Cappello v Homebuilding Pty Ltd

District Court of NSW|2023-02-28

The costs application before the court

The plaintiffs, by Summons filed on 13 April 2022, appealed two costs determinations of the Costs Review Panel. On 9 December 2022, I dismissed the Summons and reserved the issue of costs. The defendant now brings an application for the costs of the Summons to be paid on an indemnity basis and for a gross sum costs order pursuant to s 98 of the Civil Procedure Act 2005 (NSW) ("the Civil Procedure Act").
The costs the subject of the Summons were incurred as follows. The defendant in these proceedings, Homebuilding Pty Ltd ("the defendant", then named Hammond & Simonds NSW Pty Ltd) brought proceedings in the Supreme Court of New South Wales in 2018, to which Mr and Mrs Cappello ("the plaintiffs") brought a cross-claim. The defendant was awarded $81,113.54 against the first (but not the second) plaintiff and the cross-claim was dismissed. By reason of their conduct of the proceedings, despite Mrs Cappello's partial success, both parties were ordered to pay indemnity costs: Cappello v Hammond & Simonds NSW Pty Ltd (No 2) [2020] NSWSC 1199. There was a minor adjustment (to $50,097.32) on appeal, but the indemnity costs order was affirmed. In the Court of Appeal, a second costs order was made, again against both Mr and Mrs Cappello, but for 75% of the appeal costs; the opponent's application for indemnity costs was refused: Cappello v Hammond & Simonds NSW Pty Ltd [2021] NSWCA 57.
The costs assessments prepared by the defendant were the subject of determination, first by a costs assessor and then by the Costs Review Panel. These determinations, each dated 31 March 2022, were the subject of the plaintiffs' unsuccessful appeal to this Court.
There are other proceedings on foot between the parties. The plaintiffs have brought an application for judicial review of my decision, which is listed for hearing on 8 May 2023, and the defendant has brought a notice of motion which is listed for directions in the Court of Appeal on 28 March 2023. This is of relevance, because the plaintiffs seek a stay of any costs orders pending the hearing of these matters. There have also been proceedings in the Federal Circuit and Family Court of Australia and in the Parramatta registry of the District Court, but these are of no relevance to the issues before me.

The costs the subject of this application

Costs have been incurred in these proceedings as follows: 1. On 18 May 2022, the defendant brought an application for security for costs which was unsuccessful. The costs order made was that the costs should be the plaintiffs' costs in the cause. The defendant does not seek any costs or disbursements in relation to this application. 2. The plaintiffs filed a Summons on 13 April 2022 appealing two determinations made by a Costs Review Panel on 31 March 2022 which were heard on 28 September 2022 and resulted in a judgment on 9 December 2022. That judgment dismissed the summons and reserved the issue of costs with liberty to apply. This hearing is the subject of the defendant's s 98 application. 3. There have been enforcement proceedings in other courts. The defendant does not seek any costs or disbursements in relation to those matters.

The plaintiffs' position

The plaintiffs appear to oppose the making of any costs orders until the Court of Appeal hearing is the result of a concluded judgment and seek a stay until this happens. They make the following submissions: 1. The plaintiffs initially state they oppose any application for indemnity costs, but would be prepared to accede to an order for costs on a party and party basis "without prejudice to their right to seek reversal of this order on appeal and provided that the costs order is subject to the stay granted by this court in these proceedings" (submissions, paragraph 1). However, they go on to say that "to take up the time of this Court when potentially the costs order for these proceedings could be reversed by the Court of Appeal does not accord with Part 6 Division 1 of the Civil Procedure Act" (submissions, paragraph 4), from which I infer that the preferred position is that I should make no order until after the Court of Appeal has heard the judicial review application. 2. The plaintiffs complain that the defendant has filed a notice of motion in the Court of Appeal, returnable on 28 March 2023, seeking orders which are submitted to be "an attempt to circumvent the stay granted by Gibson DCJ" (submissions paragraph 3). They want any costs order to be stayed.
As to the request for some form of consent order as to costs (or no order at all) pending the application for judicial review, the fact that these proceedings are before the Court of Appeal should not deter me from determining the costs orders to make now. It is preferable for those costs orders, if wrong, to be corrected by the Court of Appeal at the same time as the judgment the subject of judicial review, rather than waiting until the Court of Appeal's decision and then bringing the application for indemnity costs back to this court in the event that the application for judicial review is unsuccessful. I note that this was the course taken in Ferella v Stomo [2017] NSWCA 268 and that the Court of Appeal was able to deal with an indemnity costs order in a much quicker way than would be the case if I adopted the approach urged on me by the plaintiffs.
As to the stay, as noted at the end of the judgment, given the imminent hearing of the defendant's notice of motion in the Court of Appeal, it is appropriate for me to impose a stay up until those proceedings are next before that court. Any further stays would then be a matter for the Court of Appeal to determine.

The manner in which this costs application has been conducted

These proceedings were listed before me for directions on 28 February 2023. On that day, the parties asked me to determine the costs on written submissions, without any further oral submissions. During the directions hearing, I raised a number of issues in advance of those written submissions which I considered should be covered and, on the understanding that this would occur, I acceded to their request. First, I asked the parties to read the decision of the New South Wales Court of Appeal in Ferella v Stomo [2017] NSWCA 268 (which I had referred to in my earlier judgment) and the first instance judgment concerning indemnity costs: Ferella v Stomo (No 2) [2017] NSWDC 61. The Court of Appeal's judgment raises and explains important issues in relation to the judicial review process and in particular how these principles interact with indemnity costs (as indemnity costs of the appeal were ordered). Second, I also asked both parties, and in particular the defendant, to address whether the costs sought were sought on a party and party basis or on the indemnity basis.
Neither party has addressed these issues in their submissions. The defendant has ignored them and the plaintiffs respond that the defendant's failure to make submissions as to why indemnity costs should be awarded as part of the lump sum process is fatal.
It is not uncommon for parties to consider that the request of a judge to read a particular case or address on a specific issue can be ignored. However, such a failure should not result my disregarding the principles relevant to gross sum costs order applications and indemnity costs. The parties have addressed me on some of the issues I raised, so I have done what I could with the information available.
I note, however, that I have not dealt with legal issues where submissions have not been made at all, such as issues of the kind raised in Spencer v Coshott [2021] NSWCA 235 (see also Paul Springthorpe trading as Atanaskovic Hartnell; v Australian Style Group Pty Ltd [2021] NSWDC 471 at [46]).

The evidence

An affidavit of Mr Malik Anne, sworn on 22 February 2023, had previously been served when these proceedings were before me for directions on 28 February 2023. Although there was no objection at the time, the plaintiffs now ask me to regard this affidavit as being "inadmissible" (submissions, paragraph 6), on the following grounds: 1. Mr Anne is not the appropriate person to say that the costs are reasonable, having been admitted only on 21 February 2020 and being possessed only of a restricted practising certificate. However, Mr Anne's role is quite different. What Mr Anne has done in his affidavit is to identify the quantum of the costs which have been included and to explain those sums which he excluded (principally the costs in other proceedings in the Federal Circuit and Family Court of Australia, called "the FCCA" by the parties), the security for costs application in which the defendant was unsuccessful (paragraph 16) and other costs "not related" (at paragraphs 17 and 19) to these proceedings). He makes no comment on the merits of the case beyond a brief, and bald, statement of general principles at paragraph 11. The plaintiffs have referred to similar principles in their written submissions. I see no reason why Mr Anne should not be able to do so, and the challenge to admissibility on this ground is rejected. 2. The plaintiffs also draw to my attention that there is "a reserved decision in the FCCA as to the defendant's abuse of process with costs against the defendant", the inference appearing to be that these costs should also be taken into account (submissions, paragraph 7). The plaintiffs object that the affidavit of Mr Anne, in support of the defendant's application, "omits" (submissions, paragraph 7) any reference to these costs. As is clear from (a) above, Mr Anne has indeed referred to the proceedings in the FCCA (at paragraph 10), and has said that these costs have not been included. Whoever is the successful party in the FCCA proceedings has no bearing on the costs order sought in relation to those costs. 3. The plaintiffs also complain that some documents unrelated to these proceedings have been attached, such as a memorandum of fees for another client's will (this document is in fact attached twice). I agree that this is unfortunate, but I do not regard this as a ground for rejection of the affidavit.
I shall first deal with the application for the costs to be paid on an indemnity basis.

Should costs be awarded on an indemnity basis?

There is a degree of similarity between the grounds of appeal in these proceedings and the grounds of appeal brought in Ferella v Stomo [2017] NSWDC 34, which resulted in an indemnity costs order (at first instance and upheld on appeal, as well as an indemnity costs for the appeal). In both cases, a technical challenge was brought in relation to an entitlement to pay costs where there has been no challenge to the quantum or to the analysis of the issues by the review panel. In both cases, what was sought was a complete recasting of the assessment to demand a new certificate for solicitor and client costs, because of a perceived irregularity requiring a solicitor and client assessment first. In Ferella v Stomo, the argument was that the wrong legislation had been applied and, in the present case, the asserted error is that the costs agreements in relation to the assessed costs are invalid by reason of breach of the indemnity principle, largely due to the failure to sign the costs agreement.
The relevant factors in relation to the issue of indemnity costs in this application are: 1. The history of litigation between the parties (referred to in the affidavit of Mr Anne sworn on 22 February 2023), as set out in my earlier judgement at [3] - [6] and [10] - [12]. 2. Issues of proportionality, in that the appeal raised narrow and technical issues in relation to costs where the quantum of those costs was not challenged. 3. The conduct of the proceedings, where the grounds of appeal not only raised grounds of a similar level of artificiality as was demonstrated in Ferella v Stomo [2017] NSWCA 268 (as I noted at [42], specifically referring to this decision), but also changed during the hearing (as I stated at [19]). These new arguments were put forward "on the run", supported by some handwritten notes from the solicitor then acting for the plaintiffs. At the time, Mr Hall acknowledged that these were new arguments that had not been raised during the assessment process or, for that matter, in the submissions or earlier argument before me. 4. The matters raised by me at [19] in my earlier judgment would, in my view, be sufficient to warrant an order for indemnity costs. 5. The plaintiffs in these proceedings, like the plaintiff in Ferella v Stomo, are not strangers to indemnity costs orders, such orders having been made in the main proceedings.
I adopt and apply the relevant principles as set out by the Court of Appeal in Ferella v Stomo and, in particular, the observations of Sackville AJA at [37] - [46]. The Court of Appeal not only dismissed the application for judicial review with indemnity costs, but affirmed the correctness of the indemnity costs order at first instance.
Accordingly, when considering whether or not to award costs in a gross sum, and having regard to the quantum of those costs, I propose to take into account that those costs should be paid on an indemnity basis.

Should an order be made for a gross sum costs order?

The making of a gross sum costs order is a two-stage process. First, the court must be satisfied that the circumstances of the case warrant the making of such an order (Harrison v Schipp (2002) 54 NSWLR 738 at [22]). Second, the court must be able to be satisfied that there is proper evidence of the quantum of the costs involved.
The plaintiffs refer me to the principles set out in Pirovic v Barbieri [2021] NSWSC 1460 at [22]: (1) that the discretion may be exercised "where the assessment of costs would be protracted and expensive and, in particular, if it appeared that a party obliged to pay the costs would not be able to meet a liability of the cost order likely to result from that assessment" (Hamod at [813]); (2) that the Court should exercise the discretion when "it considers it can do so fairly between the parties and has significant confidence in arriving at an appropriate sum on the material available" (Hamod at [813]); (3) that the discretion should be exercised judicially and only after giving the parties an opportunity to make submissions and that the Court needs to be confident that the approach taken in respect to the estimation of costs is "fair, logical and reasonable" (Hamod at [815]); (4) that in exercising the discretion under s.98(4), the Court should take into account "more general considerations", being those reflected in s.56(1), 57(1)(d) and 60 of the CPA, which include: (a) the relevant responsibility of the parties for the costs incurred; (b) the degree of any disproportion between the issues litigated and the costs claimed; and (c) the complexity of proceedings in relation to the costs incurred; and (d) the capacity of the unsuccessful party to satisfy any costs liability (Hamod at [816]); (5) that it is appropriate to exercise the discretion in s.98(4) where the costs have been incurred in a lengthy or complex case and it is desirable to avoid the expense, delay and aggravation likely to be involved in costs assessment by the course of the "likely length and complexity of the assessment process" or from the "likelihood that additional costs of formal assessment would disadvantage the successful party because of the likely inability of the unsuccessful party to discharge the costs liability" (Hamod at [817]); (6) that the power may be exercised where a party's conduct has "unnecessarily contributed to the costs of proceedings, especially where the costs incurred have been disproportional to the result of the proceedings" (Hamod at [818]); (7) that the assessment in support of a lump sum order must represent a review of the successful party's costs by reference to the pleadings and complexity of the issues raised on the pleadings, the interlocutory process, the preparation for final hearing and the final hearing (Hamod at [819]); (8) that the Court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment (Hamod at [819]); (9) that the costs order should be based upon "an informed assessment of the actual costs having regard to the information before the Court (for example by relying on cost estimates or bills)" (Hamod at [820]); (10) that the assessment of a lump sum cost order may involve "an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in an informal costs assessment" (Hamod at [820]); (11) that the Courts have typically applied a discount in respect to legal costs on a gross sum basis (Hamod at [814]).
I agree that these are the principles to apply, but they are not exhaustive. There are other matters to take into account. For example, gross sum costs orders are commonly made in relation to costs appeals. These are ideally suited to the gross sum order regime because of the importance of costs litigation not becoming "satellite litigation" (Lemoto v Able Technical Pty Ltd & 2 Ors (2005) 63 NSWLR 300 per McColl JA) and the principles of finality. In addition, where there is a prior history of costs assessment arguments, courts may consider a gross sum costs order more appropriate by reason of the factors in s 56 of the Civil Procedure Act. Mr O'Connor described the history of this litigation as "tortured" (written submissions at [3]) and points to the likelihood that any costs assessment is likely to be the subject of a further appeal process, given the history of these proceedings.
Mr O'Connor submitted that there were other factors to be taken into account and pointed (submissions, paragraph 13) to the following: 1. The point taken by the plaintiffs was "unusual" and required "significant" research (submissions, paragraph 13). This is not the point. The real difficulty, in my view, is that the defendant, who had provided extensive written submissions during the assessment, found itself facing new arguments on the appeal which had to be researched at short notice. 2. Costs are not an area in which Mr O'Connor regularly practices. I give this submission no weight. All legal practitioners have to be familiar with costs issues in order to prepare their memoranda of fees. 3. The defendant had to provide comprehensive written submissions to the costs assessor and review panel because of the combative way the plaintiffs conducted these proceedings, and the likelihood of appeals. I do not accept this submission. Costs assessors can draw on their own comprehensive knowledge of costs law, and it cannot be said that the costs assessors required more assistance than would usually be the case. 4. The defendant was concerned that this was a point with wider importance in that it could create a practice of bringing applications of this kind. This is not a concern that should have troubled the defendant, particularly given the expertise of the costs assessors hearing and determining the issues before them.
Notwithstanding my rejection of these arguments from the defendant, I am satisfied that this is an appropriate matter for a gross sum costs order to be made.

The quantification of the costs

As to the quantum of those costs, I note the material set out in the affidavit of Mr Anne. The solicitors' fees for these proceedings have been calculated at $10,549.40 plus $26,500.00 for counsel's fees. As noted above, these costs exclude work on issues in dispute between the parties in other jurisdictions.
It is commonly the case, where a gross sum costs order is made, that the court takes a discounting approach which is called the "rule of thumb": Bobb v Wombat Securities Pty Ltd (No 2) [2013] NSWSC 863; Simone Starr-Diamond v Talus Diamond (No. 4) [2013] NSWSC 811 at [20]-[23]. This calls for a percentage discount to take a series of factors into account, principally that, even on assessment, an indemnity costs order will not necessarily result in all of the costs being awarded, and also that the time and cost of an assessment process is effectively avoided. In the present case, the defendant seeks a 30% reduction of counsel's fees but seeks payment of the solicitors' costs in full.
The plaintiffs raise a series of challenges to the adequacy of the documentation. I answer the challenges in paragraph 11 of their submissions as follows: 1. No percentage reduction has been made by the defendant: This is incorrect. The percentage offered is 30% of counsel's fees. 2. No deletion of solicitor and client costs: For the reasons explained earlier, I consider costs should be awarded on an indemnity basis. 3. Failure to particularise each disbursement: As is set out in Pirovic v Barbieri at 22-(10), a judge does not have to function as an assessor, and can form an impressionistic view as to the costs involved. 4. Use of acronyms in the invoices: See (c) above. 5. Justification of the hourly rates and costs disclosures: At the hearing on 28 February 2023, I invited the parties to check the Supreme Court website for information on appropriate hourly rates. However, judges are familiar with the hourly rates charged and generally take an impressionistic approach, of the kind taken by Campbell AJA in Penson v Titan National Pty Limited (No 3) [2015] NSWCA 121 at [9] - [10]. 6. Costs to which the defendant is not entitled: I do not understand this submission to be anything other than a rolling-up of the previous complaints.
I also note the call for the costs disclosure agreement and the warning of another challenge based on the indemnity principle. It is indicated that, if the costs agreement in question had been produced, it would have been challenged by the plaintiffs on the indemnity principle point.
Is there in fact a separate costs agreement in relation to these proceedings? The bills sent to the client, which are attached to the affidavit of Mr Anne, contain the usual Form of Notification of Client's rights, from which I assume that these costs are covered either by the same costs agreements as those provided to the assessors or by a further agreement in similar terms covering the costs assessment process. It is clear from the costs disclosures attached to the bills that these were sent to the defendant pursuant to a costs agreement. If the costs agreements in question are those before the court as part of the main costs proceedings or as some variation thereof, I have found these not to offend the indemnity principle. These costs agreements should be considered as not merely in evidence on this application, but also valid.
There is a more significant difficulty the plaintiffs must face. Even if there were no costs agreement, or the costs agreement were invalid, a question arises as to whether costs agreements are in fact necessary for a gross sum costs order application which is brought inter-partes. There is clearly an obligation for a party seeking a costs assessment to provide a costs agreement, but where the costs in question have not been to assessment and are sought from the opponent under s 98, is this a prerequisite for a gross sum order? Even if there were no costs agreement, the entitlement to costs under s 98 could still proceed as a quantum meruit (see the cases discussed in Enterprise Finance Solutions Pty Ltd v Ciszek [2014] NSWDC 314) or, for the reasons explained by Davies J in Royal v El Ali (No 3) [2016] FCA 1573, by reduction in the amount of inter-partes costs for failure to comply with requirements of the relevant legislation (in those proceedings, the Legal Profession Act 2004 (NSW)). This is because whether there is a costs agreement compliant with the Legal Profession Uniform Law is not an obstacle to the recovery of inter-partes costs: Bahamad v Wong [2020] NSWSC 991 at [78]; see also LFDB v SM (No 4) [2017] FCA 753.
I next note the plaintiffs' complaint that GST has not been deleted. A gross sum costs order may be made inclusive of GST: Sayed v National Australia Bank Limited [2021] NSWCA 28; Bailey v O'Dea [2021] NSWSC 1420; In the matter of Tresdar Pty Ltd (No 4) [2019] NSWSC 1456. The less common circumstances where GST is not applicable are explained by Campbell AJA in Penson v Titan National Pty Limited (No 3) at [25] - [26].
Finally, the plaintiffs complain that Mr Anne did very little of this work himself and that "the court may wonder" why the solicitor who "features prominently" in the work done did not swear the affidavit (submissions, paragraph 15). I do not consider that it is necessary for the solicitor who did the work to swear the affidavit. Mr Anne's work was to sort out what could (or could not) be charged for, given the number of courts in which these parties have been, and it is more appropriate for him to have sworn the affidavit.

Counsel's fees

This brings me to counsel's fees, where the plaintiffs are on surer ground, in that these are significant given the nature of the claim and counsel's acknowledgement that this is not his area of work. In addition, the plaintiffs point to some inconsistencies such as a conference which appears to have been charged for twice and is asserted to be of unreasonable length (two hours). My response to this series of objections is to repeat the principles set out in Pirovic v Barbieri at 22-(10), namely that a judge hearing an application of this kind is not expected to act as a costs assessor.
The deduction proposed on the rule of thumb basis is 30% of counsel's fees. Counsel acknowledges that costs are not in his area of expertise and that he had to do a great deal of research. Taking that into account, in an impressionistic way, I consider that counsel's fees should be reduced by 40%.
However, no adjustment should be made to the solicitors' fees. Judges regularly see costs estimates for costs appeals in gross sum costs orders, and the amount sought in my view falls within the parameters applicable in such cases.
Accordingly I propose to make a gross sum costs order for $26,449.40. That sum relates to all costs of these proceedings, including this application.

A stay of these orders

There have already been precipitate proceedings in the Parramatta registry of this Court in relation to enforcement.
In the interests of assisting the parties to focus on the applications before the Court of Appeal, I have placed a stay on these orders until 5 pm on 28 March 2023, when the matter is next before the Court of Appeal for directions concerning the defendant's motion. Any further stay should be sought from the Court of Appeal on that day.

Order: 1. Pursuant to s 98 of the Civil Procedure Act 2005 (NSW), the plaintiffs are to pay the defendant's costs by way of a gross sum costs order, namely $10,549.40 for solicitors' costs plus $15,900.00 for counsel's fees, making a total of $26,449.40. 2. These orders stayed until 5 pm 28 March 2023.

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: 17 March 2023

Legal Profession Act 2004(NSW)

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