Clutch & Brake Australia Pty Ltd v Khamis

Whether leave to appeal should be granted

1. The first issue to be determined is whether the plaintiff should be granted leave to appeal.
2. The approach to be applied in determining whether to grant leave is not in dispute. The relevant principles are helpfully summarised in the Court of Appeal decision of Gibson v Drumm [2016] NSWCA 206 ("Drumm"). In Drumm, the Court (per Beazley P and Simpson JA) at [19] stated that there are no exhaustive or rigid rules of practice or criteria governing the grant of leave to appeal. However, it has been consistently stated that leave should only be granted where there are substantial reasons that call for appellate review and, in particular, where there is an error of principle, a matter of public importance or injustice, which is reasonably clear in the sense of going beyond what is merely arguable.
3. In Metziya Pty Ltd v ICR Engineering Pty Ltd; ICR Engineering Pty Ltd v Metziya Pty Ltd; ICR Engineering Pty Ltd v Blayney Cold Storage Distribution Pty Ltd [2016] NSWSC 1703, Schmidt J noted at [12]. "12 …the mere fact that the amount involved is small will not preclude the grant of leave where the appeal raises errors of principle, matters of public importance or injustice going beyond what is merely arguable."
4. As McCallum J explained in Secure Parking Pty Limited v Ralan Property Services Pty Limited (No 1) [2018] NSWSC 660 at [12] ("Secure Parking"), cases involving small sums are no less susceptible to error of principle and often entail complexity disproportionate and even inversely proportionate to the amount at stake. In Secure Parking, her Honour did not approach that case on the basis that leave should be refused for that reason alone, as it was her view that it was a relevant factor and, indeed, an important factor.
5. In this current appeal, both the amount of the judgment and costs are very modest. I accept that it is a relevant factor in determining whether to grant leave to appeal.

The plaintiff's submissions on leave

1. The plaintiff submitted that the modest amount of its own should not preclude a grant of leave.
2. According to counsel for the plaintiff, the appeal has good prospects of success. He emphasised that the appeal is of importance due to the application of Part G of the Local Court Practice Note Civ 1, headed "Maximum Costs Orders in the General Division" ("the Practice Note") which is the general rule as to the assessment of costs for matters between $10,000 and $20,000 being a recurring issue in the Local Court. The plaintiff further submitted that the appeal raises the important issue of the status Part G of the Practice Note and its application in circumstances where matters are resolved without a hearing on the merits, without reference to the Practice Note or a costs cap.
3. While Part G of the Practice Note has been the subject of decisions of this Court on previous occasions, they concerned the application of the Practice Note in circumstances where a Magistrate had exercised her or his discretion on costs and made orders following a contested hearing. In these cases the Practice Note had been taken into consideration in the exercise of the Court's discretion.
4. The plaintiff relied upon the affidavit of William Robert Richey affirmed 14 May 2018, and the affidavit of Bryan Geoghegan affirmed 17 May 2018. I shall briefly refer to their contents here.
5. Mr Richey is a solicitor instructed by the plaintiff's insurer, Allianz Australia Ltd ("Allianz"). He has been employed at Gells Pty Ltd trading as Gells Lawyers ("Gells") since 2012 and he has access to the practice management records at Gells. During the course of his employment he has been responsible for the conduct of about 900 matters in the Local Court. A review of Gells' records show that since 2011, approximately 50 of their matters every year were for claims under $20,000 and commenced in the General Division of the Local Court.
6. It has been Mr Richey's experience that proceedings in the Local Court for claims under $20,000 will often settle on agreed terms that do not expressly refer to Part G of the Practice Note as either applying or not applying. In those matters, the question of whether Part G should apply to the question of costs is usually resolved by negotiation between parties after orders have been entered.
7. Mr Geoghegan is employed by Allianz as a recovery officer/litigation consultant. His role is to instruct Allianz's lawyers in relation to litigation conducted all over Australia. He exclusively deals with motor vehicle property damage claims where Allianz is seeking a recovery. He conducted a search of Allianz's records to determine the number of claims that have been for recovery of amounts less than $20,000. Allianz's records show that in the last 12 months they referred about 350 new motor claims in New South Wales to solicitors to commence recovery proceedings for amounts less than $20,000. About one quarter (80) of those claims were between $10,000 and $20,000. He has not included active recovery files that were already on foot as active litigation. Most of Allianz's motor claims in the General Division of the Local Court that are below $20,000 settle without proceeding to hearing.
8. In summary, the solicitor acting for Allianz has received about 50 cases where the claims are under $20,000 and of those, the claims often settle without reference to the Practice Note. Costs are dealt with by way of negotiation after the orders have been entered. The Allianz recovery/litigation consultant says that during the last 12 months Allianz referred about 350 new motor claims in New South Wales to solicitors to commence recovery proceedings for amounts less than $20,000. Most of Allianz's motor claims are filed in the General Division of the Local Court as they are below $20,000. They settle without proceeding to hearing.
9. This information, to my mind, does not go so far as to establish that the application of the Practice Note is a recurring issue.

The first, second and third defendants' submissions on leave

1. The first, second and third defendants submitted that leave to appeal should be refused for the following reasons: 1. The amount involved does not warrant leave; 2. Even if the operation of the maximum costs order and the general rule of the assessment of costs is a "recurring issue" in the Local Court, this does not provide a real basis for the grant of leave; 3. This matter does not involve any general or substantial question of law that would be of public interest but turns on its own particular facts, there is no issue of general or wider importance or relevance that requires a grant of leave, or would operate in favour of the granting of leave in respect of the courts below; 4. The need for finality and for proportionality, having regard to the history of the legislation and the modesty of the amounts involved, is high: see Aktas v Westpac Banking Corporation Ltd [2013] NSWSC 1451 at [20]-[21]. Proportionality is one of the keystones of the legislation and should be given substantial weight especially as costs have been assessed by a costs assessor and sought review from the costs review panel; 5. If the plaintiff wished to make an application that the Practice Note did not apply; the time and place for such application was to invoke the introductory words of paragraph 36.2 of the Practice Note and to ask the Local Court to "otherwise order"; 6. An ordinary reading of the Practice Note clearly delineates the circumstances in which the Practice Note applies. There is nothing to suggest that the Local Court could not, if application was made at the time of the hearing, to "otherwise order". Alternatively, the first, second and third defendants suggested that if it is of such importance, then a party need only ensure when settling cases in the Local Court for amounts of between $10,000 and $20,000, it is agreed that the costs cap will no longer apply. The parties specifically incorporate in any terms of settlement the simple notation that the previous order of the court under the Practice Note are vacated and that costs be assessed on an ordinary basis; and finally 7. The first, second and third defendants suggested that this issue should have been taken first by the plaintiff in the Local Court. As that did not occur, this argument cannot be raised in this appeal. It also should have been raised at the very least during the costs assessment process.
2. I shall briefly set out the history of these proceedings and consider whether there are substantial reasons that call for appellate review and in particular whether there is an error of principle, a matter of public importance or injustice that is reasonably clear in the sense of going beyond what is merely arguable.

The Local Court proceedings

1. The costs decision arises out of 2015 proceedings commenced in the Local Court General Division concerning a motor vehicle property damage claim.
2. The proceedings were settled. Short minutes of order were made by consent between the parties. On 31 October 2016, the orders were made as follows: "1. Judgment for the plaintiff as against the first defendant in the sum of $6,800 plus interest in the sum of $500.00. 2. Judgment for the plaintiff as against the second and third defendants in the sum of $6,800 plus interest in the sum of $500.00. 3. The First Defendant is to pay 50% of the Plaintiff's costs as agreed or assessed on the ordinary basis. 4. The Second & Third Defendants are to pay 50% of the Plaintiff's costs as agreed or assessed on the ordinary basis."

The Practice Note

1. At the time the orders were entered in the Local Court, namely 31 October 2016, the Practice Note applied to the proceedings, including Part G.
2. The Practice Note reads as follows: "11 PART G - MAXIMUM COSTS ORDERS IN THE GENERAL DIVISION Local Court of New South Wales Practice Note Civ 1 Issued pursuant to section 15 of the Civil Procedure Act 2005 (CPA) And pursuant to section 27 Local Court Act 2007 36.2 Unless the court otherwise orders, the following orders are taken to have been made when the defence is filed in the proceedings: If the plaintiff is successful and the claim is for an amount between $10,000 and $20,000, then the maximum costs that can be awarded to the plaintiff is 25% of the amount awarded by the court plus any amount that might be allowed in relation to costs incurred up to the filing of the first defence in the proceedings. If the defendant is successful and the claim is for an amount between $10,000 and $20,000, then the maximum costs that can be awarded to the defendant is 25% of the amount claimed by the plaintiff. Where the proceedings were transferred from the Small Claims Division to the General Division, then the maximum costs that can be awarded to the successful party is $2,500."
3. Counsel for the plaintiff agrees that the Practice Note provides guidance as to the costs orders that should be made. This approach accords with what Bergin J stated in Baulderstone Hornibrook Pty Limited v HBO+DC Pty Limited [2001] NSWSC 821 in relation to the earlier decision of Mason P in Atkins v Abigroup Ltd (1998) 43 NSWLR 53. Bergin J at [14] stated: "…that Practice Note 39 "governed" proceedings in the Commercial Division. Practice Notes need to be read in conjunction with the Rules and one must be careful not to elevate a Practice Note to a status that it does not have. A Practice Note governs or guides the way in which the proceedings are expected to be administered. Practitioners, and thus parties, should be aware of the requirements of the Practice Note and it is to be expected that orders and/or directions will be made consistently with the Practice Note which governs the particular list."

The costs assessment

1. The plaintiff lodged an application for the assessment of its ordered costs under Part 7 of the Legal Profession Uniform Law Application Act. The matter was referred to costs assessor, John Sharpe ("the costs assessor").
2. In his reasons at [14] and [15], the costs assessor stated: "14. I invited the Costs Applicant to respond to the objections received, the Costs Applicant provided a detailed response on 7 April 2007, which essentially submitted: a. The costs Order of the Court means what it says. b. The appropriate place to resolve the dispute is the Court rather than the Assessment process. c. Part G was obviated by the consent order. d. The terms of Part G were not enlivened because there was no hearing on the merits. 15. Having reviewed the whole of the material placed before me in this matter I determine that the Costs Applicant's costs are capped by virtue of the Local Court's Practice Note Civ 1 and specifically Part G thereof."
3. Hence, the costs assessor at [15] took into account the Practice Note and capped the plaintiff's costs at a maximum of 25% of the amount claimed by it.

The costs review panel

1. On 1 June 2017, the plaintiff appealed the costs assessor's decision to the costs review panel.
2. The costs review panel comprised of Michael Robinson and Frances Hutley. In its reasons dated 29 September 2017, the costs review panel stated at [28]: "28 There was nothing before the Assessor or the Panel that supports the argument that the parties had agreed to an amount for the costs that was not in accordance with the practice note. The Review Applicant was represented by an experienced solicitor who signed and consented to the orders made. The Review Applicant's argument that the failure to file the Notice of Motion does not remove the court's power to make alternative costs orders to those set out in Part G is not disputed. The practice note itself confirms this power. The court made orders in accordance with what the parties had stated was the agreement. The parties have not been able to settle the issue of costs and an application for assessment was filed. The Assessor assessed the costs in accordance with the practice note as there was no court order to the effect the practice note was not to be applied. The panel does not find there is a basis to disturb the Assessor's determination."
3. The costs review panel affirmed the costs assessor's decision.

The grounds of appeal

1. The issue in this appeal is whether or not by virtue of the Practice Note the costs orders in the short minutes of order made by the Local Court include or are subject to a maximum costs cap.
2. The plaintiff contends the Practice Note is a guide as to the usual practice of the Local Court and cannot operate to limit the otherwise express consent orders made by the Local Court.
3. The grounds of appeal are that the costs review panel erred by: 1. Upholding the costs assessor's decision that the plaintiff's costs were "capped" pursuant to Local Court Practice Note Civ 1; 2. Failing to set aside the costs assessor's assessment and substitute the costs assessor's decision with an assessment of the plaintiff's costs on the "ordinary basis" in accordance with the general rule as to assessment of costs provided for by r 42.2 of the Uniform Civil Procedure Rules 2005 (NSW); 3. Determining that there was no court order to the effect that the Practice Note was not to be applied; and 4. Determining that the decision of the costs assessor to "cap" the plaintiff's costs was an "incidental question of law" pursuant to s 93C(3) of the Legal Profession Uniform Law Application Act.

The plaintiff's submissions

1. The plaintiff submitted that: 1. The costs orders made by the Local Court with the consent of the parties did not include an express order limiting the costs recoverable to a maximum of the amount awarded by the Local Court and therefore, the plaintiff's costs should have been assessed on the ordinary basis pursuant to the terms of the orders made without that limitation; 2. Paragraph 36.2 of the Practice Note commences with the words "Unless the Court otherwise orders." By making the express orders in the terms agreed to by the parties, the Local Court has ordered otherwise and not made a maximum costs order. The express order cannot stand subordinate to a practice note; 3. Part G of the Practice Note refers to "if the plaintiff is successful…". The proceedings were not determined by the Local Court and therefore the Practice Note is not enlivened due to the settlement of the proceedings; 4. The maximum costs provisions of the Practice Note functions as a guide as to the likely orders that will be made by a Magistrate when exercising her or his discretionary powers on costs. It was not a rule that applied with force of law when the costs orders were entered; 5. Pursuant to s 75 of the Legal Profession Uniform Law Application Act, the assessment of the plaintiff's costs was to be made in accordance with "the terms of the order under which the costs were payable"; 6. The terms of the costs orders are plain on their face and ought to be read as expressed. A costs assessor reading the orders alone could not reasonably understand them to include a maximum costs cap; 7. The reasoning process of the costs assessor in determining that the plaintiff's costs were "capped" by virtue of Part G was not stated, it was an ipse dixit; 8. The reasoning of the costs review panel was that there was no order to the effect the Practice Note was not to be applied; 9. The Practice Note anticipates the plaintiff succeeding in the proceedings and the Local Court choosing to award a plaintiff costs. The "cap" on the plaintiff's costs is also defined by reference to the amount actually awarded by the Local Court; 10. When there has been no hearing on the merits, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order; 11. In the absence of a hearing on the merits by the Local Court and where the parties have come to an agreement as to the order for costs, the Practice Note ought to have no application unless expressly adopted; 12. The Practice Note is there as an incentive to parties to make commercial offers of settlement and as a financial disincentive for litigants in the Local Court to proceed to hearing for matters involving less than $20,000; 13. Part G is expressed in future tense. Its operative clauses speak of amounts that "can be" or "might" be awarded by the Court, that is, once there has been a hearing; and 14. The Practice Note does not have the force of a rule. Therefore, it can only be a guide as to what litigants ought to expect. As it has no effect, it need not be expressly negatived in the content of the order.
2. The parties again referred to Secure Parking which involved an appeal in relation to a costs order made in the Local Court where the judgment amount was $10,873.93. In Secure Parking, McCallum J stated at [24] and [27]: "24 Mr Ghabar also submitted that his Honour failed to make appropriate findings about the alleged delay and rather simply adopted the submissions put on behalf of Ralan. He submitted that the Magistrate ought to have examined the evidence relating to those matters and made some attempt to quantify the alleged delay and to make findings of fact as to the matter of the allegedly withheld video evidence. Mr Ghabar submitted that these are important matters of principle, the effect of which is to have visited injustice upon Secure Parking and which have the potential to visit injustice on any successful defendant who has made an offer of compromise in proceedings in the Local Court. … 27 At a broad level, the potential for conflict between the practice note and the rules relating to offers of compromise has been addressed in decisions of this Court. The parties drew my attention to the decision of Adamson J in Ada Evans Chambers P/L v Santisi [2014] NSWSC 538; my decision in T&DC Pty Limited v Workforce Clothing Pty Limited [2015] NSWSC 1731 and a decision of mine in Colbron v Freeman (No 2) [2014] NSWSC 1528. In particular, as submitted by Mr Bennett, it is established clearly enough by the decision of Adamson J in Ada Evans Chambers v Santisi at [19] that the practice note does not fetter the court's discretion under the statute or the rules. The fact that her Honour had determined that point was cited by me in T&DC at [83] as a reason for refusing leave to appeal against an order as to costs in that case. I do not think there is any point of principle raised by the present case which is not made clear by those authorities."
3. I agree that the Practice Note does not fetter the Court's discretion under the statute or rules.
4. The Practice Note needs to be read in conjunction with the Uniform Civil Procedure Rules. It governs or guides the way in which proceedings are expected to be administered.
5. If a party does not want the Practice Note to be applied, there is provision in the Practice Note for that party to seek an "otherwise" costs order from the Court. Alternatively, the amount of costs payable can be negotiated between the parties. They can agree that the costs are not to be capped in accordance with the Practice Note. The plaintiff did not avail itself of either of these alternatives.
6. In the proceedings in the Local Court, defences had been filed. Judgment had been entered against the first defendant in the sum of $6,800 plus interest in the sum of $500; and similarly against the second and third defendant in the sum of $6,800 plus interest in the sum of $500. Those amounts when added together total less than $20,000. Costs orders were made that the first defendant pay 50% of the plaintiff's costs as agreed or assessed on the ordinary basis; and that the second and third defendant pay 50% of the plaintiff's costs as agreed or assessed on the ordinary basis. When assessing the plaintiff's costs the costs assessor was guided by the Practice Note and applied the cap on costs.
7. The evidence in this appeal does not go so far as to establish that the operation of the Practice Note is a recurring issue in the Local Court. The amounts in dispute are modest. Legal costs have already been expended in the costs assessment process and before the review panel. There are no substantial reasons that call for appellate review and, in particular, there is no error of principle, no matter of public importance or injustice that is reasonably clear. It is my view that the plaintiff's chances of success on appeal are, at best, poor. Taking these circumstances into account, in the exercise of my discretion, leave to appeal should be refused.
8. The result is that leave to appeal is refused. The summons filed 8 December 2017 is dismissed.
9. Costs are discretionary. Costs usually follow the event. The plaintiff is to pay the first, second and third defendant's costs on an ordinary basis.

The Court orders that: 1. Leave to appeal is refused. 2. The summons filed 8 December 2017 is dismissed. 3. The plaintiff is to pay the first, second and third defendant's costs on an ordinary basis.

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: 31 May 2018