Polias v Ryall

Interest 21The orders made by consent on 22 December 2014 included orders for the payment of interest from the date of publication until the date of judgment. After judgment, interest is payable pursuant to s 101 of the Civil Procedure Act 2005 and the UCPR. The only issue between the parties in relation to interest is whether interest should be payable on costs. With the consent of the parties, pre-judgment interest has been awarded at 3%. 22The relevant principles applicable to a claim for interest on costs were stated by Brereton J in Grace v Grace (No 9) [2014] NSWSC 1239. His Honour said: "[57] In Drummond and Rosen, Macfarlan JA, with whom Tobias JA agreed, said that it was not necessary for there to be evidence of the date or dates on which the costs concerned were paid, if an order for interest under s 101(4) were to be made, and that in the usual case the court did not need to know when the costs were paid (at [3]): '[3] The matter in relation to which I respectfully disagree with his Honour is as to the making of an order for payment of interest on costs. His Honour has quoted the terms of s 101(4) and (5) of the Civil Procedure Act 2005. In my view it is unnecessary for there to be evidence of the date or dates on which the costs concerned were paid for an order for the payment of interest to be made under subsection (4). Indeed, such evidence would often not be particularly useful. If the Court does not choose to order that interest be payable from a later date, interest will run, if an order is made under subsection (4), from the date or dates on which the costs concerned were paid. If the costs were paid promptly, interest will run from an earlier date than that from which it would run if there was delay in payment. That is an appropriate result as the purpose of an order for payment of interest is essentially compensatory. I do not see why in the usual case the Court needs to know when the costs were paid.' [58] His Honour added (at [4]): 'In the absence of any countervailing discretionary factor (of which there appear to be none in the present case), 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 has paid [Lahoud v Lahoud [2006] NSWSC 126 at [82-3] per Campbell J].' [59] The defendants submit, however, that there must be evidence that costs were in fact paid, and, at least in this case, when they were paid in what amount and by whom, as otherwise the court would impose a liability for interest without any evidentiary basis. The defendants invoke Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211 ; (2013) NSWLR 436, in particular: '[36] 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. [37] 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". [38] 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. [39] 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.' [60] In Illawarra Hotel, the court did not refer to Drummond and Rosen. The apparent conflict between Drummond and Rosen and Illawarra Hotel has been noted, but not resolved, in Zepinic v Chateau Constructions (Aust) Ltd (No 2) [2014] NSWCA 99, [43], [44]; DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (No 2) [2014] NSWCA 142, [5], [6]; and Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158, [404], where Gleeson JA said: '[403] 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 (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. [404] 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 (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.' [61] In Owners - Strata Plan No 61162 v Lipman [2014] NSWSC 622, McDougall J did not think it open to deal with the matter on the basis that there was no binding authority and concluded that he was bound by Illawarra Hotel, although his Honour observed that if the matter were to be decided on the basis articulated by Macfarlan JA in Drummond and Rosen (and, his Honour added, similar views had been expressed on numerous prior occasions), the particular case was one in which it would still have been appropriate for there to be some explanation of what appeared to be extraordinary delay (at [266]-[270]). [62] Unlike McDougall J, I do not consider that I should regard myself as bound by the decision in Illawarra Hotel. First, the Court of Appeal's observations on this issue were obiter, the ratio of the decision being (at [33]-[34]) that interest on costs was not part of the appeal. Secondly, their persuasive force as obiter is diminished by the circumstance that they conflict with an earlier decision of the Court of Appeal which has been applied on many occasions, never expressly overruled, and not referred to in Illawarra Hotel. Thirdly, the Court of Appeal has had at least three opportunities to resolve the issue but has deliberately left it open. Fourthly, the observations of Gleeson JA in Doppstadt Australia Pty Ltd v Lovick (at [403]), which post-date the judgment of McDougall J, tend to support the approach of Macfarlan JA in Drummond and Rosen. Fifthly, as White J has observed, the Court of Appeal's observations in Illawarra Hotel were made in the context that no application for interest had been made to the primary judge [Wardy v Wardy, [10]]. [63] The view that evidence that costs have been paid, and/or when they were paid, is not a necessary precondition of an interest on costs order, is supported by a number of considerations. The first is the terms of s 101(5), which provides that if the court makes an order under s 101(4), then interest is payable at the prescribed rate from the date or dates on which the costs concerned were paid (unless the court specifies some other rate and/or some other date). This provides a default position, which renders it completely unnecessary to prove when the costs were paid, until it comes to working out the quantum of the interest. If an order is made under s 101(4), then absent some special order under s 101(5) the costs will attract interest only to the extent that they have been paid, and from when they were paid. A party seeking to have interest run from a later date might need to adduce evidence to show why that should be so. [64] The second is the history, referred to above, which shows that the origin of s 101(5) was in the power to "otherwise order" so that the default rules about interest would not apply; coupled with the compensatory purpose of the power conferred by s 101(4). It is now clearly established that, while neither the incipitur nor the allocatur rule may do perfect justice in every case, the incipitur rule is to be preferred as the default position (while the power to "otherwise order" enables the court to respond to the particular requirements of justice in the individual case [Tarlinton; Hunt v R M Douglas; Fischer v David Syme; Minister v Carson]. The essential reason for this is one of fairness, because otherwise, the sum of money that represents the costs is "fructifying in the wrong pocket" [Newton v Grand Junction Railway Co (1846) 16 M&W 139 at 141; Tarlinton, 7-8; Minister v Carson, 352G-353F, 359D-361C]. Evidence is not required to make good the proposition that the money is fructifying in the wrong pocket after the plaintiff has paid costs which it is later determined should be recoverable from the defendant. Nor is the force of the proposition reduced by the protraction of the proceedings, or the reasons for which they are protracted. There is no requirement to demonstrate special circumstances in order to obtain an interest on costs order [Gilfillan v Australian Securities and Investments Commission (No 2) [2013] NSWCA 143 ; (2013) 94 ACSR 543, 549 [33]; Lahoud v Lahoud; Simmons v Colly Cotton Marketing Pty Ltd, [14]]; and there is no need to explain why the proceedings have taken the course they have, at least unless and until some "countervailing discretionary consideration" is raised. [65] The third is that, because of the terms of s 101(5), an interest on costs order has inbuilt safeguards. The default provisions of s 101(5), as well as the usual form of order modelled on Lahoud v Lahoud, reflects the compensatory nature of the power, and allows recovery of interest only to the extent that (1) the court has determined that costs should be paid; (2) an assessor has allowed those costs; and (3) for the period from when the costs were paid by the party entitled. In view of those provisions, a court does not need to know whether the costs have been paid, or when they were paid. Thus the defendants' submission, that without evidence the court would be imposing a liability with no evidentiary basis for it, is incorrect. [66] For those reasons, in my view, conformably with what Macfarlan JA said in Drummond and Rosen, a party who obtains a costs order will ordinarily - in the absence of any countervailing discretionary factor - also obtain an order for interest on those costs, if it seeks one, and evidence of payment of the costs is not required; nor is evidence explaining the course of the proceedings [see also Lahoud v Lahoud, [82]-[83] (Campbell J); Hexiva Pty Ltd v Lederer (Costs) [2006] NSWSC 1259, [21]; Wood v Inglis [2010] NSWSC 749, [9]-[13]; Lucantonio v Kleinert, [25]]. Discretionary considerations [67] The foregoing discussion about the supposed requirement for evidence largely also addresses the argument that an order for interest on costs should be refused on discretionary grounds. Interest on costs, like prejudgment interest, is compensatory, not punitive. It compensates the party entitled for being out of money for the time it was held out of that money, and deprives the party liable of the benefit of having held the funds when it ought not have done so: absent such an order, the sum of money in question fructifies in the wrong pocket. In the absence of countervailing factors, it is ordinarily appropriate that an order for interest on costs be made, so as to compensate the party entitled for being out of pocket in respect of the costs that party has paid [Drummond and Rosen, [4]; Gilfillan v ASIC, [33]; Simmons v Colly Cotton, [15]; Lucantonio v Kleinert, [25]; Wood v Inglis, [9]-[14]; Tomasetti v Brailey [2012] NSWCA 399 ; (2012) 275 FLR 248, [164]; Lahoud v Lahoud, [83]]. [68] While the power to make an interest on costs order is discretionary and interest may be declined if there are 'countervailing factors', as with prejudgment interest under s 100(1), the circumstances in which a claim for interest can be refused are rare. The analogous position with respect to pre-judgment interest on debt or damages under CPA, s 100(1) was explained by the Court of Appeal in Falkner v Bourke (1990) 19 NSWLR 574 (at 576B): 'Early decisions in this Court, both under the Supreme Court Act and the District Court Act in regard to the awarding of interest, referred to the discretionary aspect of the power granted by the statutes. However, as cases have accumulated it has become clear that the circumstances in which a claim for interest can be refused are rare. The general rule was recognised as long ago as 1983 in a decision of this Court, Homeowners Insurance Pty Ltd v Job (1983) 2 ANZ Ins Cas 60-535. It was recognised there by Glass JA (at 78,105-78,106) that interest is almost invariably to be allowed when claimed and the Court's decision in that case went upon that basis, that being another case where a District Court judge had refused an award of interest for a supposedly discretionary reason, which was not really available in relation to the exercise of the statutory power. Although sometimes a countervailing factor may be self evident (as in Owners - Strata Plan No 1162 v Lipman), ordinarily the party raising it will bear at least an evidentiary onus of raising and proving it.' [69] In particular, delay - and responsibility for delay - is usually immaterial, because the money is still fructifying in the wrong pocket [Tomasetti v Brailey, [164]]. If a defendant could show that, during a period of delay responsibility for which could be sheeted home to the plaintiff, it was earning interest at a lower rate than the prescribed rate that it would be required to pay the plaintiff, that might well support the court making an 'otherwise order' by way of varying the rate of interest payable - but it would not support making no award of interest at all. [70] The defendants submitted that as a matter of discretion interest should be refused because the protraction of the proceedings was attributable to the plaintiffs, in that they served evidence on issues on which they were unsuccessful, made amendments to pleadings to raise issues on which they failed, abandoned a number of issues at trial, and 'given the evident animosity between the parties, the lengths to which the plaintiff has gone to buttress his case'. [71] There are three answers to this argument. The first is that allowance has already been made for the plaintiff's failure on a number of issues, and pursuit of issues on which he was unsuccessful, and any excess of zeal in the pursuit of his case, in the determination that the defendants should pay only 62.5% of his costs [Grace v Grace (No 4)]. The second is that the protraction of the proceedings had many causes - some associated with the plaintiff, some with the defendants, and some with the court - and was by no means exclusively the responsibility of the plaintiff. The third is that even if the protraction of the proceedings was substantially the responsibility of the plaintiff, that does not mean that the defendants should retain the benefit of the money fructifying in their pockets in the meantime. That is because interest does no more than reflect the time value of money, and that the party liable has held the money and derived the benefit of it while the party entitled has been out of pocket in the meantime. Whatever the extent of the plaintiff's responsibility for delay, the defendants enjoyed the benefit of the money of which the plaintiff was out of pocket in the interim. As explained above, the plaintiff's responsibility for the delay does not somehow make it just that the defendants should retain that benefit. [72] As will usually be the case, the compensatory purpose of the power is sufficient to warrant making an interest on costs order, and there are no sufficient countervailing factors." 23With respect, I adopt the analysis of Brereton J and his Honour's summary of the principles. Two situations may arise in any order for costs. First, pursuant to the Bar Rules and the Rules of the Law Society and the practice of the legal profession, unpaid fees will be subject to interest accruing at the prescribed Supreme Court rates. In that circumstance, an order by the Court to pay costs will include interest on those costs that remain unpaid, because such interest will be part of the costs billed to the client. 24Secondly, a client, entitled to an order for costs, may have paid costs as and when a memorandum of fees or costs was rendered. In those circumstances, that client will not be entitled to interest on the costs, unless an order is made by the Court, even though the client will have been out of pocket (and lost interest) on the amounts involved. 25Costs are compensatory. They are not punitive. In those circumstances, it is appropriate, as stated by Brereton J, that, in the ordinary course, an order for interest on costs paid should issue. Not to order interest on costs paid would, in ordinary circumstances, irrationally disadvantage the client who pays legal fees in a timely manner and, thereby, discourage such payment and, ultimately, indirectly add to legal costs. The calculation of the interest on costs should be at the rate prescribed by the UCPR and date from the payment of the fees until the costs order is satisfied.

Conclusion 26For the foregoing reasons the Court will make further orders in addition to the orders made on 22 December 2014. The Court makes the following orders: (1)Orders (16) and (17) issued on 22 December 2014 in this matter are vacated; (2)Subject to any earlier order issued from this Court rendering the plaintiff liable for the defendants' costs of any interlocutory aspect of these proceedings, the defendants shall pay the plaintiff's costs of and incidental to these proceedings, as agreed or assessed, on an indemnity basis. The liability for said costs shall be joint and several, but, as between each of the defendants, each other defendant shall be liable to reimburse: the first defendant for any amount paid by him over 36% of the costs as assessed or agreed; the second defendant for any amount paid by him over 39% of the costs as assessed or agreed; the third defendant for any amount paid by her over 15% of the costs as assessed or agreed; and the fourth defendant for any amount paid by him over 10% of the costs as assessed or agreed; (3)Pursuant to section 101(4) and (5) of the Civil Procedure Act 2005, interest is to be paid on the amount payable under order (2) above at the rate prescribed by the Uniform Civil Procedure Rules 2005 from the date or dates on which the costs concerned were paid by the plaintiff until payment by the defendants of the amounts so payable. For said purpose, the plaintiff is to be taken to have paid the costs concerned on the date or dates of the payment or payments actually made by him for or on account of the costs of these proceedings, but only to the extent of the proportion of each such payment that the total amount of costs allowed on assessment under the said order bears to the total amount of costs which the plaintiff has paid or is liable to pay as between the practitioner and client in connection with these proceedings.

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