Bookarelli Pty Ltd v Katanga Developments Pty Ltd

Background

1. The background to this protracted costs dispute is as follows.
2. Bookarelli is a litigation funder. On 12 May 2010 it entered into a deed with Katanga by which Katanga agreed to market Bookarelli's "proof of debt assistance agreements" to shareholders of various companies in liquidation or administration, including ION Ltd (ION). Under the terms of the deed if a shareholder took up the offer and the liquidators or administrators paid money to the trust account of Bookarelli's solicitors in respect of that shareholder, Bookarelli was required to direct the solicitors to pay to Katanga 25 per cent of the amount received.
3. In January 2011, Bookarelli directed its solicitors to pay Katanga 25 per cent of the first interim dividend received from the deed administrator of ION. The solicitors duly paid $142,543.16 to Katanga. This sum represented 25 per cent of the interim dividend due by the deed administrator to 69 shareholders of ION which the deed administrator paid to Bookarelli's solicitors.
4. Thereafter Bookarelli's solicitors received further interim dividends from ION's deed administrator, but Katanga did not receive any additional payments from Bookarelli's solicitors.

District Court proceedings

1. In 2012, Katanga commenced proceedings in the Local Court against Bookarelli and Mr Joukhador, a solicitor engaged by Bookarelli to receive payments from ION's deed administrator (Solicitor). The proceedings, in which Katanga claimed damages and other relief, were subsequently transferred to the District Court. Bookarelli and the Solicitor were separately represented in those proceedings.
2. On 5 and 9 August 2013, the deed administrator of ION gave notice that a further interim dividend (the sixth) would be paid on 13 August 2013. On 13 August 2013, Katanga applied ex parte to the District Court for an interlocutory order directing the deed administrator to withhold 50 per cent of the dividend distributions payable to named ION shareholders. The order was made, but was varied the following day to reduce the amount to be withheld to 25 per cent.
3. Katanga's application for an extension of the interim relief was heard by Taylor DCJ on 9 September 2013. Katanga sought modified orders that would have required the Solicitor, after receiving payment from the deed administrator, to pay 25 per cent of the amount received into Court. After hearing argument, Taylor DCJ delivered an ex tempore judgment. His Honour made orders restraining the Solicitor from disbursing or otherwise dealing with 25 per cent of any dividend distribution received by him in respect of named shareholders of ION. [6]
4. Taylor DCJ dealt with the costs of Katanga's application as follows: [7] "[62] Katanga seeks an order for costs, having been successful with the motion, in accordance with [UCPR] r 42.1. Bookarelli and [the Solicitor] seek an order that costs be costs in the proceedings. In my view, Bookarelli has unsuccessfully opposed the motion and should not receive its costs in any event, but should Katanga fail in the proceedings proper, I do not think Katanga should receive its costs. [63] Accordingly, I propose to order that [Katanga's] costs of the motion, including the costs of the deed administrator as agreed with [Bookarelli] or assessed, be [Katanga's] costs in the proceedings."
5. Orders 1-3 made by Taylor DCJ had the effect of freezing 25 per cent of any dividend distribution by the deed administration. Order 4 made by his Honour was in the following form: [8] "[Katanga's] costs of the motion, including the costs of the Deed Administrator (as agreed with [Bookarelli and the Solicitor] or as assessed), be [Katanga's] costs in the proceedings." I refer to Orders 1-3 made by Taylor DCJ as the Freezing Orders and Order 4 as the Interim Costs Order.

Consent Orders

1. The final hearing of Katanga's claim against Bookarelli and the Solicitor commenced before Colefax DCJ on 8 July 2014. On 10 July 2014, the parties agreed to settle the proceedings.
2. Colefax DCJ made the following Consent Orders (the original numbering has been retained): "1. As between [Katanga] and [Bookarelli] without admission as to liability: (a) [Bookarelli] pay [Katanga] the sum of $100,000; (b) [Bookarelli] pay [Katanga's] costs of the proceedings as agreed or assessed on a party/party basis; and (c) Otherwise the proceedings be dismissed. 2. As between [Katanga] and [the Solicitor]: (a) Judgment for [the Solicitor]; (b) All previous costs orders of the proceedings between [Katanga] and [the Solicitor] are vacated; and (c) [Katanga] pay [the Solicitor's] costs of the proceedings fixed in the amount of $15,000. 4. The orders made by Judge Taylor SC on 9 September 2013 (including the order freezing $132,574.23 in [the Solicitor's] trust account) are vacated and, in lieu thereof [the Solicitor] is authorised and directed to pay the said $132,574.23 as follows: (a) Within 7 days, pay $85,000 to [Katanga's] solicitor's trust account; (b) Within 7 days, pay $15,000 to himself absolutely." I refer to Order 1(b) of the Consent Orders as the Consent Costs Order and to Order 4 of the Consent Orders as the Vacating Order.

Costs Assessor's determination

1. There was a dispute before the Costs Assessor as to whether the Consent Costs Order required Bookarelli to pay the costs of Katanga's application heard by Taylor DCJ on 9 September 2013 (Application). As will be recalled, the Interim Costs Order made by his Honour provided that the costs of the Application were to be Katanga's costs in the cause. There was also a dispute as to the extent to which Katanga's claimed costs related to its case against Bookarelli, as distinct from its claim against the Solicitor.
2. In his determination dated 14 April 2015 the Costs Assessor considered the extent to which Katanga's costs related exclusively to its claim against the Solicitor. In the Costs Assessor's view, Katanga's principal claim was against Bookarelli and much of the work performed on behalf of Katanga would have had to be performed even if no claim had been made against the Solicitor. The Costs Assessor allowed in full the costs claimed by Katanga for some work in this category, but reduced the amounts claimed for some items of work. For work performed for both matters, the Costs Assessor allowed Katanga 85 per cent of the amounts it claimed.
3. The Costs Assessor also decided that Katanga was entitled to recover from Bookarelli the costs of the Application that led to the Freezing Orders. The Costs Assessor said that the Vacating Order vacated only the Freezing Orders and not the Interim Costs Order. In any event, even if the Interim Costs Order had been vacated, Katanga's costs of the Application became costs of the proceedings generally and were covered by the Consent Costs Order. As has been noted, the Costs Assessor allowed an amount of $103,653.41 as Katanga's recoverable party and party costs in the proceedings.

Panel determination

1. Bookarelli sought review of the Cost Assessor's determination pursuant to s 373 of LP Act. The review application was duly referred to the Panel pursuant to s 374(1) of the LP Act. [9] The Panel made its determination on 24 August 2015.
2. Bookarelli's principal contentions before the Panel were that:

• The Vacating Order applied to the Interim Costs Order made by Taylor DCJ on 9 September 2013, thereby removing any basis for rendering Bookarelli liable for the costs of Katanga's Application for the Freezing Orders; and
• The costs payable by Bookarelli should have been assessed by applying the so-called "rule of thumb" referred to by Einstein J in Currabubula Holdings Pty Ltd v State Bank of New South Wales (Currabubula). [10] In order to apply the "rule of thumb", so Bookarelli argued, the Panel was required to identify three categories of work performed on behalf of Katanga: work common to both Bookarelli and the Solicitor; work exclusively referable to the claim against Bookarelli; and work exclusively referable to the claim against the Solicitor.

1. The reference to the rule of thumb requires explanation. In Currabubula, Einstein J adopted a formulation of the rule of thumb as follows: [11] "[w]here a solicitor acts for two or more parties in the same proceedings, each successful party is only entitled to his proportion of the costs incurred on behalf of all, plus the costs, if any, incurred exclusively on his behalf". His Honour explained that the concern of the rule of thumb is to achieve substantial justice in the awarding of costs as between a partially successful plaintiff and successful and unsuccessful defendants: [12] "The rule operates upon the premise that defendants are proportionately responsible for and liable for the joint costs involved in mounting the defence. Thus, a successful defendant cannot claim from the plaintiff more than a proportionate share of the joint costs of the action in addition to any costs separately referable to that defendant. Conversely, the partially successful plaintiff is prevented from looking to each of the unsuccessful defendants for more than an equal proportionate share of the costs not solely referable to the plaintiff's case against one or other of the defendants individually, in addition to the costs which are so referable. In this way, the rule of thumb prevents both the unjust enrichment of the partially successful plaintiff or successful defendant and the casting of an unfair burden on the unsuccessful defendants. Where the premise is falsified or the rule does not achieve its intended effect, it finds no application."
2. The Panel rejected Bookarelli's first contention on the following ground: "If the Consent [Costs] Orders … vacated the [Interim Costs Order] … as at 10 July 2014 there were no Costs Orders with respect to the Freezing Application and the costs of the Freezing Application are payable pursuant to [r] 42.7 of the [UCPR] [13] as general costs of the proceedings covered by the terms of the Order dated 10 July 2014. Similarly the Deed Administrator's costs."
3. The Panel declined to apply the "rule of thumb" as it did not consider that the legal work performed on behalf of Katanga could be allocated to the three distinct categories identified by Bookarelli. The Panel's view was that the work was interrelated. It concluded that the Costs Assessor's allocation of 85 per cent of the work performed on behalf of Katanga to its claim against Bookarelli was reasonable.
4. It should be noted that Bookarelli did not submit to the Panel that the Consent Costs Order should be construed as implicitly incorporating the rule of thumb.

District Court appeal

1. Bookarelli appealed and sought leave to appeal to the District Court on a number of grounds. Only two of the grounds need be referred to for present purposes.
2. The first ground was that: "The Review Panel failed to take into account a mandatory consideration under or, in the alternative, misconstrued its function under s 367A of the [LP Act], by reason of the Consent Orders of 10 July 2014, which required [Bookarelli] to pay [Katanga's] costs to the extent of half of [Katanga's] common costs and all of [Katanga's] costs specific to [Bookarelli]."
3. The second ground was that: "The Review Panel erred in law by misapplying r 42.7 of the [UCPR], which did not govern the present case, and by failing to take into account a mandatory consideration under or, in the alternative, misconstruing its function under s 367A of the [LP Act], by reason of the Consent Orders of 10 July 2014, which refrained from requiring [Bookarelli] to pay the costs of the freezing application and the deed administrator."
4. The primary Judge noted that Bookarelli's first argument was based on the proposition that: "embedded in the [Consent Costs Order] is the notion that the common costs between the parties are to be shared equally and since the [P]anel has found that the costs were interrelated, this must mean common costs and, by reason of the rule of thumb, they are to be apportioned equally between [Bookarelli and the Solicitor]." His Honour did not comment on the failure of Bookarelli to put this argument to the Panel, presumably because his attention was not drawn to the omission.
5. The primary Judge pointed out that Bookarelli had not challenged the Panel's finding that the legal work performed on behalf of Katanga could not be segregated into three distinct categories. His Honour accepted Katanga's submission that the so-called rule of thumb is not a binding rule of law. It was therefore a matter for the Panel to apportion costs in the exercise of its discretion. In his Honour's view, the Panel's apportionment decision did not relate to any matter of law. Accordingly, his Honour rejected the first ground of appeal.
6. The primary Judge also rejected Bookarelli's second ground. His Honour construed the Consent Costs Order as including the costs of the Application for Freezing Orders in respect of which Katanga had been successful. It followed that the Panel had not erred in law by including the costs of the Application in its determination. The primary Judge placed no reliance on UCPR r 42.7.

Bookarelli's submissions

1. Bookarelli submitted that the primary Judge erred in concluding that the Panel was not required to apply the rule of thumb in the circumstances of the present case. Mr Jones, who appeared for Bookarelli, did not contend that the rule of thumb must be regarded as a rule of law applicable in all cases where there are multiple defendants, some of whom are successful and some of whom are not. His argument was that the Consent Costs Order implicitly embodied the rule of thumb.
2. The basis for this somewhat surprising submission appears to be that the Consent Costs Order should be construed in the context of the rule of thumb. While Mr Jones did not characterise the rule of thumb as a rule of law, he submitted that the Consent Costs Order had to be understood as intended to avoid the same injustice that the rule of thumb is intended to avoid. Thus the Consent Costs Order should be characterised as a "per-defendant order", an expression used by Campbell JA in Wardle v Agricultural and Rural Finance Pty Ltd (No 2) (Wardle) [14] to refer to an order that the unsuccessful defendants in proceedings pay their several proportional shares of costs incurred by the plaintiff.
3. Mr Jones also submitted that the primary Judge erred in his construction of the Consent Costs Order. Mr Jones contended that the Vacating Order was intended to displace the costs order made by Taylor DCJ on 9 September 2013 and that the Consent Costs Order was not intended to reverse that result. Mr Jones asked rhetorically why the parties would agree to deprive Taylor DCJ's costs order of effect by the Vacating Order, yet seek to achieve the same result by means of the Consent Costs Order. The more logical interpretation, so he argued, is that the Consent Costs Order reflected a bargain which deprived Katanga of a benefit corresponding to the Interim Costs Order. Both Bookarelli and the Solicitor were subject to the Interim Costs Order and each compromised on costs. The result was that the Solicitor received $15,000 in costs, while Bookarelli was relieved of the obligation to pay the costs of the Application for Freezing Orders.

Reasoning

1. Mr Jones made it clear that Bookarelli's case depends on the contention that the primary Judge misconstrued the Consent Costs Order. The principles governing the construction of consent orders are not in dispute. The language of the orders must be construed in its context and in the light of any admissible evidence of surrounding circumstances, but without evidence of the parties' actual intentions. [15]
2. Bookarelli's argument took as its starting point that the Vacating Order vacated all the orders made by Taylor DCJ on 9 September 2013, including the Interim Costs Order. I did not understand Ms Castle, who appeared for Katanga, to contest that this was the effect of the Vacating Order.
3. In any event, the language of the Vacating Order suggests that it was intended to vacate all the orders made by Taylor DCJ on 9 September 2013. It is true that only the Freezing Orders are expressly mentioned after the word "including", but that does not mean that the Freezing Orders are the sole subject of the Vacating Order. [16] No surrounding circumstances have been identified that would indicate that the express reference in the Vacating Order to the Freezing Orders was intended to exclude the Interim Costs Order from the scope of the Vacating Order. [17]
4. The fundamental difficulty confronting Bookarelli's argument, however, is that the Consent Costs Order is in the usual form of an order requiring one party to proceedings to pay another party's costs of those proceedings. The language of the Consent Costs Order is entirely apt to require Bookarelli to pay Katanga's costs of the whole proceedings as between it and Bookarelli, including Katanga's costs of the Application seeking the Freezing Orders (in respect of which Katanga succeeded).
5. In his oral submissions, Mr Jones suggested that there was an inconsistency between vacating the Motion Costs Order and interpreting the Consent Costs Order as covering Katanga's costs of the Motion for Freezing Orders. However, he was unable to explain how such an inconsistency might arise and in fact there is none.
6. The effect of the Interim Costs Order was that neither Bookarelli nor the Solicitor could recover the costs of the Application for Freezing Orders even if they ultimately succeeded in the proceedings. But if Katanga succeeded it would be entitled to the costs of the Application. [18] Had the Interim Costs Order not been vacated, there perhaps may have been some doubt as to whether an order in the form of the Consent Costs Order was intended to cover Katanga's costs of the Application. An order vacating the Interim Costs Order removed that doubt. It follows that the Consent Costs Order should be read in the usual way as applying to Katanga's costs of the entire proceedings as between it and Bookarelli, including Katanga's costs of its Application seeking Freezing Orders.
7. Bookarelli's argument that the Consent Costs Order should be construed as implicitly incorporating the rule of thumb for recovery of costs against multiple defendants was, to say the least, elusive. It might be thought that if the parties to the Consent Orders intended to limit Bookarelli's liability to 50 per cent of Katanga's common costs, or for that matter to any other proportion of Katanga's costs, they would have said so. They did not.
8. Mr Jones submitted that it was necessary to imply a limitation of the kind he identified in order to avoid Bookarelli being subjected to a liability to pay an excessive or unfair share of Katanga's costs, having regard to the Solicitor's role as a defendant in the proceedings. But the Consent Costs Order, if given full force and effect according to its language, contemplated that the costs assessment process would make an appropriate allowance in Bookarelli's favour for the proportion of Katanga's costs attributable to its unsuccessful claim against the Solicitor. The Costs Assessor's determination, in substance confirmed by the Panel, did precisely that. Mr Jones accepted that he could not challenge in this Court the merits of the Costs Assessor's apportionment (which the Panel confirmed).
9. Mr Jones did not identify any surrounding circumstances that might support a contention that the Consent Costs Order, despite being clear on its face, should be read as subject to an unexpressed limitation denied from the rule of thumb. Nor did his submissions grapple with some other obvious difficulties.
10. The rule of thumb is no more than a guide that may be taken into account in cases where there are multiple defendants, some of whom are successful and some of whom are not. It is not a "rule" that applies in all cases and its application depends on the particular circumstances of each case. [19]
11. A further difficulty, not addressed by Mr Jones, is that the rule of thumb has its origins in the Chancery practice relating to the assessment of costs, where the same solicitor acted for all defendants. [20] In Currabubula, for example, all the authorities referred to by Einstein J involved cases where the same solicitor acted for all defendants. His Honour's statement of the rule confines it to such cases. In the present case, by contrast, Bookarelli and the Solicitor were separately represented in the District Court proceedings.
12. There are cases in which courts apply the general principle that costs orders, subject to the requirements of legislation and rules of Court, should attempt to do "substantial justice" between the parties. [21] That principle may lead a court to make what Campbell JA in Wardle described as "per-defendant orders" or other orders designed to avoid imposing an unfair burden on a particular defendant. But that general principle hardly provides a basis for construing the Consent Costs Order otherwise than in accordance with its plain terms.

Jurisdictional Error

1. It is not necessary to consider whether, if Bookarelli had established that the primary Judge committed errors of law, they were jurisdictional errors. It is enough to say that Bookarelli's submissions did not address the point.

Orders

1. Bookarelli's Amended Summons must be dismissed. Bookarelli must pay Katanga's costs.
2. As I have pointed out, the Amended Summons is, in effect, Bookarelli's third attempt to challenge the Costs Assessor's determination. One of the consequences of the High Court's decision in Kirk is that even if a privative clause purports to preclude an appeal or application for review of a decision of a tribunal or inferior court, the provision cannot prevent an application being made to the Supreme Court for judicial review on the ground of jurisdictional error. Thus a party dissatisfied with the decision of a tribunal or inferior court is entitled to apply to the Supreme Court for judicial review of the decision on the ground of jurisdictional error. [22] This is so even if the applicant has already taken advantage of more than one level of review or appeal from the original decision.
3. In the present case, the amount in issue in the costs dispute which underlies Bookarelli's application for judicial review is apparently less than $50,000. Had Bookarelli sought to appeal to the Supreme Court from a costs order made by the District Court involving a similar amount (or indeed a larger amount) leave to appeal would be required. [23] An application for leave to appeal would ordinarily be heard by a two-member Court and, if the application was found to be unmeritorious, it would be dismissed after a short hearing.
4. If applications for judicial review on the ground of jurisdictional error are plainly without merit, it may be appropriate for the Court to consider making an order for indemnity costs against the applicant, even in the absence of such an application by the respondent. Such an order might be thought particularly appropriate if the unmeritorious application concerns a small monetary amount and the applicant has already had the benefit of two levels of review or appeal in relation to the decision.
5. I propose that, subject to any application that may be made by Katanga, Bookarelli be directed within 14 days to file and serve written submissions as to whether in these circumstances it should be ordered to pay the costs of these proceedings on an indemnity basis.

Endnotes

1. Bookarelli Pty Ltd v Katanga Developments Pty Ltd (District Court (NSW), 27 July 2016, unrep). His Honour gave a judgment on the costs of the application on 29 July 2016. Orders were made on that date.
2. The LP Act was repealed as from 1 July 2015 by the Legal Profession Uniform Law Application Act 2014 (NSW) (Application Act), s 167(a). On the same day, the Legal Profession Uniform Law (NSW) came into force; Application Act s 4, applying the Legal Profession Uniform Law set out in Sch 1 to the Legal Profession Uniform Law Application Act 2014 (Vic) as a law of New South Wales. It is common ground that despite the repeal of the LP Act it continues to apply to the current proceedings: see Legal Profession Uniform Law Application Regulation 2015 (NSW), reg 59.
3. Section 176 provides that: "No adjudication on appeal of the District Court is to be removed by any order into the Supreme Court". Section 176 is in Part 4 of the District Court Act 1973 (NSW), which is headed "The Criminal Jurisdiction of the Court".
4. Kirk v Industrial Court of New South Wales (2010) 239 CLR 531; [2010] HCA 1 (Kirk).
5. See at footnote 13 below.
6. Katanga Developments Pty Limited v Bookarelli Pty Limited [2013] NSWDC 237.
7. [2013] NSWDC 237 at [62]-[63].
8. [2013] NSWDC 237 at [65].
9. A Panel had all the functions of a costs assessor and, subject to the LP Act, was to determine the application in the manner that a costs assessor would be required to determine an application for a costs assessment: LP Act s 375(2).
10. [2000] NSWSC 232.
11. [2000] NSWSC 232 at [90].
12. [2000] NSWSC 232 at [95]. This passage was cited with approval by Campbell JA in Wardle v Agricultural and Rural Finance Pty Ltd (No 2) [2012] NSWCA 388 at [46] (Barrett JA and Sackville AJA agreeing).
13. UCPR r 42.7 provides as follows: "(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including: (a) costs that are reserved, and (b) costs in respect of any such application or step in respect of which no order as to costs is made, are to be paid and otherwise dealt with in the same way as the general costs of the proceedings. (2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings."
14. [2012] NSWCA 388 at [46].
15. Rogers v Wentworth (Court of Appeal (NSW), 18 April 1988, unrep) at 18 (Hope JA, Samuels JA agreeing), cited by Campbell J in Kirkpatrick v Kotis (2004) 62 NSWLR 567; [2004] NSWSC 1265 at [39].
16. See YZ Finance Co Pty Ltd v Cummings (1964) 109 CLR 395; [1964] HCA 12 at 401-402 (Kitto J).
17. See Cranbrook School v Woollahra Municipal Council (2006) 66 NSWLR 379; [2006] NSWCA 155 at [43]-[44] (McColl JA, Beazley JA agreeing); [88] (Basten JA).
18. GE Dal Pont, Law of Costs, (3rd ed 2013, LexisNexis Butterworths) at [14.24].
19. See James v Royal Bank of Scotland (No 2) [2015] NSWSC 970 at [30]-[52], where McDougall J analyses the authorities. His Honour concludes that the rule of thumb is not a rigid rule and is generally only appropriate to "ordinary and straightforward cases".
20. James v Royal Bank of Scotland (No 2) at [30], referring to Re Colquhoun (1854) 5 De GM&G 35; 43 ER 781.
21. Chen v Chan (No 2) [2009] VSCA 233 at [10] per curiam.
22. See UCPR, r 51.45(1A), Pt 59. If no privative clause applies, the available grounds for judicial review are broader, pursuant to s 69 of the Supreme Court Act 1970 (NSW), and include an error of law on the face of the record.
23. District Court Act 1973 (NSW), s 127(2)(b), (c). 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: 05 April 2017