J S Hill & Associates Ltd & Ors v Dawn and Ors [2001] ACTSC 28

(i) The first, second and third defendants pay the first plaintiff's costs in respect of the claims for monies lent and associated claims.

(ii) All defendants pay the first plaintiff's costs in respect of the claim on the Theodore homes agreement and associated claims.

(iii) The first, second and third defendants pay the first plaintiff's costs in respect of the counter-claim for breach of the Isabella Plains homes agreement.

(iv) The third defendant pay the first plaintiff's costs in respect of the third defendant's counter-claim for infringement of copyright.

5. There will be no order as to the costs of the second and third plaintiffs.

6. Liberty to apply within 21 days in respect of arithmetic or terms of orders.

1. On 18 October 2000 I published my findings, [2000] ACTSC 91 and indicated that the first plaintiff (the plaintiff) should have leave to enter judgment in the terms set out. I also indicated that, subject to hearing from counsel, I proposed to make certain orders as to costs.

2. Counsel for the plaintiff then made application for interest to be awarded on the amounts recovered and for special orders for costs on an indemnity basis. These applications were resisted by counsel for the first and second defendants and by the solicitor for the third defendant. Written submissions were lodged later and those submissions were developed at a hearing on 10 November 2000.

3. The plaintiff's claim for interest on the sum of $135,000 awarded on the loan agreement is based on the agreement itself. The claim for interest on the $110,000 awarded on the Theodore homes agreement is made pursuant to s 69 of the Supreme Court Act 1933 (the Supreme Court Act).

4. On behalf of the defendants it was submitted that the rate of interest provided for in the loan agreement, namely 18% per annum, was excessive, unconscionable and therefore an unenforceable penalty. The only authority relied on was Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Company Limited [1914] UKHL 1; [1915] AC 79 at 87-88 where Lord Dunedin said as follows:

"(a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid....."

These principles have been recognised and applied by the High Court in O'Dea v Allstates Leasing System (WA) Pty Ltd [1983] HCA 3; (1983) 152 CLR 359; AMEV - UDC Finance v Austin [1986] HCA 63; (1986) 162 CLR 170 and Esanda Finance Corporation v Plessnig [1989] HCA 7; (1989) 166 CLR 131.

5. As to the application of the first of the two principles to the present case, there was no evidence by which a comparison could be made between the agreed rate of interest of 18% and "the greatest loss that could conceivably be proved to have followed from the breach." I was not referred to any evidence in the case about the plaintiffs having to borrow money as a result of the defendants' failure to honour their obligations under the contract. In the absence of such evidence it may be assumed that the plaintiff's loss, in the sense that term is used by Lord Dunedin, consisted in being kept out of the money to which the plaintiff was entitled together with what might reasonably be expected to have been earned on the money market for non-speculative investments. There was no evidence before me about such interest rates at any time since the breach on 1 August 1989 to the date the matter was last before the Court.

6. The Court Practice Direction No.1 of 1993 sets out appropriate annual rates of interest to guide the Court when computing interest for the purpose of s 69. In the absence of evidence about interest rates being charged to borrowers at the relevant time in the relevant section of the money market, there would ordinarily be no reason to do other than apply the relevant rates as published in the Practice Direction, at least in cases of damages awarded for the commercial cost of personal care following injury: Grincelis v House [2000] HCA 42 at [21], [2000] HCA 42; 173 ALR 564 at 571. Whilst this is not such a case, and the Practice Direction is not intended to apply to interest fixed by the very agreement upon which the judgment is founded, the published rates do provide some guidance for present purposes. They may be taken to refresh judicial knowledge of what average interest rates were at the time on investments of a non-speculative nature. In this regard it may be seen that between 12 January 1990 and 19 February 1999, the rates of interest dropped fairly steadily from 21% to 10%, the average rate in any one year being about 14%.

7. On this basis 18% cannot be regarded as an unconscionable rate, at least in the early years. Between 1993 and the present time the published rate has been 10%. It is therefore unlikely that throughout that period the plaintiff has suffered a continuing loss to be measured by a rate of 18% on the $135,000 which it did not have at its disposition. In the absence of any other guiding factors, it is very unlikely that a loss as high as that has been suffered since about the end of 1996. A rate of 18% is extravagant in comparison with the greatest loss that could conceivably be proved to have followed from the breach from that time onward.

8. I therefore regard the contract rate of interest in the nature of a penalty from 1 January 1997. In the absence of authority and submissions on the point, I assume that there is power in the Court to award interest at a reasonable rate in lieu of the rate fixed by the contract in so far as the matter constitutes a penalty. That appears to be a power recognised by the High Court in O'Dea v Allstates Leasing System (WA) Pty Ltd. I see no reason not to apply the rate of 10%, as suggested in the Practice Direction, from 1 January 1997.

9. I turn to the claim for interest on the $110,000. This claim is solely under s 69. As in Grincelis v House [8], 567 it was not contended on behalf of any party that subsection (3) applies to the case, and it is again unnecessary to consider what is meant by "compensation in respect of liabilities incurred which do not carry interest as against the person claiming interest."

10. Counsel for the first and second defendants submitted that, with respect to interest both on the $135,000 and the $110,000, the award should be restricted to the period of time within which due diligence of the plaintiffs would have seen the proceedings determined by the Court. No authority was cited to support the power of the Court to deny interest to a party entitled to it under the terms of a contract and there is no reason to deny it on the $135,000.

11. Although an award of interest under s 69 and similar legislation elsewhere has been described as discretionary, the discretion is not unfettered. Grincelis v House is a salutary reminder that the power to award interest according to subsection (1) is not to be withheld unless good cause is shown to the contrary. I suppose that the fact that parties as part of their contract agree on the matter of interest is so obviously either good cause to the contrary or a fetter on the discretion, that no authority can be found to say so. On the other hand, delay in bringing the proceedings has been accepted by this Court as well as others as good cause to refuse to reduce the award of interest or substitute for it a lump sum in lieu under s 69: Collin v Botany Fork and Crane Hire Ltd (1993) 113 FLR 83, Skywest Aviation Pty Ltd v Commonwealth of Australia (1995) 126 FLR 61, Commonwealth of Australia v Silverton Ltd [1998] ACTSC 22. The defendants rely on such delay in the present case.

12. I do not intend to set out the long and detailed history of the proceedings. The salient features are as follows:

14 August 1992 Plaintiffs ordered to provide security for costs ($15,000 bond within 28 days, further $15,000 bond within 56 days of affidavit of documents).

25 September 1992 Plaintiffs comply with first part of order for security for costs.

4 November 1992 Reply and Defence to counter-claim filed.

(various dates) Plaintiffs' request further particulars, affidavits of discovery, interrogatories, etc.

26 April 1995 Affidavit of documents of first and second defendant filed.

15 May 1997 Plaintiffs comply with second part of order for security for costs.

10 June 1998 Plaintiffs deliver Certificate of Readiness.

25 May 1999 Second listing hearing - trial date fixed.

10 November 2000 Final submissions received from counsel.

13. It is not possible to be precise in apportioning cause for the extensive delay from 1 August 1991 when the proceedings were commenced with some promptitude to 10 November 2000 when the Court was placed in a position to finally dispose of the case. However, it is reasonably clear that not all the delay was due to inactivity or other fault of the defendants. Probably the fact that the plaintiffs and their witnesses were in Fiji contributed to the delay, a matter which was not the fault of either party but which did cast on the plaintiffs an obligation to be as prompt as possible. Much of the delay is to be attributed to the apparent reluctance of the defendants to furnish particulars, particularly of the counter-claims. That attitude was reflected in the way in which the evidence as to the counter-claim in relation to the Isabella Plains agreement was presented in court and on which I have already commented in the reasons published on 18 October 2000.

14. Interest under s 69 is compensatory in nature. Its object is "to restore the plaintiff - so far as money is able - to the situation in which he or she would have been but for the defendant's legal wrong:" Yoshida "Comparison of Awarding Interest on Damages in Scotland, England, Japan and Russia" (2000) 17 Journal of International Arbitration 41 at 42.

15. In all the circumstances of the case and without pretending to precision, I think that the plaintiff should be awarded interest under s 69 on the $110,000 for the period limited to three years from the commencement of the proceedings, that is until the end of 1993. Had the proceedings been brought before the Court within that period it is likely that the evidence would have been presented in a much more appropriate way and the task of the Court rendered less difficult. There is nothing in the material to convince me that the plaintiffs could not have reasonably brought the proceedings on for hearing by then.

17. These awards of interest are then to be added to the sums owing in respect of the two contracts as follows:

18. No party sought to set aside the allocation of costs as proposed by me at the conclusion of the reasons published on 18 October 2000. However, counsel for the plaintiffs claimed that those costs should be awarded and paid on an indemnity basis.

19. On 31 August 1999 the plaintiffs' solicitors wrote the following letter to the solicitors acting for the first and third defendants and to the solicitors acting for the second defendant:

_"_WITHOUT PREJUDICE SAVE AS TO COSTS

Hill v Hall & Dawn

We are instructed on behalf of the plaintiffs to make the following offer of settlement in the plaintiffs' claim against the defendants and the defendants' set off and counterclaims:

1. Judgment in favour of the plaintiffs in the sum of $135,000.00 plus interest on that sum at the rate of 12% per annum from 1 July 1989 to the date of payment.

2. The judgment referred to paragraph 1 to be in favour of the plaintiffs against Angus Hall, Stephen Dawn and Pacific Developments Pty Ltd jointly and severally.

3. If this offer is accepted and the judgment is not paid on or before 30 September 1999, interest upon the whole of the amount outstanding including interest shall be payable at the rate of 18% per annum as and from 27 August 1999.

4. Counterclaims to be dismissed.

5. Each party to pay his or its own costs.

6. The defendants return to the plaintiffs the bank guarantees provided as security for costs together with appropriate letters from the defendants' solicitors authorising the cancellation of the guarantees.

We are instructed to advise that this offer will remain available for acceptance by the defendants until 5.00 pm on Friday 24 September 1999. If the offer is not accepted before that time, it will be withdrawn.

In the event that the defendants do not elect to accept the offer of settlement and the hearing of the matter proceeds and the plaintiffs jointly or severally are awarded a judgment or judgments against the defendants or one or more of them which in total exceed the offer of settlement, we are instructed to apply for an order that the defendants pay the costs of the plaintiffs from the date of this letter on a solicitor/client basis. In that event, we are instructed to tender a copy of this letter in support of any application on costs."

20. As I understand it, there was no reply to either letter.

21. In money terms the plaintiff recovered significantly more than it was prepared to accept by way of compromise as expressed by its solicitors in the letter of 31 August 1999. Significantly, the terms offered included an abandonment of the claim on the Theodore homes agreement, a claim which was ultimately wholly successful (and to which there was no real defence). The offer made on behalf of the plaintiff turned out to be at least reasonable if not generous.

22. Special orders as to costs of the nature sought by the plaintiff are now well recognised in this Territory and elsewhere in Australia. The discretion to make a special order for costs against a party who unreasonably declines to accept a reasonable offer of settlement or compromise is exercised bearing in mind the public interest in the prompt and economical disposition of litigation as well as in the interests of the parties: Quirk v Bawden (1992) 111 FLR 115.

23. The element of public interest was recognised in Grincelis v House at 269, where it was said that statutory provisions for interest serve not only that purpose, but also a purpose of encouraging early resolution of litigation. If the prospect of an award of interest therefore has not been sufficient to deter a party from refusing a reasonable offer of settlement, that refusal may still result in a special order for costs when the outcome of the litigation is more favourable to the party making the offer.

24. I therefore propose that the costs orders be made payable on a party and party basis in respect of costs incurred up to 24 September 1999 and thereafter on an indemnity basis.

25. The final orders that are made are as follows.

1. The first plaintiff have liberty to enter judgment against the first, second and third defendants for $372,244.93 in respect of the claim for monies lent and associated claims.

2. The first plaintiff have liberty to enter judgment against the first, second, third and fourth defendants for $177,826.00 in respect of the claim on the Theodore homes agreement and associated claims.

3. The first, second and third plaintiffs have liberty to enter judgment against the first, second and third defendants in respect of their counter-claim and against the third defendant in respect of his counter-claim.

4. With regard to costs, the defendants are to pay the first plaintiff's costs on a party and party basis up to and including 24 September 1999 and thereafter on an indemnity basis as follows:

(i) The first, second and third defendants pay the first plaintiff's costs in respect of the claims for monies lent and associated claims.

(ii) All defendants pay the first plaintiff's costs in respect of the claim on the Theodore homes agreement and associated claims.

(iii) The first, second and third defendants pay the first plaintiff's costs in respect of the counter-claim for breach of the Isabella Plains homes agreement.

(iv) The third defendant pay the first plaintiff's costs in respect of the third defendant's counterclaim for infringement of copyright.

5. There will be no order as to the costs of the second and third plaintiffs.

6. Liberty to apply within 21 days in respect of arithmetic or terms of orders.

I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Chief Justice Miles.

Solicitor for the plaintiffs: Abott Tout Harper & Blain

Solicitor for the 1st and 2nd defendants: Clayton Utz

Solicitor for the 3rd defendant: Gillespie-Jones & Co