Pozzan v Gibbons (No 2) - [2006] SASC 182

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
POZZAN v GIBBONS (No 2)
[2006] SASC 182
Reasons for Supplementary Decisions of The Honourable Justice Perry
22 June 2006
PROCEDURE - JUDGMENTS AND ORDERS - INTEREST ON JUDGMENTS - RATE
Interest on judgment – the plaintiff, having recovered a substantial money judgment, sought an award of interest on the judgment at the default rate of 20 per cent set out in the contract entered into between the parties – held that there is no discretion to award costs on a judgment other than at the rate set out in the third schedule to the rules of court – insofar as SCR r 84.19 purported to confer a discretion on the court to award interest at another rate, it is inconsistent with s 114 of the Supreme Court Act 1935 and is pro tanto invalid.
Supreme Court Act 1935 s 114; Supreme Court Rules r 84.19, referred to.
Commonwealth Bank of Australia v Heinrich [2000] SASC 20, BC200000531, considered.

PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
In an action in which the plaintiff recovered a substantial money judgment against the defendant, the plaintiff sought an award of costs on a solicitor and client basis from the date of expiration of an offer communicated by letter between the solicitors for the parties, written about two months before trial, the offer being expressed to expire about five weeks before the commencement of the hearing – held that the offer fell within the category of a Calderbank offer, and given the terms of the offer, it was proper in all the circumstances to award solicitor and client costs from the date of expiration of the offer – order accordingly.

POZZAN v GIBBONS (No 2)
[2006] SASC 182
Civil

PERRY J. In this matter, following a trial, I announced the terms of the judgment to be entered, and published reasons in support of the judgment, on 5 June 2006. I then indicated that, subject to any correction of the calculation of the interest component, there would be judgment for the plaintiff against the defendant in the sum of $391,161.60 inclusive of interest to the date of judgment.
I expressly intimated that entry of judgment for that amount was subject to any correction of the calculation of interest which the parties might suggest should be made, after they had had an opportunity of considering the reasons and performing the necessary calculations.
I then stood the matter over to 8 June 2006 when I received further submissions on that aspect of the matter.
So far as the money judgment is concerned, at the hearing on that date the parties agreed that it should be in the sum of $390,837.61, a figure which resulted from a correction on the calculation of interest which I had made.
On the same occasion, that is, on 8 June 2006, I received submissions from counsel on two consequential questions.
They were the question whether interest on the judgment until payment should be at a higher rate than that fixed by the rules of court; and the question whether the costs of action payable by the defendant to the plaintiff should be other than as between party and party.
At the hearing on 8 June, counsel were not able fully to develop their submissions with respect to the appropriate rate of interest, and I gave them leave to lodge further written submissions on that topic.
I have now received the written submissions.
These reasons are to be read in conjunction with the reasons delivered on 5 June 2006. Abbreviations used in those reasons have been carried into these reasons.
Rate of interest on the judgment
Pursuant to the loan agreement, the borrower, KIF agreed to pay interest on the principal sum at the rate of 20 per cent per annum, provided that if there was no default by KIF, and if quarterly interest payments as provided in the agreement were paid on time, this would reduce to 13 per cent per annum.
KIF being in default of repayment of the principal sum and payment of certain interest payments, in calculating the amount of interest included in the judgment, I adopted what I described as the default rate of 20 per cent per annum.
Mr Keith of counsel for the plaintiff now contends that the 20 per cent rate should also apply until payment of the judgment. He does not suggest that it should be calculated on the amount for which judgment was entered, which includes accumulated interest until then. He suggested rather that it apply to the principal sum of $300,000.
Clause 5 of the loan agreement provides:
5.JUDGMENT/ORDER (IF ANY)
In the event of the liability of the Borrower under this agreement becoming merged in any judgment or order the Borrower shall pay interest on the amount owing for the time being under such judgment or order at the rate as at Item 2 [effectively the default rate] or at the rate fixed by or payable under such judgment or order whichever is the greater.
Pursuant to the loan agreement, the defendant guaranteed the performance by the borrower of the borrower’s obligations under the loan agreement. As will have been seen from the reasons for judgment, if the loan agreement had stood alone, the obligations of the defendant would have been satisfied by providing the mortgage security only.
However, the defendant executed the mortgage in terms which made him liable as a principal debtor, that is, as on an indemnity basis.
There is, however, no provision in the mortgage which is the equivalent of clause 5 of the loan agreement.
Within the meaning of clause5, the liability of the borrower has not become merged in any judgment or order, as KIF was not sued in the proceedings and no judgment has been entered against KIF.
Were it not for an issue as to the validity of the relevant Supreme Court rule, the question would arise as to what effect those circumstances might have on the argument advanced by the plaintiff that post-judgment interest should be at the default rate of 20 per cent.
Section 114 of the Supreme Court Act 1935 provides:
114(1) All money, including costs, payable under any judgment or order shall bear interest at the rate from time to time prescribed by the rules of court.
(2)The interest shall be computed from the following times:-
(a)in the case of money other than taxed costs, from the time specified in the judgment or order, and if no time is so specified from the date of the judgment or order:
(b)in the case of taxed costs, from the date of the certificate of the taxing officer by whom the costs were taxed or an earlier date specified by the taxing officer in the certificate.
SCR r 84.19 reads:
A judgment debt shall carry interest at such rate as is prescribed by any Statute or Rule or by the judgment of the Court. If no rate is prescribed the rate shall be that set out in the third schedule.
Mr Manetta contended on behalf of the defendant that insofar as SCR r 84.19 purports to confer a discretion on the judge pronouncing a judgment to fix a rate of interest different from that set out in the third schedule to the rules, it is invalid. The argument is summarised in the following paragraph in the written submissions tendered by Mr Manetta:
To the extent that Rule 84.19 purports to authorize a judge of this Court, as part of any judgment, to vary the rate of interest that the judgment itself is to bear from that prescribed in Schedule 3 of the Rules (currently 6.5%), the rule is inconsistent with s 114 of the Supreme Court Act and invalid pro tanto. This is because s 114, properly construed, stipulates one rate of interest to apply to all monetary judgments of the Court – ie the rate prescribed from time to time by the Rules – ie by the judges of the Court in the exercise of their rule-making authority. The only rate prescribed by the judges in this way is the rate in the third schedule. Section 114 does not authorize individual judges to fix rates of post-judgment interest as part of each judgment. Nor can the judges as a whole delegate piece-meal their rate-prescribing power to each judge on a case-by-case basis. Delegatus non potest delegare.
I think Mr Manetta’s argument is sound.
Properly construed, s 114(1) contemplates that there will be one rate of interest prescribed by the rules of court. To the extent that SCR r 84.19 purports to confer a discretion on the court to fix some other rate at the time of entry of judgment, it is, in my view, contrary to the Act and to that extent invalid.
It follows that the judgment in this case will bear interest at the rate prescribed in the third schedule.
That rate of interest will run on the whole of the judgment monies, that is, $390,837.61, not just part of the judgment monies as is represented by the principal sum lent.[1]
[1] Cases where the court has purported to exercise a discretion to fix a higher rate of interest than that prescribed in the schedule must now be regarded as having been decided per incuriam. See, for example, the judgment of Nyland J in Commonwealth Bank of Australia v Heinrich [2000] SASC 20, BC200000531.
I turn to deal with the question of costs.
The basis of the plaintiff’s claim for solicitor and client rather than party and party costs, at least from 13 January 2005, is the defendant’s rejection of an offer made by the plaintiff’s solicitors in a letter to the defendant’s solicitors dated 29 December 2005. The letter was expressed to be written “on a without prejudice basis, with a reservation of the right to refer to this offer in relation to the question of costs”.
Above the heading to the letter appear the words “without prejudice save as to costs”.
The offer conveyed in the letter was expressed in the following terms:
Our client is prepared to settle this action on the following basis:
1.Your client pay the sum of Three Hundred Thousand Dollars ($300,000.00) inclusive of interest, within eight weeks of acceptance of this offer.
2.That, unless payment of the amount referred to in paragraph 1 hereof is received within the specified eight week period the Plaintiff be hereby entitled to enforce the mortgages held over real property described as (the “Properties”):
i.      Allotment 11 Deposited Plan 3245 Hundred of Mount Muirhead;
ii.     Allotment 32 Deposited Plan 43705 in the area named Wirrina Cove Hundred of Yankalilla;
iii.    Allotment 35 Deposited Plan 43705 in the area named Wirrina Cove Hundred of Yankalilla
3.That, in the event that it is necessary for the Properties to be sold the following shall apply:
i.      The Plaintiff shall be entitled to effect such sale(s) on such terms as he alone thinks fit;
ii.     the Defendant will bear all costs of and incidental to such sale(s);
iii.    the proceeds of sale of the Properties will be used to:
a.pay all sale costs and commissions;
b.to pay any outstanding Council rats and levies;
c.secure a release of the registered mortgage held in favour of the Westpac Bank over each individual property;
d.all balance funds then remaining will be paid to the Plaintiff in reduction of the settlement funds.
4.That, in the event that the Properties are sold and there is a shortfall in the payment of settlement funds due and owing to the Plaintiff as at the date of completion of such sale the Plaintiff shall be entitled to enforce payment from the Defendant of the outstanding sum without further notice to the Defendant and shall be entitled to rely on this offer to obtain any necessary order in this regard.
5.That upon receipt of all settlement funds the Plaintiff will provide to the Defendant a signed Release of Mortgage pertaining to the said Properties and a Notice of Discontinuance of all proceedings.
6.That both parties bear their own costs of and incidental to this action.
This offer remains open until close of business on Friday 13 January 2005.
The offer was in terms which were very favourable to the defendant. This is so particularly by reference to the fact that the money payment of $300,000 was inclusive of interest. By the time the offer was made, there was a substantial amount due by way of interest, particularly having regard to the default rate of 20 per cent.
A further attraction to the defendant was constituted by the offer to settle on the basis that each party bear their own costs of the action.
In the events which have happened, the defendant has suffered a judgment which operates much less advantageously from the defendant’s point of view.
Given my factual findings that the defendant was well aware from the outset that he was personally guaranteeing repayment of the monies lent to KIF, in my view, his rejection of the offer was unreasonable.
While the court encourages plaintiffs to make offers of settlement in accordance with the rules, more particularly SCR r 41, a Calderbank letter, as letters of this kind are sometimes described, may in an appropriate case be relied upon to justify the award of a higher rate of costs than party and party costs.
In all the circumstances, I am satisfied that this is a proper case in which to exercise the discretion to award costs from 13 January 2005 on a solicitor and client basis.
The order for costs therefore will be that the defendant pay the plaintiff’s costs of and incidental to the proceedings as between party and party up to and including 13 January 2005, and as between solicitor and client from that date onwards to the date of judgment.
The plaintiff should now seal the judgment in accordance with the reasons published on 5 June 2006 and these reasons. The whole of the judgment should speak from 5 June 2006. The order as to costs should be part of the judgment, speaking from that date.