E Co [a pseudonym] v Q

Plaintiffs' submissions as to costs

1. The plaintiffs have sought the following orders in respect of the costs of the proceedings: an order for party/party costs in favour of the plaintiffs against the first defendant; an order for indemnity costs in favour of the plaintiffs against the first defendant from 18 December 2015 on the basis of Calderbank offers made by the plaintiffs to the first defendant; an order for interest on that part of the plaintiffs' costs which have been paid by the plaintiffs; and an order to the effect that this is an appropriate case for the making of an order for costs on a gross sum basis (and directions as to how that sum is to be determined). In that regard, the plaintiffs raised the possibility of: an exchange of expert evidence as to costs in the ordinary way; the appointment by the Court of a single costs expert (who might then be cross-examined by the parties); and the appointment by the Court of an expert to determine costs as a referee.

Party/party costs

1. As to the claim for party/party costs, the plaintiffs submit that they have been, in substance, successful in these proceedings and that it follows that they ought have their costs of the proceedings (referring to r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW)). The plaintiffs submit that there are no factors which warrant departure from the general rule that costs follow the event (other than their claim for indemnity costs from 18 December 2015 which I consider in due course). (As I note below, there is no opposition to an order of this kind on the ordinary basis for the costs up to and including 13 April 2018 but the making of an order for indemnity costs is opposed and the first defendant seeks a different order in relation to the costs of the proceedings from 14 April 2018.)

Interest on costs

1. As to the claim for interest on costs, it is noted that the proceedings were commenced prior to the amendment to ss 101(4) and 101(5) of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) effected by the Courts and Other Justice Portfolio Legislation Amendment Act 2015 (NSW), Sch 1.2 [2]. Accordingly, the relevant provisions of s 101 applicable to the claim for interest on costs here made (see South West Helicopters Pty Ltd v Stephenson (No 2) [2018] NSWCA 99 (South West Helicopters) at [28] per Basten, Leeming & Payne JJA) are as follows: (4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs. (5) Interest under subsection (4) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from: (a) the date or dates on which the costs concerned were paid, or (b) such later date as the court may order.
2. It is noted by the plaintiffs that in South West Helicopters, the Court of Appeal (at [43]) approved the following statement by Gleeson JA in Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158 (Doppstadt) (at [403]): The payment of interest is intended to be compensatory, on the basis that the person entitled to costs has been wrongly required to spend money on litigation to enforce established rights: Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 at [44] per Basten JA (Campbell JA agreeing). Thus in the absence of any countervailing discretionary factor, it is appropriate that an order for interest on costs be made to compensate the party having the benefit of a costs order for being out of pocket in respect of relevant costs which it had paid. There is no requirement to establish that the circumstances of the case are out of the ordinary: Drummond and Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331 at [4] per Macfarlan JA (Tobias JA agreeing) citing Lahoud v Lahoud [2006] NSWCA 126 at [82]-[83] per Campbell J.
3. The solicitor for the plaintiffs (Mr Michael Fitzgerald) has exhibited to his affidavit sworn 10 May 2019 documents recording the payments in respect of costs made by the first plaintiff, E Co, since 2014 (see his affidavit at [36], pp 230-242 of the exhibit thereto).
4. It is submitted that these proceedings have been long and complex. The plaintiffs maintain that there is no countervailing discretionary factor which would make it inappropriate to compensate the plaintiffs for being out of their money during the proceedings. To the extent that the conduct of the parties is to be taken into account, the plaintiffs assert that the defendants challenged almost every part of the plaintiffs' case in circumstances where, ultimately, substantial parts of that case were the subject of admissions by the first defendant in cross-examination (referring to the principal judgment at [810]).

Indemnity costs

1. The plaintiffs' application for indemnity costs is said to be founded upon two offers made on 23 June 2015 (the First Offer) and on 12 December 2015 (the Second Offer), and a letter dated 18 December 2015 from the second defendant in response thereto.
2. In this regard, the plaintiffs invoke the so-called Calderbank principles (Calderbank v Calderbank [1975] 3 WLR 586; [1976] Fam 93 (Calderbank v Calderbank)), referring to Commonwealth v Australia v Gretton [2008] NSWCA 117 at [44] per Beazley JA (as Her Excellency then was) (with whom Mason P agreed); Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 (Miwa) at [8] and [12] per Basten JA (McColl & Campbell JJA agreeing); and Leichhardt Municipal Council v Green [2004] NSWCA 341 at [14] per Santow JA (Stein AJA agreeing).
3. The substance of the First Offer (made subject to discussion about CGT), as recorded in draft heads of agreement, was for: the first defendant to transfer to his sons the 3/6 Aggregation and the 9/10 Aggregation (cl 2.2); the third, fourth and fifth plaintiffs to pay the costs of the transfers of properties including CGT, with the first defendant required to assist to obtain the most favourable ruling possible (cll 2.3 and 2.4); the first defendant to retain the Main/7 Aggregation and Property No 11, subject to the plaintiffs having grazing rights (cll 2.5, 3.1 and 3.2); the plaintiffs to release the first defendant from any guarantees or securities (cl 4.1); the plaintiffs to release any claim for family provision (cl 4.2); the first defendant to transfer his shares in E Co and pay $500,000 to the plaintiffs (cll 4.3 and 4.4); the first defendant to forgive all debts owed to him by the plaintiffs, and A to forgive any debt of the first defendant owed to him (cl 4.7); and the parties to pay their own costs of the proceedings (cl 4.10).
4. It is noted that the First Offer was made after a mediation had been adjourned on 23 June 2015; and that, in the following months, there was further correspondence and two days of mediation. It is also noted that the first defendant swore his first affidavit in the proceedings on 2 November 2015.
5. The Second Offer was then made on 12 December 2015; the proposed terms of settlement there providing for: the first defendant to transfer to his sons the 3/6 Aggregation and the 9/10 Aggregation (cl (a)); the third, fourth and fifth plaintiffs to pay the costs of the transfers of properties including CGT, with the first defendant required to assist to obtain the most favourable ruling possible (cll (d) and (e)); the first defendant to sell the Main/7 Aggregation and Property No 11, subject to the plaintiffs having grazing rights (cll (b), (c), (i) and (j)); the plaintiffs to release the first defendant from any guarantees or securities (cl (f)); the first defendant not to reside within 80 km of the 3/6 Aggregation or the 9/10 Aggregation, or within 20 km of the suburb in Sydney where B resides (cll (g) and (h)); the first defendant to make an irrevocable promise by deed to bequeath his entire estate to his grandchildren, subject only to certain legacies to two named persons, and to promise not to reduce his estate (cll (k)-(n)); the plaintiffs to release any claim for family provision on their own behalf (cl (o)); the first defendant to transfer his shares in the corporate plaintiffs and his units in the trust to his sons (cll (p) & (q)); the plaintiffs to transfer 200 cows of reasonable quality to the first defendant (cl (r)); the first defendant to forgive all debts owed to him by the plaintiffs, and A to forgive any debt of the first defendant owed to him (cll (u) & (v)); and the parties to pay their own costs of the proceedings (cl (y)).
6. By letter dated 18 December 2015, the second defendant responded to the Second Offer to the effect that the first defendant "no longer wishes to negotiate" and stating that the first defendant's last offer "is so far in excess of what, in my client's considered view, is likely to be the result of any litigated outcome" that the first defendant found the plaintiffs' position "incomprehensible".
7. Against that background, the plaintiffs make the following submissions, referring to the factors identified in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 (at [25]) by the Victorian Court of Appeal (Warren CJ, Maxwell P and Harper AJA) as relevant to determining whether the rejection of an offer was unreasonable.
8. First, that the Second Offer was made a year and a half after the proceedings had commenced, and over a year and a half after the High Court published its reasons in Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 (Sidhu v Van Dyke) (16 May 2014), during which time both the plaintiffs and the defendants had served their evidence in chief, after there had been three days of mediation and an exchange of detailed correspondence. Thus, it is submitted that the legal and factual matrix in which the proceedings were to be assessed were well understood by both parties.
9. Second, that no time limit was placed on the offer (and, in this regard, it is noted that the first defendant had had the opportunity to form, in his own words, "a considered view", one from which the plaintiffs point out he did not resile from during the course of the proceedings, including after the principal judgment were delivered on 13 April 2018).
10. Third, that the extent of the compromise offered was considerable, in that the first defendant would have the proceeds of the Main/7 Aggregation and Property No 11, with no liability for costs. It is noted that, as at 1 July 2015, Mr Donoghue (the first defendant's valuer) had valued these properties at $5,300,000, $780,000 and $2,080,000 respectively (i.e., $8,160,000 in total) and that Mr Tremain (the plaintiffs' valuer) had valued the properties on the same date as $5,875,000 (for the Main/7 Aggregation) and $1,525,000 (for Property No 11) (a total of $7,400,000). It is submitted that the position of the first defendant, had he accepted the Second Offer, as opposed to the position in which he is now, would very likely have been improved by in excess of over $10,000,000 "once the impact of liability for costs (including his own) is taken into account".
11. Fourth, that the first defendant's prospects of success must be understood in the context of the fact that the primary evidence of the parties had been served; and that, ultimately, the plaintiffs' case was founded on "significant admissions made by the first defendant during his cross-examination".
12. Fifth, as to the question of quantum, that the principle of prima facie fulfilment of the expectation was reaffirmed by the High Court in Sidhu v Van Dyke (at [84]-[85]), following Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10, and approving the observations of Nettle JA (as his Honour then was) in Donis v Donis (2007) 19 VR 577; [2007] VSCA 89 (at [34]). The plaintiffs say that it was for the first defendant to prove a lack of proportionality to displace this prima facie provision yet, in the primary hearing, the first defendant "made no pleading, adduced no evidence and limited his submissions to one paragraph, which paragraph was not supported by evidence". Further, it is said that when given the opportunity to adduce evidence in the relief phase of the proceedings, the first defendant was not able to do so in a manner which satisfied his duty of candour (referring to E Co v Q (No 4) at [476]).
13. It follows from the above, in the plaintiffs' submission, that not only did the plaintiffs have a strong case, but that the first defendant should have appreciated that at the time of the making of the Second Offer.
14. Sixth, that the terms of the offer were "clear and comprehensive". The plaintiffs accept that the prospect of indemnity costs was not expressly invoked in the Second Offer but note that it was marked "Without prejudice except to Costs" and submit that, in the context of parties advised by Senior Counsel and experienced solicitors, this would have conveyed to the defendants that, if the plaintiffs achieved a result which was superior in the litigation, an application would be made for costs on an indemnity basis, rather than a party/party basis. The plaintiffs submit that there is no other application which was reasonably foreseeable on the part of the plaintiffs on the basis of their offer.
15. In summary, therefore, the plaintiffs submit that: both the First Offer (though reliance is not placed on rejection of this offer, of itself, as the basis for the indemnity costs application) and the Second Offer involved a "significant degree of compromise" as the first defendant would retain the proceeds of the Main/7 Aggregation and Property No 11 for use during his lifetime; and that the first defendant was, at the time of the Second Offer (if not at the time of the First Offer), in an "excellent position" to assess his likely liability. It is submitted that the first defendant's decision to reject the plaintiffs' offers (and to refuse to negotiate) was, in all the circumstances, and particularly in light of the evidence given by him at the subsequent hearing, unreasonable.
16. Accordingly, it is submitted that this is an appropriate case for an order that their costs be assessed on an indemnity basis as and from 18 December 2015. Further, and in the alternative, the plaintiffs submit that the foregoing reasons form an additional basis for the award of interest on their costs.

Application for a gross sum costs order

1. The plaintiffs invoke s 98(4) of the Civil Procedure Act, which empowers the Court to make an order on a gross sum basis. Reference is made to the statements of principle set out in Hamod v State of New South Wales [2011] NSWCA 375 (Hamod) (at [813]-[817]) per Beazley JA (as Her Excellency then was) (with whom Giles & Whealy JJA agreed).
2. The plaintiffs have obtained the opinion of an expert costs consultant, Mr Nicholas, as to the cost of the usual costs assessment process (in the order of $240,000 - $320,000) and a timeframe for such a process (likely to take between one and two years).
3. The plaintiffs accept that procedural fairness requires that the assessment of quantum on a gross sum basis, as well as the calculation of interest on costs (if ordered), ought be made on the basis of expert evidence of the kind accepted by Sackar J in Lawcover Insurance Pty Ltd v Muriniti [2018] NSWSC 558 (at [32]ff). What the plaintiffs here seek is an order that this is an appropriate case for the making of an order for costs on a gross sum basis; and directions as to how that sum is to be determined, including: whether the parties exchange expert evidence in the ordinary way, whether the Court appoints a single costs expert who may then be cross-examined by the parties, and whether the Court appoints an expert to determine costs as a referee.
4. The plaintiffs submit that a gross sum costs order ought be made in the present case for the following reasons.
5. First, that the proceedings have been both lengthy and complex, and a costs assessment following the proceedings will likely be similarly lengthy and complex.
6. Second, because of my lack of confidence (see E Co v Q (No 4) at [476]) as to whether the whole picture as to the first defendant's assets had been put before the Court. The plaintiffs say that if the first defendant does have other significant assets available to him, they have been hidden from the plaintiffs and would require very significant time and expense to access, if at all; whereas on the first defendant's disclosed assets, he will be unable to pay any order for costs.
7. Third, it is said that the above matters assume greater significance in circumstances where the orders for payment of money have been stayed, providing an additional basis upon which it would be desirable for a quick and cheap determination of the quantum of costs.
8. Fourth, for the reason that there has hitherto been very little agreement between the parties during the course of the lengthy litigation. It is submitted that the first defendant has challenged every aspect of the plaintiffs' case, noting among other things that there were significant and lengthy disputes about pleadings (involving interlocutory hearings before Hallen J and White J (as his Honour then was)). It is submitted that there must be a prospect that that type of dispute will continue during a costs assessment.
9. Finally, it is said that, to the extent that the conduct of the parties is germane to a question of costs, a substantial part of the plaintiffs' case was based on admissions made by the first defendant, and it is submitted that the costs of the proceedings would have been substantially reduced had the first defendant narrowed the issues in dispute.
10. The plaintiffs submit that if their application that costs be determined on a gross sum basis is accepted, then the evidence of Mr Nicholas suggests that the quickest and cheapest course would be to permit the parties to adduce their own expert evidence on quantum.

First defendant's submissions on costs

1. The first defendant accepts that there should be an order (on the basis of the general rule that costs follow the event) that the first defendant pay the plaintiffs' costs of the proceedings up to and including 13 April 2018 on the ordinary basis. However, the first defendant submits that: he should not be ordered to pay the plaintiffs' costs on an indemnity basis; that he should not be ordered to pay interest on costs already paid by the plaintiffs; and that there should instead be an order that the plaintiffs pay his costs of the proceedings from 14 April 2018 on the ordinary basis. The first defendant also resists the making of a gross sum costs order.

Indemnity costs

1. As to the plaintiffs' claim for indemnity costs, the first defendant says that the First Offer (made on 23 June 2015) was one of a number of offers made as part of ongoing settlement negotiations between the parties following a court-ordered mediation; emphasising that it was expressly made "subject to discussion about capital gains tax". It is noted that the First Offer was superseded 26 minutes after it was issued by a counter-offer by the first defendant that sought, inter alia, to resolve the issue of CGT (a counter-offer said to have been largely in the terms of the First Offer yet not accepted by the plaintiffs). In the circumstances, the first defendant says that it cannot be said that it was unreasonable for the first defendant not to accept the First Offer (on the contrary, the first defendant submits that the plaintiffs were unreasonable not to accept his counter-offer).
2. As to the Second Offer (made on 12 December 2015), it is said that this was also made in the context of the parties' ongoing settlement negotiations. It is noted that the offer sought to resolve the outstanding CGT concern by seeking an exemption on the basis that the transfer of properties to the plaintiffs "will happen in connection with [the first defendant's] retirement".
3. The first defendant says that this proposal was first put to him on 12 November 2015 and that it was rejected, on 4 December 2015, on the basis, inter alia, that he was not going to retire and "did not wish to be involved in any way whatsoever with making any proposals in relation to taxation matters that are not an accurate representation of what he believes the position to be". That was followed by the making of the Second Offer, which it is said sought to address the first defendant's concerns by providing the plaintiffs' interpretation of the relevant tax law.
4. The first defendant points to the fact that the Second Offer made provision for the first defendant to apply for a CGT exemption on the basis that he was retiring (even though, it is said, the first defendant had no intention of retiring). The first defendant says that, regardless of the plaintiffs' assurances, he formed the view that the Second Offer required him to misrepresent his personal circumstances to the Australian Taxation Office (the ATO) and that it was on that basis that he rejected the Second Offer.
5. It is submitted that the first defendant's position in so acting was "entirely reasonable" and that it is unreasonable to suggest that the "ostensible merits" of the Second Offer could persuade the first defendant to make what he understood to be a false or misleading representation to the ATO. It is further said that the plaintiffs had everything to gain and nothing to lose from making the Second Offer, in that if the ATO determined that the first defendant was dishonestly attempting to avoid the payment of tax, then he alone would face whatever consequences flowed therefrom.

Interest on costs

1. As to the plaintiffs' claim for interest on costs paid from the date on which they were paid, the first defendant notes that in South West Helicopters, the Court (at [48]) disavowed the proposition that Doppstadt amounted to (or was intended to be) an "exhaustive statement of the relevant principles" and cautioned against "[t]he tendency to extract statements which are responsive to the particular circumstances of a case and elevate them into freestanding statements of principle", noting that a range of other considerations will arise in particular circumstances.
2. In the present case, the first defendant points to the fact that the plaintiffs' legal costs were (at least to a large degree) paid by the first plaintiff, E Co, noting that the financial statements and the income tax returns of E Co reveal that E Co claimed a substantial proportion of these legal costs as a business deduction, which, therefore, lowered the amount of tax that E Co was required to pay each year. It is submitted that the plaintiffs have therefore received a collateral benefit from the payment of legal costs, such that the receipt of interest would actually place them in a better position than they originally held, which would be contrary to the compensatory principle underpinning s 101(4) of the Civil Procedure Act.
3. The first defendant further submits that a substantial proportion of the costs incurred by the plaintiffs in these proceedings have been unnecessary (pointing to the 15 volumes comprising the main exhibit in the principal proceedings, not all of which material was relied upon in the proceedings, including "[p]erhaps the most notable example" the plaintiffs' "attempt to include an entire book within the exhibit"). It is noted that the plaintiffs served 27 affidavits in the principal hearing (not including the re-opened hearing), some extending to 244 pages. It is submitted that large parts of this evidence were, at best, peripheral to the issues in dispute and that some of it was irrelevant. As to the costs of the re-opened hearing, the first defendant says that most, if not all, of the costs the plaintiffs incurred from the time they applied to re-open the hearing were unnecessary.
4. The first defendant submits that, having regard to the above, there should be no order for the plaintiffs to receive interest on the costs they have paid in the proceedings.

Costs of the re-opened hearing

1. As to the costs of the re-opened hearing itself, the first defendant points to the discretion not to follow the usual rule (that costs follow the event) where there has been "disentitling conduct" on the part of the successful party (including conduct that has occasioned unnecessary expense or delay) and that an order that the successful party pay some or all of the unsuccessful party's costs may be made where such an order is warranted by the "overall justice of the case".
2. In this regard, the first defendant points to the basis upon which the plaintiffs applied to re-open the hearing (namely that the relief proposed in the principal judgment would be "financially ruinous" to them and that they would be denied procedural fairness if they were not provided with the opportunity to adduce evidence and to make submissions on the financial impact of the proposed relief upon them). It is submitted that, notwithstanding the premise upon which the plaintiffs had successfully applied (over the first defendant's opposition) to re-open the hearing, the plaintiffs did not adduce any evidence to prove the financially ruinous consequences of the original proposed relief. (Pausing here, that is certainly true insofar as there was no expert evidence adduced by the plaintiffs on that issue - though the individual plaintiffs themselves put on affidavits as to their financial position and that of the corporate plaintiffs.)
3. The first defendant submits that "the plaintiffs went to some lengths to avoid revealing the true nature of their finance position", giving by way of example: the failure to rely upon expert evidence opining as to the consequences of the proposed relief upon the plaintiffs; the decision of B and C not to reveal their efforts to sell C Hotel in their principal affidavits on the re-opened hearing; and the failure (said to be inexplicable) to produce the agency agreement for the sale of the C Hotel (containing an estimate of C Hotel's likely sale price) in answer to a subpoena seeking, inter alia, "all documents referring or relating to the proposed sale of [C Hotel]" (in this regard, it is said that the production of the agency agreement only followed "B's reluctant concessions in cross- examination"); and the refusal of both B and C to concede matters in cross-examination as to their likely financial position following the sale of C Hotel and the position of Westpac Bank in relation to outstanding loans.
4. It is noted that, ultimately, the issue of relief did not turn on the question of the allegedly "financially ruinous" impact of the relief originally proposed but on a question of legal principle which did not require the hearing to be re-opened, the first defendant referring to my observation in E Co v Q (No 4) at [11] that: [B]ut for the plaintiffs' desire to adduce further evidence, [the plaintiffs' complaint] could surely have been dealt with by way of submissions at a much earlier stage (and with no doubt considerably less expense than has presumably been incurred by all parties in preparation for the re-opened hearing). That, too, may be relevant in due course to take into account on the question of costs.
5. The first defendant submits that the conduct of the plaintiffs, in relation to the re-opening, has resulted in unnecessary expense and has delayed the proceedings by over a year. The first defendant submits that this is the kind of "disentitling conduct" that warrants the Court exercising its discretion not to follow the usual rule (i.e., not to order the first defendant to pay the plaintiffs' costs of the re-opened hearing). Instead, he seeks an order that the plaintiffs pay his costs of the proceedings from 14 April 2018, being the costs of, and incidental to, the re-opened hearing.
6. It is noted that, following the order to re-open the hearing, the first defendant obtained expert evidence from Lonergan Edwards as to the likely financial consequences of the proposed relief on the plaintiffs (obtaining additional reports that were required following the late service of relevant evidence from the plaintiffs); as well as lay and expert evidence on a range of other matters brought into issue by the re-opening; and that the first defendant responded to expansive notices to produce issued by the plaintiffs on 27 September 2018, 13 November 2018, 22 November 2018, 28 November 2018, and 8 December 2018, respectively, along with calls for documents made during the hearing. The first defendant says that he incurred substantial costs in relation to these matters and that, in the end, most if not all of this evidence was of no consequence to the resolution of the question of relief. It is submitted that the costs the first defendant incurred in relation to the re-opened hearing were wasted.
7. The first defendant refers to Arian v Nguyen [2001] NSWCA 5 (Arian v Nguyen), where the Court of Appeal noted that a successful party may be required to pay either the whole or part of the unsuccessful party's costs of the proceedings in circumstances where the successful party has caused unnecessary issues to be canvassed or has otherwise caused the costs of the litigation to be increased. The first defendant submits that the effect of the plaintiffs' application to re-open the hearing was the consideration of unnecessary issues and the delay of the proceedings by an entire year and that these unusual circumstances warrant the exercise of the discretion to order the plaintiffs to pay the first defendant's costs of, and incidental to, the re-opened hearing.

Gross sum costs order

1. Finally, the first defendant opposed the making of a gross sum costs order for the following reasons.
2. First, the first defendant reiterates the submission that a substantial proportion of the costs incurred by the plaintiffs in the proceedings have been unnecessary. It is submitted that while a formal cost assessment would properly consider the relevance and length of this evidence, along with the cost of preparing it, it is less likely this would occur if a gross sum costs order were to be made, which involves the adoption of a "broader brush" approach to the question of costs. It is submitted that, in order to do justice between the parties, the plaintiffs must be held "properly accountable" for the way in which they have chosen to prosecute their claims.
3. The first defendant says that it is no answer for the plaintiffs to say that the costs of a formal assessment would be substantial because, again, the complexity and cost of the assessment process is directly proportional to the sheer bulk of evidence and extrinsic materials relied upon by the plaintiffs, much of which he submits was not needed and was not determinative of the claims.

Plaintiffs' submissions in reply

1. The plaintiffs note that, in Arian v Nguyen, Ipp AJA (as his Honour then was), with whom Foster AJA agreed, said (at [37]) that: The making of an order that a successful party pay his or her opponent's costs requires strong justification and exceptional circumstances must exist before a party will not only be deprived entirely of costs but also required to pay part of the opponent's costs. Where a party raises issues or makes allegations improperly or unreasonably, this may constitute misconduct such that the court may not only deprive it of its costs but order it to pay the whole or a part of the unsuccessful party's costs". [citations omitted].
2. The plaintiffs say the submission by the first defendant (at [13]) that "conduct that occasioned unnecessary expense or delay" is itself "disentitling conduct" is not supported by reference to authority, arguing that the observations made by Ipp AJA in Arian v Nguyen were in the context of consideration of the distinct issue as to whether misconduct must cause expense or delay, his Honour concluding (at [38]) that "it seems to me that while delay and increased expense brought about by improper conduct in the course of the litigation are highly relevant factors in the discretion to depart from the usual order as to costs, they are not essential to the exercise of that discretion" and that "[i]t would, in any event, be very unusual for misconduct of that kind not to cause unnecessary delay and expense".
3. In the present case, the plaintiffs accept that not all of the submissions made by them at the re-opened hearing were accepted; but that they say that, for them to be deprived of their costs (or for an order be made that they pay the costs of the defendants), something more must be required to establish that "unnecessary" costs were incurred as a consequence of "misconduct" than the fact that the plaintiffs were not successful on all issues.
4. Reference is made to the observation of the Court of Appeal in Mobis Parts Australia Pty Ltd v XL Insurance Company SE (No 2) [2019] NSWCA 19 (at [5] per Beazley P (as Her Excellency then was), Meagher and Leeming JJA) that "recent authority favours the award of the costs of proceedings to the party successful overall without any differentiation as to issues, at least 'unless a particular issue or group of issues is clearly dominant or separable'".
5. As to the concept of "misconduct", reference is made to the reference in Hooker v Gilling (No 2) [2007] NSWCA 214 (at [22]) by McColl JA (with whom Ipp and Basten JJA agreed), to McHugh J's definition of "misconduct" (in Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (Oshlack) at [69]) sufficient to disentitle a successful party from its prima facie entitlement to costs as "misconduct relating to litigation, or the circumstances leading up to the litigation". In Oshlack, his Honour went on to say: Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party has already offered in settlement of the dispute. [footnotes omitted]
6. Insofar as the first defendant points to the late service of evidence regarding the sale of the C Hotel, the plaintiffs' response is that they were the ones who made disclosure of the sale and that their suspicion of the defendants (which was proffered as the reason this was not dealt with in the principal affidavits on the re-opened hearing) was, viewed from the perspective of the plaintiffs, "perfectly understandable".
7. The plaintiffs submit that the most important factor in the exercise of the costs discretion in the present case is that "the defendants opposed every part of the plaintiffs' case at the relief hearing, as they did in the primary hearing", maintaining the position (from the delivery of the principal judgment in April 2018) that the first defendant was entitled to payment of E Co's book debt and for market rent for the first defendant's lifetime (a position from which they "never wavered"), referring to the first defendant's written submissions of 27 April 2018 at [17]; the oral submissions on 4 May 2018 at T 41.20-23; the first defendant's written outline of submissions of 12 November 2018 and orders there proposed; and the first defendant's written submissions in closing of 13 December 2018. The plaintiffs emphasise that the first defendant's contentions in this regard were rejected.
8. It is submitted that the fact that the plaintiffs' case was ultimately resolved on the application of legal principle does not mean that it was unreasonable for the plaintiffs to adduce evidence of the plaintiffs' financial position and their capacity to pay such sums; noting that the first defendant's case also required the consideration of evidence on the question capacity. The plaintiffs noted that it was accepted (see E Co v Q (No 4)) that the contemplated payments could not be made without the sale of some of the hotels and properties; and point to the evidence of Mr Lonergan that the plaintiffs could not pay both the amount of market rent and the book debts (see [196] of his report of 12 September 2018 and [82] of his report of 7 December 2018). It is submitted that the first defendant "fully embraced" the proposition that properties would need to be sold because it was the first defendant's intention to argue that he had bettered the offer made by the defendants in 2015 (and, hence, that he be entitled to their costs of the proceedings from that date).
9. The plaintiffs submit that, given the nature of the first defendant's case, there is no basis to deny the plaintiffs their costs of the re-opened hearing, and that if these matters are to be taken into account at all, then it should be as part of the process of assessing the amount of the gross sum costs order sought by them.
10. As to their disputed claim for interest on costs, the plaintiffs accept that E Co benefited from claiming tax deductions for the payment of legal costs but say that the first defendant's position ignores that those costs were paid substantially from 'out of cycle' cattle sales which damaged E Co's business (because pasture improvement could not be maintained and the herd needed to be sold down). It is noted that, although the plaintiffs did not establish an exact figure as to the quantum of this damage, I accepted (at [297] of E Co v Q (No 4)) that it was not particularly controversial that the need to pay legal costs had had an impact of this kind.
11. As to the complaint by the first defendant that "a substantial proportion of the costs incurred by the plaintiffs in these proceedings have been unnecessary", the plaintiffs say that it was not unreasonably thought by them that it would be necessary to establish factual matters in issue (such as the conversations at the relevant times) by inference from contemporaneous documents (arguing again that the first defendant had resisted "almost every aspect of the plaintiffs' case until the first defendant's admissions in the witness box") and they say that much of the principal exhibit in the main proceedings contained documents proving cost and expenditure. The plaintiffs say that the first defendant's submission in this regard "is not supported by any evidence, or any analysis beyond sweeping pejorative conclusions"; and they submit that if, parts of the costs of the proceedings are beyond what is reasonable, that is "self-evidently a matter to be determined as part of the assessment or quantification exercise".
12. As to the submission for the first defendant (in response to the plaintiffs' claim for indemnity costs) that it was not unreasonable for him to reject the Second Offer on the basis that he did not intend to retire (and that he could not be dishonest to the ATO as to his intentions in this regard), the plaintiffs say that this submission fails both at the level of principle and on the evidence.
13. As to the question of principle, it is noted that whether the first defendant intended to retire was a matter to be determined objectively by the ATO and did not depend on the first defendant's subjective intentions. It is noted that, at the time of the Second Offer, there remained more than six months to be served of the first defendant's sentence and that at the earliest time he could have been released (4 July 2016) he would have been 72.5 years old, in ill-health and with neither land nor cattle until these proceedings were determined.
14. As to the question of evidence, it is said that there is no evidence from the first defendant that he was not in fact retired and that, in the absence of such evidence, it should be concluded (having regard to the fact that the first defendant did not resume farming activities on his release) that the first defendant had no immediate plans to resume such activities in December 2015 and was in fact retired at that time.
15. It is submitted that, from 18 December 2015, the first defendant's conduct of the proceedings was characterised by "uncompromising opposition". It is submitted that, as the sole basis put justifying the refusal of the Second Offer made by the plaintiffs is without substance, his conduct taken as a whole (including the rejection of the Second Offer and the refusal to engage in further negotiations with the plaintiffs) was unreasonable and that this should be reflected in the order for costs.
16. Finally, as to their application for a gross sum costs order, the plaintiffs submit that the first defendant's submissions do not grapple with the matters set out by the plaintiffs in their submissions in chief, including the impact of the first defendant's asserted impecuniosity and the effect of the (existing) stay order. It is submitted that if the conduct by the plaintiffs of the litigation is to be criticised on a genuine basis, the procedure proposed by them accommodates a means by which this may be accomplished (albeit without the requirement for a full assessment).

Determination

1. As noted above, there is no opposition by the first defendant to an order for costs against him, on the basis that costs follow the event, at least up until 13 April 2018, on the ordinary basis. His opposition is as to the making of such an order on the indemnity basis (and beyond 13 April 2018); to the making of an order for interest on the costs paid by the plaintiffs; and to the making of a gross sum costs order. He seeks his costs of the re-opened hearing (notwithstanding that the plaintiffs were successful in dissuading me from certain aspects of the relief that I had proposed in the principal judgment).
2. I deal with each of those matters in turn.
3. First, as to the claim for indemnity costs from 18 December 2015 on the basis of the principles articulated in Calderbank v Calderbank, those principles are well known and do not need here to be repeated. It is not suggested by the first defendant that the Second Offer should not be treated as a Calderbank offer (by reason of the absence of a reference to that effect in the letter setting out the Second Offer) and, in the circumstances which it was sent, I accept that it clearly was an offer that may be relied upon for that purpose. It must have been obvious to the first defendant's legal representatives that the plaintiffs might in due course rely upon non-acceptance or rejection of that offer (made in the course of ongoing settlement discussions) for the purposes of a costs argument. Nor was it (or could it sensibly have been) suggested that the Second Offer did not involve a genuine element of compromise. It clearly did.
4. The dispute between the parties as to the effect of rejection of the Second Offer goes solely to the question as to whether it was unreasonable of the first defendant to have rejected it. Insofar as the plaintiffs also suggest that it was unreasonabl eof the first defendant to refuse to negotiate further - as his solicitor communicated in the letter of 18 December 2015, the question for present purposes (i.e., when determining the application of the Calderbank principles) is as to whether the rejection of the Second Offer has been shown to have been unreasonable (the onus being on the plaintiffs in this regard); not whether it was unreasonable for the first defendant to continue at that stage in the settlement discussions.
5. In oral submissions, emphasis was placed by Counsel for the plaintiffs on the statement contained in the 18 December 2015 letter to the effect that the first defendant's last offer (I am told a reference to an offer in about June 2015) was so far outside the range of the relief that might be ordered that there was no point in continuing to negotiate. (I was told that this was in essence an offer worth in substance about $11,800,000 to the plaintiffs.) It was submitted for the plaintiffs (particularly in the context of the submission for the first defendant that he should have his costs as and from 14 April 2018) that this indicates that the first defendant's theory of the case after the principal judgment was an attempt to do better than the offer that had been made in June 2015.
6. However, what I take from the 18 December 2015 rejection letter is that it conveyed two relevant messages: first, an assessment by the first defendant as to the prospects of the case (and whether his earlier offer was within the conceivable range of outcomes) and, second, a refusal by the first defendant to adopt a position vis a vis the ATO that was perceived by him to be inconsistent with him having no intention at that stage to retire (albeit that he clearly was unable personally to carry on business as a primary producer at that point since he was still in gaol at that time).
7. As to the first, much emphasis is placed by the plaintiffs on the submission that the case against the first defendant succeeded largely on the basis of admissions made by him in cross-examination. That may be accepted. However, I am not persuaded that one can reason from that premise that it should have been obvious to the first defendant at the time that the Second Offer was made that the plaintiffs' claim had such strong prospects of success for that reason (or that, if it succeeded, the plaintiffs' claim would be likely to result in an outcome more favourable than the Second Offer), such that it was unreasonable for the first defendant to reject the offer at the time.
8. The plaintiffs' claims were formulated in a myriad of ways and, insofar as the admissions made during the course of cross-examination were concerned, while the plaintiffs say in effect that the first defendant must always have known that this was the evidence that he would give on the relevant issues, it is not necessarily the case that it was apprehended back in November 2015 that the thrust of the plaintiffs' cross-examination would be as it turned out to be. I accept that the rationale of special costs orders is to encourage litigants at an early stage to obtain advice in relation to the prospects of the litigation and to act responsibly and reasonably in relation thereto. However, the complexity of the present case (not least as evidenced by the ongoing and vexed position as to the CGT issue, in respect of which there was conflicting expert evidence) is such that it is difficult for me to accept that the stance the first defendant adopted to a settlement offer premised on a position in relation to CGT was unreasonable.
9. As to the second, the fact that the first defendant may have had an incorrect understanding of how the Commissioner would approach the question of CGT (and, in particular, the relevance - or lack thereof - of his subjective intention) does not seem to me to gainsay the proposition that the first defendant had expressed (and for present purposes I would accept he genuinely held) a concern that acceptance of the offer would require him to put a position to the ATO that was inconsistent with his then intention. That becomes apparent from the fact that the letter goes on to state that the first defendant "in particular does not intend to become involved in the dealings with the ATO".
10. The position, therefore, appears to be that the first defendant apprehended (wrongly or otherwise) that what he would be required to do for the purposes of applying for a private ruling on the CGT issue would be to make a statement as to his intentions in relation to retirement. The plaintiffs maintain that he would not have been required to make such a statement because his subjective intention was irrelevant (and that their memorandum as to the tax issues made that clear). The plaintiffs say, in effect, that the first defendant had the benefit of legal or other advice and should have considered the issues involved in relation to the making of that kind of private tax ruling. Hence, as I understand it, what is submitted is that it is not to the point that the first defendant might genuinely (but mistakenly) have believed that acceptance of the Second Offer would require him to make certain statements to the ATO that would be misleading; what he was being shown in the memorandum as to tax issues was that he would not have been required to do so and in those circumstances it was unreasonable for him to reject the Second Offer.
11. The plaintiffs point to the rationale underlying the rules in relation to special costs orders (and the analogous Calderbank principles), as recognised in Miwa and in numerous other cases, namely to facilitate the public policy objective of providing an incentive for the disputants to end their litigation as soon as possible and the related public policy of discouraging wasteful and unreasonable behaviour by litigants. I accept that those are the objectives that underlie the special costs order principles.
12. Nevertheless, I have concluded, on balance, that the plaintiffs (who bear the onus in this regard) have not established that it was unreasonable for the first defendant in all the circumstances, to reject the Second Offer where the correspondence in which that position was communicated makes it clear that, at least in part, the reason for rejecting the Second Offer was a concern (misguided as it may have been) that this would require the first defendant to misrepresent his personal circumstances or intentions to the Commissioner and the ATO.
13. Accordingly, I do not propose to order costs on the indemnity basis.
14. As to the proposed limitation of the costs order to be made in favour of the plaintiffs to the costs of the principal hearing and up to 13 April 2018, I am not persuaded that those should be excluded (nor am I persuaded that there should be a blanket costs order in favour of the first defendant in respect of the costs of the relief hearing - though, for the reasons I will shortly come to, I consider that it would be appropriate to exclude some of the costs of the relief hearing from the costs order to be made in favour of the plaintiffs).
15. I am not persuaded that there has been disentitling conduct of the kind that would warrant departure from the general rule as to costs in relation to the re-opened hearing. True it is, that the basis on which I acceded to the plaintiffs' submissions that I should not impose the market rent and book debt conditions on the acceleration of the plaintiffs' expectations in relation to the land and the business was not the basis on which the plaintiffs had sought the re-opening of the hearing (i.e., that such orders would be financially ruinous to them, though I accepted that the evidence for the first defendant established the difficulty the plaintiffs would have in paying both market rent and the book debts). Nevertheless, the plaintiffs were successful in persuading me that, as a matter of principle, the proposed conditions should not be imposed on the grant of the relief I had in mind (and ultimately ordered - i.e., the transfer of the properties) and, hence, were successful in the outcome that they had sought. Insofar as that is the relevant "event", then costs should follow that event.
16. Even accepting that the plaintiffs can perhaps legitimately be criticised for an over-elaborate approach to the evidence to be adduced at the re-opened hearing (which extended at one stage, for example, to the proposition that expert actuarial evidence might be necessary - not, I should note, ultimately pursued), I accept that it was not unreasonable for the plaintiffs to seek to contest the proposed relief not only as a matter of principle but also by reference to its practical ramifications.
17. With one qualification, therefore, I accept the plaintiffs' position that questions as to whether particular costs associated with the re-opened hearing were unnecessarily incurred (as with other costs said unnecessarily to have been incurred by the plaintiffs) would more appropriately be dealt with as part of the assessment process; and that there should not be an order that the plaintiffs pay the first defendant's costs of the re-opened hearing.
18. The one qualification is this. As I indicated in E Co v Q (No 4), I considered that there were some aspects of the re-opened hearing that might well have costs consequences (see, for example, my comments at [7] and [11]). In particular, I there adverted to the fact that, although the plaintiffs' submissions that had led to the grant of leave to re-open had focussed on the prospect that financial conditions of the kind I had proposed to impose would be financially ruinous to them, the evidence adduced by the plaintiffs did not establish that proposition. Relevantly, I noted (at [7]) that "nor, in respect of the plaintiffs' borrowing capacity as at late 2018, did it go much beyond assertions by the sons as to their (and E Co's) financial position". I also noted the lack of complete candour in the principal affidavits relied upon by the plaintiffs in support of their application, in relation to the position with the C Hotel (a matter relevant to an assessment of the financial position of some or all of the plaintiffs and not disclosed as a result of a conscious decision not to do so).
19. Further, I noted (at [11]) that the real focus of the plaintiffs' complaint as to the relief that I had envisaged was that it proceeded on a misapprehension of principle as to the ambit or proper exercise of the discretion to grant relief and that, but for the plaintiffs' desire to adduce further evidence, I considered that this could surely have been dealt with by way of submissions "at a much earlier stage (and with no doubt considerably less expense than has presumably been incurred by all parties in preparation for the re-opened hearing)".
20. I do not shy away from those observations. However, I was not there contemplating that this would be characterised as "disentitling conduct" as such. Rather, it seemed to me (as I indicated in the course of oral submissions) that this might be a case where it might be said that there had been a mixed outcome and that it would be appropriate to apportion the costs as to different issues; and, in particular, that there might be a costs order in favour of the first defendant on particular issues (such as the "financially ruinous" issue).
21. Counsel appearing for the plaintiffs on the hearing of the costs submissions accepted (as a matter of principle) that one would not necessarily have to find that there was "disentitling conduct" (or misconduct) as such in order to warrant an apportionment of costs as between particular issues; in other words that there are cases where there is a mixed outcome and where a successful plaintiff who has not succeeded on all issues in the case will not necessarily recover costs of the proceedings for all of the issues (such an apportionment being able to be made without the need for any misconduct to be shown) ( see T 32).
22. In that regard, however, Counsel for the plaintiffs drew attention to what I had concluded at [387] of E Co v Q (No 4) (namely, that the third Lonergan Edwards report did make clear that the plaintiffs cannot individually or collectively afford to pay both the market rent and the loan amount as lump sums) and submitted that the plaintiffs "were entitled to have an argument to back up their primary argument of principle" (see T 31). It was submitted that, to assess the argument being put against the plaintiffs ("given the remarks … made in relation to relief in the principal judgment" - see T 31), some evidence on those issues would need to have been adduced; and it was submitted that even on the first defendant's evidence, the plaintiffs could not have paid the amounts the first defendant was seeking by reference to the business alone and would have had to sell properties. (I interpose here to note that I had, in the principal judgment, adverted to the prospect that it might be necessary to secure finance on the properties for the purposes of meeting conditions of the kind I there had in mind.)
23. The circumstances in which it has been recognised that it is appropriate to make a costs order apportioning the outcome as between discrete issues in proceedings have been considered in various cases (see, for example, the discussion by Hammerschlag J in Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 (Corbett Court) (referring to the relevant authorities collated by White J, as his Honour then was, in Short v Crawley (No 40) [2008] NSWSC 1302 at [25]-[32]). In particular, his Honour noted (At [31]) that a costs order in favour of a successful party can be modified to reflect its failure on particular issues even if the successful party did not act unreasonably in raising those issues (see Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (NSWSC, Hodgson CJ in Eq, 3 June 1998, unreported) at 10-11). Furthermore, a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them (see Hughes v Western Australian Cricket Assn (Inc) (1986) 8 ATPR 40-748 at 48,136; Corbett Court at [31]).
24. While there is certainly authority to the effect that the discretion to apportion costs is one to be exercised only in the most exceptional of circumstances (see Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201; (1979) 42 FLR 213; (1979) ATPR 40-141; Stena Rederi Aktiblag v Austal Ships Sales Pty Ltd [2007] FCA 1141 at [12]), ultimately, as Finkelstein and Gordon JJ observed in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [5] (citing Hodge v TCN Channel 9 (No 2) [2006] NSWSC 1272 and Standard Commodities Pty Ltd v Societe Socinter Department Centragel [2005] NSWSC 493; (2005) 54 ACSR 496), fairness should dictate how the costs discretion is to be exercised.
25. In the present case, I have concluded that the issue as to whether or not it would have been financially ruinous to the plaintiffs to have imposed conditions as to the market rent and the book debts on the acceleration of their expectations was a sufficiently discrete issue (and gave rise to readily quantifiable costs - viz, the cost of the Lonergan Edwards expert evidence); and was an issue in which, in substance, the plaintiffs did not succeed; such that the costs of that issue should not be borne by the first defendant.
26. The plaintiffs argue that there might have been some force to an argument in favour of apportionment of that kind if the first defendant, having obtained the Lonergan Edwards reports, had "trimmed his sails", so to speak, but point out that he did not (rather, he maintained his claim for orders for the payment of both the market rent and the book debts). Certainly, the principal position argued for the first defendant was for the relief in the terms I had earlier contemplated. Nevertheless, by the closing submissions on the re-opened hearing, it was clear that one of the outcomes for which the first defendant was contending (through the various pathways for relief or otherwise) was the adoption of a mechanism by which payment of both the market rent and the book debts could be accommodated through some kind of payment regime (of the kind that Lonergan Edwards had considered would be feasible).
27. In my opinion, the expense of the Lonergan Edwards costs was incurred by the first defendant in order to enable him to address the issue raised by the plaintiffs that the imposition of the proposed conditions would be financially ruinous to them. The plaintiffs did not succeed in establishing that this was the case (and did not seem to make a concerted effort to do so, as I adverted to in the passages of E Co v Q (No 4) to which I have already referred). The first defendant put on evidence at the relief hearing as to his impecuniosity and, while I do not have confidence that I was presented with a complete picture of his financial position, I bear in mind that he incurred not insignificant costs in obtaining and adducing the expert evidence directed to the "financially ruinous" proposition. I do not see why the first defendant should in those circumstances bear those costs. Thus, I will make a separate order for the payment by the plaintiffs to the first defendant of the costs referable to the preparation of the Lonergan Edwards reports). Whether there should be an exclusion from the costs orders in favour of the plaintiffs in respect of other costs that the first defendant may contend were unnecessarily incurred is a matter that would more appropriately be dealt with as part of the costs assessment process.
28. In that regard, I note that Counsel for the plaintiffs considered that if a mixed outcome approach were to be adopted then the appropriate way to do that would be in a gross sum costs application (because it was submitted that a costs assessor would have a particularly difficult time making those sorts of legal judgments) and that this was a decision that I should make given my familiarity with the case.
29. That leads me to the question of the gross sum costs orders sought by the plaintiffs (which I will deal with before turning to the interest on costs issue).
30. The force of the application for a gross sum costs order is that the proceedings have been lengthy, complex and (to my observation) bitterly contested. I hasten to add that I do not suggest that criticism should be levelled only at one side in that regard; and I recognise that I am not privy to all that has or may have transpired behind the scenes between the parties and their legal representatives over the course of this unfortunate litigious saga. However, when having regard to what would be in the interests of the just, quick and cheap of the final resolution (at least at this level of the judicial hierarchy) of the litigation (namely, the quantum of costs), it is difficult not to conclude that a traditional costs assessment process is not the answer. In the present case, Mr Fitzgerald has exhibited to his affidavit of 10 May 2019 advice from an expert costs consultant that the usual costs assessment process will cost in the order of $240,000 to $320,000 and likely take between one to two years.
31. Moreover, there is a very real prospect (if the first defendant's evidence as to his financial position did in fact represent an accurate picture), that the costs of such a process will not result in any concrete outcome (in terms of payment to the plaintiff of any actual monetary amounts) at the end of the day (other than to inform the set-offs that have been ordered - see orders 10, 12-14).
32. The real concern of the first defendant in relation to the making of such an order seems to be that, if a gross sum costs order were to be made, it would involve the adoption of a "broad brush" approach to the question of costs which would not do justice as between the parties and would not hold the plaintiffs "properly accountable" for the way in which they have chosen to prosecute their claims. That necessarily assumes, it seems to me, that the assessment of the gross sum would be made by someone not familiar with the litigation (and such a concern could, therefore, readily be addressed by the Court keeping control over the process).
33. In Hamod, at [813]ff, the Court of Appeal noted that the discretion conferred on the Court to make a costs order on a gross sum basis was not confined (albeit must be judicially exercised) and may be exercised whenever the circumstances warrant its exercise, having regard to the scope and purpose of the provision (citing Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 per Giles JA at [21]-[22]). In particular, it was said that the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred; the degree of any disproportion between the issue litigated and the costs claimed; the complexity of the proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability. At least the last two of those factors are present in this case.
34. Further, it was there said that the exercise of the power was 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" (see at [817]). That is precisely apt to describe the present situation.
35. I have concluded that the just, quick and cheap resolution of the outstanding issue in the proceedings (namely, the quantification of costs) would best be served by the making of a gross sum costs order, the amount of such gross sum to be on the basis of an expert referee's report (to be obtained after consideration of submissions by the parties as to the appropriate categorisation of the costs in the proceedings, identification of particular issues to be determined by the referee, and the determination by me of any issues raised in that regard, including as to the instructions to be given to the referee). The referee will in due course prepare his or her report and there will be an opportunity for the parties to put forward submissions as to its adoption in whole or in part or otherwise. I am not persuaded that there should be a regime whereby each side adduces its own expert evidence as to costs, which seems likely only to give rise to a further round of disputes. Nor am I persuaded that a single expert regime will be workable insofar as that depends on co-operation and agreement between the parties. Accordingly, and without any particular enthusiasm for the continuation of the litigious process that will thereby be involved, I will invite submissions as to the appropriate directions to be made to put in place a regime for the appointment of an expert costs consultant as referee for that purpose.
36. Finally, as to the issue of interest on costs, the principles in relation to the exercise of that power were considered in the authorities to which Gleeson JA referred in Doppstadt at [403]). Importantly, the payment of interest is intended to be compensatory; namely, to compensate the party being "out of pocket" in respect of relevant costs it has actually paid.
37. In Lahoud v Lahoud [2006] NSWSC 126 (Lahoud v Lahoud), Campbell J considered an application pursuant to s 101 of the Civil Procedure Act (as the section then was) for interest on costs paid to the successful parties' lawyers for costs and disbursements over the course of the proceedings and said (at [82] and [83]): In my view it is appropriate to make an order for the payment of interest on costs. There is no requirement, before an order for payment of interest on costs is made, for the Court to be satisfied that the circumstances of the case are out of the ordinary: Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 at [10] per Barr J; Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (in liquidation) & Ors [2002] NSWSC 280 at [23]-[25] per Einstein J; Puntoriero & Anor v Water Administration Ministerial Corporation [2002] NSWSC 217 at [10] per Grove J; Davies v Ku-ring-Gai Municipal Council [2003] NSWSC 1010 at [7] per Austin J. To the extent to which the plaintiffs have been out of pocket as a result of having to pay their lawyers' costs and disbursements, it is appropriate that the compensation which is recognised in the Court's order for costs take into account the fact that the plaintiffs have been out of pocket in that way: Hughes Bros v Trustees of the Roman Catholic Church [1999] NSWSC 1051 at [60]; Grogan v Thiess Contractors Pty Ltd & Anor [2000] NSWSC 1101 at [12]; Woods v Woods [2001] NSWSC 1108 at [29]; Australian Development Corporation Pty Limited v White Constructions (ACT) Pty Ltd (in liq) [2002] NSWSC 280 at [17]; Puntoriero v Water Administration Ministerial Corporation [2002] NSWSC 217 at [10]; Optus Networks Pty Ltd v Leighton Contractors Pty Limited [2005] NSWSC 156 at [9]; Roads and Traffic Authority v Cremona (No 3) [2005] NSWCA 13 at [34] … .
38. In my opinion, there is no countervailing discretionary factor against the award of interest in the present case, save for the qualification that the amount so awarded should be reduced to reflect the tax benefit obtained by E Co from the expenditure it has made in relation to those costs. It should be possible for an arithmetical calculation of the difference between the tax payable had those costs not been incurred as expenses and the tax that was in fact payable and the tax benefit should be offset against the interest claimed.
39. Insofar as the plaintiffs argue that this ignores the loss or damage occasioned as a result of the need to sell down the herd in order to meet legal costs (or the damage to the pasture protection program by reason of those costs having been borne by E Co), it seems to me that there are a number of answers, including: first, that there were corresponding benefits from the lesser herd numbers (in terms of feed costs and the like, particularly during drought conditions) and the claimed losses have not been able to be definitively quantified; and, second, that the evidence suggested that the decision not to devote moneys to pasture improvement and the like, while the litigation was pending, was (at least in part) based on a view not to incur costs the benefit of which might not ultimately have inured to the plaintiffs depending on the outcome of these proceedings. Arguments of this kind were debated at the time of the principal hearing and at the time of the re-opened hearing. I do not propose here to re-enter that debate.
40. The actual calculation of interest on the costs paid will be the subject of expert evidence in due course; and if there is a need for amendment to the terms of the order I am proposing to make for interest on costs, that can be dealt with in submissions.

Orders

1. Accordingly, I will make the following orders and directions: 1. Subject to Order 2, order the first defendant to pay the plaintiffs' costs of the proceedings on the ordinary basis. 2. Order the plaintiffs to pay the first defendant's costs of the preparation and adducing of expert evidence going to the issue as to whether the imposition of the conditions proposed in the principal judgment on the acceleration of the plaintiffs' expectations in relation to the Properties and the Business (namely, the Lonergan Edwards reports) would be "financially ruinous" to the plaintiffs; such amount to be set-off against the costs the subject of Order 1. 3. Pursuant to s 101 of the Civil Procedure Act 2005 (NSW), order the first defendant to pay to the plaintiffs' interest on those costs that the plaintiffs have paid to their legal advisers in connection with these proceedings and that are the subject of Order 1 above, at the prescribed rate as from the date or dates on which the costs concerned were paid, less (in the case of costs paid by the first plaintiff) the amount representing any tax benefit obtained by the first plaintiff by reason of the expenditure on legal costs expenses (i.e., the difference between the tax that was paid by the first plaintiff and the tax that would otherwise have been payable by the first plaintiff had it not been for the expenditure it incurred in relation to the legal fees in respect of these proceedings). 4. Direct the parties to forward within seven days an appropriate form of order to encapsulate the order for interest on costs, if there be any dispute as to the operation or implementation of Order 3. 5. Pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW), order that the costs the subject of the costs orders made above be calculated on a gross sum basis in accordance with a regime to be the subject of directions made to reflect these reasons and direct the parties to forward within seven days draft short minutes of order for that purpose 6. Costs of the hearing of the costs submissions on 17 June 2019 be included in the costs order made in Order 1 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: 08 July 2019