[1998] PNGLR 588

PAPUA NE GUINEA

[national court of justice]

tolom abai & 765 others

V

the independent state of Papua New Guinea

mount hagen: doherty j
6 August, 23, 30 September, 1997

Civil Procedure – Interest on Costs – Interest on costs paid into court.

Facts

The defendants paid K400,000.00 into Court on account of costs payable to the defendants’ lawyers. It was put on special deposit account earning interest. In a claim by the plaintiff’s lawyers for the interest accrued prior to taxation of the costs and for interest on costs.

Held

1.	Interest on costs paid into court is not payable to either party per O 2 r 48 of the National Court Rules. Madaha Resena & Others v State [1990] PNGLR 22 and Jefford v Gee [1970] 2 QB 130 followed, K v K [1977] 1 All ER 575 referred and Pinzger v Bougainville Copper Limited 1985] PNGLR 160 distinguished.

2.	Interest may be allowed on costs but only from the date they are quantified.

Papua New Guinea cases cited

Madaha Resena & Others v State [1990] PNGLR 22.
Pinzger v Bougainville Copper Limited [1985] PNGLR 160.

Other cases cited

Jefford v Gee [1970] 2 QB 130.
K v K [1977] 1 All ER 575.

30 September 1997

Doherty J. The applicants applied to the court on a motion for:-

(1)	an order that the interest accrued and standing to the credit of the account in respect of Howard & Dirua Partnership in Receivership, be paid out to the Receiver, Mr Robert Southwell; and

(2)	directions by the Court as to who is to meet the National Capital District Commission 3% service tax in both the Howard & Dirua and the Dirua Lawyers taxed bill of costs.

At the hearing counsel stated that there was no precedent or law on either motion and agreed to make written submissions. The written submissions actually dealt with entitlement to interest on costs and the provisions of the Judicial Proceedings (Interest on Debts and Damages) Act Ch. 52 not directly on motion.

As a result of the Court directing their attention to O 2 r 48 of the National Court Rules further submissions were made and the Court was requested to rule on the original motions and by consent, to go beyond the original motion and rule on the submission on the entitlement of the plaintiff to claim interest on costs. I have considered the facts and law on all 3 matters.

The history of the case is long and detailed, not all of which is relevant to this application. The action between Tolom Abai & Others commenced with the firm of Howard & Dirua Partnership acting for the plaintiffs. In the course of the proceedings, the partnership was dissolved and a Receiver appointed, the proceedings were continued and completed by Dirua Lawyers. There was then some dispute as to the costs - both amount and entitlement. The defendant’s paid K400,000.00 into Court pending taxation of two separate bills of costs by Howard & Dirua and Dirua Lawyers respectively. There were several interim applications before taxation and settlement was finalised. In the interim interest had accrued on the payment into court and there is now a dispute whether the plaintiffs’ lawyers or the defendant’s lawyers are entitled to that interest and whether there is any entitlement to interest on costs at all. There is also a dispute on the liability for the sales tax levied by the National Capital District Commission.

It was common ground between counsels that there is no direct ruling on these points in our jurisdiction.

Both Counsels referred to the provisions of the Judicial Proceedings (Interest in Debts and Damages) Act, (Ch. No. 52) as amended (hereinafter "the Act"). Section 3 of that Act provides for interest on a debt under judgment or order. Section 3(1) provides that:

"Subject to Subsection (2) and (3) where judgement is given or an order is made for the payment of money, interest shall, unless the Court otherwise orders, be payable at the prescribed rate from the date when the judgment or order takes effect on such of the money as is from time to time unpaid."

Section 3(1) is subject to Subsections 2 and 3. These relate to proceedings on a common law claim for interest on the damages and interest on the costs. It is common ground between counsels that this claim was not a common law claim and the judgment was not one for damages based on common law. I agree with that submission and I agree that Subsections 3(2) and (3) do not apply. Mr Makail for the defendant argues that there is no provision in the consent order originally made on the 29 February 1996 for the payment of interest on the costs paid into court. Ms Dirua argues that the wording of s 3(3) assumes that interest on costs is provided for under subsection (1) unless subsection 3(1) is an order based on common law.

I consider that the wording of subsection 3(1) is intended to apply to a judgment or order. A judgment or order must be read as a whole. If the judgment orders both damages in the form of money plus costs then these are two aspects of one judgment or order. Interest is payable automatically on them whilst they remain unpaid unless a court otherwise orders. I consider that interest is automatically payable by operation of law whilst the judgement is unsatisfied because of the use of the expression "interest shall, unless a court otherwise orders ..." imposes a mandatory obligation to pay interest. The discretion vested in the court is to make an order that interest is not payable. I consider that this view is enforced by the wording of ss 3(2) and (3) which deals with interest on damages in a common law situation and interest on costs in a common law claim.

Section 3(1) of the Act only allows for the interest be payable when the money ordered in the judgment is unpaid. Section 3(1) is of no effect if the judgment or order is immediately satisfied on the date of the judgment or order taking effect. I therefore disagree with the submission of Mr Makail that interest and costs are only provided for in a common law claim. However I have also considered his alternative argument.

The Act envisages two situations where interest are payable; in Section 1 on the debt or damages from "between the date in which the cause of action arose and the date of the judgment" (which is a discretionary order) and at s 3 from the date of judgment taking effect until the money is paid. There have been various rulings on s 1 (e.g. Pinzger v Bougainville Copper Ltd [1985] PNGLR 160) but not on the differences between s 1 and 3. I agree with Ms Dirua that s 3(1) automatically has the effect of rendering interest payable from the 20 December 1995 to the 18 May 1996 on the entire taxed costs. But 2 matters need to be borne in mind:

(1)	payment was made into Court on the 29th February 1996; and

(2)	the amount of the costs were not ascertained until they were finally taxed on the 12th December 1996 and April 1997.

In submission, Ms Dirua goes beyond the original notice of motion, which I have quoted above and claims for a total of K26,779.38 being interest on costs from the date the State first became liable after allowing for various interim payments.

In his alternative submission Mr Makail refers to the Halsbury’s Laws of England, Vol. 23 para 553. When considering Halsbury it is very important to bear in mind:

(1)	we have a statute providing for interest on judgements; and

(2)	Halsbury, citing the English Law, is stating an interpretation of the English Statute and Rules.

However it is to be noted that Halsbury states (at Vol. 23 para 525) the principle that interest on monies paid into Court it will accrue to a defendant and may be used as he directs (Halsbury’s Laws, 3rd Edn, Vol. 23 para 525). Mr Makail has referred to the English decision in Jefford v Gee [1970] 2 QB 130 Jefford v Gee (supra) has been referred to in several Papua New Guinea cases e.g. Pinzger v Bougainville Copper Ltd (supra) and Madaha Resena & Others v State [1990] PNGLR 22. The decision in Jefford v Gee (supra) very clearly states it is interpreting the English statute but certain principles are enunciated which are applicable. At page 146 the English Court of Appeals states "Interest should not be awarded as compensation for the damage done. It should only be awarded to a plaintiff for being kept out of money which ought to have been paid to him". This principle wording was approved and adopted in Pinzger v Bougainville Copper Ltd (supra) at p.174 said:

We cannot see any justification for denying an award of interest merely because there has been no demand for it prior to issue of the writ. The award of damages is compensation for the loss suffered. That loss was suffered at a particular date and was subsequently proved to have been the fault of the defendant. It is not a question of punishment. It is simply a matter of the plaintiff not being kept compensated at the proper time. If that is so, it seems to us perfectly just that he should not only receive that money but also receive the monetary equivalent of the value, which that money would have earned had he been given it at the proper time. We believe the principles enunciated in Jefford v Gee (supra) are consistent with both commonsense and justice.

In their decision the English court of appeal made it clear the claim for interest need not be pleaded, it was not a cause of action and was no part of the debt or damage claimed. It was something apart on its own, awardable to a plaintiff if he wins. Hence a defendant cannot or should not make any payment into Court in respect of it. The defendant pays in what he says is sufficient to satisfy the cause of action and if plaintiff recovers more the plaintiff gets his costs. If he recovers no more (apart from interest) he does not get costs from the date the payment was made and he will have to pay the defendant’s costs. If he takes the money out of court then that is the end of the case.

The defendant’s submission also refers to the case of K. v K. [1977] 1 All ER 575 where it was held that "a debtor cannot be expected to pay until his debt is quantified and he cannot make a tender until he knows how much it is." I consider that that is equally logical and applicable to our Judicial Proceedings (Interest in Debts and Damages) Act (Ch. No. 52). It was apparent that there was no intention on the part of the defendant to delay or avoid costs, he had made a payment into court but the amount payable was not taxed and not determined.

Section 3(1) of the Act permits interest from the date of the judgment or order takes effect. I do not consider that the order for costs was quantified when the original order took effect and until they were quantified the defendant did not know what to pay. Hence whilst interest is payable on costs they are not payable until quantified.

I order the defendant to pay interest on the costs not paid from the date that they were quantified until the date they were paid. Since part of them were paid out prior to final taxation I order that the interest be payable on the balance unpaid.

The English Court of Appeal also noted that the entitlement to the interest accrued while the costs sat in an account is vested by operation of s 6(1) of the Administration of Justice Act [1965] in the Accountant General and not in any of the parties. No such argument has been put before me. After pointing out the provisions of O 2 r 48 the parties have made further submission. Ms Dirua says that the payment into Court was made to abide by a Court decision and so there is a discretion in the Court under O 2 r 48(1).

Mr Makail submits that O 2 r 48(1) is mandatory. The interest cannot be paid to either party.

The rule is drafted using the New South Wales Court Rules O 50 r 6 as a precedent. Neither counsel nor I have found any case law on their rule. Both rules appear to reflect the English Statute which, as amended, also precludes payment to the parties and legislates that interest accrued on costs be paid to the Accountant General (viz becomes Consolidated Revenue).

I consider the provisions of O 2 r 48(1) are mandatory. The interest on costs paid into court cannot be paid to the applicant or anyone else. It is clear on the facts that the payment into court by the defendant/respondent was for costs. Hence O 2 r 48(1) and not O 2 r 48(2) applies. There is no direction where the money is to be paid.

Motion 1 is refused. The interest now standing in the special bank account is to be paid by the Registrar into Consolidated Revenue.

National Capital District Tax

The defendant makes no written submission on the liability to pay the National Capital District Commission tax of 3% but orally points to the legislation. The plaintiff’s submission that the service tax is imposed by Section 8 of the National Capital District Sales & Services Tax Law (1995), (hereinafter the "Tax Act"). She submits that legal services are not exempted by the law and even if the Government was exempt from service then the soldiers are not and the services are liable to tax; the Government is merely reimbursing the legal cost of the soldiers awarded against them because of the court order for the State to pay client/solicitor’s costs.

The National Capital District Sales & Services Tax Law Section 4 makes all services supplied in the National Capital District in the course of business taxable services. Section 7(2) of the Tax Act makes the supplier of the taxable services liable for payment of the services tax. In practice most sellers of services and goods pass the tax onto the consumer but there is nothing in the Tax Act, which makes this mandatory, and it is open to the seller to absorb the amount of tax into the cost of the goods and this is frequently done.

I am not referred to any regulation within the Tax Act, any Statute or precedent that makes it clear that a defendant ordered to pay costs must pay retail sales tax. I presume from the submission that the court is being asked to make the order against the defendant because costs were awarded on a client/solicitor basis. The solicitor/client basis of cost is provided for in O 22 r 34-35. Order 22 r 35(1) provides that all costs shall be allowed except as specified in r 35 itself. There then follows a list of costs, which shall not be allowed except in particular events. Order 22 r 6 provides where there is an order of a Court that costs are to be paid to any person "that person shall be entitled to his taxed costs" (Emphasis mine).

It is apparent from the documents before me that the tax was not included in the Certificate of Taxation issued by the taxing officer in this matter. I consider that if a claim was to be made for service tax under the National Capital District Sales & Services Tax Law then it should have been claimed prior to taxation and cannot be claimed by way of a motion before the court. The entitlement is to taxed costs, the taxed costs have been ordered. Further costs cannot be added by means of a motion.

The order is refused.

I make no order as to costs.

Lawyer for plaintiff: Dirua Lawyers.
Lawyer for defendant: Solicitor General.