HER HONOUR: The plaintiffs in these proceedings, by amended summons commencing an appeal, sought a series of orders appealing from the determinations of the review panel in assessment number 2015/247108 and 2015/247117. I heard those appeals on 3 March 2017 (Ferella v Stomo [2017] NSWDC 34) and made the following orders this morning:
1. Summons dismissed.
2. Costs reserved.
3. Liberty to apply in relation to costs.
The defendant brings an application pursuant to orders 2 and 3 for the costs of the appeal to be paid on an indemnity basis and for a gross sum costs orders pursuant to s 98 Civil Procedure Act 2005 (NSW). Both those orders were opposed by the plaintiffs.
By way of background, the summons commencing this appeal filed on 20 June 2016 sought to set aside two Costs Review Panel determinations, the first of which was for a sum of $22,860.65 and the second of which was for $21,000. The total sum payable by the plaintiffs was $48,850.32.
I shall first deal with the application for indemnity costs. This is brought on three bases:
1. On 1 July 2016 the defendant served an offer of compromise on each of the plaintiffs by post and email, they being unrepresented at the time, offering to accept the sum of $40,000, with no order as to costs, pursuant to r 20.26 Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). The offer was open for 28 days.
2. The defendant also made a Calderbank offer (Calderbank v Calderbank [1975] 3 All ER 333) dated 7 September 2016, noting that the sum of $22,331.68 was not disputed by the Ferella interests, requesting payment of that amount within 28 days and offering to accept the reduced sum of $40,000 within 28 days.
3. The conduct of the plaintiffs, who, despite receiving a series of generous offers over a period of more than a year for lesser amounts, including one offer of $30,000 on 10 March 2015, never replied to any of these offers other than in general terms (of the "getting instructions" kind) beyond an offer which Mr Polorotoff deposes (paragraph 22 of his affidavit of 7 March 2017) to having received only on the afternoon before the commencement of the hearing (2 March 2017), although date-stamped at 8.33pm the evening before. Whatever date is correct, the impact of such an offer at such a late stage in the proceedings, when all of the costs for hearing would already have been incurred, would be minute.
I shall next set out the relevant correspondence in chronological order, as this paints a clear picture of the degree of unwillingness of the plaintiffs to enter into any form of negotiation in relation to costs, this being relevant not only to the issue of indemnity costs but also to the suitability of the making of an order for a gross sum.
The defendant's solicitors, Messrs Moray and Agnew, took a proactive and responsible approach towards settlement of this litigation from the first. The dangers of costs litigation becoming "satellite litigation" (resulting in the costs of these ancillary proceedings dwarfing the result) has been the subject of criticism by McColl J in Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300, a factor relevant in applications for indemnity costs.
Messrs Moray & Agnew first wrote to the solicitors for the plaintiffs on 22 January 2015, offering to accept $37,500 in full and final settlement of the costs order in their client's favour. That offer was open for 21 days. At that stage the costs assessment process had not been commenced. There was never any reply to that offer, which lapsed, despite a series of reminder letters from Moray & Agnew on 19 February.
The solicitors for the plaintiffs belatedly replied, claiming not to have received the email of 22 January, although I note it was also posted to those solicitors and telephone messages had been left for the solicitors for the plaintiffs on 13 and 18 February. After receiving that correspondence, Ms Burrows wrote advising that "Mr Ferella" (presumably on behalf of the other plaintiffs as well) was not instructing her and stating that future correspondence should be directed to Mr Ferella.
From that time onwards this was what occurred. Messrs Moray & Agnew's next letter of 27 February 2015 was forwarded to Mr Ferella, who was the first plaintiff, the son of the second plaintiff, and a director of the third plaintiff. There was no reply. A further letter of 10 March 2015 dropped the defendant's offer down to $30,000, but again without result. It was therefore necessary for the costs to be sent for assessment, and that was what occurred.
The defendant's bills of costs for the Supreme Court and Court of Appeal proceedings in which they had been successful were served on 26 June 2015. An invitation was made to settle the proceedings in the covering letter. Instead the assessment was contested and, when that contest to the assessment failed (save for a small amount), Mr Ferella answered offers to settle by stating that:
"We intent [sic] to seek a review in respect of the costs assessor's determination, the costs reduced by the costs assessor are grossly incompetent, with over 20 years' experience in costs assessment our assessment is the reduction is more like [sic] in the range of $26,518.64 over the two bills. I am sure you are aware an automatic stay applies where you are prevented from registering the certificates issued as the judgment when a costs respondent proceeds with the review application." (Affidavit of Mr Polorotoff, Annexure 10)
This email is difficult to understand, but it would appear that Mr Ferella is indeed asserting that he is the person who has over 20 years' experience in costs assessment, not the costs assessor (counsel for the defendant stated that Mr Ferella has made this kind of statement about his costs expertise on other occasions).
The Review Panel commenced its review of the assessment. Over this period, Mr Ferella failed to reply to offers to settle, beyond stating in his email of 13 November 2015 that he had appealed to the review panel.
The Review Panel then provided the parties with its determination, and it would be fair to say that the plaintiffs failed on every issue they raised. I note that I read the Review Panel's file for the purpose of determining the summons, and it would be fair to say that every conceivable point that could be taken was taken, sometimes more than once, with a greater than usual degree of combativeness as well as a total lack of success.
In the letter from Messrs Moray & Agnew dated 1 June 2016 attaching the determination of the review panel, they offered, on a "without prejudice" basis, to accept the sum of $40,000, which was substantially below the $48,850.32 for the review panel determination. Mr Ferella responded to that email by saying he was ill and that he would get back to the defendant's solicitors when he was better, but he never did.
On 10 June 2016 Messrs Moray and Agnew wrote stating that the final offer had lapsed and no extension of time had been sought; they were therefore seeking instructions to commence enforcement action without further notice. The plaintiffs' response was to file the summons the subject of these proceedings, which was served on 23 June 2016.
This led to an offer of compromise dated 1 July 2016 being filed on behalf of the defendant. The text of that document is as follows:
"1. The defendant offers to compromise the whole of the plaintiff's claim in the following terms:
(a) the plaintiff is to pay the defendant the amount of $40,000;
(b) no order as to costs.
2. If this offer is accepted, the whole of the plaintiff's claim will be disposed of by the following orders:
(a) judgment in favour of the defendant in the amount of $40,000;
(b) no order as to costs.
3. This offer is made in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW).
4. This offer is open for a period of 28 days after the date on which the offer is made."
I pause to note that a submission was made by Mr Newton that the Offers of Compromise provisions in the Uniform Civil Procedure Rules 2005 (NSW) are not applicable to a summons as the dismissal of a summons, or the making of orders in accordance with a summons, would not be capable of amounting to a "judgment". However, r 20.25 UCPR provides:
"20.25 Definitions
In this Division:
"judgment in favour of the defendant" includes a dismissal of a summons or a statement of claim.
"offer" means an offer of compromise referred to in rule 20.26.
"period of acceptance" for an offer means the period of time during which the offer is open for acceptance."
It is clear from the text of r 20.25 that dismissal of a summons is caught by the offer of compromise system. This was a submission without merit.
On 7 September 2016 the defendants additionally served a Calderbank offer. In a separate letter matters relevant to the merits of the case were set out (as is generally the case with such offers). The Calderbank offer was framed in the following terms:
"1. We refer to our letter of today's date.
2. Our client offers to resolve his claim for costs in costs assessment file numbers 2015/247108 and 2015/247117, including the costs of District Court Proceedings 2016/187005, on the following terms:
(a) Payment by the plaintiffs to the defendant of $40,000 within 28 days of the date of this letter; and
(b) District Court Proceeding 2016/107005 be dismissed with no order as to costs.
3. This offer can only be accepted by paying the sum in full before the expiry of a period of 28 days from the date of this letter.
4. In the event that this offer is not accepted we will rely on this letter in support of any future application for costs, including indemnity costs."
There was no reply to either of those letters.
The costs appeal was set down for hearing after the amended summons was filed. There was no further correspondence between the parties as to offers apart from the plaintiffs' email dated 1 March 2017, which Mr Polorotoff has deposed to (and I accept) did not appear in his inbox until 3pm on 2 March 2017, the afternoon before the hearing.
The plaintiffs' appeal has been dismissed and it is not in dispute that the defendant has bettered its offer in the Offer of Compromise. Pursuant to r 42.15A the defendant is entitled to his costs of proceedings from 2 July 2016 on an indemnity basis by reason of the plaintiffs' failure to accept the defendant's offer of compromise.
In addition, I consider it was unreasonable of the plaintiffs not to accept the defendant's Calderbank offer of 7 September 2016, noting that the sum of $22,331.68 was not in dispute and the defendant was in fact reinstating the offer conveyed in the offer of compromise. The statements of fact and history of proceedings set out in the accompanying letter gave compelling reasons for the plaintiffs to accept that offer. All of the grounds in the plaintiffs' Summons as at 7 September 2016 were not only hopeless but were withdrawn, either in the Amended Summons or during the hearing.
Finally, independently of the offer of compromise and Calderbank offer, I am satisfied that the plaintiffs' conduct of this litigation merits an award of indemnity costs. The defendant made numerous attempts to engage the plaintiffs in settlement discussions with a view to resolving the costs claims and those attempts went unanswered, in circumstances amounting discourtesy by the plaintiffs.
I also note that just as the appeal to the Review Panel completely failed, the plaintiffs abandoned all ground of appeal apart from the technical ground (not raised in the costs assessment or before the review panel) that the wrong legislation had been applied. The circumstances in which the plaintiffs' appeal was brought and the way it was conducted would also justify a departure from the ordinary costs rule in favour of the defendant.
The plaintiffs are no strangers to indemnity costs orders. I note, in fact, that an indemnity costs order was made in somewhat similar circumstances against one of the plaintiffs by Emmett JA in Riva NSW Pty Ltd v Fraser & Clancy t/as Fraser Clancy Lawyers [2014] NSWCA 454. While it is important not to place too much weight upon indemnity costs orders made against a party in other proceedings where the basis is not comparable, the plaintiffs should have been put on notice by that costs order that similar conduct could result in indemnity costs in these proceedings.
For all of the above reasons, I am satisfied that an order for indemnity costs should be made.
This brings me to the application by the defendant for a gross sum costs order, which is sought pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW).
The making of a gross sum costs order is a two-stage process, where the court must, firstly, be satisfied that the circumstances of the case warrant the making of a gross sum costs order (Harrison v Schipp (2002) 54 NSWLR 738 at [22]), and, secondly, as to the quantum of the costs involved.
The defendant submits that the following reasons would justify the making of a gross sum costs order:
1. The subject matter of the litigation is a modest sum in comparison to the costs involved. I note in this regard that the total costs set out in the affidavit of Mr Polorotoff are calculated at $17,338.50, which would include his own costs up to the hearing of this application for indemnity and gross sum costs orders (apart from an additional sum of $1,000 for counsel's costs today);
2. It will avoid the costs, delay, and inconvenience of costs assessments, as to which see the observations of the Court of Appeal in Zepinic v Chateau Constructions (Aust) Ltd (No 2) [2014] NSWCA 99 at [29] and, more recently, in Zepinic v Chateau Constructions (Aust) Ltd; Zepinic v Chateau Constructions (Aust) Ltd [2016] NSWCA 361;
3. The plaintiffs are unlikely to pay a costs order at the conclusion of a costs assessment: Starr-Diamond v Diamond (No 4) [2013] NSWSC 811 at [9] per Slattery J. I note also Slattery J's observations at paragraph 3 as to the "expensive, delay, and aggravation" which is likely to arise where there has been conduct of this kind in the course of prior costs assessment determinations;
4. History suggests that the plaintiffs will take any prospective costs assessment on appeal through the Courts: see Riva NSW Pty Ltd v Fraser (t/as Fraser Clancy Lawyers) [2014] NSWCA 455 and also the related proceedings in this Court of Ferella v Key Nominees Pty Ltd [2016] NSWDC 44, where the interrelationship between those proceedings and these proceedings is set out at [18];
5. The conduct of the plaintiffs to date: this is set out above, and I note in this regard the observations of the New South Wales Court of Appeal concerning "satellite litigation" or "parasitic litigation" (O'Rourke v P & B Corporation Pty Ltd [2008] WASC 36).
Finally, as to the interaction between costs orders made on an indemnity basis and lump sum costs orders, I note the observations of the Court in Lambert v Jackson [2011] FAMCA 275 at [59] and the helpful remarks of Beech‑Jones J in Bobb v Wombat Securities Pty Ltd (No 2) [2013] NSWSC 863 at [8]:
"[8] … Further, it must be borne in mind that the substantive issue of the proceedings was a dispute over the costs assessment process. A further order requiring the re-engagement of that process has the risk that the substantive dispute between the parties will become wider rather than narrower."
Mr Newton, for the plaintiffs, indicated that there was not much he could say in this regard, although he wished to address me as to quantum.
Taking all of the above into account, I am satisfied that these proceedings are appropriate for the making of a costs order.
The second stage of this two-step process is to satisfy myself that I have sufficient information before me to enable the determination of those costs. In applications of this kind the affidavit in question is generally given by the solicitor with conduct of the matter where his litigation skills are demonstrated to be at the appropriate level, which is clearly the case here. There is a full disclosure of the rates at which the charges are made and the nature of the work performed.
The contents of the three tax invoices sent are set out, as is the work performed by Mr Buterin for the purpose of the hearing. I have now heard and determined a number of applications for gross sum costs orders and I consider the amount of $17,338.50 (of which $6,937.50 is for counsel's fees excluding the appearance fee for today) to be well within the range of costs relating to the conduct of a costs appeal.
At paragraph 29 of his affidavit, Mr Polorotoff sets out that generally speaking party/party costs and assessment are around 70% and solicitor/client costs and assessment are recovered at about 60%. I have to say I consider these figures in relation to the present litigation to be unduly pessimistic. I note the level of success that the defendant had both at assessment and on review, which demonstrates a history of success by the defendant in costs assessments.
Generally speaking, when a gross sum costs order is made the Court takes an approach which has been called a "rule of thumb" (Bobb v Wombat Securities Pty Ltd (No 2)), which, in the case of Bobb v Wombat Securities Pty Ltd (No 2), was 30%. In Starr-Diamond v Diamond (No 4), there was a 20% reduction, namely 80% of $367,782.96, and in the matter of Re Palladium Consulting Pty Ltd [2013] NSWSC 92 the reduction was 15%.
However the reduction in question, particularly in relation to small matters, can go as low as zero. Mr Buterin referred me to Wilkie v Brown [2016] NSWCA 128 where, faced with a costs assessment of slightly over $5,000 relating to counsel's fees, the Court of Appeal awarded the full sum and made no deduction, and submitted that only a small reduction of the costs (to $17,000) should be made.
The degree to which there should be any deduction made is very much a matter of impression. Mr Newtown submitted that the reduction of the costs to $17,000, as opposed to a proper reduction of 20 to 30% was too small, referring me to Emmett J's orders in Riva NSW Pty Ltd v Fraser & Clancy t/as Fraser Clancy Lawyers (the proceedings in which one of his clients in this appeal was a party) where, in relation to costs of $37,000, a sum of 2,500 was discounted for the purpose of a gross sum costs order.
However, I am satisfied, by reason of the conduct of these proceedings and the success of the defendant before the assessor and review panel, that a very high percentage of costs indeed would be recovered in this case. The whole conduct of the costs assessments and appeal by Messrs Moray & Agnew indicates a restrained and fair estimate of costs and, having regard to my observations to the sums usually charged for these matters, I consider that the sum that is sought should only be reduced in the proportion proposed by the defendant.
Accordingly, for these reasons, the gross sum costs order will be in the sum of $17,000.
Another issue which Mr Buterin raises, in relation to the orders to be made, is the question of the costs liability of each of the defendants. The general principle is that where the Court orders that costs be paid by two or more persons that costs liability is joint and several: see GE Dal Pont, Law of Costs, 3rd e.d. (LexisNexis, 2013) at [11.2]. Nevertheless, for the avoidance of doubt, I confirm that each of the plaintiffs is jointly and severally liable for the costs orders referred to in this judgment.
There is an additional figure in the costs orders reflecting the costs for today. The affidavit of Mr Polorotoff refers to his work in progress, from which I infer that the cost of the preparation of this affidavit is covered, but upon enquiry to Mr Buterin it would appear that his costs of appearing today are not. His brief fee for appearing today to take judgment and to argue this application he tells me is $1,000. I consider this is an appropriate sum to award in addition to the gross sum costs order, but I have set this out as part of a separate order, since it flowed from additional submissions made by both parties, and I note in this regard that Mr Newton did not wish to be heard in relation to this part of my costs orders.
[2]
Orders
1. Pursuant to s 98 Civil Procedure Act 2005 (NSW), the plaintiffs are to pay the defendant's costs on an indemnity basis and by way of a gross sum of $17,000.
2. The plaintiffs are to pay the defendant's counsel's costs of this application, in the gross sum of $1,000.
[3]
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: 11 May 2018