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[2016] NSWCA 260
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McKeith v Royal Bank of Scotland Group PLC;; Royal Bank of Scotland Group PLC v James (No 2) [2016] NSWCA 260 (14 September 2016)
Last Updated: 14 September 2016
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Court of Appeal
Supreme Court
New South Wales
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Case Name:
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McKeith v Royal Bank of Scotland Group PLC;; Royal Bank of Scotland Group
PLC v James (No 2)
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Medium Neutral Citation:
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Hearing Date(s):
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On the papers
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Decision Date:
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14 September 2016
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Before:
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Macfarlan JA at [1];
Tobias AJA at [2];
Emmett AJA at [87]
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Decision:
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Case number 113597 of 2015 (the James appeal)
1. Appeal
allowed in part.
2. The order made by McDougall J on 27
March 2015 directing judgment for the Respondent against the Third Appellant in
the amount
of $2,932,692.31 together with pre-judgment interest in the amount of
$1,490,149.15 be set aside.
3. In lieu thereof judgment be
entered in favour of the Respondent against the First Appellant in the amount of
$432,692.31 together
with pre-judgment interest in the amount of
$140,220.32.
4. The Respondent make further restitution to
the Third Appellant in the amount of $82,607.88 noting that the Respondent on 1
April
2016 made restitution to the Third Appellant in the amount of
$2,367,380.88.
5. The Respondent to pay to the Third
Appellant interest on the restitutionary amount of $2,449,988.70 from 5 May 2015
to 1 April
2016 at the rate of 6 per cent per annum and on the further amount of
$82,607.88 from 1 April 2016 to the date of payment of that
amount at the rate
of 6 per cent per annum.
6. The costs orders made on 22 July
2015 by McDougall J be set aside and in lieu thereof:
a.
the Appellants pay the Respondent’s costs of the proceedings at first
instance on an ordinary basis up to and including
26 April 2012;
and
b. the Respondent pay the Appellants’ costs of
the proceedings at first instance on an indemnity basis after 26 April
2012.
7. The Respondent pay 50 per cent of the
Appellants’ costs of their appeal on the ordinary
basis.
8. The parties cooperate in recovering from the
Australian Taxation Office (ATO) the amount of $1,225,000.00 in tax paid to the
ATO by the First Appellant in respect of the amount of $2,500,000.00 ordered to
be paid to the Respondent by McDougall J including,
if necessary,
by:
a. the expeditious filing by the Respondent of his
income tax return for the year ended 30 June 2015 claiming that income tax
amount
as a credit; and
b. the payment of that amount by
the Respondent to the Third Appellant upon receipt by him of a Notice of
Assessment confirming
that amount as a credit against his income
tax.
9. Liberty to apply within seven days of the making of
these orders for the purpose of correcting any error therein or omission
therefrom which is inconsistent with this judgment.
Case number
115116 of 2015 (the McKeith appeal)
1. Appeal allowed in
part.
2. The order made by McDougall J on 27 March 2015
directing judgment for the Respondents against the Appellant be set
aside.
3. In lieu thereof judgment be entered for the
Appellant against the First Respondent in the amount of $375,961.54 together
with:
a. pre-judgment interest on that amount from 5
December 2008 to 27 April 2012; and
b. post-judgment
interest on that amount (including pre-judgment interest) from
27 March 2015 to the date of payment.
4. The costs orders
made on 22 July 2015 by McDougall J be set aside and in lieu
thereof:
a. the Respondents to pay the Appellant’s
cost of the proceedings at first instance on an ordinary basis up to and
including
26 April 2012; and
b. the Appellant to pay the
Respondents’ costs of the proceedings at first instance
on an indemnity basis after 26 April
2012.
5. The
Respondents pay 50 per cent of the Appellant’s costs of its appeal on the
ordinary basis.
6. Liberty to apply within seven days of the making of these
orders for the purpose of correcting any error therein or omission therefrom
which is inconsistent with this judgment.
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Catchwords:
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PRACTICE AND PROCEDURE - pre-judgment interest - Civil Procedure Act 2005,
s 100(1) - calculation of interest - period for which pre-judgment interest
should run - whether proceedings were relevantly for damages -
whether
“appropriate settlement sum” offered - whether “special
circumstances” demonstrated COSTS - appeal costs -
application for indemnity costs - offers of compromise made prior to trial -
relevance when not renewed before
or during appeal proceedings - whether offers
at first instance may be relied on for purpose of special costs order on
appeal COSTS - interests on costs - partial success enjoyed by all
parties - appropriate costs award - whether interest on costs should be
awarded
under Civil Procedure Act 2005, s 101(4) - application
refused APPEAL - judgment already paid reversed in part on appeal -
order for restitution - appropriate rate of interest - whether interest
to be
calculated at rate other than in accordance with that legislatively
prescribed |
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Legislation Cited:
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Cases Cited:
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Category:
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Costs
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Parties:
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Matter No 2015/115116 (McKeith v RBS)
Colin McKeith
(Appellant)
Royal Bank of Scotland Group PLC (First Respondent)
RFS
Holdings BV (Second Respondent)
RBS Services (Australia) Limited (Third
Respondent)
Matter No 2015/113597 (RBS v James)
Royal
Bank of Scotland Group PLC (First Appellant)
RFS Holdings BV (Second
Appellant)
RBS Services (Australia) Limited (Third Appellant)
Angus James
(Respondent)
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Representation:
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Counsel:
Matter No 2015/115116 (McKeith v RBS)
Mr JN West
QC / Mr MJ Steele SC (Appellant)
Mr J Sheahan QC/Dr E Peden /Mr G Gee
(Respondents)
Matter No 2015/113597 (RBS v James)
Mr J Sheahan
QC/Dr E Peden /Mr G Gee (Appellants)
Mr JN West QC / Mr MJ Steele SC
(Respondent)
Solicitors:
Matter No 2015/115116
(McKeith v RBS)
Harmers Workplace Lawyers (McKeith)
Allens Linklaters
(Respondents)
Matter No 2015/113597 (RBS v James)
Allens
Linklaters (Appellants)
Harmers Workplace Lawyers (James)
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File Number(s):
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2015/115116 (McKeith)2015/113597 (James)
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Decision under appeal:
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Court or Tribunal:
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Supreme Court of New South Wales
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Jurisdiction:
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Equity Division
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Citation:
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Date of Decision:
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19 March 2015
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Before:
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McDougall J
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File Number(s):
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2011/320637 (McKeith)
2011/320618 (James)
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[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11)
that unless the Court otherwise orders, a judgment or order is taken to be
entered when it is recorded in the Court's computerised
court record system.
Setting aside and variation of judgments or orders is dealt with by Rules 36.15,
36.16, 36.17 and 36.18. Parties should in particular note the time limit of
fourteen days in Rule 36.16.]
JUDGMENT
- MACFARLAN
JA: I agree with Tobias AJA.
- TOBIAS
AJA: In September and December 2008 respectively, Mr Angus James (Mr
James) and Mr Colin McKeith (Mr McKeith) (together the
plaintiffs), both senior employees of ABN AMRO Australia Holdings Ltd
(AAAH), were retrenched. Each commenced proceedings in the Equity
Division of the Supreme Court against AAAH and Royal Bank of Scotland
Group PLC
and RFS Holdings BV (RBS parties) seeking damages for non-payment of
severance and ex gratia payments to which they contended they were
entitled under the terms of AAAH’s redundancy policy (Policy). At
the time, the RBS parties were members of a consortium that was attempting to
acquire the holding company of AAAH.
- At
first instance the primary judge, McDougall J, upheld Mr James’ claim but
dismissed that of Mr McKeith: James v Royal Bank of Scotland PLC; McKeith v
Royal Bank of Scotland PLC [2015] NSWSC 243. Accordingly, his Honour entered
judgment in favour of Mr James in the sum of $2,932,692.31 together with
pre-judgment interest for
the period 9 September 2008 to 27 March 2015, the date
of judgment. On the same day, judgment was entered against Mr McKeith. The
primary judge, however, reserved the question of costs in both matters.
- On
22 July 2015, the primary judge delivered a lengthy costs judgment in which he
made various complex orders in relation to the costs
of the proceedings before
him (costs judgment): James v Royal Bank of Scotland PLC; McKeith v
Royal Bank of Scotland PLC (No 2) [2015] NSWSC 970. These orders were not
the subject of an appeal.
- In
this Court, Mr McKeith challenged the primary judge’s findings against him
in favour of the RBS parties and AAAH. Like the
primary judge, I treat these
parties as one entity for the purposes of costs and henceforth refer to them as
RBS: see costs judgment at [10]. RBS, as the unsuccessful party in the
James proceedings, likewise appealed the findings in favour of
Mr James. On 9
March 2016, this Court delivered judgment on the two appeals (principal
judgment): McKeith v Royal Bank of Scotland Group PLC; Royal Bank
of Scotland Group PLC v James [2016] NSWCA 36.
- The
conclusions of this Court are relevantly summarised at [304] of the principal
judgment. It will, for present purposes, suffice
to observe that although the
Policy, properly construed, entitled each plaintiff to a severance payment, it
did not confer upon either
plaintiff a right to an ex gratia
payment.
- The
severance payment to which Mr James was held to be entitled under the Policy
amounted to $432,692.31 and that of Mr McKeith’s
came to $375,961.54. In
each case, the Court indicated that pre-judgment interest should be paid on
those sums from 9 September 2008,
in respect of Mr James, and 5 December 2008,
in respect of Mr McKeith, to the date of final orders made by the primary judge
(27
March 2015).
- In
light of the measure of mixed success and failure experienced by each party
before this Court, the question of costs relative to
both the proceedings below
and on the appeal invited further attention. Pursuant to directions made in the
principal judgment, the
parties have filed detailed written submissions as to
orders and costs upon the basis that the Court would deal with the issues raised
in the submissions on the papers.
- Although
somewhat out of order, it is convenient at this point to dispose of one
particular matter. In satisfaction of the orders
made by the primary judge on 27
March 2015, RBS paid Mr James the sum of $3,022,901.39 on 5 May 2015. That sum
comprised the severance
and ex gratia payments ($1,495,673.08) after
deducting PAYE tax and $1,527,228.31 in pre-judgment interest. Of the amount of
tax to be deducted
and remitted to the Australia Taxation Office (ATO),
$1,225,000.00 related to the ex gratia payment.
- It
is common ground that RBS was entitled to restitution of the difference between
the amount which had been paid to Mr James on 5
May 2015 and the amount to which
this Court held Mr James was entitled. Notwithstanding the view expressed by
this Court as to the
pre-judgment interest payable on the severance payments
(see [7] above), RBS disputes the date to which pre-judgment interest should
run.
- In
its submissions as to orders and costs, RBS seeks the repayment to it by Mr
James of the $3,022,901.39 paid to him on 5 May 2015
less the severance payment
to which this Court held he was entitled ($432,692.31), being a net amount of
$2,590,209.08. As is immediately
apparent, this amount makes no allowance for
pre-judgment interest on the severance payment to run from the date it ought to
have
been paid (9 September 2008) to the date of judgment at first instance (27
March 2015). In answer, RBS submits that the period for
which pre-judgment
interest is payable should not extend beyond 26 April 2012, representing the
date of the first of three offers
of compromise made to Mr James by RBS in the
proceedings below. Further reference to this issue is made below at
[17]-[27].
- RBS
also seeks interest on the restitutionary sum of $2,590,209.08 for the period
from 5 May 2015 to the date the money was repaid
on the footing that during that
period Mr James had the benefit of that money. On 1 April 2016, Mr James repaid
the sum of $2,367,380.88
to RBS comprising the amount paid to him on 5 May 2015
less an amount for pre-judgment interest on the severance payment ($222,828.20).
The pre-judgment interest was calculated according to the period 9 September
2008 to 6 February 2013, the date of the second offer
of compromise by RBS to Mr
James.
The issues in respect of which the parties are in
agreement
- RBS’s
entitlement to be reimbursed by Mr James in the amount representing the ex
gratia payment to which he was held not to be entitled in the principal
judgment is not the subject of dispute. As noted, subject only to
the relevant
period that Mr James’ entitlement to pre-judgment interest on the
severance payment falls to be calculated, Mr
James has repaid the
overpayment.
- The
parties have also reached agreement as to the costs of the proceedings as first
instance, namely, that RBS should pay the costs
of both Mr James and Mr McKeith
on the ordinary basis to 26 April 2012, but that they should pay the costs of
RBS on an indemnity
basis thereafter.
- Finally,
it bears mentioning that an issue also arose as to which party bore the
obligation of recovering the $1,225,000.00 in tax
paid to the ATO by RBS on the
ex gratia payment to which Mr James was held to be entitled at first
instance. The parties have, however, resolved the manner in which that
tax
should be recovered and it is reflected in final orders I propose
below.
The issues in respect of which the parties are still in
dispute
- Those
issues are:
(a) whether the plaintiffs are entitled
to pre-judgment interest on the severance payments and, if so, for what
period;
(b) the costs of the appeal, including whether they should
be paid on an indemnity basis;
(c) whether RBS is entitled to an order pursuant to s 101(4)
of the Civil Procedure Act 2005 (NSW) (CPA) for interest on the
costs and disbursements it has outlaid since the commencement of the litigation
in October 2011; and
(d) whether interest is payable on the restitutionary sum
owed by Mr James to RBS and which he repaid on 1 April 2016 and, if so,
at what
rate.
Interest on severance payments
- The
plaintiffs seek an award of interest on the severance payments pursuant to the
provisions of s 100(1) of the CPA. RBS resists any award of interest after 26
April 2012, the date of the first offer of compromise. It does so in reliance
upon s 100(4) which provides as follows:
“In any proceedings for damages, the court may not order that the payment
of interest under this section in respect of the
period from when an appropriate
settlement sum was offered (or first offered) by the defendant unless the
special circumstances of
the case warrant the making of such an
order.”
- Section
100(5) defines the expression “appropriate settlement sum” in sub-s
(4) as “a sum offered in settlement of proceedings
in which the amount for
which judgment is given (including interest accrued up to and including the date
of the offer) does not exceed
the sum offered by more than 10 per cent”.
Neither Mr James nor Mr McKeith suggests that the sum offered in any of the
three
offers of compromise was other than an “appropriate settlement
sum” as defined.
- The
plaintiffs nevertheless seek to obviate the application of s 100(4) to the
present case on the ground that the proceedings were not for
“damages” but rather for the payment of a “debt”.
To
this effect, they submit that they were contractually entitled under the Policy
to the payment of the non-discretionary severance
amount on retrenchment,
non-payment of which gave rise to a debt. They further submit that regardless of
whether the proceedings
were, as a matter of form, for “damages”, in
substance the amount owing under the Policy was a liquidated sum and neither
AAAH nor RBS had ever tendered the amount owing. It is upon this basis that the
plaintiffs contend that the Court should order payment
of interest at
pre-judgment rates to the date of judgment at first instance.
- It
is accepted, as a general rule, that a successful plaintiff is prima facie
entitled to an award of interest. Yet, as the terms
of s 100(1) of the CPA make
clear, an award of interest is at the court’s discretion, the exercise of
which requires it to assess the practical
loss the plaintiff has suffered as a
consequence of the unsuccessful party’s wrong. Against this, it is equally
established
that where the plaintiff has rejected an appropriate settlement sum,
the court will ordinarily only award interest for the period
subsequent to the
date of that offer in “special circumstances”: s 100(4) (see [17]
above). Neither party appears to doubt the correctness of the foregoing.
- If
special circumstances are established in the present case it would be open to
this Court to award interest beyond 26 April 2012.
As noted, the plaintiffs
submit that the proceedings, properly viewed, were in substance for debt rather
than damages. If, however,
this Court was minded to find that s 100(4) is
engaged, they alternatively submit that their characterisation of the
proceedings (as one for debt) falls with the ambit of “special
circumstances” contemplated by sub-s (4). Another “special
circumstance” relied upon by the plaintiffs concerns
the efficacy of the
first offer of compromise. By reason of a delay in the discovery process, the
plaintiffs contend they were not
in a position to reasonably assess the merits
of the respective offers. This, so the plaintiffs submit, constitutes a
“special
circumstance” for the purposes of s 100(4).
- These
submissions, in my view, should be rejected. With a view to both the pleadings
and the manner in which the matter was ultimately
determined in this Court (see
principal judgment at [18], [24], [251], [304 (7)]), it is clear the argument
advanced in support of
the first “special circumstance” occupies
untenable ground. First, this Court relevantly found that a contract was
established
between each of the plaintiffs and RBS whereby, in consideration of
each continuing their employment with AAAH, the Policy would
be applied to them
in the event either was made redundant before 10 October 2009. It does not
follow from that finding that there
came into existence a liquidated debt owed
by RBS to the plaintiffs. Rather, as held by this Court, the failure of RBS to
apply the
Policy constituted a breach of contract sounding in damages equivalent
to the amount of the severance payment to which each was otherwise
entitled.
Secondly, the Commercial List Statements of Mr James and Mr McKeith were each
framed in terms of a claim for damages. In
my view s 100(4) is engaged.
- Even
assuming that the claims for the severance payments did constitute claims for a
debt, other aspects of the proceedings were clearly
proceedings for damages. As
RBS points out, the claims in respect of the ex gratia payments both at
first instance and on appeal, and the Appointment Promise Case advanced at first
instance, were all claims for damages.
The primary judge’s description of
that of Mr James’ (referred to in principal judgment at [27]) at [70] in
the costs
judgment as a “substantial and distinct claim” was
supported by a deal of evidence. That the claims in respect of the
ex gratia
payments were substantial and considerably outweighed the severance payment
claims in terms of monetary value is also not without
significance. These
considerations, as RBS submits, demonstrate that the proceedings were not in
substance for debt but rather in substance for damages.
- RBS’s
submissions can be reduced to the proposition that s 100(4) of the CPA applies
generally to proceedings comprising a number of claims notwithstanding that one
or more may constitute claims
for a liquidated sum. So much may be accepted.
Even if it were correct to characterise the severance claims as claims in
substance
for debt, it is clear the proceedings as a whole were for
damages.
- The
second “special circumstance” relied upon by the plaintiffs requires
some elucidation. They claim that because discovery
regarding the history of
pro rata bonus payments made to senior executives on retrenchment had not
been given as at 26 April 2012, they could not properly assess the
offer of
compromise made on that date. Against this, RBS emphasise that the evidence
ultimately established, contrary to the plaintiffs’
case, that the
historical granting of bonuses was a “truly discretionary
practice”.
- A
similar submission put by Mr McKeith, albeit in relation to whether the Court
should make an “order otherwise” than
in accordance with the general
rule in relation to offers of compromise, was considered and rejected by the
primary judge at [171]
of the costs judgment. His Honour had noted at [154]
RBS’s assertion that the reason Mr McKeith had rejected the offer was
principally because he had insufficient information to assess it. The primary
judge’s treatment of this contention was not
challenged on appeal. It is
therefore difficult, if not impossible, for the plaintiffs to now assert that it
was reasonable for them
to reject the first offer of compromise. Much less can
this view, misconceived as it is, constitute a “special
circumstance”
for the purposes of s 100(4).
- There
is, as I have indicated, no substance to the argument that the proceedings were
not relevantly for damages. As a consequence,
s 100(4) prima facie applied to
the proceedings unless the plaintiffs could establish “special
circumstances”. In my view, they
have failed to do so. It follows that
pre-judgment interest on the amount of the severance payment to which each of
the plaintiffs
is entitled should cease running on 27 April
2012.
The costs of the appeal
- As
noted, the parties have reached agreement as to the costs of the proceedings at
first instance but not as to the costs of the appeal.
With respect to the
latter, Mr McKeith submits that RBS should pay the whole of his costs on appeal
whereas Mr James accepts that
he should pay 50 per cent of RBS’s costs of
its appeal. RBS’s submissions, on the other hand, disclose a preference
that
Mr James and Mr McKeith pay its costs of the appeal on an indemnity basis.
In the event that the Court rejects that submission, RBS
submits that Mr James
and Mr McKeith should pay its costs of the appeal on the ordinary basis.
Alternatively, it submits that given
the measure of mixed success and failure
experienced by all parties on the appeal, an appropriate exercise of the
Court’s discretion
would be to order that RBS pay 50 per cent of the costs
of Mr McKeith’s appeal and Mr James (as he agreed to do) pay 50 per
cent
of the RBS’s costs of its appeal.
- The
first issue to be determined concerns RBS’s submission that its costs of
the appeal should be paid by Mr McKeith and Mr
James on an indemnity basis. The
application for indemnity costs is based on the three offers of compromise made
to each of Mr James
and Mr McKeith in essentially identical terms but which were
not accepted. Relevantly, each of those offers of compromise was made
prior to
the hearing commencing before the primary judge.
- The
offers of compromise made to Mr James and Mr McKeith each comprised the amount
claimed by each as a severance payment together
with interest thereon calculated
from the date of the termination of their employment to the date of the offer.
The first offer of
compromise was made on 26 April 2012, the second on 6
February 2013 and the third on 28 August 2014. It is to be noted that each
offer
was specifically expressed to be open for a “period of 28 days
only”. No offers of compromise were made between the date of the
primary judge’s orders and the hearing of the appeals.
- In
its submissions in reply, RBS accepts that the offers of compromise in question
do not carry the same consequences in relation
to an appeal as would an offer of
compromise served in the period leading up to the appeal. While an offer of
compromise made at
first instance might be relevant to the costs of the appeal
(Ettingshausen v Australian Consolidated Press Ltd (1995) 38 NSWLR 404 at
410; Fotheringham v Fotheringham (No 2) (1999) 46 NSWLR 194; [1999] NSWCA
21 at [33]), it does not give rise to a prima facie presumption in favour of
indemnity costs if the offer is not bettered” in the result
ultimately
reached: Trustee for the Salvation Army (NSW) Property Trust v Becker (No
2) [2007] NSWCA 194 at [7] (“Salvation Army”); Davis v
Swift (No 2) [2015] NSWCA 137 at [25]. This principle finds reflection in
the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 51.49 which
provides that the Court may “have regard to” offers of
compromise served in the proceedings at first instance when exercising its
discretion as to costs under s 98 of the CPA.
- In
Salvation Army, Ipp JA, with whom Mason P and McColl JA agreed,
referred (at [8]) with apparent approval to what Beazley JA had said in
Brymount Pty Ltd v Cummins (No 2) [2005] NSWCA 69 at [29]. There, her
Honour, in refusing an order for indemnity costs and having noted that the
offers of compromise relied upon substantially
predated proceedings in the Court
of Appeal, observed that the parties seeking indemnity costs should have
advanced subsequent offers
in the period between the trial and appeal if they
wished to secure such a claim. Ipp JA observed that the same considerations as
those that influenced the Court in Brymount applied to the case before
him: Salvation Army at [9]. Of particular significance was the fact that
the relevant offer in that case had lapsed and was not thereafter renewed. His
Honour continued:
“As the offer had so lapsed (prior to the conclusion of the trial), it was
not possible for the appellants to accept it thereafter.
In particular, it could
not have been accepted on the launching of the appeal or thereafter. On that
basis alone, it seems to me,
the offer could play no part in the exercise of the
discretion to order indemnity costs in regard to the
appeal.”
- It
can be accepted that the making of an offer of compromise in the proceedings at
first instance but which is not renewed for the
purposes of an appeal
constitutes a relevant consideration informing the discretion to be exercised by
the Court under s 98 of the CPA. Yet, as was stated by Gleeson JA and Tobias AJA
in Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [72]
(“Perisher Blue”), if a pre-trial offer is not renewed
(either in the same or different terms) prior to the appeal, the Court will not,
as
a general rule, make a special costs order in respect of the appeal.
Notwithstanding its lack of statutory effect, this is not to
suggest, however,
that a pre-trial offer may not be relevantly persuasive in the exercise of the
Court’s discretion when weighed
against all the circumstances of the case:
Grace v Thomas Street Café Pty Ltd (No 2) [2008] NSWCA 72 at [33]
and authorities there cited.
- The
immediate issue requiring consideration therefore turns on whether the pre-trial
offers in question attract such weight as to
shift the balance of consideration
in favour of an order for indemnity costs. In my view, the particular
circumstances of this case
do not reach the necessary level of persuasion to
justify the making of such an order in favour of RBS.
- Plainly
enough, the circumstances of the present case invite application of the
proposition (referred to above) that failure to renew
an offer of compromise
made at first instance for the purposes of an appeal is a factor militating
against an award of indemnity
costs on appeal. It is as well to add that the
Court will be similarly disinclined to make an award for indemnity costs where a
pre-trial
offer is no longer open for acceptance when the appeal is instituted
or before significant costs have been incurred in the appeal:
Monie v
Commonwealth of Australia (No 2) [2008] NSWCA 15 at [4], [71]. Here, each of
the offers made at first instance expressly lapsed 28 days after they were made
and were not renewed before
the appeal.
- Another
important consideration concerns the relevance or otherwise of notice of
intention to rely upon pre-trial offers of compromise.
As Hoeben JA, with whom
Barrett and Ward JJA agreed, observed in AV8 Air Charter Pty Ltd v Sydney
Helicopters Pty Ltd (No 2) [2014] NSWCA 238 at [29], “[i]f a party to
an appeal wishes to rely upon an Offer of Compromise
or Calderbank offer made before trial, that party should at the
very least provide clear notice to the other party or parties of that
intention”.
The reason for so doing, namely to preserve the policy
rationale for the acceptance of such offers, is fairly obvious. If it were
otherwise, the objective of prompt and economic disposal of litigation animating
proceedings both at trial and appellate level would
be defeated.
- In
the present case the plaintiffs maintain that no such notice was given. Although
the offers of compromise to Mr McKeith were in
evidence before the primary judge
when his Honour was dealing with the issue of costs, I would not regard that
fact as constituting
relevant notice. The offers of compromise were not renewed
prior to the appeal, nor were any fresh offers forthcoming. In accordance
with
the authority of this Court, RBS should have appreciated the significance that
would attach to that circumstance.
- Nevertheless,
RBS advances four reasons which, so it claims, justify an award of indemnity
costs in the appeal. The first is that
the offers reflected the exact amounts
that Mr James and Mr McKeith each ultimately recovered. In my view, this
observation does
not assist RBS.
- As
Mr James fully succeeded at first instance, the offers of compromise made to him
in the proceedings below were irrelevant on appeal
and played no part in the
costs hearing before the primary judge. Conversely, as Mr McKeith wholly failed
at trial, RBS made an application
for indemnity costs on the basis of the first
offer of compromise: see costs judgment at [127]. Mr McKeith sought to defend
his position
in those proceedings on the basis that the offer was invalid, a
contention rejected by his Honour. Mr McKeith further submitted that
it was not
unreasonable for him to reject the offer as he did. As I have noted (see [26]
above), this was also rejected by the primary
judge.
- Having
succeeded, at least in part, on appeal, I do not consider that Mr McKeith should
now be required to pay indemnity costs on
the basis of an offer of compromise
which had lapsed and was not renewed notwithstanding the findings of the primary
judge upholding
its validity. If RBS had renewed its offer for the purposes of
the appeal, and had that offer been rejected, it could have relied
on the
findings of the primary judge (which were not the subject of challenge by Mr
McKeith on appeal) to strengthen its application
for indemnity costs. That
course was eschewed by RBS.
- The
second reason advanced by RBS in support of its claim for indemnity costs
invites attention on the expenditure of costs and judicial
time that had come to
pass by reason of the plaintiffs’ rejection of the offers of compromise.
RBS submits that indemnity costs
are warranted given the court’s time both
at first instance and on appeal was utilised to hear claims which had already
been
the subject of an offer that mirrored the final relief granted. I disagree.
Of itself, this ground merely restates the first ground,
albeit in different
language, and should therefore meet the same fate.
- The
third reason proffered is the fact that the offers of compromise were made on
three separate occasions at significant intervals
apart. I do not find this
reason persuasive.
- The
fourth reason advanced by RBS is premised on the contention that RBS’s
failure to renew the offers of compromise for the
purposes of the appeal should
not attract the significance that would ordinarily attach. This, so RBS submits,
is because the expectation
that the relevant offers should have been renewed
runs contrary to common sense. Thus, in the case of Mr James, there was little
to no prospect of such an offer being accepted prior to the appeal given he had
obtained judgment in his favour for approximately
$4.5 million. Similarly as
regards Mr McKeith, it would have been unreasonable to expect RBS to have
renewed its offers in circumstances
where he had appealed against his loss on
all issues below and previously rejected three offers in substantially the same
terms.
- There
are at least three reasons which undercut the cogency of this argument. First,
it is well accepted that the main tactical advantage
afforded by an offer of
compromise is the potential it carries for a special costs order to be made
against the party who unreasonably
rejects the offer and subsequently fails in
whole or in part at trial or on appeal. Secondly, but no less importantly, the
public
policy rationale underlying offers of compromise – that of
encouraging the “prompt and economic disposal of litigation”
–
applies equally to appeal proceedings. As the Court (Spigelman CJ, Beazley and
McColl JJA) in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA
368 (“Regency Media”) observed at [42]:
“The fact that one party has won at first instance does not mean that
efforts to compromise should cease.”
- To
be clear, the Court’s discretion to make special costs orders will not
generally be exercised in favour of a successful party
who has not invoked the
relevant provisions of Div 8 of Pt 51 of the UCPR, particularly r 51.47 which
permits the making of an offer of compromise for the purposes of an appeal. As
was observed
by the Court in Regency Media at [43], something special is
required to vary the usual order as to costs in this Court.
- Finally,
it should be noted that the Court in Perisher Blue at [74] referred to
the judgment of Basten JA in Miwa Pty Ltd v Siantan Properties Pty Ltd (No
2) [2011] NSWCA 344 where his Honour (at [22]) proffered three reasons as to
why an informal offer made prior to the judgment under appeal, and reasonably
rejected by the successful party at first instance, might not be successfully
relied upon by the offeror to obtain indemnity costs
in respect of the costs of
its subsequent appeal. His Honour said:
“First, when the offer has expired and not been renewed, the offeree is
entitled to say that its success at trial would be
a significant event,
rendering reasonable the hypothetical rejection of a renewed offer. Secondly,
the failure of the offeror to
renew the offer prevents that possibility being
tested. Thirdly, the offer in the court below to settle ‘the
proceedings’
may reasonably be treated as referring to the proceedings on
foot, and not to the possibility of an appeal.”
- The
first of these three reasons is apposite in the present context insofar as Mr
James is concerned while the second and third reasons
are of relevance to both
plaintiffs.
- The
weight of authority in this Court clearly opposes the making of a special costs
order in favour of RBS based on the failure of
the plaintiffs to accept any of
the relevant offers. No cogent justification for granting RBS’s
application for indemnity costs
on appeal flows from the mere fact of the three
offers of compromise in the proceedings below.
- As
RBS has failed to make good its application for a special costs order, it is
necessary to address its submissions in the alternative.
As noted above at [28],
RBS’s submissions reflect a preference for an order that the plaintiffs
pay its costs of the appeal
on the ordinary basis. By way of a fall-back
position, RBS submits that in light of the partial success enjoyed by each party
on
the appeal, a suitable order would have Mr James pay 50 per cent of
RBS’s costs of the appeal while RBS pay 50 per cent of
Mr McKeith’s
costs of the appeal. As noted, Mr James accepts that he should pay 50 per cent
of RBS’s costs of its appeal.
- The
parties differ, however, as to the costs of Mr McKeith’s appeal. Mr
McKeith submits that RBS should be ordered to pay the
entirety of his costs on
the appeal given his success in what is referred to in the principal judgment as
the contract point. RBS
contends that the failure of Mr McKeith’s ex
gratia payment claim renders inappropriate such an order. In support of this
submission, RBS emphasise that an order that RBS pay only 50
per cent of his
costs on appeal will better reflect the relative success of each party.
- It
is true that Mr McKeith, having succeeded in part of his appeal, has obtained
judgment for a substantial sum. Nevertheless, I do
not accept that an
appropriate exercise of the Court’s discretion would have RBS pay the
entirety of Mr McKeith’s costs
of the appeal. The severance payment to
which this Court found Mr McKeith was entitled came to $375,961.54 together with
pre-judgment
interest. Yet, he also claimed an ex gratia payment of $4
million, a claim which failed. The time expended in dealing with that issue was
not insignificant. Accordingly, in
my view an appropriate exercise of the
Court’s discretion is to “otherwise order” with respect to Mr
McKeith’s
costs of the appeal by ordering RBS to pay 50 per cent of those
costs on the ordinary basis.
Interest on costs
- Section
101(4) of the CPA provided (prior to its amendment in November 2015) that the
Court may order that interest be paid on any amount payable
under an order for
the payment of costs. In reliance upon this provision RBS seeks an order for
interest on the costs and disbursements
it has outlaid since the commencement of
litigation in October 2011.
- It
is common ground that an order for the payment of interest on costs does not
require special circumstances to be demonstrated (Lahoud v Lahoud [2006]
NSWSC 126 at [82] per Campbell J) and that the purpose of such an order is to
compensate a party having the benefit of a costs order for being “wrongly
required to spend money on litigation to enforce established rights”:
Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2)
[2009] NSWCA 170 at [44] per Basten JA, Campbell JA agreeing; Davies v
Kur-ring-gai Municipal Council [2003] NSWSC 1010 at [5] per Austin J;
Drummond & Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331 at [4] per
Macfarlan JA; Gillfillan v Australian Securities and Investments Commission
(No 2) [2013] NSWCA 143; (2013) 94 ACSR 543 at [33] per Sackville AJA,
Beazley P and Barrett JA agreeing.
- Whilst
it is accepted that an application for interests on costs need not point to any
special or otherwise out of the ordinary circumstances,
an expectation that the
court will undertake a general assessment of the circumstances of the case finds
some support in the authorities
referred to. To this end, relevant matters
include the conduct of the parties, whether the successful party has been out of
pocket
in respect of costs it has paid and for what length of time, as well as
whether the unsuccessful party has benefited from the use
of that money in the
relevant period: Ying v Song [2011] NSWSC 618 at [100] per Ward J citing
Grogan v Thiess Contractors Pty Ltd [2000] NSWSC 1101 at [11] per Barr
J.
- Some
recent formulations of the principle as to interest on costs appear to frame it
as giving rise to a presumption that interest
will be awarded as a matter of
course in the absence of any countervailing discretionary consideration: see
Grace v Grace (No 9) [2014] NSWSC 1239 at [66] per Brereton J. This
approach is, however, possibly at odds with the statements, albeit obiter, by
this Court in Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd
(No 2) (2013) 84 NSWLR 436; [2013] NSWCA 211 (“Illawarra
Hotel”) at [38] where it was accepted that generally some positive
case in support of the application must be established. The Court
(Meagher,
Barrett and Ward JJA) observed that a party who contends that there should be an
order for interest on costs must do more
than simply point to the fact that the
proceedings were protracted and that it had to outlay moneys on its own costs
over an extended
period.
- In
Grace v Grace, Brereton J (at [59]-[60]) comprehensively reviewed the
authorities as to interest on costs, including Illawarra Hotel which he
declined to follow for reasons articulated at [62]. Significantly, his Honour
(at [68], [76]) emphasised that the circumstances
in which a claim for interest
is liable to be refused “are rare”.
- At
[60] Brereton J cited the following passage from the judgment of Gleeson JA in
Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd
[2014] NSWCA 158 
at [403] :
“Thus, 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 was cited in support of his Honour’s
remarks. I note that s 101(4) was recently amended with effect from 24 November
2015 by the Courts and Other Justice Portfolio Legislation Amendment Act 2015
(NSW). It now reads:
“Unless the court orders otherwise, interest is payable on an amount
payable under an order for the payment of costs.”
- It
may be observed that the effect of the amendment is that whereas under the
previous sub-section the onus lay upon the party seeking
an order for the
payment of interest, under the new provision the onus is on the party resisting
the payment of interest to persuade
the court to “order otherwise”.
Absent such an order interest is payable by force of the mandatory terms of the
sub-section
and a court order is no longer required.
- In
the present case, however, it was not suggested that the Court should proceed
otherwise than in accordance with the unamended sub-section.
That was the
position at the time of trial and, relevantly, at the time the primary judge was
requested to consider the question
of costs in July 2015 and at the time of the
hearing of the appeal in October 2015. I therefore proceed accordingly.
- Mr
McKeith resists RBS’s application on the ground that no such application
was made for the proceedings at first instance.
He submits that the failure to
do so has deprived this Court of an assessment by the primary judge of the
relevant factors which
might otherwise have persuaded his Honour, who had
intimate knowledge of the proceedings and their history compared to the more
limited
knowledge of this Court, to make an order for the payment of interest on
the costs he awarded RBS.
- In
Illawarra Hotel the Court (at [34]) noted that the applicant’s
amended notice of appeal contained no claim for interest on costs and nor did
any ground of appeal raise the matter. While the same observation may be made in
this case as regards RBS’s position vis-à-vis
Mr McKeith, it is
less surprising given RBS was the respondent in the proceedings before this
Court. In these circumstances, it is
perhaps appropriate that the issue only
arises as a consequence of the outcome of the appeal, which in the present case
involved
only partial success by both parties.
- Nevertheless,
there is force to the view that the issue of interest on costs did not arise
simply by reason of the outcome of Mr McKeith’s
appeal. Had RBS made such
a claim in the proceedings below, it would have been dealt with on appeal.
RBS’s failure in this
regard is significant, particularly in light of Mr
McKeith’s partial success before this Court and where I propose that this
Court order RBS to pay 50 per cent of his costs of the appeal. That a different
order for costs with respect to the proceedings at
first instance is to be made
on account of the outcome of the appeal does not militate against this
conclusion.
- RBS’s
position with respect to Mr McKeith is not dissimilar from that the subject of
consideration as to interest on costs in
Illawarra Hotel. Much like the
present case, no application for an order for the payment of interest on costs
was made to the primary judge in that
case. Nor in either case did the issue
arise as a consequence of the outcome of the appeal. To cite the Court in
Illawarra Hotel at [34]:
“Illawarra [the applicant] seems to say simply that it should have from
the Court of Appeal an order in respect of costs at
first instance, that, so far
as the record shows, was not sought in the court below and does not flow from
the decision on appeal.
That is a quite unsupportable
proposition.”
- In
important respects Mr James’ position is somewhat different to that of Mr
McKeith. In his case, RBS was the appellant in
this Court and was seeking an
order that the judgment entered in Mr James’ favour against RBS by the
primary judge be reversed
and that Mr James pay RBS’s costs at first
instance. Against Mr James’ total success in the proceedings below, so RBS
submits, there was no opportunity for RBS to make an application for interest on
costs because, with one exception, they were awarded
against RBS in Mr
James’ favour. Upon this basis, RBS points to an order in its amended
notice of appeal seeking interest on
both the costs of the proceedings below and
on the appeal upon the assumption it obtained an order for costs in its
favour.
- It
is to be noted, however, that although Mr James succeeded before the primary
judge as to the severance and ex gratia payment claims, he failed on the
claim referred to by his Honour as the “Appointment Promise Case”
(see costs judgment
at [14]-[15]). Mr James pleaded the latter at paras 55-61 of
his Commercial List Statement. Paragraphs 1 and 2 of the order made
by the
primary judge in Mr James’ proceedings provided that he should pay the
costs of and incidental to that claim, in part
on an indemnity basis. Notably,
RBS did not seek an order from the primary judge that it be paid interest
thereon.
- Against
this, it might be said that RBS’s application for an order for interest on
costs to be paid by Mr James does, at least
to a limited extent, flow from the
decision on the appeal insofar as the damages to which Mr James is entitled have
been substantially
reduced from those ordered by the primary judge.
- In
my view, a number of countervailing discretionary factors tend against the
making of orders in favour of any of the parties as
to interest on costs of both
the proceedings below and now on appeal. First, it is necessary to take account
of the fact that the
parties have agreed that RBS should pay the
plaintiffs’ costs at first instance on the ordinary basis up to 26 April
2012 and
that the plaintiffs should pay the costs of RBS on an indemnity basis
thereafter. This split in the costs orders principally follows
by reason of the
first offer of compromise as opposed to the outcome of the appeal. Secondly, as
already determined, I propose to
make an order that Mr James pay 50 per cent of
RBS’s costs of the appeal and that RBS pay 50 per cent of Mr
McKeith’s
costs of the appeal. Consequently, both Mr James and Mr McKeith
submit that if they are required to pay interest on the costs awarded
against
them in favour of RBS, the latter should likewise pay interest on the costs
incurred by them prior to 26 April 2012 as well
as upon the costs of the appeal
to the extent that they have been awarded in their favour. In this context, it
is to be noted that
Mr James did not seek an order from the primary judge that
he be awarded interest on the costs awarded to him at first instance.
- Accordingly,
notwithstanding the compensatory nature of the statutory provision for the
payment of interest on costs, the balance
of advantage and disadvantage in the
present case renders it inappropriate for such an order to be made in respect of
any of the
parties. Whether this case answers the description of a rare case or
not, it is, in my view, one of those cases where an order for
interest on costs
should be refused. In these circumstances, it is unnecessary to deal in detail
with the parties’ submissions
as to the rate of interest which would have
applied had the payment of interest been upheld. Had it been necessary to deal
with this
issue, my tentative view is that the rate of interest to be applied is
that contemplated by UCPR, r 36.7.
The payment of interest on the
restitutionary sum by Mr James
- Mr
James accepts that he is obliged to repay to RBS the excess of the amount paid
to him on 5 May 2015 over the amount now held to
be due to him. That amount,
noted at [11] above, is said to be $2,590,208.08. This amount is based upon
pre-judgment interest for
the severance payment being limited to the period from
8 September 2008 to 26 April 2012. RBS submits that it is entitled to interest
for the period during which Mr James had the benefit of this money.
- It
is well established that where a judgment is reversed or set aside on appeal the
appellant becomes entitled as of right to restitution
of the sum paid in
satisfaction of the judgment below with interest: Woolworths Ltd v Strong (No
2) (2011) 80 NSWLR 445; [2011] NSWCA 72 at [25] per Campbell JA, Handley AJA
and Harrison J agreeing; Heydon v NRMA Ltd (2001) 53 NSWLR 600; [2001]
NSWCA 445 at [14] per Mason P, Beazley JA and Ipp AJA agreeing; Commonwealth
v McCormack (1984) 155 CLR 273; [1984] HCA 57 at 276. Invariably, the
Supreme Court Act 1970 (NSW), s 75A(10) is identified as the source of
this power: see Ambulance Service of New South Wales v Worley (No 2)
(2006) NSWLR 719; [2006] NSWCA 236 at [29], per Basten JA, Tobias and McColl JJA
agreeing.
- Although
already canvassed ([9]-[12] above), it is desirable to again set out the
sequence of events relevant to the restitutionary
sum. On 1 April 2016, Mr James
paid to RBS the sum of $2,367,380.88 being the $3,022,901.39 paid to him on 5
May 2015 less his severance
payment ($432,692.31) and interest on the severance
payment amounting to $222,828.20. The latter was arrived at on the basis of the
period 9 September 2008 to 6 February 2013, the date of the second offer of
compromise. For reasons given above, I do not consider
Mr James is entitled to
pre-judgment interest beyond the date of the first offer of compromise, 26 April
2012. It follows that a
further sum of $82,607.88 is repayable by him to RBS.
This represents the difference between the pre-judgment interest claimed by
Mr
James in the sum of $222,828.20 and the pre-judgment interest to which we have
found he is entitled, namely, $140,220.32.
- The
remaining dispute therefore concerns the appropriate rate at which Mr James
should be required to pay interest on the amount refunded
by him to RBS. RBS
submits that it is entitled to interest on that amount according to the
legislatively prescribed rate of 6 per
cent: see Practice Note SC Gen 16. Mr
James, on the other hand, contends that payment of interest on a restitutionary
sum raises
different considerations to the case of a party being ordered to pay
pre-judgment interest on damages.
- Mr
James submits that it would accord more evenly with the dictates of justice to
apply a rate of interest to the restitutionary sum
reflecting the market rate of
an objectively appropriate investment of such moneys pending appeal. Evidence
was filed on behalf of
Mr James to the effect that if the funds had been
invested with an Australian bank at the relevant time, the rate for a one-month
term deposit would have been 1.95 per cent and between 2.05 per cent and 2.35
per cent per annum for a three-month term deposit.
In view of this, Mr James
suggests that a fair rate would be 2.5 per cent per annum as measured according
to average bank interest
rates. Notably, the evidence established that Mr James
had deployed the moneys in payment of legal costs with the balance invested
in a
managed fund that accrued a return over the year of 2.6 per cent. On this
footing, Mr James submits that an order applying the
legislatively prescribed
rate of 6 per cent per annum would work considerable unfairness.
- There
can be no doubt that the requirement that an unsuccessful party on appeal pay
interest on a restitutionary sum may in some cases
occasion injustice. Kirby P
so stated in Government Insurance Office of New South Wales v Healey (No
2) (1991) 22 NSWLR 380 at 383. Nevertheless, contrary to that advanced by Mr
James, the President did not suggest that a different rate of interest ought
to
necessarily apply to a restitutionary sum compared to pre-judgment interest on
damages.
- Implicit
in Kirby P’s reasoning, taken at its highest, is an acknowledgment that it
is within the discretion of the court to
order that a different rate of interest
apply, provided the relevant party seeking to depart from the court’s
general practice
has displaced the evidentiary and persuasive burden.
- The
applicable principles are set out in the judgment of Mason P in Heydon v NRMA
Ltd at [24] - [36]. The President made a number of observations which I have
adapted to the present case:
- The issue of
restitutionary interest presents itself in a context where no particular loss is
identifiable as regards RBS and no particular
gain is identifiable as regards Mr
James;
- Mr James was
entitled to demand and receive the sum ordered to be paid in the court below.
RBS’s right to restitution following
the reversal of that judgment is
personal and not proprietary. This would suggest that RBS would not necessarily
be entitled to any
windfall gain made by Mr James flowing from an extremely
provident or speculative investment of the relevant funds entered into without
recourse to RBS;
- Doing justice to
both sides also means that Mr James cannot be made hostage to RBS’s
particular susceptibility any more than
RBS can be made hostage to Mr
James’ particular caution or carelessness;
- It cannot be
said that a respondent such as Mr James can never avoid the statutory or
prescribed rate unless able to prove that the
loss actually suffered by an
appellant such as RBS was less than the sum which those rates would have
produced. That would be to
confuse restoration/restitution with compensation.
Nor does the actual benefit derived by Mr James from the (reasonable) use of the
judgment moneys fix the upper limit of any obligation to restore RBS to the
position that should have been obtained at first instance.
- His
Honour then said this (at [30]):
“It would be intolerably burdensome if a court required evidence and
argument in every case as to what rate or rates of interest
would do justice to
the principles which I have endeavoured to summarise. The interest of the
parties and of the court, including
the interest of consistency as a component
of justice, are served by taking a broad, standard approach whereby interest is
calculated
according to pre-determined rates that the parties can take into
account in their dealings during the litigation and in their endeavour
to avoid
wasteful disputation concerning its outcome.”
- His
Honour observed that similar principles may be gleaned from case law discussing
the circumstances where a court should exercise
its discretion to depart from
the statutory rate in an award of pre-judgment interest. He noted (at [32]) that
in the Court of Appeal
the practice was to award restitutionary interest at the
rates payable on judgments unless special circumstances warranted
otherwise.
- While
the Court has some leeway in determining the rate of interest most apt to
reflect the measure of the respondent’s enrichment,
it will not be so
moved unless the party seeking to vary the usual approach of the Court has
discharged the relevant persuasive and
evidentiary burden.
- As
Mason P observed in Heydon v NRMA Ltd at [36], the burden is persuasive
in the sense that “the whole purpose of having a general rule is to cast
such burden upon
the party who claims exemption from it”. It is
evidentiary in the sense that, as in the present case, Mr James is best
positioned
to prove how he disposed of the money during the relevant period. It
follows that the party claiming restitutionary interest need
not demonstrate
that the statutory rate ought to apply: Ambulance Service of New South Wales
v Worley (No 2) at [34] per Basten JA, Tobias and McColl JJA agreeing.
- Mr
James’ submissions have sought to demonstrate that any earnings he has
derived by reason of the judgment moneys are less
than what would have been
earned had the moneys been invested at the statutory prescribed rates. RBS
submits that the evidence relied
upon by Mr James to this effect is not
sufficient to justify departure from the general rule. This, so RBS claims, is
particularly
so where Mr James has not provided evidence of other available
investments or of his overall financial position so as to enable an
understanding of why he chose the particular investment in question. RBS also
points out that the onus lay upon Mr James to establish
that RBS could not have
earned 6 per cent on the moneys but only 2.5 per cent. I accept those
submissions.
- It
accordingly follows that the general practice of the Court should be adopted and
that the appropriate rate of interest to be paid
in respect of the
restitutionary amount is 6 per cent per annum. That the general rule is animated
by considerations of utility,
fairness and commercial reality perhaps bears some
emphasis: see Heydon v NRMA Ltd at [36]. To be clear, the rate adopted in
the Practice Note (which commenced on 1 July 2010) must be taken as reflecting
the appropriate
economic and commercial conditions at the time. There is nothing
to suggest that these conditions have altered in the time since.
In any event,
as the Practice Note provides for a rate that is four per cent above the cash
rate relevantly last published by the
Reserve Bank of Australia, it follows that
any reduction in that rate is reflected in the relevant
calculation.
The withholding tax issue
- As
noted at [9] above, on 5 May 2015 the RBS parties paid Mr James the sum of
$3,022,901.39 after withholding PAYE tax ($1,437,019.23).
Of the amount withheld
as tax, $1,225,000.00 related to the ex gratia payment to which this
Court has held Mr James is not entitled. It follows that Mr James wishes to
obtain a refund of that amount.
- The
parties have reached agreement as to how that exercise should be conducted and
it is reflected in order 8 of the Court’s
orders set out below with
respect to the James appeal.
Conclusion
- For
the foregoing reasons I propose the following orders in each
appeal:
Case number 113597 of 2015 (the James appeal)
1. Appeal allowed in part.
2. The order made by McDougall J on 27 March 2015 directing
judgment for the Respondent against the Third Appellant in the amount
of
$2,932,692.31 together with pre-judgment interest in the amount of $1,490,149.15
be set aside.
3. In lieu thereof judgment be entered in favour of the
Respondent against the First Appellant in the amount of $432,692.31 together
with pre-judgment interest in the amount of $140,220.32.
4. The Respondent make further restitution to the Third
Appellant in the amount of $82,607.88 noting that the Respondent on 1 April
2016
made restitution to the Third Appellant in the amount of $2,367,380.88.
5. The Respondent to pay to the Third Appellant interest on
the restitutionary amount of $2,449,988.70 from 5 May 2015 to 1 April
2016 at
the rate of 6 per cent per annum and on the further amount of $82,607.88 from 1
April 2016 to the date of payment of that
amount at the rate of 6 per cent per
annum
6. The costs orders made on 22 July 2015 by McDougall J be
set aside and in lieu thereof:
a. the Appellants pay the
Respondent’s costs of the proceedings at first instance
on an ordinary basis up to and
including 26 April 2012;
and
b. the Respondent pay the
Appellants’ costs of the proceedings at first instance
on an indemnity basis after 26 April
2012.
7. The Respondent pay 50 per cent of the Appellants’
costs of its appeal on the ordinary basis.
8. The parties cooperate in recovering from the Australian
Taxation Office (ATO) the amount of $1,225,000.00 in tax paid to the
ATO by the
First Appellant in respect of the amount of $2,500,000.00 ordered to be paid to
the Respondent by McDougall J including,
if necessary, by:
a. the expeditious filing by the
Respondent of his income tax return for the year ended 30 June
2015 claiming that income
tax amount as a credit; and
b. the payment of that amount by the
Respondent to the Third Appellant upon receipt by him of a
Notice of Assessment confirming
that amount as a credit
against his income tax.
9. Liberty to apply within seven days of the making of these
orders for the purpose of correcting any error therein or omission
therefrom
which is inconsistent with this judgment.
Case number 115116 of 2015 (the McKeith appeal)
1. Appeal allowed in part.
2. The order made by McDougall J on 27 March 2015 directing
judgment for the Respondents against the Appellant be set aside.
3. In lieu thereof judgment be entered for the Appellant
against the First Respondent in the amount of $375,961.54 together with:
a. pre-judgment interest on that amount from 5 December 2008
to 27 April 2012; and
b. post-judgment interest on that amount (including
pre-judgment interest) from 27 March 2015 to the date of payment.
4. The costs orders made on 22 July 2015 by McDougall J be
set aside and in lieu thereof:
a. the Respondents to pay the
Appellant’s cost of the proceedings at first instance on
an ordinary basis up to and
including 26 April 2012; and
b. the Appellant to pay the Respondents’ costs of the
proceedings at first instance on an indemnity basis after 26
April
2012.
5. The Respondents pay 50 per cent of the Appellant’s
costs of its appeal on the ordinary basis.
6. Liberty to apply within seven days of the making of these
orders for the purpose of correcting any error therein or omission
therefrom
which is inconsistent with this judgment.
- EMMETT
AJA: In these two appeals, the Court may orders on 9 March 2016. The
question in the appeals was whether each plaintiff in the primary
proceedings
was, upon termination of their employment, entitled to a severance payment and,
in addition, to an ex gratia payment. The effect of the orders made by
this Court is that each plaintiff is entitled to a severance payment but neither
is entitled
to an ex gratia payment. As a result, one of the plaintiffs,
Mr James, was required to make restitution to the defendant of part of the
payment that
had been made to him as a result of the orders of the primary
judge.
- Several
questions remained to be resolved following the making of orders on 9 March
2016. A number of those questions have been the
subject of agreement between the
parties. However, four questions remain for determination by this Court as
follows:
- Whether the
plaintiffs are entitled to pre-judgment interest on the severance payments and,
if so, for what period?
- The costs of the
appeal, including whether costs should be paid on an indemnity basis?
- Whether the
defendant is entitled to an order for interest on the costs and disbursements
that it has outlaid since the commencement
of the litigation?
- Whether interest
is payable on the amount paid by way of restitution by Mr James to the defendant
and, if so, at what rate?
- I
have had the advantage of reading in draft form the proposed reasons of Tobias
AJA. For the reasons proposed by his Honour I agree
with the conclusions reached
by him on each of the above questions. I agree that the Court should make orders
as proposed by Tobias
AJA in each of the appeals.
**********
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