New South Wales Supreme Court CITATION : Gray v Guardian Trust Australia [2003] NSWSC 887 HEARING DATE(S) : 6, 10, 11 August 2003 (written submissions) JUDGMENT DATE : 30 September 2003 JURISDICTION: Equity Division Probate List JUDGMENT OF : Austin J DECISION : Interest payable on costs on and from September 2003 CATCHWORDS : PRACTICE AND PROCEDURE - costs - interest on costs - whether incipitur rule or allocatur rule is "normal rule" in Equity Division of Supreme Court - whether Court's discretion under s 76 is narrowed by s 95(4) - discretionary considerations where mixed success of parties has been reflected in costs orders Land and Environment Court Act 1979 (NSW), s 69A LEGISLATION CITED : Land and Environment Court Rules 1980, Part 13 rule 3 Supreme Court Act 1970 (NSW), ss 19, 76, 94, 95 Supreme Court Rules, Part 40 rule 3 Boswell v Coaks (1887) 57 LJ Ch 101, 105 Cherry v Boultbee (1839) 4 My & Cr 442 Fisher v Dudding (1841) 3 Man & G 238 [133 ER 1131] Gray v Guardian Trust Australia [2002] NSWSC 1218 Gray v Guardian Trust Australia [2003] NSWSC 704 Hughes Brothers v Trustees of the Roman Catholic Church [1999] NSWSC 1051 Hunt v RM Douglas (Roofing) Ltd [1990] 1 AC 398 CASES CITED : K v K (Divorce Costs: Interest) [1977] 2 WLR 55 McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (1993) 32 NSWLR 190 Minister Administering the Environmental Planning and Assessment Act 1979 v Carson (1994) 35 NSWLR 342 Schroder v Clough (1877) 35 LT 850 TA Field Pty Ltd v Frigmobile of Australia Pty Ltd [1978] 2 NSWLR 488 Thomas v Bunn [1991] 1 AC 362 White Industries (Qld) Pty Ltd v Flower & Hart (No.2) (2000) 103 FCR 559 Woods v Woods [2001] NSWSC 1108 Rollo Ventry Wakefield Gray (P, XD1) PARTIES : Guardian Trust Australia Ltd (D1, XC) Robert John Charles Gray (D2, XD2) FILE NUMBER(S) : SC 114938/99 COUNSEL : Mr M S Willmott (D1, XC) Mr T Lynch (D2, XD2) Teece Hodgson & Ward (P, XD1) SOLICITORS : Mallesons Stephen Jaques (D1, XC) Gells (D2, XD2) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION PROBATE LIST AUSTIN J TUESDAY 30 SEPTEMBER 2003 114938/99 ROLLO VENTRY WAKEFIELD GRAY V GUARDIAN TRUST AUSTRALIA LTD & ANOR JUDGMENT 1 HIS HONOUR: Lillian Gray died on 21 January 1999, leaving her estate to her two sons Ventry and Robert in equal shares and appointing the first defendant ("Guardian") as executor and trustee. Ventry took proceedings, as plaintiff, against Guardian on 5 October 1999, initially seeking an order for revocation of probate, but eventually seeking only declaratory relief to establish that the assets of Mrs Gray's estate included two dress rings and two sums of money, and consequential orders. Robert became the second defendant in the proceeding on 27 March 2002. 2 Guardian filed a cross-claim on 5 June 2001 seeking, as against Ventry as first cross-defendant and Robert as second cross-defendant, declarations to establish that Robert was obliged to account to the estate for five sums of money, by far the largest of which was NZD156,732.72. 3 After a final hearing in August 2002, I published my reasons for judgment, determining the proceeding and the cross-claim, on 18 December 2002: Gray v Guardian Trust Australia [2002] NSWSC 1218. I made final orders, except with respect to costs, on 21 February 2003. I decided that Ventry had been successful in the proceeding in respect of one sum of money (NZD5,000) but not the other ($1,000), and by that time it was unnecessary to make any decision about the dress rings. As to the cross-claim, I held that Guardian had succeeded with respect to NZD156,732.72 plus interest at Schedule J rates, and sums of $10,000 and $2,000 plus interest at Schedule J rates as from Mrs Gray's death. The cross-claim failed with respect to two other sums (NZD10,000 and $7,025). 4 It was then necessary to conduct a hearing with respect to costs, a matter that proved to be quite complicated. After a hearing on 30 July 2003, I published my reasons with respect to costs on 1 August 2003: Gray v Guardian Trust Australia [2003] NSWSC 704. I held that the following orders should be made: (1) Plaintiff to pay First Defendant's costs of the proceeding up to 5 June 2001; (2) First Defendant to pay Plaintiff's costs of the proceeding from 6 June 2001 to 27 March 2002; (3) First and Second Defendants to pay Plaintiff's costs of the proceeding from 28 March 2002; (4) Second Cross-Defendant to pay First Cross-Defendant's costs of the cross-claim, with no order as to the costs of the Cross-Claimant; (5) Plaintiff to pay 80% of First Defendant's costs of the hearing with respect to costs, and First and Second Defendants to pay 10% of Plaintiff's costs of that hearing, with no other order for costs in respect of that hearing; (6) Declare that the First Defendant/Cross-Claimant is entitled to be indemnified out of the assets of the estate of the late Lillian Gray in respect of its costs of the proceeding and the cross-claim, including costs ordered to be paid by it to another party. 5 My reasons for judgment on costs were detailed and necessarily lengthy. They were intended to be finely calibrated, to reflect with precision the overall outcome (recorded at paragraph 90) that each of the parties had mixed success. 6 Although I set out the proposed terms of my orders fully in my reasons for judgment, the orders were not in fact made when I published my reasons on 1 August 2003. An application was made on behalf of Ventry to seek a further order with respect to interest on costs. With leave, the legal representatives of Ventry, Robert and Guardian made written submissions on that question. The present reasons for judgment are in response to those submissions. 7 Ventry's application is that the following additional paragraph be added to the costs orders set out above: (7) Interest at the rates set out in Schedule J to the Supreme Court Rules is to run from 18 December 2002 on each of the costs under the preceding sub-paragraphs (1), (2), (3) and (4) and from 1 August 2003 on the costs under the preceding sub-paragraph (5). 8 The application raises two questions: first, what is the normal rule (that is, the rule applied in the absence of special circumstances) as to whether interest is payable on an order for costs made in the Equity Division; and secondly, may, and if so should, the Court depart from the normal rule for discretionary reasons? I shall consider each of these questions, after first identifying the statutory provisions and Rules of Court that are or may be relevant. Statutory provisions and Rules of Court 9 Section 94(1) of the Supreme Court Act 1970 (NSW) provides that in any proceedings for the recovery of money, the Court may make an order that there be included in the sum for which judgment is given, interest, at such rates as it thinks fit, on the whole or any part of the money, and for the whole or any part of the period between the date when the cause of action arose and the date when the judgment takes effect. My orders made on 21 February 2003 made provision for interest, as I have said. 10 Section 95 of the Supreme Court Act is as follows: "95 (1) Where judgment is given or an order is made for the payment of money, interest shall, unless the Court otherwise orders, be payable at the prescribed rate from the date when the judgment or order takes effect on so much of the money as is from time to time unpaid. (2) Notwithstanding subsection (1), where, in proceedings on a common law claim, the Court gives judgment for damages, and the damages are paid within 21 days after the date when the judgment takes effect, interest on the judgment debt is not to be payable under subsection (1) unless the Court otherwise orders. (3) Notwithstanding subsection (1), where, in proceedings for damages on a common law claim, the Court makes an order for the payment of costs and the costs are paid within 21 days after ascertainment of the amount of the costs by assessment under Division 6 of Part 11 of the Legal Profession Act 1987 or otherwise, interest on the costs shall not be payable under subsection (1) unless the Court otherwise orders. (4) If an order is made for the payment of costs, the Court may order that interest is to be paid on the amount so ordered, at the prescribed rate referred to in subsection (1), from the date or dates when the amount in respect of costs was duly paid." 11 Part 40 rule 3 of the Supreme Court Rules is as follows: "3 (1) A judgment shall take effect - (a) where it is given in Court - as of the date on which it is given; (b) otherwise - as of the date of entry. (2) [repealed] (3) Subject to subrule (1) an order shall take effect as of the date on which it is made. (4) Notwithstanding subrules (1) and (3), where an order of the Court directs the payment of costs and the costs are, pursuant to any Act or the rules, to be taxed, the order shall take effect as of the date of the certificate of taxation. (5) Notwithstanding subrules (1), (3) and (4), the Court may order that a judgment or order take effect as of a date earlier or later than the date fixed by those subrules." 12 Subrule 3(4) refers to taxation of costs. Nowadays in New South Wales costs are assessed by a costs assessor appointed under Part 11 of the Legal Profession Act, rather than being taxed by an officer of the Court. Clause 45 of Schedule 8 to the Legal Profession Act states: "On and from the commencement of Part 11, as substituted by Schedule 3 to the Legal Profession Reform Act 1993, a reference in any Act or other instrument (however expressed) to the taxation of costs is taken to be a reference to the assessment of costs under Division 6 of Part 11." 13 On its face, clause 45 applies to Part 40 rule 3(4), which is therefore to be read as referring to the assessment of costs under Part 11. The normal rule 14 The effect of subsection 95(3) is that in proceedings for damages on a common law claim, part of the normal rule is that if the Court makes an order for the payment of costs and the costs are paid within 21 days after ascertainment of the amount of the costs by assessment, interest is not payable. The expression "common law claim" is defined in s 19(1) to mean a claim for damages or other money, or for possession of land, or for detention of goods, in proceedings in the Common Law Division. 15 The present proceeding and cross-claim cannot be common law claims because they are in the Equity Division. Nevertheless counsel for Robert submitted that in substance, the claims against his client were in the nature of common law claims, and in the exercise of its discretion the Court should apply ss 95(2) and (3) by analogy. I disagree with this submission. The claims in respect of moneys paid by Mrs Gray to Robert were equitable claims arising out of the administration of her estate, seeking to invoke the equitable rule in Cherry v Boultbee (1839) 4 My & Cr 442. If the claim for NZD156,732.72 had been pursued as a claim against Robert for debt, by civil action in New Zealand, it would in all probability have been held to have been statute barred. I found, in my reasons for judgment delivered on 18 December 2002, that the claim in respect of that sum under the rule in Cherry v Boultbee was not statute barred precisely because it was an equitable claim rather than a claim at common law. 16 In the case of common law claims, s 95(3) supplies only part of the normal rule. It does not deal with the date from which interest begins to run in the event that costs are not paid within 21 days from the date of their ascertainment. One must look elsewhere for the identification of that date, just as one must in the case of equitable claims, to which s 95(3) is inapplicable. There are two alternatives as potential sources of a normal rule identifying the date when interest commences to run, namely s 95(1) read together with Part 40 rule 3(3), and Part 40 rule 3(4). I shall deal with each of them in turn. 17 Section 95(1) provides that interest is payable from "the date when the judgment or order takes effect". Part 40 rule 3(3) says that an order takes effect on the date on which it is made. Read in combination, those two provisions appear to say that unless the Court makes some other order, an order for costs bears interest from the date upon which it is made, although at that stage the amount of costs will not have been assessed. 18 In Minister Administering the Environmental Planning and Assessment Act 1979 v Carson (1994) 35 NSWLR 342, Mr Carson obtained an order for costs in the Land and Environment Court but the process of taxation of his Bill costs took several years. He contended that he should receive interest on costs from the date of the order for costs (seeking, therefore, to apply what is called the incipitur rule). The Minister submitted that interest should be borne only from the time costs were assessed by taxation (seeking to apply what is called the allocatur rule). Section 69A of the Land and Environment Court Act 1979 (NSW) was in terms indistinguishable from s 95(1) of the Supreme Court Act, but there were no provisions equivalent to subsections 95(2)-(4). Part 13 rule 3 of the Land and Environment Court Rules 1980 was substantially the same as Part 40 rule 3(3) of the Supreme Court Rules but there was no provision equivalent to Part 40 rule 3(4). 19 The Court of Appeal of New South Wales interpreted these provisions as applying the incipitur rule rather than the allocatur rule, while noting that the Court had a discretion to "otherwise order". They held that the words "the date the order takes effect" in s 69A(1) referred, as a matter of construction, to the date upon which the order for costs took effect, which according to Part 13 rule 3 was the date when the order was made. 20 Kirby P and Young A-JA (with whom Priestley JA agreed) referred to the history in England of the law and practice of awarding interest on costs. Young A-JA's judgment contains an explanation of early common law procedure and the position concerning interest on costs, reflected in Maule J's judgment in Fisher v Dudding (1841) 3 Man & G 238 [133 ER 1131]. Although it might appear that the early cases depended upon technical issues concerning the form of judgment, Young A-JA (at 360-1) reached the following conclusion about them: "When one does strip away the old technical terms, one can see that a definite policy decision was arrived at in the three courts of common law that despite technicalities, the 1838 Act [the Judgments Act] should be construed that interest ran from the moment when it was officially recorded that the plaintiff was entitled to judgment including costs to be taxed even though for other purposes the judgment was not complete until the amount of costs had been written in." 21 Prior to the enactment of the Judicature Acts 1873 and 1875 (UK), the position in Chancery was different from the position in the common law courts. The Court of Chancery issued a form of writ of fieri facias according to which interest on costs was to run from the date of the taxing master's certificate: see Boswell v Coaks (1887) 57 LJ Ch 101, 105 for Lindley LJ, and Young A-JA's observations in Carson, at 361. 22 After the enactment of the Judicature Acts, the Chancery practice was applied for a while (Schroder v Clough (1877) 35 LT 850), but in 1883 new rules of court were enacted in England, which prescribed a new form of writ of fieri facias, with a footnote that was interpreted by the Court of Appeal (in Boswell v Coaks) to adopt the incipitur rule. 23 Subsequently there was another change to the English rules of Court, in which the footnote regarded as significant in Boswell v Coaks was removed. This led the English Court of Appeal in K v K (Divorce Costs: Interest) [1977] 2 WLR 55 to revert to the allocatur rule. Then in Hunt v RM Douglas (Roofing) Ltd [1990] 1 AC 398 (later affirmed in Thomas v Bunn [1991] 1 AC 362) the House of Lords decided that K v K was wrong and that the correct rule was the incipitur rule. 24 In New South Wales before the enactment of s 95(3), Master Allen applied the allocatur rule in a Supreme Court action for damages for negligence in the Common Law Division: TA Field Pty Ltd v Frigmobile of Australia Pty Ltd [1978] 2 NSWLR 488. In the Carson case Master Allen's decision was not followed. Kirby P pointed out (at 351) that Master Allen's decision was strongly influenced by K v K, but had been decided before K v K was overruled in Hunt v RM Douglas (Roofing) (see also at 363 per Young A-JA). He also observed that in view of s 95(3) of the Supreme Court Act, "the result in TA Field may well be quite correct" (at 352). But the position was different under the Land and Environment Court Act, where the absence of a provision such as s 95(3) released the Land and Environment Court from the presumption of the allocatur principle, leaving for that Court the "ordinary practice of the common law, namely incipitur" (at 352). 25 Kirby P observed that the incipitur rule is rational and reasonable, adopting (at 353) the following observations by Lord Ackner in Hunt ([1990] 1 AC at 415-416: "… it is the unsuccessful party to the litigation who, ex hypothesi, has caused the costs unnecessarily to be incurred … Since interest is not awarded on costs incurred and paid by the successful party before judgment [but see, in New South Wales, s 95(4)], why should he suffer the added loss of interest on costs incurred and paid after judgment but before the taxing master gives his certificate? … If interest is not payable on costs between judgment and completion of taxation, then there is an incentive to delay payment, delay disbursements and taxation." 26 In my opinion the Carson case implies that (but for the considerations arising out of Part 40 rule 3(4), which was not referred to in the Court of Appeal) the rule applicable to an order for costs in the Equity Division would be the incipitur rule. Kirby P contemplated that the result in the TA Field case may be correct because of s 95(3), but those observations can relate only to a common law claim. In the Equity Division, the only directly relevant statutory provision is s 95(1), and I therefore see no relevant distinction between proceedings in the Equity Division and proceedings before the Land and Environment Court. 27 That conclusion is, however, subject to Part 40 rule 3(4). That rule expressly provides that where an order of the Court, apparently in any Division, directs the payment of costs and those costs are to be taxed, the order takes effect as of the date of the certificate of taxation (that is, by application of the allocatur rule), unless the Court stipulates another date under subrule 3(5). Now the subrule is to be read as if a reference to taxation is a reference to the assessment of costs under the Legal Profession Act. It therefore appears that, as from the introduction of Part 40 rule 3(4) by Amendment 141 (9 December 1983), the allocatur rule has been the normal rule in respect of interest on costs in Equity Division proceedings, so that interest begins to run only when the costs assessment takes effect. The Court's discretion 28 Section 76 of the Supreme Court Act provides, inter alia, that costs are at the discretion of the Court, and that the Court has full power to determine by whom and to what extent costs are to be paid. In McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (1993) 32 NSWLR 190 the plaintiff, having obtained an order for costs in its favour, applied for an order that interest be paid to it by the defendant on the amount of taxed costs from the dates on which the plaintiff made payments to its solicitors. At the time of the decision, subsection 95(3) had been enacted (it was inserted in 1993) but s 95(4) did not exist. Rogers CJ Comm D held that s 76 empowered the Court to grant the plaintiff's application, even though that section does not in terms refer to interest on costs. He said (at 192) that "s 76 self-evidently intends to give the Court the widest possible power and discretion in the allocation of costs." He decided it was appropriate to make such an order because the evidence showed that in substantial commercial proceedings in which it eventually succeeded, the plaintiff had paid large sums of money to its solicitors over a five year period. 29 Subsection 95(4) was inserted by the Courts Legislation Further Amendment Act 1995. In Hughes Brothers v Trustees of the Roman Catholic Church [1999] NSWSC 1051 Foster AJ followed the McWilliams Wines case, holding that he had the power under ss 95(4) and 76 to make an order for interest on costs paid by the successful party to its solicitor, including amounts so paid before the commencement of s 95(4). He said (at [60]): "The principles upon which such an order may be made are, in my view, founded upon common sense and justice. In circumstances where a successful party has outlaid, from an early stage and often continuously, amounts of money, by way of payments to his legal representatives to finance the conduct of litigation, he will, manifestly, be significantly out of pocket if he receives, by way of reimbursement of his payments, only an amount of taxed or assessed costs at a far later stage, after he has successfully prosecuted the litigation to finality. Such a financial detriment can only be compensated by the making of an appropriate award of interest to be paid in respect of those payments, providing, of course, that the relevant payments can be properly allocated to the successful outcome of the litigation in whole or in part." 30 In Woods v Woods [2001] NSWSC 1108 (4 December 2001) the successful defendant/cross-claimant sought an order for interest on costs. She had made a costs agreement with her solicitor which provided that the solicitor would not recover costs from her unless there was a costs order in her favour, but that the costs payable in that event would bear interest from the date of the substantive judgment in her favour. The plaintiffs contended that the Court had no power under s 95(4) or otherwise to make an order for interest on costs in these circumstances. 31 After examining the legislative history of s 95(4), at Hamilton J followed the McWilliams Wines case, holding that s 76 gave him the power to award interest on costs in circumstances not falling expressly within s 95(4). He chose not to follow White Industries (Qld) Pty Ltd v Flower & Hart (No.2) (2000) 103 FCR 559 (Goldberg J), to the extent that it may have been in conflict with McWilliams Wines. He made the order sought by the defendant/cross-claimant, taking into account that she was impoverished and had obtained legal assistance on a speculative basis after making an approach through a legal profession pro bono scheme. His Honour found that the arrangement she had made for payment of interest to her solicitors was a fair arrangement, and held that she should not be left to bear the interest incurred on her costs from her meagre resources. 32 In the present case there is no evidence before the Court as to whether Ventry has made payments to his solicitors on account of costs, although his solicitors noted in their submissions that "the plaintiff paid costs to his legal representatives during the course of the litigation, which commenced in October 1999." However here the application is not an application that interest be calculated by reference to the amounts in fact paid by the parties who obtained costs orders to their solicitors, but is instead an application that the Court should fix a time from which interest should run. Ventry submits that the appropriate time (except in respect of costs of the costs argument) is from the date on which I delivered my substantive judgment, namely 18 December 2002. 33 In does seem to me to be desirable to clarify the question of interest on costs by making an express order. This is not an appropriate case for an order under s 95(4), that interest be calculated by reference to the amounts actually paid by the successful parties to their solicitors. It is not a case where the circumstances justify the application of s 95(4). There is no unqualifiedly successful party. Neither of the successful parties is an impecunious litigant whose special circumstances would justify an order under s 95(4) (as in Woods v Woods and the Hughes Bros case), and (unlike the McWilliams Wines case) there is no evidence of the payment of substantial sums of money on account of costs over an extended period of time. In circumstances where my decisions on costs were, as I have said, finely calibrated without the question of interest having been raised, there is no demonstrated justification for the complexity that an order under s 95(4) would create. 34 As I have said, the normal rule under Part 40 rule 3(4) would produce the outcome that interest on costs would be payable only from the time that their assessment takes effect. As has been pointed out in many of the older cases, reiterated by Lord Ackner in Hunt v RM Douglas (Roofing), the application of the allocatur rule may create an incentive for the unsuccessful party to delay the assessment process. I think there is a sufficient risk that this may occur in the present case, given the intensity with which the litigation has been conducted, that I should avoid that outcome. 35 Section 76 and Part 40 rule 3(5) give me a wide discretion with respect to interest on costs, outside the circumstances expressly covered by s 95(4). As to the availability of s 76, I respectfully adopt Hamilton J's reasoning in Woods v Woods, noting that the same approach was taken by Foster AJ in the Hughes Bros case. It seems to me to be fair, in the exercise of that broad discretion, to allow the successful parties to have interest on costs from the time when the issues in dispute have been resolved by orders of the Court. 36 However, the issues in dispute include questions of costs, to such a degree that it could not be said that the issues in dispute were resolved before my judgment of 1 August 2003. Then shortly after publication of that judgment and before I made costs orders, Ventry made his application for interest on costs, and so the final resolution of the costs question was further delayed. In my view the proper course, which as it happens is an application of the incipitur rule, is to order that interest be paid on costs from the date of the orders for costs. I shall now make orders for costs, and therefore interest will be borne as from today. 37 I shall make no order for costs with respect to the issue of interest on costs, with the intention that each party bear their own costs of that issue. Ventry did not obtain the order that he sought, that interest on costs should run from 18 December 2002, but I decided to depart from the normal rule, namely the allocatur rule, which was advocated by counsel for Robert. Counsel for Guardian made, once again, useful submissions to assist the Court, and although the costs of preparing those submissions will not be payable by another party, they will be recoverable out of the assets of the estate. Any interest payable by Guardian under my orders will also be recoverable from the assets of the estate. ********** Last Modified: 10/03/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.