Citadel Property Group (Rockdale No 1) Pty Ltd & Ors v Capital Financial... [2016] NSWSC 1182 | Case summary

Supreme Court of NSW|2016-08-29|Before: Bergin CJ

Judgment

These reasons relate to the issue of costs of proceedings that were dismissed for want of due despatch on 29 June 2016. The Cross-Claim was also dismissed: Citadel Property Group (Rockdale No 1) Pty Ltd & Ors v Capital Financial Australia Ltd & Ors [2016] NSWSC 890 (the Judgment). These reasons should be read with the Judgment.
The parties were unable to agree on a costs order and on 11 July 2016 each party filed their written submissions on the issue of costs which was to be determined on the papers. However the defendants sought to rely upon detailed affidavit evidence in support of a claim under s 98(4)(c) of the Civil Procedure Act 2005 (CPA) for a gross sum costs award. The matter was listed for directions on 22 July 2016 and the plaintiff was directed to file and serve any evidence in reply and submissions in respect of the application for a gross sum award by no later than 5 August 2016 (later extended by consent to 15 August 2016). The parties indicated they were content for all issues in respect of costs to be determined on the papers.
The plaintiffs contend that the appropriate order in the circumstances is that each party pay their own costs of the proceedings or that each party pay their own costs, save that the plaintiffs are to pay CFAL's costs of the Future Projects Claim. CFAL seeks an order that the plaintiffs pay the defendants' costs of the proceedings, excluding the Cross-Claim, in respect of which it seeks no order as to costs.

Gross sum costs award

The next matter for determination is whether in all the circumstances it is appropriate to make a gross sum costs award.
The discretion under s 98(4)(c) of the CPA is very broad and empowers the Court to make a gross sum costs order "whenever the circumstances warrant" it: Harrison & Anor v Schipp (2002) 54 NSWLR 738 at [21] (Giles JA referring to the similarly worded, but now repealed, Pt 52A, r 6(2) of the Supreme Court Rules 1970). However it is constrained by: (a) the need for fairness between the parties; (b) the availability of evidence to enable the Court to confidently award an "appropriate" sum in all the circumstances; and (c) the requirement that the approach taken to estimate costs be fair, logical and reasonable. The matters to be taken into account as part of the circumstances include: (1) whether the assessment of costs may be protracted; (2) whether the assessment process may be expensive; and (3) whether there is doubt that the party obliged to pay the costs may not be able to comply with an order to do so. Other matters to be taken into account include the relative responsibility of the parties for the costs incurred and the nature and degree of complexity of the proceedings: Hamod v State of New South Wales and Anor [2011] NSWCA 375 at [813]-[820].
Mr Bates obtained an estimate of the professional costs and the likely amount of time a costs assessment application would take in the circumstances of this case from a legal costs consultant solicitor, Ross Nicholas. Mr Nicholas estimated fees of $80,000 and a period of twelve to eighteen months in respect of the costs assessment process.
Mr Bates itemised the solicitor/client costs for CFAL at $1,087,971 (excluding GST). His evidence in relation to party/party costs was that: costs assessors discount the solicitor component of the costs by about 30% and will not apply any discount to the disbursements, including counsel's fees; solicitor costs excluding GST total $711,630 and the disbursements exclusive of GST total $376,341; a costs assessment would be expected to reduce the solicitor costs to $498,141 (being the correct calculation of 70% of $711,630; Mr Bates mistakenly had $547,955 recorded in his affidavit); total assessed costs could, therefore, be expected to be approximately $874,482 (which is the sum of $498,141 plus $376,341; Mr Bates still ended up arriving at this figure), inclusive of disbursements but exclusive of GST; after reducing that amount by $103,565 to take into account various interlocutory orders, the final figure is reduced to $770,917. Mr Bates then divided $770,917 by four and rounded it down to the nearest thousand to calculate a 40% discount to reach a figure in respect of each plaintiff of $230,000. That division was based on the assumption that in broad terms each of the three sets of unique issues were responsible for the same amount of work and therefore costs; and the work up until the proceedings were dismissed on the issues associated with the common costs was the equivalent of one set of unique issues.
CFAL conceded that if a gross sum costs order were to be made under s 98(4)(c) of the CPA the costs of the oral application for the stay and the application for dismissal would be absorbed into the gross sum costs order. It was submitted that the gross sum it seeks, of $230,000 as against each plaintiff, is a very significant discount on the costs that have been incurred in the proceedings.
CFAL also submitted that a costs assessment would be unduly complex; that there is a real doubt about the plaintiffs' capacity to pay any assessed costs; that the process would probably cost $80,000 and take twelve to eighteen months to complete; and that the costs assessment process in those circumstances would be futile. It submitted that after years of delay an additional twelve to eighteen months plus the expenditure of $80,000 with the prospect of there being no capacity to recover anything from the plaintiffs would render it unfair for CFAL to have to take part in such a process.
CFAL submitted that the costs have been incurred over a lengthy period of time and the plaintiffs are entirely responsible for those costs being incurred. They made serious allegations against officers of CFAL and CFAL itself and failed to prosecute them. CFAL also emphasised its willingness to accept a significant reduction in its costs if a gross sum order is made. It was submitted that its approach is fair, logical and reasonable and that a gross sum award should be made.
The plaintiffs submitted that the main difficulty with the proposed gross sum award of costs sought by CFAL is that it does not take into account the costs of the Cross-Claim other than an assessment that only $5,000 of the costs incurred by CFAL (on a party/party basis) are attributable to the Cross-Claim. It was submitted that having regard to the findings made by McDougall J in Citadel Property Group v Capital Finance Australia that the plaintiffs' proceedings were in large part defensive in nature, it would seem that the $5,000 figure is not appropriate.
The plaintiffs relied upon the affidavit of Daniel Salim, solicitor on the record for the plaintiffs, sworn on 16 August 2016. In that affidavit Mr Salim sets out his assessment of the unique and common issues to the main claim and the Cross-Claim. Mr Salim concludes that in general terms the division of the issues and the time spent on the issues were that: the unique issues were spread equally between the plaintiffs; the unique issues are the same as the Cross-Claim issues and are applicable equally to both aspects of the claim; and the common issues only form about 10% of the time spent and costs incurred in the proceedings. The plaintiffs submitted that in those circumstances 90% of the time spent and costs incurred in the proceedings were in respect of the issues that arose on the Cross-Claim.
I do not agree with the plaintiffs' assessment in this regard. I prefer Mr Bates' careful assessment and analysis.
The plaintiffs also relied upon the affidavit of Antonio Andrew Maiolo sworn on 16 August 2016. Although this evidence is not relevant in the circumstances of my conclusion as to the costs orders of the main proceedings and the Cross-Claim, I will record it. In his affidavit Mr Maiolo sets out the costs and disbursements that had been incurred by the plaintiffs in the proceedings. Those costs are recorded as solicitor's fees of $416,696.80; counsel's fees of $344,258; and disbursements of $45,462.35, totalling $806,417.15 (including GST).
Mr Salim claimed that if an award is made in favour of the plaintiffs on the Cross-Claim it should be a gross sum of $278,580; and that if an award is made in favour of CFAL the gross sum should be in the amount of $184,000 against each plaintiff.
This case, like some other cases in which gross sum costs awards have been made, has had a lengthy and unfortunate history: Wilkie v Brown [2016] NSWCA 128 at [52]. There is no doubt that the plaintiffs' conduct in failing to provide the particulars as ordered added to the delay by reason of the stay that was then in place. The plaintiffs' conduct in introducing serious allegations and then abandoning them without any proper explanation (other than an inference of a strategic advantage) also added to the complexity of the circumstances in which a costs award must be assessed.
There is little doubt that any costs assessment would be contested and there is real doubt about the plaintiffs' capacity to pay any amount over and above that which is in Court pursuant to the order for security for costs ($130,000).
The analysis of the costs by Mr Bates was logical and in my view quite reasonable. I think the fair outcome is to award a gross sum with an adjustment to Mr Bates' figures. I am satisfied in the circumstances that a gross sum costs award should be made in the amount of $200,000 against each plaintiff.

Orders

I make the following orders:
The plaintiffs are to pay the defendants' costs of the proceedings in the amount of $200,000 as against each plaintiff.
There be no order as to costs of the Cross-Claim.

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: 29 August 2016

Citadel Property Group (Rockdale No 1) Pty Ltd & Ors v Capital Financial Australia Ltd & Ors

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