McCormick v Riverwood International

Federal Court of Australia|1998-03-06|Before: Burchett J, Weinberg J

REASONS FOR JUDGMENT 1 On 26 November 1999 I handed down a decision in this matter, awarding damages to the applicant in the amount of $76,435.74. This figure was agreed between the applicant and respondent as correctly representing the amount to which the applicant was entitled if I found that he had a contractual right to receive a redundancy payment from the respondent upon termination of his employment on 8 May 1998, or a right to recover an amount equivalent to the redundancy amount by reason of the respondent's misleading or deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth). 2 I held that the applicant was entitled to recover the amount of $76,435.74 as damages as a result of the respondent's breaching its contract of employment with the applicant by failing to pay him his redundancy entitlement. 3 I ordered the respondent to pay the applicant's costs. After judgment was delivered, counsel for the parties drew my attention to three matters which form the subject matter of this judgment. 4 The first matter was that I had not included in the amount of the judgment an amount in respect of interest from the date of accrual of the cause of action to the date of judgment. The amount of $76,435.74 represents the redundancy payment which the applicant was entitled to receive on 8 May 1998. 5 The second matter is that the applicant made an offer of compromise to the respondent before commencement of the trial in accordance with O 23 r 2(1) of the Federal Court Rules ("the Rules"), which provides: "In any proceeding, a party may make to another party an offer to compromise any claim in the proceeding on the terms set out in the notice of offer." 6 The offer was in the amount of $65,000 inclusive of $8,000 in costs, and the applicant has clearly obtained a judgment for an amount in excess of the terms of his offer. Accordingly, the applicant claims indemnity costs from the date the offer was made pursuant to O 23 r 11(4): "If: (a) an offer is made by an applicant and not accepted by the respondent; and (b) the applicant obtains judgment on the claim to which the offer relates not less favourable than the terms of the offer; then, unless the Court otherwise orders, the applicant is entitled to an order against the respondent for costs incurred in respect of the claim: (c) up to and including the day the offer was made - taxed on a party and party basis; and (d) after that day - taxed on an indemnity basis." 7 The third matter is the fact that the amount of the judgment obtained by the applicant was less than $100,000. This brings into play O 62 r 36A of the Rules: "(1) When a party is awarded judgment for less than $100,000 on a claim (not including a cross-claim) for a money sum or damages any costs ordered to be paid, including disbursements, will be reduced by one-third of the amount otherwise allowable under this Order unless the Court or a Judge otherwise orders. (2) If the Court or a Judge is of the opinion that a proceeding (including a cross-claim for a money sum or damages) brought in this Court could more suitably have been brought in another court or in a tribunal and so declares, then any costs to be paid, including disbursements, will be reduced by one-third of the amount otherwise allowable under this Order. (3) This rule applies in respect of all actions commenced on and after 21 September 1987." 8 I invited the parties to make submissions as to how I should deal with these matters, and having considered their submissions I have reached my conclusions on all three issues.

Interest 9 The usual practice in relation to interest on an award of damages is set out in s 51A of the Federal Court of Australia Act 1976 (Cth). Section 51A(1) provides: "In any proceedings, for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either: (a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or (b) without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest." 10 While conceding that the applicant is entitled to interest, the respondent submitted that interest should not accrue from the date of accrual of the cause of action - 8 May 1998 - but rather from the date of commencement of these proceedings, owing to the applicant's delay in commencing proceedings - his application having been filed on 1 March 1999. Counsel for the applicant in reply set out the various attempts made by the applicant to resolve this dispute between May 1998 and March 1999. I am satisfied that in light of those attempts there was no significant delay by the applicant in instituting these proceedings. I therefore propose to order that interest is payable in respect of the period from 8 May 1998 to 26 November 1999. 11 I have decided to calculate the interest due pursuant to s 51A(1)(a), rather than simply awarding a lump sum pursuant to s 51A(1)(b). As to the rate of interest, the applicant submitted that the penalty interest rate of 12.3 per cent pursuant to the terms of the Penalty Interest Rates Act 1983 (Vic) ought to be applied. In the event that I rejected this submission, the applicant submitted that the "going rate" for an interest bearing bank account might be used. After setting out some commercially available rates of interest, the applicant's submission was that a fair interest rate to apply in this case would be 5 per cent. His primary submission, however, was that I should fix interest at the rate of 12.3 per cent. The respondent submitted that 5 per cent would be a fair rate, although it of course did not agree with the applicant's submission as to the period over which interest should be calculated. 12 Neither party made any submission as to whether, regardless of which interest rate was to be applied, interest should be calculated on a simple or compound basis. In the absence of submissions, I think I am constrained by s 51A(2) of the Act which relevantly provides: "Subsection (1) does not: (a) authorize the giving of interest upon interest or of a sum in lieu of such interest; …" 13 In EMCL Pty Ltd v Esanda Finance Corporation Ltd (No 2) (1998) 160 ALR 382, Heerey J applied the rate set down by the Penalty Interest Rates Act 1983 (Vic). His Honour (at 383) referred to the decision of Namol Pty Ltd v AW Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388 at 389, in which Davies J said: "Interest should be added in accordance with s 51A of the Federal Court of Australia Act 1976 (Cth). It is the usual practice of the Court when sitting in New South Wales to adopt the rates set out in Sch J to the Rules of the Supreme Court of New South Wales 1970. This is because those rates reflect commercial rates of interest, which is not the case for the rates prescribed in O 35, r 8 of the Federal Court Rules 1979 (Cth). The practice has the policy advantage of ensuring that damages are awarded on the same basis, whether a matter be instituted in this Court or in the Supreme Court of New South Wales." 14 Justice Heerey referred to other recent Federal Court decisions in which the relevant State penalty interest rate was applied: Alec Finlayson Pty Ltd v Armidale City Council (unreported, Burchett J, 6 March 1998); Kettle Chip Co Pty Ltd v Apand Pty Ltd (No 2) (1998) 83 FCR 466 and Nagy v Masters Dairy Ltd (1996) 150 ALR 273. Justice Heerey distinguished his own earlier decision in Henderson v Amadio Pty Ltd (No 2) (1996) 62 FCR 221, in which his Honour decided that applying term deposit rates was "the fairest course", on the basis that the decision in Namol had not been cited to him in Henderson v Amadio, and that the other cases listed above were all decided after his Honour's decision in Henderson. 15 Heerey J stated (at 384): "I think there is obvious practical value in having the Federal Court applying the same interest rate as would be applied in litigation in the same State in which the case is being heard. It would be undesirable for there to be distinctions drawn from State to State, depending on whether it was thought the regime in any particular State did or did not impose a commercial rate of interest." 16 Particularly in view of the respondent's submission that the "one-third off" rule ought to apply to reduce the applicant's costs because this matter ought to have been brought in the County Court, for the sake of consistency and fairness I propose to apply the interest rate that would have been applied had the matter been brought in that, or another, Victorian court. 17 Therefore I have determined that the appropriate course is to calculate interest at the rate of 12.3 per cent per annum over a period of 18 months, being approximately the period from the date of accrual of the cause of action to the date of judgment, 26 November 1999. The amount of interest so calculated is $14,102.39, making the total amount of the judgment in favour of the applicant $90,538.13.

Offer of Compromise 18 As stated above, the applicant served an offer of compromise on the respondent pursuant to O 23 r 2 of the Rules on 6 August 1999. That offer was for $65,000 inclusive of $8,000 in costs, and it was expressed to be open until 23 August 1999. It is common ground between the parties that the respondent rejected the offer. 19 The applicant seeks an order for costs pursuant to O 23 r 11(4) on the basis that the order be for costs on a party and party basis up to and including the day the offer was made, and costs on an indemnity basis thereafter, there being no reason for the Court to "otherwise order". The respondent has submitted that the ordinary rule should not be followed, primarily because the action should not have been brought in the Federal Court, but rather in the County Court where the fee scale is lower. 20 The arguments raised by the respondent go largely to the principles which underlie the "one-third off" rule - O 62 r 36A of the Rules - to which I will return later. Suffice it to say, that I do not view those principles as being relevant to the particular question before me - that is, should the respondent be penalised for refusing an offer of compromise which was in an amount ultimately exceeded by the judgment in favour of the applicant? I propose to order that the ordinary rule should apply in this case: the applicant's costs to be taxed on a party and party basis up to and including 6 August 1999 and on an indemnity basis thereafter. I shall deal separately with the costs of preparing these submissions.

The "one-third off" rule - O 62 r 36A 21 As stated above, O 62 r 36A(1) provides that the ordinary rule is that if the amount recovered by a successful applicant in this Court is less than $100,000, the applicant should lose one-third of the costs awarded to him or her. The applicant has submitted that the ordinary rule ought not to be applied in this case because, although the amount recovered by the applicant (inclusive of interest) is less than $100,000, this proceeding is not one which could more suitably have been brought in another court or tribunal. This is an arresting submission as it picks up the wording of O 62 r 36A(2): "If the Court or a Judge is of the opinion that a proceeding (including a cross-claim for a money sum or damages) brought in this Court could more suitably have been brought in another court or in a tribunal and so declares, then any costs to be paid, including disbursements, will be reduced by one-third of the amount otherwise allowable under this Order." 22 Given that there are two separate rules, one dealing with amounts recovered less than $100,000 (O 62 r 36A(1)), and one dealing with claims that could more appropriately have been brought in another court or tribunal (O 62 r 36A(2)), I do not consider that it is relevant to my decision under O 62 r 36A(1) to have regard to the factors raised by O 62 r 36A(2). 23 I do not, in any event, accept the applicant's submission that this case could not more suitably have been brought in another court. Had this case been brought in the County Court it would have been unnecessary to deal with the jurisdictional issues which I was required to consider at length in my judgment. The case raised no issues of principle which could not have been dealt with in the County Court and turned largely upon questions of fact, and issues of credibility. 24 Another argument raised by the applicant's submissions was that if after adding an amount in respect of interest, the final amount payable by the respondent exceeded $100,000, I should not apply the "one-third off" rule. The respondent objected to that course being followed. In any event, the damages award, after the addition of interest, still does not exceed $100,000. I propose to order that the applicant's costs be reduced by one-third. 25 As each party has had some measure of success as a result of their post-trial submissions, I make no order as to the costs of the period after 26 November 1999. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg J.

Solicitor for the Applicant: Maurice Blackburn Cashman

Solicitor for the Respondent: Mallesons Stephen Jaques

Date of Hearing: 18, 19, 20 & 21 October 1999

Trade Practices Act 1974(Cth)

Federal Court Rules 1979(Cth)

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