Alexander, Phillipa --- "Interest on costs regimes" [2017] PrecedentAULA 13; (2017) 138 Precedent 47

• It is recommended that an order for interest on costs pursuant to ss101(4) and (5) CPA from the date of payment of costs by a party to his or her legal representative until the date of reimbursement of the costs by the opposing party, be sought as a matter of course. For a form of the order see Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [No. 3]4.

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INTEREST ON COSTS REGIMES

By Phillipa Alexander

There are now two regimes which govern the awarding of interest on costs under the Civil Procedure Act 2005 (NSW) (CPA).

PROCEEDINGS COMMENCED ON OR AFTER 24 NOVEMBER 2015

For proceedings commenced on or after 24 November 2015, ss101(4) and (5) CPA provide:

‘(4) Unless the court orders otherwise, interest is payable on an amount payable under an order for the payment of costs.

(5) Interest on an amount payable under an order for the payment of costs is to be calculated, at the prescribed rate or at any other rate that the court orders, as from the date the order was made or any other date that the court orders.’

This means that in the absence of a court order to the contrary, interest will automatically accrue from the date of the costs order in accordance with the rate prescribed by the Uniform Civil Procedure Rules 2005 (UCPR) r36.7. The current rate is 6 per cent above the cash target rate published by the Reserve Bank of Australia.

When negotiating settlement of costs, a claim for the interest component should be included from the date of the costs order to the date the claim for costs is made, together with a daily rate which will continue to apply until full payment of the costs is made. This provision may also act as an incentive for costs respondents to settle claims quicker or at least make partial payment of the outstanding costs so as to avoid incurring interest at the UCPR r36.7 rate.

If the costs cannot be settled, a claim for interest should be included in the application for assessment of costs. Section 70 of the Legal Profession Uniform Law Application Act 2014 (NSW), which applies to assessments of costs where the proceedings were commenced after 1 July 2015, authorises a costs assessor to include interest payable under s101 CPA in the certificate of determination.

A party may still seek an additional order for interest on costs pursuant to s101(5), whereby interest may accrue from the date/s on which the client has paid the solicitor own client costs during the course of the proceedings, as discussed below.

PROCEEDINGS COMMENCED PRIOR TO 24 NOVEMBER 2015

For proceedings commenced prior to 24 November 2015, the savings provisions incorporated into sch 6 CPA at pt 8 apply. Part 8 provides:

‘Provisions consequent on enactment of Courts and Other Justice Portfolio Legislation Amendment Act 2015

21 Pending proceedings

The amendments made to this Act by Schedule 1.2 to the Courts and Other Justice Portfolio Legislation Amendment Act 2015 do not extend to proceedings commenced before the commencement of that Subschedule and those proceedings may continue as if those amendments had not been enacted.’

The former wording of ss101(4) and (5) therefore applies, as follows:

‘(4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs.

(5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from:

(a) the date or dates on which the costs concerned were paid, or

(b) such later date as the court may order.’

Under this regime, a costs applicant must demonstrate an entitlement to interest, which is usually fairly straightforward to do. In Doppstadt Australia v Lovick & Son Developments,^[1] Gleeson JA (Ward and Emmett JJA agreeing) stated:

‘in the absence of any countervailing discretionary factor, it is appropriate that an order for interest on costs be made to compensate the party having the benefit of a costs order for being out of pocket in respect of relevant costs which it had paid. There is no requirement to establish that the circumstances of the case are out of the ordinary: Drummond and Rosen Pty Ltd v Easey & Ors (No. 2) [2009] NSWCA 331 at [4] per Macfarlan JA (Tobias JA agreeing) citing Lahoud v Lahoud [2006] NSWCA 126 at [82] - [83] per Campbell J.’

Countervailing factors may include vacated hearing dates, unsuccessful interlocutory arguments, or other factors resulting in adverse costs orders, disproportion between the costs and quantum of the claim, and costs incurred in respect of matters which were abandoned or unsuccessful.

While it is recommended that evidence of the amounts paid on account of costs be available for provision to the court to avoid argument on this issue, in Rothe v Scott (No. 5),^[2] Gibson DCJ recently held:

‘While I note that actual evidence of payment was provided in Doppstadt Australia v Lovick & Son Developments at [404]), it is not necessary for the court to receive actual evidence that payments of costs have been made, or that the costs have been "fructifying in the wrong pocket": Polias v Ryan (No. 2) [2015] NSWSC 1 at [63] to [65] per Rothman J. Nor is it necessary for me to set out the details of when any such payments occurred in the interest on costs order that I propose to make, as any dispute as to quantum on assessment of costs can be dealt with by the costs assessor on the basis of the statements to this effect in this judgment.’

This view mirrors that of Rothman J in Polias v Ryan (No. 2)^[3] where his Honour stated:

‘... a party who obtains a costs order will ordinarily – in the absence of any countervailing discretionary factor – also obtain an order for interest on those costs, if it seeks one, and evidence of payment of the costs is not required; nor is evidence explaining the course of the proceedings ...’

It is recommended that an order for interest on costs pursuant to ss101(4) and (5) CPA from the date of payment of costs by a party to his or her legal representative until the date of reimbursement of the costs by the opposing party, be sought as a matter of course. For a form of the order see Tzaneros Investments Pty Limited v Walker Group Constructions Pty Limited [No. 3]^[4].

Phillipa Alexander is a specialist in legal costs with Costs Partners. PHONE [phone] EMAIL [e-mail].

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^[1] [2014] NSWCA 158, [403].

^[2] [2016] NSWDC 225.

^[3] [2015] NSWSC 1, [66].

^[4] [2016] NSWSC 526 (29 April 2016), [102].