55043/06 THE OWNERS - STRATA PLAN 57504 v BUILDING INSURERS GUARANTEE CORPORATION
JUDGMENT
1 HIS HONOUR: On 3 October 2008 I gave reasons for decision on applications relating to a referee's report. In substance, I said that certain parts of the report should be varied (in some cases, as agreed); that a particular finding should be rejected; and that the referee should reconsider another finding.
2 The referee has now produced an amended report which addresses the matter that I sent back. The questions today relate to the orders to be made to give effect both to my earlier reasons and to matters emerging from the varied report.
3 The first question in dispute is whether, and if so to what extent, the Owners Corporation should have interest on the amount to which, by reason of my decision to adopt the amended report, it will become entitled. It is common ground too that the Owners Corporation should have interest on amounts actually paid by it - of the order of $60,000, in several payments in 2004 and 2005.
4 It is common ground that the amount found by the referee for rectification costs, including escalation to 4 March 2008, is $1,933,551.48 (as at 4 March 2008). That amount includes the amounts totalling $60,000.00 odd hitherto paid by the Owners Corporation, but otherwise represents amounts unpaid, being the referee's estimate of the costs of rectification including escalation to 4 March 2008.
5 Mr Neal of Counsel, for the Owners Corporation, submits that his client is entitled to interest on the whole amount as from 4 March 2008. He relies on the general principle that interest is payable to recognise the fact that a plaintiff has been kept out of the use of money which by hypothesis was and is its, and the defendant has had the use of that money, up until the time payment is actually made. That basis for the award of interest has been recognised for many years and is referred to, by way of example only, in the decision of the Court of Appeal (Giles, Ipp and Basten JJA) in Kalls Enterprises Pty Limited (In Liquidation) v Baloglow (No.3) [2007] NSWCA 298 at [10].
6 As their Honours pointed out at [11], delay, although not ordinarily a reason for refusing interest, may in some circumstances be relevant to the exercise of the discretion. Their Honours instanced unreasonable delay and a high interest rate - I think, unreasonable delay to be attributed to the plaintiff.
7 Mr O'Keefe of Counsel, for the Guarantee Corporation, referred to another exception that he said was established by the decision of the Court of Appeal in Screenco Pty Limited v RL Dew Pty Limited (2003) 58 NSWLR 720. That was a case of somewhat unusual facts. As Handley JA said at 722 [1], the plaintiff had sought interest on the value of "a profit-earning chattel which it owned but had not paid for". It had lost the use of that chattel by reason of the defendant's negligence or breach of contract. The trial judge refused to order interest on damages representing the cost of the chattel, because the plaintiff had not paid for it. The Court of Appeal upheld his Honour's reasoning. Handley JA referred at 728 [38] to the principle that the function of damages is to put the injured party in a position, so far as money can do, that it would have been in but for the breach of contract or tort. In this particular case, his Honour said at 730-731 [51], that since the plaintiff had not been out of pocket for the purchase price of the chattel and had no obligation to pay interest to the vendor of it, an award of interest on the purchase price component would over-compensate it. Sheller JA, who agreed with both Handley JA and Tobias JA, said at 731 [56] that the case could be decided on the basis "that it has not been shown by the plaintiff that the loss of the use of money in the form of compensatory damages for the damage to the screen was a real and practical one and not merely theoretical."
8 Tobias JA said at 740 [89] "that pre-judgment interest is only to be awarded to a plaintiff where, as a consequence of being deprived of the use of the judgment money during the relevant period, it has suffered a real and practical loss or detriment for which it should be compensated in order to ensure that it is restored fully to the position in which it would have been but for the defendant's wrongdoing".
9 If I may say with respect, their Honours' statements of the dispositive principle cannot be considered at large. Those statements must be read in the light of the particular facts on which the question before their Honours arose. I do not think that there is anything in their Honours' reasons to suggest that they were intending to call into question the long settled basis on which (as recognised by the decision of the Court of Appeal in Kalls Enterprises) interest on damages is ordinarily awarded. Their Honours were simply saying that, on the facts on the particular case, the overriding compensatory purpose did not require the plaintiff to have interest representing the loss of use of money because it had neither lost the use of the money nor come under any obligation to compensate the vendor to it for the vendor's loss of use of the money.
10 Thus, in my view, the decision in Screenco is clearly distinguishable, and does not require the Court to be deflected in considering the question of interest today, from the general basis on which interest is awarded.
11 The position is that the Owners Corporation's entitlement has been quantified effectively at a date more than eight months in the past. If judgment had been given on that date, the Owners Corporation would have had interest on the judgment sum from them. That has not happened, partly because the referee's report was delivered (and in this I intend no criticism) at a date later than the date as at which the amount of damages had been calculated, and partly because of delays, including those inherent in the process where there is an opposed order for adoption of a report.
12 The Guarantee Corporation has continued to have the use of the money. The Owners Corporation has not had the use of the money.
13 Mr O'Keefe submitted, correctly, that (leaving aside the amounts totalling $60,000 odd) the Owners Corporation has not actually spent the money, was not out of pocket, and had not in that sense lost the use of the money. He pointed out that the damage that the referee found (and I agreed) existed was not actual damage, in the sense of destruction of or damage to particular items either of common property or of individual units. That is undoubtedly correct, but it does not seem to me that to address the fundamental point. That point is that there is an element of escalation, and it is not taken fully into account in the calculation that has been prepared. In effect, the Owners Corporation has not had the ability to put the money to use, either by carrying out rectification work or otherwise.
14 In those circumstances, it seems to me firstly that there is no injustice to the Guarantee Corporation in requiring it to pay interest from 4 March 2008, and secondly real injustice to the Owners Corporation in not doing so. There are two ways in which the problem may be addressed. One is to make an order for judgment in an amount that brings the claim up-to-date. The other is to direct that the judgment take effect as at 4 March 2008. In my view that latter course (which is authorised by UCPR r 36.4 (3)) is the appropriate way to proceed.
15 In the circumstances, it is appropriate to order (and I will direct the parties to bring in short minutes to reflect this) that the Owners Corporation have interest on so much of the total amount of damages as has been actually paid by it, such interest to be computed from the date or dates of payment and at the rate from time to time applicable under Schedule 5 to the Uniform Civil Procedure Rules. That amount should be brought up-to-date as at 4 March 2008 and the Owners Corporation should have an order for the entry of judgment in its favour effective as at 4 March 2008.
16 The next question to be considered is the Owners Corporation's application for interest on costs. Campbell J considered this in Lahoud v Lahoud [2006] NSWSC 126 at [78] and following. His Honour referred to the authorising provision - s 101 (4, 5) of the Civil Procedure Act 2005. He observed at [82] that "[t]here 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". His Honour said at [83] that "[t]o the extent to which the plaintiffs have been out of pocket as a result of having to pay their lawyers costs and disbursements, it is appropriate that the compensation which is recognised in the Court's order for costs take into account the fact that the plaintiffs have been out of pocket in that way". His Honour, having referred to authorities in support of that proposition, observed that the money used to finance the litigation could doubtless have been put to more productive use.
17 These proceedings have an extensive history, including a dispute between the parties fought in the Consumer Traders and Tenancy Tribunal. It is agreed that the costs order to be made should include costs in respect of proceedings in the Tribunal. It is plain that, to the extent that the Owners Corporation has paid amount of costs from time to time, it has lost the use of the amounts so paid.
18 Equally, it is plain that the Owners Corporation (if it is to have interest on costs at all) should have interest only on the amounts paid, and specifically on so much of those amounts as are allowed either by agreement or on assessment. Campbell J developed a formula for that in the third of the orders that he made in Lahoud. In my view, if interest on costs is to be awarded, it should be calculated by reference to that formula.
19 Having regard to the nature of the discretion, and its essentially compensatory function (there being in this no relevant distinction between the discretion to order pre-judgment interest and the discretion to order interest on costs) I think that this is an obvious case for the award of interest on costs. It is apparent that if some compensation in the form of interest is not made, the Owners Corporation will suffer a real and significant detriment by being out of pocket for the amounts that it has paid. It is appropriate that that detriment be compensated, in a way not disadvantageous to the Guarantee Corporation, by application of the Lahoud formula.
20 The orders that the parties are to bring in should include an order for interests on costs in accordance with the Lahoud formula.
21 Otherwise, the orders that I am to make have been agreed. Rather than complicate things by making some now and some later, I will direct the parties to re engross the draft minutes to take account both of what has been agreed and what I have just said, and to submit them in chambers so that orders may be made without the need for further attendance.