Bahamad v Wong

Some Applicable Legal Principles

1. The applicable law may be shortly stated. The Court's power to make a specified gross sum costs order instead of assessed costs was first provided for in the New South Wales Supreme Court rules in 1970: Supreme Court Rules 1970. These rules were initially enacted as the Fourth Schedule to the Supreme Court Act 1970. Part 52, Rule 6(2)(c) of the Fourth Schedule was closely based on a rule to similar effect in the English Rules of the Supreme Court (revised in 1965), Order 62, Rule 9(4)(b): "Fractional or gross sum in place of taxed costs". One early example of the application of the English Rule is Silva v Czarnikow Limited (1960) 104 SJ 369 in which, after an action lasting eight days, the managing clerk for the defendant's solicitor estimated the total legal costs at over GBP 2,000 and the judge fixed under Order 62, Rule 9(4)(b) a gross sum in lieu of assessed costs at GBP 1,250.
2. But reported Australian case law on the topic of specified gross sum costs orders is scant until the early to mid-1990s, when in cases such as Beach Petroleum NL v Johnson (No. 2) (1995) 57 FCR 119; (1995) 135 ALR 160 (von Doussa J) ("Beach Petroleum"), judges began more commonly to apply Australian rules that were analogous to the English Rules. Part 52A (Costs) was inserted into the Supreme Court Rules in 1994, which provided what had been Part 52, Rule 6(2): that the Court could make a specified gross sum costs order. This Part was repealed in 2005, upon the passing of the Civil Procedure Act 2005 and was replaced by the substantially similar s 98(4)(c).
3. But Courts have long exercised the power to fix a specified gross sum instead of assessed costs as part of the Court's broad inherent costs discretion, without any specific rules. One early example of the High Court of Australia exercising such inherent jurisdiction is Edgar & Walker v Mead (1916) 23 CLR 29; (1916) 23 ALR 259; [1916] HCA 70 in which Isaacs J (at 46) applied the practice adopted and described by Jessel MR in Willmott v Barber (1881) 17 Ch D 772: "But taking everything into consideration, including the several findings in favour of the respective parties, and realizing the desirability of putting an end to unnecessary further expense, I act on the principle laid down or recognized by the Court of Appeal in Willmott v. Barber. It was there stated that the discretion of the Judge as to costs is very large and extends even to the course which Jessel M.R. said he sometimes adopted, and generally found the parties were grateful to him for so doing. He thus described the course: "fix a definite sum for one party to pay to the other, so as to avoid the expense of taxation, taking care in doing so to fix a smaller sum than the party would have to pay if the costs were taxed."
4. It is interesting that from the earliest examples of the exercise of this jurisdiction, Willmott v Barber, the Court's guide was that in fixing a specified gross sum the Court should "take care to fix a smaller sum than the party would have to pay if the costs were taxed."
5. This Court's specified gross sum costs jurisdiction is now embodied in Civil Procedure Act, s 98(4)(c) which relevantly provides as follows: "(4) In particular, at any time before costs are referred for assessment, 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) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs, or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount."
6. It is to be noted that the jurisdiction is only available before a matter is referred for the assessment of costs. Referral to costs assessment has not occurred in this case, so the specified gross sum costs jurisdiction is available.
7. The principles for the making of specified gross sum costs orders instead of assessed costs are now well settled. Civil Procedure Act, s 98(4)(c) is expressed in general terms and is not limited to cases of a particular type: Australasian Performing Rights Assoc Ltd v Marlin [1999] FCA 1006 (Burchett J). The power to award a Civil Procedure Act, s 98(4)(c) specified gross sum instead of assessed costs is exercised whenever circumstances warrant its exercise; the purpose of the rule is to avoid the expense, delay and aggravation arising out of taxation: Beach Petroleum.
8. Probable inability to pay a costs order will usually provide a proper basis for the making of a s 98(4)(c) order. If the unsuccessful party ordered to pay costs is unlikely to be able to pay the amount of costs ordered, then the successful party is further aggravated by having to fund the additional costs of taxation, those costs also being unrecoverable: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 ("Schipp") at [21] (Giles JA) and Hadid v Lenfest Communications Inc [2000] FCA 628 ("Hadid") (Lehane J).
9. That is not an issue here. In this case, the circumstances that warrant the exercise of the power are the avoidance of a potentially drawn out costs assessment dispute between a group of neighbours in a suburban street who have otherwise been able to resolve their differences in the satisfactory manner. The Court reached this view at the hearing on 23 October 2019 and consequently was prepared to make a s 98(4)(c) order as part of the orders made on that day.
10. The specified gross sum can be fixed under s 98(4)(c) by the application of what has been described as a "broad brush" approach, having regard to all the information available to the Court: Schipp at [22] and Hadid at [27] and Penson v Titan National Pty Ltd (No.3) [2015] NSWCA 121 at [7] and [25]. The approach taken to the estimation of costs must be "logical, fair and reasonable" and the powers should only be exercised when the Court considers it can do so "fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available": Schipp at [22] per Giles JA.
11. A definitive statement of the applicable law in this state appears in Hamod v State of New South Wales [2011] NSWCA 375 at [813] to [820] ("Hamod") which the Court applies in this case. Some of the relevant principles stated there are: that before exercising the power the Court should be confident that the approach taken to estimating costs is fair logical and reasonable; that the terms of s 98(4), together with the more general considerations reflected in Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration and include the degree of any disproportion between the issue litigated and the costs claimed and the complexity of proceedings in relation to their cost; that the power may also be exercised where a party's conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceeding; that the assessment of any lump sum to be awarded must represent a review of the successful party's costs by reference to the pleadings and complexity of the issues raised on the pleadings; the interlocutory processes; the preparation for final hearing and the final hearing; that in the exercise of its discretion, the Court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment; that the costs ordered should be based on an informed assessment of the actual costs, having regard to the information before the court (for example, by relying on costs estimates or bills); and that the approach taken to estimate the costs to be ordered must be logical, fair and reasonable and this may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment.
12. I have previously summarized the law regarding the powers available in Civil Procedure Act, s 98(4)(c) in Simone Starr-Diamond v Talus Diamond (No. 4) (2013) 272 FLR 414; (2013) 224 A Crim R 523; [2013] NSWSC 81.
13. These proceedings concern the plaintiffs' Conveyancing Act, s 88K application. The scheme of s 88K specially provides for the allocation of costs in proceedings brought under the section. Section 88K(5) states: "(5) The costs of the proceedings are payable by the applicant, subject to any order of the Court to the contrary."
14. An order to the contrary should not be made unless a party, such as the defendants, opposing the grant of a section 88K easement has done more than just reject reasonable offers of compensation: Shi v Abi-K Pty Ltd (2004) 87 NSWLR 568 ("Shi") at [98]. In Shi, the Court of Appeal (Basten, Barrett and Ward JJA) stated: "The ordinary rule, that the applicant pay the costs of any proceeding, reflects the fact that an applicant for such an order has no right to the grant of an easement over the property of another. Further, the rule that the applicant pay the costs relates to proceedings which could only be brought after all reasonable attempts had been made (presumably by seeking agreement) but have been unsuccessful. The statutory scheme is not consistent with the proposition that an applicant can obtain a right to costs by offering more than the compensation ultimately ordered to be paid as a condition of the easement. The property owner is entitled to refuse to consent to the easement, thereby requiring the applicant to satisfy a court as to the various preconditions, including questions of the public interest, and that the grant of the easement is reasonably necessary in the sense provided by the section. Unless it has done more than reject reasonable offers of compensation, the property owner should not be put at risk of an adverse costs order in those circumstances."

Overview of the Costs Claimed

1. The defendants claim that they have actually incurred $226,666.59 in costs inclusive of GST in these proceedings up to 21 October 2019. Applying a 20% discount to solicitors' fees and a 10% discount to counsels' fees, the defendants contend that the Court should fix a specified gross sum instead of assessed costs in the following amounts: 1. $194,050.49 in costs up to 21 October; and 2. $25,047.90 in costs on 22 and 23 October.
2. The defendants' total claim for costs is $219,098.39. The defendants round down their total claim from $219,098.39 to $210,000.
3. But the Bahamads claim they should only pay $96,685.45 of the defendants' costs up to 21 October. They also argue that the defendants should pay their (the Bahamads') costs of 22 October and 23 October, as a specified gross sum in the amount of $9,564.
4. The Court will first deal with the question of fixing an appropriate specified gross sum for the defendants' costs up to 21 October. Then the Court will deal with the question of who will bear the costs of 22 and 23 October. This will be followed by the fixing of an appropriate specified gross sum for such costs that have to be paid for 22 and 23 October.

Should Order 8 Be Varied?

1. Before the Court considers the quantum of costs up to 21 October, it must first address a preliminary issue. The Bahamads submit that a specified gross sum count be fixed in favour of the Wongs, as they incurred no actual liability to pay any costs of the proceedings. The Bahamads submit that a specified gross sum costs order can be made provided there is an actual liability to pay costs but it does not matter whether or not the costs have actually been paid: Russo & Ors v Russo & Ors (No. 4) [2016] NSWSC 1133 at [28].
2. The Bahamads refer to the retainer agreement between the Wongs, the Laysons and their solicitors, Speed and Stracey Lawyers, dated 18 March 2019. In paragraph 3 this retainer states: "You [the Laysons] will be liable for the costs of defending the entire proceedings (that is, you will be liable for funding Mr and Mrs Wong's defence in addition to your own defence) and for any costs orders made against the defendants". The Bahamads also refer to the invoices for the defendants' solicitors' fees, counsels' fees and experts' fees which are addressed solely to the Laysons and therefore are payable only by them and not by the Wongs.
3. Although in the Bahamads submission they do not formally seek to vary Order 8 of the consent orders, in substance it appears to be their contention. Order 8 of the consent orders makes no distinction between the payment of costs to the Wongs and the Laysons and states: "8 Order that the Plaintiffs pay to the Defendants' costs of the Proceedings as agreed or assessed save and except for the costs of the hearing on 22 and 23 October 2019, such costs to be reserved and to abide by the further order of the Court to be made in conformity with the directions made below in orders 9 to 11."
4. The Bahamads' written submissions do not address the question of whether they seek to vary order 8. They merely submit that "the Wongs have not incurred any costs in the proceedings and do not have any liability to pay any costs of the proceedings and an order for costs in their favour cannot be made".
5. But Order 8 has been made by consent and cannot be varied now, particularly as the orders have been acted upon and no formal application to vary the orders has been made. This issue should have been raised before the making of the consent orders.
6. The defendants persuasively argue that the Bahamads are raising a "technical point", and they "cannot resist [the] position" that the Laysons bore the costs of the proceedings rather than the Wongs. The point fails for the following reasons.
7. Clause 3 of the retainer agreement as between solicitor and client transfers to the Laysons the Wong's liability for their legal costs to Speed and Stracey. But Speed and Stracey were still acting for the Wongs and the Wong's were actually incurring legal costs which can readily be identified and brought to account. But clause 3 does not prevent the Wong's costs being measurable; nor does it extinguish them. It simply provides for who is going to pay these costs. Because the Laysons bear that liability, they are entitled to have the Wongs' costs assessed. But the Wong's costs still exist and Order 8 in its present form requires the plaintiffs to pay them. And Order 10 in its present form requires those costs to be the subject of the determination of a specified gross sum instead of assessed costs.
8. The Court now turns to the question of the fixing of an appropriate specified gross sum for the defendants' (the Wongs and the Laysons) costs up to 21 October.

The Defendants' Claim for Costs Up to 21 October

1. The defendants argue that they have defended a case of "relative complexity" and incurred actual costs of $226,666.59 up to 21 October 2019. They contend that the Court should be reluctant to impose arbitrary limits on the amount of costs recovered to meet concerns of proportionality of costs after the proceedings are concluded, unless court costs scales exist to warrant the lower recovery, or other misconduct has occurred in the litigation warranting costs reduction: Lovick & Son Developments Pty Ltd v Doppstadt Australia Pty Ltd (No. 3) [2013] NSWSC 135 at [48]".
2. Denying any misconduct on their part, the defendants submit that it is appropriate to apply a 20% discount to the solicitors' fees of Speed and Stracey, and a 10% discount on senior and junior counsel's fees together with the full recovery of experts' fees and other disbursements. The result of applying these discounts is to reduce the actual costs of $226,666.59 up to 21 October to a specified gross sum of $194,050.49. This sum is calculated according to the table below which shows the discount for each category of cost-related outgoing: The defendants' proposed discounts to their costs up to 21 October 2019 Cost Category Actual costs incurred Recovery on % Discount party/party basis Solicitors fees $124,267.00 $99,413.60 20% Junior Counsel fees $24,827.00 $69,864.30 10% Senior Counsel fees $52,800.00 Expert fees $22,459.25 $22,459.25 0% Other disbursements $2,313.34 $2,313.34 0% Total $226,666.59 $194,050.49 14.4% Total amount proposed for gross sum costs order $194,050.49

1. The plaintiffs contend that much deeper discounts should be applied to all of the cost categories, solicitors' fees, junior counsel's fees, senior counsel's fees, experts' fees and other disbursements. They argue they should only have to pay the Laysons $96,685.45.
2. The plaintiffs argue that the proceedings concerned "the simplest and most uncomplicated of drainage easement matters". According to the plaintiffs, the "ordinary" nature of the easements is clear from at least the following factors: the easements created were at the defendants' back fences within setback areas at the lowest point of their respective lands; the defendants' land incurred no impact to their development potential; and the easements created were either wholly within an existing easement (in the case of the Laysons), or partially within an existing easement (in the case of the Wongs). As such, the Bahamads argue that costs have been unnecessarily incurred on account of the defendants' unreasonable conduct and no special protections beyond the ordinary protections under Schedule 8, Part 3 of the Conveyancing Act 1919 (NSW) were warranted.
3. The defendants contend that the proceedings were managed on their side in a cost-efficient manner. The proceedings were conducted for all four defendants rather than by two groups of solicitors, one for the Wongs and one for the Laysons. Proceedings were mostly conducted by junior counsel and a junior solicitor, initially a graduate solicitor and later, as the final hearing approached, by a senior associate. Senior counsel was briefed initially to advise and only later to appear. But the briefing of senior counsel was relatively late and was during preparations for the final hearing. Other more senior solicitors had limited involvement in the matter, mostly in the lead up to the final hearing. There can be no serious complaint from the plaintiffs regarding the briefing of two counsel given they did likewise.
4. The defendants also argue with some force that the proceedings were not simple and uncomplicated. And the Court agrees with that analysis. The proceedings were set down for three days. They involved two counsel on both sides. They included expert evidence in more than one area of expertise. They also required consideration and evaluation of a number of alternative easement options. And in light of that reasonable complexity, the defendants were entitled to take a position that the plaintiffs had not satisfied the preconditions for the grant of an easement under Conveyancing Act, s88K but to attempt to negotiate acceptable terms for the easements. And if acceptable terms were not able to be agreed, the defendants could require the plaintiffs to establish the preconditions for a grant to the Court's satisfaction.
5. The Court is of the view that the plaintiffs' contention that the proceedings were simple is itself an oversimplification. But that is not to say that, in what is still a domestic dispute between suburban neighbours, reasonable discounts should not be applied when fixing a specified gross sum instead of assessed costs.
6. It is convenient now to deal with the parties' respective arguments in relation to each of these cost categories, solicitors' fees, junior counsel's fees, senior counsel's fees, experts' fees and other disbursements.
7. Before doing so it should be mentioned that some of the plaintiffs' submissions refer to discussions during a Court-annexed mediation in August 2019. The Court is not able to test those submissions. But more importantly, the Court should not have such information or take such discussions into account and has not done so: Civil Procedure Act, s 30(4)(a).
8. Solicitors' fees. As indicated above, the defendants provide for a discount of 20% on the solicitors fees charged. The plaintiffs argue for a discount of 40% so that only 60% of the fees charged by the solicitors should be incorporated into the specified gross sum.
9. The defendants advance evidence from Ms Peta Solomon, an expert costs assessor. Ms Solomon says that the defendants would be likely to recover 85 to 90% of solicitors' fees in a costs assessment. The defendants submit that this is a smaller discount than the 20% they have proposed as appropriate in this case. They also highlight Ms Solomon's analysis that shows that only 17% of solicitors' hours were billed by partners, which she says is "less than the 25% that might more typically be expected". Ms Solomon also says that the rate at which Speed and Stracey Lawyers charged for solicitors' time was "well below" standard rates, and the rate of charge for the graduate paralegal, Mr Lovell, was "at the lower end of the range for legally qualified (but as yet not admitted) fee earners)". It was also noted that no time spent by the partner, Mr Robin Speed, on the matter was billed.
10. As was noted above, the plaintiffs submit that 60% to 75% of solicitor/client costs are recoverable as a general rule of thumb: Kostov v Zhang (No. 2) [2016] NSWCA 279 at [53]; Maylord Equity Management Pty Ltd as trustee of the Batterham Retirement Fund v Nauer (No. 3) [2017] NSWSC 1783 at [9].
11. The plaintiffs argue that it is appropriate that only 60% of solicitor/client fees be included as part of specified gross sum on account of the over-resourcing of this matter in three respects. Firstly, compared to the single lawyer allocated to the plaintiffs, the defendants' invoices indicate that three Speed and Stracey ("SSLaw") directors, one senior associate, and one paralegal were billing on the matter. This is said to have led to the duplication, if not triplication, of work and billing. Second, SSLaw were charging their paralegal's hourly rate at $20 plus GST per hour more than the retainer agreement specified. As the paralegals' billing totals $36,215.30 inclusive of GST, this reflects an overbilling of $3,300 plus GST. Further, much of this time is said to have been "research, self-education, administrative tasks and hearing preparation and attendance costs which should not have been charged". Third, the Bahamads contend that SSLaw charged excessive amounts for administrative work and the preparation of costs agreements for their own clients.
12. The plaintiffs also contend that "no weight whatsoever" should be given to the evidence of the defendants' expert, Ms Solomon, that "at least 80% of solicitors' costs" would be recovered at a costs assessment in this matter. The plaintiffs submit that Ms Solomon's opinion was not an assessment in a formal capacity but was based on a hearsay conversation that the Court should disregard. The plaintiffs further contend that Ms Solomon's opinion is based off no "notes, itemisations, and distribution of hours"; and that her view is inconsistent with SSLaw's own March 2019 estimate of costs of $61,600 inclusive of disbursements and GST. Instead, the solicitors' fees billed are said to be more than 150% of SSLaw's originate estimate, and more than 200% of SSLaw's estimate of what would be recovered on a party/party basis, $56,000 plus GST.
13. The Court does not find persuasive the plaintiffs contentions based upon the defendants' ultimate costs exceeding SSLaw's original estimates. It is a not uncommon experience of litigation for costs to increase as issues unforeseen at the beginning of litigation multiply as the litigation develops, so costs estimates often must be adjusted. But the Court's impression of the involvement of senior and junior solicitors in the matter at SSLaw was that there was a degree of duplication and self-education embedded within the SSLaw provision of legal services which would be more closely scrutinised upon a full costs assessment. Taking these matters into account, the Court will apply a discount of 25% to the solicitors' fees, which results in a figure for this component of a specific gross sum in the amount of $93,200.25.
14. Junior Counsel's fees. The plaintiffs submit that junior counsel's fees were reasonable. The parties agree that a 10% discount should be applied here. This agreement accords with remarks that the Court has made previously: "counsels' fees are generally allowed at a costs assessment at close to 85 to 90 percent of what is claimed" in Russo & Ors v Russo & Ors (No. 4) [2016] NSWSC 1133 at [24].
15. Senior Counsel's fees. The defendants also rely on Ms Solomon's opinion in proposing a 90% recovery of all counsels' fees, including those of senior counsel. Ms Solomon opines that 90% to 100% of senior sounsel's fees would be recovered following a costs assessment. Mr Potts SC was only involved in the final stages of preparation leading up to the hearing, and the defendants defend their entitlement to retain senior counsel. The defendants contend that as with junior counsel, a discount of 10% on senior counsel's fees is appropriate
16. The plaintiffs argue that senior counsel's fees should incur a much higher discount of 40%. Senior counsel invoiced the defendants in one single invoice for work performed on the matter up until 23 October 2019, totalling $65,175 inclusive of GST.
17. Whilst accepting that a 10% discount on counsels' fees would in the ordinary case be reasonable, the plaintiffs argue: 1. The insistence by the defendants on the level of attendance by senior counsel was neither reasonable nor proportionate given the "relatively simple and uncomplicated nature" of the easement, and the lack of great legal complexity in the case; 2. Mr Potts SC's hourly and daily rates are at the upper most end of the 'Cost Assessment Rules Committee Guidelines' ("CARC Guidelines"). The Bahamads argue $7,500 plus GST per day is not reasonable or proportionate, especially as the plaintiffs did not engage senior counsel themselves. The figure of $5,000 plus GST is put to the Court as a more reasonable fee given the circumstances. Further, Mr Potts SC invoiced $41,291.80 inclusive of GST for hearing preparation beyond the usual "rule of thumb" that for every one day of hearing there is one day of hearing preparation; and 3. The defendants engaged Mr Potts SC to perform a disproportionate and excessive amount of hearing preparation. Atop fees for four senior lawyers and junior counsel, this is said to be an unreasonably high level of preparation; and 4. The hearing was not a true contest of complex factual and legal issues but rather was "effectively run as a three day mediation".
18. But the plaintiffs' arguments for a discount of greater than 10% on the fees of senior counsel are not persuasive. The plaintiffs themselves engaged a very senior junior counsel, who would often be opposed by senior counsel or by senior junior counsel of equivalent standing. The fees charged by Mr Potts SC are within the range expected of counsel of his standing. This is not the kind of case, because of the number of easement options to be considered and its lack of simplicity, where a rule of one day of preparation for one day of hearing is an appropriate measure of senior counsel's fees. The fact that the three days of the proceedings ended up largely being conducted "as amediation" does not diminish the need for senior counsel. During the hearing period, the Court constantly told all the parties that they may have to resume the hearing if they were not making progress in negotiations.
19. In the result, a discount of 10% on both senior and junior counsels' fees will apply.
20. Expert's fees. The defendants do not apply any discount to experts' fees in their calculation of an appropriate specified gross sum. They rely on Ms Solomon's opinion that a costs assessor would allow for experts' fees in full. In response to the plaintiffs' contentions that the defendants' expert fees were excessive, the defendants point out the following. That a town planning expert was required to advise the defendants about the town planning report, advanced by the plaintiff, irrespective of whether a report from that expert was served. That the defendants were entitled to seek expert advice on all alternatives to the easements proposed by the plaintiffs, irrespective of whether these alternative routes were conceded, or not emphasised for the sake of confining the scope of issues at the hearing. And lastly, that their experts' attendance at Court was the result of the plaintiffs failing to agree to their Court timetable.
21. The plaintiffs argue that a 30% discount to experts' fees should be applied. As foreshadowed earlier in these reasons, they argue the Laysons have included expert costs of $2,090 for a planning report not served in the proceedings; that the defendants' tree valuations had no real prospects of being awarded; that expert reports on six alternative routes to the proposed easements were conceded during the hearing; and that experts were in attendance at Court at times they were not required to be in attendance. Further, the Laysons are said to have billed for expert reports rendered after the closing of evidence.
22. The Court will apply a discount of 15% to costs claimed for experts' expenses. This is an area of the case in which greater economy could have been employed by the defendants in reducing the number of alternative routes being considered by the experts to a very basic minimum number that had a realistic prospect of success. That was not done so a discount of 15% is appropriate.
23. Total experts fees incurred by the defendants were $22,459.25. Applying a discount of 15%, the figure for experts that will be allowed is $19,090.36.
24. Disbursements. That the defendants should recover 100% of their other disbursements of $2,313.34 as part of their costs is not in dispute.
25. In summary therefore, and before the consideration of any global discounts, the Court will allow the defendants' costs up to 21 October in the sum of $184,468.25 (being $93,200.25 + $69,864.30 + $19,090.36 + $2,313.34).

A Further Global 35% Discount

1. The plaintiffs submit that a further global percentage reduction of 35% can and should be applied by the Court when making a lump sum costs order, as it is put, "to arrive at a fair result between the parties". The plaintiffs submit that this "global discount" should be applied in addition to the other factors that are said to justify costs discounts on a specified gross sum costs order. The defendants submit that there should be no such global discount, and if there is that it should not be of this order.
2. The plaintiffs propose that an overall discount of 57% is "logical, fair and reasonable". The following is a break-down of the discounts proposed plus the 33% discount: The Plaintiffs' proposed discounts to the defendants' costs up to 21 October 2019 Actual costs incurred Recovery on % Discount party/party basis Solicitors fees $124,267.00 $ 74,560.20 40% Junior Counsel fees $24,827.00 $ 21,102.95 15% Senior Counsel fees $52,800.00 $ 31,680.00 40% Expert fees $22,459.25 $ 19,090.36 15% Other disbursements $2,313.34 $ 2,313.34 0% Total $226,666.59 $ 148,746.85 34.4% Less 35% further global discount $ 52,061.40 Total amount for gross sum costs order $ 96,685.45

1. The parties are first at issue as to whether such a global discount is legally permissible and if it is, whether it is appropriate in this case. The plaintiffs refer to authority in support of their position. They cite Brereton J's decision in Hancock v Rinehart (Lump Sum Costs) [2015] NSWSC 1640 ("Hancock") at [56] and [57], which Kunc J followed in Macquarie International Health Clinic Pty Ltd v Sydney Local Health District; Sydney Local Health District v Macquarie Health Corporation Ltd (No. 12) [2019] NSWSC 916 at [249].
2. In Hancock Brereton J dealt with a claim for a global discount in the course of an application for a specified gross sum costs order. His Honour identified some considerations at [56] and [57] that might be relevant to making such a discount as follows: "56. The first defendant submits that there should be a further global percentage reduction of 15%, for two main reasons: first, because on assessment, even on the indemnity basis, a successful party invariably recovers something less than its actual costs, typically 15% where the assessment is on an indemnity basis; and secondly, the necessarily broad-brush approach of the court to assessment on a lump sum basis - involving some risk that the sum includes costs that would not be recovered on assessment - coupled with the savings to the costs creditor in time and costs through avoiding a detailed assessment, and the loss to the costs debtor of the opportunity to scrutinise and object to a detailed bill, has resulted in a practice of applying a discount on lump sum assessments. 57. While it is undoubtedly the usual practice of the court when making a lump sum costs order to apply a discount for the reasons mentioned, that does not mean that the Court must apply a percentage discount to the sum sought by the successful party, and the Court 'must be astute not to cause an injustice to the successful party' by applying 'an arbitrary 'fail safe' discount on the costs estimate submitted to the court'. Thus if the court can be confident that there is little risk that the sum includes costs that might be disallowed on assessment, the case for a discount is seriously undermined."
3. The plaintiffs submit that Hancock allows the Court to make a global discount and that in this case the Court should apply such a discount taking account of the following factors: 1. that upon an assessment, even on the indemnity basis, a successful party invariably recovers something less than its actual costs; 2. that the broad brush approach that the Court takes in fixing a specified gross sum for costs, necessarily involves (a) some risk that the sum will include costs that would not be recovered on a full costs assessment, and (b) savings to the costs creditor in time and resources by the avoidance of a detailed cost assessment; and 3. that in fixing a specified gross sum for costs the costs debtor loses the opportunity to scrutinise and object to a detailed bill of costs.
4. The plaintiffs also submit that any gross sum costs order in this case should incorporate an additional global discount of 35% to allow for: 1. general contingencies in recognition of the fact that the plaintiffs have lost the benefit of scrutinising the defendants' costs in detail; 2. the high risk that the full liability for costs would not actually be paid by the defendants; and 3. to take into consideration the defendants' conduct which the plaintiffs claim unnecessarily contributed to the significant increase in costs of the proceedings that are disproportionate to the result of the proceedings, given the relatively simplicity of the proceedings and the real issues in dispute.
5. The defendants oppose the making of any global discount. On the issue of whether a global discount is legally available, Hancock makes clear that it is, provided that proper account is taken of the risk factors that Hancock identifies. On the issue of whether a global discount should be applied here, the defendants' submissions are generally more persuasive. If a global discount is to be made in this case, it should only be minor for the following reasons.
6. First, citing Smilevska v Smilevska (No. 5) [2019] NSWSC 986 at [67], the plaintiffs submit that the likely outcome of a theoretical costs assessment should be treated as the "best guide" as to what should happen in fixing a specified gross sum instead of assessed costs.
7. But although the probable outcome of a costs assessment is a very important integer in the Court's fixing of a specified gross sum, it is by no means the only, or even a dominant, relevant consideration. Cases such as Hamod (at [814]) make clear that courts do typically apply a discount from assessed costs in in fixing a specified gross sum for costs.
8. Second, as the defendants point out, they have submitted very detailed bills of costs in this case. Therefore there is little risk of a disadvantage to the plaintiffs in their having to deal with high level or generic estimates of the defendants' costs. The defendants have advanced for scrutiny as part of their evidence all the invoices and fee notes that have been issued for payment. They have adduced evidence to explain why many categories of these fees have been incurred. These invoices and fee notes contain detailed narratives of what work was done, which would probably be sufficient for the costs assessment process were it to take place. And in response to this detail the plaintiffs' submissions undertake detailed analysis of the defendants' claims for costs.
9. Third, here there is little risk of the kind warned against in Hancock (at [57]) that the specified gross sum that the Court has already reached before considering this global discount argument (see above) includes costs that would be disallowed on assessment. It already includes substantial discounts. This means, in the words of Hancock that "the case for a [global] discount is seriously undermined." The application of an additional global discount risks causing injustice to the successful costs creditor by applying what looks like an arbitrary 'fail-safe' discount.
10. Moreover, the plaintiffs are contending for a specified gross sum costs order, which would result in the recovery of only 42.5% of the defendants' actual costs. This is intuitively a very large discount, which would compound upon the other discounts that have already been made. The Court is cautious about applying a global discount which would result in such a large overall discount.
11. Fourth, the plaintiffs have cited a number of authorities in which it is claimed that large overall discounts from claimed costs have been applied when the court was fixing a s 98(4)(c) specified gross sum. The plaintiffs are correct that substantial discounts were applied in these various cases. But the defendants' arguments are persuasive that these cases generally turn upon their own facts and are of limited guidance in formulating an appropriate discount in quite a different case such as this one.
12. The application of a global discount in these cases can be distinguished on a number of grounds that were peculiar to those cases: in Makaroff v Nepean Blue Mountains Local Health District (No 2) [2019] NSWSC 1043 only a limited, already discounted, claim for costs was made; in Lakis v Lardis (No 3) [2018] NSWSC 1296 the claim for costs was large and intuitively disproportionate for a short hearing; in Armstrong Strategic Management and Marketing Pty Ltd v Expense Reduction Analysts Group Pty Ltd (No. 10) [2017] NSWSC 16 the claim for costs was in the millions of dollars and the case had gone on appeal, even to the High Court; in Kostov v Zhang (No 2) [2016] NSWCA 2790 the costs appeared excessive and were mostly unbilled to the client; and in Zepinic v Chateau Constructions (Aust) Ltd (No 2) [2014] NSWCA 99 where a claim of $40,000 was made for the hearing of a single notice of motion against a self-represented litigant on appeal.
13. But although these cases are each distinguishable, they certainly show that the Court will apply a global discount, and sometimes a heavy one, where the Court regards the costs claimed as disproportionate or excessive, with the objective of fashioning a fair and just outcome.
14. Fifth, the plaintiffs' submission - that the Court should take into account the possibility that the defendants' costs will not be paid - is weak. The defendants claim it is unclear why the plaintiffs say the defendants should not have to pay their lawyers. And it is true, the defendants have been billed for all of their legal costs and have a present legal obligation to pay those costs. Specified gross sum costs orders are based on a liability to pay costs rather than the actual payment: Bell Lawyers Pty Ltd v Pentelow (2019) 372 ALR 555 at [22]; [2019] HCA 29. This case is not one like Kostov v Zhang (No. 2) [2016] NSWCA 279 at [54] where the discount in a specified gross sum costs application was applied to the possibility that the costs would not be paid because approximately 40% of the solicitors' fees had not been billed to the client. Here, the situation is otherwise.
15. The plaintiffs also rely upon the fact that the defendants' solicitors appear not to have complied with their disclosure obligations under the Legal Profession Uniform Law 2014. But the defendants answer this by saying that whether it complies with the Legal Profession Uniform Law is not an obstacle to the recovery of inter partes costs: Royal v El Ali (No. 3) [2016] FCA 1573 at [31] - [36]. The Court does not regard this as an important basis for discounting the defendants' fees.
16. Sixth, the defendants' alleged misconduct in failing to reach a negotiated outcome of the proceedings before trial is not a basis to apply a global discount here. The plaintiffs' allegation of the defendants' negotiating misconduct encounters a number of problems.
17. There is a practical problem. The plaintiffs' complaint about the defendants' alleged failure to negotiate reasonably is almost impossible to test. The defendants submit that the plaintiffs' complaint is no more than an assertion that the defendants failed to agree to resolve the proceedings on terms acceptable to the plaintiffs within a timeframe acceptable to the plaintiffs.
18. There is a legal problem. The plaintiffs' submission cannot really be accommodated within the statutory regime under Conveyancing Act, s 88K. Under s 88K the plaintiffs, not the defendants, are required to satisfy the statutory preconditions, which include the burden of exhausting "all reasonable attempts to obtain the easements". And after the plaintiffs have undertaken those attempts, the plaintiffs are still required to pay the plaintiff's costs of the process.
19. There is a problem of proof. The defendants make a sound case that they were not unreasonable in the negotiation process. They point out that one of the issues preventing agreement about the granting of the easements prior to the proceedings being commenced was their wish for an independent hydrological investigation to satisfy their concerns about flooding on their properties, including third party risks that may arise from flooding. The plaintiffs did obtain an independent hydrological investigation before commencing these proceedings. And the settlement which was reached after proceedings were commenced did address the defendants' concerns about flooding. The position that the defendants took on this issue was consistent and was not objectively unreasonable. And the issues that the defendants raised were reflected in the settlement that was agreed.
20. Nevertheless, this is a case in which some global discount is warranted. The Court accepts that this case was not as simple as the plaintiffs contend, and that the orders to pay the relatively low amount of compensation (namely to the Wongs in the sum of $40,000 - Order 6 - and to the Laysons in the sum of $10,000 - Order 7) is not a good measure of complexity. But in the Court's view, this matter was conducted on the defendants' side with greater complexity than the circumstances really warranted and that upon a full assessment, greater scrutiny of the defendants' costs would have identified costs that would be disallowed on this ground. Justice requires that some additional discount be applied across the board to all the costs for this reason. Given these factors an additional global discount of 10% on the defendants' costs is warranted and will be applied.
21. Applying a discount of an additional 10% to the defendants' costs up to 21 October produces a final figure of $166,021.42.

The Costs of 22 and 23 October

1. The parties also contest which of them should bear the costs of 22 and 23 October, and what amount should be fixed as a specified gross sum instead of assessed costs. The consent orders left this issue open for decision.

The Defendants' Claim for Costs of 22 and 23 October

1. The defendants argue the plaintiffs should pay their costs of 22 and 23 October. Their arguments in support of a cost order for these days are largely the same as those for their costs up to 21 October. They say that they should have their costs of these two additional hearing days, as they did not engage in any conduct which would deprive them of their statutory entitlement to their costs under s 88K: Shiv v Abi-K Pty Ltd.
2. The defendants essentially argue that they were required to be present for the second and third days of the hearing and should have their statutory entitlement to costs, because the matter had not settled and needed to be heard or resolved by agreement. The plaintiffs made an open offer in Court on the first day of the hearing and the plaintiffs now claim that the resulting settlement was little better for the defendants than that offer. But the defendants persuasively make the point that the ultimate position reached was difficult to compare with this offer and that the parties' detailed positions continued to move in negotiations and were "only fixed when the detailed formal settlement documentation was finalised and executed on 23 October 2019 after extensive negotiations".
3. The defendants say, and the Court accepts, that the open offer required significant refinement by detailed negotiation on account of at least three complexities. These complexities included the following matters: whether the easements could be confined to a single line of pipes laid underground or whether an above-ground riser was required on the Wongs' property; whether the diameter of proposed piping was an internal or external calculation; and, how should "drainage works" be defined in the easement agreements.
4. The defendants further argue that it was reasonable to adjourn negotiations on the afternoon of 22 October as to further contemplate the proposed terms of settlement before reaching agreement. At 4:30pm on 22 October, the defendants say that they "considered it unrealistic to finalise the detailed settlement documentation that day". The defendants wanted time to consider what had been negotiated before "granting a permanent interest in [their] properties". In the Court's view that was not an unreasonable position to take as the long-term implications of granting an easement were significant and the defendants were entitled to scrutinise the terms of settlement carefully notwithstanding the pressure of the hearing.
5. The defendants appear to have used the evening of 22 October to apply such scrutiny to the draft terms of settlement. This is evident from hand-written amendments made to the easements agreements on the morning of 23 October, prior to settlement being reached.
6. The defendants' costs of 22 and 23 October are summarised in the table below: The defendants' proposed discounts to their costs for 22 and 23 October 2019 Actual costs incurred Recovery on % Discount party/party basis Solicitors fees $8,448.00 $6,758.40 20% Junior Counsel fees $17,435.00 $15,691.50 10% Senior Counsel fees Expert fees $2,389.75 $2,389.00 0% Other disbursements $209.00 $209.00 0% Total $28,481.75 $25,047.90 12.1% Total amount for gross sum costs order $25,047.90

1. As can be seen, this claim is structured in the same manner and with the same applicable discounts, as the defendants' claim for costs up to 21 October.

Analysis of the Plaintiffs Response to the Defendants' Claim

1. The plaintiffs dispute that they should pay the defendants' costs of 22 and 23 October. Instead, the plaintiffs submit the defendants should pay their costs for these two days, or at least in the alternative that each party should bear their own costs of these two days. But the plaintiffs argue that in the event they are ordered to pay the defendants' costs of 22 and 23 October, it should be calculated consistently with the discounts they applied to the defendants' costs up to 21 October.
2. The Court has reached the view that the plaintiffs should pay the defendants' costs of these two additional hearing days and it is not necessary therefore to consider the detail of the plaintiffs' own claims for their costs of these two days. The Court here analyses the plaintiffs' ultimately unsuccessful arguments in relation to the costs of these two days.
3. The plaintiffs argue that this is not a case "where the defendants failed to accept a reasonable offer but rather this is a case where the defendants prevented the matter from settling due to an unreasonable insistence on conditions which had no legal basis and/or no real prospects of success and the failure to engage in meaningful and timely mediation".
4. But the Court has no proper evidentiary basis to judge the defendants' conduct in negotiations and would not ordinarily attempt to do so. So far as the defendants appeared to the Court through their counsel during these two days, they appeared to be committed to negotiations but legitimately insisting on their rights to carefully scrutinise the terms on which an encumbrance would be placed upon their property.
5. Another part of the plaintiffs' contentions for the costs of 22 and 23 October, is an issue in respect of experts' attendance at Court and their fees. By the end of the hearing on 21 October 2019, the plaintiffs say that the parties had agreed that they no longer required expert evidence. But the plaintiffs claim the defendants changed their position. They decided that unless a "snapback" easement was possible, they would press on with the proceedings and require all expert witnesses the next day. But the plaintiffs say that the defendants then abandoned the "snapback" easement, dismissing all experts except the engineers, and causing unnecessary costs to both parties.
6. But even if this is right, a party is entitled to change positions in negotiations without necessarily deserving the description of behaving unreasonably. This is particularly true of negotiations that involve some complexity. In this case, one example of the complexity of the negotiations was the difficulties in defining the scope of an indemnity that the parties would agree on, a perplexing issue that the parties shared with the Court in open court during the hearing.
7. The plaintiffs argue that the matter was at all times capable of successful mediation. They submit that the proceedings effectively ran as a three day mediation and should not have run in court at all. But instead, the plaintiffs say that the defendants acted unreasonably, failing to meaningfully engage in mediation efforts until 3 September 2019, and refusing to compromise on issues which were conceded on the first day of hearing, including the defendants' concern about flooding risk. And the plaintiffs submit that by 21 October, the easements were largely agreed upon and only minor amendments were made to the agreements on 22 and 23 October. From this the plaintiffs infer that the defendants unreasonably dragged out the negotiations.
8. There are a number of problems with this analysis. The Court cannot inquire as to why the earlier mediation failed. And it is not correct to describe the hearing between 21 and 23 October as a "mediation", and even if it were, the Court cannot inquire into the course of negotiations over those two days. There were substantial submissions on the first day and the Court sought on the first day to reduce the issues and encourage the parties to narrow the issues. But the matter was proceeding as a hearing until the parties indicated on 22 October that they were more likely to settle and wanted time to finalise terms.
9. The plaintiffs dismiss the defendants' argument that three specific issues compounded the complexity of negotiations on 22 and 23 October. Firstly, they say the issue about the above-ground riser was not a new concept. It had instead been on the plans for over 12 months. Second, the distinction between the internal/external diameter of the pipe merely involved the defendants changing the language from "sufficient internal diameter" to "225mm external diameter", which the plaintiffs maintain was an erroneous change. Third, the plaintiffs say that the settled definition of "drainage work" is substantially the same as that which they initially proposed.
10. But these were not easy questions and were being resolved at the same time as the parties were considering the form of indemnity. Even if over the course of the two days the defendants came to a position on these matters closer to that which the plaintiffs originally maintained, that is not to say the defendants behaved unreasonably, particularly in circumstances where they were giving up rights over their properties. Negotiations reasonably conducted can still be a slow process of finding common ground and after reflection and debate recognising the merit in the other side's position.
11. The plaintiffs will pay the defendants' costs of 22 and 23 October. As indicated it is not necessary now to consider the plaintiffs' claim for costs for those two days.
12. But the plaintiffs submit that the defendants' costs of 22 and 23 October should only be allowed with discounts similar to the discounts for which the plaintiffs contended with respect to cost up to 21 October. But in the Courts view the logic that the Court applied with respect to fixing a specified gross sum for costs up to 21 October, should apply to the defendants' costs for 22 and 23 October. That is reflected in calculations in the table below. Discounts to the defendants' costs for 22 and 23 October 2019 Actual costs incurred Recovery on % Discount party/party basis Solicitors fees $8,448.00 $6,336.00 25% Junior Counsel fees $5,060.00 $4,554.00 10% Senior Counsel fees $12,375.00 $11,135.50 10% Expert fees $2,389.75 $2,031.29 15% Other disbursements $209.00 $209.00 0% Total $28,481.75 $24,265.79 % Less further 10% global discount $2,426.58 Total amount for specified gross sum costs order $21,839.21

1. Each side has had some success in their arguments in relation to the issue of a specified gross sum costs order. It is appropriate therefore for the Court to note that each party bear its own costs of this argument.

Conclusions and Orders

1. For these reasons, I will order that a lump sum costs order be made in the defendants' favour against the plaintiffs in the amount of $187,860.63 (being $166,021.42 plus $21,839.21).
2. Accordingly, the Court makes the following orders: 1. Order that the plaintiffs pay the defendants a specified gross sum of $187,860.63 instead of assessed costs. 2. Note that the Court makes no costs order in respect of the argument as to making a specified gross sum costs order.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 August 2020