New South Wales Court of Appeal CITATION: ROBB EVANS OF ROBB EVANS & ASSOCIATES v EUROPEAN BANK LTD (NO 2) [2009] NSWCA 170 HEARING DATE(S): On the papers JUDGMENT DATE: 29 June 2009 JUDGMENT OF: Basten JA at 1; Campbell JA at 49 (1) The orders made by the Court on 2 April 2009 be varied by the addition of the following order: (4) Order that the respondent pay interest on that proportion of the payments made by the appellant on account of its own costs and disbursements as the total amount of such costs and disbursements allowed on assessment (or as agreed) bears to the total amount paid, such interest to run from the date of each payment until the date of payment by the respondent, and to be calculated at 5% per annum. DECISION: (2) Otherwise dismiss the notice of motion filed by the appellant on 15 April 2009. (3) Order the appellant to pay one-half of the respondent's costs of the motion. CATCHWORDS: COSTS – offers of compromise – indemnity costs – comparison with amount claimed – large disparity – whether real and genuine element of compromise - COSTS – interest on costs – preconditions to award of interest – whether appropriate to assess conduct of the proceedings in order to impose - COSTS – rates of interest – evidence of rate of interest on funds used to pay costs – compensatory objective of award of interest – whether interest to be calculated at rate other than in accordance with UCPR, Sch 5 Civil Procedure Act 2005 (NSW), ss 56, 100, 101 LEGISLATION CITED: Supreme Court Act 1970 (NSW), s 45AA Uniform Civil Procedure Rules 2005 (NSW), rr 20.26, 42.15, Sch 5 The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; 67 NSWLR 706 Hancock v Arnold (No 2) [2009] NSWCA 19 Lahoud v Lahoud [2006] NSWSC 126 Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283 CASES CITED: Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 Minister Administering the Environmental Planning and Assessment Act 1979 v Carson (1994) 35 NSWLR 342 Robb Evans of Robb Evans & Associates v European Bank Ltd [2009] NSWCA 67; 255 ALR 171 Ruby v Marsh [1975] HCA 32; 132 CLR 642 Spedding v Nobles; Spedding v McNally (No 2) [2007] NSWCA 87 Stanilite Pacific Ltd (In liq) v Seaton (No 2) [2005] NSWCA 412 PARTIES: Robb Evans of Robb Evans & Associates (Appellant) European Bank Ltd (Respondent) FILE NUMBER(S): CA 40713/07 COUNSEL: A S Martin SC/G M Wilkinson (Appellant) R J Webb SC/J A Halley SC (Respondent) SOLICITORS: Deacons (Appellant) Baker & McKenzie (Respondent) LOWER COURT JURISDICTION: Supreme Court LOWER COURT FILE NUMBER(S): SC 4999/1999 LOWER COURT JUDICIAL OFFICER: Gzell J LOWER COURT DATE OF DECISION: 20 September 2007 LOWER COURT MEDIUM NEUTRAL CITATION: Evans & Associates v Citibank Ltd & Ors [2007] NSWSC 1004 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40713/07 SC 4999/1999 BASTEN JA CAMPBELL JA 29 June 2009 ROBB EVANS of ROBB EVANS & ASSOCIATES v EUROPEAN BANK LIMITED (NO 2) Judgment 1 BASTEN JA: The appellant in these proceedings is a receiver appointed by a United States court to recover the proceeds of a credit card fraud totalling US$47.5 million. In pursuit of that purpose, the appellant claimed an amount in excess of $8 million deposited by the respondent in an account with Citibank Ltd in Australia. 2 Prior to the trial, the appellant obtained an interlocutory injunction, subject to the usual undertaking as to damages. The claim was unsuccessful and the respondent was held to be entitled to the money. Pending an appeal against that decision, the money was paid into court and was invested in an interest bearing account in the name of the Prothonotary. The appeal against the original judgment having failed, the respondent claimed an entitlement to compensation for being kept out of its money, beyond the amount of interest which accrued on the investment. The respondent contended that, had the money been available to it, it would have undertaken certain currency transactions which would have proved advantageous. It claimed it had lost an amount in excess of $800,000 by being denied that opportunity. 3 The appellant accepted that the respondent was entitled to the full amount of the interest earned on the money paid into court, and was thus entitled to recover from the appellant an additional amount of $3,077.71, being the difference between the interest earned on the account and the amount payable to the respondent, after deduction of the amount required to be retained by the Prothonotary pursuant to the Supreme Court Regulation 2000 (NSW), cl 13. The appellant disputed the respondent's claim to any greater amount. 4 In its judgment delivered on 2 April 2009, this Court upheld the contentions of the appellant that the respondent was limited to the interest earned on the account and was not entitled to recover profits which might have been made on currency speculation: Robb Evans of Robb Evans & Associates v European Bank Ltd [2009] NSWCA 67; 255 ALR 171. 5 On 15 April 2009 the appellant filed a notice of motion seeking, in effect, three variations to the costs orders made on 2 April, together with an order that the costs of the motion be paid by the respondent on the indemnity basis. The issues may be shortly identified as follows: (1) the appellant's costs of the trial be assessed on the indemnity basis from 6 March 2006, on which day an offer of compromise was made; (2) the costs of the appeal be assessed on the indemnity basis, based on the same offer of compromise, and (3) the respondent pay interest on the recoverable amounts expended by the appellant on legal costs and disbursements from the date of such expenditure. 6 Since the hearing of the appeal, the commission of Gyles AJA expired. The issues raised by the notice of motion are now being dealt with by the remaining members of the Court, with the consent of the parties, pursuant to s 45AA of the Supreme Court Act 1970 (NSW). Costs of trial – offer of compromise 7 As explained in the principal judgment in this matter, the Prothonotary's account was opened on 27 May 2004, pursuant to final orders made on 18 May 2004 in this Court in the earlier proceedings. In July 2004, the respondent sought the consent of the appellant to vary the terms of the deposit so that it could be converted into euros, in part or in whole. That consent was not forthcoming. On 26 July 2004 the respondent advised that it would seek to claim by way of compensation the difference between the interest earned on the Prothonotary's account in US dollars and what might have been earned if the deposit had been transferred into euros. 8 The appellant's application for special leave to appeal to the High Court was dismissed on 11 March 2005. On 18 March 2005 a consent order required the Prothonotary to pay the amount paid into court to the respondent. On 11 May 2005 the respondent filed a notice of motion making the claim for compensation which had been foreshadowed in its letter of 11 July 2004. 9 On 6 March 2006, the appellant made an offer to compromise the claim by payment of $US5,000 plus costs. 10 The terms of the offer require reference to an earlier stage in the history of the litigation. The offer was made with respect to two notices of motion filed by the respondent, on 13 May 2003 and 11 May 2005 respectively. The earlier motion had related to compensation payable pursuant to undertakings given to the Court in exchange for injunctions obtained by the appellant on various dates between December 1999 and December 2000. The original dispute in the Equity Division as to entitlement to the deposit with Citibank, had resulted in a judgment in favour of the respondent given by Palmer J in April 2003. Although the appellant appealed from that judgment, on 13 May 2003 the respondent had filed a notice of motion seeking an order for an inquiry as to the amount of compensation payable pursuant to the undertakings. On 27 May 2003 that inquiry was ordered, but stayed pending resolution of the appeal. The second motion (of 11 May 2005) sought to have the stay lifted and to have the inquiry expanded to include an assessment of the compensation payable pursuant to an undertaking given by the appellant in this Court on 18 May 2004. 11 Between June 2005 and March 2006 various steps were taken in relation to the compensation claim. Of significance for present purposes was an affidavit served by the respondent on 2 September 2005 setting out a number of calculations based on hypothetical investments of the money by the respondent. The calculations indicated a return on the hypothetical investments varying from approximately $US810,000 to $US883,000. 12 On 14 February 2006 the appellant wrote to the respondent seeking advice as to the precise claim which the respondent sought to make. On 6 March 2006 the respondent replied advising: "European Bank seeks damages in the sum of USD843,475.26, being the average of the four 'Differences' identified above, referable to the lost earnings on the money held in the Prothonotary's account …. In addition, European Bank is claiming the sum of USD3,077.71 as commission paid into consolidated revenue." 13 The offer of compromise in an amount of US$ 5,000 was made later that day. The offer stated that it was made pursuant to the Uniform Civil Procedure Rules 2005 (NSW), r 20.26. 14 The appellant said that the offer complied with the rules and that, the respondent having obtained a judgment in an amount less than the terms of the offer, the appellant is entitled to an order for its costs, assessed on an indemnity basis, from the day following the day on which the offer was made, in accordance with r 42.15(2)(b). The respondent did not cavil with the rules relied upon, but contended that unless the offer involved a "real and genuine element of compromise" it did not fall within their terms. In the alternative, it contended that the element of compromise was so slight that it was appropriate for the Court to order otherwise and, in particular, that the costs be assessed on the ordinary basis. 15 In the original proceedings, both the appellant (who was the plaintiff) and the respondent (who was both a defendant and a cross-claimant) could have been treated as a "plaintiff" in respect of their claims for the moneys held by Citibank. Although the present matters were agitated in the existing proceedings, the moving party was the respondent and the opposing party was the appellant. Accordingly, for the purposes of the rules, the respondent should properly have been treated as a plaintiff; it was making the claim for compensation, to which the appellant was responding. Accordingly, the offer was made by "the defendant" and r 42.15 was applicable. 16 In The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] NSWCA 120; 67 NSWLR 706 this Court stated: "8 It is well established that an offer which does not involve a real and genuine element of compromise, will not be taken into account in relation to costs, either under the general law principles established by Calderbank v Calderbank , or under rules of Court …. 9 While it is true that in personal injury cases, offers by plaintiffs which have been only marginally below the judgment eventually obtained have been treated as involving an element of compromise, it does not follow that a similar approach should be adopted in relation to commercial litigation." 17 As the Court noted in Hancock v Arnold (No 2) [2009] NSWCA 19 at [23]: "It is sometimes said that the offer must be "genuine", but this epithet probably adds little to the concept of compromise. Indeed, it may be distracting if it suggests that some assessment is required of the subjective intentions of the offeror. Whether there is an offer of compromise must be capable of objective determination by reference to the circumstances at the time the offer was made." 18 Generally, damages claims for personal injury are likely to involve evaluative judgments both in respect of liability and quantum. Cases turning upon what a reasonable person would do in particular circumstances and whether there is a sufficient causal connection between a breach of duty and an injury suffered are likely to involve evaluative judgments. The same will be true of an assessment of loss. By contrast, the outcome of a contract case may well depend upon a point of construction of a contract, the outcome of which may be uncertain, but which results in one party winning and the other losing; success or failure in such a case will not involve the selection of a point within a range of possible outcomes. This point of distinction is illustrated by the present case. Either the respondent was entitled to recover losses calculable by reference to currency movements, based upon its probable actions if it had received the money when it should have, or it was not. In practical terms, there was no range of possible outcomes. 19 The appellant contended that his offer of 6 March 2006 involved a genuine and significant compromise because it was 62% more than the judgment obtained by the respondent. The respondent proposed a different view of the offer: it said there was no dispute as to the liability for $3,077, so that in effect the compromise offered an amount of less than $2,000 to settle a claim in excess of $800,000. The offer to pay costs did no more than reflect the usual outcome up to that point. 20 The appellant suggested that if the respondent had accepted the offer, it would have been in a "much better position" than that in which it now finds itself following judgment. Putting to one side the question of costs, that contention is unsupportable. The offer of less than $2,000 in respect of a claim of $800,000, even if the claim had limited prospects of success, cannot be treated as a genuine offer of compromise. If the offer were based on a legal assessment of the likelihood of success in an amount in excess of $800,000, the claim should have been struck out as frivolous and vexatious. It ultimately failed in this Court, but could not, on any view, be so categorized. It is implausible that the appellant so categorized it in quantifying his offer. 21 If the appellant had carried out a commercial evaluation, rather than a pure legal assessment of the likelihood of success, he would undoubtedly have concluded that, even if ultimately successful, he would be unlikely to recover many thousands of dollars of costs incurred if the litigation proceeded. A commercially based offer would have taken that matter into account. This offer clearly did not. 22 There remains the question whether the offer should be judged differently because, if accepted, it would have absolved the respondent from significant costs for which it has now become liable. That approach, however, is misconceived. Whether or not the offer involved a genuine compromise must be assessed by reference to the rule pursuant to which the offer was made. That rule refers to an offer to compromise a claim in proceedings on specified terms. Subject to an exception in the case of judgment for the defendant on the basis that each party bear its own costs, the offer must be exclusive of costs: r 20.26(2). Consistently with that approach, the costs consequences are measured by reference to the order or judgment "on the claim concerned": r 42.15(1). The fact that a party which failed to accept an offer incurs costs in pursuing litigation to a result which is less favourable to it than the offer, is not a factor which is material to determining whether the offer itself was a genuine offer of compromise for the purposes of r 20.26. 23 The offer of 6 March 2006 did not constitute a genuine offer of compromise of the respondent's claim. The amount offered, beyond that amount which was not in dispute, is properly characterized as trivial or contemptuous. It does not engage the costs consequences provided by r 42.15. 24 If it were thought that the rule was, in its terms, engaged, for the reasons set out above, the proper exercise of the Court's discretion would be to otherwise order, thus limiting the appellant's costs of the trial to those assessed on the ordinary basis. The result is that order (2)(b) should not be varied. Costs of appeal 25 The appellant made no fresh offer after lodging the appeal against the judgment against it in the Equity Division. Because the earlier offer did not constitute a relevant offer of compromise for the purposes of the rules, it is not an offer which can be relied upon for the purposes of the appeal. Accordingly, order (3) should be not be varied as proposed by the appellant. Interest on costs 26 The appellant contends that it should have an order for interest on any amount payable under the costs orders made by this Court, from the date or dates on which the costs concerned were paid. 27 The form of the order sought by the appellant requires a calculation to be made of interest on payments of costs and disbursements by reference to the proportion allowed on assessment, or by agreement, of the costs and disbursements as a whole. That approach followed the orders made by Campbell J in Lahoud v Lahoud [2006] NSWSC 126, an approach adopted and applied by this Court in Leda Pty Ltd v Weerden (No 2) [2007] NSWCA 283 at [7]-[8] (Hodgson JA, McColl JA and Handley AJA). 28 The respondent accepts that there is power to make such an order pursuant to s 101(4) of the Civil Procedure Act 2005 (NSW) and that such an order is appropriate, subject to certain qualifications, in the present case. 29 The first qualification was that the appellant would accept an obligation to pay interest on costs ordered to be paid by him in accordance with orders made on 13 April 2006 and 22 May 2008. In its submissions, the respondent said that it "understands that a reciprocal obligation to pay interest on costs is accepted by the appellant" on the basis of a concession made in a letter from the appellant's solicitors dated 15 April 2009 to that effect. The appellant's submissions in reply did not contradict that understanding and the first qualification noted by the respondent is satisfied. 30 The second qualification concerns three periods which involved, it is suggested, significant delay on the part of the appellant. The suggestion is that costs should not run for part or all of those periods. The qualification proposed is that no interest should be payable on costs outstanding between: (a) 13 December 2005 and 19 April 2006; (b) 17 May 2007 and 12 August 2007, and (c) 26 February 2008 and 15 May 2008. 31 The invitation to rule upon the justification, or otherwise, for steps taken or not taken and the time periods required, in strenuously contested commercial litigation, is unattractive. Once the Court embarks upon such an exercise, it will be an invitation to parties to present evidence in order to provide a proper basis for fact-finding. Such an exercise would not conform to the mandate of s 56 of the Civil Procedure Act to facilitate the just, quick and cheap resolution of the real issues in proceedings. 32 As Campbell J recognised in Lahoud at [86], there is a significant risk that an order of the broad-brush type proposed might lead either to the overpayment or underpayment of interest, with no guarantee that departures in one direction will be offset by departures in the other. However, as his Honour also noted, precision may not entail accuracy and a degree of approximation and estimation is justifiable. Further, the search for precision may drive parties to detailed costs assessments of a kind which would otherwise not be called for. 33 The second proposed qualification should be rejected. 34 In cases involving personal injury claims, orders for interests on costs may be refused on the basis that the successful party has not demonstrated that costs have been paid, such claims commonly being run on a speculative basis, so that costs will only be recovered and paid by the client from recovery pursuant to an order of the court: see, eg, Spedding v Nobles; Spedding v McNally (No 2) [2007] NSWCA 87 at [17]. In the present case, there was evidence that, as is commonplace in commercial litigation, costs were paid by the client on a regular basis during the course of the proceedings. The precondition to the operation of s 101(4) was satisfied. Rates of interest 35 The appellant contended that interest should be calculated at the prescribed rate, being the rate specified from time to time in Sch 5 of the UCPR. That rate was 9% until 31 March 2006 and 10% thereafter until 5 March 2009, when the rate decreased to 9% again. 36 The power conferred in s 101(5) recognises that the Court may order interest to be calculated at some other rate. The respondent says that such an order should be made and that the appropriate rate is that which the appellant received on funds deposited in interest bearing bank accounts in accordance with the terms of his receivership. 37 The basis for this submission was an affidavit filed by the solicitor for the appellant stating (at paragraph 17) that: "(a) the funds used by the appellant to pay for the costs are sourced from the bank accounts held by him for the purposes of the receivership; (b) the funds used by the appellant to pay the costs would have otherwise have been invested in an interest bearing account or distributed to the beneficiaries of the receivership (being the victims of the credit card fraud …) if he had not been required to pay those costs; and (c) the appellant, as a receiver appointed by a United States court, is duty bound to invest funds of the receivership in an interest bearing bank account pending the distribution of those funds in accordance with the terms of the receivership." 38 Pursuant to a document filed on 3 June 2009 entitled "Agreed statement of interest rates for the appellant's money plus account" the interest payable from 1 June 2005 when the first relevant costs appear to have been paid, has increased over time from 1.8% (presumably per annum) to 3%, reducing from 26 January 2008, in gradations, to 1% as at 1 April 2009. (Slightly higher amounts were paid in respect of deposits over $500,000: the statement did not indicate which rate any marginal increase in funds would have achieved from time to time.) 39 In terms of principle, the respondent asserted that the Court should have regard to prevailing rates of interest applicable in the marketplace. The respondent called in aid comments of Barwick CJ in Ruby v Marsh [1975] HCA 32; 132 CLR 642 at 653, where his Honour was commenting on the underlying purposes of the power to award interest on damages. These were to allow the successful plaintiff to be placed in the position in which he or she would have been had the award been made at the commencement of the action and to discourage defendants from delaying settlement. His Honour continued: "Each of these reasons, incidentally, in my opinion, calls for the judge to award a rate of interest related to the market place subject to the limit allowed by the legislature. There can be no basis for the award of some nominal rate of interest, unless of course there is good cause for so doing in the special circumstances of the particular case." 40 The respondent also referred to the comments of McHugh JA (when on this Court) in Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 at 409 where his Honour held (Glass JA agreeing) that the insurer who was liable to make a payment under a policy of insurance should be required to pay interest at commercial rates because – "[I]t has had the use of the funds. It would be a manifest injustice to the insured if the insurer was entitled to withhold the funds from the insured, use them in its business, and then pay rates of interest far below those payable commercially." 41 Kirby P made remarks to similar effect at 401. However, the effect of those views was that the assessment by the District Court judge at 10% was considered manifestly unjust and the significantly higher rate provided for in the Supreme Court practice note of the time (then of the order of 18%) was applied. Neither of these authorities appears to provide much support for the respondent's suggestion that a low, descending to nominal, interest rate should apply with respect to costs. 42 The appellant sought assistance for its position from the judgment of this Court in Stanilite Pacific Ltd (In liq) v Seaton (No 2) [2005] NSWCA 412. In that case payment of interest on a commercial debt was resisted by the defendant on the basis that the company had been wound up and, as explained by Hodgson JA (McColl and Bryson JJA agreeing), "the money would not have been used for income-producing purposes other than earning interest, and it otherwise would have been used in meeting expenses or paying dividends to creditors": at [5]. His Honour accepted that the rates contained in the Schedule were "somewhat in excess of rates obtainable by putting money out at interest" but also noted that they involved no compounding of interest, a factor which supported a calculation at the higher rate. 43 On the analogy provided by Stanilite, the appellant contended that a similar approach should apply to interest on costs, referring to comments of Kirby P in Minister Administering the Environmental Planning and Assessment Act 1979 v Carson (1994) 35 NSWLR 342 at 354B. Carson, however, concerned a quite different issue, namely whether interest would run from the date of the order for costs or from the date on which the amount of costs were quantified by assessment: 344E. In equating interest on costs with interest on damages after judgment, Kirby P noted that the purpose in each case was compensatory and that the principle applied as much with respect to costs as to damages and possibly "with even greater force": at 354B. The justification for this remark was that there was "a significant difference between the costs that may be recovered under an ordinary party and party order and the costs which litigants will usually be obliged to pay on a solicitor and client basis". However, the force of this last remark is not entirely clear: interest is only payable on that which the other party is obliged to pay and the fact that the obligation is limited to part only of the costs would appear to be irrelevant. 44 Whatever the historical origins of the power to recover costs (a matter about which Young AJA was inclined to reach no firm conclusion in Carson at 355-356) it was, as his Honour noted, beyond doubt that the right to interest on costs arose from statute. It is also clear that the payment of interest is intended to be compensatory, on the basis that the person entitled to costs has been wrongly required to expend money on litigation to enforce established rights. 45 Schedule 5 to the UCPR provides (as did its predecessors) a single reference point for the calculation of interest without the need to call evidence as to what use might have been made of the moneys and at what return. What is perhaps curious is that interest after judgment, payable pursuant to s 101 of the Civil Procedure Act, is based on a presumptive calculation at the prescribed rate with respect to damages, but not costs, whereas pre-judgment interest on damages is to be calculated "at such rate as the court thinks fit": Civil Procedure Act, s 100(1). By way of contrast, in respect of costs the prescribed rate is the presumptive rate, and is applicable from the date on which those costs were incurred: s 101(5). That is, the prescribed rate presumptively applies to pre-judgment interest on costs. 46 The basis on which interest is sought in the present case provides the reason for ordering that interest be calculated otherwise than at the rate prescribed in the Schedule. As noted above, the appellant's evidence established that money for costs came from the funds collected by the receiver and otherwise held in bank accounts, the net balance of which would be distributed in due course to the victims of the credit card fraud; the receiver was required to hold such funds in interest bearing accounts, and, the interest payable on such funds was known. On the other hand, any order made by this Court must be for interest calculated without compounding, because the section prevents the Court giving interest on interest: s 101(6). Accordingly, it is not necessarily appropriate to limit the interest payable to the rates at which interest would have accrued if the costs had remained in the receiver's accounts. 47 Bearing these various factors in mind, an award of interest calculated at 5% is appropriate. Conclusions 48 For the foregoing reasons, the following orders should be made: (1) The orders made by the Court on 2 April 2009 be varied by the addition of the following order: (4) Order that the respondent pay interest on that proportion of the payments made by the appellant on account of its own costs and disbursements as the total amount of such costs and disbursements allowed on assessment (or as agreed) bears to the total amount paid, such interest to run from the date of each payment until the date of payment by the respondent, and to be calculated at 5% per annum. (2) Otherwise dismiss the notice of motion filed by the appellant on 15 April 2009. (3) Order the appellant to pay one-half of the respondent's costs of the motion. 49 CAMPBELL JA: I agree with Basten JA. ********** 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.