The plaintiff, Mr Bell, seeks costs of these proceedings including a gross sum costs order. Hartnett, the defendant, submits that Mr Bell's costs ought to be assessed. Further Mr Hartnett relies on an 11 November 2021 order of Slattery J concerning the capping of costs.
The lengthy background to this dispute is outlined in the substantive judgment Bell v Hartnett Lawyers (No 3) [2022] NSWSC 1204 and the New South Wales Court of Appeal's decision dismissing Mr Hartnett's appeal: Beau Timothy John Hartnett trading as Hartnett Lawyers v Anthony Robert Bell as Executor of the Estate of the late Mabel Dawn Deakin-Bell [2023] NSWCA 244. By reason of those judgments Mr Hartnett is bound by the order to pay to Mr Bell the sum of $251,255.52 which represented the amount the court considered he had overcharged. He is also required to pay interest on that amount. In the substantive judgment I also ordered Mr Hartnett to pay Mr Bell's costs on an indemnity basis.
Mr Bell seeks the fixed sum of costs in the amount of $229,266.75. That figure is made up of:
1. 90 percent of the solicitors' legal fees. The total legal fees invoiced amount to $155,917.42; 90 percent is $140,325.68.
2. Disbursements are sought in the sum of $98,941.07. That amount includes counsels' fees and other disbursements such as filing fees, transcript and court book expenses, and the like.
Mr Bell submits that a deduction of $10,000 ought to be made because of a previous costs order that was made in Mr Hartnett's favour. In October 2021, Slattery J ordered that Mr Bell pay 60 percent of Mr Hartnett's costs of Mr Hartnett's notice of motion dated 22 September 2020 in the equity proceedings. That motion concerned the service of Mr Bell's proceedings. By the time the motion was heard, appropriate service had been effected.
By way of brief procedural background to this dispute, in 2016 Davies J made an order for possession in favour of Gwendoline Deakin-Bell, for whom Mr Hartnett was acting: Deakin-Bell v NSW Trustee and Guardian [2016] NSWSC 540. His Honour awarded Ms Deakin-Bell the sum of the mortgage of $30,000 together with interest and costs said to amount to $34,680.19. The possession proceedings were uncontested.
After the sale of the property, the sale proceeds were paid into Mr Hartnett's trust account in the sum of $353,137.02. Mr Hartnett invoiced Ms Deakin-Bell for a total of $288,601.03 and paid himself that sum of money from the sale proceeds.
On 8 September 2020, Mr Bell commenced these proceedings by way of Summons seeking a declaration of a constructive trust in relation to the sale proceeds paid into Mr Hartnett's trust account, together with freezing orders.
As noted, on 22 September 2020, Mr Hartnett filed an application to dismiss the proceedings on the basis that they were not served correctly and were in the wrong jurisdiction. In early 2021, that application was dismissed. Slattery J made orders including the relisting of the possession proceedings.
On 10 March 2021, Mr Bell sought to send the matter for costs assessment and for Mr Hartnett to disgorge any excess. Mr Hartnett refused.
On 23 March 2021, the matter was listed for directions and Slattery J made orders directing Mr Hartnett to produce a copy of Ms Deakin-Bell's Will and to produce all invoices for legal fees and disbursements that he had rendered to her.
On 7 April 2021, Mr Bell filed a statement of claim. On that same day Mr Hartnett served on Mr Bell a copy of the Will and all invoices.
On 26 April 2021, the matter was listed for directions and Slattery J made orders including:
1. noting that Mr Bell had obtained probate;
2. noting that Ms Deakin-Bell was deceased;
3. directing Mr Hartnett to pay the surplus into Court, as had previously been ordered by Davies J and not done by Mr Hartnett; and
4. directing the parties to file written submissions for the disposition of the issues in the proceedings.
In May 2021, the parties filed written submissions as directed, which dealt with matters including who the appropriate parties to the proceedings were, which statutory regime governed any costs assessment that might take place and the basis of any costs assessment that might take place.
On 27 May 2021 the matter was listed for further directions before Slattery J and the parties were required to file written submissions with respect to the efficient resolution of the proceedings and further requests raised by his Honour. This culminated in written submissions being filed by both parties in June 2021, addressing a variety of matters including:
1. The appropriate way that Mr Hartnett's fees for acting in the possession proceedings ought to be fixed, including the Court's inherent supervisory jurisdiction, costs assessment, or referral to a referee;
2. Whether the Court had sufficient material before it to determine Mr Hartnett's costs, including the 2018 costs assessment by Mr Wall, the possession proceedings file and Mr Hartnett's invoices;
3. Whether Mr Hartnett was subject to the Supreme Court of New South Wales' jurisdiction as an interstate practitioner;
4. The necessity of the equity proceedings remaining on foot;
5. The applicability of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) as it might pertain to costs assessment across New South Wales and Queensland;.
6. Which principles of assessment ought to apply;
7. The joinder of Mr Hartnett to proceedings; and
8. The costs of Mr Hartnett's 22 September 2020 notice of motion.
On 12 October 2021, Slattery J gave judgment on those issues raised by the hearings on 23 March, 26 April, 27 May and 13 July 2021 and the various written submissions: Bell v Hartnett (No 2) [2021] NSWSC 1270. Slattery J noted that Mr Hartnett ought to be given an opportunity to explain the size of his fees for the uncontested possession proceeding, see particularly [21] and [40]. Importantly at [99]-[108] his Honour stated as follows:
The somewhat unusual issues in this case raise several discrete issues, some of which the Court has dealt with by making additional directions with the orders made today. These directions are designed to further the overriding purpose of the Civil Procedure Act as stated in s 56, to facilitate the just, quick and cheap resolution of the real remaining issues between these parties.
Given the history of this matter between 2014 and the present time, it is desirable that the remaining issues in this case be resolved as cheaply and expeditiously as possible. One possible option for the resolution is mediation. That history and the need for each party to contain further expenditure on costs, indicates that the Court should not force a mediation upon unwilling parties. The Court will seek the consent of each party to mediation under Civil Procedure Act, s 26 before proceeding down that path. By the time specified in the orders and directions below, the parties must indicate their consent to mediation or otherwise. They will by then have a much better understanding of the nature of the remaining issues.
It is undesirable for the parties to have an untrammelled liberty to file evidence on the remaining costs issues. Specified gross sum costs orders are not uncommonly made in relation to fees of the order of those at stake in this case and without the filing of expert evidence.
Given the Court's reasoning in this judgment, the final disposition of the Equity proceedings will be reserved to allow the parties to plead their competing priorities claims.
Order 5.2 in the Possession proceedings refers to Gwendoline being compensated for "any such costs that she incurs in the future". But it is not clear whether Hartnett Lawyers now claim to have incurred legal costs pursuant to the mortgage on behalf of Gwendoline or her estate, since their last bill was issued in November 2016. This issue needs to be flushed out. If Hartnett Lawyers are going to make such a claim, they need to formulate it quickly so all issues can be dealt with together to finality.
The Court has decided to make limited costs orders against Anthony in respect of the Hartnett Lawyers application in the Equity proceedings on 26 February 2021 ("the 26 February 2021 costs orders"). As the Court is considering making a specified gross sum costs order in respect of the Hartnett Lawyers costs in the Possession proceedings, it is logical that a similar order be made in relation to the 26 February 2021 costs. If necessary, offsetting orders can be made, depending upon the outcome of both processes.
The Court will constrain each party's capacity to expend further costs in arguing about the quantum and recovery of past costs. The Court has power under Civil Procedure Act, s 98(1)(b) to make cost capping orders, provided the Court gives adequate notice to the parties that such an order is on the cards. The Court also has a general power to order maximum costs in proceedings under UCPR r 42.4: Preston v Nikoladis [2017] NSWSC 1527 at [310]-[315].
The Civil Procedure Act, s 98(1)(b) and UCPR, r 42.4(1) powers may be activated on the application of a party or of the Court's own motion, and prospectively or retrospectively: G Dal Pont, Law of Costs (4th ed, 2018, LexisNexis Butterworths) ("Dal Pont") [7.42] - [7.47]; Nudd v Mannix [2009] NSWCA 327; Nicholls v Michael Wilson Partners Ltd (No 2) [2013] NSWCA 141. However, it is preferable that any such order be made prospective and not retrospective: Re Sherborne Estate (No 2); Vanvalen v Neaves (2005) 65 NSWLR 268; [2005] NSWCA 1003 at [22]-[26], [31]; Dal Pont [7.42] - [7.49]; JP Hamilton, "Containment of costs: litigation and arbitration" (presentation, 1 June 2007).
The Court is contemplating making such an order for future costs in the sum of $10,000. The parties will have an opportunity at the next directions hearing to attempt to justify and argue for a different cap, if they are so minded, depending upon the issues then in play.
The parties should anticipate the making of such an order by confining themselves to a modest costs budget. The parties are on notice that the Court is unlikely to give them substantial additional costs compensation for resolving the remaining costs issues in proceedings that relate to a principal mortgage debt of $30,000 and which have already lasted for seven years.
Slattery J reserved the question of costs but orders were made progressing the matter, including that the parties prepare lists or schedules of costs that had been charged or allegedly unreasonably incurred.
Of importance was order 6, made on 20 October 2021, which restricted the additional evidence that the parties were entitled to serve without the leave of the Court. The proceedings were listed for further directions on 8 November for the Court to consider a timetable for the parties to provide "concise written submissions on the remaining issues". His Honour also noted that the Court would consider making a cost capping order prohibiting the parties from seeking to recover costs of more than $10,000 in respect of the remaining costs issues in the proceedings. His Honour was clearly concerned to limit the amount of additional evidence that would be prepared when, as identified in the order, "the Court undertakes its review and considers the exercise of its Civil Procedure Act s 98(4)(c) powers".
On 26 October 2021, the plaintiff filed his amended statement of claim, including the schedule of improperly or unreasonably incurred fees, which analysed Mr Hartnett's fees charged in the possession proceedings on a line-by-line basis.
On 4 November 2021, the defendant filed his defence to the amended statement of claim.
On 8 November 2021, the matter was listed for directions. Slattery J noted that his orders, arising from the October 2021 judgment, had been "substantially complied with". Part of the transcript reads as follows:
HIS HONOUR: I think there has been a re-pleading in the Equity proceedings by the plaintiff and there has been a defence filed raising the priorities issues very clearly. There has been material provided by way of contention on Mr Bell's side as to what is wrong, he alleges, with the memorandum of fees and there has been a response to that in the form of a schedule together with some submissions.
…
SYKES: …perhaps the only issue would need to be whether or not an order is made for us to identify in some sort of points of claim document in the possession proceedings as a gateway to the inherent supervisory jurisdiction is enlivened and we are content to do at the same [time] as our submissions are put on in accordance with those orders.
HIS HONOUR: All right. The important thing is the order in which we do this is of some importance. Ms King, Hartnett Lawyers want to file further evidence…
… Mr Sykes, … I think that if you are going to allege misconduct or other delinquency of some sort you need to specify with some particularity what it is before the rest of the evidence goes on. … If you agree with Ms King about these orders substantially, do you think you can agree upon a set of short minutes now with procedure in it for those allegations to be pleaded in some way. … I will give you to say 4 o'clock tomorrow, is plenty of time, I think to exchange drafts. Can I just say, although you both agreed to a cap of $10,000, I am still very keen to see if we can limit the amount of evidence. … If you can agree upon some kind of rational limits on the amount of evidence. …
As noted, Slattery J expressed concern to limit the amount of evidence and referenced rational limits being imposed on the amount of evidence.
As directed, the parties sent consent orders to Slattery J's chambers and on 11 November 2021 the orders were made:
1. [Mr Bell] is to file and serve a points of claim document in [the possession proceedings] identifying how he says the Supreme Court's inherent, supervisory jurisdiction and/or section 99 Civil Procedure Act … is/are enlivened on or before 4.00 pm on 17 November 2021.
2. [Mr Hartnett], by 1 December 2021, is to:
a. file and serve further evidence of Bell's alleged conduct and the alleged conduct of its solicitors in the possession proceedings and which he alleges contributed to Mrs Deakin-Bell's legal costs occasioned as a consequence of the Plaintiff's alleged frustration of the process and the incurrence of significant delays throughout;
b. file and serve any reply to Bell's points of claim referred to in order 1 above; and
c. provide a list, or schedule in reply to Bell's list or schedule identifying their justification for the fees, charges or disbursements, or classes of fees charges or disbursements from Hartnett Lawyers post-14 November 2016 costs that are challenged by [Mr Bell], or admitting that such fees, charges or disbursements, or classes of fees charges or disbursements were improperly or unreasonably incurred, or were not incurred pursuant to the mortgage.
3. Mr Hartnett to file a Points of Defence on or before 8 December 2021.
4. Mr Bell is to file and serve further submissions on or before 8 December 2021.
5. Mr Hartnett is to file and serve further submissions on or before 15 December 2021.
6. The Court orders that the parties are prohibited from seeking to recover more than $10,000 in respect of the remaining costs issues in these proceedings, such prohibition being for fees incurred from 8 November 2021.
7. The matter is listed for directions before his Honour Slattery J at 9am on 16 December 2021.
8. Grant liberty to apply.
It is order 6, the capping order, that is primarily in issue. In particular, there is a question of whether the cap was in relation to all matters going forward or whether "remaining costs issues related to only further evidence to be relied upon by the parties or possibly all the matters that needed to be achieved" before the matter was next listed for directions before Slattery J on 16 December 2021.
On 19 November 2021, the plaintiff filed his points of claim, addressing the application of the Court's inherent supervisory jurisdiction. On 1 December 2021, Mr Hartnett filed his defence to the points of claim, a reply to Mr Bell's schedule of improperly incurred fees and a bundle of material titled "Defendant's Further Evidence".
On 7 December 2021, Mr Hartnett filed a notice of motion seeking to transfer the proceedings to the Court of Appeal in its original disciplinary jurisdiction.
On 9 December 2021, the matter was listed for directions before Slattery J and orders were made for the plaintiff's evidence on the defendant's transfer application.
On 14 December 2021, the matter was listed for directions before the Chief Judge in Equity who referred the matter back before Slattery J for directions.
On 16 December 2021, the matter was listed for directions before Slattery J who ordered that the Points of Claim and Points of Defence be taken to be pleadings in both proceedings, and referred the transfer application to the Court of Appeal.
On 7 February 2022, the matter was listed for directions in the Court of Appeal and was set down for hearing, with incidental orders made for submissions.
On 22 March 2022, the transfer application was heard by Basten JA and dismissed. Mr Hartnett was ordered to pay Mr Bell's costs of his motion forthwith: Bell v Hartnett [2022] NSWCA 42.
On 4 April 2022, the matter was listed for directions before the Equity Registrar and orders were made for Mr Hartnett to file an amended Reply to the Points of Claim.
On 19 April 2022, the matter was listed for directions before the Chief Judge in Equity and was referred back to the Equity Registrar for the allocation of a hearing date.
On 28 April 2022, the matter was set down for a two-day hearing. On 9 August 2022 the matter was listed for pre-trial directions before me. The matter was heard over two days, commencing 24 August 2022. In the substantive judgment on 8 September 2022, I ordered that Mr Hartnett pay Mr Bell's costs on an indemnity basis.
On 12 October 2023, the Court of Appeal dismissed Mr Hartnett's appeal and ordered him to pay Mr Bell's costs. Obviously, this judgment does not deal with the costs in the Court of Appeal.
[2]
The proper construction of the capping order
Mr Hartnett submits that the effect of the capping order made by Slattery J on 11 November 2021 is that Mr Bell is not entitled to seek to recover more than $10,000 for costs incurred after 8 November 2021. I do not accept that is the proper construction of the order read in context.
The principles concerning the construction of Court orders, including consent orders, are not in dispute. For example, in Kirkpatrick v Kotis (2004) 62 NSWLR 567; [2004] NSWSC 1265, Campbell J considered the authorities on construing orders at [38]-[44]:
38 Several questions of construction of the orders arise in this application. I shall deal at the outset with some questions which relate to principles to be applied when construing orders in a contempt application.
39 The defendant submits that the orders in the present case should be looked at as a freestanding piece of prose, unaffected by any surrounding circumstances, for the purpose of deciding their construction. I reject that submission. In Rogers v Wentworth (New South Wales Court of Appeal, 18 April 1988, unreported); BC8802033 Hope JA (with whom Samuels JA agreed) said, at 18 of BC8802033:
"'A consent order must.....be construed in the light of any admissible evidence of surrounding circumstances, but without direct evidence of the parties' intention:' General Accident Fire and Life Assurance Corporation Limited v Inland Revenue Commissioners [1963] 1 WLR 421 at 430 per Plowman J; affirmed [1963] 1 WLR 1207. In In re Frackelton v McQueen; In re a Solicitor [1910] QSR 1 at 6,7, Chubb J said:- "While this judgment stands, it is final and unimpeachable, and cannot, unless it is ambiguous (if even then), be explained or added to by extraneous evidence", and "the Undertaking ... is embodied in the judgment, and that is all we have to look at, and construe....." The other members of the Court did not express any view on this matter, and indeed, notwithstanding what he had said, Chubb J himself seems to have had some regard to the surrounding circumstances. When the matter was being considered by the High Court: Frackelton v Atthow (1909) 10 CLR 522, Isaacs J considered the construction which Chubb J gave to the undertaking, and without discussing any principle of construction, had regard to the surrounding circumstances and came to a different conclusion. There is nothing in this decision which would lead me to any conclusion other than that the statement of principle by Plowman J is correct, and I accept that it is."
40 Mahoney JA said, at 6-7 of BC8802033:
"What is here in question is the construction of an order made by consent and embodying a compromise made between the parties. In England the view has been taken that a consent order must be "construed in the light of any admissible evidence of surrounding circumstances, but without direct evidence of the parties' intention", that evidence including "evidence as to the nature of the dispute which was compromised by" the orders: see Halsbury Laws of England , 4th ed, Vol 26, par 527, note I and the case there cited, General Accident Fire & Life Assurance Corporation Limited v IRC [1963] 1 WLR 421 at 430-1; 1207. The dispute in the present case was as to the withdrawal of the second caveat.
In Australia, the general principles have been referred to by the High Court in Harvey v Phillips 95 CLR 235. In that case, the court referred to the circumstances in which, and the principles upon which, a consent order embodying a compromise may be set aside: at 243-4. The court did not, in terms, equate the consent order to the compromise on which it was based. It cited with approval a dictum of Lindley LJ in Huddersfield Banking Co Ltd v Henry Lister & Son Ltd [1895] 2 Ch 273 at 280 where his Lordship said that "a consent order can be impeached, not only on the ground of fraud but upon any grounds which invalidate the agreement it expresses in a more formal way than usual .... To my mind the only question is whether the agreement on which the consent order was based can be invalidated or not". In that case the court was not directly concerned with the construction of the compromise agreement or the evidence to which reference might be made in the interpretation and construction of it. The observations of Chubb J in In re Frackleton v McQueen; In re a Solicitor [1910] QSR 1 at 6-7, may perhaps suggest that regard may be had only to the terms of the order: the terms of the other judgments and of the judgments of the High Court: 10 CLR 522; do not, I think, deal directly with the question.
The view expressed in General Credits Ltd v Ebsworth [1986] 2 QdR 162 by de Jersey J: at 164 et seq; does not suggest any such limitation. See generally Baines v State Bank of New South Wales (1985) 2 NSWLR 729.
In interpreting and construing the compromise agreement, the court would not be limited to the mere terms of it. It would be entitled to go to the admissible surrounding circumstances. Those circumstances would include, inter alia, the nature of the dispute and that in respect of which the dispute existed. The court therefore could know that the dispute which the parties compromised was one in relation to, as they believed, the second caveat. Therefore, in my opinion, the compromise, insofar as it referred to "the caveat", would be construed to refer to the second caveat. If it be proper, in construing the compromise agreement, to take into account such evidence, it must be proper to refer to it in interpreting and construing the consent order. It would not be contemplated that the consent order would be construed differently from the compromise which it was to carry into effect."
41 While this decision in Rogers v Wentworth (New South Wales Court of Appeal, 18 April 1988, unreported) is binding upon me and provides authority for using surrounding circumstances to construe a consent order, there are also other cases, which were not relied upon by the judges who decided Rogers v Wentworth, which lead to the same conclusion. In Dinch v Dinch [1987] 1 WLR 252 Lord Oliver of Aylmerton (with whom Lord Keith of Kinkel, Lord Templemen, Lord Griffiths, and Lord Goff of Chieveley agreed) said, at 263:
"One has, as it seems to me, simply to look at the order and any admissible material available for its construction and determine what the court intended - or, in the case of the consent order, what the parties intended - to effect by the order." (emphasis added)
His Lordship also said, at 264:
"In the instant case, the consent order, on its face and in the light of the issues which were clearly before the court , is not, in my judgement, capable of being construed in any other sense than as finally and conclusively determining the rights of the parties in the property…" (emphasis added).
42 The availability of surrounding circumstances as an aid to construction of a consent order was accepted by Robert Walker J (as his Lordship then was) in Ernst & Young (a firm) v Butte Mining plc [1996] 2 All ER 623, at 634, 636.
43 In S & M Motor Repairs Pty Ltd v Caltex Oil (Australia) Pty Ltd (1988) 12 NSWLR 358 Priestley and Clarke JJA construed an undertaking to the Court "not to pass off as 'Caltex' petrol any petrol not supplied to the defendant by either of the plaintiffs." There was a dispute as to whether the "passing off" referred to in this undertaking was the tort of passing off (which had damage as an essential element), or whether it was merely representing non-Caltex petrol to be Caltex petrol. At 387 their Honours decided that question by reference to the history of the litigation. They said:
"The sole question is: "Has the first appellant broken its promise not to sell as Caltex petrol that of others?" This particular point emphasises the importance of construing the undertaking in the factual matrix which was known to both parties. That matrix includes, but is not limited to, the circumstances already set out."
44 These remarks were made in the context of construing the undertaking for the purpose of deciding whether there had been a breach which amounted to contempt of court. For that purpose, I can see no relevant difference between a breach of an undertaking and a breach of a consent order for an injunction. Though Kirby P would have decided the case on other grounds, at 377 he briefly indicated that he would have taken certain surrounding circumstances into account in construing the undertaking.
His Honour concluded at 45:
Thus authority and principle both favour the view that surrounding circumstances can be used to construe a consent order. The type of surrounding circumstances which can be used are those which can be used to construe a contract. It might be accepted that in construing orders regard may be had to the purpose and effect of the order, the pleadings, the course of the proceedings and submissions of the parties prior to and the making of orders.
At the time of the capping order, as noted, and as evidenced in the October 2021 judgment, and the directions hearing on 8 November 2021, Slattery J was very concerned about the cost and extent of further evidence for what his Honour considered was a case akin to a gross sum costs order application.
I do not accept that the capping order was intended to cap all costs incurred after 8 November 2021 for all purposes and no matter what occurred. Instead, in my view, the order was intended to cap the quantum of costs that were charged by either party in relation to the anticipated further minimal evidence and likely points of claim and defence and submissions that were required by 16 December 2021.
I consider such a construction is further supported by the following.
There are a number of complex issues that had already been ventilated between the Court and the parties as evidenced in the October 2021 judgment, including the Court's power to review fees as between Mr Hartnett and Gwendoline Deakin-Bell, the operation of the Court's inherent supervisory jurisdiction, the possible application of s 99 Civil Procedure Act 2005 (NSW) and the possible application of s 98(4)(c) Civil Procedure Act 2005 (NSW). As already noted there were other issues at play, including the interrelationship or otherwise of the New South Wales and Queensland laws applying to the dispute and the question of equitable priorities concerning the surplus of the sale proceeds.
At the time of the capping order, Slattery J was not prepared to fix Mr Hartnett's fees, nor send them to a costs assessor. Instead, his Honour intended to determine the question of those fees after Mr Hartnett had been given an opportunity to explain and justify the quantum that he had invoiced. Very little evidence was anticipated. Again I refer back to [99]-[108] of the October 2021 judgment, and particularly to [101] where his Honour stated:
It is undesirable that the parties have an untrammelled liberty to file evidence on the remaining costs issues. Specified gross sum costs orders are not uncommonly made in relation to fees if the order of those at stake in this case and without the filing of expert evidence.
At the time of the capping order, Slattery J did not know that Mr Hartnett would make an application to transfer the proceedings to the Court of Appeal. It was also not known how long the actual hearing would be. I consider the capping order was made in circumstances where it was intended that in December 2021, when the matter was next listed before Slattery J in the ordinary course, a mechanism would have been designed to bring all of the matters to a final hearing, whether that was on the papers or otherwise.
Even if that construction is incorrect, and in any event, I consider it appropriate to vary that capping order pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 42.4(4). Rule 42.4 provides:
42.4 Power to order maximum costs
(1) The court may by order, of its own motion or on the application of a party, specify the maximum costs that may be recovered by one party from another.
(2) A maximum amount specified in an order under subrule (1) may not include an amount that a party is ordered to pay because the party -
(a) has failed to comply with an order or with any of these rules, or
(b) has sought leave to amend its pleadings or particulars, or
(c) has sought an extension of time for complying with an order or with any of these rules, or
(d) has otherwise caused another party to incur costs that were not necessary for the just, quick and cheap -
(i) progress of the proceedings to trial or hearing, or
(ii) trial or hearing of the proceedings.
(3) An order under subrule (1) may include such directions as the court considers necessary to effect the just, quick and cheap -
(a) progress of the proceedings to trial or hearing, or
(b) trial or hearing of the proceedings.
(4) If, in the court's opinion, there are special reasons, and it is in the interests of justice to do so, the court may vary the specification of maximum recoverable costs ordered under subrule (1).
I consider that here there are "special reasons" to vary the cap that was imposed by Slattery J, and it is in the interests of justice to vary the specification of maximum costs. Those reasons include that the matter did not progress as expected by Slattery J, including because of Mr Hartnett's application to the Court of Appeal. Further the hearing took two days, and the focus of the hearing was no longer simply a matter of a lump sum costs order, but instead concerned the supervisory jurisdiction of the Court and a consideration of the voluminous material before the Court.
I reject Mr Hartnett's submission that that rule would not be invoked by the Court, because the capping order was made by consent. The language of the rule is clear. What is required is for the Court to reach an opinion that there are special reasons for varying the order, and it is in the interests of justice to do so, whether or not the original capping order was made by consent.
I also consider the special reasons include the findings made in the substantive judgment and the order of indemnity costs. I do not consider it would be just to cause Mr Bell to bear all his costs beyond $10,000 in the circumstances. I consider that the cap ought to be raised to the amount actually incurred less any appropriate discount considered in relation to the gross sum costs order.
The principles concerning a gross sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW) are well known. That section relevantly provides:
(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.
An application for a gross sum costs order can be made as long as costs have not been referred for assessment. That has not occurred here. In Ahern v Aon Risk Services Australia Limited (No 2) [2022] NSWCA 39 at [14]-[18], the Court of Appeal, consisting of Meagher, White and Brereton JJA, summarised the operation of the discretion encapsulated in the section:
The principles relevant to the Court's exercise of discretion under s 98 were set out in Hamod v New South Wales [2011] NSWCA 375 at [813]-[820] (Beazley JA) (Hamod). Her Honour noted at [813]:
[813] The discretion thereby conferred upon the court is not confined and may be exercised whenever the circumstances warrant its exercise, having regard to the scope and purpose of the provision: Harrison & Anor v Schipp [2002] NSWCA 213; 54 NSWLR 738 per Giles JA at [21]-[22]. In Harrison v Schipp, Giles JA considered that the discretion in s 98(4) may be exercised where the assessment of costs would be protracted and expensive and, in particular, if it appeared that a party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment. However, his Honour stated, at [22]:
"The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available."
The principal purpose of a specified gross sum costs order under s 98(4)(c) is to avoid the expense, delay and aggravation likely to be involved in a contested costs assessment process: Hamod at [816]-[817]. As Basten JA noted in James v Australia and New Zealand Banking Group Ltd [2017] NSWCA 84 at [3]:
The power to make such an order is governed by the obligation of the court to give effect to the overriding purpose of the Act, as identified in Pt 6 of the Civil Procedure Act. The court is to ensure that the issues between the parties are resolved "in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute" (Civil Procedure Act, s 60); that obligation extends to the disposal of disputes as to costs. Although questions of costs undoubtedly play an important practical role in commercial litigation, disputes as to quantification are ancillary to the primary issues in dispute and consequential upon the resolution of the primary issues. Costs provide an opportunity for ongoing litigation about "non-essential issues" which should be resolved with as little technicality and expense as reasonably practicable. [footnotes omitted]
Primary considerations relevant to the exercise of the s 98(4)(c) discretion 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": Hamod at [816]; see also Kostov v Zhang (No 2) [2016] NSWCA 279 at [22]; eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd (No 2) [2015] NSWCA 422 at [30].
The power to award a gross sum should only be exercised when the Court considers that it can do so fairly between the parties and where an appropriate sum can be determined from the available materials: Harrison v Schipp (2002) 54 NSWLR 734 at 743; [2002] NSWCA 213 at [22]. The power may 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 proceedings: Hamod at [818].
If it considers it appropriate to make the order, the Court may adopt a "broad brush" approach to quantification, as to require the Court to undertake a detailed examination of the kind carried out in a formal costs assessment would defeat the purpose of the order: Harrison v Schipp at 743; Penson v Titan National Pty Ltd (No 3) [2015] NSWCA 121 at [7]. 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)": Hamod at [820]. Courts have typically applied a discount when assessing costs on a gross sum basis, though the aptness of a discount primarily depends on the accuracy and reliability of the costs evidence available to the Court: Hamod at [814].
The opposition that is raised by Mr Hartnett to a gross sum costs order is as follows.
First, it is said that there is insufficient material before the Court to carry out an informed assessment of actual costs. Mr Hartnett relies on principles outlined in Colquhoun v District Court of New South Wales (No 2) [2015] NSWCA 54, where the Court of Appeal considered there was insufficient evidence, upon which to base a gross sum costs order at [6]-[8]:
The power to make a lump sum costs order "should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available": Harrison v Schipp [2002] NSWCA 213; 54 NSWLR 738 at [22]; Hamod v State of New South Wales [2011] NSWCA 375 at [813].
The material supplied by the Secretary, which is a bare statement of total costs and disbursements, does not permit the Court to have any confidence that $22,000 (or some other amount) is an appropriate sum. The evidence is completely silent as to (a) the timing and nature of costs incurred, (b) the rates at which lawyers charged, and (c) the amount likely to be recoverable on assessment in the event that that took place. There is substantially less evidentiary material than what was held to be insufficient in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11. In that decision, Barrett J concluded at [56]:
"Because the material on which NGC relies upon this application is insufficient to ground a well-informed exercise of the discretion to make a gross sum costs order, the court will not make such an order; and this is so despite the matters of complexity of costs assessment and impecuniosity of the plaintiffs liable for costs that would otherwise make such an order appropriate."
The same approach applies here, in circumstances where the application is made after the event, to a Court which is not fully apprised of the procedural history of the litigation. It is neither necessary nor appropriate to identify the minimum which is required in such a case, which in any event will depend upon the nature and complexity of the litigation.
Mr Hartnett submits that Mr Bell's evidence is lacking in several respects, each of which will now be dealt with.
First, it is said that there has been no attempt in the evidence to distinguish between the issues that were capped and the evidence relating to other matters. Based on my assessment of the proper construction of the capping order, it is only that time spent between 8 November and 16 December 2021 that would have been the subject of such costs capping.
The records in evidence, which include the McVittie Legal's invoice and Mr Sykes' invoice, indicate that the time spent during that period was an amount of more than $10,000 but not a significantly greater sum. However, as noted above, I consider it appropriate to vary that cap in any event to the amount charged less any appropriate discount for a gross sum costs order.
Secondly, it is said that there is no evidence of the amount of costs likely to be recoverable on an assessment. McVittie Legal's Costs Agreement with Mr Bell is in evidence and it shows the principal lawyer charges an hourly rate of $450 plus GST, and the paralegals are charged at $160 plus GST. Those rates appear to be very reasonable commercial rates and it has not been suggested by Mr Hartnett otherwise.
The standard of evidence required for the Court to make a gross sum costs order will vary from case to case as noted by Darke J in Stoddart (NSW) Pty Ltd v Kellyville Building Pty Ltd [2019] NSWSC 1480 at [26]. I consider the authorities referred to by Mr Hartnett can be distinguished here.
In Colquhoun, the Court only had a bare statement of the costs and disbursements, however here I have the relevant invoices and a breakdown of hourly rates. This is more than a bare statement. Conversely there are several cases where reliance on itemised invoices and similar evidence has been held to be sufficient in the circumstances of the applications brought. Recent examples include Romanos v Punjabi Fusion Group Pty Ltd [2023] NSWSC 1395 (see especially [34]-[40] (Schmidt AJ)); and Jacups v LawCover Pty Ltd [2023] NSWSC 598 (see especially [45]-[47] (Rothman J)).
In Riva NSW Pty Ltd v Mark A Fraser and Christopher P Clancy trading as Fraser Clancy Lawyers (No 4) [2018] NSWCA 327, Leeming JA expressed concerns with the way in which costs were calculated due to the fact that Fraser Clancy Lawyers, the applicant on the motion, was conducting legal work for itself in the substantive litigation and the figure claimed was grossly disproportionate to the legal work undertaken. It was on those bases that Leeming JA raised the issue of a lack of independent evidence of what the outcome of a costs assessment would bring. For that reason his Honour considered there to be insufficient evidence to warrant making a gross sum costs order.
That is not the case here. As noted in various authorities, expert evidence is not necessary. Further, where hourly rates and invoices have been provided, there is no absolute requirement for the opinion of a solicitor concerning the assessment process.
I am satisfied that here reliance on the itemised invoices, rather than expert evidence, does not sensibly result in the conclusion that justice permits the refusal of a gross sum costs order. I consider that the evidence can be readily understood and assessed. I consider the evidence supports the conclusion that the Court's power to make a specified costs order can be fairly exercised in relation to Mr Bell's costs, with the necessary confidence that an appropriate sum which does justice between the parties can be arrived at: Hamod v New South Wales [2011] NSWCA 375 at [813].
Mr Hartnett also raised complaint concerning Mr Bell's Costs Agreement. One complaint is that the Costs Agreement is speculative. The relevant clause in the Costs Agreement provides:
We have agreed to undertake this work on a speculative basis, meaning if you are unsuccessful we will not issue an account or require payment. However if you are successful… we will render accounts…
It was submitted that whether such fee agreements create a liability for costs is a matter to be determined by a costs assessor. Mr Hartnett relied upon Wentworth v Rogers (2006) 66 NSWLR 474; [2006] NSWCA 145 at [38]. That case concerned an appeal from a costs assessor, and the Court of Appeal accepted that it was appropriate for a costs assessor to look at the nature of the retainer in making an assessment. Mr Hartnett did accept that the Court has the power to consider a gross sum costs order, even in circumstances where there is a conditional Costs Agreement, but submitted it was a question of the proper construction of the Costs Agreement, and further a question of evidence as to whether there had been compliance with it.
I note that other Courts have accepted that a lump sum costs order can be made irrespective of whether a Costs Agreement is conditional or contingent: see eg Royal v El Ali (No 3) [2016] FCA 1573 at [43]-[44] (not disturbed on appeal: Zreika v Royal (No 2) [2019] FCAFC 237).
I also reject Mr Hartnett's submission that it is open to him to challenge the terms of the Costs Agreement or an alleged lack of sufficient disclosure by the lawyers to Mr Bell. I accept that the authorities to which I was taken by Mr Bell indicate that such challenges are a matter for the client of the solicitors, not an opponent.
I consider the proper construction of the Costs Agreement requires "success" which needs to be read in conjunction with the work which McVittie Legal agreed to carry out, which included "gathering information and challenging the funds retained by Gwendoline Deakin-Bell/Mr Beau Hartnett after the sale of your late mother's home". On any interpretation of the word "successful", Mr Bell has successfully challenged the funds retained by Gwendoline Deakin-Bell/Mr Beau Hartnett and obtained an order that moneys be returned to him.
Further complaint is made about the obligation of Mr Bell to pay disbursements because of the language of the clause which reads:
In the course of your matter it may be necessary to incur disbursements which are fees, expenses and charges, such as court filing fees, bank charges, courier fees, barrister fees, title searching and property inquiries, agency fees for law stationers and process serving. These are payable as and when they fall due for payment. We will not incur any substantial expense without first obtaining your permission.
Mr Hartnett submitted there is no evidence that Mr Bell gave permission for the disbursements which are now being sought as part of the gross sum costs order. I reject that submission. It amounts to a suggestion that the lawyers involved in these proceedings have been acting without instructions. It also would mean that Ms Pickering's affidavit is false where she gives evidence that Mr Sykes was retained, that filing fees were incurred, that transcripts were paid for, and that the Court Book was created. She gives evidence that Mr Bell's total legal costs for disbursements are as she sets out. She was not challenged on that evidence.
Complaint is also made concerning clause 9 on the basis that Mr Bell may remain liable for fees beyond any gross sum costs order. That clause reads:
"If a Court makes an order requiring another party to pay your costs of the proceedings, that order will not affect your liability to pay our fees and disbursements under this agreement, but any amount recovered will reduce the amount for which you are liable."
I do not accept that that clause has any work to do in the context of a gross sum costs order. If McVittie Legal seeks costs from Mr Bell beyond those in the gross sum costs order, then he would have an opportunity at that time, should he wish, to challenge that claim.
I do not accept any of Mr Hartnett's submissions as to why it is not appropriate for a gross sum costs order, and, instead, that it would be preferable to send costs to an assessment. I consider that, like in Ahern, a gross sum costs order will help avoid further delay and acrimony between these parties in circumstances where there is a demonstrated history of both.
Given Mr Hartnett's approach to most steps in the litigation, I accept that the cost and time of an assessment process is likely to be disproportionate to the importance and complexity of what is in dispute about Mr Bell's costs.
The Court is entitled to adopt an "impressionistic" or "broad brush" approach to quantification: see Ahern at [42]. A gross sum costs order must have regard to the actual costs incurred in the particular circumstances of the case, taking into account the matters the parties have raised for consideration. Generally speaking the invoices in evidence here set out a reasonable description of the work done in order to identify their connection with these proceedings and the amounts that are claimed in respect of them.
As to quantification, the Court is also entitled to take into account that if assessed on the ordinary basis, the usual outcome is that the costs recovered represent a proportion in the range of 60 to 85% of total costs incurred; see, for example, Bechara v Bates [2016] NSWCA 294 at [69].
It can be accepted that where an indemnity costs order has been made, that costs over 80% of the total incurred may be awarded on an assessment. However here, I consider that the total amount claimed by Mr Bell needs to be adjusted downwards from the 90% of solicitors' costs and 100% of disbursements which are claimed, less the $10,000 of Mr Hartnett's 2020 motion.
I consider that the solicitors' costs component of the bill of costs should be reduced because of possible duplication. For example, there are multiple time entries on 23 August 2022. Further, there are time entries in relation to the notice of motion in the Court of Appeal heard by Basten JA. They are not costs that I can order.
I also consider there ought to be a reduction of Mr Sykes' costs. The invoices demonstrate that Mr Sykes has had the carriage of the substantive work involved in the proceedings, which has then been implemented by McVittie Legal. For example, most of the solicitors' time entries concern correspondence and the like. However, I do consider that more time than may be considered reasonable on an assessment has been charged and ought to be reduced. Further, Mr Sykes' invoices also refer to the proceedings in the Court of Appeal.
Having taken a broad brush approach and taking into account those matters, and allowing for contingencies and a potential margin of difference in a costs assessment process, I have concluded that an appropriate gross sum costs figure is $185,000.
The plaintiff has been successful in obtaining a gross sum costs order and therefore I consider ought to have his costs of the motion. That is not resisted by Mr Hartnett.
Mr Bell seeks a gross sum costs order for the motion in the sum of $3,245 which is based on Mr Sykes spending three hours to prepare the costs application and half a day to prepare submissions and appear in court, plus GST. That gross sum costs order does not provide any sum for the filing of the motion nor the preparation of the affidavit of Ms Pickering, or the preparation of the Court Book. Mr Hartnett did not raise any reason why that sum would not otherwise be appropriate and I am prepared to award Mr Bell that sum.
Therefore, I make the following orders:
1. Pursuant to s 98(4)(c) of the Civil Procedure Act 2005 (NSW), within 28 days the defendant is to pay the plaintiff a specified gross sum of $185,000 for costs and disbursements, instead of the costs being assessed.
2. The defendant is to pay the plaintiff's costs of the notice of motion in the fixed sum of $3,245.
[3]
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Decision last updated: 15 December 2023