Cappello v HomeBuilding Pty Ltd

The costs assessor's determination

1. The costs assessor issued a determination of costs for the Supreme Court proceedings on 23 December 2021 in the following sums: 1. $155,746.44, and 2. $4,232.25 for the costs assessor's costs.
2. The costs assessor issued a determination of costs for the Court of Appeal proceedings on 13 December 2021 in the following sums: 1. $32,944.13, and 2. $2,194.50 for the costs assessor's costs.

The Review Panel determination

1. On 22 January 2022, the plaintiffs made an application for a review of both assessments by the Review Panel. On 24 March 2022, the Review Panel made the following determinations: 1. That the costs assessor's determination in the Supreme Court proceedings be affirmed; 2. That the plaintiffs pay to the defendant (and Mr Re) $3,694.59 for the Review Panel's costs; 3. That the costs assessor's determination in the Court of Appeal proceedings be affirmed; and 4. That the plaintiffs pay to the defendant (and to Mr Re) $4,311.60 for the Review Panel's costs.

Proceedings in other courts

1. Although there is no connection between the plaintiffs' other claims against the defendant, it paints a complete picture if these can be set out.
2. The plaintiff's failure to pay $50,097.32 resulted in bankruptcy proceedings in the Federal Court: Homebuilding Pty Ltd v Cappello [2022] FedCFamC2G 576; Cappello v Homebuilding Pty Ltd (formerly known as Hammond & Simonds NSW Pty Ltd) [2021] FCA 981. The plaintiffs told Katzmann J that they had on foot a counter-claim, set-off or demand against the respondent being District Court of NSW proceedings 21/115221 being a claim for monies had and received in the amount of $378,198.05 plus interest, fees and costs but this asserted counter-claim was acknowledged by the plaintiffs' counsel to be hopeless (at [15]).
3. In addition, on 23 April 2022 the plaintiffs filed a statement of claim in the District Court seeking damages for non-compliance with the building contract.
4. On 9 July 2021, on the application of Homebuilding, their statement of claim was struck out by the Judicial Registrar, the proceedings were dismissed, and the plaintiffs were ordered to pay Homebuilding's costs on an indemnity basis (the judgment is not available on Caselaw but Katzmann J sets out the relevant details in her judgment at [23]-[34]). All of these proceedings commenced by the plaintiffs failed and resulted in costs orders, but these are unrelated to the costs orders the subject of the Summons commencing the appeal in these proceedings.

The plaintiffs' submissions

1. The gravamen of the plaintiffs' objections may be gleaned from the objection raised by the plaintiffs with the Review Panel on 3 December 2021: "Upon perusal of the documents provided on behalf of the Costs Applicants as Cost Agreements, I note that two documents are undated and/or unsigned. One is signed only by Anne Malik and bears the date 26 July 2021, which is three months after the conclusion of the Court of Appeal proceedings. The other is signed only by Atul Singh and is dated 6 July 2020, which is only three weeks before the hearing by Ball J. Neither of the clients have signed any of the documents. There is no evidence they were ever sent to the clients. This is curious and probably a breach of the Legal Profession Uniform Law (NSW). The document dated 26 July 2021, pos-dating (sic) the completion of the proceedings by three months, and the other signed by Atul Singh just before the completion of the first instance proceedings. Lastly, the document dated 26 July 2021 is addressed to Hammond & Simonds NSW Pty Ltd. Hammond & Simmonds NSW Pty Ltd had become HomeBuilding Pty Ltd as of 3 September 2020, some 10 plus months before the purported costs agreement. There must be real doubt as to the provenance of these documents."
2. The defendants responded as follows: "a. The Costs Agreement dated 26 July 2021 signed by the writer concerns costs assessment work not the substantive and appeal proceedings. This costs agreement is provided because the costs assessor requested explanation as to why costs of preparing the bill of costs had been claimed. b. Whether a costs agreement has been signed by a client or not does not determine its validity. c. The general terms of business contained in the Costs Agreements provide: 2. Acceptance of Offer You may accept the Costs Disclosure and Costs Agreement by: a) signing and returning this document to us or; b) continuing to instruct us. Upon acceptance you agree to pay for our service on these terms. d. The costs assessor has access to the Costs Applicants' solicitor's file and can determine from it whether a particular document has been provided to the Costs Applicants or not. Further it will be evident to the costs assessor that the Costs Applicants continued to provide instructions. e. The Costs Respondents have previously raised the issue with respect to the Costs Applicants' name and were unsuccessful, see Cappello v Homebuilding Pty Ltd (formerly known as Hammond & Simmonds NSW Pty Ltd) [2021] FAC 981. This is simply another attempt to extend and prolong the costs assessments as the Costs Applicants' name change is not an issue in these costs assessments. f. The Costs Respondents have refused or failed to: 1. Respond to the costs offers made by the Costs Applicants. 2. Provide any objections to the costs assessment, either after service of the bill or upon the costs assessor's directions. 3. Engage with the Costs Applicants to resolve these costs disputes despite ample evidence of their liability to pay the Costs Applicants' costs pursuant to the Court's order."
3. First, as to the asserted requirement to sign a costs agreement, it is settled law that a costs agreement that is "unsigned but executed by conduct" is still valid: Arjunan v Neighbourhood Associates No DP 285853 [2022] NSWSC 691 at [10] per Hamill J. Problems occur only where the costs agreement sets up a highly specific requirement for signing and returning the documents, as occurred in O'Neill v Wilson [2011] QSC 220. The law on this issue generally has been correctly stated by the costs assessor at paragraphs 4.2-4.7, where the costs assessor noted at 4.7 that "numerous" invoices and receipts had been produced and that, on the basis of this documentation, there had not been a global breach of the indemnity principle.
4. Mr Hall disputed that the objection was based only upon the clients' failure to sign the costs agreement and provided handwritten summaries, in response to Mr O'Connor's submissions, which set out the basis upon which it is submitted that the failure to revise the costs estimates from time to time and to name the barrister briefed meant that the duty of disclosure had not been complied with.
5. Mr O'Connor made the following submissions in relation to both assessments the subject of this appeal: 1. The appellants have no standing to make such an argument as they are strangers to the contract. 2. Where a solicitor appears on the record for a party and the party is aware of this, there is a strong presumption that a contract of retainer exists: Halliday v SACS Group Pty Ltd [1993] HCA 13; 67 ALJR 678 at [7]. 3. Proof of the existence of a retainer can, like any other contract, be implied from conduct: Shaw v Yarranova Pty Ltd & Anor [2011] VSCA 55 at [17]. 4. A party claiming under a party/party costs order need only adduce enough evidence to make it reasonable to infer that he was obliged to pay his solicitor's costs: Grundmann v Georgeson [2000] QCA 394 at [6] and [9]. 5. Courts generally accept the existence of a contract of retainer when a solicitor has performed work on behalf of a person with his or her knowledge and assent, in circumstances which are consistent with that person being the solicitor's client: Shaw v Yarranova Pty Ltd & Anor [2011] VSCA 55 at [19]. 6. The party who challenges the existence of a retainer bears the onus of establishing the absence of it: Halliday v SACS Group Pty Ltd [1993] HCA 13; 67 ALJR 678 at [7]. 7. Where the party against whom the costs order has been made seeks to displace the rule, it is necessary to prove that under no circumstances does the client have any liability to pay costs to his or her solicitors: Shaw v Yarranova Pty Ltd & Anor [2011] VSCA 55 at [20]; Davies v Taylor (No 2) [1974] AC 225. 8. There need not be a formal costs agreement in existence for a party to be liable for costs; a solicitor can recover costs from a client in the absence of a costs agreement on a "fair and reasonable" basis, under a type of statutory quantum meruit (see, by analogy, s 319 of the Legal Profession Act 2004).
6. I add a further ground that is of concern to me, namely that these issues were either not raised with the assessor or Review Panel at all or were raised so elliptically that the gravamen of the complaint was unclear. It is unfortunate that Mr Hall could not identify in written submissions, conformably with the timetable for this appeal, precisely what the objections now were. I struggled to understand his handwritten notes, which were at times epigrammatic, but Mr Hall did appear to acknowledge that many if not most of these challenges were new, both in the sense of not having been raised during the assessment process and during the argument before me.
7. I will deal with each of the plaintiffs' challenges in turn.

The costs disclosure provisions

1. Mr Hall first submitted that the costs disclosures in the costs agreement were not updated and gave estimates which were grossly out of proportion to the amounts charged and assessed. He relies upon the following passage from Nunzio Berardi v Salvatore Russo trading as Russo Partners: "[43] Since s 317(2) of the Act prevents a law firm from suing under a costs agreement when the disclosure requirements have not been met, the costs agreement is effectively unenforceable, although legally valid. As the majority of the High Court recently reiterated in Gnych v Polish Club Limited [2015] HCA 23; (2015) 89 ALJR 658, the consequences of a contract's failure to meet statutory requirements is a matter of statutory construction (per French CJ, Kiefel, Keane and Nettle JJ at [36]-[40]). It is clear from the terms of s 317, read in the context of Division 3 as a whole, that when a law firm fails to make the disclosures required, a costs agreement becomes unenforceable until the legal costs are assessed under the Act, but the Costs Agreement is not "invalid" or "void"."
2. The way in which the disclosure provisions work, under both the repealed and current provisions, is set out by Slattery J in Frontier Law Group Pty Ltd v Robert Glenn Barkman [2016] NSWSC 1542 at [35].
3. The submission that the defendants had not given proper disclosure of the likely costs amounts in the Supreme Court must fail. First, Mr Hall was obliged to acknowledge that he had the dates and times for the costs estimate reviews wrong.
4. Secondly, the final trial costs estimate was in fact only about two hundred dollars or so below the actual costed amount (on an indemnity basis). The costs disclosures for the Court of Appeal were similarly also a few hundred dollars short of the assessed amount. Mr Hall noted that the costs in the Court of Appeal were not assessed on an indemnity basis but the ordinary basis and that the assessed amount was only for 75% of the costs as a whole, arguing that these factors meant that the costs were not properly disclosed.
5. How close does the costs pre-estimate have to be in order to demonstrate full disclosure? How different must the estimate be for a court to hold that the whole of the costs for both the trial and appeal required to be assessed on a solicitor and client basis first, before the party/party costs can then be reconsidered?
6. As to the asserted failure to disclose the costs, Mr Hall was not able to direct me to any authority demonstrating that the amount disclosed must be within a specific percentage. I note the following: 1. As Professor Dal Pont states in "Law of Costs" (3rd ed., 2013, LexisNexis) at [7.10] - [7.20], courts' application of the indemnity principle was not especially strict under the repealed legislation. 2. Other requests for a solicitor/client assessment, even in clear cases such as the total absence of a costs agreed on, have been controversial. A case often referred to is the unreported decision of Sittchichai Laksanabechnarong v F Net Pty Ltd (District Court (NSW), McLoughlin DCJ, 16 September 2011, unrep), where his Honour considered the application of s 317(4) of the Act to indemnity costs. The practitioner in that case had not provided any costs agreement or disclosure at all and was ordered to undertake a solicitor/client assessment before the costs could be assessed on a party/party basis. This is a controversial conclusion and was the subject of comment in the Law Society Journal, "Letters to the Editor", April 2012, p.10, where Mr Gordon Salier, the chair of the Costs Assessors Rules Committee, said that he had directed costs assessors not to apply s 317(4) of the Act to party/party applications for assessment. This judgment was referred to by me in my judgment in Enterprise Finance Solutions Pty Ltd v Ciszek [2014] NSWDC 314 at [49]-[57] and I remain of the same view now that I held then (I note that my judgment was referred to in the course of the costs determination by the costs assessor, at 4.6.1, and confirmed by the Review Panel, in this costs appeal). 3. Costs agreements are a contract between two parties, albeit the subject of statutory requirements. As Mr O'Connor notes in his submissions, the circumstances in which a stranger to that contract may argue it is invalid need to be considered with great care.
7. I consider that the amounts identified in the costs agreement are close enough to warrant compliance with the disclosure obligations. I take into account the way in which the costs disclosure is presented in a careful fashion where the reasoning behind the estimate is set out. This is not a global sum of the kind deplored by Slattery J in Frontier Law Group Pty Ltd v Robert Glenn Barkman [2016] NSWSC 1542 at [38]. The failure to disclose, in those proceedings, was stark; in the present case, the complaint is that the costs total falls short of what the costs actually were. In addition, the total sum to be awarded was, in the case of both costs disclosures, revisited by the solicitors who had drafted it on several occasions, for the purpose of increasing the estimate.
8. I also take into account the comparatively modest amount for the appeal costs in circumstances where the significant costs order was for the trial, and that was an extraordinarily accurate sum. It would be nonsensical for the continuing obligation of disclosure if the accuracy of that figure could not carry some weight when considering appeal costs.
9. This ground accordingly fails.

Absence of essential information

1. Mr Hall submitted that the failure to name Mr O'Connor as the barrister in the costs agreement was a fatal non-disclosure which breached the disclosure rules.
2. Mr O'Connor, who held the brief at first instance and on appeal as well as appearing in this costs appeal, assured the court that at all relevant times his clients knew who he was. He also volunteered from the bar table that he had been paid in full.
3. The approach taken by the assessor, and confirmed on appeal, was that an assessment of costs is not an occasion for the stranger to the contract to look for perceived defects of form or content in the hope of invalidating the contract. Failure to name the barrister in the costs agreement is a particularly technical complaint. It is also, so far as I can see, not a topic specifically raised by Mr and Mrs Cappello with the costs assessor or Review Panel.

The consequences of not signing the costs agreement

1. The costs assessor set out a long and thorough analysis of the plaintiffs' submissions, which I set out in full: "Costs Agreement 4.2 There is an unsigned costs agreement between the Applicants and their lawyers dated 11 October 2018 and an amended unsigned costs agreement dated 2 March 2020. There is a further amended costs agreement dated 6 July 2020 signed by Atul Singh. These the costs agreements that I believe govern the dispute and the Supreme Court proceedings. The costs agreement dated 26 July 2021 is well after these proceedings were finalised and is not relevant. 4.3 The purpose of seeking production of a costs agreement in an ordered costs assessment is to ensure that the indemnity principle has not been breached. Costs are a partial indemnity and a party cannot recover a sum in excess of its liability to its own solicitor: Howard & Ors v Mechtler & Ors [2000] NSWSC 455; James Hardie v Stevenson [2000] NSWSC 1, (8 February 2000). Where a solicitor cannot recover costs from the client, that client cannot claim or recover those costs from the other party in a party/party assessment: Re Sweeting (1898) 1 Ch 268 at pp 272-3; Brown v Barber (1913) 2 KB 553 at 580. A litigant cannot make a profit out of costs: Harold v Smith 5 H & N 381; Carson v Pickersgill & Sons (1885) 14 QBD 859; Gundry v Sainsbury (1910) 1 KB 645. 4.3.1 These cases have been affirmed and applied in Australia: Latoudis v Casey (1990) 170 CLR 534; Cachia v Hanes (1994) 179 CLR 403; TNT Bulkships v Hopkins (1989) 98 FLR 352. 4.3.2 These cases have also been affirmed and applied in the Supreme and District Courts in New South Wales in cases such as Baines v Smith & Anor [2000] NSWSC 25 (8 February 2000); Grynberg v Muller; Estate Late M Bilfeld [2002] NSWSC 350 (24 April 2002); Wentworth v Rotten [2002] NSWSC 709 (15 August 2002); Wentworth v Rogers; Wentworth & Russo v Rogers [2006] NSWCA 145 (7 June 2006); CSR Limited v Eddy [2008] NSWCA 83; Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2011] NSWDC 55. 4.4 The fact that there is a costs agreement does not mean that the charges disclosed will automatically be allowed in an ordered costs assessment. In an ordered costs assessment, the terms of a costs agreement are not to be applied: Section 77(2) of the App Act. If a charge disclosed in a costs agreement is not objectively fair, reasonable and proportionate then it will be reduced or disallowed. This is because the costs are payable by the unsuccessful parties as a result of a costs order and not as a result of entering into a contract. There is no costs agreement and no contractual obligations between the unsuccessful parties, who have to pay the costs, and the lawyers of the successful parties in the litigation. 4.5 The Respondents raised some issues about the costs agreement for the Supreme Court of NSW, Court of Appeal proceedings, the amended costs agreement dated 6 July 2020 and about the costs agreement dated 26 July 2021. All costs agreements that I have seen in respect to the matters provide more than one way of accepting their terms including continuing to instruct Adams & Partners Lawyers which the Applicant did do. The costs agreement dated 6 July 2020 was the only one that was signed by anyone. 4.6 Matters to do with the circumstances of entering into a costs agreement and making disclosure are matters to be considered in a law practice/client assessment. They have no relevance in an ordered costs assessment. Compliance with the indemnity principle is central to an assessment of ordered costs. 4.6.1 In Enterprise Finance Solutions Pty Ltd v Ciszek [2014] NSWDC 314, Her Honour Gibson DCJ confirmed that an assessment of ordered costs is not an occasion for enquiring into what (if any) failures there have been in relation to disclosure requirements for the purpose of reducing the unsuccessful parties' liability to pay costs. 4.7 Further, copies of numerous invoices issued to the Applicants have been produced as well as receipts for payments made, so I am satisfied that there has not been a global breach of the indemnify principle."
2. The Review Panel adopted and endorsed this reasoning, stating at page 10 of the determination: "Party/party costs are awarded by way of partial indemnity for professional legal costs actually incurred in the conduct of litigation. A party cannot recover more costs from another party than it is liable to pay to its own solicitors. It is to be remembered that the Assessor has an obligation to assess costs in accordance with the provisions of the legislation and to do that must satisfy himself or herself of the obligations imposed upon the Assessor in determining the fair and reasonable costs. However, the Court of Appeal in this case made a specific reduction order in the costs recoverable by 25%. This was interpreted by the Assessor as being on the ordinary basis, and as such was in error, but is irrelevant. The Review Panel is satisfied that the indemnity principle has not been breached."
3. The Review Panel formally adopted the costs assessor's reasoning (at p. 13 of their report), noting that they were not obligated to provide detailed reasons as to each determination, citing Frumar v The Owners of Strata Plan 36957 [2006] NSWCA 278.
4. Both the costs assessor and the Review Panel correctly identified and applied the relevant principles of law. No error in the reasoning has been identified.

Conclusions concerning the grounds of appeal

1. The appeal turns on a very narrow ground, namely whether, before the plaintiffs are obliged to pay costs the quantum of which is not challenged, the defendant must undergo a solicitor and client costs assessment by reason of the asserted invalidity of the costs agreement, principally (but not entirely) because the agreement has not been signed.
2. The costs assessor and Review Panel each considered and applied the relevant principles of law in determining that the indemnity principle has not been breached and the appeal must fail.

A further issue: practical injustice

1. It is common ground in these proceedings that the respondent's solicitor, who was the solicitor on the record at the hearing and on the appeal, provided and updated the costs agreement, retained the barrister who appeared, won the cases and received costs orders, including an indemnity costs order at the trial. It is common ground that receipts and other proofs of payment were produced to the costs assessor and Mr O'Connor volunteered from the bar table that he had been paid, regardless of the fact that his name was not in the solicitors' costs agreement, and that he had had a separate costs agreement which had never been challenged. In those circumstances, the totality of these factors is strong evidence from which both the assessor and the Review Panel were able to infer that the respondent was liable to pay its solicitors' costs.
2. Mr Hall also acknowledges that a solicitor can recover costs from a client even if there is no costs agreement whatsoever, and that there is no challenge to the manner of computation of the costs, although he was not prepared to agree that the requirement of a solicitor/client costs assessment would make little difference to the actual sum the plaintiffs have to pay.
3. Where a successful litigant, armed with a costs order, seeks to enforce his legal representatives costs as against the unsuccessful party, the onus of establishing the absence of a retainer will lie on the party who challenges the retainer or otherwise challenge the indemnity principle. The grounds upon which that retainer is challenged are the highly artificial grounds raised unsuccessfully in the assessment, which have been substantially enlarged in the appeal now before the court, to include features not raised on assessment.
4. The arguments raised by the plaintiffs have the same high level of artificiality as was demonstrated in Ferella v Stomo [2017] NSWCA 268, where the appeal was brought on the basis that the wrong legislation had been applied by the costs assessor and Review Panel. As the judge hearing the appeal which came before the Court of Appeal, I made findings based not only on the repealed legislation (which I held applied) but also on the basis of the current legislation. In the course of dismissing the appeal, Sackville AJA made the following observations: "[40] The availability of judicial review opens the way to a determined or obstinate litigant who has exhausted all rights of appeal to mount a further challenge by invoking the original (as opposed to the appellate) jurisdiction of the Court. As a general proposition the litigant can seek judicial review without having to satisfy a leave requirement and regardless of whether the cost of the proceedings is "proportionate to the importance and complexity of the subject-matter in dispute". [41] The litigant perhaps may risk the application being dismissed on discretionary grounds and, if the application is baseless, may also be at risk of an order for indemnity costs. However a hearing is required and these orders are not made as a matter of course. In any event, the successful respondent may find the costs order difficult to enforce. Even if enforceable, the order will often not compensate for the stress, inconvenience and wasted effort associated with the unjustified prolongation of proceedings. [42] This case is an example of the misuse of judicial review proceedings. Two costs assessments were the subject of Certificates of Determination of Costs. The Certificates together involved costs amounting to about $44,000, plus the costs of the assessments themselves. Mr Newton, who appeared for the applicants, was unable to say what amount of costs was truly in dispute. It is a fair inference that the amount genuinely in dispute is very modest indeed. [43] The applicants pursued, as they were entitled to do, an application for review by the Review Panel and an application to the District Court for leave to appeal from the decisions of the Review Panel. Both applications were unsuccessful. The application to this Court, although challenging the decision of the District Court rather than that of the costs assessor or the Review Panel, is in effect a third appeal over a small sum of money. [44] The ground of the application for judicial review was that the District Court (like the Review Panel) erred in applying the provisions of the Legal Profession Act 2004 (NSW) (LP Act) rather than the provisions of the Legal Profession Uniform Law (NSW). Mr Newton was asked what difference it would have made had the Review Panel applied what the applicants said were the correct provisions. His answer was "On one view, it would make possibly not a lot of difference". The same is the case here. Not only are the grounds upon which the plaintiffs attack the validity of the costs agreement and disclosures both artificial and tenuous, but the bringing of a solicitor/client costs assessment would not result in any significant change in the sum to be paid, although Mr Hall was reluctant to admit this."
5. The Court of Appeal was so dissatisfied with the artificiality of the appeal grounds in Ferella v Stomo that indemnity costs were awarded. Determined litigants who bring technical or artificial appeals from costs assessment determinations would do well to bear this in mind.
6. It was a requirement, under s 382 of the repealed legislation, for the error of the costs assessor to be required to be such as would justify disturbing the assessment: Gorczynski v AWM Dickinson & Sons [2005] NSWSC 277 at [22]; Bellevarde Constructions Ltd v CPC Energy Pty Ltd (2011) 12 DCLR (NSW) 304 at [16]. It is uncertain whether this is still possible under the current legislation, but Mr O'Connor asks me to take into account the description of "practical injustice" identified in CSR Limited v Eddy [2008] NSWCA 83, on the basis that the grounds relied on (not signing the costs agreement, not naming the barrister in the costs agreement, and the like) are not matters of "practical injustice".
7. Mr O'Connor was unable to identify any other section of the new legislation which corresponds to s 382 but, in general terms, I consider that such a submission could still be put on the basis of the principles of proportionality. If so, I would accept that submission, and this would be a further basis for the dismissal of the plaintiffs' Summons. This is an issue which would benefit from appellate consideration.

Costs and other issues

1. The parties have asked me to reserve the issue of costs.
2. There were other proceedings between the parties in the Parramatta District Court. The parties have advised that they do not propose to seek to make any submissions about those proceedings for the purpose of these proceedings.

Order: 1. Summons struck out and appeal dismissed. 2. Costs reserved, with liberty to apply.

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: 28 March 2023