New South Wales Court of Appeal CITATION: SPEDDING v NOBLES; SPEDDING v McNALLY [NO. 2] [2007] NSWCA 87 HEARING DATE(S): 8 February 2007 JUDGMENT DATE: 16 April 2007 JUDGMENT OF: Beazley JA at 1; McColl JA at 2; Basten JA at 3 DECISION: (1) In matter No. 40503 of 2006, Spedding v McNally, replace the orders made on 26 February 2007 with the following; (a) grant leave to appeal; (b) dismiss the appeal; (c) order the Appellant to pay the Respondent's costs of the proceedings in this Court, to be assessed on an indemnity basis from 24 August 2006; (2) In relation to matter No. 40501 of 2006, Spedding v Nobles, replace the orders made on 26 February 2007 with the following; (a) dismiss the appeal; (b) order the Appellant to pay the Respondent's costs of the proceedings in this Court, to be assessed on an indemnity basis from 26 August 2006; (3) Each party is to bear its own costs of the present applications. CATCHWORDS: COSTS – indemnity costs – offers of compromise – whether indemnity costs should be awarded - COSTS – interests on costs – whether the Supreme Court had power to award interests on costs under the Civil Procedure Act 2005 (NSW), ss 100 and 101 Civil Procedure Act 2005 (NSW), ss 98, 100, 101 LEGISLATION CITED: Federal Court of Australia Act 1976 (Cth), ss 43, 51A Legal Profession Act 2004 (NSW), ss 309, 321, 363A, 365, Part 3.2, Div 5 Supreme Court Act 1970 (NSW), ss 76, 95, 101 Commonwealth v Chessell (1991) 30 FCR 154 (FCAFC) Commonwealth v SCI Operations Pty Ltd (1998) 192 CLR 285 Flower & Hart (a firm) v White Industries (Qld) Pty Ltd (2001) 109 FCR 280 CASES CITED: Hungerfords v Walker (1990) 171 CLR 125 Nykcredit Mortgage Bank plc v Edward Erdman Group Ltd (No. 2) [1997] 1 WLR 1627 Spedding v Nobles; Spedding v McNally [2007] NSWCA 29 White Industries (Qld) Pty Ltd v Flower & Hart (2000) 103 FCR 559 Woods v Woods [2001] NSWSC 1108 Douglas Spedding - Appellant (40501/06 and 40503/06) PARTIES: Nicole Yvonne Nobles - Respondent (40501/06) Belinda McNally - Respondent (40503/06) FILE NUMBER(S): CA 40501/06; 40503/06 A.M. Colefax SC/P. Newton - Appellant COUNSEL: C.T. Barry QC/E. Chrysostomou - Nobles P.A. Beale/S.C. Sloane - McNally Colin Biggers & Paisley - Appellant SOLICITORS: Pitcher Walton & Co - Nobles Stuart J McDonald & Associates - McNally LOWER COURT JURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC 10455/01; DC 10456/01 LOWER COURT JUDICIAL OFFICER: Neilson DCJ LOWER COURT DATE OF DECISION: 19 July 2006 LOWER COURT MEDIUM NEUTRAL CITATION: McNally v Spedding; Nobles v Spedding [2006] NSWDC 113 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40501/06 CA 40503/06 DC 10456/01 DC 10455/01 BEAZLEY JA McCOLL JA BASTEN JA 16 April 2007 SPEDDING v NOBLES; SPEDDING v McNALLY [NO. 2] Judgment 1 BEAZLEY JA: I agree with Basten JA. 2 McCOLL JA: I agree with Basten JA. 3 BASTEN JA: On 26 February 2007 the Court handed down judgment on the appeal in this matter: see Spedding v Nobles; Spedding v McNally [2007] NSWCA 29. 4 When judgment was delivered, counsel for Ms McNally made an application that costs be awarded on an indemnity basis, there having been an offer of compromise of the proceedings in this Court. He also asked for interest to be payable on those costs. In the latter respect, counsel indicated that it would be necessary to "put on evidence" in support of the latter application. 5 The presiding judge directed that, if it were established that there was an issue as to costs, each of the Respondents was to have 14 days to file written submissions and, if there were to be an application in respect of interest on costs, application was to be made by notice of motion, supported by written submissions and any relevant evidence, those steps also to be taken within 14 days. The Appellant was given seven days to respond. 6 The material accompanying the written submissions included offers of compromise filed on behalf of each of Ms Nobles and Ms McNally, dated 25 August 2006 and 24 August 2006 respectively. Proceedings in this Court were commenced in respect of each on 18 August 2006. 7 The Appellant does not oppose an indemnity costs order in favour of the Ms Nobles from 26 August 2006. That order should be made. 8 In relation to Ms McNally, the Appellant "notes" that no application for indemnity costs had been made but that, if it had, it would have been opposed "to the extent that any such order would be seen as approving Ms McNally's separate representation". The claim that no application was made for indemnity costs on behalf of Ms McNally is trivial. The application was made in so many words by counsel who appeared for Ms McNally when judgment was handed down. It is also contained within the written submissions filed on her behalf. The question of separate representation is curious. There were two separate proceedings before the Court brought by Mr Spedding: one was an appeal in relation to the judgment in favour of Ms Nobles; separate proceedings were commenced in relation to the judgment in favour of Ms McNally, by way of application for leave to appeal, because the amount involved was less than $100,000: see Supreme Court Act 1970 (NSW), s 101(2)(r). The extent, if any, to which Ms McNally may claim costs, and the reasonableness thereof, will be a matter for the costs assessor if a dispute arises. An order of this Court does not approve or disapprove a claim for any item of costs. There is no reason to distinguish between Ms Nobles and Ms McNally in this respect and each should have her costs on an indemnity basis from the date of their respective offers of compromise. 9 A separate issue arises with respect to the application for interest on costs. First, the Respondents have given no indication why they deemed it inappropriate to comply with the direction of the presiding judge that, if interest were sought, a notice of motion should be filed. However, written submissions filed on behalf of Ms Nobles seek an order that the Appellant pay interest on the costs of the proceedings, from the date of judgment in the District Court, namely 19 July 2006: submissions, par 9. It may be assumed that a notice of motion would have sought an order in similar terms. Counsel for Ms McNally filed brief submissions adopting those filed on behalf of Ms Nobles "as to indemnity costs and interest on costs". It should be inferred that a similar application is made on her behalf. 10 In Woods v Woods [2001] NSWSC 1108, Hamilton J held that he had power to award interest on an amount of costs. In doing so, his Honour noted an argument that, subject to the express provision of s 95(4) of the Supreme Court Act, as then in force, he did not have such a power. In addition to the general power to award costs under s 76 of the Supreme Court Act, there was provision with respect to interest on costs in s 95. Section 95 provided a statutory consequence of an order for payment of moneys, namely that interest should run at the prescribed rate from the date when the judgment or order took effect, on so much of the money as was from time to time unpaid: s 95(1). An exception was made in relation to "proceedings on a common law claim" where damages were awarded and paid within 21 days. Subsections (3) and (4) of s 95 then read: "(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 which the amount in respect of costs was duly paid." 11 It is clear from the terms of this section that an order for payment of money would, pursuant to s 95(1) ordinarily carry interest from the date when the order was made or took effect, which included the amount of any costs ordered to be paid. Subsection (3) made an exception, in relation to proceedings for damages on a common law claim, so that interest was not payable on the costs if they were paid within 21 days of assessment, unless the court otherwise ordered. Read in context, the effect of the court otherwise ordering would provide for interest to be payable from the date of judgment, whether or not the costs were paid within 21 days of assessment. 12 The second relevant provision, namely sub-s 95(4), confers a power to award interest on costs, but limited to interest from the date on which the costs were duly paid, presumably by the party to his or her lawyer. Hamilton J held that this express power should not be understood to limit the general power to award costs conferred by s 76. 13 As will be noted below, the current provisions in the Civil Procedure Act 2005 (NSW) differ in certain respects from the equivalent provisions under the Supreme Court Act, considered by Hamilton J. His Honour declined to follow the reasoning of Goldberg J in White Industries (Qld) Pty Ltd v Flower & Hart (2000) 103 FCR 559, holding that the broad discretion to award costs, relevantly for that case, found in s 43 of the Federal Court of Australia Act 1976 (Cth), did not extend to a power to award interest. This conclusion was upheld by the Full Court in Flower & Hart (a firm) v White Industries (Qld) Pty Ltd (2001) 109 FCR 280 at [39]-[45], applying Nykcredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627, subject to the potential qualifications (not relevant for present purposes) noted by McHugh and Gummow JJ in Commonwealth v SCI Operations Pty Ltd (1998) 192 CLR 285 at [72]-[76]. Absent a statutory power, there is no general law power for a court to award pre-judgment interest for delay in paying the amount of damages: see Hungerfords v Walker (1990) 171 CLR 125 and Commonwealth v Chessell (1991) 30 FCR 154 (FCAFC). However, as noted by Mason CJ and Wilson J in Hungerfords at 145-146, the cost of borrowing money to replace money paid away or withheld in consequence of the defendant's breach of contract or negligence, may be regarded as part of the loss recoverable by way of damages. Arguably, it is that exception which was intended to be reflected in s 95(4). 14 The Civil Procedure Act makes different provision in s 101 in that the statutory scheme for interest on the amount of a judgment, is expressly stated to be "exclusive of any order for costs": sub-s 101(1). Subsections 101(4) and (5) provide: "(4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs. (5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from: (a) the date or dates on which the costs concerned were paid, or (b) such later date as the court may order." 15 There are a number of changes in s 101, which make the caselaw with respect to s 95 of limited operation. First, it is clear that interest does not run on a costs order, unless the court expressly so orders under sub-s (4). Further, the court may order such interest from the date when the costs were paid, again presumably by the client to his or her legal representative, or from such later date. 16 In White Industries, Goldberg J treated a claim for pre-judgment interest on costs as falling under s 51A of the Federal Court Act, which is relevantly to similar effect as s 100 of the Civil Procedure Act, in that it deals with interest up to judgment. Goldberg J, rejected a submission by the unsuccessful party that the application for costs was an application made pursuant to the statutory power to award costs and did not give rise to an entitlement to an application for interest on costs because there was no relevant "cause of action" for the purposes of s 51A(1): at [14]-[17]. However, his Honour's conclusion in this respect was reversed by the Full Court: Flower & Hart v White Industries (Qld) Pty Ltd (2001) 109 FCR 280 at [59], [63] and [76]-[77]. As noted above, in the course of reaching that conclusion, the Full Court accepted that no power to award interest on costs could be derived from s 43 of the Federal Court Act, being the equivalent of the general power to order costs contained in s 98 of the Civil Procedure Act. 17 In accordance with the principles explained by the Full Court in Flower & Hart, there was no "cause of action" entitling the Respondents to costs in the appeal proceedings, prior to the judgment of this Court. Accordingly, even if the appeal in this Court could be said to constitute proceedings for the recovery of money, there is no period, prior to the judgment of this Court in respect of which the Respondents had a "cause of action" in relation to costs. Accordingly no order can be made for interest on costs of the appeal, under s 100 of the Civil Procedure Act. Further, so far as s 101 is concerned, there is no evidence that the costs have been paid and the indication in the submissions is that they have not, and will not be paid until the funds from which they are to be met are received from the Appellant. Accordingly, there does not appear to be any purpose served by an order under s 101(4). 18 The claim for interest noted above is ambiguous as to what might be encompassed by "the costs of the proceedings". If the complaint is that no order for the payment of interest on costs of the trial was made by the District Court judge, that was probably because he was not asked to make such an order, and would require an application to this Court to vary the orders made in the District Court to that end. Again, because the costs have not been paid, it is difficult to see the purpose of such an order and, in any event, there is no proceeding which would permit this Court to make a further order of that kind on the Appellant's appeal. 19 Reference was also made in submissions to the supposed fact that "the fees agreement provides for interest at the Supreme Court default judgment rate". The "fees agreement" was not in evidence and the precise nature of any obligation which arose under it is, accordingly, unknown. However, the further statement in the submissions that the matter was undertaken on a "speculative basis" is entirely inconsistent with any suggestion that the Respondent was required to borrow money for payment of fees in advance, which would be a basic condition for recovery of interest at common law. 20 The Legal Profession Act 2004 (NSW) (and its predecessor) makes provision for "conditional costs agreements": Part 3.2, Div 5. Further, a costs agreement between practitioner and client may make provision for interest on "overdue legal costs": see disclosure requirements in s 309(1)(e) and s 321. However, those provisions relate to costs disclosure and assessment as between practitioner and client. Thus, although a costs assessor may determine that interest is payable on unpaid costs, that power does not extend to the assessment of costs as between party and party: s 363A. Party and party assessment is not governed by a relevant costs agreement: s 365. It is not necessary to consider further the inter-relationship of practitioner and client agreements and party and party assessments under the Legal Profession Act. 21 The final question concerns the costs of the present application. The Respondents should not receive their costs, because the entitlement to indemnity costs was conceded in relation to Ms Nobles and subject to a minor objection, also in relation to Ms McNally. The principal issue addressed by the Respondents was the question of interest, on which they have been unsuccessful. The Appellant submitted that if the application by Ms Nobles with respect to interest failed, each party should bear her or his own costs of the application. That order should be made in relation to both Ms Nobles and Ms McNally. Variation of present orders 22 It follows that the orders should be varied to provide for the award of costs on an indemnity basis from the date of the respective offers of compromise. Because the dates differ, it is convenient to separate the orders with respect to the two separate sets of proceedings. In addition, the Court should, in addition to dismissing the appeal in relation to the proceedings against Ms McNally, formally grant the Appellant leave to appeal, as sought in his summons filed on 5 September 2006. 23 Accordingly, I would propose the following orders: (1) In matter No. 40503 of 2006, Spedding v McNally , replace the orders made on 26 February 2007 with the following: (a) grant leave to appeal; (b) dismiss the appeal; (c) order the Appellant to pay the Respondent's costs of the proceedings in this Court, to be assessed on an indemnity basis from 24 August 2006. (2) In relation to matter No. 40501 of 2006, Spedding v Nobles , replace the orders made on 26 February 2007 with the following: (a) dismiss the appeal; (b) order the Appellant to pay the Respondent's costs of the proceedings in this Court, to be assessed on an indemnity basis from 26 August 2006. (3) Each party is to bear its own costs of the present applications. ********** 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.