Hosken, Ian John v Telstra Pty Ltd

[1998] FCA 451

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 205 of 1994

BETWEEN:

IAN JOHN HOSKEN
First Applicant

BERENICE ANN HOSKEN
Second Applicant

AND:

TELSTRA PTY LTD (ACN 051 775 556)
Respondent

JUDGE:	RYAN J
DATE:	16 APRIL 1998
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

I propose to deal immediately with the question of interest and I shall ask counsel to return to Court after they have made calculations of interest in accordance with what I am about to say.

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

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.

A question has arisen in this matter as to the mode of calculation and the rate of interest which should be adopted and various calculations have been made utilising the rates fixed by the Attorney-General of Victoria pursuant to s 2(1) of the Penalty Interest Rates Act 1983. In my view, this Court, in the exercise of the discretion which it has under s 51A(1), should fix interest rates which broadly reflect those prevailing in the commercial money market from time to time. Rates have been appended to the Rules of the Supreme Court of New South Wales which generally answer that description, at least to the extent that they provide a useful test of the appropriateness of a rate which the Court might be minded to adopt in the light of more direct evidence of market rates.

As I have indicated in other reasons for judgment dealing with cognate topics, I do not consider that the rates affixed by this Court should vary according to the peculiar circumstances of the individual entitled to the interest, to whether that person was a borrower or a lender and matters of that kind.  Equally, it is clear from the lack of movement in the rates fixed pursuant to the Penalty Interest Rates Act of Victoria during the last six years when interest rates have notoriously fallen to historically low levels, that those rates do not mirror the market but contain a significant penal component.

It is also clear that those rates are maxima and the Supreme Court of Victoria has a discretion under s 60(1) of the Supreme Court Act 1958 to adopt rates below those fixed by the Penalty Interest Rates Act. In my view, the discretion which the Court is required to exercise under s 51A(1) requires, in a case like this, the adoption of a broad average of commercial rates over the relevant period. I consider that an appropriate average to adopt in this case is 10½ per cent per annum. That rate, I have concluded, should be applied to the crop management losses indicated at page 21 of my earlier reasons for judgment. From the time when those crop management losses were accrued there should be an offsetting allowance for interest at the same rate in respect of the $49,000 paid by Telstra on 9 November 1992. The amount allowed for diminution in the value of the property “Glen Cluan” should be allowed at that rate from the time at which that diminution was crystallised which may be taken to have been the date of the trial of this action. I therefore ask counsel to calculate interest entitlements in accordance with the indications which I have just given, after which I shall consider the question of costs. I shall hear counsel on that question not before 2.15 pm.

After hearing further submissions from counsel at 2.15 pm his Honour continued:
As far as interest pursuant to s 51A(1) of the Federal Court Act is concerned, I think, having regard to the way the competing calculations have worked out in the light of the guidelines which I gave before the luncheon adjournment, that this is an appropriate case in which to make an order under paragraph (b) of s 51A(1) which allows the Court, without proceeding to calculate interest in accordance with paragraph (a), to order that:

1.There be included in the sum for which judgment is given a lump sum in lieu of any such interest.

Having regard to the substantial convergence of the calculations, I propose to order interest in a lump sum of $40,000.  On the matter of costs I shall give judgment to the extent that I can immediately.

On 2 February 1996, the solicitors for the respondent made to the applicants and their solicitors an offer of compromise in the following terms:

TAKE NOTICE that the respondent offers to compromise the action by paying to the applicants the sum of $185,000 exclusive of interest costs together with a denial of liability and says that that sum is enough to satisfy the applicants’ claim.

THIS offer expires 14 days after the service of this notice on the solicitors for the applicants.

The trial of the action commenced on 30 April 1996 and proceeded during the ensuing three days and on 20 May 1996. On 2 April 1998 I ordered that the respondent pay to the applicants the sum of $179,803.18 and adjourned to a date to be fixed the taking of submissions as to interest and costs.

The narrow question which now arises is what order should be made as to costs in the light of the offer of compromise of 2 February 1996.  Order 23 rule 11(5) and (6) provide:

(5)If:

(a)an offer is made by a respondent and not accepted by the applicant; and

(b)the applicant obtains judgment on the claim to which the offer relates not more favourable than the terms of the offer;

then, unless the Court otherwise orders:

(c)the applicant is entitled to an order against the respondent; and

(d)the respondent is entitled to an order against the applicant;

for costs in respect of the claim taxed as provided in subrule (6)

6.For the purposes of subrule (5), if an offer was made:

(a)on the day before the trial or hearing of the proceeding commenced; or

(b)on any later day;

then, unless the Court otherwise orders:

(c)the applicant is entitled to costs, in respect of the claim, incurred up to 11.00 a.m. on the day following the day on which the offer was made; and

(d)the respondent is entitled to costs, in respect of the claim, incurred after that time;

taxed on a party and party basis.

In the events which have happened, the applicants will obtain a judgment on the claim to which the offer relates of $179,803.18 together with interest pursuant to s 51A(1)(b) of the Federal Court of Australia Act of $40,000.  If attention be confined to the amount of the offer of $185,000 the judgment obtained by the applicants is “not more favourable than the terms of the offer”.  However, the offer was expressed to be “exclusive of interest”.  If that were to be construed as meaning “without interest” the judgment obtained by the applicants has been more favourable than the terms of the offer.  However, Mr Almond of Counsel for the respondent contends, as I understood him, that the offer should be construed as having been for $185,000 plus such reasonable interest as might be agreed.  The difficulty with that construction is that it admits of no means for quantifying interest in default of agreement.

By contrast with entitlement to costs after acceptance of an offer of compromise, as to which see O 23 r 11(1), there is no mechanism under the Rules, or otherwise, whereby the Court can quantify the interest which a party accepting an offer of compromise should receive; cp Legal Aid Board v Russell (1991) 2 All ER 815. I indicate parenthetically that s 51A(1) of the Federal Court of Australia Act confers a power on the Court to award interest upon application “in any proceedings for the recovery of money, including any debt or damages or the value of any goods”.

It may be doubted whether, after acceptance of an offer of compromise, there are any proceedings on foot for the recovery of money.  The matter is further complicated by the presence of O 23 r 8(1) and (2) which provide:

(1)No statement of the fact that an offer has been made is to be contained in any pleading or affidavit.

(2)If an offer has not been accepted, no communication with respect to the offer is to be made to the Court at the trial or hearing until after all questions of liability and the relief to be granted have been determined.

The possibility of making an offer of compromise exclusive of interest is impliedly recognised by O 23 r 4(2) which stipulates:

If:

(a)a sum of money is offered; and

(b)that sum is inclusive of interest;

the notice of offer must specify the amount that is in respect of interest and how it is calculated.

Some light is thrown on the policy underlying O 23 by r 4(1) which provides:

If:

(a)a sum of money is offered; and

(b)that sum is inclusive of the costs of the proceeding;

the notice of offer may specify the amount that is in respect of costs.

That sub-rule appears to contemplate that a party desirous of accepting the sum of money offered, but who regards the costs component as inadequate, may communicate that attitude to the other side and that such communication may be taken into account by the Court in evaluating the reasonableness of a refusal of the lump sum offer for the purpose of deciding whether to “otherwise order” under O 23 r 11(5).

I take a similar view of the facility to make an offer exclusive of interest which I consider is to be implied from O 23 r 4(2).  I note in this context that the possibility of an applicant’s making a counter offer is recognised by O 23 r 5(6).  With some diffidence I have been led, on balance, to construe Telstra’s offer as one for $185,000 plus reasonable interest to be agreed.

On this view the judgment obtained by the applicant has been less favourable than the terms of the offer.  However, the difficulties involved in giving a precise interpretation, or immediate operation upon acceptance, to the offer have led me to exercise my discretion to otherwise order as contemplated by O 23 r 11(5).  That inclination has been reinforced by the fact that the offer was expressed to expire 14 days after service.  That limited the time which the applicants had to make a counter offer or otherwise to explore the possibility of agreement as to interest.  In coming to my conclusion as to how the discretion should be exercised, I have been not unmindful of the observation of Heerey J in Wills v Bigmac Pty Ltd and Ford Motor Co of Australia Ltd (9 December 1994, unreported) where his Honour said:

...an important element in facilitating proper consideration of a payment in is certainty as to the costs consequences.  It would in my opinion require compelling and exceptional circumstances before a court “otherwise orders”.  Were this not so, applicants might be inhibited in accepting otherwise reasonable offers because of uncertainty as to the costs consequences.  The effectiveness of Order 23 in promoting settlement of litigation would be diminished.

To similar effect, Kirby P (as he then was) in Hillier v Sheather (1995) 36 NSWLR 414 observed at 422:

...the rule is designed to send a clear signal to litigants, and their legal representatives, which will promote early settlement discussion outside the court and realistic consideration of offers made.  A significant new peril has been introduced for litigants and those advising them.

In my view, effect will be given to the policy discerned by those learned judges and to the fact that, if interest had been calculated to 3 February 1996 on the basis on which it was ultimately awarded, it would have amounted to something of the order of $4,600, if I order that the applicants have their costs up to 11.00 am on 2 February 1996, such costs to be taxed, and if I make no order as to the costs of either party thereafter.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate:

Dated:             16 April 1998

Counsel for the Applicants:	Mr P Riordan
Solicitors for the Applicants:	Riordan & Partners
Counsel for the Respondent:	Mr P W Almond
Solicitors for the Respondent:	Mallesons Stephen Jaques
Date of Hearing:	16 April 1998
Date of Judgment:	16 April 1998