FEDERAL COURT OF AUSTRALIA

Merost Pty Ltd v CPT Custodian Pty Ltd (No 2) [2014] FCA 594

THE COURT ORDERS THAT:

1.    The respondent pay the applicant:

(a)    $52,339.42 for prejudgment interest pursuant to s 51A(1) of the Federal Court of Australia Act 1976 (Cth) for the period from 27 June 2011 to 19 February 2014.

(b)    The respondent pay the applicant’s costs of the proceeding including reserved costs:

(a)    before 11.00 am on 25 July 2012 on a party-party basis; and

(b)    after 11.00 am on 25 July 2012 on an indemnity basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    By a judgment delivered on 19 February 2014, Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97, the respondent was ordered to pay the applicant $260,000. The questions of interest and costs were reserved. Pursuant to directions of the Court, the applicant filed written submissions dated 4 April 2014 on these issues, and the respondent filed written submissions dated 15 April 2014. The parties were heard on 24 April 2014 and the Court ordered that the parties file further written submissions. The applicant filed supplementary written submissions on 14 May 2014, and the respondent on 28 May 2014. The questions of interest and costs were determined without further oral hearing. These reasons for judgment address those matters.

Interest

2    Section 51A(1) of the Federal Court of Australia Act 1976 (Cth) (the Act) provides:

(1)     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.

3    The applicant claims interest from the date when the cause of action arose, that is to say, when it entered into the agreement to purchase the shopping centre on 27 June 2011, until the date of judgment, namely, 19 February 2014. In accordance with the rates referred to in Practice Note CM16 interest for that period amounts to $52,339.42.

4    The respondent contends that if interest is to be awarded, it should only pay $46,238.32. The respondent uses the same rates as the applicants. However, the respondent contends that it should not pay interest for the period from 10 May 2013 to 13 September 2013 because the trial was delayed by the applicant in that period. Trial dates in May and August were offered to the parties by the Court. The respondent was prepared to proceed on each of those dates, but the applicant was not available.

5    There was no evidence that the applicants sought to delay the trial. The unavailability of a party for a particular hearing date offered by the Court is one of the exigencies of litigation. The purpose of an award of interest is to compensate a party for being out of pocket of money to which that party is entitled. During the period awaiting trial the applicant was held out of its money. Therefore the respondent should pay the amount of interest claimed by the applicant in the sum of $52,339.42.

Costs

6    The applicant claims costs on an indemnity basis from 25 July 2012. It relies on r 25.14(3) of the Federal Court Rules 2011 (Cth), which provides:

(3)    If an offer is made by an applicant and not accepted by a respondent, and the applicant obtains a judgment that is more favourable than the terms of the offer, the applicant is entitled to an order that the respondent pay the applicant’s costs:

(a)    before 11.00 am on the second business day after the offer was served — on a party and party basis; and

(b)    after the time mentioned in paragraph (a) — on an indemnity basis.

7    On 23 July 2012 the applicant made an offer of compromise under r 25.14(3). It offered to receive $300,000 plus costs in satisfaction of its claim.

8    The applicant contends that these circumstances fall within the rule. The offer was to receive $300,000 plus costs. The judgment was for the sum of $312,339.42, being the award of $260,000 plus interest of $52,339.42. Consequently, the judgment is more favourable than the terms of the offer.

9    The respondent initially submitted that the applicant must show that the conduct of the respondent in refusing the offer was unreasonable when viewed in light of the circumstances which existed when the offer was refused.

10    The applicant’s supplementary written submissions demonstrated that this is the correct approach to a Calderbank offer, but is the wrong approach to an offer made under the rule. In IFTC Broking Services Ltd v Federal Commissioner of Taxation (2010) 268 ALR 1; [2010] FCAFC 31, the Full Court drew the distinction between a Calderbank offer and the predecessor of the current rule, which is relevantly in the same terms. The Full Court said at [12]:

Futuretronics exposes the difference between a Calderbank offer and an offer of compromise. In respect of a Calderbank offer, characterisation of the refusal to accept the offer as reasonable or not is significant, even potentially determinative. In respect of an offer of compromise, the reasonableness of the refusal to accept the offer is not, of itself, sufficient to displace the consequence of indemnity costs. The appellants’ reliance on various circumstances said to make their refusal of the offer reasonable fails to confront this difference of principle.

11    Under a rule such as r 25.14(3), when an offer is made and a judgment no less favourable is obtained, a rebuttable presumption in favour of indemnity costs is created. The prima facie position should only be departed from for proper reasons, which generally only arise in an exceptional case: see Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) (2004) 212 ALR 281; [2004] FCA 1437 at [17] per Hely J; and Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [10] per Tamberlin, Finn and Sundberg JJ.

12    In its supplementary written submissions the respondent first contended that the reference in the rule to the “terms of the offer” means that the offer must be construed as at the time it was made. By this reasoning, as at 23 July 2012, the principal amount necessary to produce $300,000 after the addition of interest would have been about $280,000. The judgment sum of $260,000 was less favourable to the applicant and hence the rule did not require the respondent to pay indemnity costs.

13    There is however no warrant in the text of the rule to support this approach. What is required in this case is a comparison between the amount of the offer of $300,000 and the amount of the judgment of $312,339.42. On this analysis the judgment was more favourable than the offer which the applicant made.

14    Then, the respondent argued that if it had been required to accept the offer in order to avoid liability to pay indemnity costs it would, in effect, have been required to pay interest for a period after 23 July 2012 when the applicant would not have been out of its money. This result would be unjust. It conflicts with the principle that interest is designed to compensate a party for being held out of its money. Interest is not meant to be for punishment, and yet in the circumstances of this case, the respondent would have incurred punishment by having to pay interest in those circumstances.

15    The considerations advanced by the respondent do not justify departure from the prima facie entitlement of the applicant to indemnity costs. They do not provide proper reasons for departure from the ordinary operation of the rule. There was nothing exceptional about the position of the respondent. It was faced with an offer inclusive of interest. It had to assess the likely outcome of the proceedings. Part of the assessment was a calculation of the interest which would be payable on the judgment under s 51A(1) of the Act. In that exercise it miscalculated so that the judgment was more favourable to the applicant than the offer. This is an example of the ordinary circumstances in which the prima facie entitlement to indemnity costs arises.

16    Consequently the respondent must pay the applicant’s costs in accordance with the rule from 11.00 am on 25 July 2012 on an indemnity basis.

Associate: