FEDERAL COURT OF AUSTRALIA

White Industries (Qld) Pty Ltd v Flower & Hart (No 2) [2000] FCA 1132

COSTS – interest on costs – costs in respect of a period prior to the judgment for costs – power of Federal Court of Australia to award interest on such costs – costs reflected money expended in defending litigation incorrectly brought – existence of a cause of action as basis of claim for interest.

COSTS – interest on costs – costs in respect of period prior to the award of costs – duration of period for which interest should be paid – delays in proceeding – correct interest rate to award.

Federal Court of Australia Act 1976 (Cth):  s 43, s 51A, s 52

Knight v FP Special Assets Limited (1992) 174 CLR 178 referred to

Latoudis v Casey (1990) 170 CLR 534 referred to

McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (1993) 32 NSWLR 190 not followed

South Australian Superannuation Fund Investment Trust v Leighton Contractors Pty Ltd (1996) 66 SASR 509 referred to

Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [1997] 1 WLR 1627 referred to

Commonwealth of Australia v SCI Operations Pty Limited (1998) 192 CLR 285 referred to

Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 referred to

Serisier Investments Pty Ltd v English (1989) 1 Qd R 678 followed

Namol Pty Ltd v AW Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388 referred to

EMCL Pty Ltd v Esanda Finance Corporation Ltd (No 2) (1998) 160 ALR 382 referred to

EMCL Pty Ltd v Esanda Finance Corporation Ltd [1999] FCA 978 referred to

WHITE INDUSTRIES (QLD) PTY LTD v FLOWER & HART (A FIRM) (No 2)

QG 198 of 1986

GOLDBERG J

14 AUGUST 2000

SYDNEY (HEARD IN BRISBANE)

REASONS FOR JUDGMENT

Introduction

1                     On 14 July 1998 I published reasons for judgment in which I concluded that the respondent firm of solicitors, Flower & Hart, was liable to pay to the applicant, White Industries (Qld) Pty Ltd (“White”), the costs which it had incurred in defending the claim which had been brought against White by Caboolture Park Shopping Centre Pty Ltd (in liquidation) (“Caboolture Park”) on an indemnity basis:  White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 (affirmed on appeal Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134).

2                     At the time I published my reasons for judgment I did not determine the amount of the costs which Flower & Hart was required to pay to White.  Those costs have now been agreed by the parties in the sum of $1.65 million.  The only outstanding issue is whether interest is payable by Flower & Hart in respect of those costs and, if so, for what period.

Submissions

3                     White submitted that interest is payable by Flower & Hart either pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) (“the Act”) or alternatively pursuant to s 51A of the Act.  White said that although it had paid sums in respect of the costs it had incurred from time to time (the proceeding having been filed on 23 December 1986) it was only seeking interest from 17 August 1989.  On that date Ryan J gave judgment for White on Caboolture Park’s claim against it, dismissed Caboolture Park’s claim and ordered it to pay White’s costs of the claim on an indemnity basis.  White said that by that date all the costs in respect of which it was entitled to payment from Flower & Hart pursuant to my order of 14 July 1998 had been expended. 

4                     Flower & Hart submitted that the only power which the Court has to award interest is that derived from statute (see Hungerfords v Walker (1988) 171 CLR 125 at 138, 152; Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd [1997] 1 WLR 1627 at 1635), and that the only statutory power to award interest in respect of costs ordered to be paid was to be found in s 52(1) of the Act which provides:

“(1)     A judgment debt under a judgment of the Court carries interest from the date as of which the judgment is entered.

 (2)      Interest is payable:

(a)        at such rate as is fixed by the Rules of Court; or

(b)        if the Court, in a particular case, thinks that justice so requires–a such lower rate as the Court determines.

Flower & Hart accepted that the power to award interest in s 52 of the Act applied to an order for costs as the definition of “judgment debt” in s 4 of the Act included an order for costs. Under this section, interest is only payable in respect of the period after the date of judgment. 

5                     Flower & Hart submitted that the only power given by s 43 of the Act was the power to award costs and it did not include any power to award interest on costs.  Flower & Hart said that s 51A did not give the Court any power to award interest on any costs ordered to be paid.  It was said that in a situation where costs are ordered to be paid there is no “cause of action” which gives rise to an order for costs and that a claim or entitlement, as of right, for costs only arises, not when a party pays its legal advisers a sum on account of costs incurred or to be incurred, but rather when a Court orders a party’s costs to be paid by another party. 

Is interest payable on costs in respect of a period prior to judgment?

6                     The jurisdiction conferred by s 43 of the Act to award costs is very wide.  In Caboolture Park Shopping Centre Pty Ltd (In Liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224, the Full Court, referring to s 43, said at 229:

“The jurisdiction of the Court to award costs has not been narrowly defined by Parliament and the Court is able to make such orders for the payment of costs as may be required for the just disposal of all proceedings brought before it.”

The unfettered discretion of the Court to make an order for costs pursuant to s 43 was recognised by the High Court in Knight v FP Special Assets Limited (1992) 174 CLR 178, where at 185 Mason CJ and Deane J said:

“According to their natural and ordinary meaning, the words of the rule [O 91, r1 of the Rules of the Supreme Court of Queensland– similar in terms to s 43 of the Act] are sufficiently expansive to enable the Court to make an order for costs against a person, whether that person is formally a party to the proceedings or not.  The jurisdiction and the discretion thereby conferred are not limited.  Because they are not limited it is easy to postulate a variety of circumstances where an exercise of the jurisdiction against a non‑party would be extravagant and unjust.  However, the existence of that possibility provides no justification for the imposition by the courts, by way of implication, of an arbitrary limitation upon the general jurisdiction conferred by the rule.  To do so would, as will appear, deny power to the Court to order costs against a non‑party in cases in which, in the interests of justice, such orders should be made.  The inevitable answer to arguments directed to limiting curial jurisdiction based on the supposition that the jurisdiction might lend itself to abuse is that the court will and should develop principles governing the exercise of the discretion which will ensure that the jurisdiction is not exercised in such a way as to give rise to abuse.  And that is the answer to the appellants’ case to the extent to which it seeks to confine the scope of the jurisdiction by reference to arguments in terrorem.”

In Caboolture Park Shopping Centre Pty Ltd (In Liq) v White Industries (Qld) Pty Ltd (supra) the Full Court considered s 43 to be no narrower than O 91 r1 of the Rules of the Supreme Court of Queensland.

7                     Notwithstanding the discretion contained in s 43, it is still necessary to determine whether the power contained in that section extends to awarding interest on any costs ordered to be paid.  Flower & Hart contended that no such jurisdiction is conferred explicitly by the section and that there is no basis for implying a power in s 43 to award interest on costs.  An implication of a power in s 43 to award interest on costs should only be found if such power is incidental to and necessary for the exercise of the primary grant of power:  cf Parsons v Martin (1985) 5 FCR 235 at 241.  I do not consider that it is incidental to, or necessary for, the exercise of the grant of jurisdiction in s 43 to award costs that there be appended a power to order interest on such costs.  More particularly is this so in an Act where there are specific provisions set out for the payment of interest:  s 51A and s 52 (see also O 62 r45(4) of the Federal Court Rules).  Conceptually, orders for the payment of costs and orders awarding interest are based on quite different rationales.  In Latoudis v Casey (1990) 170 CLR 534 Mason CJ said at 543:

“If one thing is clear in the realm of costs, it is that, in criminal as well as civil proceedings, costs are not awarded by way of punishment of the unsuccessful party.  They are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings ...”

An award of interest rather is made to compensate a party who has been deprived of the use of money otherwise due to, or recoverable by, that party:  see generally Hungerfords v Walker (supra).

8                     White relied upon McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (1993) 32 NSWLR 190 where Rogers CJ Comm D concluded that s 76 of the Supreme Court Act 1970 (NSW) (which was in equivalent terms to s 43 of the Act) empowered the Court to order that the defendant pay the plaintiff interest on the plaintiff’s taxed costs and that such interest should be paid from the respective dates on which the plaintiff made payment of costs to its solicitors.  Section 76 provided:

“(1)     Subject to this Act and the rules and subject to any other Act:

(a)        costs shall be at the discretion of the Court,

(b)        the Court shall have full power to determine by whom and to what extent costs are to be paid, and

(c)        the Court may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on an indemnity basis.

 (2)      …

(3)       …”

9                     The reasoning of Rogers CJ is a little elusive.  His Honour accepted that s 76 of the New South Wales Act was intended to give the Court the widest possible power and discretion in the allocation of costs.  His Honour observed that in AWA Limited v Daniels t/as Deloitte Haskins and Sells (Rogers CJ Comm D, 19 April 1993, unreported) he had ordered the payment of interest on costs running from the date when payment was made by the successful plaintiff to its solicitors on account of costs.  His Honour said at 193:

“I record, without comment, that, in that case, there was no argument that there was an absence of power to make such an order.  I record with embarrassment that it did not occur to me that there may be an argument for an absence of power when I made the order.”

His Honour did not then consider whether there was any argument for the absence of power but reasoned:

“It seems to me that, in the circumstances, I should hold that power is conferred by s 76 and make an order notwithstanding the fact that the notice of motion did not seek the Court’s exercise of that power.  I raised that question with the parties, at the time of the argument taking place, and it was not suggested by anyone that there may be an injustice in exercising a power not specifically sought to be invoked by the notice of motion.  Bearing in mind that the Court has clear power under the Act to assess costs for itself and in that assessment to include an amount for interest, bearing in mind the disbursements made by the successful party on account of costs at an earlier point of time, it would be odd if the same could not be achieved by taking the orthodox course of requiring costs to be taxed and then making an order for interest to be paid on those costs.”

It is not immediately apparent why his Honour concluded that the Court had “clear power” to include interest in the assessment of costs.

10                  There were separate sections in the New South Wales Act dealing with the payment of interest (s 94 and s 95).  Even if one reads s 76 broadly, and without any implication of any limitation on the discretionary power to award costs, I do not consider that it encompasses a power to award interest on costs.  The issue became academic in New South Wales after McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (supra) as a result of an amendment to s 95 of the New South Wales Act which contained a provision for the payment of interest on costs.  Subsection (4) was inserted in s 95 by Act No 88 of 1995 (assented to on 19 December 1995) and it provided:

“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                  McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (supra) does not appear to have been followed in any other case.  A contrary view of similar statutory provisions was taken by the Full Court of the Supreme Court of South Australia in South Australian Superannuation Fund Investment Trust v Leighton Contractors Pty Ltd (1996) 66 SASR 509.  The issue before the Court was whether an arbitrator under the Commercial Arbitration Act 1986 (SA) had power to award costs on an indemnity basis and power to award interest on costs.  The arbitrator had stated in his award:

“6.       My award is that Leighton Contractors pay to the South Australia Superannuation Fund Investment Trust the sum of $438,617.00 (four hundred and thirty eight thousand, six hundred and seventeen dollars), plus interest at the Supreme Court rate from July 1st 1991 until the date of this Award.  Interest at the same rate at which interest is payable on a judgement debt in the Supreme Court will be payable on the amount of the Award, from 21 days after the date of the Award, until payment is made.”

Section 31 (the equivalent of s 51A) provided:

“(1)     Unless a contrary intention is expressed in the arbitration agreement, where the arbitrator or umpire determines to make an award for the payment of money (whether on a claim for a liquidated or an unliquidated amount), the arbitrator or umpire shall, subject to subsection (2), have power to include in the sum for which the award is made interest at such rate as the arbitrator or umpire may direct (being a rate not exceeding the rate at which interest is payable on a judgment debt of the Supreme Court) on the whole or any part of the money for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(2)             Subsection (1) does not –

(a)        authorise the awarding of interest upon interest;

(b)        apply in relation to any amount upon which interest is payable as of right whether by virtue of an agreement or otherwise;

or

(c)        affect the damages recoverable for the dishonour of a bill of exchange.”

Section 32 (the equivalent of s 52) provided:

“(1)     Unless a contrary intention is expressed in the arbitration agreement, where the arbitrator or umpire makes an award for the payment of money, the arbitrator or umpire shall have power to direct that interest at the same rate as that at which interest is payable on a judgment debt of the Supreme Court shall be payable from the date of making of the award or such later date as the arbitrator or umpire may specify on so much of the money as is from time to time unpaid and any interest that so accrues shall be deemed to form part of the award.

 (2)      If judgment is entered by the Court in terms of an award, interest shall cease to accrue in pursuance of a direction under this section on the date of the entry of the judgment.”

At 513 Matheson J, with whom Bollen and Millhouse JJ agreed, said:

“In my opinion, the arbitrator invoked s 31 when he awarded interest on the sum of $438,617 in the first sentence of par 6 of his award.  I am unable to see how s 31 can now have any further application.  The arbitrator invoked s 32 when he awarded interest in the second sentence of par 6.  In the event that costs ultimately became part of the award in the sense of a monetary amount, (say, $50,000) interest would ‘be payable from the date of the making of the award or such later date as the arbitrator … may specify …’  That award would not be 12 August 1994 (supra), but the actual date it came to be made, and it would not be possible to order interest from any earlier date.  Moreover, it could only be ‘at the same rate as that at which interest is payable on a judgment debt of the Supreme Court’.

            There is no statutory or common law authority for the award of compound interest.

            Reference was made to McWilliams Wines Pty Ltd v Liaweena (NSW) Pty Ltd (1993) 32 NSWLR 190, where Rogers CJ Comm D ordered interest on taxed costs, but he expressly relied on s 76 of the Supreme Court Act 1970 (NSW), and accordingly the case does not assist the applicant.”

The Full Court therefore held that the arbitrator did not have any power under a section in equivalent terms to s 51A of the Act to award interest on costs in respect of a period prior to the date of the award of the costs. 

12                  I would with respect differ from the conclusion reached by Rogers CJ that the power conferred by s 76 of the New South Wales Act, and by analogy s 43 of the Act, conferred clear power to include in an assessment of costs an order for the payment of interest on those costs.  Notwithstanding the broad discretion granted by s 43 of the Act I do not consider that it extends to the ordering of interest on any costs to be awarded.  The observation of Lord Nicholls in Nykredit Mortgage Bank Plc v Edward Erdman Group Ltd (supra), albeit in a different context, is apposite in this context.  His Lordship said at 1636:

“However desirable it might be for the court to have power to order the payment of interest on costs from a date earlier than the date on which the court gives judgment, I do not think such a power can be squeezed out of this rule.  That would be to use the rule as a means of doing indirectly what the court has no power to do directly.”

I would however agree with the reasoning of the Full Court in South Australian Superannuation Fund Investment Trust v Leighton Contractors Pty Ltd (supra).  Under s 31 of the South Australian Act interest is only payable in respect of an award of the “payment of money.”  The section does not, in its terms, allow for the payment of interest on any costs as such ordered to be paid.  But that decision does not resolve the present issue because of the cause of action White alleged against Flower & Hart which gave rise to the entitlement in White to recover its costs of the principal proceeding from Flower & Hart.

13                  White relied in the alternative on s 51A(1) of the Act which provides:

“In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:

(a)       order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or

(b)               without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.”

14                  The cornerstone of Flower & Hart’s submission was that White’s application for costs against Flower & Hart was an application made pursuant to s 43 and that an order for costs under that section cannot entitle a person to make application for interest on those costs pursuant to s 51A as there is no relevant cause of action within s 51A(1).

15                  Flower & Hart submitted that the opening words in s 51A(1) “In any proceedings for the recovery of any money” were not appropriate to cover a claim for costs which is endorsed on an application or a writ in which substantive relief is sought.  That may be so, but in the present case there is a proceeding for the recovery of money instituted by the notice of motion filed by White on 7 May 1993 specifically seeking an order that Flower & Hart pay its costs of the principal proceeding.  That motion sought an order that Flower & Hart “pay all of White’s costs of the action”.  So expressed the motion sought the recovery of money within s 51A(1) albeit money that was the costs White had incurred in the principal proceeding.  The term “proceeding” is defined in s 4 of the Act as including:

“an incidental proceeding in the course of, or in connexion with, a proceeding”.

Accordingly the motion was a proceeding for the recovery of money within s 51A.

16                  It was put by Flower & Hart that in order for White to rely upon s 51A to obtain interest on its costs order against Flower & Hart s 51A must apply to any application for costs.  I do not accept this submission.  In the present case there is a particular application made for costs which is predicated, not upon White’s success in the principal proceeding as against Flower & Hart, but rather upon a particular claim or cause of action against Flower & Hart directly which gives an entitlement to recover money from Flower & Hart for and in respect of the costs White incurred in the principal proceeding.  Although it is s 43 of the Act which gives rise to an entitlement to a party to a proceeding to have its costs paid, White’s claim against Flower & Hart was made by reference to a cause of action identified in its amended statement of facts and contentions, based upon abuse of process and breach of Flower & Hart’s duty to the Court.  It is an over simplification of White’s claim against Flower & Hart simply to call it an application for costs pursuant to s 43 of the Act.  Although s 43, itself, may not warrant an order that interest be paid on any costs ordered, there is in the present case a cause of action which arises independently of s 43, which seeks “the recovery” of money expended by way of costs .  That cause of action falls within s 51A(1).

17                  The cause of action, upon which White relied in order to obtain the order for costs, would entitle it to obtain that order whether or not s 43 existed.  In essence, White was claiming that it was put to expense and suffered loss and damage as a result of the abuse of process and breach of duty to the Court to which Flower & Hart was a party.  White has succeeded in that claim.  In my earlier reasons for judgment I said, at 249:

“The consequence is that Flower & Hart breached the duty it owed to the court to conduct proceedings before the court with propriety, not to be a party to an abuse of process and not to obstruct or defeat the administration of justice.”

It is as a result of that conclusion that White can recover its costs of the principal proceeding from Flower & Hart.

18                  Counsel for Flower & Hart submitted that within the framework of the proceeding brought by Caboolture Park against White, the only avenue open to White to obtain its costs was an application under s 43 of the Act for the Court to exercise its discretion in its favour, whether that be against Caboolture Park or Flower & Hart.  Counsel for Flower & Hart correctly pointed out that White could have sued Flower & Hart in another jurisdiction in tort for damages, in which case an equivalent statutory provision under s 51A(1) of the Act would have applied to any damages awarded.  Flower & Hart submitted that I should not look at White’s notice of motion filed 7 May 1993 in terms of seeking damages in tort but rather as an application pursuant to s 43 of the Act, namely an application for costs in the exercise of the Court’s discretion under s 43.

19                  I do not consider that I should view White’s application by that notice of motion so narrowly.  The substantive part of the notice of motion filed 7 May 1993 is in the following terms:

“2.       That, in addition to the costs orders made by Ryan J on 17 August 1989 and 6 April 1990, Flower & Hart pay all of White Industries (Qld) Pty Ltd’s costs of the action other than those costs that are solely referrable to White Industries (Qld) Pty Ltd prosecuting its cross‑claim, except insofar as such costs are an unreasonable amount or have been unreasonably incurred, such that White Industries (Qld) Pty Ltd are completely indemnified by Flower & Hart for these costs and interest on these costs.

3.         That the costs are to be specified as a gross sum by Ryan J on a date to be fixed, or to be ascertained in such other manner as on that date he may direct.”

White’s statement of facts and contentions alleged that Flower & Hart breached its duty to the Court in the manner in which it commenced, continued and conducted the principal proceeding.  One aspect of the duty alleged was a duty not to abuse or facilitate the abuse of the Court’s process.  It was then alleged that the circumstances of the case as pleaded were:

“an appropriate occasion for the exercise of the court’s power to order the respondent to pay the applicant’s costs of and incidental to defending the proceedings on an indemnity basis together with interest on that amount at the rate or rates and on such terms as to the compounding of those rates in the calculation of interest as will ensure that the applicant recovers all loss suffered as a result of the respondent’s conduct or such as the court as may seem just.”

Flower & Hart in its statement of contentions admitted that at all material times it owed a duty to the Court:

“(a)     To conduct the proceedings before the Court with due propriety.

 (b)      to be honest with the Court.

 (c)       Not to act so as to obstruct or defeat the administration of justice by the Court.

 (d)      Not to be a party to an abuse of the Court’s process.”

It denied any breach of the duties it owed to the Court.

20                  It can therefore be seen that the substance of the application made, and the manner in which it was argued, was predicated upon a substantive cause of action and not simply upon White’s success in the principal proceeding.

21                  Flower & Hart relied on the Commonwealth of Australia v SCI Operations Pty Limited (1998) 192 CLR 285 for the proposition that no cause of action arose in favour of White until the judgment upon White’s notice of motion had been delivered.  In that case the relevant cause of action only arose on the day upon which the Commonwealth refunded the customs duty to the importer so that there was no period of time in respect of which interest could run.  In short, no cause of action had arisen under the refund provisions of the Customs Act 1901 (Cth) when the proceeding was commenced.  The distinction between the present case and what was before the High Court was adverted to by McHugh and Gummow JJ at 316:

“The present is not a case where the assertion is that the appellant’s breach of contract or negligence has caused the respondents to pay away or the appellant to withhold money and as a result the respondents have been deprived of the use of the money so paid away or withheld.  Nor do the respondents seek an award of damages representing compensation for a wrongfully caused loss of their money, which is assessed wholly or partly by reference to the interest which would have been earned by safe investment of the money.”

22                  The cause of action upon which White must rely, in order to come within s 51A(1), is its cause of action against Flower & Hart, not the cause of action in the principal proceeding by Caboolture Park against White.  It is the former cause of action which gives rise to the recovery of money which creates the right for there to be included in the judgment sum interest pursuant to s 51A(1).  I see no warrant for construing s 51A(1) narrowly so as to exclude from its operation an award of costs where those costs are awarded to a party not as a consequence alone of that party succeeding in a proceeding but rather as a consequence of that party obtaining an order for those costs because of a separate and distinct claim or cause of action which has arisen as a result of the conduct of the party against whom the costs order is sought.  Wilcox J said in State Bank of New South Wales Ltd v Federal Commissioner of Taxation (1995) 132 ALR 653 at 665:

“[section] 51A(1) is a facultative provision intended to confer power on the court to do justice between parties in relation to pre‑judgment interest, a matter of some importance in these days of high interest rates and extensive delays in finalising litigation.  The subsection should be interpreted as widely as its language allows.”

I adopt this observation in support of my conclusion that s 51A(1) entitles White to claim interest on the amount of costs ordered to be paid to it as a result of its success on its notice of motion.

23                  It was a key part of Flower & Hart’s submission that s 51A was inapplicable because White could not establish the existence of a cause of action for costs earlier than the date on which I held that White was entitled to have Flower & Hart pay its costs.  However, as appears from my earlier reasons for judgment, Flower & Hart was involved in an abuse of process and a breach of the duty it owed to the Court on and from the date on which the principal proceeding was filed on 23 December 1986 (p 248).  White started to incur and pay costs in defending the principal proceeding from at least 30 March 1987 when it filed its defence and cross‑claim.  That abuse of process and breach of duty matured and was completed when Ryan J dismissed Caboolture Park’s claim on 17 August 1989.  Certainly from that point White had an entitlement to proceed against Flower & Hart to recover the costs and expenses it had incurred in defending the principal proceeding.

24                  Flower & Hart emphasised that pursuant to s 51A(1) of the Act interest was only payable on an amount of the judgment which was awarded in respect of the principal claim in the proceeding and formed no part of the costs of the proceeding.  Flower & Hart pointed out that the expression “recovery of money” in s 51A(1) was inclusively defined as including “any debt or damages or the value of any goods”.  According to Flower & Hart, this definition of “recovery of money” demonstrated that there had to be an amount of money ordered other than in relation to costs before interest could be awarded.  In support of this proposition it relied upon Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 where at 103 Spender J said:

Interest under s 51A is part of the judgment:  see s 51A(1).  As a matter of principle, it is part of the loss or damage suffered by the applicants representing the compensation for being out of pocket to the extent of the principal amount.” (emphasis added)

It may be that in a case where a sum of money is recovered (not in any way relating to any costs incurred) interest is only payable on that amount of the judgment pursuant to s 51A(1) and not on any costs awarded as part of the judgment.  But in the present case, the proceeding in respect of which the amount of $1.65 million is to be ordered to be paid, is the proceeding instituted by the notice of motion on 7 May 1993 which sought an order for the payment of costs.  The observation of Spender J does not apply, in my view, to White’s claim against Flower & Hart for its costs of the principal proceeding brought by way of that notice of motion.

25                  Although the Full Court of South Australia in South Australian Superannuation Fund Investment Trust v Leighton Contractors Pty Ltd (supra) concluded that the equivalent section to s 51A(1) did not allow for an order for interest on costs in respect of a period prior to the date of the award, that decision does not cover the situation of a proceeding for the recovery of costs, such as occurred in the present case.

26                  The Court has a very wide discretion pursuant to s 43 of the Act to order costs against a non‑party:  Knight v FP Special Assets Limited (supra) and although the power of the Court to order costs against a solicitor representing a party to a proceeding may be founded partly on its jurisdiction over its own officers:  Caboolture Park Shopping Centre Pty Ltd (In Liq) v White Industries (Qld) Pty Ltd (supra) at 231, the reason why the order has been made in the present proceeding is because of the abuse of process and breach of duty to the Court to which Flower & Hart was a party.

27                  It is not therefore necessary to read into s 51A(1) any other words to reach this conclusion.  White submitted that the introductory words of s 51A(1) should be read in the following way:

“In any proceedings, for the recovery of money (including any debt or damages or the value of any goods) in any proceedings in respect of a cause of action …” (emphasised words added)

Such a construction was placed on s 73 of the Common Law Practice Act 1967 (Qld) by the Queensland Court of Appeal in Inglis v Gould [1993] 2 Qd R 250.  That decision is of little assistance in the present proceeding as the provisions in the Queensland Act were different from the relevant provisions in the Federal Court of Australia Act. 

28                  I am satisfied that s 51A(1) provides a statutory basis for an order that interest be paid at an appropriate rate on the costs of $1.65 million. 

For what period should interest be paid?

29                  But in respect of what period or periods should interest be paid?  Flower & Hart submitted that there was a substantial delay in the bringing and prosecution of the application by White for costs against it, which delay was unreasonable, and that there were periods of time in respect of which White should not have the benefit of an award of interest.  White contended that in all the circumstances there had not been any unreasonable delay by it which disentitled it to be paid interest in respect of the whole of the period following Ryan J’s order dismissing the principal proceeding on 17 August 1989.

30                  If there has been a delay by White in prosecuting its claim for costs against Flower & Hart, that is a matter which may be taken into account in determining the period in respect of which interest should be allowed:  Smallacombe v Lockyer Investment Co Pty Ltd (supra) at 104.  In Serisier Investments Pty Ltd v English (1989) 1 Qd R 678, Thomas J (with whom Kneipp and Derrington JJ agreed) said at 679‑680:

“There are sometimes circumstances in which it would be unfair to order a defendant to pay interest over the whole period.  This includes the situation where the defendant is unaware of the existence of any claim or liability and would have ordered his affairs differently had he been advised of it, or where a defendant may have offered amends at an earlier date had the claim been made.  A far more common case in which interest is not allowed from the date of the loss is where the plaintiff has been guilty of unreasonable delay in prosecuting the claim.  The public policy of having claims brought and determined promptly seems to underlie this approach.  Goff J. thought that ‘this may be to encourage plaintiffs to prosecute their claims with diligence, and also because such conduct may lull a defendant into a false sense of security, leading him to think that the claim will not be pursued against him’ (B.P. Exploration (Libya) Co. Ltd v. Hunt (No. 2) at 847).   These examples are however exceptions to the normal position that in order to remove the advantage that the wrongdoer has had from money that ought to have been in  the pocket of the plaintiff interest is awarded from the date of loss.”

The circumstances in that case were different to the circumstances presently before me but the observations of Thomas J are a useful guide as to how I should exercise my discretion. 

31                  There were three separate and discrete phases of the overall proceeding.  The first phase commenced on 23 December 1986 (the filing of the principal proceeding) and ended on 17 August 1989 (the date on which Ryan J dismissed the principal proceeding and ordered Caboolture Park to pay White’s costs of the claim on an indemnity basis).  On 6 April 1990 Ryan J delivered judgment in favour of White on its cross‑claim for $5,521,652.61 and costs and ordered that those costs and the costs of the principal proceeding ordered on 17 August 1989 be specified as a gross sum.  The second phase covers the period after the dismissal of the principal proceeding and judgment on White’s cross‑claim during which the liquidator of Caboolture Park and White’s solicitors were seeking to obtain relevant documents and White was deciding whether to bring a claim against Flower & Hart.  It extended from May 1990 to 23 November 1992 when White filed an application for leave to appeal against the costs order made by Ryan J on 17 August 1989 and sought an order in addition to that order that Flower & Hart pay White’s costs of the principal proceeding.  The third phase runs from 23 November 1992 to judgment on 14 July 1998.

32                  During the first phase, White could not have taken any proceeding to recover from Flower & Hart its costs of defending the principal proceeding until judgment in that proceeding was given in its favour.  Although theoretically it could have commenced such a proceeding prior to 17 August 1989 or raised the claim in the principal proceeding, if it had known all the relevant facts, from a practical point of view any such claim would have been postponed until a determination of the principal proceeding.  White did not seek interest in respect of the period prior to 17 August 1989.

33                  During the second phase, White undertook detailed investigations to determine whether it had a cause of action against Flower & Hart.  The information and documentation it was seeking, and on which its claim was ultimately based, could not have been available to it prior to the liquidation of Caboolture Park; it comprised privileged documents and communications. White’s solicitor, Mr Roberts, regarded the circumstances in which the proceeding against Flower & Hart had to be commenced, and the proceeding itself, as exceptional.  In his experience the cause of action which ultimately succeeded against Flower & Hart had only rarely been pursued in the courts and he regarded it as a very difficult cause of action to make out, not only because it involved a jurisdiction rarely exercised but also because the evidence on which the claim was to be based was substantially in the possession of Flower & Hart.  It was necessary for the liquidator of Caboolture Park, in the first instance, to obtain the relevant documents from Flower & Hart.  Caboolture Park was wound‑up, and a liquidator appointed, on 18 May 1990.  Mr Roberts said that his firm and White were only prepared to commence the proceeding against Flower & Hart after a full and thorough investigation of the relevant circumstances.  This investigation took over two years to complete because of the difficulty in obtaining access to documents.  A significant period of that time was taken up with White seeking to obtain access to, and have a detailed consideration of, relevant documentation.  Such careful consideration was reasonable and not dilatory, especially having regard to the nature of the issues raised against Flower & Hart.

34                  The liquidator first wrote to Flower & Hart on 25 May 1990 requesting that it make available to him all the books and records of Caboolture Park in its possession.  The liquidator sought, in particular, Flower & Hart’s litigation file.  On 30 May 1990 White’s solicitors wrote to Flower & Hart asking when the documents could be collected.  On 1 June 1990 Flower & Hart refused to deliver up the documents to the liquidator claiming a lien over the file.  On the same day White’s solicitors wrote to Flower & Hart requesting that the documents be made available for inspection under s 377(2A) of the Companies (Qld) Code.  Flower & Hart did not assent to this proposal and an application to the Court was prepared but ultimately this became unnecessary as Flower & Hart agreed to make the documents available for inspection.  The inspection occurred in January 1991.  The documents made available for inspection did not include correspondence between Flower & Hart and Caboolture Park or its parent or diary notes made by Flower & Hart during the litigation.

35                  Thereafter there was further correspondence between White’s solicitors, Flower & Hart and the liquidator before a substantial part of the documents were in the possession of the liquidator and White’s solicitors.  This occurred by May 1991.  The liquidator prepared a list of the documents produced and sent this list to White’s solicitors on 31 July 1991.  The list set out details of the documents which were contained in 172 archive boxes.  Flower & Hart still refused to produce diary notes.  Further correspondence ensued and the diary notes were produced for inspection in early February 1992.  All the documents produced in the 172 archive boxes were inspected between April and July 1992.  Mr Roberts said this was a time‑consuming task.  Advice was sought from counsel in September 1992 to advise on prospects and the appropriate procedure to be followed which advice was received on 12 October 1992.

36                  White’s legal advisers’ approach to the manner in which they went about obtaining access to, and considering, the documents held by Flower & Hart was not unreasonable.  The documentation was substantial and it was appropriate for White’s solicitors to ensure they had all relevant documents in their possession and had inspected them before forming a final view whether there was a cause of action White could sustain.  Flower & Hart took a considerable period time to deliver up to the liquidator the documents and this was the cause of delay.  The situation was unusual because although the cause of action against Flower & Hart had accrued by the time White’s advisers started their investigations, they did not have immediately available any evidence which would support or justify the cause of action.  It was reasonable for White’s advisers to be thorough in the investigations they undertook. 

37                  I therefore consider it appropriate that interest should be payable in respect of the costs awarded from the point of time White started to take steps to obtain the books and records of Caboolture Park.  That commenced on 25 May 1990.  However I do not consider that interest should run through the whole of 1991.  Between 31 July 1991 (when the liquidator sent White’s solicitors a listing of the documents obtained from Flower & Hart ) and 22 October 1991 (when White’s solicitors recommended to White that the documents then in the possession of the liquidator be inspected) there was no progression of the matter and the delay during this period is such that interest should not accrue during it.  Interest should not therefore run between 1 August 1991 and 22 October 1991.

38                  White initially took the route of seeking an extension of time to appeal against Ryan J’s order as the view was taken that as that order had been perfected Ryan J had no jurisdiction to entertain any application for costs against Flower & Hart.  When the application came before the Full Court, it did not dismiss the application for leave to appeal but adjourned the hearing to allow White to file its notice of motion seeking the joinder of Flower & Hart as a party and an order for costs against it.  On 25 May 1993 Flower & Hart filed a notice of motion contesting the jurisdiction of the Court to determine that notice of motion and the parties agreed that the jurisdictional question should be determined by a special case stated to the Full Court.  White’s application for leave to appeal and the case stated were argued before the Full Court on 10 August 1993 and judgment was delivered on 22 September 1993.  White’s application for leave to appeal was dismissed but the Full Court decided the jurisdictional question in favour of White.  I do not consider that interest should run against Flower & Hart from 23 November 1992 (when White’s application for leave to appeal was filed) as the procedure adopted was inappropriate.  Rather the commencing date for the running of interest should be when the appropriate notice of motion was filed on 7 May 1993.

39                  Although Flower & Hart undertook and submitted a detailed analysis of the progression of the principal proceeding, the events and circumstances which occurred after the principal proceeding was dismissed and the progression of White’s motion instituted on 7 May 1993, I do not consider it appropriate to determine the period or periods in respect of which interest should be ordered to be paid on a month‑by‑month analysis.  Delays of periods of one or two months are inevitable in commercial litigation particularly where the issues are unusual and I do not consider that a month‑by‑month analysis is useful for determining whether interest should be payable over the period from 7 May 1993 to judgment.  A more appropriate exercise is to determine whether there is any substantial period during which there was unreasonable delay by White such as to deny it the benefit of interest during that period.

40                  The following chronology in respect of the third stage should be considered.  This list does not contain all the steps which occurred in the progression of the proceeding but it identifies relevant events which occurred:

23 November 1992            Application by White for leave to appeal out of time.

29 April 1993                     The application for leave to appeal was stood over to allow White to file a notice of motion seeking to join Flower & Hart as a party and seeking an order for the payment of costs against it.

7 May 1993                        Notice of motion filed.

16 June 1993                      Case stated for Full Court whether the Court had jurisdiction to entertain White’s motion as an application in the proceeding.

10 August 1993                  Leave to appeal application and case stated heard by Full Court.

22 September 1993            Full Court answered case stated affirmatively – the Court has jurisdiction to entertain White’s motion.

12 November 1993            Flower & Hart file a notice of motion seeking an order that Ryan J disqualifies himself from hearing White’s motion.

19 November 1993            Flower & Hart’s motion heard.

8 December 1993               White filed and served a statement of facts and contentions.

22 December 1993             Flower & Hart filed and served a statement of facts and contentions.

21 January 1994                 Flower & Hart filed and served its list of documents.

14 March 1994                   White filed and served its list of documents.

March-June 1994               Inspection of documents carried out but apparently not completed.

28 March 1994                   White delivered request for further and better particulars of Flower & Hart’s statement of facts and contentions.

19 May 1994                      Flower & Hart supplied further and better particulars.

8 November 1994              Ryan J disqualified himself

17 March 1995                   Drummond J orders White to deliver interrogatories.

13 July 1995                       Answers to interrogatories delivered.

4 August 1995                    Directions given for filing of witness statements and the Registrar was directed to make the court file available for inspection.

21 August 1995                  Flower & Hart deliver five witness statements.

27 October 1995                Directions given in relation to the filing of further affidavits.

22-24 November 1995       Mutual inspection of court file.

12 February 1996               White delivered further and better particulars of its statement of facts and contentions.

March 1996                        The issue of quantum and the possibility of the parties reaching agreement on quantum was raised for discussion.

12 June 1996                      White delivered amended statement of facts and contentions and additional further particulars.

1 November 1996              Spender J gave directions for trial and the matter was referred to the Registrar for the allocation of a trial date.

28 May 1997                      The Deputy Registrar said that the matter was awaiting allocation of a trial date.

11 December 1997             Kiefel J gave trial directions and on 16 December 1997, 20 April 1998 was fixed as the trial date.

41                  As can be seen from this chronology, after the Full Court decision on the case stated in September 1993 the prosecution of White’s application became somewhat protracted.  During the period from November 1993 to November 1994, although a number of interlocutory steps occurred, the manner in which the trial was to proceed awaited the outcome of the application to Ryan J to disqualify himself.  That occurred on 8 November 1994.  Thereafter further interlocutory steps occurred.  I do not consider that, in all the circumstances, it can be said that there was such unreasonable delay by White for any particular extensive period of time that White should be precluded from obtaining interest during that period.  From time to time, there was particular delay in relation to particular interlocutory steps.  For example, although Flower & Hart sought further and better particulars from White on 7 July 1995, those particulars were not provided until 12 February 1996 and 12 June 1996.  However during the period July 1995 to June 1996 other steps and events occurred in the preparation of the proceeding for trial, such as further directions hearings and the provision of further particulars.

42                  White submitted that although it was only seeking interest from 17 August 1989, if I was to take the view that there were periods of time in respect of which interest should not be allowed to run against Flower & Hart I should take into account that costs had been incurred and expended before 17 August 1989.  Notwithstanding that submission, I consider that the appropriate date from which interest should run against Flower & Hart and in favour of White is from 25 May 1990.

43                  I therefore conclude that Flower & Hart should pay White interest on the sum of $1.65 million from 25 May 1990 to the date of these reasons for judgment subject to interest not running from 1 August 1991 to 22 October 1991 or from 23 November 1992 to 6 May 1993. 

44                  No rate of interest is fixed or prescribed by, or pursuant to, s 51A(1).  The rate provided in that section is:

“such rate as the Court or the Judge, as the case may be, thinks fit”.

There is a line of authority that stands for the proposition that the relevant State Supreme Court interest rate should be applied.  In Namol Pty Ltd v AW Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388, Davies J said at 389:

“Interest should be added in accordance with s 51A of the Federal Court of Australia Act 1976 (Cth).  It is the usual practice of the Court when sitting in New South Wales to adopt the rates set out in Sch J to the Rules of the Supreme Court of New South Wales 1970.  This is because those rates reflect commercial rates of interest, which is not the case for the rates prescribed in O 35, r 8 of the Federal Court Rules 1979 (Cth).  The practice has the policy advantage of ensuring that damages are awarded on the same basis whether a matter be instituted in this Court or in the Supreme Court of New South Wales.”

(See also Alec Finlayson Pty Ltd v Armidale City Council (unreported, Burchett J, 6 March 1998); Kettle Chip Co Pty Ltd v Apand Pty Ltd (No 2) (1998) 83 FCR 466; Nagy v Masters Dairy Ltd (1996) 150 ALR 273).

45                  In EMCL Pty Ltd v Esanda Finance Corporation Ltd (No 2) (1998) 160 ALR 382, Heerey J followed this line of authority.  His Honour said at 384:

“I think there is obvious practical value in having the Federal Court applying the same interest rate as would be applied in litigation in the same State in which the case is being heard.  It would be undesirable for there to be distinctions drawn from State to State, depending on whether it was thought the regime in any particular State did or did not impose a commercial rate of interest.”

On appeal, Heerey J’s order as to the appropriate rate of interest was reversed:  EMCL Pty Ltd v Esanda Finance Corporation Ltd [1999] FCA 978.  The Full Court accepted the practice referred to in Namol Pty Ltd v AW Baulderstone Pty Ltd (No 2) (supra) holding that the reason for the practice is because the State rate reflects commercial rates.  Their Honours reasoned (at [62]):

“In our view the primary judge’s discretion miscarried.  The reason his Honour adopted the Namol practice was not because he thought it appropriate to fix interest at a penal rather than a commercial rate.  It was because of the ‘obvious practical value in having the Federal Court applying the same interest rate as would be applied in litigation in the same State in which the case is being heard’.  Whatever might be the position where there is no evidence that the rate applied under a State law is penal and not commercial, in a case such as the present where there is, it is wrong in principle to put aside the fact in favour of a policy that produces a uniformity of outcome as between courts.  To do that is to fail to take into account a material consideration, namely that the Namol practice is founded on the State rate reflecting commercial rates.”

In the present case there were no submissions directed specifically to the issue as to what interest rates I should apply if I determined that interest was payable prior to judgment. 

46                  On 17 December 1983 a Queensland Order in Council prescribed 10% as the rate of interest for the purpose of s 73(1) of the Common Law Practice Act 1867‑1981 (Qld).  That section empowers the Court to award interest on judgments at the prescribed rate.  Order 15 r15 and O 31 r6A of the Queensland Supreme Court Rules empower the Court to award interest on default judgments.  Various Practice Directions have fixed the interest rate for the purpose of those rules.  On 30 May 1994 the rate was fixed at 10% from 1 June 1994.  It was varied to 11.5% from 1 July 1995, 10% from 1 May 1997 and 9% from 1 July 1998. 

47                  White handed up a schedule which showed the interest rates fixed from time to time pursuant to O 35 r8 of the Federal Court Rules and prescribed for the purposes of s 52 of the Act.  Flower & Hart did not make any submission to the contrary, nor did it submit that I should use or apply any particular interest rate.  In these circumstances I do not consider that I should adopt what is said in the authorities to which I have referred to be “the usual practice of the Court”, that is, apply the Queensland interest rates.  It was not suggested that the interest rates fixed pursuant to O 35 r8 were not commercial rates of interest or that they were penal rates or that they should not be applied. 

48                  The relevant statutory rules show that the interest rates determined by the Court for the purposes of O 35 r8 of the Federal Court Rules and therefore prescribed for the purposes of s 52(2) of the Act were:

-          12 March 1990 to 11 August 1991                    17%

-          12 August 1991 to 31 December 1992              15%

            1 January 1993 to 31 December 1993               12%

-          1 January 1994 to 31 December 1995               10%

-          1 January 1996 to 25 September 1997              12%

-          26 September 1997 to date                               10.5%

I consider that it is appropriate that these rates apply to the costs of $1.65 million during their respective periods.  Although these rates only apply to judgments from the date of judgment, the rates are determined for the purpose of compensating a successful party from being deprived of the use of his, her or its money during the relevant period.  As White has been deprived of the use of the money expended on costs from at least 25 May 1990 I consider it appropriate to apply these rates in respect of their respective periods.  These rates differ from the Queensland rates.  I have applied them not as penal rates, but for the purpose of compensating White for being deprived of the use of the money it expended on costs.

49                  I will hear the parties on the form of the order which should be made and the issue of the costs of White’s application that it be awarded interest on its costs and the form of the order to be made.

Associate:

Dated:              14 August 2000