McMahon v John Fairfax Publications Pty Ltd

Judgment 1HER HONOUR: These proceedings raise an issue which is as interesting as it is vexed concerning the entitlement of a party to interest on costs ordered in civil proceedings. 2The plaintiff, Mr Brian McMahon, has been successful in obtaining an award of damages in his defamation action in the sum of $300,000: see McMahon v John Fairfax Publications Pty Ltd (No 7) [2013] NSWSC 933. 3I dealt with the costs of the proceedings in a separate judgment: see McMahon v John Fairfax Publications Pty Ltd (No 8) [2014] NSWSC 673. In that judgment, I made the following orders: (1) That the defendants pay 95 per cent of the plaintiff's costs of the proceedings except for his costs of the special damages claim; (2) That, as to the costs of professional services provided to the plaintiff by himself (in any capacity), those costs be paid as agreed or assessed on the ordinary basis; (3) That, as to disbursements and the costs of professional services provided to the plaintiff by others, those costs be paid as agreed or assessed on the indemnity basis; (4) That the costs payable by the defendants pursuant to these orders be reduced by the amount payable by Mr McMahon pursuant to the costs order of the Court of Appeal made 18 November 2010 in McMahon v John Fairfax Pty Ltd [2010] NSWCA 308 provided that the defendants take all reasonable steps to have those costs agreed or assessed with due expedition, failing which Mr McMahon has liberty to apply to vacate this order. 4The plaintiff now seeks interest on the costs awarded to him. The defendant opposes the application but contends - and it is not disputed by Mr McMahon - that in the event that Mr McMahon is successful, the defendant should also have an award of interest on costs awarded in its favour. 5A threshold issue was argued this afternoon as to the Court's power to determine Mr McMahon's application at this stage of the proceedings. 6The judgment on costs was published on 27 May 2014. 7On 29 May 2014, senior counsel for Mr McMahon, Mr McClintock, wrote an email to my Associate asking for an opportunity to raise at least one issue, namely the issue of interest on costs incurred before the orders were finalised and entered. The orders had at that stage already been entered on JusticeLink in accordance with my Associate's usual practice. It followed that they were taken to have been entered in accordance with r 36.11. 8In those circumstances, Mr Dawson, who appears for the defendant, quite properly raised the question of power. He noted that the application brought at this stage, after the orders have been entered and beyond 14 days after that date, did not appear to fall within any of the categories in which the Court can vary a judgment in accordance with r 36.16 of the Uniform Civil Procedure Rules. 9However, Mr Dawson also accepted that the correspondence following Mr McClintock's email had proceeded on the assumption that the Court would, in due course, deal with the application if it were not resolved. In those circumstances, he very fairly acceded to my suggestion that the question could properly be determined by me if I were to regard Mr McClintock's email as being, for the purposes of that rule, adequate notice of Mr McMahon's motion brought today. I made a direction accordingly. 10Mr McMahon's application invokes the Court's power under s 101(4) of the Civil Procedure Act 2005 which relevantly provides: (4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs. 11Section 101(5) of the Act provides: (5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from: (a) the date or dates on which the costs concerned were paid, or (b) such later date as the court may order. 12Mr McClintock submitted that, having regard to the plain terms of the section, it may readily be construed as conferring a broad discretion on the Court which is unfettered except to the extent that subsection (5) reveals an order cannot be made so as to award interest from a date earlier than the date on which the costs concerned were paid. He submitted that the section is to be exercised in accordance with the interests of justice, in particular taking into account the fact that it appears to be intended to serve the function of compensating a litigant who has been out of his money due to the litigation. 13Mr McClintock went close at the same time to suggesting that the discretion must be exercised in favour of a party who applies for an order for interest unless some reason is demonstrated for ordering otherwise. I would regard that as equally being a fetter on the discretion conferred by the section, which should simply be applied according to its terms. 14Mr Dawson accepted that the discretion is broad and unfettered but submitted that the proper circumstances for its exercise must be informed by the relevant authorities. As observed at the outset of this judgment, the jurisprudence in respect of the proper application of the section has, to a degree, been vexed. 15Dealing with the relevant authorities in chronological order, in Lahoud v Lahoud [2006] NSWSC 126 Campbell J said at [82]: In my view it is appropriate to make an order for the payment of interest on costs. There is no requirement, before an order for payment of interest on costs is made, for the Court to be satisfied that the circumstances of the case are out of the ordinary: Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 at [10] per Barr J; Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liquidation) & Ors [2002] NSWSC 280 at [23]-[25] per Einstein J; Puntoriero & Anor v Water Administration Ministerial Corporation [2002] NSWSC 217 at [10] per Grove J; Davies v Kuring-Gai Municipal Council [2003] NSWSC 1010 at [7] per Austin J. 16That principle was described as being "clear" and applied uncontroversially by Slattery J in Lovick & Son Developments Pty Ltd v Doppstadt Australia Pty Ltd [2013] NSWSC 135. His Honour said, at [49]: The plaintiffs submit they are entitled to interest on costs. The relevant principles are clear. There is no requirement to establish any special circumstances in order to justify an order for the payment of interest on costs: Lahoud v Lahoud [2006] NSWSC 126, per Campbell J and Drummond & Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331 at [4], per Macfarlan JA. The defendants were not realistically able to resist the order for interest on costs. So an order is provided for below to award interest on costs. But it will not be clear until a costs assessment takes place just exactly when the plaintiffs paid their legal costs and disbursements. Therefore, the precise dates on which interest on these costs payments should run cannot yet be calculated. This calculation can be dealt with in final orders consequent thereon. 17The position, however, became complicated following the publication of the decision of the Court of Appeal in Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211; (2013) 84 NSWLR 436. As the judgment of the Court of Appeal reveals, that was a building case as to which McDougall J, the trial Judge, had made observations concerning "the evident animosity between the parties and the lengths to which each had gone to buttress its case". 18It has frequently been observed that hard cases create difficulties for the propounding of good law. 19Against the observations of McDougall J, the Court of Appeal dealt with the question of interest on costs in the following terms (at [36] to [39]): Illawarra nevertheless recognises that the power to award interest on costs is discretionary and that some positive case must be made in support of the application. It says, in that regard, that Illawarra has paid out a very large sum since the commencement of the litigation in 2008 and that that money could otherwise have been put to profitable use. Reference is made to an affidavit of Illawarra's solicitor referring to sums paid by Illawarra to his firm. Illawarra further says that Walton has effectively had the benefit of not having paid that money. Walton submits that the question of interest on costs cannot be determined without an exhaustive consideration of the circumstances that caused the proceedings to be protracted by the serving of evidence on unsuccessful issues, futile amendments to pleadings, issues not pursued at trial and matters relevant to McDougall J's observation concerning "the evident animosity between the parties and the lengths to which each has gone to buttress its case": WaltonConstruction Pty Ltd v Illawarra Hotel Company Pty Ltd [2011] NSWSC 1188 at [149]. That submission must be accepted. A party who contends that there should be an order for interest on costs must do more than point to the fact that the proceedings were protracted and that it had to outlay moneys on its own costs over a long period. The reasons for the protracted nature of the proceedings are of obvious relevance. To take a hypothetical example, one can imagine a case in which one party deliberately seeks to prolong proceedings with an eye to some collateral benefit of its own for which it is quite happy to pay the price of being out of the money it progressively outlays for costs. That hypothetical case can be contrasted with another in which a party has made strenuous effort to expedite matters and to avoid all delay with a view to the earliest possible trial but has been frustrated in those efforts by actions of the other party. A middle course is where each party acts with reasonable diligence and dispatch but the nature of the proceedings and their subject matter is such as to prolong them. A court might well take different attitudes to applications for interest on costs in these hypothetical cases. This litigation was, of its nature, time-consuming and exacting. Building cases often descend into what, to the outside observer, seems to be tedious analysis of a vast myriad of minutiae. In the absence of some sufficiently clear explanation of the reasons why this litigation proceeded as it did, in a timing sense, there would be no sound basis for exercise of the discretion concerning interest on costs, even if it were now exercisable by this Court in relation to the costs in the court below. 20In The Owners Strata Plan 61162 v Lipman; The Owners Strata Plan No 61162 v Building Insurer's Guarantee Corporation [2014] NSWSC 622, those remarks were subsequently construed by McDougall J (who, as the foregoing consideration reveals, had been the trial Judge in Walton v Illawarra [2011] NSWSC 1188) as binding his Honour not to award interest on costs unless some positive case was put forward for doing so. His Honour observed at [267] that it was for the Court of Appeal to decide whether what was said in Illawarra in the paragraphs set out above should be regarded as having been decided "per incuriam". His Honour said: It seems to me that, as the most recent decision of the Court of Appeal in point lays down the proposition to which I have referred at [257] to [259] above, I am bound to deal with the question of interest on costs in that way. 21Unconstrained by those principles, his Honour would have taken the approach set out at [265] of the judgment as follows: If the particular question were not the subject of authority binding on me, so that I was free to deal with it, I would consider that: (1) it is inappropriate for the general discretion to order interest on costs, conferred by s 101(4) of the Civil Procedure Act, to be trammelled by some fetter on its exercise such as that there should be something more than "the fact that the proceedings were protracted and that [the applicant for interest] had to outlay moneys on its own costs over a long period", and (2) the discretion should be exercised so as, objectively, to suit the interests of justice on the facts of the particular case, taking into account of course the evident compensatory function that s 101(4) is intended to perform. 22As it happened, on the date on which that judgment was published, Illawarra was not in fact "the most recent decision of the Court of Appeal" in point. Two days before McDougall J's publication of his judgment in The Owners Strata Plan 61162 v Lipman, the Court of Appeal had published its decision in an appeal against the judgment of Slattery J to which I have already referred: see Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158 (wrongly described in the judgment as a decision of the Court of Criminal Appeal). 23It should be observed that Ward JA was common to the bench in both Doppstadt and in Illawarra. In Doppstadt, the Court of Appeal said at [403] to [404]: No issue was raised on appeal as to the principles applied by the primary judge at [49] Judgment No 3. The payment of interest is intended to be compensatory, on the basis that the person entitled to costs has been wrongly required to spend money on litigation to enforce established rights: Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 as [44] per Basten JA (Campbell JA agreeing). Thus in the absence of any countervailing discretionary factor, it is appropriate that an order for interest on costs be made to compensate the party having the benefit of a costs order for being out of pocket in respect of relevant costs which it had paid. There is no requirement to establish that the circumstances of the case are out of the ordinary: Drummond and Rosen Pty Ltd v Easey & Ors (No 2) [2009] NSWCA 331 at [4] per Macfarlan JA (Tobias JA agreeing) citing Lahoud v Lahoud [2006] NSWCA 126 at [82]-[83] per Campbell J. In this case, there was evidence before the primary judge by way of affidavit from Mrs Vicki Lovick, the administration officer of the respondents, of the amounts paid, and the dates of payment of legal costs totalling $636,558.27 as at 21 June 2012 (Black 936M). Thus no issue arises on the present appeal as to whether a special order for interest on costs can and should be made in the absence of such evidence: Drummond and Rosen Pty Ltd v Easey & Ors (No 2) at [3] per Macfarlan JA (Tobias JA agreeing); contra Handley AJA at [49]; cf Illawarra Hotel Co Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211; 84 NSWLR 436 at [36] per Meagher, Barrett and Ward JJA. 24Finally, I suppose by way of epilogue, following the publication of the judgment of the Court of Appeal in Doppstadt, White J in Wardy v Wardy & Ors (No. 2) [2014] NSWSC 809 interpreted the decision in Illawarra as in effect commending the importance of a party seeking interest on costs making the application at first instance, so that the primary judge who would be better placed to consider how the litigation had been conducted would be able to consider and deal with any questions that might arise in that respect. 25Mr Dawson submitted, with his usual carefulness and ingenuity, that the passages from Doppstadt set out above should be regarded as having been made simply in the circumstances there recorded, namely, that there had been no issue in the appeal as to the relevant principles. He noted that the decision in Illawarra, although referred to on a separate question, was not expressly discussed so that the apparent controversy between two lines of authority should not be regarded as being resolved by that decision. 26As eloquently as those submissions were put, I think I am bound as a puisne judge to take the same approach taken by McDougall J in Owners Corporation, albeit under misapprehension, namely, I should apply what is, so far as I have been told, the most recent decision of the Court of Appeal, and that is the principle clearly stated in Doppstadt. I should add that those statements of principle appear to me to accord with a plain reading of the section which, as I have observed, it seems to me confer a broad and unfettered discretion to be exercised in accordance with the interests of justice in any individual case. 27In the present case, the simple fact is that the proceedings have been protracted and Mr McMahon has been out of pocket to the extent demonstrated in his affidavit sworn 8 July 2014. According to that affidavit, he has paid disbursement items in the proceedings totalling $324,821.72. The affidavit also deposes to the fact that Ardent Legal Pty Limited has paid a sum in the order of $170,000 by way of disbursements. I do not think there should be an award of interest on those disbursements for reasons to which I will return. 28As to the disbursements that have been paid by Mr McMahon, in my view the circumstances of the case warrant an award of interest for the following reasons. 29First, as I have already said, the proceedings have been protracted and Mr McMahon has been out of pocket. That on its own is not enough, according to the submissions of Mr Dawson, in the circumstance of what he put as the countervailing discretionary factor. Mr Dawson noted that, in my earlier costs judgment, I made an award of indemnity costs as to a portion of the plaintiff's costs on the basis of s 40(2) of the Defamation Act 2005, for the reasons explained in the judgment. 30However, I specifically rejected an application for indemnity costs on the alternative basis of the manner in which the proceedings had been conducted on the part of the defendants, saying (at [34]): Had I not been persuaded of Mr McMahon's prima facie entitlement to indemnity costs in accordance with s 40(2) of the Defamation Act, his submissions would not have persuaded me that I should award indemnity costs on the basis of the provisions of s 40(1) of the Act. Based on my observation of the conduct of both parties in the proceedings, I do not think the defendants' conduct marks them out for such an order. 31Mr Dawson submitted that the plaintiff has accordingly received a measure of indemnity in respect of his costs, and that it would be too punitive to add the award of interest on those costs as presently claimed. That submission seems to me to assume that a party's conduct of the proceedings is the only relevant consideration in the exercise of the discretion. 32A further consideration which in my view is relevant is the fact that there were circumstances in the present case, albeit due to a specific statutory regime, for awarding indemnity costs to Mr McMahon. In my view, those same circumstances provide a strong discretionary factor in favour of also awarding Mr McMahon's interest on those disbursements which he has paid out of his is own pocket. 33I do not think the same argument can conceivably be put in respect of the disbursements paid by Ardent Legal. Indeed, I would go so far as to express my doubt as to whether the power under s 101(4) can even properly be exercised in respect of those costs. But assuming it can, the stronger countervailing discretionary factor, in my view, is simply that Mr McMahon has not been and is not now out of pocket in respect of those costs. That is enough in my view to dispose of the application. I do not think it would be appropriate to make a prospective order in respect of those costs. 34For those reasons, I am satisfied that Mr McMahon should have an award pursuant to s 101(4) of interest on the disbursement items paid by him as deposed in paragraph 7 of his affidavit. It follows that the defendant should also have an award of interest on the costs which have been awarded in its favour in the proceedings, since no countervailing discretionary consideration has been put forward on behalf of Mr McMahon.