Rail Corporation New South Wales v Leduva Pty Limited

CATCHWORDS : Indemnity costs - Interest on costs - Principles - Contract construction

LEGISLATION CITED : Civil Procedure Act 2005 (NSW)

Blair & Perpetual Trustee Co Ltd v Curran (1939) 62 CLR 464 Brown v Rezitis (1970) 127 CLR 157 Fidelitas Shipping Co. Ltd v V/O Exportchleb [1966] 1 QB 630 Hexiva Pty Ltd v Lederer [2006] NSWSC 1259 CASES CITED : Kirklees Metropolitan Boroughs Council v Wickes Building Supplies Ltd [1993] AC 227 Lahoud v Lahoud [2006] NSWSC 126 O'Toole v Charles David Pty Ltd (1990) 171 CLR 232 Rail Corporation New South Wales v Leduva Pty Ltd [2005] NSWSC 138 Tana v Baxter (1986) 160 CLR 572

PARTIES : Rail Corporation New South Wales (Plaintiff) Leduva Pty Limited (Defendant)

COUNSEL : Mr M Henry (Plaintiff) Mr F Hicks (Defendant)

SOLICITORS : Blake Dawson Waldron (Plaintiff) McCabe Terrill (Defendant)

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

Thursday 19 July 2007 ex tempore Revised 24 July 2007

50042/05 Rail Corporation New South Wales v Leduva Pty Limited JUDGMENT

Costs 1 Following the handing down of the reserved judgment there remains for decision the appropriate orders to be made with respect to costs. In that regard costs of the proceedings pre-dating 2 July 2005 are already the subject of costs orders by the Court. The defendant does not oppose an order that it pay the plaintiff's costs of the proceedings as and from 2 July 2005 on a party/party basis. 2 The plaintiff pursues a costs regime whereunder the defendant pay its costs of the proceedings as and from 2 July 2005 on an indemnity basis. It also seeks orders that the defendant pay it interest on the plaintiff's costs and disbursements from 2 July 2005 at various rates [see generally s 101(4) of the Civil Procedure Act 2005]. 3 The gravaman of the plaintiff's claim relies upon the terms of the Deed: · Subclause 14.1(a) of the Deed states: "14. COSTS

(a) Developer must pay all of Rail Party's Costs by the Due Date and otherwise in accordance with this clause". · The term "Due Date" is defined, in the dictionary in Attachment C to the Deed, to mean within 30 days of the date of any Rail Party Invoice. "Rail Party's Costs" is defined to mean "Rail Party's Costs in carrying out its functions under this Deed, more fully described in Schedule 1 of this Deed". · Relevantly, Schedule 1 of the Deed states: "Rail Party's Costs in carrying out its functions under this Deed are as follows:

(a) Rail Party's costs that would not have been incurred by Rail Party but for the Developer carrying out the Development;

(b) without limiting the generality of clause (a): (i) Rail Party's legal costs incurred in negotiating, preparing, and executing and enforcing this Deed;

(ii) Rail Party's costs in administering, supervising and otherwise dealing with the Developer and Developer's Personnel under or in connection with this Deed;…". 4 The plaintiff's proposition is that the proper construction of cl 14.1(a) and the definition of "Rail Party's Costs" (as prescribed in Attachment C and Schedule 1 of the Deed) has been determined by Nicholas J in these proceedings. 5 In Rail Corporation New South Wales v Leduva Pty Ltd [2005] NSWSC 138 ("the Costs Judgment") at [20], Nicholas J held:

"In my opinion Sch 1 is to be understood as specifying the costs which, for the purposes of the deed, fall within the expression "Rail Party's Costs in carrying out its functions under this Deed". The plain language of the Schedule demonstrates the intention of the parties to describe the categories of costs for which Leduva is liable under cl 14.1(a). It is also plain that it was not intended that entitlement to costs within these categories should be conditional on Railcorp demonstrating that such costs in a particular case were referable to the carrying out of its functions under the deed. The scheme of the dictionary and the Schedule, read together with cl 14.1(a), is that the expression "Rail Party's Costs in carrying out its functions under this Deed" is to be understood in a global sense and to mean the costs specified in sub paras (a) and (b) . Read in context it seems to me the definition was drafted in this way so as to reflect the commercial intention and purpose of the contract that Leduva should be liable unconditionally for Railcorp's costs once they are shown to fall within these categories." [Emphasis added.] 6 Consistently with the above findings, his Honour held (at [25]):

"…Clause 14.1(a) read with Sch 1 is wide and general in its terms, and there is no rational basis for reading it down. It is entirely consistent with the underlying intention of the parties as reflected in the terms of the deed as a whole that Railcorp should bear no costs by reason of the carrying out of the development." 7 The plaintiff then contends that Nicholas J's construction of the above provisions of the Deed creates an issue estoppel and is binding on the parties: see, analogously, O'Toole v Charles David Pty Ltd (1990) 171 CLR 232 at 245, 260 and 298 citing Diplock LJ in Fidelitas Shipping Co. Ltd v V/O Exportchleb [1966] 1 QB 630 at 642. The plaintiff draws attention to paragraph 34 of the Costs Judgment, where Nicholas J held that "the justice of the case requires that the [costs] discretion should be exercised to reflect the contractual entitlement of Railcorp to indemnity costs, and I propose to order accordingly." 8 Hence the plaintiff contends that the "contractual entitlement" referred to by Nicholas J was based upon his above-mentioned findings as to the proper construction of the Deed. The plaintiff's proposition is that it follows that those findings create an issue estoppel because they were legally indispensable to the conclusion reached by Nicholas J: Blair & Perpetual Trustee Co Ltd v Curran (1939) 62 CLR 464 at 532 - 533. 9 The defendant denies the proposition that there is any form of issue estoppel which arises from the decision of Nicholas J. It further contends that it is reasonably arguable that in the circumstances, the plaintiff was not required to give the usual undertaking as to damages, citing Kirklees Metropolitan Boroughs Council v Wickes Building Supplies Ltd [1993] AC 227 as authority for the proposition that no undertaking was required of a public authority enforcing a statutory duty. The defendant contends that there is nothing in the deed which required the plaintiff to give any or the usual undertaking as to damages in any circumstances. The defendant's contention is that if that be correct [in that it is reasonable to proceed on the basis that the plaintiff may have obtained the interlocutory injunctive relief without giving the usual undertaking as to damages], then there is no reason to conclude that the costs of defending the claim by the defendants upon the undertaking as to damages which was in fact given may be characterised as 'costs' for the purposes of Schedule 1 of the Deed. 10 In my view it is unnecessary to determine whether or not an issue estoppel arises by reason of the Costs Judgment of Nicholas J. This is because in my view the construction of the Deed adopted by Nicholas J was correct. 11 In any event I reject the proposition put by the defendant that the proper test is to proceed on the basis that the plaintiff may have obtained the interlocutory injunction without giving the usual undertaking as to damages. The real question is whether in the exercise of the Court's discretion to extract from the plaintiff the usual undertaking as to damages, the Court would in the unusual circumstances, have been prepared to grant the interlocutory relief without requiring the usual undertaking to be given. In my view the proper inference is that had the matter been raised, the Court would have required that the usual undertaking be furnished. 12 In my view the legal costs of the proceedings generally are appropriately characterised as costs that would not have been incurred by the plaintiff but for the developer carrying out the development. 13 I accept that the plaintiff's costs of obtaining and maintaining the interlocutory injunction, which temporarily restrained the defendant from performing certain building works for the purposes of the development, would not have been incurred but for the defendant carrying out the development. As the plaintiff has submitted, the raison d'être for the giving of the undertaking was the granting of the injunction. It follows that the plaintiff's costs of defending the action to enforce the undertaking are, for present purposes, indistinguishable from its costs of obtaining and maintaining the injunction. Hence both sets of costs would not have been incurred but for the defendant carrying out the development. To hold otherwise would be to divorce from the injunction the undertaking that necessarily accompanied it. 14 Additionally it seems to me that there is substance in the plaintiff's further submission that the costs at stake also fall within sub-paragraphs (b)(i) and (b)(ii) of Schedule 1 of the Deed. In relation to the former subparagraph and the plaintiff's costs of the defendant's motion to dissolve the interlocutory injunction, Nicholas J held at [23] of the Costs Judgment::

"The institution and conduct of the interlocutory proceedings were necessitated by Leduva's failure to comply with its obligations under the deed. There could be no doubt, and I find, that these costs are within the terms of sub cl (b)(i) being Railcorp's legal costs incurred in enforcing the deed." 15 I accept that the plaintiff's undertaking as to damages was inextricably linked to the granting of the interlocutory injunction, Nicholas J's reasoning is equally applicable to the plaintiff's costs of opposing enforcement of its undertaking. Put another way, if the plaintiff's costs of obtaining and sustaining the interlocutory injunction were legal costs incurred in enforcing the Deed, the plaintiff's costs of resisting enforcement of the undertaking [that was necessarily attendant upon the obtaining of the interlocutory injunction] must also meet that description. Accordingly, and as the plaintiff has submitted, like the former costs, the latter costs fall within subparagraph (b)(i) of Schedule 1 of the Deed. 16 Finally, I accept that insofar as subparagraph (b)(ii) of Schedule 1 of the Deed is concerned, the subject costs are "Rail Party's costs in…otherwise dealing with the Developer…under or in connection with this Deed." The Deed set out the rights and obligations of the plaintiff and the defendant as between each other in respect of the development. The interlocutory injunction was clearly granted by reason of the defendant's failure to comply with its obligations under the deed. The costs of, and incidental to, the obtaining and continuance of the injunction were, at least, "in connection with" the Deed; those being words of wide import [see, for example, Brown v Rezitis (1970) 127 CLR 157 at 165 and Tana v Baxter (1986) 160 CLR 572 at 579]. 17 For these reasons, the costs of defending an action to enforce the undertaking as to damages attendant upon the injunction are in no different position. Entitlement to indemnity costs 18 The plaintiff's costs of defending the defendant's claim to enforce the undertaking as to damages fall within the definition of "Rail Party's Costs" under the Deed. Hence the principled exercise of the relevant discretion is to make an indemnity costs order in favour of the plaintiff. This follows because, as Nicholas J held, the plaintiff's entitlement to costs under the Deed is an entitlement to payment of costs on an indemnity basis. I accept that there is no reason which justifies departure from the ordinary rule that it is usually appropriate to exercise the costs discretion so as to give effect to a contractual right to indemnity costs. One has to recall my own finding that the application to enforce the plaintiff's damages undertaking should be dismissed because of special circumstances which "critically included 'the conduct of the injunctee'" (at [92]). This underpins the fact that the costs discretion is appropriate to be exercised so as to reflect the plaintiff's right under the Deed to indemnity costs. As the plaintiff contends, this outcome is also consistent with Nicholas J's conclusion that the plaintiff "should bear no costs by reason of the carrying out of the development" [that is at [25] of the Costs Judgment]. Interest on costs 19 Subsection 101(4) of the Civil Procedure Act 2005 ("the Act") provides:

"The court may order that interest is to be paid on any amount payable under an order for the payment of costs." 20 The authorities establish the following propositions:

a) that an order under s 101 of the Act for interest on costs recognises and compensates the costs creditor for having been out of pocket as a result of having to pay their lawyer's costs and disbursements: Hexiva Pty Ltd v Lederer [2006] NSWSC 1259 at [21]; Lahoud v Lahoud [2006] NSWSC 126 at [83];

b) that there is no requirement, before an order for the payment of interest on costs is made, for the Court to be satisfied that the circumstances of the case are out of the ordinary: Hexiva at [21]; Lahoud at [82];

c) that not much, if any, evidence is required to support an application for interest on costs: it can be inferred from the nature of commercial litigation that parties are likely to have had to pay some amounts of costs and disbursements as the litigation progresses and, in any event, an order can be framed in such a way that interest will run only from the date on which there has been a payment: Hexiva at [21]; Lahoud at [80]-[81]. 21 The current proceedings are appropriately characterised as commercial litigation on foot since 6 September 2004. The proceedings have been contested since its inception and the parties have been represented by lawyers at all times. The costs in issue for present purposes have been incurred since 2 July 2005; that is, over a not inconsiderable period of time. The work performed to prepare for and conduct the interlocutory proceedings was plainly substantial. In short, this is commercial litigation that has been hard fought. As the plaintiff has contended, the inescapable inference is that, relevantly, the plaintiff would have incurred substantial costs and disbursements as the litigation progressed. 22 The defendant denies that the plaintiff has established an entitlement to interest from the date of payment of the costs claimed and in this regard submits as follows: (a) there is nothing in the deed that permits or allows the plaintiff to recover interest on costs; (b) there is no evidence that any of the alleged costs upon which interest is claimed were paid or as to when such costs were paid; (c) the plaintiff is a statutory authority which was not acting in a commercial capacity but was concerned with matters of public safety arising in the circumstances: hence it is said not to be correct to characterise this matter or the position of the plaintiff as akin to that of commercial litigation in a general sense; (d) there is no evidence that the plaintiff incurred some obligation to pay interest as it was impecunious or otherwise failed to pay its legal costs and disbursements when they were due; (e) as a statutory authority it ought not be assumed that the plaintiff suffered some loss of the use of moneys used to pay its legal costs and disbursements which it could or would have used otherwise such that it might be considered to be "out-of-pocket" in the sense that an ordinary party (whether a company or a natural person), could be assumed to be out-of-pocket in respect of its legal costs; (f) as a matter of discretion, the Court should not allow interest on the costs as claimed in the absence of any evidence and given the position of the plaintiff as a statutory authority. The submission is that such an order would have the effect of altering the character of any costs order in this case from compensatory to punitive. 23 In my view there is no substance in the matters relied upon for the defendant's contention that an interest on costs order does not presently represent a proper exercise of the Court's discretion. The mere fact that the plaintiff is a statutory authority does not deny to it the entitlement to be treated in relation to court proceedings [of the type in question] as a commercial litigant. 24 Accordingly, the principled exercise of the discretion is to award the plaintiff interest on its costs to compensate it for having been out of pocket. The form of order sought by the plaintiff said to achieve this reality is reflected in Lahoud at [85] - [87] and is cited by the plaintiff.

Short minutes of order 25 During the taking of submissions, the parties agreed that in the event that the Court would be in a position to determine the contested matters of principle, it would be appropriate for counsel to formulate short minutes of order which fairly reflect the reasons. 26 For those reasons the principled exercise of the discretion will be to award the plaintiff interest on its costs to compensate it for having been out of pocket. The proceedings are stood over to such day and time as counsel may find convenient in order to bring in the short minutes of order. 27 The order is that the defendant is to pay the plaintiff's costs of the costs argument.

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