- Filmlock Pty Ltd v Nissi Investments Pty Ltd

Supreme Court of NSW|2015-11-09|Before: Black J, Beazley JA

Solicitors: Owen Hodge Lawyers (Plaintiff) Grech Bannerman (Defendant) File Number(s): 2015/271960

Judgment

By Amended Originating Process filed on 9 November 2015, the Plaintiff, Urban Solutions Group Pty Ltd ("Urban Solutions") sought to set aside a creditor's statutory demand ("Demand") served by Trevet Property Pty Ltd ("Trevet Property") under ss 459H or 459J of the Corporations Act 2001 (Cth). Urban Solutions ultimately did not press the application to set aside the Demand, accepting that it had been out of time in serving the application to do so, and instead sought a declaration that the Demand was not served as required by s 459E of the Act and had not come into effect for the purposes of s 459F of the Act. In my ex tempore judgment delivered on 9 November 2015, I held that Urban Solutions' Amended Originating Process should be dismissed and expressed the preliminary view that costs should follow the event.
Urban Solutions then sought an order that the costs payable by it be quantified in a lump sum in a modest amount. I indicated that I would allow Trevet Property an opportunity to undertake a calculation of the costs that it had incurred before making any such order and directed the parties to submit agreed orders as to costs or, if there was no agreement, short submissions and any affidavit evidence as to costs, indicating whether an oral hearing was requested, by a specified time. No agreement was reached between the parties and each made written submissions as to costs without seeking a further oral hearing.

Applicable principles

Section 98 of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."
Section 98(4) of the Civil Procedure Act provides that the Court may make an order to the effect that a party to whom costs are to be paid is entitled to a specified gross sum instead of assessed costs. In Hamod v State of New South Wales [2011] NSWCA 375 at [816]-[817], Beazley JA (with whom Giles and Whealy JJA agreed) summarised factors relevant to the making of a gross sum costs order as follows: "The terms of s 98(4), together with the more general considerations reflected in the Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred (for example, Harrison v Schipp); the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability: Ritchie's Uniform Civil Procedure NSW at [s 98.45]. The exercise of the power conferred by s 98(4) is particularly appropriate where the costs have been incurred in lengthy or complex cases and it is desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment. This may arise either from the likely length and complexity of the assessment process: Beach Petroleum NL v Johnson (No 2) at 120; Charlick Trading Pty Ltd v Australian National Railways Commission; Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006; or from the likelihood that the additional costs of formal assessment would disadvantage the successful party because of the likely inability of the unsuccessful party to discharge the costs liability in any event: Harrison v Schipp; Sony Entertainment (Aust) Ltd v Smith (2005) 215 ALR 788 at [90], [194]-[195]; Hadid v Lenfest Communications Inc [2000] FCA 628."
Where a gross costs order is to be made, the Court is not required to undertake a detailed examination of the kind which would be undertaken in a cost assessment, in determining a gross sum payable, and will apply "a broad brush" approach: Hadid v Lenfest Communications Inc [2000] FCA 628 at [35]; Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738 at [22].
In Ireland (as Executor of the Estate of the late Gordon) v Retallack (No 2) [2011] NSWSC 1096 at [38]-[41]), Pembroke J observed that: "The terms of s 98(4)(c) are not subject to any express limitation, other than that an order may only be made before costs are referred for assessment. Nor is there any apparent basis for imposing an implied qualification arising from the language of the whole of s 98 or the surrounding statutory provisions or the evident purpose of Div 2 of the Act. It is well accepted that, subject to the proviso that it be exercised judicially, the court has an unlimited discretion when making an order pursuant to s 98(4) … Nonetheless, the power should only be exercised where the court considers that it can do so fairly between the parties. That includes a requirement that it has sufficient confidence that it is able to arrive at an appropriate sum on the information that is made available …The parties should of course be given an adequate opportunity to make submissions … Further, the power may be exercised broadly. A process similar to an assessment is not necessarily envisaged … Although considerations that would be relevant to an assessment may be taken into account … The court should however be confident that the approach which it adopts to the estimation of costs is logical, fair and reasonable…" [citations omitted]
In Filmlock Pty Ltd v Nissi Investments Pty Ltd (No 3) [2013] NSWSC 1594 at [3], Pembroke J referred to his observations in Ireland v Retallack (No 2) above and again emphasised the utility of the power under s 98(4)(c) of the Civil Procedure Act as a means of enhancing the interests of justice and furthering the overriding purpose in an appropriate case. I took the same view in Re Aquaqueen International Pty Ltd [2015] NSWSC 500.
Trevet Property in turn relies on the observation of Brereton J in Re Niruzzi Pty Ltd [2012] NSWSC 773 at [6] that: "… The Registrars and Judges of this Court have adopted the view, that in an ordinary case an application under s 459G [of the Corporations Act], uncomplicated by other matters, will incur party/party costs in the order of $7,500 to $12,500 on each side - usually higher on the plaintiff's side than on the defendant's."
Urban Solutions in turn referred to my summary of the relevant principles in Re Palladium Consulting Pty Ltd [2013] NSWSC 92 at [11]-[12], where I had in turn referred to the decision of Niruzzi above, as follows: "That power [to make a lump sum costs order] has been most commonly exercised when costs have been incurred in lengthy or complex cases and it is not a power that the Court would routinely exercise in place of the cost assessment process. The power to make a gross sum costs order should only be exercised where the Court considers it can do so fairly between the parties, including achieving an appropriate sum on the materials available to it, and the Courts have typically applied a discount in assessing costs on a gross sum basis: Ritchie's Uniform Civil Procedure NSW [s 98.65]; Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23. The Court has been prepared, in the context of winding up applications, to make lump sum orders, particularly in the case of uncomplicated applications where the amount of the costs can readily be estimated based on the Court's experience of such applications. In Re Niruzzi Pty Ltd [2012] NSWSC 773, Brereton J noted that it is desirable that the costs of assessment should not necessarily be incurred where that can be avoided without compromising the objectives to be served by the assessment regime. In that case, Brereton J was prepared to make a lump sum costs order in a relatively complex application although his Honour allowed significantly less than the amount that was sought. In Dubow v Fitness First Australia Pty Ltd (No 2) [2012] NSWSC 961, Garling J also made a lump sum costs order, where a bankrupt party could not meet a costs order in full and having regard to the time likely to be required for assessment and the history of dispute between the parties."

The dispute as to the quantum of costs

Trevet Property relied on an affidavit of Mr Kendall Odgers dated 16 November 2015 in support of an application for costs. That affidavit annexed correspondence between the parties' legal advisers, both generally and in relation to costs. That correspondence included a letter dated 11 November 2015, Trevet Property's solicitors advised Urban Solution's solicitors that its legal costs in respect of the application were professional fees in the amount of approximately $12,455, disbursements of approximately $434, and Counsel's fees of approximately $9,363, for a total of $22,253, and claimed the sum of $18,517.14 by way of a lump sum costs order in its favour, amounting to 70% of professional fees plus Counsel's fees and disbursements. Urban Solution's solicitors responded by requesting copies of all tax invoices and time sheets by which the amounts claimed by Trevet Property had been determined and, on 12 November 2015, Trevet Property's solicitors provided copies of time sheet entries and tax invoices in respect of disbursements.
Trevet Property acknowledges that the amount it claims by way of lump sum costs is higher than the figures referred to in Niruzzi, but submits that Urban Solutions' application was complicated by other matters, including the form of declaration sought by Urban Solutions and the correspondence exchanged between the parties as to whether the Demand was null and void. Those matters may have added some complexity to the application, but they equally make it more difficult to assess the amount of costs that are properly awarded on a lump sum basis, by way of the application of any rule of thumb, and without, for example, supporting evidence of a costs assessor as to the likely result of a costs assessment. Trevet Property also submits that the matter was further complicated by the fact that Urban Solutions maintained its claim to set aside the Demand until the morning of the hearing, notwithstanding the issue as to the timing of the service of that Demand had been raised previously. Urban Solutions responds that the complexities involved in the legal issues would have been balanced by the fact that Trevet Property did not incur the costs of preparing written submissions prior to the hearing, and that no affidavit was required in respect of issues such as a genuine dispute or offsetting claim, and that an amendment made on the day of the hearing added little or nothing to the costs incurred in respect of that hearing.
By its submissions dated 18 November 2015, Urban Solutions submitted that it was not appropriate to make a lump sum costs order at all (although, I interpolate, it had initially suggested such an order be made) or in the alternative, in the amount claimed by Trevet Property, but that if a lump sum costs order was made, the amount should be in the order of $13,487 rather than the amount of $18,517 sought by Trevet Property.
Urban Solutions relied on the fact that Trevet Property's solicitors had not produced the tax invoices which they had rendered to their client in respect of the proceedings, but instead the timesheet entries on the basis for which the claim for lump sum costs have been calculated, and tax invoices for disbursements. Urban Solutions pointed to the possibility that invoices would be issued by Trevet Property's solicitors on a basis different from that which the timesheets recorded, so as not to charge for the entirety of the time recorded, and that Trevet Property should not be entitled to recover more by way of an order for costs than it had ultimately been charged.
Urban Solutions also pointed out, with some force, that there are entries within the timesheets that would, on assessment, require explanation or justification to avoid a reduction in the time claimed, which are matters which are not readily addressed in a lump sum assessment. Urban Solutions raised a number of matters in an annexure to its submissions, which are matters of the kind that would be raised on an assessment, but are not readily addressed in a lump sum costs application, including the involvement of several employees of Trevet Property's solicitors in the matter, possible duplication of work, the time spent on preparing a relatively short affidavit filed by Trevet Property, and charges for communications with Trevet Property and with Counsel, where the nature of the communication is not identified. The amounts and attendances in dispute are not insignificant, having regard to the totality of the claim, and that it makes it more difficult for the Court to form a view, without an assessment, as to the amount fairly recoverable by Trevet Property. Urban Solutions submitted that the Court could not be satisfied, on the basis of the available evidence, that it is able to achieve an appropriate sum that is fair to the parties, even allowing for a discount typically applied in assessing costs on a gross sum basis: Palladium Consulting above at [11].
Urban Solutions submits that, in accordance with the usual principle of adopting a conservative approach in a lump sum costs order, a maximum of two-thirds of the costs claimed, in the amount of $5,675 should be allowed. Urban Solutions submits that the claim for disbursements for searches, copying and the like should be reduced from $434.61 to $263, where the costs of real property searches claimed are not of obvious relevance to a dispute as to a creditor's statutory demand and there is limited evidence to support the costs of the copying claimed. Urban Solutions quantifies that total amount at $13,487, which would marginally exceed the higher level of costs allowed in Niruzzi, in an ordinary application. Trevet Property submits, and I accept, that the two-third reduction applied in Palladium Consulting to solicitor's fees would not ordinarily be applied to Counsel's fees.
Trevet Property submitted further submissions in reply, without leave, on 19 November 2015. The authorities make clear that a Court will ordinarily be justified in disregarding submissions made without leave. However, those submissions were limited in scope, and have some justification, since Urban Solutions had delayed in making its submissions and that had allowed it an opportunity to have regard to Trevet Property's submissions in chief, where a corresponding opportunity was not available to Trevet Property. For that reason, I consider that I should have regard to those submissions.
Trevet Property in turn submitted that a number of the considerations identified in Palladium Consulting in making a lump sum costs order are applicable here, including the relatively modest amount of the costs claimed, the delay likely to occur on a further assessment, and the Court's experience as to the level of costs likely to be allowed in more complex applications of this kind. Trevet Property's solicitors confirmed, in their submissions, that they had issued two tax invoices to Trevet Property in relation to the proceedings, although they had not been put into evidence since they included matters which do not relate to the proceedings and privileged material. They confirmed that amounts corresponding to Trevet Property's claim for professional fees in the sum of $8,718 for the period 16 September-30 October 2015 had been billed to Trevet Property and that amounts referable to the period 31 October-9 November would be billed in the solicitor's final bill at the end of November. I proceed on the basis of that confirmation, for the purposes of this application.
Urban Solutions also rightly pointed out that the invoices issued by Trevet Property's solicitors should be adjusted by deducting GST, where Trevet Property is likely to be registered for GST and would ordinarily be entitled to an input tax credit for any GST that it pays: Palladium Consulting above at [13]. Trevet Property accepted, in submissions in reply, that the amounts for GST should be excluded from the claim, where it could be claimed by Trevet Property as an input tax credit.
I have considered whether the proper course, in the circumstances, would be not to make a lump sum costs order and to refer the parties to assessment. It may be that course will not serve the interests of either party, given the modest difference between their respective positions, and the costs and delay that are likely to be incurred in an assessment. However, it seems to me that the challenges made by Urban Solutions to particular costs and whether they are reasonable have some force, particularly in an application of an unusual character, and are not matters that can properly be addressed in a lump sum costs application by applying a pro rata discount to the level of costs claimed by Trevet Property. It might well have been possible to make a lump sum costs order had the parties approached this application in a different way, but the manner in which the application has developed seems to me to require that the substantial costs claimed by Trevet Property be subject to a formal assessment process, where they are not agreed between the parties.
It seems to me that the costs incurred in respect of written submissions as to these issues are likely to have been disproportionate to the amount of costs that was ultimately in dispute between the parties, and I will make no order as to the submissions as to costs which have occurred since the hearing on 9 November 2015.
Accordingly, I order that the Plaintiff pay the costs of the proceedings, as agreed or as assessed, up to and including 9 November 2015.

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: 23 December 2015

Civil Procedure Act 2005(NSW)ss 98, 98(4)

Corporations Act 2001(Cth)ss 459E, 459F, 459H, 459J

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