Reported Decision : 140 LGERA 420 New South Wales Court of Appeal CITATION: ROADS AND TRAFFIC AUTHORITY v CREMONA [NO 3] [2005] NSWCA 13 HEARING DATE(S): 19 September 2001, 20 September 2001, 30 November 2001 JUDGMENT DATE: 11 February 2005 JUDGMENT OF: Sheller JA DECISION: 1. The appellant pay interest on the costs paid by the respondent as itemised in Schedule "I" to the affidavit of Lilian See of 1 September 2004 from the dates of payment set out in the said schedule at the Supreme Court interest rates set out for each period in the said schedule.; 2. The appellant is to pay the costs of this appication on an indemnity basis. Supreme Court Act 1970 LEGISLATION CITED: Legal Profession Act 1987 Land and Environment Court Act 1979 Timms v Commonwealth Bank of Australia & Ors [No 4] [2004] NSWCA 25 Minister Administering the Environmental Planning and Assessment Act 1979 v Carson (1994) 35 NSWLR 342 T A Field Pty Ltd v Frigmobile of Australia Pty Ltd (1978) 2 NSWLR 488 CASES CITED: Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 Davies v Ku-ring-gai Municipal Council [2003] NSWSC 1010 Hughes Bros v Trustees of the Roman Catholic Church [1999] NSWSC 1051 Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd [2002] NSWSC 280 Roads and Traffic Authority - Appellant PARTIES: Minna Maarit Cremona - Respondent FILE NUMBER(S): CA 40652/00 C T Barry QC/A Porthouse - Appellant COUNSEL: B M J Toomey QC/M Kumar - Respondent I V Knight - State Crown Solicitor - Appellant SOLICITORS: Riley, Gray-Spencer - Respondent LOWER COURT JURISDICTION: Supreme Court - Common Law Division LOWER COURT FILE NUMBER(S): 75/94 LOWER COURT JUDICIAL OFFICER: Dowd J IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40652/00 CL 75/94 SHELLER JA Friday, 11 February 2005 ROADS & TRAFFIC AUTHORITY v CREMONA [NO 3] Judgment 1 SHELLER JA: On 16 November and 7 December 2001 the Court gave judgments in this appeal by the Roads & Traffic Authority (RTA) and in the respondent, Mrs Cremona's, cross-appeal. In the judgment of 7 December 2001 I noted that on 26 July 1995 Mrs Cremona had made an offer of compromise for $3,500,000. The RTA rejected this offer and proceeded to trial before Dowd J, who awarded Mrs Cremona $5,091,601 damages. The RTA appealed. By letter dated 15 August 2001, Mrs Cremona offered to compromise the proceedings for $4,650,000, inclusive of out of pocket expenses and payments made, plus party/party costs as agreed or assessed in full satisfaction of her claim against the RTA. The offer remained open for twenty-eight days from its date and was made in accordance with Pt 52A r22 of the Supreme Court Rules. In my judgment of 7 December 2001, I noted: "The RTA did not deign to respond." The agreed substituted verdict in this Court was $5,788,900. The Court ordered the RTA to pay Mrs Cremona's costs of the appeal and cross-appeal on an indemnity basis. 2 By notice of motion filed on 2 September 2004, Mrs Cremona applied for the following orders: (1) The appellant to pay interest on the amount allowed to the respondent for costs of the proceedings pursuant to the award of costs by order of Priestley, Sheller and Stein JJA on 7 December 2001. (2) The appellant to pay the respondent's costs of this motion, such costs to be paid on an indemnity basis. (3) The appellant to pay the undisputed portion of the respondent's costs and disbursements in the sum of $296,901.31 within seven days. (4) Such further or other orders as this honourable court deems appropriate. 3 The application was heard by me pursuant to s46(2)(b) of the Supreme Court Act 1970 which provides: "A Judge of Appeal may exercise the powers of the Court of Appeal: (b) to make any order or give any direction in any appeal or other proceedings, but not an order or direction involving the determination or decision of the appeal or other proceedings." 4 Since two of the judges who heard the appeal, Priestley and Stein JJA, have since retired, it is, as a matter of convenience, appropriate that I deal with this application pursuant to s46(2)(b). When the matter was mentioned before the Registrar, the parties agreed that I should do so on written submissions and agreed to file written submissions, which they have done. A similar application was heard by Beazley JA sitting alone in Timms v Commonwealth Bank of Australia & Ors [No 4] [2004] NSWCA 25. 5 The application was supported by the affidavit of Lilian See of 1 September 2004. Ms See is the solicitor with carriage of the matter on behalf of Mrs Cremona. It is important to set out the events as they appear from that affidavit. 6 After this Court had given its judgments on the appeal and cross-appeal in 7 December 2001, the RTA filed an application for special leave to appeal to the High Court. This application was heard and dismissed on 13 September 2002. On 15 October 2003, Mrs Cremona's solicitors wrote to the solicitors representing the RTA, the Crown Solicitor, providing their assessment of costs and disbursements incurred by Mrs Cremona in the Court of Appeal proceedings in an amount of $378,464.38. The solicitors said they were instructed to accept the sum of $360,000 in full and final settlement of their client's costs. The letter continued: "If we do not hear from you within 28 days, we are instructed to send our file to a costs consultant for preparation of a bill in assessable form." 7 On 25 November 2003, Ms See spoke with Mr Peter Bowe of the Crown Solicitor's office to seek a response to Mrs Cremona's offer. Mr Bowe said words to the following effect: "I have sent off an advice to my client and sought instructions. I will chase them up and get back to you in a couple of days. I am not recommending near what you have asked for so if I were you I would go ahead and get the Bill of Costs done." 8 On 27 November 2003, Ms See again telephoned Mr Bowe to ascertain if he had obtained instructions. He said words to the following effect: "I have spoken to my client and they needed to obtain instructions from the Treasury. I need another couple of days before I can respond to your offer." Ms See replied with words to the effect: "I will wait until early next week before arranging for the file to be sent to the cost consultant for the bill to be done in assessable form. My client would prefer to try to settle this than to go to assessment." 9 On 1 December 2003, Ms See again telephoned Mr Bowe. He said words to the following effect: "I still do not have instructions and do not think that I will obtain instructions to make any offers close to the offer of settlement made by your client. I think the matter will have to proceed to assessment." Ms See said words to this effect: "My client would much prefer to try to resolve the cost issue. Are you sure you can't get instructions to try to settle it." Mr Bowe replied: "I will need another few more days to get instructions." 10 Ms See deposed that the RTA did not respond to Mrs Cremona's offer. Ms See caused the files to be forwarded to a cost consultant for a bill to be done in assessable form in about late December 2003. A bill of costs in assessable form in the sum of $418,834 was served upon the RTA on 9 June 2004. A further offer in the sum of $380,000 was also made by Mrs Cremona at this time. In that letter her solicitors wrote: "In the interests of resolving this matter without having to proceed to assessment, we are instructed that our client is prepared to accept the sum of $380,000 to settle this matter. In our view, this is a very reasonable compromise on the total value of the bill of costs as drawn. We draw your attention to the fact that it takes no account of our client's potential entitlement to interest on costs which would be significant given the passage of time since the costs were paid. We believe the court is likely to grant our client interest on costs as your client has made no attempt to resolve this matter at an earlier time." 11 On 30 June 2004, Ms See telephoned Mr Bowe to seek a response to the offer contained in the letter of 9 June 2004. Mr Bowe was not available so she left a message for him to telephone her. He did not respond to this phone call. The bill of costs was filed along with an application for assessment on 5 July 2004. No allowance for interest was made in Mrs Cremona's bill of costs. On 23 July 2004 the RTA made an offer to settle Mrs Cremona's costs and disbursements in the sum of $260,000. Mrs Cremona rejected the offer and provided a counter-offer on 27 July 2004 in the sum of $360,000. 12 On 3 August 2004, Mrs Cremona's solicitors were served with the RTA's notice of objections dated 30 July 2004. The total of the amounts the RTA objected to was in the sum of $121,993.29. This meant that costs and disbursements in the sum of $296,901.31 were undisputed. On 12 August 2004 Mrs Cremona's solicitors wrote to the Crown Solicitor revoking the offer of 27 July 2004 in the sum of $360,000 and enclosing a schedule of interest on costs paid calculated up to 13 August 2004, which totalled $102,001,27. Mrs Cremona's solicitors sought a stay of the assessment of costs to enable Mrs Cremona to make an application to the Court of Appeal to seek interest on costs paid. The letter went on to note the undisputed amount of costs and disbursements. This was $35,000 more than the RTA's offer of $260,000. Mrs Cremona's solicitors asked to be provided with a cheque in the sum of $296,901.31. On 13 August 2004, the Crown Solicitor wrote rejecting the offer of $360,000 and offering the sum of $300,000 in full settlement. 13 It is to be observed that an order for interest on costs paid was made by Dowd J in July 2001 in relation to Mrs Cremona's costs in the Supreme Court proceedings. 14 On 5 October 2004, Mr Bowe swore an affidavit. In that affidavit the point is made that Mrs Cremona's costs at first instance were considerable. The RTA ultimately paid a total of $1,476,695.10 by way of costs and disbursements on an indemnity basis and interest thereon. 15 The history of these proceedings gives cause for concern. On 7 August 1998 Mrs Cremona obtained summary judgment against the RTA on liability. Well before that, on 26 July 1995, Mrs Cremona had offered to compromise for $3,500,000. This offer was not accepted with the consequences I have already described in terms of the damages the RTA has been ordered to pay. The RTA did not respond to the letter dated 15 August 2001 offering to compromise the proceedings for $4,650,000 plus costs as agreed or assessed. 16 Mrs Cremona's solicitors made offers to settle the outstanding matter of costs on 15 October 2003 ($360,000), 9 June 2004 ($380,000), 27 July 2004 ($360,000) and on 12 August 2004 ($400,000) when the offer of 27 July 2004 was revoked. The schedule of interest on costs paid calculated up to 13 August 2004 in the sum of $102,001.27 was enclosed. No offer was made by the RTA on costs until 23 July 2004, after the filing of a bill of costs and then for an amount of $260,000 nearly $37,000 less than the undisputed costs and disbursements. On 13 August 2004 the RTA offer was increased to $300,000 in full settlement. 17 I find it hard to believe that realistic consideration was given to the various offers that have been made on behalf of Mrs Cremona. The material before me suggests that at no time over periods since 26 July 1995 when Mrs Cremona made her offer of compromise has the RTA made any genuine attempt to negotiate. In the result, as Mr Bowe's affidavit revealed, the RTA has spent on the litigation well over $1,000,000 which might have been saved. 18 Section 95 of the Supreme Court Act 1970 provides as follows: "(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 twenty-one 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." 19 Mrs Cremona relies on s95(4). 20 The schedule of interest on costs paid in Court of Appeal proceedings, annexure "I" to Ms See's affidavit sets out the dates upon which various amounts which, including GST, total $400,171.13 were paid between 28 September 2000 and 9 July 2004. The rate payable is that prescribed in Schedule J; SCR Pt 40 r7(2). The Supreme Court interest rates for various periods since 1 September 1992 to date are set out on the last page of annexure "I". The respondent has not yet filed a costs certificate in the court pursuant to s208J(3) of the Legal Profession Act 1987 and so the respondent is not prevented for making the claim for interest ; compare Timms v Commonwealth Bank of Australia & Ors [No 4] per Beazley JA at [11]. 21 In Minister Administering the Environmental Planning and Assessment Act 1979 v Carson (1994) 35 NSWLR 342 this Court was concerned with an appeal from a decision by Bignold J in the Land and Environment Court in which his Honour held that that court had the power to order interest on costs under s69A of the Land and Environment Court Act 1979. One question for consideration was whether interest was payable on such costs, once ascertained, from the date upon which the order for costs was made (often referred to as the incipitur rule) or from the date of ascertainment of the amount of the costs by assessment pursuant to Pt 11 Div 6 of the Legal Profession Act 1987 (the allocatur rule). The Court held that the order for costs took effect when the order was made. In the case of proceedings for damages on a common law claim a factor telling against that conclusion was s95(3) of the Supreme Court Act 1970. The Court did not follow the decision of Master Allen in T A Field Pty Ltd v Frigmobile of Australia Pty Ltd (1978) 2 NSWLR 488, particularly at 491. Subsection (4) of s95 was added in 1995 and amended in 1996 after the decision in Carson. 22 In Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 Barr J rejected a submission that s95(4) had no application to a claim for interest and costs in the common law division because of the terms of s95(3). In particular his Honour referred to the second reading speech where the Minister responsible said that the proposal to amend the Supreme Court Act and the District Court Act was to confer on those courts a discretionary power to order that a party against whom a party/party costs order is made also pays interest on such costs to the party in whose favour the order was made. It was said that the power would be available on the basis that: (1) It is exercised only when the special circumstances of the case warrant the making of such an order. (2) Interest should accrue from the time when the party in whose favour the order is made had made payment or payments to his solicitor in respect of work done or disbursements paid. (3) The entitlement to interest should not be dependent upon taxation or assessment under the Legal Profession Act . (4) The rate of interest should be equal to that prescribed from time to time pursuant to s95(1) of the Supreme Court Act . It was observed that the Minister drew no distinction between business in the common law division and in any other division of the court. 23 Barr J said that no doubt the court in deciding whether to award interest on costs ought to look at all the circumstances of the case, including the amount of costs paid, the length of time the claimant has been out of pocket before recovery, whether during the time between commitment and assessment the respondent has been relieved with a need to borrow at interest or has obtained the advantage of leaving moneys invested at interest and how the parties have conducted themselves during the litigation. 24 In Davies v Ku-ring-gai Municipal Council [2003] NSWSC 1010 Austin J summarised the law in respect of the operation of s95(4) by saying that, in general, judicial discretions in relation to the award of interest should be exercised to ensure that the successful party is properly compensated. Austin J noted at [5]: "the court examines all the circumstances of the case in deciding whether to make an order for interest on costs under s95(4) or s76, including such matters as whether the successful party has been out of pocket for a lengthy time, whether the unsuccessful party has benefited from the use of money during that time and the conduct of the parties." Austin J said at [6] that "in some cases an order for the payment of interest on costs has been found to be justified principally because the claimant has paid substantial legal costs from time to time over a lengthy period." 25 It has been pointed out that the legislative purpose is not to penalise one litigant but to recompense a litigant. See for example Grogan at [12]: "… the discretion is not to be exercised as though there were to be an accounting by the respondent for moneys earned. Whether moneys are earned on the money of which the respondent has had the use is irrelevant because the purpose is to compensate … The denial of an order for interest on the grounds of the misconduct of the applicant must therefore be seen as a secondary consideration." 26 Mrs Cremona submitted that she funded her lengthy litigation in the Court of Appeal. Section 95(4) confers discretion to award interest to compensate the claimant for costs paid during the course of the proceedings; Hughes Bros v Trustees of the Roman Catholic Church [1999] NSWSC 1051. The judicial discretion in s95(4) to award interest on amounts actually paid is to recompense a litigant for being out of pocket whilst the other side has had the use of the money. 27 Mrs Cremona relied upon the following circumstances in favour of an award of interest on costs under s95(4): (a) The costs paid by the claimant were substantial (approximately $400,000). (b) The costs were paid over a long period from September 2000 to July 2004. (c) The opponent conducted a commercial enterprise and the court might 'readily infer that it benefited significantly from not having to pay the applicant's costs at the time when they were in fact paid to the applicant's solicitors and counsel and to others'; see Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd [2002] NSWSC 280. (d) The lengthy history of the litigation. (e) The claimant obtained indemnity costs in the Supreme Court and Court of Appeal proceedings. (f) The claimant's reasonable attempts to settle costs and the continued reluctance of the opponent to negotiate settlement. It was submitted that this conduct was reflective of the opponent's conduct throughout the proceedings. Such conduct warranted an indemnity costs order and now warrants an award of interest. It was submitted that in considering any perceived delay by the claimant's solicitors in submitting a bill of costs the court should take into account the great length and complexity of the case, and the fact that prudence dictated that the claimant's solicitors not begin preparation of the bill until the litigation was ended by the High Court's rejection of the special leave application in September 2002. 28 The RTA relied on several matters in opposing the order sought. It was pointed out that Mrs Cremona did not claim interest on costs in her statement of claim and, it was said, had not given due notice of her claim for interest. 29 Mrs Cremona did not claim interest on costs in her written or oral submissions or when the Court of Appeal delivered judgment. Some reliance was placed on s95(3) but it was acknowledged that s95(4) conferred a general discretion to make an award of interest on costs before judgment. 30 The RTA submitted that Mrs Cremona should have moved promptly to have the indemnity costs order quantified rather than sitting back for a long period before providing the RTA with full details of how that claim for indemnity costs was quantified and to be justified. It was said that the RTA was entitled to see a detailed and itemised assessment of costs. Further, it was said that Mrs Cremona should have substantially prepared the assessment before the special leave application was heard. After that was dismissed in September 2002 it was more than twelve months before Mrs Cremona's solicitors sent the RTA an estimate of its costs. It was said that both periods were too long and involved failure by Mrs Cremona's solicitors to act with reasonable dispatch to mitigate her loss. 31 Finally, it was argued that the Court should not pay regard to the correspondence between the parties marked "without prejudice save as to costs". The determination by the costs assessor of the costs issue was not yet complete. It was said to be undesirable that the parties should be discouraged from endeavouring to reach agreement on costs or to limit the area of dispute before the cost assessor by having the correspondence or telephone conversations to that end subsequently relied upon in argument before the Court. 32 Mrs Cremona responded to this by pointing out that she was unable to negotiate or apply for costs of the Court of Appeal proceedings until the High Court finally determined the matter. It would have been a waste of time and resources to estimate costs prior to the special leave application because if leave had been granted and a new trial ordered (the only possible result if the appeal had been succeeded) what costs order might ultimately have been made could not have been predicted. Further, with respect to the delay between the special leave application being dismissed by the High Court and the provision of an estimate for costs to the RTA, I am not persuaded that there was any failure to mitigate her loss. The delay must be seen in the context of the RTA's conduct of this case and the fact that the RTA had the use of the relevant monies during this period and Mrs Cremona did not. 33 The claimant paid her costs during the proceedings and was entitled to the interest for the period when she was out of pocket. The RTA had the benefit of the money while Mrs Cremona had paid the costs of her proceedings and suffered detriment. The award of interest on costs was to compensate a litigant for being out of pocket whilst the other side had the use of the money. 34 In my opinion, this is clearly a case for the making of the orders sought for interest on costs paid as set out in the schedule. The interest should be at the prescribed rate. The critical issue seems to me to be that for a long period of time Mrs Cremona has been out of pocket for costs she had paid in order to pursue what was successful litigation both at trial and on the appeal. I am not persuaded that at any stage the RTA made any realistic attempt to compromise either the quantum of damages or the quantum of costs. The impression is that the RTA went out of its way to defer making payments of damages or costs due to Mrs Cremona until compelled by court order. Again, I am satisfied that the RTA's resistance to this application was without merit and the costs of it should be paid by the RTA to Mrs Cremona on an indemnity basis. Orders 35 I order: 1. The appellant pay interest on the costs paid by the respondent as itemised in Schedule "I" to the affidavit of Lilian See of 1 September 2004 from the dates of payment set out in the said schedule at the Supreme Court interest rates set out for each period in the said schedule. 2. The appellant is to pay the costs of this application on an indemnity basis. ********** 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.