Act, may be regarded as fully-fledged proceedings which are subject to the rules of the Court. 10 Upon the proper construction of s 98 of the Civil Procedure Act and s 49 of the Commercial Arbitration Act, both sections are consistent with one another and able to operate in conjunction with one another. 11 Properly construed the provisions of s 49 of the Commercial Arbitration Act are wide enough to confer upon the Court power subject to that Act, to make such orders [including terms and conditions as to costs] as the Court considers to be just. The powers conferred on the Court by s 101 of the Civil Procedure Act clearly include the power to order that interest be paid on any amount payable under an order for payment of costs. Subsection 5 gives the Court power to order that interest be calculated from the date or dates on which the costs concerned were paid or such later date as the Court may order. These powers are also consistent with s 49 of the Commercial Arbitration Act. 12 I reject the contention that s 101 (4) has no application where the relevant underlying order for costs was not made in proceedings before the Court. Discretionary considerations 13 As exhibit A1 ["History of the Arbitration Proceedings"] makes plain, for various reasons the arbitration procedures took literally years to be completed. The arbitration proceedings commenced in January 1995 when a notice of dispute was served but continued through years of hiatus and travelled through replacement arbitrators. The final award was delivered on 15 October 2005 some 10 years after the service of the initial points of claim. In short these are very unusual circumstances indeed. 14 There are a number of authorities in support of the proposition that delay is a relevant factor which the Court should take into account in determining whether or not to award interest or to reduce interest: cf Bennett v Jones [1977] 2 NSWLR 355 and Simonius Vischer v Holt & Thompson [1979] 2 NSWLR 322; Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382 at 389, 394, 396, 398. 15 Where delay is treated as relevant it is usually used to reduce the period over which interest is awarded. See for example HK Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon (a firm) [1999] FCA 795; BC9903352, where Finn J said (at para [11]):

"There is considerable diversity in judicial opinion as to the extent to which, if at all, the rate or (more usually) the period selected for an interest award should as a discretionary matter be moulded adversely to a party that delays in the prosecution or defence of a claim where no resultant detriment to the other party is shown: see eg Geoffrey W Hill & Associates (Insurance Brokers) Pty Ltd v Squash Centre (Allawah North) Pty Ltd (1990) 6 ANZ Insurance Cases SS 61-012 ("[t]he principle of punishment is not borne out by a consideration of the purpose of the statutory discretion"); De Girolamo v South Australia (1991) 56 SASR 40 at 44-45; but cf Keates v Nelson (New South Wales Court of Appeal, Kirby P, Mahoney and Cripps JJA, 16 April 1992, unreported); Golden West Refining Corporation Ltd v Daly Laboratories Pty Ltd (Carr J, 16 February 1995, unreported): Tilbury, above, para 3230; and see also BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 at 845-847 and McGregor on Damages, 16th Ed, 1997, paras 668-669. Nonetheless, insofar as concerns a successful applicant who has been guilty of unreasonable delay, the view I am prepared to follow in the absence of binding authority is that the period for which the interest award is made can properly be adjusted if to allow interest for the whole period for which it could otherwise be ordered would work an injustice to the respondent in the circumstances: cf Clarke v Foodland Stores Pty Ltd , above, at 400. Such would seem to be consistent with the policy of the s 51A (1) in that an applicant that has been held out of the benefit of its money because of its own unreasonable actions should not be allowed as of course to cast the effects of a `self-inflicted burden' onto the respondent: Keithara Pty Ltd v J G L Holdings Pty Ltd (Supreme Court of Victoria, Smith J, 6 December 1994, unreported)." 16 Although interest was awarded, the potential significance of delay was recognised in Davies v Ku-ring-gai Municipal Council [2003] NSWSC 1010. Here Austin J stated (at para [11]):

"On the other hand, it seems to me that an incentive of the opposite kind could arise if an order were made under s 95(4) in circumstances such as the present. Counsel for the defendants submitted that at the present time, interest at the prescribed rate exceeds interest rates available commercially. That contention was not challenged by counsel for the plaintiff. If it is correct, an order under s 95(4) will deprive the plaintiff of an incentive to pursue the process of assessment of costs with expedition." No order for interest was made but the plaintiff was given liberty to apply in the case of delay caused by the defendants (see paras [12] and [15]). 17 In Lahoud v Lahoud [2006] NSWSC 126; BC200601167 Campbell J made an award for interest on costs. The application was made prior to the costs being assessed and while an appeal was still on foot (see appeal judgment: [2006] NSWCA 169). Because of the early stage at which the application was made, Campbell J made orders that would allow the matter to be revisited in the case of delay. At para [88] he stated:

"When judgment is given for a sum of money which is ascertained, it is usual for post-judgment interest to run on that sum of money until such time as the judgment has been paid. An order for payment of interest on costs operates somewhat differently, in that the amount of the costs is not quantified at the time of making of the order. Further, a measure of co-operation is needed to quantify that order for costs. If it were to happen that Joseph's interests were to delay in obtaining an assessment of costs, the result could be that Victor was obliged to pay interest, at the comparatively high rates of Schedule 5, during the period that Joseph was delaying . There is no basis in the evidence for concluding that it is likely that Joseph will delay assessment of the costs, but I do not think it right that Victor should be at risk of having to continue to pay interest if Joseph were to delay assessment of the costs, either deliberately, or through some unplanned happening like illness. I will deal with that possibility by making an order that the interest on costs runs until the payment of the costs is made, or further order, and reserving further consideration of the question of whether interest on the costs should continue to run ." Early notice 18 In my view a further consideration of significance on the principled exercise of the discretion is the fact that a party is entitled to have early notice that a claim to pre-award interest is to be advanced. In the present circumstances the application for interest of this character was only made on 27 October 2006. 19 The principled exercise of the discretion is to considerably reduce the period over which interest on costs is to be ordered. The plaintiff had the carriage of the arbitral proceedings. It bears a measure of responsibility for parts of the delay. The notification of a claim to pre-award interest was very late. The order will be for interest on costs to run on and from 23 October 2002 being the date of service of the second further amended points of claim Short Minutes 20 The parties are to bring in short minutes of order on which occasion costs of the matters dealt with in this judgment may be argued

I certify that paragraphs 1 - 20 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 29 November 2006

      Susan Piggott
      Associate

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