New South Wales Supreme Court CITATION : Wood v Inglis [2010] NSWSC 749 HEARING DATE(S) : 4 March 2010 JURISDICTION : Equity Division JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 4 March 2010 DECISION : Second and fourth cross-defendants to pay costs of cross-claimant in respect of notice of motion filed 16 July 2008. Interest at the rate of 7.5 per cent to be payable on that proportion of each amount of costs and disbursements which the costs creditor has paid or was liable to pay as between practitioner and client. CATCHWORDS : PROCEDURE – Costs – Whether costs should be borne by company where its solicitor acted without proper retainer – Held: costs should be borne by the directors or purported directors of the company who had set in motion the retainer of the solicitor – interest on costs – Held: Interest to be payable at the rate of 7.5 per cent per annum on any amount payable under the costs order until the costs debtor has paid the amount due to the costs creditor. (NSW) Civil Procedure Act 2005, s 101 LEGISLATION CITED : (NSW) Uniform Civil Procedure Rules 2005 r 42.3.2 (NSW) Supreme Court Act 1970, s 76, s 95 CATEGORY : Consequential orders Abigroup v Peninsular (No 2) (2001) NSWSC 1016 Drummond and Rose Pty Ltd v Easey & ors [No 2] [2009] NSWCA 331 CASES CITED : Hexiva Pty Ltd v Lederer (Costs) [2006] NSWSC 1259 Joseph Lahoud & Anor v Victor Lahoud & Ors [2006] NSWSC 126 Sanum-Kehlbeck GMBH & Co KG v Sanum Australia Pty Ltd [2009] NSWSC 690 Wood v Inglis (Costs) [2009] NSWSC 900 First Cross Claim: Helen Margaret Inglis (cross-claimant) Inglis Research Trust P/L (first cross-defendant) PARTIES : Kathryn Margaret Clark (second cross-defendant) Michael William Inglis (third cross-defendant) Pamela Ruth Wood (fourth cross-defendant) Fiona Jane Narlini Inglis (fifth cross-defendant) William Keith Inglis (sixth cross-defendant) FILE NUMBER(S) : SC 08/277523 Mr JE Thomson (cross-claimant) COUNSEL : Mr BJ Burke (second cross-defendant) Mr CA Lambert (third cross-defendant) Mr ET Finanne (fourth cross-defendant) Michael C Smith (cross-claimant) SOLICITORS : Courtenay & Co (second cross-defendant) Molloy & Schrader (third cross-defendant) DSC Law (fourth cross-defendant) IN THE SUPREME COURT OF NEW SOUTH WALE EQUITY DIVISION BRERETON J Thursday, 4 March 2010 2008/277523 Pamela Ruth Wood v Helen Margaret Inglis JUDGMENT (ex tempore) 1 HIS HONOUR: In these complex proceedings – which were resolved, in substance, by my judgment of 30 June 2009 – two issues remain for determination. The first is the costs of a motion brought by Mrs Inglis against Inglis Research Pty Ltd, which was determined by Barrett J on 6 November 2008, when his Honour upheld Mrs Inglis' challenge to the retainer by Inglis Research of ClarkeKann Lawyers, who then purported to appear for Inglis Research in the proceedings. On 5 December 2008, his Honour struck out ClarkeKann's appearance, and reserved the question of costs of the motion; I must now deal with them. 2 When a solicitor's retainer is successfully challenged, the ordinary order is that the solicitor who has purported to act without proper authority personally pays the costs. However, that is not necessarily appropriate where those at whose instance the solicitor has acted, particularly if in good faith, are themselves amenable to a costs order. Ordinarily, where the solicitor is but a vehicle through which the dispute has been conducted and, in effect, collateral damage occasioned by the dispute, it is preferable to make orders as between the true protagonists. 3 When ClarkeKann appeared for Inglis Research, the second cross- defendant, Ms Inglis-Clark, was a director of Inglis Research and the fourth cross-defendant, Mrs Wood, was purporting to act as the other director. ClarkeKann's retainer was in writing, and signed by Ms Inglis-Clark and Mrs Wood. It was because Barrett J found that Mrs Wood had been invalidly appointed, whereas Mrs Inglis in fact remained a director, not having been properly removed, that it followed that there had never been a resolution of the directors to appoint ClarkeKann to act, so that their retainer was ineffective. 4 I accept, as Ms Needham SC submits for Mrs Wood, that there is no reason to suppose that Ms Inglis-Clark and Mrs Wood were acting otherwise than in good faith, and I proceed on that basis. The question nonetheless remains whether there is any reason why the successful party should not recover their costs and, if so, from whom. 5 It was submitted that, in accordance with the ordinary practice, Inglis Research as the unsuccessful party, should pay those costs. The answer to that is, first, that that is not necessarily the ordinary position where a retainer is successfully challenged at all. As I have said, normally those who act without authority are those responsible for paying the costs in that situation. Secondly, as the exposure to costs was incurred without the proper authority of Inglis Research, it would be quite inappropriate to order it to bear the costs of a successful challenge to the authority of those who (incorrectly) purported to act on its behalf. 6 Mrs Inglis' true protagonists were Ms Inglis-Clark and Mrs Wood, being those who as directors or purported directors of Inglis Research set in motion and sought to uphold the retainer of ClarkeKann. On that basis, there would be a powerful case to make a costs order against them, even if they were not parties to the proceedings, under (NSW) Uniform Civil Procedure Rules 2005 r 42.3.2(b): see Sanum-Kehlbeck GMBH & Co KG v Sanum Australia Pty Ltd [2009] NSWSC 690, [13]-[21]. In this case, where they are parties, that is even more patently so. The conclusion that they should bear the costs is reinforced by the circumstance, as is pointed out on behalf of Mrs Inglis, that the challenge to the retainer had a wider significance in the proceedings as a whole, because it resolved in Mrs Inglis' favour the validity of her purported removal, and the purported appointment of Mrs Wood, as a director, and thus incidentally resolved a number of other claims in the proceedings. 7 Accordingly, I order that: (1) The second and fourth cross-defendants in the current proceedings pay the costs of the cross-claimant in respect of the notice of motion filed on 16 July 2008 and heard by Barrett J on 23 October and determined by his Honour on 6 November and 5 December 2008. 8 The second issue requiring consideration is the application of Mrs Inglis for an order pursuant to (NSW) Civil Procedure Act 2005, s 101, that interest be payable on the costs payable to her under the costs order made in her favour in the substantive proceedings. 9 Following the substantive judgment to which I have referred, and following further argument as to the question of costs on 1 September 2008, I made an order that the second, third and fourth cross-defendants pay the cross-claimant's costs of the proceedings on the issues determined separately under the order made on 16 December 2008: see Wood v Inglis (Costs) [2009] NSWSC 900, [34]. Civil Procedure Act, s 101, relevantly provides as follows: (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. 10 In Hexiva Pty Ltd v Lederer (Costs) [2006] NSWSC 1259, I said: 21 An order under s 101 for interest on costs recognises and compensates the costs creditor for having been out of pocket as a result of having to pay their lawyers' costs and disbursements, and there is no requirement before such an order is made that the circumstances of the case be out of the ordinary [ Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101, [10], [12]; Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liq) [2002] NSWSC 280 , [17], [23]-[25]; Puntoriero v Water Administration Ministerial Corporation [2002] NSWSC 217, [10]; Lahoud v Lahoud [2006] NSWSC 126, [82]-[83]]. Not much if any evidence is required in support of such an application: it can be inferred from the nature of commercial litigation that parties are likely to have had to pay some amounts of costs and disbursements as the litigation progresses and in any event an order can be framed in such a way that interest will run only from the date on which there has been a payment [ Lahoud v Lahoud , [80]-[81]]. 11 Since then, in Drummond and Rose Pty Ltd v Easey & ors [No 2] [2009] NSWCA 331, Macfarlan JA, with the concurrence of Tobias JA, has said: 3 The matter in relation to which I respectfully disagree with his Honour is as to the making of an order for payment of interest on costs. His Honour has quoted the terms of s 101(4) and (5) of the Civil Procedure Act 2005. In my view it is unnecessary for there to be evidence of the date or dates on which the costs concerned were paid for an order for the payment of interest to be made under subsection (4). Indeed, such evidence would often not be particularly useful. If the Court does not choose to order that interest be payable from a later date, interest will run, if an order is made under subsection (4), from the date or dates on which the costs concerned were paid. If the costs were paid promptly, interest will run from an earlier date than that from which it would run if there was delay in payment. That is an appropriate result as the purpose of an order for payment of interest is essentially compensatory. I do not see why in the usual case the Court needs to know when the costs were paid. 4 In the absence of any countervailing discretionary factor (of which there appear to be none in the present case), it is appropriate that an order for interest on costs be made to compensate the party having the benefit of a costs order for being out of pocket in respect of relevant costs which it has paid ( Lahoud v Lahoud [2006] NSWSC 126 at [82-3] per Campbell J). 12 Initially, when the statutory power to award pre-judgment interest on damages was conferred by the (NSW) Supreme Court Act (1970), there was significant dispute as to whether interest should be awarded only in special cases, or in the general course. Before long, it was established that prima facie interest would be awarded because it was compensatory in nature and intended to compensate the successful party for having been kept out of the moneys to which that party was ultimately found to be entitled. Since the power to award interest on costs has been more explicitly conferred by the Civil Procedure Act, and before then by relatively late amendments to the Supreme Court Act, there has been a similar evolution in the court's approach. It may well be, as has been submitted today, that initially the court took the view that interest on costs would be awarded only where the costs creditor had been out of pocket for an inordinate or lengthy time. Thus I was pressed with the observations of Barrett J in Abigroup v Peninsular (No 2) (2001) NSWSC 1016, [44], to the effect that the main factor which may cause the Court to award interest on costs under Supreme Court Act, s 76 and s 95(4), was delay in the resolution of proceedings where a party had been out of pocket for an inordinate time – for which proposition his Honour cited a number of cases decided between 1993 and 2000. 13 However, the observations cited above, from Hexiva v Lederer and, more importantly, from the Court of Appeal's decision in Drummond v Easey, show that things have moved on since then, and that ordinarily a party that obtains a costs order will also obtain (if it seeks one) an order for interest on those costs, in the absence of any countervailing discretionary factor. Moreover, if it were the case that interest on paid costs was recoverable only in a case where the costs creditor had been out of pocket for an inordinate or substantial period of time and not when the litigation proceeded relevantly expeditiously, that would provide an incentive for a party that thought it was going to succeed to delay the prosecution of the proceedings. It would punish expedition and reward delay. That, in my view, makes manifest that it could not sensibly inform a proper approach to the exercise of the discretion to order interest on paid costs. In my view, what Barrett J said in Abigroup v Peninsular can no longer be taken as representing the law in this respect. 14 In the present case, no countervailing discretionary factor appears. To the contrary, discretionary factors point firmly in favour of making an order for interest, because there is evidence not only that Mrs Inglis has paid the costs payable to her solicitor, but that she has had to borrow from a financial institution (and thus herself incur interest) in order to do so. 15 The next question is the rate at which interest should be ordered. As Mr Finnane submitted, and as is established by Joseph Lahoud & Anor v Victor Lahoud & Ors [2006] NSWSC 126, the Court will ordinarily adopt the rate prescribed by the rules of court for interest on unpaid judgment debts, just as it does when awarding pre-judgment interest on damages. But that may always yield to evidence showing that another rate is appropriate. Nonetheless, adoption of the prescribed rate has the advantage that it discourages extensive argument about the applicable interest rate and the use of evidence as to interest rates. 16 It is true that the prescribed rate is ordinarily higher than commercial rates. That is so for a number of reasons: first, that investment in judgment debts is not a first-class investment and bears a substantial degree of risk; secondly, to encourage judgment debtors to pay rather than delay; and thirdly, because the prescribed rate is a simple interest rate, whereas commercial institutions typically charge compound interest. 17 In my view, the first and second of those considerations apply with less force in the case of an award of interest on costs, that in the case of pre-judgment interest, at least in litigation that is bona fide contested, but that is not to say that they are irrelevant. However, the third argument, concerning compound as opposed to simple interest, retains full weight. 18 In the present case, it is known that Mrs Inglis borrowed $360,000 from a financial institution, substantially to fund the payment of costs in connection with these proceedings. It would have been in her power to prove the interest rate charged in respect of that loan. She adduced no evidence of it, and indeed the evidence of the loan itself was produced at so late a stage that the cross-defendants could not reasonably be expected to have sought out evidence of the relevant rate. 19 Nonetheless, I think the Court is entitled to take judicial notice that interest rates available from financial institutions are less than the 9 per cent currently prescribed by the rules of court. Drawing on that, I find that an appropriate interest rate in the circumstances is 7.5 per cent. If I were not entitled to reach that conclusion on the basis of judicial notice, I would have had no evidence to displace the presumption that the prescribed rate should apply, and would have adopted the rate of 9 per cent referred to in the rules. 20 There remains the problem, frequently encountered, that Mrs Inglis will, since proceedings were commenced by Mrs Wood on 22 February 2008, have incurred costs, some of which will not be covered at all by the order of 1 September 2009 and others which, though covered by that order, will not be allowed on party-party assessment. Consistent with the approach that has been taken in other cases, rough justice can be done by apportioning the costs that she has paid between those allowed on assessment under the order, and the other costs that she has incurred. That means that she will recover interest only on such proportion of the costs that she has paid as reflects the proportion that her assessed recoverable costs bears to the total costs that she has paid or is liable to pay. 21 Accordingly, on the second issue my orders are: (2) Interest is to be paid on any amount payable under the costs order contained in Order 1 above and the costs order made on 1 September 2009, as follows: (a) Interest shall be payable on that proportion of each amount of costs and disbursements allowed on assessment which were actually paid by the costs creditor which the total amount of costs and disbursements allowed on assessment to the costs creditor under the costs order of 1 September 2009 and Order 1 of today bears to the total amount of costs and disbursements which the costs creditor has paid or was liable to pay as between practitioner and client incurred since 22 February 2008 to date in connection with these proceedings or otherwise in connection with the affairs of the estate of Dr Inglis and the Inglis Research Trust. (b) Interest shall be payable at the rate of 7.5 per cent per annum from the date of payment by the costs creditor of each amount of costs and disbursements actually paid by her until the costs debtor has paid the amount due to the costs creditor under any costs order made in these proceedings or any further order relating to interest on costs in these proceedings. (c) For the purposes of this order, the costs creditor is the party having the benefit of the relevant costs order and the costs debtor is the party liable to pay costs under the relevant costs order in these proceedings. (3) I reserve liberty to apply in the event of any difficulty arising in the implementation of this order. (4) The costs of and incidental to the proceedings before the Court today shall be costs of the proceedings on the separate questions referred to in the costs order of 1 September 2009. ********** 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.