Gray v Richards (No 4)

[2017] NSWSC 1714

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Gray v Richards (No 4) [2017] NSWSC 1714
Hearing dates:	7 December 2017
Date of orders:	08 December 2017
Decision date:	08 December 2017
Jurisdiction:	Common Law
Before:	McCallum J
Decision:	Application for interest on costs allowed
Catchwords:	COSTS – application for interest on costs – application made after appeals to Court of Appeal and High Court – whether first instance court is functus officio – where costs order at first instance set aside by Court of Appeal and Court of Appeal’s order subsequently set aside by High Court – whether first instance court has authority under s 101(4) to order interest on costs on the strength of High Court’s order – whether application should be refused on grounds of alleged delay
Legislation Cited:	Civil Procedure Act 2005 (NSW), ss 56(2), 98(3), 101(4) Judiciary Act 1903 (Cth), s 37 Uniform Civil Procedure Act 2005 (NSW), r 36.16
Cases Cited:	Grace v Grace (No 9) [2014] NSWSC 1239 Gray v Richards (No 2) [2014] HCA 47 Gray v Richards (2011) 59 MVR 85; [2011] NSWSC 877 Gray v Richards (No 2) [2011] NSWSC 1502 Gray v Richards (No 3) [2012] NSWSC 344 Nicol v Allyacht Spars Pty Ltd [No 2] (1988) 165 CLR 306; [1988] HCA 48 Peacock v Osborne (1907) 4 CLR 1564 Richards v Gray (2013) 66 MVR 16; [2013] NSWCA 402 Richards v Gray (No 2) [2014] NSWCA 83 Short v Crawley (No 45) [2013] NSWSC 1541 Thynne v Thynne [1955] P 272 Zepinic v Chateau Constructions (Aust) Ltd (No 2) [2013] NSWCA 227
Category:	Costs
Parties:	Rhiannon Leigh Gray by her Tutor Kathleen Anne Gray (plaintiff) Corey Edward Richards (defendant)
Representation:	Counsel: ML Brabazon SC, A Bailey (plaintiff) M Castle (defendant)   Solicitors: Beilby Poulden Costello (plaintiff) Barry Nilsson Lawyers (defendant)
File Number(s):	2009/338685
Publication restriction:	None

Judgment

1. HER HONOUR: This is an application for interest on costs payable by the defendant to the plaintiff. The proceedings were determined by me in 2011, resulting in a verdict for the plaintiff in the sum of $12,151,000. The costs order was made in 2012. Following an appeal by the defendant to the Court of Appeal and a further appeal by the plaintiff to the High Court, the plaintiff has retained the benefit of most of the original verdict together with the benefit of the whole of the original costs order. The costs are substantial. They were recently assessed by a costs assessor to be in the order of $800,000. The plaintiff’s trustee has paid almost $1,000,000 in legal fees to the plaintiff’s legal representatives out of the damages awarded to her but, to date, has received no payment towards those costs from the defendant.

2. The principal basis on which the application is opposed is the contention that the Court at this stage has no jurisdiction to make the order sought. Alternatively, it is submitted that, if the Court does have jurisdiction to order the defendant to pay interest on costs at this stage, it should decline to do so because of the alleged delay in bringing the application. I have determined that the orders sought by the plaintiff should be made, for the following reasons.

Circumstances in which the application is brought

3. The proceedings arose out of a motor vehicle accident in which the plaintiff suffered catastrophic injuries, including severe brain injury, when she was aged 10 years. The severity of her brain injury was such as to cause significant cognitive, physical and behavioural dysfunction together with multiple physical disabilities.

4. The hearing of the proceedings commenced before me on 1 August 2011. Liability was admitted. The only issue was the quantum of damages that should be awarded. On 3 August 2011 the parties agreed on a proposed settlement of the proceedings subject to one issue. It was agreed that the amount of damages awarded should be $10,000,000. However, the parties remained in dispute as to the future cost of managing that fund. As a result of her brain injury, the plaintiff is permanently incapable of managing her own affairs. On that basis, it was accepted that she was entitled to be awarded the future cost of managing the substantial fund to be received by her. However, she claimed also to be entitled to the future cost of managing the fund management component of that fund (which the High Court termed “fund management damages”) and the future cost of managing income earned upon investment of the fund (termed “the fund management on fund income issue”). The parties agreed to settle the proceedings on the basis that those two issues would be reserved to be determined by me.

5. The proposed settlement was approved by Hoeben J (as his Honour then was). The proceedings were then relisted before me to determine the remaining issues.

6. I gave the following decisions in the proceedings:

1. on 16 August 2011, I allowed the plaintiff’s claim for fund management damages and fund management on fund income: see Gray v Richards (2011) 59 MVR 85; [2011] NSWSC 877;

2. on 8 December 2011, I ruled in favour of the plaintiff in an application to have the cost of fund management awarded at the rates charged by a private fund manager (the private rates issue) and further allowed fund management costs on the whole amount of the verdict without deductions (the deductions issue): Gray v Richards (No 2) [2011] NSWSC 1502;

3. on 13 April 2012 I ordered the defendant to pay the plaintiff’s costs of the proceedings except for half of the plaintiff’s costs from 9 August 2011 to 8 December 2011: Gray v Richards (No 3) [2012] NSWSC 344.

7. The defendant appealed against all three judgments. As to fund management damages and fund management on fund income (dealt with in my first judgment), the Court of Appeal overturned my decision. As to the private rates issue and the deductions issue, my decision was upheld: see Richards v Gray [2013] NSWCA 402.

8. In a separate judgment, the Court of Appeal set aside the costs order made by me in April 2012 and in lieu thereof ordered the plaintiff to pay the defendant’s costs of the August hearing and the defendant to pay half of the plaintiff’s costs between 19 August 2011 to 8 December 2011: see Richards v Gray (No 2) [2014] NSWCA 83.

9. The plaintiff was granted special leave to appeal to the High Court on the fund management damages issue and the fund management on fund income issue. The High Court upheld her challenge to the decision of the Court of Appeal on the fund management damages issue. As to the fund management on fund income issue, the appeal was unsuccessful.

10. The High Court determined costs in a separate judgment: see Gray v Richards (No 2) [2014] HCA 47. The Court set aside the orders as to costs made by the Court of Appeal and, in their place, made a number of orders including an order in the same terms as the order as to costs made by me at first instance.

11. The decision of the High Court as to costs was given on 14 November 2014. Since then, the plaintiff has been attempting to recover her costs. The steps taken to that end are addressed in detail in affidavits sworn by her solicitor, Ms Kate Henderson. Ms Henderson’s evidence was not challenged and the defendant adduced no evidence on the present application. The evidence reveals, in short, that Ms Henderson first made considerable efforts to resolve the issue of recoverable legal costs without recourse to a formal assessment, which would inevitably be a costly and cumbersome exercise in this case. Ms Henderson states, and I accept, that the plaintiff was prepared to compromise her claim for costs in order to avoid the additional costs and delays involved in formal assessment. I am satisfied that Ms Henderson made many attempts to achieve that outcome.

12. Ms Henderson’s task was complicated by the fact that the proceedings at first instance were conducted over many years. There had been a number of different solicitors on the record for the plaintiff at different times charging different rates. It was necessary for Ms Henderson to review multiple files from different law firms in order to itemise the legal services performed from the outset of the retainer in August 2003.

13. On 17 March 2017, the plaintiff offered to accept the sum of $900,000 inclusive of GST in full and final payment of the professional costs and disbursements associated with the trial at first instance on a party/party basis. The defendant at no stage made any counter offer confined to the costs of the proceedings at first instance, preferring instead to negotiate on a global basis to resolve the costs of all of the proceedings (including the appeals to the Court of Appeal and the High Court).

14. Accordingly, the plaintiff proceeded to prepare itemised bills of costs in respect of the proceedings in each Court. Certificates relating to those costs have been issued as follows:

1. on 2 October 2015, a certificate of taxation was issued in respect of the proceedings in the High Court;

2. on 11 July 2016, a certificate of determination of costs was issued in respect of the costs of the proceedings in the Court of Appeal;

3. on 27 November 2017, a certificate of assessment was issued in respect of the costs of the proceedings at first instance.

15. As already noted, the total assessment of the costs of the proceedings at first instance was in the order of $800,000. The assessor also allowed the plaintiff her costs of compiling the claim for costs for reasons stated at pars 50 and following of the reasons for assessment, which had regard to the fact that the plaintiff had made a number of offers including an offer to accept $775,000 (to which there was no response from the defendant).

Basis for the present application

16. The application invokes s 101(4) of the Civil Procedure Act 2005 (NSW) as in force on 23 November 2015. The section then provided:

The Court may order that interest is to be paid on any amount payable under an order for the payment of costs.

17. The defendant submitted that this Court does not have jurisdiction to make an order under that section at this stage, for two reasons. First, it was submitted that the Court is functus officio. Secondly, it was submitted that, on its proper construction, the reference to “an order” in s 101(4) is a reference to an order of this Court. On that basis, it was submitted that a necessary precondition to the exercise of the jurisdiction sought to be invoked by the plaintiff does not exist, since the order for costs in favour of the plaintiff is an order of the High Court. The defendant submitted that the High Court is the only court which could entertain an application for interest on costs at this stage.

Am I functus?

18. The question whether the Court is functus officio at this stage and so unable to determine an application of the present kind is the subject of inconsistent authority. The competing arguments are considered in careful detail in the judgment of White J (as his Honour then was) in Short v Crawley (No 45) [2013] NSWSC 1541. It was common ground at the hearing before me that the contest has not been resolved in any decision that binds me.

19. The defendant relied on the view taken by McColl JA in Zepinic v Chateau Constructions (Australia) Ltd (No 2) [2013] NSWCA 227. Her Honour’s view turns on the terms of UCPR r 36.16, which addresses the circumstances in which the Court can set aside or vary a judgment or order. A premise of that approach is that an order under s 101(4) for interest on costs amounts to a variation of the costs order and so (leaving aside any specific ground under r 36.16.) cannot be sought after entry of the costs order. The Zepinic view accordingly holds that an application for interest on costs must be sought at the time of the final order as to costs or within the further time limited by UCPR r 36.16(3A) or (3B).

20. The competing view holds that an order for interest on costs does not vary the costs order but is additional to it. Justice McColl addressed that issue in Zepinic at [85], as follows:

Mr Ilkovski's submission that the interest order is an additional order, rather than one within the meaning of UCPR 36.16, is simply semantic. An application for an order not made in the Court's original orders is an application for a variation of a judgment or orders of the Court, albeit that it would add an order, rather than amend an existing order. Although it is not determinative, that was how the Court described the orders made in Drummond (No 2); see also Spedding v Nobles (No 2) [2007] NSWCA 87 (at [18]). The fact that the order was described as "additional” in Leda Pty Ltd v Weerden (No 2) emphasises the semantic nature of the argument.

21. In Short v Crawley (No 45), White J expressly disagreed with that view, saying at [79]:

Nonetheless, I respectfully do not agree that if an order for interest on costs was made, such an order would vary the previous costs order. An order for interest on costs would vary the previous outcome, but not any previous order. Therefore the power to make such an additional order is not found in r 36.16. [Emphasis in original].

22. Justice White considered, rather, that the source of power to make an order for interest on costs at a point later than the time when an order for costs is made is to be found in s 98(3) of the Civil Procedure Act 2005 (NSW), which confers power to make an order as to costs at any stage of the proceedings or after the conclusion of the proceedings. His Honour said at [81]:

If that power extends to the making of an order for interest on costs then the principles of finality of litigation are not offended because those principles are subject to contrary statutory provision.

23. Justice White concluded that the power under s 98(3) does extend to the making of an order for interest on costs because such an order is an order “as to” costs.

24. Justice Brereton reached the same conclusion by a slightly different path in Grace v Grace (No 9) [2014] NSWSC 1239. His Honour did not consider an order for interest on costs to be a decision “as to” costs within the meaning of s 98(3). His Honour nonetheless took the view that the finality principle is not offended by dealing with an application for costs after the final judgment because it does not involve impugning “the operative and substantive part of its judgment” (citing Thynne v Thynne [1955] P 272, 296,301,314, 315). His Honour considered that an entitlement to interest does not merge in a costs order, for reasons related to an analysis of the costs assessment regime.

25. I would respectfully adopt the approach taken by White J and Brereton J, that is, that the Court is not functus officio by reason of the failure to bring the application within the time allowed under r 36.16. It is not necessary for present purposes to determine whether the order sought is an order “as to” costs or whether to adopt the reasoning of Brereton J, since each leads to the same conclusion on the present issue.

Significance of the fact that the order was set aside

26. The second issue raised by the defendant is more difficult. Section 101(4) confers authority to order “that interest is to be paid on any amount payable under an order for the payment of costs”.

27. The circumstances in which the present application is brought are summarised above. In short, the position as to costs orders is as follows:

1. on 13 April 2012, I ordered “that the defendant pay the plaintiff’s costs of the proceedings except for half of the plaintiff’s costs from 19 August 2011 to 8 December 2011”;

2. on 28 March 2014, the Court of Appeal set aside that order (by order 3 of the Court of Appeal) and made a different order in its place;

3. on 14 November 2014, the High Court set aside order 3 of the Court of Appeal and, in its place, made an order (order 2(d)) “that Mr Richards pay Ms Gray’s costs of the proceedings at first instance except for half of Ms Gray’s costs from 19 August 2011 to 8 December 2011”.

28. The plaintiff characterised the order of the High Court as one that “restored” the order made at first instance. As carefully argued by Ms Castle, who appears for the defendant, although the order of the High Court had the effect of restoring the plaintiff to the position she enjoyed under the order made at first instance, it is not accurate to say that the High Court restored that order. Consideration must be given to the fact that it is a discrete order made by a different court.

29. Ms Castle submitted that, in the circumstances, there is simply no jurisdiction to make the order sought. She submitted that, following upon the decision of the Court of Appeal, which set my order aside, this Court has no further role and no remaining source of jurisdiction in the proceedings. An aspect of the position contended for by Ms Castle was the assumption that the reference to “an order” in s 101(4) of the Civil Procedure Act means an order of this Court.

30. Mr Brabazon SC, who appears with Mr Bailey for the plaintiff, submitted that the source of the Court’s jurisdiction is the order of the High Court pronounced in lieu of the order of the Court of Appeal, which Mr Brabazon submitted is an order to which s 101(4) refers.

31. According to the parties’ researches, there is no authority directly on point. Ms Castle noted that the High Court’s authority to make order 2(d) arose under s 37 of the Judiciary Act 1903 (Cth). That section provides:

Form of judgment on appeal

The High Court in the exercise of its appellate jurisdiction may affirm reverse or modify the judgment appealed from, and may give such judgment as ought to have been given in the first instance, and if the cause is not pending in the High Court may in its discretion award execution from the High Court or remit the cause to the Court from which the appeal was brought for the execution of the judgment of the High Court; and in the latter case it shall be the duty of that Court to execute the judgment of the High Court in the same manner as if it were its own judgment.

32. Ms Castle sought in that context to derive some support for her position from the decision of the High Court in Nicol v Allyacht Spars Pty Ltd [No 2] (1988) 165 CLR 306; [1988] HCA 48. The plaintiff in that case had been unsuccessful in a claim for damages for personal injury at first instance. He appealed to the Full Court of the Supreme Court of Queensland, which dismissed his appeal. An appeal to the High Court was allowed. The Court awarded damages together with interest and costs, reserving liberty to the plaintiff to apply for “such order in relation to interest as might be appropriate”. The plaintiff claimed interest dating back to the date on which his action was dismissed at first instance arguing, by reference to s 37 of the Judiciary Act, that the order of the High Court “became the judgment of the Supreme Court of Queensland”, taking effect from the date on which the action was dismissed at first instance.

33. The Court rejected that argument but nonetheless allowed interest from the earlier date, as sought by the plaintiff. The Court said:

While s 37 of the Judiciary Act does not operate so that an order of this Court made on 6 November 1987 produces a judgment in favour of the appellant dated 3 April 1986, it does have a consequence of which the appellant may avail himself. The power conferred on this Court to give “such judgment as ought to have been given in the first instance” authorises the inclusion in our order of a sum by way of interest pursuant to s 72 of the Act from 3 April1986 to 6 November 1987.

34. Mr Brabazon sought to obtain support for his position from the decision of the High Court in Peacock v Osborne (1907) 4 CLR 1564. In that case, the High Court had given judgment for the plaintiff, granting an injunction and directing certain inquiries to be made as to damages. The proceedings had been remitted to the Supreme Court to execute that judgment. The defendant sought to appeal to the Privy Council and obtained a stay in the Supreme Court in relation to the inquiry as to damages. The plaintiff appealed against the stay order.

34. The Court held, unsurprisingly, “it is the duty of the Supreme Court to obey, and not to make an order inconsistent with obedience”. Chief Justice Griffiths said:

To put it shortly, the judgment of this Court, when the case was remitted to the Supreme Court, is to be regarded on the same footing as a judgment of the Supreme Court from which no appeal has been or can be brought. Matters subsequent to the case being remitted are within the ordinary jurisdiction of the Supreme Court. But that Court has no authority, though it may have formal power, to make any order inconsistent with the order of this Court. The appeal, therefore, must be allowed.

36. Neither authority is directly on point. As noted by Mr Brabazon, the point in Allyacht was a short one, namely, that the order of the High Court took effect on the date on which it was made and was not to be regarded as, in effect, an order with backdated effect. Mr Brabazon noted that that conclusion did not preclude the plaintiff from obtaining the interest he sought from the earlier date. Allyacht says nothing as to the date from which interest, if ordered, would be payable.

37. The decision in Peacock is distinguishable because here, there has been no remitter. Mr Brabazon submitted, however, that the same principle must apply to an order as to a remitter. He submitted that, according to the principle stated by the Chief Justice, the order of the High Court is made to have the same effect as would have an order of this Court that is not capable of being appealed from.

38. The critical question is whether the order of the High Court is “an order” within the meaning of s 101(4) of the Civil Procedure Act. In construing that provision, I must have regard to the provisions of Pt 6 of the Act. In particular, Mr Brabazon noted that s 56(2) of the Act requires the Court to give effect to the overriding purpose (of facilitating the just, quick and cheap resolution of the real issues in the proceedings) when, among other things, it interprets any provision of the Act.

39. Both parties sought to invoke that principle to their advantage. Ms Castle, for her part, submitted that the Court should not construe the section in a manner that encourages delay in seeking an order for interest. Mr Brabazon submitted that the Court should not construe the section in such a way as to, in effect, compel parties to make an application for interest in every case, when the future is unknown but against the risk of future delay of the kind that has occurred in the present case.

40. There is some force in each of those competing contentions. To the extent that case management principles do inform the interpretation of s 101(4) (as s 56(2) provides they must), the interpretation must be one that applies to all cases, not just this individual case. That consideration would suggest preferring a broad interpretation of the term “an order” in s 101(4). A construction of the section that would require the plaintiff to take this application to the High Court is not to be preferred. A further consideration is that the construction of the section contended for on behalf of the plaintiff would see the prospect of an order for interest on costs stand as a disincentive to parties ordered to pay costs to delay the assessment process and an incentive to take an expeditious approach.

41. It is to be recalled in that context that the order of the High Court, while of course being an order of that Court, is one that relates to the costs of the proceedings in this Court. Further, it is an order the effect of which was to restore the plaintiff to the position she was in before a series of appeals in which she was ultimately mostly successful on the substantive issues and entirely successful in respect of the costs order in question here. I am satisfied that the proper approach, reading s 37 of the Judiciary Act and the provisions of the Civil Procedure Act in a coherent way, is to interpret the reference to “an order” in s 101(4) of the Civil Procedure Act so as to include reference to that order.

42. For those reasons, I am satisfied that I have authority to make the order sought.

Discretionary grounds

43. As already noted, the defendant did not go into evidence on the present application. The written submissions on this issue were short. In summary, the defendant submitted that there has been significant delay in bringing the application which it was submitted could have been made at any time after delivery of the costs judgment on 13 April 2012. By that date, of course, the plaintiff was aware that the defendant had lodged an appeal.

44. The defendant further submitted that another “logical and convenient” time to make the application would have been after 14 November 2014 when the costs of the first instance proceedings were finalised by the High Court’s order. The defendant submitted that there is “presumed prejudice” by reason of the delay and that the Court should not encourage the making of belated applications for interest on costs. It was further noted that the order for costs at first instance on which the plaintiff seeks interest “did not exist” between the time when the Court of Appeal set it aside and the High Court made an order to the same effect.

45. It may be accepted that the application could have been made at an earlier point in time. The defendant further submitted that, had the application been made at an earlier point, it would have been determined on the premise that there was no need to establish exceptional circumstances for awarding interest on costs. While the Court was not taken to specific authority on that issue, it is convenient for present purposes to proceed on that premise.

46. It is difficult to reconstruct how the application might have been evaluated had it been made at an earlier point in time. Ironically, the features of the evidence which lend strength to the application are the very matters which have caused the delay. At the time my costs order was made, the plaintiff could have pointed to little other than a generic entitlement to warrant an order for interest. Had the application been made and lost at that stage, that would have resulted in a costs order against the plaintiff. The uncontested evidence now unequivocally establishes that the fund awarded to the plaintiff by way of damages has been depleted in a substantial amount for a lengthy period by reason of the ongoing dispute as to the payment of costs. To borrow a lovely expression used by Brereton J in Grace v Grace at [64], the money has been “fructifying in the wrong pocket”.

47. I am not persuaded that there is any discretionary basis to decline the relief sought. For those reasons, I make the orders sought in the minute of orders handed up by Mr Brabazon.

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Amendments

30 October 2018 - Incorrect names of solicitors on coversheet

Decision last updated: 30 October 2018