On 17 April 2023, the Court dismissed the application of the plaintiff, A-Civil Aust Pty Ltd (A-Civil), to set aside an adjudication determination made by the second defendant in respect of a payment claim, with costs: see A-Civil Aust Pty Ltd v Meso Solutions Pty Ltd [2023] NSWSC 372. On 3 May 2023, the Court made final orders, including an order that A-Civil pay the costs of the first defendant, Meso Solutions Pty Ltd (Meso), as agreed or assessed.
By a notice of motion filed on 27 November 2023, Meso applied for a gross sum costs order in the amount $130,000 instead of assessed costs.
The notice of motion was heard on 20 March 2024. At the hearing, Meso relied on an affidavit of Ms Courtney Burrows, an employed solicitor at HBA Legal affirmed on 27 November 2023 and two expert reports of Ms Kate Chan, a costs lawyer employed by Blackstone Legal Costing. Ms Chan was cross-examined, but Ms Burrows was not. Ms Burrows' affidavit annexed the invoices issued by HBA Legal who acted for Meso in the original proceedings including the invoices of Meso's counsel in the matter, Mr D Weinberger. HBA Legal had ceased to act for Meso prior to the hearing of the notice of motion.
A-Civil relied on an affidavit of Mr Aydn Shaba affirmed 30 January 2023, an affidavit of Mr Nasser Matta sworn on 19 March 2024 and an affidavit of Mr Stefani Filipopic sworn 20 March 2024. These witnesses were not cross-examined.
Meso's evidence at the hearing did not include any costs agreement issued by HBA Legal to Meso for the conduct of the original proceedings on its behalf. The costs agreement issued by Mr Weinberger to HBA Legal was tendered at the hearing. After the hearing, the Court gave leave to Meso to produce any costs agreement between it and HBA Legal for these proceedings. This leave was granted because A-Civil had not made apparent to Meso prior to the hearing, either in its written submissions or otherwise, of the particular significance which it placed on the absence of a written costs agreement.
A-Civil Aust Pty Ltd v Meso Solutions Pty Ltd [2024] NSWSC 323 | Case summary | Zoe
Within the period of the leave granted, Meso provided an affidavit of Mr Timothy Orr, a director of Meso, to the effect that HBA Legal did not provide a costs agreement in writing to Meso for this particular matter.
The cross-examination of Ms Chan established that her report could not be relied by the Court for a number of reasons. First, the report did not disclose that she had sought but not been provided with HBA Legal's costs agreement. Further, her report did not disclose that there was in fact no costs agreement (and indeed, it appears that she was unaware of this). She accepted this was a matter which should have been disclosed, being a matter relevant to a costs assessment. Second, she had only performed a brief and limited sampling process to test the reasonableness of the amounts charged in the invoices issued by HBA Legal and had not performed a detailed assessment process. Third, the methodology she relied on in her report is not one which the Court can be satisfied is reliable for a case of this kind. Fourth, while Ms Chan stated in her report that in her opinion Meso's reasonable costs and disbursements (ex GST) were $127,602.07, she accepted in cross-examination that a number of amounts not relating to the professional costs of solicitors or counsel which had been included in this amount needed to be excluded, reducing the amount attributable to professional costs to $109,103. She also accepted that she had not allowed an appropriate discount to reflect the uncertainty of the ultimate outcome of a costs assessment process. Ultimately, the Court cannot be satisfied that Ms Chan's report provides an accurate assessment of what the outcome of the costs assessment process would be if it proceeded on the basis that there was no costs agreement between HBA Legal and Meso.
Section 98(4) of the Civil Procedure Act 2005 (NSW) provides that the Court may make an order to the effect that the party to whom costs are to be paid is to be entitled to a specified gross sum instead of assessed costs.
In Berry Rural Co-operative Society Ltd v Sepak Industries Pty Ltd (No 4) [2018] NSWSC 1902, Stevenson J summarised the principles to be applied when making a gross sum fixed costs order as follows:
(a) the Court is to take a broad-brush approach in determining the amount of a gross sum fixed costs order: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 , [52] (Giles JA). The approach is to achieve the policy outcome sought by the imposition of an order for costs, namely compensation of the party in whose favour the order is made, rather than penalisation of the party being ordered to make the payment;
(b) the Court is not required to conduct a detailed examination such as is required on an assessment: Young v Hones (No 3) [2014] NSWSC 499 , [28] (Garling J); see also Penson v Titan National Pty Ltd (No 3) [2015] NSWCA 121 , [7] (Campbell AJA);
(c) the Court ought only act where the party seeking costs has furnished the Court with sufficient evidence to permit the Court to have confidence that the gross sum costs proposed are an appropriate sum and reflect a methodology that is logical, fair and reasonable: Beach Petroleum NL v Johnson(No 2) (1995) 57 FCR 119 , 123 (von Doussa J); Young v Hones [29]; Harrison v Schipp [22] and [52]; Hamod v New South Wales [2011] NSWCA 375 , [820] (Beazley, Giles, Whealy JJA); and
(d) the Court has routinely applied a discount to the lump sum figure so as to allow for contingencies. This can typically be in a range of a discount of 10-30 per cent: Hamod v New South Wales [820]; Ross v Padget [2016] NSWSC 1851 , [16] and [21] (Sackar J); Fisher-Pollard (by her tutor Fisher-Pollard) v Fisher-Pollard [2018] NSWSC 807 , [38], [44] and [49] (Sackar J).
A party seeking a gross sum costs order will usually provide evidence of the costs in fact incurred and paid, including (a) a copy of the costs agreement issued by the legal practitioners to the client, or at least a solicitor's affidavit stating that the costs agreement is unconditional or, if conditional, identifying the conditions to which it is subject; (b) copies of the bills and memoranda of fees rendered in the matter; and (c) an indication as to whether the costs have been paid or not: Amirbeaggi v EB (No 2) [2023] NSWCA 184 at [13]. In addition, sometimes expert evidence from a costs assessor is tendered.
In the present case, as noted, a costs agreement between A-Civil and HBA Legal did not exist and all that was tendered in respect of (b) was invoices issued by HBA Legal and counsel. While there was some expert evidence, it is not in a form that can be relied upon by the Court as indicated earlier.
The absence of a costs agreement between HBA Legal and A-Civil in the present case is significant. The relevant provisions of the Legal Profession Uniform Law (NSW) are:
174 Disclosure obligations of law practice regarding clients
(1) Main disclosure requirement A law practice -
(a) must, when or as soon as practicable after instructions are initially given in a matter, provide the client with information disclosing the basis on which legal costs will be calculated in the matter and an estimate of the total legal costs; and
(b) must, when or as soon as practicable after there is any significant change to anything previously disclosed under this subsection, provide the client with information disclosing the change, including information about any significant change to the legal costs that will be payable by the client -
together with the information referred to in subsection (2).
…
(6) Disclosure to be written A disclosure under this section must be made in writing, but the requirement for writing does not affect the law practice's obligations under subsection (3).
178 Non-compliance with disclosure obligations
(1) If a law practice contravenes the disclosure obligations of this Part -
(a) the costs agreement concerned (if any) is void; and
(b) the client or an associated third party payer is not required to pay the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority; and
(c) the law practice must not commence or maintain proceedings for the recovery of any or all of the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority or under jurisdictional legislation; and
(d) the contravention is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any principal of the law practice or any legal practitioner associate or foreign lawyer associate involved in the contravention.
…
185 Certain costs agreements are void
(1) A costs agreement that contravenes, or is entered into in contravention of, any provision of this Division is void.
Note
If a costs agreement is void due to a failure to comply with the disclosure obligations of this Part, the costs must be assessed before the law practice can seek to recover them (see section 178(1)).
(2) A law practice is not entitled to recover any amount in excess of the amount that the law practice would have been entitled to recover if the costs agreement had not been void and must repay any excess amount received.
…
199 Costs assessment
(1) Assessments of legal costs are to be conducted by costs assessors, and are to be conducted in accordance with this Part, the Uniform Rules and any applicable jurisdictional legislation.
(2) On a costs assessment, the costs assessor must -
(a) determine whether or not a valid costs agreement exists; and
(b) determine whether legal costs are fair and reasonable and, to the extent they are not fair and reasonable, determine the amount of legal costs (if any) that are to be payable.
Note
A costs agreement can be void under section 178 or 185.
As there is no costs agreement between HBA Legal and A-Civil, HBA Legal would only be entitled to recover its costs in the matter from A-Civil following an assessment of the costs (s 185(2)), and the assessor would be required to assess the costs on the basis of what is fair and reasonable, ie. a quantum meruit, under s 199(2): see also GE Dal Pont, Law of Costs (5th Ed, LexisNexis, 2021), [2.1], [3.53]-[3.54].
It follows that the only costs for which Meso has a legal liability and to which the costs order made on 3 May 2023 can apply are the costs resulting from an assessment under s 199(2), and this will be so even if Meso had paid the greater amount of the invoices issued by HBA Legal in full because HBA Legal would be required to repay the excess amount received (s 185(2)).
While the absence of a costs agreement may not preclude the Court from making a lump sum costs order, in a case such as this where determining what costs are fair and reasonable is not straightforward, it would not be appropriate in my view for the Court to attempt to take on the task of the assessment process required by s 199(2).
In Amirbeaggi v EB (No 2), the Court made a lump sum costs order of $33,000 despite the absence of evidence of the costs agreement between the solicitor and client. However, that matter was very different from this, as the evidence was all documentary and quite limited in scope and the hearing was short (see [17]). Consequently, the Court was in as good a position as an assessor to determine the reasonableness of the costs incurred. That is not so in the present case, which turned on a significant factual dispute as to whether certain alleged representations had been made in disputed conversations over a lengthy period and in the context of extensive email correspondence. Each party called two witnesses who gave evidence by affidavit and were cross-examined. The assessment of costs in the present case to determine what is fair and reasonable will not be straightforward.
While the Court can take a 'broad brush' approach in determining the amount of a gross sum costs order, I am not satisfied that Meso has provided sufficient evidence to enable the Court to be confident that a gross sum costs order would be fair and reasonable. Accordingly, in my view, the circumstances of this case do not justify a departure from the usual position that a party with the benefit of a costs order needs to have them assessed: O'Connor v O'Connor [2022] NSWSC 940 at [9]-[10].
For the above reasons, the first defendant's notice of motion is dismissed with costs.
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Decision last updated: 27 March 2024