Bouras v Grandelis [2005] NSWCA 463 | Case summary

Bouras v Grandelis [2005] NSWCA 463 | Case summary | Zoe

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(c) The Court may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on an indemnity basis." 7 It is evident that s 148B and Pt 39A were intended to complement the change in the costs regime wrought by the amendments made to the LP Act by the Legal Profession Reform Act 1993. The scheme introduced by the new Pt 11 Div 6 of the LP Act commenced on 1 July 1994, the date on which s 148B commenced and from which Pt 39A applied. It did away with taxation of costs and provided instead for assessment of costs by costs assessors. By s 208F the assessment was essentially one of fair and reasonable costs, which by headings were equated with party/party costs (see the headings to s 202, to Subdiv 3 preceding s 208F and to s 208H) although that or a like phrase was not used in the substantive provisions. An assessment of fair and reasonable costs was distinguished from assessment on an indemnity basis. The power to order an assessment on an indemnity basis was specifically recognized in s 208F(3), and s 208I provided that the Division did not limit the power of a court or tribunal to determine that the amount of the costs was to be determined on an indemnity basis. That phrase was not defined or described. 8 Section 148B(1)(c) was expressed to be subject to the DC Act and the Rules and any other Act. Against the background of Milosevic v Government Insurance Office of New South Wales, however, I do not think the general discretion as to costs in s 148B(1)(a) and (b) expanded the available bases of assessment according to the scheme in the LP Act as reflected in Pt 39A rr 1 and 10. In my view, only the two alternatives were available: fair and reasonable costs in accordance with the LP Act provisions for assessment, or costs on an indemnity basis as described in Pt 39A r 13. Although Pt 19A r 9 had been in force from prior to 1 July 1994, its references to costs on a party and party basis and costs on an indemnity basis now took up those bases of assessment. 9 In 1996 the Rules were amended by the removal of Pt 19A r 9 and the addition in its place of Pt 39A r 25 (see Government Gazette, 18 October 1996, p 6982). The substance of r 25 was the same as the rule it replaced, with entitlement, subject to an order otherwise, to costs on a party and party basis to the date of the plaintiff's unaccepted offer and costs on an indemnity basis thereafter (r 25(4)) or entitlement to costs on a party and party basis split at the date of the defendant's unaccepted offer (r 25(6)). The former Pt 19A r 9(11) was not reproduced, no doubt because it was accommodated by Pt 39A r 13. The available bases of assessment remained the two alternatives of fair and reasonable costs under the LP Act scheme or costs on an indemnity basis as described in Pt 39A r 13. 10 Part 39A r 25 was then amended in 1997 in respect of offers made on or after 1 January 1998, to the form partly set out in the reasons of Santow JA (see Government Gazette, 26 September 1997, p 8208). Rule 25(4) no longer provided for costs on an indemnity basis from the date of the plaintiff's unaccepted offer, but for "costs in respect of the claim assessed on a solicitor and client basis". It was modified to apply only to an offer made twenty-eight days or more before the trial, and by a new r 25(4A) (not set out in the reasons of Santow JA) if the offer was made less than twenty-eight days before the hearing of the action commenced, the entitlement to costs was on a party and party basis until the date of the offer and on a solicitor and client basis thereafter. A new r 25(5) qualified this slightly when the offer was made during the trial. Rule 25(6) remained as a provision for split costs on a party and party basis where a defendant's offer was not bettered by the plaintiff. The circumstances of an order otherwise were tightened by requiring "an exceptional case and for the avoidance of substantial injustice". There was added as r 25(5A) (also not set out in the reasons of Santow JA) - "25(5A) An entitlement to costs on a solicitor and client basis under subr (4), (4A) or (5) does not include an entitlement to the amount of any surcharge on costs provided by a costs agreement, conditional or otherwise". 11 While Pt 39A r 25 no longer referred to indemnity costs, there was no change to Pt 39A r 10, nor was there provided a definition or description of costs on a solicitor and client basis. 12 So the question: what was meant by "assessed on a solicitor and client basis"? 13 Costs on a solicitor and client basis were plainly not the same as costs on a party and party basis, because if they were the same there would have been no costs consequences of a defendant's failure to accept a plaintiff's offer by the operation of r 25(4A). Where costs on a party and party basis were assessed as fair and reasonable costs under the LP Act scheme, assessment on a solicitor and client basis, as that phrase was used in Pt 39A r 25, was not an assessment of fair and reasonable costs under the LP Act scheme. That was supported by r 25(5A). It assumed that there might be an entitlement to the amount of costs provided by a costs agreement, although of course costs provided by a costs agreement might not pass the fair and reasonable test. 14 The question comes down, then, to whether costs on a solicitor and client basis were the previous indemnity costs given a different name, or whether they were a new (to the Rules) and different basis of assessment of costs. 15 In answering the question, it is material to have in mind the following matters. 16 First, costs on the indemnity basis described in Pt 39A r 13 did not (despite the name) provide an indemnity against costs payable by the receiving party. The receiving party may have incurred, under a costs agreement or by instructions to the solicitor requiring what would objectively be regarded as excessive servicing, costs beyond those which an assessor would consider reasonably incurred or reasonable in amount. Although the receiving party had the benefit of any doubt, it could receive less than full indemnity. 17 Secondly, and as the reasons of Santow JA show, there has been some confusion concerning costs on a solicitor and client basis. 18 Solicitor and client costs, meaning the costs payable by the client to the solicitor on an assessment between them, should be distinguished from costs on a solicitor and client basis, meaning the costs payable by one party to another on an assessment between them on that basis (see for example Saddington, Taxation of Costs Between Parties, pp 31-3; Milosevic v Government Insurance Office of New South Wales at 340-1 per Mahoney JA; re Public Trustee Act (2000) 1 Qd R 409 at [56] - [63]). Terminology varied, and the former costs have been called solicitor and own client costs, perhaps to mark the distinction (see Giles v Randall (1915) 1 KB 290 at 295; Oliver, Law of Costs, p 64). That phrase has been equated with an indemnity (Gibbs v Gibbs (1952) 1 All ER 942 at 949; re Public Trustee Act at [66]). 19 In Giles v Randall costs on a solicitor and client basis were described by Buckley LJ (at 295) as "substantially a party and party taxation on a more generous scale", although a lesser scale than solicitor and own client costs; see also Qantas Airways Ltd v Dillingham Corporation Ltd (Rogers J, 14 May 1987, unreported). In EMI Records Ltd v Ian Cameron Wallace Ltd (1983) 1 Ch 49 Megarry VC said (at 65) that orders for costs on an indemnity basis had been more or less equated with orders for costs as between solicitor and own client, and (at 71) regarded that as appropriate; his Lordship appears to have thought (at 64) that solicitor and client costs may well be the same as the common fund basis in the rules. 20 The descriptions of bases of costs in rules of court has complicated any general concept, as may have failure to bear in mind the distinction abovementioned. Costs as between solicitor and client have been regarded as providing an indemnity for reasonably incurred costs (see Saddington, p 66-7 and cases referred to), and the occasion for equation with indemnity costs which are described as under Pt 39A r 13, so as to provide indemnity qualified by reasonableness is obvious. That may explain the language used in cases such as Packer v Meagher (1984) 3 NSWLR 486, Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, Adams v Kennedy [2001] NSWCA 7, Lee v Kennedy [2001] NSWCA 8, Clark v Tasmania (No 2) (1999) Tas SC 130 and re Bond Corporation Holdings Ltd (1989) 1 WAR 465. But solicitor and (own) client costs are not the same as costs on a solicitor and client basis. 21 Thirdly, Practice Note 42, which was published in the Government Gazette on 26 September 1997 contemporaneously with the gazettal of the amendments to Pt 39A r 25, explained the change in phraseology in r 25; again for convenience, the immediately relevant passage in the Practice Note was - The 'indemnity costs' incentive to a plaintiff to make a reasonable offer of compromise has lost much of its efficacy since the 1994 reformation of the costs, regime. The Rule amendments substitute solicitor and client costs for indemnity costs, following the practice in most other States of Australia . Where the offer is made 28 days or more before the hearing the sanction is solicitor and client costs for the whole of the proceedings, not merely from the date of the offer. The surcharge payable by the plaintiff to his solicitor under a conditional costs agreement is not part of the sanction and is not recoverable from the defendant." (emphasis added) 22 It was stated in the Practice Note that it had been issued, and the amendments had been made, as a result of the Court's consideration of an investigation into the efficacy of the system of offers of compromise made under the auspices of the Centre for Legal Process ("the Centre"). The report of the Centre of May 1997 ("the report") is capable of assisting in the ascertainment of the meaning of Pt 39A r 25, which in my opinion is ambiguous or obscure (see Interpretation Act, 1987 s 34(1)). 23 In the report -

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(c) Proposal 6 was - "The sanction supporting a plaintiff's offer made 28 days or more before the hearing should be solicitor and client costs of the whole action, shorn of any percentage increase provided by a conditional costs agreement. The sanction for a plaintiff's offer made within 28 days of the hearing should be solicitor and client costs from the date of the offer only (again with no percentage increase) - Part 39A rule 25." 24 It is evident that the amendments to Pt 39A r 25 took up this proposal, and that the incentive was to lie in the combination of costs assessed on a solicitor and client basis and costs for the whole of the proceedings, in place of the combination of indemnity costs from the date of the plaintiff's offer. 25 While the report referred in para 4.22 to solicitor and client costs exceeding indemnity costs, no doubt having in mind indemnity costs as described in Pt 39A r 13 which did not in fact provide indemnity, it is not entirely clear whether the solicitor and client costs were costs payable by the client to the solicitor or costs payable by one party to another. I think it was probably the former, because of the excess over indemnity costs. Costs assessed on a solicitor and client basis in para 4.25 are plainly enough the same as solicitor and client costs in Proposal 6. There is reason to think that the report equated the two, that is, equated solicitor and (own) client costs with costs on a solicitor and client basis. 26 What was proposed as costs assessed on a solicitor and client basis could be illuminated by the reference in para 4.25 to "the approach taken in Victoria, Queensland, South Australia and Tasmania", which must have been the "practice in most other States of Australia" to which the Practice Note referred. It took up the report's summary of rules for offers of compromise in other States and Territories. 27 That summary included as rules providing for costs assessed on a solicitor and client basis for the whole of the proceedings -

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(d) the Tasmanian rules did not define or describe costs assessed on a solicitor and client basis; 29 It can not be said that the report adopted any particular definition or description of costs on a solicitor and client basis. It adopted the phrase "assessed on a solicitor and client basis", but what was proposed as those costs is not greatly illuminated. It is but a weak inference that the definition or description in the Victorian rule was in mind, and there is not dispelled the possibility that costs on a solicitor and client basis were equated with solicitor and (own) client costs. 30 In my opinion, the costs on a solicitor and client basis in Pt 39A r 25 were intended to be a new basis of costs, different from costs on an indemnity basis. 31 First, there was a deliberate change in r 25 from the phrase "assessed on an indemnity basis" to the phrase "assessed on a solicitor and client basis". Ordinarily that would indicate that the new basis for assessment was different from the old. 32 Secondly, Practice Note 42 made plain that the amendments were intended to increase the effectiveness of the system of offers of compromise, and in particular to increase the incentive to a plaintiff to make a reasonable offer of compromise. The incentive was increased by making the costs in r 25(4) the costs "in respect of the claim", that is, all costs rather than costs from the date of the offer, unless the offer was made less than twenty-eight days before the trial when the entitlement was only to costs from the date of the offer. The incentive was increased by tightening the circumstances of an order otherwise. Even without reference to the report, it appears to have been intended also to increase it by a basis of assessment of costs more beneficial to the receiving party than that in the phrase "assessed on an indemnity basis", the more beneficial basis being expressed by the phrase "assessed on a solicitor and client basis". Regard to the report supports this. 33 Thirdly, regard to the report also supports the view that costs on a solicitor and client basis were the costs according to that concept, whatever it may have been, as found in the Victorian, Queensland, South Australian and Tasmanian rules. It was not a concept of indemnity costs, which the rules did not use. 34 Fourthly, and not of great weight, Pt 39A r 25(5A) provides some support for costs on a solicitor and client basis as a basis more beneficial to the receiving party than indemnity costs as described in Pt 39A r 13; because the costs provided by a costs agreement may not pass the not unreasonable amount or not unreasonably incurred test, even with the benefit of the doubt. 35 There are considerations to the contrary. Section 161(6) of the DC Act provided that the section did not give power to make rules "with respect to any matter relating to costs that is regulated by Pt 11 of the Legal Profession Act 1987". The LP Act recognised the two alternatives of fair and reasonable costs (I use this as shorthand for the more detailed provisions) and costs on an indemnity basis. Pt 39A r 10 provided for costs on a party and party basis, to be given content as the fair and reasonable costs, or on an indemnity basis. While s 208F(1A) provided for assessment in accordance with the operation of the rules of the court or tribunal making the order, it is not clear that this enabled the District Court to provide by rule for a different basis of assessment of costs. It may be thought unlikely, against the background of Milosevic v Government Insurance Office of New South Wales, that the rule-making power was exercised to do so. And, if s 208F (1A) allowed the Rules to provide a new basis for assessment of costs, it may be thought that amendment to r 10 and a definition or description of costs on a solicitor and client basis would have accompanied the 1997 amendments to Pt 39A r 25. 36 These considerations ultimately lead to a challenge to the validity of r 25 so far as it provided for assessment on a solicitor and client basis, and a challenge to validity was no part of the proposed appeal. Short of that, I do not think they prevail in the face of the reasons for concluding that a basis of assessment other than the two alternatives was intended. 37 I therefore conclude that assessment on a solicitor and client basis in Pt 39A r 25 did not mean assessment of fair and reasonable costs under the LP Act scheme or indemnity costs as described in r 13. Penrith City Council v Parks (No 2) [2004] NSWCA 381 also regarded costs on a solicitor and client basis as different from indemnity costs, and it was noted (at [14]) that it was not argued that the LP Act scheme precluded an order for costs on a solicitor and client basis. 38 The appeal to the Master was relevantly on the ground that the costs should have been assessed on an indemnity basis as described in Pt 39A r 13. The Master correctly did not accept that contention, and the Panel did not err in law in failing to adopt that basis of assessment. 39 The Panel determined $70,204.33 as "a fair and reasonable amount of costs to be paid … ". In its reasons stating "[t]he basis on which costs were assessed", it said - "(i) On 7 February 2003 costs were awarded in favour of the Review Applicant against the Review Respondent on a solicitor and own client basis in respect to the proceedings.

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Dismiss the appeal with costs. 43 SANTOW JA: INTRODUCTION These proceedings pose a question of principle of some practical importance in the assessment of costs. When the District Court makes an order for costs expressly on a "solicitor client basis" (here pursuant to Pt 39A r25 District Court Rules ("DCR")) should the more generous indemnity basis in Pt 39A r13 DCR be nonetheless applied in a subsequent assessment of those costs? In the present case, both Cost Assessor and Review Panel declined to assess costs on an indemnity basis pursuant to Pt 39A r13. Instead the Panel looked to the provisions governing assessment of costs in the Legal Profession Act 1987 ("the Act"), and in particular s208A and s208B. This was with the result that both Cost Assessor and Panel reduced the costs claimed substantially, the Panel referring to costs " awarded on a solicitor and own client basis ". 44 Under the relevant District Court Rules, Pt 39A r25(4) provides for the plaintiff to have its claim for costs assessed on a "solicitor and client basis" following an offer of compromise that is later bettered in litigation. However, the difficulty which emerged in this case, is that the relevant provisions of the Act make no express provision for the assessment of costs on a solicitor/client basis; see ss208A, 208B and 208F of the Act, quoted later. Section 208F(1A) of the Act directs an assessor to make an assessment in accordance with the rules of the relevant court, here the District Court and therefore the District Court Rules. But the phrase "solicitor and client basis" is nowhere defined in the DCR. 45 The criterion under the Act for the costs assessor to consider is "the fairness and reasonableness of the amount of costs in relation to that work" (s208A(1)(c). "That work" relates back to s208A(1)(a) and (b), which require the costs assessor to consider (a) whether or not it was "reasonable" to carry out the work to which the costs related, (b) whether or not the work was carried out "in a reasonable manner". 46 Moreover s208F(3) provides that if a court or tribunal has ordered costs to be assessed on "an indemnity basis", the costs assessor must assess the costs on that basis. There is however no precisely equivalent provision in relation to ordinary costs on a solicitor/client basis. 47 In the present case, the claimant Ms Lily Bouras, seeks leave to appeal against the decision of Master Malpass, now Malpass AsJ, dismissing the claimant's appeal against the decision of the Review Panel of Costs Assessors under the Act. The claimant contends (a) that the assessment must necessarily have been on an equivalent basis to party/party costs under ss208A and 208B and (b) that in so doing, Malpass AsJ erred in holding that there had been no error of law by the Review Panel of Costs Assessors or the original cost assessor in carrying out the assessment in that way. 48 In particular, the claimant contends that Malpass AsJ was in error in holding that when the District Court makes an order for costs on a solicitor and client basis pursuant to Pt 39A r25 DCR, (a) section 208F(3) of the Act dealing with the assessment of costs on an indemnity basis, has no application to the assessment of those costs, (b) with the consequence that the test in Pt 39A r13 for what costs are recoverable on an indemnity basis has no application to the assessment of those costs. 49 The claimant contends to the contrary that costs should have been assessed on an indemnity basis. 50 The claimant also contends that Malpass AsJ erred in exercising his discretion pursuant to s208L of the Act, which deals with appeals against a decision of a costs assessor as to a matter of law. The error is said to consist in dismissing the proceedings before him by taking into account an irrelevant matter and failing to take account of a relevant matter, namely, (a) finding that any increase in the amount assessed would not justify the further expenses of another review; and (b) ignoring evidence to suggest that the difference in applying the correct test would produce a significant difference in assessed costs. 51 The opponent, Antonia Elizabeth Grandelis contends that authority supports the conclusion that the two tests, that for solicitor/client and that for indemnity costs, are not identical. The opponent contends that in any event it has not been established or explained how the application of the test pressed by the claimant would produce a materially different result, and otherwise supports the reasoning of Malpass AsJ.

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SALIENT FACTS 52 The claimant sued the opponent in the District Court in respect of personal injuries sustained by the claimant in April 1998. Judgment in that case was dated 7 February 2003 so that was the date for ascertaining the relevant law. 53 The claimant was successful against the opponent and was awarded $181,399.15. 54 This judgment was more favourable than an offer of compromise made by the claimant. The District Court ordered the opponent to pay the claimant's costs on a solicitor and client basis, pursuant to Pt 39A r25 DCR. 55 The claimant applied for her costs, claimed at around $149,000, to be assessed. The claimant contended, and the opponent then agreed, that costs should be assessed in accordance with the test in Pt 39A r13 DCR (indemnity basis), pursuant to s208F(3) of the Act. 56 On 10 March 2004, a costs assessor issued a Certificate as to Determination of Costs. The determination saw a reduction in the amount claimed by the claimant. Costs were allowed only in the sum of $73,015.10. 57 The costs assessor did not assess costs in accordance with the indemnity basis in Pt 39A r13. 58 On 6 April 2004, the claimant applied for the assessment to be reviewed by a Review Panel. 59 The Panel approached the task on the basis that Pt 39A r13 of the Rules had no application. The panel looked to the provisions of ss208A and 208B of the Act. The panel referred to costs "awarded on a solicitor and own client basis". 60 On 24 August 2004, the Review Panel issued a Certificate as to Determination. The panel further reduced the costs (by some $3,000) and substituted the sum of $70,204.33 as the amount to be allowed. 61 On 29 September 2004, the Claimant appealed to the Supreme Court from the decision of the Review Panel pursuant to s208L of the Act (which provides for appeals on errors of law). This was on the ground (inter alia) that the Review Panel erred in law in assessing costs by determining whether those costs were fair and reasonable pursuant to s208A and/or s208F(1) and (2) of the Act when it should have assessed costs in accordance with the test in Pt 39A r13 DCR, pursuant to s208F(3) of the Act, that is to say on an indemnity basis.

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DISPOSITION The Issues 71 There are two principal issues on appeal: (1) When the District Court makes an order for costs on a solicitor and client basis pursuant to Pt 39A r25 DCR, does s208F(3) of the Act apply to the assessment of those costs, enlivening the test in Pt 39A r13 DCR and so mandating assessment on an indemnity basis? This requires two preliminary issues to be resolved, namely: (a) What is the relationship between the DCR and the Act; in particular do provisions of the Act to the extent of any inconsistency prevail over the DCR? and (b) If the Act does not so prevail over the DCR, and costs are therefore to be assessed on a solicitor and client basis pursuant to Pt 39A r25(4) DCR, what does "assessed on a solicitor and client basis" mean; in particular is the meaning the same as the meaning of "indemnity basis" as used in Pt 39A r13 DCR? (2) Did the primary judge err in the exercise of his discretion pursuant to s208L of the Act so as to call for appellate intervention in what is a discretionary judgment on a matter of practice and procedure by: (a) taking into account an irrelevant matter (that any increase in the amount assessed would not justify the further expenses of another review), and (b) failing to take into account a relevant matter (that there was evidence suggesting that applying the correct test would produce a significant difference in assessed costs)? 72 As Underwood J commented in Burnie Port Corp Pty Ltd v Bank of Western Australia Ltd [2003] TASSC 132 at [17], the distinction between solicitor and client costs and indemnity costs is a "rather murky issue". The relevant legislation provides very little guidance and the courts have rarely had to tackle the issue directly. 73 Put simply, the claimant's argument has these steps. First, that an order for solicitor and client costs is effectively the same as an order for indemnity costs. Second, that the Costs Assessor and the Review Panel incorrectly applied the "fair and reasonable" test in s208F(2) of the Act, and should instead have applied s208F(3). This would have directed the assessment back to Pt 39A r13 DCR. Rule 13 provides for costs ordered on an indemnity basis, and effectively allows, in shorthand form, "all costs except unreasonable costs". 74 On the other hand, the opponent essentially argues in these steps. First, that the primary judge correctly held that solicitor and client costs are not identical to indemnity costs. Second, that the Costs Assessor and Review Panel acted correctly in applying the "fair and reasonable" test in s208F(2) of the Act. Then it is submitted that there is a distinction between these two bases for costs (solicitor and client versus indemnity costs) clearly contemplated by the legislature, even if it is somewhat difficult to identify with precision. 75 In the alternative, the opponent argues that even if the assessors applied the wrong test, the claimant has failed to demonstrate how application of the test for solicitor and client costs contended for by the claimant would achieve a different result from the "fair and reasonable" test adopted by the assessors and that an appellate court should not interfere with the discretionary judgment reached. The opponent argued this second issue with particular emphasis, without abandoning the first.

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The First Issue Legislative History 76 The term "solicitor and client" costs is nowhere defined in the DCR, and is not used in the Act. 77 The Legal Profession Act 1987 commenced on 1 January 1988. The Legal Profession Reform Act 1993 commenced on 1 July 1994 and completely overhauled the existing provisions for costs assessment. Part 11 Division 5 of the Act, which had provided for a scheme of taxation of bills of costs, was replaced by Part 11 Division 6 Subdivision 3, which contains the provisions (including s208F) which are the subject of the present appeal. S208F was subsequently amended, and subs(1A) inserted, by the Legal Profession Amendment Act 1996, which commenced on 1 April 1997. None of these amendments relating to costs assessment appears to have been the subject of any specific discussion or explanation in Parliament at the time of its introduction. 78 Part 39A r25 was introduced into the District Court Rules 1973 from 18 October 1996. It was amended as from 1 January 1998 to provide in subr(4) and (4A) for the sanction of solicitor and client costs for the whole of proceedings, rather than the sanction of indemnity costs from the date of the unaccepted offer; see Penrith City Council v Parks (No 2) (supra) at [14]. The explanatory note to the amendments states that their purpose was "to make effective the existing rules by encouraging the making and acceptance of reasonable offers of compromise in proceedings". 79 Practice Note 42 states that the 1998 rule amendments followed the practice in most other States of Australia by substituting solicitor and client costs for indemnity costs. However, these amendments appear to have caused the DCR to fall out of step with the Legal Profession Act, which as from 1 July 1994 provides for only two types of costs orders: party/party (the test being whether the costs are "fair and reasonable") and indemnity costs; see s208F. This raises the question of whether the Act or Pt 39A r25 DCR prevails. I will discuss this below, though the question is largely pre-empted by s161(6) of the District Court Act 1973 (NSW) which provides that "[T]his section does not give power to make rules with respect to any matter relating to costs that is regulated by Part 11 of the Legal Profession Act 1987", I should also mention s161(7) concerning Practice Notes as follows: (7) A practice note (including any other document, however described, which regulates the practice or procedure of the Court, or of any class of proceedings in the Court, but excluding a decision of the Court) issued by or on behalf of the Court is taken to be a statutory rule for the purposes of Part 6 of the Interpretation Act 1987. This subsection does not apply to a practice note issued before the commencement of this subsection.

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Practice Note 42 80 The relevant passage in Practice Note 42 reads, in full: "The 'indemnity costs' incentive to a plaintiff to make a reasonable offer of compromise has lost much of its efficacy since the 1994 reformation of the costs regimen. The [1998] Rule amendments substitute solicitor and client costs for indemnity costs, following the practice in most other States of Australia. Where the offer is made 28 days or more before the hearing the sanction is solicitor and client costs for the whole of the proceedings, not merely from the date of the offer. The surcharge payable by the plaintiff to his solicitor under a conditional costs agreement is not part of the sanction and is not recoverable form the defendant." 81 The claimant contends that this practice note is to be interpreted as meaning that solicitor and client costs and indemnity costs are the same, except that solicitor and client costs do not include the surcharge mentioned in the last sentence of the note. 82 The Court of Appeal in Penrith City Council v Parks (No 2) briefly considered this practice note at [14]. The Court commented that the amendments to the DCR which commenced in January 1998 (and to which the practice note refers) constituted "a deliberate change in the incentive to make reasonable offers of compromise… Solicitor and client costs were distinguished from costs on a party and party basis, see Pt 39A r25(5) and (6), with solicitor and client costs expressly not to include the amount of any surcharge on costs provided by a costs agreement (Pt 39A r5A)" 83 This suggests that the exclusion of the surcharge from solicitor and client costs distinguishes solicitor and client costs from party/party costs, rather than distinguishing solicitor and client costs from indemnity costs, and sheds no further light on the distinction between solicitor and client costs and indemnity costs. 84 It is uncertain whether the Practice Note is intending to say that the reason the "'indemnity costs' incentive" has lost much of its efficacy since 1994 is due to the statutory reformation of the costs regimen which took place in 1994, as the first sentence of the note suggests, or due to the rule amendments, which did not take effect until 1998. If it is due to the 1994 reformation of the costs regimen, then nothing more is said about the changes introduced by this reformation. If it is due to the 1998 rule amendments, which the note goes on to discuss, then a further uncertainty arises. That is, it is uncertain whether the reason the "'indemnity costs' incentive" has lost much of its efficacy is because indemnity costs have been replaced in the DCR by (less generous) solicitor and client costs, or merely because recovery of the surcharge has been excluded, the rest of the assessment remaining the same. 85 In particular, the sentence "the Rule amendments substitute solicitor and client costs for indemnity costs, following the practice in most other States of Australia" is ambiguous. On the one hand, it could be interpreted to mean that the term "solicitor and client costs" has replaced the term "indemnity costs", in keeping with the practice in other States; the implication is that the two terms are effectively different names for the same type of costs order. On the other hand, it could be interpreted as meaning that the concept of solicitor and client costs replaced the concept of indemnity costs, the implication being that the two types of costs are substantively different. I return to the latter proposition below.

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The relationship between the Act and the District Court Rules 86 S208F(1A) of the Act states that "an assessment must be made in accordance with the operation of the rules of the relevant court or tribunal that made the order for costs". Subsection (1A) was inserted in 1996, as noted above, but Hansard and other sources are silent on the reasons for its introduction. At first glance, this subsection would appear to direct the assessor back to the DCR, specifically in this case to Pt 39A r25, and thus to raise afresh the question of what "solicitor and client costs" means. If it does direct one back to the DCR, this could only be on the basis that s208F(1A) of Pt 11 of the Act is thereby disavowing any intent itself to regulate that which the Rules purport to regulate concerning assessment of costs. 87 I would reject that conclusion for the reasons which follow. I conclude that subs(1A) means that the assessment of costs on a fair and reasonable basis as outlined in subs(1) can find its detailed content in the rules of the relevant court or tribunal but only to the extent that the outcome is recognisably fair and reasonable. In other words, the Rules could not deem an outcome to be fair and reasonable if it were clearly not. Rather the Rules provide a more detailed exegesis of what is fair and reasonable. As I later explain in light of the case law, the DCR insofar as they deal with solicitor and client costs do not presently produce an outcome that would fall outside the Act's notion of what is fair and reasonable. An expression like "fair and reasonable" leaves room for discretionary judicial choice though not unconstrained, in employing terms like "fair" and "reasonable" which the late Julius Stone called legal categories of indeterminate reference. The defining characteristic of such a category is that "it does not usually lead compellingly to any one decision in a concrete case, but rather allows a wide range for variable judgment in interpretation and application, approaching compulsion only at the limits of the range". Julius Stone, "Legal System and Lawyers' Reasonings" (Sydney, Maitland Publications Pty Limited, 1964) at 264. Limits of the range here, would be a cost outcome self-evidently not fair and reasonable. 88 There are several indications that Parliament intended that the Act prevail over the DCR, where the latter would be inconsistent with the Act. First, Pt 39A r1 sub-r2 states that "[t]he application of this Part is subject to the Legal Profession Act 1987 and the regulations made under that Act". Second, the Act, as amended by the Legal Profession Reform Act 1993, performs the lion's share of costs assessment regulation within the legislative regime of which the various courts rules also form a part. As noted above, the Act appears to provide for only two types of costs orders, party/party and indemnity. Third, s35 Interpretation Act 1987 provides that certain headings shall be taken to be part of the Act. Part 11 Division 6 Subdivision 3 of the Act is headed "Assessment of party/party costs". This heading reinforces the interpretation that the Act allows for only two types of costs orders: party/party costs in the usual circumstance, and indemnity costs as an exception provided for by s208F(3). The Butterworths' loose-leaf guide to Legal Costs New South Wales states unambiguously that "[f]rom 1 July 1994 there is no jurisdiction in NSW for judges to award costs on a solicitor and client basis. Costs ordered by a court or tribunal can only be on either a party-party or indemnity basis: s208F of the Legal Profession Act 1987"; see also Penrith City Council v Parks (No 2) at [13]. Then there is s161(6) of the District Court Act 1973 quoted earlier, which leaves little room for the Legal Profession Act to operate as a self-denying ordinance. 89 Ultimately, whether the Act prevails over the DCR does not resolve the issue. If the Act prevails over the DCR, there are only two types of costs orders that may be awarded, indemnity and party/party. But we have inescapably in the present case an actual order for costs on a solicitor and client basis. It must still be determined whether solicitor and client costs are to be assessed according to, or so as more closely to resemble, a "fair and reasonable" test as set out in s208F(2), or an indemnity basis as set out in s208F(3) and Pt 39A r13 DCR. 90 If the Act does not prevail over the DCR, on the basis of s208F(1A) or otherwise, and the costs assessor is to have regard to Pt 39A r25 and assess costs on a "solicitor and client basis", then we are returned to the basic question. That question is what "assessed on a solicitor and client basis" means and whether its meaning is the same as the meaning of "indemnity basis". 91 The legislative regime in New South Wales being of only limited assistance, I shall endeavour to elucidate the meaning of solicitor and client costs by analysing the case law which considers the issue and the equivalent costs provisions in other jurisdictions.

[71]

A "rather murky issue": Common law 92 It was agreed that the expressions solicitor and client costs, solicitor-client costs and solicitor/client costs all have the same meaning. It was also agreed that solicitor and client costs are distinct from solicitor and own client costs, the latter being more generous, although the expressions are sometimes incorrectly used interchangeably. 93 Indeed, in the present case, the costs assessor and Review Panel referred to the solicitor and own client basis when making their assessment, even though they proceeded to assess costs according to the fair and reasonable test in s208F of the Act. (Nothing turns on this mistake in the present appeal.) It was further agreed that solicitor and client costs are different from party/party costs, in that the former are more generous, although how much more generous is not wholly clear. When costs are assessed on a party/party basis, there are usually allowed all costs as are necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being assessed. However, I believe s208F of the Act throws even this second proposition (the distinction between party/party costs and solicitor and client costs) into doubt and will discuss this below. 94 On the issue of the distinction between solicitor and client costs and indemnity costs, however, the case law is inconsistent. The claimant cited several cases in which solicitor and client costs and indemnity costs have been treated as identical: see Adams v Kennedy (supra); Lee v Kennedy (supra); Clark v Tasmania (No 2) (supra); Re Bond Corporation Holdings Ltd (1989) 1 WAR 465. However, in none of these cases was the meaning of the two terms at issue. Orders were simply made on the assumption that the terms were interchangeable. On the other hand, the weight of authority arising from cases which have examined the meaning of solicitor and client costs in some detail is that solicitor and client costs are distinct from indemnity costs, or at least have historically been distinct, even if more recent legislative developments may have eroded the distinction. 95 In Qantas Airways Ltd v Dillingham Corporation Ltd, (supra) Rogers J discussed the evolution of the solicitor and client basis for costs assessment. He attributed its development to the "yawning gap" which had arisen between costs recoverable by a successful party from the other party on a party/party basis and the costs payable by the successful party to its own legal representatives. He continued: "In an effort to provide more complete indemnity for costs to a successful party in appropriate cases, particularly in matters of equitable jurisdiction, a costs order on a solicitor and client basis was evolved. The original approach on this scale of taxation was to allow "as many of the charges which he would have been compelled to pay his own solicitor for costs of action as fair justice to the other party will permit" (Daniel's Chancery Practice, 7th ed, p 1009, quoted with approval by A'Beckett J in Smith v Smith [1906] VLR 78 at 80). However, one of the Registrars who was kind enough to assist the parties in this case and myself in exploring the mysteries of taxation of costs said of taxation on this basis:

[74]

From time to time, in unusual circumstances, judges order costs to be paid on a solicitor and client basis believing that they are providing a near enough to full indemnity for costs. Thus, in Packer v Meagher [1984] 3 NSWLR 486, Hunt J made such an order against the plaintiff. For the reasons stated by the Registrar before me the order may not have met His Honour's evident intentions. I am not sure whether His Honour may have intended the costs to be as between solicitor and own client, a different scale of costs." [emphasis added] 96 In EMI Records Ltd v Ian Cameron Wallace Ltd & Anor [1982] 2 All ER 980, Megarry VC held that, unless otherwise provided, an order for costs on an indemnity basis took effect as an order for costs on the "solicitor and own client" basis. An order for costs on the solicitor and own client basis would allow all costs except insofar as they are of an unreasonable amount or have been unreasonably incurred. However, as for solicitor and client costs, he concluded (at 991) that "although the effect of such an order is not clear, it may well be the same as that of an order on the common fund basis…". He had earlier defined the common fund basis as follows (at 983): "In place of 'necessary or proper', what is to be allowed is 'a reasonable amount in respect of all costs reasonably incurred' . On such a taxation 'the ordinary rules applicable on a taxation as between solicitor and client where the costs are to be paid out of a common fund' are to be applied, even if in fact the costs will not be paid out of any common fund. The common fund basis seems to have been intended to replace the old 'solicitor and client' basis (in one of the four meanings of the phrase 'solicitor and client': see Gibbs v Gibbs [1952] 1 All ER 942 at 949, [1952] P 332 at 347), though in doing so it not very happily uses the very phrase itself. In the end, the practical result seems to be that taxation on the common fund basis is little more than a party and party taxation conducted 'on a more generous scale' : see Giles v Randall [1915] 1 KB 290 at 295, [1914-15] All ER Rep 285 at 286, per Buckley LJ. It is sometimes said that on average a common fund taxation produces a figure some 5 to 10% higher than a party and party taxation; and that may be so." [emphasis added] 97 Thus both Qantas and EMI Records treat an order for solicitor and client costs as allowing "reasonable" costs on a somewhat more generous scale than an order for party/party costs would allow. However, the test for party/party costs upon which the distinction between party/party costs and solicitor and client costs in these two cases was based was "all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being [assessed]"; EMI Records Ltd v Ian Cameron Wallace Ltd & Anor [1982] 2 All ER 980 at 983. 98 In Penrith City Council v Parks (No 2), the court examined Pt 11 Div 5B of the Act (ss198C-I). It caps costs in personal injury claims at $10,000 (in matters where the verdict does not exceed $100,000), except where costs are awarded on an indemnity basis in respect of legal services provided after an offer of compromise was made; see s198F. The court held that an order for solicitor and client costs under Pt39A r25 DCR was not inconsistent with Pt 11 Div 5B, in that a judge was not prevented from awarding costs on a solicitor and client basis by the provisions, although the costs awarded on that basis could not exceed the ceiling. The court thus distinguished between solicitor and client costs and indemnity costs; only the latter could exceed the $10,000 ceiling. 99 The claimant submitted, first, that Penrith was authority only for the construction of Part 11 Div 5B. Second, it was not inconsistent with the decision in Penrith that, for purposes other than the capping of personal injury costs, the tests for solicitor and client costs and for indemnity costs are the same. Penrith may be distinguishable on this basis, but is nonetheless an example of the courts making some distinction between solicitor and client costs and indemnity costs. 100 I pause here to consider the relevant legislation in other jurisdictions in Australia and further case law that pertains more directly to specific legislative provisions.

[87]

Western Australia 109 The Rules of the Supreme Court 1971 (WA) provide for indemnity costs where a party betters an offer of compromise in litigation (rule 24A.10). However, indemnity costs are not defined in the WA legislation (and it does not refer to solicitor and client costs). The Butterworths loose-leaf guide to Civil Procedure in Western Australian cites as authority for defining the meaning of indemnity basis a decision of Ipp J in Re Bond Corporation Holdings Ltd (supra) at 479: "In my view, an abuse of process having been established in the circumstances outlined, justice requires the award of solicitor and client, or, rather, "indemnity" costs. I propose to adopt the form of words used by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants & Ors (1988) 81 ALR 397 at [401]], that is, the SGIC [defendant] should be ordered to pay all the costs incurred by BCH [plaintiff] except in so far as they are of an unreasonable amount or have been unreasonably incurred, so that, subject to the above exceptions, BCH be completely indemnified by the SGIC for its costs." 110 The appellant submitted that Ipp J's decision in that case should be interpreted as treating solicitor and client costs and indemnity costs as having the same meaning, that being effectively "all costs except unreasonable costs". However, it is clear that Ipp J was in fact following the decision of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants & Ors (1988) 81 ALR 397 to the effect that due to the uncertainty surrounding the two expressions, the costs assessor is dependent upon the terms of the order to define the extent of the indemnity (that is, the meaning of the order). In order to avoid confusion, Woodward J (and Ipp J in Re Bond Corporation) therefore both preferred to stipulate precisely that they intended their orders to be interpreted as orders for all costs except unreasonable costs, rather than simply using either the expression "solicitor and client costs" or "indemnity costs", the ambiguity of which they acknowledged. These cases constitute an acknowledgement of the confusion surrounding these terms, rather than definitive decisions as to their meaning; see also Burnie Port Corp Pty Ltd v Bank of WA (supra) at [16]. 111 In the Victorian case of Thomas & Anor v Southcorp Australia Pty Ltd & Anor (No 2) [2004] VSC 50, Balmford J [at 17-18] also followed Fountain Selected Meats but explicitly equated indemnity costs and solicitor and client costs: "In Spencer v Dowling (1997) 2 VR 127 Callaway JA considered the use of the expressions "solicitor and client costs" and "indemnity costs" which appear sometimes to be used indiscriminately in the cases. His Honour said: 'Solicitor and client costs are themselves of different kinds. … Sometimes they are taken to afford less than a complete indemnity, but on other occasions their purpose is to do what the court can to ensure that a party is not out of pocket. … It was for that reason that Woodward J, in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401-2, decided that costs should be paid on a solicitor and client basis but adopted the language of indemnity in the actual order he made to provide greater certainty.' It is clear that the same principles are applicable to the exercise of the discretion to award indemnity costs as to the exercise of the discretion to award solicitor and client costs per se, and it is not necessary to distinguish between the two in consideration of the relevant authorities. The issue remains in the discretion of the judge." 112 However, Winneke P also made findings on the meaning of solicitor and client costs, with which Callaway JA largely agreed. Relevantly, Winneke P said at 147: "Nor, in my view, does the complainant's contention [that the legislative provision in question meant that, absent special circumstances, costs must be awarded on an indemnity basis] derive any support from the use of the words "costs reasonably incurred". Those words are apt to describe costs on a party and party basis, as much as they are to describe costs on a solicitor/client basis, because such costs have always been regarded as the costs which are reasonably incurred in the attainment of justice between the parties." 113 To quote Callaway JA more fully, he said: "In Milosevic v Government Insurance Office of New South Wales (1993) 31 NSWLR 323 at 333 Kirby P. referred with approval to a passage in Saddington, Taxation of Costs between Parties , (1919), in which party and party costs were defined as "the expense which has been reasonably and properly incurred and not the expense which has been actually incurred". His Honour also referred to Oliver, Law of Costs , (1960), p1, where it was said that a taxation as between solicitor and client is substantially a party and party taxation on a more generous scale…

[91]

Reasonable or Not Unreasonable costs - a question of onus? 117 It is clear that the NSW, Victorian and South Australian legislation distinguishes between costs reasonably incurred and costs not unreasonably incurred. An order for solicitor and client costs in these states entitles a party to "all costs reasonably incurred" whereas an order for indemnity costs entitles a party to all costs except unreasonable costs. This may be a fine distinction but it is a potentially significant one. Indeed, the appellant spent considerable time arguing that there is a difference between reasonable costs and not unreasonable costs, an argument premised on the fact that the test for indemnity costs (all costs except unreasonable costs) and the test in s208F(1) and (2) (fair and reasonable costs) are different tests. This is quite true, but the appellant's argument depends on assuming what the appellant is required to prove, namely, that solicitor and client costs are the same as indemnity costs, an assumption that the weight of authority does not bear out. 118 Elaborating on the distinction between reasonable and not unreasonable costs in EMI Records Ltd v Ian Cameron Wallace Ltd & Anor [1982] 2 All ER 980 at 989, Megarry VC went to the heart of the matter when he said it is "a question of who gets the benefit of any doubt in the mind of the taxing master": "To say that on a taxation 'all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred' seems to me to be giving the litigant a complete indemnity, shorn only of anything that is seen to be unreasonable. The litigant does not have to establish that the costs were necessary or proper, or that the costs were of a reasonable amount and reasonably incurred. Provided they are costs of and incidental to the proceedings, he is entitled to recover them, subject only to the qualification that they are liable to be reduced in respect of anything that the taxing master considers to fall within the headings 'unreasonable amount' or 'unreasonably incurred'. In a word, the difference is between including only the reasonable and including everything except the unreasonable. In any taxation there must be many items or amounts that are plainly allowable, and many others which are plainly not allowable. In between, there must also be many items or amounts which do not fall clearly within either extreme. On a party and party taxation, or on a taxation on the common fund basis [which he equates to taxation on a solicitor and client basis at 983, 991], many such items may fail to be allowed; on a taxation on an indemnity basis, they will all be included. …[I]t is … a question of who gets the benefit of any doubt in the mind of the taxing master . On a party and party taxation, nothing will be included unless the taxing master reaches the conclusion that it satisfies the requirement of 'necessary or proper'. Similarly, where the taxation is on the common fund basis, the taxing master will include nothing unless he considers that it satisfies the requirement of 'a reasonable amount in respect of all costs reasonably incurred'. On neither basis do the rules give the benefit of any doubt to the party in whose favour the order has been made. Nothing is included unless it satisfies the words of inclusion. The indemnity basis, as I would construe it, is the other way round. Everything is included unless it is driven out by the words of exclusion, namely, 'except in so far as they are of an unreasonable amount or have been unreasonably incurred'." [emphasis added] 119 As Bryson J pointed out in Kumagai (supra), the distinction contemplated by the NSW, Victorian and South Australian Supreme Court Rules is essentially one of onus. Where there is an order for solicitor and client costs, the onus is on the receiving party to show that the costs have been reasonably incurred. Where there is an order for indemnity costs, the onus is on the paying party to show the costs have been unreasonably incurred; see also Alpine Shire Council v MHSC Transportation Services Pty Ltd (No 2) [2002] VSC 58. I note, however, that Megarry VC rejected this approach in EMI Records at 989: "I do not think that it would be right to express this difference in terms of the burden of proof being shifted from the winner to the loser, though no doubt in many matters much of the argument during the taxation will proceed on these lines."

[93]

Party/party costs to be assessed on a "fair and reasonable" basis 121 As noted above, Part 11 Division 6 Subdivision 3 of the Act now bears the heading, since the 1994 reforms, of "Assessment of party/party costs". It is clear that the test now to be applied to party/party costs is the "fair and reasonable" test in s208F rather than the "necessary or proper" test in Qantas and EMI Records. The test for party/party costs thus appears to have become very similar to the test for solicitor and client costs, as established in Qantas and EMI Records. I see this as having three possible alternative consequences, of which I prefer the first. 122 The first possible consequence is that the test for solicitor and client costs is effectively the same as the test for party/party costs as amended in 1994, that is, a "fair and reasonable" test. The costs assessors therefore applied the right test when they applied s208F(1) and (2) to the costs claim. However, in construing the meaning of solicitor and client costs, it must be kept in mind that if the test for solicitor and client costs were effectively the same as the test for party/party costs, this would have the effect of reducing the incentive for making offers of compromise under Pt39A r25 DCR. On the other hand, perhaps Practice Note 42 is referring to this (possible) conflation of party/party and solicitor and client costs when it says that "the 'indemnity costs' incentive to a plaintiff to make a reasonable offer of compromise has lost much of its efficacy since the 1994 reformation of the costs regimen." 123 The second possible consequence is that a distinction remains between the "fair and reasonable" test for party/party costs under s208F and the common law "reasonable costs" test for solicitor and client costs. That is, the inclusion of the term "fair" constitutes a significant difference between the party/party test and the solicitor and client test. However, this is unlikely, since the common law test for solicitor and client costs as established in Smith (and discussed in Qantas) is also one of "fair justice"; see also Spencer v Dowling per Winneke P at 147; Pattison, "Costs assessment: current questions" (1995) 33(6) LSJ 28. 124 The third possible consequence is that, as the test for party/party costs appears to have become more generous under s208F, so too the test for solicitor and client costs may have become proportionately more generous and thus come more closely to resemble the test for indemnity costs. However, a plain reading of Practice Note 42 does not bear out this argument.

[94]

SUMMING UP The First Issue 125 The weight of authority is that solicitor and client costs and indemnity costs are distinct, though the difference between them has been eroded by practice and by inconsistent amendments to the various legislative instruments that make up the costs assessment regime. 126 An order for solicitor and client costs will allow all reasonable costs or all costs as fair justice to the other party will allow. The onus of proving that the costs are reasonable falls on the receiving party. 127 Historically, solicitor and client costs were somewhat more generous than party/party costs. But now that the test for party/party costs is a fair and reasonable test under s208F, the gap between them has narrowed, if not disappeared altogether. 128 The argument that this proposition defeats the purpose of Pt 39A r25 has considerable force. One possible answer is that the 1998 amendments to the rules substituting solicitor and client costs for indemnity costs have indeed lessened the incentive to make offers of compromise. Having now had the advantage of reading Giles JA's judgment I agree with what he concludes at [32] above as well as at [36]. In any event, to the extent that Pt 39A r25 is inconsistent with Pt 11 of the Act, s161(6) of the District Court Act denies power to make rules with respect to what is regulated by Pt 11 of the Act. 129 The Act thus prevailing over the DCR, an order for solicitor and client costs under Pt 39A r25 DCR could not have any efficacy except by reference to the "fair and reasonable" test in s208F(1) and (2) of the Act. In that context, s208F(1A) must be interpreted as meaning that the assessment of costs on a "fair and reasonable" basis can find its detailed content in the rules of the relevant court or tribunal, so long as they do not produce an outcome self-evidently not fair and reasonable. Here in any event, solicitor and client costs under the DCR do invoke a fair and reasonable standard. I am satisfied that there was no incompatibility with the Act in the actual cost outcomes reached under the assessment process; it simply reflects the range of possibilities encompassed by what is fair and reasonable. 130 That said, one would expect in practice that cost assessors would take into account the intended incentive for making and accepting reasonable offers of settlement by assessing at the generous end of the parameters of what is fair and reasonable. This is when litigation produced an outcome more favourable for the claimant than her declined offer, as here. However, a determination which is within those parameters is not appellably wrong, merely because it is not at that generous end in such circumstances, so long as it remains within the parameters of what is fair and reasonable. Cost assessment based on a criterion of what is fair and reasonable necessarily leaves significant room for discretion to the cost assessor within those parameters. So it was here.

[96]

The Second Issue 132 Having decided that the costs assessors applied the correct test, it is strictly unnecessary for me to decide whether, even if the costs assessors applied the wrong test, the appellant failed to demonstrate that the application of the correct test would have resulted in a more favourable outcome for her. 133 The respondent submitted that even if the costs assessors applied a fair and reasonable test when they should have applied an indemnity costs test, it is not possible to demonstrate, given the subjective and discretionary nature of the assessment process, that application of the indemnity costs test would have achieved a different result. Similarly, the respondent argued that even if the argument that the inclusion of the word "fair" in s208F distinguishes this test from the common law solicitor and client test (all reasonable costs) is accepted, again it was not shown that this distinction made any difference to the amount of costs assessed. 134 Certainly, I agree that the difference between an assessment on a reasonable basis and an assessment on a fair and reasonable basis is likely to be negligible. However, I am satisfied that it is possible that a significantly larger sum could have been assessed had the indemnity test been applied. First, it is significant that the bill was $148,854.12, but this was reduced by more than half by both the costs assessor ($73,015.10) and the Review Panel ($70,204.33). This immediately suggests that there is the possibility of more than $70,000 that could be allowed, on application of the indemnity test. Second, there was evidence before Malpass AsJ which suggested that applying the indemnity test would produce a significant difference in assessed costs. The hourly rate charged for professional work was reduced from $300 to $250 per hour for principals, and from $250 to $200 per hour for employed solicitors, during the course of assessment. Given that a principal spent 216.1 hours on the matter and an employed solicitor 13.8 hours, this reduction alone represents a deduction of $11,495 or 16% of assessed costs. The appellant was therefore able to demonstrate the possibility of a different result, but that does not avail her, given my conclusion on the first issue.

Bouras v Grandelis

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