Baychek v Baychek

Supreme Court of NSW|2020-08-11|Before: Rees J, As Giles JA

Judgment

This is an application by the plaintiff for a gross sum costs order pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW).
On 5 September 2019, I found that the second defendant had engaged in oppressive conduct and ordered the second defendant to purchase the plaintiff's shares in the first defendant company for $69,000 and for the defendants to pay the plaintiff's directors loan of $45,120: In the matter of Mosman & Co Pty Limited [2019] NSWSC 1155. The defendants did not comply with these orders and judgments were entered against defendants in specific sums. The plaintiff has sought to enforce the judgment and orders through garnishee orders.
In support of the application for a gross sum costs order, the plaintiff's solicitor, Kerry Sidaway, has sworn an affidavit and exhibited the tax invoices rendered by solicitors, counsel and the joint expert together with invoices rendered for court filing fees, hearing fees and service fees as follows (including GST): Solicitor's costs $70,814.70 Counsel's fees $42,900.00 Half share of valuer's fees $1,435.50 Court listing fee $2,241.00 Disbursements $2,512.60 Total $119,903.80

In addition, the plaintiff has incurred additional costs and disbursements in the sum of $6,802.69 in his efforts to enforce the orders made.

Whether appropriate to make lump sum costs order

Section 98(4)(c) of the Civil Procedure Act provides: Courts powers as to costs (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 - … (c) a specified gross sum instead of assessed costs …
As Giles JA noted in Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]: The power … of [section 98(4)] is not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment …
It is a relevant consideration "where the financial capacity of the party liable to pay costs is such that the additional cost of taxation will impose a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs": Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [24], citing Hadid v Lenfest Communications Inc [2000] FCA 628; Sparnon v Apand Pty Ltd [1998] FCA 164; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788; [2005] FCA 228. That may be a relevant factor in this case, as Kenny J observed in Bitek Pty Ltd v iConnect Pty Ltd (2012) 290 ALR 288; [2012] FCA 506 at [17]: In the present case, the respondents have wasted the applicant's resources and time by their ongoing refusal to respond to the applicant's communications, the institution of this proceeding, and court orders. Moreover, the respondents' conduct, as evidenced by the affidavits sworn by the applicant's solicitor, Mr Tye, indicates that they are unlikely to co-operate in any further court processes and meet any liability for costs in an efficient and appropriate way. There is evidence, as in a further affidavit of Mr Tye sworn on 30 March 2012, that the respondents' failure to progress the litigation or to comply with court orders is on-going, notwithstanding the service of these orders and the applicant's continued attempts to communicate with the respondents. … In all the circumstances, in order to avoid a further waste of time and money that the applicant may not be able to recoup readily from the respondents or at all, I consider it appropriate to make a lump sum costs order.
As I understand it, the defendants have not responded to the orders made thus far. This favours the award of a lump sum costs order thereby reducing wasted costs on any unnecessary costs assessment. I consider that this is an appropriate case to specify a gross sum instead of putting the plaintiff to the further time and expense involved in an assessment of his legal costs in circumstances where it is apparent that the defendants are unlikely to participate in that process; it is unclear whether the defendants have the ability to pay the costs order in any event; and, placing an additional burden on the plaintiff to undertake a costs assessment process may be for no useful purpose.

Fixing a sum

In Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23, Einstein J summarised the principles which inform the exercise of the discretion to specify a gross sum, at [9]: … ii. the touchstone requires that the Court be confident that the approach taken to estimate costs is logical, fair and reasonable: Beach Petroleum [NL v Johnson (1995) 57 FCR 119] at [16]; iii. the fairness parameter includes the Court having sufficient confidence in arriving at an appropriate sum on the materials available: Harrison v Schipp (2002) 54 NSWLR 738, per Giles JA at [22] …; iv. a gross sum assessment, by its very nature, does not envisage that a process similar to that involved in a traditional taxation or assessment of costs should take place: Harrison v Schipp at [22]; v. the gross sum "can only be fixed broadly having regard to the information before the Court": Beach Petroleum at 124; [In Hadid v Lenfest Communications Inc [2000] FCA 628 at [35] it was said that the evidence enabled fixing a gross sum "only if I apply a much broader brush than would be applied on taxation, but that … is what the rule contemplates".] vi. nevertheless the power to award a gross sum must be exercised judicially, and after giving the parties an adequate opportunity to make submissions on the matter: Leary v Leary [1987] 1 WLR 72 at 76, and Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119 at 120; vii. In terms of the necessity for the approach taken to be logical, fair and reasonable, Von Doussa J in Beach Petroleum NL & Anor v Johnson & Ors (No 2) (1995) 57 FCR 119, put the matter as follows, at [16]: "On the one hand the Court must be astute to prevent prejudice to the respondents by overestimating the costs, and on the other hand must be astute not to cause an injustice to the successful party by an arbitrary "fail safe" discount on the cost estimates submitted to the Court: Leary v Leary at 265 …"
His Honour's summary has been cited with approval in the Court of Appeal: Hamod v New South Wales [2011] NSWCA 375 per Beazley JA, with whom Giles and Whealy JJA agreed, at [793]. Her Honour continued, at [816]: … the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred … the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability…
And at [820] (citations omitted): 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). The approach taken to estimate the costs to be ordered must be logical, fair and reasonable. 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.
Further, as Ball J explained in Baychek v Baychek [2010] NSWSC 987 at [11]: …Implicit in this principle is that the gross sum bear a reasonable relationship to the actual costs of the party making the application, and to the costs that that party might reasonably be expected to recover on assessment. That means, among other things, that there must be a reasonable evidentiary basis for the order the court makes. That evidentiary basis is normally provided by the costs applicant in the form of an affidavit setting out the actual costs incurred and how they were calculated. Often, the evidence also includes evidence of the amount that is likely to be recovered on assessment.

Consideration

The solicitor's invoices total $70,814.70. Counsel's hourly rate is reasonable and the total fees are not disproportionate to the hearing. The expert's fees for a valuation report were $2,871, which appears reasonable, and only half of the fee is sought.
However, the costs order made in September 2019 was not an indemnity costs order. Thus, I will discount the solicitors and counsel's fees to estimate what they would recover on an assessment on a party and party basis. I have discounted the solicitor's fees by 25% and counsel's fees by 10%, leaving disbursements in full. The total thus arrived at is $103,280 including GST.
For these reasons I make the following order: 1. Order pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW) that the plaintiff is to be entitled to a specified gross sum in the amount of $103,280 including GST in respect of his costs of these proceedings.

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: 11 September 2020

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