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).
12 Initially, when the statutory power to award pre-judgment interest on damages was conferred by the (NSW) Supreme Court Act (1970), there was significant dispute as to whether interest should be awarded only in special cases, or in the general course. Before long, it was established that prima facie interest would be awarded because it was compensatory in nature and intended to compensate the successful party for having been kept out of the moneys to which that party was ultimately found to be entitled. Since the power to award interest on costs has been more explicitly conferred by the Civil Procedure Act, and before then by relatively late amendments to the Supreme Court Act, there has been a similar evolution in the court's approach. It may well be, as has been submitted today, that initially the court took the view that interest on costs would be awarded only where the costs creditor had been out of pocket for an inordinate or lengthy time. Thus I was pressed with the observations of Barrett J in Abigroup v Peninsular (No 2) (2001) NSWSC 1016, [44], to the effect that the main factor which may cause the Court to award interest on costs under Supreme Court Act, s 76 and s 95(4), was delay in the resolution of proceedings where a party had been out of pocket for an inordinate time - for which proposition his Honour cited a number of cases decided between 1993 and 2000.
13 However, the observations cited above, from Hexiva v Lederer and, more importantly, from the Court of Appeal's decision in Drummond v Easey, show that things have moved on since then, and that ordinarily a party that obtains a costs order will also obtain (if it seeks one) an order for interest on those costs, in the absence of any countervailing discretionary factor. Moreover, if it were the case that interest on paid costs was recoverable only in a case where the costs creditor had been out of pocket for an inordinate or substantial period of time and not when the litigation proceeded relevantly expeditiously, that would provide an incentive for a party that thought it was going to succeed to delay the prosecution of the proceedings. It would punish expedition and reward delay. That, in my view, makes manifest that it could not sensibly inform a proper approach to the exercise of the discretion to order interest on paid costs. In my view, what Barrett J said in Abigroup v Peninsular can no longer be taken as representing the law in this respect.
14 In the present case, no countervailing discretionary factor appears. To the contrary, discretionary factors point firmly in favour of making an order for interest, because there is evidence not only that Mrs Inglis has paid the costs payable to her solicitor, but that she has had to borrow from a financial institution (and thus herself incur interest) in order to do so.
15 The next question is the rate at which interest should be ordered. As Mr Finnane submitted, and as is established by Joseph Lahoud & Anor v Victor Lahoud & Ors [2006] NSWSC 126, the Court will ordinarily adopt the rate prescribed by the rules of court for interest on unpaid judgment debts, just as it does when awarding pre-judgment interest on damages. But that may always yield to evidence showing that another rate is appropriate. Nonetheless, adoption of the prescribed rate has the advantage that it discourages extensive argument about the applicable interest rate and the use of evidence as to interest rates.
16 It is true that the prescribed rate is ordinarily higher than commercial rates. That is so for a number of reasons: first, that investment in judgment debts is not a first-class investment and bears a substantial degree of risk; secondly, to encourage judgment debtors to pay rather than delay; and thirdly, because the prescribed rate is a simple interest rate, whereas commercial institutions typically charge compound interest.
17 In my view, the first and second of those considerations apply with less force in the case of an award of interest on costs, that in the case of pre-judgment interest, at least in litigation that is bona fide contested, but that is not to say that they are irrelevant. However, the third argument, concerning compound as opposed to simple interest, retains full weight.
18 In the present case, it is known that Mrs Inglis borrowed $360,000 from a financial institution, substantially to fund the payment of costs in connection with these proceedings. It would have been in her power to prove the interest rate charged in respect of that loan. She adduced no evidence of it, and indeed the evidence of the loan itself was produced at so late a stage that the cross-defendants could not reasonably be expected to have sought out evidence of the relevant rate.
19 Nonetheless, I think the Court is entitled to take judicial notice that interest rates available from financial institutions are less than the 9 per cent currently prescribed by the rules of court. Drawing on that, I find that an appropriate interest rate in the circumstances is 7.5 per cent. If I were not entitled to reach that conclusion on the basis of judicial notice, I would have had no evidence to displace the presumption that the prescribed rate should apply, and would have adopted the rate of 9 per cent referred to in the rules.
20 There remains the problem, frequently encountered, that Mrs Inglis will, since proceedings were commenced by Mrs Wood on 22 February 2008, have incurred costs, some of which will not be covered at all by the order of 1 September 2009 and others which, though covered by that order, will not be allowed on party-party assessment. Consistent with the approach that has been taken in other cases, rough justice can be done by apportioning the costs that she has paid between those allowed on assessment under the order, and the other costs that she has incurred. That means that she will recover interest only on such proportion of the costs that she has paid as reflects the proportion that her assessed recoverable costs bears to the total costs that she has paid or is liable to pay.
21 Accordingly, on the second issue my orders are:
(2) Interest is to be paid on any amount payable under the costs order contained in Order 1 above and the costs order made on 1 September 2009, as follows:
(a) Interest shall be payable on that proportion of each amount of costs and disbursements allowed on assessment which were actually paid by the costs creditor which the total amount of costs and disbursements allowed on assessment to the costs creditor under the costs order of 1 September 2009 and Order 1 of today bears to the total amount of costs and disbursements which the costs creditor has paid or was liable to pay as between practitioner and client incurred since 22 February 2008 to date in connection with these proceedings or otherwise in connection with the affairs of the estate of Dr Inglis and the Inglis Research Trust.