- Cat Media Pty Ltd v Allianz Australia Ltd

Supreme Court of NSW|2015-03-16|Before: Black J, Mr P, Brereton J

Solicitors: Pure Legal (Plaintiffs) Beazley Singleton Lawyers (Defendant) File Number(s): 2013/297134

Judgment

By an Amended Interlocutory Process filed on 23 February 2015, the Plaintiffs, Titan International Pty Ltd and Mrs Kathryn Wood-Weber seek, first, orders under s 98(4) of the Civil Procedure Act 2005 (NSW) that costs orders made by Brereton J on 30 April 2014 and by me on 20 November 2014 in these proceedings be paid by a specific sum of money determined by the Court. The plaintiffs also seek orders that the costs be determined on an indemnity basis and that Ms Shirley Penson, a director of the Defendant, Aquaqueen International Pty Ltd (in liq) ("Aquaqueen") who appeared in person for Aquaqueen in the large part of these proceedings be jointly and severally liable with Aquaqueen for the Plaintiffs' costs of the proceedings. The Plaintiffs also seek an order for payment of interest under s 101(4) of the Civil Procedure Act.
I should first set out, briefly, the history of the proceedings, on which the Plaintiffs rely both in support of the application for a gross sum costs order and in support of the application that Ms Penson be jointly and severally liable with Aquaqueen for that costs order. I have also summarised that history in earlier judgments in the proceedings, for example, my interlocutory judgment in respect of an adjournment application on 10 October 2014.

Affidavit evidence

The Plaintiffs rely, in this application, on the affidavit of their solicitor, Ms Perry, dated 10 December 2014 which in turn exhibits a substantial bundle of documents (Ex A1). Ms Perry sets out her experience as a solicitor and she has been practising in litigation in excess of 20 years. She also sets out the history of the District Court proceedings and the orders for costs made in those proceedings. Her evidence is that costs orders were made in those proceedings in June 2011; a bill of costs and application for assessment was filed in November 2011; the costs assessor issued a determination as to costs in September 2013 in the sum of $111,416.95 and ordered that his fees be payable by Aquaqueen and Ms Penson. Ms Perry's evidence is that Aquaqueen and Ms Penson subsequently sought review of the costs assessor's determination, which was upheld by a review panel in December 2013. An application to appeal the determination of the review panel and costs assessment was subsequently filed, an amended summons was filed on 22 April 2014 and the grounds of a review were subsequently amended. Ms Perry's evidence is that, as I noted in my judgment in respect of the winding up application, the costs orders made in the District Court as assessed, have not been stayed, and neither Aquaqueen nor Ms Penson have paid the assessed costs or the costs assessor's fees, now nearly four years after the original costs order was made.
Ms Perry also refers to the winding up application brought by Mr Weber, to which I referred above, and the substitution application made and determined by Brereton J in April 2014. Ms Perry notes that the hearing of the substitution application continued through the afternoon of 29 April 2014 and well past usual Court hours. Ms Perry refers to a subsequent application filed by Ms Penson to set aside the winding up application, which was dismissed by Brereton J on 19 May 2014. She also refers to observations made by Brereton J on 29 April 2014 and in his judgments dated 30 April 2014 and 19 May 2014 as to the importance of evidence as to solvency in the winding up application. Ms Perry then sets out the subsequent steps in the conduct of the winding up application, involving numerous appearances before the Court and several adjournments, some of which I have referred to above. Ms Perry also refers to several occasions on which the conduct of hearings was disrupted for various reasons. Although some of those matters involved conduct of Ms Penson, I do not treat them as warranting any special order as to costs in themselves, although they have contributed to the magnitude of the costs incurred in the winding up application.
Ms Perry's evidence is that her file in the proceedings consists of 8 lever arch folders and a large volume of electronic documents including emails; that she has performed all work undertaken on behalf of the Plaintiffs in the winding up proceedings; and she has not utilised the services of Counsel during the course of the proceedings. She indicates that her charge-out rate is $500 per hour plus GST. Ms Perry also refers to other matters which seem to me to raise doubt that Aquaqueen, or Ms Penson, would readily pay costs of the winding up application ordered after an assessment, including the fact that several costs orders in favour of Mr Weber remain unpaid and that costs claimed by the former solicitors for Aquaqueen in the early stages of the District Court proceedings several years ago also remain unpaid. Ms Perry's affidavit exhibits a schedule setting out the costs of the substitution application in the total of $13,851.44 on an itemised basis, charged in 6 minute units in a common manner. She also sets out a schedule setting out the costs of the winding up application in the amount of $68,897.46 on an itemised basis, also charged in 6 minute units in a common manner. Her evidence is that all costs have been paid by Ms Wood-Weber, who is not entitled to any imputation credit in respect of GST.
Ms Perry also gives evidence as to the costs likely to be recoverable on an assessment as follows: "In my experience I have had my time assessed in respect of many Court proceedings and in circumstances of my presently 20 plus years of experience and the fact that I am an accredited specialists [sic] in commercial litigation, it has been my experience that costs assessors have predominantly allowed my costs on assessment of at least 75% of my charge-out rate on a party/party basis and the generally full amount on an indemnity basis or at least 95% of professional fees on an indemnity basis." (Perry 10.12.14 [82]) That evidence is consistent with the Court's experience, and with the approach adopted in several cases in this Court to which I will refer below, so far as she refers to the percentage of costs likely to be recoverable on an ordinary basis. There is a possibility that she may be unduly optimistic as to the extent of costs that would be recoverable on an indemnity basis, but it is not necessary to determine that matter since I will not order costs on that basis, for the reasons noted below. Ms Perry's evidence, which I accept, is that third party disbursements (or, more precisely, proper third party disbursements) are generally allowed in full on assessment. Ms Perry's affidavit also sets out a list of disbursements incurred in the proceedings.
Ms Perry's evidence is that she is concerned that significant costs and delays would be incurred in an assessment process. I accept that evidence, and it is a factor that supports an order for gross sum costs, without needing to go further to accept the concern expressed by Ms Perry that an assessment would also bring about "unmeritorious applications" on the part of Ms Penson. Any view as to the merits of such future applications is both speculative and, to some extent, open to different perspectives.
Ms Penson relies on her affidavit dated 6 March 2015, to which I will refer below. By a further affidavit dated 12 March 2015, Ms Perry responds, inter alia, to Ms Penson's affidavit dated 6 March 2015. Ms Perry's evidence is that she frequently undertakes winding up applications, and she indicates, and I accept, that the costs of a winding up application would ordinarily be in the range of $5,000 to $8,000 plus disbursements. As I will note below, that estimate appears to be common ground between the parties. Ms Perry refers to appearances by the Plaintiffs in the winding up proceedings brought by Mr Weber as supporting creditors, at a number of directions hearings. She sets out the nature of her communications with Ms Wood-Weber and expresses the opinion, which I accept, that those attendances were of a kind that were reasonable and necessary in the course of the proceedings. Ms Perry also sets out the circumstances in which solvency evidence was led by the Plaintiffs in the proceedings, in response to Ms Penson's evidence as to the Company's solvency and her willingness to provide support or funds to the Company. Ms Perry also leads evidence in justification of disbursements which were challenged by Ms Penson, to which I will refer below.
The Plaintiffs also relied on Ms Perry's affidavit dated 28 January 2015 to establish service of this application upon Aquaqueen. An affidavit of Ms Penson dated 22 February 2015 appears to contest that the application was served on 11 December 2014. Mr Beazley, who appeared for Ms Penson in the costs application, properly accepted in submissions that he was unable to point to any prejudice suffered by Ms Penson as a result of any delay in service of the application and that he would be making no submissions as to the matter (T8). I do not consider it necessary to determine any dispute as to the question of service, where it was not the subject of submissions and where, if there were any delay in service of the application and in the absence of prejudice, the Court would readily extend the time for service of that application.

Application for gross sum costs order

Section 98 of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." Uniform Civil Procedure Rules 2005 (NSW) r 42.1 ("UCPR") provides that, if an order is made as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. UCPR r 42.2 states the general rule that costs payable to a person under an order of the Court or these rules are to be assessed on the ordinary basis. UCPR r 42.5 provides for orders for indemnity costs.
As I noted above, the Plaintiffs seek orders under s 98(4) of the Civil Procedure Act that costs orders made in their favour by Brereton J on 30 April 2014 and by me on 20 November 2014 in these proceedings be paid by a specific sum of money determined by the Court. Mr Beazley indicated, in oral submissions, that Ms Penson did not oppose a gross sum costs order, in the amount of between $5,000 and $8,000, which both parties accepted would be the costs which might ordinarily be expected to be incurred in a Court ordered winding up application (T22). It seems to me that Ms Penson's position in that respect had little regard to the history of these proceedings, which distinguished them from the usual course of such proceedings.
Section 98(4) of the Civil Procedure Act 2005 (NSW) relevantly provides that the Court may make an order to the effect that a party to whom costs are to be paid is entitled to a specified gross sum instead of assessed costs. That power is commonly exercised where costs have been incurred in a lengthy or complex case although it is not in its terms limited to such a case: Simone Starr-Diamond v Talus Diamond (No 4) [2013] NSWSC 811 at [8]. The power to make a gross sum costs order should only be exercised where the Court considers it can do so fairly between the parties, including achieving an appropriate sum on the materials available to it, and the court typically applies a discount in assessing costs on a gross sum basis: Ritchie's Uniform Civil Procedure NSW [s 98.65]; Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23. In Hamod v State of New South Wales [2011] NSWCA 375 at [816]-[817], Beazley JA (with whom Giles and Whealy JJA agreed) summarised factors relevant to the making of a gross sum costs order as follows: "The terms of s 98(4), together with the more general considerations reflected in the Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred (for example, Harrison v Schipp); the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability: Ritchie's Uniform Civil Procedure NSW at [s 98.45]. The exercise of the power conferred by s 98(4) is particularly appropriate where the costs have been incurred in lengthy or complex cases and it is desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment. This may arise either from the likely length and complexity of the assessment process: Beach Petroleum NL v Johnson (No 2) at 120; Charlick Trading Pty Ltd v Australian National Railways Commission; Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006; or from the likelihood that the additional costs of formal assessment would disadvantage the successful party because of the likely inability of the unsuccessful party to discharge the costs liability in any event: Harrison v Schipp; Sony Entertainment (Aust) Ltd v Smith (2005) 215 ALR 788 at [90], [194]-[195]; Hadid v Lenfest Communications Inc [2000] FCA 628."
Her Honour there noted that the capacity of the unsuccessful party to satisfy any costs liability was relevant to the question whether a gross sum costs order should be made, and the same point has been made in other cases: Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738 at [21]; Hadid v Lenfest Communications Inc [2000] FCA 628 at [25]; Dye v Commonwealth Securities Ltd No 2 [2012] FCA 407. The Plaintiffs also submit that a gross sum costs order may be made to avoid the expense, delay and aggregation involved in litigation arising out of an assessment: Harrison v Schipp above. That proposition seems to me to have greater weight given the history of the assessment of, and disputes as to costs orders previously made in respect of, the District Court proceedings, as set out in Ms Perry's affidavit to which I have referred above. Where a gross costs order is to be made, the Court is not required to undertake a detailed examination of the kind which would be undertaken in a cost assessment, in determining a gross sum payable, and will apply "a broad brush" approach: Hadid v Lenfest Communications Inc above at [35]; Harrison v Schipp above at [22].
The Plaintiffs also refer to the observations of Pembroke J in Ireland (as Executor of the Estate of the late Gordon) v Retallack (No 2) [2011] NSWSC 1096 at [38]-[41]) to the effect that: "The terms of s 98(4)(c) are not subject to any express limitation, other than that an order may only be made before costs are referred for assessment. Nor is there any apparent basis for imposing an implied qualification arising from the language of the whole of s 98 or the surrounding statutory provisions or the evident purpose of Div 2 of the Act. It is well accepted that, subject to the proviso that it be exercised judicially, the court has an unlimited discretion when making an order pursuant to s 98(4) … Nonetheless, the power should only be exercised where the court considers that it can do so fairly between the parties. That includes a requirement that it has sufficient confidence that it is able to arrive at an appropriate sum on the information that is made available …The parties should of course be given an adequate opportunity to make submissions … Further, the power may be exercised broadly. A process similar to an assessment is not necessarily envisaged … Although considerations that would be relevant to an assessment may be taken into account … The court should however be confident that the approach which it adopts to the estimation of costs is logical, fair and reasonable…" [citations omitted]
In Filmlock Pty Ltd v Nissi Investments Pty Ltd (No 3) [2013] NSWSC 1594 at [3], Pembroke J referred to his observations in Ireland v Retallack (No 2) above and again emphasised the utility of the power under s 98(4)(c) of the Civil Procedure Act as a means of enhancing the interests of justice and furthering the overriding purpose in an appropriate case.
The Plaintiffs also make submissions as to the conduct of the District Court Proceedings. Mr Beazley submitted that the Court should not look at past conduct in determining appropriate costs orders in these proceedings. I accept that criticisms of Ms Penson's conduct of the District Court proceedings are generally not relevant to the determination of the costs of the winding up application in this court, with the qualification that the delays faced by the Plaintiffs in the assessment, and recovery, of the costs of the District Court proceedings seem to me to be of significant relevance to assessing the utility and desirability of a gross sum costs order in respect of the winding up proceedings. The Plaintiffs submit, and I accept, that a gross sum costs order may well be desirable where there is a risk of insolvency of the party liable to pay the costs, and where such an order is likely to avoid a protracted dispute as to cost of the proceedings. In the present case, there is more than a risk of insolvency of Aquaqueen, so far as it has been wound up on the basis of insolvency. There also seems to me to be every reason to think that, given the history of the assessment of costs in the District Court proceedings, the assessment of the costs of the winding up proceedings would not be straightforward or cost-effective for either party.
I am satisfied that the matters to which I have referred above, and particularly the insolvency of Aquaqueen, the fact that the costs of the proceedings have been increased by the adjournments sought by Ms Penson and the agitation of issues other than Aquaqueen's solvency, and the delays and costs likely to be incurred in an assessment warrant the making of a gross sum costs order in this case. I will now address issues as to the categories of costs included in and the quantum of that order.

Categories and quantum of costs

The Plaintiffs rely on Ms Perry's affidavit sworn 10 December 2014 in support of the quantification of their costs, which in turn exhibits schedules of costs on an itemised basis. They submit that 95% of their professional fees in respect of the defended application for substitution heard before Brereton J and of the winding up application heard before me, plus GST, should be allowed on an indemnity basis or 75% of those fees plus GST should be allowed on a party party basis. The Plaintiffs also claim disbursements of $20,484.37 including third party disbursements, which they submit should be allowed in full.
The Plaintiffs tendered a costs agreement dated 21 November 2013 between them and their solicitors. That agreement anticipated that Ms Penson would seek leave to appear as a director of the Company and noted that if such leave was granted that course would: "likely exacerbate costs of the proceedings and lead to a defended hearing of the application including the need for expert evidence." (Ex A4, p 2) That letter was not signed by the Plaintiffs but provided, in a common form, for acceptance by the Plaintiffs providing instructions after receiving the costs letter. I infer that the costs agreement was accepted by the Plaintiffs from the continuance of the representation of the Plaintiffs by their solicitors in the proceedings.
Mr Beazley submits that the costs and disbursements incurred by the Plaintiffs were grossly excessive and unnecessary in the circumstances. The costs incurred by the Plaintiffs are certainly substantial, although they would be discounted to a significant extent in making a gross sum costs order in the ordinary course. Mr Beazley also criticises the fact that costs of the order claimed by the Plaintiffs were incurred where Aquaqueen's original debt was in the order of $133,200, and that result is, on any view, regrettable. However, it seems to me that the level of costs incurred in these proceedings is largely attributable to the manner in which Ms Penson conducted the proceedings on Aquaqueen's behalf, and particularly the number of adjournments, extent of reagitation of issues and length of hearings, rather than any failure on the part of the Plaintiffs. To that extent, the disproportionate costs incurred strengthens the Plaintiffs' claim for an order for costs against Ms Penson personally, to which I will refer below, rather than undermining their claim for a gross sum costs order in their favour.
Mr Beazley draws attention to the matters to which Collier J referred in Vantage Holdings Pty Ltd v Huang (No 2) [2015] FCA 185 at [14]-[15] as relevant to the making of a fixed sum costs order, including what is fair and reasonable and proportionality to the nature, complexity and importance of the proceedings. I accept the relevance of those matters, but do not accept Mr Beazley's further submission that the amount claimed by the Plaintiffs (at least as discounted as will ordinarily occur in making a gross sum costs order) would be neither fair nor reasonable nor proportional to the proceedings, in the manner in which they were conducted by Aquaqueen and Ms Penson, by contrast with the manner in which winding up proceedings are ordinarily conducted.
Mr Beazley also submits that if the Court were minded to make an order against Ms Penson, given the size of the amount claimed and the question whether the work undertaken was reasonable: "Ms Penson should be entitled to have the right to receive an itemised bill of costs and be allowed natural justice to make objections to the bill and have it assessed in accordance with section 364 of the Legal Profession Act 2004." I do not accept that procedural fairness requires that costs be assessed in accordance with s 364 of the Legal Profession Act 2004 (NSW), where s 98 of the Civil Procedure Act expressly authorises the Court to make a gross sum costs order in a proper case. I have, in any event, had regard to the matters specified in s 364 of the Legal Profession Act in determining this application, including whether or not it was reasonable to carry out the work; whether or not the work was carried out in a reasonable manner; and the fairness and reasonableness of the amount of legal costs in relation to the work. In doing so, I have not, of course, undertaken a detailed assessment, which would be inconsistent with the nature of an application of this kind.
The hourly rate charged by the Plaintiffs' solicitor does not seem to me to be out of the market, having regard to her expertise in insolvency, and is significantly less than hourly rates that would ordinarily be charged by senior solicitors in larger firms. To the extent that her hourly rate exceeds that of a more junior solicitor, or a solicitor who does not have a specialist expertise in insolvency, the costs are likely to have been reduced, as she points out, by the fact that Counsel was not retained, and accordingly her clients (and by extension, Aquaqueen and Ms Penson) are not exposed to a claim for costs by both Counsel and solicitor in respect of interlocutory and final hearings, as would ordinarily be the case. Ms Perry also points out, and I accept, that the hourly rate which she claims finds some support in the rules formerly adopted by the Federal Court of Australia for the taxation of costs, albeit that those rules have now been superseded.
I do not consider that an order for indemnity costs should be made, for the reasons noted below. Where costs are ordered on an ordinary basis, Ms Perry did not seek to be heard in opposition to a common practice of the Court in applications for gross sum costs orders of adopting 70% of the actual solicitor/client costs that had been claimed, but pointed to the fact that disbursements would ordinarily be recoverable in full, subject to certain amounts which the Plaintiffs accepted involved duplication or were otherwise not pressed by them (T18). I consider the Plaintiffs should be allowed 70% of solicitor-client costs in calculating the gross sum costs order, subject to the exclusion of several categories of costs noted below. Figures in the order of 70% of solicitor-client costs are consistent with figures that have frequently been accepted by this Court in respect of applications for gross sum costs orders: see for example, Dubow v Fitness First Australia Pty Ltd (No 2) [2012] NSWSC 961 at [14]-[21]; Re Palladium Consulting Pty Ltd [2013] NSWSC 92 at [14]; Liberty Industrial Pty Ltd v Donald Mcarthy Trading Australia Pty Ltd [2013] NSWSC 279 at [17]. The Plaintiffs disbursements should be allowed in full, other than for the particular categories to which I refer below.
By her affidavit dated 6 March 2015, Ms Penson identifies various specific criticisms of the claims for costs by the Plaintiffs. By a schedule (MFI1) Ms Penson also identifies certain categories of costs to which she would object on an assessment, as quantified exclusive of GST. That schedule is in turn expanded by a further document indicating some 244 items of costs that are disputed by Ms Penson. Mr Beazley also makes specific submissions as to particular costs claimed by the Plaintiffs. I recognise that, in making a gross sum costs order, I am not required to and should not undertake an assessment of the kind that a costs assessment would perform. However, it seems to me that it is, however, in the interests of the just, quick and cheap resolution of the proceedings, as required by s 56 of the Civil Procedure Act, that I address Ms Penson's criticisms of particular categories of expenditure, without conducting an item-by-item review of the Plaintiffs' claims for costs.
By her affidavit dated 6 March 2015, Ms Penson refers to claims for work done by the Plaintiffs' solicitors prior to the date of the substitution of the Plaintiffs as petitioning creditors, and Ms Penson's schedule (MFI1) indicates that she would object to costs prior to the Plaintiffs' substitution in the amount of $2,300 exclusive of GST. Ms Penson's affidavit also identifies the fact that the costs claimed by the Plaintiffs include costs of communication with Ms Wood-Weber and with the solicitor for Mr Weber, the petitioning creditor in the original winding up application. In her schedule (MFI1), Ms Penson also indicates that she would object, in an assessment, to costs of attendance on the petitioning creditor's solicitor quantified as $850 exclusive of GST. Mr Beazley also submits that the costs associated with the application prior to an order for substitution of the Plaintiffs as petitioning creditor would not be allowed on assessment. The Plaintiffs respond that the costs in respect of the substitution application were antecedent to that application and are properly recoverable on that basis, and refer to authorities which support the recovery of costs on that basis, and that costs of liaison with Mr Weber's solicitors were incidental to the substitution application. It seems to me that these costs are properly recoverable as incidental to the conduct of a substitution application and they should be included in the calculation of the gross sum costs order, subject to the appropriate discount noted below. In her schedule (MFI1) Ms Penson also indicates that she would object, in an assessment, to costs of reporting to the Plaintiffs as to the conduct of the proceedings quantified as $4,425 exclusive of GST. It seems to me that those costs are proper costs of the conduct of the proceedings and should be included in the calculation of the gross sum costs order, subject to the appropriate discount noted below.
By her affidavit dated 6 March 2015, Ms Penson refers to costs associated with the engagement of an expert accountant, who subsequently was not called to give expert evidence, after he joined the same firm as the liquidator proposed to be appointed by the Plaintiffs. Ms Penson quantifies those costs as $2,200. The Plaintiffs concede a deduction of $500 from the costs claimed in respect of that matter. Ms Penson indicates that she would object to costs of dealing with the liquidator described as "re conflicting interest and judgment" in the amount of $300 exclusive of GST. It does not seem to me that Aquaqueen or Ms Penson can fairly be held liable for those costs which relate to matters as between the Plaintiffs and that expert. Those costs should not be included in quantifying the gross sum costs order.
In her schedule (MFI1), Ms Penson also indicates that she would object to costs referable to the insolvency expert retained by the Plaintiffs of $20,320 exclusive of GST, including solicitors' costs of dealing with that expert and experts' fees. Mr Beazley submits that there was no need for the Plaintiffs to engage an accounting expert to prepare a report as to Aquaqueen's solvency. The Plaintiffs respond that Ms Penson raised the issue of solvency in opposition to the winding up application and in doing so required the Plaintiffs to lead accounting evidence in response to Ms Penson's evidence of the Company's solvency, and that Ms Penson in turn required the expert accountant retained by the Plaintiffs for cross examination. It seems to me that, once Ms Penson sought to establish Aquaqueen's solvency, by her affidavit evidence which in turn sought to rely on evidence of Aquaqueen's accountant, the Plaintiffs had had no real alternative other than to lead evidence in response. These costs should be included in a gross sum costs order, subject to the applicable discount of the solicitor-client costs claimed. That discount is not applicable to the expert's fees which are a disbursement.
Ms Penson's schedule (MFI1) indicates that she would object on an assessment to administration, research, review, drafting, settling and preparation costs of $11,475, seeking a reduction of those costs by approximately $8,300, including an adjustment of the Plaintiffs' solicitor's charge-out rates. Ms Penson also submits that charges for research, administration and perusal of court lists by the Plaintiffs' solicitors should be treated as "relevant to the solicitor's hourly rate", not additional charges. In respect of this category, the Plaintiffs concede an attendance in the amount of $250, which should be deducted in determining the basis of a gross sum costs order. It seems to me that those matters are otherwise adequately addressed by the discount which I propose to apply in determining a gross sum costs order.
Ms Penson indicates that she would object, in an assessment, to costs of $1,677 in relation to a subpoena that she contends was not served. The Plaintiffs respond that the relevant subpoena was in fact served and was called upon in the proceedings. The costs of that subpoena are properly included in quantifying the gross sum costs order, subject to the discount noted below.
Ms Penson indicates that she would object, in an assessment, to Court filing fees in the amount of $838. In respect of filing fees, the Plaintiffs concede several disbursements should be deducted in determining a gross sum costs order. Those filing fees are otherwise properly included in a gross sum costs order.
Ms Penson indicates that she would object, in an assessment, to $918.40 out of photocopying costs charged at $1,080.40. The Plaintiffs support the photocopying charge on the basis that the charge-out rate stated in the costs agreement between the Plaintiffs and their solicitor is $1.00 per page, and the Plaintiffs contend that this rate is fair and reasonable and widely applied in the legal services market. I am not persuaded of that proposition, where photocopying could be charged at cost or outsourced to third party providers, and it does not seem to me that the rate agreed between the Plaintiffs and their solicitors binds the Court as to the amount which should be allowed as reasonable in making a gross sum costs order. The photocopying charge should be reduced from $1,080.40 to the lower amount conceded by Ms Penson, in calculating the amount allowed under the gross sum costs order.
Ms Penson indicates that she would object to costs in the amount of $410 referable to costs ordered by Brereton J on 19 and 21 May 2014 on the basis that that amount has already been paid by Aquaqueen. The Plaintiffs respond that the costs claimed in respect of 19 and 21 May relate to further correspondence, after Ms Penson approached his Honour's Associate in respect of the form of those orders. Those costs should be included in calculating the gross sum costs order, subject to the discount which I will generally apply in respect of the gross sum costs order.
Ms Penson indicates she would object to costs of an application on 4 August 2014 as to which I made no order as to costs, costs in the amount of $4,157 claimed in relation to a gross sum costs order made by Brereton J on 18 August 2014 and a gross sum costs order made by me on 25 August 2014. The Plaintiffs point out that they have not claimed costs of the hearing on 4 August, but concede costs of $1,050 as associated with that hearing, which should be excluded in calculating the gross sum costs order. The Plaintiffs accept that some of the costs claimed in respect of Brereton J's order on 18 August 2014 related to other matters and they concede the amount of $3,937, which should be deducted in determining the basis for a gross sum costs order. Ms Penson refers to a claim for solicitors' costs of $600 in respect of the attendance before me on 25 August 2014, where I made no order as costs. The Plaintiffs concede the amount of $350, which should be deducted in determining the basis of the gross sum costs order, but otherwise submit, and I otherwise accept, that the costs were anterior to the application and not comprised within that gross sum costs order.
Ms Penson also indicates that she would object, on an assessment, to the costs of an interlocutory hearing on 24 September 2014 dealing, inter alia, with the need for a change of timetable for the expert report quantified as $2,650 exclusive of GST. The Plaintiffs point out that the interlocutory hearing on 24 September 2014 dealt with a number of matters, including the application by Aquaqueen's Counsel for leave to withdraw from the proceedings. The costs of that interlocutory hearing were reserved, and it seems to me that no reason has been established not to treat those costs in the same manner as the general costs of the proceedings, in accordance with the usual approach adopted in UCPR r 42.7, and they should be included in determining the amount of a gross sum costs order.
In respect of other costs and charges which Ms Penson submits are not related to the winding up, the Plaintiffs concede the amount of $750, and identify certain other attendances as referable to the proceedings. However, the costs of file storage and taxi fares should be excluded in calculating the costs permitted under the gross sum costs order.
Ms Penson also indicates that she would object to the Plaintiffs claim for a gross sum costs order in respect of the costs of this application. The Plaintiffs respond that the claim for costs in relation to the application for the gross sum costs order is appropriate. I am satisfied that the Plaintiffs should have the costs of this application, as to which they have had a substantial degree of success. I also accept the submission that a gross sum costs order is appropriate in respect of those costs, where the parties would otherwise be required to incur the costs of an assessment in that regard. A lump sum costs order in respect of the costs of this application is appropriate for the same reasons that it is appropriate in respect of the winding up application generally.
I do not consider that it is necessary or appropriate for me to deal with other matters raised by Ms Penson in respect of the claim for costs, beyond those addressed above, where the award of a gross sum costs order is not an assessment. I am satisfied that the overall discount which I propose to allow, in ordering gross sum costs, will appropriately address those matters.

Claim for costs on an indemnity basis

The Plaintiffs also seek an order that their costs be determined on an indemnity basis. The principles applicable to an order for indemnity costs were summarised by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225 at 232-234 where his Honour noted that the Court ought not usually make an order for the payment of costs other than on the party and party basis, and that some special or unusual feature in the case is needed to justify the Court in departing from the ordinary practice. His Honour noted several circumstances recognised in the authorities in which indemnity costs may be ordered, including the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions and observed that, ultimately (at 234): "The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis." The summary of principles in Colgate-Palmolive Co v Cussons Pty Ltd above was in turn applied in Lahoud v Lahoud [2006] NSWSC 126 at [11] and in Ng v Chong [2010] NSWSC 127 at [18]. In Liverpool City Council v Estephan [2009] NSWCA 161 at [100], Giles JA (with whom McColl JA agreed) observed that s 56 of the Civil Procedure Act adds emphasis to the occasion to depart from costs on an ordinary basis where a failure to properly conduct the proceedings has caused costs to be incurred unnecessarily, but does not override the need for a rational connection between the reason for that departure and the extent of that departure.
The Plaintiffs submit that indemnity costs should be ordered since costs were thrown away by reason of matters including several applications for adjournment by Aquaqueen, interlocutory applications and submissions that the Plaintiffs contend were made without proper legal basis, extensive oral submissions which extended the time taken for the hearing of the various applications in the proceedings, and the leading of evidence in inadmissible form. I have referred above to the manner in which the proceedings were conducted by Ms Penson significantly increased their length, and their cost to the Plaintiffs, beyond what would ordinarily be incurred in a winding up application.
I conclude below that several aspects of the conduct of the proceedings are such as to warrant an order for costs against Ms Penson, as well as against Aquaqueen. However, I do not consider that those matters rise to the level that would warrant an order for indemnity costs against Ms Penson or Aquaqueen. I do not think the resistance to the winding up application on the basis of solvency, or Ms Penson's asserted willingness to provide financial support to Aquaqueen, could be described as hopeless, and the additional costs incurred by the manner in which the proceedings were conducted are adequately addressed by an order that Ms Penson be jointly and severally liable with Aquaqueen for them on the ordinary basis.

Claim for costs against Ms Penson

The Plaintiffs seek an order that Ms Penson, who, as I noted above, is a director of Aquaqueen and appeared in person for Aquaqueen in the large part of the proceedings, be jointly and severally liable with Aquaqueen for the Plaintiffs' costs of the proceedings.
Ms Penson was granted leave to represent Aquaqueen in these proceedings under r 7.2 of the Uniform Civil Procedure Rules. Rule 7.1 of the Uniform Civil Procedure Rules permits a company to commence or carry on proceedings by, relevantly, a director. However, rule 7.1(3) provides that, in the case of proceedings in this Court, a company may only commence proceedings if the director is also a plaintiff in the proceedings. That paragraph is apparently directed only to the commencement (as distinct from the carrying on) of proceedings. In this case, the general provision in rule 7.1(2) applied, to permit Ms Penson to represent Aquaqueen so far as it was a defendant in the proceedings. Rule 7.2(2)(b) of the Uniform Civil Procedure Rules in turn deals with the requirements for an affidavit made by a director of a company where he or she seeks to appear for the company under r 7.1 of the Uniform Civil Procedure Rules. That rule requires an acknowledgment that the director is aware that he or she may be liable to pay some or all of the costs of the proceedings. That rule recognises that a director appearing for a company, particularly in complex proceedings, may increase the costs of other parties to the proceedings and requires that the director acknowledge, for the benefit of other parties, and so that it is plain that he or she understands, that he or she may be liable personally as a result of costs incurred in the proceedings.
In seeking and obtaining leave to represent Aquaqueen in the proceedings, Ms Penson necessarily accepted a risk that she might be the subject of a personal costs order pursuant to those rules. In accordance with my usual practice, I drew that risk to Ms Penson's attention, and she specifically acknowledged that risk, in the form required by UCPR r 7.2, in her affidavit sworn 5 September 2014 (Ex A5) as follows: "In my capacity as a director of the Company I have resolved in the past and by resolution today determined that I be authorised that I as Managing Director of the Company continue these proceedings without the intervention of a Solicitor and seek to appear on behalf of the Company on its behalf [sic]. I am aware that in appearing on behalf of the Company I may be liable to pay some or all of the costs of the proceedings as may be ordered against the Company."
The Plaintiffs rely, in support of the application for an order for costs against Ms Penson, on Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178, FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 and May v Christodoulou [2011] NSWCA 75. In Knight v FP Special Assets Ltd above, Mason CJ and Deane J (with whom Gaudron J concurred) noted (at 193) that an order for costs could be made against a non-party to proceedings where: "The party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party … has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against any non-party if the interests of justice require that it be made."
In FPM Constructions Pty Ltd v Council of the City of Blue Mountains above at [210], Basten JA (with whom Beazley and Giles JJA agreed) noted that the exceptions to the general rule that an order for costs is only made against a party to the litigation should not be allowed to expand so as to undermine the rule itself, and that relevant criteria included that the unsuccessful party was the moving party; the source of funds for the litigation was the non-party or its principal; the conduct of the litigation was unreasonable or improper; the non-party or its principal had an interest which was equal to or greater than that of the party or, if financial, was a substantial interest; and the unsuccessful party was insolvent. His Honour also observed (at [214]) that: "The criteria identified in Knight v FP Special Assets should not ultimately be treated as separate and independent factors. Each requires an evaluative assessment of factors which will clearly tend to interact. Nor should it be forgotten that the power is only to be exercised in exceptional cases. In many cases involving individuals in the superior courts the parties may lack the resources to meet the costs of the litigation if unsuccessful. Similarly, there will frequently be a non-party, be it a company officer or solicitor, who will be active in the conduct of the litigation and who will obtain some direct or indirect financial benefit from its success. The fact that it is entirely proper for legal practitioners to runs [sic] cases on a speculative basis, so long as satisfied that they have reasonable prospects of success, demonstrates that care must be taken not to apply the criteria mechanically. Careful attention is required to the conduct of the party said to be involved in the litigation and the nature of the "interest" in its outcome or subject-matter."
In May v Christodoulou above, the majority in the Court of Appeal held that the fact that a director represents the company is not enough to justify the exercise of the power to award costs against the director personally. Sackville AJA observed (at [98]) that the effect of a director's acknowledgement that he or she may be personally liable for the costs of proceedings which he or she conducts on behalf of a company is that a director: "… records only his acknowledgment that he may be liable to pay some or all of the costs of the proceedings. It does not say, for example, that he will be liable if the [company] loses the case or if he is found to not to have complied with the professional standards expected of a legal practitioner." His Honour also observed (at [102]-[103]) that the manner in which a director conducts proceedings on a company's behalf was relevant to the exercise of the discretion in that: "Although a non-legally qualified director does not owe the same duties to the court as a legal practitioner, it is no doubt correct that the manner in which the director conducts legal proceedings on behalf of a company could justify a costs order against him or her personally. If, to take an example already given, the director repeatedly and flagrantly ignores court directions, thereby prolonging the proceedings and causing the other party to incur substantial and irrecoverable costs, a non-party costs order may well be appropriate. In this case, however, the primary Judge did not find that the appellant engaged in conduct that was so reprehensible or inappropriate that a non-party costs order should be made against him. The criticisms made of the appellant's conduct of the proceedings, if made in relation to a legal representative, would have fallen well short of the sort of conduct that justifies a costs order against a legal practitioner personally … If every legal practitioner who attempted to adduce inadmissible evidence or who asked irrelevant questions was made the subject of adverse costs orders, the courts would do little but adjudicate costs applications." Handley AJA, in the minority, regarded the fact that a director's involvement had prolonged the proceedings as relevant to the exercise of the discretion to make an order for costs against the director.
In Greenacre Business Park Pty Ltd v Deliver Australia Pty Ltd [2014] NSWSC 1646 at [17], White J in turn summarised the principles applicable to an award of costs against a director who was not party to the proceedings. His Honour noted (at [19]) that: "It is clear from May v Christodoulou that the fact that the proceedings are being conducted for the defendant by its director from the time the defendant's solicitor filed a notice of ceasing to act is not of itself a sufficient reason for ordering costs against the director. Rather, similar considerations would apply to the director as would apply to a solicitor acting for the defendant company if costs orders were sought against the solicitor. But it is clear in my view that costs orders against a non-party, whether director or solicitor, would be warranted where the unsuccessful party is a person or entity of straw and where the conduct of the litigation by the non-party in question is improper." I recognise, however, that the criticisms which can be made of Ms Penson's conduct of these proceedings fall well short of the circumstances in that case, where his Honour found that a knowingly false document had been propounded by the director. In JJES Pty Ltd v Sayan (No 2) [2014] NSWSC 975, Campbell J made a non-party costs order against a director, although recognising that such an order should be made sparingly and with great restraint, where he found the company was relevantly insolvent; the director had played the largest part in the litigation; she stood to gain from the litigation and her conduct of the litigation had been unreasonable. In the present case, each of the first three factors are present; and here Ms Penson's conduct of the litigation was unreasonable, so far as it led to a significant delay and escalation on their cost, although it did not involve the giving of unsatisfactory evidence of the kind noted in that case.
The Plaintiffs point out that, except for the short period in which Counsel appeared for Aquaqueen in September 2014, prior to his withdrawal, the litigation was conducted by Ms Penson on behalf of Aquaqueen, as its director and sole shareholder. The Plaintiffs point out that Ms Penson prepared written submissions on behalf of Aquaqueen and made oral submissions, undertook cross-examination at the final hearing and sent relevant correspondence on Aquaqueen's behalf. The Plaintiffs submit, inter alia, that a substantial part of the evidence filed by Ms Penson was inadmissible and that substantial time was spent on irrelevant matters including grounds of opposition to the winding up that were not available where there existed a presumption of insolvency, arising from the service of a creditor's statutory demand by Mr Weber, which had not been set aside. I accept that submission, at least to the extent that Ms Penson led affidavit evidence, at significant length, that sought to canvas the merits of the conduct of the District Court Proceedings, notwithstanding that Brereton J and I had drawn to her attention, on several occasions, that it was likely the primary or only relevant issue in a winding up application would be Aquaqueen's solvency.
Mr Beazley accepts that Ms Penson's conduct of the proceedings may have taken more time and involved more adjournments, because of a lack of procedural and legal understanding, but submits that that conduct does not provide a basis for a personal costs order against Ms Penson. I do not accept that the level of delays, adjournments and additional costs arising from the positions taken by Ms Penson in these proceedings is attributable simply to any lack of procedural or legal understanding. Ms Penson's conduct of the proceedings seems to me to have increased their costs to an extent that would not ordinarily be expected where a layperson appeared on a company's behalf. In particular, it seems to me that the repeated applications for adjournment by Ms Penson, some of which were successful, significantly increased the costs of these proceedings beyond those which would have been incurred by the Plaintiffs in the ordinary course. Mr Beazley also submits that there was "nothing extraordinary" about the conduct of the proceedings by Aquaqueen, other than the fact that they were conducted by a layperson. Again, I do not accept that submission, since a review of the procedural history of these proceedings indicates that the number of attendances, the number of adjournments and the extent of reagitation of earlier matters is well outside the ordinary course.
Mr Beazley also submits that there could be little objection to the Court making an order for costs against Aquaqueen in the amount of less than $8000. It is implicit in that submission that Ms Penson recognises that that figure reflects the costs that would ordinarily be incurred in a winding application. However, that proposition again seems to me to emphasise, not that excessive costs were incurred by the Plaintiffs in respect of the work they were required to undertake and the number of occasions on which they were required to appear in these proceedings, but the extent to which the conduct of these proceedings by Ms Penson took them outside the ordinary course of winding up proceedings. It seems to me that Ms Penson's conduct of the proceedings can properly be characterised as inappropriate, so far as it increased their costs in that manner, and the scale of that increase is well beyond the ordinary course.
I am satisfied, having regard to these matters, that an order for costs should be made against Ms Penson jointly and severally with the gross sum costs order to be made against Aquaqueen.

Claim for interest under s 101 of the Civil Procedure Act

The Plaintiffs also seek an order for payment of interest under s 101(4) of the Civil Procedure Act. The principles applicable to an award of interest and the proper process for calculation of that interest were comprehensively reviewed by Ward J in Ying v Song [2011] NSWSC 618 at [99]ff. Particularly where the proceedings have continued over a long period, the Plaintiffs will presumably have been out-of-pocket by the payment of costs to their solicitors, and an order for interest on costs can potentially be made to compensate them for that matter, in the absence of any countervailing discretionary factor: Drummond & Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331 at [4]; Ying v Song above at [99]-[103]. For the reasons set out by Campbell J in Lahoud v Lahoud above, accepted by Bergin J in Cat Media Pty Ltd v Allianz Australia Ltd [2006] NSWSC 790 and Ward J in Ying v Song above, the Courts typically adopt a formula which avoids the complex and expensive task of a costs assessor calculating interest on individual payments.
However, in Drummond & Rosen Pty Ltd v Easey (No 2) above at [49], Handley JA (with whom Tobias JA agreed) observed that the power under s 101(4) of the Civil Procedure Act should not be exercised without evidence of the amounts paid and the dates of payment. Ms Perry accepted, in the course of submissions, that there was no evidence of when payment of the relevant costs was made (T22). In these circumstances, I do not consider that I can make an order under that section.

Outcome

I have set out certain adjustments which should be made above in determining the costs and disbursements that will be the subject of a gross sum costs order. I have held above that a gross sum costs order should be made, quantified as to 70% of the costs as adjusted in respect of the categories noted above, and as to the whole of the disbursements as adjusted in respect of the categories noted above, and both Aquaqueen and Ms Penson should be jointly and severally liable in respect of that costs order.
The parties should bring in Short Minutes of Order to give effect to this judgment within 14 days, which should be supported by a schedule indicating the adjustments which have been made as noted above.

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: 06 May 2015

Legal Profession Act 2004(NSW)s 364

Civil Procedure Act 2005(NSW)s 98(4)(c)., ss 56, 98, 98(4), 101, 101(4)

Uniform Civil Procedure Rules 2005(NSW)rr 7.1, 7.2, 42.1, 42.2, 42.5, 42.7, r 42.1

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